SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
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X
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
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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
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CARRIAGE SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0423828
(State or other jurisdiction of (I.R.S.
incorporation or organization) 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
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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, $.01 par value per share, outstanding as of
April 24, 1998 was 6,868,595 and 4,289,555, respectively.
<PAGE>
CARRIAGE SERVICES, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
December 31, 1997 and March 31, 1998 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1998 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1998 5
Notes to Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signature 14
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q are forward-looking statements that
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected. Such risks and uncertainties include, but are
not limited to, the following: the Company's ability to sustain its rapid
acquisition rate, to manage the growth and to obtain adequate performance from
acquired businesses; the economy and financial market conditions, including
stock prices, interest rates and credit availability; and death rates and
competition in the Company's markets.
2
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CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
--------- ---------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................$ 6,126 $ 544
Accounts receivable --
Trade, net of allowance for doubtful accounts of
$1,291 in 1997 and $1,170 in 1998 ....................... 11,617 12,176
Other ................................................... 1,295 2,042
--------- ---------
12,912 14,218
Inventories and other current assets ......................... 5,691 6,153
--------- ---------
Total current assets ............................... 24,729 20,915
--------- ---------
Property, plant and equipment, at cost, net of accumulated
depreciation of $7,123 in 1997 and $8,081 in 1998 ............ 85,865 90,880
Cemetery property, at cost ........................................ 32,154 35,459
Names and reputations, net of accumulated amortization of
$4,480 in 1997 and $5,241 in 1998 ............................ 118,099 121,588
Deferred charges and other noncurrent assets ...................... 17,093 18,469
--------- ---------
$ 277,940 $ 287,311
- --------------------------------------------------------------------========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..............................................$ 9,022 $ 3,993
Accrued liabilities ........................................... 7,545 9,462
Current portion of long-term debt and obligations under
capital
Leases ................................................... 2,339 2,116
--------- ---------
Total current liabilities ........................... 18,906 15,571
Preneed liabilities, net ........................................... 7,403 7,154
Long-term debt, net of current portion ............................. 121,553 131,323
Obligations under capital leases, net of current portion ........... 4,449 4,391
Deferred income taxes .............................................. 13,113 14,060
--------- ---------
Total liabilities ................................... 165,424 172,499
--------- ---------
Commitments and contingencies
Redeemable preferred stock ......................................... 13,951 13,951
Stockholders' equity:
ClassA Common Stock, $.01 par value; 40,000,000
shares Authorized;
6,454,000 and 6,533,000 issued and
outstanding atDecember 31, 1997 and March 31, 1998,
respectively ............................................. 64 66
Class B Common Stock; $.01 par value; 10,000,000 shares
Authorized; 4,691,000 and 4,625,000 issued and
outstanding at December 31, 1997 and March 31, 1998,
respectively ............................................. 47 46
Contributed capital ........................................... 102,056 101,855
Retained deficit .............................................. (3,602) (1,106)
--------- ---------
Total stockholders' equity .......................... 98,565 100,861
--------- ---------
$ 277,940 $ 287,311
========= =========
</TABLE>
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)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------------
1997 1998
------- -------
Revenues, net
Funeral ....................................... $15,288 $23,243
Cemetery ...................................... 2,701 4,875
------- -------
17,989 28,118
Costs and expenses
Funeral ....................................... 10,620 15,833
Cemetery ...................................... 2,226 3,498
------- -------
12,846 19,331
------- -------
Gross profit .................................. 5,143 8,787
General and administrative expenses ................ 1,021 1,869
------- -------
Operating income .............................. 4,122 6,918
Interest expense, net .............................. 1,154 2,107
------- -------
Income before income taxes .................... 2,968 4,811
Provision for income taxes ......................... 1,143 2,165
------- -------
Net income ......................................... 1,825 2,646
Preferred stock dividend requirements .............. 363 150
------- -------
1,462 2,496
Net income available to common
stockholders ....................................... $ $
======= =======
Earnings per share:
Basic ......................................... $ .16 $ .22
======= =======
Diluted ....................................... $ .16 $ .22
======= =======
Weighted average number of common and
common equivalent shares outstanding:
Basic ........................................ 9,072 11,151
======= =======
Diluted ...................................... 10,586 12,122
======= =======
The accompanying notes are an integral part of these financial statements.
4
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CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1997 1998
----------- ---------
Cash flows from operating activities:
Net income ............................................. $ 1,825 $ 2,645
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities --
Depreciation and amortization ....................... 1,563 2,417
Provision for losses on accounts receivable ......... 270 420
Deferred income taxes ............................... 445 947
Changes in assets and liabilities, net of effects
from acquisitions:
Increase in accounts receivable ................ (1,233) (2,604)
Increase in inventories and other current assets (476) (397)
Increase in other deferred charges ............. (319) (1,247)
Increase in accounts payable ................... 1,442 233
Increase (decrease) in accrued liabilities ..... (377) 1,521
Increase (decrease) in preneed liabilities ..... 377 (303)
Other, net ......................................... (737) --
-------- ---------
Net cash provided by operating activities . 2,780 3,632
Cash flows from investing activities:
Acquisitions, net of cash acquired ..................... (33,437) (6,252)
Purchase of property, plant and equipment .............. (1,242) (4,372)
Other, including disposition of assets ................. 1,607 (171)
-------- ---------
Net cash used in investing activities ..... (33,072) (10,795)
Cash flows from financing activities:
Proceeds from long-term debt ........................... 31,969 8,163
Payments on long-term debt and obligations under capital
leases ................................................. (327) (6,459)
Payment of preferred stock dividends ................... (363) (150)
Exercise of stock options .............................. 28 55
Payment of deferred debt charges and other ............. -- (28)
-------- ---------
Net cash provided by financing activities . 31,307 1,581
Net increase (decrease) in cash and cash equivalents ..... 1,015 (5,582)
Cash and cash equivalents at beginning of period ......... 1,712 6,126
-------- ---------
Cash and cash equivalents at end of period ............... $ 2,727 $ 544
======== =========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................. $ 889 $ 2,001
======== =========
Cash paid for income taxes ............................. $ -- $ 597
======== =========
Non-cash consideration for acquisitions ................ $ 25,571 $ 2,056
======== =========
The accompanying notes are an integral part of these financial statements.
<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, 1997 and 1998 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, 1997, and should be read in conjunction therewith. Certain
prior period amounts in the consolidated financial statements have been
reclassified to conform with current period presentation.
2. ACQUISITIONS
During the three months ended March 31, 1998, the Company purchased four
funeral homes and one cemetery. 22 funeral homes and two cemeteries were
acquired during the three months ended March 31, 1997. 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,
-------------------
1997 1998
-------- -------
(IN THOUSANDS)
Current assets, net of cash acquired ..................... $ 6,997 $ 647
Cemetery property ........................................ 18,845 2,305
Property, plant and equipment ............................ 17,755 1,683
Deferred charges and other noncurrent assets ............. 400 101
Names and reputations .................................... 25,685 3,837
Current liabilities ...................................... (4,119) (211)
Other liabilities ........................................ (6,555) (54)
-------- -------
Total acquisitions .................................. 59,008 8,308
Consideration:
Debt ..................................................... -- 2,056
Redeemable preferred stock issued ........................ 20,000 --
Common stock issued ...................................... 5,571 --
======== =======
Cash used for acquisitions .......................... $ 33,437 $ 6,252
======== =======
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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, 1997. 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.
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1998
------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues, net ...................................... $26,046 $28,439
Net income before income taxes ..................... 2,723 4,783
Net income available to common stockholders ........ 1,312 2,481
Earnings per common share:
Basic ......................................... 0.14 0.22
Diluted ....................................... 0.14 0.22
3. DEBT
In August 1996, the Company entered into a credit facility (the "Former
Credit Facility") for a $75 million revolving line of credit. The Former Credit
Facility provided for both LIBOR and base rate interest options. That facility
was unsecured and was for a term of three years. During September, 1997, the
Company entered into a new credit facility (the "New Credit Facility") for a
$150 million revolving line of credit. The New Credit Facility has a five year
term, is unsecured 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. Interest under the New Credit
Facility is provided at both LIBOR and prime rate options. As of March 31, 1998,
$115.6 million was outstanding under the line of credit.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company became a public company during the third quarter of 1996. The
Company's focus is on growth through acquisitions and enhancements at facilities
currently owned to increase revenues and gross profit. The Company entered 1997
with the goals (among others) of increasing cash flow from operations;
increasing margins in its funeral home and cemetery operations; substantially
increasing the preneed sales and marketing activities; and filling critical
personnel needs in the finance, corporate development and cemetery operations
areas. The objective of these goals was to build the infrastructure and
stability of the Company as it continued to pursue consolidation opportunities
in the death care industry. The Company successfully met these goals and
achieved profitability in each quarter of 1997, even though death rates were
lower than expected in certain markets. Many of the initiatives implemented
during 1997 were in full effect during the first quarter of 1998, resulting in
broadly higher revenue, gross profit and net earnings.
Income from operations, which the Company defines as earnings before
interest and income taxes, increased, as a percentage of net revenues, from
22.9% for the first quarter of 1997 to 24.6% for the first quarter of 1998. This
improvement was largely due to the increased gross profits at the individual
locations. Gross margins for the funeral homes increased from 28.7% (before
including a gain on the sale of property) in the first quarter of 1997 to 31.9%
in the first quarter of 1998, on an increase in revenue of 52%. Improvements in
cemetery gross profit margins were fueled by a doubling of the number of
cemeteries during 1997 and the continued expansion of the preneed sales
function. As a percentage of cemetery net revenues, cemetery gross profit was
28.2% in first quarter of 1998 compared to 17.6% in the first quarter in 1997 on
an increase in revenue of 80%. Preneed sales and marketing efforts began to have
a significant impact in the latter part of 1997, as revenues and gross profits
from cemeteries owned at least one year increased 105% and 1,160%, respectively,
in the first quarter of 1998 compared to the same period in 1997.
The Company has experienced significant growth since 1995, when it owned 44
facilities. During 1996 and 1997, the Company acquired 45 and 54 facilities,
respectively. In a deliberate and managed process, the Company increased
personnel and related infrastructure as a function of the increase in the
Company's revenue run rate. The additional personnel filled critical roles in
expanding the geographic coverage of both corporate development and preneed
sales and marketing activities, as well as the financial, data processing and
administrative functions needed to support the growing number of locations
operating in a decentralized management fashion with timely financial and
management information. The Company has also begun to allocate more of its
resources to combination funeral home and cemetery acquisitions.
During 1996, the Company acquired 38 funeral homes and seven cemeteries for
an aggregate consideration of approximately $68 million. Forty-four funeral
homes and ten cemeteries were acquired during 1997 for approximately $118
million. These acquisitions were funded through cash flow from operations,
additional borrowings under the Company's credit facilities and issuance of
preferred and common stock. In addition, as of April 24 , 1998, the Company has
either acquired or has letters of intent to acquire 24 funeral homes and four
cemeteries for an aggregate consideration of approximately $80 million. The
Company believes its increased recognition in the death care industry as an
established operator and purchaser of funeral homes and cemeteries has improved
its ability to attract potential
8
<PAGE>
acquisitions that are larger, strategic and accretive and its ability to finance
its acquisitions with debt and equity.
RESULTS OF OPERATIONS
The following is a discussion of the Company's results of operations for the
three month period ended March 31, 1997 and 1998. 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, 1997 compared to the three
months ended March 31, 1998.
THREE MONTHS ENDED
MARCH 31, CHANGE
----------------- ----------------
1997 1998 AMOUNT PERCENT
------- ------- ------- ------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations ......... $12,606 $13,669 $1,063 8.4%
Acquired operations ......... 2,682 9,574 6,892 *
======== ======= ====== =====
Total net revenues ....... $15,288 $23,243 $7,955 52.0%
======== ======= ====== =====
Gross profit:
Existing operations ......... $ 3,679 $ 4,121 $ 442 12.0%
Acquired operations ......... 989 3,289 2,300 *
======== ======= ====== =====
Total gross profit ....... 4,668 $ 7,410 $2,742 58.7%
======== ======= ====== =====
- ---------
* Not meaningful.
Due to the rapid growth of the Company, existing operations represented only
59% of the total funeral revenues and only 56% of the total funeral gross profit
for the three months ended March 31, 1998. Total funeral net revenues for the
three months ended March 31, 1998 increased $8.0 million or 52.0% over the three
months ended March 31, 1997. The higher net revenues reflect an increase of $6.9
million in net revenues from acquired operations and an increase in net revenues
of $1.1 million from existing operations.
Total funeral gross profit for the three months ended March 31, 1998
increased $2.7 million or 58.7% over the comparable three months of 1997. The
higher total gross profit reflected an increase of $2.3 million from acquired
operations and an increase of $442,000 from existing operations. 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. Total gross margin
increased from 30.5% for the first quarter of 1997 to 31.9% for the first
quarter of 1998 due to these factors. Included in the 30.5% gross margin for
1997 is a gain on 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, 1997 compared to the three
months ended March 31, 1998.
THREE MONTHS ENDED
MARCH 31, CHANGE
------------------ ------------------
1997 1998 AMOUNT PERCENT
------ ------ ------ -------
(DOLLARS IN THOUSANDS)
Total net revenues ............. $2,701 $4,875 $2,174 $ 80.5%
====== ====== ======
Total gross profit ............. $ 475 $1,377 $ 902 189.9%
====== ====== ======
Due to the rapid growth of the Company, existing operations represented
approximately 35% of cemetery revenues and approximately 30% of cemetery gross
profit for the three months ended March 31, 1998. 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, 1998
increased $2.2 million over the three months ended March 31, 1997, and total
cemetery gross profit increased $902,000 over the comparable three months of
1997. Total gross margin increased from 17.6% for the three months ended March
31, 1997 to 28.2% for the three months ended March 31, 1998. These increases
were due primarily to the Company's acquisition of ten cemeteries during 1997
and increased preneed marketing efforts.
General and administrative expenses for the three months ended March 31,
1998 increased $848,000 or 83.1% over the first three months of 1997 due
primarily to the increased personnel expense necessary to support a higher rate
of growth and acquisition activity. However, the increase in general and
administrative expenses as a percentage of net revenues was less than one
percentage point as the expenses were spread over a larger volume of revenue.
Interest expense for the three months ended March 31, 1998 increased
$953,000 over the first three months of 1997 principally due to increased
borrowings for acquisitions. In September 1997, the Company entered into a new
credit facility for an increased line of credit. The new credit facility
reflects substantially improved terms and reduced interest rates compared to the
previous arrangements.
Preferred stock dividends of $150,000 were subtracted from the $2.6 million
of net income in computing the net income available to common stockholders of
$2.5 million for the three months ended March 31, 1998. The reduction in
preferred stock dividends from 1997 to 1998 is due to conversions of the
preferred stock to common stock.
For the three months ended March 31, 1998, the Company provided for income
taxes on income before income taxes at a combined state and federal rate of 45%
compared with 38.5% for the same period in 1997. The effective tax rate for the
1997 quarter included a 4.5% tax benefit for the utilization of prior year net
operating losses.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $0.5 million at March 31, 1998,
representing a decrease of $5.6 million from December 31, 1997. For the three
months ended March 31, 1998, cash provided by operations was $3.6 million as
compared to cash provided by operations of $2.8 million for the three months
ended March 31, 1997. The increase in net cash provided by operating activities
was principally due to the increase in income from operations, which was
partially offset by increases in accounts receivable and other deferred charges.
Cash used in investing activities was $10.8 million for the three months ended
March 31, 1998 compared to $33.1 million for the first three months of 1997, due
primarily to a decrease in amounts paid in connection with acquisitions. In the
first three months of 1998, cash flow provided by financing activities amounted
to approximately $1.6 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. As of March 31, 1998, the
Company has 1,682,500 shares of Series D Preferred Stock and 12,278,285 shares
of Series F Preferred Stock issued and outstanding. The Series D Preferred Stock
is convertible into Class B Common Stock and the Series F Preferred Stock is
convertible into Class A Common Stock. The holders of Series D Preferred Stock
are entitled to receive cash dividends at an annual rate of $.06-$.07 per share
depending upon the date such shares were issued. Commencing on the second
anniversary of the completion of the Company's IPO (August 8, 1998), 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 currently of $.042 per share, with the annual rate
increasing by 5% per year commencing January 1, 1999 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.
During September 1997, the Company entered into a new credit facility for a
$150 million revolving line of credit. The new credit facility has a five year
term, is unsecured 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. Interest under the new credit
facility is provided at both LIBOR and prime rate options. As of April 24, 1998,
$120.8 million was outstanding under the line of credit.
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 $10 million of capital expenditures during 1998,
primarily for upgrading funeral home facilities. The Company believes that cash
flow from operations, borrowings under the new 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. 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
11
<PAGE>
acquisitions. At the beginning of 1998, the Company had budgeted $85 million for
its acquisition program in 1998. Due to increased acquisition activity in 1998,
as of April 24, 1998, the Company has spent $13 million, has signed non-binding
letters of intent for acquisitions totaling $67 million and has increased its
estimate of acquisition spending for 1998 to $120 million. 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
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.
YEAR 2000
The Company's information systems management group is constantly reviewing
the management and accounting software packages for internal accounting and
information requirements to meet with the continued growth of the Company. In
addition, the Company's staff has comprehensively considered existing systems
and equipment that need to be changed as a result of the Year 2000 issues. The
Company's staff has determined that some computer software will require
upgrading. Based on current estimates, the costs related to these upgrades are
immaterial. The Company is in contact with its vendors and customers and no
major problem has been discovered to date.
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<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1-- Amendment No. 1 dated April 24, 1998 to the Loan Agreement by and
among the Company and NationsBank of Texas, N.A., dated
September 9, 1997
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 March 23, 1998 with respect
to its acquisition of all of the outstanding shares of common stock of Redgate
Funeral Service Corporation on June 17, 1997.
The Company filed a Current Report on Form 8-K on March 25, 1998 with
respect to its merger with Barnett-Larkin-Brown Funeral Homes, Inc. on March 28,
1997.
The Company filed a Current Report on Form 8-K on March 25, 1998 with
respect to its acquisition of substantially all of the operating assets of Allen
J. Harden Funeral Home, Inc. on June 20, 1997.
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<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 1, 1998 /s/THOMAS C. LIVENGOOD
- -------------------------------------- -----------------------------------
Date Thomas C. Livengood, Executive Vice
President and Chief Financial
Officer
(Principal Financial Officer and
Duly Authorized Officer)
14
EXHIBIT 10.1
AMENDMENT NO. 1
This Amendment No. 1 dated as of April 24, 1998 ("Agreement"), is among
Carriage Services, Inc., a Delaware corporation (the "Borrower"), the lenders
signatory to the Credit Agreement described below (the "Lenders"), and
NationsBank of Texas, N.A., as agent (the "Agent") for the Lenders.
INTRODUCTION
Reference is made to the Credit Agreement dated as of September 9, 1997
(the "Credit Agreement") among the Borrower, the Lenders, and the Agent. The
Borrower has requested that the Lenders and the Agent make certain amendments to
Section 6.02(a)(iv) (Debts, Guaranties and Other Obligations) of the Credit
Agreement, and the Lenders and the Agent have agreed, on the terms and
conditions contained herein, to make such amendments.
THEREFORE, in connection with the foregoing and for other good and
valuable consideration, the Borrower, the Agent 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 6.02(a) of the Credit Agreement is amended by deleting in its
entirety subparagraph (iv) of such Section and replacing such subparagraph with
the following:
(iv) Debt of the Borrower or any of its Subsidiaries (in addition to Debt
described in paragraphs (i) through (iii) above), provided that the
aggregate outstanding principal amount of such Debt does not exceed
25% of the Borrower's Net Worth at any time on or after the date on
which such Debt is created, assumed or incurred.
(b) EXHIBIT H to the Credit Agreement is deleted therefrom, and EXHIBIT H
attached hereto is substituted in lieu thereof.
<PAGE>
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 proceedings, (b) this Agreement constitutes legal,
valid, and binding obligation of the Borrower enforceable against the Borrower
in accordance with its 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 the Agent's or
any 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.
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 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.
-2-
<PAGE>
EXECUTED as of the date first above written.
BORROWER:
CARRIAGE SERVICES, INC.
By:
Thomas C. Livengood, Executive Vice
President and Chief Financial
Officer
AGENT:
NATIONSBANK OF TEXAS, N.A., as Agent
By:
Albert L. Welch
Vice President
LENDERS:
NATIONSBANK OF TEXAS, N.A.,
By:
Albert L. Welch
Vice President
-3-
<PAGE>
PROVIDENT SERVICES, INC.
By:
Daniel M. Chong
Vice President
BANK ONE, TEXAS, NA
By:
H. Gale Smith
Vice President
CIBC INC.
By:
Name:
Title:
CORESTATES BANK, N.A.
By:
Name:
Title:
TORONTO DOMINION (TEXAS), INC.
By:
Name:
Title:
-4-
EXHIBIT 11.1
CARRIAGE SERVICES, INC.
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
Earnings per share for the three month period ended March 31, 1998 and 1997
is calculated based on the weighted average number of common and common
equivalent shares outstanding during the period as proscribed by SFAS 128. The
following table sets forth the computation of the basic and diluted earnings per
share for the three month period ended March 31, 1997 and 1998:
THREE MONTHS
ENDED MARCH 31,
-----------------
1997 1998
-------- -------
Net income ................................................. $ 1,825 $ 2,646
Preferred stock dividends .................................. 363 150
-------- -------
Net income available to common stockholders
for basic EPS computation ............................... 1,462 2,496
Effect of dilutive securities .............................. 182 150
------- -------
Net income available to common stockholders
for diluted EPS computation
$ 1,644 $ 2,646
======== =======
Weighted average number of common shares
outstanding for basic EPS computation ................... 9,072 11,151
Effect of dilutive securities:
Stock options ......................................... 330 175
Assumed conversion of preferred stock ................. 1,184 796
-------- -------
Weighted average number of common and common equivalent
shares outstanding for diluted EPS computation .......... 10,586 12,122
======== =======
Earnings per share:
Basic $ .16 $ .22
======== =======
Diluted $ .16 $ .22
======== =======
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCES TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 544
<SECURITIES> 0
<RECEIVABLES> 15,388
<ALLOWANCES> 1,170
<INVENTORY> 6,153
<CURRENT-ASSETS> 20,915
<PP&E> 98,961
<DEPRECIATION> 8,081
<TOTAL-ASSETS> 287,311
<CURRENT-LIABILITIES> 15,571
<BONDS> 135,714
0
13,951
<COMMON> 112
<OTHER-SE> 100,749
<TOTAL-LIABILITY-AND-EQUITY> 287,311
<SALES> 28,118
<TOTAL-REVENUES> 28,118
<CGS> 19,331
<TOTAL-COSTS> 19,331
<OTHER-EXPENSES> 1,869
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,107
<INCOME-PRETAX> 4,811
<INCOME-TAX> 2,165
<INCOME-CONTINUING> 2,646
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,646
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
