SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 13, 2004
Carriage Services, Inc.
(Exact name of registrant as specified in is charter)
Delaware |
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1-11961 |
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76-0423828 |
(State
or other jurisdiction |
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(Commission |
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(IRS
Employer |
1900 St. James Place, 4th Floor
Houston, Texas 77056
(Address, including zip code, of principal executive offices)
Registrants telephone number, including area code:
(713) 332-8400
ITEM 5. OTHER EVENTS
Effective May 13, 2004, Carriage exercised the option within its existing bank credit facility to increase the available commitment by $5 million to $45 million. The two existing banks proportionately increased their commitments under the arrangement. Otherwise the terms and conditions of the credit facility remain unchanged.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) |
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Exhibits. The following exhibits are furnished as part of this |
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current report on Form 8-K: |
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4.1 |
Commitment Increase Agreement dated May 13, 2004 among Carriage Services Inc., as the Borrower, Bank of America, N.A., as the Lender and Administrative Agent, and Wells Fargo Bank, National Association, as the Lender. |
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99.1 |
Press Release dated May 13, 2004. |
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99.2 |
Press Release dated May 18, 2004 |
ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
In the press release dated May 13, 2004, the Company announced and commented on its financial results for its fiscal first quarter ended March 31, 2004. A copy of the press release issued by the Company is attached hereto as Exhibit 99.1 and incorporated by this reference. The information being furnished under Item 12. Results of Operations and Financial Condition, including the press release attached hereto as Exhibit 99.1, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities of that Section.
In the press release dated May 18, 2004, the Company announced and commented on the adoption of Financial Accounting Standards Board relating to Interpretation No. 46, as revised (FIN 46), Consolidation of Variable Interest Entities, which was previously disclosed in Carriages first quarter earnings release attached hereto as Exhibit 99.1. A copy of the press release issued by the Company is attached hereto as Exhibit 99.2 and incorporated by this reference. The information being furnished under Item 12., including the press release attached hereto as Exhibit 99.2, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liabilities of that Section.
The Companys press release dated May 13, 2004 contains non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a companys performance, financial position, or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with United States generally accepted accounting principles, or GAAP. Pursuant to the requirements of Regulation G, the Company has provided quantitative reconciliations within the press release of the non-GAAP financial measures to the most directly comparable GAAP financial measures.
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Carriage Services, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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CARRIAGE SERVICES, INC. |
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Date May 18, 2004 |
By: |
/s/ Joseph Saporito |
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Joseph Saporito |
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Senior Vice President and Chief Financial Officer |
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INDEX TO EXHIBITS
Exhibit |
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Description |
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4.1 |
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Commitment Increase Agreement dated May 13, 2004 among Carriage Services Inc., as the Borrower, Bank of America, N.A., as the Lender and Administrative Agent, and Wells Fargo Bank, National Association, as the Lender. |
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99.1 |
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Press release dated May 13, 2004 |
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99.2 |
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Press Release dated May 18, 2004 |
4
Exhibit 4.1
COMMITMENT INCREASE AGREEMENT
This Commitment Increase Agreement (this Agreement) dated as of May 13, 2004, is entered into among Carriage Services, Inc., a Delaware corporation (the Borrower), Bank of America, N.A., in its capacity as a Lender (Bank of America), Wells Fargo Bank, National Association (formerly Wells Fargo Bank Texas, National Association), in its capacity as a Lender (Wells Fargo), and Bank of America, N.A., in its capacity as Administrative Agent (the Administrative Agent). Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to them in the Credit Agreement (as defined below).
PRELIMINARY STATEMENTS
Reference is made to that certain Credit Agreement dated as August 4, 2003, by and among the Borrower, the Administrative Agent, Wells Fargo, as Syndication Agent, and the Lenders that are parties thereto (as amended, modified, supplemented or restated, the Credit Agreement).
Pursuant to Section 2.14 of the Credit Agreement, the Borrower has requested an increase in the Aggregate Revolving Commitments from $40,000,000 to $45,000,000. Such increase in the Aggregate Revolving Commitments is to become effective on May 13, 2004 (the Increase Effective Date). In connection with such requested increase in the Aggregate Revolving Commitments, the Borrower, the Administrative Agent, Bank of America and Wells Fargo hereby agree as follows:
1. COMMITMENT INCREASE. Effective as of the Increase Effective Date and provided that the Borrower has paid each of Bank of America and Wells Fargo a fee of $15,625.00 in immediately available funds, each of Bank of America and Wells Fargo agree to increase the amount of their respective Revolving Commitment to $22,500,000. Each party waives any notice requirement in Section 2.14 of the Credit Agreement with respect to such increase.
2. SCHEDULE 2.01. Effective as of the Increase Effective Date, Schedule 2.01 to the Credit Agreement shall be amended to be in the form of Schedule 2.01 to this Agreement.
3. RATIFICATION. The Credit Agreement, as modified by this Agreement, is hereby ratified and confirmed in all respects. Any reference to the Credit Agreement in any Loan Document shall be deemed to refer to the Credit Agreement, as modified by this Agreement.
4. MISCELLANEOUS. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas applicable to agreements made and to be performed entirely within such state, provided that each party hereto shall retain all rights under federal law. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
1
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the date first above written.
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BORROWER: |
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CARRIAGE SERVICES, INC. |
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By: |
/s/ Joseph Saporito |
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Name: |
Joseph Saporito |
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Title: |
Senior Vice President |
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ADMINISTRATIVE AGENT: |
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BANK OF AMERICA, N.A., as Administrative |
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By: |
/s/ Suzanne M. Paul |
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Name: |
Suzanne M. Paul |
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Title: |
Vice President |
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LENDERS: |
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BANK OF AMERICA, N.A. |
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By: |
/s/ Gary L. Mingle |
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Name: |
Gary L. Mingle |
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Title: |
Senior Vice President |
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WELLS FARGO BANK, NATIONAL |
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By: |
/s/ Warren R. Ross |
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Name: |
Warren R. Ross |
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Title: |
Vice President |
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2
SCHEDULE 2.01
REVOLVING COMMITMENTS
AND REVOLVING PRO RATA SHARES
Lender |
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Revolving |
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Revolving
Pro Rata |
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Bank of America, N.A. |
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$ |
22,500,000 |
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50.0 |
% |
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Wells Fargo Bank, National Association |
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$ |
22,500,000 |
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50.0 |
% |
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Total |
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$ |
45,000,000 |
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100.0 |
% |
3
Exhibit 99.1
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Press Release |
Contacts: |
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Mel Payne, Chairman & CEO |
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Joe Saporito, CFO |
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Carriage Services, Inc. |
FOR IMMEDIATE RELEASE |
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713-332-8400 |
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Ken Dennard / ksdennard@drg-e.com |
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Lisa Elliott / lelliott@drg-e.com |
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DRG&E |
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713-529-6600 |
CARRIAGE SERVICES REPORTS FIRST QUARTER RESULTS
Revenue increases 6 percent, EBITDA 11 percent
and EPS 21 percent versus prior year
Bank credit facility increased to $45 million
Company provides Q2 estimates and reaffirms full year estimates
MAY 13, 2004 HOUSTON Carriage Services, Inc. (NYSE: CSV) today reported financial results for the first quarter ended March 31, 2004. Results for the first quarter 2004 versus previous estimates were as follows:
Revenues of $41.2 million compared to previous estimate of $39 to $41 million
EBITDA of $12.3 million compared to previous estimate of $11 to $12 million
Diluted EPS of $0.17 compared to previous estimate of $0.14 to $0.17 per share and up 21 percent compared to diluted EPS of $0.14 before special charges for the first quarter 2003
Reconciliations of EBITDA and other non-GAAP financial measures are located at the end of this press release
We were extremely pleased with the results for the first quarter. For the first time in several years, we substantially improved our performance in every area of the Company. Moreover, we continued to rapidly reduce our debt, stated Melvin C. Payne, Chairman and Chief Executive Officer.
During the first quarter of 2004, Carriage generated free cash flow of $4.7 million, which included the benefit of deferring interest payments of $1.7 million on the TIDES preferred securities, as compared to $2.1 million in free cash flow in the prior year first quarter. Carriage defines free cash flow as cash flow provided by operating activities less all capital expenditures. Carriage reduced total debt from $135.5 million at year-end 2003 to $129.2 million at March 31, 2004.
Diluted earnings per share in the current year quarter of $0.17 per share exceeded $0.12 per share on a GAAP basis and $0.14 per share excluding special charges for the prior year first quarter primarily
1
on the impact of increased volumes in the funeral division and higher preneed property sales in the cemetery division. Special charges totaling $588,000 were recorded during the first quarter of 2003, equal to a charge of $0.02 per diluted share, and consisted primarily of charges related to the early termination of a lease obligation pursuant to a business dispute between the lessor and Carriage.
Results for the quarter also benefited from lower interest expense, which decreased by approximately $0.2 million in the first quarter compared to the prior year period because the debt outstanding has decreased by approximately $19 million or 12.8 percent since the first quarter of 2003.
Change in Accounting
The Financial Accounting Standards Board has issued Interpretation No. 46 (FIN 46R), Consolidation of Variable Interest Entities, which is effective March 31, 2004 for the Company. Based on very recent discussions between the industry and the Securities and Exchange Commission, the Company will consolidate certain funeral and cemetery trusts in which it is the primary beneficiary of the trust assets. The Company will provide complete disclosures of the accounting change in its quarterly report on Form 10-Q. The accounting change will not affect the Companys earnings or free cash flow for the first quarter of 2004. Additionally, the Company believes that the accounting change will principally affect classifications within the balance sheet, statement of operations and statement of cash flows, but will not affect cash flow or the manner in which we recognize and report revenues or net income in future periods.
Funeral Operations
Key indicators and financial results for Carriages funeral operations for the first quarter when compared to the same period in the previous year are as follows:
Funeral revenues increased 3.4 percent from $30.4 million to $31.4 million
Same store funeral revenue increased 5.6 percent from $29.4 million to $31.1 million
Same store funeral contracts increased 3.9 percent from 6,176 to 6,419
Same store average revenue per contract increased 1.6 percent from $4,765 to $4,841
Funeral gross margin increased 170 basis points from 28.4 percent to 30.1 percent
We are pleased with the improved results in our funeral division. We experienced a more normal seasonal increase in funerals and were able to control our costs while serving more families so that our operating leverage worked the way it should, generating both higher gross profit dollars and margins, stated Mr. Payne. We are continuing to work hard on better execution of our new funeral home operating model and expect to see year-over-year improvement in our operating and financial performance as we move forward through 2004 and into 2005.
2
While Carriage experienced an increase of 1.6 percent in the average revenue per contract during the first quarter, the average was negatively impacted by an increase in the cremation rate of 210 basis points to 30.9 percent, in part as a result of pursuing opportunities for lower priced direct cremations in certain markets. The average revenue for burial contracts increased 3.4 percent to $6,416, while the average revenue for cremation contracts declined 2.8 percent to $2,276.
Cemetery Operations
Key indicators for Carriages cemetery operations and financial results for the first quarter when compared to the same period last year are as follows:
Cemetery revenues and same store cemetery revenues increased 17.1 percent, from $8.4 million to $9.8 million
The number of preneed contracts written increased 6.3 percent to 2,442, while the number of preneed contracts that included property rights increased 39.4 percent to 2,266
Average revenue per preneed contract written increased 27.8 percent to $2,622
The number of interments performed increased 2.4 percent to 2,545
Cemetery gross margin, excluding investment losses, decreased 110 basis points from 28.6 percent to 27.5 percent
Success in the cemetery business is primarily the result of advance sales of property rights, which creates heritage for the business, stated Mr. Payne. Our success was evident in the first quarter as 93 percent of our preneed contracts contained property as compared to 71 percent in the prior year. I am very pleased that our performance was broad and deep across our portfolio and that we were able to maintain our consistently high profit margins on a substantial increase in sales.
Cemetery revenues were positively impacted by a $1.1 million increase in preneed property sales and the completion of two mausoleums which contributed $0.4 million in revenue compared to the prior year period. Financial revenues (trust earnings and finance charges on the installment contracts) declined $0.4 million compared to the first quarter of the prior year primarily due to lower earnings on the perpetual care trust funds and losses ($235,000) incurred on sales of securities as Carriage repositioned trust investments to achieve higher future earnings. Cemetery gross profit, excluding investment losses, increased by 15.3 percent primarily on the strength of the higher preneed sales. Gross margin percentage declined because property sales generally carry a higher cost for sales commissions, bad debts and property amortization.
3
Increased Bank Credit Facility
Effective May 13, 2004, Carriage exercised the option within its existing bank credit facility to increase the available commitment by $5 million to $45 million. The two existing banks proportionately increased their commitments under the arrangement. Otherwise the terms and conditions of the credit facility remain unchanged.
As of May 13, 2004, Carriage had $16 million drawn on its revolving credit facility. Carriage believes that the borrowing capacity under the credit facility will be sufficient to meet its working capital needs and to pay the maturities of Series A of our Senior Notes (current balance $22 million) on July 30, 2004.
One of the key metrics that Carriage and its lenders monitor is the Companys debt-to-EBITDA multiple, which is a measure of a companys debt burden relative to earnings available for debt service. Carriages debt-to-EBITDA multiple declined from 3.44 at year end 2003 to 3.13 at March 31, 2004, a 9 percent decrease, demonstrating a continuously improving credit profile for the Company.
Outlook
For the second quarter of 2004, Carriage expects revenues to range between $36 million and $38 million, EBITDA to range between $8 million and $10 million, and diluted earnings to range between $0.07 to $0.10 per share. Carriage expects revenues for the full year 2004 to range between $150 million and $154 million, EBITDA to range between $39 million and $41 million, earnings to range between $0.38 and $0.43 per share and free cash flow to range between $14 million and $17 million. Carriage expects to reduce its debt to within a range of $114 to $118 million at year-end 2004.
First Quarter Conference Call Information
Carriage Services has scheduled a conference call for tomorrow, May 14, 2004 at 9:30 a.m. eastern time. To participate in the call, dial 303-262-2144 at least ten minutes before the conference call begins and ask for the Carriage Services conference call. A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until May 21, 2004. To access the replay, dial 303-590-3000 and enter pass code 578520.
Investors, analysts and the general public will also have the opportunity to listen to the conference call free over the Internet by visiting http://www.carriageservices.com. To listen to the live call on the web, please visit the website at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live webcast, an archive will be available shortly after the call and will be accessible for approximately 90 days. For more information, please contact Donna Washburn at DRG&E at (713) 529-6600 or email dmw@drg-e.com.
4
Carriage Services is the fourth largest publicly traded death care company. As of May 13, 2004, Carriage operates 139 funeral homes and 30 cemeteries in 29 states.
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 Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on assumptions that the Company believes are reasonable; however, many important factors, as discussed under Forward-Looking Statements and Cautionary Statements in the Companys Annual Report and Form 10-K for the year ended December 31, 2003, could cause the Companys 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. The Company 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. A copy of the Companys Form 10-K, and other Carriage Services information and news releases, are available at www.carriageservices.com.
- Tables to follow -
5
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
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For the Three Months Ended |
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03/31/03 |
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03/31/04 |
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Funeral revenues |
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$ |
30,354 |
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$ |
31,392 |
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Funeral costs and expenses |
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21,722 |
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21,957 |
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Funeral gross profit |
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8,632 |
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9,435 |
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Funeral gross margin |
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28.4 |
% |
30.1 |
% |
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Cemetery revenues |
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8,352 |
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9,781 |
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Cemetery costs and expenses |
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5,963 |
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7,262 |
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Cemetery gross profit |
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2,389 |
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2,519 |
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Cemetery gross margin |
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28.6 |
% |
25.8 |
% |
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Total revenues |
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38,706 |
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41,173 |
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Total costs and expenses |
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27,685 |
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29,219 |
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Total gross profit |
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11,021 |
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11,954 |
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Total gross margin |
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28.5 |
% |
29.0 |
% |
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General and administrative expenses |
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2,533 |
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2,683 |
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Special Charges & Other |
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588 |
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Operating income |
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7,900 |
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9,271 |
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Operating margin |
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20.4 |
% |
23.0 |
% |
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Interest expense, Debt |
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2,936 |
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2,646 |
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Interest expense, TIDES |
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1,674 |
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1,742 |
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Total interest expense and financing costs |
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4,610 |
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4,388 |
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Income before income taxes |
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3,290 |
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4,883 |
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Provision for income taxes |
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1,234 |
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1,831 |
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Net income |
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$ |
2,056 |
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$ |
3,052 |
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Basic earnings per share: |
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$ |
0.12 |
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$ |
0.17 |
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Diluted earnings per share: |
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$ |
0.12 |
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$ |
0.17 |
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Weighted average number of common shares outstanding: |
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Basic |
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17,320 |
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17,656 |
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Diluted |
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17,714 |
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18,139 |
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6
CARRIAGE SERVICES, INC.
Selected Financial Data and
Reconciliation of Non-GAAP Financial Measures
March 31, 2004
(unaudited)
(in thousands, except days sales and debt ratios)
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3/31/03 |
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3/31/04 |
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Selected Financial Data: |
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Working Capital |
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$ |
1,300 |
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$ |
(18,376 |
)(2) |
Total Debt |
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148,158 |
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129,193 |
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Total Convertible Preferred Securities |
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90,226 |
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90,361 |
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Days sales in funeral accounts receivable |
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25.1 |
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24.1 |
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Debt to total capitalization(1) |
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43.6 |
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39.3 |
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Debt to EBITDA (rolling twelve months)(1) |
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3.42 |
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3.13 |
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(1) |
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- |
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Debt is outstanding debt at balance sheet date. Convertible preferred securities are classified as equity for this calculation. |
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(2) |
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- |
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Primarily attributable the classification of the Series A Senior Notes in the current liability section for the 2004 period. |
Reconciliation of Non-GAAP Financial Measures
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Three
months |
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Three
months |
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Cash provided by operating activities |
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$ |
3,793 |
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$ |
5,474 |
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Less capital expenditures |
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(1,725 |
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(789 |
) |
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Free Cash Flow |
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$ |
2,068 |
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$ |
4,685 |
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Income before income taxes |
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$ |
3,290 |
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$ |
4,883 |
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Special charges |
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588 |
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Interest expense |
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4,610 |
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4,388 |
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Depreciation and amortization |
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2,589 |
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3,065 |
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EBITDA, excluding special charges |
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$ |
11,077 |
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$ |
12,336 |
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Reconciliation of earnings before special items to net income for the first quarter of 2003:
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Income
Before |
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Net Income |
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Diluted EPS |
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Net income, excluding special items |
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$ |
3,878 |
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$ |
2,424 |
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$ |
0.14 |
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Losses from sales of business assets |
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(156 |
) |
(98 |
) |
(0.00 |
) |
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Early termination of lease obligation |
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(432 |
) |
(270 |
) |
(0.02 |
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Net Income |
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$ |
3,290 |
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$ |
2,056 |
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$ |
0.12 |
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7
Exhibit 99.2
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PRESS RELEASE |
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Contacts: |
Mel Payne, Chairman & CEO |
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Joe Saporito, CFO |
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Carriage Services, Inc. |
FOR IMMEDIATE RELEASE |
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713-332-8400 |
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Ken Dennard / ksdennard@drg-e.com |
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Lisa Elliott / lelliott@drg-e.com |
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DRG&E |
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713-529-6600 |
CARRIAGE SERVICES ADOPTS CHANGES MANDATED
BY NEW ACCOUNTING INTERPRETATION
Company provides details of accounting changes in its first quarter Form 10-Q
MAY 18, 2004 HOUSTON Carriage Services, Inc. (NYSE: CSV) today announced it has adopted accounting changes mandated by the Financial Accounting Standards Board relating to Interpretation No. 46, as revised (FIN 46), Consolidation of Variable Interest Entities, which was previously disclosed in Carriages first quarter earnings release. FIN 46 clarifies the circumstances in which certain entities that do not have equity investors with a controlling financial interest must be consolidated by its sponsor.
The adoption of FIN 46 affects the Companys financial statements in two fundamental ways:
The Company is consolidating preneed and perpetual care trusts in which it is the primary beneficiary of the trust assets. The accounting related to such trusts was agreed to among the Company and the other public deathcare companies, their auditors, and the staff at the Securities and Exchange Commission.
The Company is deconsolidating for accounting purposes Carriage Services Capital Trust (the Trust) which results in the removal of the preferred securities from the balance sheet and the addition of convertible junior subordinated debentures payable to the trust.
The accounting changes did not affect the Companys earnings or cash flows for the first quarter of 2004. No cumulative effect of an accounting change was recognized by the Company as a result of implementing of FIN 46. Additionally, the accounting changes principally affect classifications within the financial statements, but do not affect cash flow or the manner in which the Company recognizes and reports revenue or net income in future periods.
Preneed and Perpetual Care Trusts
The Company implemented FIN 46 as of March 31, 2004, which resulted in the consolidation of the Companys preneed and perpetual care trust funds. The investments of such trust funds are now reported at fair value and the Companys future obligations to deliver merchandise and services are now reported at estimated settlement amounts, which are equal and offsetting amounts.
Although FIN 46 requires consolidation of preneed and perpetual care trusts, it does not change the legal relationships among the trusts, the Company and its customers. The customers are the legal beneficiaries of preneed trusts. The Company does not have a right to access the corpus in the perpetual care trusts. For these reasons, the Company has recognized non-controlling interests in our financial statements to reflect third party interests in these trust funds that have been consolidated by the Company.
Both the preneed trusts and the cemetery perpetual care trusts hold investments in marketable securities which have been classified as available-for-sale. The investments are reported at fair value, with unrealized gains and losses allocated to Non-controlling interests in trust investments. Unrealized gains and losses attributable to the Company, but not yet earned through the performance of services or delivery of merchandise, are allocated to deferred revenues.
After March 31, 2004, the Company will recognize realized earnings of the preneed trusts and cemetery perpetual care trusts. The Company will recognize a corresponding expense equal to the realized earnings of these trusts attributable to the non-controlling interest holders. Such earnings attributable to the Company, but not yet earned through the performance of services or delivery of merchandise are allocated to deferred revenues.
In the case of preneed trusts, the Company will recognize as revenues amounts attributed to the non-controlling interest holders and the Company, including accumulated realized earnings, when services have been performed and merchandise delivered. In the case of cemetery perpetual care trusts, the Company will recognize investment earnings in cemetery revenues when such earnings are realized and distributable.
Redeemable Convertible Preferred Securities
The Company also was required to deconsolidate for accounting purposes Carriage Services Capital Trust (the Trust), a trust established in 1999 to issue convertible preferred term income deferrable equity securities (TIDES). The TIDES were previously classified as temporary equity in the consolidated balance sheet. The Companys obligation to the Trust consists of convertible junior
subordinated debentures due in 2029. As a result of deconsolidating the Trust, the Company now reports its obligation to the Trust, the convertible junior subordinated debentures, as a long-term liability. The reclassification of the amount ($93.75 million) has no effect on net income or on the Companys covenants with its senior lenders, because the obligations to the Trust are not classified as indebtedness for purposes of calculating financial ratios.
Substantially all the assets of the Trust consist of the convertible junior subordinated debentures of the Company. Such debentures possess substantial characteristics of equity. The rights of the debentures are functionally equivalent to those of the TIDES. When issued in 1999, the conversion price was at a premium to the then-existing trading price of the Common Stock. The expectation was that holders would convert the TIDES into Common Stock well before their maturity in 2029, when the Companys performance and improving conditions in the death care industry resulted in an appreciated stock price. As a result of deteriorating conditions in the industry and the Companys own disappointing performance in the preceding four years, the TIDES have been trading substantially below their par value, which we believe to be a reflection of the valuation and prospects of the Companys common stock. In managements view, the debentures have a predominance of equity-like characteristics which are not normally found in debt securities (including traditional subordinated debt), such as:
The debentures are unsecured and subordinate to the Companys senior debt, which includes the revolving credit facility, the senior notes and any other borrowed money obligations. The debentures are not guaranteed by the Companys subsidiaries, meaning that they are effectively subordinated to all liabilities of the subsidiaries, not just borrowed money debt.
The Company has the right to defer the payment of interest on the debentures for up to 20 calendar quarters, and the Company is currently doing so. The Company can catch up deferred interest and then re-start another deferral period prior to maturity. During a deferral period, the only rights of the holders of the TIDES and debentures are to restrict the Company from making distributions to or repurchasing any stock, but the Company is not subject to any other restrictions which would normally be associated with non-payment of debt securities, such as acceleration of maturity, limits on acquisitions or dispositions of assets, or any changes in the debt capital structure, such as incurring new debt, restructuring existing debt, changing debt terms, or granting security.
The TIDES are convertible into common stock at a fixed price well above the common stocks current trading price. The Company believes the market value of the TIDES will continue to primarily be impacted by its unusually long-term maturity, the right to defer distributions and the subordination to all other outstanding debt for borrowed money, rather than the Companys credit profile or level of interest rates.
As a result of the equity-like characteristics of the TIDES and debentures, the Company was able to have them treated as equity, rather than debt, under its credit and senior note agreements.
The Company has provided complete disclosures of the accounting changes in its quarterly report on Form 10-Q filed on May 17, 2004. Carriage Services is the fourth largest publicly traded death care company. Carriage operates 139 funeral homes and 30 cemeteries in 29 states.
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 Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on assumptions that the Company believes are reasonable; however, many important factors, as discussed under Forward-Looking Statements and Cautionary Statements in the Companys Annual Report and Form 10-K for the year ended December 31, 2003, could cause the Companys 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. The Company 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. A copy of the Companys Form 10-K, and other Carriage Services information and news releases, are available at www.carriageservices.com.
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