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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-24728
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EQUITY CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
75-2521142
(I.R.S. employer identification number)
415 SOUTH FIRST STREET, SUITE 210
LUFKIN, TEXAS
(Address of principal executive offices)
75901
(Zip Code)
(409) 634-1033
(Registrant's telephone number, including area code)
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No
The number of shares of the registrant's common stock outstanding as of
May 14, 1996 was 12,789,507.
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<PAGE>
EQUITY CORPORATION INTERNATIONAL
INDEX
Page
Part I. Financial Information ----
Item 1. Financial Statements
Consolidated Balance Sheet (Unaudited)-
March 31, 1996 and December 31, 1995.....................3
Consolidated Statement of Operations (Unaudited)-
Three Months Ended March 31, 1996 and 1995...............4
Consolidated Statement of Cash Flows (Unaudited)-
Three Months Ended March 31, 1996 and 1995...............5
Consolidated Statement of Stockholders' Equity (Unaudited)-
Three Months Ended March 31, 1996........................6
Notes to the Consolidated Financial Statements (Unaudited)..7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.........................11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K...........................15
Signature...................................................................16
FORWARD-LOOKING-STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-Q are forward-looking
statements. The expectations reflected in the forward-looking statements are
based on the Company's current views with respect to future events as well as
assumptions made by and information currently available to management.
Important factors that could cause actual results to differ materially from
expectations ("Cautionary Statements") are disclosed in this Form 10-Q,
including without limitation in conjunction with the forward-looking
statements included in this Form 10-Q. 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.
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, Dec. 31,
(In thousands, except share data) 1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 4,450 $ 6,233
Receivables, net of allowances..................... 5,655 5,490
Inventories........................................ 5,218 5,060
Receivable due from affiliate...................... 2,085 --
Other.............................................. 904 1,177
--------- ---------
Total current assets............................ 18,312 17,960
Preneed funeral contracts............................. 112,620 102,889
Cemetery properties, at cost.......................... 76,576 75,103
Long-term receivables, net of allowances.............. 32,740 30,767
Property, plant and equipment, at cost (net).......... 39,733 36,417
Deferred charges and other assets..................... 6,882 7,352
Names and reputations (net)........................... 36,291 32,339
--------- ---------
Total assets.................................... $ 323,154 $ 302,827
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........... $ 6,469 $ 5,532
Income taxes payable............................... 1,580 1,108
Deferred income taxes.............................. 1,749 1,692
Current maturities of long-term debt............... 534 535
--------- ---------
Total current liabilities....................... 10,332 8,867
Deferred preneed funeral contract revenues............ 117,633 107,969
Long-term debt........................................ 60,372 54,518
Deferred cemetery costs............................... 17,896 17,580
Deferred income taxes................................. 22,292 21,340
Other liabilities..................................... 705 888
Commitments and contingencies.........................
Stockholders' equity:
Preferred stock.................................... -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 9,899,507 and 9,898,174 shares issued
and outstanding in 1996 and 1995, respectively.. 99 99
Capital in excess of par value..................... 82,111 82,089
Retained earnings.................................. 11,714 9,477
--------- ---------
Total stockholders' equity...................... 93,924 91,665
--------- ---------
Total liabilities and stockholders' equity...... $ 323,154 $ 302,827
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
(In thousands, except per share data) 1996 1995
- - ---------------------------------------------------------------------
<S> <C> <C>
Net revenues:
Funeral.................................. $ 14,831 $ 8,644
Cemetery................................. 8,249 5,750
---------- ----------
23,080 14,394
Cost and expenses:
Funeral.................................. 9,930 6,220
Cemetery................................. 5,764 3,940
---------- ----------
15,694 10,160
---------- ----------
Total gross profit.......................... 7,386 4,234
General and administrative
expenses................................. 1,585 1,213
---------- ----------
Operating income............................ 5,801 3,021
Interest expense............................ 1,092 310
---------- ----------
Income before income taxes.................. 4,709 2,711
Provision for income taxes.................. 2,472 1,071
---------- ----------
Net income.................................. $ 2,237 $ 1,640
========== ==========
Earnings per share.......................... $ 0.22 $ 0.17
========== ==========
Weighted average number
of common and equivalent
shares outstanding.................... 10,056 9,820
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
(In thousands) 1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 2,237 $ 1,640
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization................... 1,084 738
Provision for bad debts and contract
cancellations.................................. 1,023 783
(Gain) loss on sale of assets................... (892) 19
Deferred income taxes........................... 774 117
Changes in assets and liabilities, net of effects
from acquisitions:
Receivables...................................... (2,903) (1,411)
Inventories...................................... 33 (18)
Other current assets............................. 272 210
Other long-term assets........................... (377) (1,876)
Accounts payable and accrued liabilities......... 780 (684)
Income taxes payable............................. 472 595
Preneed funeral contracts and associated
deferred revenues............................... 1 25
-------- --------
Net cash provided by operating activities..... 2,504 138
-------- --------
Cash flows from investing activities:
Capital expenditures............................... (1,978) (1,022)
Proceeds from sale of assets....................... 810 1
Acquisitions, net of cash used..................... (1,027) (168)
Other.............................................. 36 29
-------- --------
Net cash used in investing activities......... (2,159) (1,160)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock......... 22 --
Borrowings on long-term debt....................... 331 1,165
Payments on debt................................... (2,481) (1,161)
-------- --------
Net cash provided by (used in) financing
activities................................... (2,128) 4
-------- --------
Decrease in cash and cash equivalents................. (1,783) (1,018)
Cash and cash equivalents at beginning of period...... 6,233 5,832
-------- --------
Cash and cash equivalents at end of period............ $ 4,450 $ 4,814
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
EQUITY CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Capital in
(In thousands, except ----------------- excess of Retained Stockholders'
number of shares) Shares Amount par value earnings equity
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1995..... 9,898,174 $ 99 $ 82,089 $ 9,477 $ 91,665
Net income.......... -- -- -- 2,237 2,237
Common stock issued:
Option exercises.. 1,333 -- 22 -- 22
--------- ------ -------- -------- --------
Balance,
March 31, 1996........ 9,899,507 $ 99 $ 82,111 $ 11,714 $ 93,924
========= ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
EQUITY CORPORATION INTERNATIONAL
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Equity Corporation International and all majority owned
subsidiaries ("the Company") and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information in
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to these rules and regulations. In the opinion of
management, only adjustments consisting of normal recurring accruals
considered necessary for a fair presentation have been included. Operating
results for the interim periods are not necessarily indicative of the results
that may be expected for the year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1995.
The Company's statutory Federal income tax rate has been increased from 34% to
35% as the Company expects to exceed the taxable income threshold requiring
the higher tax rate during 1996. As a result, the Company has recorded
through the provision for income taxes for the three months ended March 31,
1996 a one-time charge of $565,000 to revalue the deferred tax liability
accounts to appropriately reflect the higher statutory rate.
2. ACQUISITIONS
The following table is a summary of acquisitions made during the three month
periods ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
- - ---------------------------------------------------
<S> <C> <C>
Number acquired:
Funeral homes........ 10 6
Cemeteries........... 1 2
Purchase price..........$ 9,100,000 $ 6,540,000
</TABLE>
The purchase price for these acquisitions consisted of cash and issued debt.
The excess of purchase price over the fair value of assets acquired and
liabilities assumed is included in Names and reputations (net) on the
Consolidated Balance Sheet and will be amortized over a 40-year period. In
connection with these acquisitions, the Company enters into customary
employment, consulting and noncompetition agreements with certain employees
and former owners of the businesses acquired. In certain situations, the
Company will prepay a portion of the noncompetition agreements and amortize
such prepayments on a straight-line basis over the terms of the agreements.
The purchase prices indicated above do not include $170,000 and $510,000 for
noncompetition agreements which were prepaid to individuals related to
businesses acquired in 1996 and 1995, respectively. The acquisitions have been
accounted for as purchases and their operating results have been included
since their respective dates of acquisition.
7
<PAGE>
The effect of acquisitions on the Consolidated Balance Sheet was as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
(In thousands) 1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C>
Current assets........................................ $ 335 $ 882
Preneed funeral contracts............................. 8,201 1,645
Long-term receivables, net of allowances.............. 209 770
Cemetery properties................................... 1,315 2,024
Property, plant and equipment......................... 2,843 1,401
Deferred charges and other assets..................... 194 513
Names and reputations................................. 4,689 4,140
Current liabilities................................... (179) (230)
Deferred preneed funeral contract revenues............ (8,248) (2,026)
Long-term debt........................................ (8,004) (7,635)
Deferred cemetery costs............................... (33) (514)
Deferred income taxes................................. (236) (703)
--------- ---------
Total.............................................. 1,086 267
Less cash acquired................................. 59 99
--------- ---------
Cash used for acquisitions......................... $ 1,027 $ 168
========= =========
</TABLE>
The following represents the unaudited pro forma results of operations for the
three month periods ended March 31, 1996 and 1995, assuming the above noted
acquisitions had occurred as of January 1, 1995:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C>
Net revenues.......................................... $ 23,647 $ 16,022
Income before income taxes............................ 4,665 2,969
Net income............................................ 2,210 1,796
Earnings per common and equivalent share.............. $ 0.22 $ 0.18
</TABLE>
8
<PAGE>
3. PRENEED FUNERAL CONTRACTS AND DEFERRED PRENEED FUNERAL CONTRACT REVENUES
The Company sells preneed funeral contracts through various programs providing
for future funeral services at prices prevailing when the agreement is signed.
These contracts are included in the Consolidated Balance Sheet as Preneed
funeral contracts. Payments on these contracts are generally placed in trust
(pursuant to state law) or are used to pay premiums on life insurance policies
issued by third party insurers. When the services are performed, approximately
$45,023,000 and $38,063,000 will be funded by trusts and approximately
$67,597,000 and $64,826,000 will be funded by insurance policies as of March
31, 1996 and December 31, 1995, respectively. Accumulated earnings from trust
funds and increasing insurance benefits have been included to the extent that
they have accrued through March 31, 1996 and December 31, 1995, respectively.
The cumulative total has been reduced by allowable cash withdrawals for trust
earning distributions and amounts retained by the Company pursuant to various
state laws. At March 31, 1996 and December 31, 1995, the amounts collected and
held in trusts, at cost, which approximates market, were approximately
$38,040,000 and $32,176,000, respectively. The amounts in trusts and all life
insurance policies are generally transferred to the customer upon contract
cancellation.
"Deferred preneed funeral contract revenues" includes the contract amount of
all price guaranteed funeral services and accumulated trust earnings and
increasing insurance benefits earned. The Company defers recognition of trust
earnings and insurance benefits until performance of the funeral service.
Upon performance of the funeral service, the Company will recognize the fixed
contract price and related accumulated trust earnings or increasing insurance
benefits as funeral service revenues.
4. DEBT
In October 1994, the Company entered into an uncollateralized revolving credit
agreement with a group of banks to be used for acquisition financing and
general corporate purposes. The Credit Facility, as amended ("Credit
Facility"), provides for a line of credit up to $100,000,000 and expires in
October 1998. The Credit Facility bears interest, at the Company's option, at
either (i) the prime rate plus up to 0.25% or (ii) the London Interbank
Offered Rate plus 0.75% up to 1.50%, depending on the Company's leverage
ratio, as defined. The Credit Facility also contains customary restrictive
covenants requiring the Company to maintain certain financial ratios and is
guaranteed by all of the Company's subsidiaries. The Credit Facility will
permit the payment of dividends on the Company's common stock only to the
extent the Company maintains a specified net worth.
9
<PAGE>
5. DISPOSITIONS
During March 1996, the Company conveyed to Service Corporation International
(SCI), a significant stockholder of the Company, three funeral home operations
which had been previously operated by an unaffiliated third party for an
aggregate purchase price of $2,085,000. The three funeral homes had
originally been acquired by the Company from SCI in May 1990. In January
1993, the Company entered into long-term agreements with the third party,
under which the third party operated the three funeral homes. In February
1996, a subsidiary of SCI acquired the operations of the third party and
assumed the long-term agreements with the Company. Included in net funeral
service revenues and related funeral costs and expenses is the $2,085,000 and
$1,135,000, respectively, related to the transaction. The sales price is
included in the accompanying consolidated balance sheet as Receivable due from
affiliate. Proceeds from the sale were remitted to the Company in April, 1996.
6. SUBSEQUENT EVENTS
On May 1, 1996 the Company completed a public offering of 2,890,000 shares of
its Common Stock at $27.00 per share, including 390,000 shares sold to the
underwriters pursuant to the overallotment option granted to them, for net
proceeds of approximately $73,100,000 (after selling commissions and estimated
related expenses of $4,900,000). The net proceeds are to be used to pay off
amounts outstanding under the Credit Facility and for general corporate
purposes, including future acquisitions.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company provides services and products in both the funeral home and
cemetery segments of the death care industry. The Company has a growth
strategy which emphasizes an aggressive acquisition program and the
implementation of revenue enhancement and cost-containment programs. As part
of this growth strategy, the Company maintains a separate corporate
development department headed by a senior management executive with
substantial death care experience. The department is responsible for
identifying, evaluating, negotiating and closing acquisitions of funeral homes
and cemeteries. With the Company's knowledge of non-metropolitan markets and
experienced management team, the Company believes that it is well positioned
to take advantage of the continuing consolidation trend in the death care
industry. The Company's future results of operations will depend in large part
on the Company's ability to continue to make acquisitions on attractive terms
and to successfully integrate and manage the acquired properties.
RESULTS OF OPERATIONS
The following is a discussion of the Company's results of operations for the
three month periods ended March 31, 1996 and 1995. For purposes of this
discussion, funeral homes and cemeteries owned and operated for the entirety
of each period being compared are referred to as existing operations.
Correspondingly, operations acquired or opened during either period being
compared are referred to as acquired operations.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1995:
Total net revenues for the three months ended March 31, 1996 increased 60.3%
to $23,080,000 from $14,394,000 for the three months ended March 31, 1995.
The increase in net revenues reflects a $5,327,000 increase in net revenues
attributable to acquired operations and a $1,274,000, or 9.1% increase in net
revenues from existing operations. The substantial increase in net revenues
from acquired operations is due primarily to the full quarter results of the
27 funeral homes and 13 cemeteries acquired in 1995 and the partial quarter
results of the 10 funeral homes and one cemetery acquired during the three
months ended March 31, 1996. The remainder of the increase in net revenues of
$2,085,000 results from the buyout of several long-term licensing and lease
agreements related to three funeral homes which had been previously operated
by a third party since January 1993.
Gross profit for the three months ended March 31, 1996 increased 74.4% to
$7,386,000 from $4,234,000 for the three months ended March 31, 1995. The
increase in gross profit reflects a $1,485,000 increase attributable to
acquired operations and $717,000, or 17.4% increase from existing operations.
The increase in gross profit from existing operations was attributable to
increased revenues and operational efficiencies at both funeral home and
cemetery operations. The remainder of the increase in gross profit of
$950,000 relates to the gain recognized on the buyout of the long-term
licensing and lease agreements.
11
<PAGE>
Total funeral net revenues for the three months ended March 31, 1996 increased
71.6% to $14,831,000 from $8,644,000 for the three months ended March 31,
1995. The increase in funeral net revenues reflects a $3,553,000 increase
from acquired operations, a $549,000, or 6.7% increase from existing
operations and $2,085,000 related to the buyout of the long-term licensing and
lease agreements. Funeral gross profit for the three months ended March 31,
1996 increased 102.2% to $4,901,000 from $2,424,000 for the three months ended
March 31, 1995. The increase in funeral gross profit reflects a $1,068,000
increase from acquired operations, a $459,000, or 19.9% increase from existing
operations and $950,000 related to the gain on the aforementioned buyout.
Excluding the effects of the gain on the buyout, funeral gross margin improved
to 31.0% from 28.0%. Funeral gross margin at existing operations improved to
31.7% from 28.2% primarily as a result of sales price increases exceeding the
cost increases in merchandising and salaries as well as better merchandising
mix in the funeral services. Funeral gross margin at acquired operations
improved to 29.5% from 25.0% primarily due to profitability enhancements and
cost efficiencies beginning to be implemented at the funeral operations
acquired in 1995. Additionally, the timing of a majority of the 1996
acquisitions occurred at the beginning of the quarter, allowing the Company to
achieve relatively lower marginal costs on higher volumes normally realized
during the first quarter of the year.
Total cemetery net revenues for the three months ended March 31, 1996
increased 43.5% to $8,249,000 from $5,750,000 for the three months ended March
31, 1995. The increase in cemetery net revenues reflects a $1,774,000 increase
from acquired operations and a $725,000, or 12.6% increase from existing
operations. Cemetery gross profit for the three months ended March 31, 1996
increased 37.2% to $2,485,000 from $1,810,000 for the three months ended March
31, 1995. The increase reflects a $417,000 increase from acquired operations
and a $258,000, or 14.2% increase from existing operations. Cemetery gross
margin at existing operations improved to 31.9% from 31.5%, primarily as a
result of lower selling and fixed operating costs as a percentage of revenues.
Cemetery gross margin at acquired operations were 23.6% primarily because they
had not been operated by the Company long enough to fully implement the
preneed marketing programs to leverage off of the maintenance and fixed
operating costs which start being incurred immediately after the acquisition.
General and administrative expenses for the three months ended March 31, 1996
increased $372,000, or 30.7% over the three months ended March 31, 1995. This
increase resulted primarily from increased personnel costs as well as
professional fees and insurance necessary to support a higher rate of growth.
General and administrative expenses as a percentage of net revenues, excluding
the effects of the gain on the aforementioned buyout, decreased to 7.5% in the
three months ended March 31, 1996 from 8.4% in the corresponding period in
1995, reflecting economies of scale realized by the Company as expenses are
spread over a larger revenue base.
Interest expense for the three months ended March 30, 1996 increased $782,000,
or 252.3% from the three months ended March 31, 1995. The increase was the
result of higher debt levels as average indebtedness outstanding increased to
$57.4 million from $12.3 million as the Company increased its borrowings to
finance acquisitions, partially offset by a lower average interest rate.
12
<PAGE>
The Company's effective tax rate for the three months ended March 31, 1996 was
52.5% compared to 39.5% for the comparable three months in 1995. The higher
rate in 1996 was due primarily to (i) a higher percentage of the Company's
income being generated in states with income taxes, (ii) an increase in the
Company's statutory Federal income tax rate from 34% to 35% as the Company
expects to exceed the taxable income threshold requiring the higher tax rate
during 1996, and (iii) a one-time charge of $565,000 to revalue the Company's
deferred tax liability accounts to appropriately reflect the higher statutory
rate. The Company expects the effective tax rate for income generated in the
remainder of 1996 will be 40.5%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on cash flow from operations and third
party borrowings to finance its operations and on third party borrowings, the
issuance of notes payable and, in certain situations, the issuance of shares
of Common Stock to sellers of funeral homes and cemeteries to finance its
acquisition program. Recently acquired funeral homes typically generate
positive cash flow immediately following acquisition. In contrast, recently
acquired cemeteries typically generate negative cash flow during an
approximately three to nine month start-up period following the introduction
of an aggressive preneed cemetery sales effort, although in some cases this
period has exceeded nine months. This negative cash flow is typically offset
by positive cash flow from mature cemetery operations.
Cash and cash equivalents totaled $4.5 million at March 31, 1996, representing
a decrease of $1.8 million from December 31, 1995. For the three months ended
March 31, 1996, net cash flow from operating activities was approximately $2.5
million. Cash used in investing activities totaled approximately $2.2 million.
Cash used in financing activities amounted to approximately $2.1 million.
Significant components of cash flow generated from operating activities
include net income adjusted for non-cash items partially offset by an increase
in receivables of $2.9 million primarily attributable to a 40.3% increase in
preneed cemetery sales which are usually financed on an installment basis over
36 months. Significant components of cash used in investing activities
included $456,000 of capital expenditures related to additions and
improvements at several funeral home facilities, $460,000 related to the
acquisition of professional vehicles and the decision to purchase for $333,000
a funeral home operation that was previously leased. Additionally, the
Company utilized approximately $1 million of internal funds to consummate
funeral home and cemetery acquisitions during the three months ended March 31,
1996. Significant components of cash used in financing activities included the
normal scheduled payments on debt and a lump sum payment of $1,500,000 to
extinguish a seller financed note.
Long-term debt, including current maturities, at March 31, 1996 totaled $60.9
million as compared to $55.1 million at December 31, 1995. The increase was
principally attributable to the indebtedness assumed or incurred in connection
with acquisitions. Long-term debt at March 31, 1996 consisted primarily of
$51.8 million drawn under the Credit Facility and $9.1 million owed under
various notes payable to sellers of funeral homes and cemeteries. The total
amount available to be borrowed under the Credit Facility was increased from
$60 million to $100 million in February 1996. Any amounts repaid under the
Credit Facility are available for future borrowings under the terms of the
Credit Facility.
13
<PAGE>
The Company's capital resources consist of cash flow from operations and
available borrowing capacity under the Credit Facility. Borrowings under the
Credit Facility bear interest, at the Company's option, at either (i) the
prime rate plus up to 0.25% per annum or (ii) the London Interbank Offered
Rate plus 0.75% up to 1.50% per annum, depending on the Company's leverage
ratio, as defined. The Credit Facility was extended in September 1995 and is
due October 1998, contains customary restrictive covenants, permits the
payment of dividends only to the extent the Company maintains a specified net
worth and requires the Company to maintain certain financial ratios. The
Credit Facility is guaranteed by all of the Company's subsidiaries.
The Company expects to acquire funeral homes and cemeteries for purchase
prices aggregating $47 million and $55 million in 1996 and 1997, respectively.
The Company anticipates that the consideration for future acquisitions will
consist of a combination of cash, long-term notes, the assumption of existing
indebtedness of the acquired businesses, and, in some cases, the issuance of
additional shares of the Company's Common Stock. In June 1995, the Company
filed a shelf registration statement relating to 1,000,000 shares of Common
Stock to be used to fund acquisitions. The Company anticipates making ongoing
capital expenditures of approximately $5 million and $6 million in 1996 and
1997, respectively. On May 1, 1996, the Company completed a public offering
of 2,890,000 shares of its Common Stock at $27.00 per share, including 390,000
shares sold to the underwriters pursuant to the overallotment option granted
to them, for net proceeds of $73.1 million (after selling commissions and
estimated related expenses of $4.9 million). The net proceeds are to be used
to pay off amounts outstanding under the Credit Facility and for general
corporate purposes, including future acquisitions. As a result, management
believes that cash flow from operations and the borrowing capacity available
under the Credit Facility should be sufficient to meet its anticipated capital
expenditures and other operating requirements and to substantially fund
acquisitions through the first quarter of 1998. However, because future cash
flows and the availability of financing are subject to a number of variables,
such as the number and size of acquisitions made by the Company, there can be
no assurance that the Company's capital resources will be sufficient to
maintain currently planned levels of capital expenditures, or to fund future
acquisitions. Additional debt and equity financings may be required in
connection with future acquisitions. The availability of these capital sources
will depend on prevailing market conditions and interest rates and the then-
existing financial condition of the Company.
SEASONALITY
Although the death care business is relatively stable and fairly predictable,
the Company's results of operations may periodically fluctuate due to limited
seasonality and the timing of acquisitions. Revenues from the Company's
funeral home operations tend to be somewhat greater in the first and fourth
quarters of each calendar year while revenues from its cemetery operations
tend to be somewhat greater in the second and fourth quarters of each calendar
year.
INFLATION
Inflation has not had a significant impact on the results of operations of the
Company.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1* - Amended and Restated Certificate of Incorporation (filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-8
(Reg. No. 33-98052))
3.2* - Amended and Restated Bylaws (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8 (Reg. No. 33-98052))
4.1* - Form of Certificate representing shares of Common Stock (filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-1
(Reg. No. 33-82546))
4.2* - Stockholder Rights Agreement, dated October 13, 1994, between the
Company and American Stock Transfer & Trust Company, as Rights
Agent (filed as Exhibit 4.2 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994)
4.3* - Certificate of Designation of the Series One Junior Participating
Preferred Stock (filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8 (Reg. No. 33-98052))
10.1* - Employment Agreement, dated April 8, 1996, between the Company
and William C. McNamara (filed as Exhibit 99.2 to the Company's
Current Report on Form 8-K dated April 24, 1996)
10.2* - Separation Agreement, dated April 1, 1996, between the Company
and Robert W. (Jon) Loftis (filed as Exhibit 99.3 to the
Company's Current Report on Form 8-K dated April 24, 1996)
11.1 - Statement regarding computation of per share earnings
27 - Financial Data Schedule
*Incorporated herein by reference to the indicated filing
(b) Reports on Form 8-K
The Company filed a Form 8-K on May 2, 1996 relating to certain events,
specifically the appointment of William C. McNamara as the Company's
Senior Vice President - Cemetery Operations, the successful completion of
the sale of 2,890,000 and 100,000 shares of the Company's Common Stock by
the Company and a selling stockholder, respectively, the completion of
the purchase of 1,443,259 shares of the Company's Common Stock by Service
Corporation International from Robert W. (Jon) Loftis and certain persons
affiliated with Mr. Loftis, and the resignation of Mr. Loftis from his
positions as Executive Vice President - Cemetery Operations and a
director of the Company.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1996
EQUITY CORPORATION INTERNATIONAL
By: /s/ W. Cardon Gerner
------------------------
Senior Vice President
Chief Financial Officer
(Principal Financial Officer and Duly Authorized Officer)
16
<PAGE>
Exhibit 11.1
EQUITY CORPORATION INTERNATIONAL
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three months ended March 31,
1996 1995
- - ------------------------------------------------------------------------------
<S> <C> <C>
Computation of earnings per
common and equivalent share:
Net income attributable to common stock............... $2,237,126 $1,639,629
========== ==========
Weighted average number of
common shares outstanding........................... 9,899,507 9,792,575
Additional shares assuming
conversion of stock options......................... 148,598 27,428
Effect of restricted stock issued..................... 8,500 --
---------- ----------
Weighted average shares for primary earnings
per share........................................... 10,056,605 9,820,003
Incremental shares issuable using
quarter-end market price:
Conversion of stock options....................... 33,332 29,723
Effect of restricted stock issued................. 3,269 --
---------- ----------
36,601 29,723
Weighted average shares for fully diluted
earnings per share.................................. 10,093,206 9,849,726
========== ==========
Primary earnings per common and
equivalent share.................................... $ 0.22 $ 0.17
========== ==========
Fully diluted earnings per common and
equivalent share.................................... $ 0.22 $ 0.17
========== ==========
</TABLE>
1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND INCOME STATEMENT AS OF AND FOR THE THREE MONTHS
ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,450
<SECURITIES> 0
<RECEIVABLES> 5,452
<ALLOWANCES> 848
<INVENTORY> 5,218
<CURRENT-ASSETS> 18,312
<PP&E> 48,039
<DEPRECIATION> 8,306
<TOTAL-ASSETS> 323,154
<CURRENT-LIABILITIES> 10,332
<BONDS> 60,372
0
0
<COMMON> 99
<OTHER-SE> 93,825
<TOTAL-LIABILITY-AND-EQUITY> 323,154
<SALES> 10,252
<TOTAL-REVENUES> 23,080
<CGS> 2,905
<TOTAL-COSTS> 15,694
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 170
<INTEREST-EXPENSE> 1,092
<INCOME-PRETAX> 4,709
<INCOME-TAX> 2,472
<INCOME-CONTINUING> 2,237
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,237
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
