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 June 30, 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 identification number)
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 August
12, 1998 was 8,928,950.
<PAGE>
THE YORK GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1998 (Unaudited) and December 31, 1997 ................... 2
Consolidated Statements of Income (Unaudited) Three and six
months ended June 30, 1998 and 1997 ............................... 3
Consolidated Statements of Cash Flows (Unaudited) -
Six months ended June 30, 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 ..................................................... 7-9
Part II. Other Information
Item 4. Submission of Matters to
a Vote of Security Holders .............................................. 10
Item 6. Exhibits and Reports on Form 8-K.......................................... 10
Signature ................................................................................ 11
</TABLE>
1
<PAGE>
THE YORK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
--------- -----------
(UNAUDITED) (AUDITED)
Current assets:
Cash and cash equivalents...................... $ 4,546 $ 15,478
Trade accounts and notes receivable,
net of allowance for doubtful accounts
and returns and allowances of
$3,742 in 1998 and $3,117 in 1997:
Stockholders and affiliates................. 4,617 5,128
Other....................................... 24,977 16,857
Inventories.................................... 41,494 36,325
Prepaid expenses............................... 2,632 1,228
Deferred tax asset............................. 4,725 4,506
--------- -----------
Total current assets....................... 82,991 79,522
--------- -----------
Property, plant and equipment, net................ 54,156 38,718
Goodwill and other intangibles, net............... 63,725 10,867
Other noncurrent assets........................... 2,878 1,438
--------- -----------
Total assets................................... $ 203,750 $ 130,545
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............. $ 4,075 $ 3,608
Accounts payable............................... 5,140 4,409
Income taxes payable........................... 655 1,565
Accrued expenses............................... 16,517 13,333
--------- -----------
Total current liabilities.................. 26,387 22,915
--------- -----------
Long-term debt.................................... 82,275 25,925
Other noncurrent liabilities...................... 5,646 870
Deferred tax liability............................ 7,102 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, 8,918,950 and 8,906,950 shares
issued and outstanding...................... 89 89
Additional paid-in capital..................... 40,299 40,209
Retained earnings.............................. 41,952 35,349
--------- -----------
Total stockholders' equity.................. 82,340 75,647
--------- -----------
Total liabilities and stockholders' equity..... $203,750 $ 130,545
========= ===========
The accompanying consolidated notes are an
integral part of these financial statements.
2
<PAGE>
THE YORK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ----------------------------
1998 1997 1998 1997
------- -------- ------ ------
<S> <C> <C> <C> <C>
Net sales (including sales to
stockholders and affiliates
of $11,802 and $14,735 for the
three months ended June 30, 1998
and 1997, respectively, and $25,098
and $32,717 for the six months ended
June 30, 1998 and 1997, respectively $ 60,680 $ 45,611 $ 115,834 $ 91,162
Cost of goods sold .................... 43,085 33,554 81,442 66,829
-------- -------- --------- --------
Gross profit ...................... 17,595 12,057 34,392 24,333
Other operating expenses .............. 11,325 6,812 20,550 12,607
-------- -------- --------- --------
Operating income .................. 6,270 5,245 13,842 11,726
Interest expense, net ................. (1,439) (116) (1,828) (267)
-------- -------- --------- --------
Income before income taxes ............ 4,831 5,129 12,014 11,459
Income tax provision .................. 1,932 1,923 4,697 4,297
-------- -------- --------- --------
Net income ............................ $ 2,899 $ 3,206 $ 7,317 $ 7,162
======== ======== ========= ========
Average shares outstanding:
Basic .......................... 8,918 8,654 8,913 8,521
======== ======== ========= ========
Diluted ........................ 9,129 8,914 9,229 8,787
======== ======== ========= ========
Earnings per share:
Basic .......................... $ 0.33 $ 0.37 $ 0.82 $ 0.84
======== ======== ========= ========
Diluted ........................ $ 0.32 $ 0.36 $ 0.80 $ 0.82
======== ======== ========= ========
</TABLE>
The accompanying consolidated notes are an integral part of these
financial statements.
3
<PAGE>
THE YORK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
---------- --------
Cash flows from operating activities:
Net income.................................. $ 7,317 $ 7,162
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization............... 4,234 2,410
Deferred income tax (benefit) provision..... (326) 382
Loss on disposition of property, plant
and equipment............................... 55 12
Provision for doubtful accounts............. 66 31
Decrease/(increase) in:
Accounts receivable......................... (3,066) (18)
Inventories................................. (653) (493)
Prepaid expenses............................ 60 (370)
Other noncurrent assets..................... (1,169) (158)
Increase/(decrease) in:
Accounts payable............................ (882) (996)
Accrued expenses............................ 378 3,628
Other liabilities........................... (764) (249)
---------- --------
Net cash provided by operating activities... 5,250 11,341
---------- --------
Cash flows from investing activities:
Capital expenditures......................... (4,465) (3,504)
Collection of notes receivable............... 210 168
Acquisitions, net of cash acquired of
$17,582 and $39.............................. (66,286) (6,882)
---------- --------
Net cash used in investing activities........(70,541) (10,218)
---------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock....... 90 20
Proceeds from issuance of long-term debt..... 73,500 23
Repayment of long-term debt.................. (18,517) (3,090)
Dividends paid............................... (714) (660)
---------- --------
Net cash provided by (used in) financing
activities............................... 54,359 (3,707)
---------- --------
Net (decrease) in cash and cash equivalents....... (10,932) (2,584)
Cash and cash equivalents, beginning of period..... 15,478 31,940
---------- --------
Cash and cash equivalents, end of period........... $ 4,546 $29,356
========== ========
Supplemental schedule of noncash investing and financing activities:
Details of 1998 acquisitions
(Note 2)
Fair value of assets acquired...... $ 97,089
Liabilities assumed................ (13,221)
---------
Cash paid.......................... $ 83,868
=========
The accompanying consolidated notes are an integral part of these
financial statements.
4
<PAGE>
THE YORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998
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 consolidated financial statements and the notes thereto
included in the Company's 1997 Annual Report on Form 10-K. In the opinion of the
Company's management, 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 six and three months ended June
30, 1998 and 1997, the only component of comprehensive income for the Company
is net income. Adopting Statement No. 130 did not have a material 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.
During the six month period ended June 30, 1998 the Company also
consummated three small acquisitions. The acquisitions were financed using the
Company's line of credit, with an aggregate purchase price for the acquisitions
of $5.3 million. These acquisitions have been accounted for using the purchase
method of accounting.
Pro forma unaudited consolidated operating results of the Company and the
acquired companies for the six months ended June 30, 1998 and 1997, assuming the
Colonial acquisition and other acquisitions made in 1998 and 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 SIX MONTHS ENDED JUNE 30,
-----------------------------------------
1998 1997
--------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales ............................ $ 126,781 $ 124,788
Net income ........................... $ 6,570 $ 7,964
Earnings per share:
Basic ............................. $ .74 $ .90
Diluted ........................... $ .71 $ .87
3. SUPPLEMENTAL INFORMATION
June 30, December 31,
1998 1997
---------- -------------
(in thousands)
Inventories:
Raw materials ....................... $ 12,852 $ 10,123
Work in process ..................... 5,049 4,039
Finished goods ...................... 23,593 22,163
-------- --------
$ 41,494 $ 36,325
======== ========
Property, Plant and Equipment:
Land and improvements ............... $ 4,756 $ 3,825
Building and improvements ........... 17,236 12,721
Equipment ........................... 49,795 38,245
Construction-in-progress ............ 6,704 5,003
-------- --------
78,491 59,794
Less: accumulated depreciation ...... (24,335) (21,076)
-------- --------
$ 54,156 $ 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 June 30, 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 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 JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Net sales increased $15.1 million, or 33.0%. This increase primarily
reflects additional net sales from Colonial Guild and other acquired operations.
Sales from distribution operations owned in both periods increased slightly
quarter-over-quarter despite a flat to lower number of deaths in the second
quarter of 1998 compared to the second quarter of 1997. However, sales to
independent distributors from Company manufacturing facilities were below 1997
levels, we believe as a result of inventory management efforts by those
customers.
Gross profit increased $5.5 million, or 45.9% Gross margin increased from
26.4% to 29.0%. The increase in gross margin primarily reflects the incremental
margin from acquired distribution operations and Colonial Guild, which generally
generate higher gross margins than the Company's casket manufacturing business.
Gross margin was negatively affected by reduced sales by manufacturing
facilities to independent and Company-owned distribution operations, with the
deadline a result of inventory management efforts.
Other operating expenses increased $4.5 million, or 66.3% and as a
percentage of net sales increased from 14.9% to 18.7%. The increase in other
operating expenses as a percentage of net sales primarily reflects such expenses
from acquired distribution operations and Colonial Guild, which incur higher
operating expenses than historical casket manufacturing operations.
Net interest expense increased $1.3 million to $1.4 million. The increase
reflects the use of cash and issuance of debt for acquisitions.
The Company's effective tax rate was 40.0% in the second quarter of 1998
compared to 37.5% in 1997. The increase reflects an increase in non-deductible
expenses, higher state income taxes and the Company's Federal statutory tax
rate.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Many of the factors that affected second quarter results also had an impact
on year to date results. Refer to the second quarter comparison for additional
discussion.
Net sales increased $24.7 million, or 27.1%. The increase reflects
additional sales from acquired operations and an increase in sales by Company
owned distribution operations compared to 1997. These increase are partially
offset by lower sales to independent distributor customers in 1998.
7
<PAGE>
Gross profit increased $10.1 million, or 41.3%. Gross margin increased
from 26.7% to 29.7%.
Other operating expenses increased $7.9 million, or 63.0%, and as a
percentage of net sales, increased from 13.8% to 17.7%.
Net interest expense increased $1.6 million to $1.8 million in 1998. Cash
paid for interest during the six months ended June 30, 1998 and 1997 was $1.2
million and $1.1 million, respectively.
The Company's effective tax rate increased from 37.5% in 1997 to 39.1% in
1998. Cash paid for income taxes during the six months ended June 30, 1998 and
1997 was $5.2 million and $3.8 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on cash flows from operations as well
as borrowings from banks and other lenders to fund its operations.
Cash and cash equivalents were $4.5 million at June 30, 1998, a decrease
of $10.9 million from December 31, 1997. For the six months ended June 30, 1998,
cash provided by operations totaled $5.3 million, cash used in investing
activities totaled $70.6 million and cash provided by financing activities
totaled $54.4 million.
The Company utilized approximately $66.3 million of cash for acquisitions
during the first six months of 1998, net of cash acquired.
Long-term debt, including current maturities, at June 30, 1998 totaled
$86.4 million compared to $29.5 million at December 31, 1997, with the increase
attributable to the issuance of debt related to Colonial Guild and other
acquisitions. Long-term debt at June 30, 1998 consisted primarily of $59.0
million borrowed under the Company's revolving line of credit, $21.4 million of
Senior Notes, $2.5 million in promissory notes and $2.0 million in convertible
notes.
The Company maintains a $60 million unsecured revolving credit facility
with a group of major banks. At June 30, 1998, $1 million was available under
the revolving credit facility. Subsequent to June 30, 1998, the Company repaid
$1.5 million on the revolving credit facility, and as of the date of this filing
has $2.5 million available.
The Company's capital resources consist of its cash balances at June 30,
1998, future cash flows from operations and the borrowing capacity under the
revolving credit facility. The Company believes that these resources will be
sufficient to fund capital expenditures and meet other operating requirements.
In order to finance its acquisition activities, the Company will require
additional capital resources. The Company has entered into discussions with its
bank syndicate regarding an increase in its revolving credit facility. It is
anticipated that such an increase will be completed no later than the end of the
third quarter.
During the first quarter of 1998, Service Corporation International (SCI),
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. Management estimates that the loss of SCI and related business will
reduce the Company's revenues and operating income by approximately $48 million
and $13 million, respectively, on an annual basis.
The Company `s management has taken several initiatives in order to prepare
for the loss of SCI business in 1999. With approximately 75% of funerals
performed in the United States taking place in independently owned and operated
funeral establishments, the Company is targeting its sales and marketing
programs towards the independent funeral operator. During the second quarter of
1998 the Company initiated an inventory reduction program in order to manage
inventory levels as the SCI supply agreement draws to a close. This inventory
reduction program will, through the remainder of 1998, reduce reported earnings
due to lost production absorption at manufacturing facilities, but will provide
positive cash flow as finished goods inventories are sold and not replenished.
The Company is also reviewing its facilities, both manufacturing and
distribution, to determine if any such facilities should be downsized as a
result of the expected level of business in 1999. At this time management has
not made a determination regarding facilities as a result of the loss of the SCI
business.
8
<PAGE>
INFLATION
Historically, inflation has not had a material impact on the results of
operations of the Company 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.
9
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 5, 1998 the Company held its annual meeting of
stockholders to elect directors and to approve an amendment of
The York Group, Inc. 1996 Employee Stock Option Plan.
The following table sets forth the number of votes cast for or
withheld with respect to the election of each director nominee.
NAME FOR WITHHELD AUTHORITY
---- --- ------------------
Bruce E. Elder 6,293,029 17,201
Eldon P. Nuss 6,295,029 15,201
Kirk P. Pendleton 6,295,029 15,201
Robert T. Rakich 6,295,029 15,201
Roger W. Sevedge 6,295,029 15,201
Bill W. Wilcock 6,292,929 17,301
Paul B. Wilson 6,274,639 35,591
The following table sets forth the number of votes cast for,
against and withheld with respect to the amendment of The York
Group, Inc. 1996 Employee Stock Option Plan.
FOR AGAINST WITHHELD
Approve the amendment
of the Company's 1996
Employee Stock Option
Plan 5,697,806 594,910 17,514
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial data schedule
(b) Reports on Form 8-K
Form 8-K/A filed on May 14, 1998
10
<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.
August 13, 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)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE YORK GROUP, INC. 1998 SECOND 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,546
<SECURITIES> 0
<RECEIVABLES> 33,571
<ALLOWANCES> 3,742
<INVENTORY> 41,494
<CURRENT-ASSETS> 82,991
<PP&E> 78,491
<DEPRECIATION> 24,335
<TOTAL-ASSETS> 203,750
<CURRENT-LIABILITIES> 26,387
<BONDS> 82,275
0
0
<COMMON> 89
<OTHER-SE> 82,251
<TOTAL-LIABILITY-AND-EQUITY> 203,750
<SALES> 115,834
<TOTAL-REVENUES> 115,834
<CGS> 81,442
<TOTAL-COSTS> 81,442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,828
<INCOME-PRETAX> 12,014
<INCOME-TAX> 4,697
<INCOME-CONTINUING> 7,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,317
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.80
</TABLE>
