e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2007
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-11961
CARRIAGE SERVICES, INC.
(Exact name of registrant as specified in its charter)
|
|
|
DELAWARE
|
|
76-0423828 |
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer Identification No.) |
|
|
|
3040 Post Oak Boulevard, Suite 300, Houston, TX
(Address of principal executive offices)
|
|
77056
(Zip Code) |
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 is a large accelerated filer, an accelerated
filer or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):
Large accelerated filer o Accelerated filer þ Non-Accelerated filer 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, 2007 was 19,208,265.
CARRIAGE SERVICES, INC.
INDEX
- 2 -
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
|
2006 |
|
|
2007 |
|
|
|
|
|
|
|
(unaudited) |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
22,820 |
|
|
$ |
7,241 |
|
Short term investments |
|
|
10,303 |
|
|
|
|
|
Accounts
receivable, net of allowance for doubtful accounts of $925 in 2006
and $1,236 in 2007 |
|
|
13,822 |
|
|
|
13,532 |
|
Assets held for sale |
|
|
2,634 |
|
|
|
568 |
|
Inventories and other current assets |
|
|
11,883 |
|
|
|
11,461 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
61,462 |
|
|
|
32,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
2,888 |
|
|
|
|
|
Federal agency bond |
|
|
5,000 |
|
|
|
5,000 |
|
Preneed cemetery trust investments |
|
|
55,483 |
|
|
|
63,394 |
|
Preneed funeral trust investments |
|
|
44,851 |
|
|
|
66,853 |
|
Preneed receivables, net of allowance for doubtful accounts of $492 in 2006 and
$523 in 2007 |
|
|
15,127 |
|
|
|
19,430 |
|
Receivables from preneed funeral trusts |
|
|
15,649 |
|
|
|
15,272 |
|
Property, plant and equipment, at cost, net of accumulated
depreciation of $47,250 in 2006 and $51,744 in 2007 |
|
|
99,894 |
|
|
|
116,525 |
|
Cemetery property |
|
|
57,798 |
|
|
|
68,123 |
|
Goodwill |
|
|
148,845 |
|
|
|
157,468 |
|
Deferred charges and other non-current assets |
|
|
25,459 |
|
|
|
23,235 |
|
Cemetery perpetual care trust investments |
|
|
32,540 |
|
|
|
38,374 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
564,996 |
|
|
$ |
606,476 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current portion of senior long-term debt and capital leases obligations |
|
$ |
1,610 |
|
|
$ |
1,627 |
|
Accounts payable |
|
|
7,148 |
|
|
|
6,907 |
|
Accrued liabilities |
|
|
15,888 |
|
|
|
11,572 |
|
Liabilities associated with assets held for sale |
|
|
1,061 |
|
|
|
483 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
25,707 |
|
|
|
20,589 |
|
Senior long-term debt, net of current portion |
|
|
133,841 |
|
|
|
132,913 |
|
Convertible junior subordinated debenture due in 2029 to an affiliated trust |
|
|
93,750 |
|
|
|
93,750 |
|
Obligations under capital leases, net of current portion |
|
|
4,728 |
|
|
|
4,687 |
|
Deferred preneed cemetery revenue |
|
|
50,785 |
|
|
|
51,609 |
|
Deferred preneed funeral revenue |
|
|
28,289 |
|
|
|
31,085 |
|
Non-controlling interests in cemetery trust investments |
|
|
55,483 |
|
|
|
63,394 |
|
Non-controlling interests in funeral trust investments |
|
|
44,851 |
|
|
|
66,853 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
437,434 |
|
|
|
464,880 |
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Non-controlling interests in perpetual care trust investments |
|
|
31,189 |
|
|
|
37,317 |
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common Stock, $.01 par value; 80,000,000 shares authorized;18,608,000 and
19,186,000 shares issued and outstanding at December 31, 2006 and
September 30, 2007, respectively |
|
|
186 |
|
|
|
192 |
|
Additional paid-in capital |
|
|
190,524 |
|
|
|
192,597 |
|
Accumulated deficit |
|
|
(94,337 |
) |
|
|
(88,510 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
96,373 |
|
|
|
104,279 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
564,996 |
|
|
$ |
606,476 |
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
26,779 |
|
|
$ |
29,690 |
|
|
$ |
85,468 |
|
|
$ |
92,337 |
|
Cemetery |
|
|
8,215 |
|
|
|
10,924 |
|
|
|
27,451 |
|
|
|
32,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,994 |
|
|
|
40,614 |
|
|
|
112,919 |
|
|
|
124,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Field costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
|
17,958 |
|
|
|
19,350 |
|
|
|
55,197 |
|
|
|
57,878 |
|
Cemetery |
|
|
7,056 |
|
|
|
7,553 |
|
|
|
20,684 |
|
|
|
21,316 |
|
Depreciation and amortization |
|
|
2,000 |
|
|
|
2,070 |
|
|
|
6,306 |
|
|
|
6,134 |
|
Regional and unallocated funeral and cemetery costs |
|
|
2,139 |
|
|
|
1,848 |
|
|
|
5,843 |
|
|
|
5,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,153 |
|
|
|
30,821 |
|
|
|
88,030 |
|
|
|
90,791 |
|
Gross profit |
|
|
5,841 |
|
|
|
9,793 |
|
|
|
24,889 |
|
|
|
33,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General, administrative and other |
|
|
2,610 |
|
|
|
3,728 |
|
|
|
7,695 |
|
|
|
10,712 |
|
Home office depreciation and amortization |
|
|
337 |
|
|
|
337 |
|
|
|
1,068 |
|
|
|
1,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,947 |
|
|
|
4,065 |
|
|
|
8,763 |
|
|
|
11,760 |
|
Operating income |
|
|
2,894 |
|
|
|
5,728 |
|
|
|
16,126 |
|
|
|
22,038 |
|
Interest expense |
|
|
(4,609 |
) |
|
|
(4,579 |
) |
|
|
(13,871 |
) |
|
|
(13,785 |
) |
Interest income and other, net |
|
|
911 |
|
|
|
191 |
|
|
|
1,474 |
|
|
|
1,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other |
|
|
(3,698 |
) |
|
|
(4,388 |
) |
|
|
(12,397 |
) |
|
|
(12,719 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes |
|
|
(804 |
) |
|
|
1,340 |
|
|
|
3,729 |
|
|
|
9,319 |
|
(Provision) benefit for income taxes |
|
|
302 |
|
|
|
(608 |
) |
|
|
(1,398 |
) |
|
|
(3,681 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations |
|
|
(502 |
) |
|
|
732 |
|
|
|
2,331 |
|
|
|
5,638 |
|
Income (loss) from discontinued operations, net of tax |
|
|
(63 |
) |
|
|
(38 |
) |
|
|
(3,928 |
) |
|
|
430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(565 |
) |
|
$ |
694 |
|
|
$ |
(1,597 |
) |
|
$ |
6,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.03 |
) |
|
$ |
0.04 |
|
|
$ |
0.13 |
|
|
$ |
0.30 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
(0.21 |
) |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.03 |
) |
|
$ |
0.04 |
|
|
$ |
(0.08 |
) |
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.03 |
) |
|
$ |
0.04 |
|
|
$ |
0.12 |
|
|
$ |
0.29 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
(0.21 |
) |
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.03 |
) |
|
$ |
0.04 |
|
|
$ |
(0.09 |
) |
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common and common
equivalent shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
18,563 |
|
|
|
19,117 |
|
|
|
18,531 |
|
|
|
18,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
18,563 |
|
|
|
19,586 |
|
|
|
18,896 |
|
|
|
19,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
|
2006 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(1,597 |
) |
|
$ |
6,068 |
|
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
(Income) loss from discontinued operations |
|
|
3,928 |
|
|
|
(430 |
) |
Depreciation and amortization |
|
|
6,518 |
|
|
|
7,179 |
|
Deferred financing costs |
|
|
536 |
|
|
|
536 |
|
Provision for losses on accounts receivable |
|
|
3,141 |
|
|
|
2,051 |
|
Net loss on sale or disposition of business assets |
|
|
(341 |
) |
|
|
|
|
Stock-based compensation expense |
|
|
650 |
|
|
|
868 |
|
Deferred income taxes |
|
|
1,396 |
|
|
|
3,369 |
|
Other |
|
|
|
|
|
|
23 |
|
Changes in operating assets and liabilities that provided (required) cash, net of
effects from acquisitions and dispositions: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
878 |
|
|
|
(483 |
) |
Inventories and other current assets |
|
|
(147 |
) |
|
|
441 |
|
Deferred charges and other |
|
|
12 |
|
|
|
(1,161 |
) |
Preneed funeral and cemetery trust investments |
|
|
(10,529 |
) |
|
|
(6,786 |
) |
Accounts payable and accrued liabilities |
|
|
(3,482 |
) |
|
|
(5,487 |
) |
Deferred preneed funeral and cemetery revenue |
|
|
9,206 |
|
|
|
(4,385 |
) |
Non-controlling interests in preneed funeral and cemetery trusts |
|
|
(1,163 |
) |
|
|
7,700 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities of continuing operations |
|
|
9,006 |
|
|
|
9,503 |
|
Net cash provided by operating activities of discontinued operations |
|
|
749 |
|
|
|
31 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
9,755 |
|
|
|
9,534 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisitions |
|
|
(1,071 |
) |
|
|
(32,531 |
) |
Net proceeds from sales of assets |
|
|
680 |
|
|
|
|
|
Purchase of corporate investments |
|
|
(45,927 |
) |
|
|
|
|
Maturities of corporate investments |
|
|
38,643 |
|
|
|
10,303 |
|
Capital expenditures |
|
|
(4,853 |
) |
|
|
(8,375 |
) |
Sales proceeds deposited into restricted accounts |
|
|
(5,455 |
) |
|
|
2,888 |
|
|
|
|
|
|
|
|
Net cash used in investing activities of continuing operations |
|
|
(17,983 |
) |
|
|
(27,715 |
) |
Net cash provided by investing activities of discontinued operations |
|
|
6,307 |
|
|
|
2,523 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(11,676 |
) |
|
|
(25,192 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Payments on senior long-term debt and obligations under capital leases |
|
|
(1,747 |
) |
|
|
(1,007 |
) |
Proceeds from the issuance of debt |
|
|
922 |
|
|
|
|
|
Proceeds from the exercise of stock options and employee stock purchase plan |
|
|
429 |
|
|
|
845 |
|
Tax benefit from stock-based compensation |
|
|
61 |
|
|
|
365 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities of continuing operations |
|
|
(335 |
) |
|
|
203 |
|
Net cash used in financing activities of discontinued operations |
|
|
(976 |
) |
|
|
(124 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(1,311 |
) |
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(3,232 |
) |
|
|
(15,579 |
) |
Cash and cash equivalents at beginning of period |
|
|
7,949 |
|
|
|
22,820 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
4,717 |
|
|
$ |
7,241 |
|
|
|
|
|
|
|
|
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
(a) The Company
Carriage Services, Inc. (Carriage or the Company) is a leading provider of products and
services in the death care industry in the United States. As of September 30, 2007, the Company
owned and operated 135 funeral homes in 27 states and 32 cemeteries in 11 states.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the Company and its subsidiaries.
All significant intercompany balances and transactions have been eliminated.
(c) Interim Condensed Disclosures
The information for the three and nine month periods ended September 30, 2006 and 2007 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 for the
interim periods. 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, 2006, and should be read in conjunction
therewith.
(d) Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
(e) 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 estimates and judgments, including those related to revenue
recognition, realization of accounts receivable, 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.
(f) Business Combinations
We apply the principles provided in Statement of Financial Accounting Standard (SFAS) 141 when
we acquire businesses. 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 our fair value determination. We customarily estimate our purchase costs and other
related transactions known at closing of the acquisition. To the extent that information not
available to us at the closing date subsequently becomes available during the allocation period, as
defined in SFAS 141, we may adjust goodwill, assets, or liabilities associated with the
acquisition.
(g) Discontinued Operations
In accordance with the Companys strategic portfolio optimization model, non-strategic
businesses are reviewed to determine whether the business should be sold and proceeds redeployed
elsewhere. A marketing plan is then developed for those locations which are identified as held for
sale. When the Company receives a letter of intent and financing commitment from the buyer and the
sale is expected to occur within one year, the location is no longer reported within the Companys
continuing operations. The assets and liabilities associated with the location are reclassified as
held for sale on the balance sheet and the operating results, as well as impairments, are presented
on a comparative basis in the discontinued operations section of the consolidated statements of
operations, along with the income tax effect.
- 6 -
(h) Stock Plans and Stock-Based Compensation
The Company has stock-based employee compensation plans in the form of restricted stock, stock
option and employee stock purchase plans, which are described in more detail in Note 16 to the
consolidated financial statements in our Form 10-K for the year ended December 31, 2006. The
Company accounts for stock-based compensation under SFAS No. 123R, Share-Based Payment (FAS No.
123R). FAS No. 123R requires companies to recognize compensation expense in an amount equal to
the fair value of the share-based awards issued to employees over the period of vesting and applies
to all transactions involving issuance of equity by a company in exchange for goods and services,
including employee services. The fair value of options or awards containing options is determined
using the Black-Scholes valuation model. The Company adopted FAS No. 123R in the first quarter of
2006, using the modified prospective application method.
(i) Accounting Changes and Error Corrections
The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting No.
154, Accounting Changes and Error Corrections (FAS No. 154). This statement is a replacement
of Accounting Principles Board Opinion No. 20 and FAS No. 3. FAS No. 154 changes the requirements
for the accounting for and reporting of a change in accounting principle and error corrections. It
establishes, unless impracticable and in the absence of explicit transition requirements,
retrospective application as the required method of a change in accounting principle to the newly
adopted accounting principle. Also, it establishes guidance for reporting corrections of errors as
reporting errors involves adjustments to previously issued financial statements similar to those
generally applicable to reporting accounting changes retrospectively. FAS No. 154 also provides
guidance for determining and reporting a change when retrospective application is impracticable.
FAS No. 154 is effective for accounting changes and corrections of errors made in the fiscal years
beginning after December 15, 2005. The Company adopted the requirements beginning January 1, 2006,
which had no affect on the Companys presentation and disclosure.
(j) Consideration of Misstatements
In September 2006, the SEC released Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements (SAB 108), which provides interpretive guidance on how the effects of the carryover or
reversal of prior year misstatements should be considered in quantifying a current year
misstatement. The SEC staff believes that registrants should quantify errors using both a balance
sheet and an income statement approach and evaluate whether either approach results in quantifying
a misstatement that, when all relevant quantitative and qualitative factors are considered, is
material. The provisions of SAB 108 is effective for financial statements as of the beginning of
the first fiscal year ending after November 15, 2006. The Company adopted the requirements at the
beginning of the first quarter of 2007, which had no effect on the financial statements.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (FAS No. 157),
which establishes a framework for measuring fair value in accordance with Generally Accepted
Accounting Principles (GAAP) and expands disclosures about fair value measurements. This
statement is effective as of the beginning of the entitys first fiscal year that begins after
November 15, 2007. The Company is currently evaluating the impact, if any, the adoption of FAS No.
157 will have on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115 (FAS No. 159). This
statement permits entities to choose to measure many financial assets and liabilities and certain
other items at fair value. The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex hedge accounting provisions. This
statement is effective as of the beginning of the entitys first fiscal year beginning after
November 15, 2007. The Company is currently evaluating the impact, if any, the adoption of FAS
No. 159 will have on its consolidated financial statements.
3. CHANGE IN ACCOUNTING FOR INCOME TAX UNCERTAINTIES
In June 2006, FASB issued FASB Interpretation No. 48 Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in
an enterprises financial statements in accordance with FASB Statement No. 109, Accounting for
Income Taxes. FIN 48 prescribes how tax benefits for uncertain tax positions are to be
recognized, measured, and derecognized in financial statements; requires certain disclosures of
uncertain tax matters; specifies how reserves for uncertain tax position should be classified on
the balance sheet; and provides transition and interim period guidance, among other provisions.
FIN 48 is effective for fiscal years beginning after December 15, 2006 and was adopted by the
Company at the beginning of the first quarter of 2007. The Company has reviewed its income tax
positions and identified certain tax deductions, primarily related to business acquisitions that
are not certain. The cumulative effect of adopting FIN 48 has been recorded as a reduction to the
2007 opening balance of Retained Earnings and an increase in noncurrent liabilities in the amount
of $241,000, which includes accrued interest and penalties totaling $86,000. The Companys policy
with respect to potential penalties and interest is to record them as other expense and interest
expense, respectively.
- 7 -
The Company has unrecognized tax benefits for Federal and state income tax purposes totaling
$5.1 million at January 1, 2007, resulting from deductions totaling $13.8 million on Federal
returns and $7.9 million on various state returns. The effect of applying FIN 48 for the nine
months ended September 30, 2007 was not material to operations. The Company has net operating loss
carryforwards exceeding these deductions, and has accounted for these unrecognized tax benefits by
reducing the net operating loss carryforwards by the amount of these unrecognized deductions. In
certain states, the Company has previously reduced its taxes payable by deductions that are not
considered more likely than not. The cumulative effect of adopting FIN 48 specifically relates to
those state income tax returns.
The Companys Federal income tax returns for 2001 through 2006 are open tax years that may be
examined by the Internal Revenue Service. The Companys unrecognized state tax benefits are
related to state returns open from 2001 through 2006. The Company believes it will recognize the
unrecognized tax benefits upon the expiration of statutes of limitations of previously deducted
expenses.
4. ACQUISITIONS
Effective August 3, 2007, the Company acquired six funeral home businesses in Massachusetts
for cash in the amount of $3.6 million. Management currently plans to sell one of the locations
for use other than a funeral home. The Company acquired substantially all the assets and assumed
certain operating liabilities including obligations associated with existing preneed contracts.
The assets and liabilities were recorded at fair value and included goodwill in the amount of $0.2
million. The results of the acquired business are included in the Companys results from the date
of acquisition. The proforma impact of the acquisition on the prior period is not presented as the
impact is not material to reported results.
The effect of the acquisitions on the consolidated balance sheet at September 30, 2007 was as
follows (in thousands):
|
|
|
|
|
Current Assets |
|
$ |
117 |
|
Property, plant & equipment |
|
|
3,322 |
|
Goodwill |
|
|
232 |
|
Preneed Assets |
|
|
1,672 |
|
Deferred preneed revenues |
|
|
(109 |
) |
Non-controlling interest in trusts |
|
|
(1,606 |
) |
|
|
|
|
Cash used for acquisition |
|
$ |
3,628 |
|
|
|
|
|
5. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
The Company continually reviews locations to optimize the sustainable earning power and return
on invested capital of the Company. The Companys strategy, the Strategic Portfolio Optimization
Model, uses strategic ranking criteria to identify disposition candidates. The execution of this
strategy entails selling non-strategic businesses.
At December 31, 2006, three funeral home businesses were held for sale. In the first quarter
of 2007, the Company sold two funeral home businesses for approximately $2.4 million and recognized
a gain of $0.7 million. In the second quarter of 2007, the Company sold a funeral home business
for approximately $0.8 million and recognized a gain of $0.1 million.
At September 30, 2007, one funeral home business was held for sale and subsequently sold in
October 2007 (Note 17). Assets and liabilities associated with the respective funeral home
businesses held for sale in the accompanying balance sheet consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
|
2006 |
|
|
2007 |
|
Assets: |
|
|
|
|
|
|
|
|
Current assets |
|
$ |
124 |
|
|
$ |
11 |
|
Property, plant and equipment, net |
|
|
1,406 |
|
|
|
66 |
|
Preneed receivables and trust investments |
|
|
634 |
|
|
|
365 |
|
Goodwill |
|
|
324 |
|
|
|
114 |
|
Deferred charges and other assets |
|
|
146 |
|
|
|
12 |
|
|
|
|
|
|
|
|
Total |
|
$ |
2,634 |
|
|
$ |
568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
229 |
|
|
$ |
58 |
|
Deferred preneed funeral contracts revenue |
|
|
78 |
|
|
|
|
|
Senior long-term debt, net of current portion |
|
|
54 |
|
|
|
64 |
|
Non-controlling interests in funeral and
cemetery trust investments |
|
|
700 |
|
|
|
361 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,061 |
|
|
$ |
483 |
|
|
|
|
|
|
|
|
- 8 -
The operating results of businesses discontinued during the periods presented, as well as
impairments and gains or losses on the disposal, are presented on a comparative basis in the
discontinued operations section of the consolidated statements of operations, along with the income
tax effect. Likewise, the operating results, impairment charges and gains or losses from businesses
sold in the prior year have been similarly reported for comparability. Revenues and operating
income for the businesses presented in the discontinued operations section are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, 2007 |
|
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
Revenues |
|
$ |
696 |
|
|
$ |
85 |
|
|
$ |
3,815 |
|
|
$ |
633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
11 |
|
|
$ |
(41 |
) |
|
$ |
676 |
|
|
$ |
(5 |
) |
Gain (loss) on sale and (impairment) |
|
|
(111 |
) |
|
|
(31 |
) |
|
|
(6,443 |
) |
|
|
697 |
|
(Provision) benefit for income taxes |
|
|
37 |
|
|
|
34 |
|
|
|
1,839 |
|
|
|
(262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations |
|
$ |
(63 |
) |
|
$ |
(38 |
) |
|
$ |
(3,928 |
) |
|
$ |
430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. GOODWILL
Many of the acquired funeral homes, former owners and staff 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 sheet
(in thousands):
|
|
|
|
|
|
|
September 30, |
|
|
|
2007 |
|
Goodwill at beginning of year |
|
$ |
148,845 |
|
Acquisitions |
|
|
8,737 |
|
Assets held for sale |
|
|
(114 |
) |
|
|
|
|
Goodwill at end of period |
|
$ |
157,468 |
|
|
|
|
|
7. PRENEED TRUST INVESTMENTS
Cemetery preneed trust investments
Cemetery preneed trust investments represent trust fund assets that the Company will withdraw
when the merchandise or services are provided. The cost and market values associated with
cemetery preneed trust investments at September 30, 2007 are detailed below (in thousands). The
Company believes the unrealized losses related to trust investments are temporary in nature and not
material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
Cash and money market accounts |
|
$ |
5,037 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,037 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency obligations |
|
|
20,198 |
|
|
|
161 |
|
|
|
(6 |
) |
|
|
20,353 |
|
State and municipal obligations |
|
|
350 |
|
|
|
9 |
|
|
|
|
|
|
|
359 |
|
Corporate |
|
|
2,000 |
|
|
|
20 |
|
|
|
(13 |
) |
|
|
2,007 |
|
Other |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
5 |
|
Common stock |
|
|
13,047 |
|
|
|
1,644 |
|
|
|
(247 |
) |
|
|
14,444 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
12,218 |
|
|
|
2,719 |
|
|
|
(58 |
) |
|
|
14,879 |
|
Fixed income |
|
|
5,995 |
|
|
|
116 |
|
|
|
(87 |
) |
|
|
6,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
58,850 |
|
|
$ |
4,669 |
|
|
$ |
(411 |
) |
|
$ |
63,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
$ |
286 |
|
|
|
|
|
|
|
|
|
|
$ |
286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 9 -
The estimated maturities of the fixed income securities included above are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gain/(Loss) |
|
|
Market |
|
Due in one year or less |
|
$ |
2,519 |
|
|
$ |
(7 |
) |
|
$ |
2,512 |
|
Due in one to five years |
|
|
14,772 |
|
|
|
134 |
|
|
|
14,906 |
|
Due in five to ten years |
|
|
5,104 |
|
|
|
40 |
|
|
|
5,144 |
|
Thereafter |
|
|
158 |
|
|
|
4 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
22,553 |
|
|
$ |
171 |
|
|
$ |
22,724 |
|
|
|
|
|
|
|
|
|
|
|
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. Such contracts are secured by funds paid
by the customer to the Company. Preneed funeral receivables and trust investments are reduced by
the trust investment 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 cost and market values associated with preneed funeral trust investments at September 30,
2007 are detailed below (in thousands). The Company believes the unrealized losses related to trust
investments are temporary in nature and not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
Cash and money market accounts |
|
$ |
32,507 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
32,507 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
8,617 |
|
|
|
102 |
|
|
|
(2 |
) |
|
|
8,717 |
|
State and municipal obligations |
|
|
1,531 |
|
|
|
38 |
|
|
|
|
|
|
|
1,569 |
|
Corporate |
|
|
1,682 |
|
|
|
17 |
|
|
|
(23 |
) |
|
|
1,676 |
|
Mortgage Backed Securities |
|
|
2,019 |
|
|
|
19 |
|
|
|
(4 |
) |
|
|
2,034 |
|
Common stock |
|
|
3,954 |
|
|
|
899 |
|
|
|
(66 |
) |
|
|
4,787 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
11,169 |
|
|
|
2,094 |
|
|
|
(42 |
) |
|
|
13,221 |
|
Fixed income |
|
|
2,343 |
|
|
|
22 |
|
|
|
(23 |
) |
|
|
2,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63,822 |
|
|
$ |
3,191 |
|
|
$ |
(160 |
) |
|
$ |
66,853 |
|
|
|
|
|
|
Trust investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
66,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities of the fixed income securities included above are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gain/(Loss) |
|
|
Market |
|
Due in one year or less |
|
$ |
3,576 |
|
|
$ |
(84 |
) |
|
$ |
3,492 |
|
Due in one to five years |
|
|
9,730 |
|
|
|
219 |
|
|
|
9,949 |
|
Due in five to ten years |
|
|
543 |
|
|
|
12 |
|
|
|
555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,849 |
|
|
$ |
147 |
|
|
$ |
13,996 |
|
|
|
|
|
|
|
|
|
|
|
Upon cancellation of a preneed funeral or 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 exceeds 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. No loss amounts have been required to be recognized for the periods
presented in the Consolidated Financial Statements.
- 10 -
Trust Investment Security Transactions
Cemetery and funeral trust investment security transactions recorded in Other income in the
Consolidated Statement of Operations for the three and nine months ended September 30, 2006 and
2007 are as follows (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
Investment income (loss) |
|
$ |
666 |
|
|
$ |
975 |
|
|
$ |
1,139 |
|
|
$ |
2,799 |
|
Realized gains |
|
|
289 |
|
|
|
1,065 |
|
|
|
2,303 |
|
|
|
2,545 |
|
Realized losses |
|
|
(237 |
) |
|
|
(188 |
) |
|
|
(1,077 |
) |
|
|
(482 |
) |
Expenses |
|
|
(162 |
) |
|
|
(300 |
) |
|
|
(799 |
) |
|
|
(850 |
) |
Increase in non-controlling
interests in trust
investments |
|
|
(556 |
) |
|
|
(1,552 |
) |
|
|
(1,566 |
) |
|
|
(4,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. 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.
9. 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. The preneed funeral contracts secured by insurance
totaled $184 million at September 30, 2007, and are not included in the Companys consolidated
balance sheet.
10. CEMETERY PERPETUAL CARE TRUST INVESTMENTS
The Company is required by state law to pay a portion of the proceeds from the sale of
cemetery property interment rights into perpetual care trust funds. The cost and market values
associated with the trust investments held in perpetual care trust funds at September 30, 2007 are
detailed below (in thousands). The Company believes the unrealized losses related to the trust
investments are temporary in nature and not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Market |
|
Cash and money market accounts |
|
$ |
3,209 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,209 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
|
6,640 |
|
|
|
41 |
|
|
|
(7 |
) |
|
|
6,674 |
|
State and municipal obligations |
|
|
489 |
|
|
|
12 |
|
|
|
|
|
|
|
501 |
|
Corporate |
|
|
901 |
|
|
|
26 |
|
|
|
(1 |
) |
|
|
926 |
|
Other |
|
|
314 |
|
|
|
|
|
|
|
(8 |
) |
|
|
306 |
|
Common stock |
|
|
11,224 |
|
|
|
1,349 |
|
|
|
(294 |
) |
|
|
12,279 |
|
Mutual funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
6,888 |
|
|
|
1,834 |
|
|
|
(53 |
) |
|
|
8,669 |
|
Fixed income |
|
|
5,713 |
|
|
|
118 |
|
|
|
(98 |
) |
|
|
5,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35,378 |
|
|
$ |
3,380 |
|
|
$ |
(461 |
) |
|
$ |
38,297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued net investment income |
|
$ |
77 |
|
|
|
|
|
|
|
|
|
|
$ |
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value as a percentage of
cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated maturities of the fixed income securities included above are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Cost |
|
|
Gain/(Loss) |
|
|
Market |
|
Due in one year or less |
|
$ |
1,249 |
|
|
$ |
(3 |
) |
|
$ |
1,246 |
|
Due in one to five years |
|
|
5,343 |
|
|
|
42 |
|
|
|
5,385 |
|
Due in five to ten years |
|
|
1,505 |
|
|
|
18 |
|
|
|
1,523 |
|
Thereafter |
|
|
247 |
|
|
|
6 |
|
|
|
253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,344 |
|
|
$ |
63 |
|
|
$ |
8,407 |
|
|
|
|
|
|
|
|
|
|
|
- 11 -
Non-controlling interests in cemetery perpetual care trusts represent the corpus of those
trusts plus undistributed income. The components of non-controlling interests in cemetery
perpetual care trusts as of December 31, 2006 and September 30, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
September 30, |
|
|
|
2006 |
|
|
2007 |
|
Trust assets, at market value |
|
$ |
32,540 |
|
|
$ |
38,374 |
|
Pending withdrawals of income |
|
|
(1,351 |
) |
|
|
(1,057 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests |
|
$ |
31,189 |
|
|
$ |
37,317 |
|
|
|
|
|
|
|
|
Trust Investment Security Transactions
Perpetual care trust investment security transactions recorded in Other income in the
Consolidated Statement of Operations for the three and nine months ended September 30, 2006 and
2007 are as follows (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
Realized gains |
|
$ |
123 |
|
|
$ |
295 |
|
|
$ |
807 |
|
|
$ |
947 |
|
Realized losses |
|
|
(34 |
) |
|
|
(38 |
) |
|
|
(362 |
) |
|
|
(61 |
) |
Expenses |
|
|
(105 |
) |
|
|
(73 |
) |
|
|
(280 |
) |
|
|
(631 |
) |
Decrease
(increase) in non-controlling
interests in trust
investments |
|
|
16 |
|
|
|
(184 |
) |
|
|
(165 |
) |
|
|
(255 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. MAJOR SEGMENTS OF BUSINESS
Carriage conducts funeral and cemetery operations only in the United States. The following
table presents revenue, pre-tax income from continuing operations and total assets by segment (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
Cemetery |
|
Corporate |
|
Consolidated |
Revenues from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
$ |
92,336 |
|
|
$ |
32,253 |
|
|
$ |
|
|
|
$ |
124,589 |
|
Nine months ended September 30, 2006 |
|
$ |
85,468 |
|
|
$ |
27,451 |
|
|
$ |
|
|
|
$ |
112,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations before income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2007 |
|
$ |
26,558 |
|
|
$ |
6,762 |
|
|
$ |
(24,001 |
) |
|
$ |
9,319 |
|
Nine months ended September 30, 2006 |
|
$ |
21,949 |
|
|
$ |
2,403 |
|
|
$ |
(20,623 |
) |
|
$ |
3,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
$ |
360,099 |
|
|
$ |
204,217 |
|
|
$ |
42,160 |
|
|
$ |
606,476 |
|
December 31, 2006 |
|
$ |
309,140 |
|
|
$ |
181,225 |
|
|
$ |
74,631 |
|
|
$ |
564,996 |
|
- 12 -
12. SUPPLEMENTAL DISCLOSURE OF STATEMENT OF OPERATIONS INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
11,543 |
|
|
$ |
12,224 |
|
|
$ |
36,746 |
|
|
$ |
38,583 |
|
Cemetery |
|
|
5,617 |
|
|
|
7,240 |
|
|
|
19,029 |
|
|
|
22,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goods |
|
$ |
17,160 |
|
|
$ |
19,464 |
|
|
$ |
55,775 |
|
|
$ |
60,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
15,236 |
|
|
$ |
17,466 |
|
|
$ |
48,722 |
|
|
$ |
53,754 |
|
Cemetery |
|
|
2,598 |
|
|
|
3,684 |
|
|
|
8,422 |
|
|
|
9,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services |
|
$ |
17,834 |
|
|
$ |
21,150 |
|
|
$ |
57,144 |
|
|
$ |
63,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
34,994 |
|
|
$ |
40,614 |
|
|
$ |
112,919 |
|
|
$ |
124,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goods |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
10,010 |
|
|
$ |
10,403 |
|
|
$ |
31,103 |
|
|
$ |
31,997 |
|
Cemetery |
|
|
5,123 |
|
|
|
5,325 |
|
|
|
15,247 |
|
|
|
15,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goods |
|
$ |
15,133 |
|
|
$ |
15,728 |
|
|
$ |
46,350 |
|
|
$ |
47,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral |
|
$ |
7,948 |
|
|
$ |
8,947 |
|
|
$ |
24,094 |
|
|
$ |
25,882 |
|
Cemetery |
|
|
1,933 |
|
|
|
2,228 |
|
|
|
5,437 |
|
|
|
5,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services |
|
$ |
9,881 |
|
|
$ |
11,175 |
|
|
$ |
29,531 |
|
|
$ |
31,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
$ |
25,014 |
|
|
$ |
26,903 |
|
|
$ |
75,881 |
|
|
$ |
79,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 13 -
13. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following information is supplemental disclosure for the Consolidated Statement of Cash
Flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended |
|
|
September 30, |
|
|
2006 |
|
2007 |
Cash paid for interest and financing costs |
|
$ |
16,163 |
|
|
$ |
16,039 |
|
Cash paid for income taxes (state) |
|
|
249 |
|
|
|
407 |
|
Restricted common stock issued to officers and directors |
|
|
|
|
|
|
2,271 |
|
Net deposits in preneed funeral trusts |
|
|
(3,386 |
) |
|
|
(376 |
) |
Net deposits in preneed cemetery trusts |
|
|
(5,209 |
) |
|
|
(4,766 |
) |
Net deposits into perpetual care trusts |
|
|
(3,413 |
) |
|
|
(2,206 |
) |
Net decrease in preneed funeral receivables |
|
|
1,121 |
|
|
|
918 |
|
Net increase in preneed cemetery receivables |
|
|
(118 |
) |
|
|
(729 |
) |
Net withdrawals of receivables from preneed funeral trusts |
|
|
476 |
|
|
|
373 |
|
Net change in preneed funeral receivables increasing
(decreasing) deferred revenue |
|
|
5,136 |
|
|
|
(1,734 |
) |
Net change in preneed cemetery receivables increasing
(decreasing) deferred revenue |
|
|
4,070 |
|
|
|
(2,651 |
) |
Net deposits (withdrawals) in preneed funeral trust
accounts increasing (decreasing) noncontrolling interests |
|
|
(2,464 |
) |
|
|
377 |
|
Net deposits (withdrawals) in cemetery trust accounts
increasing (decreasing) noncontrolling interests |
|
|
(899 |
) |
|
|
4,766 |
|
Deposits in perpetual care trust accounts increasing
noncontrolling interests |
|
|
2,200 |
|
|
|
2,557 |
|
|
|
|
|
|
|
|
|
|
Restricted cash investing and financing activities: |
|
|
|
|
|
|
|
|
Proceeds from the sale of available for sale
securities of the funeral and cemetery trusts |
|
|
45,671 |
|
|
|
29,653 |
|
Purchase of available for sale securities of the
funeral and cemetery trusts |
|
|
38,028 |
|
|
|
56,601 |
|
Net deposits (withdrawals) in trust accounts
increasing (decreasing) noncontrolling interests |
|
|
1,622 |
|
|
|
1,467 |
|
14. DEBT
The Company has outstanding $130 million of 7.875 % Senior Notes, due in 2015, and $93.75
million of 7.00% subordinated debt payable to an unconsolidated affiliate, Carriage Services
Capital Trust, due in 2029. The Company also has a $35 million senior secured revolving credit
facility for which borrowings bear interest at prime or LIBOR options with the current LIBOR option
set at LIBOR plus 275 basis points and is collateralized by all personal property and by funeral
home real property in certain states. The facility is currently undrawn except for $0.4 million in
letters of credit that were issued and outstanding under the credit facility at September 30, 2007.
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 the
debentures issued in connection with our TIDES) have fully and unconditionally guaranteed our
obligations under the Senior Notes. Additionally, the Company does not currently have any
significant restrictions on our ability to receive dividends or loans from any subsidiary guarantor
under the Senior Notes.
15. STOCK-BASED COMPENSATION
Stock options and employee stock purchase plan
No stock options were awarded during the first nine months of 2007. During the third quarter
of 2007, employees purchased a total of 21,067 shares of common stock through the employee stock
purchase plan (ESPP) at a weighted average price of $4.97 per share. The Company recorded
pre-tax stock-based compensation expense for the stock options and the ESPP totaling $45,000 and
$33,000 for the three months ended September 30, 2006 and 2007 and $198,000 and $104,000 for the
nine months ended September 30, 2006 and 2007. As of September 30, 2007, there was $8,000 of total
unrecognized compensation costs,
- 14 -
net of estimated forfeitures, related to nonvested stock options that are expected to be
recognized over a weighted-average period of approximately one year.
The fair value of the right (option) to purchase shares under the ESPP during 2006 and 2007,
respectively, is estimated on the date of grant using the Black-Sholes option-pricing model with
the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
Nine Months Ended |
Employee Stock Purchase Plan |
|
September 30, 2006 |
|
September 30, 2007 |
Dividend yield |
|
None |
|
None |
Expected volatility |
|
|
58.0 |
% |
|
|
23.7 |
% |
Risk-free interest rate |
|
|
4.25 |
% |
|
|
4.96 |
% |
Expected life (in years) |
|
|
0.25 |
|
|
|
0.25 |
|
Expected volatilities are based on the historical volatility for the last twelve months of our
stock. The risk-free rate for periods within the contractual life of the option is based on the
U.S. Treasury yields in effect at the time of grant.
Common stock grants
The Company granted 180,500 shares of restricted stock to certain officers and employees
during the first quarter of 2007, with a four-year vesting period. During the second quarter of
2007, the Company granted 20,000 shares of restricted stock to a new director in which 10,000
shares vest immediately and 10,000 shares vest over two years. The other outside directors each
received an annual grant of 3,000 shares of stock (total of 9,000) with immediate vesting as of the
date of the annual shareholders meeting. The Company granted 120,000 shares of restricted stock
to two officers during the third quarter of 2007, with a four-year vesting period. The Company
recorded $441,000 and $501,000 in pre-tax compensation expense for the nine months ended September
30, 2006 and 2007, respectively, related to the vesting of restricted stock awards. As of
September 30, 2007, there was $2,306,000 of total unrecognized compensation costs related to
unvested restricted stock awards, which is expected to be recognized over a weighted average period
of approximately two and a half years.
Directors may elect to receive all or a portion of their fees in stock. During the three
months ended September 30, 2006 and 2007, the Company issued unrestricted common stock to directors
totaling 2,795 and 2,658 shares respectively, in lieu of payment in cash for their fees, the value
of which totaled $26,000 and $31,000, respectively. During the nine months ended September 30,
2006 and 2007, the Company issued unrestricted stock to directors totaling 12,707 and 13,022 shares
respectively, in lieu of payment in cash for their fees, the value of which totaled $89,000 and
$107,000, respectively.
16. RELATED PARTY TRANSACTIONS
The Company uses a law firm in which one of its partners is the spouse of the Companys
General Counsel. The firm is used for various legal matters. During the three and nine months
ended September 30, 2007, the Company paid the law firm $300,000 and $368,000, respectively.
17. SUBSEQUENT EVENTS
On October 1, 2007, the Company sold a funeral home business that was held for sale as of
September 30, 2007 for $0.7 million and recognized a gain of approximately $0.6 million.
The Company acquired substantially all the assets and liabilities of four funeral homes in
Riverside County, California on November 8, 2007 in exchange for a cash payment at closing in the
amount of $10.0 million.
- 15 -
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
In addition to historical information, this Quarterly Report 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, acquisitions,
cash balances and 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.
Cautionary Statements
We caution readers that the following important factors, among others, in some cases have
affected, and in the future could affect, our actual consolidated results and could cause our
actual consolidated results in the future to differ materially from the goals and expectations
expressed herein and in any other forward-looking statements made by or on behalf of us. For
further information regarding risks associated with our business and the death care industry, see
Item 1A Risk Factors in our annual report filed on Form 10-K for the year ended December 31,
2006.
Risks related to our business
(1) Marketing and sales activities by existing and new competitors could cause us to lose
market share and lead to lower revenues and margins.
(2) Our ability to generate preneed sales depends on a number of factors, including sales
incentives and local and general economic conditions.
(3) Price competition could also reduce our market share or cause us to reduce prices to
retain or recapture market share, either of which could reduce revenues and margins.
(4) Our ability to execute our growth strategy is highly dependent upon our ability to
successfully identify suitable acquisition candidates and negotiate transactions on favorable
terms.
(5) Increased or unanticipated costs, such as insurance, taxes and new computer systems
implementations, may have a negative impact on our earnings and cash flows.
(6) Improved performance in our funeral and cemetery segments is highly dependent upon
successful execution of our standards-based Being the Best operating model.
(7) Our smaller businesses are typically dependent upon one or a few key employees for
success.
(8) Earnings from and principal of trust funds and insurance contracts could be reduced by
changes in financial markets and the mix of securities owned.
(9) Covenant restrictions under our debt instruments may limit our flexibility in operating
our business.
Risks related to the death care industry
(1) Declines in the number of deaths in our markets can cause a decrease in revenues. Changes
in the number of deaths are not predictable from market to market or over the short term.
(2) The increasing number of cremations in the United States could cause revenues to decline
because we could lose market share to firms specializing in cremations. In addition, direct
cremations produce minimal revenues for cemetery operations and lower funeral revenues.
(3) If we are not able to respond effectively to changing consumer preferences, our market
share, revenues and profitability could decrease.
(4) Because the funeral and cemetery businesses are high fixed-cost businesses, changes in
revenues can have a disproportionately large effect on cash flow and profits.
(5) Changes or increases in, or failure to comply with, regulations applicable to our
business could increase costs or decrease cash flows.
- 16 -
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 a service business that provide funeral services (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 mausoleums) and related merchandise such as markers and outer
burial containers. As of September 30, 2007, we operated 135 funeral homes in 27 states and 32
cemeteries in 11 states within the United States. Substantially all administrative activities are
conducted or coordinated through our home office in Houston, Texas.
We have implemented long-term operating models in our operations which are designed to improve
operating and financial results. We introduced a more decentralized, entrepreneurial and local
operating model that we refer to as our Standard Operating Model. This model 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 financial budgets and focuses on key drivers of a successful
operation market share, people and operating and financial metrics. The model requires strong
leadership to grow an entrepreneurial, high value, personal service and sales business at
sustainable profit margins. We believe a primary driver of higher margins in the future will be
the execution of our Strategic Portfolio Optimization Model that helps us to assess acquisition
and divestiture candidates. Using this model, we believe we will acquire larger, higher margin
strategic businesses and sell smaller, lower margin non-strategic businesses. We believe we can do
so without incremental investment in our consolidation platform infrastructure or additional fixed
regional and corporate overhead.
Funeral 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 at-need 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 and cremation services because our average cremation service revenue is
approximately 38% 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 same store volumes have declined gradually each year from 22,395 in 2003 to 21,467 in 2006
(compound annual decline of 1.4%) consistent with a period of weak death rates nationally and the
loss of market share primarily in our Central Region funeral operations. We have continued to
experience lower volumes in 2007, primarily in our Eastern and Western Regions, while the Central
Region has reversed its previous trend by reporting slightly higher volumes. Our same store
funeral operations have increased revenue steadily from $107.1 million in 2003 to $113.0 million in
2006 (compound annual increase of 1.9%). We expect same store portfolio volumes to stabilize and
our average revenue per funeral to increase over time as we seek to provide increased services to
our client families in order to offset potential weak death rates and higher cremation rates.
Cemetery Operations
The cemetery operating results are affected by the size and success of our sales organization.
Approximately 55% of our cemetery revenues relate to preneed sales of interment rights and
mausoleums and related merchandise and services. 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. Approximately 10% 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 same store cemetery financial performance from 2003 through 2006 was characterized by
increasing revenues but slightly declining field level profit margins. We have experienced
improved performance in 2007. Our goal is to build broader and deeper teams of sales leaders and
counselors in our larger and more strategically located cemeteries that can sustain consistent,
modest growth in preneed property sales over time and to diversify and substantially increase our
cemetery operating and financial results.
Acquisitions
Our growth strategy includes the execution of the Strategic Portfolio Optimization 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 pricing we are willing to pay. Those criteria are:
- 17 -
|
|
|
Size of business |
|
|
|
|
Size of market |
|
|
|
|
Competitive standing |
|
|
|
|
Demographics |
|
|
|
|
Strength of brand |
|
|
|
|
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. Our expectation at the beginning of the
year was to acquire two to three large businesses a year. During the first nine months of 2007 we
have completed five acquisitions and we completed an additional acquisition in November. All
acquisitions were all cash transactions. We have not incurred any debt to buy these businesses.
While the number of completed acquisitions was greater than expected, we continue to plan for two
to three in future years. Selected information on the acquisitions follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Annual |
Acquisition Date |
|
Type of Business |
|
Market |
|
Revenue (millions) |
January 2007
|
|
Combination and Funeral
Home
|
|
Corpus Christi, TX
|
|
$ |
6.6 |
|
April 2007
|
|
Combination
|
|
Los Angeles, CA
|
|
$ |
3.5 |
|
June 2007
|
|
Combination and Cemetery
|
|
Boise, ID
|
|
$ |
2.8 |
|
June 2007
|
|
Funeral Home
|
|
Sante Fe, NM
|
|
$ |
0.8 |
|
August 2007
|
|
Five Funeral Homes
|
|
Springfield, MA
|
|
$ |
2.2 |
|
November 2007
|
|
Four Funeral Homes
|
|
Los Angeles, CA
|
|
$ |
4.0 |
|
Financial Highlights
Net income from continuing operations for the three months ended September 30, 2007 totaled
$0.7 million, equal to $0.04 per diluted share as compared to net loss from continuing operations
of $0.5 million for the third quarter of 2006, or $(0.03) per diluted share. Net income from
continuing operations for the nine months ended September 30, 2007 totaled $5.6 million, equal to
$0.29 per diluted share as compared to net income from continuing operations of $2.3 million for
the first nine months of 2006, or $0.12 per diluted share.
The year to date improvement in earnings is due in large part to the success of three
initiatives in which we have focused our attention to improve operating results for 2007: (1)
improvement of our existing Central Region funeral homes, (2) new leadership and sales growth at
Rolling Hills Memorial Park, our largest business, and (3) operating results from 2007
acquisitions. The existing Central Region funeral homes generated 7.4% higher revenues and $2.5
million in additional net income, equal to $0.08 per diluted share in the first nine months of 2007
when compared to the same period in 2006. A new Managing Partner was hired at the beginning of
2007 at Rolling Hills Memorial Park, and with the influence of that new leadership and other
improvements, revenues at Rolling Hills Memorial Park increased 41.6% which helped generate $2.2
million in additional net income, equal to $0.07 per diluted share. During the three months ended
September 30, 2007, we acquired six funeral homes in Massachusetts. These acquired businesses,
along with the businesses acquired in the first six months of 2007, generated revenues totaling
$8.9 million and net income of $2.6 million, equal to $0.08 per diluted share. We expect a
continued positive trend in net income during the balance of 2007 and into 2008 from these three
areas.
Income from discontinued operations for the nine months ended September 30, 2007 totaled $0.4
million, equal to $0.02 per diluted share. During the nine months ended September 30, 2007, the
Company completed the sale of three funeral home businesses, resulting in a pre-tax gain of $0.7
million. Loss from discontinued operations for the nine months ended September 30, 2006 totaled
$3.9 million, equal to $(0.21) per diluted share. During the 2006 period we recorded pre-tax
impairment charges of approximately $6.3 million to write down the book value of non-strategic
businesses in Indiana to the estimated net sales proceeds.
- 18 -
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, 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.
Managements discussion and analysis of financial condition and results of operations are
based upon our consolidated financial statements presented herewith, which have been prepared in
accordance with accounting principles generally accepted in the United States excluding certain
year end adjustments because of the interim nature of the consolidated financial statements. Our
significant accounting policies are more fully described in Note 1 to the Consolidated Financial
Statements included in our annual report on Form 10-K for the year ended December 31, 2006. We
believe the following critical accounting policies affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements.
Funeral and Cemetery Operations
We record the sales of funeral and cemetery merchandise and services when the merchandise is
delivered or service is performed. Sales of cemetery interment rights are recorded as revenue in
accordance with the retail land sales provisions of Statement of Financial Accounting Standards
(FAS) No. 66, Accounting for Sales of Real Estate. This method generally provides for the
recognition of revenue in the period in which the customers cumulative payments exceed 10% of the
contract price related to the real estate. Multiple element cemetery contract arrangements are
allocated based on objective evidence of fair value, and revenue is recorded when the criteria for
revenue recognition has been met for each element. Costs related to the sales of interment rights,
which include property and other costs related to cemetery development activities, are charged to
operations using the specific identification method in the period in which the sale of the
interment right is recognized as revenue. Revenues to be recognized from the delivery of
merchandise and performance of services related to contracts that were acquired in acquisitions are
typically lower than those originated by the Company.
Allowances for bad debts and customer cancellations are provided at the date that the sale is
recognized as revenue. In addition, we monitor changes in delinquency rates and provide additional
bad debt and cancellation reserves when warranted.
When preneed funeral services and merchandise are funded through third-party insurance
policies, we earn a commission on the sale of the policies. Insurance commissions earned by the
Company are recognized as revenues when the commission is no longer subject to refund, which is
usually one year after the policy is issued. Preneed selling costs consist of sales commissions
that we pay our sales counselors and other direct related costs of originating preneed sales
contracts and are expensed as incurred.
Goodwill
The excess of the purchase price over the fair value of net identifiable assets acquired, as
determined by management in transactions accounted for as purchases, is recorded as goodwill. Many
of the 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.
Goodwill is typically not associated with or recorded for the cemetery businesses. In accordance
with SFAS No. 142, we review the carrying value of goodwill at least annually on reporting units
(aggregated geographically) to determine if facts and circumstances exist which would suggest that
this intangible asset might be carried in excess of fair value. Fair value is determined by
discounting the estimated future cash flows of the businesses in each reporting unit at the
Companys weighted average cost of capital less debt allocable to the reporting unit and by
reference to recent sales transactions of similar businesses. The calculation of fair value can
vary dramatically with changes in estimates of the number of future services performed, inflation
in costs, and the Companys cost of capital, which is impacted by long-term interest rates. If
impairment is indicated, then an adjustment will be made to reduce the carrying amount of goodwill
to fair value.
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, in accordance with SFAS 109, Accounting for Income Taxes and account for uncertain
tax positions in accordance with FASB Interpretation No. 48 Accounting for Uncertainty in Income
Taxes. 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.
- 19 -
Stock Compensation Plans
The Company has stock-based employee compensation plans in the form of restricted stock, stock
option and employee stock purchase plans. The Company accounts for stock-based compensation under
Statement of Financial Accounting Standards No. 123R, Share-Based Payment (FAS No. 123R). FAS
No. 123R requires companies to recognize compensation expense in an amount equal to the fair value
of the share-based payment issued to employees over the period of vesting. The fair value of share
based payment is determined using the Black-Scholes valuation model. FAS No. 123R applies to all
transactions involving issuance of equity by a company in exchange for goods and services,
including employee services. The Company adopted FAS No. 123R in the first quarter of 2006, using
the modified prospective application method.
We have granted restricted stock to certain officers and key employees of the Company, which
vest over a period of four years. These shares are valued at the dates granted and the value is
charged to operations as the shares vest.
Discontinued Operations
In accordance with the Companys strategic portfolio policy, non-strategic businesses are
reviewed to determine whether the businesses should be sold and the proceeds redeployed elsewhere.
A marketing plan is then developed for those locations which are identified as held for sale. When
the Company receives a letter of intent and financing commitment from the buyer and the sale is
expected to occur within one year, the location is no longer reported within the Companys
continuing operations. The assets and liabilities associated with the held for sale location are
reclassified on the balance sheet and the operating results, as well as impairments, are presented
on a comparative basis in the discontinued operations section of the Consolidated Statements of
Operations, along with the income tax effect.
RESULTS OF OPERATIONS
The following is a discussion of the Companys results of operations for the three and nine
month periods ended September 30, 2006 and 2007. Funeral homes and cemeteries owned and operated
for the entirety of each period being compared are referred to as same-store or existing
operations. Funeral homes and cemeteries purchased after January 2005 (date of refinancing our
Senior Debt) are referred to as acquired.
Funeral Home Segment. The following table sets forth certain information regarding
the revenues and gross profit of the Company from the funeral home operations for the three and
nine months ended September 30, 2006 compared to the three and nine months ended September 30,
2007.
Three months ended September 30, 2006 compared to three months ended September 30, 2007 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Change |
|
|
|
2006 |
|
|
2007 |
|
|
Amount |
|
|
% |
|
Total same-store revenue |
|
$ |
25,891 |
|
|
$ |
26,087 |
|
|
$ |
196 |
|
|
|
0.8 |
% |
Acquired |
|
|
252 |
|
|
|
3,101 |
|
|
|
2,849 |
|
|
|
* |
|
Preneed insurance commissions revenue |
|
|
636 |
|
|
|
502 |
|
|
|
(134 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing operations |
|
$ |
26,779 |
|
|
$ |
29,690 |
|
|
$ |
2,911 |
|
|
|
10.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from discontinued operations |
|
$ |
580 |
|
|
$ |
85 |
|
|
$ |
(495 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same-store gross profit |
|
$ |
5,417 |
|
|
$ |
5,729 |
|
|
$ |
312 |
|
|
|
5.8 |
% |
Acquired |
|
|
42 |
|
|
|
1,376 |
|
|
|
1,334 |
|
|
|
* |
|
Preneed insurance commissions revenue |
|
|
636 |
|
|
|
502 |
|
|
|
(134 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from continuing operations |
|
$ |
6,095 |
|
|
$ |
7,607 |
|
|
$ |
1,512 |
|
|
|
24.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from discontinued operations |
|
$ |
(50 |
) |
|
$ |
(41 |
) |
|
$ |
9 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 20 -
Nine months ended September 30, 2006 compared to nine months ended September 30, 2007 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Change |
|
|
|
2006 |
|
|
2007 |
|
|
Amount |
|
|
% |
|
Total same-store revenue |
|
$ |
82,852 |
|
|
$ |
84,371 |
|
|
$ |
1,519 |
|
|
|
1.8 |
% |
Acquired |
|
|
797 |
|
|
|
6,209 |
|
|
|
5,412 |
|
|
|
* |
|
Preneed insurance commissions revenue |
|
|
1,819 |
|
|
|
1,756 |
|
|
|
(63 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing operations |
|
$ |
85,468 |
|
|
$ |
92,336 |
|
|
$ |
6,868 |
|
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from discontinued operations |
|
$ |
3,037 |
|
|
$ |
628 |
|
|
$ |
(2,409 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same-store gross profit |
|
$ |
20,394 |
|
|
$ |
22,680 |
|
|
$ |
2,286 |
|
|
|
11.2 |
% |
Acquired |
|
|
199 |
|
|
|
2,506 |
|
|
|
2,307 |
|
|
|
* |
|
Preneed insurance commissions revenue |
|
|
1,819 |
|
|
|
1,756 |
|
|
|
(63 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from continuing operations |
|
$ |
22,412 |
|
|
$ |
26,942 |
|
|
$ |
4,530 |
|
|
|
20.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from discontinued operations |
|
$ |
556 |
|
|
$ |
(5 |
) |
|
$ |
(561 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral same-store revenues for the three months ended September 30, 2007 increased $0.2
million, or 0.8%, when compared to the three months ended September 30, 2006 as we experienced a
decrease of 3.7% in the number of contracts and an increase of 3.9% to $5,315 in the average
revenue per contract for those existing operations. Total funeral same-store gross profit for the
three months ended September 30, 2007 increased $0.3 million from the comparable three months of
2006, and as a percentage of funeral same-store revenue, increased from 20.9% to 22.0%. The
Central Region generated an increase of $0.5 million in same-store revenues and provided the
increase in same-store profits. The improvement in the Central Region was due to the ability to
realize a 6.5% increase in the average revenue per contract and aggressive expense management.
The West Region suffered a decline of same-store revenues totaling $0.4 million as a result of a
6.9% decline in the number of contracts.
Funeral same-store revenues for the nine months ended September 30, 2007 increased $1.5
million, or 1.8%, when compared to the nine months ended September 30, 2006, as we experienced a
decrease of 1.0% in the number of contracts and an increase of 2.8% to $5,266 in the average
revenue per contract for those existing operations. Cremation services represented 35.5% of the
number of funeral services during the nine months ended September 30, 2007 compared to 34.2% for
the nine months ended September 30, 2006. The average revenue for burial contracts increased 5.2%
to $7,374, while the average revenue for cremation contracts increased 5.1% to $2,758.
Total same-store gross profit for the nine months ended September 30, 2007 increase $2.3
million from the comparable nine months of 2006, and as a percentage of funeral same-store revenue,
increased from 24.6% to 26.9%.
Acquired revenue and gross profit for the three and nine month periods ended September 30,
2007 increased substantially due to the results of the Seaside Funeral Homes in Corpus Christi,
Texas which was acquired in January 2007, Conejo Mountain Funeral Home in Camarillo, California,
which was acquired in April 2007, Cloverdale Funeral Home in Boise, Idaho, which was acquired in
June 2007, and the six funeral homes acquired in Springfield, Massachusetts in August 2007.
Cremation services represented 37.1% of the number of funeral services during the third
quarter of 2007, an increase from 34.9% in the third quarter of 2006. The average revenue for
burial contracts increased 5.5% to $7,483, and the average revenue for cremation contracts
increased 7.1% to $2,749. The Company has addressed the growing demand for cremation by training
the funeral directors to present multiple merchandise and service options to families, resulting in
choices that produce higher revenues. The average revenue for other contracts, which make up
approximately ten percent of the number of contracts, declined $382 to $1,860. Other contracts
consist of charges for merchandise or services for which we do not perform a funeral service for
the deceased during the period.
Cemetery Segment. The following table sets forth certain information regarding the
revenues and gross profit of the Company from the cemetery operations for the three and nine months
ended September 30, 2006 compared to the three and nine months ended September 30, 2007.
- 21 -
Three months ended September 30, 2006 compared to three months ended September 30, 2007 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Change |
|
|
|
2006 |
|
|
2007 |
|
|
Amount |
|
|
% |
|
Total same-store revenue |
|
$ |
8,215 |
|
|
$ |
9,680 |
|
|
$ |
1,465 |
|
|
|
17.8 |
% |
Acquired |
|
|
|
|
|
|
1,244 |
|
|
|
1,244 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing operations |
|
$ |
8,215 |
|
|
$ |
10,924 |
|
|
$ |
2,709 |
|
|
|
33.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from discontinued operations |
|
$ |
116 |
|
|
$ |
|
|
|
$ |
(116 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same-store gross profit |
|
$ |
(254 |
) |
|
$ |
2,024 |
|
|
$ |
2,278 |
|
|
|
* |
|
Acquired |
|
|
|
|
|
|
162 |
|
|
|
162 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from continuing operations |
|
$ |
(254 |
) |
|
$ |
2,186 |
|
|
$ |
2,440 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from discontinued operations |
|
$ |
61 |
|
|
$ |
|
|
|
$ |
(61 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2006 compared to nine months ended September 30, 2007 (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
September 30, |
|
|
Change |
|
|
|
2006 |
|
|
2007 |
|
|
Amount |
|
|
% |
|
Total same-store revenue |
|
$ |
27,451 |
|
|
$ |
29,517 |
|
|
$ |
2,066 |
|
|
|
7.5 |
% |
Acquired |
|
|
|
|
|
|
2,736 |
|
|
|
2,736 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from continuing operations |
|
$ |
27,451 |
|
|
$ |
32,253 |
|
|
$ |
4,802 |
|
|
|
17.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from discontinued operations |
|
$ |
778 |
|
|
$ |
|
|
|
$ |
(778 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total same-store gross profit |
|
$ |
2,477 |
|
|
$ |
6,379 |
|
|
$ |
3,902 |
|
|
|
157.5 |
% |
Acquired |
|
|
|
|
|
|
477 |
|
|
|
477 |
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from continuing operations |
|
$ |
2,477 |
|
|
$ |
6,856 |
|
|
$ |
4,379 |
|
|
|
176.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit from discontinued operations |
|
$ |
121 |
|
|
$ |
|
|
|
$ |
(121 |
) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery same-store revenues for the three months ended September 30, 2007 increased $1.5
million, or 17.8% compared to the three months ended September 30, 2006, the majority ($0.9
million) of which was due to higher revenues at our largest business, Rolling Hills Memorial Park,
and secondarily to broadly higher performance in our Central Region cemeteries. Total atneed
revenues increased from $3.1 million to $3.3 million. Total revenue from preneed property sales
increased $1.1 million while revenues from merchandise and service deliveries declined $0.5
million.
Cemetery same-store revenues for the nine months ended September 30, 2007 increased $2.1
million, or 7.5% compared to the nine months ended September 30, 2006 primarily due to reasons
already discussed. Total atneed revenues increased $0.5 million and total preneed revenues
increased $1.2 million from the same period in 2006.
Cemetery same-store gross profit for the three months ended September 30, 2007 increased $2.3
million. As a percentage of revenues, cemetery same store gross profit increased from (3.1)% to
20.9%, the primary reasons for the improvement were an environmental remediation charge during the
2006 period at Rolling Hills in the amount of $0.7 million and the additional margin on the higher
level of revenues in 2007 and a 380 basis point improvement in margin due to product mix and higher
property sales prices.
Cemetery same-store gross profit for the nine months ended September 30, 2007 increased $3.9
million. As a percentage of revenues, cemetery same-store gross profit increased from 9.0% to
21.6%.
Acquired revenue and gross profit for the three and nine month periods ended September 30,
2007 represents the results of Seaside Memorial Park in Corpus Christi, Texas which was acquired in
January 2007, Conejo Mountain Memorial Park in Camarillo, California, which was acquired in April
2007 and Cloverdale Park, Inc. which was acquired in June 2007.
Earnings from perpetual care trust funds are included in cemetery revenues and totaled $0.8
million and $1.3 million for the three and nine month periods ended September 30, 2007 compared to
$0.3 million and $1.1 million for the three and nine month periods ended September 30, 2006. The
year over year improvements were largely due to realized gains in equity investments which have
appreciated in line with the markets during the last two to three years.
- 22 -
Other. General, administrative and other expenses totaled $4.1 million and $11.8 for
the three and nine months ended September 30, 2007 and $2.9 and $8.8 for the three and nine months
ended September 30, 2006. Included in this category for the 2007 periods are the internal costs to
perform due diligence and integrate the acquired businesses, to upgrade IT systems and to
reorganize and upgrade staff in corporate departments.
Income Taxes
The Company recorded income taxes on earnings from continuing operations at the effective rate
of 39.5% during 2007. For Federal income tax reporting purposes, Carriage has net operating loss
carryforwards totaling $15.4 million net of unrecognized tax benefits available at September 30,
2007 to offset future Federal taxable income, which expire between 2021 and 2025, if not utilized.
Carriage also has approximately $80.0 million of state net operating loss carryforwards that will
expire between 2007 and 2025, if not utilized. Based on managements assessment of the various
state net operating losses, it was determined that it is more likely than not that the Company will
not be able to realize tax benefits on a substantial amount of the state losses. Accordingly, the
Company established a valuation allowance against a substantial portion of the deferred tax asset
related to the state operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and corporate investments at September 30, 2007 totaled $12.2 million and consisted of
$7.2 million in cash, and $5.0 million in a Federal agency bond. Cash and corporate investments
totaled $41.0 million at December 31, 2006. The decrease of $28.8 million since year end 2006 is
primarily attributable to the $32.5 million used for acquisitions in 2007. For the nine months
ended September 30, 2007, cash provided by operating activities of continuing operations was $9.5
million as compared to $9.0 million for the nine months ended September 30, 2006. Additionally,
capital expenditures totaled $8.4 million compared to $4.9 million in the prior year because of
higher growth expenditures in 2007.
The Companys senior debt at September 30, 2007 totaled $139.2 million and consisted of $130.0
million in Senior Notes, described below, and $9.2 million in acquisition indebtedness and capital
lease obligations.
The Company has a $35 million senior secured revolving credit facility that matures in 2010
and is collateralized by all personal property and funeral home real property in certain states.
Borrowings under the revolving credit facility will bear interest at prime or LIBOR options with
the current LIBOR option set at LIBOR plus 275 basis points. The revolving credit facility is
currently undrawn except for $0.4 million in letters of credit that were issued and outstanding
under the credit facility at September 30, 2007.
The outstanding principal amount of the Companys convertible junior subordinated debenture is
$93.75 million, is payable to the Companys unconsolidated affiliate, Carriage Services Capital
Trust, bears interest at 7% and matures in 2029. Substantially all the assets of the Trust consist
of the convertible junior subordinated debenture of the Company. The Trust, in turn, issued 1.875
million shares of convertible preferred term income deferrable equity securities (TIDES) in the
public markets. The rights of the debenture are functionally equivalent to those of the TIDES.
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
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 its common stock, subject to
limited exceptions. The Company currently expects to continue paying the distributions as due.
The Company intends to use its cash, investments, cash flow and proceeds from the sale of
businesses, to acquire funeral home and cemetery businesses. The Company also has the ability to
draw on its revolving credit facility, subject to customary terms and conditions of the credit
agreement, to finance acquisitions.
SEASONALITY
The Companys business can be affected by seasonal fluctuations in the death rate. Generally,
the rate is higher during the winter months because the incidences of deaths from influenza and
pneumonia are higher during this period than other periods of the year.
INFLATION
Inflation has not had a significant impact on the results of operations of the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Carriage is currently exposed to market risk primarily related to changes in interest rates
related to the Companys debt, decreases in interest rates related to the Companys short-term
investments 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 Market Risk Disclosure in the Companys annual report filed on Form
10-K for the year ended
- 23 -
December 31, 2006. 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, 2006.
Item 4. Controls and Procedures
In accordance with the Securities Exchange Act of 1934 Rules 13a-15 and 15d-15, 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, 2007 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, 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Carriage and our subsidiaries are parties to a number of legal proceedings that arise from
time to time in the ordinary course of business. While the outcome of these proceedings cannot be
predicted with certainty, we do not expect these matters to have a material adverse effect on the
financial statements.
We self-insure against certain risks and carry insurance with coverage and coverage limits
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 our reserves and
insurance provide reasonable coverage for known asserted or unasserted claims. In the event the
Company sustained a loss from a claim and the insurance carrier disputed coverage or coverage
limits, the Company 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, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
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
|
10.3 |
|
Indemnity Agreement with Gary Forbes dated August 7, 2007 |
|
|
11.1 |
|
Computation of Per Share Earnings |
|
|
31.1 |
|
Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
|
31.2 |
|
Certification of Periodic Financial Reports by Joseph Saporito in satisfaction of Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
|
32 |
|
Certification of Periodic Financial Reports by Melvin C. Payne and Joseph Saporito in
satisfaction of Section 906 of
the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350 |
- 24 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
CARRIAGE SERVICES, INC. |
|
|
|
|
|
November 9, 2007
|
|
/s/ Joseph Saporito |
|
|
|
|
|
|
|
Date
|
|
Joseph Saporito, |
|
|
|
|
Executive Vice President, Chief Financial Officer and
Secretary (Authorized Officer and
Principal Financial Officer) |
- 25 -
CARRIAGE SERVICES, INC.
INDEX OF EXHIBITS
10.3 |
|
Indemnity Agreement with Gary Forbes dated August 7, 2007 |
|
11.1 |
|
Computation of Per Share Earnings |
|
31.1 |
|
Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
31.2 |
|
Certification of Periodic Financial Reports by Joseph Saporito in satisfaction of Section 302 of
the Sarbanes-Oxley Act of 2002 |
|
32 |
|
Certification of Periodic Financial Reports by Melvin C. Payne and Joseph
Saporito in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C.
Section 1350 |
- 26 -