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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ________
COMMISSION FILE NUMBER: 1-11961
-------------------------
CARRIAGE SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0423828
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
1300 POST OAK BLVD., SUITE 1500, HOUSTON, TX 77056
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 556-7400
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes 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 30, 1999 was 12,335,851 and 3,549,741 respectively.
<PAGE>
CARRIAGE SERVICES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
December 31, 1998 and March 31, 1999 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1998 and 1999 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1999 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF
MARKET RISK 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
Signature 15
</TABLE>
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Form 10-Q are forward-looking statements that
are subject to risks and uncertainties that could cause actual results to differ
materially from those projected. Such risks and uncertainties include, but are
not limited to, the following: the Company's ability to sustain its rapid
acquisition rate, to manage the growth and to obtain adequate performance from
acquired businesses; the economy and financial market conditions, including
stock prices, interest rates and credit availability; and death rates and
competition in the Company's markets.
2
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................... $ 2,892 $ 6,279
Accounts receivable --
Trade, net of allowance for doubtful
accounts of $3,435 in 1998 and $5,023
in 1999 ..................................... 17,835 25,746
Other ......................................... 3,696 3,352
-------- --------
21,531 29,098
Inventories and other current assets ............... 7,457 8,395
-------- --------
Total current assets ..................... 31,880 43,772
-------- --------
Property, plant and equipment, at cost, net of
accumulated depreciation of $11,363 in 1998 and
$12,721 in 1999 ........................................ 131,144 137,858
Cemetery property, at cost ............................... 63,409 65,287
Names and reputations, net of accumulated
amortization of $8,428 in 1998 and $9,842 in 1999 ...... 211,183 216,397
Deferred charges and other noncurrent assets ............. 28,528 31,413
-------- --------
$466,144 $494,727
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 4,754 $ 4,482
Accrued liabilities ................................. 9,168 13,941
Current portion of long-term debt and
obligations under capital Lease .................... 6,394 5,860
-------- --------
Total current liabilities ................. 20,316 24,283
Preneed liabilities, net ................................. 11,106 10,828
Long-term debt, net of current portion ................... 212,972 234,131
Obligations under capital leases, net of current
portion ................................................ 3,209 2,053
Deferred income taxes .................................... 16,474 16,962
-------- --------
Total liabilities ......................... 264,077 288,257
-------- --------
Commitments and contingencies
Redeemable preferred stock ............................... 1,673 1,420
Stockholders' equity:
Class A Common Stock, $.01 par value;
40,000,000 shares
Authorized; 12,028,000 and 12,187,000
issued and outstanding at
December 31, 1998 and March 31, 1999,
respectively ...................................... 120 121
Class B Common Stock; $.01 par value;
10,000,000 shares Authorized; 3,779,000 and
3,661,000 issued and outstanding at December 31,
1998 and March 31, 1999, respectively ............. 38 37
Contributed capital ................................. 194,911 195,219
Retained earnings.................................... 5,325 9,673
-------- --------
Total stockholders' equity ................ 200,394 205,050
-------- --------
$466,144 $494,727
======== ========
</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)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Revenues, net
Funeral ......................................... $ 23,243 $ 33,512
Cemetery ........................................ 4,875 8,359
-------- ---------
28,118 41,871
Costs and expenses
Funeral ......................................... 15,833 22,037
Cemetery ........................................ 3,498 6,209
-------- ---------
19,331 28,246
-------- ---------
Gross profit .................................... 8,787 13,625
General and administrative expenses .................. 1,869 2,479
-------- ---------
Operating income ................................ 6,918 11,146
Interest expense, net ................................ 2,107 3,467
-------- ---------
Income before income taxes ...................... 4,811 7,679
Provision for income taxes ........................... 2,165 3,302
-------- ---------
Net income ........................................... 2,646 4,377
Preferred stock dividend requirements ................ 150 29
-------- ---------
Net income available to common
stockholders .................................. $ 2,496 $ 4,348
======== =========
Earnings per share:
Basic ........................................... $ .22 $ .28
======== =========
Diluted ......................................... $ .22 $ .27
======== =========
Weighted average number of common and common
Equivalent shares outstanding:
Basic .......................................... 11,151 15,807
======== =========
Diluted ........................................ 12,122 16,162
======== =========
</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)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1998 1999
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................. $ 2,645 $ 4,377
Adjustments to reconcile net income to net cash
Provided by operating activities --
Depreciation and amortization ..................................... 2,417 3,780
Provision for losses on accounts receivable ....................... 420 1,099
Deferred income taxes ............................................. 947 474
------- --------
Net cash provided by operating
activities before changes in assets
and liabilities ............................................ 6,429 9,730
Changes in assets and liabilities, net of effects
from acquisitions:
(Increase) decrease in accounts receivable ........................ (2,604) 195
Increase in inventories and other current assets .................. (397) (4,156)
Increase in other deferred charges ................................ (1,247) (1,537)
Increase in accounts payable ...................................... 233 1,626
Increase in accrued liabilities ................................... 1,521 1,843
Decrease in preneed liabilities ................................... (303) (176)
-------- --------
Net cash provided by operating activities .................... 3,632 7,525
Cash flows from investing activities:
Acquisitions, net of cash acquired ................................ (6,252) (18,153)
Purchase of property, plant and equipment ......................... (4,372) (3,401)
Other, including disposition of assets ............................ (171) --
-------- --------
Net cash used in investing activities ........................ (10,795) (21,554)
Cash flows from financing activities:
Proceeds from long-term debt ...................................... 8,163 21,711
Payments on long-term debt and obligations under capital leases ... (6,459) (4,326)
Payment of preferred stock dividends .............................. (150) (29)
Other ............................................................. 27 60
-------- --------
Net cash provided by financing activities .................... 1,581 17,416
Net increase (decrease) in cash and cash equivalents ....................... (5,582) 3,387
Cash and cash equivalents at beginning of period ........................... 6,126 2,892
-------- --------
Cash and cash equivalents at end of period ................................. $ 544 $ 6,279
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................ $ 2,001 $ 3,655
======== ========
Cash paid for income taxes ........................................ $ 597 $ 1,644
======== ========
Non-cash consideration for acquisitions ........................... $ 2,056 $ 1,100
======== ========
</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, 1998 and 1999 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, 1998, 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, 1999, the Company purchased seven
funeral homes and nine cemeteries. Four funeral homes and one cemetery were
acquired during the three months ended March 31, 1998. 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:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1998 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current assets, net of cash acquired ........... $ 647 $ 6,868
Cemetery property .............................. 2,305 3,072
Property, plant and equipment .................. 1,683 4,075
Deferred charges and other noncurrent assets.... 101 562
Names and reputations .......................... 3,837 6,604
Current liabilities ............................ (211) (1,033)
Other liabilities .............................. (54) (895)
------- --------
Total acquisitions ........................ 8,308 19,253
Consideration:
Debt ........................................... 2,056 1,100
------- --------
Cash used for acquisitions ................ $ 6,252 $ 18,153
======= ========
</TABLE>
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, 1998. 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1999
------------ ------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenues, net .................................. $ 40,769 $ 44,602
Net income before income taxes ................. 4,155 8,209
Net income available to common stockholders..... 2,135 4,650
Earnings per common share:
Basic ..................................... 0.19 0.29
Diluted ................................... 0.19 0.29
</TABLE>
3. MAJOR SEGMENTS OF BUSINESS
Carriage conducts funeral and cemetery operations only in the United States.
<TABLE>
<CAPTION>
(in thousands) FUNERAL CEMETERY CORPORATE CONSOLIDATED
-------- --------- --------- ------------
<S> <C> <C> <C> <C>
External revenues:
Three months ended March 31, 1999 ........................... $ 33,512 $ 8,359 -- $ 41,871
Three months ended March 31, 1998 ........................... 23,243 4,875 -- 28,118
Profit and Loss:
Three months ended March 31, 1999 ........................... $ 10,331 $ 2,763 $ (8,717) $ 4,377
Three months ended March 31, 1998 ........................... 4,255 2,131 (3,740) 2,646
Total Assets:
March 31, 1999 .............................................. $345,906 $119,107 $ 29,714 $ 494,727
March 31, 1998 .............................................. 201,813 59,346 26,152 287,311
</TABLE>
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. That focus has resulted in a successful track record of internal growth
from attractive acquisition opportunities; high standards of service,
operational and financial performance; and an infrastructure containing
measurement and management systems. The operating focus for 1999 includes
institutionalization of internal training, internal growth, and making quality
initiatives introduced in 1998 an integral part of the culture.
Income from operations, which the Company defines as earnings before interest
and income taxes, increased, as a percentage of net revenues, from 24.6% for the
first quarter of 1998 to 26.6% for the first quarter of 1999. This improvement
was largely due to the increased gross profits at the individual funeral home
locations. Gross margins for the funeral homes increased from 31.9% in the first
quarter of 1998 to 34.2% in the first quarter of 1999, on an increase in revenue
of 44%. As a percentage of cemetery net revenues, cemetery gross profit was
25.7% in first quarter of 1999 compared to 28.2% in the first quarter in 1998.
Revenues and gross profits from cemeteries increased 71% and 56%, respectively,
in the first quarter of 1999 compared to the same period in 1998.
The Company has experienced significant growth through acquisitions.
Forty-four funeral homes and ten cemeteries were acquired during 1997 for
approximately $118 million. During 1998, the Company acquired 48 funeral homes
and seven cemeteries for an aggregate consideration of approximately $159
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 30, 1999, the Company has
either acquired or has letters of intent to acquire 16 funeral homes and 14
cemeteries for an aggregate consideration of approximately $38 million. The
Company believes its increased recognition in the death care industry as an
established operator and purchaser of funeral homes and cemeteries, as well as
favorable conditions in the acquisition marketplace, 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.
RESULTS OF OPERATIONS
The following is a discussion of the Company's results of operations for the
three month periods ended March 31, 1998 and 1999. 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, 1998 compared to the three
months ended March 31, 1999.
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, CHANGE
------------------ -----------------
1998 1999 AMOUNT PERCENT
-------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations ....................................... $22,845 $23,325 $ 480 2.1%
Acquired operations ....................................... 398 10,187 9,789 *
======= ======= =======
Total net revenues ...................................... $23,243 $33,512 $10,269 44.2%
======= ======= =======
Gross profit:
Existing operations ....................................... $ 7,240 $ 7,610 $ 370 5.1%
Acquired operations ....................................... 170 3,865 3,695 *
======= ======= =======
Total gross profit ...................................... $ 7,410 $11,475 $ 4,065 54.9%
======= ======= =======
</TABLE>
* Not meaningful.
Due to the rapid growth of the Company, existing operations represented 70%
of the total funeral revenues and 66% of the total funeral gross profit for the
three months ended March 31, 1999. Total funeral net revenues for the three
months ended March 31, 1999 increased $10.3 million or 44.2% over the three
months ended March 31, 1998. The higher net revenues reflect an increase of $9.8
million in net revenues from acquired operations and an increase in net revenues
of $480,000 from existing operations.
Total funeral gross profit for the three months ended March 31, 1999
increased $4.1 million or 54.9% over the comparable three months of 1998. The
higher total gross profit reflected an increase of $3.7 million from acquired
operations and an increase of $370,000 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 from the Company's training incentives. Total gross margin
increased from 31.9% for the first quarter of 1998 to 34.2% for the first
quarter of 1999 due to these factors.
9
<PAGE>
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, 1998 compared to the three months ended
March 31, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, CHANGE
------------------ ----------------
1998 1999 AMOUNT PERCENT
------- ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenue:
Existing operations ............................................. $4,801 $5,134 $ 333 6.9%
Acquired operations ............................................. 74 3,225 3,151 *
------ ------ -----
Total net revenues ............................................ $4,875 $8,359 $3,484 71.5%
====== ====== ======
Gross profit:
Existing operations ............................................. $1,355 $1,403 $ 48 3.5%
Acquired operations ............................................. 22 747 725 *
------ ------ -----
Total gross profit ............................................ $1,377 $2,150 $ 773 56.1%
====== ====== ======
</TABLE>
* Not meaningful.
Due to the rapid growth of the Company, existing operations represented
approximately 61% of cemetery revenues and approximately 65% of cemetery gross
profit for the three months ended March 31, 1999. Total cemetery net revenues
for the three months ended March 31, 1999 increased $3.5 million over the three
months ended March 31, 1998, and total cemetery gross profit increased $773,000
over the comparable three months of 1998. The higher net revenues reflect an
increase of $333,000 from existing operations and an increase of $3.2 million
from acquired operations. The higher gross profit reflected an increase of
$48,000 from existing operations and $725,000 from acquired operations. Total
gross margin decreased from 28.2% for the three months ended March 31, 1998 to
25.7% for the three months ended March 31, 1999. The decrease was due primarily
to costs incurred during the first quarter of 1999 related to the Company's
acquisition of nine cemeteries from Service Corporation International, Inc. on
March 30, 1999.
OTHER. General and administrative expenses for the three months ended March 31,
1999 increased $610,000 or 32.6% over the first three months of 1998 due
primarily to the increased personnel expense necessary to support the continued
growth and acquisition activity. However, the increase in general and
administrative expenses as a percentage of net revenues decreased from 6.6% to
5.9% as the expenses were spread over a larger volume of revenue.
Interest expense for the three months ended March 31, 1999 increased $1.4
million over the first three months of 1998, principally due to increased
borrowings for acquisitions.
Preferred stock dividends of $29,000 were subtracted from the $4.4 million of
net income in computing the net income available to common stockholders of $4.3
million for the three months ended March 31, 1999. The reduction in preferred
stock dividends from 1998 to 1999 is due to conversions of the preferred stock
to common stock.
10
<PAGE>
For the three months ended March 31, 1999, the Company provided for income
taxes on income before income taxes at a combined state and federal rate of 43%
compared with 45% for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $6.3 million at March 31, 1999,
representing an increase of $3.4 million from December 31, 1998. For the three
months ended March 31, 1999, cash provided by operations was $7.5 million as
compared to cash provided by operations of $3.6 million for the three months
ended March 31, 1998. 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 inventories and other current assets. Cash used
in investing activities was $21.6 million for the three months ended March 31,
1999 compared to $10.8 million for the first three months of 1998, due primarily
to an increase in amounts paid in connection with acquisitions. In the first
three months of 1999, cash flow provided by financing activities amounted to
approximately $17.4 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 had 1,682,500 shares outstanding of Series D Preferred Stock. The Series
D Preferred Stock is convertible into Class B 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. The
Company may, at its option, redeem all or any portion of the shares of the
Series D Preferred Stock 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. On March 30,
1999, holders of Series F Preferred Stock converted 252,410 into 17,925 shares
of Class B Common Stock, and then converted those Class B shares into 17,925
shares of Class A Common Stock.
As of March 31, 1998, the Company had 12,278,285 shares of Series F Preferred
Stock issued and outstanding. The Series F Preferred Stock paid cash dividends
at the annual rate of $.042 per share. On December 31, 1998, all of the Series F
Preferred Stock was converted into an aggregate of 722,250 shares of Class A
Common Stock at the exercise price of $17 per share.
The Company has a credit facility with a group of banks for a $225 million
revolving line of credit. The 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 credit facility is provided at both
LIBOR and prime rate options. The Company has the ability under the credit
facility to increase its total debt outstanding to as much as 60 percent of its
total capitalization. As of March 31, 1999, the Company's total debt to total
capitalization was 54 percent.
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. The Company has budgeted $155 million
for its acquisition program in 1999. In addition, the Company currently expects
to incur approximately $15 million of capital expenditures during 1999,
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. 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. As of March 31, 1999, approximately 1,057,000 shares remained.
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
Our information systems management group is continually reviewing the
management and accounting software packages for internal accounting and
information requirements to keep pace with our continued growth and to achieve
Year 2000 compliance. To address the Year 2000 issue, our program which
encompasses performing an inventory of our information technology and
non-information technology systems, assessing the potential problem areas,
testing the systems for Year 2000 readiness, and modifying systems that are not
Year 2000 ready.
To date, inventory and assessment have been completed for all of our core
systems that are essential for business operations. All of these core systems
are believed to be Year 2000 compliant except for a portion of the
record-keeping system for certain cemetery operations, for which the
modifications have been completed, tested and certified as Year 2000 compliant.
As of March 31, 1999, management estimated that we had completed more than
ninety percent of the work involved in modifying, replacing and testing the
non-compliant hardware and software. The inventory and assessment phases for
newly acquired businesses is performed during the acquisition process as part of
our due diligence analysis.
We are also communicating with vendors, trustees and other third parties with
which we conduct business to determine the extent to which those companies are
addressing their Year 2000 compliance. To date, no significant third parties
have informed us that any Year 2000 issue exists which will have a material
effect on us.
Although we expect to be ready to continue our business activities without
interruption by a Year 2000 problem, we recognize the general uncertainty
inherent in the Year 2000 issue, in part because of the uncertainty about the
Year 2000 readiness of third parties. Under a "most likely worst case Year 2000
scenario," it may be necessary for us to replace some suppliers, rearrange some
work plans or even temporarily interrupt some normal business activities or
operations. We believe that such circumstances would be isolated and would not
result in a material adverse impact to our operations or pose a material
financial risk to us. We have begun, but not yet completed, developing a
contingency plan to deal with the "most likely worst case Year 2000 scenario."
The contingency plan is expected to be completed during the third quarter of
1999.
Based on the current assessment, our total costs of becoming Year 2000
compliant are not expected to be significant to our financial position, results
of operations or cash flows. As of March 31, 1999, we
12
<PAGE>
spent approximately $50,000 related to Year 2000 compliance. The total
remaining costs for addressing the Year 2000 issue are presently estimated to be
less than $100,000.
The estimated costs of the projects are forward-looking statements based
on our best estimates, which were derived utilizing numerous assumptions of
future events. While we believe all necessary work will be completed in a timely
fashion, there can be no assurance that these estimates will be achieved and
actual results could differ materially from those anticipated. Some of the
factors that might cause such material differences include failure by third
parties to adequately solve Year 2000 problems, the cooperation of third parties
and the ability to identify and correct potential problems.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
There has been no material change in the Company's position regarding
quantitative and qualitative disclosures of market risk from that disclosed in
the Company's 1998 form 10-K.
13
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 April 13, 1999 with respect
to its acquisition of all of the operating assets of nine cemeteries and five
funeral homes from Service Corporation International, Inc. on March 30, 1999.
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, 1999 /S/THOMAS C. LIVENGOOD
- ---------------------------- ----------------------
Date 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 month periods ended March 31, 1998 and 1999
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 month periods ended March 31, 1998 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1998 1999
------- -------
<S> <C> <C>
Net income ............................................................... $ 2,646 $ 4,377
Preferred stock dividends ................................................ 150 29
------- -------
Net income available to common stockholders for
basic EPS computation ................................................. 2,496 4,348
Effect of dilutive securities ............................................ 150 --
------- -------
Net income available to common stockholders for
diluted EPS computation ............................................... $ 2,646 $ 4,348
======= =======
Weighted average number of common shares
outstanding for basic EPS computation ................................. 11,152 15,808
Effect of dilutive securities:
Stock options ....................................................... 175 354
Assumed conversion of preferred stock ............................... 795 --
------- -------
Weighted average number of common and common
equivalent shares outstanding for diluted EPS
computation ........................................................... 12,122 16,162
======= =======
Earnings per share:
Basic ............................................................... $ .22 $ .28
======= =======
Diluted ............................................................. $ .22 $ .27
======= =======
</TABLE>
16
<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, 1999 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-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,279
<SECURITIES> 0
<RECEIVABLES> 34,121
<ALLOWANCES> 5,023
<INVENTORY> 5,222
<CURRENT-ASSETS> 43,772
<PP&E> 150,579
<DEPRECIATION> 12,721
<TOTAL-ASSETS> 494,727
<CURRENT-LIABILITIES> 24,283
<BONDS> 234,131
0
1,420
<COMMON> 158
<OTHER-SE> 204,892
<TOTAL-LIABILITY-AND-EQUITY> 205,050
<SALES> 41,871
<TOTAL-REVENUES> 41,871
<CGS> 28,246
<TOTAL-COSTS> 28,246
<OTHER-EXPENSES> 2,479
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,467
<INCOME-PRETAX> 7,679
<INCOME-TAX> 3,302
<INCOME-CONTINUING> 4,377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,377
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
