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 September 30, 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 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 November
12, 1999 was 8,940,950.
THE YORK GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1999 (Unaudited) and December 31, 1998...... 2
Condensed Consolidated Statements of Income (Unaudited) -
Three and nine months ended September 30, 1999 and 1998... 3
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine months ended September 30, 1999 and 1998............. 4
Notes to Condensed Consolidated Financial Statements
(Unaudited).............................................. 5-7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.......................8-11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K........................... 12
Signature................................................................... 13
1
THE YORK GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
---------------- ----------------
(unaudited)
Current assets:
Cash and cash equivalents ................................................... $ 1,653 $ 3,449
Trade accounts and notes receivable, net of allowance
for doubtful accounts and returns and allowances of
$4,069 in 1999 and $4,016 in 1998:
Stockholders and affiliates ............................................ 4,407 5,706
Other .................................................................. 30,452 26,418
Inventories, net ............................................................ 35,108 34,841
Prepaid expenses ............................................................ 2,481 2,984
Deferred tax assets ......................................................... 4,655 5,826
--------- ---------
Total current assets .................................................... 78,756 79,224
--------- ---------
Property, plant and equipment, net ................................................. 62,106 60,226
Goodwill and other intangibles, net ................................................ 66,205 62,200
Deferred cost and other assets ..................................................... 10,559 7,614
--------- ---------
Total assets ................................................................ $ 217,626 $ 209,264
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ........................................... $ 21,057 $ 4,718
Accounts payable ............................................................ 13,388 8,018
Accrued expenses ............................................................ 15,049 16,179
--------- ---------
Total current liabilities ............................................... 49,494 28,915
--------- ---------
Long-term debt, net of current portion ............................................. 62,103 79,267
Other noncurrent liabilities ....................................................... 8,028 7,822
Deferred tax liabilities ........................................................... 8,196 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 .......................... (105) (103)
Retained earnings ........................................................... 49,366 44,711
--------- ---------
Total stockholders' equity ............................................... 89,805 85,087
--------- ---------
Total liabilities and stockholders' equity .................................. $ 217,626 $ 209,264
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
THE YORK GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net sales (including sales to stockholders and affiliates
of $5,664 and $7,058 for the three months ended September 30,
1999 and 1998, respectively, and $26,050 and $24,597 for
the nine months ended September 30, 1999 and
1998, respectively) .................................... $ 45,372 $ 58,352 $150,154 $174,186
Cost of goods sold ....................................... 30,583 43,113 101,721 124,555
-------- -------- -------- --------
Gross profit ......................................... 14,789 15,239 48,433 49,631
Other operating expenses ................................. 10,724 10,739 34,349 31,289
-------- -------- -------- --------
Operating income ..................................... 4,065 4,500 14,084 18,342
Interest expense, net .................................... 1,581 1,484 4,293 3,312
-------- -------- -------- --------
Income before income taxes ............................... 2,484 3,016 9,791 15,030
Income tax provision ..................................... 1,075 1,206 4,064 5,903
-------- -------- -------- --------
Net income ............................................... $ 1,409 $ 1,810 $ 5,727 $ 9,127
======== ======== ======== ========
Shares used in computing earnings per share:
Basic ................................................ 8,941 8,931 8,935 8,919
======== ======== ======== ========
Diluted .............................................. 9,032 9,079 9,028 9,307
======== ======== ======== ========
Earnings per share:
Basic ................................................ $ 0.16 $ 0.20 $ 0.64 $ 1.02
======== ======== ======== ========
Diluted .............................................. $ 0.16 $ 0.20 $ 0.63 $ 0.99
======== ======== ======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
THE YORK GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
1999 1998
-------- --------
Cash flows from operating activities:
Net income ......................................................... $ 5,727 $ 9,127
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization ................................... 7,961 6,772
Deferred income tax benefit ..................................... (7) 97
Loss on disposition of property, plant and equipment ............ -- 104
Provision for doubtful accounts ................................. 109 123
Decrease/(increase) in:
Trade accounts and notes receivable .......................... (2,124) (4,817)
Inventories .................................................. 635 1,352
Prepaid expenses ............................................. 566 98
Deferred costs and other assets .............................. (2,061) (1,798)
Increase/(decrease) in:
Accounts payable and accrued expenses ........................ 2,700 (1,934)
Other noncurrent liabilities ................................. 107 (73)
-------- --------
Net cash provided by operating activities .................... 13,613 9,051
-------- --------
Cash flows from investing activities:
Capital expenditures ............................................... (4,609) (5,996)
Collections on notes receivable ................................... 138 227
Acquisitions, net of cash acquired of $507 and $17,582 ............. (4,817) (66,035)
-------- --------
Net cash used in investing activities ........................ (9,288) (71,804)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock ............................. 65 181
Repayment of long-term debt ........................................ (22,644) (23,089)
Proceeds from issuance of long-term debt ........................... 17,530 74,500
Dividends paid ..................................................... (1,072) (1,071)
-------- --------
Net cash provided by (used in) financing activities .......... (6,121) 50,521
-------- --------
Net decrease in cash and cash equivalents ..................................... (1,796) (12,232)
Cash and cash equivalents, beginning of period ................................ 3,449 15,478
-------- --------
Cash and cash equivalents, end of period ...................................... $ 1,653 $ 3,246
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest .................................. $ 4,000 $ 3,500
======== ========
Cash paid during the period for income taxes .............................. $ 3,000 $ 6,900
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
THE YORK GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
1. BASIS OF PRESENTATION
The accompanying condensed 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
condensed consolidated financial statements should be read in conjunction with
the Company's December 31, 1998 audited consolidated financial statements and
the notes thereto included in the Company's 1998 Annual Report on Form 10-K. In
the opinion of the Company's management, all adjustments and eliminations,
consisting only of normal and recurring adjustments, necessary to present fairly
the condensed 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. ACQUISITIONS
On April 19, 1999, the Company acquired all of the outstanding common stock of
Star Manufacturing Corporation, an assembler of metal caskets, for $4 million,
of which $2 million was paid at closing and $2 million is payable in one year.
On April 30, 1999, the Company acquired all of the outstanding common stock of
OMC Industries, a manufacturer of cast metal signage products, for approximately
$3.6 million in cash. Both acquisitions were accounted for using the purchase
method of accounting, with resulting goodwill of approximately $5.1 million. Pro
forma results of operations have not been presented as the effects of the
acquisitions are not significant.
3. SUPPLEMENTAL INFORMATION
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- --------------
(in thousands)
Inventories:
Raw materials ......................... $10,479 $13,204
Work in process ....................... 2,369 2,807
Finished goods ........................ 22,260 18,830
------- -------
$35,108 $34,841
======= =======
Property, Plant and Equipment:
Land and improvements ................. $ 4,727 $ 4,819
Building and improvements ............. 21,248 19,806
Equipment ............................. 63,440 56,745
Construction-in-progress .............. 5,436 6,144
------- -------
94,851 87,514
Less: accumulated depreciation ........ 32,745 27,288
------- -------
$62,106 $60,226
======= =======
5
4. 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 September 30, 1999 the Company had options
outstanding for the purchase of an aggregate of 675,178 shares of common stock
of which 670,678 were excluded from the diluted EPS computation as they have
exercise prices that exceed the average fair value for the three-month and
nine-month periods ended September 30, 1999.
A reconciliation of weighted-average shares outstanding to shares used in
computing diluted EPS is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
----- ----- ----- -----
(in thousands)
Weighted-average shares outstanding ................. 8,941 8,931 8,935 8,919
Dilutive securities consisting of options
and convertible debt .............................. 91 148 93 118
----- ----- ----- -----
Shares used in computing diluted EPS ................ 9,032 9,079 9,028 9,037
===== ===== ===== =====
5. SEGMENT INFORMATION
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information", requires certain financial and supplementary information to be
discussed on an annual and interim basis for each reportable segment of an
enterprise. In accordance with SFAS No. 131, the Company identified its
reporting segments based on its internal reporting of strategic business units.
The products within each segment require substantially different manufacturing
processes, are marketed to different customer bases and have different economic
characteristics.
The Company's Casket Segment includes the manufacturing and distribution
operations of a wide variety of metal, wood and other caskets, caskets
components and metal burial vaults. The Company's Commemorative Products Segment
produces and sells products, primarily cast bronze, which are used to
commemorate people, places and events. The All Other Segment includes the
Company's fleet operations, architectural services, merchandising products and
services, and corporate expenses. Product transfers between industry segments
are not material. The Company evaluates segment performance based upon operating
income.
Interim financial information regarding the Company's segments is presented
below:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(in thousands)
Net sales:
Caskets .............................................. $ 31,516 $ 43,735 $ 107,677 $ 139,460
Commemorative Products ............................... 10,715 12,191 34,196 27,336
All other ............................................ 3,141 2,426 8,281 7,390
--------- --------- --------- ---------
Consolidated net sales ........................ $ 45,372 $ 58,352 $ 150,154 $ 174,186
========= ========= ========= =========
Operating income:
Caskets .............................................. $ 6,185 $ 6,488 $ 19,957 $ 25,379
Commemorative Products ............................... 1,850 1,925 6,482 4,440
All other ............................................ (3,970) (3,913) (12,355) (11,477)
--------- --------- --------- ---------
Consolidated operating income ................. $ 4,065 $ 4,500 $ 14,084 $ 18,342
========= ========= ========= =========
6
6. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components. Comprehensive income is the
total of net income and all other non-owner changes in equity. The Company has
comprehensive income of $1.4 million and $5.6 million for the three and nine
month periods ended September 30, 1999, respectively, consisting of net income
and foreign currency translation adjustment. The 1998 comprehensive income for
the Company consisted of net income and foreign currency translation adjustment.
7. DEBT
The Company amended and restated its $60 million revolving credit facility (the
"Facility") in August 1999. Under the terms of the amended agreement, the
Facility consists of a $35 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 million or a borrowing base, as
defined. The terms of the Facility call 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
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. The Facility and the Senior Notes (which carry an annual
interest rate of 8.37%) 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.
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, principally
Canada. 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 SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Net sales for the three months ended September 30, 1999 were $45.4 million
compared to $58.4 million for the same period in 1998. Casket Segment net sales
were $31.5 million, a decrease of $12.2 million from $43.7 in the 1998 period.
This decline principally reflects the loss of sales to Service Corporation
International ("SCI") in 1999 as a result of the termination as of December 31,
1998 of the supply contract between the Company and SCI and, to a lesser extent,
a decline in the number of deaths as compared to the third quarter of 1998.
Third quarter net sales of the Company's Commemorative Products Segment were
$10.7 million compared to $12.2 million in the comparable 1998 quarter,
primarily due to a temporary backlog of orders resulting from the current
consolidation of production activities from the Company's South Carolina foundry
to its West Virginia facility during the quarter. These declines were partially
offset by revenues of OMC Industries, which was acquired during the second
quarter of 1999. Third quarter 1999 net sales of the All Other Segment,
consisting primarily of merchandising display systems, were $3.1 million
compared to $2.4 million in the corresponding period in 1998.
Third quarter 1999 gross profit was $14.8 million compared to $15.2 million
during the third quarter of 1998. Gross margins improved to 32.5% in 1999 from
26.1% in 1998. 1999 Casket Segment gross profit decreased approximately $1.1
million, primarily due to lower sales to SCI partially offset by efficiency
improvements and cost reduction efforts. Third quarter 1999 Commemorative
Products Segment gross profit was equal to the 1998 period. This segment's gross
profit reflects the acquisition of OMC and the efficiencies realized as a result
of the closure of the Portland, Oregon foundry in late 1998 and movement of its
memorialization business segments to other foundry facilities, partially offset
by the sales volume decrease and inefficiencies experienced as a result of the
current plant consolidation activities between the South Carolina and West
Virginia operations. Third quarter 1999 gross profit of the All Other Segment
was $.9 higher than the same period in 1998 primarily due to higher sales
volumes and cost improvements.
Operating income for the third quarter of 1999 was $4.1 million, a $.4 million
decrease from the 1998 third quarter. Casket Segment 1999 third quarter
operating income was $6.2 million compared to $6.5 million in 1998, again
primarily attributable to the loss of sales to SCI almost totally offset by
effective cost reduction programs. 1999 third quarter operating income for the
Commemorative Products Segment was consistent with comparable prior year period
due to the unfavorable impact of lower sales volumes offset by the partial
realization this quarter of cost savings from plant consolidations. Operating
loss during the third quarter of 1999 for the All Other Segment, which includes
corporate expenses, was consistent with the same period last year.
Net interest expense increased slightly from 1998, due to an increase in
interest rates.
The Company's effective tax rate increased to 43.2% from 39.9% in 1998,
reflecting the impact of non-deductible expenses, primarily goodwill
amortization, relative to lower pre-tax earnings.
Net income decreased $.4 million to $1.4 million in 1999, and both basic and
diluted earnings per share were $.16 in 1999 compared to $.20 in 1998.
8
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Many of the factors that affected third quarter results also had an impact on
year to date results. Refer to the third quarter comparison for additional
discussion.
Net sales were $150.2 million, a decline of $24.0 million from 1998. Casket
Segment net sales were $107.7 million, a $31.8 million or 22.7% reduction from
1998, reflecting the loss of sales to SCI. Commemorative Products Segment net
sales increased to $34.2 million from $27.3 million in 1998, reflecting a full
nine months of sales in 1999 compared to only slightly more than six months in
1998. All Other Segment net sales were $.9 million higher than the 1998 level
due to higher sales of merchandising display systems.
Gross profit was $48.4 million compared to $49.6 million in 1998. Gross margins
improved to 32.2% in 1999 from 28.4% in 1998. The dollar decline reflects the
loss of SCI business in the Casket Segment partially offset by both the gross
profit of the Commemorative Products Segment for a full nine months in 1999 and
lower expenses in the Casket segment.
Operating income was $14.1 million in 1999 compared to $18.3 million in 1998.
The decline again reflects the loss of sales to SCI, offset partially by full
period results of the Commemorative Products Segment in 1999.
Net interest expense increased $1.0 million to $4.3 million in 1999, primarily
reflecting the debt incurred for the Colonial Guild, Ltd.
acquisition in mid-March 1998.
The Company's effective tax rate increased from 39.3% in 1998 to 41.5% in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on cash flows from operations as well as
borrowings from banks and other lenders to fund its operations.
Cash and cash equivalents were $1.7 million at September 30, 1999, a decrease of
$1.8 million from December 31, 1998. For the nine months ended September 30,
1999, cash provided by operating activities totaled $13.6 million, cash used in
investing activities totaled $9.3 million and cash used in financing activities
totaled $6.1 million.
The Company utilized approximately $4.8 million of cash for acquisitions during
the first nine months of 1999, net of cash acquired.
Long-term debt, including current maturities, at September 30, 1999 totaled
$83.2 million compared to $84.0 million at December 31, 1998. Long-term debt at
September 30, 1999 consisted primarily of $34.0 million borrowed under the
Company's term loan, and $21.0 million borrowed under the Company's revolving
line of credit, $17.3 million of Senior Notes, $2.5 million in promissory notes,
$2.0 million in convertible notes, $1.9 million in deferred acquisition cost and
$3.9 million of capitalized lease obligations.
The Company amended and restated its $60 million revolving credit facility in
August 1999. Under the terms of the amended agreement, the facility consists of
a $35 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 million or a borrowing base, as defined. The facility is
secured and expires on June 30, 2001. The amended credit 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. 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 September 30, 1999, $2.0 million was available under the revolving
credit facility.
The Company's primary capital requirements are for capital expenditures and
working capital. As of September 30, 1999, the Company had invested nearly $10
million in the installation of leased YMS(TM) systems on behalf of its
customers. In July 1999, the Company formed an alliance with First Sierra
Financial, Inc., a commercial leasing company, which allows the Company to
continue offering the YMS program without having to fund each installation.
9
The Company's capital resources consist of its cash balances at September 30,
1999, 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. In order to
finance any future acquisition activities, the Company would require additional
capital resources. Additionally, $4.5 million of subordinated debt is due in
January 2000. The Company has initiated discussions with the subordinated note
holders regarding amendments to the debt instruments and anticipates the
successful completion of such amendments without a material effect on the
Company's financial results. There can be no assurance that the Company will be
successful in obtaining debt or equity financing on terms which are favorable.
THE YEAR 2000 ISSUE
The Company has assessed how it may be impacted by Year 2000 issues and has
formulated and commenced implementation of a plan to address both its
information technology ("IT") and non-IT systems issues. This plan involves a
combination of hardware and software modifications, upgrades and replacement,
including implementation of a new software package which will not only address
the Year 2000 issues but provide additional business process functionality in
the future. The Company is approximately 95% complete with its modifications,
upgrades and replacements. The Company has completed testing of its plan and
implementation with respect to all significant operations was completed October
31, 1999.
The Company has surveyed its suppliers and reviewed its customers to identify
and resolve any Year 2000 issues that may arise with such customers and
suppliers, but the Company currently does not believe that any such issues will
have a material effect on its operations or financial results.
The Company currently estimates that the cost of Year 2000 compliance for its
information systems, combined with capital expenditures for hardware and
software involving functionality improvements will approximate $5.9 million, of
which approximately $5.8 million has already been incurred. Approximately 80% of
the remaining expenditures are expected to be capitalized.
The Company has established a worst-case scenario and written contingency plans
to address any issues that could arise should the Company or any of its
suppliers or customers not be prepared to accommodate Year 2000 issues timely.
The Company believes that in an emergency it could revert to the use of manual
systems that do not rely on computers and could perform the minimum functions
required to provide information reporting to maintain satisfactory control of
its business. Should the Company have to utilize manual systems, it is uncertain
that it could maintain the same level of operations, and the result could have a
material adverse effect on its operations or financial results. The Company
intends to maintain constant surveillance on this situation and develop more
practicable contingency plans as may be required by the changing environment.
INFLATION
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.
SELECTED QUARTERLY OPERATING RESULTS AND SEASONALITY
Historically, the Company's operations have experienced seasonal variations.
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. 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, 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.
10
FORWARD-LOOKING STATEMENTS
Certain of the information relating to the Company contained or incorporated by
reference in this Form 10-Q 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-Q 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
uncertainties relating to its ability to achieve administrative and operating
costs savings and anticipated synergies and the ability of the Company or
critical third party suppliers to adequately complete "Y2K" preparation efforts.
11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Credit Agreement among The
York Group, Inc.; ABN-AMRO Bank, N.V. and certain
financial institutions dated August 12, 1999
10.2 First Amendment to the Senior Note Purchase
Agreement among The York Group, Inc. and The
Variable Annuity Life Insurance Company dated
August 12, 1999
27 - Financial data schedule
(b) Reports on Form 8-K
None
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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.
November 12, 1999 THE YORK GROUP, INC.
By: /s/ DAVID F. BECK
David F. Beck
Vice President and Chief
Financial Officer (Principal
Financial Officer and Duly Authorized
Officer)
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