Exhibit 99.2
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Company & Investment Profile CARRIAGE June 2003
SERVICES
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NYSE: CSV
1900 St. James Place o 4th Floor o Houston, TX 77056
Phone: 713-332-8400 o Fax: 713-332-8401 o www.carriageservices.com
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KEY INVESTMENT POINTS
o Carriage's successful "Fresh Start Program" is largely complete, but
operating results related to its various Fresh Start initiatives are
expected to continue to improve gradually over time.
o After a period of rapid growth through acquisitions, Carriage Services has
stabilized and improved its operations and financial position. Future
results will be driven by its culture of service and leadership excellence
toward the goal of building a lasting enterprise.
o CSV's ability to generate free cash flow and reduce debt offers the unique
investment characteristics of an LBO structure. Under multiple scenarios,
presented herein, CSV could offer a 14% to 27% five-year IRR based upon
current valuation using assumptions believed to be reasonable by
management.
o The Long-Term Base Case scenario presented herein is based only on organic
growth assumptions and does not consider any incremental growth via
selective acquisitions, market share gains, etc.
SHARE STATISTICS
Price (June 6, 2003) $3.47
52 Wk. High/Low $4.65/$2.90
Shares Out. (In Mill.) 17.4
Equity Market Cap. (In Mill.) $60.4
Enterprise Value $298.7
Enterprise Value/EBITDA* 7.6
Price/2003(E) EPS Multiple 9.1
Book Value Per Share $5.79
Total Debt/EBITDA* 3.75
Total Debt/Capitalization 43.7%
LONG-TERM BASE CASE ESTIMATES
5-Yr. Compound Annual Revenue Growth 1.5%
5-Yr. Compound Annual EBITDA Growth 1.0%
5-Yr. Compound Annual EPS Growth 7.6%
5-Yr. Compound Annual Free Cash Flow Growth 2.6%
5-Yr. Compound Annual Pre-Tax Free Cash Flow Growth 13.3%
5-Yr. Compound Annual Reduction in Debt -11.9%
Balance sheet data as of March 31, 2003
* Trailing four quarters.
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MISSION STATEMENT: We are committed to being the most professional, ethical, and
highest quality funeral and cemetery service organization in our industry.
GUIDING 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.
SUMMARY
Founded in 1991 with an IPO in 1996, Carriage Services is a leading provider of
Death Care services and products in the United States and is the fourth largest
publicly traded Death Care company. Carriage Services' shares trade on the New
York Stock Exchange under the symbol CSV. As of March 31, 2003, Carriage
operated 143 funeral homes and 30 cemeteries in 29 states. Carriage's business
can be characterized as one of relative stability, reflected by predictable
revenue and cash flow, with incremental growth opportunities via selective
acquisitions.
With its success in the implementation and execution of Carriage's "Fresh Start
Program", the Company has stabilized and improved its operations and financial
position. Management is focused on continually improving the customer funeral
experience, upgrading operational leadership, increasing market share, operating
margins, free cash flow, and reducing debt. Carriage believes the improvement in
its operations and capital structure positions the Company well for the future.
While Carriage Services has succeeded in improving operations and the quality
and depth of its management, increasing free cash flow and substantially
decreasing debt levels, the Company believes the current equity valuation does
not accurately reflect these achievements and offers a unique investment
opportunity. As discussed later in this report, Carriage believes its current
capital structure coupled with its strong cash flow profile, will enable the
Company to continue to meaningfully pay down debt, offering investors the unique
investment characteristics of an LBO (leveraged buy out) structure, without the
often high promotional fees because CSV shares are publicly traded. Assuming
stable to modest growth in revenue and EBITDA, modest growth in free cash flow,
selective asset dispositions, and continued reduction in debt, Carriage believes
such a scenario could offer investors an 14% to 27% five year IRR (internal rate
of return), assuming a narrow range of enterprise value-to-EBITDA multiples over
the same period.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 1
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
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Company & Investment Profile CARRIAGE June 2003
SERVICES
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Noteworthy New or Updated Information in This Company & Investment Profile
Versus the Previous Edition:
o "Historical Earnings & Operating Data" table ....................... Page 6
o Updated and revised "Long-Term Base Case Scenario" table ........... Page 7
o Updated and revised "Base Case Enterprise Valuation
"LBO" Structure" ................................................. Page 8
o "Carriage Services Financial Outlook & Recent Results" ............. Page 11
o U.S. map of Carriage's funeral home and cemetery locations ......... Page 14
o Carriage Services "Operating Strategy" discussion .................. Page 15
o "Management Bios" .................................................. Page 17
o "Board of Directors & Corporate Governance" ........................ Page 17
o Income Statement ................................................... Page 20
o Balance Sheet ...................................................... Page 21
o Cash Flow Statement ................................................ Page 22
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Carriage Services (C)2003 Carriage Services, Inc. Page 2
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
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* This report is being published by Carriage Services in continuation of the
Company's stated goal to provide more disclosure and transparency to the
investment community regarding Carriage's operations, goals, industry dynamics
and conditions. Given structural and regulatory changes impacting the brokerage
industry, challenging capital market conditions, and reduced sell side analyst
coverage of Carriage Services, it is the Company's intent to take greater
responsibility and a more proactive role in communicating with investors.
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SUCCESSFUL FRESH START PROGRAM LARGELY COMPLETE
In response to its leveraged balance sheet resulting from its past active
acquisition program, deteriorating operating results, and a challenging
operating environment, Carriage implemented its multi-faceted Fresh Start
Program in the fourth quarter of 2000. The five Fresh Start goals Carriage set
out to achieve were:
1. Restore credibility to its operating and consolidation model;
2. Increase and better align its earnings and free cash flow;
3. Restore market value credibility to its balance sheet;
4. Reduce debt; and
5. Re-access the capital markets.
The program began with a review of the funeral home and cemetery portfolios,
operating strategies, organizational structure, and financial covenants under
Carriage's credit agreements. The key elements required to achieve the five
Fresh Start goals are as follows:
o Downsize its corporate organization
o Strengthen its corporate and operating leadership
o Change its preneed funeral marketing strategy
o Stratify its funeral home portfolio
o Improve or dispose of under performing businesses
o Adjust the carrying value of remaining assets
o Modify debt covenants
Carriage is pleased to report that it has met three of its five Fresh Start
goals, and is now positioned to re-access the bank credit market during 2003.
However, with its common shares currently valued at 60% of book value, it no
longer achieves the goal of restoring market value credibility to its balance
sheet. Carriage is committed to continue operating a lean corporate
organization, strengthening its corporate and local business leadership, and
improving or selling underperforming businesses. Carriage's progress in
achieving each of the five Fresh Start goals, together with their continued
relevance to future results, is as follows:
1. Restore credibility to its operating and consolidation model - Carriage is
committed to becoming the best, not the biggest, company in its industry.
This commitment is driven by a strong culture of service and leadership
excellence whose goal is to build a lasting enterprise. As a result,
Carriage has raised performance standards and increased accountability for
all employees throughout the organization. In Carriage's view, the benefit
of integrating acquired businesses is to introduce its innovative service
and sales strategies to provide the highest quality funeral experience to
client families and to introduce its operating model to improve long-term
performance. Carriage continues to invest heavily in employee training in
order to enable its field operations to better serve families, especially
training on personalization of the funeral ritual to create a unique and
emotional experience. The result of successful execution of its service
and sales strategies will be to increase customer satisfaction, revenue
per experience, and market share. Carriage has experienced some
deterioration in market share in a small minority of its businesses and is
diligently working to remedy market share losses. Nevertheless, Carriage's
portfolio of businesses is stable, and future performance is relatively
visible and predictable.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 3
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
2. Increase and better align earnings and free cash flow - Since implementing
Fresh Start, Carriage has implemented more disciplined controls over its
capital expenditures and shifted its preneed funeral marketing strategy
from a national to a local focus. These two factors have been the key
drivers to better align earnings and free cash flow. In conjunction with
the operating model described above, Carriage believes it will continue to
improve and maintain the alignment of earnings and free cash flow. In 2002
Carriage reported net income of $7.7 million (before special items) and
free cash flow of $12.9 million, greatly improved versus 2000 net income
of $1 million (before special charges and other items) and free cash flow
of $6.4 million. The free cash flow for 2001 was positively impacted by
tax refunds totaling $4.5 million and out of period trust fund withdrawals
totaling $4.1 million. Free cash flow for years beginning in 2004 includes
the assumption that the Company will have utilized its tax loss
carryforwards and will begin paying Federal income taxes.
3. Restore market value credibility to its balance sheet - The large non-cash
charges Carriage incurred in 2000 to initiate its Fresh Start Program
substantially reduced the Company's book value per share, which was $5.79
as of March 31, 2003. As Carriage executes its operating model and
successfully improves long-term profitability, Carriage will continue to
increase book value per share. Based on its Base Case scenario and implied
share prices presented herein, Carriage believes it will achieve alignment
of its book value and market value per share during the next three- to
five-years.
4. Reduce debt - Since Fresh Start was initiated on November 8, 2000,
Carriage has reduced its debt and contingent obligations from previous
acquisitions by $56.8 million, or 28%, from $205 million to $148.2 million
at March 31, 2003. The Long Term Base Case Scenario, as shown in the
chart, reflects further debt reduction in the future, from $148.2 million
at March 31, 2003 to $79.1 million at December 31, 2007.
5. Re-access the capital markets - As of March 31, 2003, Carriage only had
$32.0 million (including $1.2 million in letters of credit) drawn on its
$75 million bank revolving credit facility, which matures in June 2004.
Carriage expects to replace its current facility with a new facility by
the end of 2003 which would be smaller than the existing facility but
large enough to handle the Company's requirements, including the $22.5
million maturity in July 2004 of the Company's Series A Senior Notes. The
remaining $75 million balance matures July 2006 and July 2008 in the
[The following tables were represented as bar charts in the printed material.]
Net Income
(in Millions)
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- -----
Fresh
Start
- -----
2000 2001 2002 2003E 2004E 2005E 2006E 2007E
$1.0 $9.0 $7.7 $6.8 $7.4 $8.5 $9.8 $11.2
- --------------------------------------------------------------------------------
Before special charges and other items.
All periods reflect the adoption of SAB 101.
Free Cash Flow
(in Millions)
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- -----
Fresh
Start
- -----
2000 2001 2002 2003E 2004E 2005E 2006E 2007E
$6.4 $22.7 $12.9 $11.7 $8.9 $10.9 $13.1 $14.7
- --------------------------------------------------------------------------------
Substantial Debt Reduction
(in Millions)
- --------------------------------------------------------------------------------
11/8/00 2001 2002 2003E 2004E 2005E 2006E 2007E
$265 $163 $149 $128 $118 $107 $84 $79
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* Includes contingent acquisition obligations.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 4
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
amounts of $53 million and $22 million, respectively, and carries an
approximate weighted average rate of 8%. Combined with the 7% rate on its
$90 million of mandatory redeemable preferred securities maturing in 2029,
the cost and maturities of Carriage's capital structure is favorable,
enabling the financial improvement related to Carriage's free cash flow
generation and debt reduction to benefit common shareholders.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 5
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
Carriage Services, Inc.
Historical Earnings & Operating Data
(In Thousands, Except Per Share Data)
2001 Mar-02 Jun-02 Sep-02 Dec-02 2002 Mar-03
------- ------------------------------------------------------ ------
Revenues:
Funeral 124,284 32,707 28,832 27,521 30,239 119,299 30,354
Cemetery 38,209 8,215 9,018 8,601 9,043 34,877 8,352
------- ------------------------------------------------------ ------
Total Revenues 162,493 40,922 37,850 36,122 39,282 154,176 38,706
Gross Profit:
Funeral 31,470 11,683 7,288 7,170 8,234 34,374 8,632
Cemetery 8,825 1,701 2,400 2,070 2,542 8,714 2,468
------- ------------------------------------------------------ ------
Total Gross Profit 40,295 13,384 9,688 9,240 10,776 43,088 11,100
Selling, General & Admin. Expense 8,698 2,506 2,328 3,615 2,392 10,841 2,612
Special & Other Charges 0 0 0 0 335 335 588
------- ------------------------------------------------------ ------
Operating Income 31,597 10,878 7,360 5,625 8,049 31,912 7,900
Interest Expense, Net (13,579) (3,124) (3,247) (3,105) (3,577) (13,053) (2,936)
Financing Costs of Preferred Securities (6,765) (1,674) (1,674) (1,675) (1,674) (6,697) (1,674)
------- ------------------------------------------------------ ------
Income Before Income Taxes 11,253 6,080 2,439 845 2,798 12,162 3,290
Provision (Benefit) for Income Taxes 2,251 (10,480) 962 325 1,077 (8,116) 1,234
------- ------------------------------------------------------ ------
Net Income 9,002 16,560 1,477 520 1,721 20,278 2,056
Special Charges & Other Items 0 (12,800) 0 0 206 (12,594) 368
------- ------------------------------------------------------ ------
Net Income Before Special Charges & Other Items 9,002 3,760 1,477 520 1,927 7,684 2,424
Basic EPS $0.54 $0.98 $0.09 $0.03 $0.10 $1.20 $0.12
------- ------------------------------------------------------ ------
Diluted EPS $0.51 $0.95 $0.08 $0.03 $0.10 $1.16 $0.12
Diluted EPS Excluding Special Charges & Other Items $0.51 $0.22 $0.08 $0.03 $0.11 $0.44 $0.14
------- ------------------------------------------------------ ------
Weighted Average Shares Outstanding:
Basic 16,696 16,894 16,942 16,978 17,073 16,973 17,320
Diluted 17,492 17,429 17,458 17,367 17,450 17,433 17,714
Margin Analysis 2001 Mar-02 Jun-02 Sep-02 Dec-02 2002 Mar-03
------- ------------------------------------------------------ ------
Revenues:
Funeral 76.5% 79.9% 76.2% 76.2% 77.0% 77.4% 78.4%
Cemetery 23.5% 20.1% 23.8% 23.8% 23.0% 22.6% 21.6%
------- ------------------------------------------------------ ------
Total Revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross Profit:
Funeral 25.3% 35.7% 25.3% 26.1% 27.2% 28.8% 28.4%
Cemetery 23.1% 20.7% 26.6% 24.1% 28.1% 25.0% 29.5%
------- ------------------------------------------------------ ------
Total Gross Profit 24.8% 32.7% 25.6% 25.6% 27.4% 27.9% 28.7%
Selling, General & Admin. Expense 5.4% 6.1% 6.2% 10.0% 6.1% 7.0% 6.7%
Special & Other Charges 0.0% 0.0% 0.0% 0.0% 0.9% 0.2% 1.5%
------- ------------------------------------------------------ ------
Operating Income 19.4% 26.6% 19.4% 15.6% 20.5% 20.7% 20.4%
Interest Expense, Net -8.4% -7.6% -8.6% -8.6% -9.1% -8.5% -7.6%
Financing Costs of Preferred Securities -4.2% -4.1% -4.4% -4.6% -4.3% -4.3% -4.3%
------- ------------------------------------------------------ ------
Income Before Income Taxes 6.9% 14.9% 6.4% 2.3% 7.1% 7.9% 8.5%
Provision (Benefit) for Income Taxes 1.4% -25.6% 2.5% 0.9% 2.7% -5.3% 3.2%
------- ------------------------------------------------------ ------
Net Income 5.5% 40.5% 3.9% 1.4% 4.4% 13.2% 5.3%
Special Charges & Other Items 0.0% -31.3% 0.0% 0.0% 0.5% -8.2% 1.0%
------- ------------------------------------------------------ ------
Net Income Before Special Charges & Other Items 5.5% 9.2% 3.9% 1.4% 4.9% 5.0% 6.3%
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Year-Over-Year Percentage Change
Funeral Revenues -2.3% -6.2% -7.4% -2.6% 0.8% -4.0% -7.2%
Cemetery Revenues 8.1% -8.5% -8.7% -8.6% -9.1% -8.7% 1.7%
Total Revenues -0.1% -6.7% -7.7% -4.1% -1.6% -5.1% -5.4%
Selling, General & Admin. Expense -15.2% 22.2% 6.8% 46.2% 19.8% 24.6% 4.2%
Operating Income -139.3% 7.8% -2.9% -2.5% -1.3% 1.0% -27.4%
Income Before Income Taxes -111.1% 28.1% -8.2% 24.5% -11.8% 8.1% -45.9%
Net Income Before Special Charges & Other Items -106.8% -0.5% -30.1% -3.7% -24.0% -14.6% -35.5%
Diluted EPS Excluding Special Charges & Other Items -108.9% -0.8% -29.3% -1.0% -23.1% -14.4% -36.6%
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================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 6
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
CSV: A UNIQUE INVESTMENT OPPORTUNITY
Carriage Services has stabilized, improved operational and financial
performance, and reduced debt. With the implementation and demonstrated success
of its Fresh Start Program, Carriage Services has turned the corner and is
repositioning for future growth. Carriage's improved operations has enabled the
Company to generate meaningful amounts of free cash flow, which, coupled with
dispositions, and tax savings, has allowed it to substantially pay down debt
without using external financing sources. Based on Carriage's current equity
valuation and, relative to its peers, Carriage does not believe the equity
market has truly recognized its accomplishments, nor the opportunities Carriage
has for the future.
Carriage believes its current capital structure, coupled with the ability to
generate free cash flow supplemented with cash from dispositions, enables it to
meaningfully pay down debt, offering investors the unique investment
characteristics of a LBO structure, without the often high promotional fees
because CSV shares are publicly traded. We examine several possible Enterprise
Value-to-EBITDA multiple scenarios that yield an implied five-year IRR (internal
rate of return) range of 14% to 27%. We provide these three scenarios to give
investors the opportunity to consider a range of possible outcomes. Scenario #1
assumes that Carriage's Enterprise Value-to-EBITDA Multiple declines by one
multiple point over the next five years. Scenario #2 assumes that Carriage's
Enterprise Value-to-EBITDA multiple remains flat over the next five years and
Scenario #3 assumes that Carriage's Enterprise Value-to-EBITDA multiple
gradually increases by one multiple point over the next five years.
Carriage stresses that this scenario analysis is only one possible outcome
within a range of possible outcomes. While Carriage believes it is using
reasonable assumptions to model operating results, cash flow, and the possible
effect on Carriage's per share price, there can be no assurance that actual
results and Carriage's share price would be consistent with these scenarios.
Subsequent management decisions and other factors (including those discussed
under "Cautionary Statements") may materially alter those assumptions and the
effect on actual results. The Long-Term Base Case Scenario is based on nominal
organic growth expectations, adjusted for divestitures, no growth in same store
funeral call volumes between 2003 and 2007, and modest increases in average
revenue per funeral. Further, this scenario does not reflect Carriage's
financial flexibility, which allows for alternative uses for free cash flow,
such as acquisitions, stock repurchases, or selective expansion of its existing
portfolio of businesses.
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Long-Term Base Case Scenario
(Revised as of May 12, 2003)
(In Millions $, Except Per Share Data)
Actual 5-Yr.
12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 CAGR
-------- -------- -------- -------- -------- -------- -----
Revenue 154.2 151.3 154.9 158.7 162.5 166.5 1.5%
Income Before Taxes 12.2 10.3 12.0 13.8 15.9 18.0 8.1%
Interest 19.8 18.1 16.4 15.6 14.6 13.5 -7.4%
Depreciation & Amortization 10.5 11.6 12.0 12.4 12.7 13.1 4.5%
----- ----- ----- ----- ----- ----- ----
EBITDA 42.5 40.0 40.4 41.8 43.2 44.6 1.0%
EPS, Diluted 0.43 0.38(1) 0.41 0.47 0.54 0.62 7.6%
Cashflow from Operations 18.9 17.3 15.4 16.9 18.6 20.2 1.3%
Less Capital Expenditures 6.0 5.6 6.5 6.0 5.5 5.5 -1.7%
----- ----- ----- ----- ----- ----- ----
Free Cash Flow 12.9 11.7 8.9 10.9 13.1 14.7 2.6%
Net Cash Tax (Refunds) Payments (1.6) 0.2 4.0 4.7 5.5 6.4 NM
----- ----- ----- ----- ----- ----- ----
Pre-Tax Free Cash Flow 11.3 11.9 12.9 15.6 18.6 21.1 13.3%
Diluted Shares Out. 17.5 17.9 18.0 18.1 18.2 18.3 1.0%
Divestitures & Other (4.5) 9.9 0.2 0.2 0.2 0.2 NM
Total Debt 149.1 127.5 118.4 107.3 94.0 79.1 -11.9%
Total Debt / EBITDA 3.5 3.2 2.9 2.6 2.2 1.8 -12.8%
Debt / Total Capitalization 44.2% 39.5% 36.8% 33.6% 29.7% 25.3% -10.6%
- ----------------------------------------------------------------------------------------------------------------------------
(1) Excludes the effect of $0.02 charge recorded in 1st quarter 2003. NM = Not meaningful
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 7
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
In this scenario, we assume that revenues grow at a 1.5% compound annual growth
rate (CAGR) over the next five years and assume that EBITDA grows at a 1.0% CAGR
over the same period. The Company estimates it could grow free cash flow at a
2.6% CAGR, which could allow it to reduce debt from $149.1 million at the end of
2002 to $79.1 million at the end of 2007, an 11.9% five-year compound annual
reduction in debt. The Company estimates that over one-half of the 7.6% CAGR in
EPS would result from interest savings related to debt reduction. The key
elements driving the substantial debt reduction over the five-year period are
gradual field level operating margin improvement, selective dispositions of
underperforming assets and cash tax savings in 2003. Due to the utilization of
the Company's net tax loss carry forward, Carriage does not expect to pay taxes
until 2004. Notwithstanding the assumptions regarding cash taxes, assumed
operating leverage and debt reduction could generate attractive IRR results
throughout the five-year period.
BASE CASE ENTERPRISE VALUATION "LBO" STRUCTURE
We use the financial assumptions in the Long-Term Base Case Scenario as the
foundation for the Base Case Enterprise Valuation analysis scenario. We assume
that CSV shares trade for $3.47 per share with a total equity market value of
roughly $60.4 million, which, when combined with its debt and preferred stock
(par value), yields an enterprise value of approximately $298.7 million.
- --------------------------------------------------------------------------------
Long-Term Base Case Scenario
(In Millions $, Except Multiples & Per Share Data)
SCENARIO #1: 1 Point Multiple Decrease
3/31/03 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07
- ---------------------------------------------------------------------------------------------------------------------------------
Implied Enterprise Value (EV):
Total Debt 148.2 127.5 118.4 107.3 94.0 79.1
Preferred Securities 90.2 90.2 90.2 90.2 90.2 90.2
Implied Mkt. Value Equity 60.4 76.8 80.8 93.5 107.9 123.4
----------------------------------------------------------------------------
Total 298.7 294.5 289.4 291.1 292.2 292.7
============================================================================
EBITDA* 39.5 40.0 40.4 41.8 43.2 44.6
Diluted Shares Out 17.5 17.9 18.0 18.1 18.2 18.3
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
SCENARIO #1: 1 Point Multiple Decrease
- ---------------------------------------------------------------------------------------------------------------------------------
EV/EBITDA Multiple 7.6X 7.4X 7.2X 7.0X 6.8X 6.6X
Implied Stock Price $3.47 $4.29 $4.49 $5.18 $5.95 $6.74
Annual % Increase 24% 5% 15% 15% 13%
| |
| |
|---------------------------------------------------------------|
|
|
- ---------------------------------------------------------------------------------------------------------------------------------
5 - Year Compound IRR 14%
- ---------------------------------------------------------------------------------------------------------------------------------
* Trailing four quarter EBITDA for "3/31/03".
Scenario #1: One Point Multiple Decrease - We assume that Carriage's Enterprise
Value-to-EBITDA multiple declines by one multiple point over the next five
years. Over that same period of time, Carriage's free cash flow generation and
business dispositions in 2003 allows it to substantially reduce its debt levels,
which, in turn, benefits CSV equity investors. Based on the assumption of a
declining Enterprise Value-to-EBITDA multiple but a rising implied share price
based on a per share debt reduction, the per share price increases from $3.47
currently to an implied share price of $6.74 at the end of 2007, a five-year IRR
in CSV share price of approximately 14%. Over this same time frame, Carriage's
absolute Enterprise Value-to- EBITDA multiple would decline by a full multiple
point from 7.6X currently to 6.6X at the end of 2007.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 8
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
- --------------------------------------------------------------------------------
Long-Term Base Case Scenario
(In Millions $, Except Multiples & Per Share Data)
SCENARIO #2: Flat Multiple
3/31/03 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07
- ----------------------------------------------------------------------------------------------------------------------------------
Implied Enterprise Value (EV):
Total Debt 148.2 127.5 118.4 107.3 94.0 79.1
Preferred Securities 90.2 90.2 90.2 90.2 90.2 90.2
Implied Mkt. Value Equity 60.4 84.8 96.9 118.6 142.5 168.0
--------------------------------------------------------------------------------
Total 298.7 302.5 305.6 316.1 326.7 337.3
================================================================================
EBITDA* 39.5 40.0 40.4 41.8 43.2 44.6
Diluted Shares Out 17.5 17.9 18.0 18.1 18.2 18.3
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
SCENARIO #2: Flat Multiple
- ----------------------------------------------------------------------------------------------------------------------------------
EV/EBITDA Multiple 7.6X 7.6X 7.6X 7.6X 7.6X 7.6X
Implied Stock Price $3.47 $4.74 $5.38 $6.57 $7.85 $9.18
Annual % Increase 37% 14% 22% 19% 17%
| |
| |
|---------------------------------------------------------------|
|
|
- ----------------------------------------------------------------------------------------------------------------------------------
5 - Year Compound IRR 21%
- ----------------------------------------------------------------------------------------------------------------------------------
* Trailing four quarter EBITDA for "3/31/03".
Scenario #2: Flat Multiple - We assume that Carriage's Enterprise
Value-to-EBITDA multiple remains flat at 7.6X over the next five years. Though
we assume the multiple remains flat, Carriage's estimated 1.0% CAGR in EBITDA
and an estimated 11.9% CAGR in debt reduction due to approximately 2.6%
anticipated compounded annual growth in free cash flow over the next five years
implies an increase in share price from $3.47 currently to $9.18, a 21%
five-year IRR.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 9
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
Long-Term Base Case Scenario
(In Millions $, Except Multiples & Per Share Data)
SCENARIO #3: 1 Point Multiple Increase
3/31/03 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07
- ----------------------------------------------------------------------------------------------------------------------------------
Implied Enterprise Value (EV):
Total Debt 148.2 127.5 118.4 107.3 94.0 79.1
Preferred Securities 90.2 90.2 90.2 90.2 90.2 90.2
Implied Mkt. Value Equity 60.4 92.8 113.1 143.7 177.1 212.6
Total 298.7 310.5 321.7 341.2 361.3 381.9
EBITDA* 39.5 40.0 40.4 41.8 43.2 44.6
Diluted Shares Out. 17.5 17.9 18.0 18.1 18.2 18.3
- ----------------------------------------------------------------------------------------------------------------------------------
SCENARIO #3: 1 Point Multiple Increase
- ----------------------------------------------------------------------------------------------------------------------------------
EV/EBITDA Multiple 7.6X 7.8X 8.0X 8.2X 8.4X 8.6X
Implied Stock Price $3.47 $5.18 $6.28 $7.96 $9.76 $11.62
Annual % Increase 49% 21% 27% 23% 19%
| |
| |
|---------------------------------------------------------------|
|
|
- ----------------------------------------------------------------------------------------------------------------------------------
5 - Year Compound IRR 27%
- ----------------------------------------------------------------------------------------------------------------------------------
* Trailing four quarter EBITDA for "3/31/03".
Scenario #3: One Point Multiple Increase - We assume that Carriage's Enterprise
Value-to-EBITDA multiple gradually increases over the next five years by one
multiple point to 8.6X. This scenario implies an increase in share price from
$3.47 currently to $11.62, a 27% five-year IRR.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 10
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
CARRIAGE SERVICES FINANCIAL OUTLOOK & RECENT RESULTS
Carriage Services reported 1Q03 financial results that were within the Company's
guidance range previously released to the public.
Results for 1Q03 versus guidance were as follows:
o Total revenue of $38.7 million versus guidance of $38 to $41 million.
o EBITDA of $10.5 million versus guidance of $10 to $12 million. EBITDA is
comprised of pre-tax earnings of $3.3 million plus interest and
depreciation and amortization expenses of $4.6 million and $2.6 million,
respectively.
o Diluted EPS before special items of $0.14 versus guidance of $0.13 to
$0.15. EPS after special items was $0.12.
In 1Q03, Carriage generated $2.1 million of free cash flow, consisting of cash
flow provided by operations of $3.8 million, less capital expenditures of $1.7
million. Despite lower death rates in 1Q03 this cash flow enabled Carriage to
reduce debt in the first quarter by $.9 million to $148.2 million. Special
charges and other items totaling $588,000 before taxes were recorded in 1Q03,
equal to a charge of $0.02 per diluted share, and consisted primarily of charges
related to the early termination of a lease obligation. Carriage terminated the
lease and purchased the underlying equipment.
Carriage's 2003 Financial Outlook takes into account the lower number of funeral
calls preformed during the first quarter of 2003 relative to the Company's
expectations and lower national death rates. Carriage assumes a same store
decrease in call volume of 2.9% in 2003.
- --------------------------------------------------------------------------------
Carriage Services Financial Outlook
* $ Estimates in Millions Except Per Share Data
Full Year
2Q03 2003
------------- -------------
Revenue $36 - $39 $149 - $154
EBITDA $8 - $10 $38 - $40
EPS (Before special charges) $0.06 - $0.08 $0.35 - $0.40
FCF from Operations NA $8 - $12
Debt NA <$130
- --------------------------------------------------------------------------------
Funeral Operations - Key Financial & Operating Data Comparison vs. 1Q02
o Funeral revenues were down 7.2% from $32.7 million, to $30.4 million.
o Same store funeral revenue decreased 7.0% from $32 million to $29.8
million
o Same store funeral calls decreased 8.6%
o Same store average revenue per call increased 1.6%, from $5,695 to $5,788
o Funeral gross margin decreased from 35.7% to 28.4% of revenue
o Carriage's cremation rate was 28.7% in 1Q03 versus 27.0% in 1Q02
Lower death rates in carriage's markets negatively impacted the Company's
funeral operations. Carriage identified 12% of its businesses that experienced
same store funeral call market share declines during 1Q03 versus 1Q02. These
businesses represented approximately 15% of Carriage's total funeral revenue and
field EBITDA for 1Q03 and approximately 55% of the total same store decline in
Carriage's funeral operations. The Company does not believe that the entire
decline in its impacted businesses is related to market share and in some cases
Carriage believes any market share decline will be temporary.
Cemetery Operations - Key Financial & Operating Data Comparison vs. 1Q02
o Cemetery revenues increased 1.7%, from $8.2 million to $8.4 million
o Same store cemetery revenue increased 1.7%
o Cemetery gross margin increased from 20.7% to 29.5% of revenue
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 11
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
Total cemetery revenues were positively impacted by a $.3 million increase in
preneed sales of internment sites compared to the prior year period. Financial
revenues (trust earnings and finance charges on the installment contracts)
declined $0.1 million versus the first quarter of last year. Cemetery costs and
expenses declined 9.7% versus 1Q02 primarily due to lower bad debt expense due
to changes in contract terms and improvements in receivable management
practices. For the first time in Carriage's history, cemetery gross margin of
29.5% exceeded the Company's funeral gross margin of 28.4% in 1Q03.
COMPANY BACKGROUND
Founded in 1991 with an IPO in 1996, Carriage Services is a leading provider of
Death Care services and products in the United States and is the fourth largest
publicly traded Death Care Company. As of March 31, 2003, Carriage operated 143
funeral homes and 30 cemeteries in 29 states. Carriage provides a complete range
of funeral and cremation services including planning and coordinating
personalized funerals, conducting memorial services, performing cemetery
interment services, and managing and maintaining cemetery properties. The
Company also sells products and merchandise including caskets, urns, burial
vaults, garments, cemetery interment rights, and monuments and markers.
Carriage's business can be characterized as one of relative stability, recurring
revenue and cash flow, with incremental growth opportunities via selective
acquisitions.
Since the formation of Carriage Services in 1991, the Company has focused on
distinguishing itself from its peers by operating a people development company
that emphasizes:
1. providing the highest level of personalized service to client families;
2. comprehensive employee training;
3. accountability to customers and each other; and
4. incentive compensation that shares the benefits of profitability with
responsible employees.
The Death Care industry experienced a period of rapid growth through acquisition
from 1996 through 1999, which took the industry's eye off the operating ball,
Carriage included. At the crescendo of 1999, balance sheets were over leveraged,
acquisition multiples revealed they were too high, and industry conditions
became challenging. In response, Carriage and its public peers significantly
curtailed their acquisition activity, focused on operations to improve cash
flow, and began culling through their property portfolios to find non-core
and/or under performing assets that could be sold to generate cash to reduce
debt.
Thus, 2000 was a transitional year for Carriage Services as it developed and
began implementing its two-year multi-element Fresh Start Program in the fourth
quarter of 2000 to address its poor operating performance and a challenging
operating environment. Due largely to the successful implementation and
execution of Fresh Start, Carriage Services has recovered from a highly
leveraged balance sheet and sub-par operating performance, resulting from the
rapid consolidation period the Death Care industry experienced in 1996 through
1999.
Beginning with the implementation of the Fresh Start program and through March
31, 2003, the Company has sold 32 funeral homes, 12 cemeteries and 11 parcels of
excess real estate for approximately $18 million of net proceeds. While these
transactions taken together represent a decline of approximately 20% of the
number of business locations, total revenues have only declined by approximately
5% and total gross profit has increased by 34%, when comparing 2000 operating
results to 2002 operating results.
In addition to making operational and financial improvements as part of Fresh
Start, Carriage reduced its corporate overhead and increased the quality of its
leadership. Carriage has turned to new leadership at substantially all levels of
the Company to focus on operations and to reposition Carriage for future growth.
Carriage will continue to improve its organizational leadership and quality of
personnel going forward.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 12
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
[The following table was represented as a bar chart in the printed material.]
- --------------------------------------------------------------------------------
Acquisition Spending
-----
Fresh
Start
-----
1995 1996 1997 1998 1999 2000* 2001* 2002*
- ---- ---- ---- ---- ---- ----- ----- -----
$12 $68 $118 $159 #44 $5 $0 $1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Carriage Services
Funeral Home & Cemetery Count
Year Ending December 31,
2000 2001 2002
--------------------------
Beginning Funeral Homes 182 172 148
Acquisitions or Openings 1 2 2
Divestitures, Mergers or Closures 11 26 6
Ending Funeral Homes 172 148 144
Beginning Cemeteries 41 38 30
Acquisitions 1 0 0
Divestitures 4 8 0
Ending Cemeteries 38 30 30
- --------------------------------------------------------------------------------
OPERATIONS OVERVIEW
Carriage's local funeral home operations, cemetery operations, and preneed
programs are managed by individuals with extensive death care experience. The
local operators continue to have responsibility for day-to-day operations, but
are required to follow centralized service and financial standards. This
strategy allows each local business to maintain its unique style of operation
and to capitalize on its reputation and heritage while Carriage maintains
centralized supervisory controls and provides specialized services at the
corporate level.
Carriage is committed to a strong information systems program and has all of its
funeral homes connected to information systems to monitor and assess critical
operating and financial data in order to analyze the performance of individual
homes on a timely basis. Management is able to access customer transaction data
and other operating information from its Houston support center to ensure the
quality of operating performance and to implement any necessary corrective
actions.
Funeral Home Operations
As of March 31, 2003, Carriage operated 143 funeral homes in 29 states. Funeral
home revenues accounted for approximately 78% and 80% of total revenues for the
first quarters ending 2003 and 2002, respectively. Carriage's funeral home
operations are managed by a team of experienced death care industry
professionals as well as selected region-level personnel with substantial
experience in other service industries. These individuals were recruited from
outside the industry bringing with them proven leadership and financial skills
together with best operating practices that are relevant to the death care
industry and have proven successful in other service industries.
Carriage's funeral homes offer a complete suite of services to meet families'
funeral needs, including consultation, removal and preparation of remains, the
sale of caskets and related funeral merchandise, the use of funeral homes for
visitation and religious services, and transportation services. Most of
Carriage's funeral homes have a non-denominational chapel on premises, which
permits family visitation and religious services to take place on location,
reducing inconvenience to the family.
Cemetery Operations
As of March 31, 2003, Carriage operated 30 cemeteries in 12 states. Cemetery
revenue accounted for approximately 22% and 20% of total revenues for the
quarters ending 2003 and 2002, respectively. Carriage's cemetery products and
services include interment services, the rights to interment cemetery sites
(including grave sites, mausoleum crypts and niches) and related cemetery
merchandise such as memorials and vaults. Cemetery operations generate revenues
through sales of
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 13
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
interment rights, memorials and installations, fees for interment and cremation
services, finance charges from sales contracts, and investment income from
preneed cemetery merchandise and perpetual care trusts.
[Graphic Map of U.S. Omitted]
Preneed Programs
In addition to the sales of funeral merchandise and services, cemetery interment
rights and cemetery merchandise, and services at the time of need, Carriage also
markets funeral and cemetery services and products on a preneed basis. Preneed
funeral and cemetery contracts enable families to establish, in advance, the
type of service to be performed, the products to be used and the costs for 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 Carriage to establish a portion
of its future market share. Proceeds of preneed funeral contracts are not
recognized as revenue until the time the funeral service is performed.
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 behalf of the customer or by the purchase of a life
insurance policy, the proceeds of which will pay for the 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 inflationary cost increases. During the early part of
2000, Carriage shifted its focus from the sale of trust-funded contracts to the
sale of insurance funded contracts. The shift towards insurance products has
improved the Company's cash flow and reduced the costs associated with the
administration of trust accounts.
In addition to preneed funeral contracts, we also offer "preplanned" funeral
arrangements whereby the client determines in advance substantially all of the
details of a funeral service without any financial commitment or other
obligation on the part of the client until the actual time of need. Preplanned
funeral arrangements permit a family to avoid the emotional strain of making
death care plans at the time of need and enable a funeral home to establish
relationships with a client that may eventually lead to an at-need sale.
Preneed cemetery sales are usually financed through interest bearing installment
sales contracts, generally with terms of up to five years. Interest rates
generally range from 9%-14%. Preneed sales of cemetery interment rights are
recorded as revenue when 10% of the contract amount has been collected.
Merchandise and services revenue is recorded when delivery has occurred. Costs
related to cemetery preneed contracts and delivery of products and services is
recorded concurrent with related revenue. Carriage always receives an initial
payment at the time the contract is signed.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 14
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
OPERATING STRATEGY
While Carriage's strategies have changed since the Company has turned from a
company focused on acquisitions to a company focused on operations, its mission
to become the best funeral and cemetery organization in the industry has not.
Carriage's operating strategies focus on increasing the cash flow and
profitability of its properties significantly above the level that could have
been achieved had their properties been operating as a stand alone, independent
business. The key elements of Carriage's operating strategies include:
Personalized Service - Carriage believes that providing personalized service
results in increased customer satisfaction, increased market share, more
motivated employees, a higher average sales price per service and consistently
higher levels of profitability. The Company has placed a great deal of emphasis
upon recruiting new leaders and communicating to its employees the linkage
between personalized service, customer satisfaction, market share increases and
profitability throughout the organization.
Employee Training - Carriage has made a significant commitment of financial and
human resources to a company-wide training effort. This training is designed to
improve the leadership, management and communication skills among employees and
to improve the execution of Carriage's "Cycle of Service" that includes
providing personalized service that clients will value. In its training,
Carriage emphasizes listening and communication skills in working towards the
goal of uniquely memorializing the life of an individual. This long-term
investment in its employees, we believe, will lead to increased market share,
higher cash flow, and profitability.
Enhanced Systems - As mentioned, Carriage uses a computer system linked to all
of its funeral homes that 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. Carriage uses the Internet
as a medium to internally disseminate certain information to regional management
and locations. The Company is investing part of its cash flow to implement a new
cemetery system in 2003, which should improve its efficiency and effectiveness
in the future.
High Standards of Performance - Carriage continuously establishes targets to
emphasize and enhance customer service, 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 Carriage's extensive training programs and monitored by
executive leadership. Carriage believes its investment in recruiting top quality
regional and location leaders and managers will result in a higher performing
and more profitable funeral portfolio in 2003 and beyond. The Company also
expects local and regional cemetery leadership to achieve greater portfolio
sales and profits.
Quality Review Management Systems - Carriage has developed quality based
management systems that operate within its decentralized management structure.
The systems involve quantifiable customer survey input in addition to
operational and financial measures of performance. These systems are being
implemented at the locations under the direction of Carriage's regional vice
presidents and regional managers.
Incentive Compensation - Carriage has developed a compensation structure that is
designed to create and maintain an ownership mentality to align overall
compensation to the Company's performance objectives. Local management is
awarded meaningful profit sharing cash bonuses or other rewards for achieving
specified service, operational, and financial performance objectives. Carriage
also has stock based programs for corporate personnel, which award stock or
options to certain employees based upon their performance. As a result, most
management personnel, whether field or corporate, and key employees have the
opportunity to increase their compensation and personal net worth through
performance aligned with increasing shareholder value.
Cost Savings & Operating Efficiencies - Carriage's larger size, versus local
operators, allows favorable pricing an terms to be achieved from vendors through
volume discounts on significant expenditures, such as caskets, urns, vaults,
monuments, and markers. Further, certain financial, accounting, legal,
administrative, and employee benefit functions are centralized to allow for more
efficient and cost effective support operations.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 15
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
INDUSTRY OVERVIEW
The national death rate in the United States has grown at a compound annual rate
of approximately 1% since 1980, with annual variation of 1%-2%. However death
rates were down approximately 1% in 2001 and 2% in 2002, the first back-to-back
decline since the mid 1970's. Year to date in 2003, death rates have continued
to lag and it is unclear when death rates will return to a normalized level.
National government statistics are predicting an annual compounded rate of
growth in the number of deaths of .75% through 2010, after which the rate of
growth is expected to gradually increase due to the aging population. While the
number of deaths typically varies from year to year, industry studies indicate
that major medical advances in treating heart, cancer and other major diseases
that cause death are resulting in an increase in the average age of the
population. This trend is calling into question various death rate forecasts
calling for an increase in the number of deaths each year.
The Death Care industry tends to experience some seasonal biases in the winter
months due to increases in cold weather induced deaths, or occasionally in
extreme heat conditions in the summer. Despite a period of unusual back to back
decreases in death rates, the Death Care business can generally be characterized
as one of relative stability, reliability, and a very low failure rate. Carriage
views the long-term stability and reliability of the Death Care business,
through good times and bad, as an attractive investment attribute, especially
given today's uncertain economic and capital markets environment.
Despite a period of rapid consolidation of smaller, private funeral and cemetery
businesses by the public Death Care companies in 1996 through 1999, the industry
remains fragmented. Carriage estimates that there are approximately 22,000
funeral homes and 10,000 commercial cemeteries (as opposed to religious, family,
fraternal, military, or municipal) in the United States, with private businesses
comprising roughly 80% of the total. Carriage Services and the three other
largest publicly traded domestic Death Care companies represented approximately
20% of the 2002 domestic Death Care industry revenues. Though Carriage and the
rest of its public peers have significantly reduced or eliminated an active
acquisition campaign, there remains the opportunity for consolidation of
smaller, privately held businesses to supplement internal growth.
The aging of the large number of Baby Boomers over the next ten to twenty years
could raise the national mortality rate slightly above its historic average,
generating enhanced growth opportunities for the Death Care industry. However, a
rising trend in cremations poses some risk for the Death Care industry to fully
realize the benefit from the shift in the population to the +65 years of age
category. It is estimated that cremations accounted for 10% of the U.S. burial
market in 1980 and has grown to 28% in 2002. The cremation trend is expected to
increase to 39% of the U.S. burial market in 2010. While cremation services and
products are higher margin than traditional burial proceedings, they are
typically less in absolute dollar terms. To mitigate this and to even capitalize
on the growing cremation trend, Carriage has developed innovative, high quality
funeral and memorializing services and additional products to increase its
cremation revenue per funeral.
While it is by no means impossible to enter the Death Care industry, there are
barriers to entry that have kept the number of funeral and cemetery businesses
in the United States fairly constant. Since approximately 80% of the funeral and
cemetery business remain privately held, these businesses are typically passed
on and operated by the same family for generations. In most cases these
businesses have developed a local heritage and tradition that act as a barrier
to insurgents in a given market. These established local businesses often have a
backlog of preneed, prefunded funerals or presold cemetery and mausoleum spaces,
making it difficult for new entrants to gain entry into the marketplace.
Additional barriers to entry include the difficulty of local zoning
restrictions, increasing regulatory burdens, and scarcity of cemetery land in
certain urban areas.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 16
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
MANAGEMENT BIOS
Melvin C. Payne, a management founder 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. Mr. Payne resumed the additional position of President in
December 2000. Mr. Payne serves on the Board of Directors of Sovereign Business
Forms, Inc., a private company in the business forms manufacturing industry.
Joseph Saporito has been Senior Vice President, Chief Financial Officer and
Secretary of Carriage since September 2002. Mr. Saporito, a certified public
accountant, has responsibility for the financial and administrative functions of
Carriage. Prior to joining Carriage, he served as Division Head of the
Commercial Audit Division of the Houston office of Arthur Andersen LLP, where he
was a partner for 15 years.
Jay D. Dodds has been the Senior Vice President of Funeral Operations for
Carriage since October 2000. Mr. Dodds joined Carriage in 1994 as an operations
Vice President. He has over 20 years of professional funeral home and cemetery
experience. Prior to joining Carriage, he was affiliated with Stewart
Enterprises in its Southwest region, operating funeral homes and cemeteries for
13 years, most recently serving as Senior Vice President. Mr. Dodds is a member
of the National Funeral Directors Association and serves on its Advocacy
Committee.
James J. Benard has been Senior Vice President of Sales and Cemetery Operations
for Carriage since November 2001. Mr. Benard joined Carriage in 1998 as a
Regional Vice President of Sales. He has over 22 years of professional funeral
home and cemetery experience. Prior to joining Carriage, he was affiliated with
Service Corporation International in various roles for ten years. Mr. Benard is
a member of the International Cemetery and Funeral Association.
George Klug has been Senior Vice President and Chief Information Officer since
May of 2002. He joined Carriage in July of 2001 to align the technology
functions with the company's business plan. Before joining Carriage, Mr. Klug
served from 1997 to 2000 as Vice President of Information Technology at Allright
Corporation, an owner operator of parking facilities both national and
international. Prior to Allright, Mr. Klug served as Vice President of
Information Technology for various retail companies including Oshmans,
Sportstown, and Zaks. He also has a background in operations and accounting and
has been in management positions for 30 years.
Mark Groeneman has been Senior Vice President of Human Resources since July
2001. He joined Carriage in January 2000 to formalize and develop Carriage's
human resources functions. Before joining Carriage, Mr. Groeneman served from
1998 to 2000 as Vice President of Human Resources at Allright Corporation, an
owner and operator of parking facilities across the country. Prior to Allright,
Mr. Groeneman served as Vice President - Human Resources from 1994 to 1998 at
Oshman's Sporting Goods, a nation-wide major retailer of sporting goods and
apparel. Mr. Groeneman has over 22 years of human resources related experience
in the retail, service and manufacturing industries.
BOARD OF DIRECTORS & CORPORATE GOVERNANCE
Carriage's Board of Directors consists of six members, of which four are
independent. This board composition complies with Board provisions under the
Sarbanes-Oxley Act.
Melvin C. Payne, a management founder 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. Mr. Payne resumed the additional position of President in
December 2000. Mr. Payne serves on the Board of Directors of Sovereign Business
Forms, Inc., a private company in the business forms manufacturing industry.
Joe R. Davis became a director of Carriage Services in May 2003. He has been the
Chief Executive Officer and Chairman of the Board of Consolidated Graphics Inc.
("CGX") since he founded it in 1985. Mr. Davis serves on the Executive Committee
of CGX's Board of Directors.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 17
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
Vincent D. Foster became a director of Carriage in November 1999. Mr. Foster is
a Senior Managing Director of Main Street Mezzanine Fund, LLC, a licensed small
business investment corporation, and served as Senior Managing Director of Main
Street Equity Ventures II, L.P. (and its predecessor firm), a private equity
firm, from 1997 through 2002. Mr. Foster is a director of Quanta Services, Inc.,
and served as its nonexecutive Chairman of the Board of Directors from February
1998 through May 2002. Mr. Foster is also a director of U.S. Concrete, Inc. and
serves as its nonexecutive Chairman of the Board. From September 1988 through
October 1997, Mr. Foster was a partner of Andersen Worldwide and Arthur Andersen
LLP, where he served as the director of the corporate finance practice and the
mergers and acquisitions practice in the southwestern United States.
Greg M. Brudnicki became a director of Carriage in November 1997 when Forest
Lawn/Evergreen Management Corp. merged with a subsidiary of Carriage. Mr.
Brudnicki served as the President and Chief Executive Officer of Forest Lawn
until the merger, when he became the Co-Manager of the Forest Lawn cemeteries
and funeral homes operated by Carriage. Mr. Brudnicki served as Senior Vice
President of Cemetery Operations from November 2000 until November 2001,
whereupon Mr. Brudnicki resumed his previous role with our operations in
Northwest Florida. Mr. Brudnicki serves as a director of Peoples 1st Community
Bank, and as Chairman of the Florida Board of Funeral and Cemetery Services.
Stuart W. Stedman has been a director of Carriage since it went public in August
1996. For the past 18 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 and a member of the
compensation committee of Strand Energy, L.L.C., a private exploration and
production company.
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 and sporting goods stores. Mr. Erickson is also a director (and member of
the board's compensation committee) of Andersen Corporation, a privately held
manufacturer of windows and patio doors.
Audit Committee - Is comprised of Erickson, Foster, and Stedman, all independent
board members.
Corporate Governance Committee - Is comprised of Erickson, Foster, and Stedman,
all independent board members.
Compensation Committee - Is comprised of Foster, Stedman and Davis, all of whom
are independent board members. The compensation committee is the body that
reviews and approves the compensation of the senior officers of the Company.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 18
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
RECAP
Founded in 1991 with an IPO in 1996, Carriage Services is a leading provider of
Death Care services and products in the United States and is the fourth largest
publicly traded Death Care company. Carriage Services' shares trade on the New
York Stock Exchange under the symbol CSV. As of March 31, 2003, Carriage
operated 143 funeral homes and 30 cemeteries in 29 states. Carriage's business
can be characterized as one of relative stability, reflected by predictable
revenue and cash flow, with incremental growth opportunities via selective
acquisitions.
With its success in the implementation and execution of Carriage's "Fresh Start
Program", the Company has stabilized and improved its operations and financial
position. Management is focused on continually improving the customer funeral
experience, upgrading operational leadership, increasing market share, operating
margins, free cash flow, and reducing debt. Carriage believes the improvement in
its operations and capital structure positions the Company well for the future.
While Carriage Services has succeeded in improving operations and the quality
and depth of its management, increasing free cash flow and substantially
decreasing debt levels, the Company believes the current equity valuation does
not accurately reflect these achievements and offers a unique investment
opportunity. As discussed earlier in this report, Carriage believes its current
capital structure coupled with its strong cash flow profile, will enable the
Company to continue to meaningfully pay down debt, offering investors the unique
investment characteristics of an LBO (leveraged buy out) structure, without the
often high promotional fees because CSV shares are publicly traded. Assuming
stable to modest growth in revenue and EBITDA, modest growth in free cash flow,
selective asset dispositions, and continued reduction in debt, Carriage believes
such a scenario could offer investors an 14% to 27% five year IRR (internal rate
of return), assuming a narrow range of enterprise value-to-EBITDA multiples over
the same period.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 19
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
Carriage Services, Inc.
Consolidated Statement of Operations
(Unaudited & In Thousands, Except Per Share Data)
For the Three Months
Ended March 31,
2002 2003
-------- --------
Revenues, Net
Funeral 32,707 30,354
Cemetery 8,215 8,352
------ ------
40,922 38,706
Costs & Expenses
Funeral 21,024 21,722
Cemetery 6,514 5,884
------ ------
27,538 27,606
Gross Profit
Funeral 11,683 8,632
Cemetery 1,701 2,468
- ----------------------------------------------------------------------------
Gross Profit 13,384 11,100
- ----------------------------------------------------------------------------
Gross Profit Margin 32.7% 28.7%
General & Admin. Expenses 2,506 2,612
Special Charges & Other 0 588
------ ------
Operating Income 10,878 7,900
Interest Expense, Net 3,124 2,936
Financing Costs of Preferred Securities 1,674 1,674
------ ------
Total Interest & Financing Costs 4,798 4,610
Income Before Taxes 6,080 3,290
Provision (Benefit) for Income Taxes (10,480) 1,234
------ ------
Net Income 16,560 2,056
- ----------------------------------------------------------------------------
Basic EPS $0.98 $0.12
- ----------------------------------------------------------------------------
Diluted EPS $0.95 $0.12
Weighted Avg. Basic Shares Out.: 16,894 17,320
Weighted Avg. Diluted Shares Out.: 17,429 17,714
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 20
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
Carriage Services, Inc.
Consolidated Balance Sheets
(In Thousands) Unaudited
December 31, March 31,
2002 2003
------------ ---------
ASSETS
Current Assets:
Cash & Cash Equivalents $2,702 $3,926
Accounts Receivable --
Trade, Net of Allowance for Doubtful Accounts 14,640 13,871
-------- --------
Other 746 570
15,386 14,441
Inventories & Other Current Assets 8,777 8,504
-------- --------
Total Current Assets 26,865 26,871
Property, Plant & Equip. at Cost, Net of Accum. Dep 113,967 114,047
Cemetery Property at Cost 64,570 64,458
Goodwill 158,696 158,696
Deferred Charges & Other Non-Current Assets 60,344 58,909
Preneed Funeral Contracts 235,347 236,582
Preneed Cemetery Merchandise & Service Trust Funds 43,965 45,177
-------- --------
Total Assets $703,754 $704,740
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable & Accrued Liabilities $26,115 $23,291
Current Portion of Long-Term Debt & Obligations Under Capital
Leases 2,348 2,280
-------- --------
Total Current Liabilities 28,463 25,571
======== ========
Deferred Cemetery Revenue & Preneed Liabilities 96,794 97,856
Deferred Preneed Funeral Contracts Revenue 243,067 244,298
Long-Term Debt, Net of Current Portion 141,207 140,340
Obligations Under Capital Leases, Net of Current Portion 5,539 5,538
-------- --------
Total Liabilities 515,070 513,603
Minority Interest in Consolidated Subsidiary 400 400
Carriage Services Capital Trust Redeemable Conv. Pref 90,193 90,226
Stockholders' Equity:
Common Stock 171 174
Contributed Capital 185,100 186,118
Retained Deficit (86,915) (84,860)
Deferred Compensation (854)
Unrealized Loss on Interest Rate Swaps, Net of Tax Benefits (265) (67)
-------- --------
Total Stockholders' Equity 98,091 100,511
Total Liabilities & Stockholders' Equity $703,754 $704,740
======== ========
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 21
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
Carriage Services, Inc.
Consolidated Statement of Cash Flows
(Unaudited & In Thousands)
For the Three Months
Ended March 31,
2002 2003
------- ------
Cash Flows from Operating Activities:
Net Income $16,560 $2,056
Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
Depreciation & Amortization 2,595 2,685
Provision for Losses on Accounts Receivable 972 144
Deferred Income Taxes (Benefit) (11,907) 1,233
Other (20) 96
Changes in Assets & Liabilities, Net of Effect from Acquisitions & Dispositions:
(Increase) Decrease in Accounts Receivable 632 1,234
(Increase) Decrease in Inventories & Other Current Assets (841) 277
(Increase) in Deferred Charges & Other (61) (30)
(Increase) in Preened Funeral & Cemetery Costs (864) (988)
(Increase) in Preneed Cemetery Trust Funds (1,075) (1,158)
(Decrease) in Accounts Payable & Accrued Liabilities (1,988) (2,393)
Income Tax (Payments) Refunds, Net (49) 11
Increase in Deferred Revenue & Preneed Liabilities 1,504 626
------- ------
Net Cash Provided by Operating Activities 5,458 3,793
Cash Flows from Investing Activities:
Net Proceeds from Sales of Businesses & Other Assets (43) 0
Sale of Minority Interest In Subsidiary 200 0
Acquisitions, Net of Cash Acquired (1,040) 0
Capital Expenditures (1,398) (1,725)
------- ------
Net Cash Provided by (Used In) Investing Activities (2,281) (1,725)
Cash Flows from Financing Activities:
Proceeds (Payments) Under Bank Line of Credit 6,000 1,800
Payments on Long-Term Debt & Capital Lease Obligations (3,628) (2,736)
Proceeds from Issuance of Common Stock 222 92
Payments of Contingent Stock Price Guarantees (5,289) 0
------- ------
Net Cash Used in Financing Activities (2,695) (844)
Net Decrease in Cash & Cash Equivalents 482 1,224
Cash & Cash Equivalents at Beginning of Period 2,744 2,702
------- ------
Cash & Cash Equivalents at End of Period $3,226 $3,926
======= ======
Supplemental Disclosure of Cash Flow Information:
Cash Paid for Interest & Financing Costs $6,811 $6,564
Cash Paid for Income Taxes $156 $22
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 22
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
Forward-Looking Statements
In addition to historical information, this Company & Investment Profile
contains forward-looking statements within the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements include any
projections of earnings, revenues, asset sales, cash flow, debt levels or other
financial items; any statements of the plans, strategies and objectives of
management for future operation; any statements regarding future economic
conditions or performance; any statements of belief; and any statements of
assumptions underlying any of the foregoing. Forward-looking statements may
include the words "may", "will", "estimate", "intend", "believe", "expect",
"project", "forecast", "plan", "anticipate" and other similar words. . Readers
should carefully review the Cautionary Statements described in this and other
documents we file from time to time with the Securities and Exchange Commission,
including Annual Reports on Form 10-K and Current Reports on Form 8-K filed by
Carriage in the future.
Cautionary Statements
The Company cautions readers that the following important factors, among others,
in some cases have affected, and in the future could affect, the Company's
actual consolidated results and could cause the Company's actual consolidated
results in the future to differ materially from the goals and expectations
expressed herein and in any other forward-looking statements made by or on
behalf of the Company.
Risks related to our business
(1) Earnings from and principal of trust funds and insurance contracts could be
reduced by changes in stock and bond prices and interest and dividend rates.
(2) Increased costs may have a negative impact on earnings and cash flows.
(3) Our ability to achieve our debt reduction targets and to service our debt in
the future depends upon our ability to generate sufficient cash, which depends
on many factors, some of which are beyond our control.
(4) We may experience declines in preneed sales due to numerous factors
including changes made to contract terms and sales force compensation, or a
weakening economy. Declines in preneed sales would reduce our backlog and
revenue and could reduce our future market share.
(5) Increased preneed sales may have a negative impact on cash flow.
(6) Price competition could reduce market share or cause us to reduce prices to
retain or recapture market share, either of which could reduce revenues and
margins.
(7) Increased advertising or better marketing by competitors, or increased
activity by competitors offering products or services over the Internet, could
cause us to lose market share and revenues or cause us to incur increased costs
in order to retain or recapture our market share.
(8) Increases in interest rates would increase interest costs on our
variable-rate long-term debt and could have a material adverse effect on our net
income and earnings per share.
(9) Covenant restrictions under our revolving credit facility and senior notes
limit our flexibility in operating our business.
(10) Our projections for 2003 and later years include adjustments to earnings
and cash flow for estimated disposition activity. Several important factors,
among others, may affect our ability to consummate dispositions, including our
ability to identify buyers for the businesses and assets we expect to sell at
acceptable prices.
(11) We expect to refinance the Company's revolving line of credit prior to its
maturity in June 2004. The availability of such refinancing may not be on terms
favorable to the Company.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 23
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
Risks related to the death care industry
(1) Declines in the number of deaths in our markets can cause a decrease in
revenues. Changes in the number of deaths are not predictable from market to
market or over the short term.
(2) The increasing number of cremations in the United States could cause
revenues to decline because we could lose market share to firms specializing in
cremations. In addition, basic cremations produce no revenues for cemetery
operations and lesser funeral revenues and, in certain cases, lesser profit
margins than traditional funerals.
(3) If we are not able to respond effectively to changing consumer preferences,
our market share, revenues and profitability could decrease.
(4) Because the funeral and cemetery businesses are high fixed-cost businesses,
positive or negative changes in revenue can have a disproportionately large
effect on cash flow and profits.
(5) Changes or increases in, or failure to comply with, regulations applicable
to our business could increase costs or decrease cash flows.
Appendix: Disclosure of Non-GAAP Performance Measures
We report our financial results in accordance with generally accepted accounting
principles ("GAAP"). However, our management believes that certain non-GAAP
performance measures and ratios, which our management uses in managing our
business, may provide users of this financial information additional meaningful
comparisons between results in historical periods and projected results in
future periods. Non-GAAP financial measures should be viewed in addition to, and
not as an alternative for, our reported operating results or cash flow from
operations or any other measure of performance prepared in accordance with GAAP.
In addition, our presentation of non-GAAP performance measures may not be
comparable to similarly titled measures other companies report.
We define Free Cash Flow as cash provided by operations less capital
expenditures for property, plant and equipment. We consider Free Cash Flow to be
an important indicator of our ability to pay down our debt. Reconciliations of
cash provided by operations to Free Cash Flow are provided for 2002 and
estimates for the future periods in the preceding tables.
A reconciliation of cash provided by operations to Free Cash Flow for the
periods 2000 and 2001 are as follows (in 000s):
2000 2001
---- ----
Cash Provided by
Operations $ 16,926 $ 27,749
Capital Expenditures (10,547) (5,046)
-------- --------
Free Cash Flow $ 6,379 $ 22,703
-------- --------
We define EBITDA as our pre-tax earnings (loss) plus interest expense,
depreciation and amortization expenses. We have included EBITDA because it is
widely used by analysts and investors for valuation purposes and because we use
EBITDA to monitor and compare the financial performance of our businesses.
EBITDA does not give effect to the cash we must use to service our debt, pay our
income taxes or provide for capital expenditures. We have provided the ratio of
our debt to EBITDA because the financial institutions that provide our debt
monitor our reliance on debt by periodically measuring the ratio of our debt to
EBITDA. Reconciliations of pre-tax income to EBITDA are provided for 2002 and
estimates for the future periods in the preceding tables.
We define Capitalization as the sum of the carrying values (GAAP) of our debt,
preferred securities and stockholders' equity. We have included Capitalization
and the ratio of our total debt to capitalization because we measure our
reliance on debt by monitoring the debt to capitalization ratio.
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 24
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.
--------
Company & Investment Profile CARRIAGE June 2003
SERVICES
--------
We define Enterprise Value as the sum of the carrying values (GAAP) of our debt
and preferred securities and the estimated market value of our common stock. We
have included Enterprise Value and the ratio of Enterprise Value to EBITDA
because it is widely used by analysts and investors to measure the total capital
capacity of companies for valuation purposes. Enterprise Value is not
representative of the market or fair value of the Company's debt and equity. It
differs with Capitalization by the difference between the market value of the
Company's common stock and the total of the Company's stockholders' equity.
Enterprise Value is calculated as of December 31, 2002 and estimates for future
dates in the preceding tables.
In cases where we have presented earning (loss) or earnings (loss) per share for
years 1997 to 1999, we have adjusted those results to conform with the
Securities and Exchange Commission's Staff Accounting Bulletin No. 101 ("SAB
101") which substantially changed, among other things, the timing of when our
cemetery revenues are recognized and was effective beginning January 1, 2000.
The accounting guidance did not provide the ability to restate operating results
prior to 2000 to show what the impact would have been had SAB 101 been in effect
in the prior years. This presentation was provided so that management can
monitor and compare operating results using consistent methods of accounting in
all periods.
In cases where we have presented historical earnings (loss), certain of those
periods have been adjusted to exclude special charges and other items.
Management monitors and compares the operating results on this basis so that
these particular items do not affect the comparability of its operating results.
Analysts and investors find this to be a meaningful presentation to compare the
operating results of our core operations. The adjusted results do not represent
a better indicator of earnings (loss). A reconciliation of earnings (loss) in
accordance with GAAP to earnings before special charges and other items is as
follows (in 000s):
2000 2002
--------- ---------
Net earnings (loss) $(131,996) $ 20,278
Fresh Start restructuring charges, net of tax
benefit of $8,275 93,975
Cumulative effect of change in accounting
method (SAB 101), net of tax benefit of
$20,755 38,993
Recognition of deferred tax valutaion
allowances (12,800)
Asset writedowns, net of gains, net of tax
benefit of $129 206
--------- ---------
Net earnings, as adjusted for SAB 101, before
special charges and other items $ 972 $ 7,684
--------- ---------
================================================================================
Carriage Services (C)2003 Carriage Services, Inc. Page 25
All rights reserved
NYSE: CSV Forward-looking statements contained herein are subject to certain
risks and uncertainties as further described at the end of this
Company & Investment Profile. Please refer to the Appendix on page
24 that discusses and reconciles non-GAAP financial measures to GAAP
financial measures.