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, 1998
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: 0-28096
-----------------------------
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 number)
identification incorporation or organization)
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 May 12,
1998 was 8,916,950.
<PAGE>
THE YORK GROUP, INC.
INDEX
PAGE
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1998 (Unaudited) and December 31,
1997............................................ 2
Consolidated Statements of Income (Unaudited) -
Three months ended March 31, 1998 and 1997...... 3
Consolidated Statements of Cash Flows (Unaudited) -
Three months ended March 31, 1998 and 1997...... 4
Notes to Consolidated Financial Statements (Unaudited).... 5-6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.............. 7-8
Part II. Other Information
Item 6 Exhibits and Reports on Form 8-K .......................... 9
Signature................................................................... 10
1
<PAGE>
THE YORK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
----------- -------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents............................... $ 7,046 $ 15,478
Trade accounts and notes receivable, net of allowance
for doubtful accounts and returns and allowances of
$3,703 in 1998 and $3,117 in 1997:
Stockholders and affiliates.......................... 5,169 5,128
Other................................................ 23,575 16,857
Inventories (Note 3)................................... 40,730 36,325
Prepaid expenses........................................ 2,883 1,228
Deferred tax asset...................................... 4,849 4,506
----------- -------------
Total current assets................................ 84,252 79,522
----------- -------------
Property, plant and equipment, net (Note 3)................. 53,113 38,718
Goodwill and other intangibles.............................. 61,682 10,867
Other noncurrent assets..................................... 2,572 1,438
----------- -------------
Total assets............................................ $ 201,619 $ 130,545
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt....................... $ 3,673 $ 3,608
Accounts payable........................................ 5,663 4,409
Income taxes payable.................................... 2,520 1,565
Accrued expenses........................................ 19,360 13,333
----------- -------------
Total current liabilities........................... 31,216 22,915
----------- -------------
Long-term debt.............................................. 78,409 25,925
----------- -------------
Other noncurrent liabilities................................ 5,198 870
----------- -------------
Deferred tax liability...................................... 7,088 5,188
----------- -------------
Stockholders' equity
Preferred stock, $.01 par value, 1,000,000
shares authorized and unissued - -
Common stock, $.01 par value, 25,000,000 shares authorized,
8,906,950 and 8,906,950 shares issued and outstanding 89 89
Additional paid-in capital.............................. 40,209 40,209
Retained earnings....................................... 39,410 35,349
----------- -------------
Total stockholders' equity........................... 79,708 75,647
----------- -------------
Total liabilities and stockholders' equity.............. $ 201,619 $ 130,545
=========== =============
</TABLE>
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)
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
------- -------
Net sales (including sales to stockholders and
affiliates of $13,296 and $17,982 for the three months
ended March 31, 1998 and 1997, respectively) ......... 55,154 45,551
Cost of sales ........................................... 38,357 33,275
------- -------
Gross profit .................................. 16,797 12,276
Other operating expenses ................................ 9,225 5,795
------- -------
Operating income .............................. 7,572 6,481
Interest expense, net ................................... (389) (151)
------- -------
Income before income taxes .............................. 7,183 6,330
Income tax provision .................................... 2,765 2,374
------- -------
Net income .............................................. 4,418 3,956
======= =======
Average shares outstanding:
Basic ........................................... 8,907 8,387
======= =======
Diluted ......................................... 9,154 8,663
======= =======
Earnings per share:
Basic ........................................... 0.50 0.47
======= =======
Diluted ......................................... 0.48 0.46
======= =======
The accompanying notes are an integral part of these financial statements.
3
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THE YORK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------- -------
Cash flows from operating activities:
Net income ..........................................$ 4,418 $ 3,956
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization ..................... 1,434 1,246
Deferred income tax (benefit) provision ........... (409) 327
Loss on disposition of property, plant and
equipment ......................................... 37 4
Provision for doubtful accounts ................... 32 19
Decrease/(increase) in:
Accounts receivable ............................. (2,771) 366
Inventories ..................................... (1,313) 50
Prepaid expenses ................................ (214) 629
Other noncurrent assets ......................... (926) (12)
Increase/(decrease) in:
Accounts payable ................................ 373 774
Accrued expenses ................................ 2,376 2,293
Other liabilities ............................... 946 805
------- -------
Net cash provided by operating activities ....... 3,983 10,457
------- -------
Cash flows from investing activities:
Capital expenditures ................................ (2,420) (1,609)
Collection of notes receivable ...................... 79 79
Acquisitions, net of cash acquired of $17,541 and
$39 .................................................(62,201) (2,795)
------- -------
Net cash used in investing activities............(64,542) (4,325)
------- -------
Cash flows from financing activities:
Dividends paid ...................................... (357) (320)
Repayment of long-term debt .........................(14,516) (3,015)
Proceeds from issuance of long-term debt ............ 67,000 --
------- -------
Net cash provided by (used in) financing
activities ...................................... 52,127 (3,335)
------- -------
Net increase (decrease) in cash and cash equivalents ......... (8,432) 2,797
Cash and cash equivalents, beginning of period ............... 15,478 31,940
------- -------
Cash and cash equivalents, end of period .....................$ 7,046 $34,737
======= =======
Supplemental schedule of noncash investing and financing activities:
Details of acquisitions (Note 2)
Fair value of assets acquired............ $ 91,077
Liabilities assumed...................... (11,335)
---------
Cash paid................................ $ 79,742
=========
The accompanying notes are an integral part of these financial statements.
4
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THE YORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of The
York Group, Inc. and 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 Company's December 31, 1997
audited financial statements and the notes thereto included in the Company's
1997 Annual Report on Form 10-K. In the opinion of the Company, all adjustments
and eliminations, consisting only of normal and recurring adjustments, necessary
to present fairly the consolidated financial statements have been included. The
results of operations for such interim periods are not necessarily indicative of
results for the full year.
Effective January 1, 1998, the Company adopted Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." Statement No. 130 establishes
standards for reporting and displaying comprehensive income and its components.
Comprehensive income is the total of net income and all other non-owner changes
in equity. For the three months ended March 31, 1998 and 1997, the only
component of comprehensive income for the Company is net income. Adopting
Statement No. 130 had no effect on the Company's financial position or results
of operations.
2. ACQUISITIONS
On March 16, 1998, the Company acquired all of the outstanding shares of
Colonial Guild, Ltd., a leading manufacturer of bronze memorialization and
commemorative products. The purchase price of $78.6 million was financed using
available cash and the Company's line of credit facility entered into on March
12, 1998. The acquisition has been accounted for using the purchase method of
accounting.
Pro forma unaudited consolidated operating results of the Company and the
acquired companies for the three months ended March 31, 1998 and 1997, assuming
the Colonial acquisition and other acquisitions made in 1997 had been made as of
January 1, 1997, are summarized and included in the table below. Pro forma
adjustments include only the effects of events directly attributable to
transactions that are factually supportable and expected to have a continuing
impact. Pro forma adjustments do not reflect anticipated "efficiencies" in
operations. The Company believes that this unaudited pro forma information is
not indicative of future results of operations, nor the results of historical
operations had the acquisitions been consummated as of the assumed dates.
5
<PAGE>
Unaudited Pro forma financial information
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1998 1997
---- ----
(in thousand, except per share amounts)
Net sales .............................. $ 63,315 $ 59,940
Net income ............................. $ 3,855 $ 4,049
Earnings per share:
Basic .............................. $ .43 $ .46
Diluted ............................ $ .42 $ .44
3. SUPPLEMENTAL INFORMATION
March 31, December 31,
1998 1997
-------- --------
(in thousands)
Inventories:
Raw materials ......................................$ 12,281 $ 10,123
Work in process .................................... 5,430 4,039
Finished goods ..................................... 23,019 22,163
-------- --------
$ 40,730 $ 36,325
======== ========
Property Plant and Equipment:
Land and improvements ..............................$ 4,639 $ 3,825
Building and improvements .......................... 16,455 12,721
Equipment .......................................... 47,819 38,245
Construction-in-progress ........................... 6,529 5,003
-------- --------
75,442 59,794
Less: accumulated depreciation ..................... (22,329) (21,076)
-------- --------
$ 53,113 $ 38,718
======== ========
4. 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 requirements. The Company has provided financial
assurance in the form of a letter of credit in the amount of approximately $1.1
million to secure its post-closure care obligations.
At March 31, 1998 and December 31, 1997, the Company had reserves of
approximately $1.3 million and $1.4 million, 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.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
The Company is the second largest casket manufacturer in the United States
and produces a wide variety of caskets, as well as casket components and burial
vaults. The Company's finished caskets are marketed through a network of Company
and 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 (including certain of the Company's
distributors). Burial vaults are sold directly to funeral home and cemetery
operators as well as to privately owned distributors.
On March 16, 1998 the Company acquired all of the outstanding stock of
Colonial Guild, Ltd., a leading manufacturer of bronze memorialization and
commemorative products. Colonial Guild's products are sold to monument dealers,
cemeteries and funeral homes (See Note 2 of Notes to Consolidated Financial
Statements).
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net sales increased $9.6 million, or 21.1%. The increase reflects an
increase in finished casket unit volume, including growth in historical product
offerings, volume of an acquired casket manufacturing company, and increased
sales of vaults and merchandising system display modules, as well as increased
net sales prices. Additionally, the 1998 period reflects sales by Colonial
Guild, Ltd. after its acquisition in mid-March.
Gross profit increased $4.5 million, or 36.8%. Gross margin increased from
27.0% to 30.5%. The improvement in gross margin reflects the effects of 1997
distributor acquisitions, which generally generate higher gross margins relative
to manufacturing facilities, partially offset by slightly lower than average
margins from manufacturing facilities acquired in 1997, due to a mix of lower
margin products. Results of the first quarter of 1998 also reflect a partial
month of Colonial Guild, Ltd. gross margin, which is generally higher than the
Company's historical businesses.
Other operating expenses increased $3.4 million, or 59.2%, and as a
percentage of net sales increased from 12.7% to 16.7%. The increase in other
operating expenses as a percentage of net sales primarily results from the 1997
acquisitions of distribution companies that incur significant selling, general
and administrative costs, and increased personnel costs, partially offset by
increased sales volume.
Net interest expense increased $.2 million, or 157.6%. The increase
reflects the use of cash for acquisitions and late first quarter 1998 borrowings
to finance the acquisition of Colonial Guild, Ltd.
The Company's effective tax rate increased from 37.5% to 38.5%. The
effective rate for 1998 reflects increases in nondeductible expenses, state
income taxes and the Company's statutory Federal tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $7.0 million at March 31, 1998, representing
a decrease of $8.4 million from December 31, 1997. During the first quarter of
1998, cash flows from operations totaled approximately $4.0 million, cash used
in investing activities totaled approximately $64.5 million and cash provided by
financing activities totaled $52.1 million.
Capital expenditures were $2.4 million and $1.6 million in the first
quarter of 1998 and 1997, respectively. The Company has budgeted capital
expenditures for 1998 of approximately $11.7 million. Major 1998 expenditures
primarily include productivity improvement and information systems projects.
These expenditures are expected to enable the Company to increase operating
efficiency, reduce costs, further improve product quality and more effectively
support the Company's information needs.
7
<PAGE>
On March 12, 1998, the Company entered into a five year revolving credit
facility (the "Revolver") with a major bank. The Revolver, which is unsecured
provides for borrowings and the issuance of letters of credit up to $60.0
million through March 11, 2001, $50.0 million from March 12, 2001 through March
11, 2002, and $40.0 million from March 12, 2002 through March 11, 2003. The
terms of the facility call for an interest rate, at the Company's option to be
based upon an adjusted LIBOR rate or the prime rate. Adjustment factors for the
LIBOR rate are based upon certain financial ratios, as defined, with a specified
ceiling (LIBOR +1.375%) and floor (LIBOR + .875%). The Revolver requires that
certain financial conditions and ratios be maintained, restricts the level of
dividend payments and contains cross-default provisions with the Company's other
borrowing facilities. The Revolver requires a fee of .25%, payable quarterly, on
the unused portion of the facility.
On March 16, 1998 the Company consummated its merger with Colonial Guild,
Ltd., a leading manufacturer of bronze memorialization and commemorative
products. The purchase price of approximately $78.6 million was financed using
the Company's cash and the funds available under the Revolver. At March 31,
1998, approximately $7.5 million is available under the Revolver.
Long-term debt, including current maturities, at March 31, 1998, totaled
$82.1 million, which primarily consisted of $52.5 million drawn on the Revolver,
$25.0 million of senior notes (the "Senior Notes") and subordinated promissory
notes totaling $4.5 million issued in conjunction with an acquisition.
Management believes that current cash balances, cash flows from operations
and the remaining borrowing capacity available under the Revolver are sufficient
to meet the Company's anticipated capital expenditures and other operating
requirements for the foreseeable future. However the Company may need to obtain
additional capital to finance its acquisition strategy.
INFLATION
Inflation has not had a material net impact on the Company over the past
three years nor is it anticipated to have a material impact for the foreseeable
future.
SELECTED QUARTERLY OPERATING RESULTS AND SEASONALITY
Historically, the Company's operations have experienced seasonal
variations. 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 facility 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, and the timing of annual price increases
relative to changes in costs. 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. During the first quarter of 1998,
Service Corporation International, the Company's largest single customer,
informed the Company that beginning in January 1999 it would buy substantially
all of its caskets from another supplier. The Company anticipates taking actions
during the remainder of 1998 to prepare for this change in its business.
8
<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
Form 8-K filed on February 20, 1998
Form 8-K filed on March 25, 1998 as amended by form 8-K/A
filed May 14, 1998
Form 8-K/A filed on May 14, 1998
9
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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.
May 14, 1998 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)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE YORK GROUP, INC. 1998 FIRST QUARTER REPORT ON FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,046
<SECURITIES> 0
<RECEIVABLES> 32,768
<ALLOWANCES> 3,703
<INVENTORY> 40,730
<CURRENT-ASSETS> 84,252
<PP&E> 75,442
<DEPRECIATION> 22,329
<TOTAL-ASSETS> 201,619
<CURRENT-LIABILITIES> 31,216
<BONDS> 78,409
0
0
<COMMON> 89
<OTHER-SE> 79,619
<TOTAL-LIABILITY-AND-EQUITY> 201,619
<SALES> 55,154
<TOTAL-REVENUES> 55,154
<CGS> 38,357
<TOTAL-COSTS> 38,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 389
<INCOME-PRETAX> 7,183
<INCOME-TAX> 2,765
<INCOME-CONTINUING> 4,418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,418
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.48
</TABLE>
