SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 3, 2004

Carriage Services, Inc.

(Exact name of registrant as specified in is charter)

1900 St. James Place, 4^th Floor

Houston, Texas 77056

(Address, including zip code, of principal executive offices)

Registrant’s telephone number, including area code:

(713) 332-8400

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o  Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 7.01.  Regulation FD Disclosure

On December 3, 2004, the Company issued a press release announcing its Company and Investment Profile dated December 2004.  A copy of the press release and the profile issued by the Company are attached hereto as Exhibits 99.1 and 99.2, respectively.  The Company and Investment Profile is available on the Company’s website   www.carriageservices.com.

The press release and information in this report are being furnished in accordance with Regulation FD and not “filed” with the Securities and Exchange Commission. Accordingly, the information in this report is not incorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended, and will not be so incorporated by reference into any future registration statement unless specifically identified as being incorporated by reference.

The Company and Investment Profile contains non-GAAP financial measures.  Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with United States generally accepted accounting principles, or GAAP. Pursuant to the requirements of Regulation G, the Company provides quantitative reconciliations as well as qualitative information within the Company and Investment Profile and on the Company’s website www.carriageservices.com.

Item 9.01.  Financial Statements and Exhibits.

(c)                                  Exhibits

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, Carriage Services, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

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INDEX TO EXHIBITS

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Exhibit 99.1

CARRIAGE SERVICES UPDATES

COMPANY & INVESTMENT PROFILE

DECEMBER 3, 2004 – HOUSTON – Carriage Services, Inc. (NYSE: CSV) today announced that it has updated its “Company & Investment Profile”, which can be found on Carriage’s website at http://www.carriageservices.com.

Carriage’s updated Company & Investment Profile includes updated discussions of Carriage’s business, strategies, and goals, historical financial information, a discussion on continued debt reduction, its current “Long Term Base Case Scenario,” and “Base Case Enterprise Valuation LBO Structure” analysis, industry information, and more.  The updated Company & Investment Profile is being furnished on Form 8-K with the Securities and Exchange Commission.

The Company & Investment Profile is being published and updated by Carriage in continuation of its stated goal to provide more disclosure and transparency to the investment community regarding Carriage’s operations, goals, industry dynamics and conditions. It is Carriage’s intent to continue to be proactive in communicating with investors. Investors and interested parties are encouraged to visit the website, http://www.carriageservices.com to read or download the Company and Investment Profile.

Carriage Services is the fourth largest publicly traded deathcare company. As of December 3, 2004, Carriage operates 136 funeral homes and 30 cemeteries in 28 states.

Certain statements made herein or elsewhere by, or on behalf of, the company that are not historical facts are intended to be 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 are based on assumptions that the company believes are reasonable; however, many important factors, as discussed under “Forward- Looking Statements and Cautionary Statements” in the company’s Annual Report and Form 10-K for the year ended December 31, 2003, could cause the company’s results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by, or on behalf of, the company. A copy of the company’s Form 10-K, and other Carriage Services information and news releases, are available at http://www.carriageservices.com.

# # #

Exhibit 99.2

Carriage Services, Inc.

(NYSE: CSV)

Simply Put … Becoming the Best

KEY POINTS

•                  Carriage continues to focus on improving its operations and its capital structure to position the Company for future growth.

•                  In line with that focus and after an extensive review of the Company’s funeral operations, Carriage has announced a number of operational changes in its funeral business that are intended to help the Company grow its market share and improve operating and financial performance in the future.

•                  Carriage Services reported 3Q04 financial results that were within the Company’s estimates previously released to the public. In addition, Carriage reduced its senior debt to $116 million at September 30, 2004, achieving its previous year end goal of reducing senior debt to $116 million one quarter ahead of schedule. Further, Carriage continued to successfully execute on its “Being the Best” funeral operating model which began to have a positive impact on results in 3Q04. See page 12 for a more detailed discussion of Carriage’s 3Q04 results and outlook.

•                  Carriage’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 10% to 25% four-year IRR based upon current valuation using assumptions believed to be reasonable by management.

SHARE STATISTICS

LONG-TERM BASE CASE ESTIMATES

Balance sheet data as of September 30, 2004; shares outstanding as of November 5, 2004

(1) Trailing four quarters

(2) Based on EPS from continuing operations

(3) Debt does not include the convtertible junior subordinated debentures for this calculation

•                  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.

Carriage Services is a leading provider of death care services and products in the United States. As of October 31, 2004, Carriage operated 136 funeral homes and 30 cemeteries in 28 states. Carriage provides a complete range of funeral and cremation services and sells a wide variety of related products and merchandise.

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Carriage Services, Inc. – Summary Financial Data

Summary Income Statement

(In Thousands, Except Per Share Data)

Margin Analysis

(As a Percentage of Revenues)

Selected Historical Balance Sheet Data & Ratios

(In Thousands Except Ratios)

Selected Historical Statement of Cash Flows Data

(In Thousands)

Historical Stock Data

* Through December 1, 2004.

Projected Revenue ($ In Millions)

Projected EBITDA* & EBITDA Margin % - ($ In Millions)

*Excluding special items

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This document 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, strategies, industry dynamics and conditions, etc. It is Carriage’s intent to take greater responsibility for and a more proactive role in communicating with the investment community and in providing greater operating and financial transparency.

EXECUTIVE SUMMARY & SELECTED HIGHLIGHTS

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

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 October 31, 2004, Carriage operated 136 funeral homes and 30 cemeteries in 28 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.

Carriage continues to focus on improving its operations and its capital structure in order to reposition the Company for future growth. Carriage’s focus is to grow the market share and improve the operating and financial performance of its funeral operations; further reduce debt; and strengthen its capital structure. In line with that focus and after an extensive review of the Company’s funeral operations, Carriage announced a number of significant operational changes that are intended to help the Company grow its market share and improve operating and financial performance in 2004 and beyond. The Company will continue to improve its organizational leadership and quality of personnel. Carriage may divest additional businesses in the future, where those businesses are not meeting its standards.

Carriage Services reported 3Q04 financial results that were within the Company’s estimates previously released to the public. In addition, Carriage reduced its senior debt to $116 million at September 30, 2004, achieving its previous year end goal of reducing senior debt to $116 million one quarter ahead of schedule. Further, Carriage continued to successfully execute on its “Being the Best” funeral operating model which began to have a positive impact on results in 3Q04. Carriage is focused more on the long-term than the short-term and is seeing progress in attracting high quality personnel, more effectively marketing its services and managing costs within the framework of its new operating standards. In 3Q04, Carriage generated $1.6 million of free cash flow, consisting of cash flow provided by operating activities of $2.9 million, less capital expenditures of $1.3 million. This free cash flow in addition to other sources of cash enabled the Company to reduce its debt by $5.0 million in 3Q04 from $121.3 million at the end of 2Q04 to $116.3 million at September 30, 2004.

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. 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 10% to 25% four year IRR (internal rate of return), assuming a narrow range of enterprise value-to-EBITDA multiples over the same period.

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Table of Contents

(Noteworthy new or updated information in this edition versus the previous edition in bold)

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OPERATIONS OVERVIEW & STRATEGY

Carriage Services is a leading provider of professional funeral and cemetery services and products in the United States and is the fourth largest publicly traded death care company. As of October 31, 2004, Carriage operated 136 funeral homes and 30 cemeteries in 28 states. Carriage serves families from diverse cultural and religious backgrounds and 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, 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.

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 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 supervisory controls and provides specialized services from its corporate headquarters.

Carriage Owns & Operates 136 Funeral Homes & 30 Cemeteries in 28 States

Carriage is committed to a strong information systems infrastructure and all of its funeral homes are connected to its corporate headquarters which allows management to monitor and assess critical operating and financial data in order to analyze the performance of individual locations on a timely basis. Management is able to access customer transaction data and other operating information to monitor operating performance and to implement any necessary corrective actions.

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Funeral Home Operations

As of October 31, 2004, Carriage operated 136 funeral homes in 28 states. Funeral home revenues accounted for approximately 77% of total revenues for both the years 2003 and 2002, and for approximately 75% of revenue for the nine months ending September 30, 2004. Carriage’s funeral home operations are managed by a team of experienced death care industry professionals. These individuals have proven leadership and financial skills with best operating and high financial standards that are relevant to the death care industry.

Carriage’s funeral homes offer a complete suite of services to meet families’ funeral needs, including consultation, removal and preparation of remains, sale of caskets and related funeral merchandise, 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 accommodates family visitation and religious services to take place on site if a family chooses, reducing inconvenience to the family.

Funeral Home Service Offerings

Despite the decline in national death rates over the past three years and losses of market share in certain markets, Carriage’s funeral home operations remain some of the most profitable in the industry. Carriage has been able to maintain superior funeral home profitability due to its lean operating structure and focus on best practices. Carriage is focused on regaining market share in markets where it is an issue through its focus on building relationships in the local community, installing the right leadership, and hiring and training the best people.

Funeral Home Gross Margin Peer Comparison

From continuing operations for all companies

*9-months ending 7/31

Profitable Funeral Homes ($ In Millions)

*From continuing operations

Carriage recognized that to become the best and increase value for shareholders, it must improve the operating results of its funeral operations by growing market share and increasing internal profitability and earnings growth. After an

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extensive review of its funeral operations in 2003, Carriage announced and began to implement a number of operational changes that are intended to help the Company grow its market share and improve operating and financial performance in the future.

Carriage’s new funeral operating model, called “Being the Best”, is based upon lessons the Company has learned from its best businesses and its best operators. Carriage analyzed its best businesses (approximately 20% by number) and developed operating and financial standards, taking into consideration size and cremation mix, organized around three primary areas – market share, people and operating and financial metrics. Carriage introduced a more decentralized, entrepreneurial and local operating model and has overhauled its incentive compensation structure to align with its new standards. These new standards and incentives will challenge and reward its managing partners who thrive on growing their local business and taking responsibility for results.

Key elements of Carriage’s new “Being the Best” funeral operating strategy and model include the following:

•                  Balanced Operating Model –Carriage believes a decentralized structure works best in the death care industry. The new operating model focuses on key drivers of a successful funeral business, organized around three primary areas – market share, people and operating and financial metrics. Successful execution of the new operating model is highly dependent on strong local leadership, intelligent risk taking, entrepreneurial empowerment and corporate support aligned with the key drivers.

•                  Incentives Aligned with Standards – Empowering managing partners to do the right things in their operations and local communities, and providing appropriate support with operating and financial practices, will enable growth and profitability. Each managing partner will participate in a variable bonus plan whereby they will earn a fixed percentage of their business’ earnings based upon the actual standards achieved. Carriage believes each managing partner has the opportunity to be compensated at close to the same level as if they owned the business themselves.

•                  The Right Local Leadership - - Successful execution of the new operating model is highly dependent on strong local leadership, intelligent risk taking and entrepreneurial empowerment. Over time, Carriage believes how a managing partner executes versus the operating and financial standards set forth will be a primary performance indicator.

•                  Cycle of Service – Carriage is reviewing the various steps in its Cycle of Service in order to update and improve it. The Cycle of Service process and activities will align with the Company’s strategy to build a meaningful and lasting relationship with each client family. The Company has also developed a “Best Practices” website where innovative new service ideas will be shared throughout the organization.

•                  Presentation and Packaging of Services and Merchandise – Carriage believes packaging funeral services and merchandise offers both simplicity and convenience for its client families. Well conceived and thoughtful packages eliminate much of the effort and discomfort experienced by client families about matters where they do not have much knowledge during a very stressful and emotional time. While clients will always have the option of purchasing services and merchandise separately, Carriage believes the emphasis on personalized services and appropriate merchandise will be valued by many families.

•                  Merchandise Strategy & Supplier Arrangements – Carriage is conducting a review of its merchandise strategy for its selection floors. Merchandise selections will be aligned with package options. In addition, the selection floor will be evaluated to determine if it is effective. Key elements of an effective floor are balanced retail prices with appropriate mark-ups, intelligent layout and choices supported by good presentation. Carriage has entered into updated arrangements with four primary casket suppliers to support its new strategy and control wholesale costs.

•                  Overhead Costs – Carriage is performing targeted reviews of its systems and support services with the objective of improving effectiveness and decreasing overhead costs. The Company recently completed an upgrade of its funeral services system to improve its features and functions and plans to implement a new cemetery system in the future. As Carriage implements new systems, it is reviewing and changing corporate processes to improve efficiency and effectiveness.

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Cemetery Operations

As of September 30, 2004, Carriage operated 30 cemeteries in 12 states. All Carriage cemeteries are perpetual care cemeteries. Cemetery revenue accounted for approximately 23% of total revenues for both the years 2003 and 2002, and for approximately 25% of revenues for the nine months ending September 30, 2004. Carriage sales counselors consult with clients either at the cemetery or in the client’s home. Arrangements can be selected in advance of need and payment options are available. Carriage’s cemetery products and services include: mausoleum crypts, private estates, lawn crypt gardens, grave sites and burial vaults. Cremation options include columbarium, mausoleum niches and ground burial.

Cemetery operations generate revenues through sales of 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. Carriage’s cemetery revenues are primarily driven by pre-need product sales. Since Carriage focused its cemetery business on its Family Service Model, cemetery gross margins have steadily improved.

9 Mos. 2004 Cemetery Revenue Mix

Cemetery Revenue & Gross Profit

In addition to owned locations, Carriage has been selected to be the managing partner of municipal and not for profit cemeteries. Carriage’s success in these operations comes from utilizing the same operating model used for its owned operations.

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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.

9 Mos. 2004 Funeral Revenue: Pre-Need vs. At Need

9 Mos. 2004 Cemetery Revenue: Pre-Need vs. At Need

Preneed funeral contracts are usually paid on an installment basis. The performance of preneed funeral contracts is usually secured by placing the funds collected in trust for the benefit of the customer or by the purchase of a life insurance policy, the proceeds of which will pay for such services at the time of need. Insurance policies, intended to fund preneed funeral contracts, cover the original contract price and generally include an element of growth (earnings) designed to offset future inflationary cost increases. Proceeds from the sale of preneed funeral contracts, along with accumulated earnings, are not recognized as revenue until the time the funeral service is performed. Additionally, Carriage generally earns a commission from the insurance company from the sale of insurance funded contracts.  Although direct marketing costs and commissions incurred from the sale of preneed funeral contracts are a current use of cash, such costs are also deferred and amortized on an actuarial method to match the expected maturity of the preneed contracts. The commission income is recognized as revenue when the period of refund expires (generally one year) and helps Carriage defray the costs incurred, which are primarily commissions paid to its sales counselors.

Preneed sales frequently require an immediate cash outlay by the seller to fund commissions and promotional expenditures. Beginning in 2000, Carriage moved from a national, centralized marketing strategy to a local, decentralized strategy whereby each business location customized a preneed program to its local needs. The Company also began selling insurance-funded contracts in most markets that allow Carriage to earn commission income and improve its cash flow. The focus is such that in markets that depend on preneed for market share, the Company will supplement the arrangements written by funeral directors with sales sourced by sales counselors and third party sellers. Carriage plans to continue using insurance-funded contracts as the main funding vehicle because cash from the commissions earned offsets a significant amount of the up-front costs and because the earnings on the insurance contracts are more stable than traditional trust fund investments.

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Pre-Need Sales Allocations: 1999

Pre-Need Sales Allocations: 9 Mos. 2004

In addition to preneed funeral contracts, Carriage also offers “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 12%-14%. Preneed sales of cemetery interment rights are recorded as revenue when 10% of the contract price related to the real estate 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. Allowances for customer cancellations and refunds are accrued at the date of sale and periodically evaluated thereafter based upon historical experience.

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Compelling Valuation vs. Peers – Closing the Valuation Gap

Carriage believes its “Being the Best” funeral operating strategies and model will enable the Company to increase market share and improve financial results. With the anticipated success of these initiatives and continuing improvement of its credit profile, Carriage believes the current equity valuation gap between it and its peers could close, and at current prices, CSV shares offer an attractive valuation.

While the company has made significant progress on improving its operations and reducing its level of debt, Carriage continues to focus on its operations and its capital structure in order to position the Company for future growth. The Company’s focus is to grow its market share and improve operating and financial performance of its funeral operations; increase preneed property sales and cash flow in its cemetery operations; further reduce debt; and strengthen its capital structure. Carriage may divest additional businesses in the future, where those businesses are not meeting its standards. Further, Carriage will continue to improve its organizational leadership and quality of personnel.

The following is a valuation comparison of Carriage Services versus its three public death care industry peers. CSV shares trade at price/earnings (PE) multiple significantly below its public peer group.

Peer Valuation Comparison

Death Care Industry

*First Call mean estimates except CSV estimates from Long-Term Base Case Scenario;all EPS estimates from continuing operations.

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CARRIAGE SERVICES RECENT RESULTS & FINANCIAL OUTLOOK

Carriage Services reported 3Q04 financial results that were within the Company’s estimates previously released to the public. In addition, Carriage reduced its senior debt to $116 million at September 30, 2004, achieving its previous goal one quarter ahead of its year-end goal of reducing senior debt to $116 million. Further, Carriage continued to successfully execute on its “Being the Best” funeral operating model which had a positive impact on results in 3Q04. Carriage is focused more on the long-term than the short-term and is seeing progress in attracting high quality personnel, more effectively marketing its services and managing costs within the framework of its new operating standards.

Carriage reported diluted EPS of $0.06 in 3Q04, which consisted of earnings from continuing operations of $0.03 and gains of approximately $1.0 million, equal to $0.03 per diluted share, primarily from the sales of two funeral home businesses. Earnings from continuing operations of $0.03 per diluted share were impacted by two significant events during the quarter that together reduced EPS from continuing operations for 3Q04 by $0.03. The two events were (1) Carriage decided to change vendors for a new cemetery accounting system, which resulted in writing off capitalized costs totaling $0.5 million and (2) property damage resulting from the recent hurricanes in Florida, which resulted in $0.3 million for uninsured losses.

In 3Q04, Carriage generated $1.6 million of free cash flow, consisting of cash flow provided by operating activities of $2.9 million, less capital expenditures of $1.3 million. This free cash flow in addition to other sources of cash enabled the Company to reduce its debt by $5.0 million in 3Q04 from $121.3 million at the end of 2Q04 to $116.3 million at September 30, 2004.

Results for 3Q04 were as follows:

•                  Total revenue of $36.0 million versus previous estimate of $35 to $37 million.

•                  EBITDA of $7.9 million versus previous estimate of $7 to $9 million.

•                  Diluted EPS of $0.06 compared to EPS of $0.05 in 3Q03.

•                  EPS from continuing operations of $0.03 per share compared to previous estimates of $0.03 to $0.06 and compared to $0.04 for 3Q03.

Carriage’s 2004 Financial Outlook assumes a 1% increase in same store volumes for the remainder of 2004 versus 2003 and a 1.5% increase in the average revenue per funeral. Approximately half of the increase in diluted EPS in 2004 versus 2003 is attributable to anticipated lower interest expense and approximately half to improved performance anticipated from Carriage’s funeral operations. Carriage’s outlook information excludes the potential impact of any gains, losses or impairment charges from the sales of businesses.

Carriage Services Financial Outlook

$ Estimates in Millions Except Per Share Data

Note – For Carriage’s updated full year 2004 financial outlook, the Company raised its estimates for free cash flow from its previous estimate of $14 million to $17 million and increased its senior debt reduction estimates for the year end senior debt balance from its previous range of $114 million to $118 million.

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Funeral Operations – Key Financial & Operating Data Comparison vs. 3Q03

•                  Funeral revenues increased 1.2% from $26.3 million to $26.6 million

•                  Same store funeral revenue increased 1.1% from $26.1 million to $26.4 million

•                  Same store funeral contracts decreased 2.5% from 5,519 to 5,382

•                  Same store average revenue per contract increased 3.7% from $4,734 to $4,908

•                  Funeral gross profit improved 2.1% from $6.0 million to $6.1 million

•                  Average revenue per burial contract increased 4.8% to $6,549

•                  Average revenue per cremation contract increased 3.5% to $2,398

•                  Carriage’s cremation rate was 31.0% in 3Q04, up versus 30.1% in 3Q03

Carriage made progress during 3Q04 executing its new “Being the Best” funeral model as evidenced by the strong 3.7% increase in the Company’s same store average revenue per contract. Carriage’s 3Q04 funeral results were solid, especially given that the third quarter of the year is typically the seasonally slowest quarter in the year and often times a little unpredictable. Further, while not necessarily indicative of Carriage’s markets, the death rate as reported by the Center for Disease Control decreased 2.3% in 3Q04 versus 3Q03. Gross profit for 3Q04 increased 2.8% versus the same period last year because operating costs increases were nominal and the Company achieved positive operating leverage. As previously disclosed, in July 2004, Carriage closed on the sales of two funeral home businesses, which generated net cash proceeds totaling $2.5 million and a gain of approximately $1.0 million.

Carriage is focused on making the right decisions and managing the business for the long-term rather than for short-term results that may not benefit the company in the long-term. Carriage continues to work hard on better execution of its new funeral home operating model and expects to see year-over-year improvement in its operating and financial performance as the Company moves forward through 2004 and into 2005.

On a year to date basis, funeral revenues increased 1.9% and same-store revenue increased 2.4%, comprised of a volume decline of 0.1% and an increase in the average revenue per contract of 2.5%. Funeral gross margin has increased slightly to 25.8% on the strength of higher revenues.

Based upon an extensive review of its funeral operations in the last half of 2003 by a group of Carriage’s best operators under the leadership of Mel Payne, a number of operational changes were identified to grow Carriage’s market share and improve its operating and financial performance. During 2004, Carriage has been focused on executing the new practices, called “Being the Best” which include:

•                  A more balanced operating model that allows our funeral home managing partners to make local decisions guided by operating and financial standards based upon best practices of our best businesses.

•                  Incentives for our funeral home managing and regional partners aligned with our standards that give our partners the opportunity to be compensated at close to the same level as if they owned the business.

•                  A renewed focus on having the right local leadership in place to execute the new operating model.

•                  Changes to our Cycle of Service model to ensure that we build a meaningful and lasting relationship with each client family.

•                  Improvements in the presentation and packaging of our services and merchandise. We are also reworking our supplier arrangements to improve our merchandise selection and margins.

•                  Targeted reviews of our systems and support services to improve effectiveness and decrease overhead costs.

Carriage expects that these changes will result in improvements in the Company’s operating and financial performance during 2004 that will be incremental to any improvements attributable to increasing death rates. “Being the Best” is

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intended to lead Carriage’s funeral operations in a more entrepreneurial, local environment fashion to grow the business, rather than to just manage the existing business.

Cemetery Operations – Key Financial & Operating Data Comparison vs. 3Q03

•                  Cemetery revenues increased 6.4%, from $8.8 million to $9.4 million

•                  The number of preneed contracts written increased 4.7% to 2,080

•                  Average revenue per preneed contract written increased 3.5% to $2,631 and the average preneed property rights increased 18.5% to $1,828

•                  The number of interments performed decreased 5.1% to 2,228 and the average revenue per internment increased 13.7% to $1,200

•                  Cemetery gross profit increased 0.6% To $2.0 million

Carriage’s cemetery operations generated solid results in 3Q04, with revenue increases for both preneed and at-need contracts. Carriage continues to focus its cemetery business efforts on the preneed sale of property rights, which creates heritage for its business. Cemetery performance was particularly good when one considers that revenue in the prior year quarter benefited by $0.5 million of previously sold but unrecognized entombment rights upon completion of mausoleum construction. No such events occurred in 3Q04.

Financial revenues (trust earnings and finance charges on the installment contracts) decreased $0.1 million compared to 3Q03, in part due to lower earnings on the perpetual care trust funds. Cemetery gross margin percentage declined by 130 basis points to 21.6% because the Company’s product revenue mix changed to a higher proportion of merchandise and services, increased sales resulted in a higher provision for bad debts and sales discounts and higher property taxes.

On a year to date basis, cemetery revenue increased 10.5% and cemetery gross margin decreased 290 basis points to 23.3% primarily because of higher sales discounts, bad debts and property taxes.

Other

General and administrative expenses increased $204,000 compared to 3Q03 primarily because of professional fees related to compliance with the Sarbanes-Oxley Act of 2002 and higher insurance costs.

Interest expense declined $173,000, or 4.0%, compared to the prior year quarter. While debt outstanding has decreased by approximately $23.4 million, or 16.8%, since 3Q03, Carriage is not reporting as significant a decrease in interest expense because the current year period is negatively impacted by higher loan fees and compound interest on the deferred distributions of the convertible junior subordinated debentures.

Included in Other Expense (Income) in 3Q04 is a pre-tax charge of $495,000 to write-off capitalized costs of a cemetery accounting system development project that Carriage terminated. During 3Q04, management decided to implement a cemetery accounting system from another vendor. The remainder of the category consists principally of a gain on the sale of a tract of real estate.

Debt

As of September 30, 2004, Carriage’s outstanding debt consisted of $116.3 million of senior debt and $93.8 million of junior subordinated debentures plus deferred distributions to an affiliate trust. A component of Carriage’s senior debt is the $45 million revolving credit facility, under which the Company had additional borrowing capacity of $15.3 million at September 30, 2004.

One of the key metrics that Carriage and its lenders monitor is the Company’s debt-to-EBITDA ratio (excluding special charges and other items), which is a measure of the Company’s debt burden relative to earnings available for debt service. Carriage’s debt-to-EBITDA ratio (excluding special charges and other items) declined from 3.44 at year end 2003 to 3.06 at September 30, 2004, an 11% decrease, demonstrating a continuously improving credit profile for the Company.

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Payoff of Series A Senior Notes

On July 30, 2004, Carriage paid the outstanding principal and interest in its Series A Senior Notes, which had an outstanding principal balance of $22 million. Subsequent to the payoff of the Series A Senior Notes and as of September 30, 2004, the Company had additional borrowing capacity of $15.3 million under its credit facility.

Change in Accounting

Carriage adopted accounting changes mandated by the Financial Accounting Standards Board relating to Interpretation No. 46, as revised (“FIN 46”), “Consolidation of Variable Interest Entities”, effective March 31, 2004.  FIN 46 clarifies the circumstances in which certain entities that do not have equity investors with a controlling financial interest must be consolidated by its sponsor.

The adoption of FIN 46 affects Carriage’s financial statements in two fundamental ways:

(1) The Company is consolidating preneed and perpetual care trusts in which it is the primary beneficiary of the trust assets.  The accounting related to such trusts was agreed to among Carriage and the other public deathcare companies, their auditors, and the staff at the Securities and Exchange Commission.

(2) The Company is deconsolidating for accounting purposes Carriage Services Capital Trust (the “Trust”) which results in the removal of the preferred securities from the balance sheet and the addition of convertible junior subordinated debentures payable to the Trust.

The accounting changes did not affect Carriage’s earnings or cash flows for 1Q04.  No cumulative effect of an accounting change was recognized by Carriage as a result of implementing of FIN 46.  Additionally, the accounting changes principally affect classifications within the financial statements, but do not affect cash flow or the manner in which the Company recognizes and reports revenue or net income in future periods.

Preneed and Perpetual Care Trusts

Carriage implemented FIN 46 on March 31, 2004, which resulted in the consolidation of the Company’s preneed and perpetual care trust funds. The investments of such trust funds are now reported at fair value and the Company’s future obligations to deliver merchandise and services are now reported at estimated settlement amounts, which are equal and offsetting amounts.

Although FIN 46 requires consolidation of preneed and perpetual care trusts, it does not change the legal relationships among the trusts, Carriage its customers. In the case of preneed, the customers are the legal beneficiaries. In the case of perpetual care trusts, Carriage does not have a right to access the corpus in the perpetual care trusts. For these reasons, the Company has recognized non-controlling interests in its financial statements to reflect third party interests in these consolidated trust funds.

Both the preneed trusts and the cemetery perpetual care trusts hold investments in marketable securities which have been classified as available-for-sale. The investments are reported at fair value, with unrealized gains and losses allocated to Non-controlling interests in trust investments in Carriage’s consolidated balance sheet. Unrealized gains and losses attributable to the Company, but that have not been earned through the performance of services or delivery of merchandise is allocated to deferred revenues.

Also beginning March 31, 2004, the Company recognizes realized income, gains and losses of the preneed trusts and cemetery perpetual care trusts. Carriage recognizes a corresponding expense equal to the realized earnings of these trusts attributable to the non-controlling interest holders. When such earnings attributable to the Company have not been earned through the performance of services or delivery of merchandise, Carriage will record such earnings as deferred revenue.

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For preneed trusts, Carriage recognizes as revenues amounts attributed to the non-controlling interest holders and the Company, including accumulated realized earnings, when the contracted services have been performed and merchandise delivered. For cemetery perpetual care trusts, Carriage recognizes investment earnings in cemetery revenues when such earnings are realized and distributable. Such earnings are intended to defray cemetery maintenance costs incurred by the Company.

Redeemable Convertible Preferred Securities

Carriage also was required to deconsolidate for accounting purposes Carriage Services Capital Trust (the “Trust”), a trust established in 1999 to issue convertible preferred term income deferrable equity securities (TIDES).  The TIDES were previously classified as temporary equity in the consolidated balance sheet.  The Company’s obligation to the Trust consists of convertible junior subordinated debentures due in 2029. As a result of deconsolidating the Trust, the Company now reports its obligation to the Trust, the convertible junior subordinated debentures, as a long-term liability. The reclassification of the amount ($93.75 million) has no effect on net income or on Carriage’s covenants with its senior lenders, because the obligations to the Trust are not classified as indebtedness for purposes of calculating financial ratios.

Substantially all the assets of the Trust consist of the convertible junior subordinated debentures of the Company.  Such debentures possess substantial characteristics of equity.  The rights of the debentures are functionally equivalent to those of the TIDES.  When issued in 1999, the conversion price was at a premium to the then-existing trading price of the Common Stock. The expectation was that holders would convert the TIDES into Common Stock well before their maturity in 2029, when the Company’s performance and improving conditions in the death care industry resulted in an appreciated stock price.  As a result of deteriorating conditions in the industry and Carriage’s own disappointing performance in the preceding four years, the TIDES have been trading substantially below their par value, which Carriage believes to be a reflection of the valuation and prospects of the Company’s common stock.  In management’s view, the debentures have a predominance of equity-like characteristics which are not normally found in debt securities (including traditional subordinated debt), such as:

•                  The debentures are unsecured and subordinate to the Company’s senior debt, which includes the revolving credit facility, the senior notes and any other borrowed money obligations.  The debentures are not guaranteed by the Company’s subsidiaries, meaning that they are effectively subordinated to all liabilities of the subsidiaries, not just borrowed money debt.

•                  Carriage has the right to defer the payment of interest on the debentures for up to 20 calendar quarters, and the Company is currently doing so.  The Company can catch up deferred interest and then re-start another deferral period prior to maturity.  During a deferral period, the only rights of the holders of the TIDES and debentures are to restrict the Company from making distributions to or repurchasing any stock, but Carriage is not subject to any other restrictions which would normally be associated with non-payment of debt securities, such as acceleration of maturity, limits on acquisitions or dispositions of assets, or any changes in the debt capital structure, such as incurring new debt, restructuring existing debt, changing debt terms, or granting security.

•                  The TIDES are convertible into common stock at a fixed price well above the common stock’s current trading price.  Carriage believes the market value of the TIDES will continue to primarily be impacted by its unusually long-term maturity, the right to defer distributions and the subordination to all other outstanding debt for borrowed money, rather than the Company’s credit profile or level of interest rates.

•                  As a result of the equity-like characteristics of the TIDES and debentures, the Company was able to have them treated as equity, rather than debt, under its credit and senior note agreements.

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Carriage Services, Inc.

Historical Earnings & Operating Data

(In Thousands $, Except Per Share & Margin Analysis Data)

Year-Over-Year Percentage Change