<PAGE>
UNITED STATES
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, 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 [X] No [_]
The number of outstanding Common shares as of November 12, 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 September 30, 1997 and December 31, 1996 1
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three and Nine Months Ended September 30, 1997 and 1996 2
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
for the Nine Months Ended September 30, 1997 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Nine Months Ended September 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 SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
1996 1997
-------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and equivalents $ 7,900 $ 2,045
Accounts receivable, net of allowances 8,344 8,979
Prepaid expenses and other current assets 2,666 3,818
Inventory 1,186 1,152
Deferred tax asset 1,176 1,176
-------- --------
Total current assets 21,272 17,170
-------- --------
Long-term receivables, net of allowances 5,153 7,214
Cemetery Property 71,389 69,517
Property, plant and equipment, net 73,283 73,308
Goodwill 129,294 128,542
Deferred finance charge 11,891 10,718
Other assets 5,552 5,890
-------- --------
Total assets $317,834 $312,359
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,383 $ 1,945
Accrued expenses 7,857 3,572
Accrued interest 1,815 3,347
Other current liabilities 1,487 1,212
Current portion of other long-term debt 1,968 1,494
-------- --------
Total current liabilities 15,510 11,570
-------- --------
Retirement plan liabilities 7,616 7,284
Deferred tax liability 4,373 4,373
Subordinated Notes Payable 80,000 80,000
Bank senior term loan 74,000 73,000
Other long-term debt 3,764 3,511
Other liabilities 3,545 4,115
-------- --------
Total liabilities 188,808 183,853
-------- --------
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) (1,048)
-------- --------
Total stockholder's equity 129,026 128,506
-------- --------
Total liabilities and stockholder's equity $317,834 $312,359
======== ========
</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 Nine Months Ended
September 30 September 30
1996 1997 1996 1997
Predecessor Company Predecessor Company
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Sales and services:
Funeral sales and services $ 5,004 $ 6,159 $15,065 $ 21,235
Cemetery sales and services 6,488 8,706 17,798 25,938
Insurance commissions and other 1,242 1,934 3,632 5,492
------- ------- ------- --------
Total sales and services 12,734 16,799 36,495 52,665
Cost of sales and services:
Funeral sales and services 1,509 1,488 4,674 5,029
Cemetery sales and services 1,090 2,507 3,295 6,367
------- ------- ------- --------
Total costs of sales and services 2,599 3,995 7,969 11,396
Gross profit 10,135 12,804 28,526 41,269
Selling, general and administrative expenses 7,393 9,194 21,763 27,081
Amortization of purchase price in excess of
net assets acquired and other intangibles 46 819 85 2,459
------- ------- ------- --------
Income from operations 2,696 2,791 6,678 11,729
Other income expense:
Interest expense (506) (4,404) (1,415) (12,417)
Other income (66) 245 309 478
------- ------- ------- --------
Total other income expense (572) (4,159) (1,106) (11,939)
Income (loss) before income tax 2,124 (1,368) 5,572 (210)
Provision for income tax (benefit) 503 (241) 1,150 310
------- ------- ------- --------
Net income (loss) $ 1,621 $(1,127) $ 4,422 $ (520)
======= ======= ======= ========
</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>
Nine Months Nine Months
Ended Ended
September 30 September 30
1996 1997
Predecessor Company
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 4,422 $ (520)
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of purchase related assets 85 2,459
Provision for deferred taxes
Depreciation 2,118 1,546
Changes in assets and liabilities associated with operating activities:
(Increase) decrease in customer accounts receivable 750 (2,696)
Decrease in inventories 489 1,906
(Increase) decrease in other current assets (1,226) (1,706)
Decrease in accounts payable and accrued expenses (578) (3,191)
Increase (decrease) in other current liabilities 1,324 (749)
Other, net (395) 1,411
------- -------
Net cash provided by (used in) operating activities 6,989 (1,540)
Cash flow from investing activities--capital expenditures (2,208) (1,491)
Cash flow from investing activities--goodwill addition -- (1,571)
Cash flow from financing activities--Reduction in long-term debt (2,135) (1,253)
------- -------
Net increase (decrease) in cash and cash equivalents 2,646 (5,855)
Adjustments for exclusion of cash and cash equivalents pursuant to
the asset purchase agreement. (3,465) --
Cash and cash equivalents at beginning of period 1,269 7,900
------- -------
Cash and cash equivalents at end of period $ 450 $ 2,045
======= =======
Supplemental cash flow information:
Interest paid 1,415 8,754
Taxes paid 405 449
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
(3)
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 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 (loss) -- (520) (520)
----------- ------ -------------
Balance, September 30, 1997 1,000 129,554 (1,048) 128,506
=========== ======= ====== =============
</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 September 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 September 30, 1997 and the results
of operations and cash flows for the three and nine months ended September 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 nine months ended
September 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 September 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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1997 1996 1997
PREDECESSOR COMPANY PREDECESSOR COMPANY
------------ -------- ------------ -------
<S> <C> <C> <C> <C>
Sales and services:
Funeral sales and services 39.3% 36.7% 41.3% 40.3%
Cemetery sales and services 51.0% 51.8% 48.8% 49.3%
Insurance commissions and other 9.8% 11.5% 10.0% 10.4%
Total sales and services 100.0% 100.0% 100.0% 100.0%
Gross profit:
Funeral sales and services 69.8% 75.8% 69.0% 76.3%
Cemetery sales and services 83.2% 71.2% 81.5% 75.5%
Total gross profit 79.6% 76.2% 78.2% 78.4%
Selling, general and administrative 58.1% 54.7% 59.6% 51.4%
expenses
Amortization 0% 4.9% 0.0% 4.7%
Interest expense 4.0% 26.2% 3.9% 23.6%
</TABLE>
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
Revenues for the quarter ended September 30, 1997 increased 32 % to $16.8
million from $12.7 million for the quarter ended September 30, 1996.
Approximately 66% or $2.7 million of the increase was attributed to the
acquisition of the Satellite Properties. The remainder of the increase was
attributed to an 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 and 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 five-
percent decline in total calls was partially offset by a price increase in
August 1996 in funeral services.
(6)
<PAGE>
Gross margins from Cemetery sales declined from 83.2% in the quarter ended
September 30, 1996 to 71.2% in the quarter ended September 30, 1997. The
decline was due to an overall increase in inventory costs (amortization)
associated with purchase accounting adjustments and group sale discounts. Gross
margins for funeral services increased from 69.8% in the quarter ended September
30, 1996 to 75.8% in the quarter ended September 30, 1997 due to the price
increase and cost savings associated with the integration of the Satellite
Properties.
Selling, general and administrative expenses increased 24% from $7.4 million at
September 30, 1996 to $9.2 million at September 30, 1997. The primary reason
for the increase is due to the acquisition of the Satellite Properties. 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 September 30, 1997 declined
from 58.1% in the quarter ended September 30, 1996 to 54.7%. 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 $.8 million and $3.9 million,
respectively, for the quarter ended September 30, 1997 compared to September 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 $5.1 million for the quarter ended September 30, 1997 from $4.5 million for
the quarter ended September 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.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
Consolidated revenues increased 44% to $52.7 million for the nine months ended
September 30, 1997 compared to $36.5 million for the nine months ended September
30, 1996. Approximately half of the growth was attributed to the acquisition of
the Satellite Properties, which contributed $8.3 million to the increase.
Funeral service revenues increased 41% to $21.2 million, and cemetery revenues
increased 46% to $25.9 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 4% from the same nine-month period 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 $5.3 million to $27.1 million for
the nine months ended September 30, 1997 from $21.8 million for the nine months
ended September 30, 1996. The largest component of the $5.3 million increase is
associated with the acquisition of the Satellite Properties. General and
administrative expense for the predecessor mortuary and cemetery was flat
compared to the prior period. An increase in commission expense, which varies
in direct proportion with pre-need cemetery sales and services, of $2.4 million
was largely offset by a reduction in salaries and benefits. As a percentage of
consolidated revenue, general and administrative expense decreased to 51.4% for
the nine months ended September 30, 1997 compared to 59.6% for the nine months
ended September 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 $3.6 million in 1996 to $5.5 million in 1997. 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 $1.2 million and
commission and finance income increased $.1 million
Amortization and interest expense increased $2.4 million and $11.0 million,
respectively, for the nine months ended September 30, 1997 compared to September
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 $11.7 million for the nine months ended
September 30, 1997 from $6.7 million for the nine months ended September 30,
1996. EBITDA, earnings before interest, taxes, depreciation and amortization
(including cemetery property amortization included in cost of sales), increased
to $18.3 million for the nine months ended September 30, 1997 from $12.7 million
for the nine months ended September 30, 1996. Both the increase in income from
operations of $5.0 million and EBITDA of $5.6 million were primarily a result of
(i) an increase in pre-need contract sales (ii) an increase in leverage of
existing corporate
(7)
<PAGE>
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 September 30, 1997 the Company
had net working capital of $5.6 million and a current ratio of 1.48 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 $1.5 million for the nine months ended
September 30, 1997, compared to net cash provided by operating activities of
$7.0 million for the same period in 1996. The net change in working capital
provided by operations of $9.3 million compared to 1996 is due largely to the
$7.3 million increase in cash interest expense. Other factors contributing to
the change include a $2.7 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 the 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 ninth 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 9-1/2%. 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.
As a result of the Acquisition Transaction and the application of proceeds
therefrom, the Company's total outstanding indebtedness was approximately $153.0
million as of September 30, 1997. As of September 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.
(8)
<PAGE>
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.
At September 30, 1997 the company was in compliance with the terms of the
indenture and the bank audit facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131). 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 R. Ward as
President and Chief Operating Officer of the Company and Larry Miller as Chief
Executive Officer and Vice Chairman of Company. Mr. Nungesser was replaced by
Mr. Ward as a director of the company. In November 1997, Mr. Douglas McKinnon
who had served as Executive Vice President of The Loewen Group, Inc. resigned as
a director.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
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
November 14, 1997
(10)
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
(a)
Exhibit
Number Description
- ---------- -----------
<S> <C>
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.
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ---------- -----------
<S> <C>
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 , 1996 by and dated December
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.
<PAGE>
Exhibit 12
Rose Hills Company and Subsidiaries
Ratio of Earnings to Fixed Charges
(Dollars in Millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 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 (1.4) 2.1 (.2) 5.5
Add: Fixed charges, net 4.4 .5 12.4 1.4
---- ---- ---- ----
Income before income taxes
and fixed charges, net 3.0 2.6 12.2 6.9
Fixed Charges:
Total interest expense (1) 4.4 .5 12.4 1.4
Interest factor rents 0 0 0 0
---- ---- ---- ----
Total fixed charges 4.4 .5 12.4 1.4
Ratio of earnings to
fixed charges .7 5.2 1.0 4.9
Coverage deficiency (excess) 1.4 (2.1) .2 (5.5)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF ROSE HILLS COMPANY AND
SUBSIDIARIES, FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,045
<SECURITIES> 0
<RECEIVABLES> 8,979
<ALLOWANCES> 0
<INVENTORY> 1,152
<CURRENT-ASSETS> 17,170
<PP&E> 142,825
<DEPRECIATION> 0
<TOTAL-ASSETS> 312,359
<CURRENT-LIABILITIES> 11,570
<BONDS> 80,000
0
0
<COMMON> 0
<OTHER-SE> 129,554
<TOTAL-LIABILITY-AND-EQUITY> 312,359
<SALES> 52,665
<TOTAL-REVENUES> 52,665
<CGS> 11,396
<TOTAL-COSTS> 11,396
<OTHER-EXPENSES> 29,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,417
<INCOME-PRETAX> (210)
<INCOME-TAX> 309
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (520)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
