# Carriage Services Inc: Form 10-Q for the period ended Mar 31, 2011

- Company: [Carriage Services Inc](/companies/csv.md) (CIK 1016281)
- Form: 10-Q
- Filed: 2011-05-06
- Accepted by EDGAR: May 6, 2011, 18:55 ET
- Period: 2011-03-31
- Accession: 0000950123-11-046517
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/1016281/000095012311046517/h82108e10vq.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1016281/000095012311046517/

## Management's discussion and analysis

As filed, 30,199 characters.

### Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include any projections of earnings, revenues, asset sales, cash flow, debt levels or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may”, “will”, “estimate”, “intend”, “believe”, “expect”, “project”, “forecast”, “plan”, “anticipate” and other similar words. Forward-looking statements are not guarantees of performance. Important factors that could cause actual results to differ materially from our expectations reflected in our forward-looking statements include those risks related to our business and our industry set forth in Item 1A., “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2010.

### Cautionary Statements

We caution readers that important factors, 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. Risks associated with our business and the deathcare business are presented in Item 1A., “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2010.

### OVERVIEW

#### General

We operate two types of businesses: funeral homes, which account for approximately 75% of our revenues, and cemeteries, which account for approximately 25% of our revenues. Funeral homes are principally service businesses that provide funeral services (traditional burial and cremation) and sell related merchandise, such as caskets and urns. Cemeteries are primarily a sales business that sells interment rights (grave sites and mausoleum spaces) and related merchandise, such as markers and outer burial containers. As of March 31, 2011, we operated 147 funeral homes in 25 states and 33 cemeteries in 12 states within the United States. Substantially all administrative activities are conducted in our home office in Houston, Texas.

We have implemented long-term initiatives in our operations designed to improve operating and financial results by growing market share and increasing profitability. We incorporate a decentralized, entrepreneurial and local operating model that includes operating and financial standards developed from our best operations, along with an incentive compensation plan to reward business managers for successfully meeting or exceeding the standards. The model essentially eliminates the use of line-item financial budgets in favor of the standards. The operating model and standards, which we refer to as the “Standards Operating Model” focus on the key drivers of a successful operation, organized around three primary areas — market share, people and operating and financial metrics. The model and standards are the measures by which we judge the success of each business. To date, the Standards Operating Model has driven significant changes in our organization, leadership and operating practices. Most importantly, the Standards Operating Model allowed us to measure the sustainable revenue growth and earning power of our portfolio of deathcare businesses, which then led to the development of a Strategic Acquisition Model, described below under “Acquisitions,” that guides our acquisition and disposition strategies. Both models, when executed effectively, should drive longer term, sustainable increases in market share, revenue, earnings and cash flow. The standards are not designed to produce maximum short-term earnings because we do not believe such performance is sustainable without ultimately stressing the business, which often leads to declining market share, revenues and earnings. Important elements of the Standards Operating Model include:

- *Balanced Operating Model —* We believe a decentralized structure works best in the deathcare industry. Successful execution of the Standards Operating Model is highly dependent on strong local leadership, intelligent risk taking, entrepreneurial drive and corporate support aligned with the key drivers.
- *Incentives Aligned with Standards —* Empowering Managing Partners to do the right things in their operations and local communities, and providing appropriate support with operating and financial practices, will enable long-term growth and sustainable profitability. Each Managing Partner participates in a variable bonus plan whereby they earn a percentage of their business’ earnings based upon the actual standards achieved. Each Managing Partner has the opportunity to share in the earnings of the business as long as the performance exceeds our minimum standards.
- *The Right Local Leadership —* Successful execution of our operating model is highly dependent on strong local leadership as defined by our 4E Leadership Model, intelligent risk taking and entrepreneurial empowerment. Over time, a Managing Partner’s performance is judged according to achievement of the Standards for that business.

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#### Funeral and Cemetery Operations

Factors affecting our funeral operating results include: demographic trends in terms of population growth and average age, which impact death rates and number of deaths; establishing and maintaining leading market share positions supported by strong local heritage and relationships; effectively responding to increasing cremation trends by packaging complementary services and merchandise; controlling salary and merchandise costs; and exercising pricing leverage related to our 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 burial and cremation services because our average cremation service revenue is approximately one-third of the average revenue earned from a traditional burial service. Funeral homes have a relatively fixed cost structure. Thus, small changes in revenues, up or down, normally cause significant changes to our profitability.

Our funeral volumes have increased gradually from 23,366 in 2007 to 25,801 in 2010 (compound annual increase of 3.4%). Our funeral operating revenue has increased from $119.2 million in 2007 to $129.7 million in 2010 (compound annual increase of 2.9%). The increases are primarily because of businesses we acquired in 2007 through 2010. Additional funeral revenue from preneed commissions and preneed funeral trust earnings have grown from $4.7 million in 2007 to $8.4 million in 2010. We experienced an increase of 14.1% in volumes in comparing the first three months of 2011 to the first three months of 2010. Same store volumes grew 1.8% and the remaining came from our acquisitions. Funeral operating revenues for the three months ended March 31, 2011 were up 9.9% compared to the three months ended March 31, 2010.

The percentage of funeral services involving cremations has increased from 35.8% for the year ended 2007 to 44.1% for the year ended 2010 and was 45.9% for the first three months of 2011. A significant portion of that increase is the result of acquiring businesses in high cremation areas. On a same store basis, the cremation rate has risen to 41.0% for the three months ended March 31, 2011, up from 40.0% for the comparable period in 2010.

The cemetery operating results are affected by the size and success of our sales organization. Approximately 60% of our 2010 cemetery operating revenues related to preneed sales of interment rights and mausoleums and related merchandise and services. For the fiscal quarter ended March 31, 2011, those preneed sales are 57.1% of cemetery operating revenues. We believe that changes in the level of consumer confidence (a measure of whether consumers will spend for discretionary items) also affect the amount of cemetery revenues. Cemetery revenues from investment earnings on trust funds grew significantly in 2010 and the first quarter of 2011. Changes in the capital markets and interest rates affect this component of our cemetery revenues.

Our cemetery financial performance from 2007 through 2010 was characterized by fluctuating operating revenues and field level profit margins. Cemetery operating revenue for the first three months of 2011 increased 6.3% over the comparable period in 2010 and we experienced a 37.8% increase in cemetery trust fund earnings and finance charges. Also, an 8.7% increase in at-need revenues contributed to the growth of revenues. Our goal is to build broader and deeper teams of sales leaders and counselors in our larger and more strategically located cemeteries in order to focus on growth of our preneed property sales. Additionally, a portion of our capital expenditures in 2011 is designed to expand our cemetery product offerings.

#### Financial Revenue

We market funeral and cemetery services and products on a preneed basis. Preneed funeral or cemetery contracts enable families to establish, in advance, the type of service to be performed, the products to be used and the cost of such products and services. Preneed contracts permit families to eliminate issues of making deathcare plans at the time of need and allow input from other family members before the death occurs. We guarantee the price and performance of the preneed contracts to the customer.

Preneed funeral contracts are usually paid on an installment basis. The performance of preneed funeral contracts is usually secured by placing the funds collected in trust for the benefit of the customer or by the purchase of a life insurance policy, the proceeds of which will pay for such services at the time of need. Insurance policies, intended to fund preneed funeral contracts, cover the original contract price and generally include an element of growth (earnings) designed to offset future inflationary cost increases. Revenue from preneed funeral contracts, along with accumulated earnings, is not recognized until the time the funeral service is performed. The accumulated earnings from the trust investments and insurance policies is intended to offset the inflation in funeral prices. Additionally, we generally earn a commission from the insurance company from the sale of insurance-funded policies reflected as *Preneed Insurance Commission*. The commission income is recognized as revenue when the period of refund expires (generally one year), which helps us defray the costs we incur to originate the preneed contract (primarily commissions we pay to our sales counselors).

Preneed sales of cemetery interment rights are usually financed through interest-bearing installment sales contracts, generally with terms of up to five years with such earnings reflected as *Preneed Cemetery Finance Charges*. In substantially all cases, we receive an initial down payment at the time the contract is signed. The interest rates generally range between 9.5% and 12% per annum. Occasionally, we have offered zero percent interest financing to promote sales for limited-time offers. In most states, regulations require a portion (generally 10%) of the sale amount of cemetery property and memorials to be placed in a perpetual care trust.

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We have established a variety of trusts in connection with funeral home and cemetery operations as required under applicable state law. Such trusts include (i) preneed funeral trusts; (ii) preneed cemetery merchandise and service trusts; and (iii) perpetual care trusts. These trusts are typically administered by independent financial institutions selected by the Company. Independent financial advisors are also used for investment management and advisory services.

Preneed funeral trust fund income earned and the receipt and recognition of any insurance benefits are deferred until the service is performed. Applicable state laws generally require us to deposit a specified amount (which varies from state to state, generally 50% to 100% of selling price) into a merchandise and service trust fund for preneed cemetery merchandise and service sales. The related trust fund income earned is recognized when the related merchandise and services are delivered. In most states, regulations require a portion (generally 10%) of the sale amount of cemetery property and memorials to be placed in a perpetual care trust. The income from perpetual care trusts provides a portion of the funds necessary to maintain cemetery property and memorials in perpetuity. This trust fund income is recognized, as earned, in cemetery revenues.

#### Acquisitions

Our growth strategy includes the execution of the Strategic Acquisition Model. The goal of that model is to build concentrated groups of businesses in ten to fifteen strategic markets. We use six strategic ranking criteria to assess acquisition candidates and to differentiate the price we are willing to pay. Those criteria are:

- Size of business;
- Size of market;
- Competitive standing;
- Demographics;
- Strength of brand; and
- Barriers to entry.

In general terms, our price expectations range from four to five times pre-tax earnings before depreciation for “tuck-ins” to six to seven times pre-tax earnings before depreciation for businesses that rank very high in the ranking criteria. We derive the pre-tax earnings amounts based primarily on the size and product mix of the target business applied to our standards-based operating model. During 2010, we acquired one cemetery and five funeral home businesses. The consideration paid for these acquisitions was cash, which was generated from our operations. There were no businesses acquired during the first quarter of 2011.

#### Financial Highlights

Net income for the three months ended March 31, 2011 totaled $3.3 million, equal to $0.18 per diluted share, compared to $2.8 million for the three months ended March 31, 2010, or $0.16 per diluted share. Total revenue for the first three months of 2011 was $50.9 million, an increase of 8.6%, compared to $46.8 million for the comparable period in 2010. Both funeral and cemetery operations had increases in revenue and profit as discussed in the *Results of Operation* section.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate estimates and judgments, including those related to revenue recognition, realization of accounts receivable, inventories, goodwill, other intangible assets, property and equipment and deferred tax assets. We base our estimates on historical experience, third party data and assumptions that we believe to be reasonable under the circumstances. The results of these considerations form the basis for making judgments about the amount and timing of revenues and expenses, the carrying value of assets and the recorded amounts of liabilities. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. Historical performance should not be viewed as indicative of future performance, because there can be no assurance the margins, operating income and net earnings as a percentage of revenues will be consistent from year to year.

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is based upon our Consolidated Financial Statements presented herewith, which have been prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are more fully described in Note 1 to our Consolidated Financial Statements. Our critical accounting policies are those that are both important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgment. These critical accounting policies are discussed in MD&A in our 2010 Form 10-K. There have been no significant changes to our critical accounting policies since the filing of our 2010 Form 10-K.

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### RESULTS OF OPERATIONS

The following is a discussion of our results of operations for the three month periods ended March 31, 2010 and 2011. The term “same store” or “existing operations” refers to funeral homes and cemeteries acquired prior to January 1, 2007 and owned and operated for the entirety of each period being presented. Funeral homes and cemeteries purchased after January 1, 2007 are referred to as “acquired.” This classification of acquisitions has been important to management and investors in monitoring the results of these businesses and to gauge the leveraging performance contribution that a selective acquisition program can have on the total company performance. Depreciation and amortization and regional and unallocated funeral and cemetery costs are not included in operating profit.

*Funeral Home Segment.* The following table sets forth certain information regarding the revenues and operating profit from the funeral home operations for the three months ended March 31, 2010 compared to the three months ended March 31, 2011.

#### Three months ended March 31, 2010 compared to three months ended March 31, 2011 (dollars in thousands):

| Revenues: | Three Months Ended March 31, 2010 | 2011 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Same store operating revenue | $28,682 | $29,320 | $638 | 2.2% |
| Acquired operating revenue | 5,138 | 7,842 | 2,704 | 52.6% |
| Preneed funeral insurance commissions | 688 | 473 | (215) | (31.2)% |
| Preneed funeral trust earnings | 1,582 | 1,473 | (109) | (6.9)% |
| Total | $36,090 | $39,108 | $3,018 | 8.4% |
| Operating profit: |  |  |  |  |
| Same store operating profit | $10,360 | $10,777 | $417 | 4.0% |
| Acquired operating profit | 1,471 | 2,261 | 790 | 53.7% |
| Preneed funeral insurance commissions | 342 | 131 | (211) | (62.0)% |
| Preneed funeral trust earnings | 1,582 | 1,473 | (109) | (6.9)% |
| Total | $13,755 | $14,642 | $887 | 6.4% |

Funeral same store operating revenues for the three months ended March 31, 2011 increased $0.6 million, or 2.2%, when compared to the three months ended March 31, 2010. We experienced a 1.8% increase in the number of contracts and the average revenue per contract increased 0.4% for those existing operations. The average revenue per contract including the impact of the funeral trust fund earnings recognized at the time that we provide the needed services for preneed families was $5,646. Excluding funeral trust earnings, the average revenue per contract was $5,438. The number of traditional burial contracts increased 0.5% while the average revenue per burial contract increased 0.7% to $8,149. The cremation rate for the same store businesses rose from 40.0% to 41.0%. The average revenue per same store cremation contract increased 0.6% to $3,082 and the number of cremation contracts increased 4.3%. The average revenue for “other” contracts, which make up approximately 7.3% of the number of contracts, increased 8.0% from $2,088 to $2,255. Other contracts consist of charges for merchandise or services for which we do not perform a funeral service for the deceased during the period.

Same store operating profit for the three months ended March 31, 2011 increased $0.4 million, or 4.0%, from the comparable three months of 2010, and as a percentage of funeral same store operating revenue, increased from 36.1% to 36.8%. Despite higher self-insured costs, the growth in revenues was the primary reason for the increase in operating profit.

Funeral acquired revenues for the three months ended March 31, 2011 increased $2.7 million, or 52.6%, when compared to the three months ended March 31, 2010 as we experienced a 67.0% increase in the number of contracts, yet a decrease of 8.7%, to $3,978, in the average revenue per contract for those acquired operations. Excluding funeral trust earnings, the average revenue per contract declined 8.6% to $3,809. The cremation rate for the acquired businesses was 58.8% for the first quarter of 2011, up from 49.6% in the prior year period, as the businesses acquired in 2010 are generally located in higher cremation areas compared to the locations acquired during the period 2007 through 2009. The average revenue per cremation contract increased 5.8% to $2,598 for the first quarter of 2011 and the number of cremation contracts increased 98.0% compared to the same period of 2010.

Acquired operating profit for the three months ended March 31, 2011 increased $0.8, or 53.7%, from the comparable three months of 2010 and, as a percentage of revenue from acquired businesses, was 28.6% for the first quarter of 2010 compared to 28.8% for the first quarter of 2011 as those recently acquired businesses in 2010 have not fully transitioned into Carriage’s Standard Operating Model.

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The two categories of financial revenue, insurance commissions and trust earnings on matured preneed contracts, on a combined basis, declined $0.3 million each in revenue and operating profit, compared to the first quarter of 2010 primarily due to higher realization in the prior year of insurance contract income.

*Cemetery Segment*. The following table sets forth certain information regarding our revenues and operating profit from the cemetery operations for the three months ended March 31, 2010 compared to the three months ended March 31, 2011.

#### Three months ended March 31, 2010 compared to three months ended March 31, 2011 (dollars in thousands):

| Revenues: | Three Months Ended March 31, 2010 | 2011 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: |
| Same store operating revenue | $7,756 | $8,064 | $308 | 4.0% |
| Acquired operating revenue | 1,540 | 1,672 | 132 | 8.6% |
| Cemetery trust earnings | 1,037 | 1,661 | 624 | 60.2% |
| Preneed cemetery finance charges | 424 | 353 | (71) | (16.7)% |
| Total | $10,757 | $11,750 | $993 | 9.2% |
| Operating profit: |  |  |  |  |
| Same store operating profit | $1,552 | $2,074 | $522 | 33.6% |
| Acquired operating profit | 465 | 546 | 81 | 17.4% |
| Cemetery trust earnings | 1,037 | 1,661 | 624 | 60.2% |
| Preneed cemetery finance charges | 424 | 353 | (71) | (16.7)% |
| Total | $3,478 | $4,634 | $1,156 | 33.2% |

Cemetery same store operating revenues for the three months ended March 31, 2011 increased $0.3 million, or 4.0%, compared to the three months ended March 31, 2010. Same store revenue from preneed property sales increased $0.1 million, or 4.1%, revenue from deliveries of preneed merchandise and services deliveries decreased $0.1 million, or 4.7%, and at-need revenues increased $0.3 million, or 11.4%. We experienced a 14.1% decrease in the number of interment rights (property) sold yet a 10.9% increase in the average price per interment compared to the first quarter of 2010. The percentage of those we were able to recognize as revenue, because we received at least 10% of the sales price from the customer, decreased 110 basis points to 86.3%.

Cemetery same store operating profit for the three months ended March 31, 2011 increased $0.5 million, or 33.6%. As a percentage of revenues, cemetery same store operating profit increased from 20.0% to 25.7%. The increase in operating profit is due in part to the increase in revenue and to a decrease of $0.2 million, or 10.6%, in promotional expenses (primarily preneed sales commissions) and a decrease of $0.1 million in bad debts.

Cemetery acquired revenues for the three months ended March 31, 2011 increased $0.1 million, or 8.6%, compared to the three months ended March 31, 2010, because preneed property sales increased $0.1 million. Cemetery acquired operating profit increased $0.1 million due to the increase in revenue.

Cemetery trust earnings had a meaningful impact on total cemetery revenues and operating profit. Trust earnings increased $0.6 million, or 60.2%, when compared to the three months ended March 31, 2010. Earnings from perpetual care trust funds totaled $1.4 million for the three months ended March 31, 2011 compared to $1.0 million for the three months ended March 31, 2010, an increase of 44.5%, due to larger capital gains realized. Trust earnings recognized upon the delivery of merchandise and service contracts increased $0.2 million compared to the same period in 2010.

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*Other*. General and administrative expenses totaled $4.8 million for the three months ended March 31, 2011, an increase of $0.7 million compared to the three months ended March 31, 2010, primarily due to a higher provision for incentive compensation, an increase of costs related to acquisition activity and the expansion of our Training and Development department.

*Income Taxes.* The Company recorded income taxes at the estimated effective rate of 40.5% for 2010 and for the first three months of 2011. For federal income tax reporting purposes, Carriage has net operating loss carryforwards totaling approximately $5.7 million available at March 31, 2011 to offset future Federal taxable income, which will expire between 2028 and 2029, if not utilized. Carriage also has approximately $57.4 million of state net operating loss carryforwards that will expire between 2013 and 2030, if not utilized. Based on management’s assessment of the various state net operating losses, it has been determined that it is more likely than not that the Company will not be able to realize tax benefits on a substantial amount of the state losses. Accordingly, a valuation allowance was established and is reviewed every quarter related to the deferred tax asset related to the state operating losses.

### LIQUIDITY AND CAPITAL RESOURCES

Carriage began 2011 with $1.3 million in cash and other liquid investments and ended the first quarter with $2.3 million in cash and an undrawn $40.0 million line of credit. The elements of cash flow for the three months ended March 31, 2011 consisted of the following (in millions):

|  |  |
| --- | ---: |
| Cash and liquid investments at beginning of year | $1.3 |
| Cash flow from operations | 3.6 |
| Paydown on the bank credit facility | (0.6) |
| Maintenance capital expenditures | (1.3) |
| Growth capital expenditures — funeral homes | (0.1) |
| Growth capital expenditures — cemeteries | (0.5) |
| Other investing and financing activities, net | (0.1) |
| Cash at March 31, 2011 | $2.3 |

For the three months ended March 31, 2011, cash provided by operating activities was $3.6 million as compared to $2.9 million for the three months ended March 31, 2010. Capital expenditures totaled $1.9 million for both three month periods ended March 31, 2010 and 2011. Capital expenditures for the first three months of 2011 included $0.6 million for cemetery inventory development projects and funeral home additions.

The outstanding principal of senior debt at March 31, 2011 totaled $136.5 million and consisted of $130.0 million in 77/8% Senior Notes maturing in 2015, and $6.5 million in acquisition indebtedness and capital lease obligations. Additionally, $0.1 million in letters of credit were issued and outstanding under the credit facility at March 31, 2011.

The Company has a $40.0 million senior secured revolving credit facility that matures in November 2012 and is collateralized by all personal property and funeral home real property in certain states. The credit facility also contains an accordion provision to borrow up to an additional $20.0 million. Borrowings under the credit facility bear interest at either prime or LIBOR options. At March 31, 2011, the prime rate option was equivalent to 5.75% and the LIBOR option was equivalent to 3.75%, which is set at the 30 day LIBOR rate plus 350 basis points.

A total of $92.8 million was outstanding at March 31, 2011 on the convertible junior subordinated debenture. Amounts outstanding under the debenture are payable to our affiliate trust, Carriage Services Capital Trust, bear interest at 7.0% and mature in 2029. Substantially all the assets of the Trust consist of the convertible junior subordinated debentures. In 1999, the Trust issued 1.875 million shares of term income deferrable equity securities (“TIDES”). The rights under the debentures 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 will continue to accumulate at the 7% annual rate. Also, the deferred distributions themselves accumulate distributions at the annual rate of 7%. During any deferral period, Carriage is prohibited from paying dividends on the common stock or repurchasing common stock, subject to limited exceptions. The Company currently expects to continue paying the distributions as due.

The Company intends to use its cash and credit facility primarily to acquire funeral home and cemetery businesses and for internal growth projects, such as cemetery inventory development. The Company has the ability to draw on our revolving credit facility, subject to customary terms and conditions of the credit agreement.

We believe our cash on hand, cash flow from operations, and the available capacity under our credit facility described above will be adequate to meet our working capital needs and other financial obligations over the next twelve months.

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### SEASONALITY

Our business can be affected by seasonal fluctuations in the death rate. Generally, the number of deaths is higher during the winter months because the incidences of death from influenza and pneumonia are higher during this period than other periods of the year.

## Market risk

As filed, 1,780 characters.

In the ordinary course of business, we are typically exposed to a variety of market risks. Currently, these are primarily related to changes in fair market values related to outstanding debts and changes in the values of securities associated with the preneed and perpetual care trusts. For information regarding the Company’s exposure to certain market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk”, in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2010. There have been no significant changes in the Company’s market risk from that disclosed in the Form 10-K for the year ended December 31, 2010.

The 77/8% Senior Notes were issued to the public at par and are carried at a cost of $130 million. At March 31, 2011, these securities were typically trading at a price of approximately $102.50, indicating a fair market value of approximately $133 million.

The convertible junior subordinated debentures, payable to Carriage Services Capital Trust, pay interest at the fixed rate of 7% and are carried on our Consolidated Balance Sheets at a cost of approximately $92.8 million. The fair value of these securities is estimated to be approximately $67 million at March 31, 2011 based on available broker quotes of the corresponding preferred securities issued by the Trust.

Securities subject to market risk consist of investments held by our preneed funeral, cemetery merchandise and services and perpetual care trust funds. See Notes 4, 6 and 8 to our Consolidated Financial Statements for the estimated fair values of those securities. The sensitivity of the fixed income securities is such that a 0.25% change in interest rates causes an approximate 1.91% change in the value of the fixed income securities.

## Controls and procedures

As filed, 1,474 characters.

In accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 March 31, 2011 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s 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 three months ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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## Risk factors

As filed, 159 characters.

There have been no material changes in our risk factors from those disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010.

Filed May 6, 2011.
Source: SEC EDGAR, the filing index for accession 0000950123-11-046517. Last ingested by Listed: Nov 5, 2026, 19:16 ET. No prices; not investment advice.