e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011
OR
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o |
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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)
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DELAWARE
(State or other jurisdiction of incorporation or organization)
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76-0423828
(I.R.S. Employer Identification No.)
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3040 Post Oak Boulevard, Suite 300, Houston, TX
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77056 |
(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code: (713) 332-8400
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 þ
No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes þ
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Securities Exchange Act of 1934.
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Large accelerated filer o
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Accelerated filer þ
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Non-Accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares of the registrants Common Stock, $.01 par value per share, outstanding
as of November 1, 2011 was 18,447,452
CARRIAGE SERVICES, INC.
INDEX
- 2 -
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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December 31, |
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September 30, |
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2010 |
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2011 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
1,279 |
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$ |
4,264 |
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Accounts receivable, net of allowance for bad debts of $979 in 2010 and $822 in 2011 |
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15,587 |
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13,393 |
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Inventories and other current assets |
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10,828 |
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11,281 |
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Total current assets |
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27,694 |
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28,938 |
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Preneed cemetery trust investments |
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79,691 |
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62,322 |
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Preneed funeral trust investments |
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81,143 |
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70,798 |
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Preneed receivables, net of allowance for bad debts of $1,933 in 2010 and $1,774 in 2011 |
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24,099 |
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24,224 |
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Receivables from preneed funeral trusts |
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21,866 |
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22,380 |
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Property, plant and equipment, net of accumulated depreciation of $71,700 in 2010 and
$76,223 in 2011 |
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128,472 |
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131,493 |
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Cemetery property |
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71,128 |
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71,450 |
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Goodwill |
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183,324 |
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190,430 |
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Deferred charges and other non-current assets |
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7,860 |
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11,844 |
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Cemetery perpetual care trust investments |
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45,735 |
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37,933 |
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Total assets |
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$ |
671,012 |
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$ |
651,812 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Current portion of senior long-term debt and capital lease obligations |
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$ |
563 |
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$ |
574 |
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Accounts payable and other liabilities |
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9,700 |
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14,963 |
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Accrued liabilities |
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14,896 |
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13,402 |
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Total current liabilities |
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25,159 |
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28,939 |
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Senior long-term debt, net of current portion |
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132,416 |
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131,471 |
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Convertible junior subordinated debentures due in 2029 to an affiliate |
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92,858 |
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89,770 |
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Obligations under capital leases, net of current portion |
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4,289 |
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4,187 |
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Deferred preneed cemetery revenue |
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50,125 |
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58,914 |
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Deferred preneed funeral revenue |
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39,517 |
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40,331 |
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Deferred preneed cemetery receipts held in trust |
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79,691 |
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62,322 |
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Deferred preneed funeral receipts held in trust |
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81,143 |
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70,798 |
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Care trusts corpus |
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45,941 |
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37,927 |
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Total liabilities |
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551,139 |
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524,659 |
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Commitments and contingencies |
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Redeemable preferred stock |
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200 |
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200 |
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Stockholders equity: |
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Common Stock, $.01 par value; 80,000,000 shares authorized; 21,311,000 and
21,546,000 shares issued at December 31, 2010 and September 30, 2011, respectively |
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213 |
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216 |
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Additional paid-in capital |
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200,987 |
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201,020 |
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Accumulated deficit |
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(70,951 |
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(64,283 |
) |
Treasury stock, at cost; 3,153,000 and 3,108,000 shares at December 31, 2010 and
September 30, 2011, respectively |
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(10,576 |
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(10,000 |
) |
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Total stockholders equity |
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119,673 |
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126,953 |
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Total liabilities and stockholders equity |
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$ |
671,012 |
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$ |
651,812 |
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The accompanying condensed notes are an integral part of these Consolidated Financial Statements.
- 3 -
CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share data)
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For the three months |
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For the nine months |
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ended September 30, |
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ended September 30, |
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2010 |
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2011 |
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2010 |
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2011 |
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Revenues: |
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Funeral |
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$ |
33,292 |
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$ |
33,689 |
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$ |
101,817 |
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$ |
108,361 |
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Cemetery |
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12,193 |
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10,389 |
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35,032 |
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34,482 |
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45,485 |
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44,078 |
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136,849 |
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142,843 |
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Field costs and expenses: |
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Funeral |
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22,866 |
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21,546 |
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65,956 |
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68,378 |
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Cemetery |
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8,329 |
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7,351 |
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23,462 |
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22,160 |
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Depreciation and amortization |
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2,184 |
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2,035 |
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6,417 |
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6,459 |
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Regional and unallocated funeral and cemetery costs |
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2,047 |
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2,501 |
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5,405 |
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6,532 |
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35,426 |
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33,433 |
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101,240 |
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103,529 |
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Gross profit |
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10,059 |
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10,645 |
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35,609 |
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39,314 |
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Corporate costs and expenses: |
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General and administrative costs and expenses |
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3,808 |
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4,788 |
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11,375 |
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14,390 |
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Home office depreciation and amortization |
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314 |
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255 |
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1,038 |
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750 |
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4,122 |
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5,043 |
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12,413 |
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15,140 |
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Operating income |
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5,937 |
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5,602 |
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23,196 |
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24,174 |
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Interest expense |
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(4,571 |
) |
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(4,564 |
) |
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(13,696 |
) |
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(13,628 |
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Gain on repurchase of junior subordinated debentures |
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481 |
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316 |
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846 |
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Loss on early extinguishment of debt |
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(201 |
) |
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(201 |
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Interest income and other, net |
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1 |
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13 |
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154 |
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34 |
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Total interest and other |
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(4,570 |
) |
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(4,271 |
) |
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(13,226 |
) |
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(12,949 |
) |
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Income before income taxes |
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1,367 |
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1,331 |
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9,970 |
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11,225 |
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Provision for income taxes |
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(508 |
) |
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(539 |
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(4,038 |
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(4,546 |
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Net income |
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859 |
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792 |
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5,932 |
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6,679 |
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Preferred stock dividend |
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4 |
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5 |
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11 |
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12 |
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Net income available to common stockholders |
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$ |
855 |
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$ |
787 |
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$ |
5,921 |
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$ |
6,667 |
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Basic earnings per common share: |
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$ |
0.05 |
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$ |
0.04 |
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$ |
0.34 |
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$ |
0.36 |
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Diluted earnings per common share: |
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$ |
0.05 |
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$ |
0.04 |
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$ |
0.33 |
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$ |
0.36 |
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Dividends declared per share |
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$ |
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$ |
0.025 |
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$ |
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$ |
0.05 |
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Weighted average number of common and common
equivalent shares outstanding: |
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Basic |
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17,520 |
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18,414 |
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17,549 |
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18,339 |
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Diluted |
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17,726 |
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18,461 |
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17,775 |
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18,381 |
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The accompanying condensed notes are an integral part of these Consolidated Financial Statements.
- 4 -
CARRIAGE
SERVICES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
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For the nine months ended September 30, |
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2010 |
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2011 |
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Cash flows from operating activities: |
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Net income |
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$ |
5,932 |
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$ |
6,679 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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|
7,455 |
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|
7,209 |
|
Amortization of deferred financing costs |
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|
545 |
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|
534 |
|
Gain on repurchase of convertible junior subordinated debentures |
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(316 |
) |
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|
(846 |
) |
Loss on early extinguishment of debt |
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|
201 |
|
Provision for losses on accounts receivable |
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|
2,813 |
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|
2,360 |
|
Stock-based compensation expense |
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|
1,396 |
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|
1,558 |
|
Deferred income taxes |
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|
500 |
|
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(3,642 |
) |
Other |
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(149 |
) |
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(37 |
) |
Changes in operating assets and liabilities that provided (required) cash: |
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Accounts and preneed receivables |
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(2,252 |
) |
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|
250 |
|
Inventories and other current assets |
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|
2,015 |
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(775 |
) |
Deferred charges and other |
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(38 |
) |
Preneed funeral and cemetery trust investments |
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(987 |
) |
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|
3,604 |
|
Accounts payable and accrued liabilities |
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(1,799 |
) |
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|
3,321 |
|
Deferred preneed funeral and cemetery revenue |
|
|
316 |
|
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|
8,708 |
|
Deferred preneed funeral and cemetery receipts held in trust |
|
|
1,080 |
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(3,816 |
) |
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|
|
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|
Net cash provided by operating activities |
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|
16,549 |
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|
25,270 |
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Cash flows from investing activities: |
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Acquisitions |
|
|
(16,792 |
) |
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|
(10,300 |
) |
Net proceeds from the sale of assets |
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|
400 |
|
|
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|
Capital expenditures |
|
|
(6,892 |
) |
|
|
(7,774 |
) |
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|
|
|
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|
Net cash used in investing activities |
|
|
(23,284 |
) |
|
|
(18,074 |
) |
|
|
|
|
|
|
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Cash flows from financing activities: |
|
|
|
|
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|
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|
Borrowings under (payments on) the bank credit facility |
|
|
5,000 |
|
|
|
(600 |
) |
Payments on senior long-term debt and obligations under capital leases |
|
|
(346 |
) |
|
|
(436 |
) |
Proceeds from the exercise of stock options and employee stock purchase plan |
|
|
441 |
|
|
|
325 |
|
Dividends on common stock |
|
|
|
|
|
|
(920 |
) |
Dividends on redeemable preferred stock |
|
|
(11 |
) |
|
|
(12 |
) |
Repurchase of convertible junior subordinated debentures |
|
|
(576 |
) |
|
|
(2,241 |
) |
Payment of loan origination fees |
|
|
|
|
|
|
(333 |
) |
Other financing costs |
|
|
(43 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
4,465 |
|
|
|
(4,211 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(2,270 |
) |
|
|
2,985 |
|
Cash and cash equivalents at beginning of period |
|
|
3,616 |
|
|
|
1,279 |
|
|
|
|
|
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|
|
Cash and cash equivalents at end of period |
|
$ |
1,346 |
|
|
$ |
4,264 |
|
|
|
|
|
|
|
|
The accompanying condensed notes are an integral part of these Consolidated Financial Statements.
- 5 -
CARRIAGE SERVICES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Carriage Services, Inc. (Carriage, the Company, we, us or our) is a leading provider
of deathcare services and merchandise in the United States. As of September 30, 2011, the Company
owned and operated 155 funeral homes in 25 states and 33 cemeteries in 12 states.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the Company and its subsidiaries.
All significant intercompany balances and transactions have been eliminated.
Interim Condensed Disclosures
The information for the three and nine month periods ended September 30, 2010 and 2011 is
unaudited, but in the opinion of management, reflects all adjustments which are normal, recurring
and necessary for a fair presentation of financial position and results of operations as of and for
the interim periods presented. Certain information and footnote disclosures, normally included in
annual financial statements, have been condensed or omitted. The accompanying Consolidated
Financial Statements have been prepared consistent with the accounting policies described in our
Annual Report on Form 10-K for the year ended December 31, 2010 and should be read in conjunction
therewith.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Use of Estimates
The preparation of the Consolidated Financial Statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an
on-going basis, we evaluate our estimates and judgments, including those related to revenue
recognition, realization of accounts receivable, goodwill, intangible assets, property and
equipment and deferred tax assets. We base our estimates on historical experience, third party
data and assumptions that we believe to be reasonable under the circumstances. The results of
these considerations form the basis for making judgments about the amount and timing of revenues
and expenses, the carrying value of assets and the recorded amounts of liabilities. Actual results
may differ from these estimates and such estimates may change if the underlying conditions or
assumptions change. Historical performance should not be viewed as indicative of future
performance, as there can be no assurance the margins, operating income and net earnings as a
percentage of revenues will be consistent from year to year.
Business Combinations
Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and
goodwill is recognized for any difference between the price of the acquisition and fair value. We
customarily estimate related transaction costs known at closing. To the extent that information
not available to us at the closing date subsequently becomes available during the allocation
period, we may adjust goodwill, assets, or liabilities associated with the acquisition.
Acquisition related costs are recognized separately from the acquisition and are expensed as
incurred.
During the third quarter of 2010, the Company acquired a funeral home business in Huntington
Beach, California. During the third quarter of 2011, the Company completed two funeral home
acquisitions, one located in Duncan, Oklahoma and the other in Modesto, California. See Note 3 to the Consolidated
Financial Statements herein for further information on the 2011 acquisitions.
Stock Plans and Stock-Based Compensation
The Company has stock-based employee and director compensation plans in the form of restricted
stock, performance units, stock options and employee stock purchase plans, which are described in
more detail in Note 17 to the Consolidated Financial Statements in our Annual Report on Form 10-K
for the year ended December 31, 2010. The Company recognizes compensation expense in an amount
equal to the fair value of the share-based awards issued over the period of vesting. Fair value is
determined on the date of the grant. The fair value of options or awards containing options is
determined using the Black-Scholes valuation
- 6 -
model. See Note 13 to the Consolidated Financial Statements included herein for additional
information on the Companys stock-based compensation plans.
Computation of Earnings Per Common Share
Basic earnings per share are computed using the weighted average number of common shares
outstanding during the period. Diluted earnings per share are computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the period. Dilutive
common equivalent shares consist of stock options.
Share-based awards that contain nonforfeitable rights to dividends or dividend equivalents,
whether paid or unpaid, are recognized as participating securities and included in the computation
of both basic and diluted earnings per share. Our grants of restricted stock awards to our
employees and directors are considered participating securities and we have prepared our earnings
per share calculations to include outstanding unvested restricted stock awards in both the basic
and diluted weighted average shares outstanding calculation. See Exhibit 11.1 to this Quarterly
Report on Form 10-Q for the computation of per share earnings.
Preneed Funeral and Cemetery Trust Funds
The Companys preneed and perpetual care trust funds are reported in accordance with the
principles of consolidating Variable Interest Entities (VIEs). In the case of preneed trusts,
the customers are the legal beneficiaries. In the case of perpetual care trusts, the Company does
not have a right to access the corpus in the perpetual care trusts. For these reasons, the Company
has recognized financial interests of third parties in the trust funds in our financial statements
as Deferred preneed funeral and cemetery receipts held in trust and Care trusts corpus. The
investments of such trust funds are classified as available-for-sale and are reported at fair
market value; therefore, the unrealized gains and losses, as well as accumulated and undistributed
income and realized gains and losses are recorded to Deferred preneed funeral and cemetery receipts
held in trust and Care trusts corpus in the Companys Consolidated Balance Sheets. The Companys
future obligations to deliver merchandise and services are reported at estimated settlement
amounts. Preneed funeral and cemetery trust investments are reduced by the trust investment
earnings that we have been allowed to withdraw in certain states prior to maturity. These
earnings, along with preneed contract collections not required to be placed in trust, are recorded
in Deferred preneed funeral revenue and Deferred preneed cemetery revenue until the service is
performed or the merchandise is delivered.
In accordance with respective state laws, the Company is required to deposit a specified
amount into perpetual and memorial care trust funds for each interment/entombment right and
memorial sold. Income from the trust funds is distributed to Carriage and used to provide care and
maintenance for the cemeteries and mausoleums. Such trust fund income is recognized as revenue
when realized by the trust and distributable to the Company. The Company is restricted from
withdrawing any of the principal balances of these funds.
An enterprise is required to perform an analysis to determine whether the enterprises
variable interest(s) give it a controlling financial interest in a VIE. This
analysis identifies the primary beneficiary of a VIE as the enterprise that has both the power to
direct the activities of a VIE that most significantly impact the entitys economic performance and
the obligation to absorb losses of the entity that could potentially be significant to the VIE or
the right to receive benefits from the entity that could potentially be significant to the VIE.
The Companys analysis continues to support its position as the primary beneficiary in certain of
our funeral and cemetery trust funds.
Fair Value Measurements
We define fair value as the price that would be received in the sale of an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date
for items that are recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). We disclose the extent to which fair value is used to measure financial
assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect
of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of
the measurement date. Additional required disclosures are provided in
Note 10 to the Consolidated
Financial Statements. The fair value disclosures to disclose transfers in and out of Levels 1 and
2 and the gross presentation of purchases, sales, issuances and settlements in the Level 3
reconciliation of the three-tier fair value hierarchy are also presented herein in Note 10 to the
Consolidated Financial Statements. The Company currently does not have any assets that have fair
values determined by Level 3 inputs and no liabilities measured at fair value. We have not elected
to measure any additional financial instruments and certain other items at fair value that are not
currently required to be measured at fair value.
To determine the fair value of assets and liabilities in an environment where the volume and
level of activity for the asset or liability have significantly decreased, the exit price is used
as the fair value measurement. For the three months ended September 30, 2011, we did
not incur significant decreases in the volume or level of activity of any asset or liability. The
Company considers an impairment of debt and equity securities other-than-temporary unless (a) the
investor has the ability and intent to hold an investment and (b) evidence indicating the cost of
the investment is recoverable before the Company is more
- 7 -
likely than not required to sell the investment. If impairment is indicated, then an adjustment will be made to reduce the carrying
amount to fair value. As of September 30, 2011, no impairment has been identified.
In the ordinary course of business, we are typically exposed to a variety of market risks.
Currently, these are primarily related to changes in fair market values related to outstanding
debts and changes in the values of securities associated with the preneed and perpetual care
trusts. Management is actively involved in monitoring exposure to market risk and developing and
utilizing appropriate risk management techniques when appropriate and when available for a
reasonable price. Our 7⅞% Senior Notes were issued to the public at par in January 2005 and are
carried at a cost of $130 million. At September 30, 2011, these securities were typically trading
at a price of approximately $98.0, indicating a fair market value of approximately $127.4 million.
Our convertible junior subordinated debentures, payable to Carriage Services Capital Trust (the
Trust), pay interest at the fixed rate of 7% and are carried on our Consolidated Balance Sheets
at a cost of approximately $90 million. The fair value of these securities is estimated to be
approximately $79 million at September 30, 2011 based on available broker quotes of the
corresponding preferred securities issued by the Trust.
Income Taxes
The Company and its subsidiaries file a consolidated U.S. Federal income tax return and
separate income tax returns in the states in which we operate. We record deferred taxes for
temporary differences between the tax basis and financial reporting basis of assets and
liabilities. The Company records a valuation allowance to reflect the estimated amount of deferred
tax assets for which realization is uncertain. Management reviews the valuation allowance at the
end of each quarter and makes adjustments if it is determined that it is more likely than not that
the tax benefits will be realized.
The Company analyzes tax benefits for uncertain tax positions and how they are to be
recognized, measured, and derecognized in financial statements; provides certain disclosures of
uncertain tax matters; and specifies how reserves for uncertain tax positions should be classified
on the Consolidated Balance Sheets. The Company has reviewed its income tax positions and
identified certain tax deductions, primarily related to business acquisitions that are not certain.
Our policy with respect to potential penalties and interest is to record them as Other expense
and Interest expense, respectively. The entire balance of unrecognized tax benefits, if
recognized, would affect the Companys effective tax rate. The Company does not anticipate a
significant increase or decrease in its unrecognized tax benefits during the next twelve months.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
Allowance for Credit Losses of Financing Receivables
In July 2010, new guidance was issued which increased the disclosure requirements about the
credit quality of financing receivables and the allowance for credit losses. The intent of the
disclosure is to provide additional information about the nature of credit risks inherent in our
financing receivables, how credit risk is analyzed and assessed when determining the allowance for
credit losses, and the reasons for the change in the allowance for credit losses. The disclosures
related to period-end information were required for annual reporting periods ending after December
15, 2010, and thus effective for the Company at December 31, 2010. Disclosures of activity that
occurs during the reporting period are required for interim periods beginning after December 15,
2010, and thus was effective for the Company for the period beginning January 1, 2011. The
additional required disclosures are provided in Note 6 to the Consolidated Financial Statements.
Goodwill Impairment Testing
In September 2011, new guidance was issued to modify the method used to perform the first step
of the two step process for the annual goodwill impairment test. The guidance permits an entity to
first assess qualitative factors to determine whether it is more-likely-than-not that the fair
value of a reporting unit is less than its carrying amount as a basis for determining whether it is
necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is
defined as having a likelihood of more than 50 percent. The guidance is effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.
Early adoption is permitted, including for annual and interim goodwill impairment tests
- 8 -
performed as of a date before September 15, 2011, if an entitys financial statements for the most recent
annual or interim period have not yet been issued. The Company adopted this update early for its
annual impairment testing as of August 31, 2011.
Pro Forma Information for Business Combinations
In December 2010, new guidance was issued for disclosing supplementary pro forma information
for business combinations that are material on an individual or aggregate basis. The guidance
specifies that if a public entity presents comparative financial statements, the entity should
disclose revenue and earnings of the combined entity as though the business combination(s) that
occurred during the current year had occurred as of the beginning of the comparable prior annual
reporting period only. The guidance also expands the supplemental pro forma disclosures to include
a description of the nature and amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the reported pro forma revenue and earnings.
This guidance is effective prospectively for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on or after December
15, 2010, and thus was effective for the Company for the period beginning January 1, 2011. The
adoption of this accounting standard update will apply to material business combinations and
is not expected to have a material impact on our Consolidated Financial Statements.
Fair Value Measurements
In May 2011, additional guidance was issued regarding how fair value measurements and
disclosures should be applied where it is already required or permitted under International
Financial Reporting Standards or United States Generally Accepted Accounting Principles. This new
guidance clarifies and aligns the existing application of fair value measurement guidance and
revises certain language. This guidance is effective for the first interim or annual period
beginning after December 15, 2011, thus effective for the Company for the period beginning January
1, 2012. The Company is currently evaluating the impact the adoption will have on its Consolidated
Financial Statements.
Comprehensive Income
In June 2011, new guidance was issued regarding the reporting of comprehensive income in the
financial statements. Entities will have the option to present the components of net income and
comprehensive income in either a single continuous statement or two separate but consecutive
statements. This new guidance eliminates the option to report other comprehensive income and its
components in the statement of changes in stockholders equity. This guidance requires
retrospective application and is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2011, thus effective for the Company for the period beginning
January 1, 2012. The Company is currently evaluating the impact, if any, the adoption will have on
its Consolidated Financial Statements.
3. ACQUISITIONS
Our growth strategy includes the execution of our Strategic Acquisition Model. The goal of
that model is to build concentrated groups of businesses in ten to fifteen strategic markets. We
assess acquisition candidates using six strategic ranking criteria and to differentiate the price
we are willing to pay. Those criteria are:
During the third quarter of 2011, the Company completed two acquisitions. The consideration
paid for those businesses was $5.2 million in cash. The Company acquired substantially all the
assets and assumed certain operating liabilities, including obligations associated with existing
preneed contracts of a funeral business in Oklahoma. The second acquisition was a funeral business
in California in which the Company is leasing the funeral home facilities for approximately
$142,000 annually. The assets and liabilities were recorded at fair value and included goodwill.
The results of the acquired businesses are included in the Companys results from the date of
acquisition. Selected information on the acquisitions follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired |
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
(Excluding |
|
|
Goodwill |
|
|
and Debt |
|
Acquisition Date |
|
Type of Business |
|
|
Market |
|
|
Goodwill) |
|
|
Recorded |
|
|
Assumed |
|
August 2011 |
|
Funeral Home |
|
Duncan, OK |
|
$ |
1.6 |
|
|
$ |
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2011 |
|
3 Funeral Homes |
|
Modesto, CA |
|
$ |
0.1 |
|
|
$ |
1.1 |
|
|
|
|
|
- 9 -
The effect of the acquisitions on the Consolidated Balance Sheets at September 30, 2011 was as
follows (in thousands):
|
|
|
|
|
Current assets |
|
|
55 |
|
Property, plant & equipment |
|
|
1,638 |
|
Goodwill |
|
|
3,514 |
|
Preneed funeral trust investment |
|
|
104 |
|
Deferred preneed receipts held in trust |
|
|
(104 |
) |
Accrued liabilities |
|
|
(7 |
) |
|
|
|
|
Total consideration |
|
$ |
5,200 |
|
|
|
|
|
4. GOODWILL
Many of the former owners and staff of acquired funeral homes have provided high quality
service to families for generations. The resulting loyalty often represents a substantial portion
of the value of a funeral business. The excess of the purchase price over the fair value of net
identifiable assets acquired, as determined by management in business acquisition transactions
accounted for as purchases, is recorded as goodwill.
The following table presents the changes in goodwill in the accompanying Consolidated Balance
Sheets (in thousands):
|
|
|
|
|
|
|
September 30, 2011 |
|
Goodwill at beginning of year |
|
$ |
183,324 |
|
Acquisitions and changes in previous estimates |
|
|
7,106 |
|
|
|
|
|
Goodwill at end of period |
|
$ |
190,430 |
|
|
|
|
|
Changes in previous estimates are related to adjustments for inventory values.
5. PRENEED TRUST INVESTMENTS
Preneed Cemetery Trust Investments
Preneed cemetery trust investments represent trust fund assets that the Company will withdraw
when the merchandise or services are provided. The components of preneed cemetery trust
investments in our Consolidated Balance Sheets at December 31, 2010 and September 30, 2011 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
September 30, 2011 |
|
Preneed cemetery trust investments |
|
$ |
81,771 |
|
|
$ |
64,580 |
|
Less: allowance for contract cancellation |
|
|
(2,080 |
) |
|
|
(2,258 |
) |
|
|
|
|
|
|
|
|
|
$ |
79,691 |
|
|
$ |
62,322 |
|
|
|
|
|
|
|
|
Upon cancellation of a preneed cemetery contract, a customer is generally entitled to receive
a refund of the corpus and some or all of the earnings held in trust. In certain jurisdictions,
the Company is obligated to fund any shortfall if the amounts deposited by the customer exceed the
funds in trust, including some or all investment income. As a result, when realized or unrealized
losses of a trust result in the trust being under-funded, the Company assesses whether it is
responsible for replenishing the corpus of the trust, in which case a loss provision would be
recorded.
The cost and fair market values associated with preneed cemetery trust investments at
September 30, 2011 are detailed below (in thousands). The Company determines whether or not the
assets in the preneed cemetery trusts have an other-than-temporary impairment on a
security-by-security basis. This assessment is made based upon a number of criteria, including the
length of time a security has been in a loss position, changes in market conditions and concerns
related to the specific issuer. If a loss is considered to be other-than-temporary, the cost basis
of the security is adjusted downward to its fair market value. Any reduction in the cost basis due
to an other-than-temporary impairment is recorded in Deferred preneed cemetery receipts held in
trust. There will be no impact on earnings unless and until such time that this asset is withdrawn
from the trust in accordance with state regulations at an amount that is less than its original
basis.
- 10 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Fair Market Value |
|
Cash and money market accounts |
|
$ |
1,139 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,139 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
39,016 |
|
|
|
405 |
|
|
|
(3,264 |
) |
|
|
36,157 |
|
Other |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Common stock |
|
|
31,326 |
|
|
|
49 |
|
|
|
(8,808 |
) |
|
|
22,567 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
3,769 |
|
|
|
33 |
|
|
|
|
|
|
|
3,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust securities |
|
$ |
75,252 |
|
|
$ |
487 |
|
|
$ |
(12,072 |
) |
|
$ |
63,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
$ |
913 |
|
|
|
|
|
|
|
|
|
|
$ |
913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preneed cemetery trust investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
64,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities of the fixed income securities included above are as follows (in
thousands):
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
Due in one to five years |
|
|
2,576 |
|
Due in five to ten years |
|
|
12,273 |
|
Thereafter |
|
|
21,310 |
|
|
|
|
|
|
|
$ |
36,159 |
|
|
|
|
|
Preneed cemetery trust investment security transactions recorded in Interest income and other,
net in the Consolidated Statements of Operations (unaudited) for the three and nine months ended
September 30, 2010 and 2011 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Investment income |
|
$ |
844 |
|
|
$ |
840 |
|
|
$ |
2,423 |
|
|
$ |
2,704 |
|
Realized gains |
|
|
3,182 |
|
|
|
3,779 |
|
|
|
8,938 |
|
|
|
13,871 |
|
Realized losses |
|
|
(27 |
) |
|
|
(597 |
) |
|
|
(733 |
) |
|
|
(1,143 |
) |
Expenses and taxes |
|
|
(130 |
) |
|
|
(252 |
) |
|
|
(449 |
) |
|
|
(1,105 |
) |
Increase in deferred preneed
cemetery receipts
held in trust |
|
|
(3,869 |
) |
|
|
(3,770 |
) |
|
|
(10,179 |
) |
|
|
(14,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and sales of investments in the preneed cemetery trusts were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Purchases |
|
$ |
(10,449 |
) |
|
$ |
(42,832 |
) |
|
$ |
(42,818 |
) |
|
$ |
(87,897 |
) |
Sales |
|
|
10,028 |
|
|
|
51,730 |
|
|
|
41,214 |
|
|
|
97,406 |
|
- 11 -
Preneed Funeral Trust Investments
Preneed funeral trust investments represent trust fund assets that the Company expects to
withdraw when the services and merchandise are provided. Preneed funeral contracts are secured by
funds paid by the customer to the Company. Preneed funeral trust investments are reduced by the
trust earnings the Company has been allowed to withdraw prior to performance by the Company and
amounts received from customers that are not required to be deposited into trust, pursuant to
various state laws. The components of preneed funeral trust investments in our Consolidated
Balance Sheets at December 31, 2010 and September 30, 2011 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
September 30, 2011 |
|
Preneed funeral trust investments |
|
$ |
83,324 |
|
|
$ |
73,245 |
|
Less: allowance for contract cancellation |
|
|
(2,181 |
) |
|
|
(2,447 |
) |
|
|
|
|
|
|
|
|
|
$ |
81,143 |
|
|
$ |
70,798 |
|
|
|
|
|
|
|
|
Upon cancellation of a preneed funeral contract, a customer is generally entitled to receive a
refund of the corpus and some or all of the earnings held in trust. In certain jurisdictions, the
Company is obligated to fund any shortfall if the amounts deposited by the customer exceed the
funds in trust, including some or all investment income. As a result, when realized or unrealized
losses of a trust result in the trust being under-funded, the Company assesses whether it is
responsible for replenishing the corpus of the trust, in which case a loss provision would be
recorded.
The cost and fair market values associated with preneed funeral trust investments at September
30, 2011 are detailed below (in thousands). The Company determines whether or not the assets in
the preneed funeral trusts have an other-than-temporary impairment on a security-by-security basis.
This assessment is made based upon a number of criteria including the length of time a security
has been in a loss position, changes in market conditions and concerns related to the specific
issuer. If a loss is considered to be other-than-temporary, the cost basis of the security is
adjusted downward to its fair market value. Any reduction in the cost basis due to an
other-than-temporary impairment is recorded as a reduction to Deferred preneed funeral receipts
held in trust. There will be no impact on earnings unless and until such time that this asset is
withdrawn from the trust in accordance with state regulations at an amount that is less than its
original basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair Market |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Cash and money market accounts |
|
$ |
10,173 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,173 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury debt |
|
|
5,657 |
|
|
|
127 |
|
|
|
(36 |
) |
|
|
5,748 |
|
Mortgage backed securities |
|
|
540 |
|
|
|
16 |
|
|
|
(3 |
) |
|
|
553 |
|
Corporate debt |
|
|
26,291 |
|
|
|
464 |
|
|
|
(1,886 |
) |
|
|
24,869 |
|
Common stock |
|
|
22,908 |
|
|
|
116 |
|
|
|
(6,079 |
) |
|
|
16,945 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
9,301 |
|
|
|
|
|
|
|
(1,681 |
) |
|
|
7,620 |
|
Fixed income |
|
|
4,405 |
|
|
|
151 |
|
|
|
(88 |
) |
|
|
4,468 |
|
Other investments |
|
|
2,268 |
|
|
|
|
|
|
|
|
|
|
|
2,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust securities |
|
$ |
81,543 |
|
|
$ |
874 |
|
|
$ |
(9,773 |
) |
|
$ |
72,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preneed funeral trust investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
73,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities of the fixed income securities included above are as follows (in
thousands):
|
|
|
|
|
Due in one year or less |
|
$ |
1,402 |
|
Due in one to five years |
|
|
4,636 |
|
Due in five to ten years |
|
|
10,071 |
|
Thereafter |
|
|
15,061 |
|
|
|
|
|
|
|
$ |
31,170 |
|
|
|
|
|
- 12 -
Preneed funeral trust investment security transactions recorded in Interest income and other,
net in the Consolidated Statements of Operations (unaudited) for the three and nine months ended
September 30, 2010 and 2011 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Investment income |
|
$ |
845 |
|
|
$ |
625 |
|
|
$ |
2,425 |
|
|
$ |
2,177 |
|
Realized gains |
|
|
4,469 |
|
|
|
2,241 |
|
|
|
9,645 |
|
|
|
10,611 |
|
Realized losses |
|
|
(20 |
) |
|
|
(608 |
) |
|
|
(496 |
) |
|
|
(1,096 |
) |
Expenses and taxes |
|
|
(154 |
) |
|
|
(259 |
) |
|
|
(662 |
) |
|
|
(987 |
) |
Increase
in deferred preneed
funeral receipts
held in trust |
|
|
(5,140 |
) |
|
|
(1,999 |
) |
|
|
(10,912 |
) |
|
|
(10,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and sales of investments in the preneed funeral trusts were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Purchases |
|
$ |
(1,520 |
) |
|
$ |
(26,857 |
) |
|
$ |
(3,972 |
) |
|
$ |
(71,560 |
) |
Sales |
|
|
17 |
|
|
|
25,867 |
|
|
|
2,791 |
|
|
|
68,404 |
|
6. PRENEED CEMETERY RECEIVABLES
Preneed sales of cemetery interment rights and related products and services are usually
financed through interest-bearing installment sales contracts, generally with terms of up to five
years with such interest income reflected as Preneed Cemetery Finance Charges. In substantially
all cases, we receive an initial down payment at the time the contract is signed. The interest
rates generally range between 9.5% and 12%. Occasionally, we have offered zero percent interest
financing to promote sales for limited-time offers. At September 30, 2011, the balance of preneed
receivables for cemetery interment rights and for merchandise and services was $18.3 million and
$9.6 million, respectively, of which $8.2 million is presented in Accounts Receivable and $19.7
million is presented in Preneed Receivables.
The Company determines an allowance for customer cancellations and refunds on contracts in
which revenue has been recognized on sales of cemetery interment rights. We reserve 100% of the
receivables on contracts in which the revenue has been recognized and payments are 120 days past
due or more, which was approximately 1.9% of the total receivables on recognized sales at September
30, 2011. An allowance is recorded at the date that the contract is executed and periodically
adjusted thereafter based upon actual collection experience at the business level. For the nine
months ended September 30, 2011, changes in the allowance for contract cancellations was as follows (in
thousands):
|
|
|
|
|
|
|
September 30, 2011 |
|
Beginning balance |
|
$ |
1,488 |
|
Write-offs and cancellations |
|
|
|
|
Recoveries |
|
|
|
|
Provision |
|
|
187 |
|
|
|
|
|
Ending balance |
|
$ |
1,301 |
|
|
|
|
|
The Company has a collections policy where past due notifications are sent to the customer
beginning at 15 days past due and thereafter periodically until 90 days past due. Any items on
contracts that are past due 120 days are sent to a third-party collector.
The aging of past due financing receivables as of September 30, 2011 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31-60 |
|
|
61-90 |
|
|
91-120 |
|
|
>120 |
|
|
|
|
|
|
|
|
|
|
Total Financing |
|
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Total Past Due |
|
|
Current |
|
|
Receivables |
|
Recognized revenue |
|
$ |
713 |
|
|
$ |
421 |
|
|
$ |
204 |
|
|
$ |
379 |
|
|
$ |
1,717 |
|
|
$ |
17,801 |
|
|
$ |
19,518 |
|
Deferred revenue |
|
|
290 |
|
|
|
168 |
|
|
|
84 |
|
|
|
164 |
|
|
|
706 |
|
|
|
7,715 |
|
|
|
8,421 |
|
|
|
|
Total contracts |
|
$ |
1,003 |
|
|
$ |
589 |
|
|
$ |
288 |
|
|
$ |
543 |
|
|
$ |
2,423 |
|
|
$ |
25,516 |
|
|
$ |
27,939 |
|
|
|
|
- 13 -
7. RECEIVABLES FROM PRENEED FUNERAL TRUSTS
The receivables from preneed funeral trusts represent assets in trusts which are controlled
and operated by third parties in which the Company does not have a controlling financial interest
(less than 50%) in the trust assets. The Company accounts for these investments at cost. As of
September 30, 2011, receivables from preneed funeral trusts was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
September 30, 2011 |
|
Preneed funeral trust funds |
|
$ |
22,542 |
|
|
$ |
23,071 |
|
Less: allowance for contract cancellation |
|
|
(676 |
) |
|
|
(691 |
) |
|
|
|
|
|
|
|
|
|
$ |
21,866 |
|
|
$ |
22,380 |
|
|
|
|
|
|
|
|
8. CONTRACTS SECURED BY INSURANCE
Certain preneed funeral contracts are secured by life insurance contracts. Generally, the
proceeds of the life insurance policies have been assigned to the Company and will be paid upon the
death of the insured. The proceeds will be used to satisfy the beneficiarys obligations under the
preneed contract for services and merchandise. Preneed funeral contracts secured by insurance
totaled $205.0 million and $214.7 million at December 31, 2010 and September 30, 2011,
respectively, and are not included in the Companys Consolidated Balance Sheets.
9. CEMETERY PERPETUAL CARE TRUST INVESTMENTS
Cemetery Care trusts corpus on the Consolidated Balance Sheets represent the corpus of those
trusts plus undistributed income. The components of Cemetery Care trusts corpus as of December
31, 2010 and September 30, 2011 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
September 30, 2011 |
|
Trust assets, at fair value |
|
$ |
45,735 |
|
|
$ |
37,933 |
|
Pending withdrawals of income from trust |
|
|
|
|
|
|
(6 |
) |
Obligations due to trust |
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
|
Care trusts corpus |
|
$ |
45,941 |
|
|
$ |
37,927 |
|
|
|
|
|
|
|
|
The Company is required by various state laws to pay a portion of the proceeds from the sale
of cemetery property interment rights into perpetual care trust funds. The following table
reflects the cost and fair market values associated with the trust investments held in perpetual
care trust funds at September 30, 2011 (in thousands). The Company determines whether or not the
assets in the cemetery perpetual care trusts have an other-than-temporary impairment on a
security-by-security basis. This assessment is made based upon a number of criteria, including the
length of time a security has been in a loss position, changes in market conditions and concerns
related to the specific issuer. If a loss is considered to be other-than-temporary, the cost basis
of the security is adjusted downward to its fair market value. Any reduction in the cost basis due
to an other-than-temporary impairment is recorded as a reduction to Care trusts corpus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair Market |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Cash and money market accounts |
|
$ |
216 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
216 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt |
|
|
25,586 |
|
|
|
250 |
|
|
|
(2,224 |
) |
|
|
23,612 |
|
Common stock |
|
|
18,815 |
|
|
|
29 |
|
|
|
(5,341 |
) |
|
|
13,503 |
|
Other |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust securities |
|
$ |
44,618 |
|
|
$ |
279 |
|
|
$ |
(7,565 |
) |
|
$ |
37,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
$ |
601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery perpetual care trust investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
37,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities of the fixed income securities included above are as follows (in
thousands):
|
|
|
|
|
Due in one year or less |
|
$ |
|
|
Due in one to five years |
|
|
1,475 |
|
Due in five to ten years |
|
|
8,811 |
|
Thereafter |
|
|
13,326 |
|
|
|
|
|
|
|
$ |
23,612 |
|
|
|
|
|
- 14 -
Perpetual care trust investment security transactions recorded in Interest income and other,
net in the Consolidated Statements of Operations (unaudited) for the three and nine months ended
September 30, 2010 and 2011 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Undistributable realized gains |
|
$ |
1,037 |
|
|
$ |
1,350 |
|
|
$ |
3,579 |
|
|
$ |
7,032 |
|
Undistributable realized losses |
|
|
(3 |
) |
|
|
(330 |
) |
|
|
(741 |
) |
|
|
(645 |
) |
Increase in Care trusts corpus |
|
|
(1,034 |
) |
|
|
(1,020 |
) |
|
|
(2,838 |
) |
|
|
(6,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual care trust investment security transactions recorded in Cemetery revenue for the
three and nine months ended September 30, 2010 and 2011 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Investment income |
|
$ |
288 |
|
|
$ |
605 |
|
|
$ |
1,521 |
|
|
$ |
1,782 |
|
Realized gains |
|
|
682 |
|
|
|
|
|
|
|
1,532 |
|
|
|
1,085 |
|
Expenses |
|
|
|
|
|
|
(37 |
) |
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
970 |
|
|
$ |
568 |
|
|
$ |
3,032 |
|
|
$ |
2,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and sales of investments in the perpetual care trusts were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Purchases |
|
$ |
(6,757 |
) |
|
$ |
(2,609 |
) |
|
$ |
(29,831 |
) |
|
$ |
(26,539 |
) |
Sales |
|
|
7,498 |
|
|
|
17,463 |
|
|
|
31,060 |
|
|
|
40,121 |
|
10. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received from the sale of an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date
applicable for items that are recognized or disclosed at fair value in the financial statements on
a recurring basis. We disclose the extent to which fair value is used to measure financial assets
and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the
measurement of significant unobservable inputs on earnings, or changes in net assets, as of the
measurement date.
The Company evaluated its assets and liabilities for those financial assets and liabilities
that met the criteria of the disclosure requirements and fair value framework. The Company
identified investments in fixed income securities, common stock and mutual funds presented within
the preneed and perpetual trust investments categories on the Consolidated Balance Sheets as having
met such criteria. The following three-level valuation hierarchy based upon the transparency of
inputs is utilized in the measurement and valuation of financial assets or liabilities as of the
measurement date:
|
|
|
Level 1Fair value of securities based on unadjusted quoted prices for identical
assets or liabilities in active markets. Our investments classified as Level 1
securities include common stock, certain fixed income securities, and equity mutual
funds; |
|
|
|
Level 2Fair value of securities estimated based on quoted prices for similar
assets and liabilities in active markets, quoted prices for identical or similar assets
or liabilities in markets that are not active, and inputs other than quoted market
prices that are observable or that can be corroborated by observable market data by
correlation. These inputs include interest rates, yield curves, credit risk,
prepayment speeds, rating and tax-exempt status. Our investments classified as Level 2
securities include certain fixed income securities and fixed income mutual funds. |
|
|
|
Level 3Unobservable inputs based upon the reporting entitys internally developed
assumptions which market participants would use in pricing the asset or liability. As
of September 30, 2011, the Company did not have any assets that had fair values
determined by Level 3 inputs and no liabilities measured at fair value. |
The Company accounts for its investments as available-for-sale and measures them at fair
value under standards of financial accounting and reporting for investments in equity instruments
that have readily determinable fair values and for all investments in debt securities.
- 15 -
The following table summarizes the fair value hierarchy of the valuation techniques
utilized by us to determine the fair values as of September 30, 2011 (in thousands). Certain fixed
income and other securities are reported at fair value using Level 2 inputs. For these securities,
the Company uses pricing services and dealer quotes. As of September 30, 2011, the Company did not
have any liabilities measured at fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant Other |
|
|
Significant |
|
|
|
|
|
|
Quoted Prices in |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
Active Markets |
|
|
Inputs |
|
|
Inputs |
|
|
September 30, |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
2011 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury debt |
|
$ |
5,748 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,748 |
|
Mortgage backed
securities |
|
|
|
|
|
|
556 |
|
|
|
|
|
|
|
556 |
|
Corporate debt |
|
|
|
|
|
|
84,638 |
|
|
|
|
|
|
|
84,638 |
|
Common stock |
|
|
53,015 |
|
|
|
|
|
|
|
|
|
|
|
53,015 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
11,423 |
|
|
|
|
|
|
|
|
|
|
|
11,423 |
|
Fixed income |
|
|
|
|
|
|
6,735 |
|
|
|
|
|
|
|
6,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
70,186 |
|
|
$ |
91,929 |
|
|
$ |
|
|
|
$ |
162,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no significant transfers between Levels 1 and 2 for the three and nine months ended
September 30, 2011.
11. LONG-TERM DEBT
The
Company has outstanding a principal amount of $130.0 million of 7⅞% unsecured Senior Notes,
due in 2015, with interest payable semi-annually. The Company had a
$40.0 million senior secured
revolving credit facility with a $20.0 million accordion feature that was to mature in November 2012
and was collateralized by all personal property and funeral home real property in certain states.
Effective August 11, 2011, the Company entered into a new secured revolving credit facility with
Wells Fargo Bank, N.A. which contains commitments for an aggregate of $60.0 million with an
accordion provision for up to an additional $15.0 million. The credit facility matures in October
2014 and under certain conditions may be extended to October 2016. The credit facility is
collateralized by the accounts receivable and all personal property of the Company. Borrowings
under the credit facility bear interest at either prime or LIBOR options. At September 30, 2011
the prime rate option was equivalent to 4.125% and the LIBOR margin was 1.875%. During the third
quarter of 2011, the Company recorded a charge of approximately $201,000 to write-off the remaining
unamortized fees on the prior credit facility. The fees related to
the new credit facility
were approximately $334,000 and are being amortized over the life of the facility.
Carriage, the parent entity, has no material assets or operations independent of its
subsidiaries. All assets and operations are held and conducted by subsidiaries, each of which
(except for Carriage Services Capital Trust, which is a single purpose entity that holds our 7%
debentures issued in connection with the issuance of the Trusts term income deferrable equity
securities (TIDES) 7% convertible preferred securities) have fully and unconditionally guaranteed
the Companys obligations under the 7⅞% Senior Notes. Additionally, the Company does not currently
have any significant restrictions on its ability to receive dividends or loans from any subsidiary
guarantor under the 7⅞% Senior Notes. In August 2011, the Company repurchased 35,000 shares of
these TIDES for approximately $1,269,000 and recorded a gain of $481,000. The Company converted
and immediately cancelled these preferred shares at the current conversion rate of 2.4465 into
shares of common stock equal to 85,628 shares. No repurchases were made in the third quarter of
2010. For the nine months ended September 30, 2010, the Company had repurchased 17,850 shares of
TIDES for approximately $576,000 and recorded gains of $316,000. For the nine months ended
September 30, 2011, the Company has repurchased 61,742 shares of TIDES for approximately $2,241,000
and recorded gains totaling $846,000. At September 30, 2011, amounts outstanding under the
convertible junior subordinated debenture totaled $89.8 million.
The
Company was in compliance with the covenants contained in the
previous and new credit facilities, as applicable, and the
Senior Notes as of September 30, 2010 and 2011.
- 16 -
12. COMMITMENTS AND CONTINGENCIES
Litigation
We are a party to various litigation matters and proceedings. For each of our outstanding
legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or
settlement strategies, and the likelihood of an unfavorable outcome. We intend to defend ourselves
in the lawsuits described herein. If we determine that an unfavorable outcome is probable and can
be reasonably estimated, we establish the necessary accruals. We hold certain insurance policies
that may reduce cash outflows with respect to an adverse outcome of certain of these litigation
matters.
Leathermon, et al. v. Grandview Memorial Gardens, Inc., et al., United States District Court,
Southern District of Indiana, Case No. 4:07-cv-137. On August 17, 2007, five plaintiffs filed a
putative class action against the current and past owners of Grandview Cemetery in Madison,
Indiana, including the Carriage subsidiaries that owned the cemetery from January 1997 until
February 2001, on behalf of all individuals who purchased cemetery and burial goods and services at
Grandview Cemetery. Plaintiffs claim that the cemetery owners performed burials negligently,
breached Plaintiffs contracts, and made misrepresentations regarding the cemetery. The Plaintiffs
also allege that the claims occurred prior, during and after the Company owned the cemetery. On
October 15, 2007, the case was removed from Jefferson County Circuit Court, Indiana to the Southern
District of Indiana. On April 24, 2009, shortly before Defendants had been scheduled to file their
briefs in opposition to Plaintiffs motion for class certification, Plaintiffs moved to amend their
complaint to add new class representatives and claims, while also seeking to abandon other claims.
The Company, as well as several other Defendants, opposed Plaintiffs motion to amend their
complaint and add parties. In April 2009, two Defendants moved to disqualify Plaintiffs counsel
from further representing Plaintiffs in this action. On March 31, 2010, the Court granted the
Defendants motion to disqualify Plaintiffs counsel. In that order, the Court gave Plaintiffs 60
days within which to retain new counsel. On May 6, 2010, Plaintiffs filed a petition for writ of
mandamus with the Seventh Circuit Court of Appeals seeking relief from the trial courts order of
disqualification of counsel. On May 19, 2010, the Defendants responded to the petition of
mandamus. On July 8, 2010, the Seventh Circuit denied Plaintiffs petition for writ of mandamus.
Thus, pursuant to the trial courts order, Plaintiffs were given 60 days from July 8, 2010 in which
to retain new counsel to prosecute this action on their behalf. Plaintiffs retained new counsel
and the trial Court granted the newly retained Plaintiffs counsel 90 days to review the case and
advise the Court whether or not Plaintiffs would seek leave to amend their complaint to add and/or
change the allegations as are currently stated therein and whether or not they would seek leave to
amend the proposed class representatives for class certification. Plaintiffs moved for leave to
amend both the class representatives and the allegations stated within the complaint. Defendants
filed oppositions to such amendments. The Court issued an order permitting the Plaintiffs to
proceed with amending the class representatives and a portion of their claims; however, certain of
Plaintiffs claims have been dismissed. Discovery in this matter will now proceed. Carriage
intends to defend this action vigorously. Because the lawsuit is in its preliminary stages, we are
unable to evaluate the likelihood of an unfavorable outcome to the Company or to estimate the
amount or range of any potential loss, if any, at this time.
13. STOCK-BASED COMPENSATION
Stock Options and Employee Stock Purchase Plan
During the third quarter of 2011, 3,000 stock options were awarded to an employee. The value
of these options was $15,630. The stock options vest in 33⅓% increments over a three
year period and expire August 10, 2021. As of September 30, 2011, 628,000 stock options
are outstanding and 338,000 stock options remain unvested.
For the third quarter of 2011, employees purchased a total of 23,998 shares of common stock
through the employee stock purchase plan (ESPP) at a weighted average price of $4.18 per share.
The Company recorded pre-tax stock-based compensation expense for the ESPP and for stock options
totaling $75,000 and $100,000 for the three months ended
September 30, 2010 and 2011, respectively,
and $199,000 and $272,000 for the nine months ended September 30, 2010 and 2011, respectively.
The fair value of the right (option) to purchase shares under the ESPP is estimated on the
date of grant (January 1, 2011) associated with the four quarterly purchase dates using the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2011 |
|
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
Expected volatility |
|
|
70 |
% |
|
|
29 |
% |
Risk-free interest rate |
|
|
0.08%, 0.18%, 0.31%, 0.45 |
% |
|
|
0.15%, 0.19%, 0.24%, 0.29 |
% |
Expected life (years) |
|
|
.25, .50, .75, 1 |
|
|
|
.25, .50, .75, 1 |
|
Expected volatilities are based on the historical volatility during the previous twelve months
of the underlying common stock. The risk-free rate for the quarterly purchase periods is based on
the U.S. Treasury yields in effect at the time of grant (January 1). The expected life of the ESPP
grants represents the calendar quarters from the grant date (January 1) to the purchase date (end
of each quarter).
- 17 -
Common Stock Grants
The Company, from time to time, issues shares of restricted common stock to certain
officers, directors and key employees of the Company from its stock benefit plans. The restricted
stock issued to officers and key employees vest in either 25% or 33⅓% increments over four or three
year periods, respectively. On September 1, 2011, L. William Heiligbrodt was appointed to serve as
a full-time executive officer as the Vice Chairman of the Board of Directors of the Company. In
connection with his appointment, Mr. Heiligbrodt was granted 22,500 shares of common stock valued
at $130,725 which vest over a three year period. Related to the vesting of restricted stock awards
previously awarded to our officers and employees, the Company recorded $366,000 and $330,000 in
pre-tax compensation expense, included in general, administrative and other expenses, for the three
months ended September 30, 2010 and 2011, respectively, and $977,000 and $1,081,000 in pre-tax
compensation expense for the nine months ended September 30, 2010 and 2011, respectively.
Effective March 22, 2010, and as subsequently revised on July 14, 2010, the Board of Directors
approved a Director Compensation Policy in which the directors no longer have an option to elect to
receive all or a portion of their fees in stock. Consequently, all meeting fees after March 22,
2010 have been paid in cash. A new director joined the Board of Directors during the third quarter of
2011, at which time he was granted 19,193 shares valued in total at $100,000. One-half of those
shares vested immediately; the remainder vest over two years. The Company recorded $66,000 and
$160,000 in pre-tax compensation expense, included in general, administrative and other expenses,
for the three months ended September 30, 2010 and 2011, respectively, and $392,000 and $503,000 in
pretax compensation expense for the nine months ended September 30, 2010 and 2011, respectively,
related to the director fees, annual retainers and stock compensation amortization.
As of September 30, 2011, the Company had $2.1 million of total unrecognized compensation
costs related to unvested restricted stock awards, which are expected to be recognized over a
weighted average period of approximately 1.8 years.
Cash Dividends
On
May 17, 2011, our Board of Directors approved the initiation of a quarterly cash dividend
policy for our common stock. The Board declared a quarterly dividend of $0.025 per share, totaling
approximately $460,000, which was paid on September 1, 2011 to
record holders of our common stock as of
August 12, 2011. For the nine months ended September 30, 2011, the Company has declared dividends
of $0.05 per share, totaling $920,000. The Company has a dividend reinvestment program so that
stockholders may elect to reinvest their dividends into additional shares of the Companys common
stock.
14. RELATED PARTY TRANSACTIONS
A member of the Companys Board of Directors is a key member of management and Chief
Investment Officer of an otherwise unrelated company that holds $7.3 million of the Companys 7⅞%
Senior Notes for investment purposes.
15. MAJOR SEGMENTS OF BUSINESS
Carriage conducts funeral and cemetery operations only in the United States. The following
table presents revenue, pre-tax income and total assets by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
Cemetery |
|
|
Corporate |
|
|
Consolidated |
|
Revenues from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2011 |
|
$ |
108,361 |
|
|
$ |
34,482 |
|
|
$ |
|
|
|
$ |
142,843 |
|
Nine months ended September 30, 2010 |
|
$ |
101,817 |
|
|
$ |
35,032 |
|
|
$ |
|
|
|
$ |
136,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2011 |
|
$ |
32,509 |
|
|
$ |
8,063 |
|
|
$ |
(29,347 |
) |
|
$ |
11,225 |
|
Nine months ended September 30, 2010 |
|
$ |
28,218 |
|
|
$ |
7,115 |
|
|
$ |
(25,363 |
) |
|
$ |
9,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
$ |
407,388 |
|
|
$ |
216,928 |
|
|
$ |
27,496 |
|
|
$ |
651,812 |
|
December 31, 2010 |
|
$ |
409,329 |
|
|
$ |
242,461 |
|
|
$ |
19,222 |
|
|
$ |
671,012 |
|
- 18 -
16. SUPPLEMENTAL DISCLOSURE OF STATEMENT OF OPERATIONS INFORMATION
The following information is supplemental disclosure for the Consolidated Statements of
Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
13,077 |
|
|
$ |
13,323 |
|
|
$ |
40,729 |
|
|
$ |
42,913 |
|
Cemetery |
|
|
8,260 |
|
|
|
6,683 |
|
|
|
23,248 |
|
|
|
22,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goods |
|
$ |
21,337 |
|
|
$ |
20,006 |
|
|
$ |
63,977 |
|
|
$ |
65,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
18,030 |
|
|
$ |
18,327 |
|
|
$ |
54,729 |
|
|
$ |
59,192 |
|
Cemetery |
|
|
2,440 |
|
|
|
2,388 |
|
|
|
7,212 |
|
|
|
7,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services |
|
$ |
20,470 |
|
|
$ |
20,715 |
|
|
$ |
61,941 |
|
|
$ |
66,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preneed funeral commission income |
|
$ |
632 |
|
|
$ |
513 |
|
|
$ |
1,817 |
|
|
$ |
1,400 |
|
Preneed funeral trust earnings |
|
|
1,553 |
|
|
|
1,526 |
|
|
|
4,542 |
|
|
|
4,856 |
|
Cemetery trust earnings |
|
|
1,121 |
|
|
|
983 |
|
|
|
3,369 |
|
|
|
3,872 |
|
Cemetery finance charges |
|
|
372 |
|
|
|
335 |
|
|
|
1,203 |
|
|
|
1,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial revenue |
|
$ |
3,678 |
|
|
$ |
3,357 |
|
|
$ |
10,931 |
|
|
$ |
11,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
45,485 |
|
|
$ |
44,078 |
|
|
$ |
136,849 |
|
|
$ |
142,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
11,816 |
|
|
$ |
11,264 |
|
|
$ |
34,948 |
|
|
$ |
35,818 |
|
Cemetery |
|
|
6,613 |
|
|
|
5,583 |
|
|
|
18,460 |
|
|
|
17,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goods |
|
$ |
18,429 |
|
|
$ |
16,847 |
|
|
$ |
53,408 |
|
|
$ |
52,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
10,637 |
|
|
$ |
9,910 |
|
|
$ |
29,937 |
|
|
$ |
31,455 |
|
Cemetery |
|
|
1,716 |
|
|
|
1,768 |
|
|
|
5,002 |
|
|
|
5,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services |
|
$ |
12,353 |
|
|
$ |
11,678 |
|
|
$ |
34,939 |
|
|
$ |
36,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preneed funeral commissions |
|
$ |
413 |
|
|
$ |
372 |
|
|
$ |
1,071 |
|
|
$ |
1,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial expenses |
|
$ |
413 |
|
|
$ |
372 |
|
|
$ |
1,071 |
|
|
$ |
1,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
$ |
31,195 |
|
|
$ |
28,897 |
|
|
$ |
89,418 |
|
|
$ |
90,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The costs of revenues, for purposes of this supplemental disclosure, include only field costs
and expenses that are directly allocable between the goods, services and financial categories in
the funeral and cemetery segments. Depreciation and amortization and regional and unallocated
funeral and cemetery costs are not included in this disclosure.
- 19 -
17. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following information is supplemental disclosure for the Consolidated Statements of Cash
Flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
|
2010 |
|
|
2011 |
|
Cash paid for interest and financing costs |
|
$ |
15,914 |
|
|
$ |
15,958 |
|
Cash paid for income taxes |
|
|
684 |
|
|
|
1,258 |
|
Fair value of stock issued to directors, officers and certain employees |
|
|
1,097 |
|
|
|
1,591 |
|
Restricted common stock withheld for payroll taxes |
|
|
90 |
|
|
|
352 |
|
Net (deposits)/withdrawals into/from preneed funeral trusts |
|
|
1,111 |
|
|
|
(3,795 |
) |
Net (deposits)/withdrawals into/from preneed cemetery trusts |
|
|
(2,119 |
) |
|
|
7,052 |
|
Net (deposits)/withdrawals into/from perpetual care trusts |
|
|
(75 |
) |
|
|
347 |
|
Net decrease in preneed funeral receivables |
|
|
666 |
|
|
|
291 |
|
Net (increase)/decrease in preneed cemetery receivables |
|
|
(1,093 |
) |
|
|
105 |
|
Net (deposits)/withdrawals of receivables into/from preneed funeral trusts |
|
|
96 |
|
|
|
(139 |
) |
Net change in preneed funeral receivables increasing deferred revenue |
|
|
69 |
|
|
|
403 |
|
Net change in preneed cemetery receivables increasing deferred revenue |
|
|
247 |
|
|
|
8,305 |
|
Net deposits/(withdrawals) from preneed funeral trust accounts
increasing/(decreasing) deferred preneed funeral receipts |
|
|
(1,111 |
) |
|
|
3,795 |
|
Net deposits/(withdrawals) in cemetery trust accounts
increasing/(decreasing) deferred cemetery receipts |
|
|
2,119 |
|
|
|
(7,052 |
) |
Net deposits/(withdrawals) in perpetual care trust accounts
increasing/(decreasing) perpetual care trusts corpus |
|
|
72 |
|
|
|
(559 |
) |
18. SUBSEQUENT EVENTS
On October 20, 2011 the Company acquired a funeral home business in Northeast Kentucky for
$2.5 million. In the acquisition, the Company acquired substantially all the assets and assumed
certain operating liabilities, including obligations associated with existing preneed contracts.
- 20 -
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement on Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q contains
forward-looking statements within the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements include any projections of earnings, revenues, asset sales,
cash flow, debt levels or other financial items; any statements of the plans, strategies and
objectives of management for future operations; any statements regarding future economic conditions
or performance; any statements of belief; and any statements of assumptions underlying any of the
foregoing. Forward-looking statements may include the words may, will, estimate, intend,
believe, expect, project, forecast, plan, anticipate and other similar words.
Forward-looking statements are not guarantees of performance. Important factors that could cause
actual results to differ materially from our expectations reflected in our forward-looking
statements include those risks related to our business and our industry set forth in Item 1A.,
Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2010. We assume
no obligation to publicly update or revise any forward-looking statements made herein or any other
forward-looking statements made by us, whether as a result of new information, future events or
otherwise.
OVERVIEW
General
We operate two types of businesses: funeral homes, which account for approximately 75% of our
revenues, and cemeteries, which account for approximately 25% of our revenues. Funeral homes are
principally service businesses that provide funeral services (traditional burial and cremation) and
sell related merchandise, such as caskets and urns. Cemeteries are primarily a sales business that
sells interment rights (grave sites and mausoleum spaces) and related merchandise, such as markers
and outer burial containers. As of September 30, 2011, we operated 155 funeral homes in 25 states
and 33 cemeteries in 12 states within the United States. Substantially all administrative
activities are conducted in our home office in Houston, Texas.
We have implemented long-term initiatives in our operations designed to improve operating and
financial results by growing market share and increasing profitability. We have a decentralized,
entrepreneurial and local operating model that includes operating and financial standards developed
from our best operations, along with an incentive compensation plan to reward business managers for
successfully meeting or exceeding the standards. The model essentially eliminates the use of
line-item financial budgets in favor of the standards. The operating model and standards, which we
refer to as the Standards Operating Model, focus on the key drivers of a successful operation,
organized around three primary areas market share, people and operating and financial metrics.
The model and standards are the measures by which we judge the success of each business. To date,
the Standards Operating Model has driven significant changes in our organization, leadership and
operating practices. Most importantly, the Standards Operating Model allowed us to measure the
sustainable revenue growth and earning power of our portfolio of deathcare businesses, which then
led to the development of a Strategic Acquisition Model, described below under Acquisitions, that
guides our acquisition and disposition strategies. We expect both models to drive longer term,
sustainable increases in market share, revenue, earnings and cash flow. The standards are not
designed to produce maximum short-term earnings because we do not believe such performance is
sustainable without ultimately stressing the business, which often leads to declining market share,
revenues and earnings. Important elements of the Standards Operating Model include:
Balanced Operating Model We believe a decentralized structure works best in the
deathcare industry. Successful execution of the Standards Operating Model is highly
dependent on strong local leadership, intelligent risk taking, entrepreneurial drive and
corporate support aligned with the key drivers.
Incentives Aligned with Standards Empowering Managing Partners to do the right things in
their operations and local communities, and providing appropriate support with operating and
financial practices, will enable long-term growth and sustainable profitability. Each
Managing Partner participates in a variable bonus plan whereby they earn a percentage of
their business earnings based upon the actual standards achieved. Each Managing Partner
has the opportunity to share in the earnings of the business as long as the performance
exceeds our minimum standards.
The Right Local Leadership Successful execution of our operating model is highly
dependent on strong local leadership as defined by our 4E Leadership Model, intelligent risk
taking and entrepreneurial empowerment. Over time, a Managing Partners performance is
judged according to achievement of the Standards for that business.
Funeral and Cemetery Operations
Factors affecting our funeral operating results include: demographic trends in terms of
population growth and average age, which impact death rates and number of deaths; establishing and
maintaining leading market share positions supported by strong local heritage and relationships;
effectively responding to increasing cremation trends by packaging complementary services and
merchandise; controlling salary and merchandise costs; and exercising pricing leverage related to
our atneed business to increase average revenues per contract. In simple terms, volume and price
are the two variables that affect funeral revenues. The average revenue per contract is influenced
by the mix of traditional burial and cremation services because our average cremation service
- 21 -
revenue is approximately one-third of the average revenue earned from a traditional burial
service. Funeral homes have a relatively fixed cost structure. Thus, small changes in revenues,
up or down, normally cause significant changes to our profitability.
Our funeral volumes have increased gradually from 23,366 in 2007 to 25,801 in 2010 (compound
annual increase of 3.4%). Our funeral operating revenue has increased from $119.2 million in 2007
to $129.7 million in 2010 (compound annual increase of 2.9%). The increases are primarily because
of businesses we acquired in 2007 through 2010 and our ability to increase the average revenue per
funeral through expanded service offerings and packages. We experienced an increase of 9.5% in
volumes in the first nine months of 2011 compared to the first nine months of 2010, 0.1% of which
resulted from organic growth and 9.4% through acquisitions. Funeral operating revenues for the
nine months ended September 30, 2011 were up 7.0% compared to the nine months ended September 30,
2010 primarily due to the acquisitions.
The percentage of funeral services involving cremations has increased from 35.8% for the year
ended 2007 to 44.1% for the year ended 2010 and was 46.4% for the first nine months of 2011. A
significant portion of that trend is the result of acquiring businesses in high cremation areas.
On a same store basis, the cremation rate has risen to 41.9% for the nine months ended September
30, 2011, up from 40.6% for the comparable period in 2010.
Cemetery operating results are affected by the size and success of our sales organization.
Approximately 52% of our 2010 cemetery revenues related to preneed sales of interment rights and
mausoleums and related merchandise and services. As of September 30, 2011, those preneed sales
were approximately 50.2% of cemetery revenues. We believe that changes in the level of consumer
confidence (a measure of whether consumers will spend for discretionary items) also affect the
amount of cemetery revenues. Currently, approximately 14.2% of our cemetery revenues are
attributable to investment earnings on trust funds and finance charges on installment contracts.
Changes in the capital markets and interest rates affect this component of our cemetery revenues.
Our cemetery financial performance from 2007 through 2010 was characterized by fluctuating
operating revenues and field level profit margins. Cemetery operating revenue for the first nine
months of 2011 decreased 2.9% over the comparable period in 2010, net of a 7.0% increase in trust
fund earnings and finance charges. Our goal is to build broader and deeper teams of sales leaders
and counselors in our larger and more strategically located cemeteries in order to focus on growth
of our preneed property sales. Additionally, a portion of our capital expenditures in 2011 is
designed to expand our cemetery product offerings.
Financial Revenue
We market funeral and cemetery services and products on a preneed basis. Preneed funeral or
cemetery contracts enable families to establish, in advance, the type of service to be performed,
the products to be used and the cost of such products and services. Preneed contracts permit
families to eliminate issues of making deathcare plans at the time of need and allow input from
other family members before the death occurs. We guarantee the price and performance of the
preneed contracts to the customer.
Preneed funeral contracts are usually paid on an installment basis. The performance of
preneed funeral contracts is usually secured by placing the funds collected in trust for the
benefit of the customer or by the purchase of a life insurance policy, the proceeds of which will
pay for such services at the time of need. Insurance policies, intended to fund preneed funeral
contracts, cover the original contract price and generally include an element of growth (earnings)
designed to offset future inflationary cost increases. Revenue from preneed funeral contracts,
along with accumulated earnings, is not recognized until the time the funeral service is performed.
The accumulated earnings from the trust investments and insurance policies is intended to offset
the inflation in funeral prices. Additionally, we generally earn a commission from the insurance
company from the sale of insurance-funded policies reflected as Preneed Insurance Commission. The
commission income is recognized as revenue when the period of refund expires (generally one year),
which helps us defray the costs we incur to originate the preneed contract (primarily commissions
we pay to our sales counselors).
Preneed sales of cemetery interment rights are usually financed through interest-bearing
installment sales contracts, generally with terms of up to five years with such earnings reflected
as Preneed Cemetery Finance Charges. In substantially all cases, we receive an initial down payment
at the time the contract is signed. The interest rates generally range between 9.5% and 12% per
annum. Occasionally, we have offered zero percent interest financing to promote sales for
limited-time offers.
We have established a variety of trusts in connection with funeral home and cemetery
operations as required under applicable state law. Such trusts include (i) preneed funeral trusts;
(ii) preneed cemetery merchandise and service trusts; and (iii) perpetual care trusts. These trusts
are typically administered by independent financial institutions selected by the Company.
Independent financial advisors are also used for investment management and advisory services.
Preneed funeral trust fund income earned and the receipt and recognition of any insurance
benefits are deferred until the service is performed. Applicable state laws generally require us
to deposit a specified amount (which varies from state to state, generally 50% to 100% of selling
price) into a merchandise and service trust fund for preneed cemetery merchandise and service
sales. The related trust fund income earned is recognized when the related merchandise and
services are delivered. In most
- 22 -
states, regulations require a portion (generally 10%) of the sale amount of cemetery property
and memorials to be placed in a perpetual care trust. The income from perpetual care trusts
provides a portion of the funds necessary to maintain cemetery property and memorials in
perpetuity. This perpetual care trust fund income is recognized, as earned, in cemetery revenues.
Acquisitions
Our growth strategy includes the execution of the Strategic Acquisition Model. The goal of
that model is to build concentrated groups of businesses in ten to fifteen strategic markets. We
use six strategic ranking criteria to assess acquisition candidates and to differentiate the price
we are willing to pay. Those criteria are:
|
|
|
Size of business; |
|
|
|
|
Size of market; |
|
|
|
|
Competitive standing; |
|
|
|
|
Demographics; |
|
|
|
|
Strength of brand; and |
|
|
|
|
Barriers to entry. |
In general terms, our price expectations range from four to five times pre-tax earnings before
depreciation for tuck-ins to six to seven times pre-tax earnings before depreciation for
businesses that rank very high in the ranking criteria. We derive the pre-tax earnings amounts
based primarily on the size and product mix of the target business applied to our standards-based
operating model. During 2010, we acquired one cemetery and five funeral home businesses. The
consideration paid for these acquisitions was cash, which was generated from our operations.
During the first half of 2011, we acquired two funeral home businesses and during the third quarter
of 2011, we acquired two more funeral homes. The consideration paid for the acquisitions in the
third quarter of 2011 was $5.2 million cash and totaled $10.3 million for the nine months ended
September 30, 2011.
Financial Highlights
Net income for the three months ended September 30, 2011 totaled $0.8 million, equal to $0.04
per diluted share, compared to net income for the three months ended September 30, 2010 which
totaled $0.9 million, equal to $0.05 per diluted share. Net income for the nine months ended
September 30, 2011 totaled $6.7 million, equal to $0.36 per diluted share, compared to $5.9 million
for the nine months ended September 30, 2010, or $0.33 per diluted share. Total revenue for the
three and nine months ended September 30, 2011 was $44.1 million and $142.8 million, respectively,
a decrease of 3.1% and an increase of 4.4%, respectively, compared to $45.5 million and $136.8
million for the comparable periods in 2010. Our funeral segment experienced increases in revenue
and profit, whereas the cemetery segment experienced declines. We experienced increases in
overhead costs due in part to acquisition costs and incentive compensation.
The Company is providing a reconciliation below from the GAAP results to Non-GAAP results in
order to present financial results that would have been reported when considering special items
detailed in the reconciliation. The Company provides this information for investors to help
facilitate the comparison of the current period results with the Companys previous results and the
competitors operating results. We do not intend for this information to be considered in
isolation or as a substitute for other measures of performance prepared in accordance with GAAP.
(In millions, except diluted EPS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2010 |
|
|
2011 |
|
|
|
Net |
|
|
Diluted |
|
|
Net |
|
|
Diluted |
|
|
|
Income |
|
|
EPS |
|
|
Income |
|
|
EPS |
|
Net income available to common stockholders, as reported |
|
$ |
0.9 |
|
|
$ |
0.05 |
|
|
$ |
0.8 |
|
|
$ |
0.04 |
|
After-tax special items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withdrawable trust income(1) |
|
|
0.7 |
|
|
|
0.04 |
|
|
|
0.8 |
|
|
|
0.04 |
|
Gain on repurchase of convertible junior subordinated
debenture |
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
(0.01 |
) |
Losses on early extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.01 |
|
Acquisition expenses |
|
|
0.1 |
|
|
|
0.01 |
|
|
|
0.4 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Net income including special items |
|
$ |
1.7 |
|
|
$ |
0.10 |
|
|
$ |
1.9 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding (in thousands) |
|
|
|
|
|
|
17,726 |
|
|
|
|
|
|
|
18,461 |
|
- 23 -
(In millions, except diluted EPS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2010 |
|
|
2011 |
|
|
|
Net |
|
|
Diluted |
|
|
Net |
|
|
Diluted |
|
|
|
Income |
|
|
EPS |
|
|
Income |
|
|
EPS |
|
Net income available to common stockholders, as reported |
|
$ |
5.9 |
|
|
$ |
0.33 |
|
|
$ |
6.7 |
|
|
$ |
0.36 |
|
After-tax special items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withdrawable trust income(1) |
|
|
1.8 |
|
|
|
0.10 |
|
|
|
2.9 |
|
|
|
0.16 |
|
Gain on repurchase of convertible junior subordinated
debenture |
|
|
(0.2 |
) |
|
|
(0.01 |
) |
|
|
(0.5 |
) |
|
|
(0.03 |
) |
Securities transactions expenses |
|
|
|
|
|
|
|
|
|
|
0.3 |
|
|
|
0.02 |
|
Losses on early extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.01 |
|
Acquisition expenses |
|
|
0.4 |
|
|
|
0.02 |
|
|
|
0.6 |
|
|
|
0.03 |
|
Recovery of legal fees |
|
|
(0.4 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Net income including special items |
|
$ |
7.5 |
|
|
$ |
0.42 |
|
|
$ |
10.1 |
|
|
$ |
0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding (in thousands) |
|
|
|
|
|
|
17,775 |
|
|
|
|
|
|
|
18,381 |
|
|
|
|
(1) |
|
Withdrawable trust income is realized income from cemetery preneed trust funds in
certain states in which the income can be withdrawn currently but will be recognized in future
periods when the death has occurred and the products delivered. |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the Consolidated Financial Statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an
on-going basis, we evaluate estimates and judgments, including those related to revenue
recognition, realization of accounts receivable, inventories, goodwill, other intangible assets,
property and equipment and deferred tax assets. We base our estimates on historical experience,
third party data and assumptions that we believe to be reasonable under the circumstances. The
results of these considerations form the basis for making judgments about the amount and timing of
revenues and expenses, the carrying value of assets and the recorded amounts of liabilities.
Actual results may differ from these estimates and such estimates may change if the underlying
conditions or assumptions change. Historical performance should not be viewed as indicative of
future performance, because there can be no assurance the margins, operating income and net
earnings as a percentage of revenues will be consistent from year to year.
Managements discussion and analysis of financial condition and results of operations (MD&A)
is based upon our Consolidated Financial Statements presented herewith, which have been prepared in
accordance with accounting principles generally accepted in the United States. Our significant
accounting policies are more fully described in Note 1 to our Consolidated Financial Statements
included in this Quarterly Report on Form 10-Q. Our critical accounting policies are those that
are both important to the portrayal of our financial condition and results of operations and
require managements most difficult, subjective and complex judgment. These critical accounting
policies are discussed in MD&A in our Annual Report on Form 10-K for the year ended December 31,
2010. There have been no significant changes to our critical accounting policies since the filing
of our Annual Report on Form 10-K for the year ended December 31, 2010.
- 24 -
RESULTS OF OPERATIONS
The following is a discussion of our results of operations for the three and nine month
periods ended September 30, 2010 and 2011. The term same store or existing operations refers
to funeral homes and cemeteries acquired prior to January 1, 2007 and owned and operated for the
entirety of each period being presented. Funeral homes and cemeteries purchased after
January 1, 2007 are referred to as acquired. This classification of acquisitions has been
important to management and investors in monitoring the results of these businesses and to gauge
the leveraging performance contribution that a selective acquisition program can have on the total
company performance. Depreciation and amortization and regional and unallocated funeral and
cemetery costs are not included in operating profit.
Funeral Home Segment. The following table sets forth certain information regarding the
revenues and operating profit from the funeral home operations for the three and nine months ended
September 30, 2010 compared to the three and nine months ended September 30, 2011.
Three months ended September 30, 2010 compared to three months ended September 30, 2011 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Change |
|
|
|
2010 |
|
|
2011 |
|
|
Amount |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating revenue |
|
$ |
25,478 |
|
|
$ |
24,388 |
|
|
$ |
(1,090 |
) |
|
|
(4.3 |
)% |
Acquired operating revenue |
|
|
5,629 |
|
|
|
7,262 |
|
|
|
1,633 |
|
|
|
29.0 |
% |
Preneed funeral insurance commissions |
|
|
632 |
|
|
|
513 |
|
|
|
(119 |
) |
|
|
(18.8 |
)% |
Preneed funeral trust earnings |
|
|
1,553 |
|
|
|
1,526 |
|
|
|
(27 |
) |
|
|
(1.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
33,292 |
|
|
$ |
33,689 |
|
|
$ |
397 |
|
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating profit |
|
$ |
7,807 |
|
|
$ |
8,254 |
|
|
$ |
447 |
|
|
|
5.7 |
% |
Acquired operating profit |
|
|
847 |
|
|
|
2,221 |
|
|
|
1,374 |
|
|
|
162.2 |
% |
Preneed funeral insurance commissions |
|
|
219 |
|
|
|
142 |
|
|
|
(77 |
) |
|
|
(35.2 |
)% |
Preneed funeral trust earnings |
|
|
1,553 |
|
|
|
1,526 |
|
|
|
(27 |
) |
|
|
(1.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
10,426 |
|
|
$ |
12,143 |
|
|
$ |
1,717 |
|
|
|
16.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral home same store operating revenues for the three months ended September 30, 2011
decreased $1.1 million, or 4.3%, when compared to the three months ended September 30, 2010. We
experienced a 4.5% decrease in the number of contracts, and the average revenue per contract
decreased 0.3%, or $18 per contract, to $5,504 for those existing operations. The average revenue
per contract includes the impact of the funeral trust fund earnings recognized at the time that we
provide the needed services for preneed families. Excluding funeral trust earnings, the average
revenue per contract increased 0.2% to $5,260. The number of traditional burial contracts declined
7.0% while the average revenue per burial contract increased 1.2% to $8,167. The cremation rate
for the same store businesses rose from 41.7% to 42.5%. The average revenue per same store
cremation contract decreased 0.3% to $3,084 and the number of cremation contracts decreased 2.5%.
Cremations with services declined from 42.5% of total cremation contracts in the third quarter of
2010 to 38.2% in the third quarter of 2011. The average revenue for other contracts, which make
up approximately 6.9% of the number of contracts, increased 4.0% from $1,987 to $2,066. Other
contracts consist of charges for merchandise or services for which we do not perform a funeral
service for the deceased during the period.
Same store operating profit for the three months ended September 30, 2011 increased $0.4
million, or 5.7%, from the comparable three months of 2010, and as a percentage of funeral same
store operating revenue, increased from 30.6% to 33.8%. Lower promotional expenses, salaries and
benefits and general liability insurance expenses were the primary reasons for the increase in
operating profit.
Funeral home acquired revenues for the three months ended September 30, 2011 increased $1.6
million, or 29.0%, when compared to the three months ended September 30, 2010, as we experienced a
21.3% increase in the number of contracts, and an increase of 7.8%, to $4,132, in the average
revenue per contract for those acquired operations. Excluding funeral trust earnings, the average
revenue per contract increased 6.3% to $3,918. The cremation rate for the acquired businesses was
56.8% for the third quarter of 2011, down from 60.1% in the prior year period. The average revenue
per cremation contract increased 7.7% to $2,557 for the third quarter of 2011 and the number of
cremation contracts increased 14.5% compared to the same period of 2010.
- 25 -
Acquired operating profit for the three months ended September 30, 2011 increased $1.4 million
from the comparable three months of 2010 and, as a percentage of revenue from acquired businesses,
was 15.0% for the third quarter of 2010 compared to 30.6% for the third quarter of 2011. As those
funeral homes acquired in 2010 and 2011 transition into Carriages Standard Operating Model, we
expect to see profit margins similar to those on a same store basis.
Nine months ended September 30, 2010 compared to six months ended September 30, 2011 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Change |
|
|
|
2010 |
|
|
2011 |
|
|
Amount |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating revenue |
|
$ |
80,113 |
|
|
$ |
80,105 |
|
|
$ |
(8 |
) |
|
|
|
|
Acquired operating revenue |
|
|
15,313 |
|
|
|
22,000 |
|
|
|
6,687 |
|
|
|
43.7 |
% |
Preneed funeral insurance commissions |
|
|
1,817 |
|
|
|
1,400 |
|
|
|
(417 |
) |
|
|
(22.9 |
)% |
Preneed funeral trust earnings |
|
|
4,574 |
|
|
|
4,856 |
|
|
|
282 |
|
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
101,817 |
|
|
$ |
108,361 |
|
|
$ |
6,544 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating profit |
|
$ |
26,943 |
|
|
$ |
28,437 |
|
|
$ |
1,494 |
|
|
|
5.5 |
% |
Acquired operating profit |
|
|
3,599 |
|
|
|
6,397 |
|
|
|
2,798 |
|
|
|
77.7 |
% |
Preneed funeral insurance commissions |
|
|
745 |
|
|
|
293 |
|
|
|
(452 |
) |
|
|
(60.7 |
)% |
Preneed funeral trust earnings |
|
|
4,574 |
|
|
|
4,856 |
|
|
|
282 |
|
|
|
6.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,861 |
|
|
$ |
39,983 |
|
|
$ |
4,122 |
|
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral home same store operating revenues for the nine months ended September 30, 2011
remained flat, when compared to the nine months ended September 30, 2010. We experienced a 0.1%
increase in the number of contracts, however, the average revenue per contract decreased 0.3% to
$5,577 for those existing operations. The average revenue per contract includes the impact of the
funeral trust fund earnings recognized at the time that we provide the funeral services for preneed
families. Excluding funeral trust earnings, the average revenue per contract decreased 0.1% to
$5,329. The number of traditional burial contracts declined from 51.5% to 50.4% while the average
revenue per burial contract increased 1.4% to $8,196. The cremation rate for the same store
businesses rose from 40.6% to 41.9%. The average revenue per same store cremation contract
decreased 1.2% to $3,059 and the number of cremation contracts increased 3.5%. Cremations with
services decreased from 45.0% of total cremation contracts in the nine months ended
September 30, 2010 to 38.7% in the nine months ended September 30, 2011. The average
revenue for other contracts, which make up approximately 7.6% of the number of contracts,
increased 6.3% from $1,985 to $2,111.
Same store operating profit for the nine months ended September 30, 2011 increased
$1.5 million, or 5.5%, from the comparable nine months of 2010, and as a percentage of funeral same
store operating revenue, increased from 33.6% to 35.5%. Lower merchandise costs and a decline in
bad debt expense were the primary reasons for the increase in operating profit.
Funeral home acquired revenues for the nine months ended September 30, 2011 increased $6.7
million, or 43.7%, when compared to the nine months ended September 30, 2010 as we experienced a
45.9% increase in the number of contracts, yet a decrease of 0.9%, to $4,080, in the average
revenue per contract for those acquired operations. Excluding funeral trust earnings, the average
revenue per contract declined 1.5% to $3,883. The cremation rate for the acquired businesses was
58.2% for the nine months ended September 30, 2011, up from 55.3% in the prior year period, as
these businesses are located in higher cremation areas compared to our existing locations. The
average revenue per cremation contract increased 6.8% to $2,590 for the nine months ended
September 30, 2011 and the number of cremation contracts increased 53.4% compared to the
same period of 2010.
Acquired operating profit for the nine months ended September 30, 2011 increased $2.8 million,
or 77.7%, from the comparable nine months of 2010 and, as a percentage of revenue from acquired
funeral homes, was 23.5% for the nine months ended September 30, 2010 compared to 29.1% for the
nine months ended September 30, 2011 as those businesses acquired in 2010 had not fully
transitioned into Carriages Standard Operating Model until later in 2011.
The two categories of financial revenue, insurance commissions and trust earnings on matured
preneed contracts, on a combined basis, decreased 2.1% in revenue and decreased 3.2% in operating
profit, compared to the nine months ended September 30, 2010.
Cemetery Segment. The following table sets forth certain information regarding our revenues
and operating profit from the cemetery operations for the three and nine months ended September 30,
2010 compared to the three and nine months ended September 30, 2011.
- 26 -
Three months ended September 30, 2010 compared to three months ended September 30, 2011 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Change |
|
|
|
2010 |
|
|
2011 |
|
|
Amount |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating revenue |
|
$ |
9,030 |
|
|
$ |
7,430 |
|
|
$ |
(1,600 |
) |
|
|
(17.7 |
)% |
Acquired operating revenue |
|
|
1,670 |
|
|
|
1,641 |
|
|
|
(29 |
) |
|
|
(1.7 |
)% |
Cemetery trust earnings |
|
|
1,121 |
|
|
|
983 |
|
|
|
(138 |
) |
|
|
(12.3 |
)% |
Preneed cemetery finance charges |
|
|
372 |
|
|
|
335 |
|
|
|
(37 |
) |
|
|
(9.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,193 |
|
|
$ |
10,389 |
|
|
$ |
(1,804 |
) |
|
|
(14.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating profit |
|
$ |
1,885 |
|
|
$ |
1,190 |
|
|
$ |
(695 |
) |
|
|
(36.9 |
)% |
Acquired operating profit |
|
|
486 |
|
|
|
530 |
|
|
|
44 |
|
|
|
9.1 |
% |
Cemetery trust earnings |
|
|
1,121 |
|
|
|
983 |
|
|
|
(138 |
) |
|
|
(12.3 |
)% |
Preneed cemetery finance charges |
|
|
372 |
|
|
|
335 |
|
|
|
(37 |
) |
|
|
(9.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,864 |
|
|
$ |
3,038 |
|
|
$ |
(826 |
) |
|
|
(21.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery same store operating revenues for the three months ended September 30, 2011 decreased
$1.6 million, or 17.7%, compared to the three months ended September 30, 2010. Same store revenue
from preneed property sales and deliveries of preneed merchandise and services deliveries decreased
$1.3 million, or 23.4%, and atneed revenues decreased $0.4 million, or 11.9%. We experienced a
15.1% decrease in the number of interment rights (property) sold and a 18.9% decrease in the
average price per interment compared to the third quarter of 2010. The percentage of those
interment rights sold that we were able to recognize as revenue, because we received at least 10%
of the sales price from the customer, increased 4.1% to 77.5%.
Cemetery same store operating profit for the three months ended September 30, 2011 decreased
$0.7 million, or 36.9%. As a percentage of revenues, cemetery same store operating profit
decreased from 20.9% to 16.0%. The decrease in operating profit is primarily a result of the
decline in revenue.
Cemetery acquired revenues for the three months ended September 30, 2011 was relatively flat
compared to the three months ended September 30, 2010. Acquired revenue from preneed property
sales increased 5.9%, whereas preneed revenue from merchandise and services deliveries decreased
slightly and atneed revenues decreased 11.7%. Cemetery acquired operating profit increased 9.1%
compared to the third quarter of 2010. The most recent cemetery acquired was in 2007.
The two categories of financial revenue consist of trust earnings and finance charges on
preneed receivables. Total trust earnings decreased 11.7%, when compared to the three months ended
September 30, 2010. Earnings from perpetual care trust funds totaled $0.6 million for the three
months ended September 30, 2011 compared to $1.0 million for the three months ended
September 30, 2010, a decrease of $0.4 million, or 41.4%. Trust earnings recognized upon the
delivery of merchandise and service contracts increased $0.3 million to $0.4 million compared to
the same period in 2010. Finance charges on the preneed contracts declined slightly.
- 27 -
Nine months ended September 30, 2010 compared to nine months ended September 30, 2011 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Change |
|
|
|
2010 |
|
|
2011 |
|
|
Amount |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating revenue |
|
$ |
25,702 |
|
|
$ |
24,583 |
|
|
$ |
(1,119 |
) |
|
|
(4.4 |
)% |
Acquired operating revenue |
|
|
4,758 |
|
|
|
5,003 |
|
|
|
245 |
|
|
|
5.1 |
% |
Cemetery trust earnings |
|
|
3,369 |
|
|
|
3,872 |
|
|
|
503 |
|
|
|
14.9 |
% |
Preneed cemetery finance charges |
|
|
1,203 |
|
|
|
1,024 |
|
|
|
(179 |
) |
|
|
(14.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,032 |
|
|
$ |
34,482 |
|
|
$ |
(550 |
) |
|
|
(1.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating profit |
|
$ |
5,629 |
|
|
$ |
5,819 |
|
|
$ |
190 |
|
|
|
3.4 |
% |
Acquired operating profit |
|
|
1,369 |
|
|
|
1,607 |
|
|
|
238 |
|
|
|
17.4 |
% |
Cemetery trust earnings |
|
|
3,369 |
|
|
|
3,872 |
|
|
|
503 |
|
|
|
14.9 |
% |
Preneed cemetery finance charges |
|
|
1,203 |
|
|
|
1,024 |
|
|
|
(179 |
) |
|
|
(14.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,570 |
|
|
$ |
12,322 |
|
|
$ |
752 |
|
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery same store operating revenues for the nine months ended September 30, 2011 decreased
$1.1 million, or 4.4%, compared to the nine months ended September 30, 2010 primarily because
preneed property sales decreased $1.2 million, or 10.3%. We experienced a 14.0% decrease in the
number of interment rights (property) sold and a 2.0% decrease in the average price per interment
compared to the nine months ended September 30, 2010. The percentage of those interment property
rights sold that we were able to recognize as revenue, because we received at least 10% of the
sales price from the customer increased from 82.2% to 84.6%.
Cemetery same store operating profit for the nine months ended September 30, 2011 increased
$0.2 million, or 3.4%. As a percentage of revenues, cemetery same store operating profit increased
from 21.9% to 23.7%. The increase in operating profit is primarily a result from a decline of $0.6
million, or 12.7%, in promotional expenses (primarily preneed sales commissions) and a decrease of
$0.3 million, or 27.4%, in bad debts, in addition to an approximate 3.3% decrease in other
controllable costs.
Cemetery acquired revenues for the nine months ended September 30, 2011 increased $0.2
million, or 5.1%, compared to the nine months ended September 30, 2010. Acquired revenue from
preneed property sales increased $0.3 million, or 12.3%, and preneed revenue from merchandise and
services deliveries increased approximately $0.1 million, or 9.0%, while atneed revenues declined
$0.1 million, or 3.9%. Cemetery acquired operating profit increased $0.2 million due to the
increase in revenue.
The two categories of financial revenue which consist of trust earnings and finance charges on
preneed receivables had a meaningful impact on cemetery revenues and operating profit. Total trust
earnings increased $0.3 million, or 7.1%, when compared to the nine months ended September
30, 2010. Earnings from perpetual care trust funds totaled $2.9 million for the nine months ended
September 30, 2011 compared to $3.0 million for the nine months ended September 30, 2010, because
of greater capital gains taken in 2010. Trust earnings recognized upon the delivery of merchandise
and service contracts increased $0.7 million compared to the same period in 2010. Finance charges
on the preneed contracts declined $0.2 million, or 14.9%.
Other. General and administrative expenses totaled $14.4 million for the nine months ended
September 30, 2011, an increase of $3.0 million, or 26.5% compared to the nine months ended
September 30, 2010, primarily due to the expansion and upgrade of talent in our regional operations
organization and home office support departments, increases in costs for incentive compensation,
director fees and activity related to acquisitions.
Income Taxes. The Company recorded income taxes at the estimated effective rate of 40.5% for
the year ended December 31, 2010 and for the first nine months of 2011. Carriage has utilized
its remaining $12.6 million of net operating loss carryforwards to offset Federal taxable income
during the nine months and will become a Federal cash tax payer in the fourth quarter of 2011.
Carriage also has approximately $52 million of state net operating loss carryforwards that
will expire between 2013 and 2030, if not utilized. Based on managements assessment of the
various state net operating losses, it has been determined that it is more likely than not that the
Company will not be able to realize tax benefits of a substantial amount for the state losses.
Accordingly, a valuation allowance of approximately $1.5 million was established and is reviewed
every quarter related to the deferred tax asset for the state operating losses.
- 28 -
LIQUIDITY AND CAPITAL RESOURCES
Carriage began 2011 with $1.3 million in cash and other liquid investments and ended the third
quarter with $4.3 million in cash and an undrawn $60.0 million bank credit facility. The elements
of cash flow for the nine months ended September 30, 2011 consisted of the following (in
millions):
|
|
|
|
|
Cash and liquid investments at beginning of year |
|
$ |
1.3 |
|
Cash flow from operations |
|
|
25.3 |
|
Acquisitions |
|
|
(10.3 |
) |
Paydown on the bank credit facility |
|
|
(0.6 |
) |
Maintenance capital expenditures |
|
|
(5.4 |
) |
Dividends on common stock |
|
|
(0.9 |
) |
Repurchase of convertible junior subordinated debentures |
|
|
(2.2 |
) |
Growth capital expenditures funeral homes |
|
|
(0.7 |
) |
Growth capital expenditures cemeteries |
|
|
(1.7 |
) |
Payment of loan origination fees |
|
|
(0.3 |
) |
Others, net |
|
|
(0.2 |
) |
|
|
|
|
Cash at September 30, 2011 |
|
$ |
4.3 |
|
|
|
|
|
For the nine months ended September 30, 2011, cash provided by operating activities was $25.3
million as compared to $16.5 million for the nine months ended September 30, 2010. Capital
expenditures totaled $7.8 million for the nine months ended
September 30, 2011 compared to $6.9
million for the nine months ended September 30, 2010. Capital expenditures for the first nine
months of 2011 included $2.4 million for cemetery inventory development projects and funeral home
expansion projects.
The outstanding principal of senior debt at September 30, 2011 totaled $136.2 million and
consisted of $130.0 million in 77/8% Senior Notes maturing in 2015, and $6.2 million in acquisition
indebtedness and capital lease obligations.
Effective August 11, 2011, the Company entered into a new secured revolving credit facility
with Wells Fargo Bank, N.A. which contains commitments for an aggregate of $60.0 million with an
accordion provision for up to an additional $15.0 million. The credit facility matures in October
2014 and under certain conditions may be extended to October 2016. The credit facility is
collateralized by the accounts receivable and all personal property of the Company. Borrowings
under the credit facility bear interest at either prime or LIBOR options. At September 30, 2011,
the prime rate option was equivalent to 4.125% and the LIBOR margin was 1.875%. At September 30,
2011, the maximum drawdown allowed on the credit facility was approximately $54.0 million. Prior
to August 11, 2011 the Company had a credit facility which contained commitments for an aggregate
of $40 million with an accordion provision up at an additional $20 million. During the third
quarter of 2011, the Company recorded a charge of approximately $201,000 to write-off the remaining
unamortized fees on the prior credit facility. The fees related to the new credit facility were
approximately $334,000 and are being amortized over the life of the facility.
A total of $89.8 million was outstanding at September 30, 2011 under the convertible junior
subordinated debenture. Amounts outstanding under the debenture are payable to our affiliate
trust, Carriage Services Capital Trust, bear interest at 7.0% and mature in 2029. Substantially
all the assets of the Trust consist of the convertible junior subordinated debentures. In 1999,
the Trust issued 1.875 million shares of 7% convertible preferred securities, termed TIDES. The
rights under the debentures are functionally equivalent to those of the TIDES. In August 2011, the
Company repurchased 35,000 shares of these TIDES for approximately $1,269,000 and recorded a gain
of $481,000. The Company converted and immediately cancelled these preferred shares at the current
conversion rate of 2.4465 into shares of common stock equal to 85,628 shares. No repurchases were
made in the third quarter of 2010. For the nine months ended September 30, 2010, the Company
repurchased 17,850 shares of TIDES for approximately $576,000 and recorded gains of $316,000. For
the nine months ended September 30, 2011, the Company repurchased 61,742 shares of TIDES for
approximately $2,241,000 and recorded gains totaling $846,000.
The convertible junior subordinated debenture payable to the affiliated Trust, and the TIDES,
each contain a provision for the deferral of interest payments and distributions for up to 20
consecutive quarters. During any period in which distribution payments are deferred, distributions
will continue to accumulate at the 7% annual rate. Also, the deferred distributions themselves
accumulate distributions at the annual rate of 7%. During any deferral period, Carriage is
prohibited from paying dividends on the common stock or repurchasing common stock, subject to
limited exceptions. The Company currently expects to continue paying the distributions as due.
On May 17, 2011, our Board of Directors initiated a quarterly cash dividend policy for our
common stock. The Board declared a quarterly dividend of $0.025 per share which was paid on
September 1, 2011 to record holders of our common stock as of August 12, 2011. For the nine months
ended September 30, 2011, the Company has declared dividends totaling $0.05 per share, or $920,000.
- 29 -
The Company intends to use its cash flow and credit facility primarily to acquire funeral home
and cemetery businesses and for internal growth projects, such as cemetery inventory development.
We believe our cash on hand, cash flow from operations, and the available capacity under our credit
facility described above will be adequate to meet our working capital needs and other financial
obligations over the next twelve months.
SEASONALITY
Our business can be affected by seasonal fluctuations in the death rate. Generally, the rate
is higher during the winter months because the incidences of death from influenza and pneumonia are
higher during this period than other periods of the year.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of business, we are typically exposed to a variety of market risks.
Currently, these are primarily related to changes in fair market values related to outstanding debt
obligations and changes in the values of securities associated with the preneed and perpetual care
trusts. For information regarding the Companys exposure to certain market risks, see Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, in the Companys Annual Report on
Form 10-K for the year ended December 31, 2010. There have been no significant changes in the
Companys market risk from that disclosed in the Form 10-K for the year ended December 31, 2010.
The
77/8% Senior Notes were issued to the public at par and are carried at a cost of $130.0
million. At September 30, 2011, these securities were typically trading at a price of
approximately $98.0, indicating a fair market value of approximately $127.4 million.
The convertible junior subordinated debentures, payable to Carriage Services Capital Trust,
pay interest at the fixed rate of 7% and are carried on our Consolidated Balance Sheets at a cost
of approximately $89.8 million. The fair value of these securities is estimated to be
approximately $79 million at September 30, 2011 based on available broker quotes of the
corresponding preferred securities issued by the Trust.
Item 4. Controls and Procedures
In accordance with Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of
1934, as amended (the Exchange Act), we carried out an evaluation under the supervision and with
the participation of management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures as of the end of the period covered
by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of September 30, 2011 to
provide reasonable assurance that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms. Our disclosure
controls and procedures include controls and procedures designed to ensure that information
required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in our internal control over financial reporting that occurred during
the nine months ended September 30, 2011 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
In addition to the matters in Note 12 to our Consolidated Financial Statements, we and our
subsidiaries are parties to a number of legal proceedings that arise from time to time in the
ordinary course of our business. We self-insure against certain risks and carry insurance with
coverage and coverage limits for risk in excess of the coverage amounts consistent with our
assessment of risks in our business and of an acceptable level of financial exposure. Although
there can be no assurance that self-insurance reserves and insurance will be sufficient to
mitigate all damages, claims or contingencies, we believe that the reserves and our insurance
provides reasonable coverage for known asserted and unasserted claims. In the event we sustained a
loss from a claim and the insurance carrier disputed coverage or coverage limits, we may record a
charge in a different period than the recovery, if any, from the insurance carrier.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in Item 1A of our
Annual Report on Form 10-K for the year ended December 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. [Removed and Reserved]
Item 5. Other Information
The Company reported on Form 8-K during the quarter covered by this report all information
required to be reported on such form.
Item 6. Exhibits
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10.1
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Credit Agreement, dated August 11, 2011 and effective as of August 12, 2011, by and
among the Company and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form-8 filed August 16, 2011 (film no. 111040855)) |
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10.2
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Employment Agreement, dated September 1, 2011, between the Company and L. William
Heiligbrodt (incorporated by reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K filed September 15, 2011) |
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*11.1
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Computation of Per Share Earnings |
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*31.1
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Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of the
Sarbanes-Oxley Act of 2002 |
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*31.2
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Certification of Periodic Financial Reports by Terry E. Sanford in satisfaction of Section 302 of the
Sarbanes-Oxley Act of 2002 |
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*32
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Certification of Periodic Financial Reports by Melvin C. Payne and Terry E. Sanford in
satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350 |
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**101
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Interactive Data Files |
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* |
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Filed herewith |
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** |
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Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or
part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities
Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and
otherwise are not subject to liability. |
- 31 -
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.
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CARRIAGE SERVICES, INC.
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Date: November 7, 2011 |
/s/ Terry E. Sanford
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Terry E. Sanford |
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Executive Vice President and
Chief Financial Officer |
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CARRIAGE SERVICES, INC.
INDEX OF EXHIBITS
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10.1
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Credit Agreement, dated August 11, 2011 and effective as of August 12, 2011, by and
among the Company and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form-8 filed August 16, 2011 (film no. 111040855)) |
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10.2
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Employment Agreement, dated September 1, 2011, between the Company and L. William
Heiligbrodt (incorporated by reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K filed September 15, 2011) |
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*11.1
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Computation of Per Share Earnings |
|
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*31.1
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Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of the
Sarbanes-Oxley Act of 2002 |
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|
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*31.2
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Certification of Periodic Financial Reports by Terry E. Sanford in satisfaction of Section 302 of the
Sarbanes-Oxley Act of 2002 |
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*32
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Certification of Periodic Financial Reports by Melvin C. Payne and Terry E. Sanford in
satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350 |
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**101
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Interactive Data Files |
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* |
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Filed herewith |
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** |
|
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or
part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities
Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and
otherwise are not subject to liability. |