10-Q 1 a2057135z10-q.txt 10-Q 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, 2001 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 June 30, 2001 was 8,940,950. THE YORK GROUP, INC. INDEX

1 THE YORK GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The accompanying notes are an integral part of these consolidated financial statements. 2 THE YORK GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)

3 THE YORK GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)

The accompanying notes are an integral part of these consolidated financial statements. 4 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Cash paid during the period for income taxes .................. $ 142 $ 1,800 ========= ======== Cash paid during the period for interest ...................... $ 2,788 $ 3,109 ========= ======== Reductions of lease receivables through application of earned rebates ................................................... $ 527 $ 675 ========= ========

The accompanying notes are an integral part of these consolidated financial statements. 5 THE YORK GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2001 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: 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, 2000 audited financial statements and the notes thereto included in the Company's 2000 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. RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company is required to adopt SFAS 142 effective January 1, 2002. Management is currently evaluating the effect that adoption of the provisions of SFAS 142 will have on its results of operations and financial position. RECLASSIFICATIONS Certain reclassifications have been made to the 2000 consolidated financial statements contained herein to conform to the classifications presented in 2001. 2. DISCONTINUED OPERATIONS On May 24, 2001, the Company sold its Commemorative Products business segment. In connection with the sale of the Commemorative Products business, the Company incurred a one-time charge of approximately $9.6 million, net of income tax of approximately $0.7 million related to the write-off of the segment assets, net of proceeds received. The disposition of the Commemorative Products business represents the disposal of a business segment under Accounting Principles Board ("APB") opinion No. 30. Accordingly, results of this operation have been classified as discontinued, and prior periods have been restated. For business segment reporting purposes, these business results were previously classified as the segment "Commemorative Products." The components of net assets of discontinued operations included in the consolidated balance sheets are as follows:

3. SUPPLEMENTAL INFORMATION

6 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 (loss) per share (basic EPS) and diluted earnings (loss) 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 June 30, 2001 the Company had options outstanding for the purchase of an aggregate of 827,608 shares of common stock of which all but 386,727 and 442,784 are antidilutive for the three and six months ended June 30, 2001, respectively 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:

5. SEGMENT INFORMATION The Company is the second largest casket manufacturer in the United States and produces a wide variety of caskets and casket components. The Company's finished caskets are primarily marketed through a network of privately owned distributors, which serve domestic funeral homes, as well as certain foreign markets. Less than 10% of sales are distributed through Company-owned distribution centers, and less than 10% of sales are to buyers outside of the United States. 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. Due to the sale of the Commemorative Products segment and the sale or closing of other non-casket operations, and due to restructuring within casket manufacturing, distribution, merchandising, transportation and corporate units, the separate analysis of these parts of the Company's casket business unit is not meaningful. Consequently, the Company's management believes that it operates only one strategic business unit and that no additional segment data can be provided. 6. DEBT AND LIQUIDITY Cash and cash equivalents were $22.7 million at June 30, 2001, representing an increase of $14.9 million from March 31, 2001. Long-term debt, including current maturities, totaled $0.8 million at June 30, 2001. This debt primarily consisted of capital lease obligations. During the first quarter of 2001, the Company received proceeds of $11.8 million relating to the sale of Company-owned distribution centers and reduced outstanding debt by $14.1 million. During the second quarter of 2001, the Company received $61.7 million from the sale of its Commemorative Products segment, its metal vault manufacturing business, Company-owned distribution centers, non-core real estate and a note receivable. During the same period, the Company also reduced outstanding debt by $50.4 million. 7. PLAN OF MERGER On May 24, 2001, the Company and Matthews International Corporation signed a merger agreement whereby Matthews is to acquire 100% of the outstanding common shares of York for $10 cash per share. Matthews also agreed to pay up to an additional $1 cash per share based on the excess cash remaining on York's balance sheet as of October 31, 2001. Completion of this transaction, which has been approved by the Company's stockholders and is anticipated to occur in the fourth quarter of 2001, is subject to the Company achieving earnings before interest, taxes, depreciation and amortization ("EBITDA") from its casket operations greater than the same period of the prior year for the nine months ended September 30, 2001; and compliance with applicable legal and regulatory requirements; and standard closing conditions. Management believes that the interim period prior to closing will permit York to increase the per share value received by shareholders in the merger through the disposition of non-casket operations and other non-operating 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 and casket components. The Company's finished caskets are primarily marketed through a network of privately owned distributors, which serve domestic funeral homes, as well as certain foreign markets. On May 24, 2001, the Company and Matthews International Corporation signed a merger agreement whereby Matthews is to acquire 100% of the outstanding common shares of York for $10 cash per share. Matthews also agreed to pay up to an additional $1 cash per share based on the excess cash remaining on York's balance sheet as of October 31, 2001. Completion of this transaction, which has been approved by the Company's stockholders and is anticipated to occur in the fourth quarter of 2001, is subject to the Company achieving earnings before interest, taxes, depreciation and amortization ("EBITDA") from its casket operations greater than the same period of the prior year for the nine months ended September 30, 2001; and compliance with applicable legal and regulatory requirements; and standard closing conditions. Management believes that the interim period prior to closing will permit York to increase the per share value received by shareholders in the merger through the disposition of non-casket operations and other non-operating assets. RESULTS OF CONTINUING OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 Second quarter 2001 sales from continuing operations of $34.5 million were $1.9 million, or 5.2%, lower than the second quarter of 2000, primarily due to the impact of the sale of Company-owned distribution centers and the Company's metal vault manufacturing business . This was partially offset by improved casket volume and net price realization. The sale of Company-owned distribution centers reduced sales dollars due to the difference between distributor-level and manufacturing-level pricing as the volume shifted from Company-owned to independently owned distribution channels. Second quarter 2001 casket volume increased 6.4% compared to the second quarter of 2000. This compares favorably to an estimated 2.6% increase in deaths over the same period last year. Second quarter 2001 gross profit from continuing operations was $8.8 million compared to $9.4 million in 2000, decreasing as a percentage of sales to 25.5% from 25.8% in 2000. This decrease is primarily due to sale of the Company's metal vault manufacturing operations and Company-owned distribution centers, as described above, partially offset by the favorable casket unit volume, manufacturing productivity, cost reductions and net price realization. Other operating expenses from continuing operations were $7.0 million in the second quarter of 2001 compared to $8.9 million in 2000. Other operating expenses decreased primarily due to the reduction of selling and distribution expenses resulting from the sale of Company-owned distribution centers, as well as additional administrative cost reductions. Net interest expense decreased to $0.9 million in the second quarter 2001 from $1.7 million in 2000 due to the retirement of substantially all of the Company's outstanding debt on May 24, 2001. Interest paid during the second quarter of 2001 was $1.1 million, compared to $1.9 million in 2000. The Company's effective income tax rate for continuing operations was 37.6% in the second quarter 2001. The Company realized a 22.5% effective tax benefit on the second quarter 2000 loss from continuing operations. The second quarter 2000 tax benefit was unfavorably affected by non-deductible expenses, primarily goodwill amortization. The second quarter 2001 effective rate was favorably affected by the write-off of non-deductible goodwill included in the Company's fourth quarter 2000 restructuring charge. In the second quarter of 2001, cash of $0.1 million was paid for income taxes. Cash paid for income taxes during the second quarter of 2000 was $0.1 million. In the second quarter of 2001, the Company recorded net income from continuing operations of $0.6 million, compared to a net loss from continuing operations of $0.7 million in 2000. Both basic and diluted earnings per share from continuing operations were $.07 in 2001 compared to a loss per $.07 in 2000. SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 First half 2001 sales from continuing operations of $76.9 million were $3.5 million, or 4.4%, lower than the first half of 2000, primarily due to the impact of the sale of Company-owned distribution centers and the Company's metal vault manufacturing business. This was partially offset by improved casket volume and net price realization. First half-2001 casket volume increased 0.1% compared to the first half of 2000. This compares favorably to an estimated 1.5% decrease in deaths from the same period last year. First half 2001 gross profit from continuing operations was $21.4 million compared to $22.6 million in 2000, decreasing as a percentage of sales to 27.8% from 28.1% in 2000. This decrease is primarily due to sale of the 8 Company's metal vault manufacturing operations and Company-owned distribution centers, as described above, partially offset by improved manufacturing productivity, cost reductions and net price realization. Other operating expenses from continuing operations were $14.9 million in the first half of 2001 compared to $18.0 million in 2000. Other operating expenses decreased primarily due to the reduction of selling and distribution expenses resulting from the sale of Company-owned distribution centers, as well as additional administrative cost reductions. Net interest expense decreased to $2.9 million in the first half 2001 from $3.5 million in 2000 due to the retirement of substantially all of the Company's outstanding debt on May 24, 2001. Interest paid during the first half of 2001 was $2.8 million, compared to $3.1 million in 2000. The Company's effective income tax rate for continuing operations was 39.0% in the first half of 2001, compared to a 48.6% effective tax rate during the first half of 2000. This comparison was favorably affected by higher 2001 pre-tax earnings and a decrease of non-deductible expenses, primarily goodwill amortization, due to the write-off of non-deductible goodwill included in the Company's fourth quarter 2000 restructuring charge. In the first half of 2001, $0.1 was paid for income taxes. Cash paid for income taxes during the first half of 2000 was $1.8 million. In the first half of 2001, the Company recorded net income from continuing operations of $2.3 million, compared to $0.8 million in 2000. Both basic and diluted earnings per share from continuing operations were $.25 in 2001 compared to $.08 in 2000. DISCONTINUED OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 Second quarter 2001 net income from the discontinued Commemorative Products segment of $0.3 million represents approximately seven weeks of operating results. This compares to $0.7 million for the full second quarter, 2000. Second quarter 2001 and 2000 net earnings reflect after-tax write-downs of long-lived assets of $0.5 million and $0.6 million, respectively. The Company also recorded an after-tax loss of $9.6 million on the sale of the Commemorative Products segment. SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 First half 2001 net income from the discontinued Commemorative Products segment of $1.4 million represents approximately twenty weeks of operating results. First half 2000 net income from the discontinued segment of $1.0 million represents a full twenty-six weeks of operating results. Despite this disparity, earnings improved as a result of non-recurrence of first half 2000 inefficiencies stemming from late-1999 and early-2000 foundry consolidation activities. First half 2001 and 2000 net earnings reflect after-tax write-downs of long-lived assets of $0.5 million and $0.6 million, respectively. EXTRAORDINARY ITEM In the second quarter of 2001, the Company recorded an after-tax extraordinary loss of $1.6 million resulting from the early retirement of debt. This extraordinary loss consisted of the write-off of deferred financing costs and the payment of make-whole premiums. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $22.7 million at June 30, 2001, representing an increase of $14.9 million from March 31, 2001. During the six month period ended June 30, 2001, cash flows from continuing operations totaled approximately $12.2 million, cash provided by investing activities totaled approximately $70.3 million and cash used in financing activities totaled approximately $64.1 million. Capital expenditures were $0.4 million and $0.9 million in the six months ended June 30, 2001 and 2000, respectively. The Company has budgeted capital expenditures for 2001 of approximately $5.0 million. Major 2001 9 expenditures include maintenance and replacement projects which extend the life of the assets, with no significant individual projects currently planned. Long-term debt, including current maturities, totaled $0.8 million at June 30, 2001. This debt primarily consisted of capital lease obligations. During the second quarter of 2001, the Company received $61.7 million from the sale of its Commemorative Products segment, its metal vault manufacturing business, Company-owned distribution centers, non-core real estate and marketable securities. During the same period, the Company also reduced outstanding debt by $50.4 million. 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. In addition, casket 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 Certain of the information relating to the Company contained or incorporated by reference herein is "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference 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, 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, as well as the effect of competition on the Company's ability to maintain operating margins. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the Company is exposed to market risk, primarily from changes in interest rates. The Company continually monitors exposure to market risk and develops appropriate strategies to manage this risk. The Company is not exposed to any other significant market risks, including commodity price risk, foreign currency exchange risk or interest rate risks from the use of derivative financial instruments. Management does not use significant derivative financial instruments for trading or to speculate on changes in interest rates or commodity prices. 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are filed as part of this report: 10.1 Matthews International Corporation, Empire Stock Corp., and The York Group, Inc., Stock Purchase Agreement, dated as of May 24, 2001 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed June 8, 2001) 10.2 Matthews International Corporation, Empire Stock Corp., The York Group, Inc., York Bronze Company and OMC Industries, Inc., Asset Purchase Agreement, dated as of May 24, 2001 (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed June 8, 2001) 10.3 Agreement and Plan of Merger By and Among Matthews International Corporation, Empire Merger Corp. and The York Group, Inc., dated as of May 24, 2001 (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed June 8, 2001) (b) Reports on Form 8-K Current Report on Form 8-K dated June 8, 2001. Amended Current Report on Form 8-K/A dated June 28, 2001 Amended Current Report on Form 8-K/A dated June 29, 2001 11 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 14, 2001 THE YORK GROUP, INC. By: /s/ Dan E. Malone ----------------------------------- Dan E. Malone Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) 12

YORK GROUP INC \DE\ 10-Q