================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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)
_________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
(TITLE OF CLASS)
_________________________
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 under the Securities Exchange Act of 1934) is
not contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 24, 2000, there were 8,940,950 shares of The York Group, Inc.
Common Stock, $.01 par value, issued and outstanding, 5,459,258 of which, having
an aggregate market value of approximately $26,047,629, were held by
non-affiliates of the registrant (affiliates being, for these purposes only,
directors, executive officers and holders of more than 5% of the registrant's
Common Stock).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement related to the registrant's 2000 annual
meeting of stockholders, which proxy statement will be filed under the
Securities Exchange Act of 1934 within 120 days of the end of the registrant's
fiscal year ended December 31, 1999, are incorporated by reference into Part III
of this Form 10-K.
================================================================================
TABLE OF CONTENTS
PAGE
----
Item 1. Business ......................................................... 1
Item 2. Properties ....................................................... 4
Item 3. Legal Proceedings ................................................ 6
Item 4. Submission of Matters to a Vote of Security Holders .............. 7
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ............................................ 7
Item 6. Selected Financial Data .......................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................... 9
General ...................................................... 9
Results of Operations ........................................ 9
Liquidity and Capital Resources .............................. 11
The Year 2000 Issue .......................................... 12
Inflation .................................................... 12
Selected Quarterly Operating Results and Seasonality ......... 12
Forward-Looking Statements ................................... 13
Item 8. Financial Statements and Supplementary Data ...................... 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ......................... 14
Item 10. Directors and Executive Officers of the Registrant ............... 14
Item 11. Executive Compensation ........................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and Management ... 14
Item 13. Certain Relationships and Related Transactions ................... 14
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K ....................................................... 15
i
PART I
ITEM 1. BUSINESS
INDUSTRY OVERVIEW
The York Group, Inc. (the "Company" or "York") is one of the largest
casket manufacturers in the United States. The Company is also a major
manufacturer of commemorative products with a majority of such products used in
the death care industry.
The death care industry is characterized by generally favorable demographic
trends that have allowed the major manufacturers to enjoy relatively stable,
non-cyclical and fairly predictable business conditions. The number of deaths in
the United States has grown at an annual compound rate of approximately 1%,
increasing from approximately 2.0 million deaths in 1980 to approximately 2.3
million deaths in 1999. According to a 1994 report prepared by the United States
Department of Commerce, Bureau of the Census, the number of deaths in the United
States is expected to increase by approximately 1% per year between the years
1994 and 2000.
While an increasing number of annual deaths would be expected to increase
the demand for funeral products, a steady, gradual growth in the number of
cremations in the United States has mitigated much of the potential benefit.
According to industry statistics compiled and released by the Cremation
Association of North America ("CANA"), cremation was used in connection with
approximately 25% of the deaths in the United States in 1999, compared with
approximately 10% in 1980. Funeral merchandise, including caskets and
memorialization products, are sold in a smaller percentage of cremations than in
traditional interments/entombments. Accordingly the number of caskets sold in
the United States has remained fairly constant, with unit volumes of
approximately 1.8 million to 1.9 million caskets per year over the past ten
years, with a similar constancy in the memorialization segment of the market.
Caskets generally are categorized by the type of material from which they
are produced, with three categories: metal, wood and other. According to
statistics compiled and released by the Casket & Funeral Supply Association of
America, approximately 1.8 million caskets were sold in the United States in
1999, with metal caskets accounting for approximately 1.3 million units, wood
caskets accounting for approximately 270,000 units and other caskets accounting
for approximately 230,000 units. The number of casket manufacturers, assemblers
and distributors has declined over the past thirty years as a result of industry
consolidation. The Company estimates that the three largest casket manufacturers
accounted for over 60% of the finished casket unit volume in 1999.
Commemorative products used in the death care industry are also categorized
by the type of material from which they are produced, with two primary
categories: granite and bronze. Of the 2.3 million deaths in the United States,
approximately 2.0 million are memorialized with a traditional granite or bronze
memorial, with approximately two-thirds being granite and one-third being
bronze.
THE COMPANY
The Company produces a wide variety of all three types of caskets, metal
burial vaults and casket components. Metal caskets are made from various gauges
of cold rolled steel, stainless steel, copper and bronze. Wood caskets are made
from nine different wood species ranging from poplar to mahogany, as well as
from veneer and paper covered particle board and fiber board. The Company also
produces caskets made from cloth and paper covered particle board and corrugated
materials. The Company manufactures metal burial vaults for use in the interment
segment of the death care industry, as well as metal casket components,
functional and decorative casket hardware and interior fabrics for its own use
and for sale to other casket assemblers.
Commemorative products are produced from cast bronze and come in a variety
of sizes, styles and colors. Memorials are marketed and sold directly to
cemetery operators, monument dealers and funeral homes. Additionally,
architectural signage products are sold through a network of independent sign
and trophy dealers.
1
PRODUCTS AND SERVICES
CASKETS. The Company believes it manufactures a more comprehensive line of
caskets than any of its major competitors. Caskets can be customized around
several dozen basic designs in combination with many different options relating
to such features as color, interior design, handles and trim in order to
accommodate specific religious, ethnic, or other personal preferences.
Metal caskets are generally categorized by whether the casket is
non-gasketed or gasketed, and by material (i.e. bronze, copper, or steel) and in
the case of steel, by the gauge, or thickness, of the metal. The Company's metal
casket line consists of non-gasketed 20 gauge steel, gasketed 20, 18 and 16
gauge steel, and gasketed stainless steel, copper and bronze.
The Company's wood caskets are manufactured from nine different species of
wood, as well as from veneer and paper covered particle and fiber board. The
species of wood used are poplar, pine, ash, oak, maple, birch, cherry, walnut
and mahogany. The Company is the largest manufacturer of all-wood constructed
caskets, which are manufactured using pegged and dowelled construction, and
include no metal parts. All-wood constructed caskets are preferred by certain
religious groups.
The Company's other caskets, including cremation containers, are
manufactured from particle board and corrugated materials covered with cloth or
paper. These products are used primarily, although not exclusively, in
cremation.
Metal vaults are manufactured from various gauges of steel, as well as
stainless steel, copper and bronze. The vaults have various exterior finishes,
including paint and porcelain.
Casket components include stamped metal body parts, metal locking
mechanisms for gasketed metal caskets, adjustable beds, interior fabrics and
panels, and metal and plastic handles and corners. The Company dyes fabrics used
for casket interiors and also processes a line of fabrics for use in the
production of cloth-covered caskets. In addition, embroidered panel fabrics are
also produced by the Company.
COMMEMORATIVE PRODUCTS. The Company's commemorative products are used to
identify or commemorate people, places and events. The primary death care
memorialization products include flush bronze memorials, flower vases, niches
and crypt letters. Additionally, the Company manufactures and sells
architectural signage products, including bronze plaques and letters. The
Company's product offerings are based upon basic designs, which are personalized
and enhanced to personal taste using additional trim and color options.
DISTRIBUTION AND MARKETING
The Company currently markets its casket products through Company and
privately owned distributors. Burial vaults are sold directly to funeral home
and cemetery operators as well as to privately owned distributors. The Company's
commemorative products are sold directly to cemetery operators, monument dealers
and funeral homes, as well as sign and trophy dealers. Approximately 1% of the
Company's net sales were to customers outside the United States. The Company
normally fills orders within one month and, therefore, does not have a
significant backlog of unfilled orders.
York's casket distributors generally concentrate their sales and service
efforts in their primary market area, with some distributors assigned exclusive
territories. York believes that each of its distributors is committed to
providing the highest quality service to the funeral homes within its primary
market area.
York's major marketing efforts include merchandising planning and display
programs, training programs, volume purchase programs and The York Children's
Foundation(SM).
MERCHANDISING PLANNING AND DISPLAY PROGRAMS. The Company provides product
planning, merchandising and display products and consulting services to funeral
service businesses, cemetery operators and monument dealers. These products and
services assist funeral service professionals in providing value and
satisfaction to their client families.
2
VOLUME PURCHASE PROGRAMS. York offers several discount and rebate programs
based on the volume of York products purchased. The costs of these programs are
generally shared equally by York and the applicable distributor.
TRAINING PROGRAMS. The Company provides training programs for funeral
service professionals, including sessions which are accredited for continuing
education by many states. These offerings includes instruction on cremation
marketing, product knowledge, and funeral products and services merchandising.
These programs provide funeral service providers with valuable information and
increase their knowledge of and goodwill toward the Company.
MEMORIAL PRE-NEED PROGRAM. The Company's commemorative products segment
manufactures death care memorial products under a "pre-need" program where the
basic memorial is produced and sold currently, with completion of the memorial,
including applying dates and final-finishing processes, taking place when the
service becomes "at-need".
THE YORK CHILDREN'S FOUNDATION(SM). The York Children's FoundationSM (the
"Foundation") supports charitable children's organizations across the country
as a means of memorializing persons buried in York caskets. Grants made by the
Foundation allow the sponsoring funeral home to promote its name and goodwill
within its local community and allow the Company to further differentiate itself
from its competitors.
MANUFACTURING
CASKETS
Metal casket parts are produced by stamping steel, copper and bronze sheets
into casket body parts. Locking mechanisms and adjustable beds are produced by
stamping and assembling a variety of steel parts. Casket handles and corners are
produced from stamped or cast metal or injection molded plastic. In the
production of wood caskets, the Company purchases from sawmills various species
of uncured wood, which it dries and cures. The cured wood is cut into casket
components. Other caskets are produced by cutting and forming particle board and
corrugated materials into component parts for assembly.
The completed metal stampings, wood and corrugated components are then
assembled into finished caskets. A variety of designs are produced by combining
various parts and components which are attached to the main casket body. Other
assembly areas continue the manufacturing process through application of various
paints, stains and other finishes and installation of interiors. Metal vaults
are manufactured in a manner very similar to that used to manufacture metal
caskets.
COMMEMORATIVE PRODUCTS
Cast bronze commemorative products are produced by pouring molten bronze
into sand baked molds. After the molten metal cools, the molds are removed and
the casting is cleaned and trimmed. The completed casting is then finished
through the application of paint and other finishes.
SUPPLIERS AND RAW MATERIALS
The primary basic materials required for the Company's casket manufacturing
operations are cold rolled steel, lumber and corrugated materials. The Company
also purchases copper, bronze, stainless steel and textiles. The primary basic
material required for the manufacture of commemorative products is bronze ingot.
The Company typically negotiates blanket purchase orders or 12-month supply
agreements with large, integrated steel and bronze suppliers that have
demonstrated timely delivery, high quality material and competitive prices. The
Company purchases lumber from a number of sawmills and distributors. The Company
purchases most of its lumber from sawmills within 150 miles of its wood casket
manufacturing facility in York, Pennsylvania. The Company normally purchases
uncured lumber which it cures and dries. Particle board and corrugated material
is obtained primarily from major suppliers of wood and paper products.
3
The Company's manufacturing and sourcing systems allow it to meet customer
requirements for quick deliveries and minimize its need to carry significant raw
material inventories. The Company has not experienced any significant shortages
of raw materials and normally does not carry inventories of raw materials or
finished products in excess of those reasonably calculated to meet production
and shipping schedules. Although the Company purchases some of its supplies and
raw materials from a limited number of suppliers, the Company believes that
alternative sources are readily available at comparable prices.
COMPETITION
Competition within the casket and commemorative products businesses is
highly competitive. The Company competes with other manufacturers on the basis
of product quality, price, service, design availability and breadth of product
line.
The Company provides a full line of casket products that it believes is
more comprehensive than any of its major competitors. Although there are a large
number of casket industry participants, the three largest casket manufacturers
account for over 60% of the finished caskets produced. In addition to York,
Batesville Casket Company, a subsidiary of Hillenbrand Industries, Inc., and
Aurora Casket Company, Inc. are the most significant industry participants.
The two largest suppliers of commemorative products for the death care
industry are Matthews International Corporation (bronze) and Rock of Ages
(granite). It is estimated that together with York these suppliers account for
slightly less than 50% of the death care memorialization market. The Company
also competes with several manufacturers in the architectural signage business.
INTELLECTUAL PROPERTY
The Company owns a number of domestic and international trademarks, service
marks and patents. However, the Company believes the loss of any or a
significant number of its trademarks, service marks or patents would not have a
material impact on its operations.
EMPLOYEES
The Company has approximately 1,836 employees, substantially all of whom
work full-time. Approximately 83% are engaged in manufacturing activities, 9%
are engaged in field sales and distribution activities with the balance holding
managerial, administrative, clerical or other office positions. Approximately
100 employees are covered by collective bargaining agreements, principally
production workers at the Lynn, Indiana plant, whose agreement expires in June
2002. The Company believes that its relationship with its employees is good.
ITEM 2. PROPERTIES
The Company owns twelve (12) production facilities and four (4) finished
casket distribution warehouse facilities. The Company also leases twenty-two
(22) finished casket distribution warehouse facilities and three (3)
manufacturing facilities. Additionally, the Company leases warehouses, with an
aggregate of approximately 45,000 square feet near certain of its assembly
plants in order to stock finished caskets, allowing the Company to more
effectively schedule production and better serve its customers.
4
The Company believes that its production and distribution warehouse
facilities are adequate to support its current and projected level of
operations. The following table sets forth additional information regarding the
Company's manufacturing facilities.
APPROXIMATE
LOCATION PRINCIPAL PRODUCTS OR ACTIVITY SQUARE FEET
- ------------------------------------- ---------------------------------------------- ------------
York, Pennsylvania................... Manufacture of finished wood caskets 307,000
St. Leonard d'Aston, Quebec, Canada.. Manufacture of finished wood caskets 35,000
Marshfield, Missouri................. Manufacture of finished metal caskets 86,000
Lynn, Indiana........................ Manufacture of finished metal caskets 76,000
Richmond, Indiana.................... Manufacture of finished metal caskets 21,000
West Point, Mississippi.............. Manufacture of finished metal caskets 99,000
Richmond, Indiana.................... Metal casket stamping, manufacture of casket
beds, locks and hardware items 92,000
Anniston, Alabama.................... Metal casket stamping, manufacture of metal
burial vaults 63,000
Lawrenceville, Georgia............... Manufacture of metal casket handles and
corners and processing of interior fabrics 129,000
Richmond, Indiana.................... Manufacture of cloth covered caskets and
cremation containers (leased) 164,000
London, Kentucky..................... Manufacture of metal burial vaults (leased) 49,000
Richmond, Indiana.................... Injection molding of plastic parts,
principally casket corners (leased) 18,000
Kingwood, West Virginia.............. Manufacture of bronze commemorative products 103,000
Aiken, South Carolina................ Manufacture of bronze commemorative products 96,000
Bryan, Texas......................... Manufacture of bronze commemorative products 37,000
The following table sets forth additional information regarding the
Company's distribution warehouse facilities:
APPROXIMATE
NUMBER OF AGGREGATE
STATE LOCATIONS SQUARE FEET
------------------------------------- ----------- ------------
Alabama.............................. 1 14,000
California........................... 1 23,000
Connecticut.......................... 1 16,000
Florida.............................. 2 29,000
Illinois............................. 1 25,000
Indiana.............................. 2 13,000
Kentucky............................. 1 14,000
Louisiana............................ 1 15,000
Maine................................ 1 5,000
Massachusetts (owned)................ 1 18,000
Michigan............................. 1 11,000
Mississippi (owned).................. 1 20,000
New Mexico........................... 1 8,000
North Carolina....................... 1 15,000
Ohio................................. 3 40,000
Oregon............................... 1 6,000
Texas (2 owned)...................... 4 89,000
Washington........................... 2 26,000
In addition to its production and warehouse facilities, the Company leases
approximately 21,000 square feet of space for executive and administrative
offices in Houston, Texas. The lease term expires October 31, 2003. The Company
also owns a 20,400 square foot facility in New Orleans, Louisiana which
5
serves as its merchandising and design center, and an inactive 38,000 square
foot foundry facility in Portland, Oregon which the Company is currently
attempting to sell.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incidental to the
conduct of its business.
The Company and its wholly-owned subsidiary, York Agency, Inc. (the
"Agency"), has filed a breach of contract action against Allianz Life
Insurance Company of North America ("Allianz"). Allianz filed breach of
contract counterclaims against the Company and the Agency. This matter is
currently in the discovery process. The Company intends to vigorously pursue its
action against Allianz and intends to aggressively defend Allianz's action
against the Company. No meaningful evaluation of outcome can be made of the case
at this time; however, the Company does not expect the outcome of the case to
have a material adverse effect on the Company's financial position or results of
operations.
The Company currently is not engaged in any other legal proceeding that is
expected to have a material adverse effect on the Company.
REGULATORY MATTERS
The Company is subject to various federal, state and local laws and
regulations relating to the protection of the environment and the health and
safety of employees.
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 allegedly had violated certain other hazardous wastes
regulations in the operations of its electroplating line and associated
wastewater treatment system. On November 8, 1991, the Company and the GDNR
entered into a Consent Order (the "1991 Order") in settlement of the
allegations. The 1991 Order was subsequently amended in 1994 to reflect the plan
to conduct closure under Georgia laws and rules of the alleged waste management
unit or units at the facility and to require some additional remediation,
monitoring and investigation commitments on the Company's part. The GDNR
approved the revised closure plan and post-closure plan for the facility in
August 1995. Moreover, the GDNR issued a Hazardous Waste Facility Permit
effective September 27, 1995, to document these post-closure care requirements.
The Company has a reserve of approximately $0.4 million for environmental
remediation at December 31, 1999, and has provided financial assurance in the
form of a letter of credit in the amount of approximately $.9 million to secure
its post-closure obligations (See Note 6 of Notes to the Consolidated Financial
Statements).
In August 1999, the Company received from the United States Environmental
Protection Agency ("EPA") a General Notice letter relating to the Company's
facility in York, Pennsylvania. The letter notified the Company of its potential
liability under the Comprehensive Environmental Response Compensation and
Liability Act for response action and cleanup at a site known as the Old City of
York Landfill, located in York, Pennsylvania (the "Site") and advised the
Company that in 1991 the EPA sent an information request to the Company
concerning the Company's potential liability for waste it allegedly generated
that may have been disposed of at the Site. In 1987, the United States, the City
of York, and other parties entered an Administrative Order by Consent, which
addressed the Site cleanup and response action, and imposed responsibilities
upon the named parties. Since that time, response action and cleanup at the Site
has been ongoing. Expenses incurred to date are in excess of $4,000,000 -
$5,000,000. Total response costs are not known at this time, as the EPA
estimates cleanup could continue for as long as thirty years. The cleanup
relates to groundwater and domestic wells contaminated with volatile organic
compounds from waste disposal practices at the Site. While the Company has not
been joined in any lawsuit or administrative order relating to the Site or its
cleanup, it is typical for the EPA to assert that all parties responsible for
improper waste disposal at the Site are jointly and severally responsible for
cleanup costs. The Company is currently investigating its relationship to the
Site. At this time, the Company is without sufficient information to quantify
any liability it may have related to the cleanup and response action at the
Site.
6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been traded in the over-the-counter market
since April 2, 1996 and quoted on the Nasdaq National Market under the symbol
"YRKG". On December 31, 1999, 191 stockholders of record held the Company's
8,940,950 shares of outstanding common stock. The Company believes there are
approximately 1,800 beneficial owners of its common stock.
The following table presents the Company's quarterly high and low common
stock prices, as well as dividends per share, for the most recent two years:
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
--------- --------- --------- --------- --------- ---------
First Quarter........................ $ 11.000 $5.906 $0.04 $ 25.250 $ 15.500 $0.04
Second Quarter....................... $ 9.000 $6.875 $0.04 $ 19.500 $ 17.250 $0.04
Third Quarter........................ $ 9.000 $3.500 $0.04 $ 19.375 $ 9.125 $0.04
Fourth Quarter....................... $ 5.000 $3.500 $0.04 $ 12.000 $ 7.125 $0.04
The Company has paid dividends on a quarterly basis since the second
quarter of 1996. Since its stock has been publicly traded, the Company has
issued fifteen consecutive quarterly dividends of $.04 per share. Any future
change in the Company's dividend policy will be made at the discretion of the
Board of Directors based upon pertinent factors, such as financial condition of
the Company, bank covenants, capital and expansion requirements and other
factors the Board of Directors may consider.
7
ITEM 6. SELECTED FINANCIAL DATA
INCOME STATEMENT DATA:
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales............................... $ 198,042 $ 230,195 $ 178,690 $ 149,178 $ 140,577
Cost of goods sold...................... 135,918 165,048 130,144 116,408 111,939
---------- ---------- ---------- ---------- ----------
Gross profit............................ 62,124 65,147 48,546 32,770 28,638
Other operating expenses................ 43,334 42,432 28,439 13,359 11,097
---------- ---------- ---------- ---------- ----------
Operating income........................ 18,790 22,715 20,107 19,411 17,541
Interest expense, net................... (6,611) (4,732) (650) (983) (3,147)
Other income............................ 610 -- -- -- --
---------- ---------- ---------- ---------- ----------
Income before income taxes and
extraordinary item.................... 12,789 17,983 19,457 18,428 14,394
Income tax provision.................... 5,476 7,193 7,394 6,907 5,554
---------- ---------- ---------- ---------- ----------
Income before extraordinary item........ 7,313 10,790 12,063 11,521 8,840
Extraordinary item, net of tax.......... -- -- -- (736) --
---------- ---------- ---------- ---------- ----------
Net income.............................. $ 7,313 $ 10,790 $ 12,063 $ 10,785 $ 8,840
========== ========== ========== ========== ==========
Earnings per share:
Basic:
Income before extraordinary
item....................... $ .82 $ 1.21 $ 1.38 $ 1.53 $ 1.60
========== ========== ========== ========== ==========
Net income.................... $ .82 $ 1.21 $ 1.38 $ 1.43 $ 1.60
========== ========== ========== ========== ==========
Diluted:
Income before extraordinary
item....................... $ .81 $ 1.19 $ 1.34 $ 1.46 $ 1.47
========== ========== ========== ========== ==========
Net income.................... $ .81 $ 1.19 $ 1.34 $ 1.37 $ 1.47
========== ========== ========== ========== ==========
Shares used in computing earnings per
share:
Basic.............................. 8,937 8,922 8,712 7,518 5,519
========== ========== ========== ========== ==========
Diluted............................ 9,028 9,085 8,979 7,874 6,030
========== ========== ========== ========== ==========
BALANCE SHEET DATA:
AS OF DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------
Working capital......................... $ 27,522 $ 50,309 $ 56,607 $ 53,736 $ 29,202
Total assets............................ 213,651 209,264 130,545 102,896 74,873
Long-term debt, less current
maturities............................ 61,355 79,267 25,925 26,435 36,210
Stockholders' equity.................... 91,409 85,087 75,647 56,072 18,758
OPERATING DATA:
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------
Capital expenditures.................... $ 8,348 $ 11,016 $ 9,376 $ 4,717 $ 4,381
Depreciation and amortization........... 10,626 8,518 5,212 4,092 3,741
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto, included
elsewhere in this Form 10-K.
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 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.
The Company owns casket distribution operations serving the New England,
Southern, Northern California, Pacific Northwest and certain Midwest markets. In
the remainder of the domestic markets, the Company believes that privately owned
casket distributors will continue to be the most effective way to market the
Company's casket products and expects to continue to strongly support the
efforts of these privately owned distributors.
Funeral homes are required by federal regulation to provide price lists to
their customers, and generally publish such price lists annually. As a result,
the casket manufacturing industry has established the industry-wide practice of
setting its prices each year. The memorialization business also establishes
prices annually, generally during the first calendar quarter. In setting these
prices, the Company considers expected raw material prices, competitive
considerations, the general state of the economy and inflationary expectations.
This industry practice requires the Company to set its prices in anticipation
of, rather than in response to, changes in raw material and other costs. Over
the past three years, the Company's annual weighted average price increases have
ranged from 2.5% to 4.0%. Limitations on the timing of price increases relative
to changes in costs may cause fluctuations in operating margins, and therefore,
make quarterly year-to-year comparisons less meaningful. The major domestic
casket manufacturers have all developed discount and rebate programs, which are
commonplace in the casket manufacturing industry, designed to encourage volume
purchases by funeral homes. In the case of the Company, these discounts are
generally absorbed equally between the Company and the distributors.
The following table sets forth certain income statement data of the Company
expressed as a percentage of net sales for the periods presented.
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
Net sales............................ 100.0% 100.0% 100.0%
Gross profit......................... 31.4 28.3 27.2
Other operating expenses............. 21.9 18.4 15.9
--------- --------- ---------
Operating income..................... 9.5 9.9 11.3
Interest expense, net................ (3.3) (2.1) (.4)
Other income......................... .3 -- --
Income tax provision................. (2.8) (3.1) (4.1)
--------- --------- ---------
Net income........................... 3.7% 4.7% 6.8%
========= ========= =========
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net sales decreased $32.2 million, or 14.0%. The decrease reflects the loss
of Service Corporation International ("SCI") business after expiration of the
Company's casket supply agreement with SCI at the
9
end of 1998, and a slight decline in finished casket sales to independent
distributors. The decline was partially offset by a full year effect of the
Company's acquisition of Colonial Guild, Ltd. ("Colonial Guild") in March of
1998, the effects of the second quarter 1999 acquisitions of Star Manufacturing
Corporation and OMC Industries, increased finished casket unit volume through
Company owned distribution operations and a better relative mix of casket units.
Gross profit decreased $3.0 million, or 4.6%. Gross margin increased from
28.3% to 31.4%. The decrease in gross profit primarily reflects the loss of SCI
business, partially offset by cost containment measures instituted after the SCI
loss and the effects of 1998 and 1999 acquisitions. The improvement in gross
margin primarily reflects the effects of the Colonial Guild and OMC Industries
acquisitions, which generate higher gross margins than does the Company's casket
manufacturing operations. Additionally, 1998 gross margins were negatively
impacted by lost manufacturing cost absorption as the SCI supply agreement drew
to a close late in the year.
Other operating expenses increased $.9 million, or 2.1% and as a percentage
of sales increased to 21.9% from 18.4%. The increase as a percentage of sales
reflects the effects of the Colonial Guild and OMC Industries acquisitions,
which incur a higher level of these expenses relative to casket manufacturing
operations. However, the growth in other operating expenses was limited by the
cost containment and expense reduction efforts put in place after the loss of
SCI business.
Net interest expense increased $1.9 million reflecting use of cash for
acquisitions in 1998 and 1999, higher interest rates and higher debt
amortization expense in 1999.
Other income primarily reflects income recognized based upon a change in
estimate relative to settlement of litigation.
The Company's effective tax rate increase to 42.8% from 40.0%, primarily
attributable to the combined effects of higher non-deductible expenses and lower
pretax income.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales increased $51.5 million, or 28.8%. The increase reflects the full
year effect on sales of 1997 casket manufacturing and distribution acquisitions,
sales from casket manufacturing and distribution operations acquired in 1998,
and the acquisition of Colonial Guild in March 1998. These increases were
partially offset by a decline in sales to SCI from Company owned distributions
operations as well as a decline in sales to independent distributors as a result
of declining sales by those distributors to SCI. The decline in sales to SCI
occurred primarily in the fourth quarter of 1998.
Gross profit increased $16.6 million, or 34.2%. Gross margin increased from
27.2% to 28.3%. The improvement in gross margin reflects casket distribution
acquisitions consummated in 1997 and 1998, which generally generate higher gross
margins relative to casket manufacturing operations, as well as the acquisition
of Colonial Guild in 1998, which also generates a higher gross margin than the
Company's traditional casket business. Additionally, in 1997 the Company
incurred approximately $2.9 million of expenses related to facility realignment
that did not recur in 1998. Gross margin was negatively impacted by reduced
sales to SCI, and reduced manufacturing absorption as a result of inventory
reduction efforts throughout the Company in anticipation of the conclusion of
the SCI casket purchase requirements agreement at the conclusion of 1998.
Other operating expenses increased $14.0 million, or 49.2%, and as a
percentage of sales increased from 15.9% to 18.4%. The increase in other
operating expenses as a percentage of sales reflects the 1997 and 1998
acquisitions of casket distribution operations and the acquisition of Colonial
Guild, all of which incur a higher relative level of these expenses relative to
casket manufacturing operations, and increased corporate expenses.
Net interest expense increased $4.1 million as a result of debt incurred to
fund acquisitions, most notably, Colonial Guild.
The Company's effective tax rate increased to 40.0% from 38.0%. The
increase primarily reflects an increase in non-deductible expenses.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on cash flow from operations and
borrowings from banks and other lenders to fund its operations.
Cash and cash equivalents were $.02 million at December 31, 1999,
representing a decrease of $3.4 million from December 31, 1998. In 1999, cash
flows from operations totaled approximately $17.3 million, cash used in
investing activities totaled approximately $11.5 million and cash used in
financing activities totaled approximately $9.6 million.
Capital expenditures were $8.3 million, $11.0 million and $9.4 million in
1999, 1998 and 1997, respectively. The Company has budgeted capital expenditures
for fiscal year 2000 of approximately $5.0 million, which primarily reflect
routine maintenance and replacement projects, with no significant individual
projects.
Long-term debt, including current maturities, at December 31, 1999, totaled
$80.1 million, which primarily consisted of $16.3 million of senior notes (the
"Senior Notes"), $32.0 million outstanding on the Company's bank term loan,
$20.9 million outstanding on the Company's revolving credit facility,
subordinated promissory notes totaling $4.5 million issued in conjunction with
an acquisition, capital lease obligations totaling $3.8 million and deferred
acquisition purchase cost of $1.9 million.
The Company entered into an amended and restated $60.0 million revolving
credit facility (the "Facility") in August 1999. Under the terms of the amended
agreement, the Facility consists of a $35.0 million amortizing term loan and a
revolving credit facility providing for borrowings and the issuance of letters
of credit in an aggregate amount equal to the lesser of $25.0 million or a
borrowing base, as defined. The Facility is secured and expires on June 30,
2001. 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, which was approximately 6.25% at December 31, 1999,
are based upon certain financial ratios, as defined, with a specific ceiling
(LIBOR +2.50%; prime +1.50%) and floor (LIBOR +1.75%: prime +.75%). The Facility
is secured by substantially all of the Company's assets, including the stock of
all the Company's subsidiaries, does not permit the payment of cash dividends
under certain circumstances and requires the Company's compliance with certain
leverage, net worth and debt service covenants. The Facility also contains a
limitation on the Company's capital expenditures and contains cross-default,
provisions with the Company's other borrowing facilities. The Facility and the
Senior Notes are guaranteed by the Company's subsidiaries. The banks and the
holder of the Senior Notes have entered into an intercreditor agreement whereby
both sets of creditors have a security interest in substantially all of the
Company's assets. At December 31, 1999, $2.0 million was available under the
Facility.
The Company's primary capital requirements are for capital expenditures and
working capital. As of December 31, 1999, the Company had invested over $8.0
million in the installation of leased merchandising systems on behalf of its
customers. During the third quarter of 1999, the Company formed an alliance with
a third-party commercial leasing company that allows the Company to continue
offering the merchandising program without having to fund each installation.
The Company's capital resources consist of its cash balances, future cash
flows from operations and the borrowing capacity under its credit facility. The
Company believes that these resources will be sufficient to fund capital
expenditures and meet other operating requirements, however, the Company would
require additional capital resources in order to finance any future acquisition
activities. There can be no assurance that the Company will be successful in
obtaining debt or equity financing, if any, on terms that are favorable.
The term loan and revolving credit facility, which aggregated approximately
$52.9 million as of December 31, 1999, are due in the second quarter of 2001,
which will cause them to be classified as current liabilities in the second
quarter of 2000 pursuant to the current terms. If the Company is unable to
obtain modifications related to its term loan and revolving credit facility, the
Company projects that it may be out of compliance beginning in the second
quarter of 2000 with the working capital covenant of its debt
11
agreements. The Company is currently contacting its lenders to discuss extending
the terms or modifying the covenants of the facility. Management believes that
it will be successful in obtaining the modifications discussed above or
successful alternative financing; however, there can be no assurances of such.
THE YEAR 2000 ISSUE
During 1998 and 1999 the Company assessed the potential impact of Year 2000
issues and formulated and implemented a plan to address both its information
technology ("IT") and non-IT systems issues. This plan involved a combination
of hardware and software modifications, upgrades and replacements, including
implementation of a new software package which not only addressed the Year 2000
issues but provided additional business process functionality for the future.
The Company is essentially complete with its modifications, upgrades and
replacements.
The Company's estimated cost of Year 2000 compliance for its information
systems, combined with capital expenditures for hardware and software involving
functionality improvements approximated $7.5 million. The Company has
experienced no significant business effects related to Year 2000 issues.
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 of caskets 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. The Company's memorialization sales seasonally
lag the Company's casket business, and are highest in the second quarter,
coinciding with the Memorial Day holiday, and lowest in the first quarter. In
addition, casket and memorialization products 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 fourth quarter of 1999 the Company recorded non-recurring
adjustments which were individually significant but were not significant in the
aggregate.
The Company revised its estimate of deferred revenue relative to its bronze
memorial pre-need program. Under this program, memorial products are sold on a
pre-need basis and the basic memorial is produced and stored until the time of
need when it is completed by applying dates and final finishing. During the
fourth quarter the Company consolidated certain of its operations and
reevaluated its estimated completion costs, which are estimated to be less due
to anticipated economies of scale and reduced labor costs. The Company also
reassessed the stage of completion of its memorial products and it was
determined that the actual extent of completion exceeded original estimates.
Based upon the analysis, management reduced the Company's deferred revenue
estimate by approximately $1.1 million.
Additionally, during the fourth quarter of 1999 the Company performed
detailed analyses of inventory balances related to its merchandising system
products and metal vault operations, and refined its accounting processes for
inventories. These analyses were performed as a result of product design and
sourcing changes, production facility consolidation efforts and market channel
realignments which occurred during the second and third quarters of 1999, as
well as of the implementation of the Company's new information systems
throughout 1999. Based upon these analyses, an adjustment of approximately $1.8
million was recorded to write off and write down inventories.
The Company also recorded other income of approximately $0.6 million
resulting from a change in estimate relative to the ultimate settlement of
litigation.
12
The following table sets forth certain unaudited income statement data for
each quarter of 1999 and 1998:
QUARTER ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1999
Net sales............................... $54,575 $50,207 $ 45,372 $47,888
Gross profit............................ 17,555 16,089 14,789 13,691
Operating income........................ 5,651 4,368 4,065 4,706
Net income.............................. 2,515 1,803 1,409 1,586
Earnings per common share:
Basic.............................. .28 .20 .16 .18
Diluted............................ .28 .20 .16 .17
1998
Net sales............................... $55,154 $60,680 $ 58,352 $56,009
Gross profit............................ 16,768 17,420 15,064 15,895
Operating income........................ 7,572 6,270 4,500 4,373
Net income.............................. 4,418 2,899 1,810 1,663
Earnings per common share:
Basic.............................. .50 .33 .20 .19
Diluted............................ .48 .32 .20 .19
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to market risk,
primarily from changes in interest rates. The Company continually monitors
exposure to market risk and develops appropriate strategies to manage this risk.
The Company is not exposed to any other significant market risks, including
commodity price risk, foreign currency exchange risk or interest rate risks from
the use of derivative financial instruments. Management does not use significant
derivative financial instruments for trading or to speculate on changes in
interest rates or commodity prices.
INTEREST RATE EXPOSURE
The Company's exposure to changes in interest rates primarily results from
its long-term debt with both fixed and floating interest rates. At December 31,
1999, approximately 31.8% ($25.4 million) of the long-term debt was subject to
variable interest rates. The annual effect of a hypothetical 100 basis point
increase in interest rates, based upon the amount of floating rate debt
outstanding at December 31, 1999, would be approximately $0.3 million. At
December 31, 1999, the fair value of the Company's fixed rate debt approximated
carrying value based upon discounted future cash flows using current market
prices.
FORWARD-LOOKING STATEMENTS
Certain of the information relating to the Company contained or
incorporated by reference in this Form 10-K is "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. All
statements included or incorporated by reference in this Form 10-K or made by
management of the Company, other than statements of historical fact regarding
the Company, are forward-looking statements. These statements, and all phases of
the Company's operations, are subject to risks and uncertainties, any one of
which could cause actual results to differ materially from those described in
the forward-looking statements. Such risks and uncertainties include or relate
to, among other things, the availability of debt and equity financing on terms
that are favorable to the Company, changes in demand for the Company's products
and services that could be caused by a number of factors, including changes in
death rate, cremation rates, competitive pressures and economic conditions, the
effect of competition on the Company's ability to maintain margins on existing
or acquired operations, the Company's ability to successfully integrate the
operations of acquired companies with existing operations, including risks and
13
uncertainties relating to its ability to achieve administrative and operating
costs savings and anticipated synergies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item 8 are incorporated under
Item 14 in Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item as to the directors and executive
officers of the Company is hereby incorporated by reference from the information
appearing under the captions "Proposal -- Election of Directors" and "Compliance
with Section 16(a) of the Exchange Act" in the Company's definitive proxy
statement which involves the election of directors and is to be filed with the
Commission pursuant to the Exchange Act of 1934, as amended (the "Exchange
Act"), within 120 days of the end of the Company's fiscal year ended December
31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item as to the management of the Company
is hereby incorporated by reference from the information appearing under the
caption "Compensation Tables" in the Company's definitive proxy statement
which involves the election of directors and is to be filed with the Commission
pursuant to the Exchange Act within 120 days of the end of the Company's fiscal
year ended December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item as to the ownership by management and
others of securities of the Company is hereby incorporated by reference from the
information appearing under the caption "Common Stock Outstanding and Principal
Holders Thereof" in the Company's definitive proxy statement which involves the
election of directors and is to be filed with the Commission pursuant to the
Exchange Act within 120 days of the end of the Company's fiscal year ended
December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item as to certain relationships and
transactions with management and other related parties of the Company is hereby
incorporated by reference from the information appearing under the caption
"Certain Transactions" in the Company's definitive proxy statement which
involves the election of directors and is to be filed with the Commission
pursuant to the Exchange Act within 120 days of the end of the Company's fiscal
year ended December 31, 1999.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1 FINANCIAL STATEMENTS
The following financial statements and the Report of Independent
Accountants are filed as a part of this report on the pages indicated.
PAGE
----
Report of Independent Public Accountants ................................. F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 ............. F-3
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997 ....................................... F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997 ................................. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 ....................................... F-6
Notes to the Consolidated Financial Statements ........................... F-7
(A) 2 FINANCIAL STATEMENT SCHEDULES
The following Financial Statement Schedule and the Report of Independent
Accountants on Financial Statement Schedule are included in this report on the
pages indicated:
PAGE
----
Report of Independent Public Accountants on Financial
Statement Schedule ....................................................... F-2
Financial Statement Schedule
II -- Valuation and Qualifying Accounts .................................. S-1
All other schedules are omitted as the required information is inapplicable
or the information is presented in the consolidated financial statements or
related notes.
(A) 3 EXHIBITS
The exhibits to this report have been included only with the copies of this
report filed with the Securities and Exchange Commission. Copies of individual
exhibits will be furnished to stockholders upon written request to the Company
and payment of a reasonable fee.
15
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBITS
------- --------------------------
3.1 -- Certificate of Incorporation dated January 22, 1996
(incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 [Reg. No.
333-00846]) ("Form S-1")
3.2 -- Bylaws (incorporated by reference to Exhibit 3.2 to
Form S-1)
4.1 -- Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to Form S-1)
10.1 -- Agreement between York Casket Company-IN and
District Lodge 90, and Local Lodge No. 2532 of the
International Association of Machinists and Aerospace
Workers, AFL-CIO dated June 12, 1999
10.2 -- Senior Note Purchase Agreement among The York Group,
Inc. and The Variable Annuity Life Insurance Company
dated June 30, 1994 (incorporated by reference to
Exhibit 10.8 to Form S-1)
10.3 -- First Amendment to the Senior Note Purchase
Agreement among The York Group, Inc. and The Variable
Annuity Life Insurance Company dated August 12, 1999
(incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999) ("Third Quarter 1999 Form
10-Q)
10.4 -- Amended and Restated Credit Agreement among The York
Group, Inc., ABN-AMRO Bank and certain financial
institutions dated August 12, 1999 (incorporated by
reference to Exhibit 10.1 to the Company's Third
Quarter 1999 Form 10-Q)
10.5 -- 1990 Stock Incentive Plan (incorporated by reference
to Exhibit 10.10 to Form S-1)
10.6 -- 1991 Stock Incentive Plan (incorporated by reference
to Exhibit 10.11 to Form S-1)
10.7 -- 1996 Employee Stock Option Plan (incorporated by
reference to Exhibit 10.12 to Form S-1)
10.8 -- 1996 Independent Director Stock Option Plan
(incorporated by reference to Exhibit 10.13 to Form
S-1)
10.9 -- The York Group, Inc. Nonqualified Deferred
Compensation Plan (incorporated by reference to Exhibit
10.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996)
10.10 -- Employment Agreement between The York Group, Inc.
and Gerald D. Runnels dated January 17, 1997
(incorporated by reference to Exhibit 10.12 to the Com-
pany's 1997 Form 10-K)
10.11 -- The York Group, Inc. Non-Employee Director Cash and
Equity Compensation Plan (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997)
10.12 -- Retention and Employment Arrangement between The
York Group, Inc. and Alfred M. Turner III
10.13 -- Form of Distribution Agreement (incorporated by
reference to Exhibit 10.14 to the Company's 1997 Form
10-K)
10.14 -- Distribution Agreement between The York Group, Inc.
and Artco Casket Company, Inc. dated effective January
1, 1997 (incorporated by reference to Exhibit 10.14 to
the Company's 1997 Form 10-K)
10.14 -- Agreement and Plan of Merger by and among The York
Group, Inc., Colonial Guild Acquisitions Corp., and
Colonial Guild, Ltd. dated February 17, 1998
(incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K dated March 25,
1998)
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen LLP
27.1 -- Financial Data Schedule
(B) REPORTS ON FORM 8-K
None
16
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized.
THE YORK GROUP, INC.
By: /s/ DAVID F. BECK
DAVID F. BECK
VICE PRESIDENT FINANCE, CHIEF
FINANCIAL OFFICER
AND TREASURER
March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT T. RAKICH Chairman of the Board March 30, 2000
ROBERT T. RAKICH
/s/ BILL W. WILCOCK President, Chief Executive March 30, 2000
BILL W. WILCOCK Officer and Director (Principal
Executive Officer)
/s/ THOMAS J. CRAWFORD Executive Vice President, March 30, 2000
THOMAS J. CRAWFORD Chief Operating Officer and
Director
/s/ H. JOE TRULOVE Senior Vice President and March 30, 2000
H. JOE TRULOVE Director
/s/ DAVID F. BECK Vice President Finance, March 30, 2000
DAVID F. BECK Chief Financial Officer and
Treasurer (Principal Financial
and Accounting Officer)
/s/ ALAN H. ELDER Director March 30, 2000
ALAN H. ELDER
/s/ ELDON P. NUSS Director March 30, 2000
ELDON P. NUSS
/s/ KIRK P. PENDLETON Director March 30, 2000
KIRK P. PENDLETON
/s/ ROGER W. SEVEDGE Director March 30, 2000
ROGER W. SEVEDGE
17
THE YORK GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants ............................. F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 ......... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997 .................................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997 ........................ F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 ................................... F-6
Notes to the Consolidated Financial Statements ....................... F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of The York Group, Inc.:
We have audited the accompanying consolidated balance sheets of The York
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The York
Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of valuation and qualifying
accounts is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 28, 2000
F-2
THE YORK GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
DECEMBER 31,
----------------------
1999 1998
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents.......... $ 17 $ 3,449
Trade accounts and notes
receivable, net of allowance for
doubtful accounts and returns
and allowances of $4,331 and
$3,854, respectively
Stockholders and affiliates... 3,518 4,315
Other......................... 31,492 27,809
Inventories, net................... 33,980 34,841
Prepaid expenses................... 2,225 2,984
Deferred tax asset................. 4,007 5,826
---------- ----------
Total current assets....... 75,239 79,224
PROPERTY, PLANT AND EQUIPMENT, net... 62,374 60,226
GOODWILL, net........................ 65,899 62,200
DEFERRED COSTS AND OTHER ASSETS,
net................................ 10,139 7,614
---------- ----------
Total assets............... $ 213,651 $ 209,264
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
debt............................ $ 18,703 $ 4,718
Accounts payable................... 15,520 8,018
Accrued expenses................... 13,494 16,179
---------- ----------
Total current
liabilities............. 47,717 28,915
---------- ----------
LONG-TERM DEBT, net of current
portion............................ 61,355 79,267
---------- ----------
OTHER NONCURRENT LIABILITIES......... 6,357 7,822
---------- ----------
DEFERRED TAX LIABILITIES............. 6,813 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;
8,940,950 and 8,930,950 shares
issued and outstanding.......... 89 89
Additional paid-in capital......... 40,455 40,390
Cumulative foreign currency
translation adjustment.......... 267 (103)
Retained earnings.................. 50,598 44,711
---------- ----------
Total stockholders'
equity.................. 91,409 85,087
---------- ----------
Total liabilities and
stockholders' equity.... $ 213,651 $ 209,264
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
THE YORK GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
NET SALES (including sales to
stockholders and affiliates of $33,268
in 1999, $32,767 in 1998 and $33,670
in 1997).............................. $ 198,042 $ 230,195 $ 178,690
COST OF SALES........................... 135,918 165,048 130,144
---------- ---------- ----------
Gross profit.................. 62,124 65,147 48,546
OTHER OPERATING EXPENSES................ 43,334 42,432 28,439
---------- ---------- ----------
Operating income.............. 18,790 22,715 20,107
OTHER INCOME (EXPENSE):
Interest income.................... 98 647 1,679
Interest expense................... (6,709) (5,379) (2,329)
Other income....................... 610 -- --
---------- ---------- ----------
(6,001) (4,732) (650)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES.............. 12,789 17,983 19,457
INCOME TAX PROVISION.................... 5,476 7,193 7,394
---------- ---------- ----------
NET INCOME.............................. $ 7,313 $ 10,790 $ 12,063
========== ========== ==========
EARNINGS PER SHARE:
Basic.............................. $ .82 $ 1.21 $ 1.38
========== ========== ==========
Diluted............................ $ .81 $ 1.19 $ 1.34
========== ========== ==========
SHARES USED IN COMPUTING EARNINGS PER
SHARE:
Basic.............................. 8,937 8,922 8,712
========== ========== ==========
Diluted............................ 9,028 9,085 8,979
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
THE YORK GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------- PAID-IN COMPREHENSIVE RETAINED
SHARES VALUE CAPITAL INCOME EARNINGS
---------- ----- ---------- ------------- ---------
BALANCE AT DECEMBER 31, 1996............ 8,387,119 $ 84 $ 30,946 $ -- $ 25,042
Exercise of common stock options... 26,500 -- 265 -- --
Common stock issued in connection
with acquisitions................ 493,331 5 8,998 -- --
Net income......................... -- -- -- -- 12,063
Dividends declared ($.16 per
share)........................... -- -- -- -- (1,756)
---------- ----- ---------- ------------- ---------
BALANCE AT DECEMBER 31, 1997............ 8,906,950 89 40,209 -- 35,349
Exercise of common stock options... 24,000 -- 181 -- --
Net income......................... -- -- -- -- 10,790
Dividends declared ($.16 per
share)........................... -- -- -- -- (1,428)
Foreign currency translation
adjustment....................... -- -- -- (103) --
---------- ----- ---------- ------------- ---------
BALANCE AT DECEMBER 31, 1998............ 8,930,950 89 40,390 (103) 44,711
Exercise of common stock options... 10,000 -- 65 -- --
Net income......................... -- -- -- -- 7,313
Dividends declared ($.16 per
share)........................... -- -- -- -- (1,426)
Foreign currency translation
adjustment....................... -- -- -- 370 --
---------- ----- ---------- ------------- ---------
BALANCE AT DECEMBER 31, 1999............ 8,940,950 $ 89 $ 40,455 $ 267 $ 50,598
========== ===== ========== ============= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
THE YORK GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 7,313 $ 10,790 $ 12,063
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation and amortization...... 10,626 8,518 5,212
Provision for doubtful accounts.... 142 370 104
(Gain)/loss on disposition of
property, plant and equipment... (27) 95 187
Deferred income tax (benefit)
provision....................... (1,390) (263) (644)
Decrease/(increase) in:
Trade accounts and notes
receivable.................... (2,325) (5,689) (1,459)
Inventories..................... 1,763 5,889 (4,714)
Prepaid expenses................ 822 (162) 1,168
Deferred tax assets............. -- 1,211 (1,416)
Deferred costs and other
assets........................ (1,419) (6,506) (1,012)
Increase/(decrease) in:
Accounts payable................ 6,626 (648) (2,328)
Accrued expenses................ (4,770) (1,844) (731)
Other noncurrent liabilities.... (67) 1,086 2,059
---------- ---------- ----------
Net cash provided by
operating activities.... 17,294 12,847 8,489
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections of notes receivable.... 155 360 637
Capital expenditures............... (6,641) (7,294) (9,376)
Acquisitions, net of cash acquired
of $491, $17,582 and $3,525,
respectively.................... (5,034) (66,696) (9,825)
---------- ---------- ----------
Net cash used in investing
activities............... (11,520) (73,630) (18,564)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock, net of issuance costs.... 65 181 265
Proceeds from issuance of long-term
debt............................ 31,925 77,000 --
Repayments of long-term debt and
capitalized lease obligations... (40,140) (26,896) (4,896)
Dividends paid..................... (1,426) (1,428) (1,756)
---------- ---------- ----------
Net cash provided by (used
in) financing activities. (9,576) 48,857 (6,387)
---------- ---------- ----------
EFFECTS OF EXCHANGE RATE CHANGES ON
CASH............................... 370 (103) --
---------- ---------- ----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS........................ (3,432) (12,029) (16,462)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR............................ 3,449 15,478 31,940
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF
YEAR............................... $ 17 $ 3,449 $ 15,478
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Purchases of equipment under
capital leases................ $ 1,707 $ 3,722 $ --
========== ========== ==========
Reductions of lease receivables
through application of earned
rebates....................... $ 654 $ 438 $ --
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
The York Group, Inc. and its wholly-owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated.
NATURE OF OPERATIONS
The Company manufactures caskets, casket components, metal vaults and
bronze commemorative products in the United States and sells those products
primarily for use domestically. The Company also provides merchandising and
product assortment planning displays and architectural and interior design
services.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The actual results could differ from those
estimates.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with Staff Accounting Bulletin
No. 101. Revenue is recognized as products are shipped and services are
rendered. The Company offers price discounts to funeral homes participating in
programs for volume purchases. The cost of these programs is based on a
percentage of the distributors' selling prices. Discounts and rebates are
estimated and reported as a reduction of sales at the time the Company's
products are sold.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. At December 31, 1999,
cash equivalents represented an interest in cash management funds that invest in
government securities that are subject to daily redemption, and at December 31,
1998 represented such funds and commercial paper.
INVENTORIES
Inventories are valued at the lower of cost or market. The Company values
wood product, metal stamping and casket product inventories using the LIFO
method. All other inventories are valued using the FIFO method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost and include alterations
and betterments which improve or extend useful lives. Maintenance and repairs
are reflected in operations as incurred. Depreciation is provided using the
straight-line method over the estimated useful lives of the various assets.
Estimated useful lives range from 15 to 20 years for buildings and building
improvements and 5 to 10 years for machinery, equipment, furniture and fixtures.
Depreciation expense for the years ended December 31, 1999, 1998 and 1997 was
$7.5 million, $6.2 million and $4.5 million, respectively. When property is
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any resulting gains or losses are reflected in
results of operations.
F-7
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL
Goodwill represents cost in excess of the fair value of net tangible and
intangible assets acquired and is amortized on a straight-line basis, generally
for periods of 25 years for distribution operations and 20 to 40 years for
manufacturing operations. Amortization expense recognized during 1999, 1998 and
1997 was approximately $2.3 million, $1.5 million and $0.6 million,
respectively, and accumulated amortization was $4.3 million and $2.0 million at
December 31, 1999 and 1998, respectively.
DEFERRED COSTS AND OTHER ASSETS
Deferred costs include financing costs related to debt issuance which are
amortized over the terms of the borrowings on a straight-line basis. Other
assets include the long-term portion of notes and leases receivable.
LONG-LIVED ASSETS
The Company evaluates the recoverability of property, plant and equipment
and intangible assets if facts and circumstances indicate that any of those
assets might be impaired. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if a write-down to market value or discounted cash
flow value is necessary. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
INCOME TAXES
A current tax liability or asset is recognized for the estimated taxes
payable or refundable as reported in the Company's Federal and state tax
returns. A deferred tax liability or asset is recognized for the estimated
future tax effects attributable to temporary differences. Deferred taxes are
determined based upon current tax laws and rates and any impact from changes in
these tax regulations and rates is recorded in the period when the related
change is enacted.
COMPREHENSIVE INCOME
Comprehensive income is the total of net income and all other non-owner
changes in equity. The Company had 1999 and 1998 comprehensive income of $7.7
million and $10.7 million, respectively, consisting of net income and foreign
currency translation adjustments. The only component of 1997 comprehensive
income was net income.
EARNINGS PER SHARE
Basic earnings per share ("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
earnings per share ("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 (see Note 7).
A reconciliation of weighted-average shares outstanding to shares used in
computing diluted EPS is as follows:
1999 1998 1997
----------- ----------- -----------
Weighted-average shares outstanding..... 8,936,783 8,922,040 8,712,496
Dilutive securities consisting of
options and convertible debt.......... 90,988 163,142 266,193
----------- ----------- -----------
Shares used in computing diluted EPS.... 9,027,771 9,085,182 8,978,689
=========== =========== ===========
F-8
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 financial statements
contained herein to conform to the classifications presented in 1999.
2. ACQUISITIONS:
On January 17, 1997, the Company acquired substantially all of the business
assets and assumed the associated debts and liabilities of Houston Casket
Company, Inc. ("Houston Casket"), a casket distributor with operations in
Texas and New Mexico. The acquisition was accounted for using the purchase
method of accounting. The purchase price of approximately $9.1 million consisted
of $1.9 million in cash, $2.5 million of subordinated promissory notes, $2.0
million of convertible subordinated promissory notes and the assumption of $2.7
million of debt. The goodwill of approximately $4.9 million is being amortized
on a straight-line basis over 25 years. In addition, the two shareholders of
Houston Casket entered into non-competition agreements, the cost of which is
recognized ratably over the term of the agreements.
On May 13, 1997, the Company acquired all of the outstanding shares of West
Point Casket Company, Inc., a manufacturer and distributor of caskets and metal
burial vaults. The merger was accounted for using the purchase method of
accounting. The goodwill of approximately $1.4 million is being amortized on a
straight-line basis over 25 years. The $17.0 million purchase price consisted of
$7.8 million in cash and 493,331 shares of The York Group, Inc. common stock
valued at $9.2 million.
On October 31, 1997, the Company acquired substantially all of the
operating assets and assumed the associated liabilities of Sacramento Casket
Company, Inc., a casket distributor serving northern California. The acquisition
was accounted for using the purchase method of accounting. The purchase price
consisted of $3.2 million in cash. The goodwill of approximately $2.2 million is
being amortized on a straight-line basis over 25 years.
On March 16, 1998, the Company acquired all of the outstanding shares of
Colonial Guild, Ltd., a manufacturer of bronze memorialization and commemorative
products, with 1997 annual revenues of approximately $40.0 million. The purchase
price of approximately $78.6 million was financed using available cash and the
Company's revolving credit facility. The acquisition was accounted for as a
purchase and the purchase price has been allocated to the underlying assets and
liabilities based on their respective fair values at the dates of acquisition.
The goodwill of approximately $49.5 million is being amortized on a
straight-line basis over 40 years.
On February 20, 1998, the Company acquired certain assets and assumed
certain liabilities of Laurel-Bargo Vault Company, a metal vault manufacturer,
for $1.8 million in cash. On May 22, 1998, the Company acquired the outstanding
stock of Puget Sound Casket Co. and Oregon Casket Company, Inc., casket
distributors, for a total cash consideration of $1.2 million. On June 1, 1998,
the Company acquired substantially all of the operating assets and assumed the
associated liabilities and debt of Cercueil Lauziere, Inc., a Canadian wood
casket manufacturer, for $0.8 million in cash. These acquisitions were accounted
for using the purchase method of accounting. The goodwill of approximately $2.7
million is being amortized on a straight-line basis over 15 to 40 years.
On April 19, 1999, the Company acquired all of the outstanding common stock
of Star Manufacturing Corporation, an assembler of metal caskets. The
acquisition was accounted for using the purchase method of accounting. The
purchase price of approximately $4.0 million consisted of $2.0 million in cash
with the remainder payable in cash on or before March 31, 2000. The goodwill of
approximately $3.1 million is being amortized on a straight-line basis over 7.5
years.
On April 30, 1999, the Company acquired all of the outstanding common stock
of OMC Industries, Inc., a manufacturer of cast metal signage products. The
acquisition was accounted for using the purchase
F-9
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method of accounting. The purchase price consisted of approximately $3.5 million
in cash. The goodwill of approximately $2.4 million is being amortized on a
straight-line basis over 20 years.
Pro forma unaudited consolidated operating results of the Company and the
acquired companies for the years ended December 31, 1999 and 1998, assuming the
acquisitions had been made as of January 1, 1998, are summarized and included in
the table below. Permitted 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 reflecting
anticipated "efficiencies" in operations resulting from a transaction are,
under most circumstances, not permitted. As a result of the limitations imposed
with regard to the types of permitted pro forma adjustments, 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.
PRO FORMA RESULTS OF OPERATIONS (UNAUDITED)
COLONIAL
AS GUILD,
REPORTED LTD. OTHERS TOTAL
---------- --------- ------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31, 1999
Net sales................... $ 198,042 -- $ 1,644 $ 199,686
Net income.................. 7,313 -- (217) 7,096
Basic earnings per share.... .82 -- (.02) .80
Diluted earnings per share.. .81 -- (.02) .79
December 31, 1998
Net sales................... $ 230,195 $ 8,161 $11,427 $ 249,783
Net income.................. 10,790 (1,080) (889) 8,821
Basic earnings per share.... 1.21 (.12) (.10) .99
Diluted earnings per share.. 1.19 (.12) (.10) .97
3. NOTES AND LEASES RECEIVABLE:
Long-term notes and leases, included in deferred costs and other assets,
bear interest at 7% to 12% with maturities through 2005. Unearned income related
to leases receivable is approximately $1.4 million at December 31, 1999. Gross
annual maturities, by calendar year, are as follows:
NOTES RECEIVABLE LEASES RECEIVABLE
----------------- ------------------
(IN THOUSANDS)
2000................................. $ 328 $1,540
2001................................. 109 1,661
2002................................. 79 1,476
2003................................. 56 1,446
2004................................. 42 940
Thereafter........................... 18 968
------ --------
632 8,031
Less current portion................. 328 1,540
------ --------
Total long-term notes and
leases receivable....... $ 304 $6,491
====== ========
F-10
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT:
Long-term debt and capitalized lease obligations consisted of the
following:
DECEMBER 31,
------------------------
1999 1998
--------- ---------
(IN THOUSANDS)
Senior notes ................................. $16,369 $21,429
Term loan .................................... 32,000 --
Revolving credit facility .................... 20,944 54,500
Convertible subordinated promissory
notes, conversion price $22.00 ............. 2,000 2,000
Subordinated promissory notes ................ 2,500 2,500
Deferred purchase obligation ................. 1,852 --
Capitalized lease obligations ................ 3,775 3,440
Other, interest payable at 8.5% to 9.50% ..... 618 116
------- -------
80,058 83,985
Less current portion ......................... 18,703 4,718
------- -------
Total long-term debt and
capitalized lease
obligations ..................... $61,355 $79,267
======= =======
On June 30, 1994, the Company completed the private placement of $25.0
million of senior notes (the "Senior Notes") with an insurance company. The
Senior Notes were amended effective August 12, 1999. The Senior Notes, as
amended are secured, have a final maturity of June 30, 2004 and provide for a
fixed interest rate of 8.37% per annum. Interest is payable semi-annually in
arrears, with principal payments due in monthly installments which began on June
30, 1998. The Senior Notes require that certain financial conditions and ratios
be maintained and restrict the level of dividend payments and additional
borrowings. Further, the Senior Notes contain cross-default provisions with the
Company's other borrowing facilities.
The Company amended and restated its $60.0 million revolving credit
facility (the "Facility") in August 1999. Under the terms of the amended
agreement, the Facility consists of a $35.0 million amortizing term loan and a
revolving credit facility providing for borrowings and the issuance of letters
of credit in an aggregate amount equal to the lesser of $25.0 million or a
borrowing base, as defined. The terms of the Facility provide for an interest
rate to be based, at the Company's option, upon an adjusted LIBOR rate or prime
rate. Adjustment factors are based upon certain financial ratios, as defined,
with a specified ceiling (LIBOR +2.50%; Prime +1.50%) and floor (LIBOR +1.75%;
Prime +.75%). The Facility requires a fee of .50%, payable monthly, on the
unused portion of the Facility. The Facility is secured and expires on June 30,
2001. The Facility is secured by substantially all of the Company's assets,
including the stock of all the Company's subsidiaries, does not permit the
payment of cash dividends under certain circumstances and requires the Company's
compliance with certain leverage, net worth and debt service covenants. The
Facility also contains a limitation on the Company's capital expenditures and
contains cross-default provisions with the Company's other borrowing facilities.
The Facility and the Senior Notes are guaranteed by the Company's subsidiaries.
The banks and the holder of the Senior Notes have entered into an intercreditor
agreement whereby both sets of creditors have a security interest in
substantially all of the Company's assets.
The term loan and revolving credit facility, which aggregated approximately
$52.9 million as of December 31, 1999, are due in the second quarter of 2001,
which will cause them to be classified as current liabilities in the second
quarter of 2000 pursuant to the current terms. If the Company is unable to
obtain modifications related to its term loan and revolving credit facility, the
Company projects that it may be out of compliance beginning in the second
quarter of 2000 with the working capital covenant of its debt
F-11
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreements. The Company is currently contacting its lenders to discuss extending
the terms or modifying the convenants of the facility. Management believes that
it will be successful in obtaining the modifications discussed above or
successful alternative financing; however, there can be no assurances of such.
The convertible subordinated promissory notes and the subordinated
promissory notes were issued in connection with the Company's acquisition of
Houston Casket in January 1997, and were amended and restated in January 2000.
The convertible subordinated promissory notes, as amended, provide for a fixed
interest rate of 9.0% per annum. Principal and interest are payable monthly
through June 2001. The subordinated promissory notes, as amended, provide for a
fixed interest rate of 9.0% per annum. Interest is payable monthly with the
principal balance due June 2001.
The deferred purchase price obligation relates to the Company's acquisition
of Star Manufacturing Corporation (see Note 2) is non-interest bearing and is
due by March 31, 2000. This obligation has been discounted to fair value using
an 8% discount rate.
The Company is obligated under capital leases for the purchase of
information systems hardware and software. The leases are for terms of three to
five years at an effective interest rate of approximately 7.0%.
Aggregate annual maturities of debt and capitalized lease obligations, by
calendar year, are as follows:
CAPITALIZED
LEASE
DEBT OBLIGATIONS
--------- -----------
(IN THOUSANDS)
2000................................. $ 17,020 $ 1,942
2001................................. 49,988 1,694
2002................................. 3,627 355
2003................................. 3,620 132
2004................................. 1,839 36
Thereafter........................... 189 --
--------- -----------
76,283 4,159
Less amount representing interest.... -- 384
--------- -----------
$ 76,283 $ 3,775
========= ===========
Interest paid during 1999, 1998 and 1997 totaled approximately $5.9
million, $5.2 million and $2.3 million, respectively.
The estimated fair value of the Company's long-term debt and all other
financial instruments at December 31, 1999 approximates the carrying value. The
fair value was estimated using market interest rates for similar types of
instruments.
F-12
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES:
The components of income tax expense are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
Current:
Federal......................... $ 4,560 $ 7,033 $ 7,233
State........................... 457 378 805
--------- --------- ---------
5,017 7,411 8,038
--------- --------- ---------
Deferred:
Federal......................... 459 (198) (530)
State........................... -- (20) (114)
--------- --------- ---------
459 (218) (644)
--------- --------- ---------
$ 5,476 $ 7,193 $ 7,394
========= ========= =========
Deferred tax assets and liabilities result from temporary differences
between the financial statement and tax bases of assets and liabilities. The
significant components of deferred tax assets/(liabilities) are as follows:
DECEMBER 31,
---------------------
1999 1998
---------- ---------
(IN THOUSANDS)
Deferred tax assets:
Environmental reserves............. $ 156 $ 485
Accounts and notes receivable
reserves......................... 1,712 1,295
Inventory capitalization........... 528 458
Employee benefit accruals.......... 281 553
Rebate reserves.................... 1,353 1,442
Deferred revenue................... 1,582 1,440
Other, net......................... 1,859 1,528
---------- ---------
Gross deferred tax assets..... $ 7,471 $ 7,201
========== =========
Deferred tax liabilities:
Depreciable and amortizable
assets........................... (7,049) (6,577)
LIFO reserves...................... (166) (571)
Other.............................. (3,062) (2,400)
---------- ---------
Gross deferred tax
liabilities................ (10,277) (9,548)
---------- ---------
Net deferred tax
liabilities................ $ (2,806) $ (2,347)
========== =========
No valuation allowance has been provided against the deferred tax assets as
the Company has concluded these tax benefits are realizable either through
carryback availability against prior years' taxable income, the reversal of
existing deferred tax liabilities or future taxable income.
F-13
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation between the U.S. Federal statutory rate and the Company's
effective tax rate is as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
U.S. Federal statutory rate............. 35.0% 35.0% 35.0%
State income taxes, net of Federal tax
benefit............................... 2.3 1.3 2.1
Non-deductible goodwill................. 5.0 2.4 0.3
Miscellaneous other non-deductible
expenses.............................. 0.5 1.3 0.6
--------- --------- ---------
42.8% 40.0% 38.0%
========= ========= =========
Cash paid for income taxes during 1999, 1998 and 1997 was $3.6 million,
$7.0 million and $7.5 million, respectively.
6. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases certain office and warehouse facilities and data
processing and transportation equipment under noncancelable operating leases.
The leases vary from periods of one to six years. In most cases, operating
leases contain renewal options. The leases generally provide that the Company
shall pay for utilities, insurance, taxes and maintenance.
The annual payments for operating leases, by calendar year, are as follows:
(IN THOUSANDS)
--------------
2000.................................... $2,088
2001.................................... 1,854
2002.................................... 1,544
2003.................................... 1,061
2004.................................... 529
Thereafter.............................. 1,277
--------------
Total minimum lease payments............ $8,353
==============
The Company's rental expense under operating leases for the years ended
December 31, 1999, 1998 and 1997 amounted to $3.3 million, $3.3 million and $2.6
million, respectively.
DEFINED CONTRIBUTION PLANS
The Company maintains three defined contribution plans for eligible
employees, as defined. Company contributions to the plans totaled $690,000,
$749,000 and $514,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
COMMEMORATIVE PRODUCTS
The Company's commemorative products segment manufactures memorial products
under a program where the basic memorial is produced and sold currently with
completion of the memorial taking place at the time of need. A pro rata portion
of the selling price and related profit are deferred currently and included in
other noncurrent liabilities until the memorial is completed.
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
F-14
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
hazardous wastes without a permit and allegedly had violated certain other
hazardous waste regulations in the operation of its electroplating line and
associated wastewater treatment system. On November 8, 1991, the Company and the
GDNR entered into a Consent Order (the "1991 Order") in settlement of the
allegations. The 1991 Order was subsequently amended in 1994 to reflect the plan
to conduct closure under Georgia laws and rules of the alleged waste management
unit or units at the facility and to require some additional remediation,
monitoring and investigation commitments on the Company's part. The GDNR
approved the revised closure plan and post-closure plan for the facility in
August 1995. Moreover, the GDNR issued a Hazardous Waste Facility Permit
effective September 27, 1995, to document these post-closure care requirements.
The Company has provided financial assurance in the form of a letter of credit
in the amount of approximately $0.9 million to secure its post-closure
obligations.
It is the Company's belief that future environmental costs relative to the
Lawrenceville facility will be annual monitoring and compliance expenditures. At
December 31, 1999, the Company had an accrual of approximately $0.4 million
which is based on management's best estimate of the minimum costs to be
incurred, which was developed predicated on the information available to date
and the advice of an independent environmental consultant.
In August 1999, the Company received from the United States Environmental
Protection Agency ("EPA") a General Notice letter relating to the Company's
facility in York, Pennsylvania. The letter notified the Company of its potential
liability under the Comprehensive Environmental Response Compensation and
Liability Act for response action and cleanup at a site known as the Old City of
York Landfill, located in York, Pennsylvania (the "Site") and advised the
Company that in 1991 the EPA sent an information request to the Company
concerning the Company's potential liability for waste it allegedly generated
that may have been disposed of at the Site. In 1987, the United States, the City
of York, and other parties entered on Administrative Order by Consent, which
addressed the Site cleanup and response action, and imposed responsibilities
upon the named parties. Since that time, response action and cleanup at the Site
has been ongoing. Expenses incurred to date are in excess of $4,000,000 -
$5,000,000. Total response costs are not known at this time, as the EPA
estimates cleanup could continue for as long as thirty years. The cleanup
relates to groundwater and domestic wells contaminated with volatile organic
compounds from waste disposal practices at the Site. While the Company has not
been joined in any lawsuit or administrative order relating to the Site or its
cleanup, it is typical for the EPA to assert that all parties responsible for
improper waste disposal at the Site are jointly and severally responsible for
cleanup costs. The Company is currently investigating its relationship to the
Site. At this time, the Company does not have sufficient information to quantify
the liability, if any, that may result related to the cleanup and response
action at the Site.
INSURANCE
The Company participates in a retrospectively rated workers' compensation
insurance agreement. In the opinion of management the Company has adequately
accrued for all liabilities arising from this agreement based upon the total
incremental amount that would be paid based upon experience to date. The Company
has a letter of credit outstanding in the amount of $1.1 million, which expires
in December 2000, related to this agreement. As of December 31, 1999, no amounts
have been drawn against this letter of credit.
The Company is also self-insured for a certain portion of annual healthcare
costs. Management believes the Company's accrual for estimated potential claim
costs to satisfy the deductible and self-insurance provisions of the insurance
policies for claims occurring through December 31, 1999 to be adequate.
F-15
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER MATTERS
The Company is involved in various legal proceedings incidental to the
conduct of its business.
The Company and its wholly-owned subsidiary, York Agency, Inc. (the
"Agency"), has filed a breach of contract action against Allianz Life
Insurance Company of North America ("Allianz"). Allianz filed breach of
contract counterclaims against the Company and the Agency. This matter is
currently in the discovery process. The Company intends to vigorously pursue its
action against Allianz and intends to aggressively defend Allianz's action
against the Company. No meaningful evaluation of outcome can be made of the case
at this time; however, the Company does not expect the outcome of the case to
have a material adverse effect on the Company's financial position or results of
operations.
The Company currently is not engaged in any other legal proceeding that is
expected to have a material adverse effect on the Company.
7. STOCKHOLDERS' EQUITY:
STOCK OPTIONS
The 1990 Stock Incentive Plan (the "1990 Plan") and the 1991 Stock
Incentive Plan (the "1991 Plan") permitted the grant of options to purchase
shares and also the award of shares. The 1990 and 1991 Plans were designed as an
incentive for key employees and directors. Exercise prices of options were
determined by the Board of Directors within the provisions of the 1990 and 1991
Plans. Options generally vest over a three to five year period and expire 10
years from the date of grant.
In 1996, the stockholders approved the adoption of two new stock option
plans, the 1996 Employee Stock Option Plan (the "1996 Employee Plan") and the
1996 Independent Director Stock Option Plan (the "1996 Director Plan"), which
replaced the 1990 and 1991 Plans. With the approval of the 1996 plans, no
additional shares may be granted under the 1990 or 1991 Plans.
The 1996 Employee Plan, as amended, is designed as an incentive for key
employees. The plan permits the grant of options to purchase up to 900,000
shares of common stock through January 24, 2006, the plan termination date.
Exercise prices and vesting periods of options are determined by the Board of
Directors within the provisions of the plan. The exercise price of the options
granted in 1999, 1998 and 1997 was equal to the fair market value of the stock
at the date of each grant. Options expire 10 years from the date of grant.
The 1996 Director Plan is designed as incentive for independent members of
the Board of Directors. The plan permits the grant of options to purchase up to
50,000 shares of common stock through January 24, 2006, the plan termination
date. The exercise price of options granted in 1999, 1998 and 1997 was equal to
the fair market value of the stock at the date of grant. The sale of shares
issued upon exercise of options shall not be allowed until at least six months
after the date the option is granted. Options granted under the 1996 Director
Plan expire 10 years from the date of grant.
There are no stock awards or stock appreciation rights outstanding under
the 1990, 1991, 1996 Employee or 1996 Director Plans as of December 31, 1999.
The Company records expense for its stock option plans if the exercise
price is less than the current market value at the applicable grant date and,
accordingly, no compensation cost has been recognized. Had
F-16
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation cost for these plans been determined based on the fair value of the
awards the Company's net income and earnings per share would have been reduced
to the following pro forma amounts:
1999 1998 1997
--------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income:
As reported..................... $7,313 $ 10,790 $ 12,063
Pro forma....................... 6,925 10,427 11,749
Basic EPS:
As reported..................... .82 1.21 1.38
Pro forma....................... .77 1.17 1.35
Diluted EPS:
As reported..................... .81 1.19 1.34
Pro forma....................... .77 1.15 1.31
The pro forma fair value assumption was not applied to options granted
prior to January 1, 1995, therefore, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
A summary of the status of the Company's four stock option plans at
December 31, 1999, 1998 and 1997 and changes during the years then ended is
presented in the tables and narrative below:
1999 1998 1997
------------------------ ------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------- -------------- ------- --------------
Outstanding at beginning of year........ 621,278 $14.99 587,400 $14.44 508,500 $12.41
Granted................................. 105,800 7.60 86,278 16.95 140,250 20.71
Exercised............................... (10,000) 6.50 (24,000) 7.58 (26,500) 8.09
Expired/Canceled........................ (61,700) 13.82 (28,400) 15.64 (34,850) 15.10
------ -------------- ------- -------
Outstanding at end of year.............. 655,378 14.04 621,278 14.99 587,400 14.44
====== ======= =======
Options exercisable at year end......... 312,936 246,349 155,266
====== ======= =======
Weighted-average fair value of options
granted during the year............... $ 3.65 $ 5.74 $ 5.50
As of December 31, 1999 100,300 of the 655,378 outstanding options have
exercise prices of $6.44 to $7.84, a weighted-average exercise price of $7.59, a
weighted-average remaining contractual life of 9.2 years and none of these are
exercisable. The remaining 555,078 options have exercise prices of $13.00 to
$21.25 with a weighted-average exercise price of $15.15 and a remaining
contractual life of 6.7 years; 312,936 of these are exercisable with a
weighted-average exercise price of $14.41.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for options granted in 1999, 1998 and 1997:
1999 1998 1997
------- ------- -------
Expected life of option.............. 5 years 5 years 5 years
Risk-free interest rate.............. 4.8% 5.6% 5.3%
Expected annual dividend per share of
common stock....................... $.16 $.16 $.16
Volatility of common stock........... 48.8% 31.7% 20.3%
8. PENSION PLAN:
Substantially all employees of Colonial Guild, Ltd. are eligible to
participate in a defined benefit plan.
F-17
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status and amounts included in
the Company's consolidated balance sheet at December 31, 1999 and 1998 relating
to the Company's defined benefit pension plan:
1999 1998
------- -------
(IN THOUSANDS)
Changes in benefit obligation:
Benefit obligations at beginning of
year ...................................... $ 4,830 $ 4,373
Service cost ................................ 322 284
Interest cost ............................... 328 279
Actuarial gains ............................. 122 15
Benefits paid ............................... (275) (121)
------- -------
Benefit obligation at end of
year ...................................... $ 5,327 $ 4,830
======= =======
Change in plan assets:
Fair value of plan assets at
beginning of year ......................... $ 5,713 $ 5,551
Actual return on plan assets ................ 746 66
Company contribution ........................ 173 217
Benefits paid ............................... (275) (121)
------- -------
Fair value of plan assets at end of
year ...................................... $ 6,357 $ 5,713
======= =======
Funded status of the plan ........................ $ 1,030 $ 883
Unrecognized actuarial gains ..................... (347) (194)
Unrecognized prior service cost .................. 110 120
Unrecognized net transition
obligation ..................................... (47) (52)
------- -------
Prepaid pension cost at end of
year ...................................... $ 746 $ 757
======= =======
Net pension cost for 1999 and 1998 included the following components:
1999 1998
-------- --------
(IN THOUSANDS)
Service cost-benefits earned during the
period ........................................... $ 322 $ 284
Interest cost on projected benefit
obligations ...................................... 328 279
Actual return on plan assets ....................... (472) (66)
Net deferrals ...................................... 5 (222)
----- -----
Net periodic pension costs ............... $ 183 $ 275
===== =====
Weighted average assumptions underlying the actuarial computations are as
follows:
Discount rate ...................................... 7.00% 7.00%
Expected return on plan assets ..................... 8.00% 8.00%
Rate of compensation increase ...................... 4.00% 4.00%
9. RELATED PARTY TRANSACTIONS:
TRADE TRANSACTIONS WITH STOCKHOLDERS
During the years ended December 31, 1999, 1998 and 1997 the Company
purchased goods and services from certain stockholders amounting to $2.0
million, $4.2 million and $4.4 million, respectively. At December 31, 1999 and
1998, the Company had trade liabilities to stockholders of $134,000 and $25,000,
respectively.
F-18
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a management agreement with a stockholder to operate both a
textile warehouse and delivery service and a plastic injection molding
operation. The stockholder provides manufacturing/warehouse space, utilities,
direct and supervisory labor, consultation and marketing services. The Company
is charged fees based on certain sales volumes. During 1999, 1998 and 1997 the
Company paid the stockholder and recognized operating expense of $350,000,
$470,000 and $463,000, respectively, under this agreement.
OTHER TRANSACTIONS
The Company acquired the business assets and assumed the associated
liabilities of Houston Casket on January 17, 1997 (see Note 2). In connection
with the acquisition, the Company issued $2.0 million of convertible
subordinated promissory notes and $2.5 million of subordinated promissory notes
to Houston Casket (see Note 4). Interest expense related to these notes was
$308,000 in each of the years ended December 31, 1999 and 1998 and was $295,000
for the year ended December 31, 1997. The Company's Vice President of National
Accounts and Distribution was a director of the Company and a significant
stockholder of Houston Casket at the time of the acquisition.
The Company acquired all of the outstanding common stock of Star
Manufacturing Corporation on April 19, 1999 (see Note 2). Interest expense of
$111,000 representing amortization of discount recorded on the deferred purchase
obligation was recognized in 1999. One of the Company's directors was a
significant stockholder of Star Manufacturing Corporation at the time of the
acquisition.
10. SCI SUPPLY AGREEMENT:
Through 1998, the Company was involved in a supply agreement (the "Supply
Agreement") with an affiliate of SCI. The Supply Agreement required the
purchase of specific annual dollar volumes of the Company's caskets and expired
at the end of 1998. Sales under the Supply Agreement accounted for approximately
17% and 22% of the Company's net sales in 1998 and 1997, respectively.
11. SUPPLEMENTARY INFORMATON:
The detail of certain balance sheet accounts was as follows:
DECEMBER 31,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
Inventories:
Raw materials......................... $ 9,295 $ 13,204
Work in process....................... 3,130 2,807
Finished goods........................ 21,555 18,830
--------- ---------
$ 33,980 $ 34,841
========= =========
Replacement value.................. $ 35,928 $ 37,645
========= =========
The Company values substantially all of its metal stamping and casket
product inventories and its wood product inventories under the LIFO method,
which approximates 76% of consolidated inventories. All other inventories are
valued under the FIFO method of inventory. The difference between the LIFO value
and replacement value of inventory is approximately $1.9 million and $2.8
million at December 31,
F-19
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 and 1998, respectively. During the years ended December 31, 1999 and 1998,
the effect on income from LIFO decrements was immaterial.
DECEMBER 31,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
Property, plant and equipment:
Land and improvements................. $ 4,746 $ 4,819
Buildings and improvements............ 21,058 19,806
Equipment............................. 66,317 56,745
Construction-in-progress.............. 4,724 6,144
--------- ---------
96,845 87,514
Less accumulated depreciation......... 34,471 27,288
--------- ---------
Property, plant and equipment,
net.............................. $ 62,374 $ 60,226
========= =========
Accrued expenses:
Accrued rebates....................... $ 4,663 $ 4,295
Accrued compensation.................. 3,352 4,832
Accrued insurance..................... 1,662 1,694
Other accrued expenses................ 3,817 5,358
--------- ---------
$ 13,494 $ 16,179
========= =========
12. SEGMENT INFORMATION:
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 accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 1). The Company
evaluates segment performance based upon operating income.
F-20
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial information regarding the Company's segments is presented below:
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS)
Net Sales:
Caskets......................... $ 143,008 $ 182,484 $ 173,485
Commemorative Products.......... 44,274 37,796 --
All other....................... 10,760 9,915 5,205
---------- ---------- ----------
Consolidated net sales..... $ 198,042 $ 230,195 $ 178,690
========== ========== ==========
Operating Income:
Caskets......................... $ 26,149 $ 31,139 $ 32,827
Commemorative Products.......... 9,170 6,646 --
All other....................... (16,529) (15,070) (12,720)
---------- ---------- ----------
Consolidated operating
income.................. $ 18,790 $ 22,715 $ 20,107
========== ========== ==========
Depreciation and Amortization:
Caskets......................... $ 6,085 $ 5,927 $ 4,870
Commemorative Products.......... 2,625 1,972 --
All other....................... 1,916 619 342
---------- ---------- ----------
Consolidated depreciation
and amortization........ $ 10,626 $ 8,518 $ 5,212
========== ========== ==========
Segment Assets:
Caskets......................... $ 104,632 $ 106,952 $ 101,142
Commemorative Products.......... 79,154 74,700 --
All other....................... 29,865 27,612 29,403
---------- ---------- ----------
Consolidated assets........ $ 213,651 $ 209,264 $ 130,545
========== ========== ==========
Capital Expenditures:
Caskets......................... $ 2,474 $ 4,567 $ 10,250
Commemorative Products.......... 3,814 16,830 --
All other....................... 3,442 6,452 2,788
---------- ---------- ----------
Consolidated capital
expenditures............ $ 9,730 $ 27,849 $ 13,038
========== ========== ==========
13. FOURTH QUARTER ADJUSTMENTS:
During the fourth quarter of 1999 the Company recorded non-recurring
adjustments which were individually significant but were not significant in the
aggregate.
The Company revised its estimate of deferred revenue relative to its bronze
memorial pre-need program. Under this program, memorial products are sold on a
pre-need basis and the basic memorial is produced and stored until the time of
need when it is completed by applying dates and final finishing. During the
fourth quarter the Company consolidated certain of its operations and
reevaluated its estimated completion costs, which are estimated to be less due
to anticipated economies of scale and reduced labor costs. The Company also
reassessed the stage of completion of its memorial products and it was
determined that the actual extent of completion exceeded original estimates.
Based upon the analysis, management reduced the Company's deferred revenue
estimate by approximately $1.1 million.
Additionally, during the fourth quarter of 1999 the Company performed
detailed analyses of inventory balances related to its merchandising system
products and metal vault operations, and refined its accounting processes for
inventories. These analyses were performed as a result of product design and
sourcing changes, production facility consolidation efforts and market channel
realignments which occurred during the second and third quarters of 1999, as
well as of the implementation of the Company's new information systems
throughout 1999. Based upon these analyses, an adjustment of approximately $1.8
million was recorded to write off and write down inventories.
The Company also recorded other income of approximately $0.6 million
resulting from a change in estimate relative to the ultimate settlement of
litigation.
F-21
THE YORK GROUP, INC. AND SUBSIDIARIES -- SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT AMOUNTS BALANCE AT
BEGINNING CHARGED TO END
DESCRIPTION OF YEAR EXPENSE OTHER DEDUCTIONS OF YEAR
- ---------------------------------------- ----------- ---------- ------ ---------- ----------
December 31, 1999:
Allowance for doubtful accounts and
returns and allowances........... $ 3,484 $ 142 $ 145 $ (21) $3,750
Allowance for notes receivable..... 270 -- 111 -- 381
Allowance for leases receivable.... 200 -- -- -- 200
December 31, 1998:
Allowance for doubtful accounts and
returns and allowances........... $ 3,117 $ -- $ 424 $ (57) $3,484
Allowance for notes receivable..... 100 170 -- -- 270
Allowance for leases receivable.... -- 200 -- -- 200
December 31, 1997:
Allowance for doubtful accounts and
returns and allowances........... $ 1,829 $ 104 $1,437 $ (253) $3,117
Allowance for notes receivable..... 100 -- -- -- 100
S-1