FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 2000
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 number)
8554 KATY FREEWAY, SUITE 200, HOUSTON, TEXAS 77024
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(713) 984-5500
(Registrant's telephone number, including area code)
------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
The number of shares outstanding of the registrant's common stock as of
May 12, 2000 was 8,940,950.
THE YORK GROUP, INC.
INDEX
PAGE
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Part I. Financial Information
Item 1.Financial Statements
Consolidated Balance Sheets -
March 31, 2000 (Unaudited) and December 31, 1999 .... 2
Condensed Consolidated Statements of Income (Unaudited) -
Three months ended March 31, 2000 and 1999 .......... 3
Consolidated Statements of Cash Flows (Unaudited) -
Three months ended March 31, 2000 and 1999 .......... 4
Notes to Consolidated Financial Statements (Unaudited) ...... 5-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition .................. 8-9
Part II. Other Information
Item 6.Exhibits and Reports on Form 8-K ............................ 10
Signature................................................................... 11
THE YORK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
--------------- ---------------
(UNAUDITED)
Current assets:
Cash and cash equivalents .......................................................... $ 19 $ 17
Trade accounts and notes receivable, net of allowance for doubtful
accounts and returns and allowances of $4,132 in 2000 and $4,331 in 1999
Stockholders and affiliates .............................................. 4,639 3,518
Other .................................................................... 25,879 31,492
Inventories, net ................................................................... 32,265 33,980
Prepaid expenses ................................................................... 2,193 2,225
Deferred tax assets ................................................................ 3,907 4,007
--------------- ---------------
Total current assets ..................................................... 68,902 75,239
--------------- ---------------
Property, plant and equipment, net .................................................... 61,365 62,374
Goodwill, net ......................................................................... 65,267 65,899
Deferred costs and other assets, net .................................................. 11,188 10,139
--------------- ---------------
Total assets ............................................................. $ 206,722 $ 213,651
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................................................. $ 19,919 $ 18,703
Accounts payable ................................................................... 13,495 15,520
Accrued expenses ................................................................... 10,782 13,494
--------------- ---------------
Total current liabilities ................................................ 44,196 47,717
--------------- ---------------
Long-term debt, net of current portion ................................................ 55,737 61,355
--------------- ---------------
Other noncurrent liabilities .......................................................... 6,060 6,357
--------------- ---------------
Deferred tax liabilities .............................................................. 7,460 6,813
--------------- ---------------
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
shares issued and outstanding ................................................. 89 89
Additional paid-in capital ......................................................... 40,455 40,455
Cumulative foreign currency translation adjustment ................................. 420 267
Retained earnings .................................................................. 52,305 50,598
--------------- ---------------
Total stockholders' equity ............................................... 93,269 91,409
--------------- ---------------
Total liabilities and stockholders' equity ............................... $ 206,722 $ 213,651
=============== ===============
The accompanying notes are an intergral part of these consolidated financial
statements.
2
THE YORK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
------------------------------------
2000 1999
--------------- ---------------
Net sales (including sales to stockholders and
affiliates of $9,736 and $12,753, respectively) ....................................... $ 54,758 $ 54,575
Cost of sales ............................................................................ 38,518 37,020
--------------- ---------------
Gross profit ................................................................... 16,240 17,555
Other operating expenses ................................................................. 11,416 11,904
--------------- ---------------
Operating income ............................................................... 4,824 5,651
Interest expense, net .................................................................... (1,803) (1,426)
--------------- ---------------
Income before income taxes ............................................................... 3,021 4,225
Income tax provision ..................................................................... 1,314 1,710
--------------- ---------------
Net income ............................................................................... $ 1,707 $ 2,515
=============== ===============
Shares used in computing earnings per share:
Basic ............................................................................ 8,940 8,931
=============== ===============
Diluted .......................................................................... 9,034 9,037
=============== ===============
Earnings per share:
Basic ............................................................................ $ 0.19 $ 0.28
=============== ===============
Diluted .......................................................................... $ 0.19 $ 0.28
=============== ===============
The accompanying notes are an intergral part of these consolidated financial
statements.
3
THE YORK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------------
2000 1999
--------------- ---------------
Cash flows from operating activities:
Net income ...................................................................... $ 1,707 $ 2,515
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization ................................................ 3,035 2,654
Deferred income tax (benefit) ................................................ 647 (112)
Loss on disposition of property, plant and equipment ......................... -- 5
Provision for doubtful accounts .............................................. 19 34
Decrease/(increase) in:
Trade accounts and notes receivable ....................................... 4,856 163
Inventories ............................................................... 1,715 (2,945)
Prepaid expenses .......................................................... 32 344
Deferred costs and other assets ........................................... (1,543) (2,887)
Increase/(decrease) in:
Accounts payable .......................................................... (2,025) 1,559
Accrued expenses .......................................................... (2,712) 1,823
Other liabilities ......................................................... (297) 462
--------------- ---------------
Net cash provided by operating activities ................................. 5,434 3,615
--------------- ---------------
Cash flows from investing activities:
Capital expenditures ............................................................ (1,183) (1,731)
Collection of notes receivable .................................................. -- 79
--------------- ---------------
Net cash used in investing activities ..................................... (1,183) (1,652)
--------------- ---------------
Cash flows from financing activities:
Dividends paid .................................................................. -- (357)
Repayments of long-term debt .................................................... (21,202) (3,929)
Proceeds from issuance of long-term debt ........................................ 16,800 --
--------------- ---------------
Net cash provided by (used in) financing activities ....................... (4,402) (4,286)
--------------- ---------------
Effects of exchange rate changes on cash ..................................................... 153 --
--------------- ---------------
Net (decrease) in cash and cash equivalents .................................................. 2 (2,323)
Cash and cash equivalents, beginning of period ............................................... 17 3,449
--------------- ---------------
Cash and cash equivalents, end of period ..................................................... $ 19 $ 1,126
=============== ===============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchases of equipment under capital leases ....................................... $ -- $ 1,587
=============== ===============
Reductions of lease receivables through application of earned
rebate ........................................................................ $ 380 $ 145
=============== ===============
The accompanying notes are an intergral part of these consolidated financial
statements.
4
THE YORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of The
York Group, Inc. and subsidiaries (the "Company") and have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These consolidated financial
statements should be read in conjunction with the Company's December 31, 1999
audited financial statements and the notes thereto included in the Company's
1999 Annual Report on Form 10-K. In the opinion of the Company, all adjustments
and eliminations, consisting only of normal and recurring adjustments, necessary
to present fairly the consolidated financial statements have been included. The
results of operations for such interim periods are not necessarily indicative of
results for the full year.
2. SUPPLEMENTAL INFORMATION
MARCH 31, DECEMBER 31,
2000 1999
---------- ----------
(IN THOUSANDS)
Inventories:
Raw materials .................................... $ 8,160 $ 9,295
Work in process .................................. 3,005 3,130
Finished goods ................................... 21,100 21,555
---------- ----------
Inventories, net ........................... $ 32,265 $ 33,980
========== ==========
Property, Plant and Equipment:
Land and improvements ............................ $ 4,772 $ 4,746
Building and improvements ........................ 20,345 21,058
Equipment ........................................ 70,147 66,317
Construction-in-progress ......................... 2,680 4,724
---------- ----------
97,944 96,845
Less: accumulated depreciation ................... 36,579 34,471
---------- ----------
Property, plant and equipment, net ......... $ 61,365 $ 62,374
========== ==========
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3. EARNINGS PER SHARE
Earnings per share data for all periods presented has been computed pursuant to
SFAS No. 128, "Earnings Per Share" which requires a presentation of basic
earnings per share (basic EPS) and diluted earnings per share (diluted EPS).
Basic EPS excludes dilution and is determined by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could occur
if securities and other contracts to issue common stock were exercised or
converted into common stock. At March 31, 2000 the Company had options
outstanding for the purchase of an aggregate of 745,378 shares of common stock
of which 645,378 shares are antidilutive and excluded from shares used in
computing diluted EPS.
A reconciliation of weighted-average shares outstanding to shares used in
computing diluted EPS is as follows:
2000 1999
---------- ----------
Weighted-average shares outstanding .................. 8,940,950 8,930,950
Dilutive effect of securities consisting of options
and convertible debt ................................ 93,256 105,609
---------- ----------
Shares used in computing diluted EPS ................. 9,034,206 9,036,559
========== ==========
4. SEGMENT INFORMATION
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information", requires certain financial and supplementary information to be
discussed on an annual and interim basis for each reportable segment of an
enterprise. In accordance with SFAS No. 131, the Company identified its
reporting segments based on its internal reporting of strategic business units.
The products within each segment require substantially different manufacturing
processes, are marketed to different customer bases and have different economic
characteristics.
The Company's Casket Segment includes the manufacturing and distribution
operations of a wide variety of metal, wood and other caskets, caskets
components and metal burial vaults. The Company's Commemorative Products Segment
produces and sells products, primarily cast bronze, which are used to
commemorate people, places and events. The All Other Segment includes the
Company's fleet operations, architectural services, merchandising products and
services, and corporate expenses. Product transfers between industry segments
are not material. The Company evaluates segment performance based upon operating
income. Certain reclassifications have been made to the 1999 segment information
to conform to the classification presented in 2000.
6
Interim financial information regarding the Company's segments is presented
below:
THREE MONTHS
ENDED MARCH 31,
------------------------
2000 1999
---------- ----------
Net Sales:
Caskets ......................................... $ 41,251 $ 40,752
Commemorative Products .......................... 10,760 10,913
All other ....................................... 2,747 2,910
---------- ----------
Consolidated net sales ........................ $ 54,758 $ 54,575
========== ==========
Operating Income:
Caskets ......................................... $ 8,995 $ 7,947
Commemorative Products .......................... 706 1,865
All other ....................................... (4,877) (4,161)
---------- ----------
Consolidated operating income ................. $ 4,824 $ 5,651
========== ==========
5. DEBT
Effective May 12, 2000, certain of the financial covenants related to the
Company's term loan and revolving credit facility (debt) were modified through
September 30, 2000. The Company may refinance its debt prior to September 30,
2000; however, were the Company unable to refinance its debt or receive
modifications of certain of its fourth quarter debt covenants, the Company
projects that it may be out of compliance with one or more of its debt covenants
in the fourth quarter of 2000. Management believes that it will be successful in
obtaining the fourth quarter modifications or successful alternative financing;
however, there can be no assurances of such.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin 101, "Revenue
Recognition in Financial Statements" (SAB 101), which provides guidance related
to revenue recognition based on interpretations and practices followed by the
SEC. SAB 101 is effective the first fiscal quarter of fiscal years beginning
after December 31, 1999, and requires companies to report any changes in revenue
recognition as a cumulative change in accounting principle at the time of
implementation. Management believes that the Company's revenue recognition
policy is in accordance with SAB 101.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
The Company is the second largest casket manufacturer in the United States and
produces a wide variety of caskets, casket components and burial vaults. During
March, 1998, the Company acquired Colonial Guild, Ltd. thus becoming a major
manufacturer of commemorative products. The Company's finished caskets are
marketed through a network of Company and privately owned distributors, which
serve domestic funeral homes, as well as certain foreign markets. Burial vaults
are sold directly to funeral home and cemetery operators as well as to privately
owned distributors. The Company's commemorative memorial products are sold
directly to cemetery operators, monument dealers and funeral homes, and its
architectural signage products are sold primarily to sign and trophy dealers.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
First quarter 2000 sales increased $0.2 million, or 0.3%, from the same period
in 1999. Casket Segment sales increased approximately $0.5 million, or 1.2%, to
$41.2 million in 2000 from $40.8 million in 1999. The increase reflects a
quarter over quarter growth in sales through the Company's primary distribution
network due to volume, modest price increases and better product mix. This was
partially offset by a decrease in sales to Service Corporation International
("SCI") from the first quarter 1999 residual sales following the termination of
their supply agreement with the Company. Sales of the Commemorative Products
Segment decreased approximately $0.1 million, reflecting temporary production
delays resulting in the continuing manufacturing facility consolidation,
partially offset by sales of OMC Industries, Inc., which was acquired in the
second quarter of 1999. Sales in the All Other Segment decreased approximately
$0.2 million attributable to decreased sales of merchandising systems.
First quarter gross profit decreased $1.3 million, or 7.5%, to $16.2 million in
2000 compared to $17.5 million in 1999, and decreased as a percentage of sales
to 29.7% from 32.2% in 1999. Gross profit was negatively affected by a decrease
in gross profit from the Commemorative Products Segment from $4.5 million in
1999 to $3.0 million in 2000, and decreased as a percent sales to 28.3% in 2000
from 41.8 % in the 1999 quarter. This was primarily due to inefficiencies from
plant closure activities at the Aiken, SC foundry and the associated start-up
inefficiencies as the Aiken production was transferred to the Company's West
Virginia foundry. The segment showed improved results later in the quarter due
to expense reductions, improved quality and efficiency and elimination of
expenses associated with the Aiken facility which closed at the end of February
2000. Gross profit margins of the Casket Segment increased from 30.0% in 1999 to
32.0% in 2000 due to the cost reduction efforts in 1999 after the loss of the
SCI business and improved product mix.
Other operating expenses decreased $0.5 million or 4.1% to $11.4 million from
$11.9 million in 1999, and decreased as a percentage of sales to 20.8% from
21.8% in 1999. The decrease reflects continued cost containment efforts in the
casket segment after the loss of the SCI business and lower consulting fees,
both partially offset by depreciation and personnel expenses attributed to the
Company's Enterprise Resource Planning system.
Net interest expense increased $0.4 million in 2000 to $1.8 million. This
increase reflects increased debt levels and higher interest rates, and the
classification of deferred financing fee amortization as interest expense in
2000. Interest paid during the first quarter of 2000 and 1999 was approximately
$1.2 million and $0.9 million, respectively.
Pretax income decreased $1.2 million to $3.0 million in 2000. The Company's
effective tax rate increased to 43.5% in 2000 from 40.5% in the 1999 quarter,
reflecting primarily the interaction of lower pretax income and increased
non-deductible expenses, primarily goodwill. Cash paid for income taxes during
the first quarter of 2000 and 1999 was $1.0 million and $0.1 million,
respectively.
Net income decreased $.8 million to $1.7 million in 2000, and both basic and
diluted earnings per share were $.19 in 2000 compared to $.28 in 1999.
8
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $.02 million at March 31, 2000, representing no
change from December 31, 1999. During the first quarter of 2000, cash flows from
operations totaled approximately $5.4 million, cash used in investing activities
totaled approximately $1.2 million and cash used in financing activities totaled
approximately $4.4 million.
Capital expenditures were $1.2 million and $1.7 million in the first quarter of
2000 and 1999, respectively. The Company has budgeted capital expenditures for
2000 of approximately $5.0 million. Major 2000 expenditures include routine
maintenance and replacement projects, with no significant individual projects
currently planned.
Long-term debt, including current maturities, at March 31, 2000, totaled $75.6
million, which primarily consisted of $15.5 million of senior notes (the "Senior
Notes"), $30.0 million outstanding on the Company's bank term loan, $20.1
million outstanding on the Company's revolving credit facility, subordinated
promissory notes totaling $4.3 million issued in conjunction with an
acquisition, capital lease obligations totaling $3.3 million and deferred
acquisition purchase cost of $1.9 million. Effective May 12, 2000, certain of
the financial covenants related to the Company's term loan and revolving credit
facility were modified through September 30, 2000. The Company may refinance its
debt prior to September 30, 2000; however, were the Company unable to refinance
its debt or receive modifications of certain of its fourth quarter debt
covenants, the Company projects that it may be out of compliance with one or
more of its debt covenants in the fourth quarter of 2000. Management believes
that it will be successful in obtaining fourth quarter modifications or
successful alternative financing; however, there can be no assurance of such.
Management believes that current cash balances, cash flows from operations,
the remaining borrowing capacity available under the Revolver and the Company's
access to credit markets are sufficient to meet the Company's anticipated
capital expenditures and other operating requirements for the foreseeable
future. There can be no assurance that the Company will be successful in
obtaining debt or equity financing or refinancing, if any, on terms that are
favorable.
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.
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are based upon
management's current expectations and assumptions. Important factors that could
cause actual results to differ materially from those in forward-looking
statements included herein include, among others, customer demands and the
Company's reaction to such demands, changes in mortality and/or cremation rates,
further consolidation in the funeral service industry, and fluctuations in the
prices of raw materials and other manufacturing costs and the availability of
debt and/or equity financing or refinancing options.
9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial data schedule
(b) Reports on Form 8-K
None
10
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
________________ THE YORK GROUP, INC.
By: /s/ G. BRUCE BROUSSARD
----------------------------------------------
G. Bruce Broussard
Vice President and Chief Financial Officer
(Principal Financial Officer and Duly
Authorized Officer)
11