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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
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Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 |
For The Fiscal Year Ended December 31, 2007
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Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 |
Commission File Number: 1-11961
CARRIAGE SERVICES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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76-0423828 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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3040 Post Oak Blvd., Suite 300, Houston, TX
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77056 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (713) 332-8400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Common Stock, $.01 Par Value
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New York Stock Exchange |
Series G Preferred Stock Purchase Rights
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New York Stock Exchange |
(Title Of Class)
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(Name of Exchange on which registered) |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act of 1933.
Yes o No þ
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark 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 registrants 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 o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerator
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-Accelerated filer o
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Smaller Reporting Company o |
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934.
Yes o No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the
registrant as of June 29, 2007 was approximately $140.7 million based on the closing price of $8.26
per share on the New York Stock Exchange.
The number of shares of the registrants Common Stock, $.01 par value per share, outstanding as of
February 29, 2008 was 19,260,820.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be delivered in connection with the 2008 annual
meeting of stockholders are incorporated in Part III of this Report.
TABLE OF CONTENTS
CAUTIONARY NOTE
This annual report contains forward-looking statements of our management regarding factors
that we believe may affect our performance in the future. Such statements typically are identified
by terms expressing our future expectations or projections of revenues, earnings, earnings per
share, cash flow, market share, capital expenditures, effects of operating and acquisition
initiatives, gross profit margin, debt levels, interest costs, tax benefits and other financial
items. All forward-looking statements, although made in good faith, are based on assumptions about
future events and are therefore inherently uncertain, and actual results may differ materially from
those expected or projected. Important factors that may cause our actual results to differ
materially from expectations or projections include those described under the heading
Forward-Looking Statements in Item 7. Forward-looking statements speak only as of the date of
this report, and we undertake no obligation to update or revise such statements to reflect new
circumstances or unanticipated events as they occur.
PART I
ITEM 1. BUSINESS
GENERAL
We are a leading provider of death care services and merchandise in the United States. We
operate two types of businesses: funeral homes, which currently account for approximately 75% of
our total revenue, and cemeteries, which currently account for approximately 25% of our total
revenue. As of December 31, 2007, we operated 139 funeral homes in 25 states and 32 cemeteries in
11 states. 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.
Our operations are reported in two business segments:
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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: |
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demographic trends in terms of population growth and average age, which impact death
rates and number of deaths; |
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establishing and maintaining leading market share positions; |
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strong, entrepreneurial local leadership that capitalizes on local heritage and
relationships; |
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controlling salary and merchandise costs; and |
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exercising pricing leverage related to our at-need business to increase average
revenues per contract. |
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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 37.8% of our cemetery revenues during the year ended December 31, 2007 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)
may 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 11.2% of our cemetery revenues during
the year ended December 31, 2007 was attributable to investment earnings on trust funds and
finance charges on installment contracts. |
Our business strategy is based on strong, local leadership and entrepreneurial principles that
we believe drive market share, revenue growth, and profitability in our local markets. Our
Standards Operating Model, called Being the Best, was implemented at the beginning of 2004. We
use the Standards Operating Model to measure the sustainable revenue growth and earning power of
our portfolio of deathcare businesses. The standards based model emphasizes growing market share
and improving long-term profitability by employing leadership and entrepreneurial principles that
fit the nature of our local, personal service, high value business. This model also requires our
local and corporate leaders to change our focus from short-term profitability to the drivers of
success that create long-term profitability and value for our stockholders. Our operating model
emphasizes:
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decentralized management of our local businesses; |
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financial and operational standards based upon key drivers of success of our best
businesses; |
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variable compensation that rewards our managers as if they were owners; |
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finding, developing and retaining the best people in our industry; and |
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information technology designed to support local businesses and corporate management
decisions, measure performance of our businesses against our financial and operational
standards, and ensure adherence to established internal control procedures. |
Our business objectives include:
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growing market share, creating new heritage, producing consistent, modest revenue growth
and sustainable increasing earnings and cash flow; |
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continuing to improve our operating and financial performance by executing our Standards
Operating Model; |
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upgrading the leadership in our businesses, as necessary; and |
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executing our Strategic Portfolio Optimization Model, a disciplined program that will
guide our acquisition and disposition strategies, to change the sustainable earning power
profile of our portfolio. |
HISTORY
Carriage Services, Inc. was incorporated in Delaware in December of 1993. Prior to 2001,
Carriage grew dramatically through acquisitions of funeral homes and cemeteries. A significant
amount of debt was incurred in financing these acquisitions. Our business strategy during the
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.
During that same period we initiated a process to identify underperforming businesses and, where
appropriate, sold those businesses to reduce our debt. We sold 36 funeral homes and 12 cemeteries
along with 20 parcels of excess real estate. We 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 cash flow in our core business. We used the net cash proceeds from the
offering and our cash flow to grow our Company through selective acquisitions. During 2005, we
acquired a funeral business consisting of two chapels in northern Florida, the first acquisition
since 2002. During 2007, we completed seven acquisitions. See Note 5 to the Consolidated
Financial Statements for acquisitions during 2007.
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DEATH CARE INDUSTRY
Death care companies provide products and services to families in three principal areas: (i)
ceremony and tribute, generally in the form of a funeral or memorial service; (ii) disposition of
remains, either through burial or cremation; and (iii) memorialization, generally through
monuments, markers or inscriptions. The death care industry in the United States is characterized
by the following fundamental attributes (the statistics included in this report are based on public
reports from financial research firms or public websites):
Death Rates
Death rates in the United States have been relatively stable on a long-term historical basis.
The number of deaths in the United States increased at an annual rate of approximately 1% for the
period from 1980 to 2000. Beginning in 2001, death rates have trended lower very slightly as the
general population is living longer and because of low birth rates in
the period from early 1930s to mid 1940s during the
depression and World War II. The number of deaths per year in the United States is
expected to increase from approximately 2.4 million in 2006 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 10% from approximately 36.7 million in 2005 to 40.2
million in 2010.
Cremation
In recent years, there has been a steady, gradual increase in the number of families in the
United States that have chosen cremation as an alternative to traditional methods of burial.
According to industry studies, cremations represented approximately 32% of the U.S. burial market
in 2005. That number is expected to increase to 38% by 2010 and 51% by 2025. Cremation rates can
vary significantly based upon geographic, religious and cultural traditions. Historically, direct
cremation has been offered as a less costly alternative to a traditional burial. However, cremation
is being increasingly accepted as part of a package of funeral services that includes memorials,
merchandise and options for the interment of cremated remains.
Highly Fragmented Ownership
We understand that there are approximately 22,000 funeral homes and 10,500 cemeteries in the
United States and that the domestic funeral service industry generates approximately $15 billion of
revenue annually. The largest public operators, in terms of revenue, of both funeral homes and
cemeteries in the United States are Service Corporation International, StoneMor Partners L.P.,
Stewart Enterprises, Inc., and Carriage Services, Inc. We believe these three 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 of independents by the public companies have occurred
since 1999 and there have been a number of independent entrants in local markets. As a result, the
industry continues to be characterized by a large number of locally-owned, independent businesses.
Service Corporation International acquired what was the second largest public company in the
industry, Alderwoods Group in 2006. During 2007, we acquired three businesses from Service
Corporation International and four independent businesses.
Heritage and Tradition
Death care businesses have traditionally been family-owned businesses that have built a local
heritage and tradition through successive generations, providing a foundation for ongoing business
opportunities from established client family relationships and related referrals. Given the
sensitive nature of our business, we believe that relationships fostered at the local level build
trust in the community and are a key driver of market share. While new entrants may enter any given
market, the time and resources required to develop local heritage and tradition serve as important
barriers to entry.
BUSINESS STRATEGY
Key elements of our overall business strategy include the following:
Implement Operating Initiatives. On January 1, 2004, we introduced our Standards Operating
Model, a more decentralized and entrepreneurial financial operating model for our funeral homes. On
January 1, 2006 we implemented a similar model to our cemetery business. These models are based on
standards designed to grow market share and increase profitability developed from our best
operations, along with an incentive compensation plan to reward business managers for successfully
meeting or exceeding the standards. The model essentially eliminated the use of financial budgets.
The operating model and standards, which we refer to as Being the Best, focus on the key drivers
of a successful operation, organized around three primary areas market share, people and
operating and financial metrics. The model and standards are the measures by which we judge the
success of each business. To date, the Standards Operating Model has driven significant changes in
our organization, leadership and operating practices. Most importantly, the Standards Operating
Model allowed us to measure the sustainable revenue growth and earning power of our portfolio
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of deathcare businesses, which then led to development of a Strategic Portfolio Optimization
Model during 2006 that will guide our acquisition and disposition strategies in the future. Both
models, when executed effectively, should drive longer term, sustainable increases in market share,
revenue, earnings and free cash flow. The standards are not designed to produce maximum short term
earnings because we do not believe such performance is sustainable without ultimately stressing the
business, which often leads to declining market share, revenues and earnings.
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. 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 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 34.4% for the year ended December 31, 2006 and 35.8%
for the year ended December 31, 2007. For the year ended December 31, 2007, approximately 63.1% 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 36.9% 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.
Renewed Corporate Development Efforts. We believe that our capital structure positions us to
pursue a strategy of disciplined growth, affording us the flexibility to redeploy our cash and cash
flow toward selective acquisitions that meet our criteria. We expect to continue to improve our
earning power as we invest in businesses that will contribute incremental revenues, earnings and
cash flow. Our Strategic Portfolio Optimization Model is a primary driver of our acquisition
strategy. We use strategic ranking criteria to assess acquisition candidates in order to optimize
the sustainable earning power of our deathcare portfolio. As we execute this strategy, we will
acquire larger, higher margin strategic businesses and sell smaller, lower margin non-strategic
businesses.
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. In our quest to find
ideal candidates, we have analyzed and projected key statistics in the deathcare industry and
believe the following will be true by 2015:
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The number of national deaths will begin a long-term rise as the death rate among the
baby boomer generation accelerates, notwithstanding a longer life expectancy. |
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The aging baby boomers will possess sufficient wealth and the financial flexibility to
migrate to attractive retirement and part time second career areas primarily in the
southern and western states and other select markets. |
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The general population of the United States will continue to grow and migrate to
attractive urban and suburban centers in the southern and western states. |
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Cremation rates will continue to increase and migrate eastward. The accelerating
cremation rate will have a significant impact on the revenue base of more traditional
deathcare businesses in the Central and Eastern regions of the United States and a lessor
impact on the already high cremation states in the West. |
With the above considerations in mind, our vision over the next ten years is to change the
profile of our practice to be heavily weighted in about 10-15 major markets that have an especially attractive
demographic profile and where over time, we could acquire or build up operations in each of these
markets by doing one to three thousand calls annually. We believe there are large enough markets
for us to increase our presence in existing markets by acquisition or enter a new market with a
substantial acquisition while leveraging our strong local franchise brands and entrepreneurial
leadership. We will use our Standards Operating Model to evaluate acquisition
candidates to ensure they can be readily integrated into our portfolio.
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OUR STRENGTHS
Market Leader in Our Suburban and Rural Markets. Our operations are located in principally
suburban and rural markets, where we primarily compete with smaller, independent operators. Most
of our suburban markets have populations of 100,000 or more. In over 70% of our funeral home
markets, we believe that we are either first or second in local market share.
Partnership Culture. Our funeral homes and cemeteries are managed by individuals that we
refer to as Managing Partners, with extensive death care experience, often within their local
markets. Our Managing Partners have responsibility for day-to-day operations but are required to
follow operating and financial standards that are custom designed for
each of four groupings using size of business and cremation rate as
specific grouping criteria. This strategy allows each local business to maintain its
unique identity within its local market and to capitalize on its reputation and heritage while our
senior management maintains supervisory controls and provides support services from our corporate
headquarters. We believe our culture is very attractive to owners of premier independent businesses
that fit our profile of suitable acquisition candidates.
Flexible Capital Structure. In January 2005, we completed our $130 million senior debt
offering. We used the net proceeds to pay off the existing senior debt that had near term
maturities and accrued interest on our TIDES, described below. This transaction eliminated all
near-term debt maturity issues. We believe that our capital structure provides us with financial
flexibility, which allows us to invest in our growth. Currently, we have four primary components
in our capital structure:
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the $130 million senior notes which have a 2015 maturity; |
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a revolving credit facility, described under the heading Liquidity and Capital
Resources in Item 7; |
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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 |
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our common stock. |
Stable Cash Flow. Since 2000, we have demonstrated the ability to generate stable cash flow.
Prior to 2005, our primary use of cash flow was to repay debt. Free cash flow (cash flow from
operations less maintenance capital expenditures) for 2007 totaled $11.7 million. We intend to use
cash flow to fund a selective growth strategy. Our growth strategy is the primary way we expect to
increase stockholder value. 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 investing our free
cash flow in growth opportunities that generate a return on invested capital in excess of our
weighted average cost of capital.
Strong Field-Level Operating Margins. We believe that our field-level operating margins are
among the highest reported by the public companies in the death care industry and that this
performance is a testament to the success of our business strategies. These strong margins and the
ability to control costs are important advantages in a business such as ours that is characterized
by a high fixed-cost structure. We will continue to seek ways to improve our financial performance,
and we believe that our standards-based operating model will continue to yield long-term
improvement in our financial results.
Effective Management of Funeral Preneed Sales. We believe our local, decentralized strategy
allows us to adapt our preneed sales selectively to best address the competitive situation in our
markets. In highly competitive markets, we execute a more aggressive preneed sales program. In less
competitive markets where we have a strong market position, we deploy a more passive preneed sales
program. In certain of our markets, we do not deploy a formal preneed program. This approach allows
us to target the investment in preneed sales to markets where we have the opportunity to reinforce
our market share. Since approximately 80% of our revenues are generated from at-need sales, we
retain significant pricing leverage in our funeral business.
Integrated Information Systems. We have implemented 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.
Proven Management Team. Our management team, headed by our founder and Chief Executive
Officer (CEO) Mel Payne, 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 recent successful 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
Standards Operating Model will ensure this commitment at all levels of the
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organization. At mid-year 2006 we reorganized our funeral and cemetery divisions into three
Regions, each headed by a Regional Partner. This change promotes more cooperation between our
funeral and cemetery operations and supports the goal of market-share and volume growth in our most
significant markets. The three Regional Partners report to our CEO.
OPERATIONS
We conduct our funeral and cemetery operations only in the United States. Our operations are
reported in two segments: funeral operations and cemetery operations. Information for each of our
segments is presented below and in our financial statements set forth herein.
Funeral Home Operations
At December 31, 2007, we operated 139 funeral homes in 25 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 our industry. See Note 22 to the Consolidated
Financial Statements for the year ended December 31, 2007, for segment data related to funeral home
operations.
Our funeral homes offer a complete range of services to meet a familys funeral needs,
including consultation, the removal and preparation of remains, the sale of caskets and related
funeral merchandise, the use of funeral home facilities for visitation and 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.
Funeral homes are principally a service business that provides burial and cremation services
and sells 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:
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demographic trends in terms of population growth and average age, which impact death
rates and number of deaths; |
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leading market share positions; |
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strong, entrepreneurial local leadership that capitalizes on local heritage and
relationships; |
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controlling salary and merchandise costs; and |
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exercising pricing leverage related to our at-need business to increase average
revenues per contract. |
Cemetery Operations
As of December 31, 2007, we operated 32 cemeteries in 11 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 22 to the Consolidated
Financial Statements for the year ended December 31, 2007, for segment data related to cemetery
operations.
Our cemetery products and services include interment services, the rights to interment in
cemetery sites (including grave sites, mausoleum crypts and niches) and related cemetery
merchandise such as memorials and vaults. Cemetery operations generate revenues through sales of
interment rights and memorials, installation fees, fees for interment and cremation services,
finance charges from installment sales contracts and investment income from preneed cemetery
merchandise and perpetual care trusts.
Our cemetery operating results are impacted by the success of our sales organization because
38% of our cemetery revenues was generated from preneed sales of interment rights during the year
ended December 31, 2007. An additional 15% of our 2007 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)
impact the amount of cemetery revenues. 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 13% of our cemetery revenues was attributable to investment
earnings on trust funds and finance charges on installment contracts during the year ended December
31, 2007. Changes in the capital markets and interest rates affect this component of our cemetery
revenues.
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Preneed Programs
In addition to sales of funeral merchandise and services, cemetery interment rights and
cemetery merchandise and services at the time of need, we also market funeral and cemetery services
and products on a preneed basis. Preneed funeral or cemetery contracts enable families to
establish, in advance, the type of service to be performed, the products to be used and the cost of
such products and 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.
Preneed funeral contracts are usually paid on an installment basis. The performance of preneed
funeral contracts is usually secured by placing the funds collected in trust for the benefit of the
customer or by the purchase of a life insurance policy, the proceeds of which will pay for such
services at the time of need. Insurance policies, intended to fund preneed funeral contracts, cover
the original contract price and generally include an element of growth (earnings) designed to
offset future inflationary cost increases. Revenue from preneed funeral contracts, along with
accumulated earnings, are not recognized until the time the funeral service is performed. The
commission income is recognized as revenue when the period of refund expires (generally one year),
which helps us defray the costs we incur to originate the preneed contract (primarily commissions
we pay to our sales counselors). Additionally, we generally earn a commission from the insurance
company from the sale of insurance-funded policies. Prior to 2005, the direct marketing commissions
and costs incurred from the sale of preneed funeral contracts were deferred and amortized on an
actuarial method to match the expected maturity of the preneed contracts. Effective January 1,
2005, we changed our method for accounting for deferred obtaining costs and began expensing all
costs as incurred. See Note 3 to the Consolidated Financial Statements for the year ended December
31, 2007, for more detailed discussion of this accounting change.
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.
Preneed sales of cemetery interment rights are usually financed through interest-bearing
installment sales contracts, generally with terms of up to five years. In substantially all cases,
we receive an initial down payment at the time the contract is 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 may similarly be sold on an installment basis, but revenue is recorded
when delivery has occurred. Allowances for customer cancellations and refunds are recorded at the
date that the contract is executed and periodically evaluated thereafter based upon historical
experience.
We sold 4,998 and 5,161 preneed funeral contracts during the years ended December 31, 2006 and
2007, respectively. At December 31, 2007, we had a backlog of 68,909 preneed funeral contracts to
be delivered in the future. Approximately 21% of the funeral revenues recognized during each of the
last three years and during the twelve months ended December 31, 2007 originated through preneed
contracts. Cemetery revenues that originated from preneed contracts represented approximately 52%
of our net cemetery revenues for both 2006 and 2007.
As of December 31, 2007, we employed a staff of 168 advance-planning and family service
representatives for the sale of preneed products and services.
TRUST FUNDS AND INSURANCE CONTRACTS
We have established a variety of trusts in connection with funeral home and cemetery
operations as required under applicable state law. Such trusts include (i) preneed funeral trusts;
(ii) preneed cemetery merchandise and service trusts; and (iii) perpetual care trusts. These trusts
are typically administered by independent financial institutions selected by the Company.
Independent financial advisors are also used for investment management and advisory services.
Preneed funeral sales generally require deposits to a trust or purchase of a third-party
insurance product. Trust fund income earned and the receipt and recognition of any insurance
benefits are deferred until the service is performed, while trust fund holdings and deferred
revenue are reflected currently on our 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. The aggregate balance of our preneed funeral
contracts held in trust, insurance contracts and receivables from customers was approximately
$280.0 million as of December 31, 2007.
We are generally required under applicable state laws to deposit a specified amount (which
varies from state to state, generally 50% to 100% of selling price) into a merchandise and service
trust fund for cemetery merchandise and services preneed sales. The related trust fund income
earned is recognized when the related merchandise and services are delivered. We are generally
permitted to
7
withdraw the trust principal and accrued income when the merchandise is actually purchased,
when the service is provided or when the contract is cancelled. Cemetery merchandise and service
trust fund balances, in the aggregate, totaled approximately $61.1 million as of December 31, 2007.
In most states, regulations require a portion (generally 10%) of the sale amount of cemetery
property and memorials to be placed in a perpetual care trust. The income from these perpetual care
trusts provides a portion of the funds necessary to maintain cemetery property and memorials in
perpetuity. This trust fund income is recognized, as earned, in cemetery revenues. While we are
entitled to withdraw the income from perpetual care trusts to provide for maintenance of cemetery
property and memorials, we are restricted from withdrawing any of the principal balances of the
trust fund. Perpetual care trust balances totaled approximately $37.2 million at December 31, 2007.
For additional information with respect to our trusts, see Notes 9, 10, 11 and 12 to the
Consolidated Financial Statements for the year ended December 31, 2007.
COMPETITION
The operating environment in the death care industry has been highly competitive. Publicly
traded companies operating in the United States are Service Corporation International, Stewart
Enterprises, Inc, Keystone North America, Inc. and StoneMor Partners L.P. In addition, a number of
smaller, non-public companies have been active in acquiring and operating funeral homes and
cemeteries.
Our funeral home and cemetery operations usually face competition in the markets that they
serve. Our primary competition in most of our markets is from local independent operators. We have
observed new start-up competition in certain areas of the country, which in any one market may have
impacted our profitability because of the high fixed cost nature of funeral homes. Market share for
funeral homes and cemeteries is largely a function of reputation and heritage, although competitive
pricing, professional service and attractive, well-maintained and conveniently located facilities
are also important. Because of the importance of reputation and heritage, market share increases
are usually gained over a long period of time. The sale of preneed funeral services and cemetery
property has increasingly been used by many companies as a marketing tool to build market share.
There has been increasing competition from providers specializing in specific services, such
as cremations, who offer minimal service and low-end pricing. We also face competition from
companies that market products and related merchandise over the Internet and non-traditional casket
stores in certain markets. These competitors have been successful in capturing a portion of the
low-end market and product sales.
REGULATION
Our operations are subject to regulations, supervision and licensing under numerous foreign,
federal, state and local laws, ordinances and regulations, including extensive regulations
concerning trust funds, preneed sales of funeral and cemetery products and services and various
other aspects of our business. We believe that we comply in all material respects with the
provisions of these laws, ordinances and regulations. We operate in the United States under the
Federal Trade Commission (FTC) comprehensive trade regulation rule for the funeral industry. The
rule contains requirements for funeral industry practices, including extensive price and other
affirmative disclosures and imposes mandatory itemization of funeral goods and services.
We are subject to the requirements of the federal Occupational Safety and Health Act (OSHA)
and comparable state statutes. The OSHA hazard communication standard, the United States
Environmental Protection Agency community right-to-know regulations under Title III of the federal
Superfund Amendment and Reauthorization Act and similar state statutes require us to organize
information about hazardous materials used or produced in our operations. Certain of this
information must be provided to employees, state and local governmental authorities and local
citizens.
Our operations, including our preneed sales activities and the management and administration
of preneed trust funds, are also subject to regulation, supervision and licensing under state laws
and regulations. We believe that we are in substantial compliance with all such laws and
regulations.
EMPLOYEES
As of December 31, 2007, we and our subsidiaries employed 1,776 employees, of whom 872 were
full-time and 904 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.
None of our employees are represented by unions.
8
AVAILABLE INFORMATION
We file annual, quarterly and other reports, and any amendments to those reports, and
information with the United States Securities and Exchange Commission (SEC). You may read and
copy any materials we file with the SEC at the SECs Public Reference Room at 100 F Street, NE,
Washington, DC 20549. You may obtain additional information about the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site
http://www.sec.gov that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, including us.
Our website address is www.carriageservices.com. Available on this website under Investor
Relations-Investor Relations Menu SEC Filings, free of charge, are Carriages 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 as
reasonably practicable after such materials are electronically filed with or furnished to the
United States Securities and Exchange Commission (SEC).
Also posted on our website, and available in print upon request, are charters for the
Companys Audit Committee, Compensation Committee and Corporate Governance Committee. Copies of the
Code of Business Conduct and Ethics and the Corporate Governance Guidelines are also posted on the
Companys website under the Corporate Governance section. Within the time period required by the
SEC and the New York Stock Exchange, Inc., we will post on our website any modifications to the
Codes and any waivers applicable to senior officers as defined in the applicable Code, as required
by the Sarbanes-Oxley Act of 2002.
ITEM 1A. RISK FACTORS
RISKS RELATED TO OUR BUSINESS
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.
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.
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.
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
9
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.
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 is no assurance that we will be able to continue 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 Strategic Portfolio
Optimization Model to evaluate acquisition candidates, and there is no assurance that we will
continue to be successful in doing so or that we will find attractive candidates that satisfy these
standards.
Increased or unanticipated costs, such as insurance, taxes or litigation, may have a negative
impact on our earnings and cash flow.
We have experienced material increases in certain costs during the previous years, such as
insurance, taxes or legal fees, which result from external factors difficult to estimate. These
costs may impair our ability to achieve earnings growth in excess of revenue growth. Our 2008 plan
assumes that we will be successful in increasing earnings at a rate that is greater than revenue
growth. We can give no assurance that we will be successful in achieving such increases.
Improved performance in our funeral and cemetery segments is highly dependent upon successful
execution of our Standards Operating Model.
We have implemented our standards-based operating model to improve and better measure
performance in our funeral and cemetery operations. We developed standards according to 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 Standards 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. We have learned that success
using the model is highly dependent on having the right leader in the business.
Our smaller businesses are typically dependent upon one or a few key employees for success.
Death care businesses have built local heritage and tradition through successive generations,
providing a foundation for ongoing business opportunities from established client family
relationships and related referrals. We believe these relationships build trust in the community
and are a key driver to market share. Our businesses, which tend to serve small local markets,
usually have one or a few key employees that drive our relationships. We can give no assurance
that we can retain these employees or that these relationships will drive market share.
Earnings from and principal of trust funds and insurance contracts could be reduced by changes in
financial markets and the mix of securities owned.
Earnings and investment gains and losses on trust funds and insurance contracts are affected
by financial market conditions and the mix of fixed-income and equity securities that we choose to
maintain in the funds. During 2004 and 2005, we revised the mix of investments within the cemetery
trusts according to our new asset allocation model in an effort to increase earnings and lower
volatility. We made similar changes in some of the funeral trusts in 2006. 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
could cause a decline in future cash flows and revenues.
Covenant restrictions under our debt instruments may limit our flexibility in operating our
business.
The terms of our credit facility and the indenture governing the Senior Notes may limit our
ability and the ability of our subsidiaries to, among other things:
|
- |
|
incur additional debt; |
|
|
- |
|
pay dividends or make distributions or redeem or repurchase stock; |
|
|
- |
|
make investments; |
10
|
- |
|
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. 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
case 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 certain of our funeral assets to satisfy our obligations
under the agreement.
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 life spans 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
minimal 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 39% of the U.S.
burial market by the year 2010, compared to approximately 32% in 2005. 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. In past 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 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
11
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
At December 31, 2007, we operated 139 funeral homes in 25 states and 32 cemeteries in 11
states. We own the real estate and buildings for 83% of our funeral homes and leases facilities for
the remaining 17%. We own 27 cemeteries and operate five cemeteries under long-term contracts with
municipalities and non-profit organizations at December 31, 2007. Eleven funeral homes are
operated in combination with cemeteries as these locations are physically located on the same
property or very close proximity and under same management. The 32 cemeteries operated by us have
an inventory of unsold developed lots totaling approximately 114,000 and 118,000 at December 31,
2006 and 2007, respectively. In addition, approximately 496 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.
12
The following table sets forth certain information as of December 31, 2007, regarding
Carriages properties used by the funeral homes segment and by the cemeteries segment identified by
state:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
Funeral Homes |
|
Number of Cemeteries |
State |
|
Owned |
|
Leased(1) |
|
Owned |
|
Managed |
California
|
|
|
21 |
|
|
|
2 |
|
|
|
4 |
|
|
|
0 |
|
Connecticut
|
|
|
6 |
|
|
|
2 |
|
|
|
0 |
|
|
|
0 |
|
Florida
|
|
|
6 |
|
|
|
3 |
|
|
|
6 |
|
|
|
3 |
|
Georgia
|
|
|
3 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Idaho
|
|
|
5 |
|
|
|
1 |
|
|
|
3 |
|
|
|
0 |
|
Illinois
|
|
|
1 |
|
|
|
4 |
|
|
|
1 |
|
|
|
0 |
|
Kansas
|
|
|
7 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Kentucky
|
|
|
10 |
|
|
|
3 |
|
|
|
1 |
|
|
|
0 |
|
Maryland
|
|
|
1 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Massachusetts
|
|
|
12 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Michigan
|
|
|
3 |
|
|
|
0 |
|
|
|
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 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
North
Carolina
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
0 |
|
Ohio
|
|
|
4 |
|
|
|
2 |
|
|
|
0 |
|
|
|
1 |
|
Oklahoma
|
|
|
1 |
|
|
|
0 |
|
|
|
1 |
|
|
|
0 |
|
Rhode
Island
|
|
|
4 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Tennessee
|
|
|
3 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Texas
|
|
|
13 |
|
|
|
1 |
|
|
|
7 |
|
|
|
0 |
|
Virginia
|
|
|
3 |
|
|
|
1 |
|
|
|
1 |
|
|
|
0 |
|
Washington
|
|
|
1 |
|
|
|
1 |
|
|
|
0 |
|
|
|
0 |
|
West
Virginia
|
|
|
1 |
|
|
|
1 |
|
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
115 |
|
|
|
24 |
|
|
|
27 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The leases, with respect to these funeral homes, have remaining terms ranging from one
to seven 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. |
Our corporate headquarters occupy approximately 37,000 square feet of leased office space in
Houston, Texas. At December 31, 2007, we operated 590 vehicles, of which 585 are owned and 5 are
leased.
13
ITEM 3. LEGAL PROCEEDINGS
We and our subsidiaries are parties to a number of legal proceedings that arise from time to
time in the ordinary course of business. While the outcome of these proceedings cannot be predicted
with certainty, we do not expect these matters to have a material adverse effect on the financial
statements. Information regarding litigation is set forth in Part II, Item 8. Financial Statements
and Supplementary Data, Note 16 of this Form 10-K.
We self-insure against certain risks and carry insurance with coverage and coverage limits for
risks in excess of the coverage amounts consistent with our assessment of risks in our business and
of an acceptable level of financial exposure. Although there can be no assurance that
self-insurance reserves and insurance will be sufficient to mitigate all damages, claims or
contingencies, we believe that the reserves and our insurance provides reasonable coverage for
known asserted or unasserted claims. In the event we sustained a loss from a claim and the
insurance carrier disputed coverage or coverage limits, we may record a charge in a different
period than the recovery, if any, from the insurance carrier.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders during the fourth quarter of 2007.
14
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our Common Stock is traded on the New York Stock Exchange under the symbol CSV. The
following table presents the quarterly high and low sale prices as reported by the New York Stock
Exchange:
|
|
|
|
|
|
|
|
|
|
|
High |
|
Low |
2007 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
8.37 |
|
|
$ |
5.04 |
|
Second Quarter |
|
$ |
8.93 |
|
|
$ |
7.50 |
|
Third Quarter |
|
$ |
9.42 |
|
|
$ |
7.65 |
|
Fourth Quarter |
|
$ |
11.09 |
|
|
$ |
8.12 |
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
5.25 |
|
|
$ |
4.60 |
|
Second Quarter |
|
$ |
5.16 |
|
|
$ |
4.40 |
|
Third Quarter |
|
$ |
4.94 |
|
|
$ |
4.12 |
|
Fourth Quarter |
|
$ |
5.19 |
|
|
$ |
4.61 |
|
As of February 29, 2008, there were 19,260,820 shares of our Common Stock outstanding and the
closing price as reported by the New York Stock Exchange was $7.90 per share. The Common Stock
shares outstanding are held by approximately 255 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.
We have never paid a cash dividend on our Common Stock. We currently intend to retain
earnings to fund the growth and development of our business. Any future change in our policy will
be made at the discretion of our Board of Directors in light of our financial condition, capital
requirements, earnings prospects and any limitations imposed by lenders or investors, as well as
other factors the Board of Directors may deem relevant.
We have a compensation policy for fees paid to our directors under which the directors may
choose to receive their fees either in the form of cash or equity based on the fair market value of
our common stock calculated at the closing price published by the New York Stock Exchange on the
date the fees are earned. Prior to May 2006, the shares issued to directors were unregistered. In
connection with our Annual Meeting of Stockholders in May 2006, the stockholders approved our 2006
Long Term Incentive Plan and we registered the shares available for future issuance for this
compensation policy and other corporate purposes. We issued 3,003 unregistered shares of common
stock to directors in lieu of payment in cash for their fees for the year ended December 31, 2006,
the value of which was charged to operations. No underwriter was used in connection with these
issuances. We relied on the Section 4(2) exemption from the registration requirements of the
Securities Act of 1933, as amended.
We did not repurchase any of our equity securities during the fourth quarter of the year ended
December 31, 2007.
15
The graph below matches the cumulative 5-year total return of holders of Carriage Services,
Inc.s common stock with the cumulative total returns of the Russell 2000 index, the Russell
MicroCap index and a customized peer group of three companies that includes: Service Corporation
International, Stewart Enterprises Inc. and StoneMor Partners L.P. The graph assumes that the
value of the investment in the companys common stock, in each index, and in the peer group
(including reinvestment of dividends) was $100 on 12/31/2002 and tracks it through 12/31/2007.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Carriage Services, Inc., The Russell 2000 Index,
The Russell MicroCap Index And A Peer Group
|
|
* |
$100 invested on 12/31/02 in stock or index-including reinvestment of dividends. |
|
Fiscal year ending December 31. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/02 |
|
|
12/03 |
|
|
12/04 |
|
|
12/05 |
|
|
12/06 |
|
|
12/07 |
|
|
Carriage Services, Inc. |
|
|
|
100.00 |
|
|
|
|
92.96 |
|
|
|
|
124.12 |
|
|
|
|
125.63 |
|
|
|
|
127.89 |
|
|
|
|
221.11 |
|
|
|
Russell 2000 |
|
|
|
100.00 |
|
|
|
|
147.25 |
|
|
|
|
174.24 |
|
|
|
|
182.18 |
|
|
|
|
215.64 |
|
|
|
|
212.26 |
|
|
|
Russell MicroCap |
|
|
|
100.00 |
|
|
|
|
166.36 |
|
|
|
|
189.89 |
|
|
|
|
194.76 |
|
|
|
|
226.98 |
|
|
|
|
208.82 |
|
|
|
Peer Group |
|
|
|
100.00 |
|
|
|
|
139.86 |
|
|
|
|
187.63 |
|
|
|
|
194.38 |
|
|
|
|
243.59 |
|
|
|
|
335.65 |
|
|
|
The stock price performance included in this graph is not necessarily indicative of future
stock price performance.
PEER GROUP
Service Corporation International
Stewart Enterprises Inc.
StoneMor Partners L.P.
16
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information for us that has
been derived from the audited Consolidated Financial Statements of Carriage Services, Inc. as of
and for each of the years ended December 31, 2003, 2004, 2005, 2006 and 2007. These historical
results are neither indicative of our future performance, nor necessarily comparable as a result of
a change in accounting methods discussed below.
We adopted FASB Interpretation No. 46, as revised (FIN 46R), Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 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 recognize 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. 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.
We changed our method of accounting for preneed selling costs, which are direct costs incurred
for the origination of prearranged funeral and cemetery service and merchandise sales contracts,
effective January 1, 2005. The change affects the comparability of the operating results in the
following table. Prior to this change, commissions and other direct selling costs related to
originating preneed funeral and cemetery service and merchandise sales contracts were deferred and
amortized with the objective of recognizing the selling costs in the same period that the related
revenue is recognized. Under the new accounting method, the commissions and other direct selling
costs, which are current obligations and use operating cash flow, are expensed as incurred. Our
results of operations for the years ended December 31, 2005, 2006 and 2007 are reported on the
basis of our changed method, but the periods prior to 2005 are reported using the prior accounting
method. See Note 3 of Notes to Consolidated Financial Statements for the year ended December 31,
2007.
Effective January 1, 2006, we adopted Statement Financial Accounting Standards No. 123
(Revised), Share-Based Payment (FAS No. 123R), which requires, among other things, entities to
recognize in the income statement the grant-date fair value of stock options and other stock-based
awards over the service periods the awards are expected to vest. Pursuant to the provisions of FAS
No. 123R, we applied the modified-prospective transition method. Under this method, the fair value
provision of FAS No. 123R is applied to new employee stock-based awards granted after December 31,
2005. Measurement and recognition of compensation cost for unvested awards at December 31, 2005,
granted prior to the adoption of FAS No. 123R, are recognized under the provisions of FAS No. 123,
Accounting for Stock-Based Compensation (FAS No. 123), after adjustments for estimated
forfeiture. FAS No. 123R no longer permits pro-forma disclosure for income statement periods after
December 31, 2005 and compensation expense is recognized for all stock-based awards based on
grant-date fair value. Our results of operations for the years ended December 31, 2006 and 2007
are reported on the basis of our changed method, but the periods prior to 2006 are reported using
the prior accounting method. See Note 1 of Notes to Consolidated Financial Statements for the
year ended December 31, 2007.
You should read this historical financial data together with Managements Discussion and
Analysis of Financial Condition and Results of Operations included in this report and our
Consolidated Financial Statements and notes thereto included elsewhere in this report.
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
INCOME STATEMENT DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
107,542 |
|
|
$ |
108,102 |
|
|
$ |
110,882 |
|
|
$ |
114,187 |
|
|
$ |
124,808 |
|
Cemetery |
|
|
33,059 |
|
|
|
36,115 |
|
|
|
37,555 |
|
|
|
36,159 |
|
|
|
43,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
140,601 |
|
|
|
144,217 |
|
|
|
148,437 |
|
|
|
150,346 |
|
|
|
167,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
27,826 |
|
|
|
28,387 |
|
|
|
28,976 |
|
|
|
30,685 |
|
|
|
36,446 |
|
Cemetery |
|
|
8,128 |
|
|
|
8,578 |
|
|
|
6,525 |
|
|
|
3,943 |
|
|
|
9,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
35,954 |
|
|
|
36,965 |
|
|
|
35,501 |
|
|
|
34,628 |
|
|
|
45,800 |
|
General and administrative expenses |
|
|
9,964 |
|
|
|
10,113 |
|
|
|
12,383 |
|
|
|
12,022 |
|
|
|
16,015 |
|
Other charges (income) |
|
|
432 |
|
|
|
495 |
|
|
|
(822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
25,558 |
|
|
|
26,357 |
|
|
|
23,940 |
|
|
|
22,606 |
|
|
|
29,785 |
|
Interest expense |
|
|
(17,626 |
) |
|
|
(16,896 |
) |
|
|
(18,587 |
) |
|
|
(18,508 |
) |
|
|
(18,344 |
) |
Additional interest and other costs of senior debt refinancing |
|
|
|
|
|
|
|
|
|
|
(6,933 |
) |
|
|
|
|
|
|
|
|
Interest and other income (expense) |
|
|
657 |
|
|
|
940 |
|
|
|
(73 |
) |
|
|
1,921 |
|
|
|
1,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
8,589 |
|
|
|
10,401 |
|
|
|
(1,653 |
) |
|
|
6,019 |
|
|
|
12,593 |
|
(Provision) benefit for income taxes |
|
|
(3,047 |
) |
|
|
(80 |
) |
|
|
532 |
|
|
|
(2,305 |
) |
|
|
(5,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
|
5,542 |
|
|
|
10,321 |
|
|
|
(1,121 |
) |
|
|
3,714 |
|
|
|
7,525 |
|
Income (loss) from discontinued operations |
|
|
1,083 |
|
|
|
(1,087 |
) |
|
|
2,012 |
|
|
|
(5,130 |
) |
|
|
754 |
|
Cumulative effect of the change in accounting, net of taxes |
|
|
|
|
|
|
|
|
|
|
(22,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
6,625 |
|
|
$ |
9,234 |
|
|
$ |
(21,865 |
) |
|
$ |
(1,416 |
) |
|
$ |
8,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.32 |
|
|
$ |
0.58 |
|
|
$ |
(0.06 |
) |
|
$ |
0.21 |
|
|
$ |
0.40 |
|
Discontinued operations |
|
|
0.06 |
|
|
|
(0.06 |
) |
|
|
0.11 |
|
|
|
(0.29 |
) |
|
|
0.04 |
|
Cumulative effect of the change in accounting principle |
|
|
|
|
|
|
|
|
|
|
(1.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
$ |
0.38 |
|
|
$ |
0.52 |
|
|
$ |
(1.19 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.31 |
|
|
$ |
0.57 |
|
|
$ |
(0.06 |
) |
|
$ |
0.20 |
|
|
$ |
0.39 |
|
Discontinued operations |
|
|
0.06 |
|
|
|
(0.06 |
) |
|
|
0.11 |
|
|
|
(0.28 |
) |
|
|
0.04 |
|
Cumulative effect of the change in accounting principle |
|
|
|
|
|
|
|
|
|
|
(1.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share |
|
$ |
0.37 |
|
|
$ |
0.51 |
|
|
$ |
(1.19 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common equivalent shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
17,444 |
|
|
|
17,786 |
|
|
|
18,334 |
|
|
|
18,545 |
|
|
|
19,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
17,808 |
|
|
|
18,260 |
|
|
|
18,334 |
|
|
|
18,912 |
|
|
|
19,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING AND FINANCIAL DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral homes at end of period |
|
|
139 |
|
|
|
135 |
|
|
|
133 |
|
|
|
131 |
|
|
|
139 |
|
Cemeteries at end of period |
|
|
30 |
|
|
|
30 |
|
|
|
29 |
|
|
|
28 |
|
|
|
32 |
|
Funeral services performed |
|
|
23,323 |
|
|
|
22,673 |
|
|
|
22,792 |
|
|
|
22,468 |
|
|
|
23,545 |
|
Preneed funeral contracts sold |
|
|
5,174 |
|
|
|
4,936 |
|
|
|
4,877 |
|
|
|
4,998 |
|
|
|
5,075 |
|
Backlog of preneed funeral contracts |
|
|
59,696 |
|
|
|
60,309 |
|
|
|
58,531 |
|
|
|
56,719 |
|
|
|
68,909 |
|
Average per funeral contract |
|
$ |
4,726 |
|
|
$ |
4,890 |
|
|
$ |
4,965 |
|
|
$ |
5,120 |
|
|
$ |
5,207 |
|
Cremation rate |
|
|
29.9 |
% |
|
|
31.4 |
% |
|
|
33.1 |
% |
|
|
34.4 |
% |
|
|
35.8 |
% |
Depreciation and amortization |
|
$ |
9,741 |
|
|
$ |
10,560 |
|
|
$ |
9,053 |
|
|
$ |
8,664 |
|
|
$ |
9,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
538,917 |
|
|
$ |
565,156 |
|
|
$ |
570,640 |
|
|
$ |
564,996 |
|
|
$ |
610,807 |
|
Working capital (deficit) |
|
|
(14,285 |
) |
|
|
4,933 |
|
|
|
26,915 |
|
|
|
35,755 |
|
|
|
11,647 |
|
Long-term debt, net of current maturities |
|
|
105,355 |
|
|
|
102,714 |
|
|
|
134,572 |
|
|
|
133,841 |
|
|
|
132,994 |
|
Convertible junior subordinated debenture (1) |
|
|
|
|
|
|
93,750 |
|
|
|
93,750 |
|
|
|
93,750 |
|
|
|
93,750 |
|
Redeemable convertible preferred stock (TIDES) (1) |
|
|
90,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
$ |
105,930 |
|
|
$ |
116,438 |
|
|
$ |
96,374 |
|
|
$ |
96,373 |
|
|
$ |
106,900 |
|
|
|
(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. |
18
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We operate two types of businesses: funeral homes, which account for approximately 75% of our
revenues, and cemeteries, which account for approximately 25% of our revenues. Funeral homes are
principally a service business that provide funeral services (burial and cremation) and sell
related merchandise, such as caskets and urns. Cemeteries are primarily a sales business that sells
interment rights (grave sites and mausoleums) and related merchandise such as markers and
memorials. As of December 31, 2007, we operated 139 funeral homes in 25 states and 32 cemeteries in
11 states within the United States. Substantially all administrative activities are conducted in
our home office in Houston, Texas.
Factors affecting our funeral operating results include: demographic trends in terms of
population growth and average age, which impact death rates and number of deaths; establishing and
maintaining leading market share positions; effectively responding to increasing cremation trends
by packaging complementary services and merchandise; controlling salary and merchandise costs; and
exercising pricing leverage related to our at-need business to increase average revenues per
contract. In simple terms, volume and price are the two variables that affect funeral revenues.
The average revenue per contract is influenced by the mix of traditional and cremation services
because our average cremation service revenue is approximately 37% of the average revenue earned
from a traditional burial service. Funeral homes have a relatively fixed cost structure. Thus small
changes in revenues, up or down, normally cause significant changes to our profitability.
The cemetery operating results are affected by the size and success of our sales organization
because more than one half of our cemetery revenues for the year ended December 31, 2007 relate to
sales of grave sites and mausoleums and related merchandise and services before the time of need,
which we refer to as preneed. We believe that changes in the level of consumer confidence (a
measure of whether consumers will spend for discretionary items) also affect the amount of cemetery
revenues. Approximately 11% of our cemetery revenues for the year ended December 31, 2007 are
attributable to investment earnings on trust funds and finance charges on installment contracts.
Changes in the capital markets and interest rates affect this component of our cemetery revenues.
We have implemented several significant long-term initiatives in our operations designed to
improve operating and financial results by growing market share and increasing profitability. We
introduced a more decentralized, entrepreneurial and local operating model that included operating
and financial standards developed from our best operations, along with an incentive compensation
plan to reward business managers for successfully meeting or exceeding the standards. The model
essentially eliminated the use of financial budgets in favor of the standards. The operating model
and standards, which we refer to as Being the Best, focus on the key drivers of a successful
operation, organized around three primary areas market share, people and operating and financial
metrics. The model and standards are the measures by which we judge the success of each business.
To date, the Being the Best operating model and standards have driven significant changes in our
organization, leadership and operating practices. In certain businesses we have determined that
the business managers do not possess the characteristics to succeed in this type of culture, and we
have been actively recruiting new managers who do. Being the best is not something that occurs
easily and quickly, but we believe execution of the model produced improved results in 2007 should
result in improving sustainable earnings in 2008 and beyond.
Acquisitions
Our growth strategy includes the execution of the Strategic Portfolio Optimization Model. The
goal of that model is to build concentrated groups of businesses in ten to fifteen strategic
markets. We assess acquisition candidates using six strategic ranking criteria and to
differentiate the price we are willing to pay. Those criteria are:
|
|
|
Size of business |
|
|
|
|
Size of market |
|
|
|
|
Competitive standing |
|
|
|
|
Demographics |
|
|
|
|
Strength of brand |
|
|
|
|
Barriers to entry |
19
In general terms, our price expectations range from four to five times pre-tax earnings before
depreciation for tuck-ins to six to seven times pre-tax earnings before depreciation for
businesses that rank very high in the ranking criteria. Our expectation at the beginning of the
year was to acquire two to three businesses a year. During 2007 we completed seven
acquisitions. While the number of completed acquisitions was greater than expected, we continue to
plan for two to three each year in the future. Selected information on the acquisitions follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Annual |
Acquisition Date |
|
Type of Business |
|
Market |
|
Revenue (millions) |
January 2007 |
|
Combination and Funeral Home |
|
Corpus Christi, TX |
|
$6.6 |
|
|
|
|
|
|
|
April 2007 |
|
Combination |
|
Los Angeles, CA |
|
$3.5 |
|
|
|
|
|
|
|
June 2007 |
|
Combination and Cemetery |
|
Boise, ID |
|
$2.8 |
|
|
|
|
|
|
|
June 2007 |
|
Funeral Home |
|
Santa Fe, NM |
|
$0.8 |
|
|
|
|
|
|
|
August 2007 |
|
Five Funeral Homes |
|
Springfield, MA |
|
$2.2 |
|
|
|
|
|
|
|
November 2007 |
|
Four Funeral Homes |
|
Los Angeles, CA |
|
$4.0 |
|
|
|
|
|
|
|
November 2007 |
|
Funeral Home |
|
Methuen, MA |
|
$2.1 |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the Consolidated Financial Statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an
on-going basis, we evaluate estimates and judgments, including those related to revenue
recognition, realization of accounts receivable, inventories, intangible assets, property and
equipment and deferred tax assets. We base our estimates on historical experience, third party data
and assumptions that we believe to be reasonable under the circumstances. The results of these
considerations form the basis for making judgments about the amount and timing of revenues and
expenses, the carrying value of assets and the recorded amounts of liabilities. Actual results may
differ from these estimates and such estimates may change if the underlying conditions or
assumptions change. Historical performance should not be viewed as indicative of future
performance, because there can be no assurance the margins, operating income and net earnings as a
percentage of revenues will be consistent from year to year.
Managements discussion and analysis of financial condition and results of operations are
based upon our Consolidated Financial Statements presented herewith, which have been prepared in
accordance with accounting principles generally accepted in the United States. Our significant
accounting policies are summarized in Note 1 to the 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.
Funeral and Cemetery Operations
We record the sales of funeral and cemetery merchandise and services when the merchandise is
delivered or service is performed. Sales of cemetery interment rights are recorded as revenue in
accordance with the retail land sales provisions of Statement of Financial Accounting Standards
(FAS) No. 66, Accounting for Sales of Real Estate. This method generally provides for the
recognition of revenue in the period in which the customers cumulative payments exceed 10% of the
contract price related to the real estate. Costs related to the sales of interment rights, which
include property and other costs related to cemetery development activities, are charged to
operations using the specific identification method in the period in which the sale of the
interment right is recognized as revenue. Revenues to be recognized from the delivery of
merchandise and performance of services related to preneed contracts that were acquired in
acquisitions are typically lower than those originated by us.
Allowances for bad debts and customer cancellations refunds are provided at the date that sale
is recognized as revenue. In addition, we monitor changes in delinquency rates and provide
additional bad debt and cancellation reserves when warranted.
When preneed funeral services and merchandise are funded through third-party insurance
policies, we earn a commission on the sale of the policies. Insurance commissions are recognized as
revenues when the commission is no longer subject to refund, which is usually one year after the
policy is issued. Preneed selling costs consist of sales commissions and other direct related
costs of originating preneed sales contracts. Prior to 2005, these costs were 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 were recognized were based on actuarial statistics for the actual contracts we hold, provided
by a third-party
20
administrator. Beginning in 2005, we changed our method of accounting for preneed
selling costs. Preneed selling costs are now expensed as incurred. The cumulative impact of the
change was a charge in 2005 in the amount of $22.8 million, net of tax, equal to $1.24 per diluted
share.
Goodwill
The excess of the purchase price over the fair value of net identifiable assets acquired, as
determined by management in transactions accounted for as purchases, is recorded as goodwill. Many
of the acquired funeral homes have provided high quality service to families for generations. The
resulting reputation often represents a substantial portion of the value of a funeral business.
Goodwill is typically not associated with or recorded for the cemetery businesses. In accordance
with FAS No. 142, 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 our
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 our 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.
Income Taxes
We and our subsidiaries file a consolidated U.S. Federal income tax return and separate income
tax returns in the states in which we operate. We record deferred taxes for temporary differences
between the tax basis and financial reporting basis of assets and liabilities, in accordance with
FAS 109, Accounting for Income Taxes. We record 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.
In June 2006, FASB issued FASB Interpretation No. 48 Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in
an enterprises financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes. FIN 48 prescribes how tax benefits for uncertain tax positions are to be
recognized, measured, and derecognized in financial statements; requires certain disclosures of
uncertain tax matters; specifies how reserves for uncertain tax position should be classified on
the balance sheet; and provides transition and interim period guidance, among other provisions.
FIN 48 is effective for fiscal years beginning after December 15, 2006 and was adopted by the
Company as of January 1, 2007. We have reviewed our income tax positions and identified certain
tax deductions, primarily related to business acquisitions that are not certain. The cumulative
effect of adopting FIN 48 has been recorded as a reduction to the 2007 opening balance of Retained
Earnings and an increase in noncurrent liabilities in the amount of $0.2 million which includes
accrued interest and penalties totaling $0.1 million. Our policy with respect to potential
penalties and interest is to record them as other expense and interest expense, respectively.
Stock Compensation Plans
We have stock-based employee compensation plans in the form of restricted stock, stock option
and employee stock purchase plans. We account for stock-based compensation under FAS No. 123R,
Share-Based Payment (FAS No. 123R). FAS No. 123R requires companies to recognize compensation
expense in an amount equal to the fair value of the share-based payment issued to employees over
the period of vesting and applies to all transactions involving issuance of equity by a company in
exchange for goods and services, including employee services. The fair value of share based
payment is determined using the Black-Scholes valuation model. The Company adopted FAS No. 123R as
of January 1, 2006, using the modified prospective application method. See Note 1 to the
Consolidated Financial Statements.
Prior to 2006, we accounted for stock based compensation under APB No. 25 and provided the
disclosures required under FAS No. 123, Accounting for Stock-Based Compensation, as amended by
FAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure. Had we
accounted for stock option grants and its employee stock purchase plan under FAS No. 123R for the
year ended December 31, 2005, diluted earnings per share for the period would have been lower by
approximately $0.01.
We have granted restricted stock to certain of our officers and key employees, which vest over
a period of four years. These shares are valued at the dates granted and the value is charged to
operations as the shares vest. No stock options were granted in 2007.
21
Preneed Funeral and Cemetery Trust Funds
We apply FASB Interpretation No. 46, as revised, (FIN 46R), Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51 which clarifies
the circumstances in which certain entities that do not have equity investors with a controlling
financial interest must be consolidated by its sponsor. Our preneed and perpetual care trust funds
are consolidated for financial reporting purposes; investments of such trust funds have been
reported at market value and our future obligations to deliver merchandise and services have been
reported at estimated settlement amounts. We have also recognized the non-controlling financial
interests of third parties in the trust funds.
Although FIN 46R requires consolidation of preneed and perpetual care trusts, it did not
change the legal relationships among the trusts, the Company and its customers. In the case of
preneed trusts, the customers are the principal beneficiaries. In the case of perpetual care
trusts, we do not have a right to access the corpus in the perpetual care trusts. For these
reasons, we have 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 investment
in our consolidated balance sheet. Unrealized gains and losses attributable to the Company, but
that have not been earned through the performance of services or delivery of merchandise, are
allocated to deferred revenues.
Also, in connection with the application of FIN 46R, we recognize the income, gains and losses
of the preneed trusts and the unrealized income, gains and losses of the cemetery perpetual care
trusts. We recognize a corresponding expense equal to the recognized earnings of these trusts
attributable to the non-controlling interest holders. When such earnings attributable to the
Company have not been earned through the performance of services or delivery of merchandise, we
will record such earnings as deferred revenue.
For preneed trusts, we recognize as revenues amounts attributed to the non-controlling
interest holders and the Company, including accumulated earnings, when the contracted services have
been performed and merchandise delivered. For cemetery perpetual care trusts, we recognize
investment earnings in cemetery revenues when such earnings are realized and distributable. Such
earnings are intended to defray cemetery maintenance costs incurred by us.
Business Combinations
We apply the principles provided in FAS No. 141 when we acquire businesses. Tangible and
intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is
recognized for any difference between the total cost of the acquisition and our fair value
determination. We customarily estimate our transaction costs at closing of the acquisition. To
the extent that information not available to us at the closing date subsequently becomes available
during the allocation period, as defined in FAS No. 141, we may adjust goodwill, assets, or
liabilities associated with the acquisition.
Discontinued Operations
In accordance with our Strategic Portfolio Optimization Model, non-strategic businesses are
reviewed to determine whether the businesses should be sold and the proceeds redeployed elsewhere.
A marketing plan is then developed for those locations which are identified as held for sale. When
we receive a letter of intent and financing commitment from the buyer and the sale is expected to
occur within one year, the location is no longer reported within our continuing operations. The
assets and liabilities associated with the held for sale location are reclassified on the balance
sheet and the operating results, as well as impairments, are presented on a comparative basis in
the discontinued operations section of the Consolidated Statements of Operations, along with the
income tax effect.
22
RECENT ACCOUNTING PRONOUNCMENTS AND ACCOUNTING CHANGES
Fair Value Measurements
In September 2006, the FASB issued FAS No. 157, Fair Value Measurements (FAS No. 157),
which establishes a framework for measuring fair value in accordance with Generally Accepted
Accounting Principles (GAAP) and expands disclosures about fair value measurements. This
statement is effective for Carriage beginning January 1, 2008. We do not expect the adoption of
FAS No. 157 to have a material impact on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115 (FAS No. 159). This
statement permits entities to choose to measure various financial assets and liabilities at fair
value. The objective is to improve financial reporting by providing entities with the opportunity
to mitigate volatility in reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting provisions. This statement is
effective for Carriage beginning January 1, 2008. We do not expect the adoption of FAS No. 159 to
have a material impact on our consolidated financial statements.
Business Combinations
In December 2007, the FASB issued FAS No. 141(revised 2007), Business Combinations (FAS No.
141R). FAS No. 141R requires the acquiring entity to recognize the assets acquired, the
liabilities assumed and any non-controlling interest in the acquiree at the acquisition date,
measured at the fair values as of that date. Goodwill is measured as a residual of the fair values
at acquisition date. Among other charges, acquisition related (transaction) costs are required to
be recognized separately from the acquisition and expensed as incurred instead of accounted for as
a cost of the acquired business. This statement is effective for us for business combinations for
which the acquisition date is on or after January 1, 2009. We are currently evaluating the impact
of the adoption of FAS No. 141R on our consolidated financial statements which will be dependent on
future business combinations.
Non-controlling Interests
In December 2007, the FASB issued FAS No. 160, Non-controlling Interests in Consolidated
Financial Statements (FAS No. 160). FAS No. 160 requires non-controlling interests in a
subsidiary be reported as equity in the consolidated financial statements, the attributable net
income be identified and presented on the face of the consolidated statement of income and changes
in the ownership be accounted for consistently. The statement also includes requirements when an
interest is deconsolidated. Disclosure should be sufficient to clearly identify and distinguish
between the interests of the reporting entity and that of the non-controlling interests owners.
This statement is effective as of the beginning of our first fiscal year that begins after December
15, 2008. We are currently evaluating the impact, if any, of the adoption of FAS No. 160 on our
consolidated financial statements.
SELECTED INCOME AND OPERATIONAL DATA
The following table sets forth certain income statement data for Carriage expressed as a
percentage of net revenues for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2005 |
|
2006 |
|
2007 |
Total revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Total gross profit |
|
|
23.9 |
|
|
|
23.0 |
|
|
|
27.3 |
|
General and administrative expenses |
|
|
8.3 |
|
|
|
8.0 |
|
|
|
9.5 |
|
Operating income |
|
|
16.1 |
|
|
|
15.0 |
|
|
|
17.7 |
|
Interest expense |
|
|
12.5 |
|
|
|
12.3 |
|
|
|
10.9 |
|
23
The following table sets forth the number of funeral homes and cemeteries owned and operated
by us for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
Funeral homes at beginning of period |
|
|
135 |
|
|
|
133 |
|
|
|
131 |
|
Acquisitions |
|
|
2 |
|
|
|
1 |
|
|
|
14 |
|
Divestitures, mergers or closures of existing funeral homes |
|
|
4 |
|
|
|
3 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
Funeral homes at end of period |
|
|
133 |
|
|
|
131 |
|
|
|
139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries at beginning of period |
|
|
30 |
|
|
|
29 |
|
|
|
28 |
|
Acquisitions |
|
|
|
|
|
|
|
|
|
|
4 |
|
Divestitures |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries at end of period |
|
|
29 |
|
|
|
28 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
The following is a discussion of our results of operations for 2005, 2006, and 2007. The term
same-store or existing operations refers to funeral homes and cemeteries owned and operated for
the entirety of each period being compared. Funeral homes and cemeteries purchased after January
2005 (date of refinancing our Senior Debt) are referred to as acquired.
YEAR ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31, 2006
The following is a discussion of our results of operations for the years ended December 31,
2006 and 2007.
Net income from continuing operations for the year ended December 31, 2007 totaled $7.5
million, equal to $0.39 per diluted share as compared to $3.7 million for the year ended December
31, 2006, or $0.20 per diluted share. The variance between the two periods was primarily due to
the positive results of acquired businesses, improved results from Rolling Hills Memorial Park and
improved results from existing funeral homes in the Central Region. Acquired businesses provided
an increase in pre-tax gross profit of $4.5 million, equal to $0.14 per diluted share. Improved
results at Rolling Hills Memorial Park provided an increase in pre-tax gross profit of $2.4
million, equal to $0.07 per diluted share, primarily on the strength of higher preneed revenues and
the absence of $0.7 million in environmental remediation costs incurred in 2006. The existing
funeral homes in the Central Region generated $1.7 million in additional earnings equal to $0.09
per diluted share. Offsetting a portion of improvement in gross profit from the funeral home and
cemetery operations was an increase in corporate costs and expenses of $4.0 million, equal to $0.12
per diluted share.
Income from discontinued operations for the year ended December 31, 2007 totaled $0.8 million,
equal to $0.04 per diluted share. During 2007, we sold four funeral home businesses for
approximately $3.2 million and recognized gains of $1.2 million. Loss from discontinued operations
for the year ended December 31, 2006 totaled $5.1 million, equal to $(0.28) per diluted share, and
consisted primarily of proceeds of $6.5 million and impairment charges of $8.4 million, related to
specifically identified goodwill, recorded for four funeral home businesses and a combination
funeral home and cemetery business. Two of these businesses were sold in 2007.
24
Funeral Home Segment. The following table sets forth certain information regarding our
revenues and gross profit from the funeral home operations for the year ended December 31, 2006
compared to the year ended December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
Change |
|
|
|
2006 |
|
|
2007 |
|
|
Amount |
|
|
Percent |
|
|
|
(dollars in thousands) |
|
Total same-store revenue |
|
$ |
110,581 |
|
|
$ |
111,900 |
|
|
$ |
1,319 |
|
|
|
1.2 |
% |
Acquired |
|
|
1,339 |
|
|
|
10,710 |
|
|
|
9,371 |
|
|
|
|
* |
Preneed insurance commissions revenue |
|
|
2,267 |
|
|
|
2,198 |
|
|
|
(69 |
) |
|
|
(3.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing operations |
|
$ |
114,187 |
|
|
$ |
124,808 |
|
|
$ |
10,621 |
|
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from discontinued operations |
|
$ |
3,669 |
|
|
$ |
628 |
|
|
$ |
(3,041 |
) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same-store gross profit |
|
$ |
39,729 |
|
|
$ |
43,023 |
|
|
$ |
3,294 |
|
|
|
8.3 |
% |
Acquired |
|
|
313 |
|
|
|
3,724 |
|
|
|
3,411 |
|
|
|
|
* |
Preneed insurance |
|
|
826 |
|
|
|
369 |
|
|
|
(457 |
) |
|
|
(55.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from continuing operations |
|
$ |
40,868 |
|
|
$ |
47,116 |
|
|
$ |
6,248 |
|
|
|
15.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from discontinued operations |
|
$ |
736 |
|
|
$ |
(8 |
) |
|
$ |
(744 |
) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral same-store revenues for the year ended December 31, 2007 increased $1.3 million, or
1.2%, when compared to the year ended December 31, 2006 as we experienced an increase of 3.9% in
the average revenue per service for those existing operations and the number of services declined
by 0.5 million, or 2.6%. Performance was strongest in the Central Region, where the number of
contracts increased 1.5% and the contract average increased 5.1%. The Western Region experienced
a decrease in the number of contracts equal to 5.3% while the contract average increased 2.1%. The
number of contracts in the Eastern Region declined 1.6% while the contract average increased 3.1%.
Total same-store gross profit for the year ended December 31, 2007 increase $3.3 million, or
8.3% from 2006, and as a percentage of funeral same-store revenue, increased from 35.9% to 38.4%.
The revenue increases were leveraged into pretax earnings growth across all three regions. Pretax
earnings increased significantly in the Central Region at $4.5 million or 39.7%, equal to $0.14 per
diluted share. Additionally, Western and Eastern regions each increased pretax earnings $1.1
million, or 9.5% and 6.3%, respectively.
As previously discussed, we completed seven acquisitions in 2007 involving twelve new funeral
homes. Because of the timing of the acquisitions, the two funeral homes in Corpus Christi, Texas
had the largest impact on acquired revenue and gross profit as they were acquired in January 2007.
Of the acquired revenue and gross profit, those two funeral homes provided 2.7% and 1.0%.
Cremation services represented 35.8% of the number of funeral services during 2007, compared
to 34.4% for 2006. The average revenue for burial contracts increased 4.6% to $7,384, and the
average revenue for cremation contracts increased 7.4% to $2,734. We have addressed the growing
demand for cremation by training the funeral directors to present multiple merchandise and service
options to families, resulting in choices that produce higher revenues. The average revenue for
other contracts, which make up approximately 9.5% of the number of contracts, declined $0.3
million to $1,971. Other contracts consist of charges for merchandise or services for which we do
not perform a funeral service for the deceased during the period.
25
Cemetery Segment. The following table sets forth certain information regarding our revenues
and gross profit from the cemetery operations for the year ended December 31, 2006 compared to the
year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
Change |
|
|
|
2006 |
|
|
2007 |
|
|
Amount |
|
|
Percent |
|
|
|
(dollars in thousands) |
|
Total same-store revenue |
|
$ |
36,159 |
|
|
$ |
38,826 |
|
|
$ |
2,667 |
|
|
|
7.4 |
% |
Acquired |
|
|
|
|
|
|
4,190 |
|
|
|
4,190 |
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing operations |
|
$ |
36,159 |
|
|
$ |
43,016 |
|
|
$ |
6,857 |
|
|
|
19.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from discontinued operations |
|
$ |
778 |
|
|
$ |
|
|
|
$ |
(778 |
) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same-store gross profit |
|
$ |
9,438 |
|
|
$ |
13,468 |
|
|
$ |
4,030 |
|
|
|
42.7 |
% |
Acquired |
|
|
|
|
|
|
1,053 |
|
|
|
1,053 |
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from continuing operations |
|
$ |
9,438 |
|
|
$ |
14,521 |
|
|
$ |
5,083 |
|
|
|
53.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from discontinued operations |
|
$ |
117 |
|
|
$ |
|
|
|
$ |
(117 |
) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery same-store revenues for the year ended December 31, 2007 increased $2.7 million, or
7.4% compared to the year ended December 31, 2006, the majority ($2.4 million) of which was due to
higher revenues at our largest business, Rolling Hills Memorial Park, and secondarily to broadly
higher performance in our Central Region cemeteries. Same-store atneed revenues increased from
$13.1 million to $13.7 million. Same-store revenue from preneed property sales increased $2.0
million while revenues from merchandise and service deliveries declined $0.5 million.
Cemetery same-store gross profit for the year ended December 31, 2007 increased $4.0 million,
or 42.7%. As a percentage of revenues, cemetery same store gross profit increased from 26.1% to
34.7%, the primary reason was the $3.4 million improvement at Rolling Hills in part due to the
absence of an environmental remediation charge in the amount of $0.7 million during the 2006
period. Improved collection efforts on preneed receivables resulted in $0.9 million less bad debt
expense in 2007 compared to 2006.
Acquired revenue and gross profit for the year ended December 31, 2007 represents the results
of Seaside Memorial Park in Corpus Christi, Texas which was acquired in January 2007, Conejo
Mountain Memorial Park in Camarillo, California, which was acquired in April 2007 and Cloverdale
Park, Inc. which was acquired in June 2007.
Financial revenues (trust earnings and finance charges on installment contracts) increased
$0.8 million on the strength of higher trust earnings. Earnings from perpetual care trust funds
are included in financial revenues and totaled $2.4 million for the year ended December 31, 2007
compared to $1.9 million for the year ended December 31, 2006. The year over year improvements
were largely due to realized gains in equity investments which have appreciated in line with the
markets during the last two to three years.
Other. General and administrative expenses increased $4.0 million for the year ended December
31, 2007 primarily because we upgraded our consolidation platform systems, infrastructure and
people. During 2007, we made significant improvements in numerous home office departments
including Strategic Development, Legal, Human Resources and Training, all of which are under new
leadership compared to prior years. We view any controllable overhead above our individual
businesses as a support cost that needs to be value added to our field operating leadership, our
employees and to our client families. Other increases related primarily to four areas: unusually
high litigation costs in four cases; higher employee matching contributions under our 401K program;
higher recruiting fees related to successful operating leadership searches; and incentive
compensation based on performance. We paid out more incentive compensation during 2007 than at any
time in our history and have converted 100% of our Managing Partner Incentive Compensation to
Standards Achievement.
Interest income and other, net for the year ended December 31, 2007 is primarily interest
income on the short-term investments. Interest income declined during the year as a direct result
of our investments maturing and cash was used for the acquisitions.
Income taxes. See Note 17 to the Consolidated Financial Statements for a discussion of the
income taxes for 2007 and 2006.
26
YEAR ENDED DECEMBER 31, 2006 COMPARED TO YEAR ENDED DECEMBER 31, 2005
The following is a discussion of our results of operations for the years ended December 31,
2005 and 2006.
Net income from continuing operations for the year ended December 31, 2006 totaled $3.8
million, equal to $0.20 per diluted share as compared to a net (loss) from continuing operations of
$(1.0) million for the year ended December 31, 2005, or $(0.05) per diluted share. The variance
between the two periods was primarily due to a $6.0 million make-whole payment during the first
quarter of 2005 to the former debtholders in connection with the repayment of previously
outstanding senior debt along with a charge in the amount of $0.9 million to write off the related
unamortized loan costs, in total equal to $0.24 per diluted share. We repaid this senior debt and
paid the make-whole payment with proceeds from our $130 million senior note offering, which closed
in January 2005. During 2006, we recorded charges of approximately $0.8 million for environmental
remediation, equal to $0.03 per diluted share. Excluding the effect of these items, diluted
earnings per share from continuing operations for the year ended December 31, 2005 equaled $0.20
compared to $0.23 for the year ended December 31, 2006.
There are two major operational areas that management is focused on to improve results: (1)
The Central Region funeral operations, which suffered a year over year decline in pretax
profitability of $0.7 million, and (2) a cemetery in California, whose pretax profits declined by
$2.6 million compared to 2005. The decline in profitability in these two areas is equivalent to
$(0.12) per diluted share for the year. We recently made changes in leadership over each of these
areas to focus on the issues affecting profits, such as local sales management, receivable
collections, expense management, pricing and marketshare losses.
(Loss) from discontinued operations for the year ended December 31, 2006 totaled $(5.2)
million, equal to $(0.28) per diluted share. During 2006, we sold a funeral home business and a
combination funeral home and cemetery business for approximately $6.5 million and ceased operations
at a funeral home business. We recorded impairment charges of $6.3 million, a substantial portion
of which related to specifically identified goodwill, and recognized $0.2 million of net losses.
We recorded additional impairment charges totaling $2.1 million, which is related to specifically
identified goodwill, for three funeral home businesses to be sold in 2007. The sales of two of
these businesses were completed in January and February of 2007. Income from discontinued
operations for the year ended December 31, 2005 totaled $1.9 million, equal to $0.10 per diluted
share, and consisted primarily of a gain on the sale of a funeral home business during the first
quarter of 2005.
Funeral Home Segment. The following table sets forth certain information regarding our
revenues and gross profit from the funeral home operations for the year ended December 31, 2005
compared to the year ended December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
Change |
|
|
|
2005 |
|
|
2006 |
|
|
Amount |
|
|
Percent |
|
|
|
(dollars in thousands) |
|
Total same-store revenue |
|
$ |
111,606 |
|
|
$ |
114,497 |
|
|
$ |
2,891 |
|
|
|
2.6 |
% |
Less: businesses held for sale |
|
|
(2,258 |
) |
|
|
(1,837 |
) |
|
|
421 |
|
|
|
|
* |
Preneed insurance commissions revenue |
|
|
2,295 |
|
|
|
2,267 |
|
|
|
(28 |
) |
|
|
(1.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing operations |
|
$ |
111,643 |
|
|
$ |
114,927 |
|
|
$ |
3,284 |
|
|
|
2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from discontinued operations |
|
$ |
4,707 |
|
|
$ |
3,007 |
|
|
$ |
(1,700 |
) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same-store gross profit |
|
$ |
29,830 |
|
|
$ |
29,600 |
|
|
$ |
(230 |
) |
|
|
(0.8 |
)% |
Less: businesses held for sale |
|
|
(651 |
) |
|
|
(317 |
) |
|
|
334 |
|
|
|
|
* |
Preneed insurance |
|
|
13 |
|
|
|
826 |
|
|
|
813 |
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from continuing operations |
|
$ |
29,192 |
|
|
$ |
30,109 |
|
|
$ |
917 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from discontinued operations |
|
$ |
1,167 |
|
|
$ |
551 |
|
|
$ |
(616 |
) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral same-store revenues for the year ended December 31, 2006 increased $2.9 million, or
2.6%, when compared to the year ended December 31, 2005, as we experienced an increase of 3.1% to
$5,149 in the average revenue per service for those existing operations and the number of services
declined by 107, or 0.5%. Performance was strong in the Eastern Region, where the number of
contracts increased 2.9% and the contract average increased 3.7%. The Western Region number of
contracts remained constant, while the contract average increased 5.2%. The Central Region
suffered a decline of 5.5% in the number of contracts and an increase of 1.1% in the contract
average. Cremation services represented 34.3% of the number of funeral services during 2006,
compared to
27
32.8% for 2005. The average revenue for burial contracts increased 4.6% to $7,076, and the average
revenue for cremation contracts increased 8.4% to $2,636. We have addressed the growing demand for
cremation by training the funeral directors to present multiple merchandise and service options to
families, resulting in choices that produce higher revenues.
Total funeral same-store gross profit for the year ended December 31, 2006 decreased $0.2
million, or 0.8% from 2005, yet as a percentage of revenue, remained constant year over year. We
experienced a 2.4% increase in funeral operating expenses yet lower pretax earnings in our Central
Region of $0.7 million, equal to $0.02 per diluted share.
Cemetery Segment. The following table sets forth certain information regarding our revenues
and gross profit from the cemetery operations for the year ended December 31, 2006 compared to the
year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
|
|
|
December 31, |
|
|
Change |
|
|
|
2005 |
|
|
2006 |
|
|
Amount |
|
|
Percent |
|
|
|
(dollars in thousands) |
|
Revenues from continuing operations |
|
$ |
37,555 |
|
|
$ |
36,159 |
|
|
$ |
(1,396 |
) |
|
|
(3.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from discontinued operations |
|
$ |
1,851 |
|
|
$ |
778 |
|
|
$ |
(1,073 |
) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from continuing operations |
|
$ |
6,525 |
|
|
$ |
3,943 |
|
|
$ |
(2,582 |
) |
|
|
(39.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from discontinued operations |
|
$ |
371 |
|
|
$ |
121 |
|
|
$ |
(250 |
) |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery same-store revenues for the year ended December 31, 2006 decreased $1.4 million, or
(3.7)%, over the year ended December 31, 2005, and cemetery same store gross profit decreased $2.6
million, or (39.6)%, over 2005. Revenues from preneed interment sales decreased $1.7 million.
Though the number of interments sold on a preneed basis declined 0.6 million, or 8.5%, over 2005,
the average price per space increased 8.6%. Continuing gross margin decreased from 17.4% for the
year ended December 31, 2005 to 10.9% for the year ended December 31, 2006. The decline in
revenues and gross profits from continuing operations relates to a particular California cemetery
that experienced a decline of $2.1 million in preneed property sales, an increase in bad debts of
$0.2 million and a decline of $0.2 million in atneed revenues. Financial revenues (trust earnings
and finance charges on installment contracts) increased $0.2 million on the strength of higher
trust earnings.
Other. General and administrative expenses decreased $1.1 million for the year ended December
31, 2006 primarily because 2005 included higher professional fees related to our compliance with
the internal control requirements of Sarbanes-Oxley and the development of a new cemetery system.
We first recognized compensation expense related to its stock options and employee stock purchase
plan under a new accounting standard in 2006. See Note 1 to the Consolidated Financial Statement.
Stock-based compensation totaling $236,000 is included in general and administrative expenses for
the year ended December 31, 2006.
Other income for the year ended December 31, 2006 includes a gain on the sale of excess real
estate and interest income on the short-term investments.
Income taxes. See Note 17 to the Consolidated Financial Statements for a discussion of the
income taxes for 2005 and 2006.
28
LIQUIDITY AND CAPITAL RESOURCES
Carriage began 2007 with $41.0 million in cash and other liquid investments and ended the year
with $3.4 million in cash and an undrawn $35 million line of credit. The elements of cash flow for
2007 consisted of the following (in millions):
|
|
|
|
|
Cash and liquid investments at beginning of year |
|
$ |
41.0 |
|
Cash flow from operations |
|
|
19.6 |
|
Proceeds from sales of businesses |
|
|
3.2 |
|
Cash used for business acquisitions |
|
|
(48.6 |
) |
Cash used for maintenance capital expenditures |
|
|
(7.9 |
) |
Cash used for growth capital expenditures |
|
|
(3.8 |
) |
Other investing and financing activities |
|
|
(0.1 |
) |
|
|
|
|
Cash at end of year |
|
$ |
3.4 |
|
|
|
|
|
The outstanding principal of senior debt at December 31, 2007 totaled $138.9 million and
consisted of $130.0 million in Senior Notes, described below, and $8.9 million in acquisition
indebtedness and capital lease obligations. Additionally, $0.4 million in letters of credit were
issued under the credit facility and were outstanding at December 31, 2007.
In January 2005, we issued $130 million of 7.875% Senior Notes due in 2015. The proceeds from
these notes were used to refinance the Series 1999 Senior Notes (including payments for accrued
interest and make-whole payments), to bring current the deferred distributions on the convertible
junior subordinated debentures and the TIDES, and for general corporate purposes. In connection
with the early retirement of the senior debt, we made a required make whole payment of $6.0
million (recorded as 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 were reported in the first quarter of 2005. The refinancing improved our liquidity by
replacing debt totaling approximately $96 million due in 2006 and 2008 with debt maturing in 2015.
In April 2005, we entered into a $35 million senior secured revolving credit facility that
matures in 2010 and is collateralized by all personal property and funeral home real property in
certain states. Borrowings under the credit facility bear interest at either prime or LIBOR
options. At December 31, 2007, the LIBOR option was set at LIBOR plus 275 basis points. The
facility is undrawn, except for the letters of credit referred to above, at December 31, 2007.
A total of $93.8 million was outstanding on December 31, 2007 on the convertible junior
subordinated debenture. Amounts outstanding under the debenture are payable to our affiliate trust,
Carriage Services Capital Trust, bear interest at 7.0% and mature in 2029. Substantially all the
assets of the Trust consist of the convertible junior subordinated debentures. In 1999, the Trust
issued 1.875 million shares of term income deferrable equity securities (TIDES). The rights of
the debentures are functionally equivalent to those of the TIDES.
The convertible junior subordinated debenture payable to the affiliated trust, and the TIDES,
each contain a provision for the deferral of interest payments and distributions for up to 20
consecutive quarters at our discretion. During the period in which distribution payments are
deferred, distributions will continue to accumulate at the 7% annual rate. Also, the deferred
distributions themselves accumulate distributions at the annual rate of 7% and are recorded as a
liability. During the deferral period, we are prohibited from paying dividends on common stock or
repurchasing common stock, subject to limited exceptions. We deferred distributions on the TIDES
from September 2003 through December 2004. In March 2005, we paid the $10.3 million for the
cumulative deferred distributions on the TIDES and are currently paying the quarterly interest and
distributions.
We intend to use our cash, cash flow provided by operations and proceeds from the sale of
businesses, to acquire funeral home and cemetery businesses and to invest in internal projects that
will result in revenue and earnings growth. We also have the ability to draw on our revolving
credit facility, subject to customary terms and conditions of the credit agreement, to finance
acquisitions.
29
Balance Sheet Obligations
The following table summarizes the future payments required for the debt on our balance sheet
as of December 31, 2007. Where appropriate we have indicated the footnote to our annual
Consolidated Financial Statements where additional information is available.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments By Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After |
|
|
Reference |
|
Total |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
5 Years |
Long-term debt |
|
|
14 |
|
|
$ |
134.2 |
|
|
|
1.2 |
|
|
|
0.7 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.4 |
|
|
|
131.1 |
|
Capital lease obligations |
|
|
16 |
|
|
|
10.2 |
|
|
|
0.6 |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
0.6 |
|
|
|
0.7 |
|
|
|
7.0 |
|
Convertible junior subordinated
debenture (a) |
|
|
15 |
|
|
|
93.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93.8 |
|
|
|
|
|
|
|
|
Total contractual obligations |
|
|
|
|
|
$ |
238.2 |
|
|
|
1.8 |
|
|
|
1.3 |
|
|
|
1.1 |
|
|
|
1.0 |
|
|
|
1.1 |
|
|
|
231.9 |
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
The following table summarizes our off-balance sheet arrangements as of December 31, 2007.
Where appropriate we have indicated the footnote to our annual Consolidated Financial Statements
where additional information is available.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments By Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
Note |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After |
|
|
Reference |
|
Total |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
5 Years |
Operating leases |
|
|
16 |
|
|
$ |
10.3 |
|
|
$ |
2.2 |
|
|
$ |
1.6 |
|
|
$ |
1.2 |
|
|
$ |
0.9 |
|
|
$ |
0.9 |
|
|
$ |
3.5 |
|
Interest payments on long-term debt |
|
|
14 |
|
|
|
114.2 |
|
|
|
17.5 |
|
|
|
17.4 |
|
|
|
17.3 |
|
|
|
17.1 |
|
|
|
17.1 |
|
|
|
27.8 |
|
Noncompete agreements |
|
|
16 |
|
|
|
3.2 |
|
|
|
1.0 |
|
|
|
0.7 |
|
|
|
0.5 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.4 |
|
Consulting agreements |
|
|
16 |
|
|
|
0.9 |
|
|
|
0.4 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.1 |
|
Executive Management agreements |
|
|
16 |
|
|
|
5.9 |
|
|
|
2.3 |
|
|
|
2.2 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
|
|
|
|
$ |
134.5 |
|
|
$ |
23.4 |
|
|
$ |
22.1 |
|
|
$ |
20.5 |
|
|
$ |
18.4 |
|
|
$ |
18.3 |
|
|
$ |
31.8 |
|
|
|
|
|
|
|
|
The obligations related to our off-balance sheet arrangements are significant to our future
liquidity; however, although we can provide no assurances, we anticipate that these obligations
will be funded from cash provided from our operating activities. If we are not able to meet these
obligations with cash provided for by our operating activities, we may be required to access the
capital markets or draw down on our credit facilities.
SEASONALITY
Our business can be affected by seasonal fluctuations in the death rate. Generally, the rate
is higher during the winter months because the incidences of death from influenza and pneumonia are
higher during this period than other periods of the year.
INFLATION
Inflation has not had a significant impact on our results of operations.
30
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K contains
forward-looking statements within the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements include any projections of earnings, revenues, asset sales,
cash flow, debt levels or other financial items; any statements of the plans, strategies and
objectives of management for future operation; any statements regarding future economic conditions
or performance; any statements of belief; and any statements of assumptions underlying any of the
foregoing. Forward-looking statements may include the words may, will, estimate, intend,
believe, expect, project, forecast, plan, anticipate and other similar words.
Forward-looking statements are not guarantees of performance. Important factors that could cause
actual results to differ materially from our expectations reflected in our forward-looking
statements include those risks related to our business and our industry set forth in Item 1A. Risk
Factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, we are typically exposed to a variety of market risks.
Currently, these are primarily related to changes in market values related to outstanding debts and
changes in the values of securities associated with the preneed and perpetual care trusts.
Management is actively involved in monitoring exposure to market risk and developing and utilizing
appropriate risk management techniques when appropriate and when available for a reasonable price.
We are not exposed to any other significant market risks including commodity price risk, nor
foreign currency exchange risk.
We monitor current and forecasted interest rate risk in the ordinary course of business and
seek to maintain optimal financial flexibility, quality and solvency. As of December 31, 2007, our
outstanding debt is comprised of entirely fixed rate obligations.
We do not currently have any floating rate long-term borrowings outstanding under its $35
million floating rate line of credit. If we borrow against the line of credit, any change in the
floating rate would cause a change in interest expense.
The 7.875% Senior Notes were issued to the public at par and are carried at a cost of $130
million. At December 31, 2007, these securities were typically trading at prices ranging from 98.0
to 99.0.
The convertible junior subordinated debenture payable to Carriage Services Capital Trust pays
interest at the fixed rate of 7% and are carried on the Companys balance sheet at a cost of
approximately $93.8 million. The estimated fair value of these securities is estimated to be $82.5
million at December 31, 2007 based on available broker quotes of the corresponding preferred
securities issued by the Trust.
Increases in market interest rates may cause the value of these debt instruments to decrease
but such changes will not affect our interest costs. The remainder of the our long-term debt and
leases consist of non-interest bearing notes and fixed rate instruments that do not trade in a
market, nor otherwise have a quoted market value. Any increase in market interest rates causes the
fair value of those liabilities to decrease.
Securities subject to market risk consist of investments held by our preneed funeral, cemetery
merchandise and services and perpetual care trust funds. See Notes 9, 10 and 12 to our Consolidated
Financial Statements for the estimated fair values of those securities.
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CARRIAGE SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
Page |
CONSOLIDATED FINANCIAL STATEMENTS: |
|
|
|
|
|
Managements Report on Internal Control over Financial Reporting |
|
33 |
|
|
|
Attestation of Independent Registered Public Accounting Firm |
|
34 |
|
|
|
Report of Independent Registered Public Accounting Firm |
|
35 |
|
|
|
Consolidated Balance Sheets as of December 31, 2006 and 2007 |
|
36 |
|
|
|
Consolidated Statements of Operations for the Years Ended December 31, 2005, 2006 and 2007 |
|
37 |
|
|
|
Consolidated Statements of Changes in Stockholders Equity for the Years Ended
December 31, 2005, 2006 and 2007 |
|
38 |
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2006 and 2007 |
|
39 |
|
|
|
Notes to Consolidated Financial Statements |
|
40 |
32
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined under Rule 13a-15(f) promulgated under the
Securities Exchange Act of 1934, as amended.
Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of the Companys
Consolidated Financial Statements for external purposes in accordance with generally accepted
accounting principles.
Internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit the preparation of the Consolidated Financial
Statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with appropriate authorizations of
management and directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the Companys
assets that could have a material effect on the Consolidated Financial Statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the Companys internal control over financial reporting
as of December 31, 2007 using the framework specified in Internal Control Integrated Framework,
published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such
assessment, management has concluded that the Companys internal control over financial reporting
was effective as of December 31, 2007.
The Companys internal control over financial reporting as of December 31, 2007 has been
audited by KPMG LLP, an independent registered public accounting firm, which also audited the
financial statements of the Company for the year ended December 31, 2007, as stated in their report
which is presented in this Annual Report.
/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 14, 2008
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Carriage Services, Inc.:
We have audited Carriage Services, Inc.s internal control over financial reporting as of December
31, 2007, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Carriage Services, Inc.s
management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Carriage Services, Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Carriage Services, Inc. as of December
31, 2007 and 2006, and the related consolidated statements of operations, stockholders equity, and
cash flows for each of the years in the three-year period ended December 31, 2007, and our report
dated March 14, 2008, expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Houston, Texas
March 14, 2008
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Carriage Services, Inc.:
We have audited the accompanying consolidated balance sheets of Carriage Services, Inc. and
subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of
operations, stockholders equity, and cash flows for each of the years in the three-year period
ended December 31, 2007. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Carriage Services, Inc. as of December 31, 2007 and
2006, and the results of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2007 in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2007, the
Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. Also as
discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the
Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Carriage Services, Inc.s internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal ControlIntegrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
March 14, 2008 expressed an unqualified opinion on the effectiveness of internal control over
financial reporting.
/s/ KPMG LLP
Houston, Texas
March 14, 2008
35
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
2007 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
22,820 |
|
|
$ |
3,446 |
|
Short term investments |
|
|
10,303 |
|
|
|
|
|
Accounts receivable, net of allowance for bad debts of $925 in 2006 and $1,142 in 2007 |
|
|
13,822 |
|
|
|
16,421 |
|
Assets held for sale |
|
|
2,634 |
|
|
|
|
|
Inventories and other current assets |
|
|
11,883 |
|
|
|
13,686 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
61,462 |
|
|
|
33,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
2,888 |
|
|
|
|
|
Preneed cemetery trust investments |
|
|
55,483 |
|
|
|
61,114 |
|
Preneed funeral trust investments |
|
|
44,851 |
|
|
|
68,292 |
|
Preneed receivables, net of allowance for bad debts of $1,203 in 2006 and $1,159 in 2007 |
|
|
15,127 |
|
|
|
18,333 |
|
Receivables from preneed funeral trusts |
|
|
15,649 |
|
|
|
15,012 |
|
Property, plant and equipment, net of accumulated depreciation of $47,250 in 2006 and
$53,304 in 2007 |
|
|
99,894 |
|
|
|
125,608 |
|
Cemetery property |
|
|
57,798 |
|
|
|
68,028 |
|
Goodwill |
|
|
148,845 |
|
|
|
167,263 |
|
Deferred charges and other non-current assets |
|
|
30,459 |
|
|
|
16,402 |
|
Cemetery perpetual care trust investments |
|
|
32,540 |
|
|
|
37,202 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
564,996 |
|
|
$ |
610,807 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of long-term debt and obligations under capital leases |
|
$ |
1,610 |
|
|
$ |
1,256 |
|
Accounts payable |
|
|
7,148 |
|
|
|
6,091 |
|
Accrued liabilities |
|
|
15,888 |
|
|
|
14,559 |
|
Liabilities associated with assets held for sale |
|
|
1,061 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
25,707 |
|
|
|
21,906 |
|
|
|
|
|
|
|
|
|
|
Senior long-term debt, net of current portion |
|
|
133,841 |
|
|
|
132,994 |
|
Convertible junior subordinated debenture due in 2029 to an affiliated trust |
|
|
93,750 |
|
|
|
93,750 |
|
Obligations under capital leases, net of current portion |
|
|
4,728 |
|
|
|
4,663 |
|
Deferred preneed cemetery revenue |
|
|
50,785 |
|
|
|
50,610 |
|
Deferred preneed funeral revenue |
|
|
28,289 |
|
|
|
34,277 |
|
Non-controlling interests in cemetery trust investments |
|
|
55,483 |
|
|
|
61,114 |
|
Non-controlling interests in funeral trust investments |
|
|
44,851 |
|
|
|
68,292 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
437,434 |
|
|
|
467,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Non-controlling interests in perpetual care trust investments |
|
|
31,189 |
|
|
|
36,301 |
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common Stock, $.01 par value; 80,000,000 shares authorized; 18,608,000 and 19,216,000
issued and outstanding in 2006 and 2007, respectively |
|
|
186 |
|
|
|
192 |
|
Additional paid-in capital |
|
|
190,524 |
|
|
|
193,006 |
|
Accumulated deficit |
|
|
(94,337 |
) |
|
|
(86,298 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
96,373 |
|
|
|
106,900 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
564,996 |
|
|
$ |
610,807 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
36
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
110,882 |
|
|
$ |
114,187 |
|
|
$ |
124,808 |
|
Cemetery |
|
|
37,555 |
|
|
|
36,159 |
|
|
|
43,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,437 |
|
|
|
150,346 |
|
|
|
167,824 |
|
Field costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
72,429 |
|
|
|
73,319 |
|
|
|
77,692 |
|
Cemetery |
|
|
26,076 |
|
|
|
26,721 |
|
|
|
28,495 |
|
Depreciation and amortization |
|
|
8,577 |
|
|
|
8,375 |
|
|
|
8,139 |
|
Regional and unallocated funeral and cemetery costs |
|
|
5,854 |
|
|
|
7,303 |
|
|
|
7,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,936 |
|
|
|
115,718 |
|
|
|
122,024 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
35,501 |
|
|
|
34,628 |
|
|
|
45,800 |
|
Corporate costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
General, administrative and other |
|
|
11,110 |
|
|
|
10,590 |
|
|
|
14,628 |
|
Home office depreciation and amortization |
|
|
1,273 |
|
|
|
1,432 |
|
|
|
1,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,383 |
|
|
|
12,022 |
|
|
|
16,015 |
|
Other income |
|
|
(822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
23,940 |
|
|
|
22,606 |
|
|
|
29,785 |
|
Interest expense |
|
|
(18,587 |
) |
|
|
(18,508 |
) |
|
|
(18,344 |
) |
Additional interest and other costs of senior debt refinancing |
|
|
(6,933 |
) |
|
|
|
|
|
|
|
|
Interest income and other, net |
|
|
(73 |
) |
|
|
1,921 |
|
|
|
1,152 |
|
|
|
|
|
|
|
|
|
|
|
Total interest and other |
|
|
(25,593 |
) |
|
|
(16,587 |
) |
|
|
(17,192 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
(1,653 |
) |
|
|
6,019 |
|
|
|
12,593 |
|
(Provision) benefit for income taxes |
|
|
532 |
|
|
|
(2,305 |
) |
|
|
(5,068 |
) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
|
(1,121 |
) |
|
|
3,714 |
|
|
|
7,525 |
|
Income (loss) from discontinued operations, net of tax |
|
|
2,012 |
|
|
|
(5,130 |
) |
|
|
754 |
|
Cumulative effect of change in accounting method, net of tax |
|
|
(22,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(21,865 |
) |
|
$ |
(1,416 |
) |
|
$ |
8,279 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.06 |
) |
|
$ |
0.21 |
|
|
$ |
0.40 |
|
Discontinued operations |
|
|
0.11 |
|
|
|
(0.29 |
) |
|
|
0.04 |
|
Cumulative effect of change in accounting method |
|
|
(1.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1.19 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.06 |
) |
|
$ |
0.20 |
|
|
$ |
0.39 |
|
Discontinued operations |
|
|
0.11 |
|
|
|
(0.28 |
) |
|
|
0.04 |
|
Cumulative effect of change in accounting method |
|
|
(1.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1.19 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common equivalent
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
18,334 |
|
|
|
18,545 |
|
|
|
19,020 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
18,334 |
|
|
|
18,912 |
|
|
|
19,507 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
37
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
Additional |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Stock |
|
|
Paid-in Capital |
|
|
Deficit |
|
|
Total |
|
Balance
December 31, 2004 |
|
|
17,910 |
|
|
$ |
179 |
|
|
$ |
187,315 |
|
|
$ |
(71,056 |
) |
|
$ |
116,438 |
|
Net loss 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,865 |
) |
|
|
(21,865 |
) |
Issuance of common stock |
|
|
118 |
|
|
|
1 |
|
|
|
685 |
|
|
|
|
|
|
|
686 |
|
Exercise of stock options |
|
|
177 |
|
|
|
2 |
|
|
|
528 |
|
|
|
|
|
|
|
530 |
|
Issuance of restricted common stock |
|
|
268 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
Cancellation and retirement of restricted common stock |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of restricted common stock |
|
|
|
|
|
|
|
|
|
|
585 |
|
|
|
|
|
|
|
585 |
|
|
|
|
Balance
December 31, 2005 |
|
|
18,458 |
|
|
|
185 |
|
|
|
189,110 |
|
|
|
(92,921 |
) |
|
|
96,374 |
|
Net loss 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,416 |
) |
|
|
(1,416 |
) |
Issuance of common stock |
|
|
93 |
|
|
|
1 |
|
|
|
386 |
|
|
|
|
|
|
|
387 |
|
Exercise of stock options |
|
|
87 |
|
|
|
1 |
|
|
|
319 |
|
|
|
|
|
|
|
320 |
|
Issuance of restricted common stock |
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation and retirement of restricted common stock |
|
|
(65 |
) |
|
|
(1 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
Amortization of restricted common stock |
|
|
|
|
|
|
|
|
|
|
472 |
|
|
|
|
|
|
|
472 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
236 |
|
|
|
|
|
|
|
236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2006 |
|
|
18,608 |
|
|
|
186 |
|
|
|
190,524 |
|
|
|
(94,337 |
) |
|
|
96,373 |
|
Net Income
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,279 |
|
|
|
8,279 |
|
Adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(240 |
) |
|
|
(240 |
) |
Issuance of common stock |
|
|
119 |
|
|
|
1 |
|
|
|
601 |
|
|
|
|
|
|
|
602 |
|
Exercise of stock options |
|
|
219 |
|
|
|
2 |
|
|
|
996 |
|
|
|
|
|
|
|
998 |
|
Issuance of restricted common stock |
|
|
309 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
Cancellation and retirement of restricted common stock |
|
|
(40 |
) |
|
|
|
|
|
|
34 |
|
|
|
|
|
|
|
34 |
|
Amortization of restricted common stock |
|
|
|
|
|
|
|
|
|
|
723 |
|
|
|
|
|
|
|
723 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
131 |
|
|
|
|
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2007 |
|
|
19,215 |
|
|
$ |
192 |
|
|
$ |
193,006 |
|
|
$ |
(86,298 |
) |
|
$ |
106,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
38
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(21,865 |
) |
|
$ |
(1,416 |
) |
|
$ |
8,279 |
|
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Income) loss from discontinued operations, net of tax |
|
|
(2,012 |
) |
|
|
5,130 |
|
|
|
(754 |
) |
Cumulative effect of change in accounting method, net of tax |
|
|
22,756 |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
9,053 |
|
|
|
8,664 |
|
|
|
9,526 |
|
Amortization of deferred financing costs |
|
|
754 |
|
|
|
714 |
|
|
|
714 |
|
Provision for losses on accounts receivable |
|
|
2,648 |
|
|
|
3,880 |
|
|
|
3,398 |
|
(Gain) loss on sale or disposition of assets |
|
|
738 |
|
|
|
(513 |
) |
|
|
|
|
Stock-based compensation expense |
|
|
675 |
|
|
|
784 |
|
|
|
1,141 |
|
Deferred income taxes (benefit) |
|
|
(532 |
) |
|
|
2,305 |
|
|
|
5,068 |
|
Other |
|
|
(133 |
) |
|
|
122 |
|
|
|
(233 |
) |
Changes in operating assets and liabilities that provided (required) cash, net of
effects from acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(3,623 |
) |
|
|
(2,109 |
) |
|
|
(4,498 |
) |
Inventories and other current assets |
|
|
(1,039 |
) |
|
|
336 |
|
|
|
17 |
|
Deferred charges and other |
|
|
(818 |
) |
|
|
12 |
|
|
|
(15 |
) |
Preneed funeral and cemetery trust investments |
|
|
(7,477 |
) |
|
|
(13,888 |
) |
|
|
757 |
|
Accounts payable and accrued liabilities |
|
|
(1,408 |
) |
|
|
613 |
|
|
|
(3,524 |
) |
Deferred preneed funeral and cemetery revenue |
|
|
10,893 |
|
|
|
10,095 |
|
|
|
(5,634 |
) |
Non-controlling interests in preneed funeral and cemetery trusts investments |
|
|
1,825 |
|
|
|
2,526 |
|
|
|
5,319 |
|
Deferred interest on convertible junior subordinated debenture |
|
|
(10,345 |
) |
|
|
|
|
|
|
|
|
Net cash provided by operating activities of discontinued operations |
|
|
1,649 |
|
|
|
928 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,739 |
|
|
|
18,183 |
|
|
|
19,571 |
|
Cash flows of investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
|
(1,285 |
) |
|
|
(1,072 |
) |
|
|
(48,604 |
) |
Net proceeds from sales of assets |
|
|
586 |
|
|
|
670 |
|
|
|
|
|
Purchase of corporate investments |
|
|
(32,724 |
) |
|
|
(50,927 |
) |
|
|
|
|
Maturities of corporate investments |
|
|
15,816 |
|
|
|
52,533 |
|
|
|
15,303 |
|
Sales proceeds (deposited into) withdrawn from restricted accounts |
|
|
|
|
|
|
(2,888 |
) |
|
|
2,888 |
|
Capital expenditures |
|
|
(8,104 |
) |
|
|
(6,365 |
) |
|
|
(11,650 |
) |
Net cash provided by investing activities of discontinued operations |
|
|
1,509 |
|
|
|
6,312 |
|
|
|
3,241 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(24,202 |
) |
|
|
(1,737 |
) |
|
|
(38,822 |
) |
Cash flows of financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payments under bank line of credit |
|
|
(25,600 |
) |
|
|
|
|
|
|
|
|
Payments on senior long-term debt and obligations under capital leases |
|
|
(72,533 |
) |
|
|
(2,111 |
) |
|
|
(1,396 |
) |
Proceeds from the issuance of senior notes |
|
|
130,000 |
|
|
|
|
|
|
|
|
|
Payment of financing costs |
|
|
(4,175 |
) |
|
|
|
|
|
|
|
|
Proceeds from the exercise of stock options and employee stock purchase
plan |
|
|
936 |
|
|
|
567 |
|
|
|
970 |
|
Tax benefit from stock-based compensation |
|
|
|
|
|
|
63 |
|
|
|
377 |
|
Net cash used in financing activities of discontinued operations |
|
|
(164 |
) |
|
|
(94 |
) |
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
28,464 |
|
|
|
(1,575 |
) |
|
|
(123 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
6,001 |
|
|
|
14,871 |
|
|
|
(19,374 |
) |
Cash and cash equivalents at beginning of year |
|
|
1,948 |
|
|
|
7,949 |
|
|
|
22,820 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
7,949 |
|
|
$ |
22,820 |
|
|
$ |
3,446 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Carriage Services, Inc. (Carriage or the Company) was founded in 1991 and incorporated
under the laws of the State of Delaware in 1993. The Company owns and operates 139 funeral homes in
25 states and 32 cemeteries in 11 states at December 31, 2007. Carriage provides a complete range
of preneed and atneed services and products related to funerals, burials and cremations.
Principles of Consolidation and Basis of Presentation
The financial statements include the Consolidated Financial Statements of Carriage Services,
Inc. and its subsidiaries, after eliminating all significant intercompany balances and
transactions. Certain prior year amounts in the Consolidated Financial Statements have been
reclassified to conform to current year presentation.
The accounting policies and procedures reflected herein have been consistently followed during
the periods presented, except for the changes in accounting methods discussed in Note 1 related to
stock-based employee compensation.
Funeral and Cemetery Operations
We record the revenue from sales of funeral and cemetery merchandise and services when the
merchandise is delivered or the service is performed. Sales of cemetery interment rights are
recorded as revenue in accordance with the retail land sales provisions of Financial Accounting
Standards (FAS) No. 66 Accounting for Sales of Real Estate. This method provides for the
recognition of revenue in the period in which the customers cumulative payments exceed 10% of the
contract price related to the real estate. Costs related to the sales of interment rights, which
include property and other costs related to cemetery development activities, are charged to
operations using the specific identification method in the period in which the sale of the
interment right is recognized as revenue. Revenues to be recognized from the delivery of
merchandise and performance of services related to contracts that were acquired in acquisitions are
typically lower than those originated by the Company.
Allowances for bad debts and customer cancellations are provided at the date that the sale is
recognized as revenue based on our historical experience. 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 at the
point at which the commission is no longer subject to refund, which is typically one year after the
policy is issued.
Trade accounts receivable consists of approximately $8.3 million and $10.7 million of funeral
receivables and approximately $6.6 million and $6.1 million of current preneed cemetery receivables
at December 31, 2006 and 2007, respectively. Non-current preneed receivables at December 31, 2006
and 2007, represent the payments expected to be received beyond one year from the balance sheet
date. Non-current preneed receivables consist of approximately $2.2 million and $5.0 million of
funeral receivables and $12.9 million and $13.3 million of cemetery receivables at December 31,
2006 and 2007, respectively.
Preneed Contracts
Interment rights, merchandise and services are also sold on a preneed basis and in many
instances the customer pays the contract over a period of time. Cash proceeds from preneed sales
less amounts that the Company may retain under state regulations are deposited to a trust or used
to purchase a third-party insurance policy. The principal and accumulated earnings of the trusts
may generally be withdrawn at maturity (death) or cancellation. The trust income earned and the
increases in insurance benefits on the insurance products are deferred until the service is
performed. The customer receivables and amounts deposited in trusts that Carriage controls are
included in the non-current asset section of the balance sheet. The preneed funeral contracts
secured by third party insurance policies are not recorded as assets or liabilities of the Company
(Note 11).
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In the opinion of management, the proceeds from the trust funds and the insurance policies at
the times the preneed contracts mature will exceed the estimated future costs to perform services
and provide products under such arrangements. The types of instruments in which the trusts may
invest are regulated by state agencies.
Cemetery Perpetual Care Trust Funds
In accordance with respective state laws, the Company is required to deposit a specified
amount into perpetual and memorial care trust funds for each interment/entombment right and
memorial sold. Income from the trust funds is distributed to Carriage and used to provide care and
maintenance for the cemeteries and mausoleums. Such trust fund income is recognized as revenue
when realized by the trust and distributable to the Company. The Company is restricted from
withdrawing any of the principal balances of these funds.
Cash and Cash Equivalents
Carriage considers all highly liquid investments with an original maturity of three months or
less to be cash equivalents.
Goodwill
The excess of the purchase price over the fair value of net identifiable assets of funeral
homes acquired, as determined by management in transactions accounted for as purchases, is recorded
as goodwill. Many of the acquired funeral homes have provided high quality service to families for
generations. The resulting loyalty often represents a substantial portion of the value of a
funeral business. Goodwill is typically not associated with or recorded in connection with the
acquisitions of cemetery businesses. In accordance with FAS No. 142, 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 Companys 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 Companys 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.
Inventory
Inventory consists primarily of caskets, outer burial containers and cemetery monuments and
markers, and is recorded at the lower of its cost basis (determined by the specific identification
method) or net realizable value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The costs of ordinary maintenance and
repairs are charged to operations as incurred, while renewals and betterments are capitalized.
Capitalized interest totaled approximately $50,000 and $59,000 in 2006 and 2007, respectively.
Depreciation of property, plant and equipment is computed based on the straight-line method over
the following estimated useful lives of the assets:
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
|
|
|
|
|
|
|
|
|
|
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, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
|
(in thousands) |
|
Land |
|
$ |
26,589 |
|
|
$ |
32,476 |
|
Buildings and improvements |
|
|
81,567 |
|
|
|
100,980 |
|
Furniture, equipment and automobiles |
|
|
41,076 |
|
|
|
45,456 |
|
|
|
|
|
|
|
|
|
|
|
149,232 |
|
|
|
178,912 |
|
Less: accumulated depreciation |
|
|
(47,932 |
) |
|
|
(53,304 |
) |
|
|
|
|
|
|
|
|
|
$ |
101,300 |
|
|
$ |
125,608 |
|
Less: Property, plant and equipment included in
assets held for sale |
|
|
(1,406 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
99,894 |
|
|
$ |
125,608 |
|
|
|
|
|
|
|
|
During 2005, 2006 and 2007, the Company recorded $6,922,000, $6,897,000 and $6,982,000
respectively, for depreciation expense against income from continuing operations.
Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds
its estimated future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset. The long-lived assets to be held
and used are reported at the lower of carrying amount or fair value. Assets to be disposed of 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.
Income Taxes
The Company and its subsidiaries file a consolidated U.S. Federal income tax return and
separate income tax returns in the states in which we operate. We record deferred taxes for
temporary differences between the tax basis and financial reporting basis of assets and
liabilities, in accordance with FAS No. 109, Accounting for Income Taxes, (Note 17). The Company
records a valuation allowance to reflect the estimated amount of deferred tax assets for which
realization is uncertain. Management reviews the valuation allowance at the end of each quarter
and makes adjustments if it is determined that it is more likely than not that the tax benefits
will be realized. The Company adopted FASB Interpretation No. 48 Accounting for Uncertainty in
Income Taxes (FIN 48) at January 1, 2007 as further discussed in Note 4 to the consolidated financial statements.
Stock Compensation Plans
The Company has stock-based employee compensation plans in the form of restricted stock, stock
option and employee stock purchase plans. The Company accounts for stock-based compensation under
FAS No. 123R, Share-Based Payment (FAS No. 123R). FAS No. 123R requires companies to recognize
compensation expense in an amount equal to the fair value of the share-based awards issued to
employees over the period of vesting and applies to all transactions involving issuance of equity
by a company in exchange for goods and services, including employee services. The fair value of
awards for options or awards containing options is determined using the Black-Scholes valuation
model. The Company adopted FAS No. 123R in the first quarter of 2006, using the modified
prospective application method, which results in no restatement of the Companys previously issued
annual consolidated financial statements.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Prior to 2006, the Company accounted for stock based compensation under APB No. 25 and
provided the disclosures required under FAS No. 123, Accounting for Stock-Based Compensation, as
amended by FAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure.
Pursuant to the provisions of FAS 123R, the Company applied the modified-prospective
transition method. Under this method, the fair value provision of FAS 123R is applied to new
employee stock-based awards granted after December 31, 2005. Measurement and recognition of
compensation cost for unvested awards at December 31, 2005, granted prior to the adoption of FAS
123R, are recognized under the provisions of FAS No 123, Accounting for Stock-Based Compensation
(FAS 123), after adjustments for estimated forfeitures. FAS 123R no longer permits pro-forma
disclosure for income statement periods after December 31, 2005 and compensation expense will be
recognized for all stock-based awards based on grant-date fair value.
Carriage has three types of stock-based compensation plans for which the accounting is
changed: stock options, restricted stock and an employee stock purchase plan (ESPP). Options to
purchase Carriage common stock have been granted with an exercise price equal to the fair market
value at the date of grant with vesting generally occurring annually over four years. The value of
the options at the date of grant is amortized to compensation expense over the vesting period on a
straight line basis. Twenty-five percent of the restricted shares vest annually on each of the
next four anniversary dates of the grants. The value of the restricted stock at the date of grant
is amortized to compensation expense over the vesting period, generally four years, on a straight
line basis. The ESPP allows employees, through payroll deductions, to purchase Carriage common
stock at 85% of the value of the common stock on the quarterly purchase dates or the annual grant
date, whichever is lower.
The fair value of the stock option awards and the ESPP awards are determined using the
Black-Scholes valuation model, which is consistent with the valuation methods previously utilized
for the awards in the proforma footnote disclosures required under FAS 123, as amended by FAS No.
148, Accounting for Stock-Based Compensation Transition and Disclosure. The Company recorded
pretax stock-based compensation expense for the stock options and the ESPP totaling $236,000 and
$131,000 for the year ended December 31, 2006 and 2007, respectively. Had FAS 123R been effective
for 2005, the Company would have recorded additional pretax stock-based compensation totaling
$312,000 as disclosed in the following table (in thousands). As reported is as of the year FAS
No. 123 was adopted thus it has not been affected for discontinued operations since 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
|
December 31, 2005 |
|
|
As Reported |
|
Effect of Change |
|
Proforma |
Loss from continuing operations before income taxes |
|
$ |
(1,449 |
) |
|
$ |
(312 |
) |
|
$ |
(1,761 |
) |
Net loss available to common stockholders |
|
|
(21,865 |
) |
|
|
(195 |
) |
|
|
(22,060 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share available to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.19 |
) |
|
$ |
(0.01 |
) |
|
$ |
(1.20 |
) |
Diluted |
|
|
(1.19 |
) |
|
|
(0.01 |
) |
|
|
(1.20 |
) |
See Note 18 to the consolidated financial statements for additional information on the Companys
stock-based compensation plans.
Computation of Earnings Per Common Share
Basic earnings per share are computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share are computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the period. Dilutive
common equivalent shares consist of stock options.
Fair Value of Financial Instruments
Carriage believes that the carrying value approximates fair value for cash and cash
equivalents and trade receivables and payables. Additionally, our floating rate credit facility,
when drawn, approximates its fair value. Management estimates that the fair value of senior
long-term debt at December 31, 2007 was approximately $128.1 million, based on available market
quotes. Management estimates that the fair value of the Convertible junior subordinated debenture
at December 31, 2007 was approximately $82.5 million, based on available broker quotes of the
corresponding convertible preferred securities at Carriage Services Capital Trust.
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Discontinued Operations
In accordance with the Companys strategic portfolio optimization model, non-strategic
businesses are reviewed to determine whether the business should be sold and proceeds redeployed
elsewhere. A marketing plan is then developed for those locations which are identified as held for
sale. When the Company receives a letter of intent and financing commitment from the buyer and the
sale is expected to occur within one year, the location is no longer reported within the Companys
continuing operations. The assets and liabilities associated with the held for sale location are
reclassified on the balance sheet and the operating results, as well as impairments, are presented
on a comparative basis in the discontinued operations section of the Consolidated Statements of
Operations, along with the income tax effect.
Business Combinations
We apply the principles provided in FAS No. 141 when we acquire businesses. Tangible and
intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is
recognized for any difference between the price of the acquisition and our fair value
determination. We customarily estimate our purchase and other related transaction costs known at
closing of the acquisition. To the extent that information not available to us at the closing date
subsequently becomes available during the allocation period, as defined in FAS No. 141, we may
adjust goodwill, assets, or liabilities associated with the acquisition.
Consolidation of Variable Interest Entities
FASB Interpretation No. 46, as revised, (FIN 46R), Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51 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 implementation of FIN 46R resulted, for
financial reporting purposes, in the consolidation of the Companys preneed and perpetual care
trust funds. The investments of such trust funds are reported at market value and the Companys
future obligations to deliver merchandise and services are reported at estimated settlement
amounts. The Company has also recognized the non-controlling financial interests of third parties
in the trust funds.
Although FIN 46R requires consolidation of preneed and perpetual care trusts, it did not
change the legal relationships among the trusts, the Company and its customers. In the case of
preneed trusts, the customers are the legal beneficiaries. In the case of perpetual care trusts,
the Company does not have a right to access the corpus in the perpetual care trusts. For these
reasons, the Company has 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
in the Companys consolidated balance sheet. Unrealized gains and losses attributable to the
Company, but that have not been earned through the performance of services or delivery of
merchandise are allocated to deferred revenues.
The Company recognizes the income, gains and losses of the preneed trusts and the unrealized
income, gains and losses of the cemetery perpetual care trusts. The Company recognizes a
corresponding expense equal to the recognized earnings of these trusts attributable to the
non-controlling interest holders. When such earnings attributable to the Company have not been
earned through the performance of services or delivery of merchandise, the Company will record such
earnings as deferred revenue.
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 Companys
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.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of the Consolidated Financial Statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an
on-going basis, we evaluate estimates and judgments, including those related to revenue
recognition, realization of accounts receivable, intangible assets, property and equipment and
deferred tax assets. We base our estimates on historical experience, third party data and
assumptions that we believe to be reasonable under the circumstances. The results of these
considerations form the basis for making judgments about the amount and timing of revenues and
expenses, the carrying value of assets and the recorded amounts of liabilities. Actual results may
differ from these estimates and such estimates may change if the underlying conditions or
assumptions change. Historical performance should not be viewed as indicative of future
performance, as there can be no assurance the margins, operating income and net earnings as a
percentage of revenues will be consistent from year to year.
Impairment of Investments
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 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 is
effective for reporting periods ending after June 15, 2004 except for the measurement and
recognition provisions relating to debt and equity securities which had been deferred. 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 guidance for measurement and recognition provisions has subsequently been replaced by
SFAS No. 115-1 and SFAS No. 124-1 The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments which is effective for reporting periods beginning after
December 15, 2005. The Company adopted the requirements beginning January 1, 2006 which had no
affect on the Consolidated Financial Statements, result of operations or liquidity of the Company.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
Fair Value Measurements
In September 2006, the FASB issued FAS No. 157, Fair Value Measurements (FAS No. 157),
which establishes a framework for measuring fair value in accordance with Generally Accepted
Accounting Principles (GAAP) and expands disclosures about fair value measurements. This
statement is effective as of the beginning of the entitys first fiscal year that begins after
November 15, 2007. The Company is currently evaluating the impact, if any, the adoption of FAS No.
157 will have on its consolidated financial statements.
In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115 (FAS No. 159). This
statement permits entities to choose to measure many financial assets and liabilities and certain
other items at fair value. The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex hedge accounting provisions. This
statement is effective as of the beginning of the entitys first fiscal year beginning after
November 15, 2007. The Company is currently evaluating the impact, if any, the adoption of FAS
No. 159 will have on its consolidated financial statements.
Business Combinations
In December 2007, the FASB issued FAS No. 141R, Business Combinations (FAS No. 141R).
FAS No. 141R requires the acquiring entity to recognize the assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree at the acquisition date, measured at the
fair values as of that date. Goodwill is measured as a residual of the fair values at acquisition
date. Acquisition related costs are recognized separately from the acquisition. This statement is
effective as of the beginning of the first fiscal year that begins after December 15, 2008. The
Company is currently evaluating the impact, if any, of the adoption of FAS No. 141R will have on
its consolidated financial statements.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. RECENTLY ISSUED ACCOUNTING STANDARDS (continued)
Non-controlling Interests
In December 2007, the FASB issued FAS No. 160, Non-controlling Interests in Consolidated
Financial Statements (FAS No. 160). FAS No. 160 requires non-controlling interests in a
subsidiary be reported as equity in the consolidated financial statements, the attributable net
income be identified and presented on the face of the consolidated statement of income and changes
in the ownership be accounted for consistently. The statement also includes requirements when an
interest is deconsolidated. Disclosure should be sufficient to clearly identify and distinguish
between the interests of the reporting entity and that of the non-controlling interests owners.
This statement is effective as of the beginning of the first fiscal year that begins after December
15, 2008. The Company is currently evaluating the impact, if any, of the adoption of FAS No. 160
will have on its consolidated financial statements.
3. CHANGE IN ACCOUNTING METHOD FOR PRENEED SELLING COSTS
On June 30, 2005, the Company changed its method of accounting for preneed selling costs,
incurred for the origination of prearranged funeral and cemetery service and merchandise sales
contracts. The Company has applied this change in accounting method effective January 1, 2005.
Therefore, the Companys results of operations for the year ended December 31, 2005, 2006 and 2007
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 same
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 not recognized currently in the income statement.
As of January 1, 2005, the Company recorded the cumulative effect of the change in accounting
method in the 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 cumulative balance of deferred
preneed selling costs in the Companys consolidated balance sheet at that date.
4. CHANGE IN ACCOUNTING FOR INCOME TAX UNCERTAINTIES
In June 2006, FASB issued FASB Interpretation No. 48 Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in
an enterprises financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes. FIN 48 prescribes how tax benefits for uncertain tax positions are to be
recognized, measured, and derecognized in financial statements; requires certain disclosures of
uncertain tax matters; specifies how reserves for uncertain tax position should be classified on
the balance sheet; and provides transition and interim period guidance, among other provisions.
FIN 48 is effective for fiscal years beginning after December 15, 2006 and was adopted by the
Company at the beginning of the first quarter of 2007. The Company has reviewed its income tax positions and
identified certain tax deductions, primarily related to business acquisitions that are not certain.
The cumulative effect of adopting FIN 48 has been recorded as a reduction to the 2007 opening
balance of Retained Earnings and an increase in noncurrent liabilities in the amount of $0.2
million to the January 1, 2007 retained earnings balance.
The Company has unrecognized tax benefits for Federal and state income tax purposes totaling
$6.0 million as of December 31, 2007, resulting from deductions totaling $15.2 million on Federal
returns and $13.4 million on various state returns. The effect of applying FIN 48 for the year
ended December 31, 2007 was not material to operations. The Company has federal and state net
operating loss carryforwards exceeding these deductions, and has accounted for these unrecognized
tax benefits by reducing the net operating loss carryforwards by the amount of these unrecognized
deductions. In certain states without net operating loss carryforwards, the Company has previously
reduced its taxes payable by deductions that are not considered more likely than not. The
cumulative effect of adopting FIN 48 specifically relates to those state income tax returns. A
reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
thousands):
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
Unrecognized tax benefit at beginning of year |
|
$ |
4,962 |
|
Additions based on tax positions related to the current year |
|
|
637 |
|
Additions for tax positions of prior years |
|
|
504 |
|
Reductions as a result of a lapse of the applicable statute
of limitations |
|
|
(86 |
) |
|
|
|
|
Unrecognized tax benefit at end of year |
|
$ |
6,017 |
|
|
|
|
|
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. CHANGE IN ACCOUNTING FOR INCOME TAX UNCERTAINTIES (continued)
The entire balance of unrecognized tax benefits, if recognized, would affect the Companys
effective tax rate. The Company does not anticipate a significant increase or decrease in its
unrecognized tax benefits during the next twelve months. The amount of penalty and interest
recognized in the balance sheet and statement of operations was not material for the year ended
December 31, 2007. The Companys policy with respect to potential penalties and interest is to
record them as other expense and interest expense, respectively.
The Companys Federal income tax returns for 2001 through 2007 are open tax years that may be
examined by the Internal Revenue Service. The Companys unrecognized state tax benefits are
related to state returns open from 2001 through 2007.
5. ACQUISITIONS
Our growth strategy includes the execution of the Strategic Portfolio Optimization Model. The
goal of that model is to build concentrated groups of businesses in ten to fifteen strategic
markets. We assess acquisition candidates using six strategic ranking criteria and to
differentiate the pricing we are willing to pay. Those criteria are:
|
|
|
Size of business |
|
|
|
|
Size of market |
|
|
|
|
Competitive standing |
|
|
|
|
Demographics |
|
|
|
|
Strength of brand |
|
|
|
|
Barriers to entry |
During 2007, the Company completed seven acquisitions. The consideration paid for those
businesses was cash. We have not incurred any debt to buy these businesses. The Company acquired
substantially all the assets and assumed certain operating liabilities including obligations
associated with existing preneed contracts. The assets and liabilities were recorded at fair value
and included goodwill. The results of the acquired business are included in the Companys results
from the date of acquisition. The proforma impact of the acquisition on the prior period is not
presented as the impact is not material to reported results. Selected information on the
acquisitions follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Acquired |
|
|
|
|
|
|
|
|
|
|
|
|
(Excluding |
|
Goodwill |
|
Liabilities |
Acquisition Date |
|
Type of Business |
|
Market |
|
Goodwill) |
|
Recorded |
|
Assumed |
January 2007 |
|
Combination and Funeral Home |
|
Corpus Christi, TX |
|
$ |
27.7 |
|
$ |
4.1 |
|
$ |
25.4 |
April 2007 |
|
Combination |
|
Los Angeles, CA |
|
$ |
13.0 |
|
|
|
|
$ |
4.8 |
June 2007 |
|
Combination and Cemetery |
|
Boise, ID |
|
$ |
8.7 |
|
|
6.1 |
|
$ |
4.9 |
June 2007 |
|
Funeral Home |
|
Santa Fe, NM |
|
$ |
0.9 |
|
|
|
|
|
|
August 2007 |
|
Five Funeral Homes |
|
Springfield, MA |
|
$ |
5.1 |
|
|
0.3 |
|
$ |
1.7 |
November 2007 |
|
Four Funeral Homes |
|
Los Angeles, CA |
|
$ |
6.4 |
|
|
4.0 |
|
$ |
0.2 |
November 2007 |
|
Funeral Home |
|
Methuen, MA |
|
$ |
5.5 |
|
|
4.0 |
|
$ |
3.6 |
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. ACQUISITIONS (continued)
The effect of the acquisitions on the consolidated balance sheet at December 31, 2007 was as
follows (in thousands):
|
|
|
|
|
Current assets |
|
$ |
2,072 |
|
Property, plant & equipment |
|
|
33,203 |
|
Goodwill |
|
|
18,532 |
|
Preneed assets |
|
|
32,643 |
|
Deferred charges |
|
|
1,635 |
|
Current Liabilities |
|
|
(6,958 |
) |
Debt |
|
|
(1,069 |
) |
Deferred preneed revenues |
|
|
(11,128 |
) |
Non-controlling interest in trusts |
|
|
(24,715 |
) |
|
|
|
|
Cash used for acquisition |
|
$ |
44,215 |
|
Unassumed liabilities |
|
|
3,573 |
|
Debt paid at acquisition |
|
|
816 |
|
|
|
|
|
|
|
$ |
48,604 |
|
|
|
|
|
6. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
The Company continually reviews locations to optimize the sustainable earning power and return
on invested capital of the Company. The Companys strategy, the Strategic Portfolio Optimization
Model, uses strategic ranking criteria to also assess disposition candidates. The execution of
this strategy entails selling generally non-strategic businesses.
In 2007, the Company sold four funeral home businesses for approximately $3.2 million and
recognized a gain of $1.2 million. During 2006, the Company recorded impairment charges totaling
$2.1 million, which is related to specifically identified goodwill, for one of these businesses.
During 2006, the Company sold a funeral home business and a combination funeral home and
cemetery business for approximately $6.5 million and ceased operations at a funeral home business.
The Company recorded impairment charges of $6.3 million, a substantial portion of which related to
specifically identified goodwill, and recognized $0.2 million of net losses.
During 2005, the Company sold a funeral home business and a cemetery business for cash
proceeds totaling $1.6 million and ceased operations at a funeral home business. The transactions
generated gains of approximately $1.3 million.
No businesses were held for sale at December 31, 2007. At December 31, 2006, assets and
liabilities associated with the three funeral home businesses held for sale in the accompanying
balance sheet consisted of the following (in thousands).
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
Assets: |
|
|
|
|
Current assets |
|
$ |
124 |
|
Property, plant and equipment, net |
|
|
1,406 |
|
Preneed receivables and trust investments |
|
|
634 |
|
Goodwill |
|
|
324 |
|
Deferred charges and other assets |
|
|
146 |
|
|
|
|
|
Total |
|
$ |
2,634 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Current liabilities |
|
$ |
229 |
|
Deferred preneed funeral contracts revenue |
|
|
78 |
|
Senior long-term debt, net of current portion |
|
|
54 |
|
Non-controlling interests in funeral and cemetery trust
investments |
|
|
700 |
|
|
|
|
|
Total |
|
$ |
1,061 |
|
|
|
|
|
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (continued)
The operating results of businesses discontinued during the periods presented, as well as
impairments and gains or losses on the disposal, are presented in the discontinued operations
section of the consolidated statements of operations, along with the
income tax affect. Likewise, the operating results, impairment charges and gains or losses from those
businesses have been similarly reported for comparability. The results for the businesses presented
in the discontinued operations section are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
Revenues |
|
$ |
7,244 |
|
|
$ |
4,447 |
|
|
$ |
628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
$ |
1,742 |
|
|
$ |
853 |
|
|
$ |
(8 |
) |
Gain (losses) on sale and (impairments) |
|
|
1,303 |
|
|
|
(8,614 |
) |
|
|
1,214 |
|
(Provision) benefit for income taxes |
|
|
(1,033 |
) |
|
|
2,631 |
|
|
|
(452 |
) |
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations |
|
$ |
2,012 |
|
|
$ |
(5,130 |
) |
|
$ |
754 |
|
|
|
|
|
|
|
|
|
|
|
7. SHORT TERM INVESTMENTS
Short term investments are investments purchased with an original maturity of greater than
three months but less than a year at the time of purchase. Short term investments at December 31,
2006 consisted of commercial paper with maturity dates that ranged from January 2007 to February
2007 at rates ranging from 5.17 % to 5.19 % per annum. Market value approximated cost. There were
no short term investments at December 31, 2007.
8. GOODWILL
Many of the acquired funeral homes and former owners have provided high quality service to
families for generations. The resulting loyalty often represents a substantial portion of the
value of a funeral business. The excess of the purchase price over the
fair value of net identifiable assets acquired, as determined by management in transactions
accounted for as purchases, is recorded as goodwill.
The following table presents changes in goodwill for the year ended December 31, 2006 and 2007
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2007 |
|
Goodwill at beginning of year |
|
$ |
157,358 |
|
|
$ |
148,845 |
|
Impairments |
|
|
(8,392 |
) |
|
|
|
|
Divestitures |
|
|
(121 |
) |
|
|
(114 |
) |
Acquisitions |
|
|
|
|
|
|
18,532 |
|
|
|
|
|
|
|
|
Goodwill at end of year |
|
$ |
148,845 |
|
|
$ |
167,263 |
|
|
|
|
|
|
|
|
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. PRENEED TRUST INVESTMENTS
Preneed cemetery trust investments
Preneed cemetery trust investments represent trust fund assets that the Company will withdraw
when the merchandise or services are provided. The cost and market values associated with preneed
cemetery trust assets at December 31, 2007 are detailed below (in thousands). The Company believes
the unrealized losses related to trust investments are temporary in nature.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
Cash, money market and short-term investments |
|
$ |
5,001 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,001 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency obligations |
|
|
18,645 |
|
|
|
412 |
|
|
|
(2 |
) |
|
|
19,055 |
|
State obligations |
|
|
351 |
|
|
|
13 |
|
|
|
|
|
|
|
364 |
|
Corporate |
|
|
1,950 |
|
|
|
36 |
|
|
|
(10 |
) |
|
|
1,976 |
|
Other |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Common Stock |
|
|
12,881 |
|
|
|
1,343 |
|
|
|
(883 |
) |
|
|
13,341 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
14,155 |
|
|
|
1,349 |
|
|
|
(211 |
) |
|
|
15,293 |
|
Fixed income |
|
|
5,887 |
|
|
|
100 |
|
|
|
(230 |
) |
|
|
5,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
58,875 |
|
|
$ |
3,253 |
|
|
$ |
(1,336 |
) |
|
$ |
60,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
$ |
322 |
|
|
|
|
|
|
|
|
|
|
$ |
322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
61,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities of the fixed income securities included above are as follows:
|
|
|
|
|
Due in one year or less |
|
$ |
1,938 |
|
Due in one to five years |
|
|
14,587 |
|
Due in five to ten years |
|
|
4,712 |
|
Thereafter |
|
|
163 |
|
|
|
|
|
|
|
$ |
21,400 |
|
|
|
|
|
The cost and market values associated with preneed cemetery trust assets at December 31, 2006
are detailed below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
Cash, money market and short-term investments |
|
$ |
4,559 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,559 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency obligations |
|
|
13,544 |
|
|
|
3 |
|
|
|
(89 |
) |
|
|
13,458 |
|
State obligations |
|
|
5,811 |
|
|
|
66 |
|
|
|
(155 |
) |
|
|
5,722 |
|
Corporate |
|
|
2,426 |
|
|
|
17 |
|
|
|
(19 |
) |
|
|
2,424 |
|
Other |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
6 |
|
Common Stock |
|
|
10,074 |
|
|
|
1,582 |
|
|
|
(60 |
) |
|
|
11,596 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
11,192 |
|
|
|
1,305 |
|
|
|
(155 |
) |
|
|
12,342 |
|
Fixed income |
|
|
5,061 |
|
|
|
83 |
|
|
|
(16 |
) |
|
|
5,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
52,673 |
|
|
$ |
3,056 |
|
|
$ |
(494 |
) |
|
$ |
55,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
$ |
248 |
|
|
|
|
|
|
|
|
|
|
$ |
248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. PRENEED TRUST INVESTMENTS (continued)
Preneed Funeral Trust Investments
Preneed funeral trust investments represent trust fund assets that the Company expects to
withdraw when the services and merchandise are provided.
The cost and market values associated with preneed funeral trust assets at December 31, 2007
are detailed below (in thousands). The Company believes the unrealized losses related to trust
investments are temporary in nature.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
Cash, money market and other
short-term investments |
|
$ |
35,665 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
35,665 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
7,330 |
|
|
|
212 |
|
|
|
|
|
|
|
7,542 |
|
State obligations |
|
|
1,581 |
|
|
|
46 |
|
|
|
|
|
|
|
1,627 |
|
Corporate |
|
|
1,790 |
|
|
|
29 |
|
|
|
(9 |
) |
|
|
1,810 |
|
Obligations and guarantees of U.S.
government agencies |
|
|
1,583 |
|
|
|
36 |
|
|
|
(1 |
) |
|
|
1,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
4,239 |
|
|
|
624 |
|
|
|
(73 |
) |
|
|
4,790 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
11,192 |
|
|
|
1,333 |
|
|
|
(82 |
) |
|
|
12,443 |
|
Fixed income |
|
|
2,823 |
|
|
|
27 |
|
|
|
(53 |
) |
|
|
2,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
66,203 |
|
|
$ |
2,307 |
|
|
$ |
(218 |
) |
|
$ |
68,292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities of the fixed income securities included above are as follows:
|
|
|
|
|
Due in one year or less |
|
$ |
3,443 |
|
Due in one to five years |
|
|
8,928 |
|
Due in five to ten years |
|
|
226 |
|
Thereafter |
|
|
0 |
|
|
|
|
|
|
|
$ |
12,597 |
|
|
|
|
|
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. PRENEED TRUST INVESTMENTS (continued)
The cost and market values associated with preneed funeral trust assets at December 31, 2006
are detailed below (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
Cash, money market and other
short-term investments |
|
$ |
15,865 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
15,865 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
7,811 |
|
|
|
25 |
|
|
|
(7 |
) |
|
|
7,829 |
|
State obligations |
|
|
1,678 |
|
|
|
53 |
|
|
|
|
|
|
|
1,731 |
|
Corporate |
|
|
2,186 |
|
|
|
31 |
|
|
|
(16 |
) |
|
|
2,201 |
|
Obligations and guarantees of U.S.
government agencies |
|
|
1,075 |
|
|
|
3 |
|
|
|
(16 |
) |
|
|
1,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
2,301 |
|
|
|
590 |
|
|
|
|
|
|
|
2,891 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
8,598 |
|
|
|
1,169 |
|
|
|
(25 |
) |
|
|
9,742 |
|
Fixed income |
|
|
3,278 |
|
|
|
263 |
|
|
|
(11 |
) |
|
|
3,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
42,792 |
|
|
$ |
2,134 |
|
|
$ |
(75 |
) |
|
$ |
44,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon cancellation of a preneed funeral or cemetery contract, a customer is generally entitled
to receive a refund of the corpus and some or all of the earnings held in trust. In certain
jurisdictions, the Company is obligated to fund any shortfall if the amounts deposited by the
customer exceed the funds in trust including some or all investment income. As a result, when
realized or unrealized losses of a trust result in the trust being under-funded, the Company
assesses whether it is responsible for replenishing the corpus of the trust, in which case a loss
provision would be recorded. No loss amounts have been required to be recognized for the periods
presented in the Consolidated Financial Statements.
Trust Investment Security Transactions
Cemetery and funeral trust investment security transactions recorded in Other income in the
Consolidated Statements of Operations for the years ended December 31, 2006 and 2007 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2007 |
|
Investment income |
|
$ |
2,913 |
|
|
$ |
4,615 |
|
Realized gains |
|
|
3,433 |
|
|
|
4,129 |
|
Realized losses |
|
|
(1,273 |
) |
|
|
(410 |
) |
Expenses |
|
|
(1,126 |
) |
|
|
(1,191 |
) |
Increase in non-controlling interests in trust investments |
|
|
(3,947 |
) |
|
|
(7,143 |
) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. RECEIVABLES FROM PRENEED FUNERAL TRUSTS
The receivables from funeral trusts at December 31, 2006 and 2007 represent assets in trusts
which are controlled and operated by third parties in which the Company does not have a controlling
financial interest (less than 50%) in the trust assets. The Company accounts for these investments
at cost.
The components of the receivables from funeral trusts in the consolidated balance sheet at
December 31, 2006 and 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2007 |
|
Amount due from preneed funeral trust funds |
|
$ |
17,427 |
|
|
$ |
16,717 |
|
Less: allowance for contract cancellation |
|
|
(1,778 |
) |
|
|
(1,705 |
) |
|
|
|
|
|
|
|
|
|
$ |
15,649 |
|
|
$ |
15,012 |
|
|
|
|
|
|
|
|
The following summary reflects the composition of the assets held in trust and controlled by
third parties to satisfy Carriages future obligations under preneed funeral arrangements related
to the preceding contracts at December 31, 2007 and 2006. 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 |
|
|
|
|
|
|
Cost Basis |
|
|
Fair Value |
|
|
|
(in thousands) |
|
As of December 31, 2007: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,916 |
|
|
$ |
2,916 |
|
Fixed income investments |
|
|
10,576 |
|
|
|
10,341 |
|
Mutual funds and common stocks |
|
|
100 |
|
|
|
100 |
|
Annuities |
|
|
3,125 |
|
|
|
3,298 |
|
|
|
|
|
|
|
|
Total |
|
$ |
16,717 |
|
|
$ |
16,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical |
|
|
|
|
|
|
Cost Basis |
|
|
Fair Value |
|
|
|
(in thousands) |
|
As of December 31, 2006: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,658 |
|
|
$ |
2,658 |
|
Fixed income investments |
|
|
11,607 |
|
|
|
11,079 |
|
Mutual funds and common stocks |
|
|
109 |
|
|
|
108 |
|
Annuities |
|
|
3,053 |
|
|
|
3,296 |
|
|
|
|
|
|
|
|
Total |
|
$ |
17,427 |
|
|
$ |
17,141 |
|
|
|
|
|
|
|
|
11. CONTRACTS SECURED BY INSURANCE
Certain preneed funeral contracts are secured by life insurance policies. Generally, the
proceeds of the life insurance policies have been assigned to the Company and will be paid upon the
death of the insured. The proceeds will be used to satisfy the beneficiarys obligations under the
preneed contract for services and merchandise. The preneed funeral contracts secured by insurance
totaled $161.1 and $191.7 million at December 31, 2006 and 2007, respectively and are not recorded
on the Companys balance sheet.
12. CEMETERY PERPETUAL CARE TRUST INVESTMENTS
The Company is required by state law to pay a portion of the proceeds from the sale of
cemetery property interment rights into perpetual care trust funds. The 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.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. CEMETERY PERPETUAL CARE TRUST INVESTMENTS (continued)
The cost and market values associated with the trust investments held in perpetual care trust
funds at December 31, 2007 are detailed below (in thousands). The Company believes the unrealized
losses related to the trust investments are temporary in nature.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
Cash, money market and other
short-term investments |
|
$ |
2,785 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,785 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency obligation |
|
|
6,448 |
|
|
|
99 |
|
|
|
(2 |
) |
|
|
6,545 |
|
State obligations |
|
|
489 |
|
|
|
18 |
|
|
|
|
|
|
|
507 |
|
Corporate |
|
|
901 |
|
|
|
40 |
|
|
|
(1 |
) |
|
|
940 |
|
Other |
|
|
293 |
|
|
|
|
|
|
|
(3 |
) |
|
|
290 |
|
Common Stock |
|
|
11,698 |
|
|
|
1,174 |
|
|
|
(903 |
) |
|
|
11,969 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
7,812 |
|
|
|
892 |
|
|
|
(273 |
) |
|
|
8,431 |
|
Fixed income |
|
|
5,785 |
|
|
|
92 |
|
|
|
(239 |
) |
|
|
5,638 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
36,211 |
|
|
$ |
2,315 |
|
|
$ |
(1,421 |
) |
|
$ |
37,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
$ |
97 |
|
|
|
|
|
|
|
|
|
|
$ |
97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
37,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities of the fixed income securities included above are as follows:
|
|
|
|
|
Due in one year or less |
|
$ |
1,191 |
|
Due in one to five years |
|
|
5,302 |
|
Due in five to ten years |
|
|
1,535 |
|
Thereafter |
|
|
254 |
|
|
|
|
|
|
|
$ |
8,282 |
|
|
|
|
|
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. CEMETERY PERPETUAL CARE TRUST INVESTMENTS (continued)
The cost and market values associated with the trust investments held in perpetual care trust
funds at December 31, 2006 are detailed below (in thousands). The Company believes the unrealized
losses related to the trust investments are temporary in nature.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
Cash, money market and other
short-term investments |
|
$ |
1,542 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,542 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
499 |
|
|
|
4 |
|
|
|
(3 |
) |
|
|
500 |
|
U.S. Agency obligation |
|
|
6,444 |
|
|
|
3 |
|
|
|
(61 |
) |
|
|
6,386 |
|
State obligations |
|
|
609 |
|
|
|
15 |
|
|
|
|
|
|
|
624 |
|
Corporate |
|
|
1,049 |
|
|
|
22 |
|
|
|
(2 |
) |
|
|
1,069 |
|
Other |
|
|
363 |
|
|
|
|
|
|
|
(10 |
) |
|
|
353 |
|
Common Stock |
|
|
9,104 |
|
|
|
1,678 |
|
|
|
(63 |
) |
|
|
10,719 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
5,660 |
|
|
|
858 |
|
|
|
(132 |
) |
|
|
6,386 |
|
Fixed income |
|
|
4,737 |
|
|
|
110 |
|
|
|
(6 |
) |
|
|
4,841 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
$ |
30,007 |
|
|
$ |
2,690 |
|
|
$ |
(277 |
) |
|
$ |
32,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
$ |
120 |
|
|
|
|
|
|
|
|
|
|
$ |
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
32,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests in cemetery perpetual care trusts represent the corpus of those
trusts plus undistributed income. The components of non-controlling interests in cemetery
perpetual care trusts as of December 31, 2006 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2007 |
|
Trust assets, at market value |
|
$ |
32,540 |
|
|
$ |
37,202 |
|
Pending withdrawals of income |
|
|
(1,351 |
) |
|
|
(901 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
$ |
31,189 |
|
|
$ |
36,301 |
|
|
|
|
|
|
|
|
Trust Investment Security Transactions
Perpetual care trust investment security transactions recorded in Other income in the
Consolidated Statements of Operations for the year ended December 31, 2006 and 2007 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2007 |
|
Undistributable realized gains |
|
$ |
1,010 |
|
|
$ |
1,734 |
|
Undistributable realized losses |
|
|
(363 |
) |
|
|
(62 |
) |
Increase in non-controlling interests in perpetual care trust investments |
|
|
(647 |
) |
|
|
(1,672 |
) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. DEFERRED CHARGES AND OTHER NON-CURRENT ASSETS
Deferred charges and other non-current assets at December 31, 2006 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
|
(in thousands) |
|
Prepaid agreements not to compete, net of accumulated
amortization of $4,092 and $4,259, respectively |
|
$ |
511 |
|
|
$ |
1,039 |
|
Deferred loan costs, net of accumulated amortization of $1,083
and $1,663, respectively |
|
|
4,012 |
|
|
|
3,433 |
|
Deferred tax asset |
|
|
16,540 |
|
|
|
7,133 |
|
Federal agency bond (cost approximates market) |
|
|
5,000 |
|
|
|
|
|
Other |
|
|
4,396 |
|
|
|
4,797 |
|
|
|
|
|
|
|
|
|
|
$ |
30,459 |
|
|
$ |
16,402 |
|
|
|
|
|
|
|
|
Agreements not to compete are amortized over the term of the respective agreements, ranging
from four to ten years. Deferred loan costs are being amortized over the term of the related debt.
14. LONG-TERM DEBT
Long-Term Debt
The Companys long-term debt consisted of the following at December 31, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
|
(in thousands) |
|
Credit Facility, secured
floating rate $35 million line
matures in April, 2010 |
|
$ |
|
|
|
$ |
|
|
7.875% Senior Notes due 2015 |
|
|
130,000 |
|
|
|
130,000 |
|
Acquisition debt |
|
|
2,669 |
|
|
|
1,421 |
|
Other |
|
|
2,731 |
|
|
|
2,768 |
|
Less: current portion |
|
|
(1,559 |
) |
|
|
(1,195 |
) |
|
|
|
|
|
|
|
|
|
$ |
133,841 |
|
|
$ |
132,994 |
|
|
|
|
|
|
|
|
The Company has a $35 million senior secured revolving credit facility. Borrowings under the
credit facility bear interest at prime or LIBOR options with the current LIBOR option set at LIBOR
plus 275 basis points. Interest is payable quarterly. The credit facility is collateralized by
all personal property and funeral home real property in certain states. The facility is currently
undrawn.
In accordance with the terms of the Companys credit facility, a portion of the cash proceeds
from the sale of funeral home and cemetery businesses are pledged to the benefit of the lenders and
are restricted for use only for acquisitions of similar businesses, capital expenditures, or
paydowns of debt. During 2006, approximately $5.5 million of such proceeds were so pledged, with
$2.6 million released during 2006 and the remainder released in 2007.
Carriage, the parent entity, has no material assets or operations independent of its
subsidiaries. All assets and operations are held and conducted by subsidiaries, each of which
(except for Carriage Services Capital Trust which is a single purpose entity that holds our
debentures issued in connection with our TIDES) have fully and unconditionally guaranteed our
obligations under the 7.875% Senior Notes. Additionally, we do not currently have any significant
restrictions on our ability to receive dividends or loans from any subsidiary guarantor under the
Senior Notes.
In connection with the issuance of the Senior Notes in 2005, the Company made a required make
whole payment of $6.0 million (recorded as additional interest) to the holders of debt that was
paid off early from the Senior Notes and recorded a charge to write off $0.7 million of unamortized
loan costs (in aggregate $4.2 million after tax, or $0.23 per diluted share). In connection with
the placement of the senior secured revolving credit facility also in 2005, the Company recorded a
charge to write off $0.2 million or $0.01 per diluted share of unamortized loan costs related to
the previous credit facility.
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. LONG-TERM DEBT (continued)
The Company was in compliance with the covenants contained in the credit facility and the
Senior Notes as of and for the years ended December 31, 2006 and 2007.
Acquisition debt consists of deferred purchase prices payable to sellers. The deferred
purchase price notes bear interest at 0%, discounted at imputed interest rates ranging from 6% to
8%, with original maturities from three to 15 years.
The aggregate maturities of long-term debt for the next five years as of December 31, 2007 are
approximately $1,195,000, $661,000, $396,000, $418,000 and $422,000, respectively and $131,097,000
thereafter.
|
|
|
15. |
|
CONVERTIBLE JUNIOR SUBORDINATED DEBENTURE PAYABLE TO AFFILIATE AND COMPANY OBLIGATED
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF CARRIAGE SERVICES CAPITAL TRUST |
Carriages wholly-owned subsidiary, Carriage Services Capital Trust, issued 1,875,000 units of
7% convertible preferred securities (TIDES) during June 1999, resulting in approximately $90
million in net proceeds, and the Company issued a 7% convertible junior subordinated debenture to
the Trust in the amount of $93.75 million. The convertible preferred securities have a liquidation
amount of $50 per unit, and are convertible into Carriages Common Stock at the equivalent
conversion price of $20.4375 per share of Common Stock. The subordinated debentures and the TIDES
mature in 2029 and the TIDES are guaranteed on a subordinated basis by the Company. Both the
subordinated debentures and the TIDES contain a provision for the deferral of distributions for up
to 20 consecutive quarters. During the period in which distribution payments are deferred,
distributions will continue to accumulate at the 7 percent annual rate. Also, the deferred
distributions will themselves accumulate distributions at the annual rate of 7 percent. During the
period in which distributions are deferred, Carriage is prohibited from paying dividends on its
common stock or repurchasing its common stock, with limited exceptions. The Company deferred the
distributions during the period September 2003 to January 2005. The Company brought the deferred
distributions current during January 2005. There are no deferred distributions at December 31,
2007.
16. COMMITMENTS AND CONTINGENCIES
Leases
Carriage leases certain office facilities, vehicles and equipment under operating leases for
terms ranging from one to 15 years. Certain of these leases provide for an annual adjustment and
contain options for renewal. Rent expense totaled $3,805,000, $3,735,000 and $3,704,000 for 2005,
2006 and 2007, respectively. Assets acquired under capital leases are included in property, plant
and equipment in the accompanying consolidated balance sheets in the amount of $1,387,000 in 2006
and $1,323,000 in 2007, net of accumulated depreciation. Capital lease obligations are included in
current and long-term debt as indicated below.
At December 31, 2007, future minimum lease payments under noncancellable lease agreements were
as follows:
|
|
|
|
|
|
|
|
|
|
|
Future Minimum Lease |
|
|
|
Payments |
|
|
|
Operating |
|
|
Capital |
|
|
|
Leases |
|
|
Leases |
|
|
|
(in thousands) |
|
Years ending December 31, |
|
|
|
|
|
|
|
|
2008 |
|
$ |
2,248 |
|
|
$ |
626 |
|
2009 |
|
|
1,609 |
|
|
|
643 |
|
2010 |
|
|
1,226 |
|
|
|
650 |
|
2011 |
|
|
939 |
|
|
|
650 |
|
2012 |
|
|
909 |
|
|
|
666 |
|
Thereafter |
|
|
3,455 |
|
|
|
6,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments |
|
$ |
10,386 |
|
|
$ |
10,218 |
|
|
|
|
|
|
|
|
|
Less: amount representing interest (rates ranging from 7% to 11.5%) |
|
|
|
|
|
|
(5,494 |
) |
Less: current portion of obligations under capital leases |
|
|
|
|
|
|
(61 |
) |
|
|
|
|
|
|
|
|
Long-term obligations under capital leases |
|
|
|
|
|
$ |
4,663 |
|
|
|
|
|
|
|
|
|
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. COMMITMENTS AND CONTINGENCIES (continued)
Agreements and Employee Benefits
Carriage has obtained various agreements not to compete from former owners and employees.
These agreements are generally for one to 10 years and provide for periodic payments over the term
of the agreements. The aggregate payments due under these agreements for the next five years total
$1,032,000, $669,000, $533,000, $317,000 and $258,000, respectively and $447,000 thereafter.
The Company has entered into various consulting agreements with former owners of businesses.
Payments for such agreements are generally not made in advance. These agreements are generally for
one to 10 years and provide for future payments monthly or bi-weekly. The aggregate payments for
the next five years total $430,000, $246,000, $95,000, $33,000 and $23,000, respectively and
$50,000 thereafter.
The Company has entered into employment agreements with the executive officers and management.
These agreements are generally for two to five years and provide for participation in various
incentive compensation arrangements. The payments due under these agreements for the next three
years total $2,270,000, $2,225,000 and $1,412,000, respectively.
Carriage sponsors a defined contribution plan (401k) for the benefit of its employees. The
Companys matching contributions and plan administrative expenses totaled $268,000, $217,000 and
$650,000 for 2005, 2006 and 2007, respectively. The Company does not offer any post-retirement or
post-employment benefits.
Other Commitments
In 2005, the Company entered into an agreement to outsource the processing of transactions for
the cemetery business. The Company and the contractor may terminate the contract for various
reasons upon written notification and set terms. Payments vary based on the level of resources
provided. The Company paid $1.2 million, $2.2 million and $1.7 million to the contractor for
services in 2005, 2006 and 2007, respectively.
Litigation
We are a party to various litigation matters and proceedings. For each of our outstanding
legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or
settlement strategies, and the likelihood of an unfavorable outcome. We intend to defend ourselves
in the lawsuits described herein; however, if we determine that an unfavorable outcome is probable
and can be reasonably estimated, we establish the necessary accruals. We hold certain insurance
policies that may reduce cash outflows with respect to an adverse outcome of certain of these
litigation matters.
Spencer Cranney, et al., v. Carriage Services, Inc., et al., United States District Court,
District of Nevada, Case No. 2:07-cv-01587 On November 28, 2007, five former Funeral Directors
filed suit for themselves and on behalf of all hourly, non-exempt employees of Carriage in the
United States District Court for the District of Nevada. Plaintiffs allege violations of state
wage and hour laws and the federal Fair Labor Standards Act (FLSA), as well as related tort and
contract claims. Specifically, Plaintiffs allege that Carriage failed to properly compensate
employees for time spent on community work, on-call time, pre-need appointments, and training,
failed to provide required meal and rest breaks under California state law, and failed to maintain
proper records. Carriage filed its Answer to the Complaint on January 28, 2008, denying all
material allegations and asserting appropriate affirmative defenses. On February 29, 2008, the
Court granted Plaintiffs motion for conditional certification under the FLSA. The parties
currently are in the process of effectuating notice of the lawsuit to all potential class members
pursuant to the Courts order. The Company will defend this lawsuit vigorously. Because the
lawsuit is in its preliminary stages, we are unable to evaluate the likelihood of an unfavorable
outcome to the Company or to estimate the amount or range of any potential loss, if any, at this
time.
Means v. Carriage Cemetery Services, Inc., et al., Indiana Superior Court, Marion County,
Indiana, Case No. 49D12-0704-PL-016504. On April 20, 2007, Plaintiff Cecilia Means (Plaintiff)
filed a putative class action alleging that one or more of the current and past owners of Grandview
Cemetery in Madison, Indianaincluding the Carriage subsidiaries that owned the cemetery from
January 1997 until February 2001and one or more of the bank trustees who served as trustee of
Grandview Cemeterys Pre-Arrangement Trust Fund (the Grandview Trust Fund), improperly withdrew
funds from the Grandview Trust Fund. Carriage denies all material allegations because the subject
withdrawals occurred in a period other than during Carriages ownership, and filed a motion for
summary judgment with respect to Plaintiffs claims against it. The Court has yet to rule on
either motion. Plaintiff has also filed a motion to certify a class, and briefing on this issue is
ongoing. The Company will defend this action vigorously. Because the lawsuit is in its preliminary stages, we are unable to evaluate the likelihood of an
unfavorable outcome to the Company or to estimate the amount or range of any potential loss, if
any, at this time.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. COMMITMENTS AND CONTINGENCIES (continued)
Leathermon, et al. v. Grandview Memorial Gardens, Inc., et al., United States District Court,
Southern District of Indiana, Case No. 4:07-cv-137. On August 17, 2007, five plaintiffs
(Plaintiffs) filed a putative class action against the current and past owners of Grandview
Cemetery in Madison, Indianaincluding the Carriage subsidiaries that owned the cemetery from
January 1997 until February 2001on behalf of all individuals who purchased cemetery and burial
goods and services at Grandview Cemetery. Plaintiffs claim that the cemetery owners performed
burials negligently, breached plaintiffs contracts, and made misrepresentations regarding the
cemetery. On October 15, 2007, the case was removed from Jefferson County Circuit Court, Indiana
to the Southern District of Indiana. The Company has filed its answer denying the claims and will
defend this action vigorously. Because the lawsuit is in its preliminary stages, we are unable to
evaluate the likelihood of an unfavorable outcome to the Company or to estimate the amount or range
of any potential loss, if any, at this time.
Kendall v. Carriage Funeral Holdings, Inc., et al., Indiana Circuit Court, Jefferson County,
Indiana, Case No. 39C01-0707-CT-386 (filed July 27, 2007); Lapine Hillard, et al. v. Carriage
Funeral Holdings, Inc., et al., Indiana Circuit Court, Jefferson County, Case No. 39C01-0708-CT-398
(filed August 7, 2007); Lawson v. Carriage Funeral Holdings, Inc., Indiana Circuit Court, Jefferson
County, Indiana, Case No. 39C01-0708-CT-429 (filed August 17, 2007); Wiley, et al. v. Carriage
Funeral Holdings, Inc., et al., Indiana Circuit Court, Jefferson County, Indiana, Case No.
39C01-0706-CT-287 (filed June 6, 2007). In these individual actions, Plaintiffs allege improper
handling of remains or improper burial practices by Vail-Holt Funeral Home in Madison, Indiana
and/or Grandview Memorial Gardens, Inc. Carriage has denied these allegations because these burials
all occurred before Carriage owned Grandview Cemetery and Vail-Holt Funeral Home. Carriage has
moved to dismiss Plaintiffs claims with respect to the funeral home because, among other reasons,
Carriage assumed only Vail-Holts assets, and not its liabilities, under the Asset Purchase
Agreement. Carriage has also moved to dismiss certain claims with respect to Grandview Cemetery
because Plaintiffs released Grandview Cemetery from contractual liability pursuant to an
exculpatory clause. The court has not yet ruled on Carriages motions. The Company will defend
these actions vigorously. Because the lawsuit is in its preliminary stages, we are unable to
evaluate the likelihood of an unfavorable outcome to the Company or to estimate the amount or range
of any potential loss, if any, at this time.
17. INCOME TAXES
The provision (benefit) for income taxes from continuing operations for the year ended
December 31, 2005, 2006 and 2007 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
|
(in thousands) |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Federal |
|
$ |
|
|
|
$ |
227 |
|
|
$ |
(7 |
) |
State |
|
|
241 |
|
|
|
491 |
|
|
|
439 |
|
|
|
|
|
|
|
|
|
|
|
Total current provision |
|
|
241 |
|
|
|
718 |
|
|
|
432 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Federal |
|
|
(373 |
) |
|
|
1,975 |
|
|
|
4,418 |
|
State |
|
|
(400 |
) |
|
|
(388 |
) |
|
|
218 |
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision (benefit) |
|
|
(773 |
) |
|
|
1,587 |
|
|
|
4,636 |
|
|
|
|
|
|
|
|
|
|
|
Total income tax provision (benefit) |
|
$ |
(532 |
) |
|
$ |
2,305 |
|
|
$ |
5,068 |
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of taxes calculated at the U.S. Federal statutory rate to those reflected in
the consolidated statements of operations for the year ended December 31, 2005, 2006 and 2007 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Federal statutory rate |
|
$ |
(564 |
) |
|
|
34.0 |
% |
|
$ |
2,051 |
|
|
|
34.0 |
% |
|
$ |
4,282 |
|
|
|
34.0 |
% |
Effect of state income taxes,
net of Federal benefit |
|
|
(41 |
) |
|
|
2.5 |
|
|
|
462 |
|
|
|
7.7 |
|
|
|
954 |
|
|
|
7.6 |
|
Effect of non-deductible
expenses and other, net |
|
|
214 |
|
|
|
(14.7 |
) |
|
|
101 |
|
|
|
1.6 |
|
|
|
(109 |
) |
|
|
(0.9 |
) |
Change in valuation allowance |
|
|
(141 |
) |
|
|
9.7 |
|
|
|
(309 |
) |
|
|
(5.0 |
) |
|
|
(59 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(532 |
) |
|
|
31.5 |
% |
|
$ |
2,305 |
|
|
|
38.3 |
% |
|
$ |
5,068 |
|
|
|
40.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant deferred tax assets and
liabilities at December 31, 2006 and 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
|
(in thousands) |
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
5,927 |
|
|
$ |
5,635 |
|
Minimum tax credit carryforwards |
|
|
|
|
|
|
144 |
|
State tax credit carryforwards |
|
|
|
|
|
|
109 |
|
Accrued liabilities and other |
|
|
1,672 |
|
|
|
1,721 |
|
Amortization of non-compete agreements |
|
|
1,813 |
|
|
|
1,302 |
|
Preneed liabilities, net |
|
|
23,320 |
|
|
|
24,700 |
|
|
|
|
|
|
|
|
Total deferred income tax assets |
|
|
32,732 |
|
|
|
33,611 |
|
Less valuation allowance |
|
|
(823 |
) |
|
|
(1,955 |
) |
|
|
|
|
|
|
|
Total deferred income tax assets |
|
$ |
31,909 |
|
|
$ |
31,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Amortization and depreciation |
|
$ |
(13,697 |
) |
|
$ |
(20,237 |
) |
Other |
|
|
|
|
|
|
(314 |
) |
|
|
|
|
|
|
|
Total deferred income tax liabilities |
|
|
(13,697 |
) |
|
|
(20,551 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets |
|
$ |
18,212 |
|
|
$ |
11,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax asset |
|
$ |
1,672 |
|
|
$ |
3,972 |
|
Non-current deferred tax asset |
|
|
16,540 |
|
|
|
7,133 |
|
|
|
|
|
|
|
|
Total net deferred tax assets |
|
$ |
18,212 |
|
|
$ |
11,105 |
|
|
|
|
|
|
|
|
The current deferred tax asset is included in Inventories and other current assets at December
31, 2006 and 2007. The non-current deferred tax asset is included in deferred charges and other
non-current assets at December 31, 2006 and 2007.
Carriage records a valuation allowance to reflect the estimated amount of deferred tax assets
for which realization is uncertain. Management reviews the valuation allowance at the end of each
quarter and makes adjustments if it is determined that it is more likely than not that the tax
benefits will be realized. The Company increased its valuation allowance and recorded deferred tax
liabilities in the amounts of $1.1 million (equal to $0.06 per diluted share) during 2007. The
increase was primarily due to the Company increasing its blended state statutory rate from 3.8% to
6.8%. This increase was offset by a corresponding increase in the Companys state net operating
loss carryforward deferred tax asset.
For federal income tax reporting purposes, Carriage has net operating loss carryforwards
totaling $6.6 million available at December 31, 2007 to offset future Federal taxable income, which
expire between 2021and 2025 if not utilized. Carriage also has approximately $63.7 million of state
net operating loss carryforwards that will expire between 2008 and 2027, if not utilized. Based on
managements assessment of the various state net operating losses, it was determined that it is
more likely than not that the Company will not be able to realize tax benefits on a substantial
amount of the state losses. The valuation allowance at December 31, 2007 is attributable to the
deferred tax asset related to the state operating losses.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. STOCKHOLDERS EQUITY
Stock Based Compensation Plans
During the three year period ended December 31, 2007 Carriage had five stock benefit plans in
effect under which stock option grants or restricted stock have been issued or remain outstanding:
the 1995 Stock Incentive Plan (the 1995 Plan), the 1996 Stock Option Plan (the 1996 Plan), the
1996 Directors Stock Option Plan (the Directors Plan), the 1998 Stock Option Plan for
Consultants (the Consultants Plan) and the 2006 Long Term Incentive Plan (the 2006 Plan).
Substantially all of the options granted under the plans have ten-year terms. The 1995 Plan
expired in 2005 and the 1996 Plan, the Directors Plan and the Consultants Plan were terminated
during 2006. The expiration and termination of these plans does not affect the options previously
issued and outstanding.
All stock-based plans are administered by the Compensation Committee appointed by the Board of
Directors. The 2006 Plan provides for grants of options as non-qualified options or incentive stock
options, restricted stock, stock appreciation rights and performance awards. Option grants are
required by the 2006 Plan to be issued with an exercise price equal to or greater than the then
fair market value of Carriages Common Stock as determined by the closing price on the date of the
option grant. Because of changes in the Companys compensation philosophy, options have not been
awarded to officers since 2003 and only a small percentage of the outstanding options are currently
unvested.
The status of each of the plans at December 31, 2007 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Shares |
|
Options |
|
|
Reserved |
|
Available to Issue |
|
Outstanding |
1995 Plan |
|
|
|
|
|
|
|
|
|
|
243 |
|
1996 Plan |
|
|
|
|
|
|
|
|
|
|
548 |
|
Directors Plan |
|
|
|
|
|
|
|
|
|
|
205 |
|
2006 Plan |
|
|
1,350 |
|
|
|
988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,350 |
|
|
|
988 |
|
|
|
996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
A summary of the stock options at December 31, 2005, 2006 and 2007 and changes during the
three years ended is presented in the table and narrative below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
2005 |
|
2006 |
|
2007 |
|
|
Shares |
|
Wtd. Avg. |
|
Shares |
|
Wtd. Avg. |
|
Shares |
|
Wtd. Avg. |
|
|
(000) |
|
Ex Price |
|
(000) |
|
Ex Price |
|
(000) |
|
Ex Price |
Outstanding
at beginning of period |
|
|
1,616 |
|
|
$ |
3.64 |
|
|
|
1,365 |
|
|
$ |
3.39 |
|
|
|
1,243 |
|
|
$ |
3.32 |
|
Granted |
|
|
24 |
|
|
|
6.02 |
|
|
|
24 |
|
|
|
4.81 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(178 |
) |
|
|
2.99 |
|
|
|
(87 |
) |
|
|
3.01 |
|
|
|
(218 |
) |
|
|
2.83 |
|
Canceled or expired |
|
|
(97 |
) |
|
|
8.93 |
|
|
|
(59 |
) |
|
|
6.06 |
|
|
|
(29 |
) |
|
|
7.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year |
|
|
1,365 |
|
|
|
3.39 |
|
|
|
1,243 |
|
|
|
3.32 |
|
|
|
996 |
|
|
|
3.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
1,253 |
|
|
|
3.30 |
|
|
|
1,202 |
|
|
|
3.28 |
|
|
|
989 |
|
|
|
3.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of
options granted |
|
|
|
|
|
$ |
3.22 |
|
|
|
|
|
|
$ |
2.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used in determining
option fair values: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected dividend yield |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
0 |
% |
|
|
|
|
|
|
|
|
Expected volatility |
|
|
|
|
|
|
50 |
% |
|
|
|
|
|
|
58 |
% |
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
|
|
|
|
4.04 |
% |
|
|
|
|
|
|
4.25 |
% |
|
|
|
|
|
|
|
|
Expected life (years) |
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of the outstanding and exercisable stock options at December 31,
2007 totaled $5,851,000 and $5,819,000 respectively.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. STOCKHOLDERS EQUITY (continued)
The total intrinsic value of options exercised during 2005, 2006 and 2007 totaled $357,000,
$155,000 and $1,157,000, respectively. As of December 31, 2007, there was $17,000 of unrecognized
compensation cost, net of estimated forfeitures, related to nonvested stock options, which is
expected to be recognized over a weighted average period of approximately one year. Pursuant to
the Companys adoption of FAS 123R on January 1, 2006, the Company recorded compensation expense
totaling $117,000 and $36,000 in 2006 and 2007, respectively, related to the vesting of stock
options.
The following table further describes the Companys outstanding stock options at December 31,
2007 (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
Actual |
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
Range of |
|
Number |
|
|
Average |
|
|
|
|
|
|
Number |
|
|
|
|
Exercise Prices |
|
Outstanding |
|
|
Remaining |
|
|
Weighted-Average |
|
|
Exercisable |
|
|
Weighted-Average |
|
150% increment |
|
at 12/31/07 |
|
|
Contractual Life |
|
|
Exercise Price |
|
|
at 12/31/07 |
|
|
Exercise Price |
|
$ 1.19-1.56 |
|
|
538 |
|
|
|
3.0 |
|
|
$ |
1.50 |
|
|
|
538 |
|
|
$ |
1.50 |
|
$ 2.06-3.09 |
|
|
120 |
|
|
|
2.5 |
|
|
$ |
2.89 |
|
|
|
120 |
|
|
$ |
2.89 |
|
$ 3.12-4.66 |
|
|
87 |
|
|
|
5.3 |
|
|
$ |
4.19 |
|
|
|
80 |
|
|
$ |
4.15 |
|
$ 4.77-6.19 |
|
|
219 |
|
|
|
4.7 |
|
|
$ |
5.08 |
|
|
|
219 |
|
|
$ |
5.08 |
|
$13.25-19.88 |
|
|
32 |
|
|
|
0.2 |
|
|
$ |
14.60 |
|
|
|
32 |
|
|
$ |
14.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 1.19-19.88 |
|
|
996 |
|
|
|
3.4 |
|
|
$ |
3.12 |
|
|
|
989 |
|
|
$ |
3.11 |
|
Employee Stock Purchase Plan
Carriage provides all employees the opportunity to purchase Common Stock through payroll
deductions. Purchases are made quarterly; the price being 85% of the lower of the price on the
grant date or the purchase date. In 2005, employees purchased a total of 86,354 shares at a
weighted average price of $4.20 per share. During 2006, employees purchased a total of 74,536
shares at a weighted average price of $4.03 per share. In 2007, employees purchased a total of
79,120 shares at a weighted average price of $4.71 per share. Pursuant to the Companys adoption
of FAS 123R on January 1, 2006, compensation cost totaling approximately $119,000 and $95,000 was
expensed in 2006 and 2007, respectively.
The fair values of the grants at the beginning of each of the years pursuant to the Companys
employee stock purchase plan (ESPP) were estimated using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2006 |
|
2007 |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected volatility |
|
|
50 |
% |
|
|
58 |
% |
|
|
24 |
% |
Risk-free interest rate |
|
|
4.04 |
% |
|
|
4.25 |
% |
|
4.94%, 4.91%, 4.96%, 5.00 |
% |
Expected life (years) |
|
.25, .50, .75, 1 |
|
|
.25, .50, .75, 1 |
|
|
.25, .50, .75, 1 |
|
The expected life of the ESPP grants represents the calendar quarters from the grant date
(January 1) to the purchase date (end of each quarter).
Restricted Stock Grants
The Company, from time to time, issues shares of restricted common stock to certain officers
and key employees of the Company from the stock benefit plans. A summary of the status of unvested
restricted stock awards as of December 31, 2007, and changes during 2007, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Shares |
|
|
Grant Date |
|
Unvested stock awards |
|
(in thousands) |
|
|
Fair Value |
|
Unvested at January 1, 2007 |
|
|
248,750 |
|
|
$ |
4.76 |
|
Awards |
|
|
318,813 |
|
|
|
7.34 |
|
Cancellations |
|
|
(39,000 |
) |
|
|
6.13 |
|
Vestings |
|
|
(111,500 |
) |
|
|
4.58 |
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2007 |
|
|
417,063 |
|
|
|
6.65 |
|
|
|
|
|
|
|
|
|
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. STOCKHOLDERS EQUITY (continued)
The Company recognized $0.6, $0.5 and $0.7 million in compensation cost in 2005, 2006 and
2007, respectively, related to the vesting of restricted stock awards. As of December 31, 2007,
there was $2.1 million of total unrecognized compensation costs related to unvested restricted
stock awards, which is expected to be recognized over a weighted average period of 2.7 years.
Director Compensation Plans
The Company has a compensation plan for its outside directors under which directors may choose
to accept fully vested shares of the Companys common stock for all or a portion of their annual
retainer and meeting fees. During the three years 2005 through 2007, the Company issued shares of
common stock to directors totaling 17,088, 15,736 and 15,888, respectively, in lieu of payment in
cash for their meeting fees, the market value of which was charged to operations. New directors
receive an award of 20,000 shares of common stock at the time of their initial election to the
Board, 50% of which are vested at the grant date and 25% of which vests on the first and second
anniversary of the grant. Additionally, the non-executive officer directors received a grant of
6,000 fully vested stock options each on the date of the annual stockholders meeting during 2005
and 2006. At the 2007 annual stockholders meeting, each of the non-executive directors were
granted 3,000 fully vested restricted shares from the 2006 Plan. Pursuant to the Companys
adoption of FAS 123R at the beginning of 2006, the value of the 2006 and 2007 share-based
compensation totaling $140,000 and $280,000, respectively, was charged to operations.
19. PREFERRED STOCK
The Company has 40,000,000 authorized shares of preferred stock, none of which is currently issued and outstanding.
20. RELATED PARTY TRANSACTIONS
As an incentive, the Company entered into an arrangement with a former owner, who had served
as a director to pay him 10% of the amount by which the annual field level cash flow exceeds
predetermined targets on certain businesses in California through 2006, with a final payment paid
in 2007 equal to a multiple of six times the average of the last three years payments. The business
purpose of the arrangement was to incentivise the individual 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 director totaled
approximately $276,000 and $344,000 for the years 2005 and 2006, respectively, and a final payment
of $1,452,000 paid in the first quarter of 2007.
The Company uses a law firm in which one of its partners is the spouse of the Companys Vice
President and General Counsel. The firm is used for various legal matters. During the year ended
December 31, 2007, the Company paid the law firm $498,000.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
21. EARNINGS PER SHARE
The following table sets forth the computation of the basic and diluted earnings per share for
the years ended December 31, 2005, 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
|
(in thousands, except per share data) |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
$ |
(1,121 |
) |
|
$ |
3,714 |
|
|
$ |
7,525 |
|
Net income (loss) from discontinued operations |
|
|
2,012 |
|
|
|
(5,130 |
) |
|
|
754 |
|
Cumulative effect of change in accounting method |
|
|
(22,756 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for earnings per share net income (loss) |
|
$ |
(21,865 |
) |
|
$ |
(1,416 |
) |
|
$ |
8,279 |
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share weighted average shares |
|
|
18,334 |
|
|
|
18,545 |
|
|
|
19,020 |
|
Dilutive effect of stock options |
|
|
|
|
|
|
367 |
|
|
|
487 |
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share |
|
|
18,334 |
|
|
|
18,912 |
|
|
|
19,507 |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.06 |
) |
|
$ |
0.21 |
|
|
$ |
0.40 |
|
Discontinued operations |
|
|
0.11 |
|
|
|
(0.29 |
) |
|
|
0.04 |
|
Cumulative effect of change in accounting method |
|
|
(1.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1.19 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.06 |
) |
|
$ |
0.20 |
|
|
$ |
0.39 |
|
Discontinued operations |
|
|
0.11 |
|
|
|
(0.28 |
) |
|
|
0.04 |
|
Cumulative effect of change in accounting method |
|
|
(1.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1.19 |
) |
|
$ |
(0.08 |
) |
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 1.2 million shares were not included in the computation of diluted
earnings per share for the year ended December 31, 2005, because the effect would be antidilutive
and 0.1 million shares because the exercise prices were greater than the average market price of
the common shares.
Options to purchase 0.1 million shares were not included in the computation of diluted
earnings per share for the year ended December 31, 2006, because the effect would be antidilutive
as the exercise prices were greater than the average market price of the common shares.
Options to purchase 0.03 million shares were not included in the computation of diluted
earnings per share for the year ended December 31, 2007, because the effect would be antidilutive
as the exercise prices were greater than the average market price of the common shares.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
22. MAJOR SEGMENTS OF BUSINESS
Carriage conducts funeral and cemetery operations only in the United States. The following
table presents external revenues from continuing operations, net income (loss) from continuing
operations, total assets, depreciation and amortization, capital expenditures, number of operating
locations, interest expense, and income tax expense (benefit) from continuing operations by
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
Cemetery |
|
Corporate |
|
Consolidated |
|
|
(in thousands, except number of operating locations) |
External revenues from continuing
operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
124,808 |
|
|
$ |
43,016 |
|
|
$ |
|
|
|
$ |
167,824 |
|
2006 |
|
|
114,187 |
|
|
|
36,159 |
|
|
|
|
|
|
|
150,346 |
|
2005 |
|
|
110,882 |
|
|
|
37,555 |
|
|
|
|
|
|
|
148,437 |
|
Net income (loss) from continuing
operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
22,757 |
|
|
$ |
5,920 |
|
|
$ |
(21,152 |
) |
|
$ |
7,525 |
|
2006 |
|
|
18,811 |
|
|
|
2,540 |
|
|
|
(17,637 |
) |
|
|
3,714 |
|
2005 |
|
|
18,181 |
|
|
|
4,265 |
|
|
|
(23,567 |
) |
|
|
(1,121 |
) |
Total assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
371,921 |
|
|
$ |
206,840 |
|
|
$ |
32,046 |
|
|
$ |
610,807 |
|
2006 |
|
|
309,140 |
|
|
|
181,225 |
|
|
|
74,631 |
|
|
|
564,996 |
|
2005 |
|
|
322,497 |
|
|
|
189,684 |
|
|
|
58,459 |
|
|
|
570,640 |
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
5,415 |
|
|
$ |
2,724 |
|
|
$ |
1,387 |
|
|
$ |
9,526 |
|
2006 |
|
|
5,059 |
|
|
|
2,173 |
|
|
|
1,432 |
|
|
|
8,664 |
|
2005 |
|
|
5,021 |
|
|
|
2,759 |
|
|
|
1,273 |
|
|
|
9,053 |
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
7,060 |
|
|
$ |
2,399 |
|
|
$ |
2,191 |
|
|
$ |
11,650 |
|
2006 |
|
|
2,747 |
|
|
|
2,154 |
|
|
|
1,464 |
|
|
|
6,365 |
|
2005 |
|
|
2,872 |
|
|
|
2,846 |
|
|
|
2,386 |
|
|
|
8,104 |
|
Number of operating locations at year
end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
139 |
|
|
|
32 |
|
|
|
|
|
|
|
171 |
|
2006 |
|
|
131 |
|
|
|
28 |
|
|
|
|
|
|
|
159 |
|
2005 |
|
|
133 |
|
|
|
29 |
|
|
|
|
|
|
|
162 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
535 |
|
|
$ |
119 |
|
|
$ |
17,690 |
|
|
$ |
18,344 |
|
2006 |
|
|
606 |
|
|
|
97 |
|
|
|
17,805 |
|
|
|
18,508 |
|
2005 |
|
|
734 |
|
|
|
107 |
|
|
|
17,746 |
|
|
|
18,587 |
|
Income tax expense (benefit) from
continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
$ |
13,135 |
|
|
$ |
3,312 |
|
|
$ |
(11,379 |
) |
|
$ |
5,068 |
|
2006 |
|
|
10,501 |
|
|
|
1,307 |
|
|
|
(9,503 |
) |
|
|
2,305 |
|
2005 |
|
|
9,983 |
|
|
|
2,152 |
|
|
|
(12,667 |
) |
|
|
(532 |
) |
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
23. SUPPLEMENTAL DISCLOSURE OF STATEMENT OF OPERATIONS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Goods: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
48,219 |
|
|
$ |
49,071 |
|
|
$ |
52,218 |
|
Cemetery |
|
|
26,772 |
|
|
|
24,384 |
|
|
|
29,153 |
|
|
|
|
|
|
|
|
|
|
|
Total goods |
|
$ |
74,991 |
|
|
$ |
73,455 |
|
|
$ |
81,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
62,664 |
|
|
$ |
65,117 |
|
|
$ |
72,590 |
|
Cemetery |
|
|
10,782 |
|
|
|
11,774 |
|
|
|
13,863 |
|
|
|
|
|
|
|
|
|
|
|
Total services |
|
$ |
73,446 |
|
|
$ |
76,891 |
|
|
$ |
86,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
148,437 |
|
|
$ |
150,346 |
|
|
$ |
167,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Goods: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
40,911 |
|
|
$ |
41,390 |
|
|
$ |
42,925 |
|
Cemetery |
|
|
18,657 |
|
|
|
19,302 |
|
|
|
20,490 |
|
|
|
|
|
|
|
|
|
|
|
Total goods |
|
$ |
59,568 |
|
|
$ |
60,692 |
|
|
$ |
63,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services: |
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
31,520 |
|
|
$ |
31,930 |
|
|
$ |
34,766 |
|
Cemetery |
|
|
7,417 |
|
|
|
7,418 |
|
|
|
8,006 |
|
|
|
|
|
|
|
|
|
|
|
Total services |
|
$ |
38,937 |
|
|
$ |
39,348 |
|
|
$ |
42,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
$ |
98,505 |
|
|
$ |
100,040 |
|
|
$ |
106,187 |
|
|
|
|
|
|
|
|
|
|
|
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
24. QUARTERLY FINANCIAL DATA (UNAUDITED)
The tables below set forth consolidated operating results by fiscal quarter for the years
ended December 31, 2006 and 2007, in thousands, except earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from continuing operations |
|
$ |
42,465 |
|
|
$ |
41,510 |
|
|
$ |
40,614 |
|
|
$ |
43,235 |
|
Gross profit from continuing operations |
|
|
12,880 |
|
|
|
11,126 |
|
|
|
9,792 |
|
|
|
12,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
2,992 |
|
|
$ |
1,916 |
|
|
$ |
731 |
|
|
$ |
1,886 |
|
Income (loss) from discontinued operations |
|
|
431 |
|
|
|
40 |
|
|
|
(38 |
) |
|
|
321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
3,423 |
|
|
$ |
1,956 |
|
|
$ |
693 |
|
|
$ |
2,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.16 |
|
|
$ |
0.10 |
|
|
$ |
0.04 |
|
|
$ |
0.10 |
|
Loss from discontinued operations |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per basic share |
|
$ |
0.18 |
|
|
$ |
0.10 |
|
|
$ |
0.04 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.16 |
|
|
$ |
0.10 |
|
|
$ |
0.04 |
|
|
$ |
0.10 |
|
Loss from discontinued operations |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per diluted share |
|
$ |
0.18 |
|
|
$ |
0.10 |
|
|
$ |
0.04 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from continuing operations |
|
$ |
40,829 |
|
|
$ |
37,096 |
|
|
$ |
34,994 |
|
|
$ |
37,427 |
|
Gross profit from continuing operations |
|
|
10,838 |
|
|
|
8,210 |
|
|
|
5,841 |
|
|
|
9,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
2,224 |
|
|
$ |
609 |
|
|
$ |
(500 |
) |
|
$ |
1,381 |
|
Income (loss) from discontinued operations |
|
|
(3,959 |
) |
|
|
94 |
|
|
|
(65 |
) |
|
|
(1,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1,735 |
) |
|
$ |
703 |
|
|
$ |
(565 |
) |
|
$ |
181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.12 |
|
|
$ |
0.04 |
|
|
$ |
(0.03 |
) |
|
$ |
0.07 |
|
Loss from discontinued operations |
|
|
(0.21 |
) |
|
|
|
|
|
|
|
|
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per basic share |
|
$ |
(0.09 |
) |
|
$ |
0.04 |
|
|
$ |
(0.03 |
) |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.12 |
|
|
$ |
0.04 |
|
|
$ |
(0.03 |
) |
|
$ |
0.07 |
|
Loss from discontinued operations |
|
|
(0.21 |
) |
|
|
|
|
|
|
|
|
|
|
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per diluted share |
|
$ |
(0.09 |
) |
|
$ |
0.04 |
|
|
$ |
(0.03 |
) |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
25. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following information is supplemental disclosure for the Consolidated Statement of Cash Flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2005 |
|
2006 |
|
2007 |
Cash paid for interest and financing costs |
|
$ |
33,169 |
|
|
$ |
18,096 |
|
|
$ |
17,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (refunded) for income taxes |
|
|
275 |
|
|
|
(312 |
) |
|
|
320 |
|
Stock issued to directors or officers |
|
|
1,338 |
|
|
|
168 |
|
|
|
2,269 |
|
Loss on early extinguishment of debt |
|
|
978 |
|
|
|
|
|
|
|
|
|
Net deposits in preneed funeral trusts |
|
|
(5,138 |
) |
|
|
(5,731 |
) |
|
|
(1,109 |
) |
Net deposits in preneed cemetery trusts |
|
|
(3,095 |
) |
|
|
(5,463 |
) |
|
|
(2,490 |
) |
Net deposits in perpetual care trusts |
|
|
(1,155 |
) |
|
|
(5,227 |
) |
|
|
(1,035 |
) |
Net decrease in preneed funeral receivables |
|
|
1,195 |
|
|
|
617 |
|
|
|
1,647 |
|
Net (increase) decrease in preneed cemetery receivables |
|
|
(467 |
) |
|
|
1,311 |
|
|
|
(362 |
) |
Net withdrawals of receivables from preneed funeral
trusts |
|
|
663 |
|
|
|
604 |
|
|
|
4,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in preneed funeral receivables increasing
(decreasing) deferred revenue |
|
|
2,318 |
|
|
|
5,006 |
|
|
|
(511 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in preneed cemetery receivables increasing
(decreasing) deferred revenue |
|
|
10,074 |
|
|
|
5,089 |
|
|
|
(5,123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deposits (withdrawals) in preneed funeral trust
accounts increasing (decreasing) non-controlling
interests |
|
|
1,304 |
|
|
|
(1,310 |
) |
|
|
1,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deposits (withdrawals) in cemetery trust accounts
increasing (decreasing) non-controlling interests |
|
|
(379 |
) |
|
|
716 |
|
|
|
2,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits in perpetual care trust accounts increasing
non-controlling interests |
|
|
900 |
|
|
|
3,120 |
|
|
|
1,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of available for sale
securities of the funeral and cemetery trusts |
|
|
51,775 |
|
|
|
73,887 |
|
|
|
57,348 |
|
Purchase of available for sale securities of the
funeral and cemetery trusts |
|
|
61,223 |
|
|
|
62,323 |
|
|
|
83,064 |
|
Net deposits (withdrawals) in trust accounts
increasing (decreasing) non-controlling interests |
|
|
(2,123 |
) |
|
|
(11,789 |
) |
|
|
(8,760 |
) |
68
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Carriage Services, Inc.:
We have audited and reported separately herein on the consolidated balance sheets of Carriage
Services, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of operations, changes in stockholders equity, and cash flows for each of the years in
the three-year period ended December 31, 2007.
Our audits were made for the purpose of forming an opinion on the basic consolidated financial
statements of Carriage Services, Inc. taken as a whole. The supplementary information included in
Part IV, Item 15 (a)(2) is presented for purposes of additional analysis and is not a required part
of the basic consolidated financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial statements and, in
our opinion, is fairly stated in all material respects in relation to the basic consolidated
financial statements taken as a whole.
Our report contains an explanatory paragraph that states the Company adopted the provisions of FASB
Interpretation No. 48, effective January 1, 2007 and Statement of Financial Accounting Standards
No. 123 (revised 2004), effective January 1, 2006.
/s/KPMG LLP
Houston, Texas
March 14, 2008
69
CARRIAGE SERVICES, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to |
|
|
|
|
|
|
|
|
Beginning |
|
Costs and |
|
|
|
|
|
Balance End |
Description |
|
of year |
|
Expenses |
|
Deduction |
|
of Year |
Year ended December 31, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for bad debts, current portion |
|
$ |
940 |
|
|
$ |
2,024 |
|
|
$ |
2,027 |
|
|
$ |
937 |
|
Allowance for cemetery bad debts,
contract cancellations and receivables
from preneed funeral trusts, noncurrent
portion |
|
$ |
555 |
|
|
$ |
1,834 |
|
|
$ |
1,324 |
|
|
$ |
1,065 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for bad debts, current portion |
|
$ |
937 |
|
|
$ |
1,932 |
|
|
$ |
1,944 |
|
|
$ |
925 |
|
Allowance for cemetery bad debts,
contract cancellations and
receivables from preneed funeral
trusts, noncurrent portion |
|
$ |
1,065 |
|
|
$ |
3,020 |
|
|
$ |
2,882 |
|
|
$ |
1,203 |
|
Environmental remediation reserves |
|
$ |
143 |
|
|
$ |
1,033 |
|
|
$ |
824 |
|
|
$ |
352 |
|
Employee severance accruals |
|
$ |
157 |
|
|
$ |
451 |
|
|
$ |
482 |
|
|
$ |
126 |
|
Office closing and other accruals |
|
$ |
70 |
|
|
$ |
|
|
|
$ |
70 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for bad debts, current portion |
|
$ |
925 |
|
|
$ |
1,002 |
|
|
$ |
785 |
|
|
$ |
1,142 |
|
Allowance for cemetery bad debts,
contract cancellations and receivables
from preneed funeral trusts, noncurrent
portion |
|
$ |
1,203 |
|
|
$ |
2,396 |
|
|
$ |
2,440 |
|
|
$ |
1,159 |
|
Environmental remediation reserves |
|
$ |
352 |
|
|
$ |
92 |
|
|
$ |
444 |
|
|
$ |
|
|
Employee severance accruals |
|
$ |
126 |
|
|
$ |
63 |
|
|
$ |
189 |
|
|
$ |
|
|
70
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE |
None.
ITEM 9A. CONTROLS AND PROCEDURES
Managements Evaluation of Disclosure Controls and Procedures
Our management, including our principal executive and financial officers, has evaluated the
effectiveness of our disclosure controls and procedures to ensure that the information required to
be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms, and to ensure that such information is accumulated and communicated
to management, including our principal executive and financial officers, as appropriate to allow
timely decisions regarding required disclosure. Based on such evaluation, our principal executive
and financial officers have concluded that such disclosure controls and procedures were effective,
as of December 31, 2007 (the end of the period covered by this Annual Report on Form 10-K).
Assessment of Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Managements report
on our internal control over financial reporting is presented on page 33 of this Annual Report on
Form 10-K. KPMG LLP, an independent registered public accounting firm, has issued an attestation
report on our internal control over financial reporting. The report of KPMG LLP relating to the
effectiveness of internal control over financial reporting, the Consolidated Financial Statements
and the financial statement schedule are presented in this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
Our management report on internal control over financial reporting for the year ended December
31, 2007 did not report any material weaknesses in our internal control over financial reporting or
any changes in our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
71
PART III
ITEM 10. DIRECTIORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is incorporated by reference to the registrants
definitive proxy statement relating to its 2008 annual meeting of stockholders, which proxy
statement will be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended (the Exchange Act), within 120 days after the end of the last fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the registrants
definitive proxy statement relating to its 2008 annual meeting of stockholders, which proxy
statement will be filed pursuant to Regulation 14A of the Exchange Act within 120 days after the
end of the last fiscal year.
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS |
The information required by Item 12 is incorporated by reference to the registrants
definitive proxy statement relating to its 2008 annual meeting of stockholders, which proxy
statement will be filed pursuant to Regulation 14A of the Exchange Act within 120 days after the
end of the last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference to the registrants
definitive proxy statement relating to its 2008 annual meeting of stockholders, which proxy
statement will be filed pursuant to Regulation 14A of the Exchange Act within 120 days after the
end of the last fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is incorporated by reference to the registrants
definitive proxy statement relating to its 2008 annual meeting of stockholders, which proxy
statement will be filed pursuant to Regulation 14A of the Exchange Act within 120 days after the
end of the last fiscal year.
72
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) FINANCIAL STATEMENTS
The following financial statements and the Report of Independent Registered Public Accounting
Firm are filed as a part of this report on the pages indicated:
|
|
|
|
|
|
|
Page |
Managements Report on Internal Control over Financial Reporting
|
|
|
33 |
|
Attestation of Independent Registered Public Accounting Firm
|
|
|
34 |
|
Report of Independent Registered Public Accounting Firm
|
|
|
35 |
|
Consolidated Balance Sheets as of December 31, 2006 and 2007
|
|
|
36 |
|
Consolidated Statements of Operations for the Years Ended December 31, 2005, 2006 and 2007
|
|
|
37 |
|
Consolidated Statements of Changes in Stockholders Equity for the Years Ended December 31, 2005,
2006 and 2007
|
|
|
38 |
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2006 and 2007
|
|
|
39 |
|
Notes to Consolidated Financial Statements
|
|
|
40 |
|
(2) FINANCIAL STATEMENT SCHEDULES
The following Financial Statement Schedule and the Report of Independent Registered Public
Accounting Firm on Financial Statement Schedule are included in this report on the pages indicated:
|
|
|
|
|
|
|
Page |
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
|
|
|
69 |
|
Financial Statement Schedule II Valuation and Qualifying Accounts
|
|
|
70 |
|
All other schedules are omitted as the required information is inapplicable or the information
is presented in the Consolidated Financial Statements or related notes.
(3) EXHIBITS
The exhibits to this report have been included only with the copies of this report filed with
the Securities and Exchange Commission. Copies of individual exhibits will be furnished to
stockholders upon written request to Carriage Services, Inc. and payment of a reasonable fee.
|
|
|
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
Companys 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 Companys 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 Companys Quarterly Report on Form
10-Q for its fiscal quarter ended June 30, 2002. |
|
|
|
3.4
|
|
Certificate of Designation of the Companys 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 Companys 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 Companys 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 reference to Exhibit 3.9 to the Companys Annual
Report on Form 10-K for its year ended December 31, 2001. |
73
|
|
|
Exhibit No. |
|
Description |
|
|
|
4.1
|
|
Certificate of Trust of Carriage Services Capital Trust.
Incorporated by reference to Exhibit 4.6 to the Companys 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 Companys 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 Companys 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
Companys Form S-3 Registration Statement No. 333-84141. |
|
|
|
4.5
|
|
Form of the Companys Convertible Junior Subordinated Debentures due
2029. Incorporated by reference to Exhibit 4.11 to the Companys
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 Companys 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
Companys 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 Companys 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
Companys 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 Companys current report on Form 8-K
dated January 27, 2005. |
|
|
|
4.11
|
|
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 Companys Quarterly Report on Form 10-Q for its
fiscal quarter ended June 30, 2005. |
|
|
|
4.12
|
|
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
Companys Quarterly Report on Form 10-Q for its fiscal quarter ended
September 30, 2005. |
|
|
|
4.13
|
|
Amendment No. 2 to the Credit Agreement dated May 4, 2007 among
Carriage Services, Inc., as the Borrower, Bank of America, N.A. as
the Administrative Agent, Swing Line Lender and L/C Issuer and Wells
Fargo Bank of Texas National Association, as Syndication Agent.
Incorporated by reference to Exhibit 4.1 to the Companys Quarterly
Report on Form 10-Q for its quarter ended June 30, 2007. |
|
|
|
10.1
|
|
Amended and Restated 1996 Stock Option Plan. Incorporated herein by
reference to Exhibit 10.24 to the Companys 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 Companys 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 Companys 2005 Schedule 14A. |
74
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.4
|
|
Second Amended and Restated 1996 Directors Stock Option Plan.
Incorporated by reference to Exhibit 99.1 to the Companys 2000
Schedule 14A. |
|
|
|
10.5
|
|
1998 Stock Option Plan for Consultants. Incorporated by reference to
Exhibit 10.1 to the Companys 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 Companys 2005
Schedule 14A. |
|
|
|
10.7
|
|
Indemnity Agreement with Melvin C. Payne dated December 18, 2000.
Incorporated by reference to Exhibit 10.20 to the Companys Annual
Report on Form 10-K for its fiscal year ended December 31, 2000. |
|
|
|
10.8
|
|
Indemnity Agreement with Mark F. Wilson dated December 18, 2000.
Incorporated by reference to Exhibit 10.24 to the Companys Annual
Report on Form 10-K for its fiscal year ended December 31, 2000. |
|
|
|
10.9
|
|
Indemnity Agreement with Ronald A. Erickson dated December 18, 2000.
Incorporated by reference to Exhibit 10.27 to the Companys Annual
Report on Form 10-K for its fiscal year ended December 31, 2000. |
|
|
|
10.10
|
|
Indemnity Agreement with Vincent D. Foster dated December 18, 2000.
Incorporated by reference to Exhibit 10.28 to the Companys Annual
Report on Form 10-K for its fiscal year ended December 31, 2000. |
|
|
|
10.11
|
|
Indemnity Agreement with Joe R. Davis dated May 13, 2003.
Incorporated by reference to Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q for its quarter ended June 30, 2003. |
|
|
|
10.12
|
|
Indemnity Agreement with Joseph Saporito dated May 13, 2003.
Incorporated by reference to Exhibit 10.2 to the Companys Quarterly
Report on Form 10-Q for its quarter ended June 30, 2003. |
|
|
|
10.13
|
|
Indemnity Agreement with George J. Klug dated May 13, 2003.
Incorporated by reference to Exhibit 10.5 to the Companys Quarterly
Report on Form 10-Q for its quarter ended June 30, 2003. |
|
|
|
10.14
|
|
Termination Agreement with James J. Benard dated July 17, 2006. |
|
|
|
10.15
|
|
Employment Agreement with J. Bradley Green dated September 11, 2006. |
|
|
|
10.16 |
|
Contingent Asset Sale Agreement dated November 22, 2006
among
Carriage Cemetery Services, Inc. and SCI Funeral Services, Inc. |
|
|
|
10.17
|
|
Asset Purchase Agreement dated December 15, 2006 among Carriage
Cemetery Services, Inc. and Seaside Cemetery, Inc. |
|
|
|
10.18
|
|
Amendment No. 1 to the Contingent Asset Sale Agreement dated January
22, 2007 among Carriage Cemetery Services, Inc. and Alderwoods Group
(California), Inc. |
|
|
|
10.19
|
|
Amendment No. 2 to the Contingent Asset Sale Agreement dated February
26,2007 among Carriage Cemetery Services, Inc. and Alderwoods Group
(California), Inc. |
|
|
|
10.20
|
|
Amendment No. 1 to the 2006 Long Term Incentive Plan. Incorporated
by reference to Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q for its quarter ended June 30, 2007. |
|
|
|
10.21
|
|
Employment agreement with Melvin C. Payne dated August 7, 2007.
Incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated November 1, 2007. |
|
|
|
10.22
|
|
Employment agreement with Joseph Saporito dated August 24, 2007.
Incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated November 1, 2007. |
75
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.23
|
|
Employment agreement with George J. Klug dated August 24, 2007.
Incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K dated November 1, 2007. |
|
|
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10.24
|
|
Employment agreement with Terry E. Sanford dated August 24, 2007.
Incorporated by reference to Exhibit 10.3 to the Companys Current
Report on Form 8-K dated November 1, 2007. |
|
|
|
10.25
|
|
Indemnity agreement with Gary Forbes dated August 7, 2007.
Incorporated by reference to Exhibit 10.3 to the Companys Quarterly
Report on Form 10-Q for its quarter ended September 30, 2007. |
|
|
|
*10.26
|
|
Employment agreement with Kevin Musico dated August 7, 2007. |
|
|
|
10.27
|
|
Stock Purchase agreement as of June 12, 2007 among Carriage Cemetery
Services of Idaho, Inc., buyer, and Timothy T. Gibson, seller, for
100 percent of the issued and outstanding capital stock of Cloverdale
Park, Inc. Incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q for its quarter ended June
30, 2007. |
|
|
|
*10.28
|
|
Asset Purchase Agreement dated October 10, 2007 among Carriage
Funeral Services of California, Inc. and Thaddeus M. Luyben, Sr. and
Thaddeus Enterprises. |
|
|
|
*12
|
|
Calculation of Ratio of Earnings to Fixed Charges. |
|
|
|
14
|
|
Code of Business Conduct and Ethics. Carriages Code of Business
Conduct and Ethics is available on the website
www.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 Companys Quarterly Report on Form
10-Q for its quarter ended June 30, 2005. |
|
|
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*21.1
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Subsidiaries of the Company. |
|
|
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*23.1
|
|
Consent of KPMG LLP. |
|
|
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*31.1
|
|
Certification of Periodic Financial Reports by Melvin C. Payne in
satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002. |
|
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*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. |
|
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(*) |
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Filed herewith. |
|
() |
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Management contract or compensatory plan or arrangement required to be filed as an exhibit
hereto. |
76
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the securities exchange act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized on March 14, 2008.
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CARRIAGE SERVICES, INC.
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By: |
/s/ Melvin C. Payne
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Melvin C. Payne |
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Chairman of the Board, Chief Executive Officer, and President |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
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Signature |
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Title |
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Date |
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/s/ Melvin C. Payne
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Chairman of the Board, Chief Executive |
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Officer, President and Director (Principal
Executive Officer)
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March 14, 2008 |
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/s/ Joseph Saporito
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Executive Vice President, Chief Financial |
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Officer and Secretary (Principal Financial
Officer)
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March 14, 2008 |
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/s/ Terry E. Sanford
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Senior Vice President, Treasurer and |
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Chief Accounting Officer (Principal
Accounting Officer)
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March 14, 2008 |
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/s/ Joe R. Davis
Joe R. Davis
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Director
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March 14, 2008 |
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/s/ Ronald A. Erickson
Ronald A. Erickson
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Director
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March 14, 2008 |
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/s/ Gary L. Forbes
Gary L. Forbes
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Director
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March 14, 2008 |
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/s/ Vincent D. Foster
Vincent D. Foster
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Director
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March 14, 2008 |
77
EXHIBIT INDEX
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Exhibit No. |
|
Description |
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3.1
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|
Amended and Restated Certificate of Incorporation, as amended, of the
Company. Incorporated herein by reference to Exhibit 3.1 to the
Companys Annual Report on Form 10-K for its fiscal year ended
December 31, 1996. |
|
|
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3.2
|
|
Certificate of Amendment dated May 7, 1997. Incorporated by
reference to Exhibit 10.2 to the Companys 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 Companys Quarterly Report on Form
10-Q for its fiscal quarter ended June 30, 2002. |
|
|
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3.4
|
|
Certificate of Designation of the Companys 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 Companys Form 8-A filed December 29, 2000. |
|
|
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3.5
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|
Amended and Restated Bylaws of the Company. Incorporated by
reference to Exhibit 3.2 to the Companys Registration Statement on
Form S-1 (File No. 333-05545). |
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|
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3.6
|
|
Amendments to the Bylaws of the Company effective December 18, 2000.
Incorporated by reference to Exhibit 3.9 to the Companys 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 Companys Form S-3
Registration Statement No. 333-84141. |
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|
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4.2
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|
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 Companys Form S-3 Registration Statement No.
333-84141. |
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|
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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 Companys Form S-3
Registration Statement No. 333-84141. |
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4.4
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|
Form of Carriage Services Capital Trust 7% Convertible Preferred
Securities. Incorporated by reference to Exhibit 4.10 to the
Companys Form S-3 Registration Statement No. 333-84141. |
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4.5
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|
Form of the Companys Convertible Junior Subordinated Debentures due
2029. Incorporated by reference to Exhibit 4.11 to the Companys
Form S-3 Registration Statement No. 333-84141. |
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4.6
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|
Preferred Securities Guarantee dated June 3, 1999 between the Company
and Wilmington Trust Company. Incorporated by reference to Exhibit
4.12 to the Companys Form S-3 Registration Statement No. 333-84141. |
|
|
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4.7
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|
Common Securities Guarantee, dated June 3, 1999 by Carriage Services,
Inc. as Guarantor. Incorporated by reference to Exhibit 4.13 to the
Companys 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 Companys Form S-3 Registration Statement No.
333-84141. |
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|
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4.10
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|
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 Companys current report on Form 8-K
dated January 27, 2005. |
78
|
|
|
Exhibit No. |
|
Description |
|
4.11
|
|
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 Companys Quarterly Report on Form 10-Q for its
fiscal quarter ended June 30, 2005. |
|
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4.12
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|
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
Companys Quarterly Report on Form 10-Q for its fiscal quarter ended
September 30, 2005. |
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4.13
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|
Amendment No. 2 to the Credit Agreement dated May 4, 2007 among
Carriage Services, Inc., as the Borrower, Bank of America, N.A. as
the Administrative Agent, Swing Line Lender and L/C Issuer and Wells
Fargo Bank of Texas National Association, as Syndication Agent.
Incorporated by reference to Exhibit 4.1 to the Companys Quarterly
Report on Form 10-Q for its quarter ended June 30, 2007. |
|
|
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10.1
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|
Amended and Restated 1996 Stock Option Plan. Incorporated herein by
reference to Exhibit 10.24 to the Companys Annual Report on Form
10-K for its fiscal year ended December 31, 1996. |
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|
|
10.2
|
|
Amendment No. 2 to 1996 Stock Option Plan. Incorporated by reference
to Exhibit 10.2 to the Companys Form S-8 Registration Statement No.
333-85961. |
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10.3
|
|
Second Amended and Restated 1996 Stock Incentive Plan. Incorporated
by reference to Appendix C to the Companys 2005 Schedule 14A. |
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|
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10.4
|
|
Second Amended and Restated 1996 Directors Stock Option Plan.
Incorporated by reference to Exhibit 99.1 to the Companys 2000
Schedule 14A. |
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|
|
10.5
|
|
1998 Stock Option Plan for Consultants. Incorporated by reference to
Exhibit 10.1 to the Companys Form S-8 Registration Statement No.
333-62593. |
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10.6
|
|
Amendment No. 1 to the 1997 Employee Stock Purchase Plan.
Incorporated by reference to Appendix B to the Companys 2005
Schedule 14A. |
|
|
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10.7
|
|
Indemnity Agreement with Melvin C. Payne dated December 18, 2000.
Incorporated by reference to Exhibit 10.20 to the Companys Annual
Report on Form 10-K for its fiscal year ended December 31, 2000. |
|
|
|
10.8
|
|
Indemnity Agreement with Mark F. Wilson dated December 18, 2000.
Incorporated by reference to Exhibit 10.24 to the Companys Annual
Report on Form 10-K for its fiscal year ended December 31, 2000. |
|
|
|
10.9
|
|
Indemnity Agreement with Ronald A. Erickson dated December 18, 2000.
Incorporated by reference to Exhibit 10.27 to the Companys Annual
Report on Form 10-K for its fiscal year ended December 31, 2000. |
|
|
|
10.10
|
|
Indemnity Agreement with Vincent D. Foster dated December 18, 2000.
Incorporated by reference to Exhibit 10.28 to the Companys Annual
Report on Form 10-K for its fiscal year ended December 31, 2000. |
|
|
|
10.11
|
|
Indemnity Agreement with Joe R. Davis dated May 13, 2003.
Incorporated by reference to Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q for its quarter ended June 30, 2003. |
|
|
|
10.12
|
|
Indemnity Agreement with Joseph Saporito dated May 13, 2003.
Incorporated by reference to Exhibit 10.2 to the Companys Quarterly
Report on Form 10-Q for its quarter ended June 30, 2003. |
|
|
|
10.13
|
|
Indemnity Agreement with George J. Klug dated May 13, 2003.
Incorporated by reference to Exhibit 10.5 to the Companys Quarterly
Report on Form 10-Q for its quarter ended June 30, 2003. |
|
|
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10.14
|
|
Termination Agreement with James J. Benard dated July 17, 2006. |
79
|
|
|
Exhibit No. |
|
Description |
|
10.15
|
|
Employment Agreement with J. Bradley Green dated September 11, 2006. |
|
|
|
10.16
|
|
Contingent Asset Sale Agreement dated November 22, 2006 among
Carriage Cemetery Services, Inc. and SCI Funeral Services, Inc. |
|
|
|
10.17
|
|
Asset Purchase Agreement dated December 15, 2006 among Carriage
Cemetery Services, Inc. and Seaside Cemetery, Inc. |
|
|
|
10.18
|
|
Amendment No. 1 to the Contingent Asset Sale Agreement dated January
22, 2007 among Carriage Cemetery Services, Inc. and Alderwoods Group
(California), Inc. |
|
|
|
10.19
|
|
Amendment No. 2 to the Contingent Asset Sale Agreement dated February
26,2007 among Carriage Cemetery Services, Inc. and Alderwoods Group
(California), Inc. |
|
|
|
10.20
|
|
Amendment No. 1 to the 2006 Long Term Incentive Plan. Incorporated
by reference to Exhibit 10.1 to the Companys Quarterly Report on
Form 10-Q for its quarter ended June 30, 2007. |
|
|
|
10.21
|
|
Employment agreement with Melvin C. Payne dated August 7, 2007.
Incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated November 1, 2007. |
|
|
|
10.22
|
|
Employment agreement with Joseph Saporito dated August 24, 2007.
Incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated November 1, 2007. |
|
|
|
10.23
|
|
Employment agreement with George J. Klug dated August 24, 2007.
Incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K dated November 1, 2007. |
|
|
|
10.24
|
|
Employment agreement with Terry E. Sanford dated August 24, 2007.
Incorporated by reference to Exhibit 10.3 to the Companys Current
Report on Form 8-K dated November 1, 2007. |
|
|
|
10.25
|
|
Indemnity agreement with Gary Forbes dated August 7, 2007.
Incorporated by reference to Exhibit 10.3 to the Companys Quarterly
Report on Form 10-Q for its quarter ended September 30, 2007. |
|
|
|
*10.26
|
|
Employment agreement with Kevin Musico dated August 7, 2007. |
|
|
|
10.27
|
|
Stock Purchase agreement as of June12, 2007 among Carriage Cemetery
Services of Idaho, Inc., buyer, and Timothy T. Gibson, seller, for
100 percent of the issued and outstanding capital stock of Cloverdale
Park, Inc. Incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q for its quarter ended June
30, 2007. |
|
|
|
*10.28
|
|
Asset Purchase Agreement dated October 10, 2007 among Carriage
Funeral Services of California, Inc. and Thaddeus M. Luyben, Sr. and
Thaddeus Enterprises. |
|
|
|
*12
|
|
Calculation of Ratio of Earnings to Fixed Charges. |
|
|
|
14
|
|
Code of Business Conduct and Ethics. Carriages Code of Business
Conduct and Ethics is available on the website
www.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 Companys 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. |
|
(*) Filed herewith. |
() Management contract or compensatory plan or arrangement required to be filed as an exhibit
hereto. |
80