<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
MARK
ONE
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1995
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 1-5891
MHI GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida 59-1214129
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
3100 Capital Circle, NE
Tallahassee, Florida 32308-3760
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 385-8883
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
----- -----
<PAGE> 2
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of Securities under a plan
confirmed by a court.
Yes X No
----- -----
The number of shares of the registrant's common stock, $ .40 par value per
share, net of treasury stock outstanding as of August 31, 1995 was 6,273,001
shares.
2
<PAGE> 3
MHI GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I PAGE NO.
------ --------
<S> <C>
Consolidated Condensed Financial Statements (Unaudited):
Consolidated Condensed Balance Sheets
July 31, 1995 and April 30, 1995 4-5
Consolidated Condensed Statements of
Income for the Three Months Ended
July 31, 1995 and 1994 6
Consolidated Condensed Statements of Cash
Flows for the Three Months Ended
July 31, 1995 and 1994 7-8
Consolidated Condensed Statements of
Changes in Stockholders' Equity
July 31, 1995 and April 30, 1995 9
Notes to Consolidated Condensed Financial Statements 10-11
Management's Discussion and Analysis of Financial Condition and
Results of Operations 12-14
PART II
Other Information 15
Signatures 16
Exhibits 17-18
</TABLE>
3
<PAGE> 4
MHI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
July 31, April 30,
1995 1995
--------- ---------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 4,194 $ 4,332
Installment contracts receivable and
other receivables, net 9,396 9,405
Inventories 2,789 2,358
Other current assets 301 174
Deferred tax asset, net 1,352 1,352
--------- ---------
Total current assets 18,032 17,621
Cemetery property 6,735 6,898
Property and equipment, net 11,791 11,883
Installment contracts receivable and
other receivables, net 11,428 11,362
Trust funds 43,268 40,829
Cost in excess of fair value of net
assets acquired, net 11,812 11,921
Other assets 3,022 3,135
Deferred tax asset, net 4,258 4,907
--------- ---------
Total assets $ 110,346 $ 108,556
========= =========
</TABLE>
4
<PAGE> 5
MHI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
July 31, April 30,
1995 1995
-------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable, accrued expenses and other $ 2,599 $ 3,001
-------- --------
Total current liabilities 2,599 3,001
-------- --------
Notes payable 12,625 12,625
Other long-term liabilities 1,337 1,335
Accrued merchandise 16,016 15,639
-------- --------
29,978 29,599
-------- --------
Deferred revenue 33,857 33,168
-------- --------
Total liabilities 66,434 65,768
Commitments and contingencies - -
Stockholders' equity:
Series B Convertible Preferred Stock 25 25
Series C Convertible Preferred Stock 14 14
Common Stock 2,532 2,531
Capital in excess of par value 48,336 48,334
Unrealized gain (loss) on marketable securities 206 (677)
Accumulated deficit (5,601) (5,839)
Common Stock in treasury, at cost (1,600) (1,600)
-------- --------
Total stockholders' equity 43,912 42,788
-------- --------
Total liabilities and stockholders' equity $110,346 $108,556
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE> 6
MHI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(000'S OMITTED, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
-------------------------
1995 1994
<S> <C> <C>
REVENUES:
Net sales $ 4,844 $ 4,541
Trust income 555 315
Interest income 225 187
Other income 8 13
------- --------
Total revenues 5,632 5,056
COST AND EXPENSES:
Cost of merchandise and cemetery property 1,190 1,119
Selling, general and administrative expenses 3,668 3,211
------- --------
Income before interest, non-recurring item and
income taxes 774 726
Interest expense (343) (352)
Non-recurring income - 1,000
------- --------
Income before income taxes 431 1,374
Income tax expense (193) (246)
------- --------
Net income $ 238 $ 1,128
======= ========
Earnings per common and common
equivalent share - primary and fully diluted:
Net income $ .03 $ .17
======= ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
6
<PAGE> 7
MHI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
-------------------------
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 238 $ 1,128
Adjustment to reconcile net income to net cash provided
by operations:
Depreciation and amortization 379 329
Deferred tax expense 98 152
Undrawn trust income (228) (192)
Changes in assets and liabilities, net of effect of acquisition:
Increase in installment contract receivables (57) (459)
(Increase) decrease in inventories, net of transfers from
cemetery property (431) 71
Decrease in cemetery property 163 -
Increase in trust funds (779) (698)
(Increase) decrease in other assets (105) 22
Decrease in accounts payable, accrued expenses and other (402) (253)
Increase (decrease) in other liabilities 2 (12)
Increase in accrued merchandise 377 351
Increase in deferred revenue 689 565
------- -------
Net cash (used in) provided by operating activities (56) 1,004
======= ========
</TABLE>
7
<PAGE> 8
MHI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
--------------------------
1995 1994
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (87) (469)
Acquisition - (3,124)
Acquisition costs - (72)
Proceeds from sales of marketable securities 2 375
-------- --------
Net cash used in investing activities (85) (3,290)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable - (375)
Exercise of options 3 101
-------- --------
Net cash flow provided by (used in) financing activities 3 (274)
-------- --------
Net decrease in cash and cash equivalents (138) (2,560)
Cash and cash equivalents at beginning of period 4,332 6,842
-------- --------
Cash and cash equivalents at end of period $ 4,194 $ 4,282
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAYMENTS OF:
Interest $ 235 $ 292
Income taxes $ 391 $ 177
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
8
<PAGE> 9
MHI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Year Ended
Ended July 31, April 30,
1995 1995
-------------- ----------
<S> <C> <C>
SERIES B CONVERTIBLE PREFERRED STOCK:
Balance, beginning of period $ 25 $ 25
--------- ---------
Balance, end of period 25 25
--------- ---------
SERIES C CONVERTIBLE PREFERRED STOCK:
Balance, beginning of period 14 14
--------- ---------
Balance, end of period 14 14
--------- ---------
COMMON STOCK:
Balance, beginning of period 2,531 2,489
Shares issued in the exercise of options 1 42
--------- ---------
Balance, end of period 2,532 2,531
--------- ---------
CAPITAL IN EXCESS OF PAR VALUE:
Balance, beginning of period 48,334 47,926
Common stock issued in the exercise of options 2 408
--------- ---------
Balance, end of period 48,336 48,334
--------- ---------
UNREALIZED LOSS ON MARKETABLE SECURITIES:
Balance, beginning of period (677) (1,057)
Unrealized appreciation of investments,
net of deferred income tax benefit 883 380
--------- ---------
Balance, end of period 206 (677)
--------- ---------
ACCUMULATED DEFICIT:
Balance, beginning of period (5,839) (8,886)
Net income for the period 238 3,047
--------- ---------
Balance, end of period (5,601) (5,839)
--------- ---------
TREASURY STOCK:
Balance, beginning of period (1,600) (1,600)
--------- ---------
Balance, end of period (1,600) (1,600)
--------- ---------
Total stockholders' equity $ 43,912 $ 42,788
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
9
<PAGE> 10
MHI GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF FINANCIAL PRESENTATION
The accompanying unaudited consolidated condensed financial statements
should be read in conjunction with the Consolidated Financial Statements of MHI
Group, Inc. (the Company) for the fiscal year ended April 30, 1995 and the
notes thereto incorporated by reference in the Company's Annual Report on Form
10-K. A copy of such Consolidated Financial Statements and notes thereto may be
obtained by writing the Company.
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements reflect all adjustments necessary to present
fairly the financial position of the Company at July 31, 1995, and April 30,
1995, and the results of operations for the three month period ended July 31,
1995, and 1994 and changes in cash flows for the three month period ended July
31, 1995, and 1994. All such adjustments are of a normal recurring nature
except for the adjustments resulting from the adoption of Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" in the three month period ended July 31, 1994.
The Company's significant accounting policies are as set forth in the
notes to Consolidated Financial Statements referred to above. Certain
reclassifications have been made to the fiscal 1995 financial statements to
conform to the fiscal 1996 presentation.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
2. SUBSEQUENT EVENT
On August 9, 1995, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Loewen Group International, Inc.
("Loewen") and its wholly-owned subsidiary SPRT Corporation ("SPRT"), pursuant
to which SPRT has commenced a tender offer for all issued and outstanding
shares of the Company's Common Stock, $0.40 par value, for $10.25, net to the
seller in cash. Following consummation of the tender offer, which is
conditioned, among other things, upon the tender of at least a majority of the
outstanding shares of Common Stock, SPRT will be merged with and into the
Company, whereupon all shares of Company Common Stock not owned by Loewen will
be converted into the right to receive $10.25 per share in cash. Shareholders
will not have appraisal rights in connection with the merger, and all shares of
the Company's preferred stock will remain outstanding and unaffected by the
merger.
10
<PAGE> 11
MHI GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUBSEQUENT EVENT (continued)
The tender offer is currently scheduled to expire on September 11,
1995, but may be extended until September 18, 1995 so that certain state
regulatory approvals may be obtained. The offer and the merger are not subject
to financing, and the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 expired on August 25, 1995.
In connection with the Merger Agreement, the Company has granted
Loewen the right and option to purchase from the Company at $10.25 per share a
number of shares equal to 19.9% of the number of shares of Company Common Stock
outstanding (subject to a requirement that Loewen rebate to the Company any
profits thereon in excess of $1.00 per share) and certain Company shareholders
and optionholders have granted Loewen the right and option to acquire
approximately 486,000 additional shares of the Company's Common Stock.
11
<PAGE> 12
MHI GROUP, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended July 31, 1994 compared to Three Months Ended July
31, 1995.
Total revenues increased $576,000 or 11% from the first three months
of fiscal year 1995 to the first three months of fiscal year 1996. These
changes consisted of increases in net sales, trust income and interest income.
The Company increased its net sales by $303,000 or 7%, from the first three
months of fiscal year 1995 to the first three months of fiscal year 1996. The
increase in net sales for the first quarter of fiscal 1996 reflected an
increase in pre-need cemetery net sales of $193,000 or 9%, of which $366,000
was attributable to properties acquired by the Company subsequent to the first
quarter of fiscal year 1995 offset by decreasing volume at existing operations.
Net sales also reflected an increase in at-need cemetery sales of $102,000 or
45%, which was entirely attributable to net sales from properties acquired by
the Company subsequent to the first quarter of fiscal 1995.
Trust fund income increased $240,000 or 76%, due to the yields on
increased trust fund assets and net capital losses totaling $139,000 for the
first three months of fiscal year 1995 compared to net capital losses of
$14,000 for the first three months of fiscal year 1996. Excluding net capital
losses, income yields were approximately 4.5% and 5% for the first three months
of fiscal years 1995 and 1996, respectively and 3.1% and 4.9% with capital
losses included. No significant changes are expected in yields on the fixed
income portfolio in the near future.
Interest income for the Company is principally generated by the
Broward operations representing imputed interest on its portfolio of
installment receivables and by interest earned on investment of the remaining
proceeds from the Company's secondary public offering completed in December,
1993. Interest income increased $38,000 or 20%, from the first three months of
fiscal year 1995 to the first three months of fiscal year 1996.
Cost of merchandise and cemetery property increased $71,000, or 6%
from the first three months of fiscal year 1995 to the first three months of
fiscal year 1996, primarily due to the 7% increase in net sales volume. As a
percentage of net sales, cost of merchandise and cemetery property was 25% for
the first three months of fiscal years 1995 and 1996.
Selling, general and administrative expenses increased $457,000 or
14%, from the first three months of fiscal year 1995 to the first three months
of fiscal year 1996. Selling, general and administrative expenses related to
the properties acquired subsequent to the first quarter of fiscal year 1995
accounted for $254,000 of the increase with the remaining increase due to
existing operations including costs associated with the pending merger with
Loewen. As a percentage of net sales, selling, general and administrative
expenses increased from 71% to 76% from the first three months of fiscal year
1995 to the first three months of fiscal year 1996.
12
<PAGE> 13
Interest expense decreased $9,000, or 3%, from the first three
months of fiscal year 1995 to the first three months of fiscal year 1996.
In the first quarter of fiscal year 1995 a non-recurring credit of
$1,000,000 was recorded from the receipt of key man life insurance proceeds due
to the death of the former chairman.
The effective income tax rate for the first three months of fiscal
year 1996 is 44.8% compared to an effective rate of 17.8% for the first three
months of fiscal year 1995. The increase is due primarily to the effect during
the prior fiscal year of the non-recurring income from the key man life
insurance proceeds, which are not taxable. The effective rate for the three
month periods ending July 31, 1995 and 1994 (excluding non-recurring income) is
higher than the statutory rate due primarily to nondeductible amortization.
FINANCIAL CONDITION
At July 31, 1995, the Company's working capital was $15,433,000,
compared to $14,620,000 at April 30, 1995. At July 31, 1995, the Company's debt
to equity ratio was .29:1 compared to .30:1 at April 30, 1995. The increase in
working capital is due to results from operations.
Total assets increased $1,790,000 or 2% from April 30, 1995 to July
31, 1995 primarily due to the increase in the trust funds. Trust fund assets
increased $2,439,000 or 6%, from April 30, 1995 to July 31, 1995, including
recovery of $1,434,000 from prior years market to market adjustment. Trust
funds continued to increase due to deposits exceeding withdrawals and earnings
which remain in the trust. Deferred revenues increased $689,000, or 2%, from
April 30, 1995 to July 31, 1995 due to continued sales of pre-need funeral
contracts.
At July 31, 1995 the Company's Credit Facility consisted of a
$12,625,000 outstanding term loan and provides for up to $22,375,000 revolving
loan to be used as an acquisition and working capital loan facility. No amounts
were outstanding on the revolving loan at July 31, 1995. Payments are due under
this agreement on January 31, 2000, at which time the loans outstanding will be
payable in full. The Credit Facility is secured by the pledge of substantially
all of the Company's assets (except cemetery property and trust fund assets).
Capital expenditures were $87,000 during the first three months of
fiscal year 1996. These expenditures included furniture, equipment, renovations
and improvements at existing funeral homes and additional investment in the
Company's management information system. The Company plans to develop
additional cemetery burial spaces and construct additional mausoleum crypts as
required to adequately maintain the inventory level to support projected
pre-need and at-need sales.
13
<PAGE> 14
FINANCIAL CONDITION (continued)
The Company believes that, for the foreseeable future, funds from
operations will be sufficient to support the Company's current operations.
Inflation has not been a significant factor in the operations of the Company as
normal inflationary increases in costs for pre-need contracts have been
exceeded by earnings on trust fund assets. With respect to at-need contracts,
the Company has generally been successful in passing along cost increases.
However, there can be no assurance that the Company will be able to continue to
pass along such increases in the future.
On August 9, 1995, the Company announced it had entered into a
definitive Agreement and Plan of Merger with Loewen Group International, Inc.
and its wholly owned subsidiary, SPRT Corporation ("Loewen"). (See Footnote
2. Subsequent Event).
14
<PAGE> 15
MHI GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K
a. Exhibits
Exhibits 11.1 - Computation of Net Income Per Share
Exhibit 27 - Financial Data Schedule (for SEC use
only)
b. Reports on Form 8-K
There were no reports filed on Form 8-K for the three
month period ended July 31, 1995.
15
<PAGE> 16
SIGNATURES
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.
MHI GROUP, INC.
-----------------------------
Registrant
Date: September 8, 1995 BY: /s/ J. C. Ogier Mathewes
-------------------------
J. C. OGIER MATHEWES
Vice President and
Chief Financial Officer
BY: /s/ Clifford R. Hinkle
-------------------------
CLIFFORD R. HINKLE
President and
Chief Executive Officer
16
<PAGE> 1
Exhibit 11.1
MHI GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(000'S OMITTED, EXCEPT PER SHARE DATA))
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
July 31,
--------------------------------
1995 1994
<S> <C> <C>
Net income applicable to adjusted common
shares $ 238 $ 1,128
============== ============
Average common shares outstanding 6,271,175 6,169,240
Net shares to be issued upon exercise of
dilutive stock options after applying treasury
stock method 780,515 653,636
-------------- ------------
Adjusted shares outstanding, primary and fully
diluted basis 7,051,690 6,822,876
-------------- ------------
Earnings per common and common equivalent
share--primary and fully diluted:
Net income $ .03 $ .17
============== ============
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER PERIOD ENDED JULY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 4,194
<SECURITIES> 0
<RECEIVABLES> 9,396
<ALLOWANCES> 811
<INVENTORY> 2,789
<CURRENT-ASSETS> 18,032
<PP&E> 14,596
<DEPRECIATION> 2,805
<TOTAL-ASSETS> 110,346
<CURRENT-LIABILITIES> 2,599
<BONDS> 12,625
<COMMON> 2,532
0
39
<OTHER-SE> 41,341
<TOTAL-LIABILITY-AND-EQUITY> 110,346
<SALES> 4,844
<TOTAL-REVENUES> 5,632
<CGS> 1,190
<TOTAL-COSTS> 3,668
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 132
<INTEREST-EXPENSE> 343
<INCOME-PRETAX> 431
<INCOME-TAX> 193
<INCOME-CONTINUING> 238
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 238
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
