Carriage Services Inc (CSV) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Carriage Services' Third Quarter Earnings Conference Call. [OPERATOR INSTRUCTIONS]

As a reminder, this conference is being recorded Thursday, November 10, 2005.

I would now like to turn the conference over to Kip Rupp with DRG&E. Please go ahead, sir.

Great. Thank you, Eric, and good morning, everyone. We appreciate you joining us today for the Carriage Services' conference call to review 2005 third quarter results.

Before I turn the call over to management, I have a few items to go over.

If you'd like to be on the e-mail distribution or fax list for future Carriage Services' news releases, or if you had a technical problem and didn't receive a copy of the news release yesterday afternoon, please call our offices at DRG&E, and we'll be glad to help you. That number is 713-529-6600.

Also, if you'd like to listen to a replay of today's call, it will be available via webcast by going to Carriage's website at www.carriageservices.com. Additionally, in a few hours there will be a telephonic instant replay made available for the next seven days. The replay access number and code are in the earnings release.

Please note that information reported on this call speaks only as of today, November 10, 2005, and, therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening.

Also, as you know, certain statements made today in the 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 on 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 on 10-K for the year ended December 31, 2004 and in subsequent SEC filings could cause the Company's results in the future to differ materially from the forward-looking statements made today and other documents or oral presentations made by or on behalf of the Company.

A copy of the Company's Form 10-K, Form 10-Qs and other information and news releases are available on the Carriage's website.

With me today are Mel Payne, Carriage Services' Chairman and Chief Executive Officer, and Joe Saporito, Carriages' Chief Financial Officer.

Now, I'd like to turn the call over to Mel.

Thanks, Kip.

Welcome to our third quarter conference call. Our results in the third quarter were consistent with our historical experience. By that, I mean we were close to a breakeven earnings in the quarter at a penny a share, and the reason for that is, historically, the revenues have been lower in the third quarter, while our fixed costs have remained steady. The reason our revenues are historically low is because 75% of our total revenues are funeral revenues, at-need revenues, which always have a seasonal low in the summer months through September. We do expect the normal seasonality from here on.

But there are a few highlights for the quarter I'd like to mention.

Our funeral averages were down slightly, primarily because of an increase of 230 basis points in our cremation rate to 33.3%. That uptick of 230 basis points cost us about $0.5 million in funeral revenue because of the mix change, and because there's a $4,000-plus difference in the revenue per contract on our cremation contracts versus our burial contracts, we lost that revenue.

The other point related to that, however, is that our average cremation contract revenue was also down slightly as more cremations tended to be direct cremations without services and other merchandise revenue enhancements. We are addressing this issue Company-wide by training and packaging. We rolled those out in the earlier part of this year and are well into training our people and trying to improve the performance as it relates to cremations.

Our cemetery performance, as outlined in the press release, was down, but there are a few explanations, which I'd like to mention that aren't in the press release.

The number of preneed contracts was down 2.1% to 1,883. That is not a same-store number, and we did sell a small cemetery in Southern California during the quarter. And if you adjust for that, our same-store preneed contracts actually were down 0.5%.

The other number in here that's worth mentioning is the number of internments, which decreased 10.9%. Again, that's not same store. We lost some internments when we divested the small operation down in Southern California, but the major part of that decrease was because of our operation in Las Vegas, where we managed the cemetery for the city. The county changed their method of handling indigent cases from burial to cremation, and we were in the rotation to handle burials, and we got all of the burials, so that cost us about 102 internments during this quarter, and we got very little, if anything, out of the cremation side of the equation.

So when you adjust for the Southern California divestiture and the change in how the city is handling their indigent cases in Vegas, we actually were down 4% in our internments.

The average preneed contract decreased 4%, and the average property right increased 7.9%. The positive here is that we continue to place our emphasis on property sales, which did show the increase. The average preneed contract decline is driven by three locations, and in a small portfolio, it's always tending to be concentrated. In all three of those locations, it's because of a lack of strong sales management, and we're addressing those issues.

The G&A was higher. Joe Saporito's going to cover that. That was expected.

And the one thing that was unexpected to the degree that it happened was our free cash flow was a negative $4.5 million, primarily as a result of working capital items in the quarter that we do expect to be reversed in the last quarter. Joe's going to get into some detail there.

We are still on target to, we think, hit our projected $25 million in cash by year-end or come very close to it. In the next six weeks, we'll tell the story on that.

The other news for the quarter -- and we haven't announced anything like this in a while -- is that we did make a small acquisition. We invested $1.3 million in cash and what we call a tuck-in acquisition in Northern Florida, where we already had a very strong operation with very strong management. This is an unusually attractive -- this was an unusually attractive opportunity. There were no other bidders. I won't get into multiples. We'll try to stay away from that. I know some of you might want to ask me about that, but we'd prefer to stay away from that. We do think it will be a very accretive deal from the get-go, and we hope to make more like that in the future.

At this point, I'd like to turn it over to Joe.

Thank you, Mel, and good morning.

Before I discuss the third quarter results, I want to remind you that our accounting for preneed selling costs changed in the second quarter. Prior to that change, commissions and other costs that were related to the origination of pre-arranged funeral and cemetery and merchandise sales were deferred and amortized.

Under this new method, which has been used only in our 2005 financial statements, the commissions and other costs are expenses incurred. Therefore, we have provided comparisons of the current-period results to the 2004 period on a pro forma basis for consistency and to help you in looking at the changes in our operating results.

Carriage reported diluted earnings per share of $0.04 for the quarter ended September 30, 2005, which consisted of earnings from continuing operations of $0.01 per diluted share and a gain from the sale of the cemetery business in Southern California of approximately $800,000, or $0.03 per diluted share, compared to pro forma diluted earnings of $0.05 per share for the third quarter of 2004.

Earnings from continuing operations for the third quarter of 2005 decreased $0.02 per diluted share when compared to the third quarter of 2004. We provided a table in the press release to reconcile our 2005 results to 2004. The principal reasons were higher interest and general and administrative expenses.

As we've discussed throughout the year, the cost of documenting and evaluating internal control and upgrading our systems and processes in advance of reporting under Sarbanes-Oxley continues to be a burden on our 2005 financial results.

On a year-to-date basis, and excluding the cumulative effect of the accounting change for preneed costs, Carriage reported diluted earnings per share of $0.01, which consisted of a loss from continuing operations of $0.04 per share and earnings from discontinued operations of $0.05 per share. Excluding debt refinancing costs, which we -- of $0.25 per diluted share, which we incurred in the first quarter of 2005, diluted earnings from continuing operations were $0.21 per diluted share from the 9 months ended September 30, 2005, compared to $0.20 per diluted share on a pro forma basis for the same period in 2004.

As Mel said, we reported negative free cash flow of $4.5 million in the third quarter of 2005, and we've provided a table in the press release, which breaks out the components of our free cash flow for the quarter.

It's not unusual to use cash flow in the third quarter because it's the seasonal low point of our year and our semi-annual interest on our senior notes is paid during the quarter.

However, the negative cash flow in the third quarter was somewhat higher than we expected, and substantially all the variance is attributable to uses of working capital of approximately $3.8 million, which consisted of primarily higher receivables and preneed trust funds in the cemetery segment.

We believe the working capital situation is temporary and should reverse in the fourth quarter. We expect working capital to provide positive free cash flow of at least $3 million in the fourth quarter, primarily from scheduled trust fund withdrawals.

At 9/30 -- at September 30, 2005, our cash and short-term investments were $16.3 million. Currently, our cash and short-term investment balances are approximately $20.8 million, so you can see that some of the working capital reversals have started to occur.

Our same-store funeral revenues decreased by 0.9 of a percent from $26.2 million to $26 million, and same-store funeral [inaudible] decreased 0.5 of a percent from $5,335 to $5,309.

The third quarter is seasonally the weakest volume quarter of the year, and our average revenue contract -- per contract was down slightly because the cremation rate increased 230 basis points.

Cremation services represented 33.3% of the number of funeral services performed during the third quarter, compared to 31% in the third quarter of 2004.

The average revenue for burial contracts increased 2.7% to $6,726, while the average revenue for cremation contracts declined 0.4% to $2,389. Mel will address the reason for that decrease.

The change in burial versus cremation mix had the effect of reducing our revenues by $500,000 for the quarter. Funeral gross profit was flat at $6.1 million.

On a year-to-date basis, same-store funeral revenue increased 1.4%, consisting of a 0.1% decline in the number of contracts and an increase in the average revenue per contract of 1.5%.

On a year-to-date basis, the cremation rate has increased 170 basis points, from 31.2% to 32.9%.

Preneed commission income also increased by $600,000, or almost 60%, compared to 2005.

Our funeral gross margin increased from 25.8% to 26.7% because we have controlled expenses and realized operating leverage from higher revenues for the year.

Cemetery revenues increased 6.8%, from $9.2 million to $9.9 million. A substantial portion of that increase was related to revenue recognized from the completion of mausoleums sold in prior periods.

We did experience a 10.9% decrease in internments, which Mel has previously discussed, and a 2.1% decrease in preneed contracts written.

Financial revenues, which are trust earnings and finance charges on our installment contracts, totaled approximately $750,000 and were pretty much unchanged for the quarter.

Cemetery gross margin percentage declined by 260 basis points to 18.4% because of the product revenue mix changes to a higher proportion of merchandise and services, which have lower margins, and this also includes the effect of the change in accounting for preneed selling costs.

On a year-to-date basis, cemetery revenues increased 4% as cemetery gross margin decreased 410 basis points to 19.2%, and this was attributable to the change in accounting for preneed selling costs, also.

Now, I'd like to turn to our outlook for the fourth quarter.

We expect revenues for the fourth quarter to range between $37 million and $39 million; EBITDA to range between $8 million and $9 million; and earnings from continuing operations to range between $0.04 and $0.06 per diluted share.

We expect our revenues for the full year of 2005 to range between $154 million and $156 million; adjusted EBITDA to range between $35.8 million and $37.3 million; and we've narrowed our earnings from continuing -- the range of our earnings from continuing operations to $0.25 to $0.27 per share.

We've also revised our adjusted free cash flow estimate for the year to range between $9 million and $10 million, and we raised our capital expenditures to approximately $7.5 million.

Mel?

Thank you, Joe.

Well, it was another third quarter, and with that, I'd like to open it up for questions.

[OPERATOR INSTRUCTIONS]

James Clement, Sidoti & Company.

Question, Mel or Joe, if I may. It seems that both sides of the business, you had a little bit of -- you had a little headwind from some mix issues, whether it's cremation on the funeral side or a higher proportion of merchandise and services on the cemetery side. But if I look back to the third quarter last year and I adjust the margins for preneed origination costs, it actually looks like your gross margins are actually up about -- call it about 100 basis points in funeral and more than 200 on the cemetery side, and I’m sort of wondering why that's the case.

Well, that is the case, although I can't tell you at this moment. I don't view those percentage increases in terms of basis points to be that material.

Okay.

But it is -- the good news is that it is up. In looking at our portfolio, I'm always trying to figure out why it isn't better, so I’m tending to focus on why we are weak in some areas. It was an okay quarter and, I agree with you, a little better than last year, but I don't think it's where we want to be, and we're still working on leadership. It's all about the local leadership, and we're working hard on that and trying to position the portfolio so that '06 will be a better full year than '05. To be honest, I don't -- I'm just telling you the truth. I don't pay a lot of attention to basis point increases on a quarterly basis because our portfolio is small enough that you really have to look at year-over-year performance, and it can vary a little bit on the quarter.

Okay. Fair enough. If I can sort of just change gears, and I will not ask you about valuation multiple or anything like that, but in terms of what -- I think you alluded to this in the press release -- being the best standards with regard to evaluating an acquisition, can you help us sort of understand what that means in the due diligence process as you look forward to maybe similar deals in the future?

Absolutely. We replaced our operating model on the funeral side about a couple of years ago, actually, January 1 '04. And instead of a budget, which we used to have, and we try to budget funerals every year, and what we found, Jamie, is that one out of every 5 years in the funeral business, no matter what region of the country, is either up or down materially, and it's just up or down with no explanation. It's just a death rate variation.

So when you try to budget that and incentivize your local leadership [part] against the budget, it really doesn't work because you can't budget funerals reliably in a stable market. You can over long periods of time, on average, but a budget is for the performance that year. So it, on average, doesn't work.

So instead of that, we went to a standards-based model, where we look at the last three years of actual funeral contracts. If we actually look at 10 years of history in evaluating market share competitive position of the business relative to competitors.

But for purposes of the operating model and the new standards, we look at a rolling three-year average of funeral contracts. That becomes the goal or the standard for the next year.

So in evaluating an acquisition, we will go back and look at 10 years of history, not only in the business we're looking at buying but also relative to competition, which we do in our standards. We have obit comparisons, and every business that we look at, that's part of our market share standard.

But the most important driver is the pure volume, and it's -- the average of the last three years' contracts becomes the standard for the next year. And in looking at this particular acquisition, we put that standard on top of it, we put the other standards on top of it related to gross margin for the size business, for the mix. We have an average standard for the size and mix of a business like that, and we have other operating and financial metrics. We have nine in total. So three of those are related to people. In this case, it's quality of people, continuously upgrading people, and the [S&B] as a percent of revenue. What makes this one so easy -- and I wish we could tell you they'll all be this way -- is that we had a strong business in the same market with an incredibly strong manager, and you just tuck it in, and you just keep going. So putting the new standards on a tuck-in business is like falling off a log. We will be more challenged as we look at different opportunities not in the same market, applying the standards we've developed for the whole portfolio, but I can tell you we did not have any kind of framework like this in the '90s when we were building our company. If we had, there were a lot of acquisitions we would not have made and others we would have treated differently once we made them. So we're pretty excited about this framework.

Okay, quick follow-up, Mel, and maybe the answer to this is obvious. But when you think about valuation for acquisitions internally, I mean are your financial metrics -- I mean are they based on historical-type numbers, not based on just an LTM basis or anything like that, right?

No, we will look at longer-term trends and then also forecast forward what we think are the mix trends. We know what we -- we changed our standard on our existing portfolio because of some mix issues. It's really hard to forecast average revenue per contract if you have a mix change underway. So starting January 1, '06, we're breaking our average revenue per funeral standard into two pieces, the burial average and the cremation average. So we'll be able to forecast forward for each business burial averages, cremation averages, and then the combined average. We did the same thing with this acquisition, and we'll do the same thing with any others, looking out not just at the last 12 months.

Okay. Thanks very much for your time. I'll let somebody else get on. I appreciate it.

[Mike Scarangello], Merrill Lynch.

A couple things. You mentioned the pressure on the SG&A line from a few items. I don't think you quantified it. Could you do that for us just so we can get an idea what it would be without those extra costs?

Yes, our -- on a quarter-to-quarter basis this year, Mike, our SG&A has been running about $300,000 over what we would say would be a more stabilized number. I think that pretty much held true for the third quarter.

I think for the year, as we said in the first quarter, we think the nonrecurring costs of complying with Sarbanes-0xley would be something in the range of $0.03 per share, and I think that's still a fairly accurate estimate.

Okay. Just looking at the averages this quarter, obviously a little softer than we've seen. A little color on that. I mean do you think -- you talk about the mix issue, the cremation rate, but do you think you're getting price increases; it's just all of a mix issue, or are you having some problems getting --

It's not all mix. I think we did have more cremations, and if you look at -- if you follow this, more of the increased cremations were direct cremations, so you had a change within the cremation area. But, also, the -- I would say that our Company historically, looking back over the last 10 years, had been more focused on training for traditional funerals. We started to change that, of course, like everybody else over the last few years, but I don't think we are nearly where we need to be with cremation training and cremation package -- presentation, structure, and training. We did roll out some packages, mostly in the second quarter, Mike. We're doing some training as we speak on those packages. I think we're early in the game as far as getting an impact, and that's where I think we have a big up side over the next year or two is to get more effective presentation by traditional funeral directors of the cremation options.

Okay. And on your traditional funeral packages, do you not have any problem maybe because of competition in getting price increases?

No.

Okay.

I mean I can't tell you that we have 100% of our markets where you can just raise prices as you like, but our standard on the average revenue per burial is 3% increase a year. You have to keep up with inflationary costs. Some of our -- and we don't dictate that anywhere. It's a standard. They can keep it at 3%. They can keep it at 0. They can decrease prices. If they think they will get more volume and market share, that's up to them. That's how this framework works. But I haven't seen any indication that generally high prices are an issue on the burial side.

Okay.

And, in fact, we got a 2.7% increase for the quarter in our average --

Yes.

-- per burial.

We got a 2.7% increase on the burial in the third quarter. Most of the price increases that we would be looking at portfolio-wide would occur in November, generally, November 1. That's when most of our managing partners try to institute price increases to hit their standards.

Okay.

So that's coming.

That's good to know. Just before we leave that topic, I think your original guidance was looking for about 2.5% increase in averages for the year. Do you think you still hit that? I think that would imply a fairly strong Q4 for you.

Yes, I think we'll still come close to that, Mike. I mean we typically -- last year, we did have a very strong fourth quarter, as you might recall.

Right.

Yes, I think at this point, we still think we'll come close to that.

Okay. All right. You know what? I have a couple more, but I'll jump back in the queue. Thanks.

You bet.

Bill Burns, Johnson Rice.

My question may be for Joe. I've seen a couple of other companies in the industry having problems with compliance with Sarbanes-Oxley, with the trust estates, and I was just curious, Joe, how it's going for your company.

Well, we've been working on compliance with Sarbanes-Oxley since October of 2003. We were at the very end of a conversion of a new cemetery system, and in fact, we'll complete that conversion this month. And we've been doing a lot of the hard work on our preneed balances and whatnot as we go along in that trust conversion, and we're well into it. And at this point, haven't had any difficulty. That's in -- on the cemetery business. So we believe we're in good shape. We're certainly not expecting any big issues in complying with Sarbanes-Oxley at the end of the year.

Okay, perfect.

I just want to say, Bill, that I’m really proud of Joe, his team, Skip Klug, and his team in the IT department. There's been so much good work over the last couple of years, and, yes, I've read about all the issues with some of the other companies. Can't speak to their issues, but really, I’m proud of what our team seems to be doing because from time to time, I ask, "How are we doing? Will I be able to sign the statements a single year?"

That would keep me up at night, Mel.

So I think I'm pretty comfortable and have all the assurances that we'll be in pretty good shape.

Well, like I said, that's good to hear. And what did you say that multiple on that acquisition was?

I didn't say!

Okay. Thanks.

I think it'll be good.

[Robinson Schnow], [IGM Perion Capital][ph].

I have a few questions here, but I'll start out with what is the anticipated tax rate that you see in the fourth quarter and for the year?

I'm sorry; I couldn't hear your question.

The anticipated tax rate that you see for the fourth quarter and the year?

We're expecting about a 35% tax rate for the full year.

And I’m looking at -- you know, you talk about your working cash -- capital cash impact. You said that it would be a complete reversal of around the 3,800 in the fourth quarter?

Yes.

Okay. Looking at the -- I’m looking at how you reconciled your financial statements in the press release that went out here. You have a pro forma EBITDA for the third quarter of last year of $6.6 million?

Yes.

And you list the preneed costs of $1.16 million. Do you or could you break down where, as per line item, those costs would be, like how I would allocate?

You're looking at the reconciliation at the end of the press release?

Yes, yes, you see where you have three months at a 9/30/04, and then you give the pro forma EBITDA from continuing operations last year. So just -- what I’m curious to see is how that 1,163 in preneed costs will reconcile with what you have at the bottom, which is $823,000 -- it says effective change. So I was wondering what the differences between those two line items there. You show the gross profit of funeral, cemetery, where that approximately $300,000 difference is.

Why don't you let us take a look at that --

Okay.

-- and we can get with you offline and reconcile that for you.

Sure, sure. And then another question I have then -- I might as well -- is you talked about hitting $25 million by the end of this year?

$25 million in cash, yes --

$25 million in cash by the end of this year, okay.

Our goal had been to put -- build cash to $25 million by the end of the year, which also was in alignment with our free cash flow estimate.

Right.

The only thing that happened in the third quarter that would change that was that we did a disposition -- can't remember how much we got for that, but it was probably a little better than $1 million. But we also made an acquisition for $1.3 million, so that was --

Right.

-- pretty close to a wash.

Right, right, right.

So we still have a goal of hitting $25 million in cash.

Okay. Yes, I see how you guys can get that.

And we're about 21 as we speak.

You're at 21 right now. Okay, I have a few more, but I'll get back into the queue.

[OPERATOR INSTRUCTIONS]

[Mike Scarangello], Merrill Lynch.

Mel, on the cremation rate, it's obviously up more than it has been historically. You mentioned the dynamic in Las Vegas. I'm wondering if that was a big driver or if there's anything else that you would attribute that increase to?

Oh, yes, you know what? That's a good question, Mike. We also have -- I'd talked about the cemetery operation in Vegas. We have a sizable funeral home operation, and you're right, the cremation rate there was up 6%, and that's a pretty high-volume place. So if you break down the portfolio, some of the increase in the cremation contracts was fairly concentrated, and because Vegas tends to be very much direct cremation type of operation, that did have an impact.

Okay, would you -- any other drivers that you're aware of? I mean any other changes geographically that might kind of continue this kind of increase going forward, or you think that reverts back even more?

No, I think it's -- historically just hasn't been. Because it's 33% in the third quarter certainly doesn't mean it will be -- that's a foundation for further increases. In other words, it could come down in the fourth quarter relative to the third quarter. Year over year over year, you know, I think given our footprint across the country, we're looking at probably a 1% mix change a year.

Now, that change is occurring more rapidly in some parts of the country because they have been historically low. And I just got back from a trip to California, for example. Gave our Board a tour out there of our operations, which tend to be highly concentrated in the San Francisco/San Jose area, and we looked at five years of mix at each of our operations, and interestingly, there had been not a whole lot of change because California already had a high rate of cremation.

If you go back to the Northeast, we've got some markets there that are experiencing a little higher rate. So what you're looking at is a blend, and I wish I could tell you it was predictable every quarter, every month, but it's not by location.

Okay, that's good color. I just wanted to shift to the CapEx for a second. Looks like your guidance has crept up a little bit over the last couple quarters. It was 6, then 6.5; now it's 7.5. Where's the incremental spending going, and do you think you'll probably stay at the 7.5 level for a while?

Well, I think we're very comfortable with the 7.5 for this year, and I think that's going to be higher than we've had over the last several years. Part of the increase -- a good part of the increase has been some of the systems-related costs that we've incurred this year, primarily the cemetery system. We'll probably end up with $0.5 million or so in additional costs on that implementation than we were originally anticipating. We've also had some unbudgeted CapEx in some of our locations, you know, things like roof repairs, things of that nature, that we needed to do on an expedited basis.

And we've also had some CapEx in our corporate office. We moved to a new corporate office this year. Our original estimates were that the landlord was going to cover all of the leasehold improvements, and we've probably ended up because of changes and whatnot have ended up -- will end up covering about $250,000 of the leasehold improvements.

So those are some of the things that have impacted us. Obviously, the systems and the leasehold are things that we don't expect to recur.

Okay.

A couple of other items, Mike, to give you a little more color on that. We're always looking to build good inventory we can sell at our cemeteries, and we did have about a $600,000 project get started, a lot of which has already been spent, most of which has already been spent or will be spent by the end of the year at one of our California properties, which was not previously in the CapEx budget. $600,000, you know, when we started at $6.5 million-plus the other things Joe mentioned, gets us to the $7.5 million. Well, what that does, it really is an accelerated project that gives us some good inventory to sell over the next three years at very high margins in a great location in California.

Okay. Joe, just looking at the new free cash flow guidance, it looks to me like it's about $1.5 million to $3 million lower than the prior guidance. I know $1 million of that is the CapEx increase. I’m just wondering what the rest is from.

I think we're basically trying to be conservative on the working capital estimates, Mike.

Okay.

So I think, as Mel said, we still would hope to hit that $25 million target on cash. So at this point, though, I think we're trying to be somewhat conservative in forecasting the working capital for the fourth quarter.

Okay, fair enough. And just the last one, Joe, the net debt to EBITDA ratio that you have on the back of the press release, is that pro forma for the accounting change in the last 12 months?

Yes, it is.

Okay. Thank you very much.

Thank you.

[Robinson Schnow], [IGM Perion Capital].

On the debt balance, the remaining debt balance outside of the senior notes, could you give me a breakdown of that between -- the components of that, like how much the capital lease obligation would be, etcetera?

That is about $5.5 million in capital lease obligations, and then the balance would be old acquisition debt that we still have on the books.

Is that $5.5 million a run rate we should be working with going forward?

Yes.

Okay.

It is amortizing, I think -- in total, between the acquisition debt and the capital leases, we do pay off about $1.8 million this year.

Okay. And the interest payment reduction, you said that's because of the senior notes being semiannual. The $1.7 million that you see in the current quarter, that is probably attributable to the type?

Yes.

Okay, great. Thanks a lot.

There is one point I forgot to mention in my explanation of the quarter. It has nothing to do with this quarter; it does have something to do with the fourth quarter.

We were lucky in that we escaped any damage from Katrina and then Rita. We thought we were at some risk on Rita with some of our operations here in the Southeast Texas area, although we came out fine. We did have to escape from the city, however, with our systems. We had a back-up systems project that we'd been working on for years, and we were really happy at how that came off. Our systems and company moved to Austin as Rita approached Houston, and we were -- I think we moved on a Thursday, and we were up and ready to operate on a Sunday or Saturday. And then when Rita missed us, we were back -- we were back in Houston so that could operate on Monday. So it was an amazing feat by the Company, and I especially want to compliment Skip Klug and his group.

We did get hit, however, by Wilma, which is a fourth quarter event. Primarily, it was in our Fort Lauderdale operations, where we run the city cemeteries. So we will have a downtick in our sales in the fourth quarter. That's a nice, sizable operation. However, that is already baked into the fourth quarter and full-year estimates, so we don't expect that to be beyond what's already in the numbers. But if anybody wants to ask me a further question, we still have time to do that.

Mr. Payne, I'm showing no questions at this time.

All right. Well, we appreciate the interest, and it was another third quarter, one of those ho-hum events. We'll let you know, though, that we are continuing to work. I'm spending a lot of my time -- again, it's a small company, so leadership at the location and leadership that can grow a business is all part of the operating model that we have at Carriage, and that's how I'm spending a lot of my time.

We hope to have some of the spots that are vacant right now that I mentioned on the cemetery side and also a few spots on the funeral home side filled so that we set up the portfolio for a good 2006 performance.

That's what we're working on, and I'll be glad to report against that progress. I'll look forward to talking to everybody about our year-end performance. Thanks a lot.

Ladies and gentlemen, this concludes Carriage Services' Third Quarter Earnings Call. You may now disconnect, and thank you for using AT&T.