AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1999
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CARRIAGE SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7261 76-0423828
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1300 POST OAK BLVD., SUITE 1500
HOUSTON, TEXAS 77056
(281) 556-7400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MELVIN C. PAYNE
CHIEF EXECUTIVE OFFICER
1300 POST OAK BLVD., SUITE 1500
HOUSTON, TEXAS 77056
(281) 556-7400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
T. MARK KELLY THOMAS P. MASON
VINSON & ELKINS L.L.P. ANDREWS & KURTH L.L.P.
2300 FIRST CITY TOWER, 1001 FANNIN 4200 CHASE TOWER, 600 TRAVIS
HOUSTON, TEXAS 77002-6760 HOUSTON, TEXAS 77002
(713) 758-2222 (713) 220-4368
(713) 615-5531 (FAX)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
======================================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, par value
$.01 per share..................... 4,600,000 shares $27.56 $126,776,000 $35,244
======================================================================================================================
</TABLE>
(1) Calculated in accordance with Rule 457(c) based upon the average high and
low trading price on January 14, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 15, 1999
4,000,000 Shares
[LOGO]
Class A Common Stock
------------------
All of the shares of Class A common stock offered in this prospectus, other
than shares sold under the underwriters' over-allotment option, are being sold
by Carriage.
Carriage and the selling stockholders have granted the underwriters an
option to purchase a maximum of 600,000 additional shares to cover
over-allotments of shares.
Our Class A shares are listed on the New York Stock Exchange under the
symbol "CSV." On January 14, 1999, the last reported sale price for the Class
A common stock was $27 3/8.
INVESTING IN OUR SHARES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS CARRIAGE
---------------- ---------------- ----------------
Per Share............. $ $ $
Total................. $ $ $
Delivery of the shares of Class A common stock will be made on or about
, 1999, against payment in immediately available funds.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
RAYMOND JAMES & ASSOCIATES, INC.
J.C. BRADFORD & CO.
Prospectus Dated , 1999
<PAGE>
CARRIAGE SERVICES -- LOGO
MISSION STATEMENT
We are committed to being the most professional, ethical, and highest
quality funeral and cemetery service organization in our industry.
GUIDING PRINCIPLES
To achieve our mission, we are committed to the following principles:
Honesty, integrity, and quality in all that we do
Hard work, pride of accomplishment, and shared success
through employee ownership
Belief in the power of people through
individual initiative and teamwork
Outstanding service and profitability go hand-in-hand
Growth of the company is driven by
decentralization and partnership
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY................... 3
RISK FACTORS......................... 7
FORWARD-LOOKING INFORMATION.......... 9
PRICE RANGE OF CLASS A COMMON STOCK
AND DIVIDEND POLICY................ 10
USE OF PROCEEDS...................... 10
CAPITALIZATION....................... 11
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL AND OPERATING DATA....... 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 14
BUSINESS............................. 23
PAGE
----
MANAGEMENT........................... 31
CERTAIN TRANSACTIONS................. 37
PRINCIPAL AND SELLING STOCKHOLDERS... 39
DESCRIPTION OF CAPITAL STOCK......... 41
SHARES ELIGIBLE FOR FUTURE SALE...... 44
UNDERWRITING......................... 45
NOTICE TO CANADIAN RESIDENTS......... 47
LEGAL MATTERS........................ 48
EXPERTS.............................. 48
WHERE YOU CAN FIND MORE
INFORMATION........................ 48
INDEX TO FINANCIAL STATEMENTS........ F-1
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before investing in the Class A common stock. You should
carefully read the entire prospectus, including the financial statements and
notes thereto. Unless otherwise specified, all information in this prospectus
assumes no exercise of the underwriters' over-allotment option.
CARRIAGE
Carriage is the fastest-growing and the fifth largest public death care
company in North America. We believe we are uniquely positioned to take
advantage of the consolidating death care industry due to our operating
philosophy and our size. We provide a complete range of services relating to
funerals, burials and cremations, as well as related products including caskets,
burial vaults, garments, cemetery interment rights and memorials. Our services
and products are sold both prior to and at the time of need.
Since 1993, our operations have grown significantly, primarily through
acquisitions. These acquisitions, in addition to our focus on operating
improvements, have driven our revenues, profit margins and earnings higher. Our
growth has been demonstrated by increases in the following:
o Funeral homes operated, from 25 in 1993 to 166 at year end 1998;
o Cemeteries operated, from 2 in 1993 to 27 at year end 1998;
o Revenues, from $11.3 million for the year ended 1993 to $82.0 million
for the nine months ended September 30, 1998;
o Operating margins, from 0.7% for the year ended 1993 to 21.3% for the
nine months ended September 30, 1998; and
o Diluted earnings per share, from a $0.66 loss for the year ended 1993
to $0.43 profit for the nine months ended September 30, 1998.
THE INDUSTRY
The death care industry has attractive fundamental characteristics,
including highly fragmented ownership, barriers to entry and stable, predictable
demand. In the past several years, the industry has witnessed considerable
consolidation, yet less than 25% of the 1997 United States death care industry
revenues are represented by the five publicly traded death care companies.
Because of the pending merger of two of our publicly held competitors and the
announcement by a third that it has reduced its acquisition spending and is
considering strategic alternatives, we believe that the competitive landscape
for acquisitions is improving.
STRATEGY
Our business strategy is to build upon our reputation as a premier
operating company and to grow through attractive acquisition opportunities. Our
operating strategy is focused on increasing the revenues and profitability of
each operating location through a combination of improved personalized local
service and operating efficiencies. Our acquisition strategy emphasizes both
geographic expansion and concentration of existing operations through the
acquisition of premier funeral homes and cemeteries that have a strong local
market presence.
Our operating style is best reflected in our Mission Statement and Guiding
Principles. Since our formation in 1991, our management team has focused on
developing an operating philosophy that emphasizes:
o Providing the highest level of personalized service to client
families;
o Comprehensive employee training;
o A decentralized management structure;
3
<PAGE>
o Establishing high standards of service, operational and financial
performance;
o Measuring performance against such standards; and
o Incentive compensation and broad-based employee stock ownership.
We believe our successful execution of this operating philosophy, combined
with fewer active public consolidators in the industry, will result in an
increasing number of highly attractive acquisition opportunities.
In 1998, we acquired 48 funeral homes and seven cemeteries for an aggregate
consideration of approximately $159 million. In addition, as of January 5, 1999,
we had entered into definitive agreements or letters of intent to acquire 16
funeral homes and 14 cemeteries for approximately $43.5 million. This includes
our agreement to acquire seven funeral homes and 12 cemeteries from Service
Corporation International as a result of a divestiture order by the Federal
Trade Commission relating to its merger with Equity Corporation International.
Our principal executive office is located at 1300 Post Oak Blvd., Suite
1500, Houston, Texas 77056. Our telephone number is (281) 556-7400.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Class A common stock offered by 4,000,000 shares
Carriage...........................
Common stock to be outstanding after
the offering(1):
Class A common stock............ 16,028,035 shares
Class B common stock............ 3,779,088 shares
Total...................... 19,807,123 shares
Voting rights........................ Each share of Class A common stock is entitled to
one vote per share and each share of Class B common
stock is entitled to ten votes per share. See
"Description of Capital Stock."
Conversion of Class B common stock... Each share of Class B common stock is convertible
into one share of Class A common stock. A share of
Class B common stock will automatically convert
into one share of Class A common stock if it is
sold or transferred to anyone who is not a
permitted transferee. In addition, each share of
Class B common stock will become a share of Class A
common stock on December 31, 2001. See
"Description of Capital Stock."
Use of proceeds...................... To repay outstanding indebtedness incurred
principally to fund acquisitions.
NYSE symbol of Class A common
stock.............................. CSV
</TABLE>
- ------------
(1) Based on the number of shares outstanding as of December 31, 1998. Excludes:
(a) approximately 65,000 shares of Class B common stock issuable upon
exercise of options; (b) approximately 1,700,000 shares of Class A common
stock issuable upon exercise of options; and (c) 65,055 shares of Class B
common stock issuable upon conversion of 1,682,500 shares of the Series D
preferred stock. See "Management" and "Description of Capital Stock."
4
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents summary historical consolidated financial and
operating data as of the dates and for the periods indicated. The consolidated
financial data of Carriage as of and for the five years ended December 31, 1997
set forth below have been derived from financial statements audited by Arthur
Andersen LLP, independent public accountants. The consolidated financial data of
Carriage as of and for the nine months ended September 30, 1997 and 1998 have
been derived from unaudited financial statements which, in our opinion, reflect
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the financial data for such periods. The following
information should be read in conjunction with Carriage's consolidated financial
statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues, net:
Funeral............................. $ 10,651 $ 17,368 $ 22,661 $ 37,445 $ 64,888 $ 46,283 $ 65,956
Cemetery............................ 614 1,036 1,576 2,903 12,533 9,012 15,995
--------- --------- --------- --------- --------- --------- ---------
Total net revenues............. 11,265 18,404 24,237 40,348 77,421 55,295 81,951
--------- --------- --------- --------- --------- --------- ---------
Gross profit:
Funeral............................. 917 2,856 3,740 6,804 16,484 11,878 19,022
Cemetery............................ 143 158 250 362 2,899 1,825 4,075
--------- --------- --------- --------- --------- --------- ---------
Total gross profit............. 1,060 3,014 3,990 7,166 19,383 13,703 23,097
General and administrative expenses..... 985 1,266 2,106 2,474 5,277 3,657 5,661
--------- --------- --------- --------- --------- --------- ---------
Operating income........................ 75 1,748 1,884 4,692 14,106 10,046 17,436
Interest expense, net................... 1,745 2,671 3,684 4,347 5,889 4,028 6,511
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes....... (1,670) (923) (1,800) 345 8,217 6,018 10,925
Provision for income taxes.............. --(1) 40 694 138 3,726 2,357 4,833
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item.................................. (1,670) (963) (2,494) 207 4,491 3,661 6,092
Extraordinary item, net................. -- -- -- (498) (195) (195) --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) after extraordinary
item.................................. (1,670) (963) (2,494) (291) 4,296 3,466 6,092
Preferred stock dividends............... -- -- -- 622 890 713 454
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) attributable to common
stockholders.......................... $ (1,670) $ (963) $ (2,494) $ (913) $ 3,406 $ 2,753 $ 5,638
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common share
Basic:
Continuing operations............... $ (.66) $ (.38) $ (.99) $ (.09) $ .35 $ .29 $ .44
Extraordinary item.................. -- -- -- (.10) (.02) (.02) --
--------- --------- --------- --------- --------- --------- ---------
Basic net income (loss) per common
share............................. $ (.66)(1) $ (.38) $ (.99) $ (.19) $ .33 $ .27 $ .44
========= ========= ========= ========= ========= ========= =========
Diluted:
Continuing operations............... $ (.66) $ (.38) $ (.99) $ (.09) $ .34 $ .29 $ .43
Extraordinary item.................. -- -- -- (.10) (.02) (.02) --
--------- --------- --------- --------- --------- --------- ---------
Diluted net income (loss) per common
share............................. $ (.66)(1) $ (.38) $ (.99) $ (.19) $ .32 $ .27 $ .43
========= ========= ========= ========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding:
Basic............................... 2,520(1) 2,520 2,520 4,869 10,226 10,040 12,772
========= ========= ========= ========= ========= ========= =========
Diluted............................. 2,520 2,520 2,520 4,869 10,485 10,323 13,198
========= ========= ========= ========= ========= ========= =========
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
5
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING AND FINANCIAL DATA:
Funeral homes at end of period.......... 25 34 41 76 120 106 152
Cemeteries at end of period............. 2 3 3 10 20 14 25
Funeral services performed during
period................................ 2,265 3,529 4,414 7,181 12,131 8,917 11,967
Preneed funeral contracts sold.......... 644 762 2,610 3,760 4,020 2,852 4,626
Backlog of preneed funeral contracts.... 5,170 6,855 8,676 22,925 34,797 30,647 47,904
Depreciation and amortization........... $ 947 $ 1,476 $ 1,948 $ 3,629 $ 7,809 $ 5,644 $ 7,646
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-----------------------------
AS OF DECEMBER 31, 1997 ACTUAL AS ADJUSTED(2)
----------------------- ---------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 5,823 $ 12,445 $ 12,445
Total assets............................ 277,940 408,243 408,243
Long-term debt, net of current
maturities............................ 121,553 175,414 71,789
Redeemable preferred stock.............. 13,951 13,951 13,951
Stockholders' equity.................... 98,565 176,515 280,140
</TABLE>
- ------------
(1) Prior to January 1, 1994, Carriage consisted of three entities whose owners
contributed their equity in these entities in exchange for 2,520,000 shares
of common stock of Carriage effective January 1, 1994. Shares of common
stock shown outstanding for these periods assume the exchange had taken
place at the beginning of the periods presented. In 1993, the entities were
subchapter S corporations, and taxes were the direct responsibility of the
owners. Thus, the tax provision reflected above for 1993 is based on
assumptions about what the tax provision (benefit) would have been if
Carriage had been a taxable entity. In our opinion, no pro forma tax
provision (benefit) was appropriate for this period because Carriage
followed a policy of not recognizing the benefits associated with net
operating losses during such period.
(2) As adjusted to give effect to the offering and the application of the
estimated net proceeds to Carriage therefrom.
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF FUTURE OPERATIONS COULD BE
MATERIALLY AND ADVERSELY AFFECTED. IN SUCH CASE, THE TRADING PRICE FOR OUR CLASS
A COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
WE MAY NOT BE ABLE TO IDENTIFY, FINANCE OR INTEGRATE ADDITIONAL ACQUISITIONS
We have grown rapidly through acquisitions of funeral homes and cemeteries.
Although we believe we have an adequate infrastructure, we cannot assure you
that our current management, personnel and other corporate infrastructure will
be adequate to manage our growth. In addition, to the extent the success of our
strategy is contingent on making further acquisitions, we cannot assure you that
we will be able to identify and acquire acceptable acquisition candidates on
terms favorable to us or that we will be able to integrate such acquisitions
successfully without substantial costs, delays or other operational or financial
problems. Further, acquisitions involve a number of special risks, including
possible adverse effects on our operating results, diversion of management's
attention, failure to retain key acquired personnel, risks associated with
unanticipated events or liabilities and amortization of acquired intangible
assets, some or all of which could have a material adverse effect on our
business, financial condition and results of operations. In addition, to the
extent we are required to write down goodwill associated with acquisitions due
to a decline in the value of such acquired businesses, such write down could
have a material adverse effect on operating results.
We may finance future acquisitions through the incurrence of additional
bank indebtedness, the utilization of cash from operations, the issuance of
Class A common stock or other securities, or any combination thereof. In the
event that the Class A common stock does not maintain a sufficient market value,
or potential acquisition candidates are otherwise unwilling to accept Class A
common stock or other securities as part of the consideration for the sale of
their businesses, we may be required to utilize more of our cash resources or
available funds under our credit facility in order to finance future
acquisitions. If we do not have sufficient cash resources, our ability to make
acquisitions could be limited unless we are able to obtain additional capital
through debt or equity financings. We cannot assure you that we will be able to
obtain all the financing we will need in the future on terms we deem acceptable.
WE ARE DEPENDENT ON KEY EXECUTIVES AND PERSONNEL
Carriage depends to a large extent upon the abilities and continued efforts
of Melvin C. Payne, Chairman of the Board and Chief Executive Officer, Mark W.
Duffey, President, and its other senior management. The loss of the services of
the key members of our senior management could have a material adverse effect on
our continued ability to compete in the death care industry. We have entered
into employment agreements with our principal executive officers. Our future
success will also depend upon our ability to attract and retain skilled funeral
home and cemetery management personnel. See "Management."
CERTAIN STOCKHOLDERS CONTROL THE VOTING POWER
Because the Class B shares have ten votes per share, the holders of Class B
common stock control approximately 76% of the voting power of Carriage. These
stockholders are in a position to exert substantial influence over the outcome
of most corporate actions requiring stockholder approval, including the election
of directors, the future issuance of common stock or other securities of
Carriage, the declaration of any dividend payable on the common stock and the
approval of transactions involving a change in control. The interests of this
group could conflict with the interests of our other stockholders. See
"Description of Capital Stock."
7
<PAGE>
A TAKEOVER OF CARRIAGE WOULD BE DIFFICULT
Certain provisions of our certificate of incorporation could make it more
difficult for a third party to acquire control of Carriage, even if such change
in control would be beneficial to stockholders. Our certificate of incorporation
allows us to issue preferred stock without stockholder approval. Our certificate
of incorporation also provides for a staggered board, limits who may call
special stockholders' meetings and limits stockholder action by written consent.
In addition, certain stockholders are party to a voting agreement which prevents
them from selling their shares to a competitor and requires them to vote against
a business combination with a competitor. These provisions could make it more
difficult for a third party to acquire Carriage. See "Description of Capital
Stock -- Delaware Law and Certain Charter Provisions."
RISK OF INCREASED RATE OF CREMATION
There is an increasing trend in the United States toward cremation.
According to industry studies, cremations represented approximately 24% of the
burials performed in the United States in 1997, as compared with approximately
10% in 1980. Compared to traditional funeral services, cremations have
historically generated similar gross profit percentages but lower revenues. A
substantial increase in the rate of cremations performed by Carriage could have
a material adverse effect on our results of operations. See "Business--Death
Care Industry."
RISK OF REGULATORY CHANGES
Our operations are subject to regulation, supervision and licensing under
numerous federal, state and local laws, ordinances and regulations, including
extensive regulations concerning trust funds, preneed sales of funeral and
cemetery products and services and various other aspects of our business. The
impact of such regulations varies depending on the location of our funeral homes
and cemeteries.
From time to time, states and other regulatory agencies have considered and
may enact additional legislation or regulations that could affect the death care
industry. For example, some states and regulatory agencies have considered or
are considering regulations that could require more liberal refund and
cancellation policies for preneed sales of products and services, prohibit
door-to-door or telephone solicitation of potential customers, increase trust
requirements and prohibit the common ownership of funeral homes and cemeteries
in the same market. If adopted in the states in which we operate, these and
other possible proposals could have a material adverse effect on our results of
operations. See "Business--Trust Funds" and "--Regulation."
RISK OF REDUCTION IN DEATH RATE
The death rate in the United States declined approximately 1% in 1997 and
approximately .7% in the first ten months of 1998, reversing a trend of an
approximately 1% increase per year since 1980. Industry studies indicate that
the average age of the population is increasing. Our financial results may be
affected by any decline in the death rate.
8
<PAGE>
FORWARD-LOOKING INFORMATION
Some of the statements contained in this prospectus under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" are
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements:
o address activities, events or developments that we expect,
believe, anticipate or estimate will or may occur in the future;
o are based on certain assumptions and analyses that we have made
and that we believe are reasonable;
o are based on various risks and uncertainties, general economic and
business conditions, the business opportunities that may be
presented to and pursued by us from time to time, changes in laws
or regulations and other factors, many of which are beyond our
control.
Any one of these factors, or a combination of these factors, could
materially affect our future results of operations and whether the
forward-looking statements ultimately prove to be accurate. These
forward-looking statements are not guarantees of our future performance, and our
actual results and future developments may differ materially from those
projected in the forward-looking statements. See "Risk Factors."
9
<PAGE>
PRICE RANGE OF CLASS A COMMON STOCK AND DIVIDEND POLICY
The following table presents the quarterly high and low sales prices for
our Class A common stock. The information for 1997 and through May 7, 1998 is
reported by the Nasdaq National Market which quoted the Class A common stock
during that time. On May 8, 1998, our Class A common stock began to trade on the
NYSE under the symbol "CSV," and the prices set forth below after that date
are reported on the NYSE Composite Tape.
HIGH LOW
---- ----
1997:
First Quarter................... $26 $ 18 1/4
Second Quarter.................. 22 3/4 17
Third Quarter................... 22 3/4 16 1/4
Fourth Quarter.................. 19 5/8 16 1/2
1998:
First Quarter................... 24 3/4 16 3/4
Second Quarter.................. 26 1/4 21
Third Quarter................... 27 1/4 19 1/2
Fourth Quarter.................. 28 3/4 19 3/16
1999:
First Quarter (through January
14, 1999)...................... 29 1/4 26 1/4
On January 14, 1999, the last reported sale price of the Class A common
stock on the NYSE was $27 3/8 per share. As of December 31, 1998, there were
12,028,035 shares of Class A common stock outstanding held by approximately 200
holders of record.
We have never paid a cash dividend on the Class A or Class B common stock.
We currently intend to retain earnings to finance the growth and development of
our business and do not anticipate paying any cash dividends on our common stock
in the foreseeable future. In addition, certain provisions of our credit
facility provide certain restrictions on the payment of dividends on our common
stock. Any future change in our dividend policy will be made at the discretion
of our board of directors in light of our financial condition, capital
requirements, earnings and prospects and any restrictions under credit
agreements, as well as other factors they may deem relevant. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Holders of shares of our Series
D preferred stock are entitled to receive dividends at an annual rate of $.06
per share or $.07 per share, depending on the date such shares were issued. Such
dividends are payable quarterly. From January 1, 1996 through December 31, 1998,
cash dividends of approximately $1,006,284 on the Series D preferred stock and
$1,113,401 on the Series F preferred stock had been paid. See "Description of
Capital Stock."
USE OF PROCEEDS
The net proceeds we will receive from the offering are estimated to be
approximately $103.6 million (approximately $114.5 million if the underwriter's
over-allotment option is exercised in full), after deducting the estimated
underwriting discount and offering expenses. Substantially all of the net
proceeds we will receive will be used to repay outstanding indebtedness under
our credit facility, incurred principally to fund acquisitions. As of December
31, 1998, $192.4 million was outstanding under the credit facility with an
average effective interest rate of 6.50%. Any remaining net proceeds will be
used for general corporate purposes, including future acquisitions. Amounts
repaid on the credit facility may be reborrowed from time to time for possible
future acquisitions, capital expenditures and other general corporate purposes.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Carriage as of
September 30, 1998 on an actual basis, and as adjusted to give effect to the
sale of 4,000,000 shares of Class A common stock. This assumes that the
underwriters' over-allotment option is not exercised. The table should be read
in conjunction with "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto included elsewhere in this prospectus.
AS OF SEPTEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED
-------- ------------
(IN THOUSANDS)
Current portion of long-term debt and
obligations under capital leases... $ 5,116 $ 5,116
======== ============
Long-term debt and obligations under
capital leases (excluding current
portion):
Credit facility................. $156,800 $ 53,175
Acquisition debt................ 13,795 13,795
Other........................... 4,819 4,819
Obligations under capital
leases........................ 3,254 3,254
-------- ------------
Total long-term debt and
obligations under
capital leases.......... 178,668 75,043
-------- ------------
Redeemable preferred stock(1)........ 13,951 13,951
-------- ------------
Stockholders' equity(2):
Class A common stock, par value
$.01 per share, 40,000,000
shares authorized; 10,926,583
shares issued and outstanding;
14,926,583 shares issued and
outstanding, as adjusted...... 109 149
Class B common stock, par value
$.01 per share, 10,000,000
shares authorized; 3,870,598
shares issued and outstanding,
and as adjusted............... 39 39
Contributed capital............. 174,332 277,917
Accumulated deficit............. 2,035 2,035
-------- ------------
Total stockholders'
equity.................. 176,515 280,140
-------- ------------
Total
capitalization..... $369,134 $369,134
======== ============
- ------------
(1) The redeemable preferred stock (the Series D preferred stock and Series F
preferred stock) is convertible at the holder's option into Class A and
Class B common stock at a conversion price based upon a ten-day average of
the closing market price of the Class A common stock ($25.8625 as of
December 31, 1998) for the Series D preferred stock and at a conversion
price of $17.00 per share for the Series F preferred stock. On December 31,
2001, we must redeem all shares of Series D preferred stock then outstanding
at a redemption price of $1.00 per share, together with all accrued and
unpaid dividends. On December 31, 1998, all of the shares of Series F
preferred stock were converted into 722,250 shares of Class A common stock.
See "Description of Capital Stock."
(2) Does not include shares of common stock issuable upon exercise of options
outstanding under our stock option plans. See "Management."
11
<PAGE>
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL AND OPERATING DATA
The following table sets forth selected historical consolidated financial
and operating data as of the dates and for the periods indicated. The
consolidated financial data as of and for the five years ended December 31, 1997
set forth below have been derived from financial statements audited by Arthur
Andersen LLP, independent public accountants. The consolidated financial data as
of and for the nine months ended September 30, 1997 and 1998 have been derived
from unaudited financial statements which, in our opinion, reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial data for such periods. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with our consolidated
financial statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
YEAR ENDED DECEMBER 31,
--------------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues, net:
Funeral............................. $ 10,651 $ 17,368 $ 22,661 $ 37,445 $ 64,888 $ 46,283 $ 65,956
Cemetery............................ 614 1,036 1,576 2,903 12,533 9,012 15,995
--------- --------- --------- --------- --------- --------- ---------
Total net revenues............. 11,265 18,404 24,237 40,348 77,421 55,295 81,951
--------- --------- --------- --------- --------- --------- ---------
Gross profit:
Funeral............................. 917 2,856 3,740 6,804 16,484 11,878 19,022
Cemetery............................ 143 158 250 362 2,899 1,825 4,075
--------- --------- --------- --------- --------- --------- ---------
Total gross profit............. 1,060 3,014 3,990 7,166 19,383 13,703 23,097
General and administrative expenses..... 985 1,266 2,106 2,474 5,277 3,657 5,661
--------- --------- --------- --------- --------- --------- ---------
Operating income........................ 75 1,748 1,884 4,692 14,106 10,046 17,436
Interest expense, net................... 1,745 2,671 3,684 4,347 5,889 4,028 6,511
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes....... (1,670) (923) (1,800) 345 8,217 6,018 10,925
Provision for income taxes.............. --(1) 40 694 138 3,726 2,357 4,833
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item.................................. (1,670) (963) (2,494) 207 4,491 3,661 6,092
Extraordinary item, net................. -- -- -- (498) (195) (195) --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) after extraordinary
item.................................. (1,670) (963) (2,494) (291) 4,296 3,466 6,092
Preferred stock dividends............... -- -- -- 622 890 713 454
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) attributable to common
stockholders.......................... $ (1,670) $ (963) $ (2,494) $ (913) $ 3,406 $ 2,753 $ 5,638
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common share
Basic:
Continuing operations............... $ (.66) $ (.38) $ (.99) $ (.09) $ .35 $ .29 $ .44
Extraordinary item.................. -- -- -- (.10) (.02) (.02) --
--------- --------- --------- --------- --------- --------- ---------
Basic net income (loss) per common
share............................. $ (.66)(1) $ (.38) $ (.99) $ (.19) $ .33 $ .27 $ .44
========= ========= ========= ========= ========= ========= =========
Diluted:
Continuing operations............... $ (.66) $ (.38) $ (.99) $ (.09) $ .34 $ .29 $ .43
Extraordinary item.................. -- -- -- (.10) (.02) (.02) --
--------- --------- --------- --------- --------- --------- ---------
Diluted net income (loss) per common
share............................. $ (.66) (1) $ (.38) $ (.99) $ (.19) $ .32 $ .27 $ .43
========= ========= ========= ========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding:
Basic............................... 2,520(1) 2,520 2,520 4,869 10,226 10,040 12,772
========= ========= ========= ========= ========= ========= =========
Diluted............................. 2,520 2,520 2,520 4,869 10,485 10,323 13,198
========= ========= ========= ========= ========= ========= =========
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
12
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING AND FINANCIAL DATA:
Funeral homes at end of period.......... 25 34 41 76 120 106 152
Cemeteries at end of period............. 2 3 3 10 20 14 25
Funeral services performed during
period................................ 2,265 3,529 4,414 7,181 12,131 8,719 11,967
Preneed funeral contracts sold.......... 644 762 2,610 3,760 4,020 2,852 4,626
Backlog of preneed funeral contracts.... 5,170 6,855 8,676 22,925 34,797 30,647 47,904
Depreciation and amortization........... $ 947 $ 1,476 $ 1,948 $ 3,629 $ 7,809 $ 5,644 $ 7,646
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------- AS OF
1993 1994 1995 1996 1997 SEPTEMBER 30, 1998
--------- --------- --------- --------- --------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ (142) $ 4,271 $ 6,472 $ 5,089 $ 5,823 $ 12,445
Total assets............................ 28,784 44,165 61,746 131,308 277,940 408,243
Long-term debt, net of current
maturities............................ 26,270 32,622 42,057 42,733 121,553 175,414
Redeemable preferred stock.............. -- -- -- 17,251 13,951 13,951
Stockholders' equity (deficit).......... (2,626) 3,429 9,151 57,043 98,565 176,515
</TABLE>
- ------------
(1) Prior to January 1, 1994, Carriage consisted of three entities whose owners
contributed their equity in these entities in exchange for 2,520,000 shares
of common stock of Carriage effective January 1, 1994. Accordingly, shares
of common stock shown outstanding for these periods assume the exchange had
taken place at the beginning of the periods presented. In 1993, the entities
were subchapter S corporations, and taxes were the direct responsibility of
the owners. Thus, the tax provision reflected above for 1993 is based on
assumptions about what the tax provision (benefit) would have been if
Carriage had been a taxable entity. In the opinion of management, no pro
forma tax provision (benefit) was appropriate for this period because
Carriage followed a policy of not recognizing the benefits associated with
net operating losses during such period.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading provider of death care services and products in the United
States. Our focus is on growth through acquisitions and enhancements at
facilities we currently own to increase revenues and gross profit. We entered
1998 with the goals (among others) of:
o implementing company-wide training;
o increasing margins in our funeral home and cemetery operations while
continuing to grow rapidly;
o substantially increasing the preneed sales and marketing activities;
and
o increasing employee incentive and ownership programs.
The objective of these goals was to expand our infrastructure and stability as
we continued to pursue consolidation opportunities in the death care industry.
Income from operations, which we define as earnings before interest and
income taxes, increased, as a percentage of net revenues, from 11.6% for 1996 to
18.2% for 1997 and to 21.3% for the nine months ended September 30, 1998. Income
from operations for the nine months ended September 30, 1998 increased 73.6%
compared to the same period in 1997. This improvement was largely due to the
increased gross profits at the individual locations. Gross margins for the
funeral homes increased from 18.2% in 1996 to 25.4% in 1997 and to 28.8% for the
nine months ended September 30, 1998, as a result of margin management training
for the managers and directors related to merchandising and memorialization and
benefits from cost containment and clustering, where realizable. Improvements in
cemetery gross profit margins have been dramatic since 1996. Cemetery gross
profit from 1996 to 1997 increased 700% while cemetery revenues increased 332%
for that same period. During 1997, we doubled the number of cemeteries we owned
and beginning in late 1996 we restructured the preneed sales function. As a
percentage of cemetery net revenues, cemetery gross profit increased from 12.5%
in 1996 to 23.1% in 1997, and to 25.5% for the nine months ended September 30,
1998. Increased preneed sales and marketing efforts have had a significant
impact beginning in the fourth quarter of 1997, as revenues and gross profits
from cemeteries owned at least one year increased 79.7% and 664.1%,
respectively, for the nine months ended September 30, 1998 compared to the same
period in 1997.
We have experienced significant growth since the end of 1995 when we owned
44 facilities. We acquired 45 facilities in 1996, 54 facilities in 1997 and 55
facilities in 1998. In a deliberate and managed process, we increased personnel
and related infrastructure as a function of the increase in our revenue run
rate. As a consequence, general and administrative expenses increased from $2.1
million in 1995, to $2.5 million in 1996, to $5.3 million in 1997 and to $5.7
million for the nine months ended September 30, 1998. However, general and
administrative expenses as a percentage of revenues over these periods was 8.7%
in 1995, 6.1% in 1996, 6.8% in 1997 and 6.9% for the nine months ended September
30, 1998. The additional personnel filled critical roles in expanding the
geographic coverage of both corporate development and preneed sales and
marketing activities, as well as the financial, data processing and
administrative functions needed to support the growing number of locations
operating in a decentralized management fashion with timely financial and
management information. Additionally, near the end of 1996, we restructured and
expanded the prearranged funeral and cemetery sales organization significantly.
During 1996, we acquired 38 funeral homes and seven cemeteries for an
aggregate consideration of approximately $68 million. We acquired 44 funeral
homes and ten cemeteries during 1997 for approximately $118 million. During
1998, we acquired 48 funeral homes and seven cemeteries for an aggregate
consideration of approximately $159 million. We funded these acquisitions
through cash flow from operations, additional borrowings under our credit
facilities and issuance of preferred and common stock. In addition, as of
January 5, 1998, we had letters of intent or definitive agreements to acquire 16
funeral homes and 14 cemeteries for an aggregate consideration of approximately
$43.5
14
<PAGE>
million. We believe our increased recognition in the death care industry as an
established operator and purchaser of funeral homes and cemeteries, as well as
favorable conditions in the acquisition marketplace, have improved our ability
to attract potential acquisitions that are larger, strategic and accretive and
our ability to finance our acquisitions with debt and equity.
One consequence of our rapid growth through acquisitions in recent years is
a relatively high level of non-cash depreciation and amortization expense. For
the year ended December 31, 1997, depreciation and amortization expense as a
percentage of net revenues was 10.1%. We believe that this percentage was higher
than others in the industry as most of our acquisitions have occurred during the
past two years and have been primarily comprised of funeral homes (as compared
to cemeteries which have a large non-depreciable land component). Because all of
our properties have been acquired in these types of transactions in the past few
years, the non-cash charges related to purchase price allocations resulting from
these acquisitions have had a significant impact on our reported net income.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data for Carriage
expressed as a percentage of net revenues for the periods presented:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues, net.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Total gross profit................... 16.5 17.8 25.0 24.8 28.2
General and administrative
expenses............................. 8.7 6.1 6.8 6.6 6.9
Operating income..................... 7.8 11.6 18.2 18.2 21.3
Interest expense, net................ 15.2 10.8 7.6 7.3 7.9
Net income (loss) before
extraordinary item................. (10.3) 0.5 5.8 6.6 7.4
</TABLE>
The following table sets forth the number of funeral homes and cemeteries
owned and operated by Carriage for the periods presented:
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997 1998
---- ---- ---- ----
Funeral homes at beginning of
period............................... 34 41 76 120
Acquisitions......................... 8 38 44 48
Divestitures......................... 1 3 0 2
---- ---- ---- ----
Funeral homes at end of
period........................ 41 76 120 166
==== ==== ==== ====
Cemeteries at beginning of period.... 3 3 10 20
Acquisitions......................... 0 7 10 7
Divestitures......................... 0 0 0 0
---- ---- ---- ----
Cemeteries at end of period..... 3 10 20 27
==== ==== ==== ====
As of January 5, 1999, we had non-binding letters of intent or definitive
agreements for the acquisition of 16 funeral homes and 14 cemeteries.
The following is a discussion of our results of operations for the nine
months ended September 30, 1997 and 1998 and the three years ended December 31,
1995, 1996 and 1997. For purposes of this discussion, funeral homes and
cemeteries owned and operated for the entirety of both periods being compared
are referred to as "existing operations." Operations acquired or opened during
either period being compared are referred to as "acquired operations."
15
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
FUNERAL HOME SEGMENT. The following table sets forth certain information
regarding the net revenues and gross profit from our funeral home operations for
the nine months ended September 30, 1997 compared to the nine months ended
September 30, 1998.
NINE MONTHS ENDED
SEPTEMBER 30, CHANGE
-------------------- ------------------
1997 1998 AMOUNT PERCENT
--------- --------- ------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations............. $ 35,086 $ 36,361 $ 1,275 3.6%
Acquired operations............. 11,197 29,595 18,398 *
--------- --------- -------
Total net revenues......... $ 46,283 $ 65,956 $19,673 42.5%
========= ========= =======
Gross profit:
Existing operations............. $ 8,135 $ 9,884 $ 1,749 21.5%
Acquired operations............. 3,743 9,138 5,395 *
--------- --------- -------
Total gross profit......... $ 11,878 $ 19,022 $ 7,144 60.1%
========= ========= =======
- ------------
* Not meaningful.
Due to our rapid growth, existing operations for the nine months ended
September 30, 1998 represented only 55.1% of the total funeral revenues and only
52.0% of the total funeral gross profit. Total funeral net revenues for the nine
months ended September 30, 1998 increased $19.7 million or 42.5% over the nine
months ended September 30, 1997. The higher net revenues reflect an increase of
$18.4 million in net revenues from acquired operations and an increase in net
revenues of $1.3 million from existing operations.
Total funeral gross profit for the nine months ended September 30, 1998
increased $7.1 million or 60.1% over the comparable nine months of 1997. The
higher total gross profit reflected an increase of $5.4 million from acquired
operations and an increase of $1.7 million from existing operations. Gross
profit for existing operations increased due to the efficiencies gained by
consolidation, cost savings, improved collections experience and the increasing
effectiveness of our merchandising strategy. Total gross margin increased from
25.7% for the nine months ended September 30 of 1997 to 28.8% for the nine
months ended September 30, 1998 due to these factors.
CEMETERY SEGMENT. The following table sets forth certain information
regarding the net revenues and gross profit from our cemetery operations for the
nine months ended September 30,
1997 compared to the nine months ended September 30, 1998.
NINE MONTHS ENDED
SEPTEMBER 30, CHANGE
-------------------- ------------------
1997 1998 AMOUNT PERCENT
--------- --------- ------- -------
(DOLLARS IN THOUSANDS)
Total net revenues................... $ 9,012 $ 15,995 $ 6,983 77.5%
========= ========= =======
Total gross profit................... $ 1,825 $ 4,075 $ 2,250 123.3%
========= ========= =======
Due to our rapid growth, existing operations for the nine months ended
September 30, 1998 represented approximately 32.9% of the cemetery revenues and
approximately 26.3% of cemetery gross profit as we had only 14 cemeteries in
operation at the end of the nine months ended September 30, 1997 as compared to
25 at the end of the nine months ended September 30, 1998. As a result, we do
not believe it is meaningful to present the results for existing and acquired
operations separately. Total cemetery net revenues for the nine months ended
September 30, 1998 increased $7.0 million over the nine months ended September
30, 1997, and total cemetery gross profit increased $2.3 million over the
comparable nine months of 1997. Total gross margin increased from 20.3% for the
nine months ended September 30, 1997 to 25.5% for the nine months ended
September 30, 1998. These increases were due primarily to our acquisition of 11
cemeteries during the twelve-month period ended September 30, 1998, and
increased preneed marketing efforts.
16
<PAGE>
General and administrative expenses for the nine months ended September 30,
1998 increased $2.0 million or 54.8% over the nine months ended September 30,
1997 due primarily to the increased personnel expense necessary to support a
higher rate of growth and acquisition activity. However, the increase in general
and administrative expenses as a percentage of net revenues was as the expenses
were spread over a larger volume of revenue.
Interest expense for the nine months ended September 30, 1998 increased
$2.5 million over the nine months ended September 30, 1997 principally due to
increased borrowings for acquisitions subsequent to September 30, 1997.
Partially offsetting the increased borrowings for acquisitions are the effects
of a new credit facility, which reflects substantially improved terms and
reduced interest rates compared to the previous arrangements and proceeds from
our sale of common stock during May, 1998 which were used to reduce outstanding
debt.
Preferred stock dividends of $454,000 were subtracted from the $6.1 million
of net income in computing the net income available to common stockholders of
$5.6 million for the nine months ended September 30, 1998. The reduction in
preferred stock dividends from 1997 to 1998 is due to conversions of the
preferred stock to common stock.
For the nine months ended September 30, 1998, we provided for income taxes
on income before income taxes at a combined state and federal rate of 44.2%
compared with 39.2% for the same period in 1997. The effective tax rate for the
nine months ended September 30, 1997 included a 4.5% tax benefit for the
utilization of prior year net operating losses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
FUNERAL HOME SEGMENT. The following table sets forth certain information
regarding our revenues and gross profit from our funeral home operations during
the years ended December 31, 1996 and 1997:
YEAR ENDED
DECEMBER 31, CHANGE
-------------------- ------------------
1996 1997 AMOUNT PERCENT
--------- --------- ------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations.......... $ 25,042 $ 24,627 $ (415) (1.7)%
Acquired operations.......... 12,403 40,261 27,858 *
--------- --------- -------
Total net revenues...... $ 37,445 $ 64,888 $27,443 73.3%
========= ========= =======
Gross profit:
Existing operations.......... $ 4,396 $ 5,675 $ 1,279 29.1%
Acquired operations.......... 2,408 10,809 8,401 *
--------- --------- -------
Total gross profit...... $ 6,804 $ 16,484 $ 9,680 142.3%
========= ========= =======
- ------------
* Not meaningful.
Due to our rapid growth, existing operations represented only 38% of the
total funeral revenues and only 34% of the total funeral gross profit for the
year ended December 31, 1997. Total funeral net revenues for the year ended
December 31, 1997 increased $27.4 million or 73.3% over 1996. The higher net
revenues reflect an increase of $27.9 million in net revenues from acquired
operations and a decrease in net revenues of $415,000 or 1.7% from existing
operations. The decrease in revenues for the existing operations primarily
resulted from fewer funeral services being performed, which was partially offset
by a 2.6% increase in the average revenue per funeral service. Fewer services
were performed in 1997 primarily due to lower than usual seasonal death rates in
certain of our markets, especially in the East North Central region of the
country where we have a large number of existing operations.
Total funeral gross profit for the year ended December 31, 1997 increased
$9.7 million or 142.3% over 1996. The higher total gross profit reflected an
increased of $8.4 million from acquired operations and an increase of $1.3
million or 29.1% from existing operations. Gross profit for existing operations
increased due to the efficiencies gained by consolidation, cost savings,
improved collections
17
<PAGE>
experience and the increasing effectiveness of our merchandising strategy, which
were partially offset by lower revenues. Total gross profit increased from 18.2%
for 1996 to 25.4% for 1997 due to these factors.
CEMETERY SEGMENT. The following table sets forth certain information
regarding our net revenues and gross profit from our cemetery operations for the
years ended December 31, 1996 and 1997.
YEAR ENDED
DECEMBER 31, CHANGE
-------------------- -----------------
1996 1997 AMOUNT PERCENT
--------- --------- ------ -------
(DOLLARS IN THOUSANDS)
Total net revenues................... $ 2,903 $ 12,533 $9,630 331.7%
========= ========= ======
Total gross profit................... $ 362 $ 2,899 $2,537 700.8%
========= ========= ======
Due to our rapid growth, existing operations represented approximately 15%
of cemetery revenues and approximately 9% of cemetery gross profit for the years
ended December 31, 1997. As a result, we do not believe it is meaningful to
present the results for existing and acquired operations separately.
Total cemetery net revenues for the year ended December 31, 1997 increased
$9.6 million or 331.7% over 1996 and total cemetery gross profit increased $2.5
million or 700.8% over 1996. Total gross margin increased from 12.5% for the
year ended December 31, 1996 to 23.1% for the year ended December 31, 1997.
These increases were due primarily to our acquisition of ten cemeteries during
1997 and increased preneed marketing efforts.
As a result of the acceleration of our acquisition program beginning in
1996, the profit contribution from acquired properties exceeded that of existing
operations even though most were not owned for the entire year. The acquisition
and integration of these new properties received the majority of the corporate
operations group's management focus during the year. During the fourth quarter
of 1996, significant additional management resources were added to this group to
provide assistance in increasing revenue and profit margins from existing
ongoing operations and to more rapidly achieve targeted margins for acquired
businesses.
General and administrative expenses for the year ended December 31, 1997
increased $2.8 million or 113.3% over 1996 due primarily to the increased
personnel expense necessary to support a higher rate of growth and acquisition
activity. However, the increase in general and administrative expenses as a
percentage of net revenues was less than one percentage point as the expenses
were spread over a larger volume of revenue.
Interest expense for the year ended December 31, 1997 increased $1.5
million over 1996 principally due to increased borrowings for acquisitions. In
August 1996, we utilized the net proceeds from our initial public offering and
borrowings under a credit facility to repay the majority of our outstanding
debts. In September 1997, we entered into a new credit facility for an increased
line of credit. In connection with repayments of debt in both years, we
recognized an extraordinary loss of approximately $498,000 and $195,000, net of
income tax benefits of approximately $332,000 and $159,000, for the write-off of
the deferred loan costs associated with the early retirement of debts, for the
years ended December 31, 1996 and 1997, respectively. The new credit facility
reflects substantially improved terms and reduced interest rates compared to the
previous arrangements.
During 1997, we issued approximately $20 million of redeemable preferred
stock to fund a portion of our acquisition program. Dividends on this preferred
stock are 4% per annum. Preferred dividends of $890,000 were subtracted from the
$4.5 million of net income before extraordinary item in computing earnings
attributable to common stockholders, resulting in a net income before
extraordinary item of $3.6 million for purposes of computing basic and diluted
earnings per common share.
For 1997, we provided for income taxes on income before income taxes and
extraordinary item at a combined state and federal tax rate of 45.3%. The
provision for income taxes for 1997 includes a one-time charge in the amount of
$390,000 to revalue the historical deferred tax liability accounts because our
taxable income has grown to the level at which the federal corporate tax rate
increases
18
<PAGE>
from 34% to 35%. Amortization of names and reputations related to stock
acquisitions, which is nondeductible, is the primary cause of our effective rate
exceeding 34%. Prior to 1997, we experienced net operating losses and the tax
benefits associated with these net operating loss carryforwards were reserved.
We continue to analyze the benefits associated with these losses and adjust the
valuation allowance as appropriate.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
The following table sets forth certain information regarding our net
revenues and gross profit from operations during the years ended December 31,
1995 and 1996:
YEAR ENDED
DECEMBER 31, CHANGE
-------------------- ------------------
1995 1996 AMOUNT PERCENT
--------- --------- ------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations.......... $ 21,482 $ 20,921 $ (561) (2.6%)
Acquired operations.......... 2,755 19,427 16,672 *
--------- --------- -------
Total net revenues...... $ 24,237 $ 40,348 $16,111 66.5%
========= ========= =======
Gross profit:
Existing operations.......... $ 3,451 $ 3,481 $ 30 0.9%
Acquired operations.......... 539 3,685 3,146 *
--------- --------- -------
Total gross profit...... $ 3,990 $ 7,166 $ 3,176 79.6%
========= ========= =======
- ------------
* Not meaningful.
Total net revenues for the year ended December 31, 1996 increased $16.1
million or 66.5% over 1995. The higher net revenues reflect an increase of $16.7
million in net revenues from acquired operations and a decrease in net revenues
of $561,000 or 2.6% from existing operations. The decrease in net revenues for
the existing operations primarily resulted from fewer funeral services being
performed, which was partially offset by a 3.9% increase in the average revenue
per funeral service. Fewer services were performed in 1996 due to the
divestiture of three funeral homes and a longer than normal seasonal decline in
the number of deaths in certain of our markets. This seasonal decline in the
number of services ended in mid-November. At December 31, 1996, we operated 10
cemeteries. The net revenues and gross profit of cemeteries represented less
than eight percent of our total operations and accordingly are not shown
separately.
Total gross profit for the year ended December 31, 1996 increased $3.2
million or 79.6% over 1995. The higher total gross profit reflected an increase
of $3.1 million from acquired operations and an increase of $30,000 or 0.9% from
existing operations. Gross profit for existing operations increased due to the
efficiencies gained by consolidation and the increasing effectiveness of our
merchandising strategy, which was partially offset by lower revenues. Total
gross margin increased from 16.5% for 1995 to 17.8% for 1996 due to these
factors. As a result of the acceleration of our acquisition program in 1996, the
profit contribution from acquired properties exceeded that of existing
operations even though most were not owned for the entire year. The acquisition
and integration of these new properties received the majority of the corporate
operations group's management focus during the year. During the fourth quarter,
significant additional management resources were added to this group to provide
assistance in increasing revenue and profit margins from existing ongoing
operations and to more rapidly achieve targeted margins for acquired businesses.
General and administrative expenses for the year ended December 31, 1996
increased $368,000 or 17.5% over 1995 due primarily to the increased personnel
expense necessary to support a higher rate of growth and acquisition activity.
However, general and administrative expenses as a percentage of net revenues
decreased from 8.7% for 1995 to 6.1% for 1996, reflecting economies of scale
realized by our company as the expenses were spread over a larger operations
revenue base.
Interest expense for the year ended December 31, 1996 increased $663,000
over 1995 principally due to increased borrowings for acquisitions. In August
1996, we utilized the net proceeds from the initial public offering and
borrowings under the former credit facility to repay the majority of our
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<PAGE>
outstanding debts. In connection with repayment of debt, we recognized an
extraordinary charge of approximately $498,000, net of income tax benefit of
approximately $332,000, to reflect the write-off of the deferred loan costs
associated with the early retirement of debt. The former credit facility
reflected substantially improved terms and reduced interest costs compared to
the previous arrangements.
During 1996, we issued approximately $18 million of redeemable preferred
stock to fund a portion of our acquisition program. Dividends on the majority of
this preferred stock range from 6-7% per annum. Preferred dividends of $622,000
were subtracted from the $207,000 of income before extraordinary item in
computing earnings attributable to common stockholders resulting in a net loss
of $415,000 for purposes of computing primary earnings per common share.
Approximately $16 million of redeemable preferred stock converted into common
stock subsequent to December 31, 1996.
For 1996, we provided for income taxes on net income before income taxes
and extraordinary item at a combined state and federal tax rate of 40%. Prior to
1996, we experienced net operating losses. The tax benefits associated with
these net operating loss carryforwards were reserved. We continue to analyze the
benefits associated with these losses and will adjust the recorded valuation
allowance as appropriate in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $4.1 million at September 30, 1998,
representing a decrease of $2.0 million from December 31, 1997. For the nine
months ended September 30, 1998, cash provided by operations was $5.2 million as
compared to $8.4 million for the nine months ended September 30, 1997. The
decrease in net cash provided by operating activities was principally due to the
increase in income from operations, which was partially offset by increases in
accounts receivable and other deferred charges. Cash used in investing
activities was $117.5 million for the nine months ended September 30, 1998
compared to $49.1 million for the nine months ended September 30, 1997, due
primarily to increases in amounts paid in connection with acquisitions and
capital expenditures.
In the first nine months of 1998, cash flow provided by financing
activities amounted to approximately $110.3 million, primarily due to the net
proceeds generated from our equity offering in the second quarter of 1998 and
proceeds from long-term debt which were used to fund acquisitions. On May 28,
1998, we completed the sale of 3,000,000 shares of our Class A common stock and
on June 10, 1998, the underwriters in that equity offering exercised their
option to sell an additional 450,000 shares of Class A common stock, raising the
total number of shares to 3,450,000 and resulting in approximately $69 million
in net proceeds, of which $45 million was used to repay outstanding indebtedness
under our credit facility, with the remaining $24 million used for acquisitions
and general corporate purposes.
Historically, we have financed our acquisitions with proceeds from debt and
the issuance of common and preferred stock. As of September 30, 1998, we had
1,682,500 shares of Series D preferred stock and 12,278,285 shares of Series F
preferred stock issued and outstanding. The Series D preferred stock is
convertible into Class B common stock, and the Series F preferred stock is
convertible into Class A common stock. The holders of Series D preferred stock
are entitled to receive cash dividends at an annual rate of $.06-$.07 per share
depending on the date such shares were issued. Commencing on the second
anniversary of the completion of the initial public offering (August 8, 1998),
we may, at our option, redeem all or any portion of the shares of Series D
preferred stock then outstanding at a redemption price of $1.00 per share,
together with all accrued and unpaid dividends. Such redemption is subject to
the right of each holder of Series D preferred stock to convert such holders
shares into shares of Class B common stock. On December 31, 2001, we must redeem
all shares of Series D preferred stock then outstanding at a redemption price of
$1.00 per share, together with all accrued and unpaid dividends.
The Series F preferred stock paid cash dividends at the annual rate of
$.042 per share. On December 31, 1998, all of the Series F preferred stock was
converted into an aggregate of 722,250 shares of Class A common stock based on
the exercise price of $17 per share.
In conjunction with the closing of the initial public offering, we entered
into a credit facility which provided for a $75 million revolving line of credit
with both LIBOR and base rate interest
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options. In August 1996, we repaid all of our outstanding indebtedness with the
proceeds from the issuance of Class A common stock in connection with our
initial public offering and utilization of the former credit facility. The
former credit facility was unsecured with a term of three years and contained
customary restrictive covenants, including a restriction on the payment of
dividends on common stock, and required us to maintain certain financial ratios.
In September 1997, we entered into a new credit facility for a $150 million
revolving line of credit. This credit facility has a five-year term, is
unsecured and contains customary restrictive covenants, including a restriction
on the payment of dividends on common stock and requires us to maintain certain
financial ratios. Interest under this credit facility is provided at both LIBOR
and prime rate options. In connection with repayment of debt in August 1996 and
the retirement of debt issued with the credit facility in September 1997, we
recognized an extraordinary loss of approximately $498,000 and $195,000, net of
income tax benefit of approximately $332,000 and $159,000, for the write-off of
the deferred loan costs associated with the early retirement of debt for the
years ended December 31, 1996 and 1997, respectively. During September 1998, we
increased our bank credit facility from $150 million to $225 million, with three
additional banks participating in the agreement. At December 31, 1998
approximately $192.4 million was outstanding under the credit facility.
We expect to continue to aggressively pursue additional acquisitions of
funeral homes and cemeteries to take advantage of the trend toward consolidation
occurring in the industry which will require significant levels of funding from
various sources. At the beginning of 1998, we expected to spend approximately
$85 million on acquisitions in 1998. Due to increased acquisition activity in
1998, we spent approximately $159 million, and at January 5, 1999, we had signed
non-binding letters of intent or definitive agreements for acquisitions totaling
$43.5 million. We believe that cash flow from operations, borrowings under the
credit facility and issuances of additional debt and equity securities should be
sufficient to fund acquisitions and anticipated capital expenditures and other
operating requirements for the remainder of 1999.
In March 1997, we filed a shelf registration statement relating to
2,000,000 shares of Class A common stock to be issued to fund acquisitions. As
of December 31, 1998, approximately 1,057,000 shares remained available for
issuance under this shelf registration. Because future cash flows and the
availability of financing are subject to a number of variables, such as the
number and size of acquisitions made by us, there can be no assurance that our
capital resources will be sufficient to fund our capital needs. Additional debt
and equity financing may be required to maintain our acquisition program. The
availability and terms of these capital sources will depend on prevailing market
conditions and interest rates and our then existing financial condition.
SEASONALITY
Our business can be affected by seasonal fluctuations in the death rate.
Generally, death rates are higher during the winter months. In addition, our
quarterly results may fluctuate depending on the magnitude and timing of
acquisitions.
INFLATION
Inflation has not had a significant impact on our results of operations
during the last three years.
YEAR 2000
Our information systems management group is continually reviewing the
management and accounting software packages for internal accounting and
information requirements to keep pace with our continued growth and to achieve
Year 2000 compliance. To address the Year 2000 issue, our information management
group and outside professional consultants have implemented a Year 2000 program
which encompasses performing an inventory of our information technology and non-
information technology systems, assessing the potential problem areas, testing
the systems for Year 2000 readiness, and modifying systems that are not Year
2000 ready.
To date, inventory and assessment have been completed for all of our core
systems that are essential for business operations. All of these core systems
are believed to be Year 2000 compliant except for a portion of the
record-keeping system for certain cemetery operations, for which the
modifications have been completed, tested and certified as Year 2000 compliant
and will be fully
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installed by March 1999. As of December 31, 1998, management estimated that we
had completed more than ninety percent of the work involved in modifying,
replacing and testing the noncompliant hardware and software.The inventory and
assessment phases for newly acquired businesses is performed during the
acquisition process as part of our due diligence analysis.
We are also communicating with vendors, trustees and other third parties
with which we conduct business to determine the extent to which those companies
are addressing their Year 2000 compliance. To date, no significant third parties
have informed us that any Year 2000 issue exists which will have a material
effect on us.
Although we expect to be ready to continue our business activities without
interruption by a Year 2000 problem, we recognize the general uncertainty
inherent in the Year 2000 issue, in part because of the uncertainty about the
Year 2000 readiness of third parties. Under a "most likely worst case Year 2000
scenario," it may be necessary for us to replace some suppliers, rearrange some
work plans or even temporarily interrupt some normal business activities or
operations. We believe that such circumstances would be isolated and would not
result in a material adverse impact to our operations or pose a material
financial risk to us. We have begun, but not yet completed, developing a
contingency plan to deal with the "most likely worst case Year 2000 scenario."
The contingency plan is expected to be completed during the third quarter of
1999.
Based on the current assessment, our total costs of becoming Year 2000
compliant are not expected to be significant to our financial position, results
of operations or cash flows. As of December 31, 1998, we spent approximately
$33,000 related to Year 2000 compliance. The total remaining costs for
addressing the Year 2000 issue are presently estimated to be less than $100,000.
The estimated costs of the project and the dates on which we plan to
complete the Year 2000 projects are forward-looking statements based on our best
estimates, which were derived utilizing numerous assumptions of future events.
While we believe all necessary work will be completed in a timely fashion, there
can be no assurance that these estimates will be achieved and actual results
could differ materially from those anticipated. Some of the factors that might
cause such material differences include failure by third parties to adequately
solve Year 2000 problems, the cooperation of third parties and the ability to
identify and correct potential problems.
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BUSINESS
CARRIAGE
Carriage is the fastest-growing public death care company based on the
growth of our revenues from 1993 through September 30, 1998 and the fifth
largest public death care company in North America. We believe we are uniquely
positioned to take advantage of the consolidating death care industry due to our
operating philosphy and our size. As of December 31, 1998, we operated 166
funeral homes and 27 cemeteries in 30 states. We provide a complete range of
services relating to funerals, burials and cremations. This includes the use of
funeral homes and motor vehicles, the performance of cemetery interment services
and the management and maintenance of cemetery grounds. We also sell related
products and merchandise including caskets, burial vaults, garments, cemetery
interment rights, stone and bronze memorials, as well as other items. Our
services are designed to memorialize each person's life in a unique way.
DEATH CARE INDUSTRY
Death care companies provide products and services to families in three
principal areas:
o ceremony and tribute, generally in the form of a funeral or memorial
service;
o disposition of remains, either through burial or cremation; and
o product memorialization, generally through monuments, markers or
inscriptions.
The death care industry in the United States is characterized by the
following fundamental attributes:
HIGHLY FRAGMENTED OWNERSHIP. A significant majority of death care
operators consist of small, family-owned businesses that control one or several
funeral homes or cemeteries in a single community. There are an estimated 22,000
funeral homes and 9,600 commercial (as opposed to religious, family, fraternal,
military or municipal) cemeteries in the United States, and less than 25% of the
1997 United States death care industry revenues are represented by the five
publicly traded death care companies.
BARRIERS TO ENTRY. Death care businesses have traditionally been
transferred to successive generations within a family and in most cases have
developed a local heritage and tradition that act as a formidable barrier for
those wishing to enter an existing market. Heritage and tradition afford an
established funeral home or cemetery a local franchise and provide the
opportunity for repeat business. Other difficulties faced by entities desiring
to enter a market include local zoning restrictions, substantial capital
requirements, increasing regulatory burdens and scarcity of cemetery land in
certain urban areas. In addition, an established firm's backlog of preneed,
prefunded funerals or presold cemetery and mausoleum spaces also makes it
difficult for new entrants to gain entry into the marketplace.
STABILITY. The death rates in the United States are relatively stable. The
number of deaths in the United States has increased at a compound rate of
approximately 1% per year since 1980. While the death rate decreased
approximately 1% in 1997 from 1996 levels and declined approximately .7% in the
first ten months of 1998 compared to the same period in 1997, industry studies
indicate the average age of the population is increasing. Because of the
relative stability, individual funeral home business failures are uncommon. As a
result, ownership of independent funeral home and cemetery businesses generally
have not experienced significant turnover, and the aggregate number of funeral
homes and cemeteries in the United States has remained relatively constant.
INCREASED CONSOLIDATION. In the past several years, the industry has
experienced a trend toward consolidation of independent death care operations by
large, primarily publicly owned death care providers that can benefit from
economies of scale, improved managerial control, more effective strategic
planning and greater financial resources. This trend appears to result
principally from increased regulation, a desire on the part of independent,
family operated funeral businesses to address
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family succession and estate planning issues, a desire for liquidity, and the
increasing competitive threat posed by the large death care providers. The
active acquisition market for funeral homes and cemeteries provides a source of
potential liquidity that was not as readily available to individual owners in
the past. While the consolidation trend has accelerated in recent years, the
number of public companies actively pursuing acquisitions has recently declined.
This has created opportunities for us as the competition for individual
acquisitions has decreased. In addition, one of our competitors has agreed to
sell certain of its properties to us in order to comply with federal antitrust
regulations. We are well-positioned to take advantage of acquisition
opportunities including other properties which may become available as a result
of divestitures.
CLUSTERED OR COMBINED OPERATIONS. The death care industry has also
witnessed a trend by companies to cluster their funeral home and cemetery
operations. Clusters refer to funeral homes and/or cemeteries which are grouped
together in a geographical region. Clusters provide a company with the ability
to generate cost savings through the sharing of personnel, vehicles and other
resources. Firms are also increasingly combining funeral home and cemetery
operations at a single site to allow cross-marketing opportunities and cost
reductions through shared resources. The ability to offer the full range of
products and services at one location or to cluster funeral home and cemetery
operations and cross-market the full range of death care services has proven to
be a competitive advantage which tends to increase the market share and
profitability of both the funeral home and cemetery.
PRENEED MARKETING. In addition to sales at the time of death or on an "at
need" basis, an increasing number of death care products and services are being
sold prior to the time of death or on a "preneed" basis by death care
providers who have developed sophisticated marketing organizations to actively
promote such products and services. At the same time, consumers are becoming
more aware of the benefits of advanced planning, such as the financial assurance
and peace of mind achieved by establishing in advance a fixed price and type of
service, and the elimination of the emotional strain of making death care plans
at the time of need. Effective marketing of preneed products and services
assures a backlog of future business. We believe sales of preneed products and
services, including cemetery and interment rights and prearranged funeral
services, are purchased primarily by people between the ages of 50 and 70. We
believe the increasing number of people in this age group provide additional
opportunities for growth in preneed sales and services.
CREMATION. In recent years, there has been steady, gradual growth in the
number of families in the United States that have chosen cremation as an
alternative to traditional methods of burial. According to industry studies,
cremations represented approximately 24% of the United States burial market in
1997, as compared to approximately 10% in 1980. Cremation historically has been
marketed as a less costly alternative to interment. However, cremation is
increasingly marketed as part of a complete death care package that includes
traditional funeral home services and product memorialization.
BUSINESS STRATEGY
Our business strategy is to build upon our reputation as a premier
operating company in order to create attractive acquisition opportunities. We
seek to achieve a balance between the need for superior overall corporate
financial performance and the desire to promote higher levels of personalized
service to client families. The commitment of local management and employees to
our decentralized, entrepreneurial service culture has been a major factor in
our ability to deliver increasing levels of profitability and to attract premier
funeral home and cemetery owners to Carriage.
OPERATING STRATEGY
Our operating strategy is focused on increasing the revenues and
profitability of each operating location through a combination of personalized
service and operating efficiencies. Key elements of our operating strategy
include the following:
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PERSONALIZED SERVICE. We believe that providing personalized service
results in increased customer satisfaction, increased market share, more
motivated employees and consistently higher levels of profitability. We have
placed a great deal of emphasis on communicating to our employees the linkage
between personalized service, customer satisfaction, market share increases and
profitability throughout the organization.
EMPLOYEE TRAINING. Beginning in late 1997, we made a significant
commitment of financial and human resources to a company-wide training effort.
The training is designed to improve the management of and communication between
employees and to develop personalized service that will be of value to clients.
In training employees to deliver personalized service, we emphasize employee
listening and communication skills towards the goal of uniquely memorializing
the life of an individual. We have completed the initial phase of this program
and are now focusing on integrating the concepts and practices of our training
program into our operations. In November 1998, we acquired the Sessions
Consulting Group, Inc., which is the service training firm we previously
employed to implement our training initiatives. Consistent with our Mission
Statement and Guiding Principles, the Sessions Group will be devoted towards our
growing executive development and service training needs by serving as a
permanent platform for ongoing training of employees. We believe that this
long-term investment in our employees will, over time, lead to increased market
share, resulting in higher profitability.
DECENTRALIZED MANAGEMENT STRUCTURE. Our decentralized operating style
provides a high level of autonomy and flexibility to local management. Local
operators have significant responsibility for daily operating decisions and are
accountable for operating results. Individual funeral home and cemetery service
and financial goals are jointly developed with corporate management as part of a
rigorous, company-wide planning process. The corporate office utilizes an
integrated computer system linked to all of our funeral homes to monitor and
access critical operating and financial data in order to analyze the performance
of individual locations on a timely basis and institute corrective action if
necessary.
HIGH STANDARDS OF PERFORMANCE. We continuously establish targets to
emphasize and enhance customer service and operational and financial
performance. These standards are designed to identify management's expectations
for high achievement in these three key performance areas and are communicated
to employees through our extensive training programs.
QUALITY REVIEW MANAGEMENT SYSTEMS. We have developed quality based
management systems which operate within our decentralized management structure.
These systems involve quantifiable customer survey input in addition to
operational and financial measures of performance. With the assistance of the
Sessions Group, these systems are being implemented at the local level under the
direction of our area Leader-Managers. Our Leader-Managers provide an additional
level of operational support and feed-back to our local managers.
INCENTIVE COMPENSATION. We have established a compensation structure that
is designed to create and maintain an ownership mentality to align overall
compensation to our performance objectives. Local management is awarded
meaningful cash bonuses and stock options for achieving specified service,
operational and financial performance objectives. We have also implemented a
stock option program which awards options to full-time employees based upon the
performance of their local businesses during a two-year period. As a result, all
management and full-time employees have the opportunity to increase their
personal net worth through strong local and corporate performance.
COST SAVINGS AND OPERATING EFFICIENCIES. Our larger size, as compared to
local operators, allows favorable pricing and terms to be achieved from vendors
through volume discounts on significant expenditures, such as caskets, vaults,
memorials and vehicles. In addition, while operational functions and management
responsibility are retained at the local level, centralizing certain financial,
accounting, legal, administrative and employee benefit functions allows for more
efficient and cost-effective operations.
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ACQUISITION STRATEGY
Our acquisition strategy is focused on expanding our funeral home and
cemetery presence into new markets across the United States and increasing our
funeral home and cemetery presence in markets that we currently serve. We
aggressively pursue the acquisition of premier funeral homes and cemeteries that
have a strong local market presence and an operating philosophy that is
consistent with ours.
Our goal is to maintain our funeral home revenues at approximately 75% to
80% of our total revenues. We believe that this targeted mix of business enables
us to maximize cross-marketing opportunities between our funeral home and
cemetery operations and achieve our targeted returns on investment. We believe
that many independent funeral home and cemetery owners have chosen to combine
with us due to the attractiveness of our operating philosophy and management
style that encourages individual input and personal growth.
Consideration for acquisitions consists of cash, deferred purchase price,
and preferred and common equity or a combination thereof. We develop pro forma
financial statements for acquisition targets reflecting estimates of revenue and
costs under our ownership and then utilize such information to determine a
purchase price which we believe is consistent with our investment objectives. In
many cases, we have been successful in acquiring operations where we have not
been the high bidder because of our reputation, operating strategy and corporate
culture. We typically enter into management, consulting and non-competition
agreements with former owners and key executive personnel of acquired
businesses. In nearly all cases, acquired funeral homes continue operations
under the same trade names as those of the prior owners.
We have successfully executed this acquisition strategy since our
inception, as demonstrated in the table set forth below.
<TABLE>
<CAPTION>
ACQUISITION FUNERAL
PERIOD CONSIDERATION(1) HOMES(2) CEMETERIES(3)
- ------------------------------------- ----------------- --------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1992................................. $ 11,832 14 2
1993................................. 13,843 11 1
1994................................. 9,153 9 1
1995................................. 12,191 8 0
1996................................. 68,181 38 7
1997................................. 118,260 44 10
1998................................. 158,661 48 7
1999 (through January 5, 1999)(4).... 43,509 16 14
----------------- --- --
$ 435,630 188 42
================= === ==
</TABLE>
- ------------
(1) From January 1, 1996 through September 30, 1998, 16.2% of our aggregate
acquisition consideration consisted of common or convertible preferred
stock.
(2) We subsequently divested six of these funeral homes.
(3) We subsequently divested one of these cemeteries.
(4) Includes 16 funeral homes and 14 cemeteries for which we have non-binding
letters of intent or definitive agreements to acquire for aggregate
consideration of $43.5 million.
OPERATIONS
Our funeral home and cemetery operations are managed by individuals with
extensive death care industry experience. Although certain financial management
and policy matters are centralized, local funeral home and cemetery managers
have active involvement in determining the manner in which their services and
products are marketed and delivered and their funeral homes are managed. We
believe that this strategy permits each local firm to maintain its unique style
of service and to
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capitalize on its reputation and heritage while we maintain centralized
supervisory controls and provide specialized services at the corporate level. We
have a commitment to strong information systems. Systems are linked to all of
our funeral homes to monitor and access critical operating and financial data in
order to analyze the performance of individual funeral homes and analyze the
performance of individual locations on a timely basis. Management is able to
access customer transaction data and other operating information from the
Houston support center to ensure the quality of operating performance and to
implement any necessary corrective actions.
FUNERAL HOME OPERATIONS. As of September 30, 1998, we operated 152 funeral
homes in 26 states. Funeral home revenues accounted for approximately 93% and
84% of our net revenues for the years ended December 31, 1996 and 1997,
respectively, and 80% of net revenues in the first nine months of 1998.
Our funeral homes offer a complete range of services to meet a family's
funeral needs, including:
o consultation, with a focus on memorialization;
o the removal and preparation of remains;
o providing caskets and related funeral merchandise;
o the use of funeral home facilities for visitation and worship; and
o transportation services.
Most of our funeral homes have a non-denominational chapel on the premises,
which permits family visitation and religious services to take place at one
location and thereby reduces our transportation costs and inconvenience to the
family.
CEMETERY OPERATIONS. As of September 30, 1998, we operated 25 cemeteries
in 11 states. Cemetery revenues accounted for approximately 7% and 16% of the
company's net revenues for the years ended December 31, 1996 and 1997,
respectively, and 20% of net revenues in the first nine months of 1998.
Our cemetery products and services include interment services, the rights
to interment in cemetery sites (including grave sites, mausoleum crypts and
niches) and related cemetery merchandise such as memorials and vaults. Cemetery
operations generate revenues through:
o sales of interment rights and memorials;
o installation fees;
o fees for interment and cremation services; and
o finance charges from installment sales contracts and investment income
from preneed cemetery merchandise and perpetual care trusts.
PRENEED PROGRAMS. In addition to sales of funeral merchandise and
services, cemetery interment rights, cemetery merchandise and services at the
time of need, we also market funeral and cemetery services and products on a
preneed basis. Preneed funeral or cemetery contracts enable families to
establish in advance the type of service to be performed, the products to be
used and the cost of such products and services in accordance with prices
prevailing at the time the contract is signed rather than when the products and
services are delivered. Preneed contracts permit families to eliminate the
emotional strain of making death care plans at the time of need and enable us to
establish a portion of our future market share.
Preneed funeral contracts are usually paid on an installment basis. The
performance of preneed funeral contracts is usually secured by placing the funds
collected in trust for the benefit of the customer or by the purchase of a life
insurance policy, the proceeds of which will pay for such services at the time
of need. Insurance policies intended to fund preneed funeral contracts cover the
original contract price and generally include built-in escalation clauses
designed to offset future
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<PAGE>
inflationary cost increases. Proceeds from the sale of preneed funeral contracts
are not recognized as revenues until the time the funeral service is performed.
In addition to preneed funeral contracts, we also offer "preplanned"
funeral arrangements whereby a client determines in advance substantially all of
the details of a funeral service without any financial commitment or other
obligation on the part of the client, until the actual time of need. Preplanned
funeral arrangements permit families to avoid the emotional strain of making
death care plans at the time of need and enable a funeral home to establish
relationships with clients that frequently lead to at-need sales.
Preneed cemetery sales are usually financed by our company through
installment sale contracts, generally with terms of five years. Preneed sales of
cemetery interment rights and other related services and merchandise are
recorded as revenues when the contract is signed, with concurrent recognition of
related costs. We always receive an initial payment at the time the contract is
signed. Allowances for customer cancellations and refunds are accrued at the
date of sale based upon historical experience.
Beginning in the fourth quarter of 1996, we committed to building our
cemetery operations infrastructure and began to add experienced preneed
marketing professionals at the national and regional levels. This investment in
additional preneed marketing management allowed us to increase preneed sales at
existing cemetery properties and positioned us to more effectively integrate
future cemetery acquisitions. As of December 31, 1997, we employed a staff of
approximately 185 advanced planning representatives for the sale of preneed
products and services. We have added 63 additional advanced planning
representatives during the nine months ended September 30, 1998.
We sold 3,760 and 4,020 preneed funeral contracts in the years ended
December 31, 1996 and 1997, respectively and 4,626 contracts in the first nine
months of 1998. At September 30, 1998, we had a backlog of 47,904 preneed
funeral contracts to be delivered in the future. Preneed cemetery sales as a
percentage of our net cemetery revenues increased from 65% for the year ended
December 31, 1996 to 76% for the first nine months of 1998.
PROPERTIES
At September 30, 1998, we operated 152 funeral homes and 25 cemeteries in
26 states. We own the real estate and buildings of 77% of our funeral homes and
all of our cemeteries, and we lease facilities in connection with 23% of our
funeral homes. The 25 cemeteries operated by us cover a total of approximately
1,050 acres. Our inventory of unsold developed lots totaled approximately 44,000
at December 31, 1996, 80,000 at December 31, 1997 and 98,000 at September 30,
1998. In addition, approximately 515 acres, or approximately 50% of the total
acreage, is available for future development. We do not anticipate any shortage
of available space in any of our current cemeteries for the foreseeable future.
Our corporate headquarters occupy approximately 24,500 square feet of
leased office space in Houston, Texas.
At September 30, 1998, we operated 620 vehicles, of which 613 were owned
and 7 were leased.
The specialized nature of our business requires that our facilities be
well-maintained; management believes that this standard is met.
COMPETITION
The acquisition environment in the death care industry is highly
competitive. Because of the pending merger of two of our publicly held
competitors and the announcement by a third that it has reduced its acquisition
spending and is considering strategic alternatives, we believe that the
competitive landscape for acquistitions is improving. However, no assurance can
be given that we will be successful in expanding our operations through
acquisitions or that funeral homes and cemeteries will be available at
reasonable prices or on reasonable terms.
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<PAGE>
Our funeral home and cemetery operations generally face competition in the
markets that they serve. Market share for funeral homes and cemeteries is
largely a function of reputation and heritage, although competitive pricing,
professional service and attractive, well-maintained and conveniently located
facilities are also important. The sale of preneed funeral services and cemetery
property has increasingly been used by many companies as an important marketing
tool to build market share. Due to the importance of reputation and heritage,
market share increases are usually gained over a long period of time.
TRUST FUNDS
GENERAL. We have established a variety of trusts in connection with our
funeral home and cemetery operations as required under applicable state law.
Such trusts include preneed funeral trusts, preneed cemetery merchandise and
service trusts, and perpetual care trusts. These trusts are typically
administered by independent financial institutions selected by us. We also use
independent professional managers to advise us on investment matters.
PRENEED FUNERAL TRUSTS. Preneed funeral sales are facilitated by deposits
to a trust or purchase of a third party insurance product. All preneed funeral
sales are deferred until the service is performed. The trust income earned and
any increase in insurance benefits are also deferred until the service is
performed in order to offset possible inflation in cost when providing the
service in the future. Although direct marketing costs and commissions incurred
for the sale of preneed funeral contracts are a current use of cash, such costs
are also deferred and amortized over the expected timing of the performance of
the services covered by the preneed funeral contracts. Since we do not have
access to the trust fund principal or earnings, the related assets and
liabilities are not reflected on our balance sheet. In most states, we are not
permitted to withdraw principal or investment income from such trusts until the
funeral service is performed. Some states, however, allow for the retention of a
percentage (generally 10%) of the receipts to offset any administrative and
selling expenses, which we defer until the service is provided. The aggregate
balance of our preneed funeral contracts held in trust and insurance contracts
was approximately $106.2 million and $150.1 million as of December 31, 1997 and
September 30, 1998, respectively.
PRENEED CEMETERY MERCHANDISE AND SERVICE TRUSTS. We are generally required
under applicable state laws to deposit a specified amount (which varies from
state to state, generally 50% to 100% of selling cost) into a merchandise and
service trust fund for cemetery merchandise and services sold on a preneed
basis. The related trust fund income is recognized in current revenues as trust
earnings. These earnings are offset by any current period inflation costs
accrued related to the merchandise that has not yet been purchased. Liabilities
for undelivered cemetery merchandise and services, including accruals for
inflation increases, are reflected in the balance sheet net of the merchandise
and service trust balance. We are permitted to withdraw the trust principal and
the accrued income when the merchandise is purchased or service is provided by
us or when the contract is canceled. The merchandise and service trust fund
balances, in the aggregate, were approximately $9.6 million and $16.0 million as
of December 31, 1997 and September 30, 1998, respectively.
PERPETUAL CARE TRUSTS. In certain states, regulations require a portion,
generally 10%, of the sale amount of cemetery property and memorials to be
placed in trust. These perpetual care trusts provide the funds necessary to
maintain cemetery property and memorials in perpetuity. The related trust fund
income is recognized in current revenues as trust earnings. While we are
entitled to withdraw the income from our perpetual care trust to provide for the
maintenance of the cemetery and memorials, we are not entitled to withdraw any
of the principal balance of the trust fund, and therefore, none of the principal
balances are reflected in our balance sheet. Our perpetual care trust balances
were approximately $8.4 million and $17.3 million as of December 31, 1997 and
September 30, 1998.
For additional information with respect to our trusts, see Note 1 of our
consolidated financial statements located elsewhere in this prospectus.
29
<PAGE>
REGULATION
Our funeral home operations are subject to substantial regulation by the
Federal Trade Commission. Certain regulations contain minimum standards for
funeral industry practices, require extensive price and other affirmative
disclosures to the customer at the time of sale and impose mandatory itemization
requirements for the sale of funeral products and services.
We are subject to the requirements of the federal Occupational Safety and
Health Act ("OSHA") and comparable state statutes. The OSHA hazard
communication standard, the United States Environmental Protection Agency
community right-to-know regulations under Title III of the federal Superfund
Amendment and Reauthorization Act and similar state statutes require us to
organize information about hazardous materials used or produced in our
operations. Certain of this information must be provided to employees, state and
local governmental authorities and local citizens. We are also subject to the
federal Americans with Disabilities Act and similar laws which, among other
things, may require that we modify our facilities to comply with minimum
accessibility requirements for disabled persons.
Our operations, including our preneed sales and trust funds, are also
subject to extensive regulation, supervision and licensing under numerous other
federal, state and local laws and regulations. See "-- Trust Funds."
We believe that we are in substantial compliance with all such laws and
regulations. Federal and state legislatures and regulatory agencies frequently
propose new laws, rules and regulations some of which, if enacted, could have a
material adverse effect on our operations and on the death care industry in
general. We cannot predict the outcome of any proposed legislation or
regulations or the effect that any such legislation or regulations might have on
us.
LEGAL MATTERS
Carriage and certain of its subsidiaries are parties to a number of legal
proceedings that arise from time to time in the ordinary course of business.
While the outcome of these proceedings cannot be predicted with certainty, we do
not expect these matters to have a material adverse effect on Carriage.
We carry insurance with coverages and coverage limits that we believe to be
customary in the funeral home and cemetery industries. Although we cannot assure
you that such insurance will be sufficient to protect Carriage against all
contingencies, management believes that our insurance protection is reasonable
in view of the nature and scope of our operations.
EMPLOYEES
As of November 30, 1998, Carriage and its subsidiaries employed 999
full-time employees, 767 part-time employees and 248 advanced planning
representatives (most of whom are part-time employees). All of our funeral
directors and embalmers possess licenses required by applicable regulatory
agencies. Management believes that its relationship with its employees is good.
No employees of Carriage or its subsidiaries are members of a collective
bargaining unit.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
We currently have a board of directors composed of nine members. In
accordance with our charter, the members of the board of directors are divided
into three classes, designated Class I, Class II and Class III. Board members
are elected for a term of office expiring at the third succeeding annual
stockholders' meeting following their election to office and until their
successors are duly elected and qualified. Our charter also provides that such
classes shall be as nearly equal in number as possible. The terms of office of
the Class I, Class II and Class III directors expire at the annual meeting of
stockholders in 2000, 2001 and 1999, respectively. Our officers are elected by
and serve until their successors are elected by the board of directors.
The following table sets forth the names, ages and positions of the current
directors and executive officers and, in the case of the directors, the
expiration of their respective terms.
<TABLE>
<CAPTION>
EXPIRATION OF
NAME AGE POSITION TERM AS DIRECTOR
- ------------------------------------- ---- ----------------------------------------- -----------------
<S> <C> <C> <C>
Melvin C. Payne(1)................... 56 Chairman of the Board, Chief Executive 2000
Officer and Director
Mark W. Duffey(1).................... 42 President and Director 2001
Thomas C. Livengood.................. 43 Executive Vice President, Chief Financial --
Officer and Secretary
Russell W. Allen..................... 51 Executive Vice President of Operations --
Gary O'Sullivan...................... 46 Senior Vice President -- Marketing --
C. Byron Snyder(1)(2)................ 50 Director 2000
Barry K. Fingerhut(1)(2)............. 53 Director 2001
Greg M. Brudnicki.................... 43 Director 2001
Ronald A. Erickson(3)................ 62 Director 1999
Robert D. Larrabee................... 63 Director 2000
Stuart W. Stedman(3)................. 41 Director 1999
Mark F. Wilson....................... 51 Director 1999
</TABLE>
- ------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
Set forth below is a brief description of the business experience of the
directors and executive officers of our company.
MELVIN C. PAYNE, one of the management founders of Carriage, has been
Chairman of the Board and Chief Executive Officer since December 1996. Prior to
then, he had been the President, Chief Executive Officer and a director of
Carriage since its inception in 1991. From 1991 to 1993, Mr. Payne also served
as a director and officer of Sovereign Holdings, Inc., RTO Enterprises, Inc. and
various subsidiaries of RTO Enterprises, Inc. Mr. Payne serves on the Board of
Trustees of WNL Series Trust, a mutual fund affiliated with Western National
Life Insurance Company, the Board of Trustees of AGA Series Trust, a mutual fund
affiliated with American General Corporation and the Board of Directors of
Sovereign Business Forms, Inc., a private company in the business forms
manufacturing industry.
MARK W. DUFFEY, one of the management founders of Carriage, has been
President since December 1996. From the inception of Carriage in 1991 to
December 1996, he was Executive Vice President and Chief Financial Officer, and
he became a director in 1995. From 1991 to 1993, Mr. Duffey served as a director
and officer of Sovereign Holdings, Inc., RTO Enterprises, Inc. and various
subsidiaries of RTO Enterprises, Inc. He serves on the Board of Directors of
Sovereign Business Forms, Inc., a private company in the business forms
manufacturing industry.
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<PAGE>
THOMAS C. LIVENGOOD joined Carriage in December 1996 as Executive Vice
President, Chief Financial Officer and Secretary. Mr. Livengood, a certified
public accountant, has responsibility for the financial and administrative
functions of Carriage. Prior to joining Carriage, he served as Vice President
and Chief Financial Officer of Tenneco Energy, previously the largest division
of Tenneco Inc., a Fortune 100 company, prior to the divestiture of its
diversified businesses. Prior to joining Tenneco Energy in 1988, Mr. Livengood
served in various financial management capacities with USX Corp., Texas Oil &
Gas Corp. and KPMG Peat Marwick, an international CPA firm.
RUSSELL W. ALLEN joined Carriage in June 1993 as Executive Vice President
of Operations. Mr. Allen has over 32 years of operational experience in the
funeral home industry. Prior to joining Carriage, he was affiliated with
Earthman Funeral Directors and Greenwood-Mount Olivet Funeral Homes and
Cemeteries in Fort Worth, Texas for one and 21 years, respectively, serving most
recently as Executive Vice President of operations with each company. Mr. Allen
previously served as Vice Chairman of the Texas Funeral Service Commission and
as Chairman of the Education and Legislation Committees. He is also a member of
the Texas Cemetery Association and has served on the Legislative Committees with
that organization.
GARY O'SULLIVAN joined Carriage in October 1996 as Senior Vice
President -- Marketing. From March 1996 to September 1996, Mr. O'Sullivan was
the Regional Vice President of Sales (Florida) for SCI. Prior to then, Mr.
O'Sullivan was the Vice President of Sales and Marketing for Woodlawn Memorial
Park and Funeral Home from May 1993 to March 1996. He was the Director of Sales
and Marketing for Earthman Funeral Home and Cemeteries from August 1989 to May
1993.
C. BYRON SNYDER has been a director of Carriage since 1991, was Chairman of
the board of directors of Carriage from 1991 to December 1996, and is currently
Chairman of the Executive Committee. Mr. Snyder is the President of Sterling
City Capital, LLC, a merchant banking firm. Mr. Snyder is the Chairman of the
Board of Directors of Integrated Electrical Services, Inc., a publicly traded
national provider of electrical contracting and maintenance services in the
commercial, industrial, and residential markets. Mr. Snyder was the owner and
President of Relco Refrigeration Company, a distributor of refrigeration
equipment, which he acquired in 1992. Prior to 1992, Mr. Snyder was the owner
and Chief Executive Officer of Southwestern Graphics International, Inc., a
diversified holding company which owned Brandt & Lawson Printing Co., a
Houston-based general printing business, and Acco Waste Paper Company, an
independent recycling business. Brandt & Lawson Printing Co. was sold to Hart
Graphics in 1989, and ACCO Waste Paper Company was sold to Browning-Ferris
Industries in 1991.
BARRY K. FINGERHUT has been a director of Carriage since 1995. Since 1981,
Mr. Fingerhut has been associated with, and now serves as President of,
GeoCapital, L.L.C., a registered investment adviser located in New York City
which focuses its investment advice and management on securities of small
capitalization companies. As of December 31, 1998, GeoCapital, L.L.C., managed
accounts having a market value of approximately $2.25 billion. Mr. Fingerhut has
also co-founded several investment partnerships that invest primarily in
emerging public and privately traded companies and high growth companies engaged
in the communications, software, consumer and business services. Mr. Fingerhut
presently is also a director of Millbrook Press, Inc., a publisher of childrens
non-fiction books, and UOL Publishing, Inc., an online publisher of academic and
corporate texts.
GREG M. BRUDNICKI became a director of Carriage in November 1997 when
Forest Lawn/Evergreen Management Corp. merged with a subsidiary of Carriage.
Forest Lawn and its affiliate owned and operated three funeral homes and three
cemeteries in Panama City and Fort Walton Beach, Florida and Dothan, Alabama.
Mr. Brudnicki served as the President and Chief Executive Officer of Forest Lawn
from its inception in 1984 until the merger, when he became the Co-Manager of
the Forest Lawn cemeteries and funeral homes operated by Carriage. In connection
with the merger, Carriage agreed to increase its board of directors by one
member and appoint Mr. Brudnicki to fill the resulting vacancy. Mr. Brudnicki
serves as a Trustee for Bay Medical Center, a
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<PAGE>
non-profit hospital in Panama City, Florida. He also serves on the Board of
Directors of Peoples 1st Community Bank which has locations in 15 Florida
cities.
RONALD A. ERICKSON has been a director of Carriage since it went public in
August 1996. Mr. Erickson is Chief Executive Officer of Holiday Companies,
Minneapolis, Minnesota, a family business consisting primarily of convenience
stores, supermarkets, sporting goods stores and wholesale food distribution. Mr.
Erickson is also a director of Andersen Corporation, a privately-held
manufacturer of windows and patio doors.
ROBERT D. LARRABEE has been a director of Carriage since it went public in
August 1996. Mr. Larrabee is the former owner of a group of four funeral homes
and two cemeteries in the states of Washington and Idaho that Carriage acquired
in April 1996. In connection with that transaction, Carriage agreed to undertake
to appoint Mr. Larrabee to the board if it went public, and Mr. Larrabee also
became an employee of a subsidiary of Carriage. Mr. Larrabee also is the
co-founder and co-owner of Evergreen Estates, a retirement community in
Clarkston, Washington. He is the founding President and past director of Valley
Bank in Clarkston, Washington (now part of U.S. Bank of Idaho); founding
Chairman of the Board and President of Purple Cross Insurance Company (now part
of American Memorial Life); and founder of Lewis-Clark Savings and Loan
Association (now part of Sterling Financial Corporation). He also serves on the
Board of Directors of Sterling Financial Corporation and, until 1995, served on
the Board of Directors of Laurentian Capital Corporation.
STUART W. STEDMAN has been a director of Carriage since it went public in
August 1996. For the past ten years, Mr. Stedman has been President of Wesley
West Interests, Inc., a management company responsible for various family
holdings, including marketable securities, oil, gas and coal properties, ranch
lands and urban real estate. Mr. Stedman also serves as a Manager of Strand
Energy, L.L.C., a private exploration and production company.
MARK F. WILSON became a director of Carriage in January 1997 when CNM
merged with Carriage. Mr. Wilson served as the President of CNM from 1988 until
its merger with Carriage in January 1997, when he became the President of
Carriage Funeral Services of California, Inc., a subsidiary of Carriage. CNM
owned and operated nine Wilson & Kratzer Funeral Homes and the Rolling Hills
Memorial Park Cemetery in Alameda and Contra Costa Counties, California. In
connection with the CNM merger, Carriage agreed to increase the Board of
Directors to eight members and appoint Mr. Wilson as a director. Mr. Wilson also
serves on the Board of Directors of Mechanics Bank, Richmond, California.
EXECUTIVE COMPENSATION
The following table sets forth information for the years ended December 31,
1998, 1997 and 1996 with respect to the Chairman of the Board and Chief
Executive Officer and each of the four
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<PAGE>
other most highly compensated executive officers of Carriage whose total annual
salary and bonus during 1998 exceeded $100,000 (collectively, the "Named
Executive Officers"):
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
---------------------- OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- ---------------------------------------- ---- -------- ------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Melvin C. Payne......................... 1998 $233,654 $ -- -- 20,000(3) $ 1,038
Chairman of the Board and 1997 225,000 -- -- -- 1,201
Chief Executive Officer 1996 194,292 -- -- 250,000 1,168
Mark W. Duffey.......................... 1998 $192,115 $ -- -- 16,000(3) $ 2,401
President 1997 185,000 -- -- -- 1,957
1996 162,231 -- -- 150,000 1,901
Russell W. Allen........................ 1998 $169,038 $ -- -- 12,000(3) $--
Executive Vice President 1997 145,000 -- -- -- --
of Operations 1996 121,634 -- -- 50,000 --
Thomas C. Livengood..................... 1998 $181,737 $ -- -- 50,000(3) $ 2,272
Executive Vice President, 1997 175,000 -- -- -- 2,188
CFO and Secretary 1996 (4)
Gary O'Sullivan......................... 1998 $197,308 $ -- -- 30,000(3) $--
Senior Vice President -- 1997 190,496 -- -- 30,000 --
Marketing 1996 (5)
</TABLE>
- ------------
(1) Excludes perquisites and other personal benefits unless the aggregate amount
of such compensation exceeded the lesser of $50,000 or 10% of the total
annual salary and bonus reported for the Named Executive Officer.
(2) Each of the amounts in this column reflect contributions by Carriage to its
401(k) Plan for the executives' benefit.
(3) All of the options issued to Messrs. Payne, Duffey, Allen and Livengood, and
30,000 of the options issued to Mr. O'Sullivan, were granted in February
1998. Of the February 1998 option grants, all but 38,000 shares to Mr.
Livengood and 18,000 shares to Mr. O'Sullivan were for 1997 performance.
(4) Mr. Livengood joined Carriage in December 1996 and his compensation during
such year did not exceed $100,000.
(5) Mr. O'Sullivan joined Carriage in October 1996 and his compensation during
such year did not exceed $100,000.
STOCK OPTION GRANTS IN 1998
We have four stock option plans:
o the 1995 Stock Incentive Plan;
o the 1996 Stock Option Plan;
o the 1996 Directors Stock Option Plan; and
o the 1998 Stock Option Plan for Consultants.
A total of 950,000 shares of Class A and B common stock are reserved for
issuance under the 1995 Plan. Options issued under the 1995 Plan prior to our
initial public offering in August 1996 are satisfied with shares of Class B
common stock, but options issued after that date are satisfied with shares of
Class A common stock. 800,000 shares of Class A common stock are reserved for
issuance under the 1996 Plan, 200,000 shares of Class A common stock are
reserved for issuance under the Directors' Plan, and 100,000 shares of Class A
common stock are reserved for issuance under the Consultants Plan. Options
issued under the 1995 Plan and the 1996 Plan may be either "Incentive Stock
Options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or non-qualified stock options.
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<PAGE>
The following table sets forth information on the grants of options to
acquire shares of Class A common stock made during the year ended December 31,
1998 to the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
---------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM(2)
OPTIONS EMPLOYEES PRICE EXPIRATION ------------------------
NAME GRANTED(1) IN 1998 ($/SH) DATE 5% 10%
- ------------------------------------- ----------- ----------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Melvin C. Payne...................... 20,000 2.7% 17.375 2/4/08 $ 218,540 $ 553,820
Mark W. Duffey....................... 16,000 2.2% 17.375 2/4/08 174,832 443,056
Russell W. Allen..................... 12,000 1.6% 17.375 2/4/08 131,124 332,292
Thomas C. Livengood.................. 50,000 6.9% 17.375 2/4/08 546,350 1,384,550
Gary O'Sullivan...................... 30,000 4.1% 17.375 2/4/08 327,810 830,730
</TABLE>
- ------------
(1) Options granted are for a term of ten years and vest 8.33% per year on the
first through fourth anniversary dates of the grant date and 16.66% per year
on the fifth through eighth anniversary dates of the grant date; provided,
however, the options scheduled to vest in years 5-8 from the grant date
(i.e., 66 2/3% of the total grant) vest immediately if the average of the
daily high and low prices of the Class A common stock for 20 consecutive
trading days exceeds $27.99 prior to the fourth anniversary of the grant
date.
(2) These amounts represent certain assumed rates of appreciation based on the
actual option term and annual compounding from the date of grant. Assumed
rates of appreciation are in accordance with guidelines established by the
Commission. Actual gains, if any, on stock options exercises and Class A
common stock holdings are dependent on the future performance of the Class A
common stock and overall stock market conditions. There can be no assurance
that the stock appreciation amounts reflected in this table will be
achieved, or that actual gains may be prove to be substantially in excess of
those presented.
1998 OPTION EXERCISES AND YEAR-END OPTION HOLDINGS
The following table sets forth, with respect to the Named Executive
Officers, information concerning the exercise of stock options during the year
ended December 31, 1998, and the year-end value of unexercised options. This
table sets forth options for Class A common stock:
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1998(1) DECEMBER 31, 1998(2)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Melvin C. Payne......................... -- -- 61,666 208,334 $ 843,636 $ 3,111,979
Mark W. Duffey.......................... -- -- 41,000 125,000 548,846 1,867,188
Russell W. Allen........................ -- -- 20,333 41,667 257,224 622,396
Thomas C. Livengood..................... -- -- 20,333 79,667 212,434 818,806
Gary O'Sullivan......................... -- -- 17,000 43,000 184,938 460,063
</TABLE>
- ------------
(1) Options granted are for a term of ten years and vest 8.33% per year on the
first through fourth anniversary dates of the grant date and 16.66% per year
on the fifth through eighth anniversary dates of the grant date; provided,
however, the options scheduled to vest in years 5-8 from the grant date
(i.e., 66 2/3% of the total grant) vest immediately if the average of the
daily high and low prices of the Class A common stock for 20 consecutive
trading days exceeds $27.99 prior to the fourth anniversary of the grant
date.
(2) An option is "in-the-money" if the market value of the Class A common
stock exceeds the exercise price of the option. The values of the options
set forth in these columns are based upon the difference between the closing
price of $28.4375 on the NYSE on December 31, 1998 and any lesser exercise
price.
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<PAGE>
COMPENSATION OF DIRECTORS
In lieu of cash compensation, each director who is not an executive officer
of Carriage, but who may be an employee (a "qualified director") is entitled
to receive options under the Directors' Plan. In addition, qualified directors
are reimbursed for expenses incurred in attending meetings of the board of
directors and committees thereof.
Under the Directors' Plan, each individual who was a qualified director as
of the date of our initial public offering in August 1996 received a
nonqualified initial stock option to purchase 15,000 shares (or 25,000 if the
nonemployee director also served on the Executive Committee as of such date) of
Class A common stock at an exercise price per share equal to the initial public
offering price of $13.50 per share. C. Byron Snyder and Barry K. Fingerhut were
each serving on the Executive Committee on such date and received options for
25,000 shares of Class A common stock. Each of the initial options granted were
for a term of ten years and vest 8.33% per year on the first through fourth
anniversary dates of the grant date and 16.66% per year on the fifth through
eighth anniversary dates of the grant date. However, the options scheduled to
vest in years 5 through 8 from the grant date (i.e. 66 2/3% of the total grant)
vest immediately if the average of the daily high and low prices of the Class A
common stock for 20 consecutive trading days exceeds $27.99 prior to the fourth
anniversary of the grant date.
When a new qualified director is appointed or elected to the board, such
qualified director will receive an option grant to purchase 15,000 shares of
Class A common stock (or 25,000 shares if such director also becomes a member of
the Executive Committee).
Further, each qualified director is automatically granted a nonqualified
annual stock option to purchase 6,000 shares of Class A common stock on the date
of each annual meeting of stockholders. Each annual option has a term of ten
years and an exercise price equal to the fair market value of the Class A common
stock on the date of grant. The aggregate number of shares of Class A common
stock reserved for issuance under the Directors' Plan is 200,000 shares.
EMPLOYMENT AGREEMENTS
Effective July 1, 1996, we entered into separate employment agreements with
each of Melvin C. Payne, Mark W. Duffey and Russell W. Allen. The employment
agreements with Mr. Payne and Mr. Duffey have an initial term of five years with
an evergreen two-year extension continuing after the first three years of the
employment agreements unless either Carriage or the employee gives 90 days
notice of termination. The employment agreement with Mr. Allen is for an initial
term of five years. Pursuant to these agreements, Messrs. Payne, Duffey and
Allen are entitled to receive a salary of not less than $225,000, $185,000 and
$145,000, respectively, and a bonus to be determined on an annual basis by the
board of directors. Effective February 1, 1998, Mr. Allen's annual base salary
was increased to $165,000. If the executive is terminated without cause during
the term of the agreement, the executive will receive a monthly severance
payment until the end of the term had the executive not been terminated plus a
proportionate amount of the bonus earned for the year of termination. Such
monthly severance payment would be equal to the average monthly amount
(including salary and bonus) earned by the executive during the three calendar
years prior to his termination. During the period that the executive receives
the monthly severance payments, the executive also would be entitled to
participate in any employee benefit plans or programs in which the executive was
participating at the time of his termination. In addition, each agreement
contains a covenant prohibiting the executive from competing with Carriage
during the period he is receiving compensation under the agreement, provided,
however, that following termination of employment, the executive may elect to
forego certain severance payments which he would be entitled to under the
employment agreement and thereafter would not be prohibited from competing with
us. In addition, the agreements contain customary benefits and perquisites.
Effective December 13, 1996, we entered into an employment agreement with
Thomas C. Livengood for a five year term ending December 31, 2001. Pursuant to
this agreement, Mr. Livengood
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<PAGE>
is entitled to receive a salary of not less than $175,000 and a bonus to be
determined on an annual basis by the board of directors. The other terms of Mr.
Livengood's employment agreement are substantially the same as those described
above for Messrs. Payne, Duffey and Allen.
Effective October 8, 1996, we entered into an employment agreement with
Gary O'Sullivan for a five-year term. Pursuant to this agreement, Mr. O'Sullivan
is entitled to receive a salary of $190,000. Mr. O'Sullivan also is entitled to
receive an annual bonus of $40,000 if our consolidated net revenues from
cemetery activities for such year equals or exceeds a budgeted amount set each
year by our Chief Executive Officer and $25,000 if our consolidated net revenues
from funeral activities for such year equals or exceeds a budgeted amount set
each year by our Chief Executive Officer. The agreement also provided for Mr.
O'Sullivan to receive options under the 1996 Stock Option Plan for 30,000 shares
at an exercise price of $18.00 per share, subject to vesting requirements
similar to other options granted under such plan. If Mr. O'Sullivan is
terminated without cause during the term of the agreement, he will receive his
base salary until the end of the term. In addition, the agreement contains
customary benefits and perquisites.
CERTAIN TRANSACTIONS
In connection with our acquisition in January 1997 of CNM, which was
controlled by Mark F. Wilson and others:
o Mr. Wilson and a subsidiary of Carriage entered into a five-year
employment agreement providing for, among other things, the payment of
a base salary to Mr. Wilson of $150,000 per year;
o Mr. Wilson and such subsidiary entered into a fifteen-year
non-competition agreement providing for, among other things, the
payment to Mr. Wilson of $170,000 per year; and
o Carriage agreed to appoint Mr. Wilson to the board of directors.
In addition, Mr. Wilson and the other former shareholders of CNM who
acquired equity of Carriage entered into a co-sale agreement with Messrs.
Snyder, Fingerhut, Payne, Duffey and certain affiliated stockholders. Under this
agreement, such persons agreed not to sell a certain level of their stock
holdings in a single or related group of transactions unless the former CNM
shareholders were given the opportunity to participate in the sales transaction,
and in which the selling group could require the other parties to participate in
a sales transaction. This transaction was entered into immediately prior to Mr.
Wilson becoming a director of Carriage, and the compensation detailed above does
not relate to any services provided by Mr. Wilson as a director of Carriage.
Mr. Wilson also is a party to an arrangement with us whereby Mr. Wilson may
receive annual cash consideration if acquisition candidates which he develops
and which we subsequently acquire attain cash flow in excess of certain cash
flow targets over a ten-year period. Pursuant to this arrangement, Mr. Wilson
may elect to sell back to us his share of excess cash flow during the last
three-year period at a predetermined cash flow multiple. To date, no payments
have been made by us under this arrangement.
In connection with our acquisition in November 1997 of certain funeral
homes and cemeteries in Florida, which were controlled by Greg M. Brudnicki and
another person:
o Mr. Brudnicki and a subsidiary of Carriage entered into a five year
employment contract providing for, among other things, the payment of
a base salary to Mr. Brudnicki of $75,000 per year;
o Mr. Brudnicki became a participant in an incentive compensation plan
for certain key employees of our operations in Panama City, Florida;
and
o we agreed to appoint Mr. Brudnicki to the board of directors of
Carriage.
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This transaction was entered into immediately prior to Mr. Brudnicki becoming a
director of Carriage, and the compensation detailed above does not relate to any
services provided by Mr. Brudnicki as a director of Carriage.
Mr. Brudnicki also is a party to a plan whereby Mr. Brudnicki may receive
cash consideration if acquisition candidates developed by him or other
participants in the plan are subsequently acquired by Carriage and attain cash
flow in excess of certain cash flow targets. This plan covers Northern Florida,
Southern Georgia and Alabama. At the election of the participant, the
compensation is payable in cash or in shares of Class A common stock. To date,
no payments have been made by us to Mr. Brudnicki under the plan.
In July 1996, we loaned Russell W. Allen, an executive officer of Carriage,
$316,714 to allow Mr. Allen to exercise his options to purchase shares of Class
B common stock of Carriage and to pay the federal income tax liability incurred
pursuant to such exercise. The loan matures on June 30, 1999, bears interest at
7% per year payable annually on or before March 31 of each year and is presently
secured by approximately 30% of the Class B common stock purchased by Mr. Allen.
In order to pay the interest due March 31, 1997 and March 31, 1998 on this note,
Mr. Allen executed new promissory notes totaling $39,458 with the same terms as
the other note. On July 30, 1997, we agreed to release 7,875 shares of Class B
common stock from this pledge, on April 3, 1998, an additional 5,000 shares were
released from the pledge and on November 3, 1998, an additional 3,733 shares
were released.
In August 1998, we loaned Gary O'Sullivan, one of Carriage's executive
officers, $36,000 to enable him to meet some short-term personal needs. The loan
matures on August 31, 1999 and bears interest at the rate of 5 1/2% per annum.
In connection with the acquisition by a subsidiary of Carriage of three
corporations controlled by Robert D. Larrabee and his wife, which owned and
operated four funeral homes and two cemeteries in Washington and Idaho:
o our subsidiary executed a note payable to Mr. Larrabee and his wife in
the original principal amount of $246,000, secured by the land and
buildings of one of the funeral home locations, as seller financing
for that location;
o Mr. Larrabee and such subsidiary entered into a five-year employment
agreement providing for, among other things, the payment of a base
salary to Mr. Larrabee of $25,000 per year; and
o we agreed to undertake to appoint Mr. Larrabee to our board of
directors if we went public.
This transaction was entered into prior to Mr. Larrabee becoming a director
of Carriage, and the compensation outlined above does not relate to any services
provided by Mr. Larrabee as a director of Carriage.
Mr. Larrabee also is a party to an arrangement with us whereby Mr. Larrabee
may receive annual cash bonuses if acquisition candidates which he develops and
which are subsequently acquired by Carriage attain cash flow in excess of
certain cash flow targets over a ten-year period. Pursuant to the arrangement,
Mr. Larrabee may elect to sell back to us his share of excess cash flow during
the last three-year period at a predetermined cash flow multiple. To date, no
payments have been made by us under this arrangement.
In May 1998, we purchased approximately 15 acres of undeveloped property
adjacent to one of our cemeteries in Couer d'Alene, Idaho from Mr. Larrabee, for
$1.2 million in cash. The transaction was negotiated at arm's-length, and we
intend to use this property for possible future development.
In the fourth quarter of 1998, Mark Duffey, our President, sold 60,000
shares of Class B common stock and Russell Allen, our Executive Vice
President -- Operations, sold 11,375 shares of Class A common stock and 3,733
shares of Class B common stock to Carriage at a price of $23 3/8 per share.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information as of December 31, 1998, and as
adjusted to reflect the sale of the Class A common stock offered hereby, with
respect to the beneficial ownership of common stock by each person known by
Carriage to be the beneficial owner of more than 5% of our outstanding common
stock, by each director and executive officer of Carriage and by all directors
and executive officers of Carriage as a group. Each person named has sole voting
and investment power with respect to the shares indicated except as otherwise
stated in the notes to the table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT OF CLASS A AND B
------------------------ COMMON STOCK PERCENT OF
CLASS A CLASS B --------------------------- VOTING CONTROL
COMMON COMMON PRIOR TO THE AFTER THE AFTER THE
BENEFICIAL OWNER STOCK(1) STOCK(2) OFFERING OFFERING OFFERING(3)
- ---------------------------------------- ----------- ----------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
C. Byron Snyder(4)(5)(12)............... 96,176 1,296,311 8.8% 7.0% 24.3%
Barry K. Fingerhut(4)(6)................ 203,216 520,924 4.6 3.7 10.1
Melvin C. Payne(4)(7)(12)............... 89,768 629,769 4.5 3.6(12) 11.9
Mark F. Wilson(8)....................... 502,637 -- 3.2 2.5 *
Mark W. Duffey(4)....................... 121,980 178,625 1.9 1.5 3.5
Stuart W. Stedman(9).................... 150,638 145,223 1.9 1.5 3.0
Greg M. Brudnicki....................... 219,530 -- 1.4 1.1 *
Ronald A. Erickson(10).................. 26,900 61,621 * * 1.2
Robert D. Larrabee(11).................. 14,500 57,998 * * *
Russell W. Allen........................ 20,518 46,392 * * *
Thomas C. Livengood..................... 32,619 2,000 * * *
Gary O'Sullivan......................... 18,611 -- * * *
All directors and executive officers as
a group (12 persons).................. 1,497,093 2,938,863 28.1 22.4 56.3
</TABLE>
- ------------
* Indicates less than one percent.
(1) The ownership of shares of Class A common stock shown in the table includes
shares which may be acquired within 60 days upon exercise of outstanding
stock options granted one of our stock option plans by each of the persons
and group, as follows: Mr. Snyder -- 16,166 shares; Mr. Fingerhut -- 16,166
shares; Mr. Payne -- 61,666 shares; Mr. Wilson -- 14,500 shares; Mr. Duffey
-- 41,000 shares; Mr. Stedman -- 14,500 shares; Mr. Brudnicki -- 8,580
shares; Mr. Erickson -- 14,500 shares; Mr. Larrabee -- 14,500 shares; Mr.
Allen -- 20,333 shares; Mr. Livengood -- 23,499 shares; Mr. O'Sullivan --
18,500 shares; and directors and executive officers as a group -- 263,910
shares.
(2) Each share of Class B common stock has ten votes per share and is
convertible at any time into one share of Class A common stock. If not
converted earlier, any outstanding shares of Class B common stock will be
automatically converted into shares of Class A common stock on December 31,
2001.
(3) This column sets forth the percentage of voting power held by the person
based on the type of securities held. Each share of Class A common stock is
entitled to one vote, each share of Class B common stock is entitled to ten
votes, and each share of Series D preferred stock is entitled to 0.0022
votes.
(4) C. Byron Snyder and certain of his affiliates, Melvin C. Payne and certain
of his affiliates, Mark W. Duffey, and Barry K. Fingerhut and certain of
his affiliates and business associates are parties to a voting agreement
dated effective as of August 8, 1996 relating to any shares of capital
stock of Carriage held by any of them. These parties beneficially hold an
aggregate of approximately 515,000 shares of Class A common stock and
2,675,395 shares of Class B common stock. Under the voting agreement, each
party has agreed not to sell or otherwise transfer any shares of capital
stock of Carriage held or acquired by such party to any of our
"competitors" without the prior written consent of the holders of at
least 80% of the voting power of the shares of capital stock subject to the
voting agreement, unless the holders of at least 80% of the voting power of
the
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outstanding shares of capital stock of Carriage are in favor of such
action, not to vote the shares of capital stock of Carriage held by such
party in favor of:
o a merger, consolidation or similar corporate action involving a
"competitor," other than in connection with an acquisition by
Carriage of funeral homes or cemeteries in which Carriage is the
acquiring or controlling party;
o the sale of all or substantially all of our assets to a
"competitor;" or
o any amendment to Articles V, VI or VII of our Certificate of
Incorporation (which relate to the classified board of directors, the
relative rights and powers of the board of directors and the
stockholders and the ability of our stockholders to act by written
consent).
A "competitor" is defined in the voting agreement as any person or entity
engaged in the funeral service, cemetery, crematory or related lines of
business.
(5) Mr. Snyder's holdings include 1,278,301 shares of Class B common stock
owned by 1996 Snyder Family Partnership, Ltd., 9,005 shares of Class B
common stock owned by the C. Byron Snyder 1996 Trust, and 9,005 shares of
Class B common stock owned by the Martha Ann Snyder 1996 Trust.
(6) Mr. Fingerhut's holdings include 422,222 shares of Class B common stock
held by Applewood Associates, L.P., a limited partnership of which Mr.
Fingerhut is a general partner; 6,111 shares of Class B common stock held
by Longboat Key Associates, a general partnership of which Mr. Fingerhut is
a general partner; and 8,333 shares of Class B common stock held by Mr.
Fingerhut jointly with Michael J. Marocco.
(7) Mr. Payne's holdings include 119,161 shares of Class B common stock owned
by 1996 Payne Family Partnership, Ltd., 2,919 shares of Class B common
stock owned by the Melvin C. Payne 1996 Trust, 2,919 shares of Class B
common stock owned by the Karen P. Payne 1996 Trust, and 5,555 shares of
Class B common stock owned by the Melvin C. Payne, Jr. Pension Plan and
Trust.
(8) Mr. Wilson's holdings include 404,879 shares of Class A common stock held
by the Mark F. Wilson and Anne Pedersen Wilson Living Trust, 41,629 shares
of Class A common stock held by the Wilson Trust B U/A/D 9/9/77 by Francis
Wilson and 41,629 shares of Class A common stock held by the Wilson Trust C
U/A/D 9/9/77 by Francis Wilson, both of which Mr. Wilson is a beneficiary
of and a Co-trustee.
(9) Mr. Stedman's holdings include:
o 2,689 shares of Class A common stock and 31,309 shares of Class B
common stock which are held by the Betty Ann Stedman Trust, of which
Mr. Stedman is a trustee;
o 1,083 shares of Class A common stock and 8,349 shares of Class B
common stock which are held by the Wesley West Descendants Trust, of
which Mr. Stedman is a Trustee;
o 292 shares of Class A common stock and 3,130 shares of Class B common
stock which are held by the Courtney Lynn Meagher Trust, of which Mr.
Stedman is a trustee;
o 239 shares of Class A common stock and 3,130 shares of Class B common
stock which are held by the Evan Everett Meagher 1989 Trust, of which
Mr. Stedman is a Trustee;
o 19,902 shares of Class A common stock and 35,000 shares of Class B
common stock which are held by the Wesley West Land Holding Company,
of which Mr. Stedman is the president and an indirect beneficial owner
through a trust of which he is a beneficiary;
o 46,056 shares of Class A common stock which are held by the Wesley
West Long Term Partnership, a partnership of which Mr. Stedman serves
as the manager of the general partner;
o 32,850 shares of Class A common stock which are held by the Wesley
West Flexible Partnership, a partnership of which Mr. Stedman serves
as the managing partner;
o 24,350 shares of Class A common stock which are held by Wesley West
Investment Company L.L.C., of which Mr. Stedman is the sole Manager;
and
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o 7,120 shares of Class A common stock and 5,218 shares of Class B
common stock which are owned jointly by Mr. Stedman and his spouse.
(10) Mr. Erickson's holdings include:
o 4,000 shares of Class A common stock and 44,015 shares of Class B
common stock which are held by the Alfred and Rose Erickson Trust
f/b/o Ronald A. Erickson;
o 1,400 shares of Class A common stock and 17,606 shares of Class B
common stock which are held by the Alfred and Rose Erickson Trust
f/b/o Donovan A. Erickson, of which Mr. Erickson is the Trustee;
o 7,000 shares of Class A common stock held by Mr. Erickson's minor son,
David S. Erickson.
(11) Mr. Larrabee and his spouse hold an aggregate of 1,500,000 shares of Series
D preferred stock, of which 252,410 shares are held by Larrabee Land
Company, Inc. which is owned by Mr. Larrabee and his spouse. Such shares of
Series D preferred stock are convertible as of December 31, 1998 into
57,998 shares of Class B common stock which are in turn convertible at any
time into 57,998 shares of Class A common stock. Also, such shares of
Series D preferred stock presently have 2,900 votes.
(12) If the underwriters exercise their over-allotment option in full, Mr.
Snyder will own no Class A shares and 1,256,321 Class B shares, excluding
options, and Mr. Payne will own no Class A shares and 597,871 Class B
shares, excluding options, after the offering.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock
and 70,000,000 shares of preferred stock, par value $.01 per share. The common
stock is divided into two classes: Class A common stock and Class B common
stock. The Class A common stock and the Class B common stock are collectively
referred to as common stock.
COMMON STOCK
As of December 31, 1998, 15,807,123 shares of common stock were outstanding
and held of record by approximately 200 persons. Upon completion of the
offering, 16,028,035 shares of Class A common stock will be outstanding. In
addition, 3,779,088 shares of Class B common stock will be outstanding.
The holders of Class A common stock are entitled to one vote for each share
held on all matters submitted to a vote of common stockholders. The holders of
Class B common stock are entitled to ten votes for each share held on all
matters submitted to a vote of common stockholders. The common stock does not
have cumulative voting rights, which means that the holders of a majority of the
voting power of shares of common stock outstanding can elect all the directors,
and the holders of the remaining shares will not be able to elect any directors.
Each share of common stock is entitled to participate equally in dividends, if,
as and when declared by our board of directors, and in the distribution of
assets in the event of liquidation, subject in all cases to any prior rights of
outstanding shares of preferred stock. We have never paid cash dividends on our
common stock. The shares of common stock have no preemptive rights, redemption
rights or sinking fund provisions. The outstanding shares of common stock are,
and the shares of common stock offered hereby upon issuance and sale will be,
duly authorized, validly issued, fully paid and nonassessable.
Certain holders of Class B common stock have entered into a voting
agreement. The parties to the voting agreement include Messrs. Payne, Duffey,
Fingerhut and Snyder and certain other stockholders. Pursuant to the voting
agreement, each stockholder who is a party has agreed not to sell his shares of
common stock to a competitor of Carriage and not to vote in favor of any merger,
consolidation or other similar business combination with a competitor of
Carriage. The term "competitor" is defined to mean any person or entity who is
engaged in the funeral service, cemetery, crematory or related lines of business
that, at the time of any proposed disposition (as defined in the voting
agreement), or at any time within the 12-month period preceding the date of the
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proposed disposition, has any operations within a 50-mile radius of any of our
locations or an entity that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with,
Carriage, and includes any other person or entity who directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with any such person or entity.
Each share of Class B common stock is convertible at any time, at the
option of the registered holder thereof, into one share of Class A common stock.
In addition, each share of Class B common stock automatically converts into one
share of Class A common stock upon a sale or transfer to anyone other than a
permitted transferee. In any event, all outstanding shares of Class B common
stock will be automatically converted into shares of Class A common stock on
December 31, 2001.
PREFERRED STOCK
As of December 31, 1998, outstanding preferred stock consisted of 1,682,500
shares of Series D preferred stock. On December 31, 1998, all of the company's
Series F preferred stock was converted to 722,250 shares of Class A common
stock.
Carriage is authorized to issue 70,000,000 shares of preferred stock. Our
board of directors may establish, without stockholder approval, one or more
classes or series of preferred stock having the number of shares, designations,
relative voting rights, dividend rates, liquidation and other rights,
preferences and limitations that the board of directors may designate. We
believe that this power to issue preferred stock provides flexibility in
connection with possible corporate transactions. The issuance of preferred
stock, however, could adversely affect the voting power of holders of common
stock and restrict their rights to receive payments upon liquidation of
Carriage. It could also have the effect of delaying, deferring or preventing a
change in control of Carriage.
SERIES D PREFERRED STOCK
As of December 31, 1998, we had 1,682,500 shares of Series D preferred
stock issued and outstanding. The following description is a summary of the
Certificate of Amendment to the Certificate of Designation for the Series D
preferred stock, and it is qualified in its entirety by reference to that
document.
DIVIDENDS. The Series D preferred stock ranks, with respect to dividend
rights and distribution of assets on liquidation, senior and prior to common
stock and junior to, or on parity with, as the case may be, any other stock of
Carriage designated as senior to, or on parity with, as the case may be, Series
D preferred stock. Holders of Series D preferred stock are entitled to receive
cumulative annual cash dividends ranging from $.06 to $.07 per share payable
quarterly, depending upon when such shares were issued. Upon any voluntary or
involuntary liquidation, dissolution or winding up of Carriage, the holders of
Series D preferred stock then outstanding will be entitled to receive an amount
of cash per share equal to $1.00, together with all accrued and unpaid
dividends, after any distribution is made on any senior securities and before
any distribution is made on any junior securities, including common stock. As
long as any shares of Series D preferred stock are outstanding, Carriage may not
pay a dividend (other than stock dividends in common stock) or other
distribution on or repurchase common stock, directly or indirectly, unless all
past due cumulative dividends on the Series D preferred stock have been paid.
The terms of Series D preferred stock may be amended with the consent of the
holders of a majority of the outstanding shares of Series D preferred stock.
REDEMPTION. The Series D preferred stock is mandatorily redeemable by
Carriage on December 31, 2001 (subject to conversion rights at any time on or
prior to November 30, 2001) at a redemption price of $1.00 per share plus all
accrued and unpaid dividends to the date of redemption. The Series D preferred
stock is redeemable, in whole or in part, at the option of Carriage at any time
during the period commencing on the second anniversary of the consummation of
the offering and ending on December 31, 2001 (subject to conversion rights up to
15 days prior to the redemption date) at a
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<PAGE>
redemption price of $1.00 per share plus accrued and unpaid dividends to the
date of redemption. Partial redemptions must be pro rata.
CONVERSION. The Series D preferred stock is convertible at any time into
Class B common stock at a conversion price equal to the average market price for
the ten days preceding the date of delivery of notice of conversion on the
principal securities market on which the Class A common stock is then traded. At
December 31, 1998, the conversion price was $25.8625, yielding, a total of
65,055 shares of Class B common stock that would be issuable upon the conversion
of the 1,682,500 shares of Series D preferred stock outstanding.
VOTING RIGHTS. The Series D preferred stock has general voting rights on
all issues submitted to stockholders. The number of votes to which each share of
Series D preferred stock is entitled is a fraction of a vote determined by
dividing $1.00 by the then effective conversion price per share and dividing the
resulting fraction by 20. The Series D preferred stock is entitled, as a
separate class, to vote upon (or consent to) any amendment to the charter,
bylaws or Certificate of Designation which would adversely affect the rights or
powers of the Series D preferred stock. The requisite vote for approval is a
majority of the shares of Series D preferred stock outstanding.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
We are a Delaware corporation and are subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the company's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with Carriage for three years
following the date that person becomes an interested stockholder unless:
o before that person became an interested stockholder, Carriage's board
of directors approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination;
o upon completion of the transaction that resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock outstanding at the
time the transaction commenced (excluding stock held by directors who
are also officers of the company and by employee stock plans that do
not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender
or exchange offer); or
o following the transaction in which that person became an interested
stockholder, the business combination is approved by Carriage's board
of directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the
outstanding voting stock not owned by the interested stockholder.
Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving Carriage and
a person who was not an interested stockholder during the previous three years
or who became an interested stockholder with the approval of a majority of
Carriage's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors who were directors before any person
became an interested stockholder in the previous three years or who were
recommended for election or elected to succeed such directors by a majority of
such directors then in office.
Our board of directors is divided into three classes. The directors of each
class are elected for three-year terms, with the terms of the three classes
staggered so that directors from a single class are elected at each annual
meeting of stockholders. Stockholders may remove a director only for cause upon
the vote of holders of at least 80% of voting power of the outstanding shares of
common stock. In general, the board of directors, not the stockholders, has the
right to appoint persons to fill vacancies on the board of directors.
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The charter provides that special meetings of holders of common stock may
be called only by Carriage's board of directors and that only business proposed
by the board of directors may be considered at special meetings of holders of
common stock.
The charter provides that the only business (including election of
directors) that may be considered at an annual meeting of holders of common
stock, in addition to business proposed (or persons nominated to be directors)
by the directors of Carriage, is business proposed (or persons nominated to be
directors) by holders of common stock who comply with the notice and disclosure
requirements set forth in the Certificate of Incorporation. In general, the
charter requires that a stockholder give us notice of proposed business or
nominations no later than 60 days before the annual meeting of holders of common
stock (meaning the date on which the meeting is first scheduled and not
postponements or adjournments thereof) or (if later) ten days after the first
public notice of the annual meeting is sent to holders of common stock. In
general, the notice must also contain information about the stockholder
proposing the business or nomination, the stockholders interest in the business,
and (with respect to nominations for director) information about the nominee of
the nature ordinarily required to be disclosed in public proxy solicitation
statements. The stockholder also must submit a notarized letter from each of the
stockholders nominees stating the nominees acceptance of the nomination and
indicating the nominees intention to serve as director if elected.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or bylaws, unless
the corporation's certificate of incorporation or bylaws requires a greater
percentage. The charter provides that approval by the holders of at least 66
2/3% of the voting power of the outstanding voting stock of Carriage is required
to amend the provisions of the charter previously discussed and certain other
provisions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
As of December 31, 1998, there were 12,028,035 shares of Class A common
stock issued and outstanding, and upon the issuance of the 4,000,000 shares of
Class A common stock to be sold by Carriage in the offering, there will be
16,028,035 shares of Class A common stock issued and outstanding. In addition,
as of December 31, 1998, there were 3,779,088 shares of Class B common stock
issued and outstanding. Approximately 4,750,000 shares of Class A common stock
(which includes approximately 2,900,000 shares of Class A common stock issuable
upon conversion of outstanding shares of Class B common stock and outstanding
shares of preferred stock based on conversion rates as of December 31, 1998)
held by existing stockholders of Carriage are "restricted securities" within
the meaning of Rule 144 under the Securities Act. We believe that substantially
all of these "restricted" shares of Class A common stock are currently
eligible for resale subject to the volume, manner of sale and other limitations
of Rule 144.
Approximately 854,000 shares of Class A common stock and approximately
68,200 shares of Class B common stock are reserved for issuance to employees and
directors of Carriage pursuant to the 1995 Stock Incentive Plan, 800,000 shares
of Class A common stock are reserved for issuance to employees of Carriage
pursuant to the 1996 Stock Option Plan, 200,000 shares of Class A common stock
are reserved for issuance to eligible directors under the 1996 Directors Stock
Option Plan, and 100,000 shares of Class A common stock are reserved for
issuance under the 1998 Stock Option Plan for consultants. As of December 31,
1998, approximately 1,630,000 shares of Class A common stock and approximately
65,000 shares of Class B common stock are issuable under existing options
granted to employees, directors and consultants. We have filed registration
statements on Form S-8 to register the shares of common stock issuable upon
exercise of options granted or to be granted pursuant to
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these plans. Accordingly, shares issued upon exercise of such options will be
freely tradeable, except for any shares held by an "affiliate" of Carriage.
In addition, we have filed a shelf registration statement covering up to
2,000,000 shares of Class A common stock that may be issued from time to time by
Carriage to fund future acquisitions. As of December 31, 1998, approximately
1,057,000 shares of Class A common stock remained available for issuance under
this shelf registration. Shares covered by the shelf registration may be issued
or resold (as the case may be) and are freely tradeable, when issued, by the
holders thereof (other than "affiliates" of Carriage and in the case of
acquisitions, "affiliates" of the businesses acquired).
In connection with the offering, Carriage and our executive officers and
directors have agreed not to sell any shares of common stock for 90 days from
the date of this prospectus without the prior written consent of the
representatives of the underwriters. However, Carriage may issue options to
purchase common stock or shares of common stock issuable upon the exercise
thereof, and may issue shares of its capital stock in connection with
acquisitions of funeral homes and cemeteries as long as such options do not
become exercisable and such shares issuable upon exercise of options or pursuant
to acquisitions are not transferable before the end of the 90-day period.
No prediction can be made as to the effect, if any, that future sales of
Class A common stock, or the availability of Class A common stock for future
sale, will have on the market price of the Class A common stock prevailing from
time to time. Sales of substantial amounts of Class A common stock in the public
market subsequent to this offering could adversely affect the market price of
the Class A common stock.
UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated , the underwriters named below, for whom
Credit Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Raymond James & Associates, Inc. and J. C. Bradford & Co. are
acting as representatives, have severally but not jointly agreed to purchase
from us, the following respective numbers of shares of Class A common stock:
NUMBER
UNDERWRITER OF SHARES
- -------------------------------------------------------------- ------------
Credit Suisse First Boston Corporation........................
Merrill Lynch, Pierce, Fenner & Smith Incorporated............
Raymond James & Associates, Inc...............................
J. C. Bradford & Co...........................................
------------
Total.................................................... 4,000,000
============
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions and that they will be obligated
to purchase all of the shares of Class A common stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased. The underwriting agreement also provides that, in the event of a
default by an underwriter, in certain circumstances the purchase commitments of
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated.
Carriage and the Selling Stockholders have granted to the underwriters a
30-day option to purchase on a pro rata basis up to an aggregate of 600,000
additional shares from Carriage and the Selling Stockholders at the initial
public offering price less the underwriting discounts and commissions. Of the
600,000 shares subject to the over-allotment option, up to 60,000 shares may be
purchased from Melvin C. Payne, Carriage's Chief Executive Officer, up to
120,000 shares may be purchased from C. Byron Snyder, a director of Carriage,
and up to 420,000 shares may be purchased from Carriage. If the underwriters do
not purchase the entire over-allotment option, the shares will
45
<PAGE>
first be purchased from Mr. Payne and Mr. Snyder on a pro rata basis and then
from Carriage. Such option may be exercised only to cover over-allotments in the
sale of the shares of common stock.
Carriage and the Selling Stockholders have been advised by the
representatives of underwriters that they propose to offer the shares to the
public initially at the public offering price set forth on the cover page of
this prospectus and to certain dealers at such price less a concession of $
per share, and the underwriters and such dealers may allow a discount of $
per share on sales to certain other dealers. After the initial public offering,
the public offering price and concession and discount to dealers may be changed
by the representatives of the underwriters.
The following table summarizes the compensation to be paid to the
underwriters by Carriage and the Selling Stockholders, and the expenses payable
by Carriage.
<TABLE>
<CAPTION>
WITHOUT WITH
PER OVER-ALLOTMENT OVER-ALLOTMENT
------------- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and
Commissions paid by Carriage....... $ $ $
Expenses payable by Carriage......... $ $ $
Underwriting Discounts and
Commissions paid by Selling
Stockholders....................... $ $ $
</TABLE>
Carriage and our executive officers and directors have agreed that for a
period of 90 days from the date of this prospectus they will not, without the
prior written consent of Credit Suisse First Boston Corporation:
o directly or indirectly, offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Class A common stock or any
securities convertible into or exercisable or exchangeable for Class A
common stock or file any registration statement under the Securities
Act with respect to any of the foregoing; or
o enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Class A common stock, whether any such
swap or transaction described in clause (1) or (2) above is to be
settled by delivery of Class A common stock or such other securities,
in cash or otherwise.
The foregoing restrictions do not apply, however, to:
o shares of Class A common stock being sold hereunder;
o any shares of Class A common stock issued by us upon the exercise of
an option or warrant or the conversion of a security outstanding on
the date hereof and referred to herein;
o any shares of Class A common stock issued or options to purchase Class
A common stock granted pursuant to our existing employee benefit
plans; or
o any shares of Class A common stock issued pursuant to any non-employee
stock option plan, or any shares of Class A common stock or any
securities convertible or exchangeable into Class A common stock
issued as payment of any part of the purchase price for funeral homes
or cemeteries (or businesses or capital stock of businesses that
operate funeral homes or cemeteries) which are acquired by Carriage,
subject to certain conditions.
Carriage and the Selling Stockholders have agreed to indemnify the
underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments which the underwriters may be
required to make in respect thereof.
The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions
46
<PAGE>
involve purchases of shares in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when the
shares originally sold by such syndicate member are purchased in a syndicate
covering transaction to cover syndicate short positions. Such stabilizing
transactions, syndicate covering transactions and penalty bids may cause the
price of the Class A common stock to be higher than it would otherwise be in the
absence of such transactions. These transactions may be effected on The New York
Stock Exchange or otherwise and, if commenced, may be discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Class A common stock in Canada is being made only
on a private placement basis exempt from the requirement that Carriage and the
Selling Stockholders prepare and file a prospectus with the securities
regulatory authorities in each province where trades of Class A common stock are
effected. Accordingly, any resale of the Class A common stock in Canada must be
made in accordance with applicable securities laws which will vary depending on
the relevant jurisdiction, and which may require resales to be made in
accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Class A
common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Class A common stock in Canada who receives a purchase
confirmation will be deemed to represent to Carriage, the Selling Stockholders
and the dealer from whom such purchase confirmation is received that (i) such
purchaser is entitled under applicable provincial securities laws to purchase
such Class A common stock without the benefit of a prospectus qualified under
such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein and the Selling Stockholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Class A common stock to whom the SECURITIES ACT (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Class A common stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from
Carriage. Only one such report
47
<PAGE>
must be filed in respect of Class A common stock acquired on the same date and
under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Class A common stock should consult their own legal
and tax advisors with respect to the tax consequences of an investment in the
Class A common stock in their particular circumstances and with respect to the
eligibility of the Class A common stock for investment by the purchaser under
relevant Canadian legislation.
LEGAL MATTERS
The validity of the issuance of the shares of Class A common stock offered
hereby will be passed upon for Carriage by Vinson & Elkins L.L.P., Houston,
Texas. Certain legal matters relating to the Class A common stock offered hereby
will be passed upon for the underwriters by Andrews & Kurth L.L.P.
EXPERTS
The consolidated financial statements of Carriage Services, Inc. as of
December 31, 1996 and 1997 and for the three years in the period ended December
31, 1997 included in this prospectus and registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act, and
in accordance therewith, file reports and other information with the SEC. Such
reports and other information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the SEC's regional offices at 7 World Trade
Center, 13th Floor, New York, New York 10048, and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies may be obtained at the
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. The SEC maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as Carriage, that file
electronically with the SEC. Our Class A common stock is traded on the NYSE and,
as a result, we also file reports and information with NYSE, and such reports
and other information are available for inspection at the offices of the NYSE at
20 Broad Street, New York, NY 10004.
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of Class A common stock offered
hereby. This prospectus, which constitutes part of the registration statement
omits certain of the information contained in the registration statement and the
exhibits and schedules thereto pursuant to the Securities Act and the rules and
regulations of the SEC thereunder. Statements contained in this prospectus as to
the contents of any document are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
registration statement, each such statement being hereby qualified in all
respects by such reference. The registration statement, including the exhibits
and schedules thereto, is on file at the offices of the SEC and may be obtained
upon payment of the fee prescribed by the SEC or may be examined without charge
at the public reference facilities of the SEC described above.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
CARRIAGE SERVICES, INC. -- UNAUDITED
INTERIM CONSOLIDATED FINANCIAL
STATEMENTS:
Consolidated Balance Sheets as
of December 31, 1997 and
September 30, 1998............. F-2
Consolidated Statements of
Operations for the
Nine Months Ended September
30, 1997 and 1998.............. F-3
Consolidated Statements of Cash
Flows for the
Nine Months Ended September
30, 1997 and 1998.............. F-4
Notes to Consolidated Financial
Statements..................... F-5
CARRIAGE SERVICES, INC. -- AUDITED
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public
Accountants.................... F-7
Consolidated Balance Sheets as
of December 31, 1996 and
1997........................... F-8
Consolidated Statements of
Operations for the Years Ended
December 31, 1995, 1996 and
1997........................... F-9
Consolidated Statements of
Changes in Stockholders' Equity
for the Years Ended December
31, 1995, 1996 and 1997........ F-10
Consolidated Statements of Cash
Flows for the Years Ended
December 31, 1995, 1996 and
1997........................... F-11
Notes to Consolidated Financial
Statements..................... F-12
F-1
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......... $ 6,126 $ 4,100
Accounts receivable --
Trade, net of allowance for
doubtful accounts of $1,291
in 1997 and $1,170 in
1998....................... 11,617 16,690
Other......................... 1,295 1,972
------------ -------------
12,912 18,662
Inventories and other current
assets............................ 5,691 7,640
------------ -------------
Total current assets.......... 24,729 30,402
------------ -------------
Property, plant and equipment, at cost,
net of accumulated depreciation of
$7,123 in 1997 and $10,111 in 1998.... 85,865 118,407
Cemetery property, at cost.............. 32,154 57,862
Names and reputations, net of
accumulated amortization of $4,480 in
1997 and $7,064 in 1998............... 118,099 177,502
Deferred charges and other noncurrent
assets................................ 17,093 24,070
------------ -------------
$277,940 $ 408,243
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 9,022 $ 3,308
Accrued liabilities................ 7,545 9,533
Current portion of long-term debt
and obligations under capital
leases............................ 2,339 5,116
------------ -------------
Total current liabilities..... 18,906 17,957
Preneed liabilities, net................ 7,403 4,875
Long-term debt, net of current
portion............................... 121,553 175,414
Obligations under capital leases, net of
current portion....................... 4,449 3,254
Deferred income taxes................... 13,113 16,277
------------ -------------
Total liabilities............. 165,424 217,777
------------ -------------
Commitments and contingencies
Redeemable preferred stock.............. 13,951 13,951
Stockholders' equity:
Class A Common Stock, $.01 par
value; 40,000,000 shares
authorized; 6,454,000 and
10,927,000 issued and outstanding
at December 31, 1997 and Septmber
30, 1998, respectively............ 64 109
Class B Common Stock; $.01 par
value; 10,000,000 shares
authorized; 4,691,000 and
3,871,000 issued and outstanding
at December 31, 1997 and September
30, 1998, respectively............ 47 39
Contributed capital................ 102,056 174,332
Retained deficit................... (3,602) 2,035
------------ -------------
Total stockholders' equity.... 98,565 176,515
------------ -------------
$277,940 $ 408,243
============ =============
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE NINE MONTHS
ENDED SETPEMBER 30,
--------------------
1997 1998
--------- ---------
Revenues, net
Funeral......................... $ 46,283 $ 65,956
Cemetery........................ 9,012 15,995
--------- ---------
55,295 81,951
Costs and expenses
Funeral......................... 34,405 46,934
Cemetery........................ 7,187 11,920
--------- ---------
41,592 58,854
--------- ---------
Gross profit............... 13,703 23,097
General and administrative
expenses............................. 3,657 5,661
--------- ---------
Operating income................ 10,046 17,436
Interest expense, net................ 4,028 6,511
--------- ---------
Income before income taxes and
extraordinary item.............. 6,018 10,925
Provision for income taxes........... 2,357 4,833
--------- ---------
Income before extraordinary
item............................ 3,661 6,092
Extraordinary item:
Loss on early extinguishment of
debt, net of income tax benefit
of $159........................ (195) --
--------- ---------
Net income........................... 3,466 6,092
Preferred stock dividend
requirements......................... 713 454
--------- ---------
Net income available to common
stockholders................... $ 2,753 $ 5,638
========= =========
Basic earnings per share:
Net income before extraordinary
item............................ $ 0.29 $ 0.44
Extraordinary item.............. (0.02) --
--------- ---------
Net income...................... $ 0.27 $ 0.44
========= =========
Diluted earnings per share:
Net income before extraordinary
item........................... $ 0.29 $ 0.43
Extraordinary item.............. (0.02) --
--------- ---------
Net income...................... $ 0.27 $ 0.43
========= =========
Weighted average number of common and
common equivalent shares
outstanding:
Basic........................... 10,040 12,772
========= =========
Diluted......................... 10,323 13,198
========= =========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------
1997 1998
---------- ------------
Cash flows from operating activities:
Net income......................... $ 3,466 $ 6,092
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation and amortization... 5,644 7,646
Provision for losses on accounts
receivable...................... 284 976
Deferred income taxes........... 1,574 1,347
Other, net...................... (409) (38)
Changes in assets and
liabilities, net of effects
from acquisitions:
(Increase) in accounts
receivable.................. (1,768) (5,688)
(Increase) in inventories and
other current assets........ (942) (1,088)
(Increase) in other deferred
charges..................... (1,234) (4,225)
Increase (decrease) in
accounts payable............ 998 (301)
Increase in accrued
liabilities................. 149 1,700
Increase (decrease) in preneed
liabilities................. 674 (1,205)
---------- ------------
Net cash provided by
operating services....... 8,436 5,216
Cash flows from investing activities:
Acquisitions, net of cash
acquired......................... (43,568) (105,191)
Capital expenditures............... (6,162) (12,060)
Other, including disposition of
assets.......................... 600 (267)
---------- ------------
Net cash used in investing
activities............... (49,130) (117,518)
Cash flows from financing activities:
Proceeds from long-term debt....... 41,884 94,455
Payments on long-term debt and
obligations under capital
leases.......................... (1,112) (52,491)
Proceeds from issuance of common
stock........................... -- 68,696
Payment of preferred stock
dividends....................... (713) (454)
Exercise of stock options.......... 113 317
Payment of deferred debt charges
and other....................... (307) (247)
---------- ------------
Net cash provided by
financing activities..... 39,865 110,276
Net (decrease) in cash and cash
equivalents........................ (829) (2,026)
Cash and cash equivalents at
beginning of period................ 1,712 6,126
---------- ------------
Cash and cash equivalents at end of
period............................. $ 883 $ 4,100
========== ============
Supplemental disclosure of cash flow
information:
Cash paid for interest............. $ 4,030 $ 7,079
========== ============
Cash paid for income taxes......... $ 812 $ 4,537
========== ============
Non-cash consideration for
acquisitions..................... $ 28,328 $ 10,166
========== ============
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include Carriage
Services, Inc. and its subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated.
The information for the nine months ended September 30, 1997 and 1998 is
unaudited, but in the opinion of management, reflects all adjustments which are
of a normal, recurring nature necessary for a fair presentation of financial
position and results of operations for the interim periods. The accompanying
consolidated financial statements have been prepared consistent with the
accounting policies described in Note 1 to the Audited Consolidated Financial
Statements, and should be read in conjunction therewith. Certain prior period
amounts in the consolidated financial statements have been reclassified to
conform with current period presentation.
2. ACQUISITIONS
During the nine months ended September 30, 1998, the Company purchased 34
funeral homes and five cemeteries compared to 31 funeral homes and four
cemeteries purchased during the nine months ended September 30, 1997. These
acquisitions have been accounted for by the purchase method, and their results
of operations are included in the accompanying consolidated financial statements
from the dates of acquisition. The purchase price allocations for certain of
these acquisitions are based on preliminary information.
The effect of the above acquisitions on the Consolidated Balance Sheets was
as follows:
SEPTEMBER 30,
----------------------
1997 1998
---------- ----------
(IN THOUSANDS)
Current assets, net of cash
acquired............................. $ 7,671 $ 6,148
Cemetery property.................... 19,645 25,159
Property, plant and equipment........ 22,902 23,919
Deferred charges and other noncurrent
assets............................... 813 819
Names and reputations................ 33,594 61,292
Current liabilities.................. (801) (466)
Other liabilities.................... (11,928) (1,514)
---------- ----------
Total acquisitions.............. 71,896 115,357
Consideration:
Debt................................. -- 6,556
Redeemable preferred stock issued.... 20,000 --
Common stock issued.................. 8,328 3,610
---------- ----------
Cash used for acquisitions...... $ 43,568 $ 105,191
========== ==========
The following table represents, on an unaudited pro forma basis, the
combined operations of the Company and the above noted acquisitions, as if such
acquisitions had occurred as of January 1, 1997. Appropriate adjustments have
been made to reflect the accounting basis used in recording these acquisitions,
however, these unaudited pro forma results are based on the acquired businesses'
historical financial results and 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.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations that would have
resulted had the
F-5
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
combinations been in effect on the dates indicated, that have resulted since the
dates of acquisition or that may result in the future.
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
(IN THOUSANDS,
EXCEPT PER
SHARE DATA)
Revenues, net........................ $ 92,861 $ 96,745
Net income before income taxes....... 6,804 9,375
Net income available to common
stockholders......................... 3,276 4,702
Earnings per common share:
Basic........................... 0.33 0.37
Diluted......................... 0.32 0.36
3. RECENT ACCOUNTING STANDARDS
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" and No. 131, "Disclosure about Segments of an Enterprise
and Related Information" are required to be implemented during 1998. The effect
of these pronouncements on the Company's consolidated financial condition and
results of operations is not expected to be material.
F-6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Stockholders and Board of Directors of Carriage Services, Inc.:
We have audited the accompanying consolidated balance sheets of Carriage
Services, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1997 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Carriage
Services, Inc., and subsidiaries as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 10, 1998
F-7
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
----------------------
1996 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents....... $ 1,712 $ 6,126
Accounts receivable --
Trade, net of allowance for
doubtful accounts of
$530 in 1996 and $1,291
in 1997................. 5,665 11,617
Other...................... 673 1,295
---------- ----------
6,338 12,912
Inventories and other current
assets......................... 3,350 5,691
---------- ----------
Total current assets.... 11,400 24,729
---------- ----------
Property, plant and equipment, at
cost:
Land............................ 9,640 21,789
Buildings and improvements...... 31,750 56,153
Furniture and equipment......... 8,817 15,046
---------- ----------
50,207 92,988
Less -- accumulated
depreciation................... (4,095) (7,123)
---------- ----------
46,112 85,865
Cemetery property, at cost........... 4,061 32,154
Names and reputations, net of
accumulated amortization of $2,007
in 1996 and $4,480 in 1997......... 62,568 118,099
Deferred charges and other
non-current assets................. 7,167 17,093
---------- ----------
$ 131,308 $ 277,940
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................ $ 2,192 $ 9,022
Accrued liabilities............. 3,033 7,545
Current portion of long-term
debt and obligations under
capital leases................. 1,086 2,339
---------- ----------
Total current
liabilities........... 6,311 18,906
Preneed liabilities, net............. 3,664 7,403
Long-term debt, net of current
portion............................ 42,733 121,553
Obligations under capital leases, net
of current portion................. 557 4,449
Deferred income taxes................ 3,749 13,113
---------- ----------
Total liabilities....... 57,014 165,424
---------- ----------
Commitments and contingencies
Redeemable preferred stock........... 17,251 13,951
Stockholders' equity:
Class A Common Stock, $.01 par
value; 40,000,000 shares
authorized; 3,990,000 and
6,454,000 issued and
outstanding in 1996 and 1997,
respectively................... 40 64
Class B Common Stock; $.01 par
value; 10,000,000 shares
authorized; 4,502,000 and
4,691,000 issued and
outstanding in 1996 and 1997,
respectively................... 45 47
Contributed capital............. 63,966 102,056
Retained deficit................ (7,008) (3,602)
---------- ----------
Total stockholders'
equity................ 57,043 98,565
---------- ----------
$ 131,308 $ 277,940
========== ==========
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
Revenues, net
Funeral......................... $ 22,661 $ 37,445 $ 64,888
Cemetery........................ 1,576 2,903 12,533
--------- --------- ---------
24,237 40,348 77,421
Costs and expenses
Funeral......................... 18,921 30,641 48,404
Cemetery........................ 1,326 2,541 9,634
--------- --------- ---------
20,247 33,182 58,038
--------- --------- ---------
Gross profit.................... 3,990 7,166 19,383
General and administrative
expenses........................... 2,106 2,474 5,277
--------- --------- ---------
Operating income................ 1,884 4,692 14,106
Interest expense, net................ 3,684 4,347 5,889
--------- --------- ---------
Income (loss) before income
taxes and extraordinary
item.......................... (1,800) 345 8,217
Provision for income taxes........... 694 138 3,726
--------- --------- ---------
Net income (loss) before
extraordinary item............ (2,494) 207 4,491
Extraordinary item -- loss on early
extinguishment of debt, net of
income tax benefit of $332 in 1996
and $159 in 1997................... -- (498) (195)
--------- --------- ---------
Net income (loss)............... (2,494) (291) 4,296
Preferred stock dividend
requirements....................... -- 622 890
--------- --------- ---------
Net income (loss) available to
common stockholders........... $ (2,494) $ (913) $ 3,406
========= ========= =========
Basic earnings (loss) per share:
Net income (loss) before
extraordinary item............ $ (.99) $ (.09) $ .35
Extraordinary item.............. -- (.10) (.02)
--------- --------- ---------
Net income (loss)............... $ (.99) $ (.19) $ .33
========= ========= =========
Diluted earnings (loss) per share:
Net income (loss) before
extraordinary item............ $ (.99) $ (.09) $ .34
Extraordinary item.............. -- (.10) (.02)
--------- --------- ---------
Net income (loss)............... $ (.99) $ (.19) $ .32
========= ========= =========
Weighted average number of common and
common equivalent shares
outstanding
Basic........................... 2,520 4,869 10,226
========= ========= =========
Diluted......................... 2,520 4,869 10,485
========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONTRIBUTED NET RETAINED
NO. OF PREFERRED NO. OF COMMON CAPITAL UNREALIZED EARNINGS
SHARES STOCK SHARES STOCK (DEFICIT) GAIN (LOSS) (DEFICIT) TOTAL
--------- --------- --------- ------ ----------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE -- DECEMBER 31, 1994......... 7,160 $ 72 2,520 $ 25 $ 6,992 $ (59) $ (3,601) $ 3,429
Net loss -- 1995..................... -- -- -- -- -- -- (2,494) (2,494)
Issuance of preferred stock.......... 8,500 85 -- -- 8,108 -- -- 8,193
Unrealized net gain -- available
for sale securities................ -- -- -- -- -- 23 -- 23
--------- --------- --------- ------ ----------- ----------- -------- -------
BALANCE -- DECEMBER 31, 1995......... 15,600 157 2,520 25 15,100 (36) (6,095) 9,151
Net loss -- 1996..................... -- -- -- -- -- -- (291) (291)
Issuance of preferred stock.......... 555 5 -- -- 540 -- -- 545
Issuance of common stock............. -- -- 3,947 40 47,942 -- -- 47,982
Conversion of preferred stock to
common stock....................... (16,045) (160) 1,980 20 140 -- -- --
Conversion of redeemable
preferred stock to common stock.... -- -- 39 -- 522 -- -- 522
Unrealized net gain -- available
for sale securities................ -- -- -- -- -- 36 -- 36
Purchase of treasury stock........... (170) (2) -- -- (339) -- -- (341)
Exercise of stock options............ -- -- 6 -- 61 -- -- 61
Preferred dividends.................. -- -- -- -- -- -- (622) (622)
--------- --------- --------- ------ ----------- ----------- -------- -------
BALANCE -- DECEMBER 31, 1996......... -- -- 8,492 85 63,966 -- (7,008) 57,043
Net income -- 1997................... -- -- -- -- -- -- 4,296 4,296
Issuance of common stock............. -- -- 978 10 14,714 -- -- 14,724
Conversion of redeemable
preferred stock to common stock.... -- -- 1,658 16 23,276 -- -- 23,292
Purchase of treasury stock........... -- -- (3) -- (60) -- -- (60)
Exercise of stock options............ -- -- 20 -- 160 -- -- 160
Preferred dividends.................. -- -- -- -- -- -- (890) (890)
--------- --------- --------- ------ ----------- ----------- -------- -------
BALANCE -- DECEMBER 31, 1997......... -- $ -- 11,145 $ 111 $ 102,056 $-- $ (3,602) $98,565
========= ========= ========= ====== =========== =========== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ (2,494) $ (291) $ 4,296
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities --
Depreciation and
amortization............ 1,948 3,629 7,809
Provision for losses on
accounts receivable..... 488 683 1,025
Loss on early
extinguishment of debt,
net of income taxes..... -- 498 195
Deferred income taxes...... 659 54 2,230
Changes in assets and
liabilities net of effects
from acquisitions:
Increase in accounts
receivable.............. (1,125) (3,440) (4,747)
Decrease (increase) in
inventories and other
current assets.......... 115 (465) (1,223)
Increase in other deferred
charges................. (144) (1,146) (1,884)
Increase (decrease) in
accounts payable........ 45 1,151 1,168
Increase (decrease) in
accrued liabilities..... 1,461 (403) 422
Increase (decrease) in
preneed liabilities..... 44 44 370
---------- ---------- ----------
Net cash provided by
operating
activities......... 997 314 9,661
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash
acquired...................... (12,191) (42,707) (65,607)
Disposition of businesses
formerly owned................ -- 393 --
Purchase of marketable
securities available for
sale.......................... (1,795) -- --
Disposition of marketable
securities available for
sale.......................... 5,312 976 --
Purchase of property, plant and
equipment..................... (3,019) (4,630) (9,163)
---------- ---------- ----------
Net cash used in
investing
activities......... (11,693) (45,968) (74,770)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.... 11,563 59,849 79,300
Payments on long-term debt and
obligations under capital
leases........................ (2,273) (65,925) (9,196)
Proceeds from sale of preferred
stock......................... 8,192 -- --
Proceeds from issuance of common
stock......................... -- 47,694 566
Preferred stock dividends....... -- (622) (890)
Exercise of stock options....... -- 61 160
Purchase of treasury stock...... -- (341) (60)
Payment of deferred debt
charges....................... (49) (923) (357)
---------- ---------- ----------
Net cash provided by
financing
activities......... 17,433 39,793 69,523
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 6,737 (5,861) 4,414
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR.................. 836 7,573 1,712
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
YEAR............................... $ 7,573 $ 1,712 $ 6,126
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid through issuance
of new debt................... $ 644 $ -- $ --
========== ========== ==========
Retirement of debt through
issuance of stock............. $ 500 $ -- $ --
========== ========== ==========
Cash paid for interest.......... $ 3,127 $ 4,466 $ 5,477
========== ========== ==========
Cash paid for income taxes...... $ -- $ -- $ 1,385
========== ========== ==========
Retirement of debt through
disposition of business....... $ -- $ 2,642 $ --
========== ========== ==========
Non-cash consideration for
acquisitions.................. $ -- $ 25,474 $ 52,653
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
Carriage Services, Inc. (the "Company") was organized under the laws of
the State of Delaware on December 29, 1993. The Company owns and operates
funeral homes and cemeteries throughout the United States. The Company provides
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 Company's locations.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The financial statements include the consolidated financial statements of
Carriage Services, Inc. and its subsidiaries. In consolidation, all significant
intercompany balances and transactions have been eliminated. Certain prior year
amounts in the consolidated financial statements have been reclassified to
conform with current year presentation.
FUNERAL AND CEMETERY OPERATIONS
The Company records the sale of funeral merchandise and services upon
performance of the funeral service. The Company records 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. Allowances for customer cancellations, refunds and bad debts are
provided at the date of sale based on the historical experience of the Company.
Accounts receivable-trade, net consists of approximately $4,977,000 and
$7,245,000 of funeral receivables and approximately $688,000 and $4,372,000 of
current cemetery receivables at December 31, 1996 and 1997, respectively.
Non-current cemetery receivables, those payable after one year, are included in
Deferred Charges and Other Non-current Assets on the Consolidated Balance
Sheets.
PRENEED FUNERAL ARRANGEMENTS
Preneed funeral sales are effected by deposits to a trust or purchase of a
third-party insurance product. Since the Company does not have access to these
funds, the sale is not recorded until the service is performed, nor generally,
are the related assets and liabilities reflected on the Consolidated Balance
Sheets. The trust income earned and the increases in insurance benefits on the
insurance products are also deferred until the service is performed in order to
offset inflation in cost to provide the service in the future. The preneed
funeral trust assets were approximately $36,523,000 and $52,931,000 at December
31, 1996 and 1997, respectively, which in the opinion of management, exceed the
future obligations under such arrangements. The type of instruments that the
trusts may invest in are regulated by state agencies.
F-12
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary reflects the composition of the assets held in trust
to satisfy the Company's future obligations under preneed funeral arrangements:
HISTORICAL UNREALIZED
COST BASIS GAIN (LOSS) FAIR VALUE
----------- ----------- -----------
(IN THOUSANDS)
As of December 31, 1996 --
Cash and cash equivalents...... $16,022 $ -- $16,022
Fixed income investment
contracts.................... 8,434 -- 8,434
Mutual funds, corporate bonds
and stocks................... 11,965 102 12,067
----------- ----------- -----------
Total..................... $36,421 $ 102 $36,523
----------- ----------- -----------
As of December 31, 1997 --
Cash and cash equivalents...... $23,891 $ -- $23,891
Fixed income investment
contracts.................... 10,638 -- 10,638
Mutual funds, corporate bonds
and stocks................... 17,960 442 18,402
----------- ----------- -----------
Total..................... $52,489 $ 442 $52,931
=========== =========== ===========
CEMETERY MERCHANDISE AND SERVICE TRUST
The Company is also generally required, by certain states, to deposit a
specified amount into a merchandise and service trust fund for cemetery
merchandise and service contracts sold on a preneed basis. The principal and
accumulated earnings of the trust may be withdrawn by the Company upon maturity
(generally, the death of the purchaser) or cancellation of the contracts. Trust
fund investment income is recognized in current revenues as trust earnings
accrue, net of current period inflation costs recognized related to the
merchandise that has not yet been purchased. Merchandise and service trust fund
balances, in the aggregate, were approximately $1,134,000 and $9,567,000 at
December 31, 1996 and 1997, respectively, and are included in Preneed
Liabilities, net on the accompanying Consolidated Balance Sheets.
PERPETUAL AND MEMORIAL CARE TRUST
In accordance with respective state laws, the Company is required to
deposit a specified amount into perpetual and memorial care trust funds for each
interment/entombment right and memorial sold. Income from the trust fund is used
to provide care and maintenance for the cemeteries and mausoleums and is
periodically distributed to the Company and recognized as revenue upon
distribution. The perpetual and memorial care trust assets were approximately
$2,002,000 and $8,408,000 at December 31, 1996 and 1997, respectively, which, in
the opinion of management, will cover future obligations to provide care and
maintenance for the Company's cemeteries and mausoleums. The Company does not
have the right to withdraw any of the principal balances of these funds and,
accordingly, these trust fund balances are not reflected in the accompanying
Consolidated Balance Sheets.
DEFERRED OBTAINING COSTS
Deferred obtaining costs consist of sales commissions and other direct
marketing costs applicable to preneed funeral sales, net of insurance
commissions received. These costs are deferred and amortized in funeral costs
and expenses over the expected timing of the performance of the services covered
by the preneed funeral contracts.
F-13
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 115, and all of the Company's
investment securities are classified as available for sale securities. At
December 31, 1996 and 1997, the Company had no gross unrealized gains (losses).
The Company does not use derivative financial instruments or participate in
hedging activities.
INVENTORY
Inventory is recorded at the lower of its cost basis (determined by the
specific identification method) or net realizable value.
NAMES AND REPUTATIONS
The excess of the purchase price over the fair value of net identifiable
assets acquired, as determined by management in transactions accounted for as
purchases, is recorded as Names and Reputations. Such amounts are amortized over
40 years. Many of the Company's acquired funeral homes have provided high
quality service to families for generations. The resulting loyalty often
represents a substantial portion of the value of a funeral business. The Company
reviews the carrying value of Names and Reputations at least quarterly on a
location-by-location basis to determine if facts and circumstances exist which
would suggest that this intangible asset may be impaired or that the
amortization period needs to be modified. If indicators are present which
indicate impairment is probable, the Company will prepare a projection of the
undiscounted cash flows of the location and determine if the intangible assets
are recoverable based on these undiscounted cash flows. If impairment is
indicated, then an adjustment will be made to reduce the carrying amount of the
intangible asset to its fair value. At December 31, 1997, no impairment was
deemed to have occurred.
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of," as of January 1, 1996, and such adoption
did not have a material impact on the Company's consolidated financial position
or results of operations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The costs of ordinary
maintenance and repairs are charged to operations as incurred, while renewals
and betterments are capitalized. Capitalized interest was $162,000 and $264,000
in 1996 and 1997, respectively. Depreciation of property, plant and equipment is
computed based on the straight-line method over the following estimated useful
lives of the assets:
YEARS
--------
Buildings and improvements........... 15 to 40
Furniture and fixtures............... 7 to 10
Machinery and equipment.............. 5 to 10
Automobiles.......................... 5 to 7
INCOME TAXES
The Company files a consolidated U.S. federal income tax return. The
Company records deferred taxes for temporary differences between the tax basis
and financial reporting basis of assets and liabilities.
F-14
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER COMMON SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share, which replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods presented have been restated to
conform to the Statement 128 requirements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management believes that carrying value approximates fair value for cash
and cash equivalents and marketable equity securities which are designated as
available-for-sale. Additionally, its floating rate Credit Facility approximates
its fair value. Management also believes that its redeemable preferred stock is
stated at fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BUSINESS SEGMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 ("SFAS No. 131"), Disclosures About Segments of an Enterprise and Related
Information. SFAS 131, effective for years beginning after December 15, 1997,
requires segment information to be reported on a basis consistent with that used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company will adopt SFAS No. 131 in 1998 and is
evaluating the way segment information is reported.
2. ACQUISITIONS:
During 1997, the Company acquired 44 funeral homes and 10 cemeteries
through the purchase of stock and assets. In 1996, the Company acquired 38
funeral homes and 7 cemeteries through the purchase of stock and assets. These
transactions have been accounted for utilizing the purchase method of
accounting, and the results of operations of the acquired businesses have been
included in the results of the Company from the respective dates of acquisition.
In accordance with APB Opinion 16, purchase prices were allocated to the
net assets acquired based on management's estimate of the fair value of the
acquired assets and liabilities at the date of acquisition. Many of the
Company's acquired funeral homes have provided high quality service to families
for generations. The resulting loyalty often represents a substantial portion of
the value of a funeral business. As a result, the excess of the consideration
paid over the fair value of net tangible and other identifiable intangible
assets is allocated to Names and Reputations. Future adjustments to the
allocation of the purchase price may be made during the 12 months following the
date of acquisition due to resolution of uncertainties existing at the
acquisition date, which may include obtaining additional information regarding
asset and liability valuations.
F-15
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effect of the above acquisitions on the Consolidated Balance Sheets at
December 31, 1996 and 1997 was as follows:
1996 1997
---------- ----------
(IN THOUSANDS)
Current Assets....................... $ 3,532 $ 11,909
Cemetery Property.................... 3,610 28,276
Property, Plant and Equipment........ 22,574 34,830
Deferred Charges and Other
Non-current Assets................. 1,542 1,597
Names and Reputations................ 43,139 55,013
Current Liabilities.................. (1,025) (1,631)
Debt................................. -- (1,072)
Other Liabilities.................... (5,191) (10,662)
---------- ----------
68,181 118,260
Consideration:
Redeemable preferred stock issued.... (17,775) (20,000)
Debt................................. (6,582) (18,210)
Preferred stock issued............... (555) --
Cash acquired in acquisitions........ (274) (556)
Common Stock issued.................. (288) (13,887)
---------- ----------
Cash used for acquisitions...... $ 42,707 $ 65,607
========== ==========
The following table reflects, on an unaudited pro forma basis, the combined
operations of the Company and the businesses acquired during 1996 and 1997 as if
such acquisitions had taken place at the beginning of 1996. Appropriate
adjustments have been made to reflect the accounting basis used in recording
these acquisitions. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that would have resulted had the combination been in effect on the date
indicated, that have resulted since the respective dates of acquisition or that
may result in the future.
1996 1997
---------- ----------
(UNAUDITED AND IN
THOUSANDS)
Revenues, net........................ $ 95,169 $ 98,672
Income (loss) before income taxes and
extraordinary item................. (1,686) 7,803
Net income (loss) available to common
stockholders....................... (2,157) 3,207
Earnings (loss) per share
Basic........................... (.44) .31
Diluted......................... (.44) .31
F-16
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DEFERRED CHARGES AND OTHER NON-CURRENT ASSETS:
Deferred charges and other non-current assets at December 31, 1996 and 1997
were as follows (in thousands):
1996 1997
--------- ---------
Agreements not to compete, net of
accumulated amortization of
$1,722 and $2,233 respectively..... $ 3,297 $ 4,034
Deferred debt expense, net of
accumulated amortization of $78
and $23, respectively.............. 511 324
Non-current cemetery and notes
receivable......................... 2,114 9,807
Deferred obtaining costs, net of
accumulated amortization of $44
and $253, respectively............. 1,245 2,928
--------- ---------
$ 7,167 $ 17,093
========= =========
The cost of agreements not to compete with former owners of businesses
acquired are amortized over the term of the respective agreements, ranging from
four to 10 years. Deferred debt expense is being amortized over the term of the
related debt. Non-current cemetery receivables result from the multi-year
payment terms in the underlying contracts. These cemetery receivables are
recorded net of allowances for customer cancellations, refunds and bad debts.
4. LONG-TERM DEBT:
The Company's long-term debt consisted of the following at December 31 (in
thousands):
1996 1997
--------- ----------
Credit Facility, unsecured floating
rate $150 million line, interest is
due on a quarterly basis for prime
borrowings and on the maturity
dates of the eurodollar borrowings
at the applicable eurodollar rate
plus .50% to 1.25% (weighted
average interest rate was 6.8772%
for the quarter ended December 31,
1997), matures in September,
2002............................... $ -- $ 107,500
Credit Facility, unsecured floating
rate $75 million line, interest was
due on a quarterly basis at prime
to prime plus .25% or at the
applicable eurodollar rate plus
.75% to 2.0%....................... 36,500 --
Acquisition debt..................... 6,395 10,817
Other................................ 574 5,219
Less -- Current portion.............. (736) (1,983)
--------- ----------
$ 42,733 $ 121,553
========= ==========
In conjunction with the closing of the initial public offering (the
"IPO") in August 1996, the Company entered into a Credit Facility (the
"Former Credit Facility") which provided for a $75 million revolving line of
credit with both LIBOR and base rate interest options. This Former Credit
Facility was unsecured and was for a term of three years. During September 1997,
the Company entered into a new credit facility (the "New Credit Facility") for
a $150 million revolving line of credit. The New Credit Facility has a five year
term, is unsecured and contains customary restrictive covenants, including a
restriction on the payment of dividends on common stock and requires the Company
to maintain certain financial ratios. The Company was in compliance with all
covenants at December 31, 1997. In August 1996, the Company paid all of its
outstanding indebtedness with the proceeds from the issuance of its Class A
Common Stock in connection with the Company's IPO (see Note 7) and utilization
of the Former Credit Facility. In connection with repayment of debt in August
F-17
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 and the retirement of debt issued by the Former Credit Facility in
September 1997, the Company recognized an extraordinary loss of approximately
$498,000 and $195,000, net of income tax benefit of approximately $332,000 and
$159,000 for the write-off of the deferred loan costs associated with the early
retirement of debt for the years ended December 31, 1996 and 1997, respectively.
Acquisition debt consists of deferred purchase prices, payable to sellers.
The deferred purchase price notes bearing interest at 0%, discounted at imputed
interest rates ranging from 6% to 8%, with maturities from 3 to 15 years.
The aggregate maturities of long-term debt for the year ended December 31,
1998 and for the subsequent four years, are approximately $1,983,000,
$2,021,000, $1,196,000, $1,193,000, and $108,744,000, respectively and
$8,399,000 thereafter.
5. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases certain office facilities, vehicles and equipment under
operating leases for terms ranging from one to fifteen years. Certain of these
leases provide for an annual adjustment. Rent expense was approximately
$951,000, $924,000 and $1,997,000 for 1995, 1996 and 1997, respectively.
Assets acquired under capital leases are included in property, plant and
equipment on the accompanying Consolidated Balance Sheets.
At December 31, 1997 minimum lease payments were as follows:
MINIMUM LEASE PAYMENTS
-----------------------
OPERATING CAPITAL
LEASES LEASES
---------- --------
(IN THOUSANDS)
Years ended December 31,
1998............................ $1,792 $ 679
1999............................ 1,557 2,632
2000............................ 1,099 230
2001............................ 799 207
2002............................ 1,449 198
Thereafter...................... 2,181 2,716
---------- --------
Total minimum lease payments......... $8,877 6,662
==========
Less: amount representing interest... 1,857
Less: current portion of obligations
under capital leases............... 356
--------
Long-term obligations under capital
leases............................. $ 4,449
========
AGREEMENTS AND EMPLOYEE BENEFITS
The Company has entered into various employment agreements and agreements
not to compete with key employees and former owners of businesses acquired.
Payments for such agreements are not made in advance. These agreements are
generally for one to ten years and provide for future payments annually,
quarterly or monthly. The aggregate payments due under these agreements for the
subsequent five years, are approximately $1,356,000, $1,342,000, $1,101,000,
$924,000 and $845,000, respectively and $2,576,000 thereafter. In conformity
with industry practice, these agreements are not included in the accompanying
Consolidated Balance Sheets.
F-18
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company sponsors one defined contribution plan for the benefit of its
employees. The expense for this plan has not been significant for the periods
presented. In addition, the Company does not offer any other post-retirement or
post-employment benefits.
LITIGATION
Certain of the funeral homes located in California that were acquired by
the Company in early 1997, along with other death care providers, are defendants
in litigation in the state of California alleging that a flight service
contracted to dispose of cremains failed to properly carry out its duties. While
the litigation is in the early stages, management, with the advice of legal
counsel, believes that there are adequate insurance coverages, indemnities and
reserves such that the results of this litigation will not have a material
effect on the Company's consolidated financial position or result of operations.
Additionally, the Company is, from time to time, subject to routine litigation
arising in the normal course of its business. Management, with the advice of
legal counsel, similarly believes that the results of any such routine
litigation or other pending legal proceedings will not have a material effect on
the Company's consolidated financial position or results of operations.
6. INCOME TAXES:
The provision for income taxes for 1995, 1996 and 1997 consisted of:
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
Current
U. S. Federal................... $ -- $ -- $ 1,275
State........................... 35 84 759
--------- --------- ---------
Total current provision.... 35 84 2,034
--------- --------- ---------
Deferred:
U. S. Federal................... 585 48 1,564
State........................... 74 6 128
--------- --------- ---------
Total deferred provision... 659 54 1,692
--------- --------- ---------
Total income tax
provision............... $ 694 $ 138 $ 3,726
========= ========= =========
A reconciliation of taxes to the U.S. federal statutory rate to those
reflected in the Consolidated Statements of Operations for 1995, 1996 and 1997
is as follows:
1995 1996 1997
--------- --------- ---------
Federal statutory rate............... (34.0)% 34.0% 34.0%
Effect of state income taxes, net of
federal benefit at 34%............. (6.0) 4.0 5.3
Effect of nondeductible expenses and
other, net......................... 3.9 57.3 15.9
Effect of valuation allowance........ 74.7 (55.3) (14.5)
Effect of change in statutory rate... -- -- 4.6
--------- --------- ---------
38.6% 40.0% 45.3%
========= ========= =========
F-19
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
deferred tax assets and liabilities at December 31, 1996 and 1997 were as
follows:
1996 1997
--------- ----------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss
carryforwards................. $ 2,369 $ 510
Reserves not currently
deductible.................... 200 509
Accrued liabilities and other... 104 701
Amortization of non-compete
agreements.................... 387 816
--------- ----------
3,060 2,536
Valuation allowance.................. (1,442) (268)
--------- ----------
Total deferred tax
assets.................. $ 1,618 $ 2,268
========= ==========
Deferred tax liability:
Amortization and depreciation... $ (4,893) $ (12,814)
Preneed assets, net............. (170) (1,670)
--------- ----------
Total deferred tax
liabilities............. $ (5,063) $ (14,484)
========= ==========
Net deferred tax liability........... $ (3,445) $ (12,216)
========= ==========
Current net deferred asset........... $ 304 $ 897
Non-current net deferred liability... (3,749) (13,113)
--------- ----------
$ (3,445) $ (12,216)
========= ==========
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets for which realization is uncertain. The Company
reviews the valuation allowance at the end of each quarter and makes adjustments
if it is determined that it is more likely than not that the NOL's will be
realized. At December 31, 1997, the Company has approximately $584,000 of
federal net operating loss ("NOL") carryforwards which will expire between
2009 and 2011, if not utilized, and $3,826,000 of state NOL carryforwards which
will expire between the years 2000 and 2012, if not utilized. As a result of the
IPO (see Note 7), there may be a limitation placed on the Company's utilization
of its NOL's by Section 382 of the Internal Revenue Code in any one particular
tax year. Deferred tax liabilities were recorded with respect to purchase
accounting transactions during the year ended December 31, 1997 in the
approximate amount of $7,218,000.
7. STOCKHOLDERS' EQUITY:
INITIAL PUBLIC OFFERING
On August 8, 1996 the Company completed its IPO of 3,910,000 shares of its
Class A Common Stock at $13.50 per share for net proceeds of approximately $48
million, after selling commissions and related expenses of approximately $5
million. The net proceeds of the IPO were used to repay outstanding indebtedness
of the Company. In connection with the IPO, the Company performed a
recapitalization of its Common Stock into two classes of Common Stock (Class A
and Class B), provided separate voting rights to each class and converted
existing Common Stock to Class B Common Stock. The holders of Class A Common
Stock are entitled to one vote for each share held on all matters submitted to a
vote of common stockholders. The holders of Class B Common Stock are entitled to
ten votes for each share held on all matters submitted to a vote of common
stockholders. The Series A, B and C Preferred Stocks automatically converted
into Class B Common
F-20
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock upon closing of the IPO. Series D Preferred Stock remained outstanding
after the IPO (see Note 8).
PREFERRED STOCK
Prior to the IPO, the Company had three classes of preferred stock
outstanding, Series A, B and C. These preferred stocks automatically converted
into shares of Class B Common Stock at the effective date of the IPO (August 8,
1996).
TREASURY STOCK
The Company purchased 3,292 shares of Class B Common Stock for $60,000 and
170,000 shares of Series B Preferred Stock for $341,000, during 1997 and 1996,
respectively. Such shares have been canceled.
STOCK OPTION PLANS
The Company has three stock option plans currently in effect under which
future grants may be issued: the 1995 Stock Incentive Plan (the "1995 Plan"),
the 1996 Stock Option Plan (the "1996 Plan") and the 1996 Nonemployee Director
Stock Option Plan (the "Directors' Plan").
Options granted under the 1995 Plan have a ten year term. All options
granted under the 1995 Plan prior to the IPO vest immediately, while
substantially all of those issued in conjunction with and after the IPO vest
over a four year period at 25% per year. Options issued under this plan prior to
the Company's IPO are satisfied with shares of Class B Common Stock, but options
issued after that date are satisfied with shares of Class A Common Stock. A
total of 700,000 shares are reserved for issuance under the 1995 Plan of which
408,449 shares were outstanding at December 31, 1997.
Options granted under the 1996 Plan and the Directors' Plan have ten year
terms and vest 8.33% per year on the first through fourth anniversary dates of
the grant date and 16.66% per year on the fifth through eighth anniversary dates
of the grant date; provided, however, the options scheduled to vest in years 5-8
from the grant date (i.e., 66 2/3% of the total grant) vest immediately if the
average of the daily high and low prices of the Class A Common Stock for 20
consecutive trading days exceeds $27.99 prior to the fourth anniversary of the
grant date. A total of 600,000 shares of Class A Common Stock are reserved for
issuance under the 1996 Plan and 200,000 shares of Class A Common Stock are
reserved for issuance under the Directors' Plan. A total of 560,000 and 130,000
shares were outstanding under the 1996 Plan and Directors' Plan, respectively.
F-21
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with SFAS No. 123, the Company's net income (loss)
and income (loss) per share would have been the following pro forma amounts:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Net income (loss) available to common
stockholders
As reported..................... $ (2,494) $ (913) $ 3,406
Pro forma....................... (2,721) (1,122) 2,353
Net income (Loss) per share available
to common stockholders:
Basic
As reported..................... (.99) (.19) .33
Pro forma....................... (1.08) (.23) .23
Diluted
As reported..................... (.99) (.19) .32
Pro forma....................... (1.08) (.23) .22
Each of the plans is administered by a stock option committee appointed by
the Board of Directors. The plans allow for options to be granted as
non-qualified options, incentive stock options, reload options, alternative
appreciation rights and stock bonus options. As of December 31, 1997, only
non-qualified options and incentive stock options have been issued. The options
are granted with an exercise price equal to the then fair market value of the
Company' s Common Stock as determined by the Board of Directors.
A summary of the status of the plans at December 31, 1996 and 1997 and
changes during the year ended is presented in the table and narrative below:
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997
------------------ ------------------
SHARES WTD AVG. SHARES WTD AVG.
(000) EX PRICE (000) EX PRICE
------ -------- ------ --------
Outstanding at beginning of period... 50 $ 9.80 850 $13.74
Granted.............................. 818 13.9 338 20.18
Exercised............................ (5) 10.43 (23) 11.35
Canceled............................. (13) 10.11 (65) 16.80
------ ------
Outstanding at end of year........... 850 13.74 1,100 15.40
------ ------
Exercisable at end of year........... 74 10.34 146 12.41
------ ------
Weighted average fair value of
options granted.................... $ 8.00 $ 8.52
All of the options outstanding at December 31, 1997 have exercise prices
between $8.00 and $24.75, with a weighted average exercise price of $15.40 and a
weighted average remaining contractual life of 8.8 years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997, respectively: risk-free interest
rates of 6.67% and 6.45%; expected dividend yields of zero percent and zero
percent; expected lives of ten years and five years; expected volatility of
30.45% and 35.90%.
F-22
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVERSE STOCK SPLIT
On July 18, 1996, the Company's Board of Directors and stockholders
approved an amendment to the Company's Certificate of Incorporation which
authorized a one for two reverse stock split. The Consolidated Financial
Statements were restated in 1996 as if the reverse stock split had occurred at
the beginning of the earliest period presented. For each two shares of Class B
Common Stock at $.01 par, the stockholder received one share of Class B Common
Stock at $.01 par. Upon completion of the IPO, the Series A, B and C Preferred
Stocks automatically converted into Class B Common Stock. The number of shares
held by each Series A, B and C Preferred stockholder remained the same; however,
the conversion prices for Class B Common Stock on those preferred shares doubled
in conjunction with the above-mentioned reverse stock split. In addition, the
exercise prices on outstanding stock options also doubled related to this
reverse stock split, and the number of shares of Class B Common Stock covered by
such options decreased by 50%.
8. REDEEMABLE PREFERRED STOCK:
The Company has 20,000,000 authorized shares of Series D Preferred Stock
with a par value of $.01 per share, of which approximately 17,253,000 and
1,682,500 shares were issued and outstanding at December 31, 1996 and 1997,
respectively. As of December 31, 1997, these shares can be converted into Class
A Common Stock at the rate of $15.50 per share. The holders of Series D
Preferred Stock are entitled to receive preferential dividends at an annual rate
ranging from $0.06 to $0.07 per share, payable quarterly. Dividends are payable
quarterly as long as the stock is outstanding. The Series D Preferred Stock is
redeemable, in whole or in part, at the option of the Company, at any time
during the period commencing with the second anniversary of the Company's IPO
(August 8, 1998) and ending December 31, 2001. On December 31, 2001, the Company
must redeem all shares of Series D Preferred Stock then outstanding at a
redemption price of $1.00 per share, together with all accrued and unpaid
dividends.
Concurrent with every issuance of Series D Preferred Stock, irrevocable
standby letters of credit, issued by a financial institution and guaranteed by
the Company, were given to the holders (or designated beneficiaries) and can be
drawn upon if certain events occur, including the following: the Company has
failed to pay preferred stock dividends, the Company has failed to redeem the
preferred stock shares on the designated mandatory redemption date or a
liquidation, dissolution or winding up of affairs of the Company occurs. As of
December 31, 1997, letters of credit of approximately $1,740,000 were
outstanding relative to Series D Preferred Stock.
During the first quarter of 1997, the Company issued approximately
20,000,000 shares of Series F Preferred Stock with a par value of $.01 per share
to fund a portion of the acquisitions, of which 12,278,285 were outstanding at
December 31, 1997. These shares are convertible into Class A Common Stock at the
rate of $16.00 per share as of December 31, 1997, and increasing to $17.00 per
share on January 1, 1998. The holders of the Series F Preferred Stock are
entitled to receive preferential dividends at the amount of $.04 payable
quarterly, increasing to five percent per year for the period January 1, 1998
until January 1, 2001, at which time the annual rate becomes fixed at $.0486 per
share. On December 31, 2007, the Company must redeem all shares of Series F
Preferred Stock then outstanding at a redemption price of $1.00 per share,
together with all accrued and unpaid dividends.
F-23
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EARNINGS PER SHARE:
The following table sets forth the computation of the basic and diluted
earnings (loss) per share for 1995, 1996 and 1997:
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net income (loss) before
extraordinary item............ $ (2,494) $ 207 $ 4,491
Extraordinary item.............. -- (498) (195)
--------- --------- ---------
Net income (loss)............... (2,494) (291) 4,296
Preferred stock dividends....... -- (622) (890)
--------- --------- ---------
Numerator for basic earnings per
share -- net income (loss)
available to common
stockholders.................. $ (2,494) $ (913) $ 3,406
Effect of dilutive securities:
Preferred stock
dividends............... -- -- --
--------- --------- ---------
Numerator for diluted earnings
per share -- net income
available to common
stockholders after assumed
conversions................... $ (2,494) $ (913) $ 3,406
--------- --------- ---------
Denominator:
Denominator for basic earnings
per share --
weighted-average shares....... 2,520 4,869 10,226
Effect of dilutive securities:
Stock options.............. -- -- 259
--------- --------- ---------
Denominator for diluted earnings
per share --
adjusted weighted-average
shares and assumed
conversions................... 2,520 4,869 10,485
--------- --------- ---------
Basic earnings per share:
Net income (loss) before
extraordinary item............ $ (.99) $ (.09) $ .35
Extraordinary item.............. -- (.10) (.02)
--------- --------- ---------
Net income (loss)............... $ (.99) $ (.19) $ .33
========= ========= =========
Diluted earnings per share:
Net income (loss) before
extraordinary item............ $ (.99) $ (.09) $ .34
Extraordinary item.............. -- (.10) (.02)
--------- --------- ---------
Net income (loss)............... $ (.99) $ (.19) $ .32
========= ========= =========
F-24
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. MAJOR SEGMENTS OF BUSINESS
The Company conducts funeral and cemetery operations only in the United
States.
<TABLE>
<CAPTION>
FUNERAL CEMETERY CORPORATE CONSOLIDATED
-------- --------- ---------- -------------
(IN THOUSANDS, EXCEPT NUMBER OF OPERATIONS
LOCATIONS)
<S> <C> <C> <C> <C>
Revenues:
1997............................ $ 64,888 $12,533 $ -- $ 77,421
1996............................ 37,445 2,903 -- 40,348
1995............................ 22,661 1,576 -- 24,237
-------- --------- ---------- -------------
Income from operations:
1997............................ $ 16,484 $ 2,899 $ (5,277) $ 14,106
1996............................ 6,804 362 (2,474) 4,692
1995............................ 3,740 250 (2,106) 1,884
-------- --------- ---------- -------------
Identifiable assets:
1997............................ $208,833 $57,020 $ 12,087 $ 277,940
1996............................ 117,061 9,285 4,962 131,308
1995............................ 48,847 2,169 10,730 61,746
-------- --------- ---------- -------------
Depreciation and amortization:
1997............................ $ 5,195 $ 1,454 $ 1,160 $ 7,809
1996............................ 2,863 129 637 3,629
1995............................ 1,609 72 267 1,948
-------- --------- ---------- -------------
Capital expenditures:(a)
1997............................ $ 34,858 $34,653 $ 2,758 $ 72,269
1996............................ 24,737 5,073 1,004 30,814
1995............................ 4,530 100 1,116 5,746
-------- --------- ---------- -------------
Number of operating locations at year
end:
1997............................ 120 20 -- 140
1996............................ 76 10 -- 86
1995............................ 41 3 -- 44
</TABLE>
- ------------
(a) Includes $2,727,000, $26,184,000 and $63,106,000 for the three years ended
December 31, 1997, respectively, for purchases of property, plant and
equipment and cemetery property of acquired businesses.
F-25
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. QUARTERLY FINANCIAL DATA (UNAUDITED):
The table below sets forth consolidated operating results by fiscal quarter
for the years ended December 31, 1996 and 1997 (in thousands, except per share
data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
1996(A)
Revenues, net........................ $ 7,635 $ 9,290 $ 10,145 $ 13,278
Gross profit......................... 1,670 1,719 994 2,783
Net income (loss) before
extraordinary item................. (193) (468) (414) 1,282
Extraordinary item................... -- -- (498) --
Preferred stock dividend
requirements....................... 10 91 250 271
Net income (loss).................... (203) (559) (1,162) 1,011
Basic earnings (loss) per common
share
Continuing operations........... $ (.08) $ (.22) $ (.11) $ .12
Extraordinary item.............. -- -- (.09) --
--------- --------- --------- ---------
Net income (loss)............... $ (.08) $ (.22) $ (.20) $ .12
--------- --------- --------- ---------
Diluted earnings (loss) per common
share
Continuing operations........... $ (.08) $ (.22) $ (.11) $ .12
Extraordinary item.............. -- -- (.09) --
--------- --------- --------- ---------
Net income (loss)............... $ (.08) $ (.22) $ (.20) $ .12
--------- --------- --------- ---------
1997(A)
Revenues, net........................ $ 17,989 $ 19,061 $ 18,245 $ 22,126
Gross profit......................... 5,143 5,003 3,557 5,680
Net income before extraordinary
item............................... 1,825 1,489 347 830(b)
Extraordinary item................... -- -- (195) --
Preferred stock dividend
requirements....................... 363 174 176 177
Net income (loss).................... 1,462 1,315 (24) 653(b)
Basic earnings per common share:
Continuing operations........... $ .16 $ .13 $ 0.02 $ .06(b)
Extraordinary item.............. -- -- (0.02) --
--------- --------- --------- ---------
Net income...................... $ .16 $ .13 $ -- $ .06(b)
--------- --------- --------- ---------
Diluted earnings per common share:
Continuing operations........... $ .16 $ .12 $ 0.02 $ .06(b)
Extraordinary item.............. -- -- (0.02) --
--------- --------- --------- ---------
Net income...................... $ .16 $ .12 $ -- $ .06(b)
--------- --------- --------- ---------
</TABLE>
- ------------
(a) Earnings per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly per share amounts does not
equal the total computed for the year due to stock transactions which
occurred during the periods presented.
(b) Includes a one-time charge of $390,000 (equivalent to $.04 per share) to
revalue historical deferred tax accounts from 34% to 35%.
F-26
<PAGE>
[CARRIAGE SERVICES LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the offering are estimated to be as follows:
Securities and Exchange Commission
registration fee...................... $ 35,244
NASD filing fee......................... 13,178
NYSE listing fee........................ 14,000
Legal fees and expenses................. 100,000
Accounting fees and expenses............ 50,000
Blue Sky fees and expenses (including
legal fees)........................... 5,000
Printing expenses....................... 125,000
Transfer Agent fees..................... 10,000
Miscellaneous........................... 47,578
----------
TOTAL.............................. $ 400,000
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Carriage, a Delaware corporation, is empowered by Section 145 of the
Delaware General Corporation Law (the "DGCL"), subject to the procedures and
limitations stated therein, to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that such person is or was a director,
officer, employee or agent of the company, or is or was serving at the request
of the company as a director, officer, employee or agent of another corporation
or other enterprise, against reasonable expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually incurred by him in
connection with such action, suit or proceeding, if such director, officer,
employee or agent acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Carriage is required by Section 145 to indemnify any
person against reasonable expenses (including attorneys' fees) actually incurred
by him in connection with an action, suit or proceeding in which he is a party
because he is or was a director, officer, employee or agent of the company or is
or was serving at the request of the company as a director, officer, employee or
agent of another corporation or other enterprise, if he has been successful, on
the merits or otherwise, in the defense of the action, suit or proceeding.
Section 145 also allows a corporation to purchase and maintain insurance on
behalf of any such person against any liability asserted against him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145. In addition, Section 145 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of shareholders or disinterested directors, or otherwise.
Article 10 of Carriage's charter provides that the company shall indemnify
and hold harmless any person who was, is, or is threatened to be made a party to
a proceeding by reason of the fact that he or she is or was a director or
officer of the company while a director or officer of the company, is or was
serving at the request of the company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise, to the fullest extent permitted
under the DGCL. The right to indemnification under Article 10 of the charter is
a contract right which includes, with respect to directors and officers, the
right to be paid by the company the expenses incurred in defending any such
proceeding in advance of its disposition.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From March 8, 1996 to September 6, 1996, Carriage sold an aggregate of
17,775,616 shares of Series D preferred stock, valued at $1.00 per share, to the
former owners of acquired funeral homes. Consideration for such shares consisted
of ownership interests in funeral home businesses. Carriage relied on an
exemption under Section 4(2) of the Securities Act in effecting these
transactions.
On May 28, 1996, an employee exercised options to purchase 1,000 shares of
common stock pursuant to Carriage's 1995 Stock Incentive Plan at an exercise
price of $5.00 per share. Carriage relied on an exemption under Section 4(2) of
the Securities Act in effecting this transaction.
On January 7, 1997, Carriage sold 19,999,992 shares of Series F preferred
stock, valued at $1.00 per share, to the former owners of acquired funeral
homes. Consideration for such shares consisted of ownership interests in funeral
home businesses. Carriage relied on an exemption under Section 4(2) of the
Securities Act in effecting this transaction.
From August 30, 1996 to May 31, 1997, Carriage sold an aggregate of 517,197
shares of Class A common stock, valued at market prices, to the former owners of
acquired funeral homes. Consideration for such shares consisted of ownership
interests in funeral home businesses. Carriage relied on an exemption under
Section 4(2) of the Securities Act in effecting these transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*1.1 -- Form of Underwriting Agreement
3.1 -- Amended and Restated Certificate of Incorporation of the Company, as amended, incorporated
herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 (File No. 1-11961)
3.2 -- Certificate of Amendment dated May 9, 1996, incorporated herein by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997 (File No. 1-11961)
3.3 -- Certificate of Decrease, reducing the authorized Series D preferred stock, incorporated
herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (File No. 1-11961)
3.4 -- Certificate of Decrease, reducing the authorized Series F preferred stock, incorporated
herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (File No. 1-11961)
3.5 -- Amended and Restated Bylaws of the Company, incorporated herein by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 (File No. 333-05545)
4.1 -- Specimen Common Stock certificate, incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (File No. 333-05545)
*5.1 -- Opinion of Vinson & Elkins L.L.P.
10.1 -- Loan Agreement between the Company and NationsBank of Texas, N.A. dated September 9, 1997,
incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 (File No. 1-11961)
10.2 -- Asset Purchase Agreement dated November 13, 1997 among Carriage Funeral Holdings, Inc.,
Sidun Funeral Group, Inc. and Charles D. Sidun, incorporated herein by reference to
exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31,
1997 (File No. 1-11961)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10.3 -- Merger Agreement dated November 19, 1997 among Carriage Services, Inc., Carriage Services
of Florida, Inc., Forest Lawn/Evergreen Management Corp., Greg M. Brudnicki and Charles E.
Kent, incorporated herein by reference to exhibit 10.18 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 (File No. 1-11961)
10.4 -- Asset Purchase Agreement dated November 19, 1997 among Carriage Funeral Holdings, Inc.,
Kent-Thornton Funeral Home, Inc., Greg Brudnicki, Charles Kent, Ricky Kent and Jane
Thornton, incorporated herein by reference to exhibit 10.19 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997 (File No. 1-11961)
10.5 -- Employment Agreement with Melvin C. Payne, incorporated herein by reference to Exhibit
10.23 to the Company's Registration Statement on Form S-1 (File No. 333-05545)
10.6 -- Employment Agreement with Mark W. Duffey, incorporated herein by reference to Exhibit
10.24 to the Company's Registration Statement on Form S-1 (File No. 333-05545)
10.7 -- Employment Agreement with Russell W. Allen, incorporated herein by reference to Exhibit
10.25 to the Company's Registration Statement on Form S-1 (File No. 333-05545)
10.8 -- Employment Agreement with Gary O'Sullivan, incorporated herein by reference to Exhibit
10.26 to the Company's Annual Report on Form 10-K (File No. 1-11961)
10.9 -- Employment Agreement with Thomas C. Livengood, incorporated herein by reference to Exhibit
10.27 to the Company's Annual Report on Form 10-K (File No. 1-11961)
10.10 -- Amended and Restated 1995 Stock Incentive Plan, incorporated herein by reference to
Exhibit 10.23 to the Company's Annual Report on Form 10-K (File No. 1-11961)
10.11 -- Amended and Restated 1996 Stock Option Plan, incorporated herein by reference to Exhibit
10.24 to the Company's Annual Report on Form 10-K (File No. 1-11961)
10.12 -- Amended and Restated 1996 Directors' Stock Option Plan, incorporated herein by reference
to Exhibit 10.25 to the Company's Annual Report on Form 10-K (File No. 1-11961)
10.13 -- Employment Agreement with Greg M. Brudnicki, incorporated herein by reference to Exhibit
10.17 to the Company's Registration Statement on Form S-1 (File No. 333-51153)
10.14 -- Employment Agreement with Robert D. Larrabee, incorporated herein by reference to Exhibit
10.18 to the Company's Registration Statement on Form S-1 (File No. 333-51153)
10.15 -- Employment Agreement with Mark F. Wilson, incorporated herein by reference to Exhibit
10.19 to the Company's Registration Statement on Form S-1 (File No. 333-51153)
10.16 -- Carriage Partners Plan for Northern Florida, Southern Georgia and Alabama effective
November 20, 1997, incorporated herein by reference to Exhibit 10.20 to the Company's
Registration Statement on Form S-1 (File No. 333-51153)
10.17 -- Plan Adoption Agreement dated as of November 20, 1997 by and among Carriage Services of
Florida, Inc. and Greg M. Brudnicki, incorporated herein by reference to Exhibit 10.21 to
the Company's Registration Statement on Form S-1 (File No. 333-51153)
10.18 -- Carriage Partners Plan for Northwestern Idaho and Eastern Washington effective April 1,
1996, incorporated herein by reference to Exhibit 10.22 to the Company's Registration
Statement on Form S-1 (No. 333-51153)
*10.19 -- Amendment No. 1 to Carriage Partners Plan for Northwestern Idaho and Eastern Washington
effective May 29, 1998.
</TABLE>
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<CAPTION>
<S> <C> <C> <C>
*10.20 -- Amended and Restated Plan Adoption Agreement dated as of May 29, 1998 by and among
Carriage Funeral Services of Idaho, Inc. and Robert D. Larrabee.
10.21 -- Carriage Partners Plan for California effective January 7, 1997, incorporated herein by
reference to Exhibit 10.24 to the Company's Registration Statement on Form S-1 (File No.
333-51153)
10.22 -- Plan Adoption Agreement dated as of January 7, 1997 by and among Carriage Funeral Services
of California, Inc. and Mark F. Wilson, incorporated herein by reference to Exhibit 10.25
to the Company's Registration Statement on Form S-1 (File No. 333-51153)
10.23 -- Amendment No. 1 dated April 24, 1998 to the Loan Agreement by and among the Company and
NationsBank of Texas, N.A., dated September 9, 1997, incorporated herein by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998 (File No. 1-11961)
10.24 -- Amendment No. 2 dated September 16, 1998 to the Loan Agreement by and among the Company
and NationsBank of Texas, N.A., dated September 9, 1997, incorporated herein by reference
to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 (File No. 1-11961)
10.25 -- 1998 Stock Option Plan for Consultants, incorporated herein by reference to Exhibit 10.1
to the Company's Registration Statement on Form S-8 (File No. 333-62593)
10.26 -- Amendment No. 1 to 1995 Stock Incentive Plan. Incorporated herein by reference to Exhibit
10.1 to the Company's Registration Statement on Form S-8 (File No. 333-49041).
10.27 -- Amendment No. 1 to 1996 Stock Option Plan. Incorporated herein by reference to Exhibit
10.2 to the Company's Registration Statement on Form S-8 (File No. 333-49041).
10.28 -- 1997 Employee Stock Purchase Plan. Incorporated herein by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-8 (File No. 333-49053).
21.1 -- Subsidiaries of the Company
23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit 5.1 hereto)
24.1 -- Powers of Attorney (included on the signature page to the initial Registration Statement)
</TABLE>
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* To be filed by amendment.
All other exhibits have been previously filed.
(b) Consolidated Financial Statement Schedules
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
II-4
<PAGE>
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
STATE OF TEXAS, ON THE 15TH DAY OF JANUARY, 1999.
CARRIAGE SERVICES, INC.
By /s/ MELVIN C. PAYNE
MELVIN C. PAYNE
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark W. Duffey and Thomas C. Livengood, or either
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacitites, to sign any and all amendments (including post-effective
amendments) to this registration statement and any additional registration
statement pursuant to Rule 462(b), and to file the same with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -----------------
<S> <C> <C> <C>
/s/MELVIN C. PAYNE Chairman of the Board, Chief January 15, 1999
MELVIN C. PAYNE Executive Officer and Director
/s/MARK W. DUFFEY President and Director January 15, 1999
MARK W. DUFFEY
/s/THOMAS C. LIVENGOOD Executive Vice President, Chief January 15, 1999
THOMAS C. LIVENGOOD Financial Officer and Secretary
(Principal Financial and Accounting
Officer)
/s/C. BYRON SNYDER Director January 15, 1999
C. BYRON SNYDER
/s/BARRY K. FINGERHUT Director January 15, 1999
BARRY K. FINGERHUT
/s/GREG M. BRUDNICKI Director January 15, 1999
GREG M. BRUDNICKI
/s/RONALD A. ERICKSON Director January 15, 1999
RONALD A. ERICKSON
/s/ROBERT D. LARRABEE Director January 15, 1999
ROBERT D. LARRABEE
/s/STUART W. STEDMAN Director January 15, 1999
STUART W. STEDMAN
MARK F. WILSON Director January __, 1999
</TABLE>
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EXHIBIT 21.1
CARRIAGE SERVICES, INC.
SUBSIDIARIES AS OF DECEMBER 31, 1998
NAME INCORPORATION
---- -------------
Carriage Funeral Holdings, Inc. Delaware
CFS Funeral Services, Inc. Delaware
Carriage Holding Company, Inc. Delaware
Carriage Funeral Services of Michigan, Inc. Michigan
Carriage Funeral Services of Idaho, Inc. Idaho
Carriage Funeral Services of Kentucky, Inc. Kentucky
Carriage Funeral Services of Connecticut, Inc. Connecticut
Carriage Funeral Services of Indiana, Inc. Indiana
Carriage Funeral Services of California, Inc. California
Hillcrest Memorial Gardens, Inc. Idaho
Richmond County Memorial Park, Inc. North Carolina
Wilson & Kratzer Mortuaries California
Rolling Hills Memorial Park California
Grandview Memorial Gardens, Inc. Indiana
Carriage Funeral Services of Kansas, Inc. Kansas
CFS Funeral Services of Kansas, Inc. Kansas
CFS Services of Kentucky, Inc. Kentucky
Carriage Services of Illinois, Inc. Illinois
Carriage Services of New York, Inc. New York
Pioneer Funeral Plans, Inc. Texas
Carriage Services of Connecticut, Inc. Connecticut
Hamilton County Burial Services, Inc. Tennessee
CFS Services of Illinois, Inc. Illinois
Carriage Services of Florida, Inc. Florida
Feeney Funeral Home, Inc. New Jersey
CSI Funeral Services of Massachusetts, Inc. Massachusetts
Oak View Memorial Park Cemetery California
Lakeland Memorial Gardens, Inc. Florida
CHC Insurance Agency of Ohio, Inc. Ohio
Barnett, Demrow & Ernst, Inc. Kentucky
Carriage Services of Kansas, Inc. Kansas
Carriage Services of New Mexico, Inc. New Mexico
Forastiere Family Funeral Service, Inc. Massachusetts
Beard Mortuary, Inc. West Virginia
Carriage Cemetery Services, Inc. Texas
Carriage Services of Oklahoma, L.L.C. Oklahoma
Carriage Services of Massachusetts, Inc. Massachusetts
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated February 10,
1998 included in Carriage Services, Inc.'s Form 10-K for the year ended December
31, 1997, and all references to our Firm included in this registration
statement.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
January 15, 1999
