UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 13, 1997
CARRIAGE SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-11961 76-0423828
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
1300 POST OAK BLVD., SUITE 1500, HOUSTON, TX 77056
(Address of principal executive offices) (Zip Code)
(281) 556-7400
(Registrant's telephone number, including area code)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 13 and 20, 1997, Carriage Services, Inc., through its wholly
owned subsidiaries (collectively referred to as "the Company"), completed a
series of significant acquisitions involving seven funeral homes and three
cemeteries. These included the Company's acquisition of substantially all of the
operating assets of Sidun Funeral Group, Inc., which operated four funeral homes
in New Jersey; the Company's merger with Forest Lawn/Evergreen Management Corp.,
which owned and operated three cemeteries and one funeral home in Panama City,
Florida and one funeral home in Fort Walton Beach, Florida; and the Company's
acquisition of substantially all of the operating assets of Kent-Thornton
Funeral Home, Inc., which owned and operated one funeral home in Dothan,
Alabama. These mergers and acquisitions are referred to as the "Acquired
Businesses". Total consideration for the Acquired Businesses consisted of
382,353 shares of the Company's Class A Common Stock, cash of approximately
$21,800,000, and deferred purchase price having a present value of approximately
$2,800,000. The cash portion of the purchase consideration was made available
through the Company's existing credit facility. The consideration was determined
through negotiations between the Company and representatives of the Acquired
Businesses. In connection with these transactions, the Company entered into
customary employment, consulting and non-compete agreements with certain
employees and former owners of the Acquired Businesses. The mergers and
acquisitions will be accounted for under the purchase method of accounting for
financial reporting purposes.
On November 21, 1995, the Company acquired through acquisition
Raley-McCracken Funeral Home in Cullman, Alabama, of which 40% was owned by the
shareholders of Forest Lawn/Evergreen Management Corp. In connection with that
acquisition of Raley-McCracken Funeral Home, the Company entered into a
noncompete agreement with one of the shareholders of Forest Lawn/Evergreen
Management Corp. Except for the previously described acquisition of
Raley-McCracken Funeral Home, the Company is not aware of any pre-existing
material relationships between (i) the Acquired Businesses or any if its
shareholders, on the one hand, and (ii) the Company, any of the Company's
affiliates, directors and officers or any associate of such directors and
officers, on the other.
The Company also completed the merger or acquisition of several other
businesses (the "Other Acquisitions") since January 1, 1997. None of the Other
Acquisitions (other than the ones previously filed on Form 8K) are believed to
be individually material to the results of operations or financial condition of
the Company. However, the mergers and acquisitions with the Acquired Businesses
requires the filing of financial statements and pro forma financial information
pursuant to Rules 3-05(b)(1)(i) and 11-01(c) of Regulation S-X since such
businesses constitute "significant subsidiaries" under such Rules.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF THE BUSINESS ACQUIRED
This Form 8-K/A is being filed to include in the Current Report on Form
8-K filed by the Registrant with the Securities and Exchange Commission on
November 26, 1997 the financial statements and pro forma financial
information required by Item 7.
SIDUN FUNERAL GROUP, INC. PAGE
Auditor's Report 11
Balance Sheets as of December 31, 1996 and 1995 12
Statements of Income and Retained Earnings for the Years Ended
December 31, 1996 and 1995 13
Statements of Cash Flows for the Years Ended December 31, 1996 and
1995 14
Notes to Financial Statements 15
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
Auditor's Report 22
Balance Sheets as of August 31, 1997 and 1996 23
Statements of Income and Retained Earnings for the Years Ended
August 31, 1997 and 1996 25
Statements of Cash Flows for the Years Ended August 31, 1997 and
1996 26
Notes to Financial Statements 27
KENT-THORNTON FUNERAL HOME, INC.
Auditor's Report 37
Balance Sheets as of December 31, 1996 and 1995 38
Statements of Income and Retained Earnings for the Years Ended
December 31, 1996 and 1995 40
Statements of Cash Flows for the Years Ended December 31, 1996 and
1995 41
Notes to Financial Statements 42
(B) PRO FORMA FINANCIAL INFORMATION
CARRIAGE SERVICES, INC.
Unaudited Pro Forma Consolidated Balance Sheet - September 30, 1997 6
Unaudited Pro Forma Consolidated Statement of Operations - Nine
Months Ended September 30, 1997 7
Unaudited Pro Forma Consolidated Statement of Operations - Year
Ended December 31, 1996 8
Notes to Unaudited Pro Forma Consolidated Financial Statements 9
(C) EXHIBITS. None
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CARRIAGE SERVICES, INC.
Dated: March 24, 1998 By: /S/ THOMAS C. LIVENGOOD
Thomas C. Livengood
Executive Vice President and
Chief Financial Officer
4
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On November 13 and 20, 1997, Carriage Services, Inc., through its wholly
owned subsidiaries (collectively referred to as "the Company"), completed a
series of significant acquisitions involving seven funeral homes and three
cemeteries. These included the Company's acquisition of substantially all of the
operating assets of Sidun Funeral Group, Inc., which operated four funeral homes
in New Jersey; the Company's merger with Forest Lawn/Evergreen Management Corp.,
which owned and operated three cemeteries and one funeral home in Panama City,
Florida and one funeral home in Fort Walton Beach, Florida; and the Company's
acquisition of substantially all of the operating assets of Kent-Thornton
Funeral Home, Inc., which owned and operated one funeral home in Dothan,
Alabama. These mergers and acquisitions are referred to as the "Acquired
Businesses". Total consideration for the Acquired Businesses consisted of
382,353 shares of the Company's Class A Common Stock, cash of approximately
$21,800,000, and deferred purchase price having a present value of approximately
$2,800,000. The cash portion of the purchase consideration was made available
through the Company's existing credit facility. The consideration was determined
through negotiations between the Company and representatives of the Acquired
Businesses. In connection with these transactions, the Company entered into
customary employment, consulting and non-compete agreements with certain
employees and former owners of the Acquired Businesses. The mergers and
acquisitions will be accounted for under the purchase method of accounting for
financial reporting purposes.
The accompanying Unaudited Pro Forma Consolidated Financial Statements
have been prepared based upon certain assumptions and include adjustments as
detailed in the Notes to Unaudited Consolidated Pro Forma Financial Statements.
The estimated fair market values reflected in the Unaudited Consolidated
Financial Statements are based on preliminary estimates and assumptions and are
subject to revision as more information regarding asset and liability valuations
becomes available. In management's opinion, the preliminary allocation reflected
herein is not expected to be materially different from the final allocation.
The Unaudited Pro Forma Consolidated Statements of Operations do not
assume any additional profitability resulting from the application of the
Company's revenue enhancement measures or cost reduction programs to the
historical results of the Acquired Businesses, nor do they assume increases in
corporate general and administrative expenses which may have resulted from the
Company managing the Acquired Businesses for the periods presented.
The following Unaudited Pro Forma Consolidated Financial Statements should
be read in conjunction with the Consolidated Financial Statements of the Company
and the related notes thereto as included in the Company's Form 10-Q as of
September 30, 1997 and Form 10-K as of December 31, 1996. Such pro forma
information is based on historical data with respect to the Company and the
Acquired Businesses. The pro forma information is not necessarily indicative of
the results that might have occurred had such transactions actually taken place
at the beginning of the period specified and is not intended to be a projection
of future results. The pro forma information presented herein is provided to
comply with the requirements of the Securities and Exchange Commission. The pro
forma information does not reflect any adjustments to reflect the manner in
which the acquired entities are being or will be operated under the control of
the Company.
5
<PAGE>
CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREST
CARRIAGE SIDUN LAWN/ KENT- PRO FORMA TOTAL
ASSETS SERVICES, INC. GROUP EVERGREEN THORNTON ADJUSTMENTS(1) PRO FORMA
--------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 883 $ 646 $ 590 $ 90 $ (1,014) $ 1,195
Accounts receivable --
Trade, net of allowance .......................... 8,218 389 979 416 1,438 11,440
Other ............................................ 1,042 -- 4 -- (4) 1,042
--------- ------- ------- ------- --------- ---------
9,260 389 983 416 1,434 12,482
Inventories and other current assets ..................... 5,109 273 4 58 (144) 5,300
--------- ------- ------- ------- --------- ---------
Total current assets .............................. 15,252 1,308 1,577 564 276 18,977
--------- ------- ------- ------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT,
at cost (net) ........................................ 71,942 1,105 1,098 334 6,117 80,596
CEMETERY PROPERTY, at cost ................................... 23,686 -- 1,586 -- 6,651 31,923
NAMES AND REPUTATIONS, net ................................... 94,440 -- -- -- 11,980 106,420
DEFERRED CHARGES AND OTHER
NONCURRENT ASSETS ................................ 14,844 20 8,476 158 (8,468) 15,030
--------- ------- ------- ------- --------- ---------
$ 220,164 $ 2,433 $12,737 $ 1,056 $ 16,556 $ 252,946
========= ======= ======= ======= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other current liabilities ............ $ 6,867 $ 173 $ 649 $ 11 $ (634) $ 7,066
Current portion of long-term debt and capital leases ...... 1,328 -- 161 493 (165) 1,817
--------- ------- ------- ------- --------- ---------
Total current liabilities ........................ 8,195 173 810 504 (799) 8,883
PRENEED LIABILITIES, net ..................................... 7,692 -- 7,466 406 (8,060) 7,504
LONG-TERM DEBT AND OBLIGATIONS
UNDER CAPITAL LEASES, net of current portion ............. 85,642 782 2,633 -- 23,228 112,285
DEFERRED INCOME TAXES ........................................ 13,067 -- 277 -- (86) 13,258
--------- ------- ------- ------- --------- ---------
Total liabilities ................................ 114,596 955 11,186 910 14,283 141,930
--------- ------- ------- ------- --------- ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ................................... 16,285 -- -- -- -- 16,285
STOCKHOLDERS' EQUITY:
Common Stock ............................................. 105 -- -- -- 4 109
Contributed capital ...................................... 93,439 -- -- -- 5,444 98,883
Retained earnings (deficit) .............................. (4,261) -- -- -- -- (4,261)
Equity - Acquired Business ............................... -- 1,478 1,551 146 (3,175) --
--------- ------- ------- ------- --------- ---------
Total stockholders' equity ....................... 89,283 1,478 1,551 146 2,273 94,731
========= ======= ======= ======= ========= =========
$ 220,164 $ 2,433 $12,737 $ 1,056 $ 16,556 $ 252,946
========= ======= ======= ======= ========= =========
</TABLE>
See the accompanying Notes to Unaudited Pro
Forma Consolidated Financial Statements.
6
<PAGE>
CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOREST
CARRIAGE SIDUN LAWN/ KENT- PRO FORMA TOTAL
SERVICES, INC. GROUP EVERGREEN THORNTON ADJUSTMENTS PRO FORMA
------------ ------ ------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues, net .................................. $ 55,295 $3,373 $ 3,167 $ 494 $ -- $ 62,329
Costs and expenses ............................. 41,592 1,474 972 127 224 (2) 44,319
(82)(3) --
12 (4) --
------------ ------ ------- ----- -------- --------
41,592 1,474 972 127 154 44,319
------------ ------ ------- ----- -------- --------
Gross profit ............................... 13,703 1,899 2,195 367 (154) 18,010
General and administrative expenses ............ 3,657 1,370 1,637 231 -- 6,895
------------ ------ ------- ----- -------- --------
Operating income ........................... 10,046 529 558 136 (154) 11,115
Interest expense, net .......................... 4,028 34 (18) 32 1,366 (5) 5,442
------------ ------ ------- ----- -------- --------
Income before income taxes and
extraordinary item ........................ 6,018 495 576 104 (1,520) 5,673
Provision (benefit) for income taxes ........... 2,357 2 67 -- (322)(6) 2,104
------------ ------ ------- ----- -------- --------
Income before extraordinary item ............ 3,661 493 509 104 (1,198) 3,569
Extraordinary item - loss on early
extinguishment of debt, net of
income tax benefit of $159 .................. (195) -- -- -- -- (195)
------------ ------ ------- ----- -------- --------
Net income .................................. 3,466 493 509 104 (1,198) 3,374
Preferred stock dividend requirements .......... 239 -- -- -- -- 239
============ ====== ======= ===== ======== ========
Net income available to common
stockholders ............................. $ 3,227 $ 493 $ 509 $ 104 $ (1,198) $ 3,135
============ ====== ======= ===== ======== ========
Earnings per share:
Net income before extraordinary item ........ $ .31 $ .29
Extraordinary item .......................... (.02) (.02)
------------ --------
Net income .................................. $ .29 $ .27
============ ========
Weighted average number of common and
common equivalent shares outstanding
(in thousands) ............................... 11,325 382 (7) 11,707
============ ======== ========
</TABLE>
See the accompanying Notes to Unaudited
Pro Forma Consolidated Financial Statements.
7
<PAGE>
CARRIAGE SERVICES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CARRIAGE SIDUN FOREST LAWN/ KENT- PRO FORMA TOTAL
SERVICES, INC. GROUP EVERGREEN THORNTON ADJUSTMENTS PRO FORMA
------------ ---------- ------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues, net ....................................... $ 40,348 $ 4,290 $ 3,203 $ 442 $ -- $ 48,283
Costs and expenses .................................. 33,182 2,005 891 89 300 (2) 36,406
-- -- -- -- (76)(3) --
-- -- -- -- 15 (4) --
------------ ---------- ------- ----- -------- --------
33,182 2,005 891 89 239 36,406
------------ ---------- ------- ----- -------- --------
Gross profit .................................... 7,166 2,285 2,312 353 (239) 11,877
General and administrative expenses ................. 2,474 1,867 2,032 293 -- 6,666
------------ ---------- ------- ----- -------- --------
Operating income ................................ 4,692 418 280 60 (239) 5,211
Interest expense, net ............................... 4,347 49 (47) 51 1,659 (5) 6,059
------------ ---------- ------- ----- -------- --------
Income before income taxes and extraordinary item 345 369 327 9 (1,898) (848)
Provision (benefit) for income taxes ................ 138 7 78 -- (563)(6) (340)
------------ ---------- ------- ----- -------- --------
Net income before extraordinary item ............. 207 362 249 9 (1,335) (508)
Extraordinary item - loss on early extinguishment
of debt, net of income tax benefit of $332 ........ (498) -- -- -- -- (498)
------------ ---------- ------- ----- -------- --------
Net income (loss) ............................... (291) 362 249 9 (1,335) (1,006)
Preferred stock dividend requirements ............... 622 -- -- -- -- 622
------------ ---------- ------- ----- -------- --------
Net income (loss) available to common
stockholders .................................. $ (913) $ 362 $ 249 $ 9 $ (1,335) $ (1,628)
============ ========== ======= ===== ======== ========
(Loss) per share:
Net (loss) before extraordinary item ............. $ (.09) $ (.22)
Extraordinary item ............................... (.10) (.09)
------------ --------
Net (loss) ....................................... $ (.19) $ (.31)
============ ========
Weighted average number of common and
common equivalent shares outstanding
(in thousands) ................................... 4,869 382 (7) 5,251
============ ======== ========
</TABLE>
See the accompanying Unaudited Notes to
Pro Forma Consolidated Financial Statements.
8
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
The accompanying Unaudited Pro Forma Consolidated Balance Sheet as of
September 30, 1997 gives effect to the acquisition of the Sidun Funeral Group
and Kent-Thornton Funeral Home and the merger with Forest Lawn/Evergreen
Management Corp. The estimated fair market values reflected herein are based on
preliminary estimates and assumptions and are subject to revision as more
information becomes available. In management's opinion, the preliminary
allocation is not expected to be materially different from the final allocation.
(1) To record the elimination of assets and liabilities not acquired or assumed
by the Company and record the total consideration (including estimated
transaction costs) and the preliminary allocation of total consideration to
the identifiable net assets of the acquired business.
The effect of the acquisition of the Sidun Funeral Group and Kent-Thornton
Funeral Home and the merger with Forest Lawn/Evergreen Management Corp. on
the Consolidated Balance Sheet at September 31, 1997 was as follows:
1997
--------
(in thousands)
Current assets ........................................... $ 3,725
Cemetery property ........................................ 8,237
Property, Plant and Equipment ............................ 8,654
Deferred Charges and Other Non-current
Assets ................................................... 186
Names and Reputations .................................... 11,980
Current liabilities ...................................... (688)
Other liabilities ........................................ (3)
--------
32,091
Consideration:
Cash acquired in acquisition ............................. (312)
Debt ..................................................... (1,760)
Deferred purchase price .................................. (2,771)
Class A Common Stock issued .............................. (5,448)
--------
Cash used for acquisition drawn on
line of credit ........................................ $ 21,800
========
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS
The accompanying Unaudited Pro Forma Consolidated Statements of Operations for
the year ended December 31, 1996 and nine months ended September 30, 1997 give
effect to the acquisition of the Sidun Funeral Group and Kent-Thornton Funeral
Home and the merger with Forest Lawn/Evergreen Management Corp.
(2) To record adjustment to amortization expense relative to the Company's new
basis in net assets acquired in conjunction with the acquisition of Sidun
Funeral Group and Kent-Thornton Funeral Home and the merger with Forest
Lawn/Evergreen Management Corp. as if said acquisitions and merger had
occurred as of the beginning of each of the respective periods presented.
The amortization expense of $224,000 and $300,000 for the nine months ended
September 30, 1997 and
9
<PAGE>
the year ended December 31, 1996, respectively, is resultant from the
amortization, over a 40 year life, of the $11,980,000 in names and
reputations recorded in conjunction with the said acquisitions and merger.
(3) To adjust depreciation expense of $82,000 and $76,000 for the nine months
ended September 30, 1997 and the year ended December 31, 1996, respectively,
resultant from the acquisition of Sidun Funeral Group and Kent-Thornton
Funeral Home and the merger with Forest Lawn/Evergreen Management Corp. as
if said acquisitions and merger had occurred at the beginning of each of the
respective periods presented. Pro forma depreciation expense has been
recorded based on the Company's estimate of the useful lives of the acquired
assets using the Company's depreciation methods.
(4) To record amortization expense relative to non-compete agreements of $12,000
and $15,000 for the nine months ended September 30, 1997 and the year ended
December 31, 1996, respectively. These agreements are amortized over the
term of the agreements.
(5) To record additional interest expense of $1,366,000 and $1,659,000 for the
nine months ended September 30, 1997 and the year ended December 31, 1996,
respectively, which would have been incurred by the Company assuming the
acquisition of Sidun Funeral Group and Kent-Thornton Funeral Home and the
merger with Forest Lawn/Evergreen Management Corp. had occurred as of the
beginning of each of the respective periods presented. It has been
calculated as a function of the $21.8 million draw on the available line of
credit used to fund certain costs incurred and the deferred purchase price
of approximately $3 million in conjunction with the acquisitions and merger.
(6) To record the tax at the effective rate of 38.5% and 40% for nine months
ended September 30, 1997 and the year ended December 31, 1996, respectively.
This adjustment reflects tax benefits of $322,000 and $563,000 for the nine
months ended September 30, 1997 and the year ended December 31, 1996,
respectively. The Company's management believes that this is the effective
rate that would be indicative of the Company's normal tax position assuming
the acquisitions and merger were made as of the beginning of the respective
periods presented.
(7) To adjust weighted average shares outstanding to reflect the pro forma
effects of the 382,353 shares of Class A Common Stock issued in conjunction
with the merger with Forest Lawn/Evergreen Management Corp. as if such
shares were issued as of the beginning of the respective periods presented.
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Sidun Funeral Group, Inc.
Formerly Known As
John E. Day, Bedle & Braun Funeral Homes
Red Bank, New Jersey
We have audited the accompanying combined balance sheets of Sidun Funeral Group,
Inc., Formerly Known As John E. Day, Bedle & Braun Funeral Homes, as of December
31, 1996 and 1995 and the related combined statements of income and retained
earnings and cash flows for the years then ended. These financial statements are
the responsibility of the management of Sidun Funeral Group, Inc., Formerly
Known As John E. Day, Bedle & Braun Funeral Homes. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Sidun Funeral Group, Inc.,
Formerly Known As John E. Day, Bedle & Braun Funeral Homes as of December 31,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
SOBEL & CO., LLC
Certified Public Accountants
January 12, 1998
11
<PAGE>
SIDUN FUNERAL GROUP, INC.
FORMERLY KNOWN AS
JOHN E. DAY, BEDLE & BRAUN FUNERAL HOMES
COMBINED BALANCE SHEETS
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................... $ 330,861 $ 543,744
Accounts receivable (net of allowance for
doubtful accounts of $24,675 in 1996 and
$17,250 in 1995) ............................ 400,248 315,623
Marketable equity securities - available
for sale .................................... 51,959 42,014
Inventories ................................... 65,861 60,987
Due from officers ............................. 96,017 96,017
Other current assets .......................... 6,374 1,800
---------- ----------
Total Current Assets ........................ 951,320 1,060,185
PROPERTY AND EQUIPMENT, net of accumulated
depreciation ................................. 1,189,613 924,034
OTHER ASSETS ................................... 25,114 25,702
---------- ----------
$2,166,047 $2,009,921
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt ............. $ 167,878 $ 118,118
Accounts payable and accrued expenses ......... 171,478 75,852
Accrued pension and profit-sharing plan
contributions ............................... 18,590 39,325
---------- ----------
Total Current Liabilities ................... 357,946 233,295
---------- ----------
LONG-TERM DEBT ................................. 740,843 747,856
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock .................................. 3,000 3,000
Unrealized holding gains ...................... 7,685 4,835
Retained earnings ............................. 1,316,573 1,280,935
---------- ----------
1,327,258 1,288,770
Less: Treasury stock, at cost ................ 260,000 260,000
---------- ----------
Total Stockholders' Equity .................. 1,067,258 1,028,770
---------- ----------
$2,166,047 $2,009,921
========== ==========
See notes to combined financial statements.
12
<PAGE>
SIDUN FUNERAL GROUP, INC.
FORMERLY KNOWN AS
JOHN E. DAY, BEDLE & BRAUN FUNERAL HOMES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
----------- -----------
REVENUES ................................... $ 4,290,241 $ 3,830,926
DIRECT COSTS ............................... 2,004,584 1,601,112
----------- -----------
GROSS PROFIT ............................... 2,285,657 2,229,814
GENERAL AND ADMINISTRATIVE EXPENSES ........ 1,867,228 1,604,180
----------- -----------
INCOME FROM OPERATIONS ..................... 418,429 625,634
OTHER INCOME ............................... 23,946 16,883
INTEREST EXPENSE ........................... (72,463) (91,455)
----------- -----------
INCOME BEFORE INCOME TAXES ................. 369,912 551,062
----------- -----------
PROVISION FOR INCOME TAXES:
Current ................................. (6,862) (13,893)
----------- -----------
(6,862) (13,893)
----------- -----------
NET INCOME ................................. 363,050 537,169
RETAINED EARNINGS:
Beginning of Year ....................... 1,280,935 1,093,766
Dividends Paid .......................... (327,412) (350,000)
----------- -----------
End of Year ............................. $ 1,316,573 $ 1,280,935
=========== ===========
See notes to combined financial statements.
13
<PAGE>
SIDUN FUNERAL GROUP, INC.
FORMERLY KNOWN AS
JOHN E. DAY, BEDLE & BRAUN FUNERAL HOMES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR
ENDED DECEMBER 31,
----------------------
1996 1995
--------- ---------
CASH FLOWS PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net Income ......................................... $ 363,050 $ 537,169
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ................... 111,723 127,073
Gain on securities .............................. -- (1,105)
Gain on sale of assets .......................... (1,688) (2,700)
Changes in certain assets and liabilities:
Accounts receivable ............................. (84,625) (47,827)
Inventories ..................................... (4,874) 23,809
Other assets .................................... (5,637) --
Accounts payable and accrued expenses ........... 95,626 8,121
Accrued pension and profit-sharing plan
contributions ................................ (20,735) (27,618)
--------- ---------
Net Cash Provided by Operating Activities ......... 452,840 616,922
--------- ---------
INVESTING ACTIVITIES:
Cash proceeds from the sale of property ........... 6,500 2,700
Purchases of property and equipment ............... (380,463) (222,316)
Purchases of marketable equity securities ......... (7,095) (2,276)
Repayment of advance to officers .................. -- 84,820
--------- ---------
Net Cash Used for Investing Activities ...... (381,058) (137,072)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from long-term debt ...................... 197,000 --
Repayment of long-term debt ....................... (154,253) (107,148)
Dividends paid .................................... (327,412) (350,000)
--------- ---------
Net Cash (Used for) Financing Activities .... (284,665) (457,148)
--------- ---------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS ............................... (212,883) 22,702
CASH AND CASH EQUIVALENTS:
Beginning of year .................................... 543,744 521,042
--------- ---------
End of year .......................................... $ 330,861 $ 543,744
========= =========
See notes to combined financial statements.
14
<PAGE>
SIDUN FUNERAL GROUP, INC.
FORMERLY KNOWN AS
JOHN E. DAY, BEDLE & BRAUN FUNERAL HOMES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - ORGANIZATION:
The Sidun Financial Group, Inc., Formerly Known As John E. Day, Bedle & Braun
Funeral Homes (the "Companies") provide funeral services from four locations in
Monmouth County, New Jersey.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION:
The financial statements include the accounts of John E. Day Funeral Home, Inc.,
Braun Funeral Home, Inc. and John E. Day - Bedle Funeral Home, Inc. (see Note
14). The three companies are related by common ownership. All intercompany
balances and transactions have been eliminated in the financial statements.
CASH EQUIVALENTS:
For purposes of the financial statements, the Companies considered all highly
liquid debt instruments purchased with an original maturity of less than ninety
days to be cash equivalents.
MARKETABLE EQUITY SECURITIES:
Marketable equity securities, which are considered available for sale, consist
primarily of mutual funds and are stated at fair value.
ACCOUNTS RECEIVABLE:
Current earnings are charged and an allowance is credited with a provision for
doubtful accounts based on experience. Accounts deemed uncollectible are charged
against this allowance. Receivables are reported on the balance sheet net of the
allowance.
INVENTORIES:
Inventories consist primarily of burial materials and supplies and are stated at
the lower of cost or market on the first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are recorded at cost. For financial reporting, the
straight-line method for depreciation is used based on the estimated useful
lives of the assets.
INTANGIBLE ASSETS:
Intangible assets are recorded at cost and are amortized using the straight-line
method over the estimated useful life of the assets.
INCOME TAXES:
The Companies have elected to be an "S" Corporation, whereby the stockholders
account for their share of the Companies' earnings, losses, deductions, and
credits on their Federal and state income tax returns. Accordingly, these
statements do not include any provision for Federal income taxes. The Companies
are still subject to applicable state income taxes.
The Companies utilize Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the expected future tax consequences of temporary
differences that have been recognized in the Companies' financial statements or
tax returns and available net operating loss carryforwards. In estimating future
tax consequences, SFAS No. 109 generally considers all enacted changes in tax
law or rates. Temporary differences result from different book and tax methods
of accounting for depreciation and tax deductibility differences related to
accrued bad debts.
USE OF ESTIMATES:
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
15
<PAGE>
SIDUN FUNERAL GROUP, INC.
FORMERLY KNOWN AS
JOHN E. DAY, BEDLE & BRAUN FUNERAL HOMES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 3 - RELATED PARTY TRANSACTIONS:
Amounts due from officers are non-interest bearing and do not have any specific
repayment terms.
Office facilities are occupied under leases with related parties. See Note 8.
Certain notes payable to related parties are reported in Note 6.
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment is comprised as follows:
ESTIMATED DECEMBER 31,
USEFUL LIFE 1996 1995
------------- ---------- ----------
Land - $ 104,100 $ 84,100
Buildings 39 years 491,577 313,968
Vehicles 5 years 476,797 374,362
Furniture and equipment 5-7 years 908,882 887,489
Leasehold improvements 31 years 301,679 293,479
---------- ----------
2,283,035 1,953,398
Less accumulated depreciation 1,093,422 1,029,364
---------- ----------
$1,189,613 $ 924,034
========== ===========
NOTE 5 - INTANGIBLE ASSETS:
Intangible assets are included in other assets and are comprised as follows:
AMORTIZATION DECEMBER 31,
PERIOD 1996 1995
------------ --------- ---------
Covenant not to compete 5 years $ - $ 125,000
Unamortized closing costs 30 years 24,002 24,002
--------- ---------
24,002 149,002
Less accumulated amortization 3,338 127,750
--------- ---------
$ 20,664 $ 21,252
========= =========
16
<PAGE>
NOTE 6 - LONG-TERM DEBT:
Long-term debt consists of the following:
DECEMBER 31,
1996 1995
-------- --------
Note payable $3,600 per month plus interest
at 8.1%, originally due July 1995,
refinanced and extended through July 2000,
at which time the remaining balance of
$217,114 is due, collateralized by certain
assets and a first mortgage on real property
owned by a stockholder and guaranteed by the
officers of the Companies ............................ $371,914 $415,114
Note payable $2,516 per month plus interest
at 8.5%, originally due February 1995
extended through February 2001,
collateralized by land and building owned by
the officers of the Companies ........................ 125,770 155,957
Unsecured note payable $1,182 per month
including interest at 8 1/2% to a party
related to the stockholders of the Companies
through February 2006, and guaranteed by the
Companies' stockholders .............................. 57,596 74,618
Note payable $787 per month including
interest at 6.25% through February 1996,
collateralized by an auto ............................ -- 1,483
Unsecured note payable $2,083 per month with
no interest through January 1999 ..................... 52,083 --
Note payable $1,208, per month plus interest
at prime plus 1/2% through August 1999, at
which time the remaining balance of $146,209
is due, collateralized by certain assets and
guaranteed by Bedle Funeral Home, Inc. ............... 183,667 198,167
Installment notes collateralized by certain
automobiles, payable in monthly installments
plus interest at rates ranging from 6.95% to
11.5% as follows:
1997 $33,441 2000 $19,394 1998 $32,245
1998 $32,245 2001 $ 627 1999 $30,740.......... 116,447 16,678
Unsecured note payable $208 per month plus
interest at prime plus 3/4% through July 1997 1,244 3,957
-------- --------
908,721 865,974
Less current maturities 167,878 118,118
-------- --------
$740,843 $747,856
======== ========
17
<PAGE>
SIDUN FUNERAL GROUP, INC.
FORMERLY KNOWN AS
JOHN E. DAY, BEDLE & BRAUN FUNERAL HOMES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 6 - LONG-TERM DEBT: (Continued)
Long-term debt matures as follows:
YEAR
1997....... $167,878
1998....... 169,187
1999....... 133,945
2000....... 306,395
2001....... 111,167
Thereafter. 20,149
--------
$908,721
========
NOTE 7 - PROFIT SHARING PLAN:
The Companies have a non-contributory profit sharing plan covering substantially
all full time employees. The Companies' discretionary contributions to the plans
are determined by the Board of Directors.
In addition, the Companies have a non-contributory money purchase pension plan
covering substantially all full time employees.
For the years ended December 31,
1996 and 1995, the Companies' contributions to these plans amounted to $100,000
and $99,274. Included in current liabilities is $20,050 and $39,325 of
contributions owed to the plans.
NOTE 8 - LONG-TERM LEASES:
The Companies operate from three locations owned by a stockholder and one owned
by a member of the stockholder's family under the terms of operating leases. The
leases provide for minimum annual rents plus contingent escalations plus other
costs such as real estate taxes and repairs and maintenance. Rent expense paid
under these leases amounted to $349,150 and $349,200 in 1996 and 1995, which
included minimum rent of $280,800 in each year.
Future minimum rentals required under the terms of these leases are as follows:
YEAR
1997..... $ 72,000
NOTE 9 - CONCENTRATION OF RISK:
The companies maintain cash balances in several accounts at two banks in New
Jersey. Each account is insured by the Federal Deposit Insurance Corporation up
to $100,000. During the year, the Companies occasionally had balances in excess
of FDIC insured amounts.
18
<PAGE>
SIDUN FUNERAL GROUP, INC.
FORMERLY KNOWN AS
JOHN E. DAY, BEDLE & BRAUN FUNERAL HOMES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
Under an agreement with a former officer dated October 29, 1986, the Company has
the following commitments:
(a) To employ the former officer at an annual salary of $31,200 until August
30, 1996.
(b) Upon termination of the employment, the former officer will be retained
as a consultant for a period of ten years at $10,000 per year.
The above commitments terminate upon the death of the former officer.
In accordance with agreements between each Company and the stockholders, upon
the death of either, the surviving stockholder has the option to purchase from
the decedent's estate all of his shares of the capital stock in the Company. The
purchase price shall be the decedents' percentage of stock ownership at the time
of his death multiplied by an agreed upon aggregate value of the stock. If the
surviving stockholder does not exercise his option within thirty days, the
Company shall be required to purchase all of the decedent's shares.
The purchase price shall be funded from the proceeds of term life insurance
policies maintained by each stockholder, and the remaining balance, if any, is
to be paid over 120 equal monthly installments. The insurance policies name the
surviving stockholder as the beneficiary.
The agreements further provide that during his lifetime, a stockholder may not
sell his stock without a right of first refusal to the other stockholder at the
lower of the price which the offer or stockholder proposes to sell such stock or
the price stipulated in the stockholders' agreement.
NOTE 11 - COMMON STOCK:
At December 31, 1996 and 1995, the common stock of the companies is comprised as
follows:
PAR AUTHORIZED ISSUED TREASURY OUTSTANDING
--- ---------- ------ -------- -----------
John E. Day Funeral Home, Inc.... No 100 100 90 10
Braun Funeral Home, Inc.......... No 100 100 -- 100
John E. Day - Bedle
Funeral Home, Inc.............. No 100 100 -- 100
19
<PAGE>
SIDUN FUNERAL GROUP, INC.
FORMERLY KNOWN AS
JOHN E. DAY, BEDLE & BRAUN FUNERAL HOMES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 12 - SUPPLEMENTAL CASH FLOWS DISCLOSURE:
In accordance with the provisions of FASB 95, the following information is
provided:
DECEMBER 31,
-------------------------
1996 1995
------- -------
State income taxes paid .................... $16,228 $ 8,836
======= =======
Interest costs paid ........................ $72,799 $92,321
======= =======
NOTE 13 - MARKETABLE EQUITY SECURITIES:
DECEMBER 31,
-----------------------
1996 1995
------- -------
Available-for-sale securities:
Mutual Funds, at cost ...................... $44,274 $37,179
Gross unrealized gains ..................... 7,685 4,835
------- -------
$51,959 $42,014
======= =======
Changes in the unrealized holding gains on investment securities available for
sale during the years ended December 31, 1996 and 1995, and reported as a
separate component of stockholder's equity are as follows:
DECEMBER 31,
-----------------------
1996 1995
------ ------
Beginning balance ............................ $4,835 $ --
Unrealized holding gains ..................... 2,850 4,835
------ ------
Ending balance ............................... $7,685 $4,835
====== ======
20
<PAGE>
SIDUN FUNERAL GROUP, INC.
FORMERLY KNOWN AS
JOHN E. DAY, BEDLE & BRAUN FUNERAL HOMES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 14 - SUBSEQUENT EVENTS:
In June 1997, John E. Day Funeral Home, Inc., John E. Day Bedle Funeral Home,
Inc. and Braun Funeral Home, Inc. merged and the surviving entity was John E.
Day Funeral Home, Inc. Simultaneously with the merger, the name was changed to
Sidun Funeral Group, Inc.
On November 13, 1997, Sidun Funeral Group, Inc.'s stockholders agreed to sell
substantially all assets of the Company, excluding cash, to Carriage Services,
Inc. for an amount in excess of book value. In a separate transaction, Carriage
Services, Inc. also purchased the real estate where the Companies operate (three
locations owned by a stockholder and one owned by a member of the stockholder's
family).
During December 1997, the Board of Directors unanimously elected to liquidate
the Company. All remaining assets were distributed to the stockholders upon
liquidation.
21
<PAGE>
[SC&G LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Carriage Services, Inc.
Houston, Texas
We have audited the accompanying combined balance sheets of Forest
Lawn/Evergreen Management Corporation (a Florida corporation) and affiliates
as of August 31, 1997 and 1996, and the related combined statements of
income, retained earnings, and cash flows for the years then ended. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined financial statements
are free of material misstatement. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the combined
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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Forest
Lawn/Evergreen Management Corporation and affiliates as of August 31, 1997
and 1996, and the combined results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 8 to the financial statements, certain errors resulting
in overstatement and understatement of previously reported assets and
liabilities and revenues and expenses associated with preneed funeral sales
as of August 31, 1995, were discovered by management of the Companies in
1996. Accordingly, an adjustment has been made to retained earnings as of
September 1, 1995, to correct the error.
As discussed in Note 9 to the financial statements, the entities being
reported in the combined financial statements of Forest Lawn/Evergreen
Management Corporation have been modified to exclude LaGrange Funeral Home,
Inc.
/s/SALTMARSH, CLEAVELAND & GUND
Panama City, Florida SALTMARSH, CLEAVELAND & GUND
January 23, 1998
22
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
COMBINED BALANCE SHEETS
AUGUST 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
Restated
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (NOTES 1, 4 AND 6) ................... $ 589,926 $ 408,324
Accounts receivable - trade (NOTES 1, 4 and 6).................. 256,390 179,018
Accounts receivable - other (NOTES 1, 4 and 6) ................. 3,627 6,214
Contracts receivable - current portion (NOTES 1, 4 and 6) ...... 722,714 515,513
Loan receivable - current portion (NOTE 6) ..................... 4,088 3,683
Inventory (land at cost) ....................................... 1,585,537 1,567,088
----------- -----------
Total current assets ......................................... 3,162,282 2,679,840
----------- -----------
PROPERTY AND EQUIPMENT: (NOTES 1 AND 2)
Building and improvements ..................................... 1,206,438 1,120,653
Furniture and equipment ....................................... 989,944 953,799
----------- -----------
2,196,382 2,074,452
Less accumulated depreciation .................................. (1,098,422) (907,418)
----------- -----------
Net property and equipment .................................. 1,097,960 1,167,034
----------- -----------
OTHER ASSETS:
Deposits ....................................................... 2,275 2,275
Investments - Trust funds (NOTES 1, 6 and 10) .................. 5,883,886 4,956,881
Due from affiliates (NOTE 3) ................................... 178,651 229,918
Contracts receivable - net of current portion (NOTES 1, 4 and 6) 1,673,376 1,202,863
Loans receivables - net of current portion (NOTE 6) ............ 66,106 70,193
FSI receivables (NOTE 6) ....................................... 573,460 690,256
Deferred obtaining costs (NOTE 1) .............................. 98,452 64,229
Organization costs ............................................. 0 265
----------- -----------
Total other assets ........................................... 8,476,206 7,216,880
----------- -----------
TOTAL ASSETS ...................................................... $ 12,736,448 $ 11,063,754
============ ============
</TABLE>
23
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Restated
1997 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ............................................. $ 170,844 $ 203,778
Cash deposits from customers ................................. 80,476 37,350
Line of credit (NOTE 2) ...................................... 0 51,325
Income taxes payable (NOTES l and 5) ......................... 173,271 61,160
Current portion of deferred income taxes (NOTES 1 and 5) ..... 223,586 304,477
Current portion of long-term debt (NOTES 2 and 6) ............ 161,487 146,134
----------- -----------
Total current liabilities ................................. 809,664 804,224
----------- -----------
LONG-TERM LIABILITIES:
Notes payable (NOTES 2 AND 6) (net of current maturities) .... 2,633,141 2,790,975
Accrued cost of presold merchandise (NOTES 1 and 8) .......... 2,531,968 2,239,836
Deferred revenue (NOTE 1) .................................... 4,933,778 4,387,056
Deferred income taxes (NOTES 1 AND 5) (net of current portion) 277,590 283,914
----------- -----------
Total long-term liabilities .............................. 10,376,477 9,701,781
----------- -----------
Total liabilities ..................................... 11,186,141 10,506,005
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, authorized, issued and outstanding,
1,000 shares; par value of $25.50 .......................... 25,500 25,500
Paid in capital .............................................. 34,077 34,077
Retained earnings ............................................ 1,106,434 426,650
Unrealized holding gain on investment securities (NOTE 10) ... 384,296 71,522
----------- -----------
Total stockholders' equity ............................... 1,550,307 557,749
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................... $12,736,448 $11,063,754
=========== ===========
</TABLE>
See independent auditor's report.
24
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED AUGUST 31, 1997 AND 1996
Restated
1997 1996
----------- -----------
REVENUES ........................................... $ 4,223,319 $ 2,862,695
Cost OF SALES ...................................... 1,295,665 755,461
----------- -----------
GROSS PROFIT ....................................... 2,927,654 2,107,234
----------- -----------
COST OF OPERATIONS:
Selling, general and administrative expenses .... 1,918,893 1,703,004
Depreciation .................................... 191,004 133,794
----------- -----------
Total cost of
operations ................................... 2,109,897 1,836,798
----------- -----------
INCOME FROM OPERATIONS ............................. 817,757 270,436
----------- -----------
OTHER INCOME (EXPENSES):
Interest income ................................. 304,153 282,979
Interest expense ................................ (279,986) (228,360)
Provision for cancellation ...................... (52,983) (88,013)
Bad debt recovery ............................... 575 879
Gain on sale of assets .......................... 0 3,336
Amortization .................................... (264) (3,126)
Miscellaneous expense ........................... (62,489) (77,026)
Other income .................................... 41,961 19,405
----------- -----------
Total other income (expenses) ................. (49,033) (89,926)
----------- -----------
NET INCOME BEFORE INCOME TAXES ..................... 768,724 180,510
----------- -----------
PROVISION FOR INCOME TAXES (NOTES 1 AND 5) ......... 88,940 74,037
----------- -----------
NET INCOME ......................................... 679,784 106,473
----------- -----------
RETAINED EARNINGS - BEGINNING OF YEAR .............. 426,650 1,427,994
PRIOR PERIOD ADJUSTMENTS (NOTE 8) .................. 0 (1,107,817)
----------- -----------
RETAINED EARNINGS - BEGINNING OF YEAR -AS RESTATED . 426,650 320,177
----------- -----------
RETAINED EARNINGS - END OF YEAR .................... $ 1,106,434 $ 426,650
=========== ===========
See independent auditor's report.
25
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1997 AND 1996
<TABLE>
<CAPTION>
Restated
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES-
Net income ................................................. 679,784 $ 106,473
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization .......................... 191,268 137,327
Deferred income tax adjustments ........................ (87,215) (30,941)
(Gain) loss on disposal of property .................... (3,336)
(Increase) decrease in operating assets-
Accounts/contracts receivable ........................ (752,499) 25,174
Inventory ............................................ (18,449) (75,874)
Loans receivable ..................................... 3,682 3,317
FSI receivable ....................................... 116,796 167,987
Deferred obtaining costs ............................. (34,223) (3,093)
Increase (decrease) in operating liabilities-
Accounts payable - trade ............................. (32,934) (43,453)
Deferred revenues .................................... 546,722 248,527
Accrued merchandise cost ............................. 292,132 71,424
Accrued expenses ..................................... 155,237 31,136
----------- -----------
Net cash provided by operating activities .......... 1,060,301 634,668
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ................................... (121,930) (660,961)
Proceeds of sale of assets ................................. 46,170
Purchase of available for sale securities .................. (614,230) (443,258)
----------- -----------
Net cash used by investing activities ............... (736,160) (1,058,049)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt ................................. (193,806) (197,771)
Due from affiliates ........................................ 51,267 (116,024)
Loan proceeds .............................................. 626,325
----------- -----------
Net cash provided (used) by financing activities . (142,539) 312,530
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......... 181,602 (110,851)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................ 408,324 519,175
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ...................... $ 589,926 $ 408,324
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................ $ 258,852 $ 228,360
Income taxes ............................................ 64,044 0
</TABLE>
See independent auditor's report
26
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY'S ACTIVITIES AND ORGANIZATION:
The Companies own and operate funeral homes and cemeteries throughout the
Southeast United States. The Companies perform personal and professional
services related to funerals and interments at its funeral homes and
cemeteries. Prearranged funerals and preneed cemetery property are
marketed in the geographic markets served by the Companies' funeral
service locations.
ACCOUNTING METHOD:
The financial statements have been prepared on the accrual basis of
accounting for financial statement presentation.
PRINCIPLES OF COMBINATION:
The accompanying combined financial statements present the combination of
the financial statements of Forest Lawn/Evergreen Management Corporation
and its wholly-owned subsidiaries and the financial statements of its
affiliates, Bay Cemetery Services, Inc. and Forest Lawn Memorial
Cemetery, Inc., all of which are under common control. Material
intercompany transactions and balances have been eliminated in
combination.
FUNERAL AND CEMETERY OPERATIONS:
The Companies record the sale of funeral merchandise and services upon
performance of the funeral service. The Companies record the sale of the
right of cemetery interment or mausoleum entombment and related
merchandise at the time of sale. The cost for cemetery merchandise and
services sold, but not yet provided, is accrued as an expense at the same
time the cemetery revenue is recognized.
PRENEED FUNERAL ARRANGEMENTS AND RELATED MERCHANDISE AND SERVICE TRUST FUNDS/
DEFERRED REVENUES:
Preneed funeral sales are affected by deposits to a merchandise trust
fund that is required by state law as a specified portion of each
contract. The Companies have access to these funds only upon maturity
(generally, the death of the purchaser) or cancellation of the contract,
therefore, the sale is not recorded until the service is performed. The
trust income earned and the increases in value of the trust funds are
also deferred until the service is performed in order to offset inflation
in cost
See independent auditor's report.
27
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PRENEED FUNERAL ARRANGEMENTS AND RELATED MERCHANDISE AND SERVICE TRUST
FUNDS/DEFERRED REVENUES: (continued)
to provide the service in the future. For contracts that are delivered in
the current period, the interest revenue and increase in value of the
trust fund for that contract are reflected in the current revenues. The
prearranged funeral trust assets were $4,396,085 and $3,529,851 at August
31, 1997 and 1996, respectively, which in the opinion of management
exceed the future obligations under such arrangements. A related
liability has been established for the cost of the merchandise to be
delivered based upon the trust laws of the State of Florida in effect at
the date of the contract. The client also maintains a trust fund held and
managed by FSI, a service company, in which the trust assets held by FSI
total $1,487,800 and $1,427,030 as of August 31, 1997 and 1996,
respectively. Total prearranged trust assets amounted to $5,883,886 and
$4,956,881 as of August 31, 1997 and 1996, respectively.
ACCOUNTS RECEIVABLE:
Accounts receivable represent all current trade receivables incurred upon
performance of the funeral service. Contract receivables represent
unperformed price guaranteed funeral contracts providing for future
funeral services and merchandise at prices prevailing when the agreement
is signed. FSI receivables represent all unperformed price guaranteed
funeral contracts negotiated prior to September 30, 1993 that are
maintained by a service company, FSI. The Companies grant credit to
customers, substantially all of whom are located in the Southeast United
States. Trade accounts receivables are charged to bad debt as they are
deemed uncollectible. At August 31, 1996 and 1997, no allowance for
uncollectible trade accounts was considered necessary. Price guaranteed
funeral contracts are written off directly to bad debt expense as they
are deemed uncollectible. As of August 31, 1996 and 1997, no provision
for cancellation was considered necessary.
INVENTORY:
Inventory consists principally of land and is valued at cost.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Property and equipment are
being depreciated utilizing the straight-line method over various
estimated useful lives.
See independent auditor's report.
28
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimated useful lives are generally as follows:
Buildings 30 - 39 Years
Machinery and equipment 5 - 7 Years
Furniture and fixtures 5 - 7 Years
Vehicles 5 - 10 Years
DEFERRED OBTAINING COSTS:
Deferred obtaining costs consist of sales commissions applicable to
preneed funeral sales. These costs are deferred and amortized over 12
years which approximates the expected timing of the performance of the
services related to preneed funeral contracts.
ESTIMATES:
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION:
Certain reclassifications have been made to the 1996 financial statements
to conform to the 1997 financial statement presentation. Such
reclassifications had no effect on net income as previously reported.
INCOME TAXES:
In 1993, the Companies adopted FAS Statement No.109, Accounting for
Income Taxes, which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax
liabilities are computed annually for differences between the financial
statement and tax bases of liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is the tax payable or refundable from
the period plus or minus the change during the period in deferred tax
liabilities.
Deferred income taxes result from temporary differences in reporting
income for tax return purposes.
See independent auditor's report.
29
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, the Companies consider all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
NOTE 2 - NOTES PAYABLE
Lines of Credit and Short-Term Borrowings:
At August 31, 1996, the Companies had one operating line of credit. The
line of credit was secured by real estate and had an outstanding balance
of $51,235. The line of credit had a variable interest rate at 9.25
percent as of August 31, 1996, and was paid off at its maturity date of
May 21, 1997.
Details of long-term debt were as follows:
<TABLE>
<CAPTION>
Restated
1997 1996
------------------ -----------------
Due In Due After Due In Due After
One Year One Year One Year One Year
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Notes payable to banks-
Due in monthly payments of $11,291 through
October 1, 2000, interest rate at 8%,
secured by real estate .................... $73,797 $730,897 $68,142 $804,694
Due in monthly payments of $526 through
December 30, 1999, interest rate at 8.75%,
secured by vehicle ........................ 5,366 7,913 4,918 13,280
Due in monthly payments of $5,470 through
May 19, 2000, interest rate at 9.125%,
secured by real estate .................... 21,752 470,838 19,862 491,811
Due in monthly payments of $7,113 through
May 19, 2000, interest rate at 9.125%,
secured by real estate .................... 28,288 603,747 25,830 629,823
Due in monthly payments of $2,834 through
May 19, 2000, interest rate at 9.125%,
secured by real estate .................... 11,269 243,937 10,290 254,803
</TABLE>
See independent auditor's report.
30
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE 2- NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Due in monthly payments of $318 through
June 14, 2022, interest rate at
variable rate secured by real estate .......... 637 37,602 547 38,109
Due in monthly payments of $5,875 through
May 19, 2000, then balloon due of $497,639,
interest rate at 9.125%, secured by
real estate .................................... 20,378 538,207 16,545 558,455
-------- --------- -------- --------
$161,487 $2,633,141 $146,134 $2,790,975
-------- --------- -------- --------
</TABLE>
Maturities of long-term debt for the next five years as of August 31, 1997,
are as follows:
1998 $ 161,487
1999 175,929
2000 2,421,053
2001 818
2002 889
Thereafter 34,452
--------
Total $ 2,794,628
===========
NOTE 3- RELATED PARTY TRANSACTIONS
The Companies periodically make advances to a company owned by a major
stockholder. These advances are interest free and have no fixed repayment
terms.
NOTE 4- CONCENTRATIONS OF CREDIT RISK
Significant concentrations of credit risk are as follows:
Concentration of cash on deposit and uninsured cash balances-
The Companies have concentrated their credit risk for cash by
maintaining deposits in financial institutions which may at times
exceed amounts covered by insurance provided by the U.S. Federal
Deposit Insurance Corporation (FDIC). The maximum loss that would have
resulted from that risk totaled $569,654 and $141,717 at August 31,
1997 and 1996, respectively, for the excess of the deposit liabilities
reported by the banks over the amounts that would have been covered by
federal insurance. The Companies have not experienced any losses in
such accounts and believe they are not exposed to any significant
credit risk to cash.
See independent auditor's report.
31
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE 4- CONCENTRATIONS OF CREDIT RISK (Continued)
Accounts/contracts receivable-
The Companies grant credit, generally without collateral, to
customers, substantially all whom are local residents of the
communities serviced. Consequently, the Companies' ability collect
the amounts due from customers is affected by the economic
fluctuations in commercial and industrial markets in this geographic
region.
NOTE 5-INCOME TAXES
Restated
1997 1996
--------- ---------
Current income tax expense:
Federal ....................................... $ 151,172 $ 93,221
State ......................................... 24,983 11,757
--------- ---------
Current provision for income taxes ............. 176,155 104,978
Deferred income tax expense (benefit):
Federal ...................................... (74,848) (25,947)
State ........................................ (12,367) (4,994)
--------- ---------
Total provision for income taxes ............... $ 88,940 $ 74,037
--------- ---------
The net deferred tax liabilities in the accompanying balance sheets include
the following components:
Current .............................. $223,586 $304,477
Long-Term ............................ 277,590 283,914
--------- ---------
$501,176 $588,391
======== ========
As discussed in Note 1, the Companies adopted Statement of Financial
Accounting Standards 109, "Accounting for Income Taxes" (FAS 109). Under
the provisions of FAS 109, an entity recognizes deferred tax assets and
liabilities for future tax consequences of events that have been
previously recognized in the Companies' financial statements or tax
returns. The measurement deferred tax assets and liabilities is based on
provisions of the enacted tax law; the effects of future changes in tax
laws or rates are not considered.
See independent auditor's report.
32
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE 6- FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of financial instruments.
Cash and Short-Term Investments-
The carrying amount approximates fair value because of the
short maturity of those instruments.
Long-Term Debt-
The carrying amount of the notes payable
approximates fair values.
Long-Term Investments and Receivables-
The estimated fair values of
the Corporation's long-term investments are as follows:
Restated
1997 1996
-------------------- -----------------------
Carrying Fair Carrying Fair
AMOUNT VALUE AMOUNT VALUE
---------- --------- ------------ ----------
Trust Fund Merchandise ..... $4,396,085 $4,396,085 $3,529,851 $3,529,851
FSI Trust Fund ............. 1,487,800 1,487,800 1,427,030 1,427,030
Loans receivable ........... 70,194 70,194 73,876 73,876
FSI Receivables ............ 573,460 573,460 690,256 690,256
Accounts receivable ........ 256,390 256,390 179,018 179,018
Contracts receivable ....... 2,396,090 1,939,909 1,718,376 1,305,966
The estimated fair value amounts have been determined using available
market information and methodologies.
NOTE 7- CARE AND MAINTENANCE TRUST
In accordance with respective state laws, the Companies are required to
deposit a specified portion from the sale of cemetery property into
care and maintenance trust funds. Earnings from these trusts are
recognized in current revenues and are intended to defray cemetery
maintenance costs. Care and maintenance funds trusted at August 31,
1997 and 1996, were $884,356 and $748,693, respectively, which
approximates fair market value. The principal of such care and
maintenance trust funds cannot be withdrawn by the Companies and,
therefore, is not included in the balance sheet. For the years ended
August 31, 1997 and 1996, the earnings recognized from all care and
maintenance trusts were $80,795 and $65,577, respectively.
See independent auditor's report.
33
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE 8- PRIOR PERIOD ADJUSTMENTS - CORRECTION OF ERRORS
Certain errors resulting in an overstatement and understatement of
assets, liabilities, and retained earnings were discovered during 1996.
The changes to retained earnings as of September 1, 1995, and the related
statement of income, net of income taxes, for each year are summarized as
follows:
<TABLE>
<CAPTION>
1996 Net 1997 Net
RETAINED EARNINGS INCOME EFFECT INCOME EFFECT
----------------- ------------- --------------
<S> <C> <C> <C>
Overstatement of accounts payable ................ $ 77,713 $ 0 $0
Understatement of accrual for costs
associated with preneed merchandise
contracts ..................................... (236,797) 0 0
Error in recording of depreciation expense,
resulting in an understatement of
accumulated depreciation ...................... (2,277) (6,029) (6,290)
Error in recording of preneed funeral
service revenue and its corresponding
costs ......................................... (946,456) (70,440) (46,076)
-----------
Net prior period adjustment ......................$ (1,107,817)
===========
</TABLE>
NOTE 9- CHANGE IN REPORTING ENTITY
The entities reported in the combined financial statements of Forest
Lawn/Evergreen Management Corporation have been modified since our audit
report dated April 21, 1997, on the consolidated financial statements of
Forest Lawn/Evergreen Management Corporation for the year ended August
31, 1996. The combined financial statements no longer included the
results of operations and balances held by LaGrange Funeral Home, Inc.
This change in reporting entity is due to select entities of Forest
Lawn/Evergreen Corporation being acquired by Carriage Service, Inc. in a
merger dated November 19, 1997. A full year of operations of Emerald
Coast Funeral Home, which began operations in August 1996, is included in
the combined statement of income and retained earnings for the year ended
August 31, 1997.
See independent auditor's report.
34
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE 10- INVESTMENTS - TRUST FUNDS
INVESTMENTS - TRUST FUNDS:
Under the provisions of FAS 115, marketable securities considered
available-for-sale are recorded at fair market value if they have a
readily determinable fair value. The corresponding unrealized gain or
loss in the fair market value in relation to cost is accounted for as a
separate item in the stockholders' equity section of the balance sheet
and is excluded from earnings. Management believes that its investments
in marketable securities should be classified as investments that are
available-for-sale.
1997 1996
---- ----
Marketable securities at cost ..... $5,499,590 $4,885,359
Net unrealized gain ............... 384,296 71,522
---------- ----------
Marketable securities, at market .. $5,883,886 $4,956,881
========== ==========
At August 31, 1997, gross unrealized gains and losses for each trust
account amounted to $407,035 and $22,639, respectively.
At August 31, 1996, gross unrealized gains and losses for each trust
account amounted to $145,562 and $74,040, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Companies lease a facility under a non-cancelable operating lease from
April 1996 through March 2001. Total rental expense amounted to $47,080 and
$23,540 for the years ended August 31, 1997 and 1996, respectively.
At August 31, 1997, future minimum annual rents under this lease are as
follows:
YEARS ENDING AUGUST 31 AMOUNT
---------------------- ------
1998 $ 47,080
1999 47,080
2000 47,080
2001 27,463
------
$168,703
======
The Companies are currently undergoing an Internal Revenue Service audit. An
issue has been raised concerning the recognition of installment sales
associated with the right of cemetery interment. The outcome of the audit is
yet to be determined.
See independent auditor's report.
35
<PAGE>
FOREST LAWN/EVERGREEN MANAGEMENT CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
NOTE 12- SUBSEQUENT EVENTS
On November 19, 1997, pursuant to the merger agreement, "Merger of Forest
Lawn/Evergreen Management Corporation into Carriage Services of Florida,
Inc.," the shareholders of Forest Lawn/Evergreen Management Corporation
merged Forest Lawn Memorial Cemetery, Evergreen Memorial Gardens Cemetery,
Garden of Memories Cemetery, Kent Forest Lawn Funeral, Emerald Coast Funeral
Home, and Gulf Coast Crematory into Carriage Service, Inc. Substantially,
all of the assets were merged into the surviving corporation; however, as a
condition of the merger, certain assets were sold to the shareholders. The
following schedule details the assets that were sold to the shareholders and
their respective value included in the accompanying financial statements as
of August31, 1997.
Balance Sheet Cost
DESCRIPTION CLASSIFICATION ACRES BASIS
----------- -------------- ----- -----
Real Property - Parcel #1 .......... Inventory 3.931 $ 83,260
RealProperty-Parcel#2 .............. Inventory 1.45 120,585
Real Property - Parcels 3 & 4 ...... Building and improvements N/A 48,561
Rupert Cleaners note
receivable ....................... Note receivable N/A 70,194
LaGrange Funeral Home
receivable ....................... Due from affiliates N/A 76,487
Kent-Thornton Funeral
Home receivable .................. Due from affiliates N/A 23,850
Shareholders receivable ............ Due from affiliates N/A 48,308
--------
Total .............................. $471,245
========
See independent auditor's report.
36
<PAGE>
[SC&G LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Carriage Services, Inc.
Houston, Texas
We have audited the accompanying balance sheets of Kent-Thornton Funeral
Home, Inc. (an Alabama corporation) as of December 31, 1996 and 1995, and
the related statements of income, retained earnings, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects. the financial position of Kent-Thornton Funeral Home,
Inc. as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Panama City, Florida /s/ SALTMARSH, CLEAVELAND & GUND
January 21, 1998 Saltmarsh, Cleaveland & Gund
37
<PAGE>
KENT-THORNTON FUNERAL HOME, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (NOTES 1, 4 AND 5) .................. $ 21,973 $ 68,014
Cash and cash equivalents - merchandise flind (NOTES, 4 and 5). 160,323 61,242
Accounts receivable - trade (NOTES 1, 4 and 5) ................ 62,142 55,995
Inventory (NOTE 1) ............................................ 2,691 10,099
------- -------
Total current assets .......................................... 247,129 195,350
------- -------
PROPERTY AND EQUIPMENT: (NOTES 1 AND 2)
Land ........................................................... 50,865 50,865
Building and improvements ...................................... 374,097 374,097
Furniture and equipment ........................................ 222,261 194,001
------- -------
647,223 618,963
Less accumulated depreciation .................................. (241,578) (212,245)
------- -------
Net property and equipment .................................... 405,645 406,718
------- -------
OTHER ASSETS:
Contracts receivable (NOTES L AND 2) .......................... 214,906 231,463
Deferred obtaining costs (NOTE 1) ............................. 47,029 46,182
------- -------
Total other assets .......................................... 261,935 277,645
------- -------
TOTAL ASSETS ..................................................... $ 914,709 $ 879,713
======= =======
</TABLE>
38
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ................................................. $ 21,652 $ 16,220
Cash deposits from customers ..................................... 3,188 2,730
Distributions payable ............................................ 30,000 34,000
Current portion of long-term debt (NOTES 2 AND 5) ................ 30,803 34,737
----------- -----------
Total current liabilities ...................................... 85,643 87,687
----------- -----------
LONG-TERM LIABILITIES:
Notes payable to banks (NOTES 2 AND 5) (net of current maturities) 476,526 480,859
Deferred revenue (NOTE1) ......................................... 743,430 671,108
Due to affiliates (NOTE 3) ....................................... 37,070 47,745
----------- -----------
Total long-term liabilities ................................... 1,257,026 1,199,712
----------- -----------
Total liabilities .......................................... 1,342,669 1,287,399
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, authorized, issued and outstanding, 1,000
shares; par value of $1.00 ..................................... 1,000 1,000
Retained deficit ................................................. (428,960) (408,686)
----------- -----------
Total stockholders' equity (deficit) ........................... (427,960) (407,686)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 914,709 $ 879,713
=========== ===========
</TABLE>
See independent auditor's report.
39
<PAGE>
KENT-THORNTON FUNERAL HOME, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
--------- ---------
REVENUES ........................................... $ 442,277 378,855
COST OF SALES ...................................... 88,621 72,789
--------- ---------
GROSS PROFIT ....................................... 353,656 306,066
--------- ---------
COST OF OPERATIONS:
Selling, general and administration expenses .... 219,481 183,917
Depreciation .................................... 33,504 46,538
--------- ---------
Total cost of operations ........................ 252,985 230,455
--------- ---------
INCOME FROM OPERATIONS ............................. 100,671 75,611
--------- ---------
OTHER INCOME (EXPENSES):
Interest expense ................................ (50,567) (54,388)
Bad debt expense ................................ (40,611) (82,660)
Bad debt recovery ............................... 231 9,484
Amortization .................................... (893)
Other income .................................... 2
--------- ---------
Total other income (expenses) ................. (90,945) (128,457)
--------- ---------
Net INCOME (Loss) .................................. 9,726 (52,846)
Retained Earnings Deficit) - Beginning of Year ..... (408,686) (321,840)
DISTRIBUTIONS ...................................... (30,000) (34,000)
--------- ---------
RETAINED EARNINGS (DEFICIT) - END OF YEAR .......... $(428,960) $(408,686)
========= =========
See independent auditor's report.
40
<PAGE>
KENT-THORNTON FUNERAL HOME, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES-
NET INCOME (LOSS) ............................................ $ 9,726 $ (52,846)
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation ........................................ 33,504 46,538
Loss on disposal of property ........................ 2,979
(Increase) decrease in operating assets-
Accounts/contracts receivable ..................... 10,410 46,921
Inventory ......................................... 7,408 (5,746)
Deferred obtaining costs .......................... (847) (1,460)
Increase (decrease) in operating liabilities-
Accounts payable - trade ......................... 5,432 2,787
Cash deposits .................................... 458 380
Deferred revenue ................................. 72,322 72,261
--------- ---------
Net cash provided by operating activities ........ 141,392 108,835
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ................................ (35,410) 0
--------- ---------
Net cash used by investing activities .............. (35,410) 0
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt ................ ............. (38,267) (29,398)
Due to affiliates ....................................... (10,675) 17,094
Loan proceeds .......................................... 30,000
Distributions .......................................... (34,000)
--------- ---------
Net cash used by financing activities .................. (52,942) (12,304)
--------- ---------
NET INCREASE IN CASH ....................................... 53,040 96,531
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............. 129,256 32,275
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................... $ 182,296 $ 129,256
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ............................................. $ 50,567 $ 54,388
</TABLE>
See independent auditor's report.
41
<PAGE>
KENT-THORNTON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1996 AND 1995
NOTE I - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY'S ACTIVITIES AND ORGANIZATION..
Kent-Thornton Funeral Home, Inc. (the Company), was incorporated on
February 8, 1991 under the laws of the State of Alabama. The Company owns
and operates a funeral home in Dothan, Alabama. The Company performs
personal and professional services related to funerals at its funeral
home. Prearranged funerals are marketed in the geographic markets served
by its location.
ACCOUNTING METHOD:
The financial statements have been prepared on the accrual basis of
accounting for financial statement presentation.
FUNERAL OPERATIONS/DEFERRED REVENUES:
Funeral revenue is recognized when the funeral service is performed. The
Company's trade receivables consist primarily of funeral services already
performed. The Company sells price guaranteed preneed funeral contracts
providing for future funeral services at prices prevailing when the
agreement is signed. Payments under these contracts are generally placed
in trust. Unperformed price guaranteed preneed funeral contracts are
included in the balance sheet as long-term assets (contracts receivable)
with a corresponding credit to deferred preneed funeral contract revenue.
Preneed funeral trust earnings are deferred until the service is
performed and are intended to cover future increases in the cost of
providing a price guaranteed funeral service.
CONTRACTS AND ACCOUNTS RECEIVABLE:
The Company grants credit to customers, substantially all of whom are
located in the southeast United States. The Company provides an allowance
for doubtful accounts equal to the estimated cancellation losses that
will be incurred in conjunction with preneed funeral contracts. The
estimated losses are based on historical experience coupled with review
of the current status of existing receivables. Allowance for bad debt was
$45,597 and $45,835 at December31, 1996 and 1995.
Trade accounts receivable are charged to bad debt expense, as they are
deemed uncollectible. At December 31, 1996 and 1995, no allowance for
uncollectible trade accounts was considered necessary.
See independent auditor's report.
42
<PAGE>
KENT-THORNTON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE I - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED OBTAINING COSTS:
Deferred obtaining costs consist of sales commissions applicable to
preneed funeral sales. These costs are deferred and amortized over 12
years which approximates the expected timing of the performance of the
services related to preneed funeral contracts.
INVENTORY:
Inventories, consisting of funeral merchandise, are stated at cost, which
is not in excess of market, determined using the specific identification
method.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Property and equipment are
being depreciated utilizing the straight-line method over various
estimated useful lives.
Estimated useful lives are generally as follows:
Buildings 30 - 39 Years
Machinery and equipment 5 - 7 Years
Furniture and fixtures 5 - 7 Years
Vehicles 5 - 10 Years
ESTIMATES:
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary from the
estimates that were used.
INCOME TAXES:
The Company has elected under the Internal Revenue Code to be an S
corporation. In lieu of corporation income taxes, the shareholders of an S
corporation are taxed on their proportionate share of the company's
taxable income. Therefore, no provision or liability for federal income
taxes has been included in the financial statements.
See independent auditor's report
43
<PAGE>
KENT-THORNTON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS:
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
CASH AND CASH EQUIVALENTS - MERCHANDISE FUND:
Although not required by state law, the Company has deposited a specified
amount into a merchandise and service fund for cemetery merchandise and
service contracts sold on a preneed basis. The principal and accumulated
earnings of the fund are not withdrawn by the Company until maturity
(generally, the death of the purchaser) or cancellation of contracts.
NOTE 2 - NOTES PAYABLE
Details of long-term debt were as follows:
1996 1995
-------------------------------------
Due In Due After Due In Due After
One Year One Year One Year One Year
-------- --------- -------- ---------
Notes payable to banks-
Due in monthly payments of $5,045 through
June 23, 1999, interest rate
at Treasury Bill rate, plus 1.5%,
secured by real estate ................. $ 14,518 $455,381 $ 13,867 $469,897
Due in monthly payments of $1,898 through
June 23, 1997, interest rate
at 8.5%, secured by real estate ........ 10,962 0 20,870 10,962
Due in monthly payments of $625 through
April 11, 2001, interest rate at 8.75%
secured by vehicle ........ ........... 5,323 21,145 0 0
-------- -------- -------- --------
$ 30,803 $476,526 $ 34,737 $480,859
======== ======== ======== ========
See independent auditor's report.
44
<PAGE>
KENT-THORNTON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - NOTES PAYABLE (CONTINUED)
Maturities of long-term debt for the next five years are as follows:
1997 $ 30,803
1998 21,531
1999 446,019
2000 6,941
2001 2,035
Thereafter 0
---------
Total $ 507,329
=========
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company periodically receives advances from a company owned by a major
stockholder. These advances are interest free and have no fixed repayment
terms.
NOTE 4 - CONCENTRATIONS OF CREDIT RISK
Significant concentrations of credit risk are as follows:
Concentration of cash on deposit and uninsured cash balances-
The Company has concentrated its credit risk for cash by maintaining
deposits in financial institutions which may at times exceed amounts
covered by insurance provided by the U.S. Federal Deposit Insurance
Corporation (FDIC). The maximum loss that would have resulted from that
risk totaled $87,495 and $33,413 at December 31, 1996 and 1995, for the
excess of the deposit liabilities reported by the banks over the
amounts that would have been covered by federal insurance. The Company
has not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk to cash.
Accounts receivable-
The Company grants credit, generally without collateral, to customers,
substantially all of whom are local residents of the communities
serviced. Consequently, the Company's ability to collect the amounts
due from customers is affected by the economic fluctuations in the
commercial and industrial markets in this geographic region.
See independent auditor's report
45
<PAGE>
KENT-THORNTON FUNERAL HOME, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 5 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
Cash and cash equivalents-
The carrying amount approximates fair value because of the short
maturity of those instruments.
Long-Term Debt-
The carrying amount of the notes payable approximates fair values.
Receivables-
The estimated fair values of the Company's receivables are as follows:
1996 1995
------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- ---------- --------
Accounts receivable ........ $ 62,142 $ 62,142 $ 55,995 $ 55,995
Contracts receivable ....... 214,906 133,438 231,463 143,720
The estimated fair value amounts have been determined using available market
information and appropriate methodologies.
NOTE 6 - SUBSEQUENT EVENTS
On November 19, 1997, substantially all of the properties, assets, rights and
business of the funeral home were purchased by Carriage Funeral Holding, Inc.
pursuant to an Asset Purchase Agreement. The purchaser agreed to assume, pay,
or discharge all long-term liabilities of the Company as of the purchase date
which are included in the notes payable of $507,329 as of December 31, 1996.
See independent auditor's report.
46