Carriage Services Inc (CSV) 2003 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Carriage Services Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder, this conference is being recorded today, Thursday, February 19th of 2004. I would now like to turn the conference over to Mr. Ken Dennard, Managing Partner of DRG&E. Please go ahead sir.

Thank you and good morning everyone. We appreciate you joining us for Carriage Services' conference call to review 2003 fourth quarter and year-end results. Before I turn the call over to management, I have the normal housekeeping details to run through. If you would like to be on the email distribution list or fax list to receive future Carriage Services' releases, or if you experienced any technical difficulties or did not receive your email or fax this morning, please call our offices at DRG&E and relay that information to our folks. That number is 713-529-6600. If you would like to listen to a replay of today's call, it will be available via webcast by going to www.carriageservices.com. Additionally, there is a telephonic instant replay for the next seven days, 24 hours a day, and that information is in the press release on how to access that feature. Please note that information reported on this call speaks only as of today, February 19, 2004 and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replayed listening. Also, as you know, certain statements made in today's conference call or elsewhere by or on behalf of the company that are not historical facts are intended to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E in the Securities Act of 1934, as amended. These statements are based upon the assumptions that the company believes are reasonable. However, many factors that are discussed under `Forward- Looking Statements and Cautionary Statements` in the company's Annual Report and Form 10-K for the year ended December 31, 2002 and subsequent Form 10-Q, could cause the company's results in the future to differ materially from the forward-looking statements made today and in other documents or oral presentations made by or on behalf of the company. A copy of the company's Form 10-K, Form 10-Q, and other Carriage Services' information and news releases, are available at the company's Web site. Now, with that out of way, let me introduce with me today is Mel Payne, Carriage Services' Chairman and Chief Executive Officer and Joe Saporito, the Chief Financial Officer. Let me turn the call over to Mel now.

Thank you Ken. I appreciate everybody tuning in for the call to wrap up our fourth quarter and full-year 2003. I will briefly comment on the quarter and the year, which all of us here at Carriage found disappointing. I am going to mention three major reasons for that disappointing performance, all of which relate to our funeral division. Number one, our volumes, while up 2.4% in the fourth quarter, were down 2.3% for the year. If you look at what we see reported for CDC data, the quarter was down 2.6% in the industry and down 1.4% for the year. This is the first time in about 50 years or maybe over 50 years, that we've had three straight years of down deaths in America. In our view, lower death rates is the reason for our performance. We also had market share loss in some select locations and if you look at the difference in the decline in same-store volumes for the full year, we were down 2.3%. The national rate was 1.4%. So, there is a variance of 0.9% that we were worst than the national data. If you convert that into actual funeral contracts, that's only 216 contracts. But what we have learned in the funeral business is everyone of those is important and it's unacceptable and we are doing something about it, which I'll talk about later.

The second main reason is our contract funeral averages which declined in the fourth quarter. The fourth quarter performance was primarily because of an increase in our cremation mix, we had a big jump of 350 basis points in the number of cremations in the fourth quarter compared to the prior year. And while cremations have lower revenues per funeral, many of the increased cremations in the fourth quarter were primarily direct cremations, meaning there were no services attached to them, and those are the lowest priced events in our industry. Those were the two main reasons for fourth quarter performance, especially the revenue decline that occurred in our average. For the full year, our averages were also impacted by too many of our Location Managers not utilizing their pricing power in their market compared to their competition, wherein almost every case because of our service strategy, our training, and our skills and what we provide to client families, our operations do a better job than the competition, but too many of our Managers were pricing our products and services compared to the competition, and we will be addressing that. The third major reason, our performance was down in '03 was that in a year where revenues declined for the reasons I mentioned, our controllable operating costs went up. As our revenues went down, our costs went up, resulting in a decline in our margins to a level that we found unacceptable. I'll be commenting on what we are doing about it later in this conference call. With that I would like to turn it over to Jo.

Thank you Mel. The challenging business conditions that we saw in the third quarter continued into the fourth quarter, but the good news is that we saw a meaningful improvement in the last month of the quarter. While we were within our estimated ranges for revenue, EBITDA, and EPS, for the quarter in the year, October, November were below expectations because of the low volumes of funerals continued, December was above our expectations because of the significant increase in year-over-year funeral volumes, and there were higher pre-need cemetery revenues. In the quarter, revenues decreased 1.9%, because our average revenue per funeral contract declined from the fourth quarter of last year. Diluted earnings per share declined to $0.08 in the current year quarter from $0.10 per share for the fourth quarter of 2002 on a GAAP basis, and a $0.11 per share after adding back special charges from that period. Decline for the quarter was primarily due to decline in gross margin as Mel talked about earlier from 27.4% to 25.5%, and that was driven primarily by our lower revenues, higher general and administrative expenses, primarily professional fees, compensation cost, and franchise taxes, partially offset by lower interest expense. Income taxes for the quarter were provided at an effective rate of 37.5%, versus 38.5% last year. For the quarter, Carriage generated $3.3m of free cash flow, which included the benefit from deferring the interest payments of $1.7m on our TIDES preferred securities, as compared to $1.4m of net income. This cash flow combined with the proceeds of approximately $700,000 from the sale of attractive real estate and other sources of cash enabled us to reduce debt in the fourth quarter by $4.3m, and we ended the year and the quarter with our senior debt balance of $135.5m. Capital expenditures during the fourth quarter totaled $1.1m, and interest expense for the fourth quarter was $800,000 less than the prior year quarter, due primarily to the year-over-year reduction of debt which was $13.6m and lower interest rates.

The outstanding balance on the company's revolving credit facility, which reduced from $29m to $21.1m and the outstanding balance of senior notes and other debt was reduced by $7.5m for all of 2003. For the year, revenues were $150.8m, EBITDA totaled $39.4m and diluted earnings per share, before special items were $0.35. Revenues for the year were down 2% as compared to the previous year. Diluted earnings per share for the year including the impact of all special items totaled $0.37 compared to $0.43 for the prior year, and this was after excluding a first quarter tax benefit that we discussed in previous calls. The primary contributor to the decline in earnings for the year was funeral cost and expenses, which increased 1.5% for the year, even though revenues declined. Throughout 2003, Carriage recorded income taxes and an effective tax rate of 37.5% compared to an effective tax rate for all of last year of 38.5%. Free cash flow from operations for the year 2003 totaled $8.5m of which $3.2m is generated from the deferral of the distribution. In addition, we generated $5.1m from divestitures and other activities. Actual income taxes paid in 2003 and 2002 totaled 100,000 and 300,000 respectively and were related to State Income tax liabilities. No federal income taxes have been paid this year. Debt-to-total capitalization during the year declined to 40.8% from 44.2% at year-end 2002.

With respect to our funeral operations, we're continued to be challenged by a lower death rate and competitive conditions in certain markets. While we were pleased with a 2.4% increase in same-store volumes during the quarter, particularly as compared to natural death rate decline, we were disappointed that the average revenue per contract declined 2.3% in the prior-year quarter, primarily because of the increase in the cremation rate and preferences for lower price cremations that Mel referred to earlier. Approximately, 31% of our funeral contract volume was generated from cremation services as compared to 27.5% in the fourth quarter of last year. For the full year, our cremation rate is 28.6% versus 28% in 2002, so, the overall increase is not as significant as the spike we saw on the fourth quarter. On a year-to-year basis or year-to-date basis, funeral revenue decreased 3% from $119.3m to $115.7m. Same-store revenue decreased 1.7% from $114.5m to $112.6m and consisted of a 2.3% decrease in same-store contracts and 0.6% increase in same-store revenue per contract. Funeral cost and expenses increased $1.3m year-over-year, primarily due to higher insurance, property taxes, and bad debt expenses. Turning to our cemetery operations. Cemetery gross profit for the current-year quarter declined by $4 to , $500,000 compared to the prior-year quarter primarily due to $300,000 decrease in cemetery revenues related to lower earning on our cemetery trust funds and $300,000 increase in expenses related to a retroactive reassessment of property taxes in professional fees related to protesting that valuation. On a year-to-date basis, cemetery revenues have increased $200,000 or 0.6%, of which field-operating revenues increased $700,000 or 2.4% and financial revenues declined by 500,000 or 13.3%. Field operating revenue benefited from a $400,000 increase in at-need revenues, and an increase in pre-need property sales of $700,000 or 6% up. The decline in financial revenues was primarily impacted by the decrease in our trust earnings as I commented earlier. Cemetery gross profit increased year-over-year by $400,000 primarily due to lower bad debt expenses in 2003.

Now I would like to turn to our first quarter and full year outlook and our Base Case Scenario. For the first quarter of 2004, Carriage expects revenues to range between $39m and $41m, EBITDA to range between $11m and $12m, and earnings to range between $0.14 to $0.17 per share. Carriage expects revenues for the full year of 2004 to range between a $150m and $154m, EBITDA to range between to range between $39m and $41m, earnings to range between $0.38 to $0.43, and free cash flow to range between $14m to $17m. We expect to reduce our debt from $135.5m at year-end 2003 to within a range of $114m to $118m at year-end 2004. This 2004 outlook assumes an increase of 1% in same store volumes, and a 1.5% increase in average revenue for funerals, and approximately half of the increase in diluted earnings per share compared to 2003 is attributable to anticipated lower interest expense, and approximately half is attributable to improved performance in our funeral operations. We've also updated the Long-Term Base Case Scenario which we included in our accompanied investment profile. I'd just like to give you a couple of highlights of the revisions we made to the Long-Term Base Case. First of all, we trued up our actual results for 2003, and then after we did a bottoms-up review of our businesses, we decreased revenue slightly and decreased funeral operating costs. So our margins and EBITDA have remained virtually unchanged. Cash flows from operations in 2004 increased by approximately $1m because we assumed non-federal income taxes would be paid in 2004, and that increase was partially offset by some uses of working capital. Proceeds from divestitures for the year 2004 has been reduced by $1.1m, and as a result of all these revisions, the expected debt balance as of December 31 2004 increased by about $4.2m over our prior Base Case. No changes were made to the assumptions for the Base Case Scenario for the year's 2005 to 2007. Mel will now make some comments on operational changes that we've made to grow our market share and improve our operational and financial performance.

Thank you Joe. Before I get into that I'd like to revisit the past just for a moment. Those of you who had been following the company for some time know in mid-2000, after the acquisition period of a few years, we ran into problems. So in mid-2000, we looked at the company and the performance was declining, the corporate performance was declining, and so we did what we call fresh start at the end of 2000, which was a classic financial and organizational restructuring. Head count reduced, corporate development gone, pre-need funeral strategy, organization collapsed to improve cash flow and so on. All of that's been well documented and I think its there for everyone to review. We've talked about it a lot over the last few years. The benefits of that program were major in terms of reducing the debt, improving the cash flow of the company, over 2001, 2002, not so much of 2003. It became obvious that during 2003, Fresh Start had gone ahead of the funeral operations within Carriage, and the funeral operations were not holding up their end of the bargain. So, it is so evident in our performance for the full-year 2003 because if you look at the prior year $0.43, $0.44 per share on a recurring basis was short of $0.44 compared to $0.35 in '03, that's a $0.09 decline per share. If you then add to that $0.09 the $0.07 per share we gained in lower interest because we reduced our debt in 2003, you have a $0.16 variance between 2002 and 2003. That $0.16 variance was all in funeral operations, and that is unacceptable because in the outlook that whole benefit of the financial outlook was to take advantage of the favorable cost structure of our capital and to use the operating leverage primarily in the funeral operation to prove good economics over a five period of time for shareholders, that didn't happen in 2003. In the middle of 2003, it became obvious that our margins were declining and we had issues, we stopped and started over, I took over funeral operations in the middle of the year, I have never been in charge of funeral operations since founding the company in 1991.

So, for the next six months we worked hard to figure out what the issues were, and what to do about them, and we were just trying to figure it out. I think we did a lot to figuring it out and had a lot of help. This operational restructuring in funeral operations was non-classic, yes there were some headcount reductions, but we did much more that in terms of looking at the operating model and the impact that improvements there might have over time. What we did was bring in the best operators in the company in mid-year along with some best former owners in our company who were pros, and we just want to work looking at what we do, how we do, examining everything. And we came up with a number of operational changes that were identified to improve marketshare and to improve operating and financial performance. These concepts were somewhat different than the old operating model that I call budgeting control. So, all of that has been done, rolled out, and is in place. And so, we got to look at just a few points here briefly that I think you need to know about. We developed a more balanced operating model for each funeral home that allows for our funeral home managing partners and that's what we consider them, to make local decisions guided by their standards which were developed in last half of the year. These are budgets based on the best practices of our best businesses. We didn't come up with these best businesses and best practices, our best operators and former owners came up with those. The second point is that we realigned incentives for the funeral home managing and regional partners to align with the new standards in the field operations so that the partner is running each business would have a chance to be compensated closer to the same level as if they actually own the business and were an independent. The third point, we then took a look at the new model and roles of the leadership in each location, it was the appropriate leadership and also in the organization, a corporate organization, and quite a few changes had been made.

The fourth point is that we then looked at our service strategy, we have had a cycle of service that we've trained here so that every client family will get the most and highest level of satisfaction. We took a fresh look at that model, and have made changes to it, so that relates more to building a lasting relationship with each client family which will bring more business over time. The fifth point is that we have taken a fresh look at our merchandizing any where from 30-50% of revenues, and operation comes from merchandizing, primarily caskets and vaults. We were not giving enough and the right attention to this area. We also have cut new deals with our suppliers that are better for Carriage, and we hope they view it as better for them as well, but they have to earn our business everyday, and they are all upto that. We like that as well. I think the new merchandizing strategy and execution of our strategy including packages to simplify the presentation with families, and to make them more convenient will be effected. This will happen over time, but we are working on it now. And then finally, underpinning all of these initiatives, I hate to call them initiatives, those never seem to work very well, we rolled out a new system for our funeral homes that integrated functionality at the location to improve the job of our funeral directors and the administrative personnel with the accounting and payables. So it's that's a fully integrated system, user friendly. This as a huge deal for our company and is a great example of using existing hardware or technology with a proprietary software system which out IT people developed to improve operations and to build in not only better support for our people in the field, but also to improve efficiencies and overhead cost not only in the field, but in the home office. So, I think you will see that overtime as well. These are all things that we have either done or are in the process of doing.

I would like to comment just for a moment that in spite of the results being disappointing for 2003 -- that was the bad news. The good news was that our company got better in a lot of different ways that weren't reflected in the results that bode well for the future. I just like to mention three. Jose Saparito, our Chief Financial Officer and his organization, his direct reports have done an awesome job, and I can tell you that they are working on getting our financial organization better everyday, and it is happening. Skip who is the head of our IT came up with the software system, first as a band aid, we have been told that it was going to take $3m or $4m to pull out this software system for our funeral homes, he did it on cents on the dollar, and the band aid turned into be a probably a permanent solution and an excellent one. Those were the kinds of things you don't see in these numbers. In our cemetery organization, beefed up their leadership in 2003, they were doing fine, they will do better, and I think they have the leadership in place now to go there. And finally speaking for the leadership of our company, we have never worked harder. You don't see it in the results yet. We believe we are working on the right things, in the right way, and that you will see the fruits of this work in improved operating results in 2004 beginning with the first quarter. One important final thought, we are having a lot of fun right now. I haven't had this much fun in a long time. I look forward to reporting our progress during the year, and I'll take questions now.

Thank you sir. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press the star followed by the one on your push button phone. If you would like to decline from the polling process, press the star followed by the two. You will hear a three-tone prompt acknowledging your selection. Please ask one question and one follow-up and re-queue for additional questions. If you are using speaker equipment, you will need to lift the handset before pressing the numbers. One moment please for the first question. And our first question is from James Clement with Sidoti & Company. Please go ahead.

Good morning guys.

Hi, Jimmy.

Got a question for you. I guess, in looking at your '04 outlook and sort of even the long-term Base Case Scenario, you guys obviously have come off a difficult couple of years with regard to the death rate, and I know Mel, your comments and you have taken responsibility for some of the things that you feel that your folks can do a little bit better. You mentioned that October and November were disappointing months and that things were getting better in December. I guess the question, the first part of the question would be, if you state that you think things are getting a little bit better in December, is that as a result of things that you don't have control over i.e. the death rate, or does that have to do with initiatives you have taken internally from a sales perspective sort of finally bearing fruit?

That's a good question, Jaime, and I'll do my best to answer it. I mentioned that we went to work in the middle of the year and did a lot of work for the rest of the year. We rolled out a lot of new programs, which I touched on. That roll out didn't get finished until the first or second week in December. I think the benefit in December, which was a huge month, one of the best months we've had in a long time, was primarily because of higher death rate.

Okay.

I think there might have been some impact on some of the initiatives or our programs to improve operations that I mentioned, but I don't think that was most of it. So, I think that's in the future.

Let me ask a follow-up question to that about what you are seeing right now. You know, it's really tough for investors or anybody following your general sector to make heads or tails of the CDC data sometimes, and it appears - people talk about an early severe flu season, perhaps boding well for your industry in the first quarter and into the second quarter, perhaps. You have come off the revenue declines, I know you are not looking for a big number in 2004, I think it sort of implies up 1.5%, but your results have sort of been a little bit tough recently, I mean, are you pretty confident in that number, and is that confidence based on what you are seeing right now?

I am confident in the number.

Okay. All right. Thanks very much guys.

Thank you. Our next question comes from Bill Burns with Johnson Rice. Please go ahead with your question.

Good morning, Mel and Joe.

Good morning, Bill.

Mel, I was expecting same-store funeral revenue for the quarter to be basically flat versus last year. But I got there by letting contracts fall about 2.5% and getting average revenue to go up by 2.5%. So, I was right but for the wrong reasons.

You got half of it, I wish I'd get the other half right.

I know. If fact, Mel, I can't recall at least in the last two years when we had a quarter with pricings down, so I guess I am as usual confused, and I wonder if you could help me out just elaborate how did we depart from the strength?

Well, I think we mentioned it in the call, we were up 350 basis points in the quarter on mix, more cremations, and of that higher number Bill, the incremental number of cremations were all pretty much direct cremations.

Did you all move into a different market?

No. We just had - we looked at it and we have had some - frankly for the year we didn't have much of an uptick in cremation. It was all in the fourth quarter, and it was concentrated, and not that many different markets. So, we are looking at it, and I don't think you'll see that. I think it was an aberration but we'll see.

And then Joe, as a follow-up, your G&A in the quarter was like 8.2% of revenue, and I think Q403 was like little over 6%, was this peculiar to the this fourth quarter, or is it just a higher cost of doing businesses as a public company?

Well, it is a little of both. I think but one thing, we had a tough comparison with the fourth quarter last year, we are seeing some higher G&A type cost, areas like professional fees where we are starting to implement the requirements of Sarbanes-Oxley and the internal control reporting. We are seeing some additional franchise taxes in some states that we operate in, the states gets more aggressive about generating revenue. So there is some of that, but we also had a pretty tough comparison in the fourth quarter of last year. If you look year-over-year, our G&A really didn't go up at all, and with respect to what we are forecasting next year, we think on overall overhead will be flat with this year, and if we do what we need to do on the overhead side of our business is we need to be driving that down, but we forecasted a flat.

Okay. And finally, Mel, how is that new guy working out you put in the funeral side of the business? You get along with him?

Well, Let me you tell this. I am having a ball, I want to just comment because I saw this in the middle of the year, I mentioned it early in the call, but I need to mention the perspective that I had at that time, still do. I could see it was ridiculous to try to react to the weak performance during the first six months of the year. Reactionary, short-term, stupid behavior can be bad. So, I wrote off the rest of 2003, wrote it off in my own mind, and went to work on the basics, and on the organization in what we do and how we do it. And so, even though the performance was weak during the last half of the year, I really didn't care. I mean I did care, but I am looking to future in 2004 in my mind because of all the work we did in last half of 2003 in funeral operations, and I am in the middle of it, down in the trenches, was really for the future, not for the fourth quarter of 2003. And that's a good way to look at it.

Yes, but tell the new guy we are seeing the best.

He needs all of the help he can get and the encouragement. Thanks.

Thank you.

Thank you. Our next questions comes from John Dynes with JC Clark Ltd. Please go ahead.

Hi guys. Just the pick up that you saw in revenues in funerals in December, the factors that led to that, are you seeing the same in January or the first half of February?

I think if you go back and look at the -- the CDC does a pretty good job of tracking of flu activity and deaths related to influenza, pneumonia, respiratorial diseases, and I think if you look at that data, there is a pretty clear correlation between what we saw in the way of our volumes in December and the death rates related to flu and influenza, and I think that's continued in January. So, I think at this point, I would say that we are seeing similar activity in January, I really won't comment on February because it's really just too early to tell at this point.

Okay. Just quick questions on pricing, how much of that your competition fall off in that?

All right, I don't find the competition pricing to be a major factor in our average.

Okay, thanks guys.

Thank you. Our next question comes from Lennie Mascovich with Money. Please go ahead.

Good morning guys.

Hi Lennie.

My question is, I guess, I hear your comments about how difficult the operating environment has been and how unhappy you are with the results. And I guess my question sort of focuses on the fact that when we look at the numbers you put forth in terms of estimates, maybe I am missing something, but I think is it your numbers across the board, and I guess when I look out at '04 and '05, should my takeaway be that rather than forecast these are really floors, or is there something else that you rather say about what you think the future might hold?

Let me take it, crack at that, and I'll let Mel follow up with some comments of the . I think if you look at how we, in our talks strictly to 2004, I think if you look at the thinking behind our 2004 forecast, we've been - we cut off three straight years of declining debt rates, which is a tough environment, I think, for all the companies in the sector. It certainly had an impact on our business, and I think that what we were looking at was trying to be prudent in terms of the foresting what we couldn't control which was the other debt rates and the impact on our business. We also have as Mel went through, that the commentary of the outlook, he talked about a number of different changes that we are making at our operations. But, when you think about changing our market share or averages or our cost structure, those are going to be longer term, that's going to take a longer time to do and have an incremental impact on our business throughout the year. So, I think our approach was to be prudent going into the year, and then to see really how it developed in the first and the second quarter, and then based on that we would expect to come back and take a hard look at the forecast and see if we should change it. And I think as Mel said, our expectation is that we are going to hold ourself to a pretty high standard for this year.

I agree Joe, after a disappointing year like 2003, talk . So, I'd rather tell you little bit about what we are doing, do it, and then talk about it some more after we have some results.

Yes. I appreciate your kinder, and I mean, to be clear I mean it is just there are lots of companies that we follow, that don't put out estimates like this and I guess it's just it's hard when I hear you saying how bad, not just the market was, but you feel like your performance was - but you are still hitting your numbers and then I come back and try and reconcile what you are projecting for the future with, what my expectation should be? That's all.

Lennie, let me put it this way. I - we were able in a bad year to still pay down debt, improve our credit ratios and all that. That's wonderful. But, I'm a common shareholder. I didn't think it was a very good performance, if I am a creditor I am okay. But as a common shareholder, I wasn't happy with it at all, and I won't be happy doing that again either. So, those are my feelings.

Thank you. Our next question is from Justin Lue with Associates, please go ahead.

Hi, first of all. What's the cash balance as of December 31?

I'm, sorry. You broke up there.

The cash balance as of December 31?

The cash balance was just over $2m.

Okay, and with respect to your capital structure, it seems to me that the senior notes that you have really kind of restrict your balance sheet with respect to not being able to secure the facility requiring you to defer which then requires you to defer the payment on the trust preferreds. Has there been any thought with respect to refinancing this senior note, these senior note tranches with perhaps a high-yield bond or convertible market with the strength in the credit markets these days?

Well, I think in the short term there is a pretty big economic constraint on doing a kind of refinancing with the senior notes and that is - there is a very significant make hold provision in the senior notes and from our point of view it would be uneconomic to try to refinance them. Clearly this -- this coming year in 2004, we have the first tranche coming up for maturity and that's going to be refinanced to our credit facility. Beyond that we know there are some moves we need to make at our balance sheet, and there will be some refinancing. But I think it is not going to happen -- it's certainly not going to happen this year. We are looking in the late '05 or early '06 timeframe for that to occur.

Explain to me what is the make hole of your provision?

Michael this is Mel, it means that when the insurance company vendors made these loans they made them for a certain amount of term and expected them to stay there until maturity, because one of their biggest risk is reinvestment risk. So, if you want to pre-pay it's not like bank debt, there is a penalty or what is called a make hole that you have to pay in addition to the principle if you want to retire them early.

Okay, I understand. Okay then the last question I have, you're obviously differing these trust-preferred payments, what is ultimately the plan for the state royalty, if it needs to be paid back at some point?

This is Mel again. As we've made clear when we did the bank financing, the condition of the bank financing was that we differed those payments and the bank financing matures in March 2006, I had of about $50m of senior note maturities in mid-2006. So the deal we had to accept and understood from our banks, who we very much appreciated backing us when we needed it, was that we would differ those payments through the period where they are in the credit that means until we have gotten through March '06 and with the mid-2006 maturities of the senior notes. Beyond that -- I mean, that's -- so we haven't really thought about anything other than getting the operations better, trying to get the balance sheet improved over time by paying down debt, so that we can have some capital flexibility in excess to markets in 2005 and early 2006.

Okay, thanks very much.

Thank you. Ladies and gentlemen, if there are any additional questions, please press the star followed by the one at this time. As a reminder, if you are using speaker equipment, you will need to lift your handset before pressing the numbers. One moment please for the next question. And gentlemen, there are no further questions at this time, please continue.

Thank you very much for tuning in, and we look forward to reporting our progress.

Thank you, sir. Ladies and gentlemen, this concludes the Carriage Services Fourth Quarter Earnings Conference call. If you'd like to listen to a replay of today's conference call, please dial 303-590-3000 with pass code 568898. Once again, if you'd like to listen to a replay of today's conference call, please dial 303-590-3000 with pass code 568898. You may now disconnect and thank you for using AT&T Teleconferencing.