<PAGE> 1
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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 September 30, 2000
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 333-14599
---------------------
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 500 41018
ERLANGER, KENTUCKY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(859) 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
--- ---
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
The number of outstanding shares of Common Stock as of November 10,
2000, was 100.
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS
as of September 30, 2000 and December 31, 1999 1
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three Months Ended September 30, 2000 and 1999 3
and the Nine Months Ended September 30, 2000 and 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Nine Months Ended September 30, 2000 and 1999 4
NOTES to INTERIM CONSOLIDATED FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 3. DEFAULT UPON SENIOR SECURITIES 17
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 19
</TABLE>
(i)
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
PRIME SUCCESSION, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
(unaudited)
Assets
------
<S> <C> <C>
Cash and cash equivalents $ 2,873,598 $ 3,891,970
Receivables:
Trade, less allowance of $2,446,901 and $2,216,347 11,663,374 13,902,326
Other 1,118,335 797,128
--------------- ----------------
Total receivables 12,781,709 14,699,454
-------------- --------------
Inventories:
Merchandise 3,321,141 3,276,136
Cemetery lots and mausoleum spaces 915,400 827,694
---------------- ----------------
Total inventories 4,236,541 4,103,830
--------------- ---------------
Prepaids and other current assets 315,966 424,576
---------------- ----------------
Total current assets 20,207,814 23,119,830
-------------- --------------
Property and equipment:
Land and land improvements 17,038,845 16,929,888
Buildings and improvements 52,392,087 51,318,985
Equipment, furniture and fixtures 10,958,835 10,763,764
Accumulated depreciation (11,071,121) (8,673,146)
-------------- ---------------
Net property and equipment 69,318,646 70,339,491
-------------- --------------
Developed cemetery properties 14,140,378 14,564,994
Undeveloped cemetery properties 30,830,259 30,830,259
Goodwill, less accumulated amortization of $22,849,679
and $18,996,653 203,517,006 207,755,119
Other intangible assets, less accumulated amortization of
$16,486,116 and $13,614,443 11,816,336 14,839,249
Long-term receivables, less allowance of $3,575,507 and
$3,965,996 14,274,675 14,397,421
Merchandise trust assets and investments in insurance
contracts 21,248,582 21,814,901
Deferred obtaining costs, less accumulated amortization of
$5,100,347 and $3,493,640 16,172,711 15,270,796
Other assets 1,170,588 1,211,976
--------------- ---------------
$402,696,995 $414,144,036
============ ============
</TABLE>
See accompanying notes to interim consolidated financial statements.
1
<PAGE> 4
PRIME SUCCESSION, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
(unaudited)
Liabilities and Shareholders' Equity
------------------------------------
<S> <C> <C>
Liabilities not subject to compromise (see note 2)
Accounts payable $ 1,623,626 $ 2,594,453
Other accrued expenses 5,098,341 9,988,292
Current installments of obligations under agreements with
former owners 1,580,624 2,738,706
Current installments of long-term debt 4,096,576 682,284
Long-term debt in default 108,672,000 209,000,000
Due to related party -- 343,750
---------------- ----------------
Total current liabilities 121,071,167 225,347,485
------------- -------------
Deferred merchandise liabilities and revenues 56,816,776 54,965,220
Obligations under agreements with former owners, less
current installments 4,301,034 9,510,666
Long-term debt, less current installments 1,867,580 3,398,698
Deferred income taxes 17,747,792 17,747,792
Other long-term liabilities 2,369,450 2,761,744
Liabilities subject to compromise (see note 2) 118,728,177 --
Shareholders' equity
Common stock, par value $.01 per share, 1,000 shares
authorized; 100 issued and outstanding shares 1 1
Additional paid-in capital 128,062,239 128,501,398
Accumulated deficit (48,267,221) (28,088,968)
-------------- --------------
Total shareholders' equity 79,795,019 100,412,431
-------------- -------------
$402,696,995 $414,144,036
============ ============
</TABLE>
See accompanying notes to interim consolidated financial statements.
2
<PAGE> 5
PRIME SUCCESSION, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Funeral $16,259,138 $17,591,104 $ 51,792,182 $56,518,980
Cemetery 3,997,385 3,391,819 11,892,950 12,558,639
------------- ------------- ------------- ------------
20,256,523 20,982,923 63,685,132 69,077,619
Costs and expenses:
Funeral 13,613,057 11,868,002 39,700,229 36,935,871
Cemetery 3,531,169 2,993,173 10,028,547 8,899,428
------------- ------------- ------------- -------------
17,144,226 14,861,175 49,728,776 45,835,299
Corporate general and
administrative expenses 839,541 880,783 2,331,540 2,574,630
Depreciation and amortization 2,956,694 2,968,700 8,879,799 8,762,290
------------- ------------- -------------- -------------
Operating (loss) income (683,938) 2,272,265 2,745,017 11,905,400
------------- ------------- -------------- -------------
Other expenses:
Interest expense, including
amortization of deferred
loan costs (see note 3) 6,857,369 6,350,969 19,913,039 18,206,136
------------- -------------- ------------- ------------
Loss before reorganization items
and income taxes (7,541,307) (4,078,704) (17,168,022) (6,300,736)
Reorganization items:
Professional fees 683,938 -- 2,330,623 --
Retention bonuses 470,001 -- 470,001 --
Miscellaneous 62,269 -- 64,698 --
------------- ------------- -------------- -------------
1,216,208 -- 2,865,322 --
------------- ------------- -------------- -------------
Loss before income taxes (8,757,515) (4,078,704) (20,033,344) (6,300,736)
Income tax expense (48,303) (32,202) (144,909) (81,946)
------------- ------------- -------------- -------------
Net loss $ (8,805,818) $ (4,110,906) $ (20,178,253) $ (6,382,682)
============== ============== ============== ==============
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE> 6
PRIME SUCCESSION, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(20,178,253) $ (6,382,682)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 10,172,644 10,062,099
Depletion of cemetery property 632,726 594,248
Loss (gain) on disposal of assets 101,418 (27,700)
Changes in operating assets and liabilities:
Receivables (net) 2,160,491 2,977,753
Inventories (340,821) (442,365)
Merchandise trust assets and investments in insurance
contracts 566,319 176,552
Deferred obtaining costs (1,206,629) (2,630,668)
Accounts payable and accrued expenses 6,925,283 (2,773,966)
Due to related party (10,417) 191,667
Deferred merchandise liabilities and revenues 1,851,556 3,673,487
Other long-term liabilities (392,294) (500,077)
Other (264,769) 10,050
--------------- --------------
Net cash provided by operating activities 17,254 4,928,398
---------------- ------------
Cash flows from investing activities:
Proceeds from the disposal of property and equipment 318,909 166,377
Purchases of property and equipment (2,140,830) (2,862,771)
-------------- ------------
Net cash used in investing activities (1,821,921) (2,696,394)
-------------- ------------
Cash flows from financing activities:
Net proceeds of bank indebtedness under revolving loan 1,672,000 5,000,000
Net proceeds of bank indebtedness under DIP Facility 3,450,000 --
Net payments on long-term debt (2,536,466) (1,336,120)
Payments on obligations under agreements with former owners (1,799,239) (2,210,282)
-------------- ------------
Net cash provided by financing activities 786,295 1,453,598
--------------- ------------
Net (decrease) increase in cash and cash equivalents (1,018,372) 3,685,602
Cash and cash equivalents at beginning of period 3,891,970 1,146,670
-------------- ------------
Cash and cash equivalents at end of period $ 2,873,598 $ 4,832,272
============= ===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE> 7
PRIME SUCCESSION, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) On July 12, 2000 (the "Petition Date"), Prime Succession Holdings, Inc.
("Prime Holdings"), Prime Succession, Inc. (the "Company") and certain
of the Company's subsidiaries (collectively, the "Debtors") filed
petitions for relief (the "Bankruptcy Cases") under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court"). Since the Petition Date, the Debtors have continued to operate
their businesses as debtors in possession under the Bankruptcy Code.
The Bankruptcy Cases were commenced to implement a financial
restructuring of the Debtors that had been negotiated with the holders
of more than 66 2/3% of the principal amount of the Company's $100
million of 10 3/4% senior subordinated notes (the "Notes") and the
Company's bank group.
DEBT RESTRUCTURING
As described above, on the Petition Date, the Debtors commenced the
Bankruptcy Cases in the Bankruptcy Court. Since such date, the Debtors
have been operating their businesses as debtors-in-possession under the
Bankruptcy Code.
The Bankruptcy Cases were commenced to implement a financial
restructuring of the Debtors that had been negotiated with an informal
committee of some of the Company's largest noteholders (the "Informal
Committee"). As of the Petition Date, the members of the Informal
Committee, or certain funds managed or advised by them, held in the
aggregate more than 66 2/3% of the outstanding principal amount of the
Company's Notes. Prior to the Petition Date, three members of the
Informal Committee signed a support agreement under which they agreed
to support the Company's joint plan of reorganization (the "Plan")
within certain specified time frames.
In connection with the filing of the Bankruptcy Cases, shortly after
the Petition Date, the Bankruptcy Court approved a $10 million
debtor-in-possession financing (the "DIP Facility") with The Bank of
Nova Scotia and Goldman Sachs Credit Partners L.P. (jointly the "DIP
Facility Lenders"), the proceeds of which will be used for general
corporate purposes. Under the DIP Facility, the DIP Facility Lenders
have been granted a first priority security interest in substantially
all of the Debtors' assets. In connection with consummation of the
Plan, the Company intends to enter into a new credit facility (the "New
Credit Facility"), providing term loan proceeds of $108.5 million which
will be used to repay bank term and revolving loans outstanding under
the existing credit agreement. The Company also received a commitment
from its existing bank group to provide $18.0 million of exit financing
in the form of a new revolving credit facility which will be used to
repay the DIP Facility in full and provide the Company with funds for
its expected working capital and capital expenditure needs following
the consummation of the Plan.
To maintain strong relationships with its vendors, on July 13, 2000,
the Debtors obtained an order from the Bankruptcy Court pursuant to
which they have been authorized to pay in full all trade creditors that
continue to provide goods and services on customary terms and credit,
or terms otherwise acceptable to the Debtors. To date, essentially all
of the Debtors' trade creditors have been providing acceptable trade
terms, and the Debtors have been paying them in the ordinary course of
business.
On August 21, 2000, the Bankruptcy Court approved the Debtors'
disclosure statement relating to the Plan and the Debtors mailed the
disclosure statement to their creditors and shareholders entitled to
vote on the Plan. After a hearing on November 8, 2000, the Bankruptcy
Court confirmed the Plan as accepted by the classes of creditors and
shareholders entitled to vote.
5
<PAGE> 8
PRIME SUCCESSION, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
Under the Plan as confirmed, the Notes and certain other unsecured
claims will be converted into (i) $20 million of new senior
subordinated notes due 2004, with interest paid-in-kind at the rate of
14.25% per annum, and (i) 100% of reorganized Prime Holdings' common
stock, subject to dilution from a management incentive program and
warrants to be issued to former equity holders. The Plan is expected to
be consummated in approximately four weeks following the confirmation
date. However, consummation of the Plan is subject to several
conditions, including the finalization of the New Credit Facility, and
there is no assurance that all conditions will be satisfied within four
weeks following the confirmation date.
(2) In the Bankruptcy Cases, the Debtors obtained an order from the
Bankruptcy Court pursuant to which they have been authorized to pay in
full all of their trade creditors that continue to provide goods and
services on customary terms and credit, or terms otherwise acceptable
to the Debtors. Other unsecured liabilities of the Debtors as of the
Petition Date are subject to compromise or other treatment under the
Plan as confirmed by the Bankruptcy Court. For financial reporting
purposes, those liabilities and obligations whose treatment and
satisfaction are dependent on the outcome of the Bankruptcy Cases have
been segregated and classified as liabilities subject to compromise in
the interim consolidated financial statements. Generally, all actions
to enforce or otherwise effect repayment of pre-Petition Date
liabilities as well as all pending litigation against the Debtors are
stayed while the Debtors continue their business operations as
debtors-in-possession. The Company has notified known claimants subject
to the bar date of their need to file a proof of claim with the
Bankruptcy Courts. A bar date is the date by which claims against the
Company must be filed if the claimants wish to receive any distribution
in the Bankruptcy Cases. Differences between amounts shown by the
Debtors and eventual claims filed by creditors will be investigated and
either amicably resolved or adjudicated before the Bankruptcy Court.
The ultimate amount of and settlement terms for such liabilities are
subject to Bankruptcy Court approval and, accordingly, are not
presently determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject
leases, employment contracts, service contracts and other pre-Petition
Date executory contracts, subject to Bankruptcy Court approval. Claims
for damages resulting from the rejection of executory contracts are
subject to a separate bar date. The Debtors have reviewed all executory
contracts for assumption or rejection.
The principal categories of obligations classified as liabilities
subject to compromise under the reorganization proceedings are
identified below. The amounts in total may vary significantly from the
stated amount of proofs of claim that ultimately are filed with the
Bankruptcy Court, and may be subject to future adjustment depending on
Bankruptcy Court action, further developments with respect to potential
disputed claims, determination as to the value of any collateral
securing claims or other events. Additional claims may arise from the
rejection of executory contracts by the Debtors.
Liabilities subject to compromise applicable to the July 12, 2000
Petition Date, at September 30, 2000 were:
Other accrued expenses $ 12,786,061
10.75% Senior Subordinated Notes due 2004 100,000,000
Notes payable 1,040,308
Due to related party 333,333
Obligations under agreements with former owners 4,568,475
------------
$118,728,177
============
6
<PAGE> 9
PRIME SUCCESSION, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
As a result of the Chapter 11 filings, no principal or interest
payments will be made on certain pre-Petition Date debt obligations.
Interest on certain unsecured pre-Petition Date debt obligations
subject to compromise has continued to accrue after the Petition Date.
Interest expense and principal payments will continue on most secured
vendor and bank financing, including unrejected capital lease
obligations.
Loans made under the DIP Facility bear interest at a rate equal to the
bank's base rate plus 2.00%. A commitment fee of 0.50% is charged on
the unused portion of the DIP Facility. A commitment fee of 0.50% is
also being charged on the unused portion of a $2,000,000 cash
management indemnity loan commitment. As of September 30, 2000, the
Company had $3,450,000 of borrowings under the DIP Facility and
outstanding letters of credit of $372,000.
The DIP Facility contains various financial and other restrictive
covenants, including, among other things, limitations on asset sales,
additional indebtedness, capital expenditures, and minimum levels of
cumulative consolidated adjusted EBITDA. As of September 30, 2000, the
Company is in compliance with the DIP Facility covenants.
(3) Interest expense includes amortization of deferred loan costs as
follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
$430,950 $412,281 $1,292,847 $1,299,806
(4) Footnote disclosure which would substantially duplicate the disclosure
contained in the Annual Report on Form 10-K for the year ended December
31, 1999 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
September 30, 2000 assuming continuation as a going concern. All such
adjustments are of a normal recurring nature.
(5) The unaudited interim consolidated financial statements have been
prepared assuming Prime Succession, Inc. and subsidiaries will continue
as a going concern. As discussed in Note 1 to Interim Consolidated
Financial Statements, the Company filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code. The unaudited interim
consolidated financial statements do not include any adjustments that
might result from the outcome of the Bankruptcy Cases.
(6) Certain reclassifications have been made to the 1999 amounts to conform
to the 2000 presentations.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
On August 26, 1996 (the "Closing Date"), the capital stock of Prime
Succession, Inc. ("Predecessor Company") 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 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
September 30, 2000, the Company through its subsidiaries owns or operates 136
funeral homes and 19 cemeteries in 19 states, primarily in non-urban areas of
the United States. The Company's consolidated revenues were $63.7 million and
$69.1 million for the nine months ended September 30, 2000 and 1999,
respectively. Sales of funeral services of $51.8 million and $56.5 million
accounted for approximately 81.3% and 81.8% and cemetery sales of $11.9 million
and $12.6 million accounted for approximately 18.7% and 18.2%, respectively, of
total net sales for the nine months ended September 30, 2000 and 1999.
The Company commenced operations in 1992 at which time it had no
funeral homes and grew to 146 funeral homes by the Closing Date. In order to
achieve this rapid growth, former management was primarily focused on
identifying properties to be acquired and consummating such acquisitions rather
than on maximizing profitability of the funeral homes and cemeteries which it
had acquired. After the Acquisition, new management substantially eliminated the
Company's acquisition program and sought to take greater 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.
8
<PAGE> 11
RESULTS OF OPERATIONS
The Company's operations are detailed below for the three months ended
September 30, 2000 and 1999 expressed in dollar amounts as well as relevant
percentages. Revenue, gross margin, earnings from operations and expenses are
presented as a percentage of revenue. Income taxes are presented as a percentage
of losses before incomes taxes.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(millions of dollars) (percent)
--------------------- ---------
<S> <C> <C> <C> <C>
REVENUE
Funeral $16.3 $17.6 80.3% 83.8%
Cemetery 4.0 3.4 19.7 16.2
------- ------- -------- ------
Total $20.3 $21.0 100.0% 100.0%
===== ===== ====== ======
GROSS MARGIN
Funeral $ 2.6 $ 5.7 16.0% 32.4%
Cemetery 0.5 0.4 12.5 11.8
------- -------
Total 3.1 6.1 15.3 29.0
EXPENSES
Corporate general and administrative 0.8 0.9 3.9 4.3
Depreciation and amortization 3.0 3.0 14.8 14.3
------- -------
OPERATING (LOSS) INCOME (0.7) 2.2 (3.4) 10.5
Interest expense 6.8 6.3 33.5 30.0
------- -------
LOSS BEFORE REORGANIZATION ITEMS AND INCOME TAXES (7.5) (4.1) (36.9) (19.5)
REORGANIZATION ITEMS
Professional fees 0.7 -- 3.4 --
Retention bonus 0.5 -- 2.5 --
Miscellaneous 0.1 -- 0.5 --
------ -------
Total Reorganization Items 1.3 -- 6.4 --
LOSS BEFORE INCOME TAXES (8.8) (4.1) (43.3) (19.5)
Income taxes -- -- -- --
--------- ---------
NET LOSS $ (8.8) $ (4.1) (43.3)% (19.5)%
====== ======
</TABLE>
Consolidated revenues decreased 3.3% to $20.3 million for the three
months ended September 30, 2000 compared to $21.0 million in the corresponding
period for 1999, with funeral service revenues decreasing 7.4% to $16.3 million
compared to $17.6 million in the corresponding period in 1999, and cemetery
revenues increasing 17.6% to $4.0 million compared to $3.4 million in the
corresponding period for 1999. Funeral revenues decreased as a result of a
decline in call volume. Funeral revenue in 1999 included gains of approximately
$1.2 million recognized as a result of a trust conversion to surety bonds.
Cemetery revenues increased primarily due to an increase in pre-need sales and
an increase in cemetery interments. Consolidated operating income (loss)
decreased to
9
<PAGE> 12
$(0.7) million for the three months ended September 30, 2000 from $2.2 million
for the three months ended September 30, 1999 due to a decline in call volume as
well as a shift in the sale of merchandise from higher margin items such as
caskets to lower margin items such as urns, monuments and flowers. Funeral costs
at September 30, 2000 include costs relating to an insurance loss of
approximately $0.4 million as well as expenses of approximately $0.6 million
related to the Florida Attorney General legal proceedings (see Part II Item 1.
-- Legal Proceedings). Funeral revenue in 1999 included gains of approximately
$1.2 million recognized as a result of a trust conversion to surety bonds.
Consolidated gross margin decreased 49.2% to $3.1 million for the three
months ended September 30, 2000 compared to $6.1 million for the three months
ended September 30, 1999, with funeral gross margin of 16.0% for the three
months ended September 30, 2000 compared to 32.4% for the three months ended
September 30, 1999 and cemetery gross margin of 12.5% for the three months ended
September 30, 2000 compared to 11.8% for the corresponding period in 1999.
Funeral gross margin decreased as a result of a decline in call volume as well
as a shift in the sale of merchandise from higher margin items such as caskets
to lower margin items such as urns, monuments and flowers. Funeral costs at
September 30, 2000 include costs relating to an insurance loss of approximately
$0.4 million as well as expenses of approximately $0.6 million related to the
Florida Attorney General legal proceedings (see Part II Item 1. -- Legal
Proceedings). Funeral revenue in 1999 included gains of approximately $1.2
million recognized as a result of a trust conversion to surety bonds. Cemetery
gross margin increased due to an increase in pre-need sales and an increase in
cemetery interments. Gross 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 decreased to $0.8 million
for the three months ended September 30, 2000 compared to $0.9 million for the
three months ended September 30, 1999, primarily due to a reduction in salary
and bonus expenses. As a percentage of consolidated revenue, general and
administrative expense decreased to 3.9% in 2000 compared to 4.3% for the
corresponding period in 1999.
Depreciation and amortization expense remained constant at $3.0 million
for the three months ended September 30, 2000 and September 30, 1999.
Interest expense of $6.8 million for the three months ended September
30, 2000 increased by $0.5 million compared to $6.3 million for the
corresponding period in 1999 as a result of additional borrowings, an increase
in the Prime Rate, as well as a change in pricing structure triggered by the
Company's default under the Bank Credit Agreement (see discussion under the
"Liquidity and Capital Resources" caption of this item).
10
<PAGE> 13
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(millions of dollars) (percent)
--------------------- ---------
<S> <C> <C> <C> <C>
REVENUE
Funeral $51.8 $56.5 81.3% 81.8%
Cemetery 11.9 12.6 18.7 18.2
------ ------- -------- ------
Total $63.7 $69.1 100.0% 100.0%
===== ===== ====== ======
GROSS MARGIN
Funeral $12.1 $19.6 23.4% 34.7%
Cemetery 1.9 3.7 16.0 29.4
-------- -------
Total 14.0 23.3 22.0 33.7
EXPENSES
Corporate general and administrative 2.3 2.6 3.6 3.7
Depreciation and amortization 8.9 8.8 14.0 12.7
-------- -------
OPERATING INCOME 2.8 11.9 4.4 17.2
Interest expense 19.9 18.2 31.2 26.3
------- ------
LOSS BEFORE REORGANIZATION ITEMS AND INCOME TAXES (17.1) (6.3) (26.8) (9.1)
REORGANIZATION ITEMS
Professional fees 2.3 -- 3.6 --
Retention bonus 0.5 -- 0.7 --
Miscellaneous 0.1 -- 0.2 --
-------- -------
Total Reorganization Items 2.9 -- 4.6 --
LOSS BEFORE INCOME TAXES (20.0) (6.3) (31.4) (9.1)
Income taxes 0.2 0.1 (1.0) (1.6)
-------- -------
NET LOSS $ (20.2) $ (6.4) (31.7)% (9.3)%
======== ======
</TABLE>
Consolidated revenues decreased 7.8% to $63.7 million for the nine
months ended September 30, 2000 compared to $69.1 million in the corresponding
period for 1999, with funeral service revenues decreasing 8.3% to $51.8 million
compared to $56.5 million in the corresponding period in 1999, and cemetery
revenues decreasing 5.6% to $11.9 million compared to $12.6 million in the
corresponding period for 1999. Funeral revenues decreased as a result of a
decline in call volume. Funeral revenue in 1999 included gain of approximately
$1.2 million recognized as a result of a trust conversion to surety bonds.
Cemetery revenues decreased due to a decline in cemetery interments as well as a
decrease of approximately $0.1 million in perpetual care trust income from the
corresponding period in 1999. Consolidated operating income decreased to $2.8
million for the nine months ended
11
<PAGE> 14
September 30, 2000 compared to $11.9 million for the nine months ended September
30, 1999 due to the decline in funeral and cemetery revenues as well as a shift
in the sale of merchandise from higher margin items such as caskets to lower
margin items such as urns, monuments and flowers. Funeral costs at September 30,
2000 include costs relating to an insurance loss of approximately $0.4 million
as well as expenses of approximately $0.6 million related to the Florida
Attorney General legal proceedings (see Part II Item 1. -- Legal Proceedings).
Consolidated gross margin decreased 39.9% to $14.0 million for the nine
months ended September 30, 2000 compared to $23.3 million for the nine months
ended September 30, 1999, with funeral gross margin of 23.4% for the nine months
ended September 30, 2000 compared to 34.7% for the nine months ended September
30, 1999 and cemetery gross margin of 16.0% for the nine months ended September
30, 2000 compared to 29.4% for the nine months ended September 30, 1999. Funeral
gross margin decreased primarily as a result of a decline in call volume as well
as a shift in the sale of merchandise from higher margin items such as caskets
to lower margin items such as urns, monuments and flowers. Funeral costs at
September 30, 2000 include costs relating to an insurance loss of approximately
$0.4 million as well as expenses of approximately $0.6 million related to the
Florida Attorney General legal proceedings (see Part II Item 1. -- Legal
Proceedings). Cemetery gross margin decreased due to a decline in pre-need
sales, interments, as well as a decline in perpetual care trust income and an
increase in the cost of cemetery merchandise. Gross 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 decreased 11.5% to $2.3
million for the nine months ended September 30, 2000 compared to $2.6 million
for the nine months ended September 30, 1999. This decrease is primarily due to
a reduction in salary and bonus expenses. As a percentage of consolidated
revenue, general and administrative expense decreased to 3.6% for the nine
months ended September 30, 2000 compared to 3.7% for the nine months ended
September 30, 1999.
Depreciation and amortization expense increased 1.1% to $8.9 million
for the nine months ended September 30, 2000 compared to $8.8 million for the
nine months ended September 30, 1999 due primarily to increased depreciation on
capital expenditures.
Interest expense of $19.9 million for the nine months ended September
30, 2000 increased by $1.7 million compared to $18.2 million for the
corresponding period in 1999, primarily as a result of additional borrowings, as
well as a change in pricing structure triggered by the Company's default under
the Bank Credit Agreement (see discussion under the "Liquidity and Capital
Resources" caption of this item).
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash in 2000 and 1999 have been funds
provided by operating activities and proceeds under the revolving loan and the
DIP Facility. As of September 30, 2000, the Company had a net working capital
deficit of $100.9 million and a current ratio of 0.17:1, compared to a net
working capital deficit of $202.2 million and a current ratio of 0.10:1 as of
December 31, 1999.
The primary uses of cash in 2000 and 1999 have been for the principal
payments on long-term debt, payments on obligations under agreements with former
owners and capital expenditures.
In the nine months ended September 30, 2000 and 1999, the Company used
$2.1 million and $2.9 million for capital expenditures, respectively. In the
nine months ended September 30, 2000 and 1999, the Company paid $2.5 million and
$1.3 million in principal payments on long-term debt, respectively. Payments
relating principally to payment of former owner obligations for the nine months
ended September 30, 2000 and 1999 were $1.8 million and $2.2 million,
respectively. In the nine months ended September 30, 2000, the Company borrowed
a net of $1.7 million on its revolving line of credit and $3.5 million on its
DIP Facility compared to net borrowings of $5.0 million on the revolving line of
credit in the nine months ended September 30, 1999.
12
<PAGE> 15
The Company estimates that net capital expenditures in 2000 will be
$2.4 million which will be used in part for the repair and improvement of
existing facilities.
Contemporaneously with the consummation of the Acquisition, the Company
entered into a credit agreement (the "Bank Credit Agreement") with a syndicate
of financial institutions (the "Lenders") and The Bank of Nova Scotia, as
administrative agent.
The Bank Credit Agreement provided the Company with senior secured
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 Bank Term Facility will
mature 7 years after the Acquisition Closing Date, and the Bank Revolving
Facility matures 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.
All obligations under the Bank Credit Agreement are unconditionally
guaranteed (the "Bank Guarantees") jointly and severally, by the Predecessor
Company and each of the Company's existing and future domestic subsidiaries (the
"Bank Guarantors"). All obligations of the Successor Company and the Bank
Guarantors under the Bank Credit Agreement and the Bank Guarantees are secured
by first priority security interests in all existing and future assets (other
than certain real property and vehicles covered by certificates of title) of the
Company and the Bank Guarantors. In addition, the obligations 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 is 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 Agreement contains 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 September 30, 1999, the Company was in default with respect to
certain financial covenants set forth in the Bank Credit Agreement. On November
12, 1999, the Lenders granted the Company a conditional waiver of non-compliance
until January 31, 2000 pursuant to a Limited Waiver and Amendment to Credit
Agreement entered into among the Company, the Bank Guarantors, the Lenders and
The Bank of Nova Scotia.
13
<PAGE> 16
On January 31, 2000, the Company and the Bank Guarantors entered into a
Limited Waiver and Forebearance Agreement to Credit Agreement with the Lenders
and The Bank of Nova Scotia pursuant to which the Lenders agreed to waive
certain conditions to additional borrowings under the Revolving Credit Facility
and to forbear from exercising certain rights and remedies under the Bank Credit
Agreement through March 15, 2000. The Lenders did not grant the Company a
further waiver beyond March 15, 2000 and specifically reserved all of their
rights and remedies under the Bank Credit Agreement with respect to the existing
defaults.
Pursuant to the Limited Waiver and Forebearance Agreement to Credit
Agreement dated January 31, 2000, on February 8, 2000, The Bank of Nova Scotia,
as Administrative Agent under the Bank Credit Agreement, issued a Payment
Blockage Notice to the Trustee under the Indenture relating to the Notes. As a
consequence, the Company did not make the semi-annual interest payment due
February 15, 2000 on the Notes.
On July 12, 2000, Prime Succession Holdings, Inc., the Company and
certain of the Company's subsidiaries filed petitions for relief under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware. Since the Petition Date, the Debtors have
continued to operate their businesses as debtors-in-possession under the
Bankruptcy Code.
The Bankruptcy Cases were commenced to implement a financial
restructuring of the Debtors that had been negotiated with the holders of more
than 66 2/3% of the principal amount of the Company's Notes and the Company's
bank group. See "Debt Restructuring" and Part II Item 3 -- Default upon Senior
Securities.
DEBT RESTRUCTURING
As described above, on the Petition Date, the Debtors commenced the
Bankruptcy Cases in the Bankruptcy Court. Since such date, the Debtors have been
operating their businesses as debtors-in-possession under the Bankruptcy Code.
The Bankruptcy Cases were commenced to implement a financial
restructuring of the Debtors that had been negotiated with an informal committee
of some of the Company's largest noteholders. As of the Petition Date, the
members of the Informal Committee or certain funds managed or advised by them,
held in the aggregate more than 66 2/3% of the outstanding principal amount of
the Company's senior subordinated notes. Prior to the Petition Date, three
members of the Informal Committee signed a support agreement under which they
have agreed to support the Company's joint plan of reorganization within certain
specified time frames.
In connection with the filing of the Bankruptcy Cases, shortly after
the Petition Date, the Bankruptcy Court approved a $10 million
debtor-in-possession financing with The Bank of Nova Scotia and Goldman Sachs
Credit Partners L.P., the proceeds of which will be used for general corporate
purposes. Under the DIP Facility, the DIP Facility Lenders have been granted a
first priority security interest in substantially all of the Debtors assets. In
connection with consummation of the Plan, the Company intends to enter into a
New Credit Facility, providing term loan proceeds of $108.5 million which will
be used to repay bank term and revolving loans outstanding under the existing
credit agreement. The Company also received a commitment from its existing bank
group to provide $18.0 million of exit financing in the form of a new revolving
credit facility which will be used to repay the DIP Facility in full and provide
the Company with funds for its expected working capital and capital expenditure
needs following the consummation of the Plan.
To maintain strong relationships with its vendors, on July 13, 2000,
the Debtors obtained an order from the Bankruptcy Court pursuant to which they
have been authorized to pay in full all of their trade creditors that continue
to provide goods and services on customary terms and credit, or terms otherwise
acceptable to the Debtors. To date, essentially all of the Debtors' trade
creditors have been providing acceptable trade terms, and the Debtors have been
paying them in the ordinary course of business.
On August 21, 2000, the Bankruptcy Court approved the Debtors'
disclosure statement relating to the Plan
14
<PAGE> 17
and the Debtors mailed the disclosure statement to their creditors and
shareholders entitled to vote on the Plan. After a hearing on November 8, 2000,
the Bankruptcy Court confirmed the Plan as accepted by the classes of creditors
and shareholders entitled to vote.
Under the Plan as confirmed, the Notes and certain other unsecured
claims will be converted into (i) $20 million of new senior subordinated notes
due 2004, with interest paid-in-kind at the rate of 14.25% per annum, and (i)
100% of reorganized Prime Holdings' common stock, subject to dilution from a
management incentive program and warrants to be issued to former equity holders.
The Plan is expected to be consummated in approximately four weeks following the
confirmation date. However, consummation of the Plan is subject to several
conditions, including the finalization of the New Credit Facility, and there is
no assurance that all conditions will be satisfied within four weeks following
the confirmation date.
Statements of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," is required to
be implemented in the first quarter of the Company's fiscal year 2001. The
effect of this pronouncements on the Company's consolidated financial condition
and results of operations has not been determined.
The SEC issued Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements" in December 1999. SAB 101 presents the
staff's views on the application of existing generally accepted accounting
principles to revenue recognition in the financial statements. The industry is
currently assessing the impact of the application of SAB 101 on revenue
recognition policies. If it is determined that SAB 101 modifies or amends
revenue recognition policies followed by the industry and previously accepted by
the SEC, the adjustment would be required to be reflected in the Company's
consolidated financial statement in the quarter ending December 31, 2000.
Emerging Issues Task Force (EITF) 00-14, "Accounting for Certain Sales
Incentives" is required to be implemented in the fourth quarter of the Company's
fiscal year 2000. The Company does not expect the implementation of this
pronouncement to have a material effect on its consolidated financial condition
or results of operations.
15
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's market risk sensitive
instruments and positions is the potential change arising from increases or
decreases in interest rates as discussed below. Generally, the Company's market
risk sensitive instruments and positions are characterized as "other than
trading". The Company's exposure to market risk as discussed below includes
"forward-looking statements" and represents an estimate of possible changes in
fair value or future earnings that would occur assuming hypothetical future
movements in interest rates. The Company's views on market risk are not
necessarily indicative of actual results that may occur and do not represent the
maximum possible gains and losses that may occur, since actual gains and losses
will differ from those estimated, based upon actual fluctuations in interest
rates and the timing of transactions.
INTEREST
The Company has entered into various fixed and variable rate debt
obligations.
As of September 30, 2000, the carrying value of the Company's long-term
fixed-rate debt was approximately $103.6 million compared to fair value of $28.6
million. Fair value was determined using quoted market prices, where applicable,
or discounted future cash flows based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. If these
instruments are held to maturity, no reduction in the carrying value due to
market value decline will be realized.
As of September 30, 2000, the Company had $112.1 million in
variable-rate debt. Each 0.5% change in average interest rates applicable to
such debt would result in a change of approximately $0.5 million in the
Company's annual pre-tax earnings.
The Company monitors its mix of fixed and variable rate debt
obligations in light of changing market conditions and from time to time may
alter that mix as permitted by, for example, entering into interest rate swaps
or other interest rate hedging transactions.
16
<PAGE> 19
PART II
ITEM 1. - LEGAL PROCEEDINGS
On February 25, 1999, the Department of Legal Affairs, a part of the
Office of the Attorney General of the State of Florida, issued a subpoena duces
tecum requiring the production of various documents and materials by the Company
in connection with an investigation into the compliance of the Company's
pre-need and at-need policies and procedures with Florida law. The Company has
delivered the information required and has met with representatives of the
Department of Legal Affairs to review the findings and charges which may arise
from the investigation. The Company is in negotiations with representatives of
the Department of Legal Affairs to conclude and resolve the investigation and
all claims that might arise therefrom. Although no agreement has been finalized,
if a settlement is reached, the Company, among other things, would be obligated
to pay the Office of the Attorney General administrative fees and costs in the
amount of $500,000 and to retain an independent third party to conduct an
examination of certain at-need and pre-need contracts and related materials for
the purpose of determining whether any monetary refunds or other corrective
actions are appropriate in particular cases.
ITEM 3. - DEFAULT UPON SENIOR SECURITIES
As of September 30, 1999, the Company was in default with respect to
certain financial covenants set forth in the Bank Credit Agreement. On November
12, 1999, the Lenders granted the Company a conditional waiver of non-compliance
until January 31, 2000 pursuant to a Limited Waiver and Amendment to Credit
Agreement entered into among the Company, the Bank Guarantors, the Lenders and
The Bank of Nova Scotia.
On January 31, 2000, the Company and the Bank Guarantors entered into a
Limited Waiver and Forebearance Agreement to Credit Agreement with the Lenders
and The Bank of Nova Scotia pursuant to which the Lenders agreed to waive
certain conditions to additional borrowings under the Revolving Credit Facility
and to forbear from exercising certain rights and remedies under the Bank Credit
Agreement through March 15, 2000. The Lenders did not grant the Company a
further waiver beyond March 15, 2000 and specifically reserved all of their
rights and remedies under the Bank Credit Agreement with respect to the existing
defaults.
Pursuant to the Limited Waiver and Forebearance Agreement to Credit
Agreement dated January 31, 2000, on February 8, 2000, The Bank of Nova Scotia,
as Administrative Agent under the Bank Credit Agreement, sent a Payment Blockage
Notice to the Trustee under the Indenture relating to the Notes. As a
consequence, the Company did not make the semi-annual interest payments in the
amount of $5,375,000 each due February 15, 2000 and August 15, 2000 on the
Notes.
On July 12, 2000, Prime Succession Holdings, Inc., the Company and
certain of the Company's subsidiaries filed petitions for relief under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware. Since the Petition Date, the Debtors have
continued to operate their businesses as debtors in possession under the
Bankruptcy Code.
The Bankruptcy Cases were commenced to implement a financial
restructuring of the Debtors that had been negotiated with the holders of more
than 66 2/3% of the principal amount of the Company's Notes and the Company's
bank group. See "Debt Restructuring" and Part I Item 2 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
DEBT RESTRUCTURING
As described above, on the Petition Date, the Debtors commenced the
Bankruptcy Cases in the Bankruptcy Court. Since such date, the Debtors have been
operating their businesses as debtors-in-possession under the Bankruptcy Code.
17
<PAGE> 20
The Bankruptcy Cases were commenced to implement a financial
restructuring of the Debtors that had been negotiated with an informal committee
of some of the Company's largest noteholders. As of the Petition Date, the
members of the Informal Committee or certain funds managed or advised by them,
held in the aggregate more than 66 2/3% of the outstanding principal amount of
the Company's senior subordinated notes. Prior to the Petition Date, three
members of the Informal Committee signed a support agreement under which they
have agreed to support the Company's joint plan of reorganization within certain
specified time frames.
In connection with the filing of the Bankruptcy Cases, shortly after
the Petition Date, the Bankruptcy Court approved a $10 million
debtor-in-possession financing with The Bank of Nova Scotia and Goldman Sachs
Credit Partners L.P., the proceeds of which will be used for general corporate
purposes. Under the DIP Facility, the DIP Facility Lenders have been granted a
first priority security interest in substantially all of the Debtors assets. In
connection with consummation of the Plan, the Company intends to enter into a
New Credit Facility, providing term loan proceeds of $108.5 million which will
be used to repay bank term and revolving loans outstanding under the existing
credit agreement. The Company also received a commitment from its existing bank
group to provide $18.0 million of exit financing in the form of a revolving
credit facility which will be used to repay the DIP Facility in full and provide
the Company with funds for its expected working capital and capital expenditure
needs following the consummation of the Plan.
To maintain strong relationships with its vendors, on July 13, 2000,
the Debtors obtained an order from the Bankruptcy Court pursuant to which they
have been authorized to pay in full all of their trade creditors that continue
to provide goods and services on customary terms and credit, or terms otherwise
acceptable to the Debtors. To date, essentially all of the Debtors' trade
creditors have been providing acceptable trade terms, and the Debtors have been
paying them in the ordinary course of business.
On August 21, 2000, the Bankruptcy Court approved the Debtors'
disclosure statement relating to the Plan and the Debtors mailed the disclosure
statement to their creditors and shareholders entitled to vote on the Plan.
After a hearing on November 8, 2000, the Bankruptcy Court confirmed the Plan as
accepted by the classes of creditors and shareholders entitled to vote.
Under the Plan as confirmed, the Notes and certain other unsecured
claims will be converted into (i) $20 million of new senior subordinated notes
due 2004, with interest paid-in-kind at the rate of 14.25% per annum, and (i)
100% of reorganized Prime Holdings' common stock, subject to dilution from a
management incentive program and warrants to be issued to former equity holders.
The Plan is expected to be consummated in approximately four weeks following the
confirmation date. However, consummation of the Plan is subject to several
conditions, including the finalization of the New Credit Facility, and there is
no assurance that all conditions will be satisfied within four weeks following
the confirmation date.
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 2
"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.
18
<PAGE> 21
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The Exhibits, as shown in the "Index of Exhibits", attached hereto as
pages 20 through 22, 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/ ARTHUR J. ANSIN
-------------------------------
Arthur J. Ansin
Chief Financial Officer,
Secretary and Treasurer
November 10, 2000
19
<PAGE> 22
INDEX OF EXHIBITS
(a) Exhibit
Number Document Description
------ --------------------
2* 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.
2.2* Joint Plan of Reorganization of Prime Succession Holdings,
Inc. and Prime Succession, Inc. and its subsidiaries under
Chapter 11 of the Bankruptcy Code.
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)
5* Opinion of Simpson Thacher & Bartlett regarding the legality
of the Exchange Notes.
8* Opinion of Simpson Thacher & Bartlett regarding certain tax
matters.
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.
20
<PAGE> 23
(a) Exhibit
Number Document Description
------ --------------------
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.
10.4(a)* First Amendment to Credit Agreement dated September 30, 1998
among Prime Succession, Inc., Prime Succession Holdings, Inc.,
Goldman Sachs Credit Partners, as syndication agent and
arranging agent, and The Bank of Nova Scotia as administrative
agent for such lenders.
10.4(b)* Limited Waiver and Amendment dated November 12, 1999 entered
into by and among Prime Succession, Inc. (formerly known as
Prime Succession Acquisition Corp.), Prime Succession
Holdings, Inc. (formerly known as Prime Succession, Inc.), the
Financial Institutions listed therein, Goldman Sachs Credit
Partners L.P., as syndication agent and arranging agent, and
The Bank of Nova Scotia, as administrative agent.
10.4(c)* Limited Waiver and Forebearance Agreement to Credit Agreement
dated January 31, 2000 entered into by and among Prime
Succession, Inc. (formerly known as Prime Succession
Acquisition Corp.), Prime Succession Holdings, Inc. (formerly
known as Prime Succession, Inc.), the Financial Institutions
listed therein, Goldman Sachs Credit Partners L.P., as
syndication agent and arranging agent, and The Bank of Nova
Scotia, as administrative agent.
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.
10.9 Debtors-in-Possession Credit and Guaranty Agreement dated July
13, 2000 among Prime Succession, Inc., as Borrower, the Parent
and Subsidiaries of the Borrower, as Guarantors, the Lenders
from time to time parties hereto, as Lenders, Goldman Sachs
Credit Partners L.P., as Syndication Agent, and The Bank of
Nova Scotia, as Administrative Agent.
12 Computation of Ratio of Earnings to Fixed Charges
16* Letter from Ernst & Young LLP (independent auditors prior to
the Acquisition) concerning change in Company accountants
delivered pursuant to Item 304(a) of Regulation S-K.
21* Subsidiaries of Prime Succession, Inc. (formerly known as
Prime Succession Corp.).
23.1* Consent of Simpson Thacher & Bartlett (included in Exhibits 5
and 8).
21
<PAGE> 24
(a) Exhibit
Number Document Description
------ --------------------
23.2* Consent of Ernst & Young LLP (independent auditors prior to
the Acquisition).
23.3* Consent of KPMG Peat Marwick LLP (independent auditors
following the Acquisition).
24* Power of Attorney (included on Page II-4 of the Registration
Statement).
25* Statement of Eligibility on Form T-1 of United States Trust
Company of New York.
27 Financial Data Schedule
99.1* Registration Rights Agreement dated as of August 15, 1996
between Prime Succession Acquisition Corp. and Smith Barney
Inc.
99.2* Form of Letter of Transmittal.
99.3* Form of Notice of Guaranteed Delivery.
99.4* Prime Succession, Inc. Press Release dated July 13, 2000.
* Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-4 (Registration No. 333-14599) with respect to the
Exchange Notes.
(b) Reports on Form 8-K
The following current report on Form 8-K was filed by the Company during the
third quarter of fiscal 2000.
<TABLE>
<CAPTION>
Filing Date Item Number Description
----------- ----------- -----------
<S> <C> <C>
July 24, 2000 Item 3. Bankruptcy Reporting on press release dated July 13, 2000 announcing the
(dated July 12, 2000) or Receivership filing of petitions under Chapter 11 of the United States
Bankruptcy Code and a joint plan of reorganization which
have been incorporated by reference in exhibit numbers
2.2 and 99.4 above.
</TABLE>
22
