UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDED FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: August 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to _____________
Commission file number: 0-19450
OAKHURST COMPANY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 25-1655321
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(State of Incorporation) (I.R.S. Employer
Identification No.)
2751 CENTERVILLE ROAD, SUITE 3131, WILMINGTON, DELAWARE
19808
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(Address of principal executive offices)
(Zip Code)
(817) 416-0717
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(Registrant's telephone number, including area code)
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(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of October 1, 2000, 4,943,018 shares of the Registrant's Common
Stock, $0.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets at August 31, 2000
and February 29, 2000..................................................... 3
Condensed Consolidated Statements of Operations for the three month
periods ended August 31, 2000 and August 31, 1999......................... 4
Condensed Consolidated Statements of Operations for the six month
periods ended August 31, 2000 and August 31, 1999......................... 5
Condensed Consolidated Statements of Cash Flows for the six month
periods ended August 31, 2000 and August 31, 1999 ........................ 6
Notes to Condensed Consolidated Financial Statements....................... 7
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
August 31, February 29,
2000 2000
-------- --------
Current assets:
Cash ........................................................................ $ 349 $ 152
Trade accounts receivable, less allowance of $202 and $367, respectively .... 3,724 3,446
Other receivables ........................................................... 218 244
Inventories ................................................................. 6,009 6,803
Other ....................................................................... 185 135
-------- --------
Total current assets ...................................... 10,485 10,780
-------- --------
Property and equipment, at cost ....................................................... 2,403 2,322
Less accumulated depreciation ............................................... (1,661) (1,515)
-------- --------
742 807
-------- --------
Investments:
Equity ...................................................................... 7,310 5,336
Other ....................................................................... 2,745 2,745
Note receivable ....................................................................... 1,330 1,330
Excess of cost over net assets acquired, net .......................................... 152 156
Other assets .......................................................................... 349 279
-------- --------
11,886 9,846
-------- --------
$ 23,113 $ 21,433
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable ............................................................ $ 5,968 $ 7,259
Accrued compensation ........................................................ 400 503
Current maturities of long-term obligations ................................. 2,719 2,743
Current maturities of long-term obligations, related parties ................ 13,655 88
Accrued interest ............................................................ 1,696 838
Other accrued expenses ...................................................... 246 359
-------- --------
Total current liabilities ................................. 24,684 11,790
-------- --------
Long-term obligations:
Long-term debt .............................................................. 4,204 3,172
Long-term debt, related parties ............................................. -- 10,076
Other long-term obligations ................................................. 168 180
-------- --------
Total long-term obligations ............................... 4,372 13,428
-------- --------
Commitments and contingencies ......................................................... -- --
Stockholders' deficiency:
Preferred stock, par value $0.01; authorized 1,000,000 shares, non issued ... -- --
Common stock, par value $0.01 per share; authorized 14,000,000
shares, issued 4,943,018 .................................................. 49 49
Additional paid-in capital .................................................. 47,204 47,204
Deficit (Reorganized on August 26, 1989) .................................... (53,195) (51,037)
Treasury stock, at cost, 207 common shares .................................. (1) (1)
-------- --------
Total stockholders' deficiency ............................ (5,943) (3,785)
-------- --------
$ 23,113 $ 21,433
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Three months Three months
Ended Ended
August 31, 2000 August 31, 1999
--------------- ---------------
Sales .............................................................. $ 5,285 $ 5,328
Other income ....................................................... 262 110
----------- -----------
5,547 5,438
----------- -----------
Cost of goods sold, including occupancy and buying expenses ........ 4,238 4,373
Operating, selling and administrative expenses ..................... 1,087 1,022
Provision for doubtful accounts .................................... 17 3
Amortization of excess of cost over net assets acquired ............ 2 2
Interest expense ................................................... 583 265
----------- -----------
5,927 5,665
----------- -----------
Loss before loss on equity investment and income taxes ............. (380) (227)
Loss from equity investment ........................................ (667) (382)
Income tax expense ................................................. -- --
----------- -----------
Loss from continuing operations .................................... (1,047) (609)
Income from discontinued operations ................................ -- 38
----------- -----------
Net loss ........................................................... $ (1,047) $ (571)
=========== ===========
Basic and diluted net (loss) income per share:
Continuing operations .................................... $ (0.21) $ (0.12)
Discontinued operations .................................. -- 0.01
----------- -----------
Net loss per share ....................................... $ (0.21) $ (0.11)
=========== ===========
Weighted average number of shares outstanding used in computing
basic and diluted per share amounts ...................... 4,943,018 4,943,018
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Six months Six months
Ended Ended
August 31, 2000 August 31, 1999
--------------- ---------------
Sales .............................................................. $ 11,030 $ 10,953
Other income ....................................................... 306 142
----------- -----------
11,336 11,095
----------- -----------
Cost of goods sold, including occupancy and buying expenses ........ 8,741 8,829
Operating, selling and administrative expenses ..................... 2,183 2,093
Provision for doubtful accounts .................................... 30 25
Amortization of excess of cost over net assets acquired ............ 4 4
Interest expense ................................................... 1,155 466
----------- -----------
12,113 11,417
----------- -----------
Loss before loss on equity investment and income taxes ............. (777) (322)
Loss from equity investment ........................................ (1,377) (628)
Income tax expense ................................................. (2) (2)
----------- -----------
Loss from continuing operations .................................... (2,156) (952)
Loss from discontinued operations .................................. -- (172)
----------- -----------
Net loss ........................................................... $ (2,156) $ (1,124)
=========== ===========
Basic and diluted net (loss) income per share:
Continuing operations .................................... $ (0.44) $ (0.19)
Discontinued operations .................................. -- (0.03)
----------- -----------
Net loss per share ....................................... $ (0.44) $ (0.22)
=========== ===========
Weighted average number of shares outstanding used in computing
basic and diluted per share amounts ...................... 4,943,018 4,943,018
=========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Six months Ended Six months Ended
August 31, 2000 August 31, 1999
--------------- ---------------
Cash flows from operating activities:
Loss from continuing operations ............................ $(2,156) $ (952)
Adjustments to reconcile loss to net cash
used in operating activities:
Depreciation and amortization ..................... 70 101
Loss from equity investment ....................... 1,377 628
Other changes in operating assets and liabilities:
Accounts receivable ............................... (371) (435)
Inventories ....................................... 721 243
Accounts payable .................................. (1,234) (387)
Other ............................................. 607 23
------- -------
Net cash (used in) provided by operating activities of:
Continuing operations ............................. (986) (779)
Discontinued operations ........................... 89 53
------- -------
Net cash used in operating activities ...................... (897) (726)
------- -------
Cash flows from investing activities:
Additions to property and equipment ............... (50) (8)
Increase in investment ............................ (3,351) (2,408)
Other ............................................. -- --
------- -------
Net cash used in investing activities ...................... (3,401) (2,416)
------- -------
Cash flows from financing activities:
Net borrowings under
revolving credit agreement ..................... 1,032 705
Borrowings under long-term obligations ............ 3,535 2,508
Principal payments on long-term obligations ....... (52) (75)
Deferred loan costs ............................... (20) (75)
------- -------
Net cash provided by financing activities .................. 4,495 3,063
------- -------
Net increase (decrease) in cash ............................ 197 (79)
Cash at beginning of period ................................ 152 241
------- -------
Cash at end of period ...................................... $ 349 $ 162
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 2000
1. INTERIM FINANCIAL STATEMENTS
Oakhurst Company, Inc. ("Oakhurst" or the "Company") was formed as a
result of a merger transaction in fiscal 1992, in which Steel City Products,
Inc. ("SCPI") became a majority-owned subsidiary of Oakhurst. In accordance with
the merger agreement, Oakhurst owns 10% of the outstanding common stock of SCPI
and all of SCPI's Series A Preferred Stock, and as a result, it owns 90% of the
voting stock of SCPI. The accompanying condensed consolidated financial
statements reflect this control and include the accounts of SCPI.
In August 1994, Oakhurst acquired all the outstanding capital stock of
Dowling's Fleet Service Co., Inc. ("Dowling's") a distributor of automotive
radiators. After experiencing operating losses at Dowling's, Oakhurst's Board of
Directors decided in fiscal 2000 to dispose of this subsidiary. In June 2000,
the Company entered into an agreement to sell Dowling's by way of merger for
consideration equivalent to the amount of revolver debt expected to be owed by
Dowling's at the merger closing. Closing is subject to, among other things, the
acquirer obtaining the necessary replacement financing within 120 days. The
results of Dowling's have been presented as discontinued operations in the
statements of operations and cash flows for the period ended August 31, 2000.
Expected losses at Dowling's through the merger closing date were accrued in the
Company's financial statements for the fiscal year ended February 29, 2000.
Through SCPI and Dowling's, Oakhurst's principal business in recent
years has been the distribution of products to the automotive after-market. The
remaining automotive distribution business is conducted by SCPI under the trade
name "Steel City Products" and involves the distribution of automotive parts and
accessories and non-food pet supplies from a facility in McKeesport,
Pennsylvania.
In December 1998 Oakhurst formed a wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in order to take advantage of the restructuring
opportunity at New Heights Recovery & Power LLC ("New Heights") and entered into
an agreement with KTI, Inc. ("KTI") pursuant to which KTI purchased
approximately 1.7 million shares of Oakhurst's common stock at a price of $0.50
per share. In conjunction with the private placement of stock, KTI committed to
lend Oakhurst up to $11.5 million (subject to an increase under certain
circumstances) under a loan agreement (the "KTI Loan"), as discussed further
below. Upon New Heights emerging from bankruptcy in December 1998 OTI initially
acquired a 50% equity interest in, and became the managing member of, New
Heights which is re-developing an existing waste tire recycling facility in Ford
Heights, Illinois into a fully integrated recycling and waste-to-energy
facility. In July 2000 Oakhurst, OTI and KTI completed a modification of the KTI
Loan (the "KTI Loan Modification") pursuant to which OTI's obligation to fund
the first two phases and certain Phase Three expenditures of the New Heights
Business Plan was limited to $9 million and KTI agreed to fund $3 million for
such purposes directly to New Heights. Accordingly, OTI's equity interest in
such investments in New Heights was decreased from 50% to 37.5%, with the
reduction of 12.5% being acquired by KTI in return for its $3 million direct
investment in New Heights. OTI's underlying equity in the net assets of New
Heights exceeds its recorded investment by approximately $4.0 million, which
amount is being amortized over the life of New Height's long-lived assets which
is primarily 30 years.
The accompanying condensed consolidated financial statements include the
accounts of subsidiaries in which the Company has a greater than 50% ownership
interest and all intercompany accounts and transactions have been eliminated in
consolidation.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position, results of operations and cash flows for the
interim periods presented. All adjustments made are of a normal, recurring
nature.
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While the Company believes that the disclosures presented herein are
adequate to make the information not misleading, it is recommended that these
unaudited condensed consolidated financial statements be read in conjunction
with the audited consolidated financial statements for the fiscal year ended
February 29, 2000 ("fiscal 2000") as filed in the Company's Annual Report on
Form 10-K.
Operating results for the six months ended August 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending February 28, 2001.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities". In June
2000, SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities" which amended several requirements of SFAS No. 133 was
issued. These standards are required to be adopted in years beginning after June
15, 2000. Oakhurst does not anticipate that the adoption of SFAS No. 133 will
have a significant effect on its financial position or results of operations.
In November 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition". This Bulletin sets forth the SEC Staff's position
regarding the point at which it is appropriate for a Registrant to recognize
revenue. The Staff believes that revenue is realizable and earned when all of
the following criteria are met:
- Persuasive evidence of an arrangement exists
- Delivery has occurred or service has been rendered
- The seller's price to the buyer is fixed or determinable, and
- Collectibility is reasonably assured.
The Company uses the above criteria to determine whether revenue can be
recognized and therefore believes that the issuance of SAB 101 does not have a
material impact on the Company's financial statements.
3. SALE OF SUBSIDIARY
In fiscal 2000, Oakhurst's Board of Directors decided to dispose of
Dowling's. In June 2000, the Company entered into an agreement to merge
Dowling's with an importer of radiators for consideration equivalent to the
amount expected to be owed at the merger closing by Dowling's under the
revolving credit agreement. The merger closing is subject to, among other
things, the acquirer obtaining necessary replacement financing within 120 days,
and the revolver has been extended for such period. In addition, prior to the
merger closing the acquirer will advance Dowling's up to $500,000 in working
capital loans, has agreed to defer payment by Dowling's of approximately
$250,000 in amounts owed for prior merchandise shipments to Dowling's, and will
make further shipments of merchandise to Dowling's on customary terms, all in
return for a subordinated security interest in all of Dowling's assets and a
pledge of the stock of Dowling's owned by Oakhurst.
- 8 -
The assets and liabilities of Dowling's included in the consolidated
balance sheet at August 31, 2000 consisted of the following:
Assets:
Cash ................................. $ 172
Trade accounts receivable ............ 860
Other receivables .................... 195
Inventories .......................... 1,934
Property and equipment, net .......... 362
Other assets ......................... 457
Liabilities:
Accounts payable ..................... $2,318
Accrued compensation ................. 86
Current portion of long-term debt .... 1,852
Other current liabilities ............ 45
4. SEGMENT INFORMATION
The Company has revised its previously provided segment information to
report two segments, rather than one, for SCPI. The Company's operating segments
are SCPI Auto, SCPI Pet, Dowling's and OTI. SCPI, operating under the trade name
Steel City Products, principally sells automotive accessories and non-food pet
products, primarily to discount retail chains, hardware, drug and supermarket
retailers and to automotive specialty stores. Its customers are based primarily
in the Northeastern United States. OTI was formed in December 1998 and holds
investments principally in the recycling and waste-to-energy business. Each
entity is managed by its own decision makers and is comprised of unique
customers, suppliers and employees. Maarten Hemsley, the Chief Financial Officer
of the Company, reviews the operating profitability of each segment and its
working capital needs to allocate financial resources. In fiscal 2000, the Board
of Directors of Oakhurst decided to dispose of Dowling's, a wholesale
distributor of automotive radiators and related products mostly serving radiator
shops in the Northeast. Thus, results for Dowling's have been presented in the
tables below as discontinued operations. The Company's operations are organized
into the four operating segments included in the following table (in thousands):
====================================================================================================================================
Three months ended August 31, 2000 SCPI SCPI CONSOLIDATED
SEGMENTS AUTO PET DOWLING'S OTI CORPORATE TOTAL
-------- -------- --------- -------- --------- ------------
Net sales $ 4,700 $ 585 -- -- $ 5,285
======== ======== ======== ======== ========
Operating profit (loss) $ 213 $ 84 $ (83) $ (11) $ 203
Segment assets $ 7,279 $ 320 $ 3,872 $ 11,426 $ 216 $ 23,113
====================================================================================================================================
====================================================================================================================================
Three months ended August 31, 1999 SCPI SCPI CONSOLIDATED
SEGMENTS AUTO PET DOWLING'S OTI CORPORATE TOTAL
-------- -------- --------- -------- --------- ------------
Net sales $ 4,778 $ 550 -- -- $ 5,328
======== ======== ======== ======== ========
Operating profit (loss) $ 148 $ 83 $ (36) $ (157) $ 38
Segment assets $ 6,510 $ 252 $ 4,287 $ 5,678 $ 2,123 $ 18,850
====================================================================================================================================
====================================================================================================================================
Six months ended August 31, 2000 SCPI SCPI CONSOLIDATED
SEGMENTS AUTO PET DOWLING'S OTI CORPORATE TOTAL
-------- -------- --------- -------- --------- ------------
Net sales $ 9,817 $ 1,213 -- -- $ 11,030
======== ======== ======== ======== ========
Operating profit (loss) $ 527 $ 158 $ (147) $ (160) $ 378
Segment assets $ 7,279 $ 320 $ 3,872 $ 11,426 $ 216 $ 23,113
====================================================================================================================================
- 9 -
====================================================================================================================================
Six months ended August 31, 1999 SCPI SCPI CONSOLIDATED
SEGMENTS AUTO PET DOWLING'S OTI CORPORATE TOTAL
-------- -------- --------- -------- --------- ------------
Net sales $ 9,841 $ 1,112 -- -- $ 10,953
======== ======== ======== ======== ========
Operating profit (loss) $ 393 $ 157 $ (81) $ (325 $ 144
Segment assets $ 6,510 $ 252 $ 4,287 $ 5,678 $ 2,123 $ 18,850
====================================================================================================================================
5. SUMMARY FINANCIAL INFORMATION
Summarized financial information is provided herein for New Heights for
the fiscal year to date (in thousands):
August 31, 2000
---------------
Current assets ............. $ 4,573
Non-current assets ......... 40,565
Current liabilities ........ 7,908
Non-current liabilities .... 9,293
Net equity ................. 27,937
Six months ended
August 31, 2000
----------------
Total revenues .................. $ 5,913
Net loss ........................ (3,848)
6. BORROWING ARRANGEMENT
In August 2000, the Company's revolving credit facility was increased
from $4.0 million to $4.5 million through an amendment to the existing
agreement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The corporate structure resulting from the 1991 merger, whereby Steel
City Products Inc. ("SCPI") became a special, limited purpose, majority-owned
subsidiary of Oakhurst Company, Inc. ("Oakhurst") was designed to facilitate
capital formation by Oakhurst while permitting Oakhurst and SCPI to file
consolidated tax returns so that both may utilize existing tax benefits,
including approximately $158 million of net operating loss carry-forwards and
capital losses. Through Oakhurst's ownership of SCPI, primarily in the form of
preferred stock, Oakhurst retains the value of SCPI and receives substantially
all of the benefit of SCPI's operations through dividends on such preferred
stock.
Oakhurst's principal business historically has been the distribution of
products to the automotive after-market. Its largest business, and its one
remaining automotive distributor following the disposal of Dowling's (see below)
is conducted by SCPI under the trade name "Steel City Products", and involves
the distribution of automotive parts and accessories and non-food pet supplies
from a facility in McKeesport, Pennsylvania.
In August 1994, Oakhurst acquired all the outstanding capital stock of
Dowling's, a New York- headquartered distributor of automotive radiators and
related products, for an aggregate purchase price of approximately $4.7 million,
all of which has been paid except for two notes payable to an executive and a
former executive of Dowling's with an aggregate balance remaining at August 31,
2000 of $66,000.
Due to operating losses at Dowling's of approximately $400,000 in fiscal
2000, the Board of Directors decided to dispose of the business. In June 2000,
the Company entered into an agreement to merge Dowling's with an importer of
radiators for consideration equivalent to the amount expected to be owed at the
merger closing by Dowling's under the revolving debt agreement. The merger
closing is subject to, among other things, the acquirer obtaining necessary
replacement financing within 120 days, and the portion of the revolver
applicable to Dowling's has been extended for such period. In addition, prior to
the merger closing the acquirer will advance Dowling's up to $500,000 in working
capital loans, has agreed to defer payment by Dowling's of approximately
$250,000 in amounts owed for prior merchandise shipments to Dowling's, and will
make further shipments of merchandise to Dowling's on customary terms, all in
return for a subordinated security interest in all of Dowling's assets and a
pledge of the stock of Dowling's owned by Oakhurst. Until the merger closing the
acquirer may appoint a majority of the directors of Dowling's, and the business
will be managed by the Dowling's Board.
Representing a significant change from its historical operating
business, but reflecting the restructuring expertise of its senior management,
in December 1998 Oakhurst formed a wholly-owned subsidiary, Oakhurst Technology,
Inc. ("OTI") in order to take advantage of the restructuring opportunity at New
Heights, as discussed below. Also in December 1998, Oakhurst entered into an
agreement with KTI, Inc. ("KTI"), a publicly-traded waste-to-energy and
recycling company that merged into Casella Waste Systems, Inc. in December 1999,
that provided for the purchase by KTI of approximately 1.7 million shares of
Oakhurst's common stock at a price of $0.50 per share for gross proceeds of
$865,000 (the "Equity Proceeds"). In conjunction with the private placement of
stock, KTI committed to lend Oakhurst up to $11.5 million (subject to an
increase under certain circumstances) under a loan agreement (the "KTI Loan"),
as discussed further below. In December 1998 OTI initially acquired a 50% equity
interest in, and became the managing member of, New Heights Recovery & Power,
LLC ("New Heights") which is re-developing an existing waste tire recycling
facility in Ford Heights, Illinois into a fully integrated recycling and
waste-to- energy facility.
Through August 31, 2000, OTI has invested approximately $10.5 million in
the New Heights project, reflecting the capital commitments and funding of
start-up losses required by the first two phases of the Business Plan. Such
investment has been financed principally through borrowings under the KTI Loan.
In July 1999, after receiving the appropriate permits the New Heights facility
began waste tire operations involving the collection of waste tires and their
processing into crumb rubber and related by-products. Completion of Phase I of
the Business Plan was satisfied in September 1999. During the second quarter
ended August 31, 2000 New Heights extended its tire collection and processing
capabilities, including an agreement with Firestone for the collection of
approximately one million recalled tires, and regional collection agreements
with Wal-Mart and Goodyear. During the quarter, however, processing delays
occurred while the crumb rubber system was modified to handle a larger volume of
tires. Phase II of the Business Plan includes the permitting and start-up of
waste to energy operations. The necessary permits were received in February
2000, a power supply
- 11 -
agreement was entered into with a local utility for the summer of 2000, and in
early July the New Heights generator began production of power from burning
waste tires. During the second quarter ended August 31, 2000 final retrofitting
of the boiler and generator was completed, so that the plant's nameplate
capacity of 22 megawatts is now being achieved. While discussions continue with
the local utility for a long-term supply agreement, the summer contract has been
extended on a short-term basis. With the completion of Phase II of the Business
Plan, KTI Operations, the KTI affiliate that manages New Heights, anticipates
that operations will turn profitable.
In addition to New Heights, in January 1999 OTI made a minority
investment totaling approximately $2.7 million in Sterling Construction Company,
("Sterling") a profitable, privately-held Texas-based pipe laying and road
building contractor that is expected to participate in the significant increase
in infrastructure and highway spending in Texas. Such investment was financed
principally through borrowings under the KTI Loan.
Until operations of New Heights produce cash flow, interest on the KTI
Loan is being accrued.
The equity interest in Sterling of approximately 7% was increased to
approximately 12% in October 1999 when certain shareholders of Sterling
exercised their right to sell a second tranche of equity to OTI. The cost of the
second equity tranche was approximately $1.36 million and was financed through
the issuance of notes, of which an aggregate of $559,000 is due to two officers
and directors of Oakhurst. Of the notes, which are secured by the second equity
tranche, $800,000 is re-payable by OTI in October 2000, and $559,000 is due in
April 2001. The notes bear interest at the rate of 14%.
Recognizing its investment in Sterling and increases in the estimated
capital costs and start-up losses at New Heights, in July 2000 Oakhurst, OTI and
KTI completed a modification of the KTI Loan (the "KTI Loan Modification")
pursuant to which OTI's obligation to fund the first two phases and certain
Phase Three expenditures of the New Heights Business Plan was limited to $9
million and KTI agreed to fund $3 million for such purposes directly to New
Heights. Accordingly, OTI's equity interest in such investments in New Heights
was decreased from 50% to 37.5%, with the reduction of 12.5% being acquired by
KTI in return for its $3 million direct investment in New Heights. In addition,
OTI's obligation to fund certain start-up losses at New Heights will be limited
to 75% of such losses, funded through advances under the KTI Loan, with the
balance to be funded directly by KTI. Furthermore, the KTI Loan Modification
provides for any further capital expenditures to be financed through New
Heights' internally generated cash and/or through financing raised by New
Heights. To the extent that such funding is insufficient, the parties to the KTI
Loan Modification have agreed to negotiate the terms on which they will each
make future investments. In addition, discussions are underway with KTI to
restructure the interest and repayment terms of the KTI Loan.
Activities of New Heights are reported on the equity method of
accounting. The investment in Sterling is reported on the cost method of
accounting. OTI also has a $1.35 million subordinated note receivable from
Sterling, which is convertible into shares of common stock of Sterling, at any
time at the option of OTI, or upon the closing of a defined public offering of
Sterling. Assuming conversion of the note, OTI would own between approximately
16% and 17% of Sterling, including the equity which was purchased in October
1999.
For its fiscal year ended September 1999 Sterling's revenues were $64
million and Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") was $8.5 million. For the eleven months ended August, 2000 Sterling's
results reflected revenues of $70.2 million and EBITDA of $8.3 million.
SALE OF SUBSIDIARY
In June 2000, Oakhurst entered into an agreement to sell Dowling's, a
wholesale distributor of automotive radiators and related parts, through a
merger with an importer of radiators, for consideration equivalent to the
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amount expected to be owed at the merger closing by Dowling's under the
revolving credit agreement (see Note 3 to the Condensed Consolidated Financial
Statements). The Company recorded a loss on the disposal of Dowling's of
approximately $2.0 million, of which $1.7 million related to the write-off of
the excess of cost over net assets acquired associated with the acquisition of
Dowling's in fiscal 1995 and $300,000 resulted from expected operating losses
from March 1, 2000 through the anticipated merger closing date.
In the second quarter of the prior fiscal year, Dowling's reported
operating income of approximately $38,000 and for the six months ended August
31, 1999, Dowling's reported an operating loss of $172,000.
LIQUIDITY AND CAPITAL RESOURCES
In addition to cash derived from the operations of its subsidiaries,
Oakhurst's liquidity and financing requirements are determined principally by
the working capital needed to support each subsidiary's level of business,
together with the need for capital expenditures and the cash required to repay
debt. The automotive distribution subsidiaries' working capital needs vary
primarily with the amount of inventory carried, which can change seasonally, the
size and timeliness of payment of receivables from customers, especially at the
SCPI subsidiary which from time to time grants extended payment terms for
seasonal inventory build-ups, and the amount of credit extended by suppliers.
At August 31, 2000, Oakhurst's debt primarily consisted of (i) a balance
of $13.0 million outstanding under the KTI Loan, (ii) a revolving credit
facility with an institutional lender (the "Revolver") of $5.5 million, of which
$1.3 million related to Dowling's and (iii) notes payable aggregating $1.4
million issued in connection with the purchase of the second tranche of equity
in Sterling.
Oakhurst and SCPI have available financing under the Revolver, subject
to a borrowing base that is calculated according to defined levels of the
automotive distribution subsidiaries' accounts receivable and inventories. In
July 2000 Oakhurst and SCPI entered into an agreement with the institutional
lender to identify SCPI as the Borrower (cross-collateralized by Oakhurst), to
provide for a three year term and reduce the total Revolver to reflect the
disposal of Dowling's to $4.0 million, subject to a borrowing base. In August
2000 the Revolver was increased to $4.5 million through an amendment to the
existing agreement. Management believes that the Revolver will provide adequate
funding for SCPI's working capital, debt service and capital expenditure
requirements, including seasonal fluctuations for at least the next twelve
months.
Also in July 2000, an agreement was entered into with the institutional
lender for an extension until October 28, 2000 of the $2.75 million Revolver
applicable to Dowling's, and, assuming the closing of the merger, for the waiver
by the lender of a financial covenant default as at February 29, 2000. It is
expected that the acquirer of Dowling's will obtain replacement financing prior
to October 28, 2000, so that upon the closing of the merger amounts outstanding
from Dowling's under the Revolver will be repaid. Management believes that
continued funding to Dowling's under the Revolver, together with the acquirer's
commitment to make working capital loans to Dowling's, to defer payment of
certain amounts to it by Dowling's and to ship merchandise, together with a
reduction in debt and extension of terms made by another Dowling's supplier,
will be sufficient to enable Dowling's to operate until the merger closing,
which management believes is likely to occur. In the event the closing does not
occur, management would expect to liquidate Dowling's.
At August 31, 2000, a working capital deficit of $14.3 million resulted
principally from the reclassification of the KTI Loan as a current obligation of
the Company, reflecting its April 30, 2001 maturity date. KTI owns 35% of the
Company's common stock. With the completion in July 2000 of the second phase of
the New Heights Business Plan and the finalization of the KTI Loan Modification,
management believes that the KTI Loan will provide adequate financing for the
Company's financial commitments to New Heights. With the expectation of future
profitability following the commencement of power generation operations at New
Heights, management of New Heights is expected to seek third party debt
financing on the New Heights facility which is currently substantially debt
free. Any refinancing of the facility will allow Oakhurst to proportionally
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repay the KTI Loan. In addition, discussions are underway with KTI to
restructure the interest and repayment terms of the KTI Loan.
Management believes that future operations of New Heights will provide
sufficient funds to repay the KTI Loan and facility-level debt and that, if such
operations are successful, the value of OTI's equity interest in New Heights
could be significant. However, such success cannot as yet be assured.
CASH FLOWS
Net cash used in operating activities for the six months ended August
31, 2000 and August 31, 1999 was $897,000 and $726,000, respectively. The
increase was due primarily to an increase in receivables and a reduction in
payables in the current year, offset by a decrease in inventory.
For the six months ended August 31, 2000 cash used in investing
activities was $3.4 million, and increase of $1.0 million compared with the
prior year due to the increase in investment in New Heights.
The Company's financing activities provided cash of $4.5 million for
the six months ended August 31, 2000, principally from the issuance of long-term
debt related to the investment in New Heights. There was an increase in
borrowings under the revolving credit agreement for the six months ended August
31, 2000 due to the decrease in payables.
MATERIAL CHANGES IN FINANCIAL CONDITION
At August 31, 2000, there had been no material changes in the Company's
financial condition from February 29, 2000, as discussed in Item 7 of the
Company's Annual Report on Form 10-K for fiscal 2000.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Operations include the consolidated results of SCPI, which through its
operating division, Steel City Products, headquartered in McKeesport,
Pennsylvania, distributes automotive parts and accessories and non- food pet
supplies, OTI and the administrative costs of SCPI and Oakhurst.
THREE MONTHS ENDED AUGUST 31, 2000 COMPARED WITH THREE MONTHS ENDED AUGUST 31,
1999
Automotive Segment
Sales by SCPI's automotive segment decreased by approximately $78,000
compared with the second quarter of the prior year. Sales to existing automotive
customers decreased by $861,000 due to the loss of a customer in the fourth
quarter of fiscal 2000; customers which changed suppliers or are purchasing
items directly from the manufacturer and to competitive pressures faced by
smaller customers. Sales to new automotive customers totaled approximately
$783,000 in the second quarter.
Gross profit was $865,000, or 18.4% of sales, an increase of $87,000
compared with the second quarter of the prior year. The increase in gross profit
resulted from higher margins earned on certain product offerings.
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Operating profit for the automotive segment in the second quarter was
$213,000, an improvement of $65,000, primarily resulting from higher margins.
Pet supply segment
Sales of non-food pet products totaled approximately $585,000, an
increase of $35,000 compared with the second quarter of the prior year, due
primarily to increased sales to existing customers.
Gross profit in the second quarter was $182,000, or 31.1% of sales, a
slight improvement from the prior year due to the higher sales volume.
Operating profits in the second quarter were $84,000 and $83,000 in
fiscal 2001 and fiscal 2000, respectively. Higher sales volume in the current
year was offset by an increase in promotional expenses.
OTI
Expenses at OTI increased by $42,000 due to accrued royalty fees for the
cryogenic crumb rubber system which are to be paid from future operating profits
of New Heights.
There was a loss from affiliates of approximately $667,000 related to
OTI's equity investment in New Heights, which represents OTI's share of start-up
activities at the New Heights facility.
Corporate
Other income increased by approximately $130,000 due primarily to the
expiration of certain Creditor Notes associated with SCPI's former Retail
Division and the expectation that the balance of the Creditor Notes would not
ultimately be payable.
Interest expense increased by $318,000 when compared to the prior year,
due primarily to interest incurred on the KTI loan, which increased by $2.0
million to fund OTI's capital and start-up expenditure commitments at New
Heights.
In summary, operating results at SCPI improved in the second quarter
compared with the prior year by $217,000 due to higher margins in the current
year combined with an increase in other income. Overheads at OTI increased
compared with the second quarter last year due to accrued royalty expenses to be
paid from future operating profits of New Heights. Interest expense was higher
due to the increase in the KTI Loan to fund the New Heights project.
SIX MONTHS ENDED AUGUST 31, 2000 COMPARED WITH SIX MONTHS ENDED AUGUST 31, 1999
Automotive segment
Sales of automotive accessories decreased by $24,000 for the first six
months of the current year compared with the first six months of the prior year.
Sales to existing customers of SCPI decreased by approximately $1.1 million due
primarily to the loss of a customer in the fourth quarter of fiscal 2000 and to
customers which have changed suppliers or are purchasing directly from the
manufacturer. Most of the loss in sales to existing customers was offset by
sales to new customers which totaled $1.0 million in the first six months of the
current year.
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Gross profits increased by $140,000 in the first half of the current
year compared with the first half of the prior year and were 19.5% of sales
compared with 17.9% in the first six months of the prior year, reflecting higher
margins earned on certain product offerings.
Operating profit improved by $134,000 in the first half of the current
fiscal year, due to the higher margins.
Pet supply segment
Sales of non-food pet products totaled $1.2 million, an increase of
$101,000 compared with the first six months of the prior year due primarily to
increased sales to existing customers.
Gross profit was $379,000 or 31.2% of sales, an increase of
approximately $25,000 compared with the prior year period. The increase was due
primarily to the higher sales volume.
Operating profit for the pet segment was essentially equal to the prior
year, as the higher sales volume was offset in part by higher sales-related
expenses, such as broker commissions and promotional expenses.
OTI
At OTI, expenses for the fist six months of the current fiscal year
increased by $65,000 due to the accrual of royalty fees on the cyrogenic crumb
rubber system which are to be paid from the future cash flow of New Heights
There was a loss from affiliates of approximately $1.4 million related
to OTI's equity investment in New Heights, which represents OTI's share of
start-up activities at the New Heights facility.
Corporate
Other income increased by approximately $122,000 due primarily to the
expiration of certain Creditor Notes associated with SCPI's former Retail
Division and the expectation that the balance of the Creditor Notes would not
ultimately be payable.
Interest expense increased by $689,000 when compared to the prior year,
due primarily to interest incurred on the KTI loan which increased by $7.2
million to fund OTI's capital and start-up expenditure commitments at New
Heights.
In summary, operating profit at SCPI improved for the first half of the
current fiscal year compared with the first six months of the prior year by
approximately $300,000, due to increased sales and higher margins earned on
certain product lines. Operating losses increased at OTI due to accrued royalty
fees to be paid from the future cash flows at New Heights. Interest expense was
higher due to the increase in the KTI Loan to fund the New Heights project.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Oakhurst is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company's policies do not
permit active trading or speculation in derivative financial
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instruments. Oakhurst's primary market risk exposure is related to interest rate
risk. The Company manages its interest rate risk by attempting to balance its
exposure between fixed and variable rates while attempting to minimize its
interest costs.
A change in the interest rate of 1% would have changed interest expense
by approximately $9,500 and $17,500 for the three and six month periods ended
August 31, 2000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings outstanding against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter for which this report is filed.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*+10.31 Amendment Agreement dated effective May 3, 2000 among Oakhurst
Company, Oakhurst Technology, Inc. and KTI, Inc.
*+10.32 Sixth Amendment to the Loan and Security Agreement between
Oakhurst and FINOVA Capital Corporation, dated effective June
30, 2000.
*+10.33 Merger Agreement dated June 30, 2000 between Oakhurst Company,
A.C.F. Imports, Inc., A.C.F. Acquisition, Inc. and Dowling's
Fleet Service Co., Inc.
27. Financial Data Schedule (EDGAR transmission only).
----------
+ Management contract or compensatory plan or arrangement
* Filed with original 10-Q.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
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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: November 9, 2001 By: /s/ Joseph Harper
-------------------------------
Mr. Joseph Harper
President
Date: November 9, 2001 By: /s/ Maarten D. Hemsley
-------------------------------
Mr. Maarten D. Hemsley
Chief Financial Officer
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