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 MARCH 31, 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 (I.R.S. Employer Identification No.)
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: (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 [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 May 2, 1997 was 5,136,111 and 5,356,650, respectively.
<PAGE>
CARRIAGE SERVICES, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1997 ................... 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and 1997 ............. 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 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 .................................. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ....................... 14
Signature ............................................................ 15
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
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CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, March 31,
----------------------
1996 1997
--------- ---------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 1,712 $ 2,727
Accounts receivable --
Trade, net of allowance for doubtful accounts of $530 in
1996 and $836 in 1997 ................................. 5,665 7,334
Other ...................................................... 673 1,651
--------- ---------
6,338 8,985
Marketable securities, available for sale ....................... 53 53
Inventories and other current assets ............................ 3,297 4,356
--------- ---------
Total current assets .................................. 11,400 16,121
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land ............................................................ 9,640 15,769
Buildings and improvements ...................................... 31,750 41,876
Furniture and equipment ......................................... 8,817 10,688
--------- ---------
50,207 68,333
Less - accumulated depreciation ................................. (4,095) (4,778)
--------- ---------
46,112 63,555
CEMETERY PROPERTY, at cost ........................................... 4,061 22,748
NAMES AND REPUTATIONS, net of accumulated
amortization of $2,007 in 1996 and $2,521 in 1997 ............... 62,568 87,740
DEFERRED CHARGES AND OTHER NONCURRENT ASSETS ......................... 7,167 12,570
--------- ---------
$ 131,308 $ 202,734
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other current liabilities ................... $ 2,192 $ 4,337
Accrued liabilities .............................................. 3,033 3,095
Current portion of long-term debt and obligations under capital
leases ...................................................... 1,086 1,564
--------- ---------
Total current liabilities .............................. 6,311 8,996
PRENEED LIABILITIES, net .............................................. 3,664 7,045
LONG-TERM DEBT, net of current portion ................................ 42,733 74,171
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion .............. 557 484
DEFERRED INCOME TAXES ................................................. 3,749 10,522
--------- ---------
Total liabilities ...................................... 57,014 101,218
--------- ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ............................................ 17,251 16,287
STOCKHOLDERS' EQUITY:
ClassA Common Stock, $.01 par value; 15,000,000 shares authorized;
3,942,000 and 5,051,000 issued
and outstanding in 1996 and 1997, respectively .............. 40 50
Class B Common Stock; $.01 par value; 15,000,000 shares
authorized; 4,502,000 and 5,357,000 issued and outstanding in 45 54
1996 and 1997, respectively
Contributed capital .............................................. 63,966 90,670
Retained deficit ................................................. (7,008) (5,545)
--------- ---------
Total stockholders' equity ............................. 57,043 85,229
--------- ---------
$ 131,308 $ 202,734
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
For the three months
ended March 31,
---------------------
1996 1997
-------- --------
REVENUES, net
Funeral .......................................... $ 7,125 $ 15,288
Cemetery ......................................... 510 2,701
-------- --------
7,635 17,989
COSTS AND EXPENSES
Funeral .......................................... 5,581 10,620
Cemetery ......................................... 384 2,226
-------- --------
5,965 12,846
-------- --------
Gross profit ..................................... 1,670 5,143
GENERAL AND ADMINISTRATIVE EXPENSES ................... 549 1,021
-------- --------
Operating income ................................. 1,121 4,122
INTEREST EXPENSE, net ................................. 1,183 1,154
-------- --------
Income (loss) before income taxes ................ (62) 2,968
PROVISION FOR INCOME TAXES ............................ 131 1,143
-------- --------
NET INCOME (LOSS) ..................................... (193) 1,825
Preferred stock dividend requirements ................. 10 181
-------- --------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS .............................. $ (203) $ 1,644
======== ========
INCOME (LOSS) PER SHARE:
Net income (loss) per common and common
equivalent share attributable to common
stockholders ................................ $ (.05) $ .16
======== ========
Weighted average number of common and common
equivalent shares outstanding .................... 4,507 10,586
======== ========
The accompanying notes are an integral part of these financial statements.
4
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CARRIAGE SEAVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
For the three months
ended March 31,
----------------------------
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................................ $ (203) $ 1,825
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities --
Depreciation and amortization ......................................................... 822 1,563
Provision for losses on accounts receivable ........................................... 46 270
Deferred income taxes ................................................................. 52 445
Changes in assets and liabilities net of effects from acquisitions:
Increase in accounts receivable .................................................. (232) (1,233)
Increase in other deferred charges ............................................... (328) (319)
Increase (decrease) in accounts payable and other current
liabilities ................................................................. (358) 1,442
Decrease in accrued liabilities .................................................. (217) (895)
Other, net ............................................................................ 40 (318)
-------- --------
Net cash provided by (used in) operating activities ......................... (378) 2,780
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired ....................................................... (8,524) (33,437)
Purchase of property, plant and equipment ................................................ (4,188) (1,242)
Other, including disposition of assets ................................................... 569 1,607
-------- --------
Net cash used in investing activities ....................................... (12,143) (33,072)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ............................................................. 7,467 31,969
Payments on long-term debt and obligations under capital leases .......................... -- (327)
Proceeds from sale of preferred stock .................................................... 3,785 --
Payment of preferred stock dividends ..................................................... -- (363)
Exercise of stock options ................................................................ -- 28
Payment of deferred debt charges ......................................................... (34) --
-------- --------
Net cash provided by financing activities ................................... 11,218 31,307
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .............................................................................. (1,303) 1,015
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................................... 7,573 1,712
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................................. $ 6,270 $ 2,727
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid through issuance of new debt ............................................... $ 825 $ --
======== ========
Cash interest paid ....................................................................... $ 970 $ 889
======== ========
Non-cash consideration for acquisitions .................................................. $ 298 $ 25,571
======== ========
</TABLE>
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 months ended March 31, 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.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the fiscal year ending
December 31, 1997.
2. ACQUISITIONS
During the three months ended March 31, 1997, the Company purchased 22
funeral homes and two cemeteries. Nine funeral homes were acquired during the
three months ended March 31, 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:
March 31,
----------------------
1996 1997
-------- --------
(in thousands)
Current Assets ..................................... $ 398 $ 6,997
Cemetery Property .................................. -- 18,845
Property, Plant and Equipment ...................... 5,294 17,755
Deferred Charges and Other Noncurrent Assets ....... 240 400
Names and Reputations .............................. 7,665 25,685
Current Liabilities ................................ (89) (4,119)
Other Liabilities .................................. (669) (6,555)
-------- --------
12,839 59,008
Redeemable Preferred Stock issued .................. 4,315 20,000
Common Stock issued ................................ -- 5,571
-------- --------
Cash used for acquisitions .................... $ 8,524 $ 33,437
======== ========
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
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<PAGE>
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.
Three months ended
March 31,
--------------------
1996 1997
-------- --------
(Unaudited and
in thousands)
Revenues, net ........................................... $ 11,410 $ 18,999
Net income (loss) before income taxes ................... (405) 2,959
Net income (loss) attributable to common stockholders ... (253) 1,639
Income (loss) per common and common equivalent share .... (.06) .15
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 March 31,
1997, $63.8 million was outstanding under the line of credit with a weighted
average interest rate of 7.16%.
4. RECENT ACCOUNTING STANDARD
In 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.
7
<PAGE>
Three months ended
March 31,
------------------
1997 1997
(basic) (diluted)
------- -------
Pro forma earnings per share:
Net income ............................................ $ 1,825 $ 1,825
Series D preferred stock dividends .................... 181 --
Series F preferred stock dividends .................... 181 --
------- -------
Net income attributable to common stockholders ........ $ 1,463 $ 1,825
Total weighted average number of common and common
equivalent shares outstanding ...................... 9,072 11,454
======= =======
Pro forma earnings per share .......................... $ .16 $ .16
======= =======
Pro forma earnings per share for the three months ended March 31, 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 in 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 3 months
of 1997, the Company acquired 22 funeral homes and two cemeteries for an
aggregate consideration of approximately $59 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 month periods ended March 31, 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 months ended March 31, 1996 compared to
the three months ended March 31, 1997.
Three Months Ended
March 31, Change
----------------- ----------------
1996 1997 Amount Percent
------- ------- ------- -----
(dollars in thousands)
Net revenues:
Existing operations ......... $ 6,701 $ 6,617 $ (84) (1.3)%
Acquired operations ......... 424 8,671 8,247 *
------- ------- ------- -----
Total net revenues $ 7,125 $15,288 $ 8,163 114.6%
======= ======= ======= =====
9
<PAGE>
Three Months Ended
March 31, Change
----------------- ----------------
1996 1997 Amount Percent
------- ------- ------- -----
(dollars in thousands)
Gross profit:
Existing operations ................. $ 1,519 $ 1,712 $ 193 12.7%
Acquired operations ................. 25 2,956 2,931 *
------- ------- ------- -----
Total gross profit ........ $ 1,544 $ 4,668 $ 3,124 202.3%
======= ======= ======= =====
* Not meaningful.
Due to the rapid growth of the Company, "existing operations" for the
quarter ended March 31, 1997 represented only 43% of the total funeral revenues
and only 37% of the total funeral gross profit. Total funeral net revenues for
the three months ended March 31, 1997 increased $8.2 million or 114.6% over the
three months ended March 31, 1996. The higher net revenues reflect an increase
of $8.2 million in net revenues from acquired operations and a decrease in net
revenues of $84,000 or 1.3% from existing operations. The decrease in net
revenues for the existing operations primarily resulted from fewer funeral
services being performed, which was partially offset by an increase in the
average revenue per funeral service. Fewer services were performed in 1997
primarily due to unusual, temporary circumstances at four existing locations.
Excluding the results at these four locations, net revenues at existing funeral
home locations in the first quarter of 1997 increased 5% over the same period in
1996. Management of the Company has taken actions which are expected to improve
the operating results at these locations.
Total funeral gross profit for the three months ended March 31, 1997
increased $3.1 million or 202.3% over the comparable three months of 1996. The
higher total gross profit reflected an increase of $2.9 million from acquired
operations and an increase of $193,000 or 12.7% from existing operations.
Excluding the results of the four locations mentioned above, gross profit for
existing locations increased by $403,000 or 33.2%. Gross profit for existing
operations increased 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 21.7% for the first quarter of 1996 to 30.5%
for the first quarter of 1997 due to these factors. Included in the 30.5% gross
margin for 1997 is a gain of the sale of property of $276,000, the exclusion of
which would reduce funeral gross margin to 28.7% for the first quarter of 1997.
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 months ended March 31, 1996 compared to the three
months ended March 31, 1997.
Three Months Ended
March 31, Change
---------------------------- -----------------------------
1996 1997 Amount Percent
------------ ------------ ------------ ------------
(dollars in thousands)
Total net revenues $ 510 $ 2,701 $ 2,191 429.6%
============ ============ ============
Total gross profit $ 126 $ 475 $ 349 277.0%
============ ============ ============
10
Due to the rapid growth of the Company, "existing operations" for the
quarter ended March 31, 1997 represented less than 12% of the cemetery revenues
and gross profit as the Company had only three cemeteries in operation at the
end of the first quarter of 1996 versus 12 at the end of the first quarter of
1997. As a result, the Company does not believe it is meaningful to present the
results for "existing" and "acquired" operations separately. Total cemetery net
revenues for the three months ended March 31, 1997 increased $2.2 million or
429.6% over the three months ended March 31, 1996 and total cemetery gross
profit increased $349,000 or 277.0% over the comparable three months of 1996.
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. Total gross
margin decreased from 24.7% for the first quarter of 1996 to 17.6% for the first
quarter of 1997. The decrease in gross margin primarily resulted from major
management changes at some of the Company's cemeteries. During late 1996 and
early 1997, the Company reorganized and refocused its cemetery sales and
management organizations which affected sales and margins at its cemeteries.
OTHER
General and administrative expenses for the three months ended March 31,
1997 increased $472,000 over the first quarter 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 7.2% for the first quarter of 1996
to 5.7% 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 three months ended March 31, 1996 decreased
$29,000 over the first quarter 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 new credit facility
reflects 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 quarter 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 $181,000 are deducted from net income in determining
net income attributable to common stockholders.
For the first quarter 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%. For
the first quarter of 1996, the Company experienced a net operating loss. The tax
benefits associated with this net operating loss carryforward were reserved. The
Company continues to analyze the benefits associated with these losses and will
adjust the recorded valuation allowance as appropriate in future periods.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $2.7 million at March 31, 1997,
representing an increase of $1.0 million from December 31, 1996. For the three
months ended March 31, 1997, cash provided by operations was $2.8 million as
compared to cash used in operations of $378,000 for the three months ended March
31, 1996. The increase in net cash provided by operating activities was
principally due to an increase in income from operations, which was partially
offset by an increase in accounts receivable. Cash used in investing activities
was $33.1 million for the three months ended March 31, 1997 compared to $12.1
million for the first three months of 1996, due primarily to the significant
increase in acquisitions. In the first three months of 1997, cash flow provided
by financing activities amounted to approximately $31.3 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 preferred stock. As of December 31, 1996, the Company
had 17,253,616 shares of Series D Preferred Stock issued and outstanding, of
which 1,200,000 shares were convertible into Class A Common Stock and 16,053,116
shares were convertible into Class B Common Stock. During the first three months
of 1997, holders of 15,570,616 shares of Series D Preferred Stock elected to
convert their shares into 88,888 shares of Class A and 1,064,481 shares of Class
B Common Stock leaving 1,682,500 shares of Series D Preferred Stock outstanding
at March 31, 1997, all of which are convertible into Class B Common Stock at a
current conversion rate of $14.50 per share. 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. 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.
In conjunction with the closing of the IPO, the Company entered into a new
Credit Facility (the "Credit Facility") which provides 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
March 31, 1997. As of March 31, 1997, $63.8 million was outstanding under the
line of credit with an average effective interest rate of 7.16%.
In August 1996, the Company used the proceeds from the IPO along with
funding from the new Credit Facility to pay down all previously existing debt
from Provident Services, Inc., Texas Commerce Bank N.A., and C. Byron Snyder
(one of the Company's directors). In connection with the repayment of this debt,
the Company recognized an extraordinary charge of approximately $498,000, net of
income tax benefit of approximately $332,000 to reflect the write-off of the
deferred loan costs associated with the early retirement of debt.
The Company issued 378,671 shares of Class A Common Stock and approximately
20,000,000 shares of Series F Preferred Stock and paid $29 million in cash to
fund acquisitions during the three months ended March 31, 1997. As of March 31,
1997, 5,388,315 shares of Series F Preferred Stock were
12
<PAGE>
converted into 359,221 shares of Class A Common Stock. The remaining outstanding
14,611,677 shares of Series F Preferred Stock are convertible into 913,229
shares of Class A Common Stock based on current exercise prices. 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. 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 prior to December 31, 2007.
The balance outstanding under the $75 million Credit Facility as of April
30, 1997 was $64.8 million. The Company has held discussions with various
financial institutions that lead it to believe that it has the ability to
significantly increase the amount available under the Credit Facility or obtain
a replacement facility. 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. As of April 30, 1997, the Company had
letters of intent for acquisitions involving an aggregate purchase price of
approximately $9 million. 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 $62 million has been spent as of April 30, 1997.
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 $5 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 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.
13
<PAGE>
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
From January 1, 1997 through March 31, 1997, the Company sold an aggregate
of 378,671 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.
On January 7, 1997, the Company sold 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. 1 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
The Company filed a Current Report on Form 8-K on January 21, 1997 with
respect to its merger with the CNM Group on January 7, 1997. The Company also
filed a Current Report on Form 8-K/A on March 14, 1997 to include in the Form
8-K filed on January 21, 1997 the financial statements and pro forma financial
information required by Item 7.
14
<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.
MAY 14, 1997 /S/THOMAS C. LIVENGOOD
Date Thomas C. Livengood, Executive Vice
President and Chief Financial
Officer (Principal Financial
Officer and Duly Authorized
Officer)
15
AMENDMENT NO. 1
This Amendment No. 1 dated as of March 28, 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 (the "Credit Agreement") among the
Borrower, the Lenders, and the Agents. The Borrower has requested that the
Agents and the Lenders make certain amendments to the Credit Agreement in
connection with certain potential Acquisitions contemplated by the Borrower.
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) Section 6.01 of the Credit Agreement is amended by deleting in its
entirety subparagraph (e) of such Section and replacing such subparagraph with
the following:
(e) existing on Property acquired by the Borrower or any of its
Subsidiaries prior to its acquisition of such Property or existing on
Property of a newly acquired Subsidiary prior to the Borrower's or any
other Subsidiary's acquisition of stock of such newly acquired Subsidiary;
provided, however, that the aggregate principal amount of the indebtedness
secured by the Liens permitted by this paragraph (e) shall not, when
combined with the aggregate principal amount of indebtedness secured by
Liens permitted by paragraph (f) of this Section 6.01, exceed $1,500,000;
<PAGE>
(b) Section 6.01 of the Credit Agreement is amended by deleting in its
entirety subparagraph (f) of such Section and replacing such subparagraph with
the following:
(f) in connection with any Acquisition permitted under Section 6.07
hereof, purchase money liens or purchase money security interests upon or
in any Property acquired or held by the Borrower or any of its
Subsidiaries to secure the purchase price of such Property or to secure
indebtedness incurred solely for the purpose of financing the acquisition
of such Property, provided that the aggregate principal amount of the
indebtedness secured by the Liens permitted by this paragraph (f) shall
not, when combined with the aggregate principal amount of indebtedness
secured by Liens permitted by paragraph (e) of this Section 6.01, exceed
$1,500,000;
(c) Exhibit H to the Credit Agreement is deleted therefrom, and Exhibit H
attached hereto is substituted in lieu thereof.
Section 3. 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 proceed ings, (b) this Agreement constitutes 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 4. 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. Without limiting the foregoing, any breach of representations,
warranties, and covenants under this Agreement may be a default or event of
default under the other Credit Documents.
-2-
<PAGE>
Section 5. 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 Borrower and the Majority Lenders shall have
duly and validly executed originals of this Agreement and delivered the same to
the Administrative Agent.
Section 6. 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.
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.
-3-
<PAGE>
EXECUTED as of the date first above written.
BORROWER:
CARRIAGE SERVICES, INC.
By:/s/THOMAS C. LIVENGOOD
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:/s/ALBERT L. WELCH
Albert L. Welch
Vice President
PROVIDENT SERVICES, INC.,
as Documentation Agent and as a Lender
By:/s/DANIEL M. CHONG
Daniel M. Chong
Vice President
-4-
<PAGE>
BANK ONE, TEXAS, N.A.
By:/s/H. GALE SMITH
H. Gale Smith
Vice President
-5-
<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 month period ended March 31, 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 month period ended March 31, 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 month periods ending March 31, 1996 and 1997 was as follows:
Three Months
Ended March 31,
-------------------
1996 1997
------- -------
Net income (loss) ....................................... $ (193) $ 1,825
Series D preferred stock dividends (a) .................. 10 181
------- -------
Net income (loss) attributable to common stockholders ... $ (203) $ 1,644
======= =======
Common shares outstanding ............................... 2,520 9,072
Common equivalent shares:
Stock options, treasury stock method ............... 23(b) 330
Assumed conversion of preferred stock .............. 1,964(c) 1,184
------- -------
Total weighted average number of common and common
equivalent shares outstanding ...................... 4,507 10,586
======= =======
Net income (loss) per common and common equivalent
share attributable to common stockholders .......... $ (.05) $ .16
======= =======
(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 THREE MONTHS ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,727
<SECURITIES> 53
<RECEIVABLES> 8,170
<ALLOWANCES> 836
<INVENTORY> 3,026
<CURRENT-ASSETS> 16,121
<PP&E> 68,333
<DEPRECIATION> 4,778
<TOTAL-ASSETS> 202,734
<CURRENT-LIABILITIES> 8,996
<BONDS> 74,171
0
16,287
<COMMON> 104
<OTHER-SE> 85,125
<TOTAL-LIABILITY-AND-EQUITY> 202,734
<SALES> 17,989
<TOTAL-REVENUES> 17,989
<CGS> 12,846
<TOTAL-COSTS> 12,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,154
<INCOME-PRETAX> 2,968
<INCOME-TAX> 1,143
<INCOME-CONTINUING> 1,825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,644
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
