<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 333-21411
ROSE HILLS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 13-3915765
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3888 South Workman Mill Road Whittier, California 90601
(Address of principal executive offices) (Zip Code)
(562) 692-1212
Registrant's telephone number, including area code
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check [X] 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 [ ] No [X]
The number of outstanding Common shares as of September 23, 1997, was 1,000
<PAGE>
ROSE HILLS COMPANY
AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS
as of June 30, 1997 and December 31, 1996 1
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three and Six Months Ended June 30, 1997 and 1996 2
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
for the Six Months Ended June 30, 1997 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Six Months Ended June 30, 1997 and 1996 4
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 6
PART II.
OTHER INFORMATION
ITEM 5 OTHER INFORMATION 10
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 10
INDEX OF EXHIBITS 10 - 11
EXHIBIT 12 12
EXHIBIT 27 13
</TABLE>
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and June 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1997
------ ------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 7,900 $ 4,108
Accounts receivable, net of allowances 8,344 6,607
Prepaid expenses and other current assets 2,666 3,362
Inventory 1,186 849
Deferred tax asset 1,176 1,176
-------- --------
Total current assets 21,272 16,102
-------- --------
Long-term receivables, net of allowances 5,153 10,101
Cemetery Property 71,389 70,075
Property, plant and equipment, net 73,283 73,422
Goodwill 129,294 127,912
Deferred finance charge 11,891 11,109
Other assets 5,552 5,966
-------- --------
Total assets $317,834 $314,687
======== ========
LIABILITIES and STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,383 $ 2,046
Accrued expenses 7,857 5,412
Accrued interest 1,815 1,353
Other current liabilities 1,487 1,295
Current portion of other long-term debt 1,968 1,737
-------- --------
Total current liabilities 15,510 11,843
-------- --------
Retirement plan liabilities 7,616 7,408
Deferred tax liability 4,373 4,623
Subordinated Notes Payable 80,000 80,000
Bank senior term loan 74,000 73,500
Other long-term debt 3,764 3,570
Other liabilities 3,545 4,109
-------- --------
Total liabilities 188,808 185,053
-------- --------
Commitment and contingencies
Stockholder's equity:
Common stock par value $.01; 1,000 authorized;
1,000 shares outstanding
Additional paid in capital 129,554 129,554
Accumulated earnings (deficit) (528) 80
-------- --------
Total stockholder's equity 129,026 129,634
-------- --------
Total liabilities and stockholder's equity $317,834 $314,687
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(1)
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1996 1997 1996 1997
Predecessor Company Predecessor Company
----------- ------- ---------- -------
<S> <C> <C> <C> <C>
Sales and services:
Funeral sales and services $4,500 $7,367 $10,000 $15,076
Cemetery sales and services 6,300 8,530 11,300 17,232
Insurance commissions and other 1,100 2,128 2,400 3,558
Total sales and services 11,900 18,025 23,700 35,866
Cost of sales and services:
Funeral sales and services 1,500 1,514 3,200 3,541
Cemetery sales and services 1,100 2,109 2,200 3,860
Total costs of sales and services 2,600 3,623 5,400 7,401
Gross profit 9,300 14,402 18,300 28,465
Selling, general and administrative expenses 7,000 9,711 14,400 17,887
Amortization of purchase price in excess of
net assets acquired and other intangibles - 524 - 1,640
Income from operations 2,300 4,167 3,900 8,938
Other income expense:
Interest expense 500 4,080 900 8,013
Other income 300 90 400 233
Total other income expense 200 3,990 500 7,780
Income before income tax 2,100 177 3,400 1,158
Provision for income tax 100 80 700 550
Net income $2,000 $97 $2,700 $608
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(2)
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended June 30 Ended June 30
1996 1997
Predecessor Company
----------- -------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 2,700 $ 608
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of purchase related assets - 3,735
Provision for deferred taxes - 250
Depreciation 1,500 1,025
Changes in assets and liabilities associated with operating activities:
(Increase) decrease in customer accounts receivable 800 (3,211)
Decrease in inventories 200 338
(Increase) decrease in other current assets 300 (695)
Decrease in accounts payable and accrued expenses (700) (3,245)
Increase (decrease) in other current liabilities 700 (191)
Other, net - (316)
---------- -------
Net cash provided by (used in) operating activities 5,500 (1,702)
Cash flow from investing activities--capital expenditures (1,700) (1,165)
Cash flow from financing activities--Reduction in long-term debt (600) (925)
---------- -------
Net increase (decrease) in cash and cash equivalents 3,200 (3,792)
Adjustments for exclusion of cash and cash equivalents pursuant to
the asset purchase agreement. (3,600) -
Cash and cash equivalents at beginning of period 1,300 7,900
---------- -------
Cash and cash equivalents at end of period $ 900 $ 4,108
========== =======
Supplemental cash flow information:
Interest paid 900 7,230
Taxes paid 100 435
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(3)
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
For the Six Months Ended June 30, 1997
(Dollars in thousands, except shares outstanding)
<TABLE>
<CAPTION>
(Retained
Earning Total
Shares Additional Accumulated Stockholder's
Outstanding Paid in Capital Deficit) Equity
----------- --------------- ------- ------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 1,000 $129,554 $(528) $129,026
Net income -- --- 608 608
Balance, June 30, 1997 1,000 $129,554 $ 80 $129,634
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(4)
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying June 30, 1997 interim consolidated financial statements of
Rose Hills Company and subsidiaries ("Company") have been prepared in accordance
with generally accepted accounting principles for interim financial reporting.
Accordingly, they do not include all of the information and footnote disclosures
necessary for complete financial statements in conformity with generally
accepted accounting principles. These unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements included in the Company's Registration Statement on Form S-4
(Registrations No. 333-21411).
In the opinion of management, the accompanying interim consolidated
financial statements contain all adjustments considered necessary for a fair
presentation of the financial condition as of June 30, 1997 and the results of
operations and cash flows for the three and six months ended June 30, 1997.
Earnings (loss) per share have not been included, as the Company is a
wholly owned subsidiary of Rose Hills Holding, Inc.
The Company was formed in 1996 for purposes of acquiring Roses, Inc.
("Mortuary") and purchasing certain assets and assuming certain liabilities of
Rose Hills Memorial Park Association and Workman Mill Company ("Cemetery").
Also, in connection with the acquisition the Company's shareholder contributed
10 funeral homes and 2 funeral home cemetery combination properties (`Satellite
Properties'). As a result of these acquisitions (collectively "Acquisition
Transaction"), the Company is the successor to the operations of the predecessor
Mortuary and Cemetery. As of November 19, 1996, the Company's assets and
liabilities were adjusted to their estimated fair values under purchase
accounting. In addition, the Company entered into new financing arrangements
and changed its capital structure. Accordingly, the financial position and
results of operations subsequent to November 18, 1996 are not comparable to
prior periods. Operations of the Company since November 18, 1996 reflect
increased depreciation, amortization, and interest expense. Accordingly,
comparative financial information as of and for the three and six months ended
June 30, 1996 have been included on a historical basis for the predecessor
Mortuary and Cemetery and are not comparable. Such combined financial data for
the predecessor operations has been included solely to facilitate a discussion
of the operations from period to period. Such presentation of the 1996 data is
pro forma in that generally accepted accounting principles would not allow such
combination due to the lack of common ownership of the predecessor operations.
The operations of the Satellite Properties for 1996 have been omitted from the
presentation on the basis of immateriality.
2. Settlement Agreement
In connection with the acquisition, Roses, Inc. entered into a "Settlement
Agreement" dated November 19, 1996 with the former owners of the Cemetery to
resolve amounts due/owed between Roses, Inc. and the Cemetery as of November 18,
1996. The final resolution of such amounts under the Settlement Agreement had
not been determined at June 30, 1997.
The Company, as successor to Roses, Inc., accrued a $1.6 million liability
to former owners of the Cemetery that it believes will fully satisfy the terms
of the Settlement Agreement. The Company believes that the selling shareholders
of Roses, Inc. are obligated to pay approximately $1.4 million of the balance
accrued. Upon final resolution of such amounts under the Settlement Agreement,
Goodwill will be adjusted accordingly.
(5)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
The Company was formed in 1996 to acquire Rose Hills Memorial Park ("Rose
Hills"), which is the largest single location cemetery and funeral home
combination in the United States. In addition the Company acquired the Satellite
Properties consisting of 10 funeral homes and two combination cemetery and
funeral home properties. Rose Hills is situated less than 14 miles from downtown
Los Angeles on approximately 1,418 acres of permitted cemetery land near
Whittier, California. The Cemetery and Mortuary have been continuously operating
since 1914 and 1956, respectively. As a result of the Acquisition Transaction
the Company owns a strategic assembly of cemeteries and funeral homes in the
greater Los Angeles area.
Results of Operations
The following table sets forth certain income statement data as a percentage of
total sales for the Company and its predecessor operations.
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1996 1997 1996 1997
Predecessor Company Predecessor Company
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Sales and services:
Funeral sales and services 37.8% 40.9% 42.2% 42.0%
Cemetery sales and services 52.9% 47.3% 47.7% 48.1%
Insurance commissions and other 9.3% 11.8% 10.1% 9.9%
Total sales and services 100.0% 100.0% 100.0% 100.0%
Gross profit:
Funeral sales and services 66.7% 79.4% 68.0% 76.5%
Cemetery sales and services 82.5% 75.3% 80.5% 77.6%
Total gross profit 78.2% 79.9% 77.2% 79.4%
Selling, general and administrative expenses 58.8% 53.9% 60.8% 49.9%
Amortization 0.0% 2.9% 0.0% 4.6%
Interest expense 4.2% 22.6% 3.8% 22.3%
</TABLE>
Quarter Ended June 30, 1997 Compared to June 30, 1996
Revenues for the quarter ended June 30, 1997 increased 51.5 % to $18.0 million
from $11.9 million for the quarter ended June 30, 1996. Approximately 38% or
$2.3 million of the increase was attributed to the acquisition of the Satellite
Properties. The remainder of the increase was attributed to a 45.0% increase in
pre-need cemetery property sales, increased cemetery merchandise sales and
increased earnings from the Endowment Care Fund ("ECF"). Pre-need property
sales increased due to the expansion of products offered on pre-need sales
contracts, one large group sale for approximately $1.5 million and the addition
of over 120 new sales counselors. Overall funeral service revenue increased due
to the acquisition of the Satellite Properties. Revenue at Rose Hills was up
slightly compared to 1996. A three-percent decline in total calls was offset by
a price increase of approximately 17% for the average funeral services.
(6)
<PAGE>
Gross margins from Cemetery sales declined slightly from 82.5% in the quarter
ended June 30, 1996 to 75.3% in the quarter ended June 30, 1997. The decline
was due to an overall increase in inventory costs associated with purchase
accounting adjustments and group sale discounts. Gross margins for funeral
services increased from 66.7% in the quarter ended June 30, 1996 to 79.4% in the
quarter ended June 30, 1997 due to the price increase and cost savings
associated with the integration of the Satellite Properties.
Selling, general and administrative expenses increased 38.7% from $7.0 million
at June 30, 1996 to $9.7 million at June 30, 1997. The primary reason for the
increase is higher commissions due to increased pre-need property and
merchandise sales (commission expense is a variable cost based on sales). Costs
related to the Administrative Service Agreement with The Loewen Group, Inc. and
increased property taxes were offset by lower employee benefit costs and savings
related to staffing reductions. As a percentage of net sales, selling, general
and administrative expense for the quarter ended June 30, 1997 declined from
58.8% in the quarter ended June 30, 1996 to 53.9%. The decline is attributed to
the absorption of the Satellite Property operations within the existing Company
corporate infrastructure and additional leverage realized from the increase in
pre-need property sales.
Amortization and interest expense increased $0.5 million and $3.5 million,
respectively, for the quarter ended June 30, 1997 compared to June 30, 1996.
Amortization, which includes amortization of goodwill and covenants not to
compete, increased as a result of the Acquisition Transaction. Interest expense
also increased due to borrowings associated with the Acquisition Transaction.
EBITDA, earnings before interest, taxes, depreciation and amortization
(including cemetery property amortization included in cost of sales), increased
to $5.8 million for the quarter ended June 30, 1997 from $3.2 million for the
quarter ended June 30, 1996. The increase was primarily a result of (i) an
increase in pre-need contract sales (ii) an increase in leverage of existing
corporate overhead and (iii) the addition of the Satellite Properties. EBITDA
should not be considered in isolation, as a substitute for net income or cash
flow data prepared in accordance with generally accepted accounting principles
or as a measure of a company's profitability or liquidity.
Six Months Ended June 30, 1997 Compared to June 30, 1996
Consolidated revenues increased 51.3% to $35.9 million for the six months ended
June 30, 1997 compared to $23.7 million for the six months ended June 30, 1996.
Approximately half of the growth was attributed to the acquisition of the
Satellite Properties, which contributed $5.5 million to the increase. Funeral
service revenues increased 50.8% to $15.1 million, and cemetery revenues
increased 52.5% to $17.2 million. The increase in funeral service revenue was
largely due to the acquisition of the Satellite Properties. Revenue from total
calls for Rose Hills is down 2% from the same six-month period last year. The
revenue decline was partially offset by a price increase implemented in the
third quarter last year. Cemetery sales increased due to an increase in pre-
need property sales which benefited from the expansion of products offered on
pre-need contracts, one large group sale for approximately $1.5 million and the
addition of over 120 new sales counselors and telemarketing support.
General and administrative expenses increased $3.5 to $17.9 million for the six
months ended June 30, 1997 from $14.4 million for the six months ended June 30,
1996. The largest component of the $3.5 million increase is associated with the
acquisition of the Satellite Properties. Non direct overhead costs, such as
depreciation and manager salary and wages, totaled 3.1 million during the six
months ended June 30, 1997. General and administrative expense for the
predecessor mortuary and cemetery was flat compared to the prior period. An
increase commission expense, which varies in direct proportion with pre-need
cemetery sales and services, of $2.0 million was largely offset by a reduction
in salaries and benefits. As a percentage of consolidated revenue, general and
administrative expense decreased to 49.9% for the six months ended June 30, 1997
compared to 60.4% for the six months ended June 30, 1996. The decline is
attributed to the absorption of the Satellite Property operations within the
existing Company corporate infrastructure and additional leverage realized from
the increase in pre-need property sales.
Other revenues, which include financing, commission, ECF and management fee
income increased from $2.4 million in 1996 to $3.6 million in 1997.
Substantially all of the increase was due to increased earnings from the ECF. In
August 1996 the Rose Hills ECF changed its investment strategy by increasing the
percentage of fund assets invested in fixed income securities, increasing
earnings available to the Cemetery. ECF earnings increased by $1.0 million and
commission and finance income increased $0.1 million
Amortization and interest expense increased $1.6 million and $7.1 million,
respectively, for the six months ended June 30, 1997 compared to June 30, 1996.
Amortization, which includes amortization of goodwill and covenants not to
compete, and interest expense increased as a result of the Acquisition
Transaction.
Income from operations increased to $8.9 million for the six months ended June
30, 1997 from $3.9 million for the six months ended June 30, 1996. EBITDA,
earnings before interest, taxes, depreciation and amortization (including
cemetery property amortization included in cost of sales), increased to $13.2
million for the six months ended June 30, 1997 from $5.7 million for the six
months
(7)
<PAGE>
ended June 30, 1996. Both the increase in income from operations of $5.0 and
EBITDA of $7.7 were primarily a result of (i) an increase in pre-need contract
sales (ii) an increase in leverage of existing corporate overhead and (iii) the
addition of the Satellite Properties. EBITDA should not be considered in
isolation, as a substitute for net income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of a
company's profitability or liquidity.
Liquidity and Capital Resources
The primary source of cash for the Company is funds provided by operating income
and proceeds from long-term indebtedness. As of June 30, 1997 the Company had
net working capital of $4.3 million and a current ratio of 1.36 compared to net
working capital of $5.7 million and current ratio of 1.37 at December 31, 1996.
Net cash used in operating activities was $1.7 million for the six months ended
June 30, 1997, compared to net cash provided by operating activities of $5.4
million for the same period in 1996. The net change in working capital provided
by operations of $7.1 million compared to 1996 is due largely to the $6.3
million increase in cash interest expense. Other factors contributing to the
change include a $3.2 million increase in customer contracts receivable used to
finance pre-need cemetery and merchandise sales. A reduction in accounts payable
and accrued expenses primarily associated with the Acquisition Transaction also
used $3.2 million of operating flow.
The primary uses of cash will be principal payments on outstanding long-term
indebtedness and capital expenditures as permitted under the terms of bank
agreements. The Company estimates its current year capital expenditures of
approximately $3.0 million will be used primarily for the repair and improvement
of existing infrastructure and cemetery grounds, as well as the addition of
rolling stock.
Contemporaneously with the consummation of the Acquisition, the Company entered
into senior secured amortization extended term loan facilities (the "Bank Term
Facility") in an aggregate principal amount of $75 million, the proceeds of
which were used to finance the Acquisition Transaction 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 are available 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. In addition, the
Company has their right, subject to certain conditions to performance tests, to
increase the Bank Term Facility by up to $25.0. The Bank Term Facility and the
Bank Revolving Facility will mature on November 1, 2003. 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"); $3 million in the fourth year after the Bank Closing; $7 million in
the fifth year after the Bank Closing; $9 million in the sixth year after the
Bank Closing and $53 million upon maturity of the Bank Term Facility. The
Revolving Credit Facility is payable in full at maturity, with no prior
amortization.
All obligations under the Bank Credit Facilities and any interest rate hedging
agreements entered into with the lenders or their affiliates in connection
therewith are unconditionally guaranteed (the "Bank Guarantees") jointly and
severally, Rose Hills Holdings, Corp. and each of the Company's existing and
future domestic subsidiaries (the "Bank Guarantors"). All obligations of the
Company and the Bank Guarantees are secured by first priority security interests
in all existing and future assets (including real property located at Rose Hill
but excluding other real property and vehicles covered by certificates of title)
of the Company and the Bank Guarantors. In addition, the Bank Credit Facilities
are secured by a first priority security interest in 100% of the capital stock
of the Company and each subsidiary thereof and all intercompany receivables.
In connection with the Acquisition Transaction, the Company also issued $80
million of 9-1/2% Senior Subordinated Notes due 2004, which were exchanged in
September 1997 for $80 million of 9-1/2% Senior Subordinated Notes due 2004 (the
"Notes") that were registered under the Securities Act of 1933. The Notes
mature on November 15, 2004. Interest on the Notes is payable semi-annually on
May 15 and November 15 at the annual rate of 91/2%. The Notes are redeemable in
cash at the option of the Company, in whole or in part, at any time on or after
November 15, 2000, at prices ranging from 104.75% 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
Transaction.
(8)
<PAGE>
As a result of the Acquisition Transaction and the application of proceeds
therefrom, the Company's total outstanding indebtedness was approximately $157.0
million as of June 30, 1997. As of June 30, 1997, the Company also has $25.0
million of borrowing capacity available under the Bank Revolving Facility.
Management believes that, based upon current levels of operations and
anticipated growth and the availability under the Bank Revolving Facility, it
can adequately service its indebtedness. If the Company cannot generate
sufficient cash flow from operations or borrow under the Bank Revolving Facility
to meet such obligations, 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.
The Company and its Subsidiaries are subject to certain restrictive covenants
contained in the indenture 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 (including the Exchange Notes), pay
dividends or make certain restricted payments, create liens on assets, engage in
mergers or acquisitions or enter into leases or transactions with affiliates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 13 1, Disclosures about Segments of an
Enterprise and Related Information (SFAS 13 1). SFAS 131 establishes standards
for the way public business enterprises are to report information about
operating segments in annual financial statements and requires those enterprises
to report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
Statement 131 uses a "management approach" concept as the basis for identifying
reportable segments.
The management approach is based on the way that management organizes the
segments within the enterprise for making operating decisions and assessing
performance. Consequently, the segments are evident from the structure of the
enterprise's internal organization. Furthermore, the management approach
facilitates consistent descriptions of an enterprise in its annual report and
various other published information. It focuses on financial information that an
enterprise's decision makers use to make decisions about the enterprise's
operating matters.
Statement 131 is effective for financial statements for periods beginning after
December 15, 1997. Earlier application is encouraged. In the initial year of
application, comparative information for earlier years is to be restated, unless
it is impracticable to do so. Statement 131 need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application shall be
reported in financial statements for interim periods in the second year of
application. Management has not determined the impact of SFAS 131 on its
consolidated financial statements.
(9)
<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.
Management Change
On September 10, 1997, Kendall E. Nungesser's employment as Chief Executive
Officer of the Company terminated and the Company appointed Dillis E. Ward as
President and Chief Operating Officer of the Company and Larry Miller as Chief
Executive Officer and Vice Chairman of Company.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The Exhibits, as shown in the "Index of Exhibits", attached hereto as pages 11
and 12, are filed as a part of this Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ROSE HILLS COMPANY
/s/ KENTON C. WOODS
------------------------
Kenton C. Woods
Chief Financial Officer,
Secretary and Treasurer
September 29, 1997
(10)
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
(a)
Exhibit
Number Description
- ------ -----------
<C> <S>
2.1* __ Asset Purchase Agreement, dated as of September 19, 1996, by and between and between
Rose Hills Memorial Park Association and Tudor Acquisition Corp. (now known as the
Rose Hills Company).
2.2* __ Agreement and Plan of Merger, dated as of September 19, 1996, by and among the Stockholders
of Roses, Inc. And Tudor Acquisition Corp. (now known as the Rose Hills Company).
2.3* __ Amendment to the Agreement and Plan of Merger dated as of November 18, 1996 by
and among Rose Hills Acquisition Corp. (now known as Rose Hills Company),
Roses Inc., the Stockholders of Roses Inc., and RH Mortuary Corporation.
3.1* __ Restated Certificate of Incorporation of Tudor Acquisition Corp. changing its name
to Rose Hills Acquisition Corp.
3.2* __ Certificate of Amendment of Certificate of Incorporation of Rose Hills Acquisition
Corp. changing its name to Rose Hills Company.
3.3* __ Amended and Restated By-Laws of Rose Hills Company.
4.1* __ Indenture dated as of November 15, 1996 between Rose Hills Acquisition Corp. and
United States Trust Company of New York, as Trustee.
4.2* __ Form of 9 1/2% Senior Subordinated Note due 2004 (included in Exhibit 4.1).
10.1* __ Stockholders' Agreement dated as of November 19, 1996 among Rose Hills
Holdings Corp., Blackstone Capital Partners II Merchant Banking Fund L.P.,
Blackstone Rose Hills Offshore Capital Partners L.P., Blackstone Family
Investment Partnership II L.P., Roses Delaware, Inc., Loewen Group International, Inc.,
and RHI Management Direct L.P.
10.2* __ Administrative Services Agreement dated as of November 19, 1996 between Rose
Hills Acquisition Corp. (now known as Rose Hills Company), The Loewen Group, Inc.,
and Loewen Group International Inc.
10.3* __ Credit Agreement dated as of November 19, 1996 among Rose Hills Company, Rose
Hills Holdings Corp., 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* __ Put/Call Agreement, dated as of November 19, 1996 among Blackstone Capital
Partners II Merchant Banking Fund L.P., Blackstone Rose Hills Offshore Capital
Partners L.P., Blackstone Family Investment Partnership II L.P., Roses Delaware, Inc.,
Loewen Group International, Inc., The Loewen Group Inc., and RHI Management Direct L.P.
10.5** __ Buddhist Memorial Complex Development and Use Agreement dated as of March 1,
1994 between Rose Hills Memorial Park Association and International Buddhist
Progress Society.
10.6** __ First Amendment to Buddhist Memorial Complex Development and Use Agreement,
dated as of September 1, 1994 between Rose Hills Memorial Park Association and
International Buddhist Progress Society.
</TABLE>
- --------------------------------------------------------------------------------
(b) Reports on Form 8-K
None
- ------
*Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-4 (Registration No. 333-21411).
**Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-4 (Registration No. 333-21411 Amendment No. 1).
***Filed Herewith.
(11)
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
10.7** __ Second Amendment to Buddhist Memorial Complex Development and Use
Agreement, dated as of March 15, 1995 between Rose Hills Memorial Park
Association and International Buddhist Progress Society.
10.8** __ Third Amendment to Buddhist Memorial Complex Development and Use
Agreement, dated as of May 15, 1995 between Rose Hills Memorial Park
Association and International Buddhist Progress Society.
10.9** __ Fourth Amendment to Buddhist Memorial Complex Development and Use
Agreement, dated as of October 15, 1995 between Rose Hills Memorial Park
Association and International Buddhist Progress Society.
10.10** __ Memorandum of Understanding, dated as of March 22, 1996 between Rose Hills
Memorial Park Association and International Buddhist Progress Society.
10.11** __ Amended and Restated Employment Agreement dated December , 1996 by and
between Rose Hills Company and Kendall E. Nungesser.
10.12** __ Employment Agreement dated November 19, 1996 by and between RH Mortuary
Corporation and Dennis C. Poulsen.
10.13** __ Employment Confirmation dated November 18, 1996 by and between Rose Hills
Company and Mark Helmintoller.
10.14** __ Employment Letter Agreement, dated April 22, 1997 by and between Rose Hills
Company and Kenton C. Woods.
10.15** __ Addendum to Employment Letter Agreement, dated April 28, 1997 by and between
Rose Hills Company and Kenton C. Woods.
10.16** __ Non-Competition Agreement dated as of November 19, 1996, between RH Mortuary
Corporation and Kendall E. Nungesser.
10.17** __ Non-Competition Agreement dated as of November 19, 1996 between RH Mortuary
Corporation and Dennis C. Poulsen.
10.18** __ Non-Competition Agreement dated as of November 19, 1996 between RH Mortuary
Corporation and Sandy V. Durko.
12*** __ Computation of Ratio of Earnings to Fixed Charges.
21* __ Subsidiaries of Rose Hills Company (formerly known as Rose Hills Acquisition Corp.).
27*** __ Financial Data Schedule
</TABLE>
________________
* Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-4 (Registration No. 333-21411).
** Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-4 (Registration No. 333-21411 Amendment No. 1).
*** Filed Herewith.
(12)
<PAGE>
Exhibit 12
Rose Hills Company. and Subsidiaries
Ratio of Earnings to Fixed Charges
(Dollars in Millions)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
Company Predecessor Company Predecessor
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges
Earnings:
Income before income taxes 0.2 2.1 1.2 3.4
Add: Fixed charges, net 4.0 0.5 8.0 0.9
---- ---- ---- ----
Income before income taxes
and fixed charges, net 4.2 2.6 9.2 4.3
Fixed Charges:
Total interest expense (1) 4.0 0.5 8.0 0.9
Interest factor rents 0.0 0.0 0.0 0.0
---- ---- ---- ----
Total fixed charges 4.0 0.5 8.0 0.9
Ratio of earnings to
fixed charges 1.0 5.2 1.15 4.78
Coverage deficiency (excess) (0.2) (2.1) (1.2) (3.4)
</TABLE>
(13)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS ROSE HILLS COMPANY AND
SUBSIDIARIES, FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,108
<SECURITIES> 0
<RECEIVABLES> 9,177
<ALLOWANCES> 2,570
<INVENTORY> 849
<CURRENT-ASSETS> 16,102
<PP&E> 144,728
<DEPRECIATION> 1,231
<TOTAL-ASSETS> 314,687
<CURRENT-LIABILITIES> 11,843
<BONDS> 80,000
0
0
<COMMON> 0
<OTHER-SE> 129,554
<TOTAL-LIABILITY-AND-EQUITY> 314,687
<SALES> 35,866
<TOTAL-REVENUES> 35,866
<CGS> 7,401
<TOTAL-COSTS> 7,401
<OTHER-EXPENSES> 19,527
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,013
<INCOME-PRETAX> 1,158
<INCOME-TAX> 550
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 608
<EPS-PRIMARY> .608
<EPS-DILUTED> .608
</TABLE>
