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: November 30, 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.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1655321
(State of Incorporation) (I.R.S. Employer
Identification No.)
2751 CENTERVILLE ROAD, SUITE 3131, WILMINGTON, DELAWARE
19808
(Address of principal executive offices)
(Zip Code)
(817) 416-0717
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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 January 1, 2001, 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
This amendment on Form 10-Q/A is being filed to give effect to the restatement
of the Company's condensed consolidated financial statements included in Item 1,
as discussed in Note 6. In addition, the Company has revised its business
segment disclosure presented in Note 3.
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets at November 30, 2000
and February 29, 2000................................................... 3
Condensed Consolidated Statements of Operations for the three month
periods ended November 30, 2000 and November 30, 1999................... 4
Condensed Consolidated Statements of Operations for the nine month
periods ended November 30, 2000 and November 30, 1999................... 5
Condensed Consolidated Statements of Cash Flows for the nine month
periods ended November 30, 2000 and November 30, 1999 .................. 6
Notes to Condensed Consolidated Financial Statements..................... 7
- 2 -
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
November 30, February 29,
2000 2000
------------- ------------
As restated-
see Note 6
ASSETS
Current assets:
Cash $ 155 $ 152
Trade accounts receivable, less allowance of $183 and $367, respectively 2,202 3,446
Other receivables 108 244
Inventories 3,919 6,803
Other 137 135
-------- --------
Total current assets 6,521 10,780
-------- --------
Property and equipment, at cost 1,251 2,322
Less accumulated depreciation (900) (1,515)
-------- --------
351 807
-------- --------
Investments:
Equity 6,266 5,336
Other 2,745 2,745
Note receivable, related party 1,330 1,330
Excess of cost over net assets acquired, net 136 156
Other assets 28 279
-------- --------
10,505 9,846
-------- --------
$ 17,377 $ 21,433
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 3,962 $ 7,259
Accrued compensation 308 503
Current maturities of long-term obligations 868 2,743
Current maturities of long-term obligations, related parties 13,634 88
Accrued interest 2,248 838
Other accrued expenses 270 359
-------- --------
Total current liabilities 21,290 11,790
-------- --------
Long-term obligations:
Long-term debt 3,345 3,172
Long-term debt, related parties -- 10,076
Other long-term obligations 150 180
-------- --------
Total long-term obligations 3,495 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) (54,660) (51,037)
Treasury stock, at cost, 207 common shares (1) (1)
-------- --------
Total stockholders' deficiency (7,408) (3,785)
-------- --------
$ 17,377 $ 21,433
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
- 3 -
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
November 30, 2000 November 30, 1999
----------------- -----------------
As restated-
see Note 6.
Sales $ 4,631 $ 4,695
Other income 29 26
----------- -----------
4,660 4,721
----------- -----------
Cost of goods sold, including occupancy and buying expenses 3,739 3,808
Operating, selling and administrative expenses 1,023 1,015
Amortization of excess of cost over net assets acquired 2 2
Interest expense 713 351
----------- -----------
5,477 5,176
----------- -----------
Loss before loss on equity investment and income taxes (817) (455)
Loss from equity investment (1,045) (629)
Income tax expense (3) 1
----------- -----------
Loss from continuing operations (1,865) (1,083)
Income (loss) from discontinued operations 399 (220)
----------- -----------
Net loss $ (1,466) $ (1,303)
=========== ===========
Basic and diluted net (loss) income per share:
Continuing operations $ (0.38) $ (0.22)
Discontinued operations 0.08 (0.04)
----------- -----------
Net loss per share $ (0.30) $ (0.26)
=========== ===========
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.
- 4 -
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
Nine months Nine months
Ended Ended
November 30, 2000 November 30, 1999
----------------- -----------------
As restated -
See Note 6
Sales $ 15,661 $ 15,649
Other income 335 170
----------- -----------
15,996 15,819
----------- -----------
Cost of goods sold, including occupancy and buying expenses 12,479 12,637
Operating, selling and administrative expenses 3,212 3,094
Provision for doubtful accounts 27 41
Amortization of excess of cost over net assets acquired 5 8
Interest expense 1,868 817
----------- -----------
17,591 16,597
----------- -----------
Loss before loss on equity investment and income taxes (1,595) (778)
Loss from equity investment (2,421) (1,257)
Income tax expense (5) (2)
----------- -----------
Loss from continuing operations (4,021) (2,037)
Income (loss) from discontinued operations 399 (391)
----------- -----------
Net loss $ (3,622) $ (2,428)
=========== ===========
Basic and diluted net (loss) income per share:
Continuing operations $ (0.81) $ (0.41)
Discontinued operations 0.08 (0.08)
----------- -----------
Net loss per share $ (0.73) $ (0.49)
=========== ===========
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.
- 5 -
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
Nine months Nine months
Ended Ended
November 30, 2000 November 30, 1999
----------------- -----------------
As restated -
see Note 6
Cash flows from operating activities:
Loss from continuing operations $(4,021) $(2,037)
Adjustments to reconcile loss to net cash
used in operating activities:
Depreciation and amortization 106 145
Loss from equity investment 2,421 1,257
Other changes in operating assets and liabilities:
Accounts receivable 292 (155)
Inventories 877 698
Accounts payable (922) (878)
Other 1,167 246
------- -------
Net cash (used in) provided by operating activities of:
Continuing operations (80) (724)
Discontinued operations (112) 241
------- -------
Net cash used in operating activities (192) (483)
------- -------
Cash flows from investing activities:
Additions to property and equipment (51) (24)
Increase in investment in New Heights (3,352) (4,953)
Other -- --
------- -------
Net cash used in investing activities (3,403) (4,977)
------- -------
Cash flows from financing activities:
Net borrowings under
revolving credit agreement 173 427
Borrowings under obligations 3,535 5,047
Principal payments on long-term obligations (90) (115)
Deferred loan costs (20) (75)
------- -------
Net cash provided by financing activities 3,598 5,284
------- -------
Net increase (decrease) in cash 3 (176)
Cash at beginning of period 152 241
------- -------
Cash at end of period $ 155 $ 65
======= =======
The accompanying notes are an integral part of these condensed
consolidated financial statements.
- 6 -
OAKHURST COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 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. The closing took place on November 29, 2000. As
such, the assets and liabilities of Dowling's have been excluded from the
November 30, 2000 balance sheet. Results of Dowling's have been presented as
discontinued operations in the statements of operations and cash flows. 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. The
statement of operations for the third quarter and nine months ended November 30,
2000 reflect a gain of $399,000 from discontinued operations as a result of the
completion of the disposal of Dowling's.
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 the third quarter of fiscal 2001, SCPI expanded its
distribution business to include lawn and garden products, partly in response to
the growing needs of certain customers.
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. KTI was appointed the operating manager of the 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 reduced 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.
Principally as a result of budgeted losses incurred in the start-up of the
facility, 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.
- 7 -
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.
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/A.
Operating results for the nine months ended November 30, 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. 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):
- 8 -
===============================================================================================================
Three months ended November 30, 2000 SCPI SCPI CONSOLIDATED
AUTO PET DOWLING'S OTI CORPORATE TOTAL
-------- ------- ----------- ------- ----------- -------------
SEGMENTS
Net sales $ 3,909 $ 722 -- -- $ 4,631
======== ======= ======= =========== =============
Operating profit (loss) $ 62 $ 74 $ (70) $ (174) $ (104)
Segment assets $ 6,504 $ 274 $ -- $10,397 $ 202 $17,377
===============================================================================================================
===============================================================================================================
Three months ended November 30, 1999 SCPI SCPI CONSOLIDATED
AUTO PET DOWLING'S OTI CORPORATE TOTAL
-------- ------- ----------- ------- ----------- -------------
SEGMENTS
Net sales $ 4,149 $ 546 -- -- $ 4,695
======== ======= ======= =========== =============
Operating profit (loss) $ 48 $ 68 $ (48) $ (172) $ (104)
Segment assets $ 5,742 $ 341 $4,372 $ 7,612 $2,100 $20,167
===============================================================================================================
===============================================================================================================
Nine months ended November 30, 2000 SCPI SCPI CONSOLIDATED
AUTO PET DOWLING'S OTI CORPORATE TOTAL
-------- ------- ----------- ------- ----------- -------------
SEGMENTS
Net sales $13,726 $1,935 -- -- $15,661
======== ======= ======= =========== =============
Operating profit (loss) $ 589 $ 233 $ (216) $ (333) $ 273
Segment assets $ 6,504 $ 274 $ -- $10,397 $ 202 $17,377
===============================================================================================================
===============================================================================================================
Nine months ended November 30, 1999 SCPI SCPI CONSOLIDATED
AUTO PET DOWLING'S OTI CORPORATE TOTAL
-------- ------- ----------- ------- ----------- -------------
SEGMENTS
Net sales $13,991 $1,658 -- -- $15,649
======== ======= ======= =========== =============
Operating profit (loss) $ 442 $ 226 $ (129) $ (498) $ 39
Segment assets $ 5,742 $ 341 $4,372 $ 7,612 $2,100 $20,167
===============================================================================================================
4. SUMMARY FINANCIAL INFORMATION
Summarized financial information is provided herein for New Heights for
the fiscal year to date (in thousands):
November 30, 2000
-----------------
Current assets ...................................... $ 4,143
Non-current assets .................................. 40,219
Current liabilities ................................. 10,025
Non-current liabilities ............................. 8,133
Net equity .......................................... 26,204
- 9 -
Nine months ended
November 30, 2000
-----------------
Total revenues ...................................... $ 9,395
Net loss ............................................ (6,282)
5. 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.
6. RESTATEMENT OF FINANCIAL STATEMENTS
Subsequent to the issuance of its condensed consolidated financial
statements as of and for the three- month and nine-month periods ended November
30, 2000, management learned that the interim financial information it had
received from New Heights, an investee accounted for using the equity method,
for the three months ended November 30, 200 understated the Company's equity in
the losses of New Heights by $774,000. Accordingly, the Company has revised its
financial statements to reflect the correction of its equity in the losses of
New Heights. Following is a summary of the effects of the restatement (in
thousands except per share data):
Three months ended Nine months ended
November 30, 2000 November 30, 2000
------------------------------ -------------------------------
As previously As previously
reported As restated reported As restated
------------- ----------- ------------- -----------
Statement of Operations
Loss from equity investment $ (270) $(1,045) $(1,647) $(2,241)
Loss from continuing operations (1,090) (1,865) (3,247) (4,021)
Net loss (692) (1,468) (2,849) (3,622)
Basic and diluted net loss per share:
Continuing operations $(0.22) $(0.38) $(0.66) $(0.81)
Net loss $(0.14) $(0.30) $(0.58) $(0.73)
November 30, 2000
As Previously Reported As Restated
---------------------- -----------
Financial position:
Investments-Equity 7,040 6,266
Deficit (53,886) (54,660)
Stockholders' Deficiency (6,634) (7,408)
- 10 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's condensed consolidated financial statements as of and for
the three month and nine month periods ended November 30, 2000 have been
restated as discussed in Note 6 to the accompanying financial statements. The
information included in the following discussion reflects the effects of those
restatements.
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 the third quarter of fiscal
2001, SCPI expanded its distribution business to include lawn and garden
products, partly in response to the growing needs of certain customers.
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 November
30, 2000 of $44,000.
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 owed at the merger closing
by Dowling's under the revolving debt agreement. The merger closed on November
29, 2000. As such, the assets and liabilities of Dowling's have been excluded
from the November 30, 2000 balance sheet. The statement of operations for the
third quarter and nine months ended November 30, 2000 reflect a gain of $399,000
from discontinued operations as a result of the completion of the disposal of
Dowling's.
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 increases
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 redeveloping an existing waste tire recycling
- 11 -
facility in Ford Heights, Illinois into a fully integrated recycling and
waste-to-energy facility. The facility is being managed by KTI Operations, an
affiliate of KTI.
Through November 30, 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 of
fiscal 2001New 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 that 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
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 of fiscal 2001final 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. During the nine months ended November 30, 2000, New
Heights operated at a loss of $6.8 million, of which OTI's share was $2.5
million, before goodwill recovery of $112,000. 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 benefitting from 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 positive 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 January 2001, and $559,000 is due in
April 2001. The notes bear interest at the rate of 14%.
Recognizing OTI's 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.
- 12 -
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 2000 Sterling's revenues were $76
million and Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") was $8.6 million.
SALE OF SUBSIDIARY
In fiscal 2000, the decision was made to dispose of Dowling's and 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 amount expected to be
owed at the merger closing by Dowling's under the revolving credit agreement
(see Note 3 to the Consolidated Financial Statements). The Company recorded a
loss on the disposal of Dowling's of approximately $2.0 million at February 29,
2000, 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 merger closing date. The merger closed on November 29, 2000. The statement
of operations for the third quarter and nine months ended November 30, 2000
reflect a gain of $399,000 from discontinued operations as a result of the
completion of the disposal of Dowling's.
In the third quarter of the prior fiscal year, Dowling's reported an
operating loss of approximately $171,000 and for the nine months ended November
30, 1999, Dowling's reported an operating loss of $251,000.
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 subsidiary's 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 as SCPI
from time to time grants extended payment terms for seasonal inventory
build-ups, and the amount of credit extended by suppliers.
At November 30, 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 $3.3 million 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 SCPI's
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 $4.0 million to reflect the disposal of Dowling's, 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, assuming no material deterioration in current
sales levels or gross profit margins and no significant change in historical
levels of customer receivables or vendor credit.
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At November 30, 2000, the Company's working capital deficit of $14.8
million resulted principally from the classification of the KTI Loan as a
current obligation of the Company, reflecting its April 30, 2001 maturity date.
KTI is Oakhurst's largest shareholder, holding 35% of the Company's outstanding
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 such facility-level financing would allow a distribution to New
Heights' members, including Oakhurst, enabling Oakhurst to proportionally repay
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 be assured.
In response to a proposal by KTI's parent company, Casella Waste Systems,
Inc. ("Casella"), to acquire the Company's 37.5% equity position in New Heights,
management is in discussions with KTI and Casella with a view to transferring
all of such New Heights interest to KTI in exchange for the 35% equity interest
that KTI owns in Oakhurst and the cancellation of substantially all of the debt
and accrued interest owed by the Company to KTI (totaling about $15 million at
November 30, 2000). This restructuring would be undertaken in conjunction with a
substantial increase in Oakhurst's investment in Sterling, a profitable company
in which Oakhurst currently owns a 16% interest. While preliminary non-binding
agreements have been reached with all parties to these proposed transactions,
they are subject to the completion of due diligence, the negotiation and
execution of final documentation, and to the approval of various third parties,
and there can be no assurance that such transactions will be completed.
CASH FLOWS
Net cash used in operating activities for the nine months ended November
30, 2000 and November 30, 1999 was $192,000 and $483,000, respectively. The
improvement was due primarily to a reductions in inventory and receivables in
the current year and the accumulation of interest on the KTI loan.
For the nine months ended November 30, 2000 cash used in investing
activities was $3.4 million, due to the increase in investment in New Heights.
The Company's financing activities provided cash of $3.6 million for the
nine months ended November 30, 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 nine months of $173,000,
compared with an increase in the prior year of $427,000, as operations provided
much of the cash necessary to reduce payables.
MATERIAL CHANGES IN FINANCIAL CONDITION
At November 30, 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/A 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, non-food pet
supplies and lawn and garden products, OTI and the administrative costs of SCPI
and Oakhurst.
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THREE MONTHS ENDED NOVEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED NOVEMBER
30, 1999
Automotive segment
Sales of automotive accessories in the third quarter of the current year
decreased by $240,000 compared with the third quarter of the prior year. Sales
to existing automotive customers decreased by $610,000 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 $370,000 in the third quarter.
Gross profits totaled $682,000, or 17.4% of sales, a decrease of $33,000
compared with the third quarter of the prior year, due to the lower sales
volume.
Operating profit improved by $14,000 in the third quarter due to lower
operating expenses resulting from the reduced sales volume.
Pet supply segment
Sales of non-food pet products increased by $176,000 in the third quarter
compared with the same period in the prior year, primarily due to increased
sales to existing customers.
Gross profit for the pet supply segment was $211,000 in the third quarter,
an improvement of $38,000 compared with the prior year, due to the higher sales
volume.
OTI
Expenses at OTI increased by $22,000, mostly related to accrued royalty
fees at OTI for the cyrogenic crumb rubber system which are to be paid from
future operating profits of New Heights.
There was a loss from affiliates of approximately $1.04 million related to
OTI's equity investment in New Heights, which represents OTI's share of start-up
losses at the New Heights facility of $1.1 million, net of goodwill amortization
of $55,000.
Interest expense increased by $362,000 when compared to the prior year,
due primarily to interest incurred on the KTI loan, which increased by $6.0
million compared with the third quarter of the prior year to fund OTI's capital
and start-up expenditure commitments at New Heights.
In summary, operating results at SCPI improved in the third quarter
compared with the prior year by $29,000 due to higher margins. Overheads at OTI
increased compared with the third 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.
NINE MONTHS ENDED NOVEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED NOVEMBER 30,
1999
Automotive segment
For the first nine months of the current fiscal year, sales decreased by
$265,000 compared with the first nine months of the prior year. Sales to
existing automotive customers decreased by $1.7 million due primarily to the
loss of a customer in the fourth quarter of fiscal 2000 and to customers which
have changed suppliers or
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are purchasing directly from the manufacturer. Some of the loss in sales to
existing customers was offset by sales to new customers which totaled $1.4
million in the first nine months of the current year.
Gross profit improved from the first nine months of the prior year by
$105,000, to 18.8% of sales. The improvement was largely due to higher margins
earned on certain product offerings.
There was an improvement of $147,000 in operating profit for the first
nine months of fiscal 2001, due primarily to the higher margins.
Pet supply segment
Sales of non-food pet products totaled $1.9 million, an increase of
$276,000 compared with the first nine months of the prior year, due primarily to
increased sales to existing customers.
Gross profit totaled $590,000, or 30.5% of sales in the first nine months
compared with gross profit of $526,000, or 31.7% of sales in the prior year. The
improvement was due to higher sales volume, but was offset by lower margins
earned on certain products.
Operating profit was $233,000 and $226,000 for the first nine months of
fiscal 2001 and 2000, respectively. The improvement in sales volume in the
current year was offset in part by higher promotional expenses and commissions.
OTI
Expenses at OTI increased by $87,000 for the first nine months of the
current fiscal year 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 $2.4 million related to
OTI's equity investment in New Heights, which represents OTI's share of start-up
losses at the New Heights facility of approximately $2.5 million, net of
goodwill amortization of $112,000.
Corporate
Other income increased by approximately $193,000 due primarily to the
expiration of the maturity date of certain Creditor Notes associated with SCPI's
former Retail Division.
Interest expense increased by $1.1 million when compared to the prior
year, due primarily to the increase in the amount owed under the KTI loan.
In summary, operating profits at SCPI improved for the first nine months
of the current fiscal year compared with the first nine months of the prior year
by approximately $350,000, 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 $7,500 and $25,000 for the three and nine month periods ended
November 30, 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
x/10.31 Amendment Agreement dated effective May 3, 2000 among Oakhurst Company,
Oakhurst Technology, Inc. and KTI, Inc.
x/10.32 Sixth Amendment to the Loan and Security Agreement between Oakhurst and
FINOVA Capital Corporation, dated effective June 30, 2000.
x/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.
*x/10.34 Seventh Amendment to the Loan and Security Agreement between Oakhurst and
FINOVA Capital Corporation, dated October 1, 2000.
*x/10.35 Eighth Amendment to the Loan and Security Agreement between Oakhurst and
FINOVA Capital Corporation, dated October 27, 2000.
- ------------
x 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
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Mr. Maarten D. Hemsley
Chief Financial Officer
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