_______________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
_______________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number _____________
_____________________
PRIME SUCCESSION, INC.
(Exact name of registrant as specified in its charter)
_____________________
DELAWARE 13-3904211
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3940 Olympic Blvd., Suite 300 41018
Erlanger, Kentucky, U.S.A. (Postal Code)
(Address of principal executive offices)
(606) 746-6800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No ______
The number of outstanding shares of Common Stock as of August 13, 1997,
was 100.
-----------------------------------------------
TABLE OF CONTENTS
Page
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS
as of June 30, 1997 and December 31, 1996 1
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three Months Ended June 30, 1997 and 1996
and the Six Months Ended June 30, 1997 and 1996 3
CONSOLIDATED STATEMENTS of CASH FLOWS
for the Six Months Ended June 30, 1997 and 1996 4
NOTES to INTERIM CONSOLIDATED FINANCIAL STATEMENTS 5
Item 2. MANAGEMENT'S DISCUSSION and ANALYSIS
of FINANCIAL CONDITION and RESULTS of OPERATIONS 6
Part II. OTHER INFORMATION
Item 5. OTHER INFORMATION 12
Item 6. EXHIBITS and REPORTS on FORM 8-K 12
SIGNATURES 12
(i)
PART I
ITEM 1. FINANCIAL STATEMENTS
PRIME SUCCESSION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 December 31, 1996
(unaudited)
Assets
Cash and cash equivalents $ 1,564,253 $ 2,985,704
Restricted cash -- 4,388,837
Receivables:
Trade, less allowance of $2,514,376
and $2,834,438 12,961,295 11,286,384
Other 1,147,429 785,586
---------- ----------
Total receivables 14,108,724 12,071,970
---------- ----------
Inventories:
Merchandise 3,762,922 2,951,913
Cemetery lots and mausoleum spaces 1,918,008 1,115,342
--------- ---------
Total inventories 5,680,930 4,067,255
--------- ---------
Prepaids and other current assets 299,498 354,576
Prepaid fees to shareholders 125,000 375,000
Deferred income taxes 446,249 371,249
---------- ----------
Total current assets 22,224,654 24,614,591
---------- ----------
Property and equipment:
Land and land improvements 16,091,870 16,101,845
Buildings and improvements 46,021,510 45,664,076
Equipment, furniture and fixtures 8,197,545 7,363,265
Accumulated depreciation (1,907,140) (741,179)
----------- ----------
Net property and equipment 68,403,785 68,388,007
----------- ----------
Developed cemetery properties 12,374,257 12,951,162
Undeveloped cemetery properties 31,139,560 30,616,355
Goodwill, less accumulated amortization
of $4,667,974 and $1,789,876 226,756,662 228,215,892
Other intangible assets, less accumulated
amortization of $3,728,303 and $1,548,680 25,335,072 27,621,587
Long-term receivables, less allowance of
$2,966,837 and $2,731,216 7,367,589 5,584,119
Other assets 621,569 796,489
----------- -----------
$394,223,148 $398,788,202
=========== ===========
See accompanying notes to interim consolidated financial statements.
-1-
PRIME SUCCESSION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 December 31, 1996
(unaudited)
Liabilities and Shareholders' Equity
Accounts payable $ 2,408,577 $ 2,695,283
Other accrued expenses 11,076,787 11,255,743
Bank indebtedness under revolving loan 3,000,000 --
Current installments of obligations under
agreements with former owners 2,639,344 3,326,127
Current installments of long-term debt 1,423,675 5,253,936
---------- ----------
Total current liabilities 20,548,383 22,531,089
---------- ----------
Deferred merchandise liabilities and revenues,
less trust fund deposits 20,670,182 19,612,190
Obligations under agreements with former owners,
less current installments 15,804,975 17,568,971
Long-term debt, less current installments 190,411,593 189,752,128
Deferred income taxes 18,316,831 18,316,831
Other long-term liabilities 3,537,429 4,402,013
Shareholders' equity:
Common stock, par value $.01 per share,
1,000 shares authorized;
100 issued and outstanding shares 1 1
Additional paid-in capital 129,554,499 129,554,499
Accumulated deficit (4,620,745) (2,949,520)
------------ ------------
Total shareholders' equity 124,933,755 126,604,980
------------ ------------
$394,223,148 $398,788,202
============ ============
See accompanying notes to interim consolidated financial statements.
-2-
PRIME SUCCESSION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Successor Predecessor Successor Predecessor
Company Company Company Company
Revenues:
Funeral services $18,408,473 $17,776,346 $37,868,384 $36,991,843
Cemetery sales 5,955,431 3,491,057 10,690,810 6,795,355
----------- ----------- ----------- ------------
24,363,904 21,267,403 48,559,194 43,787,198
Costs and expenses:
Funeral homes 11,588,419 12,454,641 23,689,070 24,925,443
Cemetery 4,203,241 2,424,469 7,617,081 4,974,851
----------- ----------- ----------- -----------
15,791,660 14,879,110 31,306,151 29,900,294
Corporate general and
administrative expenses 833,191 1,903,797 1,710,979 3,670,410
Depreciation and
amortization 2,692,261 1,905,514 5,423,920 3,832,765
Legal settlement -- 70,328 -- 6,344,313
----------- ----------- ----------- -----------
Operating income 5,046,792 2,508,654 10,118,144 39,416
----------- ----------- ----------- ----------
Other expenses (income):
Interest expense, including
amortization ofdeferred
loan costs (see Note 2) 5,771,936 3,827,522 11,763,684 7,605,629
Other income -- (242,428) -- (94,170)
----------- ----------- ----------- ----------
5,771,936 3,585,094 11,763,684 7,511,459
----------- ----------- ----------- ----------
Loss before income taxes (725,144) (1,076,440) (1,645,540) (7,472,043)
Income tax benefit (expense) 3,657 (66,376) (25,685) (253,459)
----------- ----------- ----------- ----------
Net loss (721,487) (1,142,816) (1,671,225) (7,725,502)
Redeemable Preferred Stock
dividend requirements -- (103,916) -- (207,833)
----------- ----------- ----------- -----------
Net loss attributable to
common shareholders $(721,487) $(1,246,732) $(1,671,225) $(7,933,335)
========== ============ ============ ============
Net loss per share
attributable to
common shareholders $ 7,214.87 $ -- $ 16,712.25 $ --
========== ============ ============ ============
See accompanying notes to interim consolidated financial statements.
-3-
PRIME SUCCESSION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
1997 1996
Successor Company Predecessor Company
Cash flows from operating activities:
Net loss $ (1,671,225) $ (7,725,502)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,314,790 4,256,046
Provision for doubtful accounts 448,775 35,653
Provision for deferred income taxes -- 44,896
Legal settlement -- 6,344,313
Payment on legal settlement -- (1,050,000)
Changes in operating assets and
liabilities net of effects of
acquisition of subsidiaries:
Receivables (3,354,044) (635,953)
Inventories (1,264,813) (67,508)
Accounts payable and accrued
expenses (1,189,968) 1,023,715
Deferred merchandise liabilities
and revenue (net) 1,031,922 1,724,935
Other (1,615,799) (481,529)
------------ ------------
Net cash provided by (used in) operating
activities (1,300,362) 3,469,066
------------ ------------
Cash flows from investing activities:
Proceeds from the disposal of assets 175,598 148,210
Purchases of property and equipment (1,423,826) (939,584)
Net cash paid for purchase of business (506,542) (675,000)
------------ ------------
Net cash used in investing activities (1,754,770) (1,466,374)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt 530,223 618,000
Proceeds from short-term debt 3,000,000 --
Payments on long-term debt (3,777,183) (1,878,146)
Payments on obligations under agreements
with former owners (2,508,196) (1,079,870)
Decrease in restricted cash 4,388,837 --
Capital Contributions -- 3,000,000
------------ ------------
Net cash provided by financing activities 1,633,681 659,984
------------ ------------
Net increase (decrease) in cash and cash
equivalents (1,421,451) 2,662,676
Cash and cash equivalents at beginning
of period 2,985,704 766,349
------------ ------------
Cash and cash equivalents at end of
period $ 1,564,253 $ 3,429,025
=========== ===========
See accompanying notes to interim consolidated financial statements.
-4-
PRIME SUCCESSION, INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
(unaudited)
(1) On August 26, 1996, Prime Succession, Inc.'s (Predecessor Company)
capital stock was purchased (the Acquisition) by Blackstone Capital
Partners II Merchant Banking Fund L.P. and affiliates, Loewen Group
International, Inc. and PSI Management Direct L.P. A new entity, Prime
Succession, Inc. (Successor Company), was formed and became a wholly-owned
subsidiary of the Predecessor Company. In connection with the Acquisition,
all of the assets and liabilities of the Predecessor Company were
transferred to the Successor Company. Collectively, the Predecessor
Company and Successor Company are herein referred to as "the Company".
Since purchase accounting was reflected in the opening balance sheet of the
Successor Company on August 26, 1996, the financial statements of the
Successor Company are not comparable to the financial statements of the
Predecessor Company. Accordingly, a vertical black line is shown to
separate the Successor Company financial statements from those of the
Predecessor Company for the periods ended prior to August 26, 1996.
(2) Interest expense includes amortization of deferred loan costs as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Successor Predecessor Successor Predecessor
Company Company Company Company
$452,397 $214,050 $890,870 $423,281
(3) Footnote disclosure which would substantially duplicate the disclosure
contained in the Annual Report on Form 10-K for the year ended
December 31, 1996 has not been included. The unaudited interim
consolidated financial statements reflect all adjustments which, in the
opinion of management, are necessary to reflect a fair statement of the
results for the periods presented and to present fairly the consolidated
financial position of Prime Succession, Inc. and subsidiaries as of
June 30, 1997. All such adjustments are of a normal recurring nature.
-5-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
The Company is an operator of funeral homes and cemeteries in the United
States. The Company owns 143 funeral homes and 19 cemeteries in 20 states as
of August 13, 1997. The Company commenced operations in 1992 and expanded
rapidly through the aggressive acquisition of funeral homes and cemeteries,
primarily in non-urban areas of the United States.
The Company had no funeral homes when it began operations in 1992 and
grew to 146 funeral homes in 1996. In order to achieve this rapid growth,
former management was primarily focused on identifying funeral homes to be
acquired and consummating acquisitions of such homes rather than on maximizing
profitability of the funeral homes and cemeteries which it had acquired. As a
result, former management did not take advantage of certain opportunities to
improve the efficiency and performance of the funeral homes acquired by the
Company. New management intends to substantially eliminate the Company's
acquisition program. In addition, in order to improve the Company's present
and long-term operating performance, new management intends to take advantage
of (i) the quality and size of the Company's portfolio of properties, (ii) the
opportunity to operate more efficiently those properties located in close
proximity to one another, (iii) the shift in focus from acquisitions to profit
maximization at existing locations and (iv) the benefits at both local sites
and the corporate headquarters from an Administrative Services Agreement with
Loewen Group International, Inc. The Company's future results of operations
will depend largely upon the ability of management to successfully implement
its business strategy.
-6-
Results of Operations
The Company's operations are detailed below for the three months and the
six months ended June 30, 1997 (Successor Company) and the corresponding
period in the prior year (Predecessor Company) expressed in dollar amounts as
well as relevant percentages. Revenue, gross margin, earnings (loss) from
operations and expenses other than income taxes are presented as a percentage
of revenue. Income taxes are presented as a percentage of losses before income
taxes.
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Three months ended Three months ended
June 30, June 30,
1997 1996 1997 1996
(millions of dollars) (percent)
Successor Predecessor Successor Predecessor
Company Company Company Company
Revenue
Funeral $18.4 $17.8 75.4% 83.6%
Cemetery 6.0 3.5 24.6 16.4
----- ----- ------ ------
Total $24.4 $21.3 100.0% 100.0%
===== ===== ====== ======
Gross Margin
Funeral $6.8 $5.3 36.9% 29.8%
Cemetery 1.8 1.1 30.0 31.4
----- ----- ------ ------
Total 8.6 6.4 35.2 30.0
Expenses
General and
administrative 0.8 1.9 3.3 8.9
Cost of legal
proceedings -- 0.1 -- 0.5
Depreciation and
amortization 2.7 1.9 11.1 8.9
----- ----- ------ ------
Earnings From Operations 5.1 2.5 20.9 11.7
Interest on long-term
debt 5.8 3.8 23.8 17.8
Other Income -- (0.2) -- (0.9)
----- ----- ------ ------
Loss Before Income Taxes (0.7) (1.1) (2.9) (5.2)
Income taxes -- (0.1) -- (9.1)
----- ----- ------ ------
Net Loss $(0.7) $(1.2) (2.9)% (5.6)%
======== ======= ====== =======
Consolidated revenues increased 14.6% to $24.4 million for the three months
ended June 30, 1997 compared to $21.3 million for the three months ended
June 30, 1996. Sales of funeral services and cemetery sales accounted for
75.4% and 24.6%, respectively, of total revenues for the three months ended
June 30, 1997 compared to 83.6% and 16.4%, respectively, for the three months
ended June 30, 1996. The increase in earnings from operations of $2.6 million
is due to enhanced pricing, merchandising and significant reduction in funeral
operating expenses for the period. Funeral service revenues increased 3.4% to
$18.4 million, and cemetery revenues increased 71.4% to $6.0 million.
Consolidated earnings from operations increased to $5.1 million for the three
months ended June 30, 1997 from $2.5 million for the three months ended June
30, 1996. Funeral contribution margin was 36.9% and cemetery contribution
margin was 30.0% for the three months ended June 30, 1997 compared to 29.8%
and 31.4%, respectively, for the three months ended June 30, 1996.
Contribution margin is defined as funeral revenues or cemetery revenues, as
the case may be, less related cost of sales. On a same-store business,
excluding 1996 acquisitions and dispositions, total calls decreased by 229
from 4,978 calls for the three months ended June 30, 1996 to 4,749 calls for
the three months ended June 30, 1997. The average revenue per call increased
by $445 from $3,431 for the three months ended June 30, 1996 to $3,876 for
the three months ended June 30, 1997. Cemetery revenues increased primarily
due to increased pre-need sales efforts in Alabama, Florida and Tennessee.
-7-
General and administrative expenses decreased to $0.8 million for the three
months ended June 30, 1997 from $1.9 million for the three months ended June
30, 1996. As a percentage of consolidated revenue, general and administrative
expense decreased to 3.3% for the three months ended June 30, 1997 compared to
8.9% for the three months ended June 30, 1996. General and administrative
expenses decreased due to the elimination of Corporate Development staff as
well as the implementation of a more efficient area management system. The
majority of the Company's funeral service locations and cemeteries are managed
by area management in geographic clusters. The clusters are established
primarily in non-urban areas. The area manager has better day to day
management of the locations with reduced overhead and travel expenses.
The Company has also restructured its accounting and information systems to
be more effective and efficient. The Company has chosen Lawson Software to
provide software supporting a major systems upgrade project underway at the
Company that is expected to enable the Company to connect all cluster
operations with timely operating and financial information in a cost
effective manner. The Company began using this state of the art financial
package in the second quarter of 1997.
Depreciation and amortization increased $0.8 million to $2.7 million for the
three months ended June 30, 1997 compared to $1.9 million for the three months
ended June 30, 1996. The increase is due to the application of purchase
accounting related to the Acquisition of the Company.
Interest on long-term debt increased by $2.0 million to $5.8 million for
the three months ended June 30, 1997 compared to $3.8 million for the three
months ended June 30, 1996 as a result of additional borrowings by the Company
to finance the Acquisition.
-8-
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Six months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
(millions of dollars) (percent)
Successor Predecessor Successor Predecessor
Company Company Company Company
Revenue
Funeral $37.9 $37.0 78.0% 84.5%
Cemetery 10.7 6.8 22.0 15.5
----- ----- ------ ------
Total $48.6 $43.8 100.0% 100.0%
===== ===== ====== ======
Gross Margin
Funeral $14.1 $12.1 37.2% 32.7%
Cemetery 3.1 1.8 29.0 26.5
---- ---- ----- -----
Total 17.2 13.9 35.4 31.7
Expenses
General and
administrative 1.7 3.7 3.5 8.4
Cost of legal
proceedings -- 6.3 -- 14.4
Depreciation and
amortization 5.4 3.8 11.1 8.7
---- ---- ---- -----
Earnings From Operations 10.1 0.1 20.8 0.2
Interest on long-term
debt 11.8 7.6 24.3 17.4
Other Income -- (0.1) -- (0.2)
Loss Before Income Taxes (1.7) (7.4) (3.5) (16.9)
Income taxes -- (0.3) -- (4.1)
----- ----- ------ ------
Net Loss $(1.7) $(7.7) (3.5)% (17.6)%
====== ====== ====== ======
Consolidated revenues increased 11.0% to $48.6 million for the six months
ended June 30, 1997 compared to $43.8 million for the six months ended June 30,
1996. Sales of funeral services and cemetery sales accounted for 78.0% and
22.0%, respectively, of total revenues for the six months ended June 30, 1997
compared to 84.5% and 15.5%, respectively, for the six months ended June 30,
1996. Funeral service revenues increased 2.4% to $37.9 million, and cemetery
revenues increased 57.4% to $10.7 million. Consolidated earnings from
operations increased to $10.1 million for the six months ended June 30, 1997
from $6.4 million for the six months ended June 30, 1996 before the $6.3
million legal settlement with Jeffrey Gamble. The increase in earnings from
operations of $3.7 million is due to enhanced pricing, merchandising and
significant reduction in funeral operating expenses for the period. Funeral
contribution margin was 37.2% and cemetery contribution margin was 29.0% for
the six months ended June 30, 1997 compared to 32.7% and 26.5%, respectively,
for the six months ended June 30, 1996. Contribution margin is defined as
funeral revenues or cemetery revenues, as the case may be, less related cost
of sales. On a same-store business, excluding 1997 acquisitions and
dispositions , total calls decreased by 686 from 10,660 calls for the six
months ended June 30, 1996 to 9,974 calls for the six months ended June 30,
1997. The average revenue per call increased by $366 from $3,431 for the six
months ended June 30, 1996 to $3,797 for the six months ended June 30, 1997.
Cemetery revenues increased primarily due to increased pre-need sales efforts
in Alabama, Florida and Tennessee.
General and administrative expenses decreased to $1.7 million for the six
months ended June 30, 1997 from $3.7 million for the six months ended June 30,
1996. As a percentage of consolidated revenue, general and administrative
expense decreased to 3.5% for the six months ended June 30, 1997 compared to
8.4% for the six months ended June 30, 1996. General and administrative
expenses decreased due to the elimination of Corporate Development staff as
well as the implementation of a more efficient area management system. The
majority of the Company's funeral service locations and cemeteries are managed
by area management in geographic clusters. The clusters are established
primarily in non-urban areas. The area manager has better day to day
management of the locations with reduced overhead and travel expenses.
The Company has also restructured its accounting and information systems to
be more effective and efficient. The Company has chosen Lawson Software to
provide software supporting a major systems upgrade project underway at the
Company that is expected to enable the Company to connect all cluster
operations with timely operating and financial information in a cost effective
manner. The Company began using this state of the art financial package in the
second quarter of 1997.
Depreciation and amortization increased $1.6 million to $5.4 million for the
six months ended June 30, 1997 compared to $3.8 million for the six months
ended June 30, 1996. The increase is due to the application of purchase
accounting related to the Acquisition of the Company.
-9-
Interest on long-term debt increased by $4.2 million for the six months
ended June 30, 1997 compared to the six months ended June 30, 1996 as a result
of additional borrowings by the Company to finance the Acquisition.
Liquidity and Capital Resources
Historically, the Company's primary sources of cash have been funds provided
by operating activities, proceeds from additional long-term debt and, prior to
the Acquisition, capital contributions by the Company's then majority
shareholder.
As of June 30, 1997, the Company had a net working capital of $1.7 million
and a current ratio of 1.08:1, compared to a net working capital of $2.1
million and a current ratio of 1.09:1 as of December 31, 1996.
Under the Bank Revolving Facility (as defined below), the Company may borrow
up to $25.0 million for general corporate purposes until August 26, 2001.
The loans thereunder bear interest at the Base Rate or the Adjusted Eurodollar
Rate, each as defined thereunder. There is a commitment fee of 0.5% on the
unused portion of the credit line. There were outstanding borrowings of $3.0
million on the credit line as of June 30, 1997.
Net cash used in operating activities was $1.3 million for the six months
ended June 30, 1997, compared to net cash provided by operating activities of
$3.5 million for the same period in 1996, for a decrease of $4.8 million. The
net loss was reduced by $6.0 million from $7.7 million in 1996 compared to
1996 and non-cash adjustments increased by $2.5 million compared to 1996 for
depreciation and amortization of goodwill, deferred finance costs and
provision for doubtful accounts. The decrease in legal settlements of $5.3
million is the most significant change compared to 1996. The net increase of
$2.7 million in accounts receivable compared to 1996 is attributable to
increased pre-need sales. The increase of $1.2 million in inventories
compared to 1996 is attributable to the Company's remerchandising of all of
its selection rooms and cemetery inventory development. Accounts payable
and other operating liabilities required a total of $1.2 million for the six
months ended June 30, 1997 compared to $1.0 million provided for the same
period in 1996.
The net increase of $0.3 million compared to 1996 in net cash used in
investing activities primarily relates to the purchase of a funeral home
building for $0.7 million that was previously leased. The routine capital
improvements to the Company's facilities is comparable to the prior year. The
Company also acquired two cemeteries in January 1997 for $0.5 million.
Net cash provided by financing activities represents the release of $4.4
million in restricted cash that had been restricted pursuant to the Bank Credit
Facilities (as defined below) and $3.0 million in borrowings on the operating
line of credit. This was offset by the $2.5 million payment to satisfy certain
obligations under agreements with former owners of funeral homes and cemeteries
and other payments on long- term debt of $3.8 million.
Contemporaneously with the consummation of the acquisition (the
"Acquisition") of the Company's parent in August 1996, the Company entered into
senior secured amortization extended term loan facilities (the "Bank Term
Facility") in an aggregate principal amount of $90 million, the proceeds of
which were used to finance the Acquisition and related transaction costs, to
pre-fund certain capital expenditures and to refinance existing indebtedness
of the Company, and a senior secured revolving credit facility (the "Bank
Revolving Facility"; together with the Bank Term Facility, the "Bank Credit
Facilities") in an aggregate principal amount of up to $25 million, the
proceeds of which will be used for general corporate purposes and a portion
of which may be extended (as agreed upon) in the form of swing line loans or
letters of credit for the account of the Company. The Bank Term Facility will
mature on August 26, 2003 and the Bank Revolving Facility will mature on August
26, 2001. The Bank Term Facility is subject to amortization, subject to certain
conditions, in semi-annual installments in the amounts of $1 million in each
of the first three years after the anniversary of the closing date of the Bank
Term Facility (the "Bank Closing"); $4 million in the fourth year after the
Bank Closing; $9 million in the fifth year after the Bank Closing; $12.5
million in the sixth year after the Bank Closing and $61.5 million upon the
maturity of the Bank Term Facility. The Revolving Credit Facility is payable
in full at maturity, with no prior amortization.
All obligations under the Bank Credit Facilities and any interest rate
hedging agreements entered into with the lenders or their affiliates in
connection therewith are unconditionally guaranteed (the "Bank Guarantees")
jointly and severally, by Prime Succession Holdings, Inc., the Parent Company,
and each of the Company's existing and future domestic subsidiaries (the "Bank
Guarantors"). All obligations of the Company and the Bank Guarantors under
the Bank Credit Facilities and the Bank Guarantees are secured by first
priority security interests in all existing and future assets (other than real
property and vehicles covered by certificates of title) of the Company and the
Bank Guarantors. In addition, the Bank Credit Facilities are secured by a
first priority security interest in 100% of the capital stock of the Company
and each subsidiary thereof and all intercompany receivables.
-10-
In connection with the Acquisition, the Company also issued $100 million of
10 3/4% Senior Subordinated Notes due 2004, which were exchanged in January
1997 for $100 million of 10 3/4% Senior Subordinated Notes due 2004 (the
"Notes") that were registered under the Securities Act of 1933. The Notes
mature on August 15, 2004. Interest on the Notes is payable semi-annually on
February 15 and August 15 at the annual rate of 10 3/4%. The Notes are
redeemable in cash at the option of the Company, in whole or in part, at any
time on or after August 15, 2000, at prices ranging from 105.375% with annual
reductions to 100% in 2003 plus accrued and unpaid interest, if any, to the
redemption date. The proceeds of the Notes were used, in part, to finance the
Acquisition.
The Company and its subsidiaries are subject to certain restrictive
covenants contained in the indenture relating to the Notes, including, but not
limited to, covenants imposing limitations on the incurrence of additional
indebtedness; certain payments, including dividends and investments; the
creation of liens; sales of assets and preferred stock; transactions with
interested persons; payment restrictions affecting subsidiaries; sale-leaseback
transactions; and mergers and consolidations. In addition, the Bank Credit
Facilities contain certain restrictive covenants that, among other things,
limit the ability of the Company and its subsidiaries to dispose of assets,
incur additional indebtedness, prepay other indebtedness, pay dividends or make
certain restricted payments, create liens on assets, engage in mergers or
acquisitions or enter into leases or transactions with affiliates.
As of June 30, 1997, the Company had $194.8 million of indebtedness
outstanding and $22 million of borrowing availability under the Bank Revolving
Facility. The Company believes that, based upon current levels of operations
and anticipated growth and availability under the Bank Revolving Facility, it
can adequately service its indebtedness. If the Company cannot generate
sufficient cash flow from operations or borrow under the Bank Revolving
Facility to meet such obligations, then the Company may be required to take
certain actions, including reducing capital expenditures, restructuring its
debt, selling assets or seeking additional equity in order to avoid an event
of default under the Bank Credit Facilities or the Indenture relating to the
Notes. There can be no assurance that such actions could be effected or would
be effective in allowing the Company to meet such obligations.
-11-
PART II
ITEM 5 - OTHER INFORMATION
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q include "forward-
looking statements" as defined in Section 21E of the Securities Exchange Act of
1934. All statements other than statements of historical facts included
herein, including, without limitation, the statements under Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, plans to increase
revenues, reduce general and administrative expense and take advantage of
synergies, are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable,
it can give no assurance that such expectations will prove to be correct.
Important factors that could cause actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed herein,
including, without limitation, in conjunction with the forward-looking
statements included herein.
All subsequent written and oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The Exhibits, as shown in the "Index of Exhibits", attached hereto as pages
11 and 12, are filed as a part of this Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRIME SUCCESSION, INC.
/s/ MYLES S. CAIRNS
-----------------------
Myles S. Cairns
Chief Financial Officer,
Secretary and Treasurer
August 13, 1997
-12-
INDEX OF EXHIBITS
(a) Exhibit
Number Document Description
3.1* Certificate of Incorporation of Blackhawk Acquisition Corp.
3.2* Certificate of Amendment of Certificate of Incorporation of
Blackhawk Acquisition Corp. changing its name to Prime
Succession Acquisition Corp.
3.3* Certificate of Amendment of Certificate of Incorporation of
Prime Succession Acquisition Corp. changing its name to Prime
Succession, Inc.
3.4* By-Laws of Prime Succession, Inc.
4.1* Indenture dated as of August 15, 1996 between Prime Succession
Acquisition Corp. and United States Trust Company of New York,
as Trustee
4.2* Form of 10 3/4% Senior Subordinated Note due 2004 (included in
Exhibit 4.1)
10.1(a)* Casket Supply Agreement, dated January 1, 1993, between
Batesville Casket Company, Inc. and Prime Succession, Inc.
10.1(b)* Amendment Agreement, dated August 1994, between Batesville
Casket Company, Inc. and Prime Succession, Inc. (with respect to
Casket Supply Agreement)
10.1(c)* Amendment 2, dated May 22, 1995, between Batesville Casket
Company, Inc. and Prime Succession, Inc. (with respect to Casket
Supply Agreement)
10.2* Stockholders' Agreement dated as of August 26, 1996 among Prime
Succession, Inc. (to be renamed Prime Succession Holdings,Inc.),
Blackstone Capital Partners II Merchant Banking Fund L.P.,
Blackstone Offshore Capital Partners II L.P., Blackstone Family
Investment Partnership II L.P., PSI Management Direct L.P. and
Loewen Group International, Inc.
10.3* Administrative Services Agreement dated as of August 26, 1996
between Prime Succession Acquisition Corp. (to be renamed Prime
Succession, Inc.) and Loewen Group International, Inc.
10.4* Credit Agreement dated as of August 26, 1996 among Prime
Succession, Inc. (to be renamed Prime Succession Holdings,Inc.),
Prime Succession Acquisition Corp. (to be renamed Prime
Succession, Inc.), Goldman, Sachs & Co., as syndication agent
and arranging agent, the financial institutions from time to
time parties thereto as lenders and The Bank of Nova Scotia, as
administrative agent for such lenders.
10.5* Letter Agreement dated August 1, 1996 between Prime Succession
Acquisition Corp. (to be renamed Prime Succession, Inc.) and
Gary Wright.
10.6* Letter Agreement dated August 1, 1996 between Prime Succession
Acquisition Corp. (to be renamed Prime Succession, Inc.) and
Myles Cairns
10.7* Put/Call Agreement, dated as of August 26,1996, among Blackstone
Capital Partners II Merchant Banking Fund L.P., Blackstone
Offshore Capital Partners II L.P., Blackstone Family Investment
Partnership II L.P., PSI Management Direct L.P., Loewen Group
International Inc. and the Loewen Group Inc.
10.8* Stock Purchase Agreement, dated as of June 14, 1996, by and
among Prime Succession, Inc., the individuals or entities listed
on the signature pages thereof, The Loewen Group Inc. and
Blackhawk Acquisition Corp.
-13-
(a) Exhibit
Number Document Description
12 Computation of Ratio of Earnings to Fixed Charges
21* Subsidiaries of Prime Succession, Inc. (formerly known as
Prime Succession Acquisition Corp.)
27 Financial Data Schedule
* Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-4 (Registration No. 333-14599).
(b) Reports on Form 8-K
None
-14-
Exhibit 12
Prime Succession, Inc. and subsidiaries
Ratio of Earnings to Fixed Charges
(Dollars in Thousands)
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
Successor Predecessor Successor Predecessor
Company Company Company Company
Ratio of Earnings to
Fixed Charges
Earnings:
Loss before income
taxes (725) (1,076) (1,645) (7,472)
Add: Fixed charges,
net 5,981 4,052 12,173 8,083
Income before income taxes
and fixed charges, net 5,256 2,976 10,528 611
Fixed Charges:
Total interest
expense (1) 5,772 3,828 11,764 7,606
Interest factor
in rents (2) 209 224 409 477
Total fixed charges 5,981 4,052 12,173 8,083
Ratio of earnings to
fixed charges 0.88 0.73 0.86 0.08
Coverage deficiency (3) 725 1,076 1,645 7,472
FN
(1) Total interest expense for each period includes amortization of loan costs.
(2) Interest factor in rents represents one-third of rent expense, which is
considered representative of the interest factor.
(3) The Company's earnings are inadequate to cover fixed charges for all
periods indicated above. Coverage deficiency represents the excess of
fixed charges over income before income taxes and fixed charges, net.
Exhibit 27
Prime Succession, Inc. and subsidiaries
Financial Data Schedule
This schedule contains summary financial information extracted from the
unaudited interim consolidated financial statements of Prime Succession, Inc.
and subsidiaries, for the six months ended June 30, 1997 and is qualified in
its entirety by reference to such financial statements.
multiplier 1,000
Period type 6-mos
Fiscal year end Dec-31-1997
Period end June 30-1997
cash 1,564
securities --
receivables 16,623
allowances 2,514
inventory 5,681
current assets 22,225
pp&e 70,311
depreciation 1,907
total assets 394,223
current liabilities 20,548
bonds 206,217
common -
preferred mandatory -
preferred -
other se 129,554
total liabilities and equity 394,223
sales 48,559
total revenues 48,559
cgs 31,306
total costs 31,306
other expenses 7,135
loss provision 449
interest expense 11,764
income pretax (1,645)
income tax 26
income continuing (1,671)
discontinued -
extraordinary -
changes -
net income (1,671)
eps primary -
eps fully diluted -
