FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PERSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM____TO____
Commission file number: 0-28096
-----------------------------
THE YORK GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0490631
(State or other jurisdiction of (I.R.S. employer identification
incorporation or organization) number)
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 May 8,
1997 was 7,999,864.
THE YORK GROUP, INC.
INDEX
Part I. Financial Information PAGE
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1997 (Unaudited) and December 31, 1996.........2
Consolidated Statements of Income (Unaudited)
Three months ended March 31, 1997 and 1996...............3
Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 1997 and 1996...............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
THE YORK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited) (Audited)
March 31, December 31,
ASSETS 1997 1996
------------ --------
CURRENT ASSETS:
Cash and cash equivalents .................. $ 34,726 $ 32,056
Trade accounts and notes receivable,
net of allowance for doubtful
accounts and returns and allowances
of $1,936 in 1997 and $1,755 in 1996:
Stockholders and affiliates ........... 4,327 5,377
Other ................................. 10,246 6,848
Inventories ................................ 21,732 19,101
Prepaid expenses ........................... 1,089 1,555
Deferred tax asset ......................... 2,563 2,258
------------ --------
Total current assets .................... 74,683 67,195
------------ --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements ...................... 3,573 2,956
Buildings and improvements ................. 11,325 10,515
Equipment .................................. 31,583 31,092
Construction-in-progress ................... 1,703 1,134
------------ --------
48,184 45,697
Less: accumulated depreciation ............. (17,376) (16,377)
------------ --------
Property, plant and equipment, net ..... 30,808 29,320
------------ --------
NOTES RECEIVABLE:
Related party .............................. 138 175
Other ...................................... 144 171
GOODWILL ....................................... 6,948 2,806
DEFERRED COSTS ................................. 222 268
------------ --------
Total assets ........................... $ 112,943 $ 99,935
============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt .......... $ 68 $ 70
Accounts payable ........................... 4,472 3,699
Accrued expenses ........................... 12,651 9,599
Income taxes payable ....................... 805 --
------------ --------
Total current liabilities ............... 17,996 13,368
------------ --------
OTHER NONCURRENT LIABILITIES ................... 1,075 1,275
------------ --------
DEFERRED TAX LIABILITY ......................... 4,781 4,149
------------ --------
LONG-TERM DEBT ................................. 29,600 25,097
------------ --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000
shares authorized and unissued .......... -- --
Common stock, $.01 par value, 25,000,000
shares authorized; 7,999,864 shares
issued and outstanding .................. 80 80
Additional paid-in capital ................. 30,939 30,939
Retained earnings .......................... 28,472 25,027
------------ --------
Total stockholders' equity .............. 59,491 56,046
------------ --------
Total liabilities and
stockholders' equity ................ $ 112,943 $ 99,935
============ ========
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 March 31,
----------------------------
1997 1996
----------- -----------
NET SALES (including sales to stockholders
and affiliates of $18,056 and
$22,732 for the three months
ended March 31, 1997 and 1996,
respectively.) .................... $ 43,007 $ 38,666
COST OF SALES ................................ 32,365 29,853
----------- -----------
Gross profit ....................... 10,642 8,813
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES .................. 4,496 2,812
----------- -----------
Operating income ................... 6,146 6,001
INTEREST EXPENSE, NET ........................ (122) (690)
----------- -----------
INCOME BEFORE INCOME TAXES ................... 6,024 5,311
INCOME TAX PROVISION ......................... 2,259 1,988
----------- -----------
NET INCOME ................................... $ 3,765 $ 3,323
----------- -----------
EARNINGS PER SHARE ........................... $ .46 $ .58
=========== ===========
AVERAGE SHARES OUTSTANDING ................... 8,172,591 5,709,437
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
THE YORK GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................... $ 3,765 $ 3,323
Adjustments to reconcile income to net cash
provided by operating activities-
Depreciation and amortization ........... 1,122 999
Provision for doubtful accounts ......... 19 15
Loss on disposition of property,
plant and equipment ................... 4 16
Deferred income tax provision ........... 327 51
Decrease/(Increase) in:
Accounts receivable .................. 257 (204)
Inventories .......................... 22 1,892
Prepaid taxes ........................ 937 --
Prepaid expenses ..................... (300) (606)
Other noncurrent assets .............. 39 --
Increase/(Decrease) in:
Accounts payable ..................... 765 (138)
Accrued expenses ..................... 2,336 1,390
Income taxes payable ................. 805 1,592
-------- --------
Net cash provided by operating
activities ...................... 10,098 8,330
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of notes receivable ............... 79 79
Advances under notes receivable .............. -- (25)
Capital expenditures ......................... (1,591) (844)
Acquisitions, net of cash acquired of $39 .... (2,795) --
-------- --------
Net cash used in investing
activities ...................... (4,307) (790)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net of issuance costs ...................... -- 440
Repayment of line of credit .................. -- (156)
Repayment of long-term debt .................. (2,801) (6)
Dividends paid ............................... (320) (696)
-------- --------
Net cash used in financing
activities ...................... (3,121) (418)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....... 2,670 7,122
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .. 32,056 10,867
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........ $ 34,726 $ 17,989
======== ========
Supplemental schedule of noncash investing and financing activities:
Details of acquisition (Noted):
Fair value of assets acq 11,358
Debt issued (4,500)
Cash paid (2,795)
------
Liabilities assumed 4,063
======
The accompanying notes are an integral part of these financial statements.
4
THE YORK GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of The
York Group, Inc. and all wholly-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 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
December 31, 1996 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 March 31, 1997 and December 31, 1996 and
the consolidated results of its operations and cash flows for the three months
ended March 31, 1997 and 1996 have been included. The results of operations for
such interim periods are not necessarily indicative of the results for the full
year.
2. ACQUISITIONS
On January 17, 1997, the Company completed the acquisition of substantially all
the business assets and assumed the associated debts and liabilities of Houston
Casket Company, a casket distributor. The acquisition was accounted for using
the purchase method of accounting. Pro forma results of operations have not been
presented because the effects of the acquisition were not significant.
3. INVENTORIES
March 31, December 31,
1997 1996
-------------- --------------
(in thousands)
Raw materials $ 6,671 $ 7,414
Work in process 2,851 2,568
Finished goods 12,210 9,119
-------------- --------------
$21,732 $19,101
============== ==============
4. CONTINGENCIES
ENVIRONMENTAL MATTERS
In 1991, the Georgia Department of Natural Resources (the GDNR) issued a Notice
of Violation - Consent Order alleging that the Company's Lawrenceville, Georgia
facility was storing and treating hazardous wastes without a permit and was
otherwise in violation of certain hazardous waste regulations in the operation
of its electroplating line and associated waste water treatment system. The GDNR
approved a closure-plan and post-closure plan for the facility in August 1994,
and issued a Hazardous Waste Facility Permit effective September 27, 1995 to
document the post-closure care requirements. The Company has provided financial
assurance in the form of a letter of credit in the amount of approximately
$1,100,000 to secure its post-closure care obligations.
At March 31, 1997 and December 31, 1996, the Company had reserves of
approximately $1,500,000 for estimated costs to complete the implementation of
the post-closure plan. Actual remediation costs may differ from estimates due to
unforeseen factors which may arise as the closure occurs. Accordingly, these
reserves may be adjusted as additional information becomes available.
5. INITIAL PUBLIC OFFERING
In April 1996, the Company completed an initial public offering (the "Offering")
of 2,145,000 shares of its common stock. 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 of the Offering to
repay its $11,000,000 Subordinated Series A Note.
6. PENDING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings per Share" (SFAS No. 128). SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997 and early adoption is prohibited. The Company will adopt SFAS No. 128 in
the year ending December 31, 1997, upon adoption, SFAS No. 128, will require
restatement of prior years' Earnings per Share. Management anticipates the
impact of adoption to be immaterial.
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 Company and 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 MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
For the first quarter 1997, net sales increased $4.3 million, or 11.2%. This
reflects an increase in both finished casket and component volumes, and net
price increases, as well as additional net sales from companies which were
acquired during the fourth quarter of 1996 and the first quarter of 1997.
Gross profit increased $1.8 million, or 20.8%. Gross margin increased from
22.8% to 24.7%. The gross margin was affected by net price and volume increases,
favorable raw material costs and the incremental margin from acquired
distribution operations.
Selling, general and administrative expenses increased $1.7 million, or 59.9%,
and as a percentage of net sales increased from 7.3% to 10.5%. The increase in
selling, general and administrative expenses as a percentage of net sales
reflects an increase in personnel and related hiring and relocation costs,
public reporting and other costs associated with being a public company
following the Company's initial public offering in April 1996, and selling,
general and administrative costs of companies acquired in late 1996 and early
1997.
Net interest expense decreased $568,000, or 82.3%. The decrease reflects the
early extinguishment of the Company's $11.0 million Subordinated Series A Note
in April of 1996 and higher interest earnings due to increased invested cash
balances.
The Company's effective tax rate remained at 37.5%.
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.
Cash and cash equivalents were $34.7 million at March 31, 1997, an increase of
$2.7 million from December 31, 1996. For the three months ended March 31, 1997,
cash provided by operations totaled $10.1 million, cash used in investing
activities totaled $4.3 million and cash used in financing activities totaled
$3.1 million.
7
Capital expenditures for the three months ended March 31, 1997 and 1996 were
approximately $1.6 million and $844,000, respectively. The increase in
expenditures is due to productivity improvement and marketing facilities
projects.
The Company utilized approximately $2.8 million of cash for acquisitions
during the first quarter of 1997.
Long-term debt at March 31, 1997 totaled $29.6 million compared to $25.1
million at December 31, 1996, with the increase attributable to the issuance of
debt related to the Houston Casket acquisition. Long-term debt at March 31, 1997
consisted primarily of $25.0 million of Senior Notes, $2.5 million in promissory
notes and $2.0 million in convertible notes.
The Company maintains a $6.0 million unsecured revolving credit facility with
a major bank which expires January 31, 1998. The revolving credit facility
provides for borrowings and the issuance of letters of credit up to the lesser
of $6.0 million or a borrowing base, consisting of accounts receivable and
inventory. At March 31, 1997, no borrowings were outstanding, $2.3 million of
letters of credit were outstanding and $3.7 million was available under the
revolving credit facility.
The Company's capital resources consist of its cash balance at March 31, 1997,
future cash flows from operations and the borrowing capacity under the revolving
credit facility. The Company believes that these resources will be sufficient to
fund capital expenditures and meet other operating requirements for the
foreseeable future. Future acquisitions will be funded by available cash,
additional debt and future offerings of shares.
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 facilities 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 nor is it anticipated to have a material impact for
the foreseeable future.
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
March 31, 1997.
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.
May 8, 1997 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