ITEM 1. BUSINESS
GENERAL
Oakridge Holdings, inc. and its subsidiaries, collectively, are called the "Company" or "Oakridge," and all references to "our," "us" and "we" refer to Oakridge Holdings, Inc. and its subsidiaries, collectively, unless the context otherwise requires. The Company has two business segments - cemeteries and aviation ground support equipment.
The Company was incorporated as a Minnesota corporation in 1961 and began operations on March 6, 1961, with two cemeteries in Cook County, Illinois, selling cemetery property, merchandise and service. Cemetery property includes lots, lawn crypts, and family and community mausoleums. Cemetery merchandise includes vaults, monuments and markers. Cemetery services include burial site openings and closings and inscriptions.
The Cemeteries that we operate are located outside of Chicago, Illinois. We believe this area has a significant population over age 50, which represents a principal target market for our pre-need sales program as well as at-need sales.
We believe the sale of cemetery property to a family creates a relationship that builds heritage over time, as family members are buried in a plot or mausoleum and as other family members purchase additional cemetery property in order to be buried in the same cemetery.
On June 29, 1998, the Company acquired substantially all of the assets of Stinar Corporation, a Minnesota corporation. Stinar Corporation has been in business for 64 years and is an established international manufacturer, and its products are used by the airline support equipment industry.
Stinar is a global manufacturer of ground support equipment for the aviation industry which is used for servicing, loading, and maintaining all types of aircraft for both commercial and government aviation companies, and airports. These products are sold and marketed through our technically oriented sales staff as well as through independent distributors and sales representatives. Approximately 68% of Stinar's revenues in the year ended June 30, 2010, were generated by contracts with the U.S. military and 16% are generated internationally.
All references to years are to fiscal years ended June 30 unless otherwise stated.
CEMETERY OPERATIONS OVERVIEW
Through two wholly owned subsidiaries, Oakridge Cemetery (Hillside), Inc. and Glen Oak Cemetery, Inc., the Company operates two adjacent cemeteries in Hillside, Illinois. The cemetery operations are discussed on a consolidated basis, and the Company makes no functional distinction between the two cemeteries, except where noted.
Together the cemeteries comprise 176.7 total acres of real estate, of which 12.8 acres are used for interior roads and other improvements. The remaining 163.9 acres contain 137,000 burial plots of which 28,075 are in inventory, with 975 niches and 3,190 crypts, of which 118 niches and 315 crypts were in inventory. The Company estimates that it has an inventory of cemetery and mausoleum spaces representing between a 35- and 40-year supply, based on the maintenance of current sales and annual usage levels. This inventory is considered adequate for the foreseeable future, and the Company is presently developing a plan of adding more niches and crypts in the future. In addition to providing interment services, burial plots and crypts, the Company sells cremation services and has a chapel in the mausoleum.
CEMETERY INDUSTRY
Cemetery companies provide products and services to families in two principal areas: (i) disposition of remains, either through burial or cremation; and (ii) memorialization, generally through monuments, markers or inscriptions. The cemetery industry in the United States is characterized by the following fundamental attributes:
OVERVIEW: The United States death care industry is estimated to have generated approximately $13 billion of revenue in 2003, of which small family-owned businesses represent approximately 80%. During most of the 1990's, there was a trend of family-owned businesses consolidating with larger organizations. However, this trend slowed in the late 1990's and the industry continues to be characterized by a larger number of locally- owned, independent operations. There are approximately 10,500 cemeteries in the United States. The market share of a single cemetery in any community is a function of the name, reputation, and location of the cemetery, although competitive pricing, professional service and attention, and well-maintained grounds are important.
HERITAGE AND TRADITION. Cemetery businesses have traditionally been transferred to successive generations within a family and in most cases have developed a local heritage and tradition that afford an established cemetery a local franchise and provide the opportunity for repeat business. In addition, an established firm's backlog of pre-need cemetery and mausoleum spaces provides a base of future revenue. In many cases, personnel who have left public companies start these new independent businesses or family owned businesses. Often, such businesses are attempting to build market share by competing on price rather than heritage and tradition.
NEED FOR PRODUCTS AND SERVICES; INCREASING NUMBER OF DEATHS. There is an inevitable need for our products and services. Although the number of deaths in the United States will reflect short-term fluctuations, deaths in the United States are expected to increase at a steady pace over the long term as the baby boom generation becomes older. According to the United States Bureau of the Census, the number of deaths in the United States is expected to increase from approximately 2.4 million in 2004 to 3.2 million in 2025. Moreover, the average age of the population in the United States is increasing. According to the United States Bureau of the Census, the United States population of 50 years of age is expected to increase from 76.1 million in 2000 to 97.1 million in 2010. The Company believes that the aging of the population is particularly important because it expands the Company's target market for pre-need services and merchandise as older persons, especially those over 50 years of age, are most likely to make pre- need cemetery arrangements.
PRE-NEED MARKETING. In addition to sales at the time of death or on an "at need" basis, death care products and services are being sold prior to the time of death or on a "pre-need" basis. We are actively marketing such products and services, which provide a backlog of future services.
DEMAND FOR CREMATION. In recent years, there has been a steady growth in the number of families in the United States that have chosen cremation as an alternative to tradional methods of burial. According to industry studies, cremations represent approximately 10% of the burial market in 1980, approximately 29% in 2003, and are projected at 57.3% for 2025. According to the recent industry studies, cremations will increase by approximately 1% annually from 2004 to 2010. The trend toward cremations has been a significant concern because cremations have typically included few, if any, additional products and services other than cremation itself. In addition, almost all funeral homes in the Chicago area now provide basic cremation services and they provide a full range of merchandise and services to families choosing cremation.
IMPORTANCE OF TRADITION; BARRIERS TO ENTRY. We believe it is difficult for new competitors to enter existing markets successfully by opening new cemeteries. Entry into the cemetery market can be difficult due to several factors. Because families tend to return to the same cemetery for multiple generations to bury family members, it is difficult for new cemeteries to attract families. Additionally, mature markets, including the metropolitan area where our cemeteries are located, are served by an adequate number of existing cemeteries with sufficient land for additional plots, whereas land for new cemetery development is often scarce and expensive. Regulatory complexities and zoning restrictions also make entry into the cemetery market difficult. Also, development of a new cemetery usually requires a significant capital investment that takes several years to produce a return.
RISKS RELATED TO THE CEMETERY BUSINESS. To compete successfully, the Company must maintain a good reputation and high professional standards in the industry as well as offer attractive products and services at competitive prices. In addition,the Company must market itself in such a manner as to distinguish itself from its competitors. Cemeteries have historically experienced price competition from independent and large public company cemeteries, monument dealers, and other non-traditional companies providing death care services and products. The intense competition the Company faces may, at some time in the future,require the Company to reduce prices (and thereby its profit margins) to retain or recapture market share. If the Company is unable to successfully compete, its financial condition, results of operations and cash flows could be materially and adversely affected.
The Company's investments held in trust are invested in securities, which could be affected by financial market conditions that are beyond its control.
The Company's revenue is impacted by the land trusts' net realized interest income, which the Company recognizes to the extent of allowed reimbursement received monthly, which is used to perform cemetery maintenance services. The level of trust income is largely dependent on yields on trust investments made with trust funds, which are subject to financial market conditions and other factors that are beyond the Company's control. Trust earnings are also affected by the mix of fixed income and equity securities the trustee chooses to maintain in the trust funds, and the trustee may not choose the optimal mix for any particular market condition. If earnings from the trust decline, the Company would likely experience a decline in future revenue and cash flow. In addition, if the trust funds experienced significant investment losses, there would likely be insufficient funds in the trusts to cover costs of delivering services and merchandise or maintain the grounds of the cemeteries in the future. The Company would have to cover any such shortfalls with cash flow from operations, which could adversely affect its ability to service debt.
The level of pre-need sales is dependent upon the size and experience of the Company's sale force. The Company cannot assure that it will continue to be successful in recruiting and retaining qualified sales personal. In addition, depending on the terms of the contract, pre-need sales have the potential to have an initial negative impact on cash flows because of commissions paid on the sales and the portion of the sales proceeds required to be placed into the trust. A weakening economy that causes customer families to have less discretionary income could cause a decline in pre-need sales.
Declines in the number of deaths in the Chicago market can cause a decrease in revenues. Changes in the number of deaths are not predictable from one month to the next or over a short term.
The costs of operating and maintaining the Company's facilities, land and equipment, regardless of the number of interments performed, are fixed. Because the Company cannot necessarily decrease the costs when it experiences lower sales volumes, a decline in sales may cause gross margins, profits and cash flows to decline at a greater rate than a decline in revenue.
STINAR OPERATIONS OVERVIEW
Stinar provides products and services to the aviation industry in three principal areas: (i) sales of new equipment manufactured for maintaining, servicing and loading of airplanes; (ii) sales of parts for equipment sold in the past; and (iii) repair of equipment.
Principal products of Stinar include the following: Truck-mounted stairways and push stairs for loading aircraft; lavatory trucks and carts, water trucks, bobtails, and catering trucks for servicing aircraft; cabin cleaning trucks, maintenance hi-lifts, and turbo oilers for maintaining aircraft; and other custom built aviation ground support equipment used by airports, airlines and the military. Stinar also provides service and repairs on other vendors' equipment and equipment it has sold.
Stinar sells its products to airports, airlines, and government and military customers in the United States. In 2010, non-governmental domestic sales comprise approximately 16%, government and military sales approximately 68%, and international sales approximately 16% of Stinar's annual revenues.
The Company purchases carbon steel, stainless steel, aluminum and chassis domestically. We do not use single-source suppliers for the majority of our raw material purchases and believe supplies of raw material available in the market are adequate to meet our needs.
We historically have engaged in research and development activities directed primarily toward the improvement of existing products, the design of specialized products to meet specific customer needs, and the development of new products and processes. A large part of our product development spending in the past has focused on the new product lines in the stairs department.
AVIATION GROUND SUPPORT INDUSTRY
GOVERNMENT CONTRACTS
Contracts with the U.S. government are subject to special laws and regulations, noncompliance with which could result in various sanctions.
The aviation ground support industry internationally is characterized by the following fundamental attributes:
HIGHLY FRAGMENTED OWNERSHIP. A significant majority of aviation ground support equipment manufacturers consist of family-owned businesses. Management estimates that there are approximately 20 companies in the world that manufacture one or two products for the industry. Also, as a support industry, ground support equipment has few market drivers of its own. That is, the major determinants of ground support equipment market activity are to be found in the commercial aviation industry. Under these conditions, many suppliers have in-depth knowledge only of their own market niches, and end-users may have difficulty finding a supplier with the right mix of products and services to fit their needs.
SIZE AND GROWTH TRENDS. The aviation ground support industry will be taking on the characteristics of a shrinking and declining industry over the next couple of years. Given the weakness of the four main indicators (aircraft movements, aircraft delivery rates, price of fuel and airport construction/capacity improvement) of the industry's health, as well as the continuing decline in markets for import and export, the world market for purchases of new aviation ground support equipment is expected to decline drastically due to most airlines downsizing operations and many large domestic carriers filing for bankruptcy protection.
BARRIERS TO ENTRY. It is relatively difficult for new competitors to enter the field due to (i) high start-up costs, which effectively protect against small competitors entering the field, (ii) substantial expertise required with regard to manufacturing and engineering difficulties, which makes it difficult to have the knowledge to compete, and (iii) market saturation, which reduces the possibility of competitors gaining a meaningful foothold and network of manufacturing representatives. Moreover, airline companies are becoming increasingly selective about which companies they will allow to provide ground support equipment. Most airlines only purchase from vendors who have a history in the industry.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The following table summarizes the assets, revenues and operating profit or loss attributable to the Company's two industry segments for the date and periods indicated. The term "operating profit (loss)" represents revenues less all operating expenses. Management evaluates the performance of the Company's business segments and allocates resources to them based on operating profit or loss. Operating expenses of a business segment do not include corporate interest expense, corporate income or expense, or taxes on income.
For the fiscal years ended June 30, 2010 2009
Revenues: (1) Aviation $10,728,752 $9,291,559 (2) Cemetery 3,405,276 2,752,973
Operating profit: (1) Aviation 449,785 (82,203) (2) Cemetery 517,987 219,011
Identifiable assets: (1) Aviation 10,527,945 10,178,908 (2) Cemetery 13,229,128 12,618,986
REGULATION
CEMETERY OPERATIONS
The Company is regulated primarily on a state level, with the state requiring licensing for cremations. The states regulate the sale of pre- need services and the administration of any resulting trusts. The laws are complex, are subject to interpretations by regulators, and are subject to change from time to time. Non-compliance with these regulations can result in fines or suspension of licenses required to sell pre-need services and merchandise.
The Company's operation must comply with federal legislation, including the laws administrated by the Occupational Safety and Health Administration, the Americans with Disabilities Act and the Federal Trade Commission ("FTC") regulations.
The Company's operations are subject to numerous environmental laws, regulations and guidelines adopted by various governmental authorities.
The Company believes that it complies in all material respects with the provisions of the laws and regulations under which it operates. There are no material regulatory actions pending.
STINAR OPERATIONS
Stinar is required to comply with competitive bidding and other requirements in cases where it sells to local, state, or federal governmental customers. The costs and effects of complying with these requirements do not have a material impact on the financial results of the Company.
BOTH COMPANIES
The Company holds all governmental licenses necessary to carry on its business, and all such licenses are current. Both segments are subject to the requirements of the federal Occupational Safety and Health Act ("OSHA") and comparable state statutes. The OSHA hazard communication standard, the United States Environmental Protection Agency community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act, and similar state statutes require us to organize information about hazardous materials used or produced in our operations. Certain of this information must be provided to employees, state and local governmental authorities, and local citizens.
COMPLIANCE WITH ENVIRONMENTAL LAWS
CEMETERY OPERATIONS. The Company's operations are subject to numerous environmental laws, regulations and guidelines adopted by various governmental authorities in the state of Illinois and Cook County. On a continuing basis, management business practices are designed to assess and evaluate environmental risks and, when necessary, conduct appropriate corrective measures. Liabilities are recorded when known or considered probable and reasonably estimable.
The Company provides for environmental liabilities using its best estimates, but actual environmental liabilities could differ significantly from these estimates.
STINAR CORPORATION. Stinar owns a 43,271 square foot manufacturing facility located on approximately 7.875 acres of land (the "Stinar Facility") in an industrial park in Eagan, Minnesota, a suburb of St. Paul, Minnesota. Prior to the acquisition of the Stinar Facility, Stinar and the Company obtained a Phase I environmental assessment of the Stinar Facility. This Phase I environmental assessment suggested the need for additional study of the Stinar Facility. In addition, the Phase I assessment suggested that certain structural improvements be made to the Stinar Facility. Accordingly, two additional Phase II environmental assessments were performed and revealed the presence of certain contaminants in the soil around and under the building located on the Stinar facility.
Subsequent to the completion of the Phase II environmental assessments and completion of the structural improvements to the building, the Company and Stinar requested and obtained a "no association" letter from the Minnesota Pollution Control Agency ("MPCA") stating that, provided that certain conditions set forth in the no association letter are met, the Company and Stinar will not be deemed responsible for contamination which occurred at the Stinar Facility prior to the purchase of the assets of Stinar by the Company. The structural improvements recommended by the Company's environmental consulting firm have been completed, and the contaminated soil has been removed and transferred from the property. As a result, MPCA has issued the no association letter.
CEMETERY OPERATIONS - TRUST FUNDS
GENERAL. We have established a variety of trusts in connection with our cemetery operations as required under applicable state law. Such trusts include (i) pre-need cemetery merchandise and service trusts; and (ii) perpetual care trusts. We also use independent financial advisors to consult with us on investment policies and evaluate investment results.
PRE-NEED CEMETERY MERCHANDISE AND SERVICE TRUSTS. We are generally required under Illinois law to deposit a specified amount(generally 50% to 85% of selling price)into a merchandise and service trust fund for cemetery merchandise and services sold in pre-need sales. The related trust fund income earned is recognized when the related merchandise and services are delivered. We are permitted to withdraw the trust principal and the accrued income when the merchandise is purchased, when the service is provided by us, or when the contract is cancelled.
PERPETUAL CARE FUNDS. Under Illinois law, the Company is required to place a portion of all sales proceeds from cemetery lots, niches and crypts in a trust fund for perpetual care of the cemeteries. Pursuant to these laws, the Company deposits 15% of the revenues from the sale of grave spaces and 10% of revenues from the sale of mausoleum space into a perpetual care fund. The income from these perpetual care trusts provides the funds necessary to maintain cemetery property and memorials in perpetuity. The trust fund income is recognized, as earned, in the cemetery revenues. While we are entitled to withdraw the income earned from our perpetual care trust to provide for the maintenance of the cemetery property and memorials, we are not entitled to withdraw any of the principal balance of the trust fund and, therefore, the principal balance is reflected on the Company's balance sheet as an asset and liability.
COMPETITION
Factors determining competitive success in Oakridge's business segments include price, service, location, quality and technological innovation. Competition is strong in all markets served.
CEMETERY OPERATIONS. Our Cemetery Operations face competition with other cemeteries in Cook and DuPage Counties in Illinois. Competitive factors in the cemetery business are primarily predicated on location, convenience, service, and heritage. We believe decisions made by most customers are only minimally influenced, if at all, by pricing. But we believe most funeral directors are greatly influenced by pricing, due to the limited resources of some customers, and funeral directors may direct families to lower cost cemeteries. There are virtually no new entrants in the markets served by the Company as the cost of acquiring sufficient undeveloped land and establishing a market presence necessary to commence operations is prohibitive.
There has been increasing competition from providers specializing in specific services, such as cremations, who offer minimal services and low- end pricing. We also face competition from companies that market products and related information over the internet and funeral homes selling markers. However, we have felt relatively limited impact in our market from those competitors to date.
STINAR CORPORATION. The aviation ground support equipment business is extremely fragmented and diverse. The purchasers of the types of equipment manufactured by Stinar tend to be long-standing, repeat customers of the same manufacturers, with quality, reliability, pricing, warranties, after market service and delivery being the key factors cited by customers in selecting an aviation ground support equipment supplier. Accordingly, while the market for Stinar equipment is competitive, the Company believes that Stinar's reputation for quality and reliable equipment and the industry's familiarity with Stinar puts it on equal footing with its competitors. Major domestic competitors include Global Ground Support, LLC in catering equipment; Lift-A-Loft Corporation and NMC-Wollard in passenger stairs; Lift-A-Loft Corporation, NMC-Wollard and Phoenix Metal Products in lavatory and water carts; and Tesco Equipment Corporation, Lift-A-Loft Corporation and NMC-Wollard in hi-lift equipment. International competitors include Mullaghan Engineering in catering equipment, and Accessair Systems, Inc. and Vestergaard Company, Inc. in water and lavatory carts.
MARKETING
CEMETERY OPERATIONS. Sales are made to customers utilizing the facilities primarily on an at-need basis; that is, on the occurrence of a death in the family when the products and services and interment space are sold to the relatives of the decedent. Cemeteries have started to actively market their products, but most customers typically learn of the cemeteries from satisfied customers and funeral directors who recommend the cemeteries based on superior location and services rendered.
STINAR CORPORATION. The chief method of marketing Stinar's equipment is through one-on-one customer contact made by sales employees of Stinar and manufacturers' representatives under contract with Stinar. Stinar's customers report that Stinar has a reputation in the commercial aviation industry for manufacturing high-quality, reliable equipment. Stinar intends to capitalize on this reputation in the domestic airline industry by making frequent sales calls on customers and potential customers and by reducing the amount of time needed to complete customer orders. Stinar has also engaged manufacturers' representatives to assist it in increasing sales to overseas markets.
CREDIT POLICIES
Neither of the Company's business segments generally extends long-term credit to customers. During 2008, the aviation equipment segment did, however, extend long-term credit in a form of a lease with monthly payments over a two-year period.
INTERNATIONAL
Stinar's sales to customers outside the United States represented approximately 16% and 30% of the Company's net sales in 2010 and 2009, respectively. Products are manufactured and marketed through the Company's sales department and sales representatives around the world.
OTHER BUSINESS INFLUENCES
CEMETERY OPERATIONS. The cemetery operations do not experience seasonal fluctuations, nor are they dependent upon any identifiable group of customers, the loss of which would have a material adverse effect on its business, and discussion of backlog is not material to understanding the Company's business.
STINAR CORPORATION. The Company believes that its business is highly dependent upon the profitability of its customers in the airline and air cargo markets, and therefore, the Company's profitability is affected by fluctuations in passenger and freight traffic and volatility of operating expenses, including the impact of costs related to labor, fuel and airline security. Sales to the United States government also expose Stinar to government spending cuts. The United States Air Force, which historically has been a major purchaser of the Company's equipment, is dependent upon governmental funding approvals. Significant changes in raw material prices, such as steel and chassis, will also continue to impact our results. As of September 26, 2010, the Company had approximately a $35,000,000 backlog. The backlog is due to a five year contract with United States Air Force, GSA contract with the United States Air Force, and commercial sales in the United States. The backlog is comparable to fiscal year 2009, and will take approximately two to three years to complete, unless the company increases its production capacity.
The diversity of Stinar's customer base and equipment lines helps mitigate the risks of Stinar's business, as does the growing importance of marketing internationally, which provides Stinar with an additional customer base not influenced as greatly by U.S. economic conditions or U.S. politics. We will also focus on key risk factors when determining our overall strategy and making decisions for allocating capital. These factors include risks associated with the global economic outlook, product obsolescence, and the competitive environment.
The Company does not believe that the present overall rate of inflation will have a significant impact on the business segments in which it operates.
EMPLOYEES
As of June 30, 2010, the Company had 93 full-time and 14 part-time or seasonal employees. Of these, the Company employed 75 full-time and 2 part-time employees in the aviation segment and 18 full-time and 12 part-time or seasonal employees in the cemeteries segment.
The cemetery segment employees are represented by Local #1 of the Services Employees International Union, AFL-CIO, whose contract expires February 28, 2013.
A union does not represent the aviation segment employees, and the Company considers its labor relations to be good.
ITEM 1A:
ITEM 1A: RISK FACTORS.
Not applicable.
ITEM 1B:
ITEM 1B: UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2:
ITEM 2: PROPERTIES.
The Company's executive office for Oakridge Holdings, Inc. is leased at 400 West Ontario St., Unit 1003, Chicago, Illinois, 60654.
The cemetery segment principal properties are located at Roosevelt Road and Oakridge Ave., Hillside, Illinois. The two cemeteries comprise 176.7 acres of real estate, of which 12.8 acres are used for interior roads and other improvements, and 163.9 acres for burial plots. The cemeteries have two mausoleums, an office building, and three maintenance buildings. The Oakridge Cemetery (Hillside), Inc. mausoleum is in fair shape with major work being required on all outside walls of the mausoleum to prevent water from leaking into the mausoleum crypts. The Company expects the walls will require approximately $300,000 to $400,000 of repairs starting in 2010 and finishing in 2014. The Company expects to finance these repairs with cash flow from its cemetery business segment. All other buildings are in fair shape and will require minimum repairs.
Stinar operates out of a single 43,271 square foot manufacturing facility in Eagan, Minnesota, located on 7.875 acres of land. The land consists of two contiguous parcels of real estate. The facility was refinanced in May 2008 for $2,100,000 with monthly payments of principal and interest totaling $17,060 and a final balloon payment of $1,826,000 due in May 2013, assuming no pre-payments. The condition of the manufacturing facility and office space is fair and will require minimum improvements in the foreseeable future at an estimated cost of $200,000 that the Company expects to finance with cash flow from its two business segments. Management reviews insurance policies annually and believes that all of its properties are adequately insured.
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
The Company is a party to a number of legal proceedings that arise from time to time in the ordinary course of business. While the outcome of these proceedings cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on the Company. As of June 30, 2010, there were no legal proceedings in either business.
We carry insurance with coverages and coverage limits consistent with our assessment of risks in our businesses and of an acceptable level of financial exposure. Although there can be no assurance that such insurance will be sufficient to mitigate all damages, claims or contingencies, we believe that our insurance provides reasonable coverage for known asserted or unasserted claims. In the event the Company sustained a loss from a claim and the insurance carrier disputed coverage or coverage limits, the Company may record a charge in a different period than the recovery, if any, from the insurance carrier.
ITEM 4:
ITEM 4: [REMOVED AND RESERVED]
PART II
ITEM 5:
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Trading in the Company's common stock is in the over the counter market, primarily through listings in the National Quotation Bureau "pink sheets," although the market in the stock is not well established. The Company's trading symbol is (OKRG.OB). The table below sets forth the range of high and low bid prices for our common stock for each quarter within the two most recent fiscal years. Prices used in the table were reported to the Company by National Quotation Bureau, Inc. These quotations represent inter-dealer prices, without retail markup or commission, and may not necessarily represent actual transactions.
FISCAL YEAR 2010 2009
Low High Low High ----- ----- ----- ----- First Quarter $.33 $.35 $.85 $1.32 Second Quarter $.33 $.36 $.50 $.85 Third Quarter $.32 $.36 $.35 $.75 Fourth Quarter $.32 $.50 $.35 $1.00
As of September 27, 2010, there were 1,431,503 shares of Oakridge Holdings, Inc. common stock outstanding. The common stock shares outstanding are held by approximately 1,500 stockholders of record. Each share is entitled to one vote on matters requiring the vote of shareholders. We believe there are approximately 1,500 beneficial owners of the common stock.
The Company has never paid a cash dividend on its common stock. The Company currently intends to retain earnings to finance the growth and development of its business and does not anticipate paying any dividends on its common stock in the foreseeable future. We are currently prohibited from paying dividends under the terms of our credit agreements. Any future change in our dividend policy will be made at the discretion of our Board of Directors in light of the financial condition, capital requirements, earnings and prospects of the Company and any restrictions under credit arrangements, as well as other factors the Board of Directors may deem relevant. We are also prohibited from repurchasing any of our outstanding common stock under the terms of our credit agreement.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth, as of June 30, 2010, certain information regarding the Company's 1999 Stock Incentive Plan (the "1999 Plan"), which was approved by shareholders on February 22, 1999. The Company has no equity compensation plans which have not been approved by shareholders.
Number of Weighted- Number of securities securities to be average remaining available for issued upon exercise price future issuances under exercise of of outstanding equity compensation outstanding options, plans (excluding options, warrants warrants and securities reflected in and rights rights first column)
1999 Plan 5,000 $2.00 -
ITEM 6:
ITEM 6: SELECTED FINANCIAL DATA
Not applicable.
ITEM 7:
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 2010
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on cash flow from its two business segments to meet operating needs, fund debt service, and fund capital requirements. The cemetery and Stinar operations did provide sufficient cash during fiscal year 2010 to support day-to-day operations, current debt service, and capital expenditures. The Company expects that cemetery and Stinar operations will provide sufficient cash during the next five years to cover all debt requirements and operational needs.
Stinar has a $1,000,000 line of credit to finance accounts receivable, expiring in October 2011. Additionally, Stinar has a $2,000,000 term loan to finance inventories that matures in May 2018. During 2008 and 2010, the Company issued convertible subordinated debentures in the aggregate principal amount of $535,000 to certain individuals who are officers or directors of the Company and one individual investor. During 2010, $20,000 of the debentures were satisfied. On July 1, 2010, $485,000 of the debentures initially due July 1, 2010, were modified, whereby the conversion rate of the debentures was revised from $.90 to $.50 per share and the maturity date was extended from July 1, 2010 to July 1, 2012, at which time the Company expects to be able to pay all amounts due under the debentures or to be able to extend the debentures' maturity date.
The cemetery operations expect to hire one full-time sales employee during 2011, and the Company expects no changes in part-time or seasonal employees.
The Company's five year business plan calls for $900,000 in capital expenditures starting in 2011.
The cemetery operations' capital expenditures are expected to be approximately $400,000 under the five-year plan. The funds are planned to be used for building improvements for the Oakridge cemetery mausoleum, increasing inventory of niches and crypts in mausoleums and outdoors, computer software and hardware equipment, and ground equipment. Repairs for the mausoleum, originally estimated at $300,000 to $400,000, will continue in the spring of 2011. The Company expects to spend approximately $150,000 in 2011 on its cemetery operations for repairs on the front building of mausoleum, lawn mowers and gator utility vehicles for the grounds. The cemeteries' capital expenditures for 2010 were $45,761 and were used for the following: $17,334 for mowers and $702 for miscellaneous shop equipment for ground employees, $493 for well pump, $6,022 for new heaters in the mausoleum and $14,800 for tuck point, stairs and wall repairs to the two mausoleums, $5,541 for computer equipment and $869 for miscellaneous office equipment.
Stinar's capital expenditures are expected to be approximately $500,000 under the five-year plan. The funds are planned to be used for improvements of the manufacturing plant and office, technical manuals and drawings packages for the building of new first time equipment, plant and office equipment, and computer software and hardware. These expenditures are expected to take place evenly over the five-year plan. Stinar's capital expenditures for 2010 were $114,306, with $10,951 for shop jigs for production, $96,200 for in house technical drawings and electrical schematics to build new and existing equipment, and $1,155 for software and hardware equipment and $6,000 for a copier. The Company expects to spend approximately $100,000 in 2011 for Stinar capital expenditures.
RESULTS OF OPERATIONS - 2010
CEMETERY OPERATIONS
In 2010, cemetery revenue increased $652,303, or 24%, compared to 2009. The increase was due to an increase in marker sales of $108,343, cemetery sales of $79,059, foundations of $96,651, grave boxes of $101,759 and interment fees of $205,640. All other sales account changes were immaterial. The increase in sales were primarily driven by a new cemetery law instituted by the State of Illinois that now requires all families to come out to the cemetery to arrange the funeral, whereby in the past the funeral director made all arrangements. In having the families present at the cemetery, the cemeteries are getting more up-selling opportunities.
Cost of goods sold in 2010 was $2,064,180, an increase of $269,053, or 15%, compared to 2009. In 2010, cost of goods sold was 61% of revenue, down from 65% in 2009. The increases in cost of sales related to an increase in markers of $72,893, foundations of $29,464, grave liners of $31,194, health insurance of $43,848, operating supplies of $42,180 and dirt hauling fess of $47,513. All other cost account changes were immaterial. The decrease in the percentage of cost of goods sold to revenue in 2010 was primarily due to the fixed nature of salaries.
Selling expenses increased $18,179, or 7.6%, compared to 2009. The increase was due to greater sales revenue and commissions paid.
General and administrative expenses increased $66,095, or 13%, compared to 2009. The increase was primarily attributable to increases in office salaries of $22,018, health insurance of $9,986 and professional fees of $35,534. The increases were due to having one more full time employee for the year, increased costs of health insurance for the staff and professional fees related to a comment letter from the Securities and Exchange Commission related to the accounting treatment of the non-controllable interest in the trusts.
Interest income from the perpetual care fund land trust was relatively flat at $23,022 for 2010 compared to $20,580 in 2009.
STINAR OPERATIONS
In 2010, revenue increased $1,437,193, or 16%, compared to 2009. The increase was primarily due to increases in government contracts arising from the Company's status in 2010 as a vendor with the U.S. government in a multiple award schedule.
Cost of goods sold in 2010 was $9,801,168, or 91% of sales, compared to 89% in 2009. Accordingly, gross profit percentage dropped to 9% in 2010 compared to 11% in 2009. Cost of raw materials decreased 2% in relation to sales, whereas truck chassis costs increased 20%, or $446,524, direct and indirect labor increased $702,546, and shop supplies increased $248,168, in each case for 2010 compared to 2009. All other changes were immaterial. The increase in cost of goods sold was directly related to increases in truck chassis costs.
Selling expenses increased $70,594, or 43%, compared to 2009. The increase was primarily due to increased commissions being paid to international agents for sales commissions.
General and administrative expenses decreased $139,881, or 37%, compared to 2009. The decrease was attributable to a decrease in bad debts of $86,725, and decrease in officers' pay of $53,258. The decrease was in officers' pay is attributable to having no chief financial of Stinar and Robert C. Harvey, the chief executive officer, taking over those additional duties.
Research and development decreased $551,698, when compared to 2009. The decrease was due to having no research and development expenses in 2010.
Interest expense increased $54,232, or 17%, compared to 2009. The increase was attributable to chassis purchases resulting from an increase in sales.
Interest income decreased $6,855 compared to 2009 due to a lease agreement we had with the United States Air Force expiring in 2009.
HOLDINGS OPERATIONS
Operating expenses increased $11,852, or 3%, compared to 2009. The increase was primarily attributable to increased interest expense.
RESULTS OF OPERATIONS - 2009
CEMETERY OPERATIONS
In 2009, cemetery revenue decreased $254,301, or 8%, compared to 2008. The decrease was due to a decrease in marker sales caused by less discretionary income by the customers served at the cemetery. All other sales account changes were immaterial.
Cost of goods sold in 2009 was $1,795,127, a decrease of $70,142, or 4%, compared to 2008. In 2009, cost of goods sold was 65% of revenue, or the same when compared to 2008. The cost decrease was attributable to decreases in the purchase of markers ($9,369), truck expenses ($8,297), health insurance costs ($24,944) and dirt hauling expenses ($28,048).
Selling expenses remain flat at $238,723, compared to 2008.
General and administrative expenses increased $84,358, or 20%, compared to 2008. The increase was primarily attributable to increases in depreciation ($9,000) and corporate assessments ($72,000).
Interest income from the perpetual care fund land trust decreased $1,133 or 6%, compared to 2008. The decrease was attributable to decreased interest rates.
STINAR OPERATIONS
In 2009, revenue increased $1,058,455, or 13%, compared to 2008. The increase was primarily due to increases in government contracts arising from the Company's status in 2009 as a vendor with the U.S. government in a multiple award schedule.
Cost of goods sold in 2009 was $8,274,978 or 89% of sales, which is the same percentage as 2008.
Gross profit percentage in relation to sales remained at 11% in 2009 compared to 2008.
Selling expenses decreased $112,110, or 40%, compared to 2008. The decrease was primarily due to no commissions being paid to an inside salesman due to the economic recession.
General and administrative expenses increased $53,848, or 16%, compared to 2008. The increase was attributable to an increase in bad debts.
Research and development increased $507,924, when compared to 2008. The increase was due to research and development of three new stairs and related canopies on those stairs as well as a new hi-lift maintenance lift.
Interest expense increased $25,845, or 9%, compared to 2008. The increase was attributable to chassis purchases resulting from an increase in sales.
Interest income decreased $91,417, or 93%, compared to 2008. The decrease was primarily due to a lease agreement we have with the United States Air Force expiring.
HOLDINGS OPERATIONS
Loss from operations decreased $69,200, or 19%, compared to 2008. The decrease was primarily attributable to the corporate assessment of $120,000 to Oakridge Cemetery, an increase of $72,000 compared to 2008.
OBLIGATIONS AND COMMITMENTS
The following table summarizes our obligations and commitments to make future payments under contracts, such as debt and lease agreements, as well as other financial commitments.
OFF-BALANCE SHEET ARRANGEMENTS
None.
ITEM 7A:
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Company for the fiscal years ending June 30, 2010 and 2009, located at Exhibit 13,, are incorporated herein.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A:
ITEM 9A: CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this annual report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (b) accumulated and communicated to the Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding disclosure.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a and 15d - 15f under the Exchange Act. Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
- Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
- Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
- Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on management's assessment and those criteria, management believes that, as of June 30, 2010, the Company maintained effective internal control over financial reporting.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Our management's report of the effectiveness of the design and operation of our disclosure controls and procedures was not subject to attestation by the Company's registered public accounting firm in accordance with the rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
No change in the Company's internal control over financial reporting was identified in connection with the evaluation required by Rule 13a 15(d) of the Exchange Act that occurred during the period covered by this annual report and that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B:
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10:
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 relating to our directors and executive officers is incorporated herein by reference to the section titled "Proposal 1 - Election of Directors" in our proxy statement. The information required by this Item 10 under Item 405 of Regulation S-K is incorporated herein by reference to the section titled "Section 16(a) Beneficial Ownership Reporting Compliance" in our proxy statement. The information required by this Item 10 under Item 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is incorporated herein by reference to the section titled "Information About the Board and Its Committees" in our proxy statement. Our proxy statement will be filed no later than 120 days after June 30, 2010.
The Company has not adopted a code of ethics that applies to the Company's Chief Executive Officer, Chief Financial Officer, Controller and other employees performing similar functions. The Company has not adopted such a code as all of these roles are performed or closely supervised by the Company's Chief Executive Officer, who operates under the direct supervision of the Board of Directors and Audit Committee.
ITEM 11:
ITEM 11: EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by reference to the section titled "Executive Compensation" in our proxy statement, which will be filed no later than 120 days after June 30, 2010.
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this Item 12 is incorporated herein by reference to the section titled "Principal Shareholders and Beneficial Ownership of Management" in our proxy statement, which will be filed no later than 120 days after June 30, 2010.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this Item 13 is incorporated herein by reference to the sections titled "Certain Relationships and Related Transactions" and "Proposal 1 - Election of Directors" in our proxy statement, which will be filed no later than 120 days after June 30 2010.
ITEM 14:
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this Item 14 is incorporated herein by reference to the sections titled "Audit Fees" and "Preapproval Policies and Procedures" in our proxy statement, which will be filed no later than 120 days after June 30, 2010.
ITEM 15:
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
The following consolidated financial statements of Oakridge Holdings, Inc. and subsidiaries, together with the Independent Auditors Report, are filed in this report at Exhibit 13,
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2010 and 2009
Consolidated Statements of Operations for the Years Ended June 30, 2010 and 2009
Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended June 30, 2010 and 2009
Notes to Consolidated Financial Statements
The following documents are filed or incorporated by reference as part of this Form 10-K/A.
3(i) Amended and Restated Articles of Incorporation as amended (1) 3(ii) Amended and Superseding By-Laws as amended (1) 10(a) 1999 Stock Incentive Award Plan (2) 10(b) Loan Documents for Line of Credit (3) 10(c) Loan Documents for Term Loan (3) 10(d) Form of Convertible Subordinated Debenture (4) 10(e) Loan documents for Mortgage Note Payable (3) 10(f) Loan agreements with officers (5) 13 Financial Statements 21 Subsidiaries of Registrant (2) 23(a) Consent of Independent Registered Public Accounting Firm 23(b) Consent of Independent Registered Public Accounting Firm 31 Rule 13a-14(a)/15d-14(a) Certifications 32 Section 1350 Certifications
(1) Filed as exhibit to Form 10-KSB for fiscal year ended June 30, 1996. (2) Filed as exhibit to Form 10-KSB for fiscal year ended June 30, 1999. (3) Filed as exhibit to Form 10-KSB for fiscal year ended June 30, 2009. (4) Filed as exhibit 1.1 to Form 8-K filed July 1, 2010 and incorporated herein by reference. (5) Material terms are described in Form 8-K filed September 25, 2009 and incorporated herein by reference.
Signatures
In accordance with Section 13 or 15 (d) of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OAKRIDGE HOLDINGS, INC.
Dated: October 1, 2010 By /s/ Robert C. Harvey Robert C. Harvey Chairman Of the Board of Directors
In accordance with the Exchange Act, this report has also been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Dated: October 1, 2010 By /s/ Robert C. Harvey Robert C. Harvey Chief Executive Officer Chief Financial Officer (principal accounting officer) Director
Dated: October 1, 2010 By /s/ Robert B. Gregor Robert B. Gregor Secretary Director
Dated: October 1, 2010 By /s/ Hugh H. McDaniel Hugh H. McDaniel Director
Dated: October 1, 2010 By /s/ Robert Lindman Robert Lindman Director
Dated: October 1, 2010 By /s/ Pamela Whitney Pamela Whitney Director