==============================================================================
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 JUNE 30, 1997
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
of incorporation or organization) (I.R.S. Employer Identification No.)
1300 POST OAK BLVD., SUITE 1500, HOUSTON, TX 77056
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 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 [ ] No [X]
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
July 29, 1997 was 5,326,806 and 5,183,608, respectively.
<PAGE>
CARRIAGE SERVICES, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1997 ......................... 3
Consolidated Statements of Operations for the
Three Months Ended June 30, 1996 and 1997 and the
Six Months Ended June 30, 1996 and 1997 ..................... 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1996 and 1997 ..................... 5
Notes to Consolidated Financial Statements ..................... 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............. 9
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES .................................... 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ......................... 15
Signature ............................................................ 16
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q are forward-looking statements that
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected. Such risks and uncertainties include, but are
not limited to, the following: the Company's ability to sustain its rapid
acquisition rate, to manage the growth and to obtain adequate performance from
acquired businesses; the economy and financial market conditions, including
stock prices, interest rates and credit availability; and death rates and
competition in the Company's markets.
2
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 31, June 30,
1996 1997
---------- ----------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 1,712 $ 1,873
Accounts receivable --
Trade, net of allowance for doubtful
accounts of $530 in 1996 and $798
in 1997 ....................................... 5,665 7,847
Other ........................................... 673 1,394
---------- ----------
6,338 9,241
Inventories and other current assets ............ 3,350 4,564
---------- ----------
Total current assets ....................... 11,400 15,678
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost, net of
accumulated depreciation of $4,095 in 1996 and
$5,555 in 1997 ..................................... 46,112 67,537
CEMETERY PROPERTY, at cost ........................... 4,061 22,995
NAMES AND REPUTATIONS, net of accumulated amortization
of $2,007 in 1996 and $3,101 in 1997 ............... 62,568 92,636
DEFERRED CHARGES AND OTHER NONCURRENT ASSETS ......... 7,167 13,118
---------- ----------
$ 131,308 $ 211,964
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other current liabilities ..... $ 5,225 $ 6,451
Current portion of long-term debt and
obligations under capital leases ................. 1,086 1,354
---------- ----------
Total current liabilities .................. 6,311 7,805
PRENEED LIABILITIES, net ............................. 3,664 7,637
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES, net of current portion ..................... 43,290 80,599
DEFERRED INCOME TAXES ................................ 3,749 11,634
---------- ----------
Total liabilities .......................... 57,014 107,675
---------- ----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ........................... 17,251 16,286
STOCKHOLDERS' EQUITY:
Class A Common Stock, $.01 par value;
40,000,000 shares authorized; 3,942,000
and 5,277,000 issued and outstanding at
December 31, 1996 and June 30, 1997,
respectively .................................. 40 53
Class B Common Stock; $.01 par value;
10,000,000 shares authorized; 4,502,000
and 5,234,000 issued and outstanding at
December 31, 1996 and June 30, 1997,
respectively .................................. 45 52
Contributed capital ............................. 63,966 92,128
Retained deficit ................................ (7,008) (4,230)
---------- ----------
Total stockholders' equity ................. 57,043 88,003
---------- ----------
$ 131,308 $ 211,964
========== ==========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
--------------------------- ---------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES, net
Funeral ................................ $ 8,523 $ 15,631 $ 15,648 $ 30,919
Cemetery ............................... 767 3,430 1,277 6,131
------------ ------------ ------------ ------------
9,290 19,061 16,925 37,050
COSTS AND EXPENSES
Funeral ................................ 6,873 11,526 12,454 22,146
Cemetery ............................... 698 2,532 1,082 4,758
------------ ------------ ------------ ------------
7,571 14,058 13,536 26,904
------------ ------------ ------------ ------------
Gross profit ........................... 1,719 5,003 3,389 10,146
GENERAL AND ADMINISTRATIVE EXPENSES ......... 606 1,166 1,155 2,187
------------ ------------ ------------ ------------
Operating income ....................... 1,113 3,837 2,234 7,959
INTEREST EXPENSE, net ....................... 1,461 1,416 2,644 2,570
------------ ------------ ------------ ------------
Income (loss) before income taxes ...... (348) 2,421 (410) 5,389
PROVISION FOR INCOME TAXES .................. 120 932 251 2,075
------------ ------------ ------------ ------------
NET INCOME (LOSS) ........................... (468) 1,489 (661) 3,314
Preferred stock dividend requirements ....... 91 29 101 210
------------ ------------ ------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS ....................... $ (559) $ 1,460 $ (762) $ 3,104
============ ============ ============ ============
INCOME (LOSS) PER SHARE:
Net income (loss) per common and
common equivalent share
attributable to common
stockholders ......................... $ (.12) $ .13 $ (.17) $ .28
============ ============ ============ ============
Weighted average number of common
and common equivalent shares outstanding .. 4,516 11,636 4,512 11,110
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
For the six months
ended June 30,
-----------------------
1996 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................. $ (661) $ 3,314
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities --
Depreciation and amortization ................... 1,389 4,170
Provision for losses on accounts receivable ..... 143 154
Deferred income taxes ........................... 166 1,518
Changes in assets and liabilities net of
effects from acquisitions:
Increase in accounts receivable ............ (256) (1,301)
Increase in other deferred charges ......... (242) (697)
Increase in accounts payable and other
current liabilities ...................... 343 116
Other, net ...................................... (417) (1,381)
---------- ----------
Net cash provided by
operating activities ................. 465 5,893
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired ................. (24,415) (39,226)
Purchase of property, plant and equipment .......... (2,004) (3,451)
Other, including disposition of assets ............. 1,297 1,686
---------- ----------
Net cash used in
investing activities ................ (25,122) (40,991)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ....................... 23,772 36,434
Payments on long-term debt and obligations
under capital leases ............................. (1,777) (709)
Payment of preferred stock dividends ............... (101) (537)
Exercise of stock options .......................... 10 71
Purchase of treasury stock ......................... (330) --
---------- ----------
Net cash provided by
financing activities ................ 21,574 35,259
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . (3,083) 161
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..... 7,573 1,712
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 4,490 $ 1,873
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid through issuance of new debt ......... $ 825 $ --
========== ==========
Cash interest paid ................................. $ 2,399 $ 2,137
========== ==========
Preferred and common stock issued in
connection with acquisitions ..................... $ 9,100 $ 27,010
========== ==========
Retirement of debt through disposition of business . $ 2,642 $ --
========== ==========
The accompanying notes are an integral part of these financial statements.
5
<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 six months ended June 30, 1996 and 1997 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 report on Form 10-K for the year
ended December 31, 1996, and should be read in conjunction therewith.
2. ACQUISITIONS
During the six months ended June 30, 1997, the Company purchased 26 funeral
homes and two cemeteries. 24 funeral homes and four cemeteries were acquired
during the six months ended June 30, 1996. 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:
June 30,
-------------------------
1996 1997
---------- ----------
(in thousands)
Current Assets, net of cash acquired ............. $ 2,857 $ 7,347
Cemetery Property ................................ 1,927 18,845
Property, Plant and Equipment .................... 15,104 20,388
Deferred Charges and Other Noncurrent Assets ..... 500 550
Names and Reputations ............................ 17,344 31,162
Current Liabilities .............................. (1,293) (560)
Other Liabilities ................................ (2,924) (11,496)
---------- ----------
Total Acquisitions .......................... 33,515 66,236
Redeemable Preferred Stock issued ................ 8,545 20,000
Preferred Stock issued ........................... 555 --
Common Stock issued .............................. -- 7,010
---------- ----------
Cash used for acquisitions .................. $ 24,415 $ 39,226
========== ==========
6
<PAGE>
The following table represents, on an unaudited pro forma basis, the combined
operations of the Company and the above noted acquisitions, as if such
acquisitions had occurred as of January 1, 1996. Appropriate adjustments have
been made to reflect the accounting basis used in recording these acquisitions;
however, these unaudited pro forma results are based on the acquired businesses'
historical financial results and do not assume any additional profitability
resulting from the application of the Company's revenue enhancement measures or
cost reduction programs to the historical results of the acquired businesses.
These pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations that would have
resulted had the combinations been in effect on the dates indicated, that have
resulted since the dates of acquisition or that may result in the future.
Six months ended June 30,
---------------------------
1996 1997
---------- ----------
(Unaudited and in thousands)
Revenues, net ................................. $ 37,554 $ 39,395
Net income (loss) before income taxes ......... (913) 5,382
Net income (loss) attributable to
common stockholders ......................... (549) 3,100
Income (loss) per common and common
equivalent share ............................ (.13) .26
3. DEBT
In August 1996, the Company entered into a credit facility (the "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. As of June 30,
1997, $67.8 million was outstanding under the line of credit with a weighted
average interest rate of 7.36%. The Company increased the bank line from $75
million to $100 million subsequent to June 30, 1997 and is currently reviewing
proposals from several financial institutions which would further increase its
credit availability and improve its borrowing terms.
4. RECENT ACCOUNTING STANDARD
In February 1997, Financial Accounting Standards No. 128 ("FAS 128") Earnings
Per Share was issued. FAS 128 is effective for earnings per share calculations
for periods ending after December 15, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. The following table presents pro forma earnings
per share amounts computed using FAS 128.
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1997 1997 1997 1997
(basic) (diluted) (basic) (diluted)
--------- --------- --------- ---------
(dollars in thousands)
Pro forma earnings per share:
Net income ....................... $ 1,489 $ 1,489 $ 3,314 $ 3,314
Series D preferred stock dividends 29 -- 210 --
Series F preferred stock dividends 146 -- 327 --
--------- --------- --------- ---------
Net income attributable to common
stockholders ................... $ 1,314 $ 1,489 $ 2,777 $ 3,314
========= ========= ========= =========
7
<PAGE>
Total weighted average number of
common and common equivalent
shares outstanding ............. 10,484 11,760 9,782 11,605
========= ========= ========= =========
Pro forma earnings per share ..... $ .13 $ .13 $ .28 $ .28
========= ========= ========= =========
Pro forma earnings per share for the three and six months ended June 30, 1996
has not been presented due to pending SEC guidance on the application of FAS
128.
8
<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 of and significant opportunities to consolidate the death care
industry. 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.
Management believes that the Company's focus on controlled growth while
implementing operational and 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. The Company
significantly expanded its corporate development and acquisition activities in
1996 and early 1997, thus requiring additions to the corporate infrastructure.
During 1996, the Company acquired 38 funeral homes and seven cemeteries for an
aggregate consideration of approximately $68 million. During the first six
months of 1997, the Company acquired 26 funeral homes and two cemeteries for an
aggregate consideration of approximately $66 million.
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 of
the acquired businesses 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 six month periods ended June 30, 1996 and 1997. 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."
FUNERAL HOME SEGMENT. The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its funeral home
operations for the three and six months ended June 30, 1996 compared to the
three and six months ended June 30, 1997.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Three months ended
June 30, Change
-------------------- ---------------------
1996 1997 Amount Percent
-------- -------- -------- --------
(dollars in thousands)
Net revenues:
Existing operations ....... $ 7,530 $ 7,184 $ (346) (4.6)%
Acquired operations ....... 993 8,447 7,454 *
-------- -------- --------
Total net revenues ...... $ 8,523 $ 15,631 $ 7,108 83.4%
======== ======== ========
9
<PAGE>
Three months ended
June 30, Change
-------------------- ---------------------
1996 1997 Amount Percent
-------- -------- -------- --------
(dollars in thousands)
Gross profit:
Existing operations ....... $ 1,495 $ 1,611 $ 116 7.8%
Acquired operations ....... 155 2,494 2,339 *
-------- -------- --------
Total gross profit ...... $ 1,650 $ 4,105 $ 2,455 148.8%
======== ======== ========
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Six months ended
June 30, Change
-------------------- ---------------------
1996 1997 Amount Percent
-------- -------- -------- --------
(dollars in thousands)
Net revenues:
Existing operations ....... $ 12,930 $ 12,513 $ (417) (3.2)%
Acquired operations ....... 2,718 18,406 15,688 *
-------- -------- --------
Total net evenues ....... $ 15,648 $ 30,919 $ 15,271 97.6%
======== ======== ========
Six months ended
June 30, Change
-------------------- ---------------------
1996 1997 Amount Percent
-------- -------- -------- --------
(dollars in thousands)
Gross profit:
Existing operations ....... $ 2,704 $ 3,087 $ 383 14.2%
Acquired operations ....... 490 5,686 5,196 *
-------- -------- --------
Total gross profit ...... $ 3,194 $ 8,773 $ 5,579 174.7%
======== ======== ========
- ----------
* Not meaningful.
Due to the rapid growth of the Company, "existing operations" represented
only 46% of the total funeral revenues and only 39% of the total funeral gross
profit for the three months ended June 30, 1997 and only 40% of the total
funeral revenues and only 35% of the total funeral gross profit for the six
months ended June 30, 1997. Total funeral net revenues for the three months
ended June 30, 1997 increased $7.1 million or 83.4% over the three months ended
June 30, 1996. The higher net revenues reflect an increase of $7.5 million in
net revenues from acquired operations and a decrease in net revenues of $346,000
or 4.6% from existing operations. Total funeral net revenues for the six months
ended June 30, 1997 increased $15.3 million or 97.6% over the six months ended
June 30, 1996. The higher net revenues reflect an increase of $15.7 million in
net revenues from acquired operations and a decrease in net revenues of $417,000
or 3.2% from existing operations. The decrease in net revenues for the existing
operations for both periods primarily resulted from fewer funeral services being
performed, which was partially offset by an increase in the average revenue per
funeral service. Fewer services were performed in 1997 primarily due to lower
than usual seasonal death rates in certain of the Company's markets, especially
in the South Atlantic and East Central regions of the country where the Company
has a large number of "existing operations."
10
<PAGE>
Total funeral gross profit for the three months ended June 30, 1997 increased
$2.5 million or 148.8% over the comparable three months of 1996. The higher
total gross profit reflected an increase of $2.3 million from acquired
operations and an increase of $116,000 or 7.8% from existing operations. Total
funeral gross profit for the six months ended June 30, 1997 increased $5.6
million or 174.7% over the comparable six months of 1996. The higher total gross
profit reflected an increase of $5.2 million from acquired operations and an
increase of $383,000 or 14.2% from existing operations. Gross profit for
existing operations increased for both periods due to the efficiencies gained by
consolidation, cost savings, improved collections experience and the increasing
effectiveness of the Company's merchandising strategy, which were partially
offset by lower revenues. Total gross margin increased from 19.4% for the second
quarter of 1996 to 26.3% for the second quarter of 1997 and from 20.4% for the
first six months of 1996 to 28.4% for the first six months of 1997 due to these
factors.
CEMETERY SEGMENT. The following table sets forth certain information
regarding the net revenues and gross profit of the Company from its cemetery
operations for the three and six months ended June 30, 1996 compared to the
three and six months ended June 30, 1997.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Three months ended June 30, Change
----------------------- -----------------------
1996 1997 Amount Percent
---------- ---------- ---------- ----------
(dollars in thousands)
Total net revenues ........ $ 767 $ 3,430 $ 2,663 347.2%
========== ========== ==========
Total gross profit ........ $ 69 $ 898 $ 829 1201.4%
========== ========== ==========
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Six months ended June 30, Change
----------------------- -----------------------
1996 1997 Amount Percent
---------- ---------- ---------- ----------
(dollars in thousands)
Total net revenues ........ $ 1,277 $ 6,131 $ 4,854 380.1%
========== ========== ==========
Total gross profit ........ $ 195 $ 1,373 $ 1,178 604.1%
========== ========== ==========
Due to the rapid growth of the Company, "existing operations" represented
approximately 16% of cemetery revenues and less than 4% of cemetery gross profit
for the three months ended June 30, 1997 and approximately 13% of cemetery
revenues and less than 5% of cemetery gross profit for the six months ended June
30, 1997. As a result, the Company does not believe it is meaningful to present
the results for "existing" and "acquired" operations separately.
11
<PAGE>
Total cemetery net revenues for the three months ended June 30, 1997
increased $2.6 million or 347.2% over the three months ended June 30, 1996 and
total cemetery gross profit increased $829,000 or 1201.4% over the comparable
three months of 1996. Total cemetery net revenues for the six months ended June
30, 1997 increased $4.9 million or 380.1% over the six months ended June 30,
1996 and total cemetery gross profit increased $1.2 million or 604.1% over the
comparable six months of 1996. Total gross margin increased from 9.0% for the
three months ended June 30, 1996 to 26.2% for the three months ended June 30,
1997 and from 15.3% for the first six months of 1996 to 22.4% for the first six
months of 1997. These increases were due primarily to the Company's acquisition
of the Rolling Hills cemetery as part of the CNM Group acquisition in January
1997 and increased preneed marketing efforts.
OTHER
General and administrative expenses for the six months ended June 30, 1997
increased $1.0 million over the first six months of 1996 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 6.8% for the first six months of
1996 to 5.9% for the comparable period of 1997, reflecting economies of scale
realized by the Company as the expenses were spread over a larger operations
revenue base.
Interest expense for the six months ended June 30, 1996 decreased $74,000
over the first six months of 1996. The decrease was primarily attributable to
the Company's utilization of the net proceeds from its initial public offering
of common stock (the "IPO") and borrowings under a new credit facility to repay
its outstanding indebtedness in August 1996. The August 1996 credit facility
contains substantially improved terms and reduced interest costs compared to the
previous arrangements.
During 1996, the Company issued approximately $18 million of Series D
Redeemable Preferred Stock to fund a portion of its acquisition program.
Dividends on the majority of this preferred stock range from 6% - 7% per annum.
The majority of this preferred stock converted into common stock during the
first quarter of 1997. During the first three months of 1997, the Company issued
approximately $20 million of Series F Redeemable Preferred Stock. Dividends on
this preferred stock are currently 4% per annum. The Series F Redeemable
Preferred Stock is considered a common stock equivalent for purposes of
computing primary earnings per share. Therefore, only the dividends on the
Series D preferred stock of $210,000 are deducted from net income in determining
net income attributable to common stockholders for the six months ended June 30,
1997 ($29,000 for the three months ended June 30, 1997).
For the first six months of 1997, the Company provided for income taxes using
the federal and state rates anticipated for the full year of approximately
38.5%. This rate includes a 4.5% net benefit for utilization of prior year net
operating losses net of other tax reserves. Excluding the 4.5% net benefit, the
Company is providing for state and federal income taxes at a rate of 43%.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $1.9 million at June 30, 1997, representing
an increase of $161,000 from December 31, 1996. For the six months ended June
30, 1997, cash provided by operations was $5.9 million as compared to $465,000
for the six months ended June 30, 1996. The increase in net cash provided by
operating activities was principally due to an increase in income from
operations. Cash
12
<PAGE>
used in investing activities was $41.0 million for the six months ended June 30,
1997 compared to $25.1 million for the first six months of 1996, due primarily
to the significant increase in acquisitions. In the first six months of 1997,
cash flow provided by financing activities amounted to approximately $35.3
million, primarily due to proceeds from long term debt which were used to fund
acquisitions.
Historically, the Company has financed its acquisitions with proceeds from
debt and the issuance of common and preferred stock. The following table shows
the activity in the Series D and Series F Redeemable Preferred Stock for the six
months ended June 30, 1997:
Number Number
of Shares of Shares
Outstanding Outstanding
at 12/31/96 Issuances Conversions at 6/30/97
----------- ----------- ----------- -----------
Series D Preferred Stock
- --------------------------
Convertible into Class A
Common Stock ........ 1,200,000 (1,200,000) 0
Convertible into Class B
Common Stock ........ 16,053,116 (14,370,616) 1,682,500
Series F Preferred Stock
- --------------------------
Convertible into Class A
Common Stock ........ 0 19,999,992 (5,388,315) 14,611,677
----------- ----------- ----------- -----------
Totals ................... 17,253,116 19,999,992 (20,958,931) 16,294,177
=========== =========== =========== ===========
The following table shows the effect on common shares outstanding from the
Redeemable Preferred Stock conversions during the six months ended June 30,
1997:
Increase in
Common
Conversion Shares
Conversions Price Outstanding
------------ ------------- ------------
Series D Preferred Stock
- -------------------------------------
Convertible into Class A
Common Stock ................... 1,200,000 $ 13.50 88,888
Convertible into Class B
Common Stock ................... 14,370,616 $ 13.50 1,064,481
Series F Preferred Stock
- -------------------------------------
Convertible into Class A
Common Stock ................... 5,388,315 $ 15.00 359,221
------------ ------------
Totals .............................. 20,958,931 1,512,590
============ ============
13
<PAGE>
The holders of Series D Preferred Stock are entitled to receive annual cash
dividends of $.06 - $.07 per share depending upon when such shares were issued.
The current conversion rate is $14.50 per share. Commencing on the second
anniversary of the completion of the Company's IPO, 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.
The holders of the Series F Preferred Stock are entitled to receive cash
dividends at the annual rate initially of $.04 per share, with the annual rate
increasing by 5% per year commencing January 1, 1998 until January 1, 2001, at
which time the annual rate becomes fixed at $0.0486 per share. The current
conversion rate is $16.00 per share. On December 31, 2007, the Company must
redeem all shares of Series F Preferred Stock then outstanding at a redemption
price of $1.00 per share, together with all accrued and unpaid dividends. The
Company does not have the option to redeem any Series F Preferred Stock.
In conjunction with the closing of the IPO, the Company entered into a new
credit facility (the "Credit Facility") which provided for a $75 million
revolving line of credit with both LIBOR and base rate interest options. The
Credit 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 was in compliance with all financial covenants and ratios at
June 30, 1997. As of June 30, 1997, $67.8 million was outstanding under the line
of credit with an average effective interest rate of 7.36%. To facilitate future
planned acquisitions, the Company increased its bank line from $75 million to
$100 million subsequent to June 30 and is currently reviewing proposals from
several financial institutions which would further increase its credit
availability and improve its borrowing terms.
The Company issued 475,994 shares of Class A Common Stock and approximately
20,000,000 shares of Series F Preferred Stock and paid $34 million in cash to
fund acquisitions during the six months ended June 30, 1997. The Company intends
to fund future acquisitions through borrowings under its Credit Facility and
additional issuances of Class A Common Stock or additional preferred stock. In
March 1997, the Company filed a shelf registration statement relating to
2,000,000 shares of Class A Common Stock to be used to fund acquisitions. The
Company has budgeted $125 million for its acquisition program in 1997 of which
$66 million had been utilized as of July 29, 1997. As of July 29, 1997, the
Company had letters of intent for acquisitions involving an aggregate purchase
price of approximately $25 million.
The Company expects to continue to aggressively pursue additional
acquisitions of funeral homes and cemeteries to take advantage of the trend
toward consolidation occurring in the industry which will require significant
levels of funding from various sources. In addition, the Company currently
expects to incur less than $8 million of capital expenditures during 1997,
primarily for upgrading funeral home facilities. The Company believes that cash
flow from operations, borrowings under the Credit Facility and its ability to
issue additional debt and equity securities should be sufficient to fund
acquisitions and its anticipated capital expenditures and other operating
requirements for the remainder of 1997. However, because future cash flows and
the availability of financing are subject to a number of
14
<PAGE>
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 its capital needs. Additional debt and equity financings may
be required to continue the Company's acquisition program. The availability and
terms of these capital sources will depend on prevailing market conditions and
interest rates and the then-existing financial condition of the Company.
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.
INFLATION
Inflation has not had a significant impact on the results of operations of
the Company.
15
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
From January 1, 1997 through May 31, 1997, the Company issued an aggregate of
462,994 shares of Class A Common Stock, valued at market prices, to the former
owners of acquired funeral homes and cemeteries. Consideration for such shares
consisted of ownership interests in funeral home and cemetery businesses. The
Company relied on an exemption under Section 4(2) of the Securities Act in
effecting these transactions. Beginning in June 1997, the Company began to issue
registered shares of Class A Common Stock to former owners of acquired
properties under its shelf registration statement on Form S-4.
On January 7, 1997, the Company issued 19,999,992 shares of Series F
Preferred Stock, valued at $1.00 per share, to the former owners of acquired
funeral homes and cemeteries. Consideration for such shares consisted of
ownership interests in funeral home and cemetery businesses. The Company relied
on an exemption under Section 4(2) of the Securities Act in effecting these
transactions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 -- Amendment No.2 to the 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.
11.1 -- Statement regarding computation of per share earnings
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
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.
AUGUST 14, 1997 /S/ THOMAS C. LIVENGOOD
Date Thomas C. Livengood,
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer
and Duly Authorized Officer)
17
EXHIBIT 10.1
AMENDMENT NO. 2
This Amendment No. 2 dated as of July 25, 1997 ("Agreement"), is among
Carriage Services, Inc., a Delaware corporation (the "Borrower"), NationsBank of
Texas, N.A., as administrative agent (the "Administrative Agent"), Provident
Services, Inc., as documentation agent (together with the Administrative Agent,
the "Agents"), and the lenders signatory hereto (the "Lenders").
INTRODUCTION
The Borrower, the Agents, and the Lenders are parties to the Credit
Agreement dated as of August 13, 1996 (as modified, the "Credit Agreement"),
among the Borrower, the Lenders, and the Agents. The Borrower has requested and
the Agents and the Lenders have approved an increase in the Commitments under
the Credit Agreement in the amount of $25,000,000, bringing the aggregate
Commitments under the Credit Agreement to $100,000,000.
THEREFORE, in connection with the foregoing and for other good and
valuable consideration, the Borrower, the Agents, and the Lenders hereby agree
as follows:
Section 1. DEFINITIONS; REFERENCES. Unless otherwise defined in this
Agreement, each term used in this Agreement which is defined in the Credit
Agreement has the meaning assigned to such term in the Credit Agreement.
Section 2. AMENDMENT.
(a) Each Lender's existing Commitment set forth opposite such Lender's
name on the signature pages to the Credit Agreement is hereby amended by
increasing such existing Commitment amount to the amount set forth below for
such Lender:
NEW
LENDER COMMITMENT
Provident Services, Inc. $53,333,334
NationsBank of Texas, N.A. $33,333,333
Bank One, Texas, N.A. $13,333,333
Total $100,000,000
<PAGE>
(b) Section 6.01 of the Credit Agreement is amended by deleting the
reference to "$1,500,000" at the end of subparagraph (e) and replacing such
reference with a reference to "$5,000,000" and by deleting the reference to
"$1,500,000" at the end of subparagraph (f) and replacing such reference with a
reference to "$5,000,000".
Section 3. COMMITMENT INCREASE FEE. The Borrower shall pay to each
Lender a commitment increase fee, such commitment increase fee to be due and
payable on December 31, 1997; provided, however that if (a) the Borrower
terminates the Credit Agreement and establishes a successor credit facility with
an amount of credit greater than the Credit Agreement on or before December 31,
1997, (b) such Lender is asked to participate in such successor credit facility,
and (c) such Lender is paid a commitment fee greater than the amount of the
commitment increase fee due under this Section 3 in connection therewith, then
the commitment increase fee due under this Section 3 shall be waived with
respect to such Lender.
Section 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and
warrants that (a) the execution, delivery and performance of this Agreement are
within the corporate power and authority of the Borrower and have been duly
authorized by appropriate proceedings, (b) this Agreement and the Notes issued
in connection herewith constitute legal, valid, and binding obligations of the
Borrower enforceable in accordance with their terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting the rights of creditors generally and general principles of equity,
and (c) upon the effectiveness of this Agreement and the amendment of the Credit
Documents as provided for herein, no Event of Default shall exist under the
Credit Documents and there shall have occurred no event which with notice or
lapse of time would become an Event of Default under the Credit Documents, as
amended.
Section 5. EFFECT ON CREDIT DOCUMENTS. Except as amended herein, the
Credit Agreement and all other Credit Documents remain in full force and effect
as originally executed. Nothing herein shall act as a waiver of any Agent's or
Lender's rights under the Credit Documents as amended, including the waiver of
any default or event of default, however denominated. The Borrower must continue
to comply with the terms of the Credit Documents, as amended. This Agreement is
a Credit Document for the purposes of the provisions of the other Credit
Documents.
Section 6. EFFECTIVENESS. This Agreement shall become effective and the
Credit Agreement shall be amended as provided in this Agreement effective on the
date first set forth above when the following conditions precedent shall have
been satisfied:
-2-
<PAGE>
(a) the Borrower and the Lenders shall have provided to the
Administrative Agent duly executed and delivered originals of this Agreement;
(b) the Borrower shall have provided to the Administrative Agent a
duly executed and delivered original Note for each Lender dated as of the date
of this Agreement reflecting the increased Commitment of the Lender hereunder;
(c) the Borrower shall have provided to the Administrative Agent a
Certificate of Secretary for the Borrower certifying no conflicts with the
Articles and Bylaws of the Borrower, resolutions of the Board of Directors of
the Borrower, and authorized officers of the Borrower for the execution of this
Agreement and the Notes executed in connection herewith in a form and substance
satisfactory to the Administrative Agent; and
(d) the Borrower shall have provided to the Administrative Agent an
original Reaffirmation of Guaranty, duly executed and delivered by each
Subsidiary of the Borrower.
Section 7. MISCELLANEOUS. The miscellaneous provisions of the Credit
Agreement apply to this Agreement. This Agreement may be signed in any number of
counterparts, each of which shall be an original.
[the remainder of this page is intentionally blank]
-3-
<PAGE>
THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS, AS DEFINED IN THIS
AGREEMENT, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first above written.
BORROWER:
CARRIAGE SERVICES, INC.
By:___________________________________
Thomas C. Livengood
Executive Vice President and
Chief Financial Officer
AGENTS AND LENDERS:
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent and as a Lender
By:___________________________________
Albert L. Welch
Vice President
<PAGE>
PROVIDENT SERVICES, INC.,
as Documentation Agent and as a Lender
By:___________________________________
Daniel M. Chong
Vice President
BANK ONE, TEXAS, N.A.
By:___________________________________
H. Gale Smith
Vice President
-4-
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 six month periods ended June 30, 1996 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. Earnings per share for the
three and six month periods ended June 30, 1997 is calculated based on the
weighted average number of common and common equivalent shares outstanding
during the period as proscribed by APB 15. Earnings (loss) per common and common
equivalent share for the three and six month periods ending June 30, 1996 and
1997 was as follows:
Three months Six months
ended June 30, ended June 30,
---------------------- ----------------------
1996 1997 1996 1997
-------- -------- -------- --------
Net income (loss) .............. $ (468) $ 1,489 $ (661) $ 3,314
Series D preferred stock
dividends (a) ................ 91 29 101 210
-------- -------- -------- --------
Net income (loss) attributable
to common stockholders ....... $ (559) $ 1,460 $ (762) $ 3,104
======== ======== ======== ========
Common shares outstanding ...... 2,520 10,485 2,520 9,782
Common equivalent shares:
Stock options, treasury
stock method ............ 23(b) 238 23(b) 280
Assumed conversion of
preferred stock ......... 1,973(c) 913 1,969(c) 1,048
-------- -------- -------- --------
Total weighted average number of
common and common equivalent
shares outstanding ........... 4,516 11,636 4,512 11,110
-------- -------- -------- --------
Net income (loss) per common and
common equivalent share
attributable to common
stockholders ................. $ (.12) $ .13 $ (.17) $ .28
-------- -------- -------- --------
(a) The Company's Series F Preferred Stock is considered a common stock
equivalent for purposes of computing earnings per share. Therefore, the
dividends applicable to the Series F Preferred Stock are not reflected in the
net income (loss) attributable to common stockholders.
(b) In accordance with SEC's Staff Accounting Bulletin No. 83, the loss per
share presented assumes that all stock options granted by the Company within one
year of the Company's initial public offering were outstanding for the first
three months of 1996. The effect of such stock options has been calculated using
the "treasury stock" method, using the initial public offering price of $13.50
per share, and was 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. Therefore, in accordance with the 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,873
<SECURITIES> 0
<RECEIVABLES> 8,645
<ALLOWANCES> 798
<INVENTORY> 3,123
<CURRENT-ASSETS> 15,678
<PP&E> 73,092
<DEPRECIATION> 5,555
<TOTAL-ASSETS> 211,964
<CURRENT-LIABILITIES> 7,805
<BONDS> 80,599
0
16,286
<COMMON> 105
<OTHER-SE> 87,898
<TOTAL-LIABILITY-AND-EQUITY> 211,964
<SALES> 37,050
<TOTAL-REVENUES> 37,050
<CGS> 26,904
<TOTAL-COSTS> 26,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,570
<INCOME-PRETAX> 5,389
<INCOME-TAX> 2,075
<INCOME-CONTINUING> 3,314
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,104
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
