SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Carriage Services, Inc.

Delaware (State or other jurisdiction of incorporation)		1-11961 (Commission File Number)		76-0423828 (IRS Employer Identification No.)

3040 Post Oak Boulevard, Suite 300
Houston, Texas 77056
(Address, including zip code, of principal executive offices)

Registrant’s telephone number, including area code:
(713) 332-8400

[ ] Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

     In the press release dated November 9, 2005, the Company announced and commented on its financial results for its fiscal quarter ended September 30, 2005. 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 9.01 Financial Statements and Exhibits, 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.

     The Company’s press release dated November 9, 2005 contains non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s 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.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

(c)

Exhibits. The following exhibits are furnished as part of this current report on Form 8-K:

99.1

Press Release dated November 9, 2005.

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.

INDEX TO EXHIBITS

Exhibit				Description
	99.1			Press release dated November 9 , 2005.

		Press Release

				Contacts:		Mel Payne, Chairman & CEO
						Joe Saporito, CFO
						Carriage Services, Inc.
		FOR IMMEDIATE RELEASE				713-332-8400
						Ken Dennard / ksdennard@drg-e.com
						Lisa Elliott / lelliott@drg-e.com
						DRG&E / 713-529-6600

CARRIAGE SERVICES REPORTS THIRD QUARTER RESULTS

November 9, 2005 – HOUSTON – Carriage Services, Inc. (NYSE: CSV) today reported financial results for the three- and nine-month periods ended September 30, 2005. Results for the third quarter 2005 were as follows:

	•		Revenues of $36.5 million compared to previous estimate of $35 to $37 million and $35.8 million in the prior year.
	•		EBITDA from continuing operations of $7.3 million compared to previous estimate of $7.5 to $7.9 million and pro forma EBITDA of $6.6 million in the prior year.
	•		Diluted EPS of $0.04 compared to pro forma earnings of $0.05 per diluted share for third quarter of 2004.
	•		Earnings from continuing operations of $0.01 per share compared to previous estimates of $0.01 to $0.02 and compared to pro forma earnings of $0.00 for third quarter of 2004.
	•		Reconciliations of EBITDA and other non-GAAP financial measures are located at the end of this press release.

     Pro forma comparisons are provided because of the accounting change for preneed selling costs as previously announced in the Company’s second quarter earnings release. Prior to the change which was effective January 1, 2005, commissions and other costs that were related to the origination of prearranged funeral and cemetery service and merchandise sales were deferred and amortized with the objective of recognizing selling costs in the same period that the related revenue is recognized. Under the new method which was not applied in 2004, the commissions and other costs are expensed as incurred. Comparisons are made of the current period results to the 2004 period on a pro forma basis for comparability purposes.

     “The third quarter is typically our slowest quarter for seasonal reasons. While we are pleased that we met revenue estimates, we experienced higher general and administrative expenses which had a negative impact on our operating performance and earnings in the quarter”, stated Melvin C. Payne, Chairman and Chief Executive Officer. General and administrative expenses included additional costs of implementing a new cemetery accounting system, higher audit and consulting fees to comply with the requirements of Sarbanes-Oxley, and the costs of relocating our home office at the end of the third quarter.

     Carriage reported diluted EPS of $0.04 for the quarter ended September 30, 2005 which consisted of earnings from continuing operations of $0.01 per share and gains from the sale of a cemetery business in southern California of approximately $0.8 million, equal to $0.03 per diluted share compared to pro forma diluted earnings of $0.05 per share for the third quarter of 2004.

     Income from continuing operations for the third quarter of 2005 decreased from the $0.03 per diluted share reported in 2004 for the following reasons (in thousands, except per share amounts):

		Amount, net of				Earnings per
		Income Tax				Diluted Shares
Income from continuing operations for the third quarter of 2004		$	471			$	0.03
Decrease in gross profit from funeral and cemetery operations (including the change in accounting for preneed selling costs)			(124	)			(0.01	)
Change in other income (expense), primarily a charge to write off systems costs in 2004			358				0.02
Higher interest expense			(316	)			(0.02	)
Higher general and administrative expenses in 2005, primarily to document and evaluate internal controls and upgrade systems and processes			(249	)			(0.01	)
Income from continuing operations for the third quarter of 2005		$	140			$	0.01

     On a year-to-date basis, Carriage reported diluted EPS of $0.01, excluding the cumulative effect of the accounting change, which consisted of a loss from continuing operations of $0.04 per share and earnings from discontinued operations of $0.05 per share. Excluding debt refinancing costs of $0.25 per diluted share, diluted earnings from continuing operations was $0.21 per diluted share for the nine months ending September 30, 2005 compared to $0.20 per diluted share on a pro forma basis for the same period in 2004.

     Carriage reported negative free cash flow of $4.5 million in the third quarter of 2005, which consisted of the following (in thousands):

EBITDA from continuing operations		$	7,344
Less: Interest paid			(6,714	)
Income taxes paid			(51	)
Capital expenditures			(2,032	)
Noncash expenses			795
Uses of working capital			(3,808	)
Free cash flow		$	(4,466	)

     The Company expects interest payments to total approximately $1.7 million for the fourth quarter of 2005 as compared to $6.7 million in the third quarter of 2005. Changes in working capital are expected to provide positive free cash flow of approximately $3.0 million in the fourth quarter, primarily from trust withdrawals, as compared to negative free cash flow of $3.8 million for the third quarter of 2005.

Acquisition

     “We are pleased to report that we acquired the assets of a funeral home business (two funeral chapels) in Northern Florida for $1.3 million in cash in September,” stated Mr. Payne. “We evaluated this transaction using our ‘Being the Best’ standards and as a result we expect the acquisition to be immediately accretive to earnings and the integration of the business into the Carriage family to be seamless. The business is within close proximity to one of our existing businesses which allows sharing of resources and management.”

Funeral Operations

     Key indicators and financial results for Carriage’s funeral operations for the third quarter of 2005 when compared to the same period last year are as follows:

	•		Funeral revenues were flat at $26.6 million
	•		Same store funeral revenues declined 0.9 percent from $26.2 million to $26.0 million
	•		Same store funeral contracts decreased 0.5 percent from 5,335 to 5,309
	•		Same store average revenue per contract decreased by $23, or 0.4 percent from $4,910 to $4,887
	•		Preneed commission income increased from $0.4 million to $0.6 million
	•		Funeral gross profit was flat at $6.1 million

     “While the third quarter is seasonally the weakest volume quarter of the year, our average revenue per contract was down slightly because of mix changes after being up in the first two quarters,” commented Mr. Payne. Cremation services represented 33.3 percent of the number of funeral services performed during the third quarter of 2005 compared to 31.0 percent in the third quarter of 2004. The average revenue for burial contracts increased 2.7 percent to $6,726 while the average revenue for cremation contracts declined 0.4 percent to $2,389. The change in burial versus cremation mix had the effect of reducing revenues by $0.5 million because the cremation rate increased and we experienced lower average revenue from each cremation service.

     On a year-to-date basis, funeral revenues increased $1.8 million, equal to 2.1 percent and same-store revenue increased 1.4 percent, consisting of a 0.1 percent decline in the number of contracts and an increase in the average revenue per contract of 1.5 percent. The cremation rate has increased year over year from 31.2 percent to 32.9 percent. Preneed commission income increased by $0.6 million, or 60 percent compared to 2004. Funeral gross margin increased from 25.8 percent to 26.7 percent, primarily on the strength of the higher revenues.

Cemetery Operations

     Key indicators for Carriage’s cemetery operations and financial results for the third quarter when compared to the same period last year are as follows:

	•		Cemetery revenues increased 6.8 percent, from $9.2 million to $9.9 million
	•		The number of preneed contracts written decreased 2.1 percent to 1,883
	•		Average revenue per preneed contract written decreased 4.0 percent to $2,729 and the average preneed property rights increased 7.9 percent to $1,972
	•		The number of interments performed decreased 10.9 percent to 1,993
	•		Cemetery gross profit decreased 9.3 percent to $1.8 million

     “Though we experienced an increase in revenues, a substantial portion of that increase was related to the completion of mausoleums sold in prior periods,” stated Mr. Payne. “We experienced declines in at-need revenues and interments and preneed contracts written. Cemetery gross profit decreased $0.1 million which was attributable to the changes in accounting for preneed selling costs.”

     Financial revenues (trust earnings and finance charges on the installment contracts) totaled approximately $750,000, approximately the same as the third quarter of the prior year. Cemetery gross margin percentage declined by 260 basis points to 18.4 percent because our product revenue mix changed to a higher proportion of merchandise and services which have lower margins and the change in accounting for preneed selling costs.

     On a year-to-date basis, cemetery revenues increased 4.0 percent and cemetery gross margin decreased 410 basis points to 19.2 percent primarily because of the change in accounting for preneed selling costs.

Other

     General and administrative expenses increased $0.4 million compared to the third quarter of 2004, as previously stated, because of higher audit and professional fees related to compliance with the Sarbanes-Oxley Act of 2002, a cemetery systems implementation process and the home office relocation.

     Interest expense increased $0.5 million compared to the prior year quarter because outstanding senior debt increased when the Company refinanced its senior debt earlier in 2005. Interest income, which is included in Other income, increased $140,000 because excess funds from the recent debt refinancing were invested in short-term instruments.

     Discontinued operations consisted primarily of a gain on the sale of a cemetery in the amount of $0.8 million.

Outlook

     For the fourth quarter of 2005, Carriage expects revenues to range between $37 million and $39 million, EBITDA to range between $8 million and $9 million, and earnings from continuing operations to range between $0.04 and $0.06 per diluted share. Carriage expects its revenues for the full year 2005 to range between $154 million and $156 million, adjusted EBITDA to range between $35.8 million and $37.3 million and has narrowed earnings from continuing operations to range between $0.25 to $0.27 per share. The Company has revised its estimates for adjusted free cash flow to the range of $9 million to $10 million and capital expenditures to approximately $7.5 million.

Third Quarter Conference Call Information

     Carriage Services has scheduled a conference call tomorrow, November 10, 2005 at 10:30 a.m. eastern time. To participate in the call, dial 303-262-2194 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 November 17, 2005. To access the replay, dial 303-590-3000 and enter the pass code 11043887.

     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. For more information, please contact Karen Roan at DRG^&E at (713) 529-6600 or email kcroan@drg-e.com.

     Carriage Services is the fourth largest publicly traded death care company. As of November 9, 2005, Carriage operates 135 funeral homes and 29 cemeteries in 28 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 Company’s Annual Report and Form 10-K for the year ended December 31, 2004, could cause the Company’s 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 Company’s Form 10-K, and other Carriage Services information and news releases, are available at www.carriageservices.com.

CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)

		For the Three Months Ended								For the Nine Months Ended
		09/30/04				09/30/05				09/30/04				09/30/05
Funeral revenues		$	26,582			$	26,603			$	85,054			$	86,858
Funeral costs and expenses			20,475				20,506				63,097				63,668
Funeral gross profit			6,107				6,097				21,957				23,190
Funeral gross margin			23.0	%			22.9	%			25.8	%			26.7	%
Cemetery revenues			9,226				9,855				28,576				29,722
Cemetery costs and expenses			7,233				8,047				21,931				24,015
Cemetery gross profit			1,933				1,808				6,645				5,707
Cemetery gross margin			21.0	%			18.4	%			23.3	%			19.2	%
Total revenues			35,808				36,458				113,630				116,580
Total costs and expenses			27,708				28,553				85,028				87,683
Total gross profit			8,100				7,905				28,602				28,897
Total gross margin			22.6	%			21.7	%			25.2	%			24.8	%
General and administrative expenses			2,748				3,142				7,976				8,921
Operating income			5,352				4,763				20,627				19,976
Operating margin			15.0	%			13.1	%			18.2	%			17.1	%
Interest expense			4,175				4,682				12,952				14,059
Additional interest costs on debt refinancings			—				—				—				6,933
Other expense (income), net			423				(140	)			(468	)			249
Total interest expense and other			4,598				4,542				12,484				21,241
Income (loss) before income taxes from continuing operations			754				221				8,143				(1,265	)
(Provision) benefit for income taxes			(283	)			(81	)			(3,054	)			483
Net income (loss) from continuing operations before cumulative effect of change in accounting principle			471				140				5,089				(782	)
Discontinued operations:
Operating income from discontinued operations			58				3				404				101
Gain (loss) on sale of discontinued operations			1,039				836				(2,011	)			1,302
Income tax (provision) benefit			(411	)			(309	)			269				(522	)
Income (loss) from discontinued operations			686				530				(1,338	)			881
Cumulative effect of change in accounting principle, net of tax benefit of $13,078			—				—				—				(22,756	)
Net income (loss)		$	1,157			$	670			$	3,751			$	(22,657	)
Basic earnings (loss) per share:
Continuing operations		$	0.03			$	0.01			$	0.29			$	(0.04	)
Discontinued operations			0.04				0.03				(0.08	)			0.05
Cumulative effect of change in accounting principle			—				—				—				(1.25	)
Net income (loss)		$	0.07			$	0.04			$	0.21			$	(1.24	)
Diluted earnings (loss) per share:
Continuing operations		$	0.03			$	0.01			$	0.28			$	(0.04	)
Discontinued operations			0.03				0.03				(0.07	)			0.05
Cumulative effect of change in accounting principle			—				—				—				(1.25	)
Net income (loss)		$	0.06			$	0.04			$	0.21			$	(1.24	)
Weighted average number of common shares outstanding:
Basic			17,834				18,426				17,751				18,294
Diluted			18,281				18,938				18,226				18,294

CARRIAGE SERVICES, INC.
Selected Financial Data
September 30, 2005
(unaudited)

Selected Balance Sheet Data:

		12/31/04				9/30/05
Cash and Short Term Investments		$	1,948			$	16,314
Total Senior Debt (a)			110,293				142,437
Deferred Interest on Convertible Junior Subordinated Debentures			10,891				—
Days sales in funeral accounts receivable			26.1				24.7
Net Senior Debt to total capitalization (b)			34.0				40.0
Net Senior Debt to EBITDA from continuing operations (rolling twelve months) (b)			2.58				3.55

Reconciliation of Non-GAAP Financial Measures:

		Three months				Nine months
		ended				ended
		9/30/05				9/30/05
Cash provided (used) by operating activities		$	(2,405	)		$	(9,434	)
Additional interest paid for early retirement of old Senior Notes (c)			—				5,955
Deferred distributions on subordinated debentures (c)			—				10,345
Adjusted cash provided by operating activities			(2,405	)			6,866
Less capital expenditures			(2,032	)			(5,487	)
Adjusted free cash flow		$	(4,466	)		$	1,379

Net income (loss) from continuing operations before change in accounting principle		$	140			$	(782	)
Interest expense, net of interest income			4,540				20,665
Depreciation and amortization			2,583				7,432
Income taxes (benefit)			81				(483	)
EBITDA from continuing operations		$	7,344			$	26,832

Reconciliation of Non-GAAP Financial Measures (continued):

		Three months
		ended
		9/30/04
Net income from continuing operations before change in accounting principle		$	471
Interest expense, net of interest income			4,175
Depreciation and amortization			2,880
Income taxes			283
EBITDA from continuing operations		$	7,809
Preneed costs			(1,163	)
Pro forma EBITDA from continuing operations		$	6,646

CARRIAGE SERVICES, INC.
Effect of Change in Accounting Principle

(unaudited)
(in thousands, except per share amounts)

     As of January 1, 2005, the Company recorded a cumulative effect of change in accounting method of $35.8 million pretax or $22.8 million after tax (net of income tax benefit of $13.0 million), or $1.21 per diluted share, which represents the cumulative balance of deferred preneed selling costs in the Company’s consolidated balance sheet. The table below presents the Company’s income (loss) from continuing operations before cumulative effect of change in accounting method, net income (loss), diluted earnings (loss) per share from continuing operations before cumulative effect of change in accounting method and diluted net earnings (loss) per share for the three and nine months ended September 30, 2005 had the Company not made this accounting change (in thousands, except per share amounts).

		Three Months Ended												Nine Months Ended
		September 30, 2005												September 30, 2005
						Effect of				Results under								Effect of				Results under
		As Reported				Change				Prior Method				As Reported				Change				Prior Method
Income (loss) from continuing operations before cumulative effect of change in accounting method		$	140			$	137			$	277			$	(782	)		$	1,579			$	797
Net income (loss)			670				86				756				(22,657	)			23,722				1,065
Diluted earnings (loss) per common share from continuing operations before cumulative effect of change in accounting method			0.01				0.01				0.02				(0.04	)			0.08				0.04
Diluted earnings (loss) per common share			0.04				0.00				0.04				(1.24	)			1.30				0.06

     The table below presents the pro forma amounts for the three and nine months ended September 30, 2004 as if the accounting change had been in effect during those periods (in thousands, except per share amounts).

		Three Months Ended												Nine Months Ended
		September 30, 2004												September 30, 2004
		As												As
		Previously				Effect of								Previously				Effect of
		Reported				Change				Pro forma				Reported				Change				Pro forma
Gross profit:
Funeral		$	6,101			$	(281	)		$	5,820			$	21,942			$	(826	)		$	21,116
Cemetery			2,031				(542	)			1,489				6,783				(1,580	)			5,203
		$	8,132			$	(823	)		$	7,309			$	28,725			$	(2,406	)		$	26,319
Income from continuing operations		$	489			$	(514	)		$	(25	)		$	5,162			$	(1,504	)		$	3,658
Net income (loss)			1,157				(255	)			902				3,751				(1,258	)			2,493
Diluted earnings per common share from continuing operations			0.03				(0.03	)			0.00				0.28				(0.08	)			0.20
Diluted earnings (loss) per common share			0.06				(0.01	)			0.05				0.21				(0.07	)			0.14

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