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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 333-21411
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ROSE HILLS COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3915765
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
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)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
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 March 24, 2000, was 1,000.
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TABLE OF CONTENTS
PART I
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Item
Number Page
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1. BUSINESS ....................................................... 3
2. PROPERTIES ..................................................... 8
3. LEGAL PROCEEDINGS .............................................. 9
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS ............ 9
PART II
5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS ........ 10
6. SELECTED FINANCIAL DATA ........................................ 10
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ......................................... 12
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ..... 17
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .................... 17
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE .......................................... 17
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............. 18
11. EXECUTIVE COMPENSATION ......................................... 19
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.. 20
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. 21
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
................................................................ 24
</TABLE>
2
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Rose Hills Company (the "Company"), a Delaware corporation, is a wholly-
owned subsidiary of Rose Hills Holdings Corp. ("RH Holdings"). The Company was
formed in 1996 for purposes of acquiring Roses, Inc. (the "Mortuary") and
purchasing certain assets and assuming certain liabilities of Rose Hills
Memorial Park Association and Workman Mill Company (the "Association" and the
assets and liabilities purchased there from, the "Cemetery"). Also, in
connection with the acquisition, a subsidiary of The Loewen Group Inc. (The
Loewen Group Inc. collectively with its affiliates, "Loewen"), a shareholder
of RH Holdings, contributed 14 funeral homes and 2 funeral home cemetery
combination properties (the "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.
The Cemetery and the Mortuary (collectively, "Rose Hills") are located on
the grounds of the Cemetery, Rose Hills Memorial Park. Rose Hills is the
largest single location cemetery funeral home combination in the United States
and the Cemetery is the largest single location cemetery in the United States.
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.
In 1997, the integration of the Satellite Properties with Rose Hills
effected through the Acquisition Transaction enabled the Company to begin to
take advantage of the benefits of "hub and spoke clustering,' including
opportunities to share personnel, vehicles and other key resources, and
implement revenue enhancing cross-marketing programs. In addition, the Company
intends to leverage Rose Hills' outstanding reputation in the region by using
the Rose Hills name at many of the Satellite Properties.
ACQUISITION TRANSACTION
On September 19, 1996, the Company entered into an Agreement and Plan of
Merger with Roses, Inc. (the "Merger Agreement") providing for the acquisition
of the Mortuary through the merger of the Company with and into Roses, Inc.,
with Roses, Inc. (renamed RH Mortuary Corporation) being the surviving
corporation in the merger. On November 19, 1996, ("Acquisition Closing Date"),
the Company assigned all of its rights and obligations under the Merger
Agreement to a newly-created subsidiary of the Company, so that following the
merger, the Mortuary became a wholly-owned subsidiary of the Company.
On September 19, 1996, the Company and the Association also entered into an
Asset Purchase Agreement (the "Asset Purchase Agreement") pursuant to which
the Company agreed to purchase from the Association the assets and assume the
liabilities constituting the Cemetery. At the Acquisition Closing Date, the
Company's rights under such Agreement were assigned to a newly created wholly-
owned subsidiary of the Company (RH Cemetery Corporation), and accordingly, on
the Acquisition Closing Date, the Cemetery became a wholly- owned subsidiary
of the Company.
In connection with the Acquisition, RH Holdings, Blackstone Capital Partners
II Merchant Banking Fund L.P and its affiliates (collectively, "Blackstone"),
a subsidiary of Loewen ("LN Sub"), Loewen Group International, Inc. ("LGII")
and The Loewen Group Inc. ("LWN") entered into a subscription agreement (the
"Subscription Agreement") pursuant to which: (i) Blackstone subscribed for
common stock of RH Holdings in exchange for a cash contribution to RH
Holdings, (ii) LGII subscribed for common stock and preferred stock of RH
Holdings in exchange for a cash contribution to RH Holdings, and (iii) LN Sub
subscribed for shares of preferred stock of RH Holdings in exchange for the
contribution by LN Sub of the Satellite Properties.
3
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In connection with the Acquisition Transaction, (i) Blackstone and Loewen
contributed to RH Holdings and RH Holdings contributed to the Company $106.6
million ($107.0 million less $0.4 million to be advanced by the Company to RHI
Management Direct L.P. ("RHIMD") to finance its purchase of common stock of
RH Holdings) in cash; (ii) the Company acquired the Mortuary in consideration
of the payment of $59.9 million in cash (subject to downward adjustment under
certain circumstances) after giving effect to the repayment of outstanding
debt of the Mortuary; (iii) the Company paid a cash purchase price for the
Cemetery in the amount of $166.3 million in cash (subject to downward
adjustment under certain circumstances); borrowings under the Bank Credit
Agreement was entered into; and (vi) the sale of the Senior Subordinated Notes
due 2004 was consummated. (See Item 7, "Liquidity and Capital Resources.")
THE FUNERAL SERVICE AND CEMETERY INDUSTRY AND LOCAL CHARACTERISTICS
The Company believes that the death care industry has attractive fundamental
long-term characteristics. In the last 15 years, demand has grown steadily at
a 1% compound annual growth rate while the aggregate number of funeral homes
has remained relatively constant. Future demographic trends are expected to
contribute to the continued stability of the funeral service industry. The
Census Bureau projects that the segment of the United States population over
65 years old, which presently totals 34 million, will more than double in size
to over 73 million by 2035. Over the next 15 years, the aging of this
population is expected to outweigh the effects of increased life expectancies.
The Census Bureau projects that the number of deaths in the United States will
grow at approximately 1% annually through 2010.
Historically the death care industry has been made up of relatively small,
family owned and operated businesses. The funeral service and cemetery
industry has been characterized by low business risk compared with most other
businesses. According to preliminary figures from The Dun & Bradstreet
Corporation, the average business failure rate in the United States is
approximately 88 per 10,000. The failure rate of the funeral service and
crematoria industry is approximately 19 per 10,000, 78% lower than the average
rate and among the lowest of all industries. This low failure rate can be
attributed to a number of factors, including stable demand in the industry,
positive demographic trends and the low rate of new market entrants due to the
length of time required to establish community acceptance.
In the last several decades several large "consolidators", who have sought
to make profits by acquiring a large number of smaller funeral homes and
cemeteries, have emerged. Management believes the major consolidators serve
20% of the overall market in the United States. In 1999, the trend toward
consolidation changed significantly. The largest consolidator, Service
Corporation, International, who competes directly in the Company's market,
announced plans to significantly curtail its acquisition activity. The second
largest consolidator and approximately 20% owner of the Company, The Loewen
Group Inc., filed for protection from its creditors under Chapter 11 of the
United States Bankruptcy Code on June 1, 1999, eliminating its own acquisition
strategy. The third largest Consolidator, Stewart Enterprises, Inc. also
announced significant reductions in its acquisition strategy. The curtailment
of acquisitions by the large consolidators is likely to reduce their expansion
in the Company's immediate market area. In addition, Management believes the
reduction in acquisitions have reduced acquisition multiples for funeral and
cemeteries in the Company's market area.
The Company attracts customers from a geographic region encompassing
substantially all of Los Angeles County and the northern portion of Orange
County. According to statistics compiled by the State of California Department
of Health Services, the Census Bureau and Los Angeles County, the estimated
population of Los Angeles County was approximately 9.6 million people (over 3
million households) in 1997. Approximately 18% of this population was age 55
or older, 14% age 65 or older, and 5% age 75 or older. The death rate in
Los Angeles County has demonstrated stability over the last decade and the
number of deaths is expected to increase in step with the 1% annual projected
population growth in Los Angeles County over the next five years. However,
slight year to year variations can occur in the number of deaths. Early data
for 1999 indicate a 3% increase in deaths for Los Angeles County.
4
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Mortuary Operations
The Mortuary provides a complete range of funeral services, including
collection of remains, certification of death, embalming, sale of caskets and
related merchandise, sale of flowers, visitation facilities and transportation
to place of services and to burial site. All funeral arrangements provided to
each of the Mortuary's customers are provided by an experienced counselor with
the assistance of a centralized computer system. The Mortuary has the current
capacity to provide over 30 funeral services per day. In 1999, the Mortuary
performed approximately 5,100 funeral calls.
The Mortuary began operations in 1956, when the Association recognized that
additional revenue opportunity existed in funeral operations. As the
division's success continued, the Mortuary was spun off in 1976 as a taxable,
for profit, wholly-owned subsidiary of Rose Hills Memorial Park Association
("the Association"). In 1990, the Association sold the Mortuary business to
senior management in a leveraged buyout transaction. During the period from
October 1989 through November 19, 1996, pursuant to a Management Agreement,
the Mortuary also operated the Cemetery.
The Mortuary provides funeral services on both an at-need and a pre-need
basis. Since 1987, substantially all pre-need funeral services have been
funded through the sale by the Mortuary to its customers of a life insurance
product. Under the insurance plan, the Mortuary is named the beneficiary of
the insurance policy but does not recognize funeral service revenue related to
the contracted services until such services are provided, although it does
recognize commission income and related expenses upon the sale of such
policies. On the date of performance of the prearranged funeral service, the
Mortuary recognizes funeral service income and the proceeds received under the
policy are applied against the contract. Prior to 1987, the Mortuary also
offered trust-backed and debenture-backed pre-need products.
Other funeral home locations consist of 14 funeral homes and two combination
properties located in Los Angeles, San Bernardino and northern Orange Counties
which provide a wide variety of funeral services to various communities in
such counties. While the demographics of the population served by these
funeral homes, taken as a whole, are generally similar to that of Rose Hills'
clients, the smaller size and long-standing local reputations have led each of
such properties to develop a demographically unique client base within its
particular community. Therefore, as a result of this extended cluster of
funeral service providers as well as the ability of particular funeral homes
to meet special needs of local communities, Management believes that the other
funeral home locations permit the Company to access a base of mortuary clients
that it otherwise would be unable to develop solely from its location near
Whittier.
Substantially all revenues from mortuary operations are derived from at-need
services (including services funded through insurance policies). In 1999,
total revenues from at-need services accounted for 90% of mortuary revenue and
34% of total Company revenue. The remaining 10% of mortuary revenue is derived
from insurance commissions and trust income. The amount and percentage of the
Company's total revenues contributed by the mortuary operations during each of
the last three fiscal years is set forth herein under the caption "Item 7--
Management's Discussion and Analysis". For additional information about the
revenues, income and assets attributable to the Company's mortuary operations,
see Note 19 to the Company's consolidated financial statements which are
included as part of this Annual Report on Form 10-K.
Cemetery Operations
The Cemetery is the largest single location cemetery in the United States.
The Cemetery consists of approximately 1,418 acres, 415 of which have been
developed and sold, 291 of which are developed unsold cemetery property and
the remaining 712 of which have been permitted as cemetery property. Since its
founding in 1914, the Cemetery has performed over 350,000 interments, of which
approximately 8,700 occurred in 1999. The Cemetery provides a complete line of
cemetery products (including a selection of burial spaces, vaults, crypts,
memorials and niches) and burial and cremation services on both an at-need and
pre-need basis.
5
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Pre-need sales of cemetery interment rights and other related products and
services are recognized as revenue when the customer contracts are signed with
concurrent recognition of related costs.
The Company voluntarily trusts 100% of pre-need cemetery service revenue
when the sales contracts are paid in full. Also, the Company has an agreement
with a vendor to purchase pre-need merchandise when pre-need contracts are
paid in full. Funds voluntarily trusted for pre-need cemetery services are
included in the consolidated financial statements.
The Company funds its obligation to maintain cemetery grounds by placing a
portion, generally $60 per lot, of the proceeds from cemetery property sales
into perpetual care trust funds. Income from these funds is withdrawn and used
for maintenance of the cemetery.
Although the Cemetery is non-sectarian, in order to better serve an
increasingly diverse customer base, the Cemetery has developed and offers many
lawn areas for use by particular ethnic, religious and fraternal organizations
as well as its eight non-denominational chapels (including the newly
constructed Sky Rose Chapel, a 350 seat chapel and mausoleum designed by
architect Fay Jones) seven additional mausoleums and a crematory. In addition,
in 1994, the Company entered into a development agreement with the
International Buddhist Progress Society ("IBPS") under which the Company:
.(i) Granted IBPS the interment rights with respect to 7.5 acres of
Cemetery property and agreed to contribute to IBPS's development of a
16,000 square foot columbarium and surrounding stupa gardens; and
.(ii) Granted IBPS a seven-year option to build a second columbarium on an
adjacent 2.7 acre site.
In exchange for these rights, IBPS agreed to pay the Company approximately
$1.4 million. IBPS paid $160,000 upon execution of the development agreement
and has agreed to pay the remaining balance at the rate of $100,000 per
quarter starting April 1, 2000. In addition, IBPS has agreed to pay the
Company $75 per niche on the first 5,000 niches sold and $50 per niche
thereafter. The first columbarium and stupa gardens are complete and open for
interments.
In 1999, approximately 62% of cemetery revenue and 39% total Company revenue
was derived from pre-need sales. The amount and percentage of the Company's
total revenue contributed by the cemetery operations during each of the last
three fiscal years is set forth herein under the caption "Item 7--Management's
Discussion and Analysis". For additional information concerning the revenues,
income and assets attributable to the Company's cemetery operations, see note
19 to the Company's consolidated financial statements which are included as
part of this Annual Report on Form 10-K.
COMPETITION
The Company competes with a number of sectarian and nonsectarian mortuaries
and cemeteries in the greater Los Angeles area. Mortuary competition is
primarily from small, local mortuaries that attract customers through the
personal reputation of the funeral director and their ability to tailor their
services to their local ethnic, religious or fraternal communities. Cemetery
competition comes primarily from Forest Lawn, Inglewood, Oakdale, Live Oak and
Memory Gardens cemeteries, as well as a number of cemeteries owned by the
Catholic Church. The Company's primary methods of competition in both its
mortuary and cemetery operations consist of building goodwill in the community
by continually strengthening and leveraging its heritage and name recognition
and developing its infrastructure to further improve its ability to serve the
diverse population of the greater Los Angeles area.
The Company also faces competition from large consolidators' in the industry
that seek to reap profits from an acquisition and consolidation strategy as
well as casket retailers (including internet casket stores) and low-cost
funeral providers. Such competitors include several large, publicly traded
multinational funeral services companies, including Service Corporation
International and Stewart Enterprises, Inc. In the Los Angeles area the large
consolidators control approximately 20% of the funeral market.
6
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In 1999, 20% of the Rose Hills funeral business was cremation. In the Los
Angeles area over 35% of funeral services were cremations. The Company's
traditional funeral and cemetery operations face increasing competition from
non-traditional cremation and alternative service firms. The Company believes
it can capitalize on its reputation and name to compete with less well known
companies through its own alternative service strategy.
REGULATION
The Company's funeral home operations are regulated by the Federal Trade
Commission (FTC), which administers the Trade Regulation Rule on Funeral
Industry Practices (the "Funeral Rule"), and became effective on April 30,
1984, and was revised as of July 19, 1994. The FTC is currently reviewing the
Funeral Rule but has yet to issue any proposed changes in regulation. The
Funeral Rule defines certain acts and practices in connection with the
provision of funeral goods or services as unfair or deceptive and sets forth
various requirements intended to prevent such unfair or deceptive acts and
practices. The Company also must comply with other federal legislation,
including the Americans with Disabilities Act and regulations administered by
the Occupational Safety and Health Administration.
The Company's operations are also regulated by the State of California,
which regulates the sale of pre-need cemetery and funeral services. California
state regulations require, among other things, that a portion of the funds
received by the Company in connection with all cemetery sales be deposited in
an endowment care fund. The principal of such endowment care fund must be
invested and the income from such investment may be used only for the
development, improvement, embellishment and maintenance of the cemetery.
California state regulations also require that money received from the sale of
pre-need funeral service contracts be held in trust until the services are
delivered, that such contracts may be cancelled by the customer at any time
prior to the delivery of such services and that upon any such cancellation the
principal and interest of such trust (less, in certain cases, a revocation
fee) be repaid to the customer.
The Company believes that it is currently in substantial compliance with the
Funeral Rule and all other applicable federal, state and local laws and
regulations. The Company cannot predict the outcome of any proposed
legislation or regulation, or the effect that any such legislation or
regulation might have on the Company.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and local
environmental laws and regulations, including those pertaining to remediation
of hazardous substances, the handling and disposal of biological materials,
and protection of endangered or threatened species. These laws and regulations
may require the Company to incur compliance, remediation and other costs from
time to time or restrict development in certain environmentally sensitive
areas.
Environmental audits of the Company's various properties were conducted in
connection with the acquisition transaction. In connection with the Cemetery
and Mortuary, management is aware of certain areas, including a solid waste
disposal area used to dump used rubbish, green waste and used motor oil in the
1970's, that will require remediation. However, pursuant to an Environmental
Compliance Agreement entered into between the Association and the Company, the
Association has agreed to pay or indemnify the Company for certain costs
relating to such remediation.
In addition, two of the Company's cemetery properties are located in or near
areas of regional groundwater contamination. The Company submitted information
in connection with contamination at one of these areas and was informed by the
Environmental Protection Agency that the Company will not be included in the
Super Fund cleanup of the basin.
7
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Although there can be no assurance, management does not believe that the
above or other environmental matters affecting the Company will have a
material adverse effect on the Company's financial condition or results of
operations.
EMPLOYEES
As of December 31, 1999, the Company had 963 employees. Management believes
that the Company's relationship with its employees is good.
In December 1993, the National Labor Relations Board ("NLRB") certified the
Teamsters Union as the collective bargaining representative of 57 employees in
the Company's Park Department. In December 1994, certain of these employees
petitioned the NLRB to hold an election regarding decertifying the union.
During the same period the Teamsters filed numerous unfair labor practice
charges against the Company with the NLRB. On April 29, 1996, the NLRB General
Counsel issued a Consolidated Amended Complaint and Notice of Hearing on
certain of the union's charges. In April 1997, the Administrative Law Judge
issued an unfavorable decision regarding the unlawful termination of two
employees and a favorable decision in the alleged failure to recognize and
bargain in good faith with the union.
On October 3, 1997, the Company filed an appeal with the United States 9th
Circuit Court of Appeals. On December 15, 1999, the United States 9th Circuit
Court of Appeals reviewed the case and upheld the original unfavorable
decision. The Company is currently working to comply with the original orders
and although the financial impact for compliance has not been finalized,
management believes it will not have a material adverse effect on the
Company's financial condition.
ITEM 2. PROPERTIES.
The property on which the Cemetery is located consists of approximately
1,418 acres, 408 of which have been developed and sold as cemetery property,
295 of which are developed unsold cemetery property and the remaining 715 of
which have been permitted as cemetery property. Also located on the grounds of
Rose Hills are eight chapels that seat over 800 people in the aggregate, seven
mausoleums, 39 visitation rooms, a crematory and a 43,460 square foot
administrative building. In addition to the above facilities the Company
constructed Sky Rose Chapel, a 26,490 square foot chapel and mausoleum
facility.
In connection with the Acquisition Transaction, the Company was granted an
option, exercisable for a period of three years after the Acquisition Closing
Date, to purchase from the Association an additional 75 acres of permitted
cemetery property located in Los Angeles County, for an aggregate price of
$18.2 million. In November 1999, the Company exercised its option and
simultaneously sold the property to an unrelated third party. The Company
netted approximately $.3 million from the transaction and has the right to
earn an additional $1.5 million if the buyer is able to secure entitlements by
June 2001.
The Mortuary's facilities consist of 6.2 acres of land, a two-story, 74,000
square foot mortuary and administrative building (inclusive of relevant
properties above), an adjacent flower shop and storage facilities.
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The Satellite Properties, which were conveyed by Loewen to the Company in
the Acquisition Transaction, consist of the funeral homes and combination
properties located in the cities listed below:
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Name Location
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Custer Christiansen (five funeral homes)....... West Covina, Covina, Glendora,
La Puente (two locations)
White's Funeral Homes.......................... Bellflower
Neels-Brea Funeral Home........................ Brea
Diamond & Sons-Mettler Chapel.................. Garden Grove
Shannon-Donegan Chapel......................... Orange
San Fernando Mortuary.......................... San Fernando
R.L. Malinow-Glasband-Weinstein Mortuaries(1).. West Hollywood
Colton Funeral Chapel.......................... Colton
Grove Colonial Mortuary........................ San Bernardino
Richardson-Peterson Mortuary................... Ontario
Harbor Lawn(2)................................. Costa Mesa
Melrose Abbey (including Angels Lawn
Cemetery(3)................................... Anaheim
</TABLE>
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(1) 95% owned by the Company.
(2) Combination property located on 28 acres; includes a funeral home and a
cemetery (with crematory).
(3) Combination property located on 20 acres; includes a funeral home and a
cemetery.
The facilities of ten of the Satellite property locations are owned by the
Company and the facilities of the remaining six Satellite property locations
are leased by the Company.
In December 1998, the Company acquired Home of Peace Memorial Park and
Mausoleum located in Los Angeles.
The obligations of RH Holdings, the Company, and each of the Company's
existing and future domestic subsidiaries under the Bank Credit Facilities (as
defined below) are secured by a first priority security interest in all
existing and future assets (including the real property located at Rose Hills
but excluding other real property and vehicles covered by certificates of
title) of each such entity. See Item 6.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to certain legal proceedings in the ordinary course of
its business. Management does not expect that the outcome of any such
proceedings will have a material adverse effect on the Company's financial
condition or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
None.
9
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PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
In connection with the Acquisition Transaction, the Company issued 1,000
shares of Common Stock to RH Holdings. This represents all of the outstanding
Common Stock of the Company.
There is no established public trading market for the Common Stock of the
Company.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected consolidated financial data
for the Company (and its predecessors, as the case may be) as of December 31,
1999 and for each of the five years in the five-year period ending December
31, 1999. The proforma combined information as of and for the year ended
December 31, 1996 is a combination of the Company (for the period from
November 19, 1996 to December 31, 1996) and its predecessor companies the
Mortuary and Cemetery (for the period from January 1, 1996 to November 18,
1996). Comparative financial information as of and for the period ended
November 18, 1996 and the year ended December 31, 1995 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 have
been included solely to facilitate a discussion of the operations from period
to period. Such presentation of the 1996 and 1995 data is proforma 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 have been omitted from the presentation on the
basis of immateriality.
The selected financial data under the captions "Income Statement Data",
"Other Financial Data" and "Balance Sheet Data" for the years ended December
31, 1999 and 1998 and the period from November 19, 1996 through December 31,
1996 were derived from the Company's financial statements.
The selected financial data under the captions "Income Statement Data",
"Other Financial Data" and "Balance Sheet Data" for the year ended December
31, 1995 and the period from January 1, 1996 through November 18, 1996 were
derived from the financial statements of Roses, Inc., and of Rose Hills
Memorial Park Association and Workman Mill Investment Company.
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The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Company's consolidated financial statements and notes thereto and other
financial information included elsewhere in this report.
<TABLE>
<CAPTION>
Proforma
Predecessor Predeccessor
For the Year For the Year For the Year Company For the year
Ended Ended Ended Pro forma Company Pro ended
December 31, December 31, December 31, 1/01/96 11/19/96 forma December 31,
1999 1998 1997 11/18/96 12/31/96 1996 1995
------------ ------------ ------------ ----------- -------- ------ ------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total Revenue........... 88.4 83.6 70.7 42.9 7.1 50.0 47.4
Operating Income........ 20.6 19.5 14.7 5.1 1.3 6.4 7.2
Net Income (Loss)....... 3.7 1.0 (1.8) 1.1 (0.5) 0.6 3.4
OTHER FINANCIAL DATA
EBITDA(1)............... 34.6 28.9 23.4 6.2 2.4 8.6 11.0
Cash flows from:
Operating Activities.. 7.9 4.1 1.6 7.4 5.1 12.5 2.2
Investing Activities.. (3.4) (5.8) (2.7) (2.7) (246.6) (249.3) (4.5)
Financing Activities.. (4.0) (0.1) (3.4) (3.7) 249.4 245.7 (2.2)
BALANCE SHEET DATA
Total Assets............ 317.8 321.9 312.6 N/A 317.8 317.8 77.1
Total Debt(2)........... 71.5 74.5 74.0 N/A 75.0 75.0 19.5
</TABLE>
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(1) EBITDA is defined as income (loss) before income taxes plus interest
expense, depreciation and amortization.
EBITDA is presented because (i) Management believes that EBITDA provides
relevant and useful information, (ii) it is a widely accepted financial
indicator of a company's ability to incur and service debt and (iii) it is
the basis on which compliance with the financial covenants under the
Company's debt agreements is determined. However, 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. Also, this measure of
EBITDA may not be comparable to similar measures reported by other
companies.
(2) Total Debt is defined as funded debt comprising bank borrowings.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth certain income statement data as a percentage
of sales for the Company's operations.
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Sales and services Funeral sales and
services .................................. 37.6% 38.2% 45.9%
Cemetery sales and services ............... 62.4% 61.8% 54.1%
Total sales and services .................. 100.0% 100.0% 100.0%
Gross profit:
Funeral sales and services................. 32.9% 35.4% 39.3%
Cemetery sales and services ............... 37.6% 37.6% 32.7%
Total gross profit ....................... 35.8% 36.7% 35.7%
General and administrative expenses ........ 8.3% 8.9% 9.5%
Amortization ............................... 4.2% 4.5% 5.3%
Interest expense ........................... 17.8% 19.8% 23.2%
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Consolidated revenues increased 5.7% to $88.4 million for the year ended
December 31, 1999 compared to $83.6 million for the year ended December 31,
1998. Consolidated gross profit totaled $31.7 million in 1999 compared to
$30.7 million in 1998. As a percentage of revenue, consolidated gross profit
percentage decreased to 35.8% in 1999 from 36.7% in 1998.
Funeral Operations:
Revenue from funeral operations increased 4.1% to $33.3 million in 1999
compared to $32.0 million in 1998. At-need funeral revenue totaled $30.1
million which was approximately equivalent to that earned during the prior
year. The Company performed 8,547 funeral service calls in 1999 compared to
8,939 in 1998. The decrease is similar to what has been experienced throughout
the death care industry as a result of the declining death rates in the United
States. At-need funeral services average revenue per case increased 3.2% from
the prior year primarily due to a traditional service price increase in late
1998. Pre-need funeral service revenue increased from $1.6 million in 1998 to
$2.3 million in 1999 or 43.8%. The significant increase over prior year is due
to a change in the insurance provider effective April 1999 and improved agent
commission fees. In addition, the new supplier paid a one-time payment of $.5
million in February 1999.
Income from operations for the funeral segment decreased from 35.4% to 32.9%
as a percentage of sales due primarily to start-up costs relating to opening
new storefront locations (at-need and pre-need sales offices) and additional
depreciation from a major vehicle replacement and upgrade program started in
late 1998.
Cemetery Operations:
Cemetery revenue increased 6.8% over last year to $55.1 million. Pre-need
cemetery revenue (excluding the $1.1 million sale to IBPS) was $33.3 million
compared to $31.5 million for 1998. The increase was driven largely by overall
property price increases in early 1999 and an emphasis on selling "upscale
properties". At-need cemetery revenue in 1999 was $13.9 and was comparable to
prior year. Total interments for the year were slightly ahead of last year at
9,343. Pre-need merchandise and service sales volume decreased 11% due to a
deliberate strategy to de-emphasize non-cash generating products.
12
<PAGE>
Income from operations as a percentage of sales remained constant between
1998 and 1999 at 37.6%. Higher commission and advertising expense were offset
by product mix changes from lower margin merchandise to higher margin property
sales. Total direct selling expense was 36.6% of sales in 1999 compared to
35.5% in 1998.
Corporate general and administrative expense approximated prior year at $7.4
million. As a percentage of total revenue, corporate general and
administrative expenses decreased from 8.9% for the year ended December 31,
1998 to 8.3% for the year ended December 31, 1999. Non-recurring items
included in 1999 were $.2 million related to Y2k incremental expenses, $.3
million related to the settlement of environmental issues with the previous
owners of Rose Hills cemetery and a net $.1 million loss from the sale of two
vacant properties.
EBITDA, earnings before interest, taxes, depreciation and amortization
(including cemetery property amortization included in cost of sales),
increased to $34.6 million for 1999 from $28.9 million for 1998. The increase
in EBITDA of $5.7 million was primarily a result of the $2.5 million gain
recognized on finalizing the Settlement Agreement with the previous owners of
Rose Hills' cemetery which is a non-recurring item. In addition, the Company
and IBPS finally completed all requirements to recognize the $1.1 million
group sale originally negotiated in 1994. 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.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Consolidated revenues increased 18.4% to $83.6 million for the year ended
December 31, 1998 compared to $70.6 million for the year ended December 31,
1997.
Funeral Operations:
Revenue from funeral operations decreased 1.2% to $32.0 million in 1998
compared to $32.4 million in 1997. At-need funeral revenue increased by $.6
million or 2.0% from 1997. At-need funeral services average revenue per case
increased 2.0% from the prior year. Total case count declined slightly to
8,939 in 1998 compared to 9,033 in 1997. Pre-need funeral service revenue
decreased from $2.6 million in 1997 to $1.6 million in 1998 or 38.5%. The
unfavorable variance is due to the change in pre-need insurance products in
April 1998.
Income from operations for the funeral segment decreased from 39.3% to 35.4%
as a percentage of sales due primarily to the decline in pre-need insurance
commission revenue and related additional administrative costs incurred as a
result of the change in insurance products. The Company's strategy is to
increase commission income levels to previous years results. Subsequent to
year end the Company negotiated its insurance general agent agreements with
its previous vendor.
Cemetery Operations:
Revenue from cemetery operations increased 35.0% over last year to $51.6
million. Almost half of the increase was due to an increase in pre-need
property sales, which was largely due to an increase in average lot price
attributed to the sale of upscale properties. The remaining variance is due
primarily to an increase in pre-need merchandise and service sales volume.
Income from operations for the cemetery segment increased from 32.7% to
37.6% as a percentage of related sales. Compared to 1997, the cemetery
operations experienced unfavorable variances in direct cemetery sales
commissions from 17% to 23% and cemetery merchandise costs from 9.1% to 13.7%.
These unfavorable variances were offset by an increase in prices and an
increase in leverage of existing fixed and semi-variable overhead.
13
<PAGE>
Corporate general and administrative expenses increased from $6.7 million to
$7.4 million. The increase was due primarily to non-recurring legal and
related settlement costs. As a percentage of total revenue, corporate general
and administrative expenses have decreased from 9.5% for the year ended
December 31, 1997 to 8.9% for the year ended December 31, 1998.
EBITDA, earnings before interest, taxes, depreciation and amortization
(including cemetery property amortization included in cost of sales),
increased to $28.9 million for 1998 from $23.4 million for 1997. The increase
in EBITDA of $5.5 million was primarily a result of (i) an increase in pre-
need contract sales and (ii) an increase in leverage of existing corporate
overhead. 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 Company presently believes that, based upon current levels of operations
and anticipated growth and the availability of the Bank Revolving Facility
(see description below), it can meet its working capital and short-term
liquidity requirements for current operations, satisfy its contingent
obligations and service its indebtedness through December 31, 2002. As of
December 31, 1999, the Company had net working capital of $9.5 million and a
current ratio of 1.67 compared to net working capital of $2.5 million and
current ratio of 1.12 at December 31, 1998.
Net cash provided by operating activities was $7.9 million for the year
ended December 31, 1999, compared to $4.1 million for the same period in 1998.
Cash provided by operating activities in 1999 was reduced by a one time
payment of $3.9 million to the Association under the Settlement Agreement. The
increase over 1998 is due principally to a reduction in the growth of pre-need
receivables and service trust accounts from 1998 and 1997. In addition, the
implementation of the deferred commission program and monthly customer
statements at the beginning of the year resulted in higher down payments and
early loan payoffs.
The primary uses of cash were for working capital (receivables and trusts
accounts) principal payments on outstanding long-term indebtedness and capital
expenditures as permitted under the terms of bank agreements. The Company's
capital expenditures in 1999 of approximately $3.7 million were used primarily
to develop and improve the existing infrastructure and cemetery grounds, as
well as the addition of rolling stock. In addition to principal payments on
outstanding long-term debt and capital expenditures, cash was used to finance
installment contracts receivable during the ramp up of pre-need sales.
Concurrent with the Acquisition Transaction, 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" collectively with the Bank Term Facility, the "Bank Credit
Facilities") 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 million. Each of the Bank Term Facility and
the Bank Revolving Facility will mature on November 1, 2003. The Bank Term
Facility is payable, 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")
14
<PAGE>
jointly and severally, by RH Holdings and each of the Company's existing and
future domestic subsidiaries (the "Bank Guarantors"). All obligations of the
Company and the Bank Guarantors are secured by first priority security
interests in all existing and future assets (including real property located
at Rose Hills 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
$80.0 million of 9 1/2% Senior Subordinated Notes due 2004, which were
exchanged in September 1997 for $80.0 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
there from, the Company's total outstanding indebtedness was approximately
$151.5 million as of December 31, 1999. The Company also had the entire $25.0
million of borrowing capacity under the Bank Revolving Facility available as
of December 31, 1999. Management currently 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 through
December 31, 2002. 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 under the Bank
Credit Facilities. There can be no assurance that such actions could be
effected or would be effective in allowing the Company to meet such
obligations. In addition, the Company currently expects that it will have to
obtain new or additional financing to pay some or all of the principal amount
due at maturity under the Bank Term Facility ($53 million by November 1, 2003)
and under the Notes ($80 million on November 15, 2004). No assurance can be
given that such financing will be available to the Company or, if available,
that it may be obtained on terms and conditions that are satisfactory to the
Company.
The Company and its Subsidiaries are subject to certain restrictive
covenants contained in the indenture to the Notes (the "Indenture"),
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 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. As of December 31, 1999, the
Company was in compliance with the terms of the Indenture and the Bank Credit
Facilities.
Although the Company has no material commitments for capital expenditures,
the Company anticipates capital expenditures primarily of approximately $5.0
million for 2000, which includes $2.3 million in internal growth initiatives
and $2.7 million for maintenance capital expenditures.
NEW ACCOUNTING PRONOUNCEMENTS
SAB101
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("Bulletin"). The Bulletin provides the
staff's views on the application of existing generally accepted accounting
principles to revenue recognition in financial statements. The Bulletin states
that industry
15
<PAGE>
practice would not override these views. The Company has followed industry
practice in recognizing revenues and is in the process of determining whether
any of the industry practice is outside of the guidelines contained in this
Bulletin. If any changes are required, they would probably be reflected in the
first interim financial statements of 2000.
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-K 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, its plans to increase revenues, reduce general and
administrative expense, take advantage of synergies, make capital
expenditures, address Y2K issues, and the Company's ability to service its
indebtedness, 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.
CAUTIONARY STATEMENTS
The Company cautions readers that the following important factors, among
others, in some cases have affected, and in the future could affect, the
Company's actual consolidated results and could cause the Company's actual
consolidated results in the future to differ materially from the goals and
expectations expressed elsewhere herein.
a) Maintaining current revenue levels and achieving future growth depends
in part on sustaining the current level of pre-need cemetery sales and
maintaining funeral market share. Several important factors, among others,
affect the Company's ability to sustain and grow revenue:
1. The volume and prices of properties, products and services sold.
The inability of the Company to increase volume and prices could
affect the Company's ability to increase revenue in the future. The
ability to achieve volume and price increases at Rose Hills and other
Company locations depends on several factors including local
competition, death rates, changes in consumer buying patterns, economic
conditions and the availability of qualified sales personnel.
2. Performances of endowment care and trust funds.
The Company includes earnings from endowment care and trust funds in
its results of operations. Although substantially all of these funds
are invested in fixed income securities, the performance of these funds
is subject to market conditions beyond the control of the Company.
3. The level of prearranged funeral sales in prior periods.
The level of prearranged funeral sales in prior periods may affect
future revenues. The Company's inability to maintain and increase
prearranged funeral sales could impact future revenues. The ability to
maintain and increase the level of prearranged funeral sales may be
adversely affected by such factors as competition and general economic
conditions affecting individual discretionary income.
b) In addition to the factors discussed above, earnings may be affected
by other factors such as:
1. The ability of the Company to manage its growth in terms of
implementing internal controls and information gathering systems,
and retaining or attracting key personnel, among other things.
2. The amount and rate of growth in the Company's general and
administrative expenses.
16
<PAGE>
3. Changes in interest rates, which can increase or decrease the amount
the Company pays on borrowings with variable rates of interest,
although this risk is somewhat mitigated by a rate Collar Agreement.
See Item 7(a).
4. The impact on the Company's financial statements of nonrecurring
accounting charges that may result from the Company's ongoing
evaluation of its business strategies, asset valuations and
organizational structures.
5. Changes in government regulations, including tax rates and their
effects on corporate structure.
6. Changes in inflation and other general economic conditions, both
domestically and internationally, affecting financial markets (e.g.
marketable security values).
7. Unanticipated legal proceedings and unanticipated outcomes of legal
proceedings.
8. Changes in accounting policies and practices adopted voluntarily or
required to be adopted by generally accepted accounting principles.
The Company also cautions readers that it assumes no obligation to update or
publicly release any revisions to forward-looking statements made herein or
any other forward-looking statements made by or on behalf of the Company.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's market risk is impacted by changes in interest rates. Pursuant
to the Company's policies, derivative financial instruments may be utilized to
reduce the impact of adverse changes in interest rates. The Company does not
use derivative instruments for speculation or trading purposes, and has no
material sensitivity to changes in market rates and prices on its derivative
financial instrument positions. The Company has market risk in interest rate
exposure, but manages the exposure through its interest rate Collar Agreements
which effectively set maximum and minimum interest rates on the $75.0 million
of senior debt.
The Company has entered into interest rate Collar Agreements, which
effectively set maximum and minimum interest rates on the principal amount of
Senior Debt, ranging from a floor of 5.5% (the Company would pay 5.5% even if
rates fall below that level) to a maximum or cap of 6.5% for the period
commencing January 2, 1997 through December 1, 2000. The Collar Agreement is
based on three-month LIBOR. The Collar Agreement at December 31, 1999, as
estimated by a dealer, was a favorable value of $85,000.
The counter party to these contractual relationships is a major financial
institution with which the Company has other financial relationships. The
Company is exposed to credit losses in the event of nonperformance by the
other parties to the interest rate Collar Agreements. However, the Company
does not anticipate nonperformance by the other party, and no material loss
would be expected from nonperformance of such counter party.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company's current executive officers and directors, and their ages as of
March 24, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Gary P. Baker........... 52 Senior Vice President, Operations
Chinh E. Chu............ 33 Director
Kimberley K. Cleaver.... 35 Senior Vice President, Sales
David I. Foley.......... 32 Director
John S. Lacey........... 56 Director
Howard A. Lipson........ 36 Director
Dennis C. Poulsen ...... 57 Chairman of the Board, Director
Bradley D. Stam......... 52 Director
Dillis R. Ward.......... 63 President and Chief Executive Officer, Director
Michael G. Weedon....... 46 Director
Kenton C. Woods......... 45 Senior Vice President of Finance and Chief Financial Officer,
Secretary and Treasurer
</TABLE>
The business experience of each of the executive officers and directors is
set forth below.
Gary P. Baker is the Senior Vice President, Operations for Rose Hills
Company. Mr. Baker has over 30 years of service to Rose Hills in all aspects
of funeral service.
Chinh E. Chu is a Managing Director of The Blackstone Group L.P., which he
joined in 1990. Prior to joining Blackstone, Mr. Chu was a senior member of
the Mergers and Acquisitions Group of Salomon Brothers Inc. from 1988 to 1990.
He currently serves on the Board of Directors of Prime Succession, Inc.
Kimberley K. Cleaver joined the Company as Executive Vice President, Sales
in November of 1997. Prior to that, Ms. Cleaver served in senior management
positions with Stewart Enterprises, Inc. in Texas.
David I. Foley is a Principal at The Blackstone Group L.P., which he joined
in 1995. Prior to joining Blackstone, Mr. Foley was a member of AEA Investors,
Inc. and The Monitor Company.
Howard A. Lipson is Senior Managing Director of The Blackstone Group L.P.,
which he joined in 1988. Prior to joining Blackstone, Mr. Lipson was a member
of the Mergers and Acquisitions Group of Salomon Brothers Inc. He currently
serves on the Board of Directors of UCAR International Inc., Volume Services,
Inc., AMF Group, Inc., Ritvik Holdings, Inc., and Prime Succession, Inc.
John S. Lacey became Director effective March 10, 2000. Mr. Lacey is also
Chairman of the Board and Director of Loewen since December 1998.
Bradley D. Stam became Director effective March 10, 2000. Mr. Stam is
Senior Vice-President, Legal and Asset Management for Loewen since March 1998.
Prior to joining Loewen, Mr. Stam had been a management member of Western Star
Trucks Holdings Ltd. from June 1995 to September 1997. Prior to that time, he
was a partner with a Seattle law firm.
Dennis C. Poulsen became the Chairman of the Company November 19, 1996. Mr.
Poulsen joined Rose Hills in 1981 and became President in 1984. Prior to
joining the Company, Mr. Poulsen was employed by INA
18
<PAGE>
Corporation and Transamerica Corporation, and is past director of the American
Cemetery Association. Mr. Poulsen is a member of the American, California and
Los Angeles Bar Associations. His community activities include serving as a
Director and Chairman of the Los Angeles Chamber of Commerce in 1997.
Paul Wagler resigned as director effective August 10, 1999.
Dillis R. Ward became the President of the Company effective October 1,
1997. On August 11, 1998 he became Chief Executive Officer. Prior to this, Mr.
Ward was a Regional President, West Region of Loewen effective August 1, 1996.
Michael Weedon is Senior Vice President, Trust and Insurance for Loewen
since February 2000. He has been in various senior management capacities with
Loewen since November 1997. From 1996 to 1997, Mr. Weedon was a private
business consultant and investor. Prior to that time, Mr. Weedon served as
Chief Operating Officer of Viridian Inc. in Fort Saskatchewan, Alberta.
Kenton C. Woods became Senior Vice President and Chief Financial Officer in
May 1997. Prior to that, Mr. Woods served in senior financial positions at
Baskin-Robbins including Vice President-Finance and Chief Financial Officer.
Mr. Woods also spent 10 years with KPMG LLP.
Under the Shareholders' Agreement described in Item #13 below, Blackstone
and Loewen have the right to designate five and three nominees, respectively,
to the Board of Directors of RH Holdings. Blackstone designated Messrs. Chu,
Foley, Lipson Poulsen and Ward and Loewen designated Messrs. Lacey, Weedon and
Stam. Each of Blackstone's and Loewen's nominees to the RH Holdings Board is
also a member of the Company's Board of Directors.
Directors of the Company will receive no compensation for their service as
Directors or for service on committees of the Board except for the
reimbursement of expenses.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth for the fiscal year ended December 31, 1999
the compensation paid by the Company to its Chief Executive Officer and each
of the other most highly compensated executive officers of the Company (c):
<TABLE>
<CAPTION>
All Other
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ---- ------- ------- ------------
<S> <C> <C> <C> <C>
Dillis E. R. Ward....................... 1999 250,000 100,000 --
President & Chief Executive Officer, 1998 257,692 106,250 --
1997 15,348
Kenton C. Woods......................... 1999 160,847 64,172 --
Senior Vice President & Chief Financial 1998 161,088 65,952
Officer 1997 89,108 24,052 --
Gary P. Baker........................... 1999 132,679 26,250 --
Senior Vice President--Operations 1998 122,635 26,563 --
1997 100,000 15,000 --
Kimberley K. Cleaver.................... 1999 523,616 -- --
Senior Vice President--Sales 1998 439,479 -- --
1997 60,390 -- --
</TABLE>
19
<PAGE>
Employment Agreements
The Company has entered into employment agreements with Mr. Ward, Mr. Woods
and Mr. Baker. Mr. Ward's agreement calls for an annual salary of $250,000,
with annual increases at the discretion of the Board, plus an annual cash
bonus based on Company performance. Mr. Woods' agreement provides for an
annual salary of $160,000 with annual increases at the discretion of the Board
plus an annual cash bonus based on Company performance. Mr. Baker's agreement
provides for an annual salary of $131,000 with annual increases at the
discretion of the Board plus an annual cash bonus based on Company
performance. Mr. Ward, Mr. Woods and Mr. Baker's employment agreements also
provide that if either is terminated without "cause" (as defined in the
agreement) the executive will receive a multiple of his annual salary (Mr.
Ward two years and Mr. Woods and Mr. Baker each one year) plus a portion of
the annual bonus depending upon what time the termination became effective
during the year. Mr. Ward's agreement provides he will be entitled to a long-
term incentive bonus at any time that Loewen purchases all of the shares of
common stock of Rose Hills Holdings Corp. owned by Blackstone, provided that
certain EBITDA targets are achieved. Such bonus will equal $500,000 if such
purchase occurs prior to 2002 and will be increased by $100,000 each year
thereafter up to a maximum of $900,000.
Effective April 1, 1999, the Company entered into an employment agreement
with Ms. Cleaver which provides for an annual salary based on a percentage of
certain at-need and pre-need cemetery and insurance sales. In addition, Ms.
Cleaver's agreement calls for certain adjustments to her annual commissions
based on meeting annual Board approved expense ratios.
Effective January 1, 1999, the Board extended Mr. Poulsen's term as
Chairman. His appointment is automatically renewed annually until such time
the Board agrees to elect a new Chairman. Concurrent with his extension, the
Company extended his consulting agreement which calls for the payment of up to
$100,000 during 1999, including certain expenses. In addition, Mr. Poulsen is
a participant in the Company's Supplemental Employee Retirement Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company is a direct, wholly-owned subsidiary of RH Holdings. The
following table sets forth certain information as of March 24, 2000 regarding
the beneficial ownership of the common stock of RH Holdings:
<TABLE>
<CAPTION>
Percentage
Number of Owner
of Common
Name and Address of Beneficial Owner Shares Stock
------------------------------------ ------- ----------
<S> <C> <C>
Blackstone entities(1)(6)................................. 795.455 79.55%
Loewen Group International, Inc.(2)....................... 204.545 20.45%
Chinh E. Chu(3)........................................... -- --
David I. Foley(3)......................................... -- --
Howard A. Lipson(3)....................................... -- --
John Lacey (4) Bradley Stam (4)........................... -- --
Michael Weedon (4) ....................................... -- --
Dennis C. Poulsen(5) ..................................... -- --
Dillis R. Ward(5) ........................................ -- --
All directors and executive officers as a group(6)........ -- --
</TABLE>
- --------
(1) The 795.455 shares are held collectively by Blackstone Capital Partners II
Merchant Banking Fund L.P., Blackstone Rose Hills Offshore Capital
Partners L.P., and Blackstone Family Investment Partnership II L.P. The
address for the Blackstone entities is c/o Blackstone Group L.P., 345 Park
Avenue, New York, N.Y. 10154.
(2) The address for LGII is 311 Elm Street, Suite 1000, 1st Floor, Cincinnati,
OH 45202. LGII is a directly and indirectly wholly-owned subsidiary of
LWN.
20
<PAGE>
(3) Messrs. Chu, Foley and Lipson are affiliated with Blackstone in the
capacities described under Item 10 above. Each such person's business
address is c/o The Blackstone Group L.P., 345 Park Avenue, New York, N.Y.
10154.
(4) Messrs. Lacey, Stam and Weedon are affiliated with Loewen in the capacity
described under Item 10 above. Each such person's business address is c/o
The Loewen Group Inc., 4126 Norland Avenue, Burnaby, B.C. V5G 3S8.
(5) Mr. Poulsen's and Mr. Ward's business address is c/o Rose Hills Company,
3888 South Workman Mill Road, Whittier, CA 90601.
(6) Certain officers of the Issuer hold a limited partnership interest in RHI
Management Direct L.P. ("RHIMD"), which is the holder of 10.2273 shares
(approximately 1.02%) of RH Holdings common stock; however, such officers
do not have voting or dispositive power with respect to such shares. A
Blackstone entity, PSI P&S Corp, is the general partner of RHIMD.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The summaries of the Shareholders' Agreement, the Put/Call Arrangement and
the Administrative Services Agreement set forth below do not purport to be
complete and are qualified in their entirety by reference to all the
provisions of the Stock Purchase Agreement, the Stockholders' Agreement, the
Put/Call Agreement and the Administrative Services Agreement, respectively.
Copies of the Stock Purchase Agreement, the Stockholders' Agreement, the
Put/Call Agreement and the Administrative Services Agreement are incorporated
by references as exhibits to this Annual Report on Form 10-K.
Shareholders' Agreement
In connection with the Acquisition Transaction, Blackstone, LGII and LN Sub
entered into an agreement (the "Shareholders' Agreement") setting forth
certain of their rights and obligations as shareholders of RH Holdings.
The Shareholders' Agreement provides that, subject to the Put/Call Agreement
referred to below, none of the shareholders is permitted to transfer any of
its respective shares of common or preferred stock of RH Holdings ("RH
Holdings Common Stock") without the others' prior written consent, subject to
certain exceptions.
Under the terms of the Shareholders' Agreement, Blackstone and LGII have the
right to designate five and three nominees as directors, respectively, to the
Board of Directors of RH Holdings (the Board'). Each of Blackstone and LGII
further agreed (i) to vote all of its shares of RH Holdings Common Stock to
ratify and adopt any and all actions adopted or approved by the Board and (ii)
subject to certain exceptions related to the election and removal of
directors, not to vote any of its shares of RH Holdings Common Stock in favor
of any resolution, give any consent with respect to any matter or take any
other action as a stockholder of RH Holdings unless such resolution, matter or
other action first shall have been adopted or approved by the Board and
recommended by it for adoption, approval or consent by the shareholders. In
addition, the By-Laws of RH Holdings provide that certain actions by or with
respect to RH Holdings will require the unanimous consent of the Board. See
Certain Matters Subject to Supermajority Vote'.
In addition, in the event that Loewen owns, operates or controls any funeral
home or cemetery within 20 miles of any other funeral home or cemetery owned
by the Company, Loewen has an option, exercisable for the succeeding 12
months, to either sell such properties to a third party or transfer such
properties to the Company (free of indebtedness for borrowed money) in
exchange for additional equity in RH Holdings.
The Shareholders' Agreement will terminate following the exercise by either
Blackstone or LGII of its option pursuant to the Put/Call Agreement or on such
other date as the parties may agree.
21
<PAGE>
Put/Call Arrangement
Pursuant to a separate agreement among Blackstone, LWN, LGII and LN Sub (the
"Put/Call Agreement"), (i) LGII has a call option, exercisable from and after
the fourth anniversary of the Acquisition Closing Date until but excluding the
sixth anniversary of the Acquisition Closing Date, to purchase all of
Blackstone's shares of RH Holdings Common Stock (the "Call Option") and (ii)
Blackstone has a put option, exercisable from and after the sixth anniversary
of the Acquisition Closing Date until but excluding the eighth anniversary of
the Acquisition Closing Date, to require LGII to purchase Blackstone's shares
of RH Holdings Common Stock (the "Put Option"). The option price in either
case is derived from a formula based on EBITDA. The performance by LGII of its
obligations under the Put/Call Agreement is guaranteed by LWN.
On June 1, 1999 the LWN and LGI and LN Sub filed for protection from its
creditors under Chapter 11 of the U.S. Bankruptcy Code. Loewen indicated in
its 1999 annual report on Form 10-K that it had written down its investment in
the Rose Hills Holdings Corp. and it is was unlikely that the call would be
exercised. As of March 25, 2000, LWN has not submitted a plan of
reorganization to the U.S. Bankruptcy Court indicating its plan with respect
to the various shareholder agreements. Accordingly, at this time there can be
no assurance that either the Call Option or the Put Option will be exercised.
The exercise of either the Call Option or the Put Option will not give rise
to a Change of Control under the Indenture.
Certain Matters Subject to Supermajority Vote
The By-Laws of RH Holdings provide that the following matters require the
unanimous approval of the Board of Directors: (1) amendments to the
Certificate of Incorporation or By-Laws of RH Holdings; (2) transactions
involving the merger, consolidation or sale of substantially all of the assets
of RH Holdings; (3) the declaration or payment of any cash dividend or other
distribution to the shareholders of RH Holdings (other than payments pursuant
to the Administrative Services Agreement or payment of the monitoring fee to
Blackstone described below under Payment of Certain Fees and Expenses;' and
(4) issuances of additional shares of capital stock, except for issuances to
third parties and issuances of additional shares of capital stock to the
extent they are required to be issued to cure or prevent an event of default
or failure of any financial covenants under the Bank Credit Agreement.
Administrative Services Agreement
In connection with the Acquisition, the Company engaged Loewen to provide
certain administrative services and share certain resources (Loewen, in such
capacity, being the "Administrative Services Provider") pursuant to the
Administrative Services Agreement. Pursuant to the Administrative Services
Agreement, Loewen has undertaken some of the Company's administrative
functions, including: accounting services, computer, telecommunications,
general operations support, legal services, environmental compliance,
regulatory compliance, employee training and corporate development. In
addition, Loewen currently provides management expertise in planning MIS,
sales, tax, and fund management strategy. The Company also benefits under the
Administrative Services Agreement from access to some of Loewen's vendor
agreements.
As compensation for services provided under the Administrative Services
Agreement, the Administrative Services Provider is entitled to receive from
the Company, a fee (the "Administrative Services Fee") payable monthly in
arrears and in an aggregate annual amount equal to $334,000 for the first year
following the Acquisition Closing Date and $250,000 for the second year
following the Acquisition Closing Date, to be increased by 2.5% for each year
thereafter until the termination of the Administration Services Agreement. The
Company is also generally required (in certain cases subject to approval in
advance by Blackstone) to reimburse the Administrative Services Provider for
all out-of-pocket costs and expenses incurred by it from third parties in
connection with performing the administrative services described in the
Administrative Services Agreement.
22
<PAGE>
In July 1999, the Company began proceedings to terminate the Administrative
Services Agreement due to a disagreement between Loewen and the Company with
respect to the value of services rendered under the Agreement. On February 4,
2000, the Company filed a motion in U.S Bankruptcy Court for an Order Setting
a deadline for Loewen to assume or reject the Administrative Services
Agreement. On March 4, 2000, the parties agreed at a hearing to resolve the
motion through a stipulation and order. As a result of the order, effective
March 1, 2000, the Company is no longer obligated to pay Loewen for
Administrative Services under the Agreement until such time Loewen exercises
and is granted its right to assume the agreement or the Company requests
services.
Management believes that the Company has sufficient resources and expertise
to internally meet its needs for the type of services contemplated under the
Administrative Service Agreement and it is unlikely it will request services
from Loewen. However, if Loewen should exercise its right to assume the
Agreement, the Company could be required to pay the annual service fee whether
or not any actual benefit is derived.
The Administrative Services Agreement is subject to termination
automatically upon closing following the exercise of the Call Option or the
Put Option and at the option of the Company under certain other circumstances,
including the failure of Loewen to fully exercise the options set forth in the
fourth paragraph under "Shareholders Agreement" above.
Payment of Certain Fees and Expenses
From the Acquisition Closing Date until the date on which Loewen or
Blackstone exercises the Call Option or the Put Option, respectively, pursuant
to the Put/Call Agreement, an affiliate of Blackstone will receive a
monitoring fee equal to $250,000 per annum (as such fee may be increased to
account for inflation) from the Company.
Formation of RHIMD; Loans to Management
In connection with the Acquisition, on the Acquisition Closing Date, RHIMD
purchased approximately 1.02% of the RH Holdings common stock (the "RHIMD-
Owned Stock"). Limited partnership interests in RHIMD has subsequently been
allocated to certain officers of the Company (and "RHIMD Limited Partners").
In order to effect such purchase, on the Acquisition Closing Date, the
Company made a loan to RHIMD which is evidenced by a note bearing interest at
an annual rate of 9% and secured by the RHIMD-Owned Stock. RHIMD is deemed to
have made loans to each of the RHIMD Limited Partners in connection with their
subscription for limited partnership interests in RHIMD. The loan to certain
officers of the Company is evidenced by a note bearing interest at an annual
rate of 9% and secured by their limited partnership interest in RHIMD.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as a part of this report:
1. Financial Statements
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
ROSE HILLS COMPANY CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................... 27
Consolidated Balance Sheets as of December 31, 1999 and 1998............... 28
Consolidated Statements of Operations for the Years ended December 31,
1999, 1998 and 1997....................................................... 29
Consolidated Statements of Cash Flows for the Years ended December 31,
1999, 1998 and 1997....................................................... 30
Consolidated Statements of Stockholder's Equity for the Years ended
December 31, 1999, 1998 and 1997.......................................... 31
Notes to Consolidated Financial Statements................................. 32
2. Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts.......................... 52
</TABLE>
24
<PAGE>
(b) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1* --Asset Purchase Agreement, dated as of September 19, 1996, by 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 9.5% 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.
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.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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** --Employment Agreement, dated July 10, 1998 by and between Rose
Hills Company and Dillis R. Ward.
10.12*** --Employment Agreement, dated December 1, 1998 by and between Rose
Hills Company and Kenton C. Woods.
10.13*** --Employment Agreement, dated December 1, 1998 by and between Rose
Hills Company and Gary P. Baker.
10.14**** --Employment Agreement, dated March 23, 1999 by and between Rose
Hills Company and Kimberly Cleaver.
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.
10.19**** --Rose Hills Company 401(k) Savings Plan as Amended. Effective
December 1, 1999.
12**** --Statement Re-Computation of Earnings to Fixed Charges Ratio.
21*** --Subsidiaries of Rose Hills Company (formerly known as Rose Hills
Acquisition Corp.).
23.2*** --Consent of KPMG LLP
27**** --Financial Data Schedule
</TABLE>
(c) Reports on Form 8K
None
- --------
* Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-4 (Registration No. 333--21411).
** Incorporated by reference from Rose Hills' Report on Form 10-Q for the
quarter ended September 30, 1998, filed on November 5, 1998.
*** Incorporated by reference from Rose Hills' Report on Form 10-K for the
year ended December 31, 1998, filed on March 24, 1999.
**** Filed Herewith.
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rose Hills Company:
We have audited the consolidated financial statements of Rose Hills Company
and subsidiaries (a wholly owned subsidiary of Rose Hills Holdings Corp.) as
listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Rose Hills Company and subsidiaries as of December 31, 1999 and 1998 and
the results of their operations and their cash flows for the years ended
December 31, 1999, 1998 and 1997 in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG LLP
Los Angeles, California
February 17, 2000
27
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(In thousands, except share amounts)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 2,150 $ 1,645
Accounts receivable, net of allowances..................... 11,805 11,601
Inventories................................................ 991 979
Prepaid expenses and other current assets.................. 5,277 4,701
Deferred tax asset......................................... 3,508 4,085
-------- --------
Total current assets.................................... 23,731 23,011
Long-term receivables, net of allowances.................... 18,729 15,709
Cemetery property, at cost.................................. 77,003 75,318
Property and equipment, net................................. 59,292 65,978
Goodwill.................................................... 121,629 124,877
Deferred finance charges.................................... 7,407 9,036
Trust assets................................................ 7,329 5,085
Other assets................................................ 2,692 2,919
-------- --------
Total assets............................................ $317,812 $321,933
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term borrowings...................................... $ -- $ 2,000
Accounts payable and accrued liabilities................... 10,377 16,355
Current portion of long-term debt.......................... 3,832 2,133
-------- --------
Total current liabilities............................... 14,209 20,488
Retirement plan liabilities................................. 6,990 7,147
Deferred tax liability...................................... 8,271 6,455
Subordinated notes payable.................................. 80,000 80,000
Bank senior-term loan....................................... 68,513 71,507
Other long-term debt........................................ 1,913 2,070
Other liabilities........................................... 5,927 5,974
-------- --------
Total liabilities....................................... $185,823 $193,641
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock, par value of $.01. Authorized and outstanding
1,000 shares.............................................. -- --
Additional paid-in capital................................. 129,554 129,554
Accumulated earnings (deficit)............................. 2,435 (1,262)
-------- --------
Total stockholder's equity.............................. 131,989 128,292
-------- --------
Total liabilities and stockholder's equity.............. $317,812 $321,933
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Sales and services:
Funeral sales and services..................... $ 33,277 $ 31,959 $ 32,392
Cemetery sales and services.................... 55,126 51,618 38,253
-------- -------- --------
Total sales and services.................... 88,403 83,577 70,645
-------- -------- --------
Cost of sales and services:
Funeral sales and services..................... 22,339 20,660 19,661
Cemetery sales and services.................... 34,395 32,207 25,744
-------- -------- --------
Total cost of sales and services............ 56,734 52,867 45,405
-------- -------- --------
Gross profit................................ $ 31,669 $ 30,710 $ 25,240
General and administrative expenses............. 7,352 7,420 6,726
Amortization of purchase price in excess of net
assets acquired and other intangibles.......... 3,707 3,752 3,776
-------- -------- --------
Income from operations...................... 20,610 19,538 14,738
Income from settlement agreement................ 2,500 -- --
Interest expense, net........................... (15,769) (16,519) (16,411)
-------- -------- --------
Income (loss) before taxes.................. 7,341 3,019 (1,673)
Income tax expense.............................. 3,644 1,985 95
-------- -------- --------
Net income (loss)........................... $ 3,697 $ 1,034 $ (1,768)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ 3,697 $ 1,034 $(1,768)
------- ------- -------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization..................... 9,432 8,603 7,712
Amortization of cemetery property................. 3,828 2,615 2,451
Provision for bad debts and sales cancellation.... 5,106 3,011 1,959
Provision for deferred taxes...................... 2,433 1,906 81
Loss on disposal of property, plant and
equipment........................................ 260 9 --
Changes in assets and liabilities, net of effects
of Acquisition Transaction:
Increase in accounts receivable.................. (8,330) (14,254) (4,537)
Increase in inventories.......................... (12) (99) (6)
Increase in prepaid expenses and other current
assets.......................................... (354) (1,902) (133)
Decrease (increase) in accounts payable and
accrued liabilities............................. (5,891) 4,401 (3,676)
Decrease in retirement plan liabilities.......... (157) (242) (227)
Increase in other assets and liabilities......... (2,106) (1,012) (251)
------- ------- -------
Total adjustments.............................. 4,209 3,036 3,373
------- ------- -------
Net cash provided by operating activities...... 7,906 4,070 1,605
------- ------- -------
Cash flows from investing activities:
Capital expenditures............................... (3,691) (5,080) (2,138)
Cash paid for acquisitions, net of cash received... -- (776) --
Proceeds from disposal of property................. 250 39 --
Additions to goodwill.............................. -- -- (522)
------- ------- -------
Net cash used in investing activities.......... (3,441) (5,817) (2,660)
------- ------- -------
Cash flows from financing activities:
Proceeds from (repayments of) borrowings under Bank
Credit Agreement.................................. (2,000) 507 (1,500)
Decrease in other long-term debt................... (1,452) (51) (597)
Addition to deferred finance charges............... -- -- (934)
Principal payments of capital lease obligations.... (508) (526) (352)
------- ------- -------
Net cash used in financing activities.......... (3,960) (70) (3,383)
------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................... 505 (1,817) (4,438)
Cash and cash equivalents at beginning of period.... 1,645 3,462 7,900
------- ------- -------
Cash and cash equivalents at end of period.......... $ 2,150 $ 1,645 $ 3,462
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest.......................................... $14,193 $14,730 $15,217
Income taxes...................................... -- 859 1,219
------- ------- -------
Acquisition of businesses:
Cash paid for acquisitions......................... -- 776 --
------- ------- -------
Cash paid for acquisitions, net of cash
received...................................... -- $ 776 --
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Years ended December 31, 1999, 1998 and 1997
(In thousands except for share amounts)
<TABLE>
<CAPTION>
Additional Total
Shares paid-in Accumulated Stockholder's
outstanding capital deficit Equity
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997.... 1,000 $129,554 $(2,296) $127,258
Net loss...................... -- -- 1,034 1,034
----- -------- ------- --------
Balance, December 31, 1998.... 1,000 $129,554 $(1,262) $128,292
Net income.................... -- -- 3,697 3,697
----- -------- ------- --------
Balance, December 31, 1999.... 1,000 $129,554 $ 2,435 $131,989
===== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business and Basis of Presentation
The December 31, 1999 consolidated financial statements of Rose Hills
Company and subsidiaries (collectively the Company) (a wholly owned subsidiary
of Rose Hills Holding Corp.) (RH Holdings) include the accounts of RH Mortuary
Corporation (the Mortuary), RH Satellite Properties Corporation (the Satellite
Properties) and RH Cemetery Corporation (the Cemetery). The Company is the
successor to the operations of Roses, the Association and the Satellite
Properties, as described below under Acquisition Transaction. The Company had
no prior operations. RH Holdings was formed by Blackstone Capital Partners II
Merchant Banking Fund L.P. and affiliates (Blackstone), RHI Management Direct
L.P. (RHIMD) and the Loewen Group Inc. and affiliates (Loewen) (collectively
the Buyers), in order to purchase certain mortuary and cemetery operations
(the Acquisition Transaction) as discussed below.
The Company operates 14 funeral homes, 3 funeral home and cemetery
combination properties and 1 cemetery property in the Southern California
area. Services offered at the locations include cemetery interment and
professional mortuary services, both of which include pre-need and at-need
sales. In addition, the Company sells caskets, memorials, vaults, flowers and
pre-need funeral insurance from which commissions are earned.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles (GAAP) and the prevailing practices within the
cemetery and mortuary industry. All significant intercompany accounts and
transactions have been eliminated.
Acquisition Transaction
In connection with the Acquisition Transaction, Blackstone, RHIMD and Loewen
contributed to RH Holdings and RH Holdings contributed to the Company $106.6
million in cash ($107 million less $.4 million to be advanced by the Company
to RHIMD to finance its purchase of common stock of RH Holdings).
Additionally, effective November 19, 1996, to finalize the capitalization
and structure of the Company, Loewen contributed to RH Holdings 14 funeral
homes and 2 combination funeral home and cemetery properties located in the
Southern California area (the Satellite Properties) which were valued at the
date of the Acquisition Transaction at $23 million. RH Holdings in turn
contributed these properties to the Company effective November 19, 1996.
Finally, the Company entered into the Bank Credit Agreement (see note 12) and
the sale of the senior subordinated notes was consummated (see note 12).
Effective November 19, 1996, per terms of the merger agreement (the Merger
Agreement), the Company, through its subsidiary RH Mortuary Corporation,
acquired the common stock of Roses, Inc. (Roses), the predecessor mortuary, in
consideration of the payment of $59.9 million in cash (subject to downward
adjustment under certain circumstances) after giving effect to the repayment
of outstanding indebtedness of Roses, Inc. Upon consummation of the Merger
Agreement, RH Mortuary Corporation was merged with and into Roses.
The Company also paid a cash purchase price for certain assets, net of
certain liabilities, (the Asset Purchase Agreement) of Rose Hills Memorial
Park Association, the predecessor cemetery (the Association), in the amount of
$166.3 million (subject to downward adjustment under certain circumstances).
In connection with the Acquisition Transaction described above, the Company
entered into a "Settlement Agreement" dated November 19, 1996 with the
Association to resolve amounts due/owed under an operation and management
agreement between the predecessor company and the Association as of November
18, 1996. On March 31, 1999, the Company and the Association finally
determined the amount due from the Company to the Association under the
Settlement Agreement. Under the final settlement, the Company paid to the
32
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Association's successor the sum of $3.9 million, including interest of $0.8
million. The Company had accrued $6.4 million, including interest, for the
settlement, which resulted in a gain to the Company of $2.5 million in 1999.
The assets acquired by the Company have been recorded at cost and, in the
case of the Satellite Properties, at fair value at the date of contribution.
Reclassification
Certain reclassifications have been made to the 1998 and 1997 consolidated
financial statements to conform to the 1999 presentation.
(2) Summary of Significant Accounting Policies
(a) Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and revenues and expenses and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash and short-term certificates
of deposit, with original maturities of three months or less.
(c) Cemetery Operations
Pre-need sales of cemetery interment rights and other related products and
services are recognized as revenue when the customer contracts are signed with
concurrent recognition of related costs. Allowances for anticipated customer
cancellations and refunds are provided at the date of sale based on
management's estimate of expected cancellations using historical trends.
Actual cancellation rates in the future may result in a change in estimate. A
portion of the proceeds from the sale of interment rights is required by state
law to be paid into the Endowment Care Fund to provide for the perpetual care
of the associated properties. Cemetery revenue is recorded net of these
amounts. Earnings of the Endowment Care Fund are used to defray the
maintenance costs of cemeteries. Additionally, pursuant to state law, the
proceeds from the sale of pre-need merchandise and services may also be
required to be paid into trust funds. It is the Company's policy to
voluntarily trust 100% of pre-need service revenue when contracts are paid in
full. Also, the Company has an agreement with a vendor to purchase pre-need
merchandise when the sales contracts are paid in full. Funds voluntarily
trusted for pre-need cemetery services are included in the consolidated
financial statements.
(d) Prearranged Funeral Services
Prearranged funeral services provide for future funeral services and are
generally determined by prices prevailing at the time the contract is signed.
The payments made under the contract are either placed in trust or are used to
pay the premiums of life insurance policies under which the Company will be
designated as beneficiary. The pre-need funeral insurance policies sold by the
Company are whole-life policies sold on a pre-need basis to pay for the cost
of funeral services. Commissions earned are based on a combination of factors,
33
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
such as the amount of funeral cost coverage sold, the age of the insured and
the volume of monthly sales activity. Insurance commissions earned are
recognized as income when the policies are accepted by the insurance company.
Except for insurance commissions and amounts not required to be trusted which
are used to defray the initial costs of administration, no income is
recognized until the performance of a specific funeral.
Trust fund principal amounts and insurance contract amounts, together with
trust fund investment earnings retained in trust and annual insurance
benefits, are deferred until the service is performed. The Company estimates
that trust fund investment earnings and annual insurance benefits exceed the
increase in cost over time of providing the related services. Upon performance
of the specific funeral service, the Company will recognize the trust fund
principal amount or insurance contract amounts together with the accumulated
trust earnings and annual insurance benefits as funeral revenues. Costs
relating to the sale of prearranged funeral services, including sales
commission expense, are expensed in the period incurred.
(e) Receivables
Receivables due from customers for cemetery property, merchandise and
services sold in advance of need are generally collected over one to seven
years and bear interest at the rate of 11.75% per annum. An allowance for
sales cancellations has been established to recognize that cemetery property
sold in advance of need, for which a minimum down payment is received, may be
subsequently cancelled. Accordingly, as of December 31, 1999 and December 31,
1998, allowance for sales cancellations totaled $2,981,000 and $2,246,000,
respectively. A provision of $4,685,000, $2,071,000, and $1,747,000 was
charged to cemetery sales to provide for estimated future cancellations for
the years ended December 31, 1999, 1998 and 1997, respectively.
In addition, receivables due from customers for cemetery and mortuary goods
and services provided at the time of need are generally collected over a
period of one to five years bearing interest at the rate of 12% per annum. An
allowance for doubtful accounts has been established to recognize that a
portion of these types of receivables may not ultimately be collectible. As of
December 31, 1999 and 1998, the allowance for doubtful accounts totaled
$398,000 and $314,000, respectively.
Finance income earned on long-term receivables is recognized on a current
basis. Total finance income earned was $2,410,000, $2,300,000 and $1,400,000
for 1999, 1998 and 1997.
(f) Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market value.
(g) Cemetery Property
Cemetery property consists of developed and undeveloped cemetery property
and is valued at average cost, which is not in excess of market value. Amounts
are expensed to costs and expenses as sales of cemetery plots occur.
34
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(h) Property, Plant and Equipment
Property, plant and equipment are valued at fair market value at the
acquisition date, with additions subsequent to the acquisition date recorded
at cost and depreciated on a straight-line basis over the estimated useful
lives of the assets as follows:
<TABLE>
<C> <S>
Building and improvements.......... 10 to 40 years
Automobiles........................ 4 to 6 years
Furniture, fixtures and equipment.. 10 years
Computer hardware and software..... 3 to 6 years
Leasehold improvements............. Life of the asset or term of the
lease, whichever is shorter
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred and expenditures for replacements and betterment are capitalized.
(i) Goodwill
The excess of purchase price over the fair value of identifiable net assets
acquired (goodwill) is being amortized by use of the straight-line method over
a 40-year period. As of December 31, 1999 and 1998, accumulated amortization
was $10,304,000 and $7,007,000, respectively. During 1997, certain amounts
were added to goodwill for preacquisition contingencies identified during the
one-year period following the acquisition date.
(j) Covenants Not to Compete
Covenants not to compete on the consolidated balance sheets represent
amounts prepaid or the present value of future payments under noncompetition
agreements with certain key management personnel of acquired operations.
Amortization of such covenants not to compete is provided by use of the
straight-line method over the terms of the relevant agreements, typically ten
years. As of December 31, 1999 and 1998, accumulated amortization of covenants
not to compete was $1,320,000 and $892,000, respectively.
(k) Deferred Financing Cost
Deferred financing costs relating to the bank senior-term loan and the
senior subordinated notes are being amortized over the life of the loan and
the notes based on the effective interest method. As of December 31, 1999 and
1998, accumulated amortization of these costs was $5,092,000 and $3,462,000,
respectively.
(l) Derivative Instruments
The Company enters into derivative transactions with financial institutions
only as hedges of other financial transactions and not for speculative
purposes. The Company's policies do not allow leveraged transactions and are
designed to minimize credit and concentration risk with counter parties.
(m) Income Taxes
The Company accounts for income taxes under the asset and liability method
in accordance with Statement of Financial Accounting Standards No. 109 (SFAS
No. 109). Under the asset and liability method, deferred tax
35
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized as
income in the period that includes the enactment date.
(n) Fair Value of Financial Instruments
The carrying value of the Company's debt instruments approximates fair value
which is based on the quoted market prices for the same or similar issues or
on the current rates offered to the Company for debt of the same remaining
maturities.
The fair value of the Company's accounts and notes receivable in excess of
one year approximates carrying values and is determined as the present value
of expected future cash flows discounted at the interest rate currently
offered by the Company, which approximates rates currently offered for loans
with similar terms and collateral to borrowers with comparable credit risk.
The carrying amounts of the remaining current assets and liabilities
approximate fair value because of the short-term nature of those accounts.
(o) Impairment of Long-Lived Assets
The Company follows SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121),
which requires impairment losses to be recognized for long-lived assets used
in operations when indicators of impairment are present and the undiscounted
operating cash flows are not sufficient to recover the assets' carrying
amount. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount.
(p) Earnings (Loss) per Share
Earnings (loss) per share have not been included, as the Company is a wholly
owned subsidiary.
(q) Pension and Other Postretirement Plans
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 132, Employers Disclosures about Pension and Other
Postretirement Benefits. SFAS No. 132 revises employers' disclosures about
pension and other postretirement benefit plans. SFAS No. 132 does not change
the method of accounting for such plans.
The Company has a defined benefit plan, a defined contribution plan,
supplemental employee retirement plan (SERP) and a retirement plan for the
Board of Trustees. All plans except for the defined contribution plan are
frozen.
(3) Acquisitions
At December 22, 1998, the Company acquired certain assets and liabilities of
the Home of Peace Memorial Park. Home of Peace is a Los Angeles, California
cemetery established in 1855, which consists of approximately 32 acres, some
of which is still available for future development. Cash paid for the
transaction amounted to
36
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
approximately $776,000, which represents the difference between $1,100,000 in
assets and $324,000 in liabilities. As the amount paid was equal to the
estimated fair market asset value less liabilities, goodwill was not recorded.
The results of operations of Home of Peace for the period December 22, 1998
through December 31, 1998 were not material to the financial statements of
Rose Hills Company and therefore, were not included with the results of
operations for the Company for the year ended December 31, 1998.
(4) Prepaid Expenses and other current assets
Prepaid expenses and other current assets consist of the following at
December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Due from insurance companies.................................. $1,239 $1,351
Due from Funeral Service Trust................................ 35 393
Due from Endowment Care Fund.................................. 825 1,050
Taxes Receivable.............................................. -- 1,082
Prepaid insurance............................................. 278 271
Other......................................................... 2,900 554
------ ------
Prepaid expenses and other current assets................... $5,277 $4,701
====== ======
</TABLE>
(5) Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31, 1999
and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Land........................................................ $ 8,261 $ 9,036
Buildings and improvements.................................. 41,395 41,064
Furniture, fixtures and equipment........................... 7,155 6,540
Vehicles.................................................... 2,107 1,578
Computers and computer software............................. 5,718 5,023
Construction in progress.................................... 4,064 8,224
------- -------
Total property, plant and equipment....................... 68,700 71,465
Less accumulated depreciation............................... 9,408 5,487
------- -------
Property, plant and equipment, net........................ $59,292 $65,978
======= =======
</TABLE>
37
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following at
December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Trade payables.............................................. $ 189 $ 819
Interest.................................................... 1,248 1,371
Property and other taxes.................................... 2,191 1,469
Payroll and related costs................................... 1,760 1,442
Other payables.............................................. 990 7,578
Other accrued expenses...................................... 3,999 3,676
------- -------
$10,377 $16,355
======= =======
</TABLE>
(7) Derivative Financial Instruments
The Company's policy is not to use derivative instruments for speculation.
The Company does not trade in financial instruments and is not a party to
leveraged derivatives.
The notational amounts of derivatives do not represent amounts exchanged by
the parties and, thus, are not a measure of the exposure of the Company
through the use of derivatives. The amounts exchanged during the term of the
derivatives are calculated on the basis of the notational amounts and the
other contractual conditions of the derivatives.
The Company has entered into interest rate Collar Agreements, which
effectively set maximum and minimum interest rates on the principal amount of
Senior Debt (note 12), ranging from a floor of 5.5% (the Company would pay
5.5% even if rates fall below that level) to a maximum or cap of 6.5% for the
period commencing January 2, 1997 through December 1, 2000. The Collar
Agreement is based on three-month LIBOR. The fair value of the Collar
Agreement at December 31, 1999 and 1998 as estimated by a dealer, was a
favorable $85,000 and an unfavorable $808,000, respectively.
The counterparty to these contractual relationships is a major financial
institution with which the Company has other financial relationships. The
Company is exposed to credit losses in the event of nonperformance by the
other parties to the interest rate Collar Agreements. However, the Company
does not anticipate nonperformance by the other party, and no material loss
would be expected from nonperformance of such counterpart.
(8) Cemetery Funds
(a) Endowment Care Fund
The Company, pursuant to state law, has placed the cemeteries under
endowment care. Therefore, when cemetery property is sold, an endowment care
charge is made for which a minimum amount is statutory. Charges are payable to
the Endowment Care Fund (the Fund), a separate 501(c)(13) organization, when
the total sales contract amount has been collected. Since a substantial
portion of pre-need cemetery property sales is made on an installment basis,
many of the charges are not due currently. Generally, the installment
receivables, including late charges, are collectible within one to seven
years. As of December 31, 1999 and 1998, amounts owed to the Fund, but not yet
due or collected from customers, amounted to $1,977,000 and $1,809,000,
respectively. The Fund's assets are invested under the direction of the Board
of Trustees of the Fund. The principal of the fund generally cannot be
withdrawn by the Company and therefore is not included on the consolidated
balance sheet.
38
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The change in net assets of the Fund, net of amounts required to be withheld
under state law, is paid by the Fund to the Company and is used for the care,
maintenance and embellishment of the cemetery. As allowable by state law, a
portion of the undistributed capital gains of the Fund has been reserved and
is available to the Company at the discretion of the Trustees for future
maintenance, repair or restoration of property or embellishment. The amounts
earned by the Fund and transferred to the Company are reported in the
consolidated statements of operations and amounted to $3,605,000 and
$3,767,000 for the years then ended, respectively.
Total assets of the Fund are $58,304,000 and $61,458,000 at December 31,
1999 and 1998, respectively, and consist primarily of cash and investments
carried at fair market value. Total liabilities of the Fund are $1,023,000 and
$1,570,000 at December 31, 1999 and 1998, respectively, and consist of amounts
payable to the Company. Total net assets of $57,281,000 and $59,915,000 at
December 31, 1999 and 1998, respectively, resulted primarily from Fund
deposits received or receivable from customers, capital gains (net of
transfers to reserves) and holding losses experienced by the Fund.
(b) Special Care Fund
In 1998, the Company established a Special Care Fund (SCF) pursuant to state
law for the investment of proceeds from the sale of pre-need cemetery
services. The Company's policy is to voluntarily set aside in trust, 100% of
the pre-need service revenue when the contracts are paid in full. American
Funeral and Cemetery Trust Services is the trustee of the Special Care Fund.
Total assets of the SCF Fund are $5,099,000 and $2,529,000 at December 31,
1999 and 1998, respectively, and consist primarily of cash and investments
carried at fair market value. Total liabilities of the SCF are $42,000 and
$27,000 at December 31, 1999 and 1998, respectively, and consist of amounts
payable to the Company. Total net assets of $5,057,000 and $2,502,000 at
December 31, 1999 and 1998, respectively, resulted primarily from SCF deposits
received or receivable from customers, capital gains (net of transfers to
reserves) holding losses experienced by the SCF.
(9) Pre-need Funeral Service Debentures
From 1960 to 1975, the Association (the predecessor cemetery) sold pre-need
funeral service debentures at face amounts under subscription agreements,
which provided for the collection of the amount on an installment basis.
Debentures were issued in denominations of $125 each when installments of the
amount were collected. As of December 31, 1999 and 1998, the debentures
subscribed pursuant to the subscription agreements amounted to less than
$10,000. The Company may redeem the debentures at any time prior to maturity
at the face amount or the holders thereof may at any time apply the debentures
to the purchase price of funeral services and arrangements furnished by the
Company.
Additionally, the subscription agreements may be canceled at any time by
either the Company or the subscriber. Interest on the debentures is calculated
at the rate of 3% per annum, is payable semiannually and continues to accrue
on debentures not presented for payment on their maturity date.
39
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the indenture and supplemental indentures, as amended, the Company is
required to make payments to a trustee of the fund to be used for the
retirement of the debentures at maturity or upon their application to the
purchase price of funeral services. Initial funding payments in amounts equal
to 25% of the face amount of debentures being issued were required at the time
of issuance. The issued and outstanding debentures at December 31, 1999 mature
as follows (in thousands):
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
Prior to February 1, 1999........................................... $693
February 1, 2000.................................................... 70
----
Total........................................................... $763
====
</TABLE>
(10) Income Taxes
The provision for income tax is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Current:
Federal.............................................. $ 792 $ -- $ --
State................................................ 419 79 14
------ ------ -----
Total current..................................... 1,211 79 14
------ ------ -----
Deferred:
Federal.............................................. 2,105 1,502 (10)
State................................................ 328 404 91
------ ------ -----
Total deferred.................................... 2,433 1,906 81
------ ------ -----
Total income tax.................................. $3,644 $1,985 $ 95
====== ====== =====
</TABLE>
Differences between the provision for income taxes (benefit) and income
taxes at the statutory Federal income tax rate are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Expected Federal tax (benefit)...................... $2,496 $1,027 $(569)
Net tax effects of:
Goodwill amortization.............................. 712 709 640
State taxes, net of Federal benefit................ 428 319 87
Other.............................................. 8 (70) (63)
------ ------ -----
Actual income tax............................... $3,644 $1,985 $ 95
====== ====== =====
</TABLE>
40
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the net deferred tax balances at December 31, 1999 and
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Operating reserves..................................... $ -- $ 1,105
Retirement benefits.................................... 1,585 1,521
Other reserves......................................... 2,280 2,921
Net operating loss..................................... -- 332
Other.................................................. 228 130
------- -------
Total deferred tax assets........................... 4,093 6,009
------- -------
Deferred tax liabilities:
Acquisition step ups................................... (2,977) (2,977)
Goodwill amortization.................................. (3,244) (2,121)
Depreciation........................................... (1,772) (2,418)
Land................................................... (863) (863)
------- -------
Total deferred tax liability........................ (8,856) (8,379)
------- -------
Net deferred tax liability.......................... $(4,763) $(2,370)
======= =======
</TABLE>
Based upon the level of historic taxable income and projections for future
taxable income over the periods, which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences at December 31, 1999.
(11) Related Party Transactions
(a) Administrative Services Agreement
In connection with the Acquisition Transaction, as described in note 1, the
Company engaged Loewen to provide certain administrative services and share
certain resources pursuant to an Administrative Services Agreement. Pursuant
to the Administrative Services Agreement, Loewen is to provide accounting
services, computer systems and support, telecommunications support, general
operations support, legal services, environmental compliance, regulatory
compliance, as well as expertise in management information systems, sales, tax
and fund management. As compensation for services provided under the
Administrative Services Agreement, Loewen is entitled to receive from the
Company, a minimum fee (the Administrative Services Fee) payable monthly in
arrears and in an aggregate amount equal to $250,000 (subject to specified
annual increases). The Company is also required to reimburse Loewen for all
out-of-pocket costs and expenses incurred from third parties in connection
with services performed pursuant to the Administrative Services Agreement. For
the years ended December 31, 1999, 1998 and, 1997, the Company had recorded
approximately $258,000, $250,000 and $323,000 for Administrative Services Fee,
respectively.
As of December 31, 1999 and 1998, the Company had payables (receivables) to
Loewen as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Administrative Sales Agreement............................ $289,000 $584,000
Other..................................................... 400,000 (79,000)
-------- --------
Total payable to Loewen................................... $689,000 $505,000
</TABLE>
41
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company is currently negotiating resolution to certain disputed items
included in the 1999 amount payable to Loewen.
On June 1, 1999 The Loewen Group Inc. (including Loewen Group International,
Inc.) voluntarily filed for creditor protection under Chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. In
connection with this filing, in December 1999, the Company filed a Proof of
Claim totaling approximately $730,000.
(b) Escrow Transaction
In connection with the October 1999 sale of a vacant land parcel, previously
owned by Loewen, the entire sales price remains in escrow due to outstanding
title issues regarding ownership. Loewen held up resolution of the title issue
after the Company commenced proceedings to terminate the Administrative
Services Agreement with Loewen. Management believes the Company is the legal
owner of the property, that it has the right to receive the proceeds from the
sale. The Company and Loewen are currently negotiating a global settlement for
the release of funds in escrow and amounts due to Loewen and the Company under
its Proof of Claim noted heretofor. The ultimate resolution of the matter may
be resolved by the U.S. Bankruptcy Court assigned to Loewen's Chapter 11
filing. There can be no assurance that the court will rule in the Company's
favor. In the event of an unfavorable court ruling, the Company will incur a
$1.0 million loss on disposal of the asset.
(c) Monitoring Fee
The Company is required to pay annually a monitoring fee (the Monitoring
Fee) equal to $250,000 (subject to increases for inflation) to an affiliate of
a shareholder of the Parent Company. The Company has expensed the Monitoring
Fee of $250,000 for December 31, 1999 and 1998.
(d) Insurance Commissions
In 1999 and 1998, the Company earned insurance commissions totaling
approximately $482,000 and $1,000,000 respectively, from a subsidiary of
Loewen. Effective May 1999, the Company changed back to an unrelated insurance
provider.
(12) Long-Term Debt
Long-term debt consists of the following at December 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Borrowings outstanding under Bank Credit Agreement,
due 2003............................................. $ 71,513 $ 72,507
Senior subordinated notes at 9.5%, due November 15,
2004................................................. 80,000 80,000
Notes payable and liabilities under noncompete
agreements bearing interest at rates ranging from
7.46% to 9%. The notes and noncompete agreements have
variable maturities ranging from 2000 through 2007... 1,436 2,214
Long term portion of capital lease obligations........ 1,309 989
-------- --------
154,258 155,710
Less current portion.................................. (3,832) (2,133)
-------- --------
Long-term debt........................................ $150,426 $153,577
======== ========
</TABLE>
42
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, annual maturities of long-term debt consisted of the
following (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
2000............................................................ $ 3,832
2001............................................................ 7,706
2002............................................................ 9,598
2003............................................................ 52,785
2004............................................................ 80,250
Thereafter...................................................... 87
--------
$154,258
========
</TABLE>
Acquisition Transaction Debt
Concurrent with the consummation of the Acquisition Transaction, the Company
entered into a credit agreement (the Bank Credit Agreement) with a group of
financial institutions in Canada and the United States, which provides for (1)
a senior secured amortization extended term loan facility (the Bank Term
Facility) in an aggregate principal amount of $75.0 million used to partially
finance the Acquisition Transaction, as described in note 1, to prefund
certain capital expenditures and to refinance existing indebtedness of the
Mortuary and (2) a senior secured revolving credit facility (the Revolving
Credit Facility) in an aggregate principal amount of $25.0 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.
The Bank Credit Agreement contains certain affirmative and negative
covenants customary for this type of agreement and is guaranteed by the
Company, its subsidiaries and RH Holdings. All such guarantees are secured by
a first priority security interest of the capital stock of the Company and
each subsidiary and all inter-company receivables. The Company is required to
maintain certain defined financial ratios. The Company was in compliance with
all such requirements at December 31, 1999.
Borrowings under the Bank Term Facility bear interest at the Company's
option, at the reference rate (the Base Rate) of the agent acting on behalf of
the financial institutions plus 2%, or under a Eurodollar option, at a
reserve-adjusted Eurodollar rate (the Adjusted Eurodollar Rate) plus 3%. The
Bank Term Facility will mature seven years after the Acquisition and requires
semiannual installments aggregating $1.0 million in each of the first three
years after the Acquisition, $3.0 million in the fourth year after the
Acquisition, $7.0 million in the fifth year after the Acquisition, $9.0
million in the sixth year after the Acquisition and $53 million in the seventh
year after the Acquisition.
As of December 31, 1999, the Company was paying interest at the Adjusted
Eurodollar Rate (6.125%) plus 2.750% on its outstanding borrowings under the
Bank Term Facility. Additionally, the Company had entered into interest rate
Collar Agreements to limit its interest rate risk. Pursuant to the terms of
the interest rate Collar Agreements, the minimum and maximum Base Rate or
Adjusted Eurodollar interest rates range from 5.5% to 6.5%, respectively, for
the period from January 2, 1997 through December 1, 2000.
Borrowings under the Revolving Credit Facility bear interest, at the
Company's option, at the Base Rate plus 1.75%, or the Adjusted Eurodollar Rate
plus 2.75%. The Company pays a commitment fee of .5% on the unused portion.
The Revolving Credit Facility is payable in full at maturity, with no prior
amortization. As of December 31, 1999, the Company had no borrowings under the
Revolving Credit Facility.
43
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concurrent with the consummation of the Acquisition Transaction, the Company
issued $80.0 million of 9.5% senior subordinated notes payable due November
15, 2004 (the Notes). There are no sinking fund requirements on the Notes and
they may not be redeemed until November 2000. At such date, they are
redeemable at 104.75% of principal amount, plus accrued and unpaid interest,
if any, to the redemption date, and thereafter, at an annually declining
premium over par until November 2003, when they are redeemable at par. The
indenture limits the payment of dividends and repurchase of capital stock, and
includes certain other restrictions on indebtedness and limitations customary
with subordinated indebtedness of this type. The Company is in compliance with
all such requirements as of December 31, 1999.
The Company assumed liabilities under notes payable and noncompete
agreements from the Satellite Properties. The notes payable are secured by
land and bear interest at rates ranging from 7.46% to 8.00%. The noncompete
agreements consist of the net present value of future payments discounted at
9.00%.
(13) Retirement Plans
(a) Defined Benefit Plan
As a result of the Acquisition Transaction, the Retirement Plan for
Employees of Rose Hills Mortuary, L.P. (the Plan) was frozen as of December
31, 1996. It is the intention to formally terminate the Plan at a later date.
Prior to the Acquisition Transaction, all employees of the Mortuary, which
employed all cemetery and mortuary employees, were participants in the Plan.
Participants became fully vested upon the freezing of the Plan. Employees may
elect to receive their pension benefits in the form of a single-life annuity
or a qualified joint and contingent annuity.
The Company has funded or accrued the present value of these benefits. The
Company Plan is subject to and in compliance with the provisions of the
Employee Retirement Income Security Act of 1974 (ERISA). During 1995, the
Company Plan received a favorable letter of determination from the IRS.
The change in benefit obligation included the following components (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Benefit obligation at January 1............................ $11,250 $10,701
Service cost............................................... -- --
Interest cost.............................................. 749 731
Actuarial (gain)/loss...................................... (1,168) 330
Benefits paid.............................................. (546) (512)
------- -------
Benefit obligation at December 31........................ $10,285 $11,250
======= =======
</TABLE>
The change in plan assets included the following components (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Fair value of assets at January 1.......................... $11,494 $11,249
Actual return on plan assets............................... 438 757
Employer contribution...................................... -- --
Benefits paid.............................................. (546) (512)
------- -------
Fair value of assets at December 31...................... $11,386 $11,494
======= =======
</TABLE>
44
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The change in funded status included the following components (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Benefit obligation...................................... $(10,285) $(11,250)
Plan assets at fair value............................... 11,386 11,494
Unrecognized net actuarial (gain) loss.................. (959) (82)
-------- --------
Prepaid pension cost.................................. $ 142 $ 162
======== ========
</TABLE>
The net pension cost included the following components (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Service cost--benefits earned during the period......... $ -- $ -- $ --
Interest cost on projected benefits obligations......... 749 731 712
Expected earnings on Company plan assets................ (729) (720) (702)
----- ----- -----
Total net periodic pension cost....................... $ 20 $ 11 $ 10
===== ===== =====
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.75% and 6.75% for 1999 and
1998, respectively. The expected long-term rate of return on assets was 6.5%
for 1999 and 1998.
(b) Defined Contribution Plan
The Company also has a defined contribution plan, which has been qualified
under Section 401(k) of the Internal Revenue Service Code (the Savings Plan).
During 1995, the predecessor mortuary received a favorable letter of
determination from the Internal Revenue Service regarding the Savings Plan.
The Savings Plan permits participation by all employees of the Company who
have completed six months of continuous service, subject also to their entry
into the Savings Plan on enrollment dates of January 1 or July 1 of each year.
Participants may defer up to 15% of their compensation (subject to certain
limitations). In addition, to the amount of compensation deferred by
participants, the Company matches up to 100% of the first $300 contributed and
50% of the next $3,400 contributed per year per participant. Additionally, the
Company may contribute to the trust for each Plan year, beginning with the
Plan year beginning January 1, 1997, such amounts as the Board of Directors
shall determine in its sole discretion. The Company's contribution to this
Savings Plan on behalf of the participants amounted to $472,000 and $391,000
for the year ended December 31, 1999 and 1998, respectively.
(c) Supplemental Employee Retirement Plan
Three senior officers of Roses, the predecessor mortuary, had employment
agreements, which obligated Roses to provide these three employees with a
supplemental employee retirement plan (SERP). This nonqualified supplemental
pension plan covering certain employees provides for incremental pension
payments from Roses' funds so that the total pension payments would more
realistically approximate amounts that would have been payable from the Roses'
principal pension plan if it were not for limitations imposed by income tax
regulations. In conjunction with the Acquisition Transaction, the Company
assumed the SERP liability. The annual lifetime benefit is based upon a
percentage of salary during the final five years of employment, offset by
several other sources of income, up to age 62, at which time the benefit
becomes payable to the participant.
45
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The change in SERP benefit obligation included the following components (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Benefit obligation at January 1.............................. $4,234 $4,656
Interest cost................................................ 282 276
Actuarial (gain)/loss........................................ (495) (508)
Benefits paid................................................ (175) (190)
------ ------
Benefit obligation at December 31.......................... $3,846 $4,234
====== ======
</TABLE>
The change in SERP plan assets included the following components (in
thousands):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Fair value of assets at January 1.............................. $ -- $ --
Participant contributions...................................... 175 190
Benefits paid.................................................. (175) (190)
----- -----
Fair value of assets at December 31.......................... $ -- $ --
===== =====
</TABLE>
The change in SERP funded status included the following components (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Benefit obligation........................................ $(3,845) $(4,234)
Unrecognized net actuarial (gain)/loss.................... (1,416) (938)
------- -------
Accrued pension cost.................................... $(5,261) $(5,172)
======= =======
</TABLE>
The net SERP pension cost included the following components (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Service cost at end of year............................. $ -- $ -- $ --
Interest cost........................................... 282 275 321
Settlement or curtailment cost.......................... (18) (30) (26)
----- ----- -----
Total net pension cost................................ $ 264 $ 245 $ 295
===== ===== =====
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.75% and 6.75% for 1999 and
1998, respectively. The expected long-term rate of return on assets was 6.5%
for 1999 and 1998.
To fund the SERP obligations, the Company has procured whole-life insurance
policies. The Company is the owner and beneficiary of these policies with an
aggregate face amount of $7.0 million. The cash surrender value of the
Company's share of the policies is reflected in the consolidated balance
sheets under other assets and amounted to $1,649,000 and $1,319,000 as of
December 31, 1999 and 1998, respectively.
(d) Board of Trustees' Plan
The Association had a retirement plan (the Trustees' Plan) covering each
eligible member of the Association's Board of Trustees (Trustee). Per terms of
the Asset Purchase Agreement, the Company has assumed this liability. As a
result of the Acquisition Transaction, the Trustees' plan was frozen as of
December 31, 1996. Participants became fully vested upon the freezing of the
Plan.
46
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has accrued the present value of these benefits. The Company
Plan is subject to and in compliance with the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
The change in benefit obligation included the following components (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Benefit obligation at January 1.............................. $1,926 $2,434
Service cost................................................. -- --
Interest cost................................................ 122 140
Actuarial (gain) loss........................................ 28 (298)
Benefits paid................................................ (350) (350)
------ ------
Benefit obligation at December 31.......................... $1,726 $1,926
====== ======
</TABLE>
The change in plan assets included the following components (in thousands):
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Fair value of assets at January 1.............................. $ -- $ --
Employer contributions......................................... 350 350
Benefits paid.................................................. (350) (350)
----- -----
Fair value of assets at December 31.......................... $ -- $ --
===== =====
</TABLE>
The change in funded status included the following components (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Benefit obligation........................................ $(1,726) $(1,926)
Unrecognized net actuarial (gain)/loss.................... 284 272
------- -------
Accrued pension cost.................................... $(1,442) $(1,654)
======= =======
</TABLE>
The net pension cost included the following components (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Service cost at end of year............................... $ -- $ -- $ --
Interest cost............................................. 122 140 179
Gain...................................................... 16 3 33
Prior service cost........................................ -- -- --
----- ----- -----
Total net pension cost.................................. $ 138 $ 143 $ 212
===== ===== =====
</TABLE>
The weighted average discount rate used in determining the actual present
value of the projected benefit obligation was 7.75% for 1999 and 6.75% for
1998.
(e) Deferred Compensation
In addition, certain retired senior executives of the Association
participated in a nonqualified supplemental deferred compensation program. Per
terms of the Asset Purchase Agreement, the Company has assumed this liability.
Annual payments are immaterial and are expensed as paid.
47
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(14) Funeral Service Trust Agreements
The Company sells, on a limited basis, Funeral Service Trust Agreements to
consumers (the "Trustor"). These trust agreements are sold generally on an
installment basis and funds derived there from earn income subject to certain
limitations. Trusts may be terminated at any time with all principal and
accumulated net income being distributed to the Trustor. The Trustor may at
any time apply the trust amount to the purchase price of funeral services and
arrangements furnished by the Company and/or to cemetery property, services
and commodities provided by the Association. The amounts relating to these
trusts are not included in the accompanying consolidated financial statements;
however, administration fees earned by the Company are reflected in the
consolidated statements of income.
(15) Commitments under Lease Agreements
As of December 31, 1999, the future minimum lease obligation pursuant to
operating lease agreements is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Operating
leases
---------
<S> <C>
Year ending December 31:
2000........................................................... $ 777
2001........................................................... 567
2002........................................................... 436
2003........................................................... 115
------
Total minimum lease obligation............................... $1,895
======
</TABLE>
Rental expense under operating lease agreements for the years ended December
31, 1999, 1998 and 1997 was $856,000, $778,000 and $719,000, respectively.
(16) Purchase Commitments
In September 1992, the predecessor cemetery (the Association) and the local
County Sanitation District (the District) entered into an agreement (the
Agreement) whereby the Association agreed to construct a reclaimed water
storage reservoir (the Reservoir) with a capacity of 1.2 million gallons, one-
half of which would be made available to the District for its use at a site
located adjacent to the cemetery. The cost of the Reservoir, which was
completed during 1994, totaled $471,000. The Company is obligated, under this
Agreement, as successor to the Association.
The District has agreed to pay its proportionate share of the capital costs
associated with the Company's construction of the Reservoir. The District's
share of such costs is based on the proportion of the Reservoir's designed
capacity required for the Company to provide reclaimed water storage for the
District. Annual payment of such amounts will be equal to 1/20th of the
District's share and will reduce the annual payment made by the Company to the
District for its share of the reclaimed water transmission system described
above.
The District agreed to construct a reclaimed water transmission system to
transport reclaimed water from its existing water reclamation plant to the
Company's Reservoir. The reclaimed water transmission system was completed in
1997. The Company has agreed to pay its proportionate share of the capital
costs incurred by the District in constructing the reclaimed water
transmission system. Such proportionate share will be determined based on the
percentage of peak flow design capacity required by the Company to the total
peak flow design capacity of the transmission facilities. The Company's
proportionate share is to be approximately $1,900,000. The Company's annual
payment of such costs is to be equal to 1/20th of its proportionate share of
the capital costs.
48
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company and the District have also agreed to reimburse the other for
operating and maintenance costs associated with the Reservoir and the
reclaimed water transmission system based on criteria outlined in the
Agreement.
(17) Commitments and Other Matters
(a) Transaction with the International Buddhist Progress Society
During 1994, the predecessor cemetery sold the exclusive interment rights on
an undeveloped parcel of land located on the property to the International
Buddhist Progress Society (IBPS), an unrelated organization. In exchange for
the interment rights, IBPS agreed to pay the predecessor cemetery $1,405,000,
of which $160,000 was received as a deposit during 1994. It was determined
that because, among other matters, the interment rights were sold on a parcel
of land that was not ready for the purpose for which it was sold, the earnings
process was not complete and revenue and expense recognition relating to the
transaction should be deferred until such time IBPS has completed a
significant portion of the project. In 1999, the construction of the
columbarium was completed and ready for inurnments. Accordingly, the Company
recorded the sale in the fourth quarter of 1999. The $1,245,000 unpaid portion
of the sales price is to be repaid in quarterly installments beginning April
2000 with the final payment due January 2003.
(b) General
The Company has employment agreements with its executive officers, the terms
of which expire at various dates. Such agreements provide for minimum salary
levels, as well as incentive bonuses, which are, payable if specified
management goals are attained.
(18) Contingencies
The Company is involved in certain matters of threatened and filed
litigation, none of which, in the judgment of management, will have a material
impact on its consolidated financial position or results of operations.
Management is aware that Rose Hills' cemetery may have been contaminated
when a portion of the cemetery was used to dispose of waste products prior to
1978. The cost to remediate the waste disposal area is not known; however,
under the terms of the asset purchase agreement, the Seller assumed all
liability to remediate the property.
(19) Segment Information
The company has adopted FASB No. 131 Disclosure about Segments of an
Enterprise and Related Information which uses a "management approach" for
determining the way the Company reports information about its operating
segments.
The Company's reportable segments are comprised of the two businesses it
operates, each of which offers different products and services: funeral homes
and cemeteries. The funeral home segment is an aggregation of funeral home and
funeral plan operations.
The funeral homes offer a full range of funeral services, encompassing the
collection of remains, registration of death, professional embalming, use of
funeral home facilities, sale of caskets and other merchandise, and
transportation to the place of worship, funeral chapel, cemetery or
crematorium. In addition to providing at-need funeral services, the Company
sells insurance contracts for which it receives commission revenue.
49
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The cemeteries assist families in making burial arrangements and offer a
complete line of cemetery products (including a selection of burial spaces,
burial vaults, lawn crypts, caskets, memorials, niches and mausoleum crypts),
the opening and closing of graves and cremation services. The majority of
cemetery revenue is from pre-need sales.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company sells entirely to
external customers. The Company evaluates performance based on earnings from
operations of the respective businesses. The Company does not allocate income
taxes or other corporate expenses to the operating segments.
<TABLE>
<CAPTION>
Funeral Cemetery Total
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Revenues from external customers:
1999........................................... $ 33,277 $ 55,126 $ 88,403
1998........................................... 31,959 51,618 83,577
1997........................................... 32,392 38,253 70,645
Gross profit:
1999........................................... 10,938 20,731 31,669
1998........................................... 11,288 19,422 30,710
1997........................................... 12,731 12,509 25,240
Interest revenue (included in revenues):
1999........................................... -- 6,189 6,189
1998........................................... -- 6,071 6,071
1997........................................... -- 4,934 4,934
Depreciation:
1999........................................... 2,411 1,557 3,968
1998........................................... 1,660 1,299 2,959
1997........................................... 1,268 1,025 2,293
Total assets:
1999........................................... 101,180 198,156 299,336
1998........................................... 107,462 190,012 297,474
1997........................................... 109,791 172,503 282,294
</TABLE>
The following table reconciles gross profit of reportable segments to income
before income taxes:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Gross profit of reportable segments.......... $ 31,669 $ 30,710 $ 25,240
Corporate general and administrative
expenses.................................. (7,352) (7,420) (6,726)
Amortization of intangible assets.......... (3,707) (3,752) (3,776)
-------- -------- --------
Total income from operations................. 20,610 19,538 14,738
Interest expense........................... (15,769) (16,519) (16,411)
Income from settlement agreement........... 2,500 -- --
-------- -------- --------
Income (loss) before taxes............... $ 7,341 $ 3,019 $ (1,673)
======== ======== ========
</TABLE>
50
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table reconciles total assets of reportable segments to
consolidated total assets:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Assets of reportable segments............................. $299,336 $297,474
Cash in corporate bank accounts........................... 2,150 1,645
Deferred tax asset........................................ 3,508 4,085
Corporate capital assets.................................. -- 7,933
Deferred finance costs.................................... 7,407 9,036
Other..................................................... 5,411 1,760
-------- --------
Total consolidated assets............................... $317,812 $321,933
======== ========
</TABLE>
51
<PAGE>
ROSE HILLS COMPANY AND SUBSIDIARIES
(A Wholly Owned Subsidiary of Rose Hills Holdings Corp.)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
beginning costs and other end of
Description of period expenses accounts(1) Deductions(2) period
----------- ---------- ---------- ---------- ------------ ----------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Allowance for contract
cancellations and
doubtful accounts:
Current:
Year ended December
31, 1999 ............ 1,127 1,248 32 (1,069) 1,338
Year ended December
31, 1998 ............ 1,253 1,325 (77) (1,374) 1,127
Year ended December
31, 1997 ............ 1,082 862 147 (838) 1,253
Long-term:
Year ended December
31, 1999 ............ 1,433 3,858 98 (3,348) 2,041
Year ended December
31, 1998 ............ 1,594 1,686 (98) (1,749) 1,433
Year ended December
31, 1997 ............ 1,377 1,097 187 (1,067) 1,594
</TABLE>
- --------
(1) Primarily consists of reclassifications to other accounts.
(2) Uncollected receivables written off, net of recoveries.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Senior Vice President, Finance,
Chief Financial Officer,
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dillis R. Ward President, Chief Executive March 24, 2000
___________________________________________ Officer and Director
Dillis R. Ward
/s/ Kenton C. Woods Senior Vice President, March 24, 2000
___________________________________________ Chief Financial Officer,
Kenton C. Woods Secretary and Treasurer
(Principal Financial
Officer)
/s/ Mary C. Guzman Vice President, Controller March 24, 2000
___________________________________________ (Principal Accounting
Mary C. Guzman Officer)
/s/ Dennis C. Poulsen Chairman and Director March 24, 2000
___________________________________________
Dennis C. Poulsen
/s/ Howard A. Lipson Director March 24, 2000
___________________________________________
Howard A. Lipson
/s/ Chinh E. Chu Director March 24, 2000
___________________________________________
Chinh E. Chu
/s/ David I. Foley Director March 24, 2000
___________________________________________
David I. Foley
Director March , 2000
___________________________________________
John Lacey
Director March , 2000
___________________________________________
Bradley Stam
/s/ Michael G. Weeden Director March 24, 2000
___________________________________________
Michael G. Weeden
</TABLE>
53
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made this 1st day of March 1999 by and between Rose Hills
Company ("the Company") and Kimberley K. Cleaver.
WHEREAS, it is the mutual intent of the parties hereto that Cleaver be employed
as Senior Vice President-Sales of the Company, and
WHEREAS, it is the intent to set forth in this Agreement the terms and
conditions of said employment.
In consideration of these premises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:
1. Employment
----------
1.1 During the term of this Agreement and subject to its terms and
conditions, Cleaver shall be employed as Senior Vice President-Sales
of the Company. In said capacity, Cleaver shall report to the Chief
Executive Officer of the Company or to such person(s) as the Board of
Directors of the Company ("the Board") may, from time to time direct,
and shall have such powers, responsibilities and authorities as may
be, from time to time, assigned to her by the CEO or Board.
1.2 This Agreement shall continue in effect without interruption until
terminated according to its terms.
1.3 During the term hereof, Cleaver shall devote her full working time and
efforts, to the best of her ability, experience and talent, to the
performance of services, duties and responsibilities as an Officer of
the Company.
2. Compensation
------------
2.1 During the term hereof, Cleaver shall be paid by the Company according
to the Commission Schedule as shown in paragraph 2.2.
<PAGE>
2.2 Commissions will be paid weekly, based on the previous week's volume
based on the following schedule:
a) All net pre-need funeral sales 1.00%
b) All at-need property (Lots) and products .50%
This includes vaults, vases, markers and wall inscriptions, but does
not include caskets, urns or service fees.
c) All at-need mausoleum spaces or niches, including inscriptions
1.00%
d) All net pre-need cemetery property and products 1.00%
This includes vaults, vases, markers and wall Inscriptions, but does
not include caskets or urns. It includes opening and closing service
fees if sold as part of a pre-need package with property and vault.
e) All net pre-need mausoleum crypts and niches 2.25%
This includes inscriptions and opening and closing if sold as part of
pre-need package.
All commission calculations, excluding items funded by Forethought or
Rose Hills Company authorized trust products, will be based on General
Ledger Volume and verified by Payroll. Verification of pre-need
insurance and trust volume will be based on monthly reports received
from our insurance or trust vendor.
2.3 $10,000 reserve will be accumulated at 10% of override amount per
paycheck. Rose Hills will pay interest at 8% on the net balance each
year. Commissions for contracts canceling within one year of the
contract date will be deducted from the reserve account balance.
Override cancellations will be deducted from the reserve account.
Contract cancellation is defined as chargebacks allocated because of
cancellation of purchase agreements due to non-payment of account
balance for any reason or other similar reasons. The insurance vendor
will determine insurance chargebacks. Rose Hills' Accounting
Department will determine other charge backs. Contracts in "good
standing" for at least one year will not be subject to chargebacks.
(2)
<PAGE>
2.4 In addition, incentive adjustments will be made to commissions earned
according to attainment of the budgeted gross margin target approved
by the Board for 1999 and subsequent years. For 1999, the following
schedule will be in effect: See Attachment A.
----------------
2.5 Cleaver will receive an annual performance appraisal by the CEO
assessing performance against management objectives as established
each fiscal year by the Board.
3. Employee Benefits
-----------------
3.1 The Company shall provide Cleaver, during the term of this Agreement,
coverage under employee pension and welfare benefit programs, plans
and practices consistent with such benefits as are made available from
time to time to other senior executives of the Company ("Benefits").
3.2 Cleaver shall be entitled to no less than fifteen business days paid
vacation in each calendar year, which shall be taken at such time as
is consistent with Cleaver's responsibilities hereunder. Unless
otherwise approved by the Company, any vacation days not taken in any
calendar year shall be forfeited without pay therefor.
3.3 Cleaver shall receive a car allowance of $400 per month, plus gasoline
that is furnished by Rose Hills, for her personally owned vehicle.
4. Termination
-----------
4.1 Cleaver shall have the right to terminate this Agreement at any time
upon 90 day's notice to the Company. In the event that Cleaver so
terminates, she shall be entitled, at the time the termination becomes
effective, to a lump sum payment from the Company - (i) in respect of
vacation accrued, but not used ("Vacation Payment") and (ii) for
compensation earned under the terms of paragraph 2.1 hereof, but not
paid ("Compensation Payment") as of the effective date of the
termination and (iii) any commissions and incentives earned but not
paid. If Cleaver terminates this Agreement, she shall not be entitled
to receive any payment, benefit, or compensation from the Company, by
way of salary, commission and incentive, benefits, severance payment
or otherwise, except as expressly set forth in this paragraph.
(3)
<PAGE>
4.2 The Company shall have the right to terminate this Agreement and
Cleaver's employment with the Company for cause at any time. As used
herein, the term "Cause" shall include (i) willful malfeasance or
willful misconduct by Cleaver in connection with her employment, (ii)
any failure or refusal by Cleaver to perform her duties hereunder or
to follow any lawful direction from the Company (including objectives
established under Section 2.4) which refusal or failure continues
after Cleaver has been given notice by the Company that it deems such
failure or refusal has occurred, (iii) any breach by Cleaver of
Section 5 herein or any other material breach of this Agreement, or
(iv) the commission by Cleaver of any violation of law in connection
with the performance of her duties hereunder, any misdemeanor
involving moral turpitude or any felony. Except as explicitly provided
in this paragraph, the Company shall not be required to provide
Cleaver with advance notice of termination for cause.
4.3 In the event that Cleaver is terminated for cause under the terms of
paragraph 4.2, she shall be entitled to receive a lump sum payment
from the Company in respect of the Vacation Payment, the Compensation
Payment, and the commission and incentive payment only as earned to
the date of termination. If Cleaver is terminated for cause under
paragraph 4.2, she shall not be entitled to receive any payment,
benefit, or compensation from the Company, by way of salary,
commission and incentive, severance payment or otherwise, except as
expressly set forth in this paragraph 4.3.
4.4 The Company shall have the right to terminate this Agreement at any
time, with or without reason, or for any reason, upon 12 months notice
to Cleaver. In the event of a termination under this paragraph,
Cleaver shall be entitled to receive:
(a) Her commissions through the effective date of the termination ("the
Termination Date"),
(b) Benefits, as defined in paragraph 3.1 hereof, through the Termination
Date,
(c) Commission and incentives earned but not paid,
(d) if this Agreement is terminated by the Company other than for cause,
Cleaver shall not be entitled to receive any payment, benefit, or
compensation from the Company, by way of Base Salary, commission and
incentives, benefits, severance payment or otherwise, except as
expressly set forth in this paragraph 4.4.
(4)
<PAGE>
5. Confidential Information Non-Competition
----------------------------------------
5.1 Cleaver shall not, without the prior written consent of the Company,
use, divulge, disclose or make accessible to any other person, firm,
partnership, corporation or other entity any Confidential Information
pertaining to the business of the Company, Loewen, Blackstone, or any
of their respective affiliates, except (i) while employed by the
Company, in the business of and for the benefit of the Company, or
(ii) when required to do so by a court of competent jurisdiction, by
any governmental agency having supervisory authority over the business
of the Company, or by any administrative agency or legislative body
(including a committee thereof) with jurisdiction to order Cleaver or
the Company to divulge, disclose or make accessible such information.
For the purposes of this paragraph 5.1, "Confidential Information"
shall mean all non-public information concerning the financial data,
strategic business plans, product development (or other proprietary
product data), customer lists, marketing plans and other non public,
proprietary and confidential information of the Company, Blackstone,
Loewen, or any of their parent, subsidiary or affiliated companies, or
customers that is not otherwise available to the public (other than by
Cleaver's breach of this Agreement).
5.2 During the period of her employment hereunder and for one year
thereafter, Cleaver agrees that, without the prior written consent of
the Company, (a) she will not, either directly or indirectly, either
as principal, manager, agent, consultant, officer, stockholder,
partner, investor, lender, or employee, or in any other capacity,
carry on, be engaged in or have any financial interest in, any
business which is in competition with the business of the Company or
Loewen or any of their parent, subsidiary or affiliated companies, and
(b) she will not, on her own behalf or on behalf of any person, firm
or company other than the Company, directly or indirectly, solicit or
offer employment to any person who has been employed by the Company,
Loewen, Blackstone or any of their parent, subsidiary or affiliated
companies at any time during the 12 months immediately preceding such
solicitation.
5.3 For the purposes of paragraph 5.2, a business shall be deemed to be in
competition with the Company or Loewen if it owns, operates or manages
a funeral home or cemetery property that is located within 25 miles of
Rose Hills Memorial Park and Mortuary and all affiliates. Nothing in
this Agreement shall be construed to bar Cleaver from accepting
employment with a funeral home or cemetery property in any other
geographic region.
5.4 Cleaver and the Company agree that the covenant of paragraphs 5.2 and
5.3 are reasonable under the circumstances, and further agree that if
in the opinion of any court of competent jurisdiction such restraint
is not reasonable in any respect, that, without further action by the
parties, said covenant shall be deemed modified so as to have the
broadest possible scope, consistent with the opinion of said court,
and shall be enforceable as so modified.
(5)
<PAGE>
5.5 Cleaver agrees that any breach of the covenants of this section 5
would cause irreparable injury to the Company, Loewen and Blackstone
for which monetary damages would not be an adequate remedy.
Accordingly, Cleaver agrees that, in the event of such breach, the
Company, Loewen or Blackstone, in addition to pursing any other
remedies that they may have in law or in equity, (i) may cease making
any payments otherwise required by this Agreement, and (ii) shall be
entitled to a temporary injunction and permanent injunction
restraining any further violation of this Agreement by Cleaver.
6. Arbitration
-----------
6.1 Any and all disputes and claims arising from or in relation to this
Agreement, with the exception of (i) an action by the Company, Loewen
or Blackstone for injunctive relief under section 5 of this Agreement,
or (ii) an action by Cleaver under federal or state laws against
discrimination in employment, shall be resolved through arbitration in
Los Angeles, California, under the auspices and rules of the American
Arbitration Association. Any action for injunctive relief under
section 5 hereof or under federal or state anti-discrimination laws
may be brought in any court of competent jurisdiction.
6.2 In the event that either party to this Agreement, or Loewen or
Blackstone brings a claim or action for enforcement of this Agreement,
or otherwise relating to or arising from this Agreement, the
prevailing party shall be entitled to recover her or its costs of suit
including a reasonable attorney's fee.
7. Successors and Assigns
----------------------
7.1 This Agreement shall inure to the benefit of and be binding upon the
undersigned parties hereto and their respective successors and
assigns.
7.2 Cleaver may not assign her performance of this Agreement without the
prior, expressed written, consent of the Company,
8. Survival of Covenants
---------------------
8.1 The respective rights and obligations of the parties hereunder shall
survive any termination of this Agreement to the extent necessary to
the intended preservation of such rights and obligations. Without
limiting the generality of the foregoing, the provisions of section 5
hereof shall remain in effect as long as necessary to give effect
thereto, notwithstanding the termination of this Agreement.
(6)
<PAGE>
9. Governing Law
-------------
9.1 This Agreement shall be construed, interpreted and governed in
accordance with the laws of the State of California without reference
to rules relating to conflicts of laws.
10. Effect on Prior Agreements
--------------------------
10.1 This Agreement contains the entire understanding between the parties
relating to the subject matter hereof and supersedes in all respects
any prior or other agreement or understanding between the Company,
Blackstone, Loewen or any of their affiliates and Cleaver relating to
the subject matter.
11. Counterparts
------------
11.1 This Agreement may be executed in two or more counterparts, each of
which will be deemed an original.
ROSE HILLS COMPANY
Signed:
/s/ Dillis R. Ward By: /s/ Kimberley K. Cleaver
- ------------------ ------------------------
Dillis R. Ward Kimberley K. Cleaver
President and CEO
(7)
<PAGE>
EXHIBIT 10.19
ADVISOR RETIREMENT
CONNECTION(R)
Premium Service Retirement Plan
(Profit Sharing/401(k) Plan)
A Fidelity Prototype Plan
Non-Standardized Adoption Agreement No. 001
For use With
Fidelity Basic Plan Document No. 16
The ADVISOR RETIREMENT CONNECTION(R) Premium Service Retirement Plan, Basic Plan
Document No. 16, and related Adoption Agreements has not yet received approval
from the Internal Revenue Service for use as a prototype plan. The ADVISOR
RETIREMENT CONNECTION(R) Premium Service Retirement Plan will be submitted in
April of 1998 to the Internal Revenue Service as a minor modifier to Fidelity
Basic Plan Document No. 14. The document is considered an individually-designed
plan until it is approved by the Internal Revenue Service. Revisions to the
Basic Plan Document and/or Adoption Agreement may be required by the Internal
Revenue Service as part of the approval process. If revisions are required, the
approved document will be distributed to adopting employers and must be re-
executed by them within a specified time period.
<PAGE>
ADOPTION AGREEMENT
ARTICLE I
NON-STANDARDIZED PROFIT SHARING PLAN
1.01 PLAN INFORMATION
----------------
(a) Name of Plan:
This is the Rose Hills Company 401(k) Savings Plan (the "Plan")
(b) Type of Plan:
(1) [X] 401(k) Only
(2) [_] 401(k) and Profit Sharing
(3) [_] Profit Sharing Only
(c) Administrator Name (if not the Employer):
________________________________________________________________
Address:_______________________________________________
_______________________________________________
Telephone Number: _______________________________________________
The Administrator is the agent for service of legal process for the
Plan.
(d) Plan Year End (month/day): 12/31
(e) Three Digit Plan Number: 002
(f) Limitation Year (check one):
(1) [_] Calendar Year
(2) [X] Plan Year
(3) [_] Other: ___________________________________________________
(g) Plan Status (check appropriate box(es)):
(1) [_] New Plan Effective Date: ____________________
(2) [X] Amendment Effective Date: 12/1/1999
<PAGE>
This is (check one):
(A) [_] an amendment of the ADVISOR RETIREMENT CONNECTION(R)
Premium Service Retirement Plan Basic Plan Document No.
16 Adoption Agreement previously executed by the
Employer; or
(B) [X] a conversion to the ADVISOR RETIREMENT CONNECTION(R)
Premium Service Retirement Plan Basic Plan Document No.
16.
The original effective date of the Plan: 10/1/1987
The substantive provisions of the Plan shall apply prior to
the Effective Date to the extent required by the Internal
Revenue Code, as specifically provided in the Basic Plan
Document.
(3) [_] Plan Merger Effective Dates. Please complete the Special
Effective Dates Addendum to the Adoption Agreement
indicating the plan(s) that have merged into the Plan and
the effective date(s) of such merger(s).
1.02 EMPLOYER
--------
(a) Employer Name: The Rose Hills Company
Address: 3888 South Workman Mill Road
Whittier, CA 90608
Contact's Name: Richard Mastanich
Telephone Number: (562) 692-1212
(1) Employer's Tax Identification Number: 13-3915765
(2) Employer's fiscal year end: 12/31
(3) Date business commenced: 9/1/1914
(b) The term "Employer" includes the following Related Employer(s) (as
defined in Subsection 2.01(ss)) (list each participating Related
Employer and its Employer Tax Identification Number):
<PAGE>
1.03 TRUSTEE
-------
(a) Trustee Name: Fidelity Management Trust Company
Address: 82 Devonshire Street
Boston, MA 02109
1.04 COVERAGE
--------
All Employees who meet the conditions specified below shall be eligible to
participate in the Plan:
(a) Age Requirement (check one):
(1) [_] no age requirement.
(2) [X] must have attained age: 20.5 (not to exceed 21).
----
(b) Eligibility Service Requirement (check one):
(1) [_] no Eligibility Service requirement.
(2) [X] 6 (not to exceed 11) months of Eligibility Service
-
requirement (no minimum number Hours of Service can be
required).
(3) [_] one year of Eligibility Service requirement (at least 1,000
Hours of Service are required during the Eligibility
Computation Period).
(c) Eligible Class of Employees (check one):
Note: The Plan may not cover employees who are citizens of Puerto
Rico. These employees are automatically excluded from the eligible
class, regardless of the Employer's selection under this Subsection
1.04(c).
(1) [_] includes all Employees of the Employer.
(2) [X] includes all Employees of the Employer except for (check the
appropriate box(es)):
(A) [X] employees covered by a collective bargaining agreement.
(B) [_] Highly Compensated Employees as defined in Code Section
414(q).
<PAGE>
(C) [_] Leased Employees as defined in Subsection 2.01(dd).
(D) [_] nonresident aliens who do not receive any earned income
from the Employer which constitutes United States
source income.
(E) [_] other: _____________________________________________
_____________________________________________
_____________________________________________
Note: No exclusion in this Subsection 1.04(c) may create a
discriminatory class of employees. An Employer's Plan must
still pass the Internal Revenue Code coverage requirements
if one or more of the above groups of Employees have been
excluded from the Plan.
(d) The Entry Dates shall be (check one):
(1) [_] immediate upon meeting the eligibility requirements
specified in Subsections 1.04(a), (b), and (c).
(2) [X] the first day of each Plan Year and the first day of the
seventh month of each Plan Year.
(3) [_] the first day of each Plan Year and the first day of the
fourth, seventh, and tenth months of each Plan Year.
(4) [_] the first day of each month.
(5) [_] the first day of each Plan Year (do not select if there is
an Eligibility Service requirement of more than six months
in Subsection 1.04(b) or if there is an age requirement of
more than 20 1/2 in Subsection 1.04(a)).
(e) Date of Initial Participation - An Employee shall become a Participant
unless excluded by Subsection 1.04(c) above on the Entry Date
immediately following the date the Employee completes the service and
age requirement(s) in Subsections 1.04(a) and (b), if any, except
(check one):
(1) [_] no exceptions.
(2) [_] Employees employed on the Effective Date in Subsection
1.01(g) shall become Participants on that date.
(3) [X] Employees who meet the age and service requirement(s) of
Subsections 1.04(a) and (b) on the Effective Date in
Subsection 1.01(g) shall become Participants on that date.
1.05 COMPENSATION
------------
<PAGE>
Compensation for purposes of determining contributions shall be as defined
in Subsection 2.01(j), modified as provided below.
(a) Compensation Exclusions: Compensation shall exclude the item(s)
listed below for purposes of determining contributions. (Check the
appropriate box(es)):
(1) [X] No exclusions.
(2) [_] Overtime Pay.
(3) [_] Bonuses.
(4) [_] Commissions.
(5) [_] The value of a qualified or a non-qualified stock option
granted to an Employee by the Employer to the extent such
value is includable in the Employee's taxable income.
(6) [_] Severance Pay.
Note: If the Employer selects Option (2), (3), (4), (5), or (6)
with respect to Nonelective Employer Contributions, Compensation
must be tested to show that it meets the requirements of Code
Section 414(s) or 401(a)(4). These exclusions shall not apply
for purposes of the "Top Heavy" requirements in Section 15.03 for
allocating safe harbor Matching Employer Contributions in
Subsection 1.10(a)(3) is selected, for allocating safe harbor
Nonelective Employer Contributions if Subsection 1.11(a)(2) is
selected, or for allocating non-safe harbor Nonelective Employer
Contributions if the integrated Formula is elected in Subsection
1.11(b)(2).
(b) Compensation for the First Year of Participation - Contributions for
the Plan Year in which an Employee first becomes a Participant shall
be determined based on the Employee's Compensation (check one):
(1) [_] for the entire Plan Year.
(2) [X] for the portion of the Plan Year in which the Employee is
eligible to participate in the Plan.
Note: If the initial Plan Year of a new Plan consists of fewer than
12 months from the Effective Date in Subsection 1.01(g)(1) through the
end of the initial Plan Year, Compensation for purposes of determining
the amount of contributions, other than non-safe harbor Nonelective
Employer Contributions, under the Plan shall be the period from such
Effective Date through the end of the initial year. However, for
purposes of determining the amount of non-safe harbor Nonelective
Employer Contributions and for other Plan purposes, where appropriate,
the full 12-consecutive-month period ending on the last day of the
initial Plan Year shall be used.
<PAGE>
1.06 TESTING RULES
-------------
(a) ADP/ACP Present Testing Method - The testing method for purposes of
applying the "ADP" and "ACP" tests described in Sections 6.03 and 6.06
of the Plan shall be the (check one):
(1) [X] Current Year Testing Method - The ADP or ACP of Highly
Compensated Employees for the Plan Year shall be compared to
the ADP or ACP of Non-Highly Compensated Employees for the
same Plan Year.
(2) [_] Prior Year Testing Method - The ADP or ACP of Highly
Compensated Employees for the Plan Year shall be compared to
the ADP or ACP of Non-Highly Compensated Employees for the
immediately preceding Plan Year.
(3) [_] Not applicable. (Only if Option 1.01(b)(3), Profit Sharing
Only, is checked.)
(b) [X] ADP/ACP Testing Methods Used in Prior Years - For Plan Years
prior to the effective date of this amendment, the "ADP" and
"ACP" tests were applied using the testing methods shown in the
ADP/ACP Testing Methods History Addendum to the Adoption
Agreement. (Choose if there has been a change in the testing
method used under the Plan.)
(c) [_] Initial Year Testing Method - For the initial Plan Year of a new
Plan, other than a successor plan, the ADP and ACP tests shall be
applied (check one):
(1) [_] assuming a 3% ADP and ACP for Non-Highly Compensated
Employees.
(2) [_] using the actual ADP and ACP of Non-Highly Compensated
Employees for the initial Plan Year.
(d) HCE Determinations: Look Back Year - The look back year for purposes
of determining which Employees are Highly Compensated Employees shall
be the 12-consecutive-month period preceding the Plan Year, unless the
Employer elects Option (1) below.
(1) [_] Calendar Year Determination - The look back year shall be
the calendar year beginning within the preceding Plan Year.
(Do not elect if the Plan Year is the calendar year.)
(2) [X] Prior Plan Years - For Plan Years prior to the effective
date of this amendment, the Plan was operated in accordance
with the look back year elections shown in the Special
Effective Dates Addendum to the Adoption Agreement.
<PAGE>
(e) [X] HCE Determinations: Top Paid Group - Employees with Compensation
exceeding $80,000 (as indexed) shall be considered Highly
Compensated Employees only if they are in the top paid group (the
top 20% of Employees ranked by Compensation).
(1) [X] Prior Plan Years - For Plan Years prior to the effective
date of this amendment, the Plan was operated in accordance
with the top paid group elections shown in the Special
Effective Dates Addendum to the Adoption Agreement.
Note: Effective for determination years beginning on or after January
1, 1998, if the Employer elects Option 1.06(d)(1) and/or 1.06(e), such
election must apply consistently to all retirement plans of the
Employer for determination years that begin with or within the same
calendar year (except that Option 1.06(d)(1), Calendar Year
Determination, shall not apply to calendar year plans). Effective for
determination years beginning on or after January 1, 2000, any such
election must apply consistently to all plans of the Employer,
including non-retirement plans.
1.07 DEFERRAL CONTRIBUTIONS
----------------------
(a) [X] Deferral Contributions - Participants may elect to have a portion
of their Compensation contributed to the Plan on a before-tax
basis pursuant to Code Section 401(k).
(1) Regular Contributions - The Employer shall make a Deferral
Contribution in accordance with Section 5.03 on behalf of each
Participant who has an executed salary reduction agreement in
effect with the Employer for the payroll period in question, not
to exceed 15.00 % (not to exceed 25%) of Compensation for
----------
that period.
Note: The percentage elected above must be less than 25% in
order to satisfy the limitation on annual additions under Code
Section 415 if other types of contributions are provided under
the Plan.
(A) [X] Instead of specifying a percentage of Compensation, a
Participant's salary reduction agreement may specify a
dollar amount to be contributed each payroll period,
provided such dollar amount does not exceed the maximum
percentage of Compensation specified in Subsection
1.07(a)(1) above.
<PAGE>
(B) A Participant may increase or decrease, on a prospective
basis, his salary reduction agreement percentage (check
one):
(i) [_] as of the beginning of each payroll period.
(ii) [_] as of the first day of each month.
(iii) [_] as of the next Entry Date. (Do not select if
Option 1.04(d)(1), immediate entry, is checked.)
(iv) [X] other. (Specify, but must be at least once per
Plan Year)
First Day of Each Quarter
--------------------------
(C) A Participant may revoke, on a prospective basis, a salary
reduction agreement at any time upon proper notice to the
Administrator but in such case may not file a new salary
reduction agreement until (check one):
(i) [_] the first day of the next Plan Year.
(ii) [_] any subsequent Entry Date. (Do not select if
Option 1.04(d)(1), immediate entry, is checked.)
(iii) [X] other. (Specify, but must be at least once per
Plan Year)
First Day of Next Quarter Following 6 Months
---------------------------------------------
(2) [_] Catch-Up Contributions - The Employer may allow Participants
upon proper notice and approval to enter into a special
salary reduction agreement to make additional Deferral
Contributions in an amount up to 100% of their Compensation
for the payroll period(s) designated by the Employer.
(3) [_] Bonus Contributions - The Employer may allow Participants
upon proper notice and approval to enter into a special
salary reduction agreement to make Deferral Contributions in
an amount up to 100% of any Employer paid cash bonuses
designated by the Employer on a uniform and non-
discriminatory basis that are made for such Participants
during the Plan Year. The Compensation definition elected by
the Employer in Subsection 1.05(a) must include bonuses if
bonus contributions are permitted.
Note: A Participant's contributions under Subsection 1.07(a)(2)
and/or (3) may not cause the Participant to exceed the
percentage limit specified by the Employer in Subsection
1.07(a)(1) for the full Plan Year. The Employer has the
right to restrict a Participant's right to make Deferral
Contributions if they will adversely affect the Plan's
ability to pass the "ADP" and/or the "ACP" test
<PAGE>
(4) [_] Negative Election Contributions - Unless an Eligible
Employee affirmatively elects otherwise, his Compensation
will be reduced by _____ % (not to exceed 3%) for each
payroll period in which he is an Active Participant and the
Employer shall make a Deferral Contribution in such amount
on the Participant's behalf in accordance with the
provisions of Section 5.03. At the time he becomes an
Active Participant, or within a reasonable period ending no
later than the date Compensation subject to the reduction
becomes available to the Participant, an Eligible Employee
may elect either (A) not to have Deferral Contributions made
on his behalf or (B) to have Deferral Contributions made in
a different percentage of Compensation or dollar amount as
provided in Subsection 1.07(a)(1). If an Eligible Employee
makes no affirmative election hereunder at the time he
becomes an Active Participant, Deferral Contributions shall
continue to be made on his behalf in accordance with the
provisions of this Subsection 1.07(a)(4) until the
Participant elects to change or revoke such Deferral
Contributions as provided in Subsection 1.07(a)(1)(B) or
(C).
Note: An Employer that elects the negative election provisions
under Subsection 1.07(a)(4) must satisfy the notice requirements
described in Section 5.03.
1.08 EMPLOYEE CONTRIBUTIONS
----------------------
(a) [_] Employee Contributions - Participants either currently are or
previously were permitted to contribute amounts to the Plan on an
after-tax basis. (check one):
(1) [_] Future Employee Contributions - Participants may make
voluntary, non-deductible, after-tax Employee Contributions
pursuant to Section 5.08 of the Plan. A Participant's
Employee Contributions for the Plan Year may not exceed 10%
of his Compensation for the Plan Year. (Only if Option
1.07(a), Deferral Contributions, is checked.)
(2) [_] Frozen Employee Contributions - Participants may not
currently make after-tax Employee Contributions to the Plan,
but the Employer does maintain frozen Employee Contributions
Accounts.
1.09 QUALIFIED NONELECTIVE CONTRIBUTIONS
-----------------------------------
(a) Qualified Nonelective Employer Contributions - If Option 1.07(a),
Deferral Contributions, is checked, the Employer may contribute an
amount which it designates as a Qualified Nonelective Employer
Contribution to be included in the "ADP" or "ACP" test. Qualified
<PAGE>
Nonelective Employer Contributions shall be allocated to Participants
who were eligible to participate in the Plan at any time during the
Plan Year and are Non-Highly Compensated Employees (check one):
(1) [X] either (A) in the ratio which each Participant's "testing
compensation", as defined in Subsection 6.01(t), for the
Plan Year bears to the total of all Participants' "testing
compensation" for the Plan Year or (B) as a flat dollar
amount.
(2) [_] as a percentage of the lowest paid Participant's "testing
compensation", as defined in Subsection 6.01(t), for the
Plan Year up to the lower of (A) the maximum amount
contributable under the Plan or (B) the amount necessary to
satisfy the "ADP" or "ACP" test. If any Qualified
Nonelective Employer Contribution remains, allocation shall
continue in the same manner to the next lowest paid
Participants until the Qualified Nonelective Employer
Contribution is exhausted.
(3) [_] not applicable. (Only if Option 1.01(b)(3), Profit Sharing
Only is checked.)
1.10 MATCHING EMPLOYER CONTRIBUTIONS (Only if Option 1.07(a), Deferral
-------------------------------
Contributions is checked)
(a) [X] Basic Matching Employer Contributions (check one):
(1) [_] Non-Discretionary Matching Employer Contributions - The
Employer shall make a basic Matching Employer Contribution
on behalf of each Participant in an amount equal to the
following percentage of a Participant's Deferral
Contributions during the Contribution Period (check (A) or
(B) and, if applicable, (C)):
Note: Effective for Plan Years beginning on or after January 1,
-----
1999, if the Employer elected Option 1.11(a)(2), Safe Harbor
Formula, with respect to Nonelective Employer Contributions and
meets the requirements for deemed satisfaction of the "ADP" test
for a Plan Year, the Plan will also be deemed to satisfy the
"ACP" test with respect to Matching Employer Contributions if
Matching Employer Contributions hereunder meet all of the
following requirements: (1) the percentage of Deferral
Contributions matched does not increase as the percentage of
Compensation contributed increases; (2) Highly Compensated
Employees are not provided a greater percentage match than Non-
Highly Compensated Employees; and (3) Deferral Contributions
matched do not exceed 6% of a Participant's Compensation for the
Plan Year.
(A) [_] Single Percentage Match: ___________%
<PAGE>
(B) [_] Tiered Match: ____________% of the first ___________%
of the Active Participant's Compensation contributed to
the Plan,
___________% of the next __________% of the
Active Participant's Compensation contributed to the
Plan,
__________% of the next __________% of the Active
Participant's Compensation contributed to the Plan.
Note: The percentages specified above for basic
Matching Employer Contributions may not increase as the
percentage of Compensation contributed increases.
(C) [_] Limit on Non-Discretionary Matching Employer
Contributions (check the appropriate box(es)):
(i) [_] Deferral Contributions in excess of __________%
of the Participant's Compensation for the period
in question shall not be considered for non-
discretionary Matching Employer Contributions.
Note: If the Employer elected a percentage limit in (A)
above and requested the Trustee to account separately for
matched and unmatched Deferral Contributions, the non-
discretionary Matching Employer Contributions allocated to
each Participant must be computed, and the percentage limit
applied, based upon each payroll period.
(ii) [_] Matching Employer Contributions for each
Participant for each Participant for each Plan
Year shall be limited to $____________________.
(2) [X] Discretionary Matching Employer Contributions - The Employer
may make a basic Matching Employer Contribution on behalf of
each Participant in an amount equal to the percentage
declared for the Contribution Period, if any, by a Board of
Directors' Resolution (or by a Letter of Intent for a Sole
Proprietor or Partnership) of the Deferral Contributions
made by each Participant during the Contribution Period.
The Board of Directors' Resolution (or Letter of Intent, if
applicable) may limit the contributions matched to a
specified percentage of Compensation or limit the amount of
the match to a specified dollar amount.
(3) [_] Safe Harbor Matching Employer Contributions - Effective only
for Plan Years beginning on or after January 1, 1999, if the
Employer elects one of
<PAGE>
the safe harbor formula Options provided in the Safe Harbor
Matching Employer Contribution Addendum to the Adoption
Agreement and, prior to the beginning of each Plan Year,
provides written notice to all Active Participants of the
Active Participants' rights and obligations under the Plan,
the Plan shall be deemed to satisfy the "ADP" test and, in
certain circumstances, the "ACP" test.
(b) [_] Additional Matching Employer Contributions - The Employer may at
Plan Year end make an additional Matching Employer Contribution
equal to a percentage declared by the Employer, through a Board
of Directors' Resolution (or by a Letter of Intent for a Sole
Proprietor or Partnership), of the Deferral Contributions made by
each Participant during the Plan Year. (Only if Option
1.10(a)(1) or (3) is checked). The Board of Directors'
Resolution (or Letter of Intent, if applicable) may limit the
contributions matched to a specified percentage of Compensation
or limit the amount of the match to a specified dollar amount.
Note: If the Employer elected the Safe Harbor Matching Employer
Contribution in Subsection 1.10(a)(3) above and wants to be
deemed to have satisfied the "ADP" test for Plan Years beginning
on or after January 1, 1999, the additional Matching Employer
Contribution may not provide a greater percentage match to Highly
Compensated Employees and the percentage of contribution matched
may not increase as the percentage of Compensation contributed
increases. In addition to the foregoing requirements, if the
Employer elected either the Safe Harbor Matching Employer
Contribution in Subsection 1.10(a)(3) above or the Safe Harbor
Formula for Nonelective Employer Contributions in Subsection
1.11(a)(2) and wants to be deemed to have satisfied the "ACP"
test with respect to Matching Employer Contributions for Plan
Years beginning on or after January 1, 1999, the Deferral
Contributions matched may not exceed 6% of a Participant's
Compensation.
(c) Contribution Period for Matching Employer Contributions - The
Contribution Period for purposes of calculating the amount of basic
Matching Employer Contributions described in Subsection 1.10(a)(1) or
(2) is:
(1) [_] each calendar month.
(2) [_] each Plan Year quarter.
(3) [_] each Plan Year.
(4) [X] each payroll period.
The Contribution Period for safe harbor Matching Employer
Contributions described in Subsection 1.10(a)(3) and additional
Matching Employer Contributions described in Subsection 1.10(b) is the
Plan Year.
<PAGE>
(d) Continuing Eligibility Requirement(s) - A Participant who makes
Deferral Contributions during a Contribution Period shall only be
entitled to receive Matching Employer Contributions under Section 1.10
for that Contribution Period if the Participant satisfies the
following requirement(s) (Check the appropriate box(es). Options (3)
and (4) may not be elected together; Option (5) may not be elected
with Option (2), (3), or (4); Options (2), (3), (4), and (5) may not
be elected with respect to basic Matching Employer Contributions if
Option 1.10(a)(3), Safe Harbor Matching Employer Contributions, is
checked):
(1) [X] No requirements.
(2) [_] Is employed by the Employer or a Related Employer on the
last day of the Contribution Period.
(3) [_] Earns at least 501 Hours of Service during the Plan Year.
(Only if the Contribution Period is the Plan Year.)
(4) [_] Earns at least 1,000 Hours of Service during the Plan Year.
(Only if the Contribution Period is the Plan Year.)
(5) [_] Either earns at least 501 Hours of Service during the Plan
Year or is employed by the Employer or a Related Employer on
the last day of the Plan Year. (Only if the Contribution
Period is the Plan Year.)
(6) [_] Special continuing eligibility requirement(s) for additional
Matching Employer Contributions. (Only if Options
1.10(a)(3), Safe Harbor Matching Employer Contributions, and
(b), Additional Matching Employer Contributions are checked.
(A) The continuing eligibility requirement(s) for additional
Matching Employer Contributions is/are: _____ (fill in
number of applicable eligibility requirement(s) from above)
Note: If Option (2), (3), (4), or (5) above is selected, then
Matching Employer Contributions can only be funded by the Employer
after the Contribution Period or Plan Year ends. Matching Employer
Contributions funded during the Contribution Period or Plan Year shall
not be subject to the eligibility requirements of Option (2), (3),
(4), or (5). If Option (2), (3), (4), or (5) is adopted during a
Contribution Period or Plan Year, as applicable, such Option shall not
become effective until the first day of the next Contribution Period
or Plan Year.
(e) [_] Qualified Matching Employer Contributions - The Employer may
designate all or a portion of its Matching Employer Contribution
as a Qualified Matching Employer Contribution that may be used to
satisfy the "ADP" test on Deferral Contributions. Qualified
Matching Employer Contributions shall be allocated to
Participants who meet the continuing eligibility requirement(s)
for basic Matching Employer Contributions described in
Subsection 1.10(d) above and who (check one):
<PAGE>
(1) [_] are Non-Highly Compensated Employees for the Plan Year.
(2) [_] are either Non-Highly Compensated or Highly Compensated
Employees for the Plan Year.
1.11 NONELECTIVE EMPLOYER CONTRIBUTIONS
----------------------------------
Note: An Employer who has elected the safe harbor formula in Subsection
1.11(a)(2) may elect both a fixed formula and a discretionary formula. If
both are selected, the discretionary formula shall be treated as an
additional Nonelective Employer Contribution and allocated separately in
accordance with the allocation formula selected by the Employer.
(a) [_] Fixed Formula (check one):
(1) [_] Fixed Percentage Employer Contribution - For each Plan Year,
the Employer shall contribute for each eligible Active
Participant an amount equal to __________% (not to exceed 15%)
of such Active Participant's Compensation.
(2) [_] Safe Harbor Formula - Effective only with respect to Plan
Years that begin on or after January 1, 1999, the Nonelective
Employer Contribution is intended to satisfy the safe harbor
contribution requirements under the Code such that the "ADP"
test is deemed satisfied. Please complete the Safe Harbor
Nonelective Employer Contribution Addendum to the Adoption
Agreement.
(b) [_] Discretionary Formula - The Employer may decide each Plan Year
whether to make a discretionary Nonelective Employer Contribution
on behalf of eligible Active Participants in accordance with
Section 5.10. Such contributions shall be allocated to eligible
Active Participants based upon the following (check (1) or (2)):
(1) [_] Non-Integrated Allocation Formula - In the ratio that each
eligible Active Participant's Compensation bears to the
total Compensation paid to all eligible Active Participants
for the Plan Year.
(2) [_] Integrated Allocation Formula - As (A) a percentage of each
eligible Active Participant's Compensation plus (B) a
percentage of each eligible Active Participant's
Compensation in excess of the "integration level" as defined
below. The percentage of Compensation in excess of the
"integration level" shall be equal to the lesser of the
percentage of the Active Participant's Compensation
allocated under (A) above or the "permitted disparity limit"
as defined below.
<PAGE>
Note: An Employer that has elected the Safe Harbor formula in
Subsection 1.11(a)(2) above may not take Nonelective Employer
Contributions made to satisfy the safe harbor into account in
applying the integrated allocation formula described above.
"Integration level" means the Social Security taxable wage base
for the Plan Year, unless the Employer elects a lesser amount in
(A) or (B) below.
(A) __________ % (not to exceed 100%) of the Social Security
taxable wage base for the Plan Year, or
(B) $ __________ (not to exceed the Social Security taxable wage
base).
"Permitted disparity limit" means the percentage provided by the
following table:
<TABLE>
<CAPTION>
If the "Integration Level" But Less Than The "Permitted
is at least ___% of the ___% of the Disparity
Taxable Wage Base Taxable Wage Base Limit" is
------------------------- -------------------- ----------------
<S> <C> <C>
0% 20% 5.7%
20% 80% 4.3%
80% 100% 5.4%
100% N/A 5.7%
</TABLE>
Note: An Employer who maintains any other plan that provides for
Social Security Integration (permitted disparity) may not elect
Option 1.11(b)(2).
(c) Continuing Eligibility Requirement(s) - A Participant shall only be
entitled to receive Nonelective Employer Contributions for a Plan Year
under this Section 1.11 if the Participant satisfies the following
requirement(s) (Check the appropriate box(es) - Options (3) and (4)
may not be elected together; Option (5) may not be elected with Option
(2), (3), or (4); Options (2), (3), (4), and (5) may not be elected
with respect to Nonelective Employer Contributions under the fixed
formula if Option 1.11(a)(2), Safe Harbor formula, is checked):
(1) [_] No requirements.
(2) [_] Is employed by the Employer or a Related Employer on the
last day of the Plan Year.
(3) [_] Earns at least 501 Hours of Service during the Plan Year.
<PAGE>
(4) [_] Earns at least 1,000 Hours of Service during the Plan Year.
(5) [_] Either earns at least 501 Hours of Service during the Plan
Year or is employed by the Employer or a Related Employer
on the last day of the Plan Year.
(6) [_] Special continuing eligibility requirement(s) for
discretionary Nonelective Employer Contributions. (Only if
Options 1. 11(a)(2), Safe Harbor Formula, and 1.11(b),
Discretionary Formula, are checked.)
(A) The continuing eligibility requirement(s) for additional
discretionary Nonelective Employer Contributions is/are
____________: (fill in number of applicable eligibility
requirement(s) from above.)
Note: If Option (2), (3), (4), or (5) above is selected then
Nonelective Employer Contributions can only be funded by the Employer
after the Plan Year ends. Nonelective Employer Contributions funded
during the Plan Year shall not be subject to the eligibility
requirements of Option (2), (3), (4), or (5). If Option (2), (3),
(4), or (5) is adopted during a Plan Year, such Option shall not
become effective until the first day of the next Plan Year.
1.12 EXCEPTIONS TO CONTINUING ELIGIBILITY REQUIREMENTS
-------------------------------------------------
[_] Death, Disability, and Retirement Exception to Eligibility
Requirements- Active Participants who do not meet any last day or
Hours of Service requirement under Subsection 1.10(d) or 1.11(c)
because they become disabled, as defined in Section 1.14, retire, as
provided in Subsection 1.13(a), (b), or (c), or die shall nevertheless
receive an allocation of Nonelective Employer and/or Matching Employer
Contributions. No Compensation shall be imputed to Active
Participants who become disabled for the period following their
disability.
1.13 RETIREMENT
----------
(a) The Normal Retirement Age under the Plan is (check one);
(1) [_] age 65.
(2) [_] age ___________ (specify between 55 and 64).
(3) [X] later of age 65 (not to exceed 65) or the fifth anniversary
--
of the Participant's Employment Commencement Date.
(b) [_] The Early Retirement Age is the first day of the month after the
Participant attains age _____ (specify 55 or greater) and
completes _______years of Vesting Service.
<PAGE>
Note: If this Option is elected, Participants who are employed by the
Employer or a Related Employer on the date they reach Early Retirement
Age shall be 100% vested in their Accounts under the Plan.
(c) [X] A Participant who becomes disabled, as defined in Section 1.14,
is eligible for disability retirement.
Note: If this Option is elected, Participants who are employed by the
Employer or a Related Employer on the date they become disabled shall
be 100% vested in their Accounts under the Plan.
1.14 DEFINITION OF DISABLED
----------------------
A Participant is disabled if he/she (check the appropriate box(es)):
(a) [X] satisfies the requirements for benefits under the Employer's
Long-Term Disability Plan.
(b) [_] satisfies the requirements for Social Security disability
benefits.
(c) [X] is determined to be disabled by a physician approved by the
Employer.
1.15 VESTING
-------
A Participant's vested interest in Matching Employer Contributions and/or
Nonelective Employer Contributions, other than Safe Harbor Matching
Employer and/or Nonelective Employer Contributions elected in Subsection
1.10(a)(3) or 1.11(a)(2), shall be based upon his years of Vesting Service
and the schedule(s) selected below, except as provided in Subsection
1.20(d) or in the Grandfathered Vesting Schedule Addendum to the Adoption
Agreement.
(a) [_] Years of Vesting Service shall exclude:
(1) [_] for new plans, service prior to the Effective Date as
defined in Subsection 1.01(g)(1).
(2) [_] for existing plans converting from another plan document,
service prior to the original Effective Date as defined in
Subsection 1.01(g)(2).
(b) Vesting Schedule(s)
(1) Nonelective Employer Contributions (2) Matching Employer
(check one): Contributions
(check one):
<PAGE>
<TABLE>
<S> <C>
(A) [x] N/A - No Nonelective (A) [_] N/A - No Matching
Employer Contributions Employer Contributions
(B) [_] 100% Vesting immediately (B) [x] 100% Vesting immediately
(C) [_] 3 year cliff (see C below) (C) [_] 3 year cliff (see C below)
(D) [_] 5 year cliff (see D below) (D) [_] 5 year cliff (see D below)
(E) [_] 6 year graduated (see E below) (E) [_] 6 year graduated (see E below)
(F) [_] 7 year graduated (see F below) (F) [_] 7 year graduated (see F below)
(G) [_] Other vesting (complete G1 below) (G) [_] Other vesting (complete G2 below)
</TABLE>
<TABLE>
<CAPTION>
Applicable Vesting Schedule(s)
Years of ------------------------------
Vesting Service C D E F G1 G2
- ------------------ ---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
0 0% 0% 0% 0% __% __%
1 0% 0% 0% 0% __% __%
2 0% 0% 20% 0% __% __%
3 100% 0% 40% 20% __% __%
4 100% 0% 60% 40% __% __%
5 100% 100% 80% 60% __% __%
6 100% 100% 100% 80% __% __%
7 or more 100% 100% 100% 100% 100% 100%
</TABLE>
Note: A schedule elected under G1 or G2 above must be at least as
favorable as one of the schedules in C, D, E or F above.
Note: If the Plan is being amended to provide a more restrictive
vesting schedule, the more favorable vesting schedule shall continue
to apply to Participants who are Active Participants immediately prior
to the later of (1) the effective date of the amendment or (2) the
date the amendment is adopted. Grandfathered vesting schedules are
reflected in the Grandfathered Vesting Schedule Addendum to the
Adoption Agreement.
(c) [_] A vesting Schedule different from the vesting schedule selected above
applies to certain persons employed prior to the effective date of
this
<PAGE>
amendment. Please complete the Grandfathered Vesting Schedule
Addendum to the Adoption Agreement.
1.16 PREDECESSOR EMPLOYER SERVICE
----------------------------
[_] Service for purposes of eligibility in Subsection 1.04(b) and vesting
in Subsection 1.15(b) of this Plan shall include service with the
following predecessor employer(s):
(a)
(b)
(c)
(d)
1.17 PARTICIPANT LOANS
-----------------
Participant loans (check one):
(a) [X] are allowed in accordance with Article 9 and loan procedures
outlined in the Service Agreement.
(b) [_] are not allowed.
---
1.18 IN-SERVICE WITHDRAWALS
----------------------
Participants may make withdrawals prior to termination of employment under
the following circumstances (check the appropriate box(es)):
(a) [X] Hardship Withdrawals - Hardship withdrawals from a Participant's
Deferral Contributions Account shall be allowed in accordance with
Section 10.05, subject to a $500 minimum amount.
(b) [_] Age 59 1/2 - Participants shall be entitled to receive a
distribution of all or any portion of the following Accounts upon
attainment of age 59 1/2 (check one):
(1) [_] Deferral Contributions Account
(2) [_] All Accounts
(c) Withdrawal of Employee Contributions and Rollover Contributions - The
Plan provides for in-service withdrawals of Rollover Contributions at
any time. Employee Contributions
<PAGE>
may be withdrawn in accordance with Section 10.02 subject to the
following (check if applicable):
(1) [_] Employees may not make such withdrawals more frequently
than:
___________________________________________________________.
Note: If Option 1.18(c)(1) is not selected, withdrawals of Employee
Contributions shall be permitted at any time.
(d) [_] Protected In-Service Withdrawal Provisions - Check if the Plan
was converted by plan amendment or received transfer
contributions from another defined contribution plan, and
benefits under the other defined contribution plan were payable
as (check the appropriate box(es)):
(1) [_] an in-service withdrawal of vested employer contributions
maintained in a Participant's Account (check (A) and/or
(B)):
(A) [_] for at least ____________(24 or more) months.
(B) [_] after the Participant has at least 60 months of
participation.
(2) [_] another in-service withdrawal option that is a "protected
benefit" under Code Section 411(d)(6). Please complete the
Protected In-Service Withdrawals Addendum to the Adoption
Agreement identifying the in-service withdrawal option(s).
1.19 FORM OF DISTRIBUTIONS
---------------------
Subject to Article 14, distributions under the Plan shall be paid as
(check the appropriate box(es) with respect to optional forms):
(a) Lump Sum Payments - Lump sum payments are always available under the
Plan. If a Participant's account balance is less than or equal to the
"cashout limit", distribution shall be made to the Participant as soon
as reasonably practicable following his termination of employment in a
lump sum payment. Unless otherwise specified below, effective the
first day of the first Plan Year beginning on or after August 5, 1997,
the "cashout limit" is $5,000 (increased from $3,500).
(1) [_] A later effective date applies to the increase in the
"cashout limit" to $5,000. Please complete the Special
Effective Date Addendum to the Adoption Agreement indicating
the late effective date.
<PAGE>
(b) [_] Installments Payments - In lieu of a lump sum, Participants may
elect distribution under a systematic withdrawal plan
(installments).
(c) [_] Protected Benefit Forms - Check if the Plan was converted by plan
amendment or received transfer contributions from another defined
contribution plan, and benefits under the other defined
contribution plan were payable in any other form (check the
appropriate box(es)):
(1) [_] The protected benefit forms apply to the Accounts of all
Participants (check the appropriate box(es)):
(A) [_] The prior plan provided a life annuity form of payment.
(i) The normal annuity form for unmarried Participants is a
The normal annuity form for married Participants is a
__________% (must be at least 50%, but no more than
100%) "qualified joint and survivor annuity".
(ii) The normal form of distribution under the Plan is:
(I) [_] A lump sum payment.
(II)[_] A "qualified joint and survivor annuity".
(iii) The qualified preretirement survivor annuity provided
to a Participant's spouse is purchased with __________%
(must be at least 50%) of the Participant's Account.
(B) [_] The prior plan provided other optional annuity forms.
The other optional annuity forms available under the
Plan are:
(C) [_] The prior plan provided other forms of distribution
that are protected benefits. The other forms of
distribution available under the Plan are:
(2) [_] The protected benefit forms apply only to the Accounts of a
specified class of Participants. Please complete the
Protected Benefit Forms Addendum describing each protected
benefit and the class of Participants whose Accounts are
subject to distribution in the protected benefit form.
<PAGE>
1.20 TOP HEAVY STATUS
----------------
(a) The Plan shall be subject to the Top-Heavy Plan requirements of
Article 15 (check one):
(1) [_] for each Plan Year, whether or not the Plan is a "top-heavy
plan" as defined in Subsection 15.01(f).
(2) [X] for each Plan Year, if any, for which the Plan is a "top-
heavy plan" as defined in Subsection 15.01(f).
(3) [_] Not applicable. (Only if Plan covers only employees subject
to a collective bargaining agreement.)
(b) In determining whether the Plan is a "top-heavy plan" for an Employer
with at least one defined benefit plan, the following assumptions
shall apply:
(1) [X] Interest rate: 5.00% per annum.
-----
(2) [X] Mortality table:1984 Unisex Pensioner Mortality Table set
forward 1 year. .
(3) [_] Not applicable. (Only if either (A) Plan covers only
employees subject to a collective bargaining agreement or
(B) Employer does not maintain and has never maintained any
defined benefit plans.)
(c) If the Plan is or is treated as a "top-heavy plan" for a Plan Year,
each non-key Employee shall receive an Employer Contribution of at
least 3 (3, 4, 5, or 7 1/2)% of Compensation for the Plan Year in
-
accordance with Section 15.03. The minimum Employer Contribution
provided in this Subsection 1.20(c) shall be made under this Plan only
if the Participant is not entitled to such contribution under another
qualified plan of the Employer, unless the Employer elects otherwise
in (1) or (2) below:
(1) [X] The minimum Employer Contribution shall be paid under this
Plan in any event.
(2) [_] Not applicable. (Only if Plan covers only employees subject
to a collective bargaining agreement.)
Note: The minimum Employer contribution may be less than the
percentage indicated in Subsection 1.20(c) above to the extent
provided in Section 15.03.
<PAGE>
(d) If the Plan is or is treated as a "top-heavy plan" for a Plan Year,
the following vesting schedule shall apply instead of the schedule(s)
elected in Subsection 1.15(b) for such Plan Year and each Plan Year
thereafter (check one):
(1) [X] Not applicable. (Only if either (A) the schedule(s) elected in
Subsection 1.15(b) is/are more favorable in all cases than the
schedules available below or (B) Plan covers only employees
subject to a collective bargaining agreement.)
(2) [_] 100% vested after ______________ (not in excess of 3) years of
Vesting Service.
(3) [_] Graded vesting:
<TABLE>
<CAPTION>
Years of Vesting Service Vesting Must be
Percentage at Least
------------------------- ---------- --------
<S> <C> <C>
0 __% 0%
1 __% 0%
2 __% 20%
3 __% 40%
4 __% 60%
5 __% 80%
6 __% 100%
</TABLE>
Note: If the schedule(s) elected in Subsection 1.15(b) is/are
more favorable in all cases than the schedule elected in
Subsection 1.20(d) above, then the schedule(s) in Subsection
1.15(b) shall continue to apply even in Plan Years in which the
Plan is a "top-heavy plan".
1.21 CORRECTION TO MEET 415 REQUIREMENTS UNDER MULTIPLE DEFINED CONTRIBUTION
-----------------------------------------------------------------------
PLANS
-----
If the Employer maintains other defined contribution plans, annual
additions to a Participant's Account shall be limited as provided in
Section 6.11 of the Plan to meet the requirements of Code Section 415,
unless the Employer elects otherwise below and completes the 415 Correction
Addendum describing the order in which annual additions shall be limited
among the plans.
(a) [_] Other Order for Limiting Annual Additions
<PAGE>
1.22 INVESTMENT DIRECTION
--------------------
(a) Investment Directions - Participant Accounts shall be invested (check
one):
(1) [_] in accordance with investment directions provided to the
Trustee by the Employer for allocating all Participant
--------
Accounts among the Options listed in the Service Agreement.
(2) [X] in accordance with investment directions provided to the
Trustee by each Participant for allocating his entire
-----------
Account among the Options listed in the Service Agreement.
(3) [_] in accordance with investment directions provided to the
Trustee by each Participant for all contribution sources in
a Participant's Account except the following sources shall
be invested as directed by the Employer (check (A) and/or
(B)):
(A) [_] Nonelective Employer Contributions
(B) [_] Matching Employer Contributions
The Employer must direct the applicable sources among the
same investment options made available for Participant
directed sources listed in the Service Agreement.
(b) [X] 404(c) Election (only if Option 1.22(a)(2) or 1.22(a)(3) is
checked) - The Administrator intends to treat this Plan as being
subject to ERISA Section 404(c).
1.23 RELIANCE ON OPINION LETTER
--------------------------
An adopting Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that this Plan
is qualified under Code Section 401. If the Employer wishes to obtain
reliance that its Plan is qualified, application for a determination
letter should be made to the appropriate Key District Director of the
Internal Revenue Service. Failure to fill out the Adoption Agreement
properly may result in disqualification of the Plan.
This Adoption Agreement may be used only in conjunction with Fidelity
Basic Plan Document No. 16. The Prototype Sponsor shall inform the
adopting Employer of any amendments made to the Plan or of the
discontinuance or abandonment of the prototype plan document.
<PAGE>
1.24 PROTOTYPE INFORMATION:
---------------------
Name of Prototype Sponsor: Fidelity Management & Research Company
Address of Prototype Sponsor: 82 Devonshire
Boston, MA 02109
Questions regarding this prototype document may be directed to the
following telephone number: 1-800-684-5254.
<PAGE>
EXECUTION PAGE
(Prototype Sponsor's Copy)
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be
executed this 29 day of September, 1999.
Employer: /s/ Virginia C. Phillips
By:
Title: Vice President - Human Resources
Employer:
By:
Title:
Accepted by:
Fidelity Management Trust Company, as Trustee
By:/s/ Ingrid M. Bradenberg Date: 10-14-99
------------------------
Title: Ingrid M. Bradenberg
Authorized Signatory
<PAGE>
EXECUTION PAGE
(Employer's Copy)
IN WITNESS WHEREOF, the Employer has caused this Adoption Agreement to be
executed this 29 day of September, 1999.
Employer:/s/ Virginia C. Phillips
By:
Title: Vice President - Human Resources
Employer:
By:
Title:
Accepted by:
Fidelity Management Trust Company, as Trustee
By:/s/ Ingrid M. Bradenberg Date: 10-14-99
----------------------------
Title: Ingrid M. Bradenberg
Authorized Signatory
<PAGE>
ADDENDUM
Re: SPECIAL EFFECTIVE DATES
for
Plan Name: Rose Hills Company 401(k) Savings Plan
(a) [_] Plan Merger Effective Dates - The following plan(s) were merged
into the Plan after the Effective Date indicated in Subsection
1.01(g)(1) or (2), as applicable. The provisions of the Plan are
effective with respect to the merged plan(s) as of the date(s)
indicated below:
(1) Name of merged plan:
Effective date:
(2) Name of merged plan:
Effective date:
(3) Name of merged plan:
Effective date:
(4) Name of merged plan:
<PAGE>
Effective date:
(5) Name of merged plan:
Effective date:
(b) HCE Determinations - HCE determinations for prior Plan Years shall be
made applying the following rules:
(1) [X] HCE Determinations: Look Back Year Elections - Prior to the
effective date of this amendment, the Plan was administered
in accordance with the following look back year election(s):
(A) [X] For the 1997 Plan Year the look back year was (check
one):
(i) [X] the 12-consecutive-month period immediately
preceding the Plan Year.
(ii) [_] the calendar year beginning within the preceding
Plan Year.
(B) [X] For the 1998 Plan Year the look back year was (check
one):
(i) [X] the 12-consecutive-month period immediately
preceding the Plan Year.
(ii) [_] the calendar year beginning within the preceding
Plan Year.
(C) [_] For the 1999 Plan Year the look back year was (check
one):
(i) [_] the 12-consecutive-month period immediately
preceding the Plan Year.
(ii) [_] the calendar year beginning within the preceding
Plan Year.
(D) [_] Look back year elections for other Plan Years:
<PAGE>
(2) [x] HCE Determinations: Top Paid Group Elections - Prior to the
effective date of this amendment, the Plan was administered
in accordance with the following top paid group election(s):
(A) [X] For the 1997 Plan Year (check one):
(i) [_] Highly Compensated Employees included only the top
20% of Employees ranked by Compensation.
(ii) [X] Highly Compensated Employees included all
Employees with Compensation exceeding $80,000 (as
indexed).
(B) [X] For the 1998 Plan Year (check one):
(i) [_] Highly Compensated Employees included only the top
20% of Employees ranked by Compensation.
(ii) [X] Highly Compensated Employees included all
Employees with Compensation exceeding $80,000 (as
indexed).
(C) [_] For the 1999 Plan Year (check one):
(i) [_] Highly Compensated Employees included only the top
20% of Employees ranked by Compensation.
(ii) [_] Highly Compensated Employees included all
Employees with Compensation exceeding $80,000 (as
indexed).
(D) [_] Top-paid group elections for other Plan Years:
(c) [_] Late Effective Date for Increase to $5,000 "Cashout Limit":
Effective date:
<PAGE>
ADDENDUM
Re: ADP/ACP TESTING METHODS HISTORY
for
Plan Name: Rose Hills Company 401(k) Savings Plan
(a) For Plan Years prior to the date of this amendment, the Plan applied
the following testing methods:
(1) [X] Current Year Testing Method - The ADP/ACP tests for the
following Plan Years were applied using the current year
testing method described in Subsection 1.06(a)(1):
1997
1998
(2) [X] Prior Year Testing Method - The ADP/ACP tests for the
following Plan Years were applied using the prior year
testing method described in Subsection 1.06(a)(2):
<PAGE>
ADDENDUM
Re: SAFE HARBOR MATCHING EMPLOYER CONTRIBUTION
for
Plan Name: Rose Hills Company 401(k) Savings Plan
(a) Safe Harbor Matching Contribution Formula
Note: Matching Employer Contributions made under this Option must be
100% vested when made and may only be distributed under the same
circumstances in which Deferral Contributions may be distributed
(i.e., death, disability, separation from service, age 59 1/2,
hardship, and termination of the Plan without the establishment of a
successor plan). In addition, prior to the beginning of each Plan
Year, the Employer must provide written notice to all Active
Participants of the Active Participants' rights and obligations under
the Plan.
(1) [_] 100% of the first 3% of the Active Participant's
Compensation contributed to the Plan and 50% of the next 2%
of the Active Participant's Compensation contributed to the
Plan.
Note: This formula also meets the safe harbor contribution
requirements for deemed satisfaction of the "ACP" test with
respect to Matching Employer Contributions. (Employee
Contributions must still be tested.)
(2) [_] Other Tiered Match: __________% of the first ___________%
of the Active Participant's Compensation contributed to the
Plan,
___________% of the next __________% of the Active
Participant's Compensation contributed to the Plan,
___________% of the next ___________% of the Active
Participant's Compensation contributed to the Plan.
Note: To satisfy the safe harbor contribution requirement for
the "ADP" test, the percentages specified above for Matching
Employer Contributions may not increase as the percentage of
Compensation contributed increases, and the aggregate amount of
Matching Employer Contributions at such rates must at least equal
the aggregate amount of Matching Employer Contributions which
would be made under the percentages described in (a)(1) of this
Addendum.
<PAGE>
(A) [_] The formula specified above is also intended to satisfy
the safe harbor contribution requirement for deemed
satisfaction of the "ACP" test with respect to Matching
Employer Contributions. (Employee Contributions must
still be tested.)
Note: To satisfy the safe harbor contribution requirement
for the "ACP" test, the Deferral Contributions and/or
Employee Contributions matched cannot exceed 6% of a
Participant's Compensation.
<PAGE>
ADDENDUM
Re: SAFE HARBOR NONELECTIVE EMPLOYER CONTRIBUTION
for
Plan Name: Rose Hills Company 401(k) Savings Plan
(a) For each Plan Year, the Employer shall contribute for each eligible
Active Participant an amount equal to ___________% (not less than 3%
nor more than 15%) of such Active Participant's Compensation.
Note: Contributions that are intended to satisfy the safe harbor
contribution requirement must be 100% vested when made and may only be
distributed under the same circumstances in which Deferral
Contributions may be distributed (i.e., death, disability, separation
from service, age 59 1/2, hardship, and termination of the Plan
without the establishment of a successor plan). In addition, prior to
the beginning of each Plan Year, the Employer must provide written
notice to all Active Participants of the Active Participants' rights
and obligations under the Plan.
(1) [_] In conjunction with its election of the safe harbor described
above, the Employer has elected to make Matching Employer
Contributions under Subsection 1.10 that are intended to meet the
requirements for deemed satisfaction of the "ACP" test with respect to
Matching Employer Contributions (i.e., (1) the percentage of Deferral
Contributions matched does not increase as the percentage of
Compensation contributed increases; (2) Highly Compensated Employees
are not provided a greater percentage match than Non-Highly
Compensated Employees; and (3) Deferral Contributions matched do not
exceed 6% of a Participant's Compensation.)
<PAGE>
ADDENDUM
Re: PROTECTED IN-SERVICE WITHDRAWALS
for
Plan Name: Rose Hills Company 401(k) Savings Plan
(a) Other In-Service Withdrawal Provisions - In-service withdrawals from a
Participant's Accounts specified below shall be available to
Participants who satisfy the requirements also specified below:
<PAGE>
ADDENDUM
Re: PROTECTED BENEFIT FORMS
for
Plan Name: Rose Hills Company 401(k) Savings Plan
(a) [_] Prior Plan Provided Life Annuity Form - The normal annuity form
for unmarried Participants is a_______________________________.
The normal annuity form for married Participants is a__________%
(must be at least 50%, but no more than 100%) "qualified joint
and survivor annuity".
(1) Class of Participants whose Accounts are subject to distribution
in the normal annuity form:
_____________________________________________________.
(2) The normal form of distribution under the Plan is:
(A) [_] A lump sum payment.
(B) [_] A "qualified joint and survivor annuity".
(3) The qualified preretirement survivor annuity provided to a
Participant's spouse is purchased with __________% (must be at
least 50%) of the Participant's Account.
<PAGE>
(b) [_] Prior Plan Provided Other Optional Annuity Form(s) - The other
optional annuity forms available under the Plan are:
(1) Class of Participants whose Accounts are subject to distribution
in the optional annuity forms:
(c) [_] Prior Plan Provided Other Protected Form(s) - The other forms of
distribution available under the Plan are:
(1) Class of Participants whose Accounts are subject to distribution
in the other forms:
<PAGE>
ADDENDUM
Re: GRANDFATHERED VESTING SCHEDULES
for
Plan Name: Rose Hills Company 401(k) Savings Plan
(a) Grandfather of More Favorable Vesting Schedule
(1) Prior vesting schedule:
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
(2) Prior vesting schedule applies to Participants initially hired
prior to:
(b) [_] Additional Grandfather of More Favorable Vesting Schedule
(1) Prior vesting schedule:
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
(2) Prior vesting schedule applies to Participants initially hired
prior to:
<PAGE>
(c) [_] Additional Grandfather of More Favorable Vesting Schedule
(1) Prior vesting schedule:
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
(2) Prior vesting schedule applies to Participants initially hired
prior to:
<PAGE>
ADDENDUM
Re: 415 CORRECTION
for
Plan Name: Rose Hills Company 401(k) Savings Plan
---------------------------------------
(a) Other Formula for Limiting Annual Additions to Meet 415 - If the Employer,
or any employer required to be aggregated with the Employer under Code
Section 415, maintains any other qualified defined contribution plans or
any "welfare benefit fund", "individual medical account", or "simplified
medical account", annual additions to such plans shall be limited as
follows to meet the requirements of Code Section 415:
<PAGE>
Exhibit 12
ROSE HILLS COMPANY AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(millions of dollars except for ratios)
<TABLE>
<CAPTION>
Year Year Year
ended ended ended
December December December
31, 1999 31, 1998 31, 1997
-------- -------- --------
<S> <C> <C> <C>
Earnings:
Income:(loss) before income taxes........ 7.3 3.0 (1.7)
Add: fixed charges, net.................. 15.9 16.5 16.5
---- ---- ----
Income (loss) before income taxes and
fixed charges, net................... 23.2 19.5 14.8
Fixed charges: Total interest expense.... 15.9 16.5 16.5
Total fixed charges.................. 15.9 16.5 16.5
---- ---- ----
Ratio of earnings to fixed charges....... 1.46 1.18 .90
---- ---- ----
Coverage deficiency..................... -- -- 1.7
==== ==== ====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF ROSE HILLS COMPANY AND SUBSIDIARIES, FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,150
<SECURITIES> 0
<RECEIVABLES> 11,805
<ALLOWANCES> 0
<INVENTORY> 991
<CURRENT-ASSETS> 23,731
<PP&E> 59,292
<DEPRECIATION> 0
<TOTAL-ASSETS> 317,812
<CURRENT-LIABILITIES> 14,209
<BONDS> 80,000
0
0
<COMMON> 0
<OTHER-SE> 129,554
<TOTAL-LIABILITY-AND-EQUITY> 317,812
<SALES> 88,403
<TOTAL-REVENUES> 88,403
<CGS> 56,734
<TOTAL-COSTS> 56,734
<OTHER-EXPENSES> 11,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,769
<INCOME-PRETAX> 7,341
<INCOME-TAX> 3,644
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,697
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
