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, 1999
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
incorporation or organization) number)
8554 KATY FREEWAY, SUITE 200, HOUSTON, TEXAS 77024
(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 14,
1999 was 8,930,950.
<PAGE>
THE YORK GROUP, INC.
INDEX
PAGE
----
Part I. Financial Information
Item 1.Financial Statements
Consolidated Balance Sheets -
March 31, 1999 (Unaudited) and December 31, 1998... 2
Condensed Consolidated Statements of Income (Unaudited) -
Three months ended March 31, 1999 and 1998......... 3
Consolidated Statements of Cash Flows (Unaudited) -
Three months ended March 31, 1999 and 1998......... 4
Notes to Consolidated Financial Statements (Unaudited)..... 5-7
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition................. 8-10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K........... 11
Signature.................................................. 12
1
<PAGE>
THE YORK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1999 1998
----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ 1,126 $ 3,449
Trade accounts and notes receivable, net of allowance
for doubtful accounts and returns and allowances
of $3,919 in 1999 and $3,854 in 1998
Stockholders and affiliates ................... 5,522 5,706
Other ......................................... 26,181 26,418
Inventories, net .................................... 37,786 34,841
Prepaid expenses .................................... 2,640 2,984
Deferred tax assets ................................. 5,910 5,826
--------- ---------
Total current assets .......................... 79,165 79,224
--------- ---------
Property, plant and equipment, net .................... 61,596 60,226
Goodwill, net ......................................... 61,755 62,200
Deferred costs and other assets, net .................. 10,151 7,614
--------- ---------
Total assets .................................. $ 212,667 $ 209,264
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ................... $ 9,627 $ 4,718
Accounts payable .................................... 9,451 8,018
Accrued expenses .................................... 17,983 16,179
--------- ---------
Total current liabilities ..................... 37,061 28,915
--------- ---------
Long-term debt, net of current portion ................ 72,016 79,267
--------- ---------
Other noncurrent liabilities .......................... 8,281 7,822
--------- ---------
Deferred tax liabilities .............................. 8,061 8,173
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized and unissued .......................... -- --
Common stock, $.01 par value, 25,000,000 shares
authorized; 8,930,950 shares issued and
outstanding ...................................... 89 89
Additional paid-in capital .......................... 40,390 40,390
Cumulative foreign currency translation adjustment .. (100) (103)
Retained earnings ................................... 46,869 44,711
--------- ---------
Total stockholders' equity .................... 87,248 85,087
--------- ---------
Total liabilities and stockholders' equity .... $ 212,667 $ 209,264
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
THE YORK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------
1999 1998
-------- --------
Net sales (including sales to stockholders and
affiliates of $12,753 and $13,296,
respectively) ................................. $ 54,575 $ 55,154
Cost of sales .................................... 37,020 38,357
-------- --------
Gross profit ........................... 17,555 16,797
Other operating expenses ......................... 11,904 9,225
-------- --------
Operating income ....................... 5,651 7,572
Interest expense, net ............................ (1,426) (389)
-------- --------
Income before income taxes ....................... 4,225 7,183
Income tax provision ............................. 1,710 2,765
-------- --------
Net income ....................................... $ 2,515 $ 4,418
======== ========
Shares used in computing earnings per share:
Basic .................................... 8,931 8,907
======== ========
Diluted .................................. 9,037 9,154
======== ========
Earnings per share:
Basic .................................... $ 0.28 $ 0.50
======== ========
Diluted .................................. $ 0.28 $ 0.48
======== ========
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)
THREE MONTHS
ENDED MARCH 31,
-------------------
1999 1998
--------- -------
Cash flows from operating activities:
Net income ..................................... $ 2,515 $ 4,418
Adjustments to reconcile net income to net
cash
provided by operating activities -
Depreciation and amortization ................ 2,654 1,434
Deferred income tax (benefit) ................ (112) (409)
Loss on disposition of property, plant
and equipment ................................ 5 37
Provision for doubtful accounts .............. 34 32
Decrease/(increase) in:
Trade accounts and notes receivable ......... 163 (2,771)
Inventories ................................. (2,945) (1,313)
Prepaid expenses ............................ 344 (214)
Deferred costs and other assets ............. (2,887) (926)
Increase/(decrease) in:
Accounts payable ............................ 1,559 373
Accrued expenses ............................ 1,823 2,376
Other liabilities ........................... 462 946
-------- --------
Net cash provided by operating
activities .................................. 3,615 3,983
-------- --------
Cash flows from investing activities:
Capital expenditures ........................... (1,731) (2,420)
Collection of notes receivable ................. 79 79
Acquisitions, net of cash acquired of
$17,541 in 1998 .............................. -- (62,201)
-------- --------
Net cash used in investing activities........ (1,652) (64,542)
-------- --------
Cash flows from financing activities:
Dividends paid ................................. (357) (357)
Repayments of long-term debt ................... (3,929) (14,516)
Proceeds from issuance of long-term debt ....... -- 67,000
-------- --------
Net cash provided by (used in)
financing activities ........................ (4,286) 52,127
-------- --------
Net (decrease) in cash and cash equivalents ............ (2,323) (8,432)
Cash and cash equivalents, beginning of period ......... 3,449 15,478
-------- --------
Cash and cash equivalents, end of period ............... $ 1,126 $ 7,046
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchases of equipment under capital leases ...... $ 1,587 $ --
======== ========
Reductions of lease receivables through
application of earned rebate ........................... $ 145 $ --
======== ========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
THE YORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(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, 1998
audited financial statements and the notes thereto included in the Company's
1998 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.
2. SUPPLEMENTAL INFORMATION
March 31, December 31,
1999 1998
------- -------
(in thousands)
Inventories:
Raw materials .................................. $11,141 $13,204
Work in process ................................ 2,743 2,807
Finished goods ................................. 23,902 18,830
------- -------
Inventories, net ......................... $37,786 $34,841
======= =======
Property, Plant and Equipment:
Land and improvements .......................... $ 4,819 $ 4,819
Building and improvements ...................... 19,960 19,806
Equipment ...................................... 62,696 56,745
Construction-in-progress ....................... 3,350 6,144
------- -------
90,825 87,514
Less: accumulated depreciation ................. 29,229 27,288
------- -------
Property, plant and equipment, net........ $ 61,596 $60,226
======= =======
5
<PAGE>
3. EARNINGS PER SHARE
Earnings per share data for all periods presented has been computed pursuant to
SFAS No. 128, "Earnings Per Share" which requires a presentation of basic
earnings per share (basic EPS) and diluted earnings per share (diluted EPS).
Basic EPS excludes dilution and is determined by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could occur
if securities and other contracts to issue common stock were exercised or
converted into common stock. At March 31, 1999 the Company had options
outstanding for the purchase of an aggregate of 686,178 shares of common stock.
A reconciliation of weighted-average shares outstanding to shares used in
computing diluted EPS is as follows:
1999 1998
--------- ---------
Weighted-average shares outstanding ............ 8,930,950 8,906,950
Dilutive securities consisting of
options and convertible debt .................. 105,609 247,107
--------- ---------
Shares used in computing diluted EPS ........... 9,036,559 9,154,057
========= =========
4. SEGMENT INFORMATION
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information", requires certain financial and supplementary information to be
discussed on an annual and interim basis for each reportable segment of an
enterprise. In accordance with SFAS No. 131, the Company identified its
reporting segments based on its internal reporting of strategic business units.
The products within each segment require substantially different manufacturing
processes, are marketed to different customer bases and have different economic
characteristics.
The Company's Casket Segment includes the manufacturing and distribution
operations of a wide variety of metal, wood and other caskets, caskets
components and metal burial vaults. The Company's Commemorative Products Segment
produces and sells products, primarily cast bronze, which are used to
commemorate people, places and events. The All Other Segment includes the
Company's fleet operations, architectural services, merchandising products and
services, and corporate expenses. Product transfers between industry segments
are not material. The Company evaluates segment performance based upon operating
income.
Interim financial information regarding the Company's segments is presented
below:
THREE MONTHS ENDED MARCH 31,
1999 1998
--------- ---------
Net Sales:
Caskets................................ $ 40,885 $ 50,309
Commemorative Products................. 10,913 2,458
All other.............................. 2,777 2,387
--------- ---------
Consolidated net sales............... $ 54,575 $ 55,154
========= =========
Operating Income:
Caskets................................ $ 8,080 $ 10,793
Commemorative Products................. 1,865 415
All other.............................. (4,294) (3,636)
--------- ---------
Consolidated operating income........ $ 5,651 $ 7,572
========= =========
6
<PAGE>
5. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS 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. The Company has
1999 comprehensive income of $2.5 million, consisting of net income and foreign
currency translation adjustment. The only component of 1998 comprehensive income
for the Company was net income.
6. SUBSEQUENT EVENTS
On April 19, 1999, the Company acquired all of the outstanding common stock of
Star Manufacturing Corporation, an assembler of metal caskets, for $4 million,
of which $2 million was paid at closing and $2 million is payable in one year.
On April 30, 1999, the Company acquired all of the outstanding common stock of
OMC Industries, a manufacturer of cast metal signage products, for approximately
$3.6 million in cash. Both acquisitions will be accounted for using the purchase
method of accounting. Pro forma results of operations have not been presented as
the effects of the acquisitions are not significant.
7
<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, casket components and burial vaults. During
March, 1998, the Company acquired Colonial Guild, Ltd. thus becoming a major
manufacturer of commemorative products. 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. Burial vaults
are sold directly to funeral home and cemetery operators as well as to privately
owned distributors. The Company's commemorative memorial products are sold
directly to cemetery operators, monument dealers and funeral homes, and its
architectural signage products are sold primarily to sign and trophy dealers.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
First quarter 1999 sales decreased $.6 million, or 1.0%, from the same period in
1998. Casket Segment sales declined approximately $9.4 million, or 18.7%, to
$40.9 million in 1999 from $50.3 million in 1998. The decline reflects the end
of a casket supply agreement with Service Corporation International, effective
December 31, 1998, offset partially by an increase in casket sales to
independent distributors, and an increase in casket sales to independent funeral
homes by Company owned distribution operations. Casket sales increased at a rate
slightly greater than the approximate 1.0% quarter over quarter growth in the
number of deaths between 1998 and 1999. Sales of the Commemorative Products
Segment increased approximately $8.4 million, reflecting a full quarter's
activity in 1999 of Colonial Guild, Ltd., which was acquired in mid-March 1998.
Sales in the All Other Segment increased approximately $.4 million with the
increase attributable to sales of merchandising systems.
First quarter gross profit increased $.8 million, or 4.5%, to $17.6 million in
1999 compared to $16.8 million in 1998, and increased as a percentage of sales
to 32.2% from 30.5% in 1998. Gross profit was positively affected by an increase
in gross profit from the Commemorative Products Segment which was included for a
full quarter in 1999. However, gross profit of the Caskets Segment declined
primarily as a result of the loss of SCI revenues, including the effect of lost
volume on fixed cost absorption.
Other operating expenses increased $2.7 million or, 29.0%, to $11.9 million from
$9.2 million in 1998, and increased as a percentage of sales to 21.8% from 16.7%
in 1998. The increase primarily reflects increased expenses as a result of the
Commemorative Products Segment being included for a full quarter in 1999, as
well as increased corporate staff expenses, ERP training and information systems
maintenance expenses. The Commemorative Products Segment generally incurs a
higher level of other operating expenses than the Company's Casket Segment.
Net interest expense increased $1.0 million from 1998 to $1.4 million. This
increase reflects the increased leverage required by the Colonial Guild and
other cash acquisitions, as well as the effects of increased cash requirements
to finance YMS sales. Interest paid during the first quarter of 1999 and 1998
was approximately $.9 million and $.1 million, respectively.
Pretax income decreased $3.0 million to $4.2 million in 1999. The Company's
effective tax rate increased to 40.5% in 1999 from 38.5% in the 1998 quarter,
reflecting primarily the effect of non-deductible expenses, primarily goodwill
from the Colonial Guild acquisition. Cash paid for income taxes during the first
quarter of 1999 and 1998 was $.1 million and $2.7 million, respectively.
Net income decreased $1.9 million to $2.5 million in 1999, and both basic and
diluted earnings per share were $.28 in 1999 compared to $.50 and $.48,
respectively, in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1.1 million at March 31, 1999, representing a
decrease of $2.3 million from December 31, 1998. During the first quarter of
1999, cash flows from operations totaled approximately $3.6
8
<PAGE>
million, cash used in investing activities totaled approximately $1.7 million
and cash used in financing activities totaled $4.3 million.
Capital expenditures were $1.7 million and $2.4 million in the first quarter of
1999 and 1998, respectively. The Company has budgeted capital expenditures for
1999 of approximately $9.6 million. Major 1999 expenditures include information
systems projects and equipment additions which are anticipated to improve
productivity. 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.
Long-term debt, including current maturities, at March 31, 1999, totaled $81.6
million, which primarily consisted of $51 million drawn on the Company's
revolving credit facility, $21.4 million of senior notes (the "Senior Notes"),
subordinated promissory notes totaling $4.5 million issued in conjunction with
an acquisition and capital lease obligations totaling $4.7.
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.
THE YEAR 2000 ISSUE
The Company has assessed how it may be impacted by Year 2000 issues and has
formulated and commenced implementation of a plan to address both its
information technology ("IT") and non-IT systems issues. This plan involves a
combination of hardware and software modifications, upgrades and replacement,
including implementation of a new software package which will not only address
the Year 2000 issues but provide additional business process functionality in
the future. The Company is approximately 50% complete with its modifications,
upgrades and replacements. The Company currently expects testing of its plan to
be completed by July 1, 1999, and plan implementation with respect to all
significant operations completed by August 31, 1999.
The Company has surveyed its suppliers and reviewed its customers to identify
and resolve any Year 2000 issues that may arise with such customers and
suppliers, but the Company currently does not believe that any such issues will
have a material effect on its operations or financial results.
The Company currently estimates that the cost of Year 2000 compliance for its
information systems, combined with capital expenditures for hardware and
software involving functionality improvements will approximate $6.0 million, of
which approximately $5.0 million has already been incurred. Approximately 80% of
the remaining expenditures are expected to be capitalized.
The Company is in the process of establishing a worst-case scenario and written
contingency plans to address any issues that could arise should the Company or
any of its suppliers or customers not be prepared to accommodate Year 2000
issues timely. The Company believes that in an emergency it could revert to the
use of manual systems that do not rely on computers and could perform the
minimum functions required to provide information reporting to maintain
satisfactory control of its business. Should the Company have to utilize manual
systems, it is uncertain that it could maintain the same level of operations,
and the result could have a material adverse effect on its operations or
financial results. The Company intends to maintain constant surveillance on this
situation and develop more practicable contingency plans as may be required by
the changing environment.
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 with
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. However, with the
acquisition of Colonial Guild, Ltd. in March 1998, the Company's historical
seasonal variations have
9
<PAGE>
changed. Colonial Guild's sales are generally highest in the second and third
quarters, reflecting the timing of traditional memorialization holidays
(Memorial Day and Veterans Day). Therefore, the differing seasonal variations in
the Company's casket and commemorative products segments tend to result in a
more even seasonal pattern than has been the Company's history. However,
operating results 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 will continue to experience variability in its operating
results on a quarterly basis, which may make quarterly year-to-year comparisons
less meaningful.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes forward-looking statements. Such statements are based
upon management's current expectations and assumptions. Important factors that
could cause actual results to differ materially from those in forward-looking
statements included herein include, among others, customer demands and the
Company's reaction to such demands, changes in mortality and/or cremation rates,
further consolidation in the funeral service industry, and fluctuations in the
prices of raw materials and other manufacturing costs and the availability of
debt and/or equity financing options.
10
<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
None
11
<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.
May 14, 1999 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)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATE SCHEDULE CONTAINES SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE YORK GROUP, INC. 1999 FIRST 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,126
<SECURITIES> 0
<RECEIVABLES> 35,622
<ALLOWANCES> 3,919
<INVENTORY> 37,786
<CURRENT-ASSETS> 79,165
<PP&E> 90,825
<DEPRECIATION> 29,229
<TOTAL-ASSETS> 212,667
<CURRENT-LIABILITIES> 37,061
<BONDS> 72,016
0
0
<COMMON> 89
<OTHER-SE> 87,159
<TOTAL-LIABILITY-AND-EQUITY> 212,667
<SALES> 54,575
<TOTAL-REVENUES> 54,575
<CGS> 37,020
<TOTAL-COSTS> 37,020
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,426
<INCOME-PRETAX> 4,225
<INCOME-TAX> 1,710
<INCOME-CONTINUING> 2,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,515
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
