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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ________
COMMISSION FILE NUMBER: 1-11961
-------------------------
CARRIAGE SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0423828
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1300 POST OAK BLVD., SUITE 1500, HOUSTON, TX 77056
(Address of principal executive offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 556-7400
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
The number of shares of the Registrant's Class A Common Stock, $.01 par value
per share, and Class B Common Stock, $.01 par value per share, outstanding as of
July 31, 2000 was 14,176,774 and 1,905,662 respectively.
<PAGE>
CARRIAGE SERVICES, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
December 31, 1999 and June 30, 2000 3
Consolidated Statements of Operations for the
Three Months ended June 30, 1999 and 2000 and the
Six Months ended June 30, 1999 and 2000 4
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 1999 and 2000 5
Notes to Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK 14
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
Signature 18
2
<PAGE>
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 2,517 $ 5,659
Accounts receivable .................................... --
Trade, net of allowance for doubtful accounts
of $6,058 in 1999 and $5,200 in 2000 ................ 23,036 21,390
Other .................................................. 4,941 5,866
------------ ------------
27,977 27,256
Inventories and other current assets ................... 13,851 14,713
------------ ------------
Total current assets ....................... 44,345 47,628
Property, plant and equipment, at cost, net of
accumulated depreciation of $17,250 in 1999
and $20,953 in 2000 .................................... 153,347 155,380
Cemetery property, at cost ................................ 65,920 65,264
Names and reputations, net of accumulated
amortization of $14,339 in 1999 and $17,324 in 2000 .... 231,393 229,223
Deferred charges and other noncurrent assets .............. 44,585 47,976
------------ ------------
$ 539,590 $ 545,471
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 4,726 $ 5,193
Accrued liabilities ..................................... 11,938 11,964
Current portion of long-term debt and
obligations under capital leases ...................... 5,496 3,612
------------ ------------
Total current liabilities ................... 22,160 20,769
Preneed liabilities, net ................................... 9,099 7,086
Long-term debt, net of current portion ..................... 178,942 179,990
Obligations under capital leases, net of current portion ... 3,333 3,234
Deferred income taxes ...................................... 23,021 28,974
------------ ------------
Total liabilities ........................... 236,555 240,053
------------ ------------
Commitments and contingencies
Redeemable preferred stock ................................. 1,172 1,172
Company-obligated mandatorily redeemable
convertible preferred securities of Carriage
Services Capital Trust holding solely
Carriage Services, Inc. 7% convertible junior
subordinated debentures ............................... 89,854 89,857
Stockholders' equity:
Class A Common Stock, $.01 par value;
40,000,000 shares authorized; 13,912,000 and
14,178,000 issued and outstanding at December 31,
1999 and June 30, 2000, respectively .................. 139 142
Class B Common Stock, $.01 par value; 10,000,000
shares authorized; 2,030,000 and 1,906,000 issued
and outstanding at December 31, 1999 and June 30, 2000,
respectively .......................................... 20 19
Contributed capital ..................................... 195,931 195,277
Retained earnings ....................................... 15,919 18,951
------------ ------------
Total stockholders' equity .................. 212,009 214,389
------------ ------------
$ 539,590 $ 545,471
============ ============
</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 FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
1999 2000 1999 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues, net
Funeral ...................................... $ 30,816 $ 29,686 $ 64,328 $ 65,268
Cemetery ..................................... 11,655 11,446 20,013 24,237
---------- ---------- ---------- ----------
42,471 41,132 84,341 89,505
Costs and expenses
Funeral ...................................... 22,212 24,348 44,170 50,523
Cemetery ..................................... 8,549 8,714 14,878 17,781
---------- ---------- ---------- ----------
30,761 33,062 59,048 68,304
---------- ---------- ---------- ----------
Gross profit ................................. 11,710 8,070 25,293 21,201
General and administrative expenses .............. 2,275 2,381 4,712 4,869
---------- ---------- ---------- ----------
Operating income ............................. 9,435 5,689 20,581 16,332
Interest expense, net ............................ 3,494 3,433 6,960 7,152
Financing costs of company-obligated mandatorily
redeemable convertible preferred securities of
Carriage Services Capital Trust .............. 510 1,641 510 3,282
---------- ---------- ---------- ----------
Total interest and financing costs ........... 4,004 5,074 7,470 10,434
Income before income taxes and
extraordinary item ......................... 5,431 615 13,111 5,898
Provision for income taxes ....................... 2,335 449 5,637 2,826
---------- ---------- ---------- ----------
Income before extraordinary item ............. 3,096 166 7,474 3,072
Extraordinary item:
Loss on early extinguishment of debt, net of
income tax benefit of $151 ................. (200) -- (200) --
---------- ---------- ---------- ----------
Net income ....................................... 2,896 166 7,274 3,072
Preferred stock dividend requirements ............ 28 20 56 40
---------- ---------- ---------- ----------
Net income available to common stockholders .. $ 2,868 $ 146 $ 7,218 $ 3,032
========== ========== ========== ==========
Basic earnings per share:
Net income before extraordinary item ......... $ 0.19 $ 0.01 $ 0.47 $ 0.19
Extraordinary item ........................... $ (0.01) $ -- $ (0.01) $ --
---------- ---------- ---------- ----------
Net income ................................... $ 0.18 $ 0.01 $ 0.46 $ 0.19
========== ========== ========== ==========
Diluted earnings per share:
Net income before extraordinary item ......... $ 0.19 $ 0.01 $ 0.45 $ 0.19
Extraordinary item ........................... $ (0.01) $ -- $ (0.01) $ --
---------- ---------- ---------- ----------
Net income ................................... $ 0.18 $ 0.01 $ 0.44 $ 0.19
========== ========== ========== ==========
Weighted average number of common and common
equivalent shares outstanding:
Basic ........................................ 15,877 16,027 15,843 16,002
========== ========== ========== ==========
Diluted ...................................... 16,335 16,125 16,981 16,624
========== ========== ========== ==========
</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 SIX MONTHS
ENDED JUNE 30,
--------------------
1999 2000
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................................... $ 7,274 $ 3,072
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ..................................... 7,789 9,470
Loss on early extinguishment of debt, net of income taxes ......... 200 --
Provision for losses on accounts receivable ....................... 2,821 1,958
Deferred income taxes ............................................. 424 5,887
-------- --------
Net cash provided by operating activities before
changes in assets and liabilities .......................... 18,508 20,387
Changes in assets and liabilities, net of effects from acquisitions:
(Increase) in accounts receivables ................................ (6,818) (3,913)
(Increase) in inventories and other current assets ................ (2,358) (297)
Decrease in deferred charges and other ............................ 291 285
Increase (decrease) in accounts payable ........................... (1,022) 467
Increase (decrease) in accrued liabilities ........................ 1,984 (255)
(Decrease) in preneed liabilities ................................. (412) (1,506)
-------- --------
Net cash provided by operating activities ............... 10,173 15,168
Cash flows from investing activities:
Prearranged funeral costs ........................................... (3,316) (2,081)
Purchase of note receivable ......................................... -- (566)
Acquisitions, net of cash acquired ................................... (31,908) (1,333)
Capital expenditures ................................................. (9,351) (6,357)
-------- --------
Net cash used in investing activities ................... (44,575) (10,337)
Cash flows from financing activities:
Proceeds from long-term debt ......................................... 21,970 26,298
Payments on long-term debt and obligations under capital leases ...... (77,411) (27,233)
Payment of acquisition-related obligation ............................ -- (1,147)
Proceeds from issuance of common stock ............................... 656 499
Proceeds from issuance of company-obligated mandatorily
redeemable convertible preferred securities of Carriage Services
Capital Trust ...................................................... 90,300 --
Payment of preferred stock dividends ................................. (56) (40)
Other, net ........................................................... -- (66)
-------- --------
Net cash provided by (used in) financing activities ..... 35,459 (1,689)
Net increase in cash and cash equivalents .............................. 1,057 3,142
Cash and cash equivalents at beginning of period ....................... 2,892 2,517
-------- --------
Cash and cash equivalents at end of period ............................. $ 3,949 $ 5,659
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................... $ 9,042 $ 10,795
======== ========
Cash paid for income taxes ........................................... $ 7,132 $ 344
======== ========
Non-cash consideration for acquisitions .............................. $ 1,648 $ --
======== ========
</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
(a) The Company
Carriage Services, Inc., (the "Company") is the fourth largest
publicly-traded provider of products and services in the death care industry in
the United States. As of June 30, 2000, the Company owned and/or operated 182
funeral homes and 42 cemeteries in 31 states.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated.
(c) Interim Disclosures
The information for the three and six months ended June 30, 1999 and 2000 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, 1999, 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.
(d) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(e) Accounting Changes
In December 1999, the Securities and Exchange Commission (the "Commission")
issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements, which, as amended, is to be implemented by the beginning of the
fourth quarter of 2000, and applied retroactively to the first three quarters of
this fiscal year, to provide guidance related to recognizing revenue in
circumstances in which no specific authoritative literature exists. Members of
the death care industry, including us, are reviewing the application of the
Staff Accounting Bulletin with the Commission, which may have a material affect
on the manner in which we record preneed revenues and costs. Any accounting
changes are not expected to result in a material change in net cash flows nor
the amount of revenues we ultimately expect to realize. However, it may have a
material impact on our consolidated financial statements and on the manner in
which we record certain preneed sales activities.
6
<PAGE>
We have not reached a final resolution of the issues but we anticipate
discussions to be finalized and the financial impact calculated by the end of
the third quarter of 2000. Implementation, using the new accounting guidance,
would include adjustments to the first three quarters financial statements as
well as proforma adjustments to the prior year comparative financial statements.
The Financial Accounting Standards Board has issued an exposure draft which
would change certain aspects in the manner in which businesses account for
business combinations. We expect these changes to be prospective in the nature
of adoption. The most significant of the proposed changes to Carriage would be a
reduction in the period of amortization of Names and Reputations, for which
Carriage has been amortizing over 40 years.
2. ACQUISITIONS
Acquisition activities have virtually ceased within the publicly traded
companies in the deathcare industry, including the Company. During the six
months ended June 30, 2000, the Company's new business acquisition activities
were limited to a long-term agreement to manage a municipal cemetery.
Acquisition adjustments, primarily related to contingent consideration, were
made during the first six months of 2000 related to certain acquisitions
completed in prior years. Thirteen funeral homes and eleven cemeteries were
acquired during the six months ended June 30, 1999. 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,
----------------------
1999 2000
-------- --------
(IN THOUSANDS)
Current assets, net of cash acquired ............... $ 6,645 $ (426)
Cemetery property .................................. 3,740 --
Property, plant and equipment ...................... 11,455 15
Deferred charges and other noncurrent assets ....... 757 249
Names and reputations .............................. 13,246 1,337
Current liabilities ................................ (1,438) 10
Other liabilities .................................. (849) 148
-------- --------
Total acquisitions ............................ 33,556 1,333
Consideration:
Debt ............................................... 1,648 --
-------- --------
Cash used for acquisitions .................... $ 31,908 $ 1,333
======== ========
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, 1999. 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
7
<PAGE>
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,
-------------------------------
1999 2000
-------------- --------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenues, net ............................... $ 92,447 $ 89,689
Net income before income taxes .............. 13,699 5,741
Net income available to common stockholders . 7,552 2,951
Earnings per common share:
Basic .................................. 0.48 0.18
Diluted ................................ 0.44 0.18
3. MAJOR SEGMENTS OF BUSINESS
Carriage conducts funeral and cemetery operations only in the United States. The
following table presents external revenue, profit and loss and total assets by
segment (in thousands):
<TABLE>
<CAPTION>
(IN THOUSANDS) FUNERAL CEMETERY CORPORATE CONSOLIDATED
-------------- -------- -------- --------- ------------
<S> <C> <C> <C> <C>
External revenues:
Six months ended June 30, 2000 $ 65,268 $ 24,237 -- $ 89,505
Six months ended June 30, 1999 64,328 20,013 -- 84,341
Profit and Loss:
Six months ended June 30, 2000 $ 8,624 $ 4,840 $ (10,392) $ 3,072
Six months ended June 30, 1999 19,812 6,092 (18,630) 7,274
Total Assets:
June 30, 2000 ................ $399,479 $132,494 $ 13,498 $ 545,471
June 30, 1999 ................ 378,344 121,851 13,500 513,695
</TABLE>
4. COMPANY-OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF CARRIAGE SERVICES CAPITAL TRUST
Carriage Services Capital Trust, a wholly-owned subsidiary of the Company,
has issued and has outstanding 1,875,000 units of 7% convertible preferred
securities. These convertible preferred securities have a liquidation amount
of $50 per unit and mature in 2029. The sole assets of the Trust are 7%
Convertible Junior Subordinated Debentures of Carriage Services, Inc.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Carriage is a leading provider of death care services and products in the
United States. Historically, our focus has been on operational enhancements at
facilities currently owned to increase revenues and gross profit, as well as
growth through acquisitions. That focus resulted in a track record of growth
from acquisition opportunities; high standards of service, operational and
financial performance; and an infrastructure containing measurement and
management systems. This focus included institutionalizing internal training,
internal growth, and making quality initiatives an integral part of the culture.
In 2000, the operating focus has been revised to emphasize increasing operating
cash flow and growth through strategies that do not require investment of new
capital.
Income from operations, which the Company defines as earnings before interest
and income taxes, decreased, as a percentage of net revenues, from 22.2% for the
second quarter of 1999 to 13.8% for the second quarter of 2000. This was due
largely to lower service volumes at the individual funeral locations combined
with increased operating costs. Gross margins for the funeral homes decreased
from 27.9% in the second quarter of 1999 to 18.0% in the second quarter of 2000,
largely due to a decrease in revenue of 3.7%. As a percentage of cemetery net
revenues, cemetery gross profit was 23.9% in the second quarter of 2000 compared
to 26.6% in the second quarter in 1999. Revenues and gross profits from
cemeteries decreased 1.8% and 12.0%, respectively, in the second quarter of 2000
compared to the same period in 1999.
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, 1999 and 2000. 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, 1999 compared to the
three and six months ended June 30, 2000.
9
<PAGE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, CHANGE
------------------- --------------------
1999 2000 AMOUNT PERCENT
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations ............... $ 30,015 $ 27,690 $ (2,325) (7.7%)
Acquired operations ............... 801 1,996 1,195 *
-------- -------- --------
Total net revenues ...... $ 30,816 $ 29,686 $ (1,130) (3.7%)
======== ======== ========
Gross profit:
Existing operations ............... $ 8,533 $ 4,996 $ (3,537) (41.5%)
Acquired operations ............... 71 342 271 *
-------- -------- --------
Total gross profit ...... $ 8,604 $ 5,338 $ (3,266) (37.9%)
======== ======== ========
</TABLE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, CHANGE
------------------- --------------------
1999 2000 AMOUNT PERCENT
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations ............... $ 60,647 $ 56,688 $ (3,959) (6.5%)
Acquired operations ............... 3,681 8,580 4,899 *
-------- -------- --------
Total net revenues ...... $ 64,328 $ 65,268 $ 940 1.5%
======== ======== ========
Gross profit:
Existing operations ............... $ 18,916 $ 12,639 $ (6,277) (33.2%)
Acquired operations ............... 1,242 2,106 864 *
-------- -------- --------
Total gross profit ...... $ 20,158 $ 14,745 $ (5,413) (26.9%)
======== ======== ========
</TABLE>
---------
* Not meaningful.
Total funeral net revenues for the three months ended June 30, 2000 decreased
$1.1 million or 3.7% from the three months ended June 30, 1999. The lower net
revenues reflect an increase of $1.2 million in net revenues from acquired
operations and a decrease in net revenues of $2.3 million from existing
operations. Total funeral net revenues for the six months ended June 30, 2000
increased $0.9 million or 1.5% over the six months ended June 30, 1999. The
higher net revenues reflect an increase of $4.9 million in net revenues from
acquired operations and an decrease in net revenues of $4.0 million from
existing operations. The number of funeral service calls decreased 7.7% and 6.3%
for existing operations comparing the second quarter and six months for 2000 to
the same periods in 1999, respectively. The average revenue per service call was
unchanged in comparing the second quarter 2000 to the second quarter for 1999,
and decreased 0.3% in comparing the first half of 2000 and the first half of
1999.
Total funeral gross profit for the three months ended June 30, 2000 decreased
$3.3 million or 37.9% over the comparable three months of 1999. The lower total
gross profit reflected an increase of $0.3
10
<PAGE>
million from acquired operations and a decrease of $3.5 million from existing
operations. Total funeral gross profit for the six months ended June 30, 2000
decreased $5.4 million or 26.9% from the comparable six months of 1999. The
lower total gross profit reflected an increase of $0.9 million from acquired
operations and an decrease of $6.3 million from existing operations. Gross
profit for existing operations decreased for both periods due primarily to the
impact of the decrease in same-store revenues. Total gross margin decreased from
27.9% for the second quarter of 1999 to 18.0% for the second quarter of 2000 and
decreased from 31.3% for the first six months of 1999 to 22.6% for the first six
months of 2000.
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, 1999 compared to the
three and six months ended June 30, 2000.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, CHANGE
------------------- --------------------
1999 2000 AMOUNT PERCENT
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations ............... $ 11,642 $ 10,298 $ (1,344) (11.5%)
Acquired operations ............... 13 1,148 1,135 *
-------- -------- --------
Total net revenues ...... $ 11,655 $ 11,446 $ (209) (1.8%)
======== ======== ========
Gross profit:
Existing operations ............... $ 3,106 $ 2,604 $ (502) (16.2%)
Acquired operations ............... -- 128 128 *
-------- -------- --------
Total gross profit ...... $ 3,106 $ 2,732 $ (374) (12.0%)
======== ======== ========
</TABLE>
-----------
* Not meaningful.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, CHANGE
------------------- --------------------
1999 2000 AMOUNT PERCENT
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Existing operations ............... $ 17,184 $ 16,343 $ (841) (4.9%)
Acquired operations ............... 2,829 7,894 5,065 *
-------- -------- --------
Total net revenues ...... $ 20,013 $ 24,237 $ 4,224 21.1%
======== ======== ========
Gross profit:
Existing operations ............... $ 4,405 $ 4,373 $ (32) (0.7)%
Acquired operations ............... 730 2,083 1,353 *
-------- -------- --------
Total gross profit ...... $ 5,135 $ 6,456 $ 1,321 25.7%
======== ======== ========
</TABLE>
-----------
* Not meaningful.
11
<PAGE>
Total cemetery net revenues for the three months ended June 30, 2000
decreased $0.2 million from the three months ended June 30, 1999 and total
cemetery gross profit decreased $0.4 million from the comparable three months of
1999. The lower net revenues reflect an increase of $1.1 million in net revenues
from acquired operations and a decrease of $1.3 million in revenues from
existing operations. Total cemetery net revenues for the six months ended June
30, 2000 increased $4.2 million over the six months ended June 30, 1999, and
total cemetery gross profit increased $1.3 million over the comparable six
months of 1999. Total gross margin decreased from 26.6% for the three months
ended June 30, 1999 to 23.9% for the three months ended June 30, 2000. Total
gross margin increased from 25.7% for the six months ended June 30, 1999 to
26.6% for the six months ended June 30, 2000.
OTHER.
General and administrative expenses for the six months ended June 30, 2000
increased $157,000 or 3.3% over the first six months of 1999. As a percentage of
net revenues these expenses decreased from 5.6% for the six months ended June
30, 1999 to 5.4% for the six months ended June 30, 2000, as the expenses were
spread over a larger volume of revenue.
Interest expense and other financing costs for the six months ended June 30,
2000 increased $3.0 million over the first six months of 1999 due to borrowings
to fund acquisitions during 1999, and the restructuring of the Company's debt
during mid-1999 to reflect longer maturities, carrying higher rates.
Preferred stock dividends of $40,000 were subtracted from the $3.1 million of
net income in computing the net income available to common stockholders of $3.0
million for the six months ended June 30, 2000. The reduction in preferred stock
dividends from 1999 to 2000 was due to conversions of the preferred stock to
common stock.
For the six months ended June 30, 2000, the Company provided for income taxes
on income before income taxes at a combined state and federal rate of 47.9%
compared with 43% for the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $5.7 million at June 30, 2000, representing
an increase of $3.1 million from December 31, 1999. For the six months ended
June 30, 2000, cash provided by operations was $15.2 million as compared to cash
provided by operations of $10.2 million for the six months ended June 30, 1999.
The improvement in net cash provided by operating activities was provided in
part by improvements in receivable collections, changes in the Company's tax
strategies and improvements in processes to shorten the time in which
distributions from preneed trusts are received. Cash used in investing
activities was $10.3 million for the six months ended June 30, 2000 compared to
$44.6 million for the first six months of 1999, due primarily to the cessation
of acquisitions while the Company concentrates on maximizing free cash flow. In
the first six months of 2000, cash flow used in financing activities amounted to
approximately $1.7 million, due to payments on the Company's credit facility and
acquisition related obligations to prior owners.
Historically, we have financed our acquisitions with proceeds from debt and
the issuance of common and preferred stock. As of June 30, 2000, the Company had
1,182,500 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
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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.
Carriage has a credit facility with a group of banks for a $260 million
revolving line of credit. The credit facility has a five-year term extending
through June 2004, is unsecured and contains customary restrictive covenants,
including a restriction on the payment of dividends on common stock, and
requires that we 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 June 30, 2000, $50 million
was outstanding under the credit facility and the Company's debt to total
capitalization was 38 percent.
We believe that cash flow from operations and borrowings under the credit
facility should be sufficient to fund anticipated capital expenditures as well
as other operating requirements. Acquisition spending during the remainder of
2000, if any, is anticipated to be significantly less than the amounts during
either of the two preceding years. Because future cash flows and the
availability of financing are subject to a number of variables, 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 in the
future. 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.
ACCOUNTING CHANGES
In December 1999, the Securities and Exchange Commission (the "Commission")
issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements, which, as amended, is to be implemented by the beginning of the
fourth quarter of 2000, and applied retroactively to the first three quarters of
this fiscal year, to provide guidance related to recognizing revenue in
circumstances in which no specific authoritative literature exists. Members of
the death care industry, including us, are reviewing the application of the
Staff Accounting Bulletin with the Commission, which may have a material affect
on the manner in which we record preneed revenues and costs. Any accounting
changes are not expected to result in a material change in net cash flows nor
the amount of revenues we ultimately expect to realize. However, it may have a
material impact on our consolidated financial statements and on the manner in
which we record certain preneed sales activities.
We have not reached a final resolution of the issues but we anticipate
discussions to be finalized and the financial impact calculated by the end of
the third quarter of 2000. Implementation, using the new accounting guidance,
would include adjustments to the first three quarters financial statements as
well as proforma adjustments to the prior year comparative financial statements.
The Financial Accounting Standards Board has issued an exposure draft which
would change certain aspects in the manner in which businesses account for
business combinations. We expect these changes to be prospective in the nature
of adoption. The most significant of the proposed changes to Carriage would be a
reduction in the period of amortization of Names and Reputations, for which
Carriage has been amortizing over 40 years.
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SEASONALITY
The Company's business can be affected by seasonal fluctuations in the death
rate. Generally, death rates are higher during the winter months.
INFLATION
Inflation has not had a significant impact on the results of operations of
the Company.
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 1999 Form 10-K.
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PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2000 annual meeting of shareholders was held on May 17, 2000.
All director nominees were elected. The voting tabulation was as follows:
NAME OF NOMINEE NUMBER OF VOTES FOR NUMBER OF VOTES WITHHELD
--------------- ------------------- ------------------------
Melvin C. Payne.............. 22,784,607 422,687
C. Byron Snyder.............. 22,784,607 422,687
The terms of the following other directors continue after the meeting:
Mark W. Duffey, Greg M. Brudnicki, Vincent D. Foster, Stuart W. Stedman,
Ronald A. Erickson, and Mark F. Wilson.
Other matters voted upon at the meeting were as follows:
NUMBER OF NUMBER OF NUMBER OF
VOTES FOR VOTES AGAINST VOTES ABSTAINING
---------- ------------- ----------------
Amendments to 1996 Directors'
Stock Option Plan ........... 20,688,636 2,468,561 50,097
Selection of Arthur Andersen LLP
as auditors for 2000 ........ 23,178,785 13,439 15,070
ITEM 5. OTHER INFORMATION
FORWARD-LOOKING STATEMENTS
Certain statements made herein or elsewhere by, or on behalf of, the Company
that are not historical facts are intended to be forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements are based on assumptions that
the Company believes are reasonable; however, many important factors could cause
the Company's actual results in the future to differ materially from the
forward-looking statements made herein and in any other documents or oral
presentations made by, or on behalf of, the Company.
CAUTIONARY STATEMENTS
The Company cautions readers that the following important factors, among
others, in some cases have affected, and in the future could affect, the
Company's actual consolidated results and could cause the Company's actual
consolidated results in the future to differ materially from the goals and
expectations expressed herein and in any other forward-looking statements made
by or on behalf of the Company.
(1) Achieving growth in free cash flow from operations depends primarily on
achieving anticipated levels of earnings before depreciation and amortization,
controlling capital expenditures to budgeted levels, collecting accounts
receivable and reducing preneed funeral costs.
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(2) Achieving the Company's revenue goals also is affected by the volume and
prices of the properties, products and services sold, as well as the mix of
products and services sold. The annual sales targets set by the Company are
aggressive, and the inability of the Company to achieve planned volume or prices
could cause the Company not to meet anticipated levels of revenue. In certain
markets the Company expects to increase prices, while in other markets prices
will be lowered. The ability of the Company to achieve volume or price targets
at any location depends on numerous factors, including the local economy, the
local death rate, competition and changes in consumer preferences, including
cremations.
(3) Future revenue also is affected by the level of prearranged sales in
prior periods. The level of prearranged sales may be adversely affected by
numerous factors, including deterioration in the economy, which causes
individuals to have less discretionary income, as well as changes in commission
practices and contractual terms.
(4) In addition to the factors discussed above, financial performance may be
affected by other important factors, including the following:
(a) The ability of the Company to manage its growth in terms of
implementing internal controls and information gathering systems,
and retaining or attracting key personnel, among other things.
(b) The amount and rate of growth in the Company's general and
administrative expenses.
(c) Changes in interest rates, which can increase or decrease the amount
the Company pays on borrowings with variable rates of interest.
(d) The Company's debt-to-capital ratio, the number of shares of common
stock outstanding and the portion of the Company's debt that has
fixed or variable interest rates.
(e) Availability and related terms of debt and equity financing to fund
operating needs.
(f) The impact on the Company's financial statements of accounting
charges that may result from the Company's ongoing evaluation of its
business strategies, asset valuations and organizational structures.
(g) Changes in government regulation, including tax rates and their
effects on corporate structure.
(h) Changes in inflation and other general economic conditions
domestically, affecting financial markets (e.g. marketable security
values).
(i) Unanticipated legal proceedings and unanticipated outcomes of legal
proceedings.
(j) Changes in accounting policies and practices required by generally
accepted accounting principles or the Securities and Exchange
Commission, such as amortization periods for long-lived intangible
assets and revenue or cost recognition in the preneed cemetery or
funeral business.
The Company also cautions readers that it assumes no obligation to update or
publicly release any revisions to forward-looking statements made herein or any
other forward-looking statements made by, or on behalf of, the Company.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*10.1-- Promissory Note executed by Russell W. Allen to the Company, dated
March 31, 2000.
*10.2-- Security Agreement between Russell W. Allen and the Company, dated
March 31, 2000.
*10.3-- Amended and Restated Security Agreement - Pledge, between Russell
W. Allen and the Company, dated March 31, 2000.
*11.1-- Statement regarding computation of per share earnings.
*12 -- Calculation of Ratio of Earnings to Fixed Charges
*27.1-- Financial Data Schedule.
(*) Filed herewith.
(b) Reports on Form 8-K
None.
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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 8, 2000 /s/ Thomas C. Livengood
------------------ --------------------------------
Date Thomas C. Livengood,
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
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