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, 1998
OR
[X] 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, TX77056
(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
July 23, 1998 was 10,723,380 and 3,962,413, respectively.
<PAGE>
CARRIAGE SERVICES, INC.
INDEX
PAGE
---------
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1998 ........................ 3
Consolidated Statements of Operations for the
Three Months Ended June 30, 1997 and 1998 and the
Six Months Ended June 30, 1997 and 1998 .................... 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..... 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
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, JUNE 30,
1997 1998
------------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ..................... $ 6,126 $ 2,026
Accounts receivable, net of allowances ........ 12,912 14,317
Inventories and other current assets .......... 5,691 6,338
--------- --------
Total current assets ................ 24,729 22,681
Property, plant and equipment, at cost, net of
accumulated depreciation of $7,123 in 1997 and
$9,044 in 1998 .................................. 85,865 97,936
Cemetery property, at cost ......................... 32,154 35,221
Names and reputations, net of accumulated
amortization of $4,480 in 1997 and $6,060 in
1998 ............................................ 118,099 134,644
Deferred charges and other noncurrent assets ....... 17,093 20,646
--------- --------
$ 277,940 $311,128
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 9,022 $ 3,024
Other current liabilities ...................... 9,884 10,262
--------- --------
Total current liabilities ............ 18,906 13,286
Long-term debt, net of current portion .............. 121,553 87,062
Other liabilities ................................... 24,965 25,638
--------- --------
Total liabilities .................... 165,424 125,986
Redeemable preferred stock .......................... 13,951 13,951
Stockholders' equity:
Common stock ................................... 111 146
Contributed capital ............................ 102,056 170,499
Retained earnings (deficit) .................... (3,602) 546
--------- --------
Total stockholders' equity ........... 98,565 171,191
--------- --------
$ 277,940 $311,128
========= ========
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,
------------------- -------------------
1997 1998 1997 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenues, net
Funeral .............................. $15,631 $20,370 $30,919 $43,613
Cemetery ............................. 3,430 4,844 6,131 9,719
------- ------- ------- -------
19,061 25,214 37,050 53,332
Costs and expenses
Funeral .............................. 11,526 14,493 22,146 30,326
Cemetery ............................. 2,532 3,723 4,758 7,221
------- ------- ------- -------
14,058 18,216 26,904 37,547
------- ------- ------- -------
Gross profit ......................... 5,003 6,998 10,146 15,785
General and administrative expenses ....... 1,166 1,751 2,187 3,620
------- ------- ------- -------
Operating income ..................... 3,837 5,247 7,959 12,165
Interest expense, net ..................... 1,416 2,044 2,570 4,151
------- ------- ------- -------
Income before income taxes ........... 2,421 3,203 5,389 8,014
Provision for income taxes ................ 932 1,400 2,075 3,565
------- ------- ------- -------
Net income ................................ 1,489 1,803 3,314 4,449
Preferred stock dividend requirements ..... 174 151 537 301
------- ------- ------- -------
Net income available to common
stockholders ....................... $ 1,315 $ 1,652 $ 2,777 $ 4,148
======= ======= ======= =======
Earnings per share:
Basic ................................ $ .13 $ .13 $ .28 $ .35
======= ======= ======= =======
Diluted .............................. $ .12 $ .13 $ .28 $ .34
======= ======= ======= =======
Weighted average number of common
and common equivalent shares outstanding:
Basic ................................ 10,484 12,393 9,782 11,775
======= ======= ======= =======
Diluted .............................. 10,722 12,881 10,062 12,874
======= ======= ======= =======
</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,
---------------------
1997 1998
------- -------
Cash flows from operating activities:
Net income .......................................... $ 3,314 $ 4,449
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................... 3,651 4,844
Provision for deferred income taxes .............. 1,518 1,118
Other, net ....................................... (583) 830
Changes in assets and liabilities, net of
effects from acquisitions:
(Increase) in accounts receivables ............... (1,302) (4,075)
(Increase) in other assets ....................... (1,277) (2,836)
Increase (decrease) in payables and other
liabilities .................................... 1,331 (61)
-------- --------
Net cash provided by operating
activities ............................ 6,652 4,269
Cash flows from investing activities:
Acquisitions, net of cash acquired ................... (39,226) (24,401)
Capital expenditures ................................. (3,451) (8,354)
Other, including disposition of assets ............... 927 (201)
-------- --------
Net cash used in investing activities ... (41,750) (32,956)
Cash flows from financing activities:
Proceeds from long-term debt ......................... 36,434 8,200
Payments on long-term debt and obligations under
capital leases ..................................... (679) (51,938)
Proceeds from issuance of common stock ............... -- 68,495
Payment of preferred stock dividends ................. (537) (301)
Other, net ........................................... 41 131
-------- --------
Net cash provided by financing
activities ............................ 35,259 24,587
Net increase (decrease) in cash and cash equivalents ... 161 (4,100)
Cash and cash equivalents at beginning of period ....... 1,712 6,126
-------- --------
Cash and cash equivalents at end of period ............. $ 1,873 $ 2,026
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................... $ 2,137 $ 4,548
======== ========
Cash paid for income taxes ........................... $ -- $ 3,195
======== ========
Non-cash consideration for acquisitions .............. $ 27,010 $ 3,144
======== ========
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, 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 six months ended June 30, 1998, the Company purchased 11 funeral
homes and one cemetery. 26 funeral homes and two cemeteries were acquired during
the six months ended June 30, 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:
JUNE 30,
----------------------
1997 1998
------- --------
(IN THOUSANDS)
Current assets, net of cash acquired ............. $ 7,347 $ 888
Cemetery property ................................ 18,845 2,305
Property, plant and equipment .................... 20,388 6,017
Deferred charges and other noncurrent assets ..... 550 352
Names and reputations ............................ 31,162 18,478
Current liabilities .............................. (560) (255)
Other liabilities ................................ (11,496) (240)
-------- --------
Total acquisitions .......................... 66,236 27,545
Consideration:
Debt ............................................. -- 3,144
Redeemable preferred stock issued ................ 20,000 --
Common stock issued .............................. 7,010 --
======== ========
Cash used for acquisitions .................. $ 39,226 $ 24,401
======== ========
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, 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.
SIX MONTHS ENDED JUNE 30,
----------------------------
1997 1998
------- -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Revenues, net ................................... $54,651 $56,036
Net income before income taxes .................. 3,652 8,017
Net income available to common stockholders ..... 1,589 4,108
Earnings per common share:
Basic ...................................... 0.16 0.35
Diluted .................................... 0.16 0.34
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading provider of death care services and products in
the United States. 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 six months 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 37% and 53% for the three and six months ended June
30, 1998, respectively, compared to the same periods in 1997. As a percentage of
net revenues, income from operations increased from 21.5% for the first six
months of 1997 to 22.8% for the first six months of 1998 and from 20.1% for the
second quarter of 1997 to 20.8% for the second quarter of 1998. The improvements
were largely due to the increased gross profits at the individual locations.
Gross margins for the funeral homes increased from 27.5% (before including a
gain on the sale of property) in the first six months of 1997 to 30.5% in the
first six months of 1998 and from 26.3% for the second quarter of 1997 to 28.9%
for the second quarter of 1998, on increases in revenue of 41.1% and 30.3%,
respectively. 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 25.7% in first six months of 1998 compared to 22.4% in the
first six months in 1997 on an increase in revenue of 58.5%. Increased preneed
sales and marketing efforts have had a significant impact beginning in the
fourth quarter of 1997 and continuing in 1998, as revenues and gross profits
from cemeteries owned at least one year increased 86.3% and 1,056.6%,
respectively, in the first six months of 1998 compared to the same period in
1997.
The Company has experienced significant growth since 1995, when it owned 44
facilities. 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 July 23, 1998, the
Company has either acquired or has letters of intent to acquire 43 funeral homes
and four cemeteries for an aggregate consideration of approximately $108
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 acquisitions that are
larger, strategic and accretive and its ability to finance its acquisitions with
debt and equity. The Company has also begun to allocate more of its resources to
combination funeral home and cemetery acquisitions.
8
<PAGE>
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, 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 and six months ended June 30, 1997 compared to the
three and six months ended June 30, 1998.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998.
THREE MONTHS ENDED
JUNE 30, CHANGE
-------------------- --------------------
1997 1998 AMOUNT PERCENT
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations ...... $15,408 $15,253 $ (155) (1.0%)
Acquired operations ...... 223 5,117 4,894 *
------- ------- -------
Total net revenues ..... $15,631 $20,370 $ 4,739 30.3%
======= ======= =======
Gross profit:
Existing operations ...... $ 4,103 $ 4,608 $ 505 12.3%
Acquired operations ...... 2 1,269 1,267 *
------- ------- -------
Total gross profit ..... $ 4,105 $ 5,877 $ 1,772 43.2%
======= ======= =======
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998.
SIX MONTHS ENDED
JUNE 30, CHANGE
-------------------- --------------------
1997 1998 AMOUNT PERCENT
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations ...... $24,103 $25,063 $ 960 4.0%
Acquired operations ...... 6,816 18,550 11,734 *
------- ------- -------
Total net revenues ..... $30,919 $43,613 $12,694 41.1%
======= ======= =======
Gross profit:
Existing operations ...... $ 6,451 $ 7,210 $ 759 11.8%
Acquired operations ...... 2,322 6,077 3,755 *
------- ------- -------
Total gross profit ..... $ 8,773 $13,287 $ 4,514 51.5%
======= ======= =======
- ---------
* Not meaningful.
9
<PAGE>
Due to the rapid growth of the Company, existing operations represented only
74.9% of the total funeral revenues and only 78.4% of the total funeral gross
profit for the three months ended June 30, 1998 and only 57.5% of the total
funeral revenues and 54.3% of the total funeral gross profit for the six months
ended June 30, 1998. Total funeral net revenues for the three months ended June
30, 1998 increased $4.7 million or 30.3% over the three months ended June 30,
1997. The higher net revenues reflect an increase of $4.9 million in net
revenues from acquired operations and a decrease in net revenues of $0.2 million
from existing operations. Total funeral net revenues for the six months ended
June 30, 1998 increased $12.7 million or 41.1% over the six months ended June
30, 1997. The higher net revenues reflect an increase of $11.7 million in net
revenues from acquired operations and an increase in net revenues of $1.0
million from existing operations.
Total funeral gross profit for the three months ended June 30, 1998 increased
$1.8 million or 43.2% over the comparable three months of 1997. The higher total
gross profit reflected an increase of $1.3 million from acquired operations and
an increase of $ 0.5 million from existing operations. Total funeral gross
profit for the six months ended June 30, 1998 increased $4.5 million or 51.5%
over the comparable six months of 1997. The higher total gross profit reflected
an increase of $3.7 million from acquired operations and an increase of $0.8
million 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. Total gross margin increased from 26.3% for
the second quarter of 1997 to 28.9% for the second quarter of 1998 and from 28.4
% for the first six months of 1997 to 30.5% for the first six months of 1998 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, 1997 compared to the
three and six months ended June 30, 1998.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998.
THREE MONTHS ENDED
JUNE 30, CHANGE
-------------------- ------------------
1997 1998 AMOUNT PERCENT
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations ....... $3,429 $3,905 $ 476 13.9%
Acquired operations ....... 1 939 938 *
------- ------- -------
Total net revenues ...... $3,430 $4,844 $1,414 41.2%
====== ====== ======
Gross profit:
Existing operations ....... $ 897 $1,075 $ 178 19.8%
Acquired operations ....... 1 46 45 *
------- ------- -------
Total gross profit ...... $ 898 $1,121 $ 223 24.8%
====== ====== ======
- ---------
* Not meaningful.
10
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998.
SIX MONTHS ENDED
JUNE 30, CHANGE
--------------------- ---------------------
1997 1998 AMOUNT PERCENT
-------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
Total net revenues .......... $6,131 $9,719 $3,588 58.5%
====== ====== ======
Total gross profit .......... $1,373 $2,498 $1,125 81.9%
====== ====== ======
Due to the acquisition of relatively significant cemetery properties during
the first quarter of 1997, existing operations represented 80.6% of cemetery
revenues and 95.9% of cemetery gross profit for the three months ended June 30,
1998 and yet only 35.2% of cemetery revenues and 29.5% of cemetery gross profit
for the six months ended June 30, 1998. As a result, the Company does not
believe it is meaningful to present the results for existing and acquired
operations separately for the six months ended June 30, 1997 and 1998.
Total cemetery net revenues for the three months ended June 30, 1998
increased $1.4 million over the three months ended June 30, 1997 and total
cemetery gross profit increased $223,000 over the comparable three months of
1997. The higher net revenues reflect an increase of $0.9 million in net
revenues from acquired operations and an increase of $0.5 million in revenues
from existing operations. Total cemetery net revenues for the six months ended
June 30, 1998 increased $3.6 million over the six months ended June 30, 1997,
and total cemetery gross profit increased $ 1.1 million over the comparable six
months of 1997. Total gross margin increased from 22.4% for the six months ended
June 30, 1997 to 25.7 % for the six months ended June 30, 1998. These increases
were due primarily to the Company's acquisition of ten cemeteries during 1997
and increased preneed marketing efforts. Total gross margin decreased from 26.2%
for the three months ended June 30, 1997 to 23.1% for the three months ended
June 30, 1998 primarily due to an exceptional performance of Rolling Hills
Memorial Park in California during the second quarter of 1997.
OTHER.
General and administrative expenses for the six months ended June 30, 1998
increased $1.4 million or 65.5% over the first six months of 1997 due primarily
to the increased personnel expense necessary to support the Company's 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 six months ended June 30, 1998 increased $1.6
million over the first six months of 1997 principally due to increased
borrowings for acquisitions subsequent to June 30, 1997. Partially offsetting
the increased borrowings for acquisitions are the effects of a new credit
facility, which reflects substantially improved terms and reduced interest rates
compared to the previous arrangements and proceeds from the Company's sale of
common stock during May 1998, which were used to reduce outstanding debt.
11
<PAGE>
Preferred stock dividends of $301,000 were subtracted from the $4.4 million
of net income in computing the net income available to common stockholders of
$4.1 million for the six months ended June 30, 1998. The reduction in preferred
stock dividends from 1997 to 1998 is due to conversions of the preferred stock
to common stock.
For the six months ended June 30, 1998, the Company provided for income taxes
on income before income taxes at a combined state and federal rate of 44.5%
compared with 38.5% for the same period in 1997. The effective tax rate for the
first six months in 1997 included a 4.5% tax benefit for the utilization of
prior year net operating losses, net of other tax reserves.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $2.0 million at June 30, 1998, representing
a decrease of $4.1 million from December 31, 1997. For the six months ended June
30, 1998, cash provided by operations was $4.3 million as compared to cash
provided by operations of $6.7 million for the six months ended June 30, 1997.
The decrease in net cash provided by operating activities was principally due to
the increases in accounts receivable, deferred charges and other assets, which
was partially offset by an increase in income from operations. Cash used in
investing activities was $33.0 million for the six months ended June 30, 1998
compared to $41.8 million for the first six months of 1997, due primarily to a
decrease in amounts paid in connection with acquisitions.
In the first six months of 1998, cash flow provided by financing activities
amounted to approximately $24.6 million, primarily due to the net proceeds
generated from the Company's secondary equity offering and repayments of
long-term debt, during the second quarter of 1998. On May 28, 1998, the Company
completed the sale of 3,000,000 shares of the Company's Class A Common Stock and
on June 12, 1998, the underwriters in the current equity offering exercised
their options to sell an additional 450,000 shares of Class A Common Stock,
raising the total number of shares offered to 3,450,000 and resulting in
approximately $69 million in net proceeds, of which $45 million was used to
repay outstanding indebtedness under the Company's credit facility, with the
remaining $24 million used for acquisitions and general corporate purposes.
Historically, the Company has financed its acquisitions with proceeds from
debt and the issuance of common and preferred stock. As of June 30, 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.
12
<PAGE>
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 June 30, 1998,
$70.8 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. During the six months ended June 30,
1998, the Company incurred $8.4 million in capital expenditures, primarily
related to funeral home improvements. In addition, the Company currently expects
to incur capitalizable costs (less in the amount than during the six months
ended June 30, 1998) during the second half of 1998 related to 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 acquisitions of which approximately
1,500,000 shares remain available at June 30, 1998. The Company has budgeted
acquisition spending of $120 million for its acquisition program in 1998. As of
July 23, 1998, the Company has spent $63 million and has signed non-binding
letters of intent for acquisitions totaling $45 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
material problem has been discovered to date.
13
<PAGE>
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 annual meeting of shareholders was held on May 6, 1998.
All director nominees were elected. The voting tabulation was as follows:
NAME OF NOMINEE NUMBER OF VOTES FOR NUMBER OF VOTES WITHHELD
------------------- --------------------- --------------------------
Mark W. Duffey 42,799,949 10,922
Barry K. Fingerhut 42,799,949 10,922
Greg M. Brudnicki 42,799,949 10,922
The terms of the following other directors continue after the meeting:
Ronald A. Erickson, Melvin C. Payne, Robert D. Larrabee, C. Byron Snyder,
Stuart W. Stedman and Mark F. Wilson.
Other matters voted upon at the meeting were as follows:
NUMBER OF
NUMBER OF NUMBER OF VOTES
VOTES FOR VOTES AGAINST ABSTAINING
------------ -------------- ------------
Approval of the 1997 Employee
Stock Purchase Plan 39,834,848 1,055,134 19,519
Amendments to 1995 Stock
Incentive Plan 39,924,115 960,311 25,075
Amendments to 1996 Stock Option
Plan 39,931,323 952,178 26,000
Selection of Arthur Andersen LLP
as auditors for 1998 42,741,036 65,750 4,085
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 -- Amendment No.1 to 1995 Stock Incentive Plan. Incorporated
herein by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-8 (File No. 333-49041).
10.2 -- Amendment No.1 to 1996 Stock Option Plan. Incorporated herein
by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-8 (File No. 333-49041).
10.3 -- 1997 Employee Stock Purchase Plan. Incorporated herein by
reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-8 (File No. 333-49053).
*11.1 -- Statement regarding computation of per share earnings.
*27.1 -- Financial Data Schedule.
- -----------
(*) Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
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.
AUGUST 14, 1998
Date
/s/ THOMAS C. LIVENGOOD
Thomas C. Livengood
Executive Vice President
and Chief Financial Officer
(Principal Financial
Officer and Duly Authorized Officer
15
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 and six month periods ended June 30, 1998
and 1997 is calculated based on the weighted average number of common and common
equivalent shares outstanding during the period as prescribed by SFAS 128. The
following table sets forth the computation of the basic and diluted earnings per
share for the three and six month periods ended June 30, 1997 and 1998:
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ -----------------
1997 1998 1997 1998
------- ------- ------ -------
Net income ............................. 1,489 1,803 3,314 4,449
Preferred stock dividends .............. 174 151 537 301
------- ------- ------- -------
Net income available to common
stockholders for basic EPS
computation ......................... 1,315 1,652 2,777 4,148
Effect of dilutive securities .......... -- -- -- 243
------- ------- ------- -------
Net income available to common
stockholders for diluted EPS
computation ......................... $ 1,315 $ 1,652 $ 2,777 $ 4,391
======= ======= ======= =======
Weighted average number of common shares
outstanding for basic EPS computation 10,484 12,393 9,782 11,775
Effect of dilutive securities:
Stock options...................... 238 488 280 377
Assumed conversion of preferred
stock ........................... -- -- -- 722
------- ------- ------- -------
Weighted average number of common and
common equivalent shares outstanding
for diluted EPS computation ......... 10,722 12,881 10,062 12,874
======= ======= ======= =======
Earnings per share:
Basic ............................. $ .13 $ .13 $ .28 $ .35
======= ======= ======= =======
Diluted ........................... $ .12 $ .13 $ .28 $ .34
======= ======= ======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCES TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,026
<SECURITIES> 0
<RECEIVABLES> 15,571
<ALLOWANCES> 1,253
<INVENTORY> 3,864
<CURRENT-ASSETS> 22,681
<PP&E> 106,980
<DEPRECIATION> 9,044
<TOTAL-ASSETS> 311,128
<CURRENT-LIABILITIES> 13,286
<BONDS> 91,379
0
13,951
<COMMON> 146
<OTHER-SE> 171,045
<TOTAL-LIABILITY-AND-EQUITY> 311,128
<SALES> 53,332
<TOTAL-REVENUES> 53,332
<CGS> 37,547
<TOTAL-COSTS> 37,547
<OTHER-EXPENSES> 3,620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,151
<INCOME-PRETAX> 8,014
<INCOME-TAX> 3,565
<INCOME-CONTINUING> 4,449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,449
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
</TABLE>
