-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OYMiUgl3dy9uvjUgJMzuzabySwdVocfgSbU+IDkp0w0oWhxUBUaPfXESnqAGkS7C o8Sb0iIXMWfEHgMNer6bGQ== 0000890566-98-000794.txt : 19980504 0000890566-98-000794.hdr.sgml : 19980504 ACCESSION NUMBER: 0000890566-98-000794 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980501 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARRIAGE SERVICES INC CENTRAL INDEX KEY: 0001016281 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 760423828 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11961 FILM NUMBER: 98608200 BUSINESS ADDRESS: STREET 1: 1300 POST OAK BLVD STE 1500 CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 2815567400 10-Q 1 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, 1998 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. incorporation or organization) Employer Identification No.) 1300 POST OAK BLVD., SUITE 1500, HOUSTON, TX 77056 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 556-7400 ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No__ The number of shares of the Registrant's Class A Common Stock, $.01 par value per share, and Class B Common Stock, $.01 par value per share, outstanding as of April 24, 1998 was 6,868,595 and 4,289,555, respectively. CARRIAGE SERVICES, INC. INDEX PAGE PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Consolidated Balance Sheets as of December 31, 1997 and March 31, 1998 3 Consolidated Statements of Operations for the Three Months Ended March 31, 1997 and 1998 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1998 5 Notes to Consolidated Financial Statements 6 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13 Signature 14 FORWARD-LOOKING STATEMENTS Certain matters discussed in this Form 10-Q are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include, but are not limited to, the following: the Company's ability to sustain its rapid acquisition rate, to manage the growth and to obtain adequate performance from acquired businesses; the economy and financial market conditions, including stock prices, interest rates and credit availability; and death rates and competition in the Company's markets. 2 CARRIAGE SERVICES, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31, 1997 1998 --------- --------- ASSETS (UNAUDITED) Current assets: Cash and cash equivalents ....................................$ 6,126 $ 544 Accounts receivable -- Trade, net of allowance for doubtful accounts of $1,291 in 1997 and $1,170 in 1998 ....................... 11,617 12,176 Other ................................................... 1,295 2,042 --------- --------- 12,912 14,218 Inventories and other current assets ......................... 5,691 6,153 --------- --------- Total current assets ............................... 24,729 20,915 --------- --------- Property, plant and equipment, at cost, net of accumulated depreciation of $7,123 in 1997 and $8,081 in 1998 ............ 85,865 90,880 Cemetery property, at cost ........................................ 32,154 35,459 Names and reputations, net of accumulated amortization of $4,480 in 1997 and $5,241 in 1998 ............................ 118,099 121,588 Deferred charges and other noncurrent assets ...................... 17,093 18,469 --------- --------- $ 277,940 $ 287,311 - --------------------------------------------------------------------========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ..............................................$ 9,022 $ 3,993 Accrued liabilities ........................................... 7,545 9,462 Current portion of long-term debt and obligations under capital Leases ................................................... 2,339 2,116 --------- --------- Total current liabilities ........................... 18,906 15,571 Preneed liabilities, net ........................................... 7,403 7,154 Long-term debt, net of current portion ............................. 121,553 131,323 Obligations under capital leases, net of current portion ........... 4,449 4,391 Deferred income taxes .............................................. 13,113 14,060 --------- --------- Total liabilities ................................... 165,424 172,499 --------- --------- Commitments and contingencies Redeemable preferred stock ......................................... 13,951 13,951 Stockholders' equity: ClassA Common Stock, $.01 par value; 40,000,000 shares Authorized; 6,454,000 and 6,533,000 issued and outstanding atDecember 31, 1997 and March 31, 1998, respectively ............................................. 64 66 Class B Common Stock; $.01 par value; 10,000,000 shares Authorized; 4,691,000 and 4,625,000 issued and outstanding at December 31, 1997 and March 31, 1998, respectively ............................................. 47 46 Contributed capital ........................................... 102,056 101,855 Retained deficit .............................................. (3,602) (1,106) --------- --------- Total stockholders' equity .......................... 98,565 100,861 --------- --------- $ 277,940 $ 287,311 ========= =========
The accompanying notes are an integral part of these financial statements. 3 CARRIAGE SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE THREE MONTHS ENDED MARCH 31, -------------------------- 1997 1998 ------- ------- Revenues, net Funeral ....................................... $15,288 $23,243 Cemetery ...................................... 2,701 4,875 ------- ------- 17,989 28,118 Costs and expenses Funeral ....................................... 10,620 15,833 Cemetery ...................................... 2,226 3,498 ------- ------- 12,846 19,331 ------- ------- Gross profit .................................. 5,143 8,787 General and administrative expenses ................ 1,021 1,869 ------- ------- Operating income .............................. 4,122 6,918 Interest expense, net .............................. 1,154 2,107 ------- ------- Income before income taxes .................... 2,968 4,811 Provision for income taxes ......................... 1,143 2,165 ------- ------- Net income ......................................... 1,825 2,646 Preferred stock dividend requirements .............. 363 150 ------- ------- 1,462 2,496 Net income available to common stockholders ....................................... $ $ ======= ======= Earnings per share: Basic ......................................... $ .16 $ .22 ======= ======= Diluted ....................................... $ .16 $ .22 ======= ======= Weighted average number of common and common equivalent shares outstanding: Basic ........................................ 9,072 11,151 ======= ======= Diluted ...................................... 10,586 12,122 ======= ======= The accompanying notes are an integral part of these financial statements. 4 CARRIAGE SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED AND IN THOUSANDS) FOR THE THREE MONTHS ENDED MARCH 31, --------------------- 1997 1998 ----------- --------- Cash flows from operating activities: Net income ............................................. $ 1,825 $ 2,645 Adjustments to reconcile net income to net cash Provided by (used in) operating activities -- Depreciation and amortization ....................... 1,563 2,417 Provision for losses on accounts receivable ......... 270 420 Deferred income taxes ............................... 445 947 Changes in assets and liabilities, net of effects from acquisitions: Increase in accounts receivable ................ (1,233) (2,604) Increase in inventories and other current assets (476) (397) Increase in other deferred charges ............. (319) (1,247) Increase in accounts payable ................... 1,442 233 Increase (decrease) in accrued liabilities ..... (377) 1,521 Increase (decrease) in preneed liabilities ..... 377 (303) Other, net ......................................... (737) -- -------- --------- Net cash provided by operating activities . 2,780 3,632 Cash flows from investing activities: Acquisitions, net of cash acquired ..................... (33,437) (6,252) Purchase of property, plant and equipment .............. (1,242) (4,372) Other, including disposition of assets ................. 1,607 (171) -------- --------- Net cash used in investing activities ..... (33,072) (10,795) Cash flows from financing activities: Proceeds from long-term debt ........................... 31,969 8,163 Payments on long-term debt and obligations under capital leases ................................................. (327) (6,459) Payment of preferred stock dividends ................... (363) (150) Exercise of stock options .............................. 28 55 Payment of deferred debt charges and other ............. -- (28) -------- --------- Net cash provided by financing activities . 31,307 1,581 Net increase (decrease) in cash and cash equivalents ..... 1,015 (5,582) Cash and cash equivalents at beginning of period ......... 1,712 6,126 -------- --------- Cash and cash equivalents at end of period ............... $ 2,727 $ 544 ======== ========= Supplemental disclosure of cash flow information: Cash paid for interest ................................. $ 889 $ 2,001 ======== ========= Cash paid for income taxes ............................. $ -- $ 597 ======== ========= Non-cash consideration for acquisitions ................ $ 25,571 $ 2,056 ======== ========= The accompanying notes are an integral part of these financial statements. CARRIAGE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying consolidated financial statements include Carriage Services, Inc. and its subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated. The information for the three months ended March 31, 1997 and 1998 is unaudited, but in the opinion of management, reflects all adjustments which are of a normal, recurring nature necessary for a fair presentation of financial position and results of operations for the interim periods. The accompanying consolidated financial statements have been prepared consistent with the accounting policies described in the Company's report on Form 10-K for the year ended December 31, 1997, and should be read in conjunction therewith. Certain prior period amounts in the consolidated financial statements have been reclassified to conform with current period presentation. 2. ACQUISITIONS During the three months ended March 31, 1998, the Company purchased four funeral homes and one cemetery. 22 funeral homes and two cemeteries were acquired during the three months ended March 31, 1997. These acquisitions have been accounted for by the purchase method, and their results of operations are included in the accompanying consolidated financial statements from the dates of acquisition. The effect of the above acquisitions on the Consolidated Balance Sheets was as follows: MARCH 31, ------------------- 1997 1998 -------- ------- (IN THOUSANDS) Current assets, net of cash acquired ..................... $ 6,997 $ 647 Cemetery property ........................................ 18,845 2,305 Property, plant and equipment ............................ 17,755 1,683 Deferred charges and other noncurrent assets ............. 400 101 Names and reputations .................................... 25,685 3,837 Current liabilities ...................................... (4,119) (211) Other liabilities ........................................ (6,555) (54) -------- ------- Total acquisitions .................................. 59,008 8,308 Consideration: Debt ..................................................... -- 2,056 Redeemable preferred stock issued ........................ 20,000 -- Common stock issued ...................................... 5,571 -- ======== ======= Cash used for acquisitions .......................... $ 33,437 $ 6,252 ======== ======= 6 The following table represents, on an unaudited pro forma basis, the combined operations of the Company and the above noted acquisitions, as if such acquisitions had occurred as of January 1, 1997. Appropriate adjustments have been made to reflect the accounting basis used in recording these acquisitions, however, these unaudited pro forma results are based on the acquired businesses' historical financial results and do not assume any additional profitability resulting from the application of the Company's revenue enhancement measures or cost reduction programs to the historical results of the acquired businesses. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that would have resulted had the combinations been in effect on the dates indicated, that have resulted since the dates of acquisition or that may result in the future. THREE MONTHS ENDED MARCH 31, ---------------------------- 1997 1998 ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues, net ...................................... $26,046 $28,439 Net income before income taxes ..................... 2,723 4,783 Net income available to common stockholders ........ 1,312 2,481 Earnings per common share: Basic ......................................... 0.14 0.22 Diluted ....................................... 0.14 0.22 3. DEBT In August 1996, the Company entered into a credit facility (the "Former Credit Facility") for a $75 million revolving line of credit. The Former Credit Facility provided for both LIBOR and base rate interest options. That facility was unsecured and was for a term of three years. During September, 1997, the Company entered into a new credit facility (the "New Credit Facility") for a $150 million revolving line of credit. The New Credit Facility has a five year term, is unsecured and contains customary restrictive covenants, including a restriction on the payment of dividends on common stock, and requires the Company to maintain certain financial ratios. Interest under the New Credit Facility is provided at both LIBOR and prime rate options. As of March 31, 1998, $115.6 million was outstanding under the line of credit. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company became a public company during the third quarter of 1996. The Company's focus is on growth through acquisitions and enhancements at facilities currently owned to increase revenues and gross profit. The Company entered 1997 with the goals (among others) of increasing cash flow from operations; increasing margins in its funeral home and cemetery operations; substantially increasing the preneed sales and marketing activities; and filling critical personnel needs in the finance, corporate development and cemetery operations areas. The objective of these goals was to build the infrastructure and stability of the Company as it continued to pursue consolidation opportunities in the death care industry. The Company successfully met these goals and achieved profitability in each quarter of 1997, even though death rates were lower than expected in certain markets. Many of the initiatives implemented during 1997 were in full effect during the first quarter of 1998, resulting in broadly higher revenue, gross profit and net earnings. Income from operations, which the Company defines as earnings before interest and income taxes, increased, as a percentage of net revenues, from 22.9% for the first quarter of 1997 to 24.6% for the first quarter of 1998. This improvement was largely due to the increased gross profits at the individual locations. Gross margins for the funeral homes increased from 28.7% (before including a gain on the sale of property) in the first quarter of 1997 to 31.9% in the first quarter of 1998, on an increase in revenue of 52%. Improvements in cemetery gross profit margins were fueled by a doubling of the number of cemeteries during 1997 and the continued expansion of the preneed sales function. As a percentage of cemetery net revenues, cemetery gross profit was 28.2% in first quarter of 1998 compared to 17.6% in the first quarter in 1997 on an increase in revenue of 80%. Preneed sales and marketing efforts began to have a significant impact in the latter part of 1997, as revenues and gross profits from cemeteries owned at least one year increased 105% and 1,160%, respectively, in the first quarter of 1998 compared to the same period in 1997. The Company has experienced significant growth since 1995, when it owned 44 facilities. During 1996 and 1997, the Company acquired 45 and 54 facilities, respectively. In a deliberate and managed process, the Company increased personnel and related infrastructure as a function of the increase in the Company's revenue run rate. The additional personnel filled critical roles in expanding the geographic coverage of both corporate development and preneed sales and marketing activities, as well as the financial, data processing and administrative functions needed to support the growing number of locations operating in a decentralized management fashion with timely financial and management information. The Company has also begun to allocate more of its resources to combination funeral home and cemetery acquisitions. During 1996, the Company acquired 38 funeral homes and seven cemeteries for an aggregate consideration of approximately $68 million. Forty-four funeral homes and ten cemeteries were acquired during 1997 for approximately $118 million. These acquisitions were funded through cash flow from operations, additional borrowings under the Company's credit facilities and issuance of preferred and common stock. In addition, as of April 24 , 1998, the Company has either acquired or has letters of intent to acquire 24 funeral homes and four cemeteries for an aggregate consideration of approximately $80 million. The Company believes its increased recognition in the death care industry as an established operator and purchaser of funeral homes and cemeteries has improved its ability to attract potential 8 acquisitions that are larger, strategic and accretive and its ability to finance its acquisitions with debt and equity. RESULTS OF OPERATIONS The following is a discussion of the Company's results of operations for the three month period ended March 31, 1997 and 1998. For purposes of this discussion, funeral homes and cemeteries owned and operated for the entirety of each period being compared are referred to as "existing operations." Operations acquired or opened during either period being compared are referred to as "acquired operations." FUNERAL HOME SEGMENT. The following table sets forth certain information regarding the net revenues and gross profit of the Company from its funeral home operations for the three months ended March 31, 1997 compared to the three months ended March 31, 1998. THREE MONTHS ENDED MARCH 31, CHANGE ----------------- ---------------- 1997 1998 AMOUNT PERCENT ------- ------- ------- ------ (DOLLARS IN THOUSANDS) Net revenues: Existing operations ......... $12,606 $13,669 $1,063 8.4% Acquired operations ......... 2,682 9,574 6,892 * ======== ======= ====== ===== Total net revenues ....... $15,288 $23,243 $7,955 52.0% ======== ======= ====== ===== Gross profit: Existing operations ......... $ 3,679 $ 4,121 $ 442 12.0% Acquired operations ......... 989 3,289 2,300 * ======== ======= ====== ===== Total gross profit ....... 4,668 $ 7,410 $2,742 58.7% ======== ======= ====== ===== - --------- * Not meaningful. Due to the rapid growth of the Company, existing operations represented only 59% of the total funeral revenues and only 56% of the total funeral gross profit for the three months ended March 31, 1998. Total funeral net revenues for the three months ended March 31, 1998 increased $8.0 million or 52.0% over the three months ended March 31, 1997. The higher net revenues reflect an increase of $6.9 million in net revenues from acquired operations and an increase in net revenues of $1.1 million from existing operations. Total funeral gross profit for the three months ended March 31, 1998 increased $2.7 million or 58.7% over the comparable three months of 1997. The higher total gross profit reflected an increase of $2.3 million from acquired operations and an increase of $442,000 from existing operations. Gross profit for existing operations increased due to the efficiencies gained by consolidation, cost savings, improved collections experience and the increasing effectiveness of the Company's merchandising strategy. Total gross margin increased from 30.5% for the first quarter of 1997 to 31.9% for the first quarter of 1998 due to these factors. Included in the 30.5% gross margin for 1997 is a gain on the sale of property of $276,000, the exclusion of which would reduce funeral gross margin to 28.7% for the first quarter of 1997. CEMETERY SEGMENT. The following table sets forth certain information regarding the net revenues and gross profit of the Company from its cemetery operations for the three months ended March 31, 1997 compared to the three months ended March 31, 1998. THREE MONTHS ENDED MARCH 31, CHANGE ------------------ ------------------ 1997 1998 AMOUNT PERCENT ------ ------ ------ ------- (DOLLARS IN THOUSANDS) Total net revenues ............. $2,701 $4,875 $2,174 $ 80.5% ====== ====== ====== Total gross profit ............. $ 475 $1,377 $ 902 189.9% ====== ====== ====== Due to the rapid growth of the Company, existing operations represented approximately 35% of cemetery revenues and approximately 30% of cemetery gross profit for the three months ended March 31, 1998. As a result, the Company does not believe it is meaningful to present the results for existing and acquired operations separately. Total cemetery net revenues for the three months ended March 31, 1998 increased $2.2 million over the three months ended March 31, 1997, and total cemetery gross profit increased $902,000 over the comparable three months of 1997. Total gross margin increased from 17.6% for the three months ended March 31, 1997 to 28.2% for the three months ended March 31, 1998. These increases were due primarily to the Company's acquisition of ten cemeteries during 1997 and increased preneed marketing efforts. General and administrative expenses for the three months ended March 31, 1998 increased $848,000 or 83.1% over the first three months of 1997 due primarily to the increased personnel expense necessary to support a higher rate of growth and acquisition activity. However, the increase in general and administrative expenses as a percentage of net revenues was less than one percentage point as the expenses were spread over a larger volume of revenue. Interest expense for the three months ended March 31, 1998 increased $953,000 over the first three months of 1997 principally due to increased borrowings for acquisitions. In September 1997, the Company entered into a new credit facility for an increased line of credit. The new credit facility reflects substantially improved terms and reduced interest rates compared to the previous arrangements. Preferred stock dividends of $150,000 were subtracted from the $2.6 million of net income in computing the net income available to common stockholders of $2.5 million for the three months ended March 31, 1998. The reduction in preferred stock dividends from 1997 to 1998 is due to conversions of the preferred stock to common stock. For the three months ended March 31, 1998, the Company provided for income taxes on income before income taxes at a combined state and federal rate of 45% compared with 38.5% for the same period in 1997. The effective tax rate for the 1997 quarter included a 4.5% tax benefit for the utilization of prior year net operating losses. 10 LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totaled $0.5 million at March 31, 1998, representing a decrease of $5.6 million from December 31, 1997. For the three months ended March 31, 1998, cash provided by operations was $3.6 million as compared to cash provided by operations of $2.8 million for the three months ended March 31, 1997. The increase in net cash provided by operating activities was principally due to the increase in income from operations, which was partially offset by increases in accounts receivable and other deferred charges. Cash used in investing activities was $10.8 million for the three months ended March 31, 1998 compared to $33.1 million for the first three months of 1997, due primarily to a decrease in amounts paid in connection with acquisitions. In the first three months of 1998, cash flow provided by financing activities amounted to approximately $1.6 million, primarily due to proceeds from long term debt which were used to fund acquisitions. Historically, the Company has financed its acquisitions with proceeds from debt and the issuance of common and preferred stock. As of March 31, 1998, the Company has 1,682,500 shares of Series D Preferred Stock and 12,278,285 shares of Series F Preferred Stock issued and outstanding. The Series D Preferred Stock is convertible into Class B Common Stock and the Series F Preferred Stock is convertible into Class A Common Stock. The holders of Series D Preferred Stock are entitled to receive cash dividends at an annual rate of $.06-$.07 per share depending upon the date such shares were issued. Commencing on the second anniversary of the completion of the Company's IPO (August 8, 1998), the Company may, at its option, redeem all or any portion of the shares of Series D Preferred Stock then outstanding at a redemption price of $1.00 per share, together with all accrued and unpaid dividends. Such redemption is subject to the right of each holder of Series D Preferred Stock to convert such holder's shares into shares of Class B Common Stock. On December 31, 2001, the Company must redeem all shares of Series D Preferred Stock then outstanding at a redemption price of $1.00 per share, together with all accrued and unpaid dividends. The holders of the Series F Preferred Stock are entitled to receive cash dividends at the annual rate currently of $.042 per share, with the annual rate increasing by 5% per year commencing January 1, 1999 until January 1, 2001, at which time the annual rate becomes fixed at $0.0486 per share. On December 31, 2007, the Company must redeem all shares of Series F Preferred Stock then outstanding at a redemption price of $1.00 per share, together with all accrued and unpaid dividends. The Company does not have the option to redeem any Series F Preferred Stock. During September 1997, the Company entered into a new credit facility for a $150 million revolving line of credit. The new credit facility has a five year term, is unsecured and contains customary restrictive covenants, including a restriction on the payment of dividends on common stock, and requires the Company to maintain certain financial ratios. Interest under the new credit facility is provided at both LIBOR and prime rate options. As of April 24, 1998, $120.8 million was outstanding under the line of credit. The Company expects to continue to aggressively pursue additional acquisitions of funeral homes and cemeteries to take advantage of the trend toward consolidation occurring in the industry which will require significant levels of funding from various sources. In addition, the Company currently expects to incur less than $10 million of capital expenditures during 1998, primarily for upgrading funeral home facilities. The Company believes that cash flow from operations, borrowings under the new credit facility and its ability to issue additional debt and equity securities should be sufficient to fund acquisitions and its anticipated capital expenditures and other operating requirements. In March 1997, the Company filed a shelf registration statement relating to 2,000,000 shares of Class A Common Stock to be used to fund 11 acquisitions. At the beginning of 1998, the Company had budgeted $85 million for its acquisition program in 1998. Due to increased acquisition activity in 1998, as of April 24, 1998, the Company has spent $13 million, has signed non-binding letters of intent for acquisitions totaling $67 million and has increased its estimate of acquisition spending for 1998 to $120 million. Because future cash flows and the availability of financing are subject to a number of variables, such as the number and size of acquisitions made by the Company, there can be no assurance that the Company's capital resources will be sufficient to fund its capital needs. Additional debt and equity financings may be required to continue the Company's acquisition program. The availability and terms of these capital sources will depend on prevailing market conditions and interest rates and the then-existing financial condition of the Company. SEASONALITY The Company's business can be affected by seasonal fluctuations in the death rate. Generally, death rates are higher during the winter months. In addition the quarterly results of the Company may fluctuate depending on the magnitude and timing of acquisitions. INFLATION Inflation has not had a significant impact on the results of operations of the Company. YEAR 2000 The Company's information systems management group is constantly reviewing the management and accounting software packages for internal accounting and information requirements to meet with the continued growth of the Company. In addition, the Company's staff has comprehensively considered existing systems and equipment that need to be changed as a result of the Year 2000 issues. The Company's staff has determined that some computer software will require upgrading. Based on current estimates, the costs related to these upgrades are immaterial. The Company is in contact with its vendors and customers and no major problem has been discovered to date. 12 PART II -- OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1-- Amendment No. 1 dated April 24, 1998 to the Loan Agreement by and among the Company and NationsBank of Texas, N.A., dated September 9, 1997 11.1 -- Statement regarding computation of per share earnings 27.1 -- Financial Data Schedule (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K on March 23, 1998 with respect to its acquisition of all of the outstanding shares of common stock of Redgate Funeral Service Corporation on June 17, 1997. The Company filed a Current Report on Form 8-K on March 25, 1998 with respect to its merger with Barnett-Larkin-Brown Funeral Homes, Inc. on March 28, 1997. The Company filed a Current Report on Form 8-K on March 25, 1998 with respect to its acquisition of substantially all of the operating assets of Allen J. Harden Funeral Home, Inc. on June 20, 1997. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CARRIAGE SERVICES, INC. MAY 1, 1998 /s/THOMAS C. LIVENGOOD - -------------------------------------- ----------------------------------- Date Thomas C. Livengood, Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) 14 EX-10.1 2 EXHIBIT 10.1 AMENDMENT NO. 1 This Amendment No. 1 dated as of April 24, 1998 ("Agreement"), is among Carriage Services, Inc., a Delaware corporation (the "Borrower"), the lenders signatory to the Credit Agreement described below (the "Lenders"), and NationsBank of Texas, N.A., as agent (the "Agent") for the Lenders. INTRODUCTION Reference is made to the Credit Agreement dated as of September 9, 1997 (the "Credit Agreement") among the Borrower, the Lenders, and the Agent. The Borrower has requested that the Lenders and the Agent make certain amendments to Section 6.02(a)(iv) (Debts, Guaranties and Other Obligations) of the Credit Agreement, and the Lenders and the Agent have agreed, on the terms and conditions contained herein, to make such amendments. THEREFORE, in connection with the foregoing and for other good and valuable consideration, the Borrower, the Agent and the Lenders hereby agree as follows: Section 1. DEFINITIONS; REFERENCES. Unless otherwise defined in this Agreement, each term used in this Agreement which is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Section 2. AMENDMENT. (a) Section 6.02(a) of the Credit Agreement is amended by deleting in its entirety subparagraph (iv) of such Section and replacing such subparagraph with the following: (iv) Debt of the Borrower or any of its Subsidiaries (in addition to Debt described in paragraphs (i) through (iii) above), provided that the aggregate outstanding principal amount of such Debt does not exceed 25% of the Borrower's Net Worth at any time on or after the date on which such Debt is created, assumed or incurred. (b) EXHIBIT H to the Credit Agreement is deleted therefrom, and EXHIBIT H attached hereto is substituted in lieu thereof. Section 3. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants that (a) the execution, delivery and performance of this Agreement are within the corporate power and authority of the Borrower and have been duly authorized by appropriate proceedings, (b) this Agreement constitutes legal, valid, and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the rights of creditors generally and general principles of equity, and (c) upon the effectiveness of this Agreement and the amendment of the Credit Documents as provided for herein, no Event of Default shall exist under the Credit Documents and there shall have occurred no event which with notice or lapse of time would become an Event of Default under the Credit Documents, as amended. Section 4. EFFECT ON CREDIT DOCUMENTS. Except as amended herein, the Credit Agreement and all other Credit Documents remain in full force and effect as originally executed. Nothing herein shall act as a waiver of the Agent's or any Lender's rights under the Credit Documents as amended, including the waiver of any default or event of default, however denominated. The Borrower must continue to comply with the terms of the Credit Documents, as amended. This Agreement is a Credit Document for the purposes of the provisions of the other Credit Documents. Without limiting the foregoing, any breach of representations, warranties, and covenants under this Agreement may be a default or event of default under the other Credit Documents. Section 5. EFFECTIVENESS. This Agreement shall become effective and the Credit Agreement shall be amended as provided in this Agreement effective on the date first set forth above when the Borrower and the Majority Lenders shall have duly and validly executed originals of this Agreement and delivered the same to the Agent. Section 6. MISCELLANEOUS. The miscellaneous provisions of the Credit Agreement apply to this Agreement. This Agreement may be signed in any number of counterparts, each of which shall be an original. THIS WRITTEN AGREEMENT AND THE CREDIT DOCUMENTS, AS DEFINED IN THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. -2- EXECUTED as of the date first above written. BORROWER: CARRIAGE SERVICES, INC. By: Thomas C. Livengood, Executive Vice President and Chief Financial Officer AGENT: NATIONSBANK OF TEXAS, N.A., as Agent By: Albert L. Welch Vice President LENDERS: NATIONSBANK OF TEXAS, N.A., By: Albert L. Welch Vice President -3- PROVIDENT SERVICES, INC. By: Daniel M. Chong Vice President BANK ONE, TEXAS, NA By: H. Gale Smith Vice President CIBC INC. By: Name: Title: CORESTATES BANK, N.A. By: Name: Title: TORONTO DOMINION (TEXAS), INC. By: Name: Title: -4- EX-11.1 3 EXHIBIT 11.1 CARRIAGE SERVICES, INC. COMPUTATION OF PER SHARE EARNINGS (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA) Earnings per share for the three month period ended March 31, 1998 and 1997 is calculated based on the weighted average number of common and common equivalent shares outstanding during the period as proscribed by SFAS 128. The following table sets forth the computation of the basic and diluted earnings per share for the three month period ended March 31, 1997 and 1998: THREE MONTHS ENDED MARCH 31, ----------------- 1997 1998 -------- ------- Net income ................................................. $ 1,825 $ 2,646 Preferred stock dividends .................................. 363 150 -------- ------- Net income available to common stockholders for basic EPS computation ............................... 1,462 2,496 Effect of dilutive securities .............................. 182 150 ------- ------- Net income available to common stockholders for diluted EPS computation $ 1,644 $ 2,646 ======== ======= Weighted average number of common shares outstanding for basic EPS computation ................... 9,072 11,151 Effect of dilutive securities: Stock options ......................................... 330 175 Assumed conversion of preferred stock ................. 1,184 796 -------- ------- Weighted average number of common and common equivalent shares outstanding for diluted EPS computation .......... 10,586 12,122 ======== ======= Earnings per share: Basic $ .16 $ .22 ======== ======= Diluted $ .16 $ .22 ======== ======= 15 EX-27 4
5 THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 MAR-31-1998 544 0 15,388 1,170 6,153 20,915 98,961 8,081 287,311 15,571 135,714 0 13,951 112 100,749 287,311 28,118 28,118 19,331 19,331 1,869 0 2,107 4,811 2,165 2,646 0 0 0 2,646 .22 .22
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