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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(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, 1998
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 _____________
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PRIME SUCCESSION, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 13-3904211
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3940 Olympic Blvd., Suite 500 41018
Erlanger, Kentucky, U.S.A. (Postal Code)
(Address of principal executive offices)
(Registrant's telephone number, including area code)(606) 746-6800
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 10,
1998, was 100.
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<PAGE>
TABLE OF CONTENTS
Page
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS
as of June 30, 1998 and December 31, 1997 1
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three Months Ended June 30, 1998 and 1997
and the Six Months Ended June 30, 1998 and 1997 3
CONSOLIDATED STATEMENTS of CASH FLOWS
for the Six Months Ended June 30, 1998 and 1997 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)
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<S> <C> <C>
June 30, 1998 December 31, 1997
------------- -----------------
(unaudited)
Assets
Cash and cash equivalents $ 1,064,953 $ 1,555,415
Receivables:
Trade, less allowance of $2,421,765 and $2,647,693 11,788,697 13,073,005
Other 1,939,776 4,492,005
------------------- ------------------
Total receivables 13,728,473 17,565,010
Inventories:
Merchandise 3,667,637 3,836,994
Cemetery lots and mausoleum spaces 1,345,211 1,693,530
------------------- ------------------
Total inventories 5,012,848 5,530,524
------------------- ------------------
Prepaids and other current assets 179,547 319,000
Deferred income taxes 723,566 723,566
------------------- ------------------
Total current assets 20,709,387 25,693,515
------------------- ------------------
Property and equipment:
Land and land improvements 16,343,988 16,190,801
Buildings and improvements 47,358,132 47,313,605
Equipment, furniture and fixtures 9,953,499 9,051,236
Accumulated depreciation (4,505,188) (3,165,322)
------------------- ------------------
Net property and equipment 69,150,431 69,390,320
------------------- ------------------
Developed cemetery properties 14,341,224 12,996,135
Undeveloped cemetery properties 31,002,345 31,902,345
Goodwill, less accumulated amortization of $10,349,700 and $7,482,615 219,619,662 222,086,427
Other intangible assets, less accumulated amortization of $7,904,708 and
$5,866,178 21,114,348 23,147,315
Long-term receivables, less allowance of $3,510,435 and $3,288,268 14,345,730 9,318,513
Other assets 533,180 571,615
------------------- ------------------
$390,816,307 $395,106,185
=================== ==================
See accompanying notes to interim consolidated financial statements.
</TABLE>
-1-
<PAGE>
<TABLE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<S> <C> <C>
June 30, 1998 December 31, 1997
------------- -----------------
(unaudited)
Liabilities and Shareholders' Equity
Accounts payable $ 1,703,040 $ 2,679,090
Other accrued expenses 7,592,808 8,441,985
Current installments of obligations under agreements with former owners 2,490,051 2,369,684
Current installments of long-term debt 1,306,509 1,389,530
Due to related party -- 83,333
------------------- -----------------
Total current liabilities 13,092,408 14,963,622
------------------- -----------------
Deferred merchandise liabilities and revenues, less trust fund deposits 17,577,294 17,600,097
Obligations under agreements with former owners, less current installments 13,882,888 15,259,919
Long-term debt, less current installments 200,308,614 201,580,635
Deferred income taxes 16,770,180 16,770,180
Other long-term liabilities 4,045,328 2,690,510
Shareholders' equity:
Common stock, par value $.01 per share, 1,000 shares authorized;
100 issued and outstanding shares 1 1
Additional paid-in capital 129,171,626 129,047,493
Accumulated deficit (4,032,032) (2,806,272)
------------------- -----------------
Total shareholders' equity 125,139,595 126,241,222
------------------- -----------------
$390,816,307 $395,106,185
=================== =================
See accompanying notes to interim consolidated financial statements.
</TABLE>
-2-
<PAGE>
<TABLE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Funeral services $ 18,489,610 $ 18,408,473 $ 39,103,822 $ 37,868,384
Cemetery sales 6,623,629 5,955,431 12,593,990 10,690,810
------------ ------------ ------------ ------------
25,113,239 24,363,904 51,697,812 48,559,194
Costs and expenses:
Funeral homes 12,371,809 11,588,419 25,103,965 23,689,070
Cemetery 4,411,310 4,203,241 8,389,769 7,617,081
------------ ------------ ------------ ------------
16,783,119 15,791,660 33,493,734 31,306,151
Corporate and regional general and
administrative expenses 813,101 833,191 1,540,146 1,710,979
Depreciation and amortization 2,827,393 2,692,261 5,669,448 5,423,920
------------ ------------ ------------ ------------
Operating income 4,689,626 5,046,792 10,994,484 10,118,144
Other expenses:
Interest expense, including
amortization of deferred loan
costs (see Note 1) 6,076,670 5,771,936 12,182,744 11,763,684
------------ ------------ ------------ ------------
Loss before income taxes (1,387,044) (725,144) (1,188,260) (1,645,540)
Income tax benefit (expense) (20,000) 3,657 (37,500) (25,685)
------------ ------------ ------------ ------------
Net loss $ (1,407,044) $ (721,487) $ (1,225,760) $ (1,671,225)
============= ============= ============ ============
See accompanying notes to interim consolidated financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<S> <C> <C>
Six Months Ended
June 30,
1998 1997
---- ----
Cash flows from operating activities:
Net loss $ (1,225,760) $ (1,671,225)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,546,394 6,314,790
Depletion of cemetery property 659,552 944,754
Loss on sale of assets 21,364 --
Gain on sale of business (7,653) --
Changes in operating assets and liabilities
net of effects of acquisition of subsidiaries:
Receivables (net) (1,215,629) (3,438,137)
Inventories (677,280) (2,209,567)
Accounts payable and accrued expenses (1,931,348) (1,189,968)
Deferred merchandise liabilities and
revenue (net) (6,062) 1,031,922
Other long-term liabilities 1,354,818 (876,025)
Other 29,138 (206,906)
------------ ------------
Net cash provided by (used in) operating activities 3,547,534 (1,300,362)
------------ ------------
Cash flows from investing activities:
Proceeds from the disposal of assets 449,144 175,598
Purchases of property and equipment (1,735,844) (1,423,826)
Net cash received for sale of business 250,000 --
Net cash paid for purchase of business (400,000) (506,542)
------------ ------------
Net cash used in investing activities (1,436,700) (1,754,770)
------------ ------------
Cash flows from financing activities:
Net proceeds (payments) of bank indebtedness under revolving loan (700,000) 3,000,000
Proceeds from long-term debt -- 530,223
Payments on long-term debt (644,632) (3,777,183)
Payments on obligations under agreements with former owners (1,256,664) (2,508,196)
Decrease in restricted cash -- 4,388,837
------------ ------------
Net cash provided by (used in) financing activities (2,601,296) 1,633,681
------------ ------------
Net decrease in cash and cash equivalents (490,462) (1,421,451)
Cash and cash equivalents at beginning of period 1,555,415 2,985,704
------------ ------------
Cash and cash equivalents at end of period $ 1,064,953 $ 1,564,253
============ ============
See accompanying notes to interim consolidated financial statements.
</TABLE>
-4-
<PAGE>
PRIME SUCCESSION, INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
(unaudited)
(1) Interest expense includes amortization of deferred loan costs as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
$438,473 $452,397 $876,946 $890,870
(2) Footnote disclosure which would substantially duplicate the disclosure
contained in the Annual Report on Form 10-K for the year ended December
31, 1997 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, 1998.
All such adjustments are of a normal recurring nature.
(3) Certain reclassifications have been made to the 1997 amounts to conform
to the 1998 presentation.
-5-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
On August 26, 1996 (the "Closing Date"), 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".
The Company provides merchandise and services in both the funeral home
and cemetery segments of the death care industry in the United States. In
addition to providing merchandise and services at the time of need, the Company
also makes funeral, cemetery and cremation arrangements on a pre-need basis. As
of August 10, 1998, the Company through its subsidiaries owns and operates
143 funeral homes and 21 cemeteries in 20 states, primarily in non-urban areas
of the United States. The Company commenced operations in 1992 and expanded
rapidly through the aggressive acquisition of funeral homes and cemeteries. The
Company's consolidated revenues were $51.7 million and $48.6 million for the six
months ended June 30, 1998 and 1997, respectively. Sales of funeral services of
$39.1 million and cemetery sales of $12.6 million accounted for approximately
75.6% and 24.4%, respectively, of total net sales for the six months ended June
30, 1998.
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. New management
substantially eliminated the Company's acquisition program. In addition, in
order to improve the Company's present and long-term operating performance, new
management took 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, and (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 the Administrative
Services Agreement with Loewen. The Company's future results of operations will
depend in large part on the ability of management to successfully maintain its
business strategy.
The Company is a party to a supply agreement with Batesville Casket
Company, Inc. ("BCC"), The Forethought Group and Forethought Life Insurance
Company ("FLIC"), pursuant to which the Company must purchase caskets
exclusively from BCC and, in connection with its pre-need sales of funeral
services funded by insurance, the Company must offer to its customers in
specified markets exclusively FLIC insurance products. The agreement expires on
December 31, 2004, subject to earlier termination by any party thereto upon 30
days notice following a material, uncured breach of the agreement or the
occurrence of certain insolvency events. Management of the Company believes that
the terms of such supply agreement are favorable to the Company.
-6-
<PAGE>
<TABLE>
Results of Operations
The Company's operations are detailed below for the three months and
the six months ended June 30, 1998 expressed in dollar amounts as well as
relevant percentages. Revenue, gross margin, earnings from operations and
expenses other than income taxes are presented as a percentage of revenue.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Three months ended Three months ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
(millions of dollars) (percent)
--------------------- ---------
Revenue
<S> <C> <C> <C> <C>
Funeral $18.5 $18.4 73.7% 75.4%
Cemetery 6.6 6.0 26.3 24.6
----- ----- ----- -----
Total $25.1 $24.4 100.0% 100.0%
===== ===== ===== =====
Gross Margin
Funeral $ 6.1 $ 6.8 33.0% 36.9%
Cemetery 2.2 1.8 33.3 30.0
----- -----
Total 8.3 8.6 33.1 35.2
Expenses
General and administrative 0.8 0.8 3.2 3.3
Depreciation and amortization 2.8 2.7 11.2 11.1
----- -----
Earnings From Operations 4.7 5.1 18.7 20.9
Interest on long-term debt 6.1 5.8 24.3 23.8
----- -----
Loss Before Income Taxes (1.4) (0.7) (5.6) (2.9)
Income taxes -- -- -- --
----- -----
Net loss $(1.4) $(0.7) (5.6)% (2.9)%
===== =====
</TABLE>
Consolidated revenues increased 2.9% to $25.1 million for the three months
ended June 30, 1998 compared to $24.4 million in the corresponding period for
1997, with funeral service revenues increasing 0.5% to $18.5 million compared to
$18.4 million in the corresponding period in 1997, and cemetery revenues
increasing 10.0% to $6.6 million compared to $6.0 million in the corresponding
period for 1997. Funeral revenues increased primarily as a result of increased
pricing and enhanced merchandising of merchandise display areas. On same-store
business, excluding 1997 acquisitions and dispositions, total calls decreased by
26 from 4,749 calls for the three months ended June 30, 1997 to 4,723 calls for
the three months ended June 30, 1998 and average revenue per call increased by
$39 from $3,876 in 1997 to $3,915 in 1998. Cemetery revenues increased primarily
due to increased pre-need sales efforts in Alabama, Florida and Tennessee.
Consolidated operating income decreased from $5.1 million for the three months
ended June 30, 1997, to $4.7 million for the three months ended June 30, 1998.
-7-
<PAGE>
Consolidated contribution margin of $8.3 million decreased 3.5% for the
three months ended June 30, 1998 from $8.6 million for the three months ended
June 30, 1997, with funeral contribution margin of 33.0% for the three months
ended June 30, 1998 compared to 36.9% for the three months ended June 30, 1997
and cemetery contribution margin of 33.3% for the three months ended June 30,
1998 compared to 30.0% for the corresponding period in 1997. Contribution margin
is defined as a percentage of funeral revenues or cemetery revenues, as the case
may be, less related cost of sales (including direct operating expenses).
Corporate general and administrative expense remained constant at $0.8
million for the three months ended June 30, 1998 and 1997. As a percentage of
consolidated revenue, general and administrative expense decreased to 3.2% in
1998 from 3.3% for the corresponding period in 1997. Corporate general and
administrative expense decreased primarily due to restructured, upgraded and
more efficient information and accounting systems.
Depreciation and amortization expense increased $0.1 million to $2.8
million for the three months ended June 30, 1998 compared to $2.7 million for
the corresponding period in 1997. This increase is primarily the result of
increased depreciation on capital expenditures.
Interest expense of $6.1 million for the three months ended June 30, 1998
increased by $0.3 million compared to $5.8 million for the corresponding period
in 1997, primarily as a result of additional borrowings to finance operating
activities of the Company.
-8-
<PAGE>
<TABLE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Six months ended Six months ended
June 30, June 30,
----------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
(millions of dollars) (percent)
--------------------- ---------
Revenue
<S> <C> <C> <C> <C>
Funeral $39.1 $37.9 75.6% 78.0%
Cemetery 12.6 10.7 24.4 22.0
----- ----- ----- -----
Total $51.7 $48.6 100.0% 100.0%
===== ===== ===== =====
Gross Margin
Funeral $14.0 $14.1 35.8% 37.2%
Cemetery 4.2 3.1 33.3 29.0
----- -----
Total 18.2 17.2 35.2 35.4
Expenses
General and administrative 1.5 1.7 2.9 3.5
Depreciation and amortization 5.7 5.4 11.0 11.1
----- -----
Earnings From Operations 11.0 10.1 21.3 20.8
Interest on long-term debt 12.2 11.8 23.6 24.3
----- -----
Loss Before Income Taxes (1.2) (1.7) (2.3) (3.5)
Income taxes -- -- -- --
----- -----
Net Loss $(1.2) $(1.7) (2.3)% (3.5)%
===== =====
</TABLE>
Consolidated revenues increased 6.4% to $51.7 million for the six months
ended June 30, 1998 compared to $48.6 million in the corresponding period for
1997, with funeral service revenues increasing 3.2% to $39.1 million compared to
$37.9 million in the corresponding period in 1997, and cemetery revenues
increasing 17.8% to $12.6 million compared to $10.7 million in the corresponding
period for 1997. Funeral revenues increased primarily as a result of increased
pricing and enhanced merchandising of merchandise display areas. On same-store
business, excluding 1997 acquisitions and dispositions, total calls decreased by
104 from 9,974 calls for the six months ended June 30, 1997 to 9,870 calls for
the six months ended June 30, 1998 and average revenue per call increased by
$165 from $3,797 in 1997 to $3,962 in 1998. Cemetery revenues increased
primarily due to increased pre-need sales efforts in Alabama, Florida and
Tennessee. Consolidated operating income increased from $10.1 million for the
six months ended June 30, 1997, to $11.0 million for the six months ended June
30, 1998.
Consolidated contribution margin of $18.2 million increased 5.8% for the
six months ended June 30, 1998 from $17.2 million for the six months ended June
30, 1997, with funeral contribution margin of 35.8% for the six months ended
June 30, 1998 compared to 37.2% for the six months ended June 30, 1997 and
cemetery contribution margin of 33.3% for the six months ended June 30, 1998
compared to 29.0% for the corresponding period in 1997. Contribution margin is
defined as a percentage of funeral revenues or cemetery revenues, as the case
may be, less related cost of sales (including direct operating expenses).
-9-
<PAGE>
Corporate general and administrative expense decreased to $1.5 million for
the six months ended June 30, 1998 from $1.7 million for the corresponding
period in 1997. As a percentage of consolidated revenue, general and
administrative expense decreased to 2.9% in 1998 from 3.5% for the corresponding
period in 1997. Corporate general and administrative expense decreased primarily
due to restructured, upgraded and more efficient information and accounting
systems.
Depreciation and amortization expense increased $0.3 million to $5.7
million for the six months ended June 30, 1998 compared to $5.4 million for the
corresponding period in 1997. This increase is primarily the result of increased
depreciation on capital expenditures.
Interest expense of $12.2 million for the six months ended June 30, 1998
increased by $0.4 million compared to $11.8 million for the corresponding period
in 1997, primarily as a result of additional borrowings to finance operating
activities of the Company.
Liquidity and Capital Resources
The Company's primary sources of cash since 1995 have been funds provided
by operating activities, proceeds from additional long-term debt and capital
contributions. As of June 30, 1998, the Company had a net working capital
surplus of $7.6 million and a current ratio of 1.58:1, compared to a net working
capital surplus of $10.7 million and a current ratio of 1.72:1 as of December
31, 1997.
The primary uses of cash since 1995 have been for the acquisition of
funeral homes and cemeteries, including the Acquisition, principal payments on
long-term debt and capital expenditures. In the six months ended June 30, 1997,
the Company purchased two cemeteries for an aggregate purchase price of $0.5
million with the acquisition of one funeral home occurring in the comparable
period in 1998 for $0.4 million.
In the six months ended June 30, 1998 and 1997, the Company used $1.7
million and $1.4 million for capital expenditures, respectively. In the six
months ended June 30, 1998, the Company paid $0.6 million in principal payments
on long-term debt, principally relating to payment of former owner obligations,
compared to $3.8 million in the corresponding period in 1997. In the six months
ended June 30, 1997 the Company borrowed $3.0 million on its revolving line of
credit compared to a net repayment of $0.7 million for the same period in 1998.
The Company estimates that capital expenditures will be approximately $1.5
million in 1998 to be used in part for the repair and improvement of existing
facilities. The Company also expects to invest approximately $1.0 million in
1998 for cemetery inventory development.
Contemporaneously with the consummation of the Acquisition, the Company
entered into senior secured credit facilities (the "Bank Credit Facilities")
with a syndicate of financial institutions and The Bank of Nova Scotia, as
administrative agent.
The Bank Credit Facilities provided the Company with 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") 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 7 years after the
Acquisition Closing Date, and the Bank Revolving Facility will mature 5 years
after the Acquisition Closing Date. 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 will be payable in full at maturity, with no prior amortization.
-10-
<PAGE>
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 the Company and each of the Company's existing and
future domestic subsidiaries (the "Bank Guarantors"). All obligations of the
Company and the 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 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.
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, 1998, the Company had approximately $201.6 million of
indebtedness outstanding and approximately $10.8 million of borrowing
availability under the Revolving Credit Facility. The Company believes that,
based upon current levels of operations and anticipated growth and availability
under the Revolving Credit Facility, it can adequately service its indebtedness.
If the Company cannot generate sufficient cash flow from operations or borrow
under the Revolving Credit 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. There can be no assurance that
such actions could be effected or would be effective in allowing the Company to
meet such obligations.
In June 1998, Statement of Financial Accounting Standards (FAS) No. 133,
"Accounting for Derivative Instruments and Hedging" was issued. FAS No. 133
requires companies to record derivatives on the balance sheet as assets or
liabilities measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualified under the standard hedge accounting. The
Company is currently assessing the effect of this standard, but does not
anticipate a material impact on the results of operations.
-11-
<PAGE>
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
13 and 14, 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 10, 1998
-12-
<PAGE>
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)
10.1(d)* Exclusive Supply Agreement, dated January 1, 1998 between
Batesville Casket Company, Inc., The Forethought Group,
Forethought Life Insurance Company and Prime Succession, Inc.
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-
<PAGE>
(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-
<PAGE>
<TABLE>
Exhibit 12
Prime Succession, Inc. and subsidiaries
Ratio of Earnings to Fixed Charges
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Three months ended Six months ended
June 30, June 30,
------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Ratio of Earnings to
Fixed Charges
Earnings:
Loss before income taxes (1,387) (725) (1,188) (1,645)
Add: Fixed charges, net 6,303 5,981 12,678 12,173
Income before income taxes and
fixed charges, net 4,916 5,256 11,490 10,528
Fixed Charges:
Total interest expense (1) 6,077 5,772 12,183 11,764
Interest factor in rents (2) 226 209 495 409
Total fixed charges 6,303 5,981 12,678 12,173
Ratio of earnings to fixed charges 0.78 0.88 0.91 0.86
Coverage deficiency (3) 1,387 725 1,188 1,645
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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001023294
<NAME> Prime Succession, Inc.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,065
<SECURITIES> 0
<RECEIVABLES> 34,006
<ALLOWANCES> 5,932
<INVENTORY> 50,356
<CURRENT-ASSETS> 20,709
<PP&E> 73,655
<DEPRECIATION> 4,505
<TOTAL-ASSETS> 390,816
<CURRENT-LIABILITIES> 13,092
<BONDS> 214,192
0
0
<COMMON> 0
<OTHER-SE> 125,140
<TOTAL-LIABILITY-AND-EQUITY> 390,816
<SALES> 51,698
<TOTAL-REVENUES> 51,698
<CGS> 33,494
<TOTAL-COSTS> 33,494
<OTHER-EXPENSES> 7,210
<LOSS-PROVISION> 917
<INTEREST-EXPENSE> 12,183
<INCOME-PRETAX> (1,188)
<INCOME-TAX> 38
<INCOME-CONTINUING> (1,226)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,226)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
