1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 31, 2001
OAKHURST COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-19450 25-1655321
(State or other jurisdiction (Commission file number) (IRS Employer
of Incorporation) Identification No.)
2751 Centerville Road Suite 3131
Wilmington, Delaware 19803
(Address of principal executive offices) (Zip code)
(817) 416-0717
(Registrant's telephone number, including area code)
Item 5. Other Events
On July 31, 2001, Oakhurst Company, Inc., a Delaware corporation (the "Company")
filed a Current Report on Form 8-K (the "Oakhurst Initial Report") describing
the Company's increase in its investment in Sterling Construction Company
("Sterling") to 80.1%. This Current Report on Form 8-K/A amends the Oakhurst
Initial Report by including with this Form 8-K/A the financial statements and
pro forma financial information required under Item 7 of Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
Sterling Construction Company
Financial Statements
June 30, 2001 and 2000 (unaudited)
September 30, 2000 and 1999
September 30, 1998
(b) Proforma Financial Information
Proforma financial information for the year ended February 28,
2001 and the three months ended May 31, 2001 are included
herein.
1
2
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
OAKHURST COMPANY, INC.
Date: October 1, 2001 By: /s/ Joseph Harper
-------------------------
Joseph Harper
President
Date: October 1, 2001 By: /s/ Maarten D. Hemsley
-------------------------
Maarten D. Hemsley
Chief Financial Officer
2
3
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
CONTENTS
JUNE 30, 2001 AND 2000
--------------------------------------------------------------------------------
<Table>
<Caption>
PAGE
FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet................................. 4
Condensed Consolidated Statement of Earnings......................... 5
Condensed Consolidated Statement of Cash Flows....................... 6
Notes Condensed Consolidated to Financial Statements................. 7
</Table>
3
4
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30,
(UNAUDITED)
--------------------------------------------------------------------------------
<Table>
<Caption>
ASSETS 2001 2000
------------- -------------
Current Assets
Cash and cash equivalents $ 533,478 $ 298,281
Accounts receivable 18,215,405 10,556,133
Costs and estimated earnings in excess of billings
on uncompleted contracts 2,913,247 3,076,682
Prepaid taxes 301,365 --
Refundable deposits 122,356 457,556
------------- -------------
Total current assets 22,085,851 14,388,652
Property and equipment, net 16,340,155 13,526,729
Other 227,657 125,447
------------- -------------
$ 38,653,663 $ 28,040,828
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities, long-term debt $ 176,188 $ 50,004
Current maturities, subordinated related party notes 288,000 288,000
Accounts payable, trade 10,335,823 7,109,717
Accrued liabilities 763,284 1,260,289
Billings in excess of costs and estimated earnings on
uncompleted contracts 4,566,300 1,870,913
Taxes on income -- 249,975
Deferred taxes on income 75,329 82,488
------------- -------------
Total current liabilities 16,204,924 10,911,386
Long-term debt, less current maturities 3,867,718 349,988
Subordinated related party notes, less current maturities 4,000,000 4,288,000
Deferred taxes on income 1,894,878 1,285,989
------------- -------------
25,967,520 16,835,363
Stockholders' Equity
Preferred stock $.01 par value
Authorized 10,000 shares -- --
Common stock, $.01 par value
Authorized 1,000,000 shares; issued and
outstanding 650,100 shares 6,501 6,501
Capital paid in excess of par value 6,557,926 6,557,926
Retained earnings 6,121,716 4,641,038
------------- -------------
12,686,143 11,205,465
------------- -------------
$ 38,653,663 $ 28,040,828
============= =============
</Table>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
5
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED JUNE 30,
(UNAUDITED)
--------------------------------------------------------------------------------
<Table>
<Caption>
2001 2000
------------- -------------
Contract revenues earned $ 59,554,028 $ 57,302,439
Cost of revenues earned 54,198,572 49,191,955
------------- -------------
Gross profit 5,355,456 8,110,484
Administrative and general expenses 3,079,422 2,618,355
------------- -------------
Operating profit 2,276,034 5,492,129
Other expense, principally interest 512,581 259,501
------------- -------------
Earnings before provision for taxes 1,763,453 5,232,628
Provision for income taxes 679,703 2,016,377
------------- -------------
Net earnings $ 1,083,750 $ 3,216,251
============= =============
</Table>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
6
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30,
(UNAUDITED)
--------------------------------------------------------------------------------
<Table>
<Caption>
2001 2000
------------- -------------
Operating Activities
Net earnings $ 1,083,750 $ 3,216,251
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 2,220,732 1,782,442
Sale of property and equipment 40,152 (30,661)
Increase in deferred taxes 386,207 308,477
Changes in assets and liabilities
(Increase) decrease in accounts receivable (4,558,198) 5,402,319
(Increase) in costs and estimated earnings
in excess of billings on uncompleted contracts (1,005,485) (1,108,962)
Decrease in prepaid taxes 148,607 --
Decrease (increase) in refundable deposits 14,200 (385,850)
(Increase) decrease in other assets (80,417) 238,180
Increase (decrease) in accounts payable 3,664,281 (668,785)
(Decrease) in accrued liabilities (907,447) (603,062)
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 2,455,584 471,876
(Decrease) in taxes on income -- (65,586)
------------- -------------
Net cash provided by operating activities 3,461,966 8,556,639
Investing Activities
Purchases of property and equipment (5,151,319) (5,371,864)
Proceeds from sale of property and equipment 35,549 84,235
------------- -------------
Net cash used in investing activities (5,115,770) (5,287,629)
Financing Activities
Dividends and other payments to shareholders -- (304,700)
Proceeds from long-term debt 1,543,906 --
Principal payments on long-term debt (2,891,658) (5,037,503)
Principal payments on subordinated related party notes (288,000) (288,000)
------------- -------------
Net cash used in financing activities (1,635,752) (5,630,203)
------------- -------------
Net decrease in cash and cash equivalents (3,289,556) (2,361,193)
Cash and cash equivalents, beginning of period 3,823,034 2,659,474
------------- -------------
Cash and cash equivalents, end of period $ 533,478 $ 298,281
============= =============
Supplemental cash flow information: Cash paid during the period for:
Interest paid $ 531,063 $ 397,192
============= =============
Income taxes $ 143,362 $ 2,270,483
============= =============
</Table>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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7
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001 AND 2000
(UNAUDITED)
--------------------------------------------------------------------------------
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules of the Securities and Exchange Commission for
interim reports. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and estimated provisions for bonus and
profit-sharing arrangements) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended June 30, 2001,
are not necessarily indicative of the results that may be expected for the year
ended September 30, 2001.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto.
Note B - Subsequent Event
On July 18, 2001, the Oakhurst Company, Inc. ("Oakhurst") acquired additional
shares of the Company's outstanding common stock to achieve an 80.1% ownership
interest in the Company. The transaction is effective on July 13, 2001. In
connection with this transaction, the Company borrowed $6.4 million of which $6
million was advanced to Oakhurst as a subordinated note receivable. The Company
also reacquired and terminated all of the 24,700 stock options outstanding at
the price of $4.00 per option.
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8
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
CONTENTS
SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
<Table>
<Caption>
PAGE
Report of Independent Certified Public Accountants.................... 9
FINANCIAL STATEMENTS
Balance Sheets.................................................... 10
Statements of Earnings............................................ 12
Statement of Stockholder's Equity................................. 13
Statements of Cash Flows.......................................... 14
Notes to Financial Statements..................................... 16
</Table>
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9
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Sterling Construction Company
We have audited the accompanying consolidated balance sheets of Sterling
Construction Company (a Delaware corporation) and Subsidiary as of September 30,
2000 and 1999, and the related consolidated statements of earnings,
stockholder's equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sterling
Construction Company and Subsidiary as of September 30, 2000 and 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/GRANT THORNTON LLP
Detroit, Michigan
November 16, 2000
9
10
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
BALANCE SHEETS
SEPTEMBER 30,
--------------------------------------------------------------------------------
<Table>
<Caption>
ASSETS 2000 1999
------------- -------------
CURRENT ASSETS
Cash and cash equivalents (Note A) $ 3,823,034 $ 2,659,474
Accounts receivable (Note A)
Contracts
Current amount due 8,901,747 12,072,387
Retained percent 4,130,020 3,877,013
Accrued billings on completed contracts 500,920 --
------------- -------------
13,532,687 15,949,400
Other 124,520 9,052
------------- -------------
13,657,207 15,958,452
Costs and estimated earnings in excess of billings
on uncompleted contracts (Notes A and I) 1,907,762 1,967,720
Prepaid taxes (Note A) 449,972 --
Refundable deposits 136,556 71,706
------------- -------------
Total current assets 19,974,531 20,657,352
PROPERTY AND EQUIPMENT (NOTES A AND E)
Construction equipment 18,614,936 13,460,934
Transportation equipment 2,472,638 2,170,247
Furniture and fixtures 208,097 180,928
Building and improvements 360,050 289,998
------------- -------------
21,655,721 16,102,107
Less accumulated depreciation 8,352,952 6,293,726
------------- -------------
13,302,769 9,808,381
Land 182,500 182,500
------------- -------------
13,485,269 9,900,881
OTHER 147,240 363,627
------------- -------------
$ 33,607,040 $ 31,011,860
============= =============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
11
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
BALANCE SHEETS - CONTINUED
SEPTEMBER 30,
--------------------------------------------------------------------------------
<Table>
<Caption>
LIABILITIES AND STOCKHOLDER'S EQUITY 2000 1999
------------- -------------
CURRENT LIABILITIES
Current maturities
Long-term debt $ 54,171 $ 50,004
Subordinated related party notes 576,000 576,000
------------- -------------
630,171 626,004
Accounts payable, trade 6,671,542 7,778,502
Dividends and other payables to shareholders -- 304,700
Accrued liabilities (Note F) 1,670,731 1,863,351
Billings in excess of costs and estimated earnings on
uncompleted contracts (Notes A and I) 2,110,716 1,399,037
Taxes on income (Note A) -- 315,561
Deferred taxes on income (Notes A and G) 29,000 32,000
------------- -------------
Total current liabilities 11,112,160 12,319,155
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE E) 5,337,487 5,387,491
SUBORDINATED RELATED PARTY NOTES, LESS CURRENT
MATURITIES (NOTE E) 4,000,000 4,288,000
DEFERRED TAXES ON INCOME (NOTES A AND G) 1,555,000 1,028,000
------------- -------------
22,004,647 23,022,646
STOCKHOLDERS' EQUITY
Preferred stock $.01 par value
Authorized 10,000 shares -- --
Common stock, $.01 par value
Authorized 1,000,000 shares; issued and
outstanding 650,100 shares 6,501 6,501
Capital paid in excess of par value 6,557,926 6,557,926
Retained earnings 5,037,966 1,424,787
------------- -------------
11,602,393 7,989,214
------------- -------------
$ 33,607,040 $ 31,011,860
============= =============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
12
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
STATEMENTS OF EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
<Table>
<Caption>
2000 1999
------------- -------------
Contract revenues earned (Note A) $ 76,045,447 $ 63,972,447
Cost of revenues earned (Note A) 66,343,983 53,836,140
------------- -------------
Gross profit 9,701,464 10,136,307
Administrative and general expenses 3,553,268 3,611,850
------------- -------------
Operating profit 6,148,196 6,524,457
Other expense (income)
Interest 387,136 507,555
Loss (gain) on sale of property and equipment 3,881 (33,359)
Gain on sale of investment -- (46,094)
Joint venture (Note C) -- (47,783)
------------- -------------
391,017 380,319
------------- -------------
Earnings before provision for taxes 5,757,179 6,144,138
Provision for income taxes (Notes A and G)
Current 1,620,000 1,720,000
Deferred 524,000 1,060,000
------------- -------------
2,144,000 2,780,000
------------- -------------
Net earnings $ 3,613,179 $ 3,364,138
============= =============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
13
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 2000
--------------------------------------------------------------------------------
<Table>
<Caption>
COMMON
STOCK, COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
------------- ------------- ------------- ------------- -------------
Balance, October 1, 1998 6,084 $ 60,840 $ 1,615,733 $ 4,203,443 $ 5,880,016
Sale of stock 417 4,170 383,753 -- 387,923
Corporate reorganization
(Note B) 643,599 (58,509) 4,558,440 (4,499,931) --
Net earnings -- -- -- 3,364,138 3,364,138
Distributions to stockholders -- -- -- (1,642,863) (1,642,863)
------------- ------------- ------------- ------------- -------------
Balance September 30,
1999 650,100 6,501 6,557,926 1,424,787 7,989,214
Net earnings -- -- -- 3,613,179 3,613,179
------------- ------------- ------------- ------------- -------------
Balance, September 30,
2000 650,100 $ 6,501 $ 6,557,926 $ 5,037,966 $ 11,602,393
============= ============= ============= ============= =============
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
13
14
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
<Table>
<Caption>
2000 1999
------------- -------------
OPERATING ACTIVITIES
Net earnings $ 3,613,179 $ 3,364,138
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization 2,324,879 1,769,408
Sale of property and equipment 3,881 (33,359)
Gain on sale of investment -- (46,094)
Income from joint venture -- (47,783)
Increase in deferred taxes 524,000 1,060,000
Changes in assets and liabilities
Decrease (increase) in accounts receivable 2,301,245 (6,512,062)
Decrease (increase) in costs and estimated earnings
in excess of billings on uncompleted contracts 59,958 (851,080)
Increase in prepaid taxes (449,972) --
(Increase) decrease in refundable deposits (64,850) 212,201
Decrease (increase) in other assets 213,887 (50,854)
(Decrease) increase in accounts payable (1,106,960) 2,617,637
(Decrease) increase in accrued liabilities (192,620) 1,344,682
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 711,679 455,119
(Decrease) increase in taxes on income (315,561) 81,281
------------- -------------
Net cash provided by operating activities 7,622,745 3,363,234
INVESTING ACTIVITIES
Distributions from joint venture -- 101,415
Proceeds from sale of marketable securities -- 62,436
Purchases of property and equipment (6,006,157) (5,220,191)
Proceeds from sale of property and equipment 185,509 331,390
------------- -------------
Net cash used in investing activities (5,820,648) (4,724,950)
FINANCING ACTIVITIES
Proceeds from sale of stock -- 387,923
Principal receipts from notes receivable, stockholders -- 369,653
Proceeds subordinated related party notes -- 4,000,000
Principal payments on long-term debt (45,837) (614,112)
Principal payments on subordinated related party notes (288,000) --
Distributions to shareholders (304,700) (1,338,163)
------------- -------------
Net cash (used in) provided by financing activities (638,537) 2,805,301
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,163,560 1,443,585
Cash and cash equivalents, beginning of year 2,659,474 1,215,889
------------- -------------
Cash and cash equivalents, end of year $ 3,823,034 $ 2,659,474
============= =============
</Table>
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15
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
<Table>
<Caption>
2000 1999
----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest paid $ 487,906 $ 476,663
=========== ===========
Income taxes $1,961,253 $1,419,719
=========== ===========
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
15
16
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company is primarily engaged in performing various underground and concrete
construction projects in the State of Texas with over 65% of contract revenues
earned from the Texas Department of Transportation and metropolitan Houston area
units of government. Construction projects are substantially performed under
fixed price contracts. The length of the contracts vary but typically are less
than one year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Sterling
Construction Company, a Delaware corporation and its wholly-owned subsidiary,
Sterling Construction Company, a Michigan corporation (collectively referred to
as the Company). All significant intercompany balances have been eliminated.
CONSTRUCTION CONTRACTS
Revenues are recognized on the percentage-of-completion method, measured by the
percentage of costs incurred to date to estimated total costs for each contract.
Contract costs include all direct material, labor, subcontract, and other costs
and those indirect costs related to contract performance, such as indirect
salaries and wages, repairs, depreciation, insurance, and payroll taxes.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in job performance, job conditions,
and estimated profitability, including those arising from contract penalty
provisions, and final contract settlements may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
An amount equal to contract costs attributable to claims is included in revenues
when realization is probable and the amount is reliably estimated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
The Company considers accounts receivable to be fully collectible; accordingly,
no allowance for doubtful accounts is required. If amounts become uncollectible,
they will be charged to operations when that determination is made.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed principally
on the straight-line method over the estimated useful lives of the assets. The
estimated useful lives of property, plant and equipment are as follows:
<Table>
Construction equipment 5-15 years
Transportation equipment 5
Furniture and fixtures 5
Building and improvements 15-39
</Table>
16
17
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in these financial statements
and accompanying notes. Actual results could differ from those estimates.
INCOME TAXES
Deferred income taxes are provided for differences in timing in reporting income
for financial statement and tax purposes arising from differences in the methods
of accounting for construction contracts and depreciation.
Construction contracts are reported for tax purposes on the modified
percentage-of-completion method, and the percentage-of-completion method is used
for financial statement reporting. Accelerated depreciation is used for tax
reporting, and straight-line depreciation is used for financial statement
reporting.
SELF-INSURANCE
The Company is self-insured for employee health claims. Their policy is to
accrue the estimated liability for claims through year-end. The Company has
obtained reinsurance coverage for the policy period from June 1, 2000 through
May 31, 2001 as follows:
o Specific excess reinsurance coverage for medical and
prescription drug claims in excess of $15,000 with a maximum
lifetime reimbursable of $985,000.
o Aggregate reinsurance coverage for medical, dental and
prescription drug claims with a plan year maximum of
$1,000,000 for claims in excess of approximately $212,000
which is estimated based on the number of employees.
NOTE B - CORPORATE REORGANIZATION
On January 14, 1999, the stockholders exchanged their stock in the Subsidiary
for shares of the parent Company. As a result of this exchange, the Subsidiary
has become a wholly-owned subsidiary of the parent Company and its only
operating asset. This exchange caused the termination of the Subsidiary's
election to be taxed as an S Corporation.
Also on that date, in a merger transaction, all of the outstanding shares of
stock of the Subsidiary were exchanged for one share of stock of a newly formed
subsidiary. The newly-formed subsidiary had no significant assets. The two
subsidiaries of the Company were then merged into one company - Sterling
Construction Company (the Subsidiary).
17
18
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE B - CORPORATE REORGANIZATION (CONTINUED)
Stockholders of the parent Company, not previously stockholders of the
Subsidiary, advanced $4,000,000 to the Subsidiary under 8% Convertible Senior
Subordinated Notes due December 31, 2005. The notes are subordinated to all
secured debt and all debt subject to written agreements with banks, insurance
companies and financial institutions. The notes may be exchanged for shares of
common stock of the parent Company at a price of $30.7645 per share. No debt
proceeds have been accounted for as attributable to the conversion feature.
NOTE C - JOINT VENTURE
In 1995, the Company formed the BRH-Garver, Inc./Texas-Sterling Construction,
Inc. Joint Venture for the purpose of operating and managing an underground
construction project in Harris County, Texas. In 1998, the project was
completed. Prior to September 30, 1999, substantially all of the assets of the
venture were liquidated and distributed to the venture partners.
The equity method of accounting was used to account for the Company's interest
in the joint venture. Under the equity method, the original investment was
recorded at cost adjusted by the Company's share of undistributed earnings of
the joint venture. Accordingly, $47,783 of the joint venture's income for the
year ended September 30, 1999 is included in the accompanying statement of
earnings.
NOTE D - RELATED PARTY TRANSACTIONS
During the years ended September 30, 2000 and 1999, the Company leased equipment
from companies in which certain of its parent company's stockholders have an
ownership interest. In connection therewith, the Company incurred equipment
rental charges of approximately $200,000 and $500,000, respectively.
NOTE E - LONG-TERM DEBT AND RELATED PARTY NOTES
Long-term debt and subordinated related party debt consist of the following
obligations as of September 30:
<Table>
<Caption>
2000 1999
----------- -------------
Note payable, mortgage, payable in monthly installments of
$4,167 plus interest at the rate of 9.3% per annum, and
secured by building and improvements. $ 391,658 $ 437,495
Note payable, bank, bears interest at a rate indexed to prime
(total rate of 9.5% at September 30, 2000) and matures
March 1, 2002, is secured by all property and equipment and is
subject to, among other things, the maintenance of certain
financial covenants. 5,000,000 5,000,000
</Table>
18
19
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE E - LONG-TERM DEBT AND RELATED PARTY NOTES (CONTINUED)
<Table>
Convertible senior subordinated notes payable due to certain
stockholders bearing interest at the rate of 8% per annum,
maturing December 31, 2005. The notes are subordinated to all
secured debt and all debt subject to written agreements with
banks, insurance companies and financial institutions. The
notes may be exchanged for shares of common stock at a price
of $30.7645 per share. Interest expense of $320,000 and
$223,000 was charged to earnings for the years ending
September 30, 2000 and 1999, respectively. 4,000,000 4,000,000
Notes payable to stockholders bear interest at the rate of
prime plus 2% (effective rate of 11.5% at September 30, 2000),
mature September 30, 2001 and are subject to the subordination
agreement of the note payable, bank which allows for principal
and interest payments providing the Company is in compliance
with the covenants. Interest expense of $74,639 and $85,376
was charged to earnings for the years ending September 30,
2000 and 1999, respectively. 576,000 864,000
--------- ----------
9,967,658 10,301,495
Less current portion 630,171 626,004
--------- ----------
$ 9,337,487 $ 9,675,491
=========== ============
</Table>
The following are principal payments due for the years ending September 30:
<Table>
<Caption>
LONG- SUBORDINATED
TERM RELATED
DEBT PARTY DEBT TOTAL
------------- ------------- -------------
2002 $ 5,050,004 $ -- $ 5,050,004
2003 287,483 -- 287,483
2004 -- -- --
2005 -- 4,000,000 4,000,000
Thereafter -- -- --
------------- ------------- -------------
Total $ 5,337,487 $ 4,000,000 $ 9,337,487
============= ============= =============
</Table>
NOTE F - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<Table>
<Caption>
2000 1999
------------- -------------
Accrued job costs $ -- $ 165,413
Payroll and taxes 1,186,555 1,409,630
Interest 69,176 88,308
Profit sharing 225,000 200,000
State corporate tax 190,000 --
------------- -------------
$ 1,670,731 $ 1,863,351
============= =============
</Table>
19
20
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE G - INCOME TAXES
The income tax provision consists of the following:
<Table>
<Caption>
2000 1999
------------- -------------
Current federal income taxes $ 1,430,000 $ 1,500,000
Deferred federal income taxes 465,000 941,000
Current state income taxes 190,000 220,000
Deferred state income taxes 59,000 119,000
------------- -------------
$ 2,144,000 $ 2,780,000
============= =============
</Table>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax liabilities at September 30 are as follows:
<Table>
<Caption>
2000 1999
------------- -------------
Depreciation $ 1,555,000 $ 1,028,000
Contracts 29,000 32,000
------------- -------------
$ 1,584,000 $ 1,060,000
============= =============
</Table>
A reconciliation of the provision for income taxes is as follows:
<Table>
<Caption>
2000 1999
------------- -------------
Expected expense at the statutory rate of 34% $ 1,957,000 $ 2,087,000
Permanent differences - expenses recognized
for book not tax 32,000 --
State income taxes, net of federal income tax 165,000 272,000
Federal income taxes attributable to earnings
while an S-Corporation -- (243,000)
Deferred federal income tax liability recorded
on temporary differences arising while an
S-Corporation -- 664,000
Other (10,000) --
------------- -------------
$ 2,144,000 $ 2,780,000
============= =============
</Table>
NOTE H - EMPLOYEE BENEFIT PLANS
The Company has a defined contribution profit sharing plan for substantially all
employees. The Company's contribution is determined at the discretion of its
Board of Directors subject to certain limitations. A contribution of $227,701
and $200,000 has been charged against earnings for the years ended September 30,
2000 and 1999, respectively.
20
21
STERLING CONSTRUCTION COMPANY AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 2000 AND 1999
--------------------------------------------------------------------------------
NOTE H - EMPLOYEE BENEFIT PLANS (CONTINUED)
During the year ended September 30, 1999, the Company adopted a stock option
plan which allows the Company to grant options to employees for up to 41,100
shares of common stock. The options have a term of no more than ten years from
the date of grant. The options vest on the anniversary date after grant as
follows:
<Table>
<Caption>
ANNIVERSARY VESTED
DATE PERCENTAGE
---------- ----------
Year 1 30%
Year 2 60
Year 3 100
</Table>
The exercise price of each option is determined by the Board, provided however,
that such exercise price is not less than 100% of the fair market value per
share of the common stock at the date of the grant, as determined by the Board.
During the year ended September 30, 1999, no options had been granted under the
plan. During the year ended September 30, 2000, options for 24,700 shares were
granted at an exercise price of $36 per share pursuant to this plan. There were
no options outstanding at the beginning of the year 2000 and there were no
exercises or forfeitures during 2000.
Had compensation cost for the plan been determined based on the fair value of
all the options at the grant date consistent with statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"), the Company would have reported pro forma net earnings of $3,510,579 for
the year ended September 30, 2000. For purposes of pro forma disclosure, the
estimated fair value of the stock options are amortized to expense over the
options' vesting period. The fair value of these stock options was estimated at
the date of grant using the minimum value method.
NOTE I - COSTS AND BILLINGS ON UNCOMPLETED CONTRACTS
Costs and billings on uncompleted contracts consist of the following at
September 30:
<Table>
<Caption>
2000 1999
------------- -------------
Costs incurred and estimated revenue on uncompleted
contracts $ 50,956,737 $ 44,198,957
Billings on uncompleted contracts 51,159,691 43,630,274
------------- -------------
$ (202,954) $ 568,683
============= =============
Included in accompanying balance sheets under the following captions:
Costs in excess of billings on uncompleted contracts $ 1,907,762 $ 1,967,720
Billings in excess of costs on uncompleted contracts 2,110,716 1,399,037
------------- -------------
$ (202,954) $ 568,683
============= =============
</Table>
21
22
STERLING CONSTRUCTION COMPANY
CONTENTS
September 30, 1998
----------
<Table>
<Caption>
Pages
-----
Independent Auditor's Report 23
Financial Statements:
Balance Sheet 24
Statement of Income 26
Statement of Stockholders' Equity 27
Statement of Cash Flows 28
Notes to Financial Statements 30
</Table>
22
23
To the Board of Directors and Stockholders of
Sterling Construction Company:
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying Balance Sheet of Sterling
Construction Company as of September 30, 1998, and the related Statements of
Income, Stockholders' Equity, and Cash Flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Sterling
Construction Company as of September 30, 1998, and the results of its operations
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ R.W. FRICKEL COMPANY, P.C.
Troy, Michigan
November 6, 1998
23
24
STERLING CONSTRUCTION COMPANY
BALANCE SHEET, as of September 30, 1998
----------
ASSETS
<Table>
Current assets:
Cash and cash equivalents (Note A) $ 1,215,889
Marketable securities, at cost
(market value $58,810) 16,342
Accounts receivable:
Contracts:
Current amount due $ 5,509,329
Retained percent 2,759,499
Work completed, not billed 1,122,883
-------------
9,391,711
Accrued interest 33,411
Employees 21,268
-------------
9,446,390
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note A) 1,116,640
Investment in joint venture (Note B) 53,632
Refundable deposits 283,907
-------------
Total current assets 12,132,800
Cash value of life insurance (Note C) 290,690
Property and equipment (Notes A, E, F, G, and H):
Construction equipment 9,776,013
Transportation equipment 1,342,209
Furniture and fixtures 133,149
Building and improvements 289,998
-------------
11,541,369
Less accumulated depreciation 4,888,239
-------------
6,653,130
Land 182,500
-------------
6,835,630
License, less accumulated
amortization of $10,417 24,583
-------------
Total assets $ 19,283,703
=============
</Table>
The accompanying notes are a part of the financial statements.
24
25
<Table>
LIABILITIES
Current liabilities:
Note payable, mortgage $ 50,004
Note payable, affiliated company 192,688
Notes payable, stockholders 288,000
Accounts payable:
Trade $ 5,066,137
Stockholders 26,876
-------------
5,093,013
Accrued expenses (Note D) 752,949
Obligations under capital leases (Note E) 388,183
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note A) 943,918
-------------
Total current liabilities 7,708,755
Note payable, bank (Notes F and J) 5,000,000
Note payable, mortgage (Notes G and J) 487,499
Less current portion 50,004
-------------
437,495
Note payable, affiliated company (Notes H and J) 243,777
Less current portion 192,688
-------------
51,089
Notes payable, stockholders (Notes I and J) 864,000
Less current portion 288,000
-------------
576,000
Total liabilities 13,773,339
STOCKHOLDERS' EQUITY
Common stock, $10 par value:
Authorized 10,000 shares
Issued and outstanding 6,084 shares 60,840
Paid-in capital 1,615,733
Notes receivable, stockholders (Note K) (369,652)
Retained earnings 4,203,443
-------------
Total stockholders' equity 5,510,364
-------------
Total liabilities and stockholders' equity $ 19,283,703
=============
</Table>
25
26
STATEMENT OF INCOME
for the year ended September 30, 1998
------------
<Table>
Contract revenues earned $ 49,718,010
Cost of revenues earned 43,722,571
-------------
Gross profit 5,995,439
Administrative and general expenses 4,257,083
-------------
Operating income 1,738,356
Other expense (income):
Interest - net $ 426,002
Joint venture (Note B) 29,001
Sale of property and equipment (68,988)
-------------
386,015
Net income $ 1,352,341
=============
</Table>
The accompanying notes are a part of the financial statements.
26
27
STATEMENT OF STOCKHOLDERS' EQUITY
for the year ended September 30, 1998
------------
<Table>
<Caption>
Common
stock, Notes
$10 par Paid-in receivable, Retained
value Capital stockholders Earnings Total
------------- ------------- ------------- ------------- -------------
Balance,
October 1, 1997 $ 55,800 $ 1,208,224 $ (258,284) $ 2,851,102 $ 3,856,842
Sale of 504 shares of
common stock 5,040 407,509 (412,549) --
Principal receipts from
notes receivable,
Stockholders 301,181 301,181
Net income 1,352,341 1,352,341
------------- ------------- ------------- ------------- -------------
Balance,
September 30, 1998 $ 60,840 $ 1,615,733 $ (369,652) $ 4,203,443 $ 5,510,364
============= ============= ============= ============= =============
</Table>
The accompanying notes are a part of the financial statements.
27
28
STATEMENT OF CASH FLOWS
for the year ended September 30, 1998
------------
<Table>
Operating activities:
Net income $ 1,352,341
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization $ 1,269,817
Gain on sale of property and equipment (68,988)
Income from joint venture 29,001
Change in assets and liabilities:
Increase in marketable securities (3,520)
Increase in accounts receivable (193,071)
Decrease in costs and estimated earnings
in excess of billings on uncompleted
Contracts 310,313
Decrease in refundable deposits 181,570
Increase in cash value of life insurance (3,691)
Decrease in accounts payable (1,944,140)
Decrease in accrued expenses (165,034)
Increase in billings in excess of costs
and estimated earnings on uncompleted
Contracts 279,315
-------------
Total adjustments (308,428)
-------------
Net cash provided by operating activities 1,043,913
Investing activities:
Distributions from joint venture 275,000
Purchases of property and equipment (3,028,140)
Proceeds from sale of property and equipment 278,489
-------------
Net cash used in investing activities (2,474,651)
Financing activities:
Principal receipts from notes receivable, stockholders 301,181
Proceeds from note payable, bank 1,000,000
Proceeds from note payable, mortgage 500,000
Proceeds from note payable, affiliated company 391,203
Principal payments on capital lease obligations (42,437)
Principal payments on note payable, mortgage (12,501)
Principal payments on note payable, affiliated company (147,426)
Principal payments on notes payable, stockholders (288,000)
-------------
Net cash provided by financing activities 1,702,020
-------------
</Table>
The accompanying notes are a part of the financial statements.
28
29
STATEMENT OF CASH FLOWS (continued)
for the year ended September 30, 1998
------------
<Table>
Net increase in cash and cash equivalents $ 271,282
Cash and cash equivalents, October 1, 1997 944,607
-------------
Cash and cash equivalents, September 30, 1998 $ 1,215,889
=============
Cash paid during the year for interest $ 453,361
=============
</Table>
Supplemental schedule of noncash investing and financing activities:
Property and equipment acquired under capital lease
obligations in the amount of $ 430,620.
Common stock issued for notes receivable in the amount of
$412,549.
The accompanying notes are a part of the financial statements.
29
30
NOTES TO FINANCIAL STATEMENTS
for the year ended September 30, 1998
----------
NOTE A: Summary of significant accounting policies:
Nature of operations - The Company is primarily engaged in
performing various underground and concrete construction
projects in the State of Texas with approximately 73% of
contract revenues earned from the City of Houston, City of
Fort Worth, and metropolitan Huston area units of government.
Construction projects are substantially performed under
fixed-price contracts. The length of the contracts varies but
typically is less than one year.
Use of estimates - The preparation of the Company's financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results
could differ from those estimates.
Construction contracts - Revenues are recognized on the
percentage-of-completion method, measured by the percentage
of costs incurred to date to estimated total costs of each
contract.
Contract costs include all direct material, labor,
subcontract, and other costs and those indirect costs related
to contract performance, such as indirect salaries and wages,
repairs, depreciation, insurance, and payroll taxes.
Administrative and general expenses are charged to expense as
incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, and
estimated profitability, including those arising from
contract penalty provisions, and final contract settlements
may result in revisions to costs and income and are
recognized in the period in which the revisions are
determined. An amount equal to contract costs attributable to
claims is included in revenues when realization is probable
and the amount is reliably estimated.
The asset, "Costs and estimated earnings in excess of
billings on uncompleted contracts," represents revenues
recognized in excess of amounts billed. The liability,
"Billings in excess of costs and estimated earnings on
uncompleted contracts," represents billings in excess of
revenues recognized.
Cash and cash equivalents - The Company considers all highly
liquid investments with maturities of three months or less
to be cash equivalents.
Property and equipment - Property and equipment are stated at
cost. The provision for depreciation for the year was
computed principally on the straight-line method over the
estimated useful lives of the assets. The estimated useful
lives of property and equipment are as follows:
<Table>
Construction equipment 5-15 years
Transportation equipment 5 years
Furniture and fixtures 5 years
Building and improvements 15-39 years
</Table>
30
31
NOTES TO FINANCIAL STATEMENTS (continued)
for the year ended September 30, 1998
----------
Income taxes - The Company with the consent of its shareholders, has
elected to be taxed as an S corporation. Under S corporation
regulations, the shareholders are liable for the income taxes on
their proportionate share of the Company's taxable income.
NOTE B: On July 20, 1995, the Company formed the BRH-Garver,
Inc./Texas-Sterling Construction, Inc. Joint Venture for the
purpose of operating and managing an underground construction
project in Harris County, Texas. The equity method of accounting
is used to account for the Company's interest in the Joint
Venture. Under the equity method, the original investment is
recorded at cost adjusted by the Company's share of undistributed
earnings or losses in the Joint Venture.
Sterling Construction Company has a 50% participation percentage
in the profits, losses, and indemnity of the Joint Venture.
Accordingly, $29,001 of the Joint Venture's loss for the year
ended September 30, 1998 is included in the accompanying
financial statements.
NOTE C: The stockholders and the Company have a stock redemption agreement
which provides for a program for the purchase of the stock of the
Company owned by any stockholder who may terminate their
employment, become disabled, retire, or die and restricts
transfer of stock during a stockholder's lifetime. In connection
therewith, the Company is the beneficiary of life insurance on
the lives of certain Company stockholders in the amount of
$6,850,000.
NOTE D: Accrued expenses in the amount of $752,949 are comprised of the
following:
<Table>
Payroll and payroll taxes $ 577,035
Interest 24,006
Profit sharing 100,000
State taxes payable 51,908
----------
Total $ 752,949
==========
</Table>
NOTE E: The Company leases certain construction equipment under leases
classified as capital leases. Assets recorded under capital
leases are included in property and equipment and are summarized
as follows:
<Table>
Construction equipment $ 430,620
Less accumulated depreciation 32,292
----------
Assets under capital leases (net) $ 398,328
==========
</Table>
31
32
NOTES TO FINANCIAL STATEMENTS (continued)
for the year ended September 30, 1998
----------
The following is a schedule showing the future minimum lease
payments under capital leases and the present value of the
minimum lease payments as of September 30, 1998.
<Table>
Year ending September 30, 1999 $ 401,339
Less amount representing interest 13,156
----------
Present value of minimum lease payments $ 368,183
==========
</Table>
NOTE F: Note payable, bank in the amount of $5,000,000 bears interest a rate
indexed to prime per annum and matures March 1, 2001. The note is
secured by all property and equipment and is subject to a loan
agreement which provides, among other things, a number of
covenants relating to the maintenance of the Company's financial
condition, which the Company is in compliance with as of
September 30, 1998.
NOTE G Note payable, mortgage in the amount of $487,499 is payable in
monthly installments of $4,167 plus interest at the rate of 9.3%
per annum and is secured by a first lien Deed of Trust upon the
Company's shop facility.
NOTE H: Note payable, affiliated company in the amount of $243,777 is
payable to Woodlands Equipment Company, a company owned by
certain of the Company's stockholders. The note is payable in
monthly installments of $17,300 including interest at the rate of
9.5% per annum and is secured by property and equipment having a
cost of $391,203.
During the year ended September 30, 1998, the Company leased
equipment and a maintenance facility from companies in which
certain of its stockholders have a financial interest. In
connection therewith, the Company incurred equipment rental
charges from Woodlands Equipment Company and Spring Equipment
Co., Inc. in the amounts of $295,558 and $280,000, respectively,
and rental charges from Sterling Properties in the amount of
$7,000 for maintenance facilities.
NOTE I: Notes payable, stockholders in the amount of $864,000 bear
interest at the rate of prime plus 2% per annum, are unsecured,
and mature September 30, 2001. The notes are subordinated to
Comerica Bank - Texas. The subordination agreement allows payment
of principal and interest on the above notes if the Company is in
compliance with it's loan agreement referred to in Note F.
Interest expense pertaining to notes payable, stockholders in the
amount of $156,483 has been charged against earnings for the year
ended September 30, 1998.
32
33
NOTES TO FINANCIAL STATEMENTS (continued)
for the year ended September 30, 1998
----------
NOTE J: Scheduled maturities of long-term debt in years after September 30,
1998 are as follows:
<Table>
1999 $ 530,692
2000 389,093
2001 5,338,004
2002 50,004
2003 287,483
------------
Total $ 6,595,276
============
</Table>
NOTE K: Notes receivable, stockholders in the amount of $369,652 are
summarized as follows:
Notes in the amount of $101,466 bearing interest at the rate of
6.25% per annum, secured by 459 shares of the Company's stock and
maturing October 1, 2001.
Notes in the amount of $268,186 bearing interest at the rate of
6.50% per annum, secured by 504 shares of the Company's stock and
maturing October 1, 2002.
NOTE L: The Company has a defined contribution profit sharing plan for
substantially all employees. The Company's contribution is
determined at the discretion of its Board of Directors subject to
certain limitations. A contribution of $100,000 has been charged
against earnings for the year ended September 30, 1998.
NOTE M: Costs and estimated earnings on uncompleted contracts:
<Table>
Costs incurred on uncompleted contracts $ 32,413,452
Estimated earnings 4,387,875
-------------
36,801,327
Less: Billings to date 36,628,605
-------------
$ 172,722
=============
Included in accompanying balance sheet under the following
captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,116,640
Billings in excess of costs and estimated
earnings on uncompleted contracts (943,918)
-------------
$ 172,722
=============
</Table>
33
34
(b) Pro Forma Financial Information
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table presents the unaudited pro forma consolidated
balance sheet at May 31, 2001 and income statement for the year ended February
28, 2001 and the three months ended May 31, 2001 of Oakhurst Company, Inc.
("Oakhurst" or the "Company"). The unaudited pro forma consolidated financial
data presented below has been derived from the historical financial statements
of the Company, and those of Sterling Construction Company ("Sterling") in which
the Company increased its investment to 80.1% in July 2001 (the "Sterling
Transaction"). The financial statements of Sterling represent the quarter ended
June 30, 2001 and the year ended March 31, 2001. The unaudited pro forma
consolidated financial data has been prepared for illustrative purposes only and
does not purport to represent what the Company's results of operations or
financial condition would actually have been had the transactions described
below in fact occurred as of the dates specified. In addition, the unaudited pro
forma consolidated financial data does not purport to project the Company's
results of operations or financial condition as of any date or for any future
period.
The unaudited pro forma consolidated balance sheet as of May 31, 2001
gives effect to the Sterling Transaction as if it was consummated as of the
balance sheet date.
The unaudited pro forma consolidated income statement for the three
months ended May 31, 2001 gives pro forma effect to the Sterling Transaction as
if it had been consummated on March 1, 2001. The unaudited pro forma
consolidated income statement for the fiscal year ended February 28, 2001 gives
pro forma effect to the Sterling Transaction as if it had been consummated on
March 1, 2000.
The Sterling Transaction will be accounted for under the purchase
method of accounting. Under purchase accounting, the purchase price will be
allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their respective fair values. The allocation of the
purchase price and useful lives assigned to assets acquired and other
adjustments made in the unaudited pro forma consolidated financial data are
based upon available information and certain assumptions that the Company
believes are reasonable under the circumstances. Consequently, the final amounts
allocated and the related useful lives could differ from those reflected in the
unaudited pro forma consolidated financial data.
The unaudited pro forma consolidated financial data should be read in
conjunction with the separate historical financial statements of Sterling
included in this 8-K/A, the historical consolidated financial statements of
Oakhurst Company, Inc. and the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in the Company's filing
on Form 10-K for the year ended February 28, 2001.
34
35
OAKHURST COMPANY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
May 31, 2001
(Dollars in thousands)
<Table>
<Caption>
Proforma
Oakhurst Sterling adjustments Proforma
-------- -------- ----------- --------
ASSETS:
Cash and cash equivalents $ 65 $ 533 $ 598
Accounts receivable, less allowance of $191 3,256 3,256
Contract accounts receivable 18,215 18,215
Inventories 4,471 4,471
Costs and estimated earnings in excess of 2,913 2,913
billings
Deferred tax asset, short term 1,925 (2) 1,925
Other current assets 209 425 634
-------- -------- --------
Total current assets 8,001 22,086 32,012
Property and equipment, net 365 16,340 1,800 (2) 18,505
Investment in New Heights 3,251 (3,251)(1)
Investment in Sterling 2,745 (2,745)(2) --
Note receivable-Sterling 1,330 (1,330)(2) --
Goodwill, net 133 5,675 (2) 5,808
Deferred tax asset, long term 2,105 (2) 2,105
Other assets 27 228 -- 255
-------- -------- -------- --------
Total assets $ 15,852 $ 38,654 $ 4,179 $ 58,685
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 5,151 $ 10,336 $ 15,487
Accrued expenses 522 764 374 (2) 1,660
Billings in excess of costs and est. earnings 4,566 4,566
Current maturities of long-term obligations 79 464 543
Current maturities of long-term obligations,
related parties 13,597 (11,589)(1,2) 2,008
Deferred tax liability-short term 75 (75)(2) --
Accrued interest 3,634 -- (3,634)(1,2) --
-------- -------- --------
Total current liabilities 22,983 16,205 24,264
Long-term debt 4,054 3,868 4,900 (2) 12,822
Long-term debt, related parties 1,000 6,485 (1,2) 7,485
Subordinated debt 4,000 4,000
Other long-term obligations 149 149
Deferred income tax 1,895 (1,895)(2) --
Accrued put liability 4,361 (2) 4,361
Minority interest -- -- 2,127 (2) 2,127
-------- -------- --------
Total liabilities 28,186 25,968 55,208
Common stock 49 7 (7)(2) 49
Additional paid in capital 47,204 6,558 13,798 (1,2) 67,560
(Deficit)/Retained earnings (59,586) 6,121 (10,666)(2) (64,131)
Treasury stock, at cost (1) -- -- (1)
-------- -------- -------- --------
Total stockholders' equity (12,334) 12,686 3,477
Total liabilities and stockholders' equity $ 15,852 $ 38,654 $ 4,179 $ 58,685
======== ======== ======== ========
</Table>
The accompanying notes are an integral part of this pro forma consolidated
balance sheet.
35
36
OAKHURST COMPANY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended May 31, 2001
(Dollars in thousands, except per share data)
<Table>
<Caption>
Proforma
Oakhurst Sterling adjustments Proforma
----------- ----------- ----------- -----------
Contract revenues $ 23,161 $ 23,161
Net sales 5,719 5,719
Other income 41 -- (27)(3) 14
----------- ----------- ----------- -----------
Total revenue $ 5,760 $ 23,161 $ (27) $ 28,894
=========== =========== =========== ===========
Cost of contract revenues 21,546 21,546
Cost of goods sold 4,705 4,705
Operating, selling and administrative expenses 1,068 1,127 134 (4,5) 2,321
Interest expense 730 167 (79)(3,5,6) 818
----------- ----------- ----------- -----------
(Loss)/income from operations before equity
investment, taxes and minority interest (743) 321 (82) (504)
Loss from equity investment (922) 922 (5) --
Income tax expense (benefit) 3 124 (329)(7) (202)
Minority interest expense -- -- 7 (8) 7
----------- ----------- ----------- -----------
Net (loss)/income $ (1,668) $ 197 1,162 $ (309)
=========== =========== =========== ===========
Net loss per share - basic and diluted $ (0.34) $ (0.06)
=========== ===========
Weighted average shares outstanding 4,943,018 4,943,018
=========== ===========
</Table>
The accompanying notes are an integral part of this pro forma consolidated
income statement.
36
37
OAKHURST COMPANY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal year ended February 28, 2001
(Dollars in thousands, except per share data)
<Table>
<Caption>
Proforma
Oakhurst Sterling adjustments Proforma
----------- ----------- ----------- -----------
Contract revenues $ 72,569 $ 72,569
Net sales 20,694 20,694
Other income 565 -- (106)(3) 459
----------- ----------- ----------- -----------
Total revenue $ 21,259 $ 72,569 $ (106) $ 93,721
=========== =========== =========== ===========
Cost of contract revenues 65,202 65,202
Cost of goods sold 16,538 16,538
Operating, selling and administrative expenses 4,469 3,732 545 (4,5) 8,746
Loss on equipment disposal 56 56
Interest expense 2,688 499 (194)(3,5,6) 2,993
----------- ----------- ----------- -----------
(Loss)/income from operations before equity
investment, taxes and minority interest (2,436) 3,080 (458) 186
Loss from equity investment (4,817) 4,817 (5) --
Income tax expense (benefit) 27 1,163 (1,116)(8) 74
Minority interest expense 253 (7) 253
----------- -----------
Net (loss)/income $ (7,280) $ 1,917 5,222 $ (141)
=========== =========== =========== ===========
Net loss per share - basic and diluted $ (1.47) $ (0.03)
=========== ===========
Weighted average shares outstanding 4,943,018 4,943,018
=========== ===========
</Table>
The accompanying notes are an integral part of this pro forma consolidated
income statement.
37
38
OAKHURST COMPANY, INC. AND SUBSIDIARIES
Notes to Unaudited Proforma Financial Statements
1. In April 2001, the Company entered into certain agreements (the "Unwinding
Agreements") with Casella Waste Systems, Inc. and KTI, Inc. ("KTI") which
provided for the transfer to KTI of the equity interest of the Company's
subsidiary, Oakhurst Technology, Inc. ("OTI") in New Heights Recovery and
Power, LLC ("New Heights") in return for Oakhurst common stock held by KTI,
cancellation of the KTI Loan and accrued interest thereon, except for $1
million, and the issuance to KTI of Oakhurst warrants. These agreements
were finalized in July 2001. The net effect of the Unwinding Agreements is
as follows:
<Table>
Cancellation of debt and accrued interest $ 16,744
Purchase of common stock into treasury 1,298
Transfer of equity interest in New Heights (3,251)
Issuance of new 4-year note at 12%, net of the
unamortized fair value of the warrants (951)
</Table>
2. Amounts represent the net effect of the increase in Oakhurst's investment
in Sterling to 80.1% and reflects the purchase price for Sterling stock:
<Table>
Cash $ 9,888
Sale of common stock 843
Subordinated notes 2,430
Forgiveness of note receivable 1,330
Issuance of warrants 64
"Put" option liability 4,361
Acquisition costs 374
--------
19,290
Previous investment in Sterling 2,745
--------
$ 22,035
========
Assets acquired $ 38,654
Liabilities assumed (27,967)
Increase in property and
equipment related to fair value 1,800
Deferred taxes 6,000
Minority interest liability (2,127)
Goodwill 5,675
--------
$ 22,035
========
</Table>
Funding for the cash portion of the Sterling Transaction was provided
principally through borrowings by Sterling under its bank revolving credit, and
by the Company through the issuance of notes and sale of common stock, as
follows:
<Table>
Revolving line of credit $ 4,900
Subordinated note 2,580
Short-term note payable 1,500
Sale of common stock 908
--------
$ 9,888
========
</Table>
3. Amount represents the elimination of intercompany interest.
4. Amount represents the depreciation and amortization adjustment for the
assets acquired.
5. Reflects the Unwinding Agreements related to the disposition of New
Heights.
6. Amount represents the increased interest expense due on the acquisition
debt.
7. Amount represents the minority interest expense on the remaining 19.9% of
Sterling not acquired in the transaction.
8. Amount represents the tax effect at 40% on the proforma results.
38