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, 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
May 10, 2000 was 14,119,197 and 1,905,662 respectively.
CARRIAGE SERVICES, INC.
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
December 31, 1999 and March 31, 2000 3
Consolidated Statements of Income for the
Three Months Ended March 31, 1999 and 2000 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 2000 5
Notes to Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK 15
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
Signature 19
2
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31,
1999 2000
----------- ----------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents ....................... $ 2,517 $ 1,719
Accounts receivable --
Trade, net of allowance for doubtful accounts
of $6,058 in 1999 and $5,290 in 2000 ..... 23,036 22,227
Other ...................................... 4,941 4,248
-------- --------
27,977 26,475
Inventories and other current assets ............ 13,851 12,459
-------- --------
Total current assets .................. 44,345 40,653
-------- --------
Property, plant and equipment, at cost, net of
accumulated depreciation of $17,250 in 1999
and $19,122 in 2000.............................. 153,347 154,072
Cemetery property, at cost ........................... 65,920 65,622
Names and reputations, net of accumulated amortization
$14,339 in 1999 and $15,745 in 2000 ............. 231,393 230,807
Deferred charges and other noncurrent assets ......... 44,585 48,597
-------- --------
$539,590 $539,751
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 4,726 $ 5,550
Accrued liabilities .............................. 11,938 10,382
Current portion of long-term debt and obligation
under capital leases ........................... 5,496 2,446
-------- --------
Total current liabilities .............. 22,160 18,378
Preneed liabilities, net .............................. 9,099 7,824
Long-term debt, net of current portion ................ 178,942 177,608
Obligations under capital leases, net of current
portion ............................................. 3,333 3,306
Deferred income taxes ................................. 23,021 26,350
-------- --------
Total liabilities ...................... 236,555 233,466
-------- --------
Commitments and contingencies
Redeemable preferred stock ............................ 1,172 1,172
Company obligated madatorily redeemable convertible
preferred securities of Carriage Services Capital Trust 89,854 89,879
Stockholders' equity:
Class A Common Stock, $.01 par value;40,000,000 shares
authorized; 13,912,000 and 14,121,000
issued and outstanding
December 31, 1999 and March 31, 2000,
respectively ................................ 139 141
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 March 31, 2000,
respectinty ................................. 20 19
Contributed capital ................................ 195,931 196,269
Retained earnings .................................. 15,919 18,805
-------- --------
Total stockholders' equity ............. 212,009 215,234
-------- --------
$539,590 $539,751
======== ========
The accompanying notes are an integral part of these financial statements.
3
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1999 2000
------- -------
Revenues, net
Funeral .............................. $33,512 $35,582
Cemetery ............................. 8,359 12,791
------- -------
41,871 48,373
Costs and expenses
Funeral .............................. 22,037 26,175
Cemetery ............................. 6,209 9,067
------- -------
28,246 35,242
------- -------
Gross profit ......................... 13,625 13,131
General and administrative expenses ....... 2,479 2,488
------- -------
Operating income ..................... 11,146 10,643
Interest expense, net ..................... 3,467 3,719
Financing costs of company-obligated
mandatorily redeemable convertible preferred
securities of Carriage Services Capital Trust -- 1,641
------- -------
Total interest and financing costs ... 3,467 5,360
Income before income taxes ........... 7,679 5,283
Provision for income taxes ................ 3,302 2,377
------- -------
Net income ................................ 4,377 2,906
Preferred stock dividend requirements ..... 29 20
------- -------
Net income available to common
stockholders ....................... $ 4,348 $ 2,886
======= =======
Earnings per share:
Basic ................................ $ .28 $ .18
======= =======
Diluted .............................. $ .27 $ .18
======= =======
Weighted average number of common
and common equivalent shares outstanding:
Basic ............................... 15,807 15,977
======= =======
Diluted ............................. 16,162 16,235
======= =======
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,
---------------------
1999 2000
-------- --------
Cash flows from operating activities:
Net income ....................................... $ 4,377 $ 2,906
Adjustments to reconcile net income to net cash
provided by
operating activities --
Depreciation .................................. 1,372 1,961
Amortization .................................. 2,408 2,845
Provision for losses on accounts receivable ... 1,099 1,078
Deferred income taxes ......................... 474 3,263
-------- --------
Net cash provided by operating activities before
changes in assets and liabilities ........... 9,730 12,053
Changes in assets and liabilities, net of effects
from acquisitions:
(Increase) decrease in accounts receivable .... 195 (2,805)
(Increase) decrease in inventories and other
current assets.................... (4,156) 1,956
Decrease in deferred charges and other ........ 125 313
Increase in accounts payable .................. 1,626 824
Increase (decrease) in accrued liabilities .... 1,843 (1,871)
Decrease in preneed liabilities ............... (176) (768)
-------- --------
Net cash provided by operating activities ... 9,187 9,702
Cash flows from investing activities:
Prearranged funeral costs ..................... (1,662) (1,547)
Purchase of note receivable ................... -- (566)
Acquisitions, net of cash acquired ............ (18,153) (1,291)
Capital expenditures .......................... (3,401) (3,007)
-------- --------
Net cash used in investing activities ....... (23,216) (6,411)
Cash flows from financing activities:
Proceeds from long-term debt .................. 21,711 12,224
Proceeds from issuance of common stock ........ -- 342
Payments on long-term debt and obligations
under capital leases........................ (4,326) (16,635)
Payment of preferred stock dividends .......... (29) (20)
Other ......................................... 60 --
-------- --------
Net cash provided by (used in) financing
activities ................................ 17,416 (4,089)
Net increase (decrease) in cash and cash equivalents 3,387 (798)
Cash and cash equivalents at beginning of period ... 2,892 2,517
-------- --------
Cash and cash equivalents at end of period ......... $ 6,279 $ 1,719
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest and financing costs .... $ 3,655 $ 7,753
======== ========
Cash paid for income taxes .................... $ 1,644 $ 194
======== ========
Non-cash consideration for acquisitions ....... $ 1,100 $ --
======== ========
The accompanying notes are an integral part of these financial statements.
5
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 March 31, 2000, the Company owned and operated 182 funeral
homes and 41 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 months ended March 31, 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 our 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 is to be implemented by the time the Company files its
Quarterly report for the period ending June 30, 2000, and applied retroactively
to the first fiscal quarter 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
We have not reached a final resolution of the issue but we anticipate
discussions to be finalized and any effects implemented by the end of the second
quarter of 2000. Implementation, using the new accounting guidance, would
include adjustments to the first quarter 2000 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
reducing the period of amortization of Names and Reputations to a period that is
less than 40 years.
2. ACQUISITIONS
Acquisition activities have virtually ceased within the publicly traded
companies in the deathcare industry, including the Company. During the three
months ended March 31, 2000, we made no new acquisitions. However, acquisition
adjustments, primarily related to contingent consideration, were made during the
first quarter of 2000 on some acquisitions completed in the prior periods. Seven
funeral homes and nine cemeteries were acquired during the three months ended
March 31, 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:
MARCH 31,
---------------------
1999 2000
-------- --------
(IN THOUSANDS)
Current assets, net of cash acquired ....... $ 6,868 $ (453)
Cemetery property .......................... 3,072 --
Property, plant and equipment .............. 4,075 --
Deferred charges and other noncurrent assets 562 283
Names and reputations ...................... 6,604 1,337
Current liabilities ........................ (1,033) 10
Other liabilities .......................... (895) 114
-------- --------
Total acquisitions .................... 19,253 1,291
Consideration:
Debt ....................................... 1,100 --
-------- --------
Cash used for acquisitions ............ $ 18,153 $ 1,291
======== ========
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
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,
---------------------------
1999 2000
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenues, net .................................. $ 47,777 $ 48,373
Net income before income taxes.................. 4,902 5,275
Net income available to common stockholders..... 4,475 2,881
Earnings per common share:
Basic ..................................... 0.28 0.18
Diluted ................................... 0.28 0.18
8
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):
FUNERAL CEMETERY CORPORATE CONSOLIDATED
-------- -------- --------- ------------
External revenues:
Three months ended March 31, 2000 $ 35,582 $ 12,791 -- $ 48,373
Three months ended March 31, 1999 35,512 8,359 -- 41,871
Profit and Loss:
Three months ended March 31, 2000 $ 6,014 $ 2,874 $ (5,982) $ 2,906
Three months ended March 31, 1999 10,331 2,763 (8,717) 4,377
Total Assets:
March 31, 2000 .................. $399,018 $130,948 $ 9,785 $539,751
March 31, 1999 .................. 362,666 119,026 13,035 494,727
9
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. 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 has resulted in a successful track record of growth
from attractive 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 include
increasing operating cash flow and growth through strategies that do not require
investment of new capital.
Income from operations, which we define as earnings before interest and
income taxes, decreased, as a percentage of net revenues, from 26.6% for the
first quarter of 1999 to 22.0% for the first quarter of 2000. This was largely
due to the unseasonably low volumes at the individual funeral home locations
during the month of March, along with an increase in the cremation rate, which
was partly offset by strong performance in the cemetery segment. Gross margins
for the funeral homes decreased from 34.2% in the first quarter of 1999 to 26.4%
in the first quarter of 2000, on an increase in revenue of 6.2%. As a percentage
of cemetery net revenues, cemetery gross margin was 29.1% in first quarter of
2000 compared to 25.7% in the first quarter in 1999. Revenues and gross profits
from cemeteries increased 53% and 73%, respectively, in the first 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 month periods ended March 31, 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."
10
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, 1999 compared to the three
months ended March 31, 2000.
THREE MONTHS ENDED
MARCH 31, CHANGE
------------------ -------------------
1999 2000 AMOUNT PERCENT
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Net revenues:
Existing operations ........ $32,445 $30,917 $(1,528) (4.7%)
Acquired operations ........ 1,067 4,665 3,598 *
------- ------- ------- ------
Total net revenues ... $33,512 $35,582 $ 2,070 6.2%
======= ======= ======= ======
Gross profit:
Existing operations ........ $10,888 $ 8,072 $(2,816) (25.9%)
Acquired operations ........ 587 1,335 748 *
------- ------- ------- ------
Total gross profit ... $11,475 $ 9,407 $(2,068) (18.0%)
======= ======= ======= ======
- -----------------
* Not meaningful.
Total funeral net revenues for the three months ended March 31, 2000
increased $2.1 million or 6.2% over the three months ended March 31, 1999. The
higher net revenues reflect an increase of $3.6 million in net revenues from
acquired operations and a decrease in net revenues of $1.5 million from existing
operations. The number of funeral service contracts decreased 6.4% for existing
locations in comparing the first quarter of 2000 to the first quarter of 1999,
while the average revenue per contract for those existing locations increased
1.8% in comparing those same periods.
Total funeral gross profit for the three months ended March 31, 2000
decreased $2.1 million or 18.0% from the comparable three months of 1999. The
lower total gross profit reflected an increase of $748,000 from acquired
operations and an decrease of $2.8 million from existing operations. Gross
profit for existing operations decreased primarily due to the unseasonably low
number of services performed during the month of March 2000, an increase of 2.6
percentage points in the cremation rate, and a higher level of operating
expenses including a redeployment of certain personnel from corporate
development. Total gross margin decreased from 34.2% for the first quarter of
1999 to 26.4% for the first quarter of 2000 due to these factors.
11
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, 1999 compared to the three months ended
March 31, 2000.
THREE MONTHS ENDED
MARCH 31, CHANGE
------------------ ----------------
1999 2000 AMOUNT PERCENT
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Net revenue:
Existing operations ................ $ 8,219 $ 8,663 $ 444 5.4%
Acquired operations ................ 140 4,128 3,988 *
------- ------- ------- ----
Total net Revenues ........ $ 8,359 $12,791 $ 4,432 53.0%
======= ======= ======= ====
Gross profit:
Existing operations ............. 2,146 2,486 340 15.8%
Acquired operations ............. 4 1,238 1,234 *
------- ------- ------- ----
Total gross profit ........ $ 2,150 $ 3,724 $ 1,574 73.2%
======= ======= ======= ====
- ----------------
* Not meaningful.
Total cemetery net revenues for the three months ended March 31, 2000
increased $4.4 million over the three months ended March 31, 1999, and total
cemetery gross profit increased $1.6 million over the comparable three months of
1999. The higher net revenues reflect an increase of $444,000 from existing
operations and an increase of $4.0 million from acquired operations. The higher
gross profit reflected an increase of $340,000 from existing operations and $1.2
million from acquired operations. Total gross margin increased from 25.7% for
the three months ended March 31, 1999 to 29.1% for the three months ended March
31, 2000, due to the ability to spread relatively fixed costs over a higher
level of revenues.
OTHER. General and administrative expenses for the quarter ended March 31, 2000
was approximately the same as in the first quarter of 1999. However, these
expenses, as a percentage of net revenues, decreased from 5.9% to 5.1% as the
expenses were spread over a larger volume of revenue.
Interest expense and other financing costs for the three months ended March
31, 2000 increased $1.9 million over the first three months of 1999, principally
due to the restructuring and refinancing of the Company's debt instruments
during the second and third quarters of 1999.
Preferred stock dividends of $20,000 were subtracted from the $2.9 million of
net income in computing the net income available to common stockholders for the
three months ended March 31, 2000. The reduction in preferred stock dividends
from 1999 to 2000 is due to conversions of the preferred stock to common stock.
For the three months ended March 31, 2000, we provided for income taxes on
income before income taxes at a combined state and federal rate of 45% compared
with 43% for the same period in 1999.
12
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $1.7 million at March 31, 2000,
representing a decrease of $798,000 from December 31, 1999. For the three months
ended March 31, 2000, cash provided by operations was $9.7 million as compared
to $9.2 million for the three months ended March 31, 1999. The improvement cash
provided by operations was provided in part by 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 $6.4 million for the three months ended March 31, 2000 compared
to $23.2 million for the first three months of 1999, which is a reflection of
the change in our acquisition strategy over the last 12 months. In the first
three months of 2000, cash flow used in financing activities amounted to
approximately $4.1 million, primarily due to payments on the Company's credit
facility.
Historically, we have financed our acquisitions with proceeds from debt and
the issuance of common and preferred stock. As of March 31, 1999, the Company
had 1,430,090 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.
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, 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 March 31, 2000, $47 million was outstanding under the
credit facility and the Company's debt to total capitalization was 37 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 2000 is anticipated
to be significantly less than the amounts during either of the two preceding
years, excluding the effect of any possible transactions that may occur with
other corporate death care companies. 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 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 is to be implemented
13
by the time the Company files its Quarterly report for the period ending June
30, 2000, and applied retroactively to the first fiscal quarter 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 issue but we anticipate
discussions to be finalized and any effects implemented by the end of the second
quarter of 2000. Implementation, using the new accounting guidance, would
include adjustments to the first quarter 2000 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
reducing the period of amortization of Names and Reputations to a period that is
less than 40 years.
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.
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. To address the
Year 2000 issue, our program encompassed 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 were not Year 2000 ready prior to December 31, 1999.
The inventory and assessment for all of our core systems that are essential
for business operations was completed by December 31, 1999. All of these core
systems are believed to be Year 2000 compliant. As of December 31, 1999,
management estimated that we had completed all of the work involved in
modifying, replacing and testing the non-compliant hardware and software. The
inventory and assessment phases for newly acquired businesses was performed
during the acquisition process as part of our due diligence analysis.
We also communicated 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,
14
no significant third parties have informed us that any Year 2000 issue exists
which would have a material effect on us.
To date we have continued 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 have
been necessary for us to replace some suppliers, rearrange some work plans or
even temporarily interrupt some normal business activities or operations. We
have not experienced such circumstances nor any material adverse impact to our
operations.
Our total costs of becoming Year 2000 compliant were not significant to our
financial position, results of operations or cash flows. As of December 31,
1999, we had spent approximately $100,000 related to Year 2000 compliance.
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.
15
PART II -- OTHER INFORMATION
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, reducing the growth in
accounts receivable and reducing preneed funeral costs.
(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.
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(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 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
11.1 -- Statement regarding computation of per share earnings
12 -- Computation of Ratio of Earnings to Fixed Charges
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K
Carriage filed a Current Report on Form 8-K on March 17, 2000, with respect
to the settlement of certain litigation, in which the Company was a defendant,
on February 8, 2000.
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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.
MAY 12, 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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