FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JUNE 30, 1996
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: 33-846
THE YORK GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0490631
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
9430 OLD KATY ROAD, HOUSTON, TEXAS 77055
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 984-5500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [ X ] NO [ ]
THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AS OF
AUGUST 12, 1996 WAS 7,709,864.
THE YORK GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS -
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995.............2
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) -
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
SIX MONTHS ENDED JUNE 30, 1996 AND 1995....................3
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -
SIX MONTHS ENDED JUNE 30, 1996 AND 1995....................4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)...........5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION.....................................7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................9
SIGNATURE...................................................................10
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE YORK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited) (Audited)
June 30, December 31,
ASSETS 1996 1995
------------ --------
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 33,442 $ 10,896
Accounts and notes receivable, net of allowance for
doubtful accounts and returns and allowances of
$1,828 in 1996 and $1,586 in 1995:
Stockholders and affiliates .................. 5,681 6,457
Other ........................................ 5,368 4,682
Inventories (Note 2) .............................. 15,717 16,925
Prepaid expenses .................................. 872 416
Deferred tax assets, net .......................... 2,046 1,918
------------ --------
Total current assets ........................... 63,126 41,294
------------ --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements ............................. 2,907 2,897
Buildings and improvements ........................ 10,311 9,973
Equipment ......................................... 27,133 26,607
Construction-in -progress ......................... 2,254 1,197
------------ --------
42,605 40,674
Less: accumulated depreciation .................... (14,494) (12,819)
------------ --------
Property, plant and equipment, net ............ 28,111 27,855
------------ --------
NOTES RECEIVABLE:
Related party ..................................... 831 903
Other ............................................. 28
OTHER NONCURRENT ASSETS ............................... 238 252
------------ --------
Total assets .................................. $ 92,306 $ 70,332
============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................. $ 3,623 $ 3,701
Accrued expenses .................................. 9,817 8,292
Income taxes payable .............................. -- 148
------------ --------
Total current liabilities ...................... 13,440 12,141
------------ --------
OTHER NONCURRENT LIABILITIES .......................... 1,400 1,400
------------ --------
DEFFERED TAX LIABILITY ................................ 3,934 3,686
------------ --------
LONG-TERM DEBT (Note 4 ) .............................. 25,000 34,660
------------ --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000
shares authorized and unissued ................. -- --
Common stock, $.01 par value, 25,000,000
shares authorized; 7,709,864 and
5,388,864 shares issued and outstanding ........ 77 54
Additional paid-in capital ........................ 28,177 2,428
Retained earnings ................................. 20,278 15,963
------------ --------
Total stockholders' equity ..................... 48,532 18,445
------------ --------
Total liabilities and stockholders' equity ..... $ 92,306 $ 70,332
============ ========
The accompanying notes are an integral part of these
financial statements.
2
THE YORK GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
NET SALES (including sales to stockholders and affiliates of $19,921
and $19,188 for the three months ended June 30, 1996 and 1995,
respectively, and $42,653 and $40,364 for the
six months ended June 30, 1996 and 1995, respectively ........ $ 34,872 $ 32,555 $ 72,974 $ 67,828
COST OF SALES ............................................................. 27,417 25,670 56,957 52,987
----------- ----------- ----------- -----------
Gross profit .................................................... 7,455 6,885 16,017 14,841
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ............................................... 2,872 2,418 5,566 4,803
----------- ----------- ----------- -----------
Operating income ................................................ 4,583 4,467 10,451 10,038
INTEREST EXPENSE, NET ..................................................... (68) (723) (764) (1,497)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM ......................... 4,515 3,744 9,687 8,541
INCOME TAX PROVISION ...................................................... 1,694 1,441 3,633 3,288
----------- ----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM .......................................... 2,821 2,303 6,054 5,253
EXTRAORDINARY ITEM, less applicable tax (Note 4) .......................... (736) -- (736) --
----------- ----------- ----------- -----------
NET INCOME ................................................................ $ 2,085 $ 2,303 $ 5,318 $ 5,253
=========== =========== =========== ===========
EARNINGS PER SHARE:
Income before extraordinary item ................................ $ .36 $ .42 $ .90 $ .96
=========== =========== =========== ===========
Net income ...................................................... $ .27 $ .42 $ .79 $ .96
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING ................................................ 7,801,839 5,495,844 6,717,321 5,465,105
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial
statements.
3
THE YORK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
1996 1995
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................. $ 5,318 $ 5,253
Adjustments to reconcile income to net cash
provided by operating activities-
Depreciation and amortization ...................... 1,846 1,899
Deferred income tax provision ...................... 120 214
Loss on disposition of property, plant and equipment 16 24
Provision for doubtful accounts .................... 30 33
Write-off of debt discount ......................... 1,178 --
Decrease/(Increase) in:
Accounts receivable ............................. 34 834
Inventories ..................................... 1,208 (693)
Prepaid expenses ................................ (229) 26
Prepaid income taxes ............................ (227) 113
Increase/(Decrease) in:
Accounts payable ................................ (78) (693)
Accrued expenses ................................ 1,530 201
Income taxes payable ............................ (148) 313
Other noncurrent liabilities .................... -- (10)
-------- -------
Net cash provided by operating activities .... 10,598 7,514
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities purchased .................................... -- (11)
Capital expenditures .................................... (1,949) (1,864)
Collection of notes receivable .......................... 153 149
Advances under notes receivable ......................... (25) --
-------- -------
Net cash used in investing activities ........ (1,821) (1,726)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid .......................................... (1,004) (651)
Payment of deferred financing charges ................... -- (4)
Repayment of long-term debt ............................. (11,000) (285)
Proceeds from issuance of common stock,
net of issuance costs ................................. 25,773 1,895
-------- -------
Net cash provided by financing activities .... 13,769 955
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS .................. 22,546 6,743
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............. 10,896 2,837
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................... $ 33,442 $ 9,580
======== =======
The accompanying notes are an integral part of these financial statements.
4
THE YORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1996
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of The York Group, Inc. and all majority owned
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
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 December 31, 1995 audited financial
statements and the notes thereto. In the opinion of the Company,
all adjustments and eliminations, consisting only of normal and
recurring adjustments, necessary to present fairly the
consolidated financial position of the Company as of June 30, 1996
and December 31, 1995 and the consolidated results of its
operations for the three months and six months ended June 30, 1996
and 1995 and cash flows for the six months ended June 30, 1996 and
1995 have been included. The results of operations for such
interim periods are not necessarily indicative of the results for
the full year.
2. INVENTORIES
Inventories consisted of the following :
June 30, December 31,
1996 1995
------------- -------------
( in thousands )
Raw materials $8,443 $8,173
Work in process 3,585 2,871
Finished goods 3,689 5,881
------------- -------------
$15,717 $16,925
============= =============
3. CONTINGENCIES
Environmental Matters
In 1991, the Georgia Department of Natural Resources (the GDNR)
issued a Notice of Violation Consent Order alleging that the
Company's Lawrenceville, Georgia facility was storing and treating
hazardous wastes without a permit and was otherwise in violation
of certain hazardous waste regulations in the operation of its
electroplating line and associated wastewater treatment system.
The GDNR approved a closure-plan and post closure plan for the
facility in August 1994, and issued a Hazardous Waste Facility
Permit effective September 27, 1995 to document these post-closure
care requirements. The Company has provided financial assurance in
the form of a letter of credit in the amount of approximately
$1,050,000 to secure its post - closure care obligations.
At June 30, 1996 and December 31, 1995, the Company had a reserve
of approximately $1,400,000 and $1,700,000, respectively , for the
estimated future costs to complete the implementation of the
post-closure plan. It is possible that the remediation costs could
be different than these reserves due to unforseen factors that
arise as the closure occurs and due to the length of time during
which monitoring activities will be conducted. Accordingly, these
reserves will be adjusted as information becomes available
indicating that higher or lower remediation costs will be
incurred.
5
4. CAPITALIZATION EVENT
In April 1996, the Company completed an initial public offering
(the "Offering") of 2,645,000 shares of its common stock.
2,145,000 shares were sold by the Company and 500,000 shares were
sold by certain stockholders of the Company (the "Selling
Stockholders"). The Company did not receive any of the proceeds
from the sale of shares by the Selling Stockholders. Net proceeds
to the Company from the Offering, after deduction of associated
expenses, were approximately $25,300,000.
The Company utilized a portion of the proceeds from the Offering
to repay its $11,000,000 Subordinated Series A Note, which was
originally issued at a discount. The early extinguishment of this
debt resulted in an extraordinary charge of $736,000, net of tax,
during the three month period ending June 30, 1996, related to the
write-off of the unamortized discount.
6
Item 2.Management's Discussion and Analysis of Results of Operations and
Financial Condition
The Company is the second largest casket manufacturer in the United
States and produces a wide variety of metal and hardwood caskets, as well as
casket components. The Company's finished caskets are primarily marketed through
a network of privately owned distributors, which serve an estimated 15,000
domestic funeral homes, as well as certain foreign markets. Casket components
are sold to other casket manufacturers and assemblers.
In April 1996 the Company completed an initial public offering of
2,145,000 shares of its common stock. A portion of the net proceeds of
approximately $25.3 million was used to repay the Company's subordinated debt,
with the remainder designated for general corporate purposes, including
potential acquisitions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Net sales increased $2.3 million, or 7.1%. The increase reflects an 8.6%
increase in finished casket volume, a 13.3% increase in components volume as
well as increased net prices, partially offset by a disproportionate growth in
lower priced finished metal caskets.
Gross profit increased $570,000, or 8.3%. Gross margin increased from
21.2% to 21.4%. The gross margin was affected by increased sales volume and net
price increases, partially offset by disproportionate unit growth in lower
priced metal casket products, high demand for new metal products which were
introduced at price points aimed at market share growth, and a lower growth in
demand for hardwood products.
Selling, general and administrative expenses increased $454,000, or
18.8%, and as a percentage of net sales, increased from 7.4% to 8.2%. The
increase in selling, general and administrative expenses as a percentage of net
sales reflects an increase in the number of personnel and related hiring and
relocation costs, expenses related to the Company's launch of its preneed
insurance program, public reporting and other costs associated with being a
public company following the Company's initial public offering, and general cost
increases, offset partially by higher net sales.
Net interest expense decreased $655,000, or 90.6%. The decrease reflects
the early extinguishment of the Company's $11,000,000 Subordinated Series A Note
and higher interest income earnings due to increased cash balances.
The Company's effective tax rate decreased from 38.5% to 37.5%. The
reduction reflects a decrease in nondeductible expenses.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Many of the factors that affected second quarter results also had an
impact on year to date results. Refer to the second quarter comparison for
additional discussion.
Net sales increased $5.1 million, or 7.6%. The increase reflects a 7.9%
increase in finished casket volume, a 9.2% increase in components volume as well
as increased net prices, partially offset by disproportionate growth in lower
priced finished metal caskets.
Gross profit increased $1,176,000, or 7.9%. Gross margin increased from
21.9% to 22.0%.
Selling, general and administrative expenses increased $763,000, or
15.9%, and as a percentage of net sales, increased from 7.1% to 7.6%.
Net interest expense decreased $733,000, or 49.0%.
The Company's effective tax rate decreased from 38.5% to 37.5%.
7
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on cash flow from operations as well
as borrowings from banks and other lenders to fund its operations. In April 1996
the Company completed an initial public offering of common stock in which it
sold 2,145,000 shares of common stock at $13 per share. A portion of the net
proceeds of the offering of approximately $25.3 million was used to repay the
Company's outstanding subordinated debt and the remainder will be available for
general corporate purposes, including potential acquisitions.
Cash and cash equivalents were $33.4 million at June 30, 1996, an
increase of $22.5 million from December 31, 1995. For the six months ended June
30, 1996, cash provided from operations totaled approximately $10.6 million,
cash used in investing activities totaled $1.8 million and cash provided by
financing activities totaled $13.8 million.
Capital expenditures during both the six months ended June 30, 1996 and
1995 were approximately $1.9 million. The Company has outstanding commitments of
approximately $435,000 for a major capital improvement at its hardwood
manufacturing facility, and the Company's current plans call for capital
spending to increase modestly during the second half of 1996.
Long-term debt at June 30, 1996 totaled $25.0 million compared to $34.7
million at December 31, 1995, with the decrease attributable to the
extinguishment of the $11,000,000 ($9,822,000 net of the recorded discount)
Subordinated Series A Note during the three month period ended June 30, 1996.
Long-term debt at June 30, 1996 consisted of $25.0 million of Senior Notes. In
connection with the repayment of the Subordinated Series A Note, the Company
recorded an extraordinary charge of approximately $736,000, net of tax, to write
off the remaining unamortized debt discount.
The Company maintains a $10 million unsecured revolving credit facility
with a major bank which expires January 31, 1997. The revolving credit facility
provides for borrowings and the issuance of letters of credit up to the lesser
of $10 million or a borrowing base, consisting of accounts receivable and
inventory. At June 30, 1996, no borrowings were outstanding, $2.3 million of
letters of credit were outstanding and $7.7 million was available under the
revolving credit facility.
The Company's capital resources consist of its cash balance at June 30,
1996, future cash flows from operations and the borrowing capacity under the
revolving credit facility. The Company believes that these resources should be
sufficient to fund capital expenditures and meet other operating requirements
for the foreseeable future. These resources should also be sufficient to fund
currently identified potential acquisition opportunities.
Historically, the Company's operations have experienced certain seasonal
patterns. Generally, the Company's net sales are highest in the first quarter
and lowest in the third quarter of each year. These fluctuations are due in part
to the seasonal variance in the death rate, with a greater number of deaths
generally occurring in cold weather months, and the timing of the Company's
annual manufacturing facility vacation shutdowns, which occur primarily in the
third quarter. In addition, operating results can vary between quarters of the
same or different years due to, among other things, fluctuations in the number
of deaths, changes in product mix, limitations on the timing of price increases,
and variances in the cost of raw materials. 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.
INFLATION
Historically, inflation has not had a material impact on the results of
operations of the Company.
8
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
THERE WERE NO REPORTS ON FORM 8-K DURING THE THREE MONTHS ENDED
JUNE 30, 1996.
9
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
AUGUST 12, 1996 THE YORK GROUP INC.
BY: /s/ DAVID F. BECK
------------------------------------------
David F. Beck
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER AND DULY
AUTHORIZED OFFICER)
10