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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: August 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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.)
3513 CONCORD PIKE, SUITE 3527, WILMINGTON, DELAWARE
19803
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(Address of principal executive offices)
(Zip Code)
(302) 478-9170
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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
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As of October 1, 1998, 3,212,962 shares of the Registrant's Common
Stock, $0.01 par value per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets at August 31, 1998 (unaudited)
and February 28, 1998 ...................................................................3
Consolidated Statements of Operations for the three month periods ended
August 31, 1998 and August 31, 1997 (unaudited) ........................................4
Consolidated Statements of Operations for the six month periods ended
August 31, 1998 and August 31, 1997 (unaudited) ........................................5
Consolidated Statement of Stockholders' Equity for the six months
ended August 31, 1998 (unaudited) ......................................................6
Consolidated Statements of Cash Flows for the six month periods ended
August 31, 1998 and August 31, 1997 (unaudited) ........................................7
Notes to Financial Statements (unaudited) ................................................8
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS AUGUST 31, FEBRUARY 28,
1998 1998
---------- ------------
(Unaudited)
Current assets:
Cash ...................................................................................... $ 160 $ 47
Trade accounts receivable, less allowance of $482 and $461,respectively ................... 4,153 4,026
Other receivables ......................................................................... 243 223
Inventories ............................................................................... 5,479 6,167
Other ..................................................................................... 286 226
-------- --------
Total current assets ............................................................ 10,321 10,689
-------- --------
Property and equipment, at cost ............................................................. 1,916 1,782
Less accumulated depreciation ............................................................. (1,234) (1,098)
-------- --------
682 684
-------- --------
Excess of cost over net assets acquired, net ................................................ 2,178 2,275
Other assets ................................................................................ 357 383
-------- --------
2,535 2,658
-------- --------
$ 13,538 $ 14,031
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .......................................................................... $ 6,074 $ 6,392
Accrued compensation ...................................................................... 519 519
Current maturities of long-term obligations ............................................... 428 646
Current maturities of long-term obligations, related parties .............................. 88 88
Accrued interest .......................................................................... 61 76
Other accrued expenses .................................................................... 194 249
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Total current liabilities ....................................................... 7,364 7,970
-------- --------
Long-term obligations:
Long-term debt ............................................................................ 4,740 4,058
Long-term debt, related parties ........................................................... 154 198
Other long-term obligations ............................................................... 53 62
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4,947 4,318
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Commitments and contingencies ...............................................................
Stockholders' equity:
Preferred stock, par value $0.01; authorized 1,000,000 shares, none issued ................ -- --
Common stock, par value $0.01 per share; authorized 14,000,000
shares; issued 3,212,962 and 3,207,053 shares, respectively ............................ 32 32
Additional paid-in capital ................................................................ 46,540 46,535
Deficit (Reorganized on August 26, 1989) .................................................. (45,344) (44,823)
Treasury stock, at cost, 207 common shares ................................................ (1) (1)
-------- --------
Total stockholders' equity ...................................................... 1,227 1,743
-------- --------
$ 13,538 $ 14,031
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The accompanying notes are an integral part
of these consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
1998 1997
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Sales ................................................... $ 8,946 $ 9,336
Other income ............................................ 125 86
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9,071 9,422
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Cost of goods sold, including occupancy and
buying expenses ....................................... 7,338 7,398
Operating, selling and administrative expenses .......... 1,660 1,666
Provision for doubtful accounts ......................... 48 35
Amortization of excess of cost over net assets acquired.. 49 50
Interest expense ........................................ 137 168
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9,232 9,317
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Net (loss) income before income taxes ................... (161) 105
Income tax expense ...................................... -- (8)
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Net (loss) income ....................................... $ (161) $ 97
=========== ===========
Basic and diluted net (loss) income per share ........... $ (0.05) $ 0.03
=========== ===========
Weighted average number of shares outstanding
used in computing per share amount .................... 3,212,962 3,207,053
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
SIX MONTHS SIX MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
1998 1997
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Sales ................................................. $ 16,956 $ 17,627
Other income .......................................... 157 105
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17,113 17,732
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Cost of goods sold, including occupancy and
buying expenses ..................................... 13,915 14,197
Operating, selling and administrative expenses ........ 3,285 3,244
Provision for doubtful accounts ....................... 58 55
Amortization of excess of cost over net
assets acquired ..................................... 97 99
Interest expense ...................................... 273 346
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17,628 17,941
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Net loss before income taxes .......................... (515) (209)
Income tax expense .................................... (6) (9)
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Net loss .............................................. $ (521) $ (218)
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Basic and diluted net loss per share .................. $ (0.16) $ (0.07)
=========== ===========
Weighted average number of shares outstanding
used in computing per share amount .................. 3,210,982 3,205,365
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED AUGUST 31, 1998
(DOLLARS IN THOUSANDS)
(Unaudited)
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK
--------------------- PAID-IN EARNINGS --------------
SHARES PAR VALUE CAPITAL (DEFICIT) SHARES COST
--------- --------- ---------- --------- ------ ----
Balances, February 28, 1998........... 3,207,053 $32 $ 46,535 $ (44,823) 207 $ (1)
Net loss for the period............... (521)
Stock award........................... 5,909 * 5
--------- --- ---------- --------- ------ ----
Balances, August 31, 1998............. 3,212,962 $32 $ 46,540 $ (45,344) 207 $ (1)
========= === ========== ========= ====== ====
*Rounds to less than one thousand
The accompanying notes are an integral part
of these consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited)
SIX MONTHS SIX MONTHS
ENDED ENDED
AUGUST 31, AUGUST 31,
1998 1997
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Cash flows from operating activities:
Net loss ............................................... $ (521) $ (218)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization ........................ 271 344
Deferred tax expense ................................. -- --
Loss on retirement of assets ......................... -- 6
Stock awards ......................................... 5 6
Other changes in operating assets and liabilities:
Accounts receivable .................................. (127) (502)
Inventories .......................................... 688 (732)
Accounts payable ..................................... (318) 1,655
Other ................................................ (151) (69)
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Net cash (used in) provided by operating activities of:
Continuing operations .................................. (153) 490
Discontinued operations ................................ (180) (286)
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Net cash (used in) provided by operating activities ...... (333) 204
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Cash flows from investing activities:
Additions to property and equipment .................... (134) (58)
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Net cash used in investing activities .................... (134) (58)
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Cash flows from financing activities:
Net borrowings under revolving credit agreement ........ 687 193
Repayment of note payable .............................. -- (105)
Principal payments on long-term obligations ............ (107) (233)
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Net cash provided by (used in) financing activities ...... 580 (145)
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Net increase in cash and cash equivalents ................ 113 1
Cash and cash equivalents at beginning of period ......... 47 39
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Cash and cash equivalents at end of period ............... $ 160 $ 40
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The accompanying notes are an integral part
of these consolidated financial statements.
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OAKHURST COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 1998
1. INTERIM FINANCIAL STATEMENTS
Oakhurst Company, Inc. ("Oakhurst" or the "Company") was formed as a
result of a merger transaction (the "merger") in fiscal 1992 between Steel City
Products, Inc. ("SCPI") and an Oakhurst subsidiary. The merger resulted in a
restructuring of SCPI such that it became a majority-owned subsidiary of
Oakhurst. In accordance with the merger, Oakhurst owns 10% of the outstanding
common stock of SCPI and all of SCPI's Series A Preferred Stock. The merger was
structured such that the aggregate fair market value of SCPI's common stock and
Series A Preferred Stock owned by Oakhurst would be approximately 90% of the
aggregate fair market value of SCPI. Accordingly, Oakhurst controls
approximately 90% of the voting power of SCPI. The accompanying financial
statements reflect this control and include the accounts of SCPI.
Oakhurst owns all of the outstanding capital stock of Dowling's Fleet
Service Co., Inc. ("Dowling's") and of Oakhurst Management Corporation ("OMC").
The accompanying consolidated financial statements include the accounts of these
subsidiaries, and all significant intercompany accounts and transactions have
been eliminated in consolidation.
In the opinion of management, the accompanying unaudited 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 suggested that these
unaudited consolidated financial statements be read in conjunction with the
audited consolidated financial statements for the fiscal year ended February 28,
1998 ("fiscal 1998") as filed in the Company's Annual Report on Form 10-K.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting
comprehensive income and its components. SFAS No. 130 also requires that the
cumulative balance of these items of other comprehensive income be reported
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The Company adopted SFAS No. 130
in the first quarter ended May 31, 1998 (unaudited) and the adoption did not
have a material impact on the Company's disclosures in its consolidated
financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related information". SFAS No. 131 establishes standards
for the way public companies report selected information about operating
segments in both quarterly and annual financial statements to their
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. This statement is
not required to be applied to interim financial statements in the initial year
of its application. The Company has not yet determined the effects, if any, that
SFAS No. 131 will have on the disclosures in its consolidated financial
statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Oakhurst Company, Inc. ("Oakhurst" or "the Company"), a holding
company, was formed as part of a merger transaction in July 1991, in which Steel
City Products, Inc. ("SCPI") became a special, limited purpose, majority-owned
subsidiary of Oakhurst. Management believes that the corporate structure
resulting from the merger transaction will facilitate capital formation by
Oakhurst while permitting Oakhurst and its subsidiaries to file consolidated tax
returns so that both may utilize the tax benefits (including approximately $155
million of net operating loss carry-forwards) attributable principally to SCPI.
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 ownership of SCPI facilitates the preservation and utilization of
SCPI's net operating loss carry-forwards.
Oakhurst, through its subsidiaries, is primarily a distributor of
products to the automotive after-market. Its largest business, which is
conducted by SCPI under the trade name "Steel City Products", is the
distribution of automotive parts and accessories and of non-food pet supplies to
independent retailers from a facility in McKeesport, Pennsylvania. Dowling's
Fleet Service Co., Inc. ("Dowling's") is a New York-headquartered distributor of
automotive radiators and related products.
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. Each 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 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, 1998, Oakhurst's debt primarily consisted of (i) a credit
facility with an institutional lender (the "Credit Facility"), which includes
borrowings of approximately $4.7 million under a revolving credit facility (the
"Revolver"), (ii) debt aggregating $307,000 in connection with Oakhurst's
acquisition of Dowling's and Dowling's acquisition of G&O Sales Company ("G&O"),
and (iii) notes payable with outstanding principal balances aggregating
approximately $353,000 that were issued in connection with the settlement of
certain contingent liabilities related to SCPI's former retail division.
Oakhurst and its subsidiaries have available financing under the
Revolver up to a maximum of $7 million, subject to a borrowing base that is
calculated according to defined levels of the subsidiaries' accounts receivable
and inventories. At August 31, 1998, the borrowing base under the Revolver was
$5.4 million. In fiscal 1998, the Revolver was extended to April 1999, and
provides for subsequent renewal terms of one year each upon payment of a renewal
fee of 0.5% of the entire line, unless earlier terminated as provided for in the
agreement. Management believes that the Revolver will provide adequate funding
for the Company's working capital requirements for at least the next twelve
months, including seasonal fluctuations, assuming no material deterioration in
current sales levels or gross profit margins.
From time to time the information provided by the Company or statements
made by its employees may contain so-called "forward looking" information that
involves risks and uncertainties. In particular, statements contained in this
Item 2 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which are not historical facts (including, but not
limited to, statements concerning anticipated sales, profit levels, customers
and cash flows) are forward looking statements. The Company's actual future
results may differ significantly from those stated in any forward looking
statements. Factors
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that may cause such differences include, but are not limited to, the factors
discussed above as well as the accuracy of the Company's internal estimates of
revenue and operating expense levels. Each of these factors and others are
discussed from time to time in the Company's Securities and Exchange Commission
filings.
MATERIAL CHANGES IN FINANCIAL CONDITION
At August 31, 1998, there had been no material changes in the Company's
financial condition from February 28, 1998, as discussed in Item 7 of the
Company's Annual Report on Form 10-K for fiscal 1998.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1998 COMPARED WITH THREE MONTHS ENDED AUGUST 31,
1997
Consolidated sales in the second quarter of the current year decreased
by $390,000, or by 4.2% when compared with the prior year. Sales by SCPI
increased by approximately $250,000, and sales by Dowling's decreased by
approximately $640,000. SCPI's increase in sales was attributable primarily to
the addition of new automotive and pet supply customers. The decrease in sales
by Dowling's was principally caused by comparatively mild summer temperatures in
Dowling's markets that resulted in fewer radiator and condenser failures in the
second quarter of the current year.
Other income in the second quarter of the current year increased by
$39,000 largely due to increased SCPI auto show revenues that resulted from
greater vendor participation in the current year show.
Gross profits were $1.6 million, or 18% of sales, in the second quarter
of the current year compared with $1.9 million, or 20.8% of sales, in the prior
year period. The reduction in profits was caused by lower net levels of sales, a
decrease in gross margin at SCPI and higher buying and occupancy expenses of
approximately $70,000. The decrease in gross margin, resulting in reduced
profits of $134,000, was largely attributable to several sales promotions by
SCPI during the quarter. The higher buying and occupancy expenses resulted from
increases in certain costs at Dowling's, and from increased costs related to
SCPI operating from rented facilities in the current year, while in the prior
year SCPI's operations were conducted from an owned warehouse that was sold in
December 1997.
Interest expense decreased by $31,000 when compared to the prior year,
due primarily to SCPI's repayment of a term loan in December 1997.
SIX MONTHS ENDED AUGUST 31, 1998 COMPARED WITH SIX MONTHS ENDED AUGUST 31, 1997
Consolidated sales in the current year period decreased by $671,000, or
by 3.8% when compared with the prior year period. Sales by SCPI decreased by
$46,000, and sales by Dowling's decreased by approximately $625,000. Sales to
existing automotive customers decreased by approximately $590,000, primarily as
a result of competitive pressures encountered by certain of SCPI's customers,
and because some customers have changed their buying practices to obtain certain
product lines direct from the manufacturer. The prior year first quarter also
included sales of approximately $117,000 relating to the "Wing-tech" division
that was sold in that quarter. Partially offsetting these decreases were sales
to new automotive customers of approximately $326,000, and increases of $335,000
in sales of non-food pet supplies. The increase in sales of non-food pet
supplies resulted from expanded sales to existing pet supply customers,
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together with sales of $230,000 to new pet supply customers recently added. The
decrease in sales by Dowling's was principally caused by comparatively mild
summer temperatures in Dowling's markets that resulted in fewer radiator and
condenser failures in the current year.
Gross profits were $3 million, or 17.9% of sales, in the current year
period compared with $3.4 million, or 19.5% of sales, in the prior year period.
The decrease in gross profits of $389,000 resulted from the lower levels of
sales, a reduction in gross margin at SCPI, and increased buying and occupancy
expenses of $97,000. The decrease in SCPI's gross margin, resulting in fewer
profits of $131,000, was largely attributable to several sales promotions during
the quarter. The higher buying and occupancy expenses resulted from increases in
certain costs at Dowling's, and from increased costs related to SCPI operating
from rented facilities in the current year, while in the prior year SCPI's
operations were conducted from an owned warehouse that was sold in December
1997.
Operating, selling and administrative expenses increased by $41,000
when compared to the prior year, due primarily to higher operating costs at
Dowling's.
Interest expense decreased by $73,000 when compared to the prior year,
due primarily to SCPI's repayment of a term loan in December 1997.
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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
27. Financial Data Schedule
(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: October 12, 1998 By: /s/ Robert M. Davies
-----------------------------------
Mr. Robert M. Davies
Chief Executive Officer
Date: October 12, 1998 By: /s/ Mark Auerbach
-----------------------------------
Mr. Mark Auerbach
Chief Financial Officer
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Exhibit Index
Exhibit
Number Description
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27. Financial Data Schedule