SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ________
COMMISSION FILE NUMBER: 1-11961
-------------------------
CARRIAGE SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0423828
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1300 POST OAK BLVD., SUITE 1500, HOUSTON, TX 77056
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 556-7400
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares of the Registrant's Class A Common Stock, $.01 par value
per share, and Class B Common Stock, $.01 par value per share, outstanding as of
November 8, 1996 was 3,947,194 and 4,501,966, respectively.
<PAGE>
CARRIAGE SERVICES, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations for the
Three Months Ended September 30, 1996 and 1995
and the Nine Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
Signature 17
2
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
1996 1995
------------- ------------
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents .................... $ 1,805 $ 7,573
Accounts receivable --
Trade, net of allowance for doubtful
accounts of $487 in 1996 and $305
in 1995 ............................... 4,297 2,637
Other ................................... 585 505
--------- --------
4,882 3,142
Marketable securities, available for sale .... 129 864
Inventories and other current assets ......... 3,693 2,106
--------- --------
Total current assets ............... 10,509 13,685
--------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land ......................................... 8,917 4,416
Buildings and improvements ................... 29,515 14,200
Furniture and equipment ...................... 8,275 5,365
--------- --------
46,707 23,981
Less - accumulated depreciation .............. (3,515) (2,311)
--------- --------
43,192 21,670
CEMETERY PROPERTY, at cost ........................ 2,542 496
NAMES AND REPUTATIONS, net of accumulated
amortization of $1,582 in 1996 and
$959 in 1995 ................................. 56,017 22,559
DEFERRED CHARGES AND OTHER NONCURRENT
ASSETS ....................................... 6,390 3,336
--------- --------
$ 118,650 $ 61,746
============= ============
(continued)
3
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
1996 1995
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited)
CURRENT LIABILITIES:
Accounts payable ................................$ 1,602 $ 1,041
Accrued liabilities ............................. 3,310 2,957
Current portion of long-term debt and
obligations under capital leases .............. 1,010 3,215
--------- --------
Total current liabilities ............. 5,922 7,213
PRENEED LIABILITIES, net ............................. 3,136 709
LONG-TERM DEBT, net of current portion ............... 33,182 42,057
OBLIGATIONS UNDER CAPITAL LEASES, net of
current portion ................................. 643 716
DEFERRED INCOME TAXES ................................ 2,267 1,900
--------- --------
Total liabilities ..................... 45,150 52,595
--------- --------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ........................... 17,775 --
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 50,000,000
shares authorized; none and 15,660,000
issued and outstanding in 1996 and 1995,
respectively ............................... -- 157
Class A Common Stock, $.01 par value; 15,000,000
shares authorized; 3,942,000 and none issued
and outstanding in 1996 and 1995, respectively 39 --
Class B Common Stock; $.01 par value; 15,000,000
shares authorized; 4,501,000 and 2,520,000
issued and outstanding in 1996 and 1995,
respectively ............................... 45 25
Treasury stock, at cost ......................... (341) --
Contributed capital ............................. 64,003 15,100
Unrealized loss on securities available for sale -- (36)
Retained deficit ................................ (8,021) (6,095)
--------- --------
Total stockholders' equity ............ 55,725 9,151
--------- --------
$ 118,650 $ 61,746
========= ========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
--------------------- ---------------------
1996 1995 1996 1995
------------ -------- ---------------------
<S> <C> <C> <C> <C>
Revenues, net
Funeral ...................................... $ 9,303 $ 5,623 $ 24,951 $ 16,423
Cemetery ..................................... 842 405 2,119 1,106
-------- -------- -------- --------
10,145 6,028 27,070 17,529
Costs and expenses
Funeral ...................................... 8,434 4,837 20,888 13,575
Cemetery ..................................... 717 329 1,799 920
-------- -------- -------- --------
9,151 5,166 22,687 14,495
-------- -------- -------- --------
Gross profit ................................. 994 862 4,383 3,034
General and administrative expenses ............... 611 554 1,766 1,386
-------- -------- -------- --------
Operating income ............................. 383 308 2,617 1,648
Interest expense, net ............................. 1,069 1,061 3,713 2,709
-------- -------- -------- --------
(Loss) before income taxes and
extraordinary item ......................... (686) (753) (1,096) (1,061)
Provision (benefit) for income taxes .............. (272) 106 (21) 496
-------- -------- -------- --------
Net (loss) before extraordinary item ......... (414) (859) (1,075) (1,557)
Extraordinary item - loss on early
extinguishment of debt, net of income
tax benefit of $332 ............................ (498) -- (498) --
-------- -------- -------- --------
Net (loss) ................................... (912) (859) (1,573) (1,557)
Preferred stock dividend requirements ............. 250 -- 351 --
-------- -------- -------- --------
Net (loss) attributable to common
stockholders ............................... $ (1,162) $ (859) $ (1,924) $ (1,557)
======== ======== ======== ========
(Loss) per share:
Net (loss) per common and common
equivalent share before extraordinary item,
net of preferred stock dividends .......... $ (.11) $ (.24) $ (.39) $ (.44)
Extraordinary item ........................... (.09) -- (.14) --
-------- -------- -------- --------
Net (loss) per common share $ (.20) $ (.24) $ (.53) $ (.44)
======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding (in thousands) . 5,920 3,543 3,662 3,543
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
For the nine months
ended September 30,
-------------------
1996 1995
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ............................................. $ (1,573) $ (1,557)
Adjustments to reconcile net (loss) to net cash
provided by operating activities --
Depreciation and amortization ....................... 2,410 1,524
Deferred charges written off ........................ 830 --
Deferred income taxes ............................... (541) 249
Changes in assets and liabilities net of effects
from acquisitions:
Increase in accounts receivable ................ (1,067) (243)
Decrease (increase) in inventories and other
current assets ............................... (823) 160
Increase in other deferred charges ............. (523) (83)
Increase (decrease) in accounts payable ........ 561 (392)
Increase (decrease) in accrued liabilities ..... (246) 690
Increase in preneed liabilities ................ 376 219
-------- --------
Net cash provided by (used in) operating
activities .............................. (596) 567
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired ..................... (40,865) (8,094)
Dispositions of businesses formerly owned .............. 397 --
Disposal of marketable securities available for sale ... 900 2,561
Purchase of property, plant and equipment .............. (2,945) (1,991)
-------- --------
Net cash (used in) investing activities ... (42,513) (7,524)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ........................... 56,388 7,882
Payments on long-term debt and obligations under capital
leases ............................................... (65,724) (1,633)
Proceeds from sale of preferred stock .................. -- 8,486
Proceeds from issuance of common stock ................. 47,771 --
Payment of preferred stock dividends ................... (351) --
Exercise of stock options .............................. 44 --
Purchase of treasury stock ............................. (341) --
Payment of deferred debt charges ....................... (446) (136)
-------- --------
Net cash provided by financing activities . 37,341 14,599
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................................ (5,768) 7,642
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD ................................................. 7,573 836
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... $ 1,805 $ 8,478
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid through issuance of new debt ............. $ 825 $ 644
======== ========
Retirement of debt through issuance of preferred stock . $ -- 500
======== ========
Cash interest paid ..................................... $ 4,037 $ 2,281
======== ========
Retirement of debt through disposition of business ..... $ 2,642 $ --
======== ========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CARRIAGE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include Carriage
Services, Inc. and its subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated.
The information for the three and nine months ended September 30, 1996 and
1995 is unaudited, but in the opinion of management, reflects all adjustments,
which are of a normal, recurring nature, necessary for a fair presentation of
financial position and results of operations for the interim periods. The
accompanying consolidated financial statements have been prepared consistent
with the accounting policies described in the Company's prospectus, dated August
8, 1996, and should be read in conjunction therewith.
The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results to be expected for the fiscal
year ending December 31, 1996.
2. ACQUISITIONS
During the nine months ended September 30, 1996, the Company purchased 35
funeral homes and five cemeteries. Six funeral homes were acquired during the
nine months ended September 30, 1995. These acquisitions have been accounted for
by the purchase method, and their results of operations are included in the
accompanying consolidated financial statements from the dates of acquisition.
The effect of the above acquisitions on the Consolidated Balance Sheets was
as follows:
September 30,
------------------------------
1996 1995
------------ ------------
(in thousands)
Current Assets $ 3,196 $ 136
Cemetery Property 2,088 --
Property, Plant and Equipment 20,719 1,101
Deferred Charges and Other Noncurrent Assets 1,865 200
Names and Reputations 36,171 6,843
Current Liabilities (1,490) (186)
Other Liabilities (2,911) --
------------ ------------
59,638 8,094
Preferred Stock issued (18,331) --
Common Stock issued (442) --
------------ ------------
Cash used for acquisitions $ 40,865 $ 8,094
============ ============
7
<PAGE>
The following table represents the unaudited pro forma results of operations
for the nine month periods ended September 30, 1996 and 1995, assuming the above
noted acquisitions had occurred as of January 1, 1995. Appropriate adjustments
have been made to reflect the accounting basis used in recording these
acquisitions. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that would have resulted had the combinations been in effect on the dates
indicated, that have resulted since the dates of acquisition or that may result
in the future.
Nine months ended September 30,
---------------------------------
1996 1995
------------- -------------
(Unaudited and in thousands)
Revenues, net $ 36,495 $ 36,034
Net (loss) before income taxes (3,118) (2,417)
Net (loss) attributable to common stockholders (3,018) (3,102)
(Loss) per common and common equivalent share (.82) (.88)
3. OTHER
REVERSE STOCK SPLIT
On July 18, 1996, the Company's Board of Directors and stockholders approved
an amendment to the Company's Certificate of Incorporation which authorized a
one for two reverse stock split. The Consolidated Financial Statements have been
restated as if the reverse stock split had occurred at the beginning of the
earliest period presented. For each two shares of Class B Common Stock at $.01
par, the stockholder received one share of Class B Common Stock at $.01 par.
Upon completion of the initial public offering ("Offering"), the Series A, B and
C Preferred Stocks automatically converted into Class B Common Stock. The number
of shares held by each Series A, B and C Preferred stockholder remained the
same; however, the conversion prices for Class B Common Stock on those preferred
shares doubled in conjunction with the above-mentioned reverse stock split. In
addition, the exercise prices on outstanding stock options also doubled related
to this reverse stock split, and the number of shares of Class B Common Stock
covered by such options decreased by 50%.
INITIAL PUBLIC OFFERING
On August 8, 1996 the Company completed the Offering of 3,910,000 shares of
its Class A Common Stock at $13.50 per share, including 510,000 shares sold to
underwriters pursuant to the over-allotment option granted to them, for net
proceeds of approximately $47,700,000 after selling commissions and related
expenses of approximately $5,100,000. The net proceeds of the Offering were used
to repay outstanding indebtedness of the Company. In connection with the
Offering, the Company performed a recapitalization of its Common Stock into two
classes of Common Stock (Class A and Class B), provided separate voting rights
to each class and converted existing Common Stock to Class B Common Stock. The
holders of Class A Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of common stockholders. The holders of Class B
Common Stock are entitled to ten votes for each share held on all matters
submitted to a vote of common stockholders. As noted above, the Series A, B and
C Preferred Stocks automatically converted into Class B Common Stock. Series D
Preferred Stock remains outstanding after the Offering.
8
<PAGE>
NEW CREDIT FACILITY
In conjunction with the closing of the Offering, the Company entered into a
new Credit Facility ("Credit Facility") for a $75 million revolving line of
credit. The Credit Facility provides for both LIBOR and base rate interest
options. The facility is unsecured with a term of three years and contains
customary restrictive covenants, including a restriction on the payment of
dividends on common stock, and requires the Company to maintain certain
financial ratios. In connection with repayment of debt, the Company recognized
an extraordinary loss of approximately $498,000, net of income tax benefit of
approximately $332,000 for the write-off of the deferred loan costs associated
with the early retirement of debt. As of September 30, 1996, $28.0 million was
outstanding under the line of credit with effective interest rates ranging
from 6.55% to 7.59%.
4. SUBSEQUENT EVENTS
ACQUISITIONS
From October 1, 1996 through November 8, 1996, the Company acquired two
funeral homes and one cemetery for approximately $6.4 million. These
acquisitions were funded through additional debt, issuance of Class A Common
Stock and available cash.
MERGER WITH CNM
On October 23, 1996, the Company announced that it signed a definitive
agreement for a merger with CNM, a California corporation which through its
subsidiaries owns and operates the nine Wilson & Kratzer funeral homes located
in Alameda and Contra Costa Counties, California and the Rolling Hills Memorial
Park Cemetery located in Richmond, California. The combined operations perform
2,100 funerals and 1,470 interments annually and represent one of the largest
funeral home and cemetery operations in northern California. The merger, which
is expected to close in early January 1997, is subject to certain conditions,
including premerger notification under Hart-Scott-Rodino. The Company expects to
use cash and issuances of preferred and common stocks to fund the acquisition.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in 1991 in order to take advantage of the attractive
fundamentals and significant opportunities to consolidate the death care
industry. Although the Company provides services and products in both the
funeral home and cemetery businesses, the Company has historically focused on
acquiring funeral home businesses. From 1992 through 1995, the Company acquired
42 funeral homes and four cemeteries, for consideration ranging from
approximately $9 million to $14 million in each of the four years. The Company
intentionally took a disciplined, deliberate approach to acquisitions that
allowed management the time to integrate early acquisitions, to develop and
implement systems, including operational procedures, administrative policies,
financial systems and related controls, and to promote a decentralized service
culture.
The Company believes that management's focus on controlled growth, while
implementing sophisticated operational, administrative systems and related
controls to effectively manage a highly decentralized management structure,
positioned it to pursue an accelerated growth strategy beginning in late 1995.
Upon acquisition, the operations team focuses on increasing historic
operating income by improving the merchandising approach, pricing structure and
marketing strategy of acquired businesses. These enhancements, complemented by
discounts from consolidated purchasing, generally result in improved margins
within the first 12 months following acquisition.
RESULTS OF OPERATIONS
The following is a discussion of the Company's results of operations for the
three and nine month periods ended September 30, 1996 and 1995. For purposes of
this discussion, funeral homes and cemeteries owned and operated for the
entirety of each period being compared are referred to as "existing operations."
Operations acquired or opened during either period being compared are referred
to as "acquired operations."
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Three Months Ended
September 30, Change
------------------- -----------------------
1996 1995 Amount Percent
--------- --------- ---------- ----------
(dollars in thousands)
Net revenues:
Existing operations ... $ 5,331 $5,957 $ (626) (10.5)%
Acquired operations ... 4,814 71 4,743 *
------- ------ ------- ----------
Total net revenues $10,145 $6,028 $ 4,117 68.3 %
======= ====== ======= ==========
10
<PAGE>
Three Months Ended
September 30, Change
------------------- ----------------
1996 1995 Amount Percent
---- ----- ------- -------
(dollars in thousands)
Gross profit:
Existing operations ........ $410 $848 $(438) (51.7)%
Acquired operations ........ 584 14 570 *
---- ---- ----- -----
Total gross profit $994 $862 $ 132 15.3 %
==== ==== ===== =====
* Not meaningful.
Total net revenue for the three months ended September 30, 1996 increased
$4.1 million or 68.3% over the three months ended September 30, 1995. The higher
net revenues reflect an increase of $4.7 million in net revenues from acquired
operations offset by a decrease in net revenues of $626,000 or 10.5% from
existing operations. The decrease in net revenues for the existing operations
was due to a 2.9% increase in the average revenue per funeral service which was
offset by a 13.3% decrease in the number of funeral services being performed.
The Company believes that the decline in the number of funeral services
performed is the result of a prolonged seasonal decline in the number of deaths
in certain of the Company's markets. The Company does not expect this decline to
continue for the rest of the year. As of September 30, 1996, the Company
operated eight cemeteries, the net revenues and gross profit of which were not
significant.
Total gross profit for the three months ended September 30, 1996 increased
$132,000 or 15.3% over the comparable three months of 1995. The higher total
gross profit reflects an increase of $570,000 from acquired operations and a
decrease of $438,000 or 51.7% from existing operations. The decrease in gross
profit for the existing operations was due to the decrease in the number of
funeral services being performed. Total gross margin decreased from 14.3% for
the three months ended September 30, 1995 to 9.8% for the three months ended
September 30, 1996 due to the factors mentioned above.
General and administrative expenses for the three months ended September 30,
1996 increased $57,000 over the third quarter of 1995 due primarily to the
increased personnel expense necessary to support a higher rate of growth and
increased acquisition activity. However, general and administrative expenses as
a percentage of net revenues decreased from 9.2% for the third quarter of 1995
to 6.0% for the comparable period of 1996 because revenues increased at a higher
rate, due to acquisitions, than general and administrative expenses.
Interest expense for the three months ended September 30, 1996 increased
$8,000 over the third quarter of 1995. This minimal increase in interest expense
was due primarily to increased borrowings for acquisitions, offset by a
reduction of the average level of indebtedness in August and September 1996 as
the Company used the proceeds from its initial public offering ("IPO") to pay
down a substantial portion of the previously existing debt.
The Company experienced net operating losses before tax and extraordinary
item in the third quarter of 1996 and 1995. Prior to the IPO in August 1996, it
was the Company's practice to provide a 100% valuation allowance for operating
loss carry-forwards. As of September 30, 1996, in its periodic review of the
recoverability of deferred tax assets, management evaluated both its internal
forecasts and projections and the effects of the successful completion of the
IPO on the Company's future.
11
<PAGE>
Specifically, management considered the use of the net IPO proceeds to reduce
debt and the related interest expense and the expected gross profit arising from
newly integrated acquisitions in it determination that it is more likely than
not that the deferred tax assets created in the quarter ended September 30, 1996
will be realized. Accordingly, the Company has not recorded a valuation
allowance for deferred tax assets generated during the quarter ended September
30, 1996. Consequently, the Company recorded a tax benefit of $272,000 in the
third quarter of 1996 versus a tax provision of $106,000 in the third quarter of
1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Nine Months Ended
September 30, Change
------------------- -----------------
1996 1995 Amount Percent
--------- ------- --------- -------
(dollars in thousands)
Net revenues:
Existing operations ........ $15,655 $16,037 $ (382) (2.4)%
Acquired operations ........ 11,415 1,492 9,923 *
------- ------- ------- ----
Total net revenues $27,070 $17,529 $ 9,541 54.4 %
======= ======= ======= ====
Gross profit:
Existing operations ........ $ 2,474 $ 2,743 $ (269) (9.8)%
Acquired operations ........ 1,909 291 1,618 *
------- ------- ------- ----
Total gross profit $ 4,383 $ 3,034 $ 1,349 44.5 %
======= ======= ======= ====
* Not meaningful.
Total net revenue for the nine months ended September 30, 1996 increased
$9.5 million or 54.4% over the nine months ended September 30, 1995. The higher
net revenues reflect an increase of $9.9 million in net revenues from acquired
operations offset by a decrease in net revenues of $382,000 or 2.4% from
existing operations. The decrease in net revenues for the existing operations
was due to a 3.9% increase in the average revenue per funeral service which was
offset by a 7.9% decrease in the number of funeral services being performed. The
Company believes that the decline in the number of funeral services performed is
the result of a prolonged seasonal decline in the number of deaths in certain of
the Company's markets. The Company does not expect this decline to continue for
the rest of the year.
Total gross profit for the nine months ended September 30, 1996 increased
$1.3 million or 44.5% over the first nine months of 1995. The higher total gross
profit reflects an increase of $1.6 million from acquired operations and a
decrease of $269,000 or 9.8% from existing operations. The decrease in gross
profit for the existing operations was due to the decrease in the number of
funeral services being performed. Total gross margin decreased from 17.3% for
the nine months ended September 30, 1995 to 16.2% for the nine months ended
September 30, 1996 due to the factors mentioned above.
General and administrative expenses for the nine months ended September 30,
1996 increased $380,000 over the first nine months of 1995 due primarily to the
increased personnel expense necessary to support a higher rate of growth and
increased acquisition activity. However, general and administrative expenses as
a percentage of net revenues decreased from 7.9% for the first nine months of
12
<PAGE>
1995 to 6.5% for the comparable period of 1996 because revenues increased at a
higher rate, due to acquisitions, than general and administrative expenses.
Interest expense for the nine months ended September 30, 1996 increased
$1,004,000 over the first nine months of 1995 principally due to increased
borrowings for acquisitions.
The Company experienced net operating losses before tax and extraordinary
item for the nine months ended September 30, 1996 and 1995. Prior to the IPO in
August 1996, it was the Company's practice to provide a 100% valuation allowance
for operating loss carry-forwards. As of September 30, 1996, in its periodic
review of the recoverability of deferred tax assets, management evaluated both
its internal forecasts and projections and the effects of the successful
completion of the IPO on the Company's future. Specifically, management
considered the use of the net IPO proceeds to reduce debt and the related
interest expense and the expected gross profit arising from newly integrated
acquisitions in it determination that it is more likely than not that the
deferred tax assets created in the quarter ended September 30, 1996 will be
realized. Accordingly, the Company has not recorded a valuation allowance for
deferred tax assets generated during the quarter ended September 30, 1996.
Consequently, the Company recorded a tax benefit of $21,000 for the nine months
ended Septmber 30, 1996 versus a tax provision of $496,000 for the nine months
ended September 30, 1995.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $1.8 million at September 30, 1996,
representing a decrease of $5.8 million from December 31, 1995. For the nine
months ended September 30, 1996, cash used in operations was $596,000 versus
cash provided by operations of $461,000 for the nine months ended September 30,
1995. Cash used in investing activities produced a negative cash flow of $42.5
million for the nine months ended September 30, 1996 compared to a negative cash
flow of $7.5 million in the prior period, due primarily to cash used for
acquisitions. In the first nine months of 1996, cash flow provided by financing
activities amounted to approximately $37.3 million, primarily due to the
issuance of common stock of approximately $47.8 million.
Historically, the Company has financed its acquisitions with proceeds from
debt and the issuance of preferred stock. As of September 30, 1996, the Company
has issued 17,775,616 shares of Series D Preferred Stock which are convertible
into Class B Common Stock. The holders of Series D Preferred Stock are entitled
to receive annual cash dividends of $.06, $.0625 or $.07 per share depending
upon when such shares were issued. Commencing on the second anniversary of the
completion of the initial public offering (the "Offering"), the Company may, at
its option, redeem all or any portion of the shares of Series D Preferred Stock
then outstanding at a redemption price of $1.00 per share, together with all
accrued and unpaid dividends. Such redemption is subject to the right of each
holder of Series D Preferred Stock to convert such holder's shares into shares
of Class B Common Stock. On December 31, 2001, the Company must redeem all
shares of Series D Preferred Stock then outstanding at a redemption price of
$1.00 per share, together with all accrued and unpaid dividends.
In conjunction with the closing of the Offering, the Company entered into a
new Credit Facility ("Credit Facility") for a $75 million revolving line of
credit. The Credit Facility provides for both LIBOR and base rate interest
options. The facility is unsecured with a term of three years and contains
customary restrictive covenants, including a restriction on the payment of
dividends on common stock, and requires the Company to maintain certain
financial ratios, which may effectively limit the Company's borrowing capacity.
The Company believes that it is in compliance with all financial covenants and
ratios. As of September 30, 1996, $28.0 million was outstanding under the line
of credit with effective interest rates ranging from 6.55% to 7.59%.
In August 1996, the Company used the proceeds from the Offering along with
funding from the new Credit Facility to pay down all existing debt from
Provident Services, Inc., Texas Commerce Bank N.A., and C. Byron Snyder (the
Company's Chairman). In connection with the repayment of this debt, the Company
recognized an extraordinary loss of approximately $498,000, net of income tax
benefit of approximately $332,000 for the write-off of the deferred loan costs
associated with the early retirement of debt.
Two funeral homes and one cemetery were acquired from October 1, 1996
through November 8, 1996 for approximately $6.4 million. These acquisitions were
funded through additional debt, issuance of Class A Common Stock and available
cash.
The Company expects to continue to aggressively pursue additional
acquisitions of funeral homes and cemeteries to take advantage of the trend
toward consolidation of funeral homes and cemeteries occurring in the industry
which will require significant levels of funding from various sources. The
Company believes that cash flow from operations, borrowings under the Credit
Facility and potential issuances of equity securities will be used to fund such
acquisitions. However, because future cash flows and the availability of
financing are subject to a number of variables, such as the number and size of
acquisitions made by the Company, there can be no assurance that the Company's
capital resources will be sufficient to fund future acquisitions. Additional
debt and equity financings may be required in connection with future
acquisitions. The availability of these capital sources will depend on
prevailing market conditions and interest rates and the then-existing financial
condition of the Company.
14
<PAGE>
SEASONALITY
Although the death care business is relatively stable and fairly
predictable, the Company's business can be affected by seasonal fluctuations in
the death rate. Generally, death rates are higher during the winter months. In
addition the quarterly results of the Company may fluctuate depending on the
magnitude and timing of acquisitions.
15
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 -- Amended and Restated Certificate of Incorporation of the
Company. (1)
10.1 -- Loan Agreement by and among the Company and NationsBank of
Texas, N.A. Provident Services, Inc. and Bank One Texas, N.A.
dated August 13, 1996. (1)
11.1 -- Statement regarding computation of per share earnings
27.1 -- Financial Data Schedule
- -----------------------
(1) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1996.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARRIAGE SERVICES, INC.
NOVEMBER 13, 1996
Date /s/ Mark W. Duffey
Mark W. Duffey, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer and Duly
Authorized Officer)
17
<PAGE>
EXHIBIT 11.1
CARRIAGE SERVICES, INC.
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
Loss per share for the three and nine month periods ended September 30,
1996 is calculated based on the weighted average number of common and common
equivalent shares outstanding during the period as proscribed by APB 15. Loss
per share for the three and nine month periods ended September 30, 1995 is
calculated based on the weighted average number of common and common equivalent
shares outstanding during the period using guidance provided by the SEC for
companies contemplating an initial public offering. Loss per share has been
presented as if the reverse stock split had occurred at the beginning of the
earliest period resented. Loss per common and common equivalent share for the
three and nine month periods ending September 30, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
------------------------ -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net (loss) per common and common equivalent
share before extraordinary item, net of
preferred stock dividends ................. $ (664) $ (859) $(1,426) $(1,557)
Extraordinary item ............................. (498) -- (498) --
------- ------- ------- -------
Net (loss) attributable to common
stockholders ................................. $(1,162) $ (859) $(1,924) $(1,557)
======= ======= ======= =======
Common shares outstanding ................. 5,920 2,520(a) 3,662 2,520(a)
Common equivalent shares: .................
Stock options, treasury stock method .... -- 23(b) -- 23(b)
Assumed conversion of preferred stock ... -- 1,000(c) -- 1,000(c)
------- ------- ------- -------
Total weighted average number of common and
common equivalent shares outstanding
(in thousands) ............................ 5,920(d) 3,543 3,662(d) 3,543
======= ======= ======= =======
(Loss) per share:
Net (loss) per common and common
equivalent share before extraordinary
item, net of preferred stock dividends $ (.11) $ (.24) $ (.39) $ (.44)
Extraordinary item ........................ (.09) -- (.14) --
------- ------- ------- -------
Net (loss) per common share ............... $ (.20) $ (.24) $ (.53) $ (.44)
======= ======= ======= =======
</TABLE>
18
<PAGE>
(a) Effective January 1, 1994, the shareholders of three affiliated
companies, which had common ownership and management exchanged their stock in
those companies for Common Stock of the Company. In this transaction, the assets
and liabilities were recorded at historical cost in a manner similar to a
pooling-of-interests. Accordingly, loss per share has been presented as if the
Common Stock has been outstanding for all periods presented at the conversion
rate utilized at January 1, 1994.
(b) In accordance with SEC's Staff Accounting Bulletin No., 83, the loss per
share has been presented assuming that all stock options granted by the Company
within one year of the Company's initial public offering have been outstanding
for all periods presented. The effect of such stock options has been calculated
using the "treasury stock" method (using an initial public offering price of
$13.50 per share) and has been included in the calculation of common equivalent
shares outstanding despite the fact that the effect of the assumed exercise of
such options is anti-dilutive.
(c) Pursuant to the terms of their respective agreements, the Company's
Series A, B and C Preferred Stocks automatically converted to Common Stock upon
the Company's initial public offering ("IPO"). Therefore, in accordance with
SEC's position relative to securities with these conversion characteristics, the
effect of such conversions has been reflected from the respective dates of
issuance of the preferred stocks in common equivalent shares outstanding,
despite the fact that the effect of the assumed conversion is anti-dilutive.
(d) In accordance with APB Opinion 15, the shares issued in the Company's
IPO have been included in the weighted average number of common and common
equivalent shares outstanding since the effective date of the IPO (August 8,
1996). On a prospective basis, the full effect of that issuance will be
reflected in the weighted average number of common and common equivalent shares
outstanding. Additionally, common stock equivalents have not been included in
the weighted average number of common and common equivalent shares outstanding
for the three and nine month periods ending September 30, 1996 as their
inclusion would have reduced the reported loss per common and common equivalent
share. Consequently, fully diluted earnings per share is considered to be the
same as primary earnings per share presented here.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,805
<SECURITIES> 129
<RECEIVABLES> 4,784
<ALLOWANCES> 487
<INVENTORY> 2,382
<CURRENT-ASSETS> 1,311
<PP&E> 46,707
<DEPRECIATION> 3,515
<TOTAL-ASSETS> 118,650
<CURRENT-LIABILITIES> 5,922
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 55,641
<TOTAL-LIABILITY-AND-EQUITY> 118,650
<SALES> 27,070
<TOTAL-REVENUES> 27,070
<CGS> 22,687
<TOTAL-COSTS> 22,687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,713
<INCOME-PRETAX> (1,096)
<INCOME-TAX> (21)
<INCOME-CONTINUING> (1,426)
<DISCONTINUED> 0
<EXTRAORDINARY> (498)
<CHANGES> 0
<NET-INCOME> (1,924)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
