FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 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: 33-846
-----------------------------
THE YORK GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0490631
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
9430 OLD KATY ROAD, HOUSTON , TEXAS 77055
(Address of principal executive offices) (Zip Code)
(713) 984-5500
(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 outstanding of the registrant's common stock as of November
12, 1996 was 7,874,864.
<PAGE>
THE YORK GROUP, INC.
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1996 (Unaudited) and December 31, 1995 2
Consolidated Statements of Income (Unaudited)
Three months ended September 30, 1996 and 1995
Nine months ended September 30, 1996 and 1995 ...... 3
Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1996 and 1995 ...... 4
Notes to Consolidated Financial Statements (Unaudited) .. 5
Item 2. Management's Discussion and Analysis of
Results of Operations
and Financial Condition ............................ 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ........................ 10
Signature ............................................................ 11
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
THE YORK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited) (Audited)
September 30, December 31,
ASSETS 1996 1995
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 32,483 $ 10,896
Accounts and notes receivable, net of
allowance for doubtful accounts and
returns and allowances of $1,916 in
1996 and $1,586 in 1995:
Stockholders and affiliates ............... 5,273 6,457
Other ..................................... 5,591 4,682
Inventories (Note 2) ........................... 18,564 16,925
Prepaid expenses ............................... 1,155 416
Deferred tax assets, net ....................... 2,047 1,918
------------ --------
Total current assets ........................ 65,113 41,294
------------ --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements .......................... 2,949 2,897
Buildings and improvements ..................... 10,416 9,973
Equipment ...................................... 27,718 26,607
Construction-in -progress ...................... 2,904 1,197
------------ --------
43,987 40,674
Less: accumulated depreciation ................. (15,302) (12,819)
------------ --------
Property, plant and equipment, net ......... 28,685 27,855
------------ --------
NOTES RECEIVABLE:
Related party .................................. 241 903
Other .......................................... 28
OTHER NONCURRENT ASSETS ............................ 275 252
------------ --------
Total assets ............................... $ 94,314 $ 70,332
============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................... $ 3,639 $ 3,701
Accrued expenses ............................... 9,839 8,292
Current portion of long-term debt .............. 89 0
Income taxes payable ........................... 0 148
------------ --------
Total current liabilities ................... 13,567 12,141
------------ --------
OTHER NONCURRENT LIABILITIES ....................... 1,311 1,400
------------ --------
DEFFERED TAX LIABILITY ............................. 3,983 3,686
------------ --------
LONG-TERM DEBT (Note 4 ) ........................... 25,077 34,660
------------ --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000
shares authorized and unissued .............. -- --
Common stock, $.01 par value, 25,000,000
shares authorized; 7,709,864 and
5,388,864 shares issued and outstanding ..... 77 54
Additional paid-in capital ..................... 28,177 2,428
Retained earnings .............................. 22,122 15,963
------------ --------
Total stockholders' equity .................. 50,376 18,445
------------ --------
Total liabilities and stockholders' equity .. $ 94,314 $ 70,332
============ ========
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
THE YORK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
NET SALES (including sales to stockholders and affiliates of
$16,381 and $16,828 for the three months ended September 30,
1996 and 1995, respectively, and $59,034 and $57,192 for the
nine months ended September 30, 1996 and 1995, respectively) $ 28,509 $ 28,629 $ 101,483 $ 96,457
COST OF SALES .................................................. 22,492 23,017 79,449 76,004
----------- ----------- ----------- -----------
Gross profit ............................................... 6,017 5,612 22,034 20,453
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES .................................... 2,564 2,308 8,130 7,111
----------- ----------- ----------- -----------
Operating income ........................................... 3,453 3,304 13,904 13,342
INTEREST EXPENSE, NET .......................................... (10) (711) (774) (2,208)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM .............. 3,443 2,593 13,130 11,134
INCOME TAX PROVISION ........................................... 1,289 999 4,922 4,287
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM ............................... 2,154 1,594 8,208 6,847
EXTRAORDINARY ITEM, less applicable tax (Note 4) ............... 0 0 (736) 0
----------- ----------- ----------- -----------
NET INCOME ..................................................... $ 2,154 $ 1,594 $ 7,472 $ 6,847
=========== =========== =========== ===========
EARNINGS PER SHARE:
Income before extraordinary item ..................... $ .27 $ .29 $ 1.16 $ 1.25
=========== =========== =========== ===========
Net income ........................................... $ .27 $ .29 $ 1.05 $ 1.25
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING ..................................... 7,831,164 5,558,820 7,083,259 5,496,343
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
THE YORK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................. $ 7,472 $ 6,847
Adjustments to reconcile income to net cash
provided by operating activities-
Depreciation and amortization .......... 2,663 2,879
Deferred income tax provision .......... 163 203
Loss on disposition of property, plant
and equipment ........................ 112 31
Provision for doubtful accounts ........ 42 47
Write-off of debt discount ............. 1,178 --
Decrease/(Increase) in:
Accounts receivable ................. 651 1,510
Inventories ......................... 524 (261)
Prepaid expenses .................... (296) (113)
Prepaid income taxes ................ (376) 113
Increase/(Decrease) in:
Accounts payable .................... (244) (899)
Accrued expenses .................... 1,233 124
Income taxes payable ................ (148) 277
Other noncurrent liabilities ........ -- (10)
-------- --------
Net cash provided by operating
activities ..................... 12,974 10,748
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities purchased ........................ -- (11)
Capital expenditures ........................ (3,267) (2,758)
Collection of notes receivable .............. 226 223
Advances under notes receivable ............. (25) --
-------- --------
Net cash used in investing
activities ..................... (3,066) (2,546)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid .............................. (1,312) (1,307)
Payment of deferred financing charges ....... -- (4)
Repayment of long-term debt ................. (12,782) (433)
Proceeds from issuance of common stock, ..... 25,773 --
net of issuance costs ..................... -- 2,326
-------- --------
Net cash provided by financing
activities ..................... 11,679 582
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ...... 21,587 8,784
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . 10,896 2,837
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....... $ 32,483 $ 11,621
======== ========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
THE YORK GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of The
York Group, Inc. and all majority owned subsidiaries (the "Company") and have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. These consolidated financial statements should be read in
conjunction with the December 31, 1995 audited financial statements and the
notes thereto. In the opinion of the Company, all adjustments and eliminations,
consisting only of normal and recurring adjustments, necessary to present fairly
the consolidated financial position of the Company as of September 30, 1996 and
December 31, 1995 and the consolidated results of its operations for the three
and nine months ended September 30, 1996 and 1995 and cash flows for the nine
months ended September 30, 1996 and 1995 have been included. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
2. INVENTORIES
September 30, December 31,
1996 1995
------------ ------------
(in thousands)
Raw materials $8,075 $8,173
Work in process 2,722 2,871
Finished goods 7,767 5,881
------------ ------------
$18,564 $16,925
============ ============
3. CONTINGENCIES
ENVIRONMENTAL MATTERS
In 1991, the Georgia Department of Natural Resources (the GDNR) issued a Notice
of Violation - Consent Order alleging that the Company's Lawrenceville, Georgia
facility was storing and treating hazardous wastes without a permit and was
otherwise in violation of certain hazardous waste regulations in the operation
of its electroplating line and associated waste water treatment system. The GDNR
approved a closure-plan and post-closure plan for the facility in August 1994,
and issued a Hazardous Waste Facility Permit effective September 27, 1995 to
document the post-closure care
5
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requirements. The Company has provided financial assurance in the form of a
letter of credit in the amount of approximately $1,050,000 to secure its
post-closure care obligations.
At September 30, 1996 and December 31, 1995, the Company had reserves of
approximately $1,300,000 and $1,700,000, respectively, for estimated costs to
complete the implementation of the post-closure plan. Actual remediation costs
may differ from estimates due to unforeseen factors which may arise as the
closure occurs. Accordingly, these reserves may be adjusted as additional
information becomes available.
4. CAPITALIZATION EVENT
In April 1996, the Company completed an initial public offering (the "Offering")
of 2,645,000 shares of its common stock. 2,145,000 shares were sold by the
Company and 500,000 shares were sold by certain stockholders of the Company (the
"Selling Stockholders"). The Company did not receive any of the proceeds from
the sale of shares by the Selling Stockholders. Net proceeds to the Company from
the Offering, after deduction of associated expenses, were approximately
$25,300,000.
The Company utilized a portion of the proceeds from the Offering to repay its
$11,000,000 Subordinated Series A Note, which was originally issued at a
discount. The early extinguishment of this debt resulted in an extraordinary
charge of $736,000, net of tax, during the three month period ended June 30,
1996, related to the write-off of the unamortized discount.
5. ACQUISITION
On September 30, 1996, the Company completed the acquisition of substantially
all the business assets and assumed the associated debts and liabilities of
Hamilton Distributing Company, a casket distributor. The acquisition was
accounted for using the purchase method of accounting. Pro forma results of
operations have not been presented because the effects of the acquisition were
not significant.
6. SUBSEQUENT EVENT
During October 1996, the Company acquired the business assets and assumed the
associated debts and liabilities of The Doody Group, Inc., a provider of
architectural and interior design services and merchandising programs to the
funeral service industry. The acquisition will be accounted for using the
purchase method of accounting. Pro forma results of operations have not been
presented because the effects of the acquisition are not significant.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The Company is the second largest casket manufacturer in the United States and
produces a wide variety of metal and hardwood caskets, as well as casket
components. The Company's finished caskets are primarily marketed through a
network of privately owned distributors, which serve an estimated 15,000
domestic funeral homes, as well as certain foreign markets. Casket components
are sold to other casket manufacturers and assemblers.
In April 1996 the Company completed an initial public offering of 2,145,000
shares of its common stock. A portion of the net proceeds of approximately $25.3
million was used to repay the Company's subordinated debt, with the remainder
designated for general corporate purposes, including potential acquisitions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
For the third quarter, 1996 net sales were flat compared to 1995. This
reflects a slight decrease in both finished casket and component volumes, offset
by increased net prices. The finished casket volume decline is primarily
attributable to weak hardwood product sales and a scheduled week of plant
shutdown at one assembly facility taken during the third quarter of 1996, which
in 1995 was scheduled and taken during the fourth quarter.
Gross profit increased $405,000, or 7.2%. Gross margin increased from 19.6% to
21.1%. The gross margin was affected by favorable raw material costs and net
price increases, partially offset by decreased casket volume, particularly of
hardwood products, and high demand for new metal products which were introduced
at price points aimed at market share growth.
Selling, general and administrative expenses increased $256,000, or 11.1%, and
as a percentage of net sales increased from 8.1% to 9.0%. The increase in
selling, general and administrative expenses as a percentage of net sales
reflects an increase in the number of personnel and related hiring and
relocation costs, expenses related to the Company's launch of its preneed
insurance program, public reporting and other costs associated with being a
public company following the Company's initial public offering, and general cost
increases.
Net interest expense decreased $701,000, or 98.6%. The decrease reflects the
early extinguishment of the Company's $11,000,000 Subordinated Series A Note and
higher interest earnings due to increased cash balances.
The Company's effective tax rate decreased from 38.5% to 37.5%. The reduction
reflects a decrease in nondeductible expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Many of the factors that affected third quarter results also had an impact on
year to date results. Refer to the third quarter comparison for additional
discussion.
Net sales increased $5 million, or 5.2%. The increase reflects a 4.9% increase
in finished casket volume, and a 6.2% increase in component volume as well as
increased net prices, partially offset by
7
<PAGE>
disproportionate growth in lower priced finished metal caskets and continued
weak sales of hardwood products.
Gross profit increased $1.6 million, or 7.7%. Gross margin increased from
21.2% to 21.7%. Gross margin was affected by increased sales volume, net price
increases and favorable raw material costs, partially offset by the changes in
product mix.
Selling, general and administrative expenses increased $1.0 million , or
14.3%, and as a percentage of net sales, increased from 7.4% to 8.0%.
Net interest expense decreased $1.4 million, or 65.0%.
The Company's effective tax rate decreased from 38.5% to 37.5%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on cash flow from operations as well as
borrowings from banks and other lenders to fund its operations. In April 1996
the Company completed an initial public offering of common stock in which it
sold 2,145,000 shares of common stock at $13 per share. A portion of the net
proceeds of the offering of approximately $25.3 million was used to repay the
Company's outstanding subordinated debt and the remainder is available for
general corporate purposes, including potential acquisitions.
Cash and cash equivalents were $32.5 million at September 30, 1996, an
increase of $21.6 million from December 31, 1995. For the nine months ended
September 30, 1996, cash provided from operations totaled $13.0 million, cash
used in investing activities totaled $3.1 million and cash provided by financing
activities totaled $11.7 million.
Capital expenditures for the nine months ended September 30, 1996 and 1995
were approximately $3.3 million and $2.8 million respectively.
The Company utilized approximately $1.8 million of cash to repay assumed
indebtedness associated with its acquisition of Hamilton Distributing Company, a
casket distributor.
Long-term debt at September 30, 1996 totaled $25.0 million compared to $34.7
million at December 31, 1995, with the decrease attributable to the
extinguishment of the $11,000,000 ($9,822,000 net of the recorded discount)
Subordinated Series A Note during the three month period ended June 30, 1996.
Long-term debt at September 30, 1996 consisted of $25.0 million of Senior Notes.
In connection with the repayment of the Subordinated Series A Note, the Company
recorded an extraordinary charge of approximately $736,000, net of tax, to write
off the remaining unamortized debt discount.
The Company maintains a $10.0 million unsecured revolving credit facility with
a major bank which expires January 31, 1997. The revolving credit facility
provides for borrowings and the issuance of letters of credit up to the lesser
of $10.0 million or a borrowing base, consisting of accounts receivable and
inventory. At September 30, 1996, no borrowings were outstanding, $2.3 million
of letters of credit were outstanding and $7.7 million was available under the
revolving credit facility.
8
<PAGE>
The Company's capital resources consist of its cash balance at September 30,
1996, future cash flows from operations and the borrowing capacity under the
revolving credit facility. The Company believes that these resources should be
sufficient to fund capital expenditures and meet other operating requirements
for the foreseeable future. These resources should also be sufficient to fund
currently identified potential acquisition opportunities.
Historically, the Company's operations have experienced certain seasonal
patterns. Generally, the Company's net sales are highest in the first quarter
and lowest in the third quarter of each year. These fluctuations are due in part
to the seasonal variance in the death rate, with a greater number of deaths
generally occurring in cold weather months, and the timing of the Company's
annual manufacturing facilities vacation shutdowns, which occur primarily in the
third quarter. In addition, operating results can vary between quarters of the
same or different years due to, among other things, fluctuations in the number
of deaths, changes in product mix, limitations on the timing of price increases,
and variances in the cost of raw materials. As a result, the Company experiences
variability in its operating results on a quarterly basis, which may make
quarterly year-to-year comparisons less meaningful.
INFLATION
Historically, inflation has not had a material impact on the results of
operations of the Company.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial data schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K during the three months
ended September 30, 1996.
<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.
November 12, 1996 THE YORK GROUP, INC.
By: /s/ DAVID F. BECK
David F. Beck
Vice President and Chief Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE YORK GROUP, INC. 1996 THIRD QUARTER REPORT ON FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 32,483
<SECURITIES> 0
<RECEIVABLES> 12,780
<ALLOWANCES> 1,916
<INVENTORY> 18,564
<CURRENT-ASSETS> 65,113
<PP&E> 43,987
<DEPRECIATION> 15,302
<TOTAL-ASSETS> 94,314
<CURRENT-LIABILITIES> 13,567
<BONDS> 25,077
0
0
<COMMON> 77
<OTHER-SE> 50,299
<TOTAL-LIABILITY-AND-EQUITY> 94,314
<SALES> 101,483
<TOTAL-REVENUES> 101,483
<CGS> 79,449
<TOTAL-COSTS> 79,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 42
<INTEREST-EXPENSE> 774
<INCOME-PRETAX> 13,130
<INCOME-TAX> 4,922
<INCOME-CONTINUING> 8,208
<DISCONTINUED> 0
<EXTRAORDINARY> 736
<CHANGES> 0
<NET-INCOME> 7,472
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
</TABLE>
