<PAGE> 1
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, 1999
---------------
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
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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, 1999, 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
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OAKHURST COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets at August 31, 1999
and February 28, 1999 ................................................ 3
Condensed Consolidated Statements of Operations for the three month
periods ended August 31, 1999 and August 31, 1998 ..................... 4
Condensed Consolidated Statements of Operations for the six month
periods ended August 31, 1999 and August 31, 1998 ..................... 5
Condensed Consolidated Statements of Cash Flows for the six month
periods ended August 31, 1999 and August 31, 1998 ..................... 6
Notes to Condensed Consolidated Financial Statements ................... 7
</TABLE>
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<PAGE> 3
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS August 31, February 28,
1999 1999
---------- ------------
<S> <C> <C>
Current assets:
Cash ......................................................................... $ 162 $ 241
Trade accounts receivable, less allowance of $413 and $388, respectively ..... 3,898 3,330
Other receivables ............................................................ 268 158
Inventories .................................................................. 5,753 6,045
Other ........................................................................ 153 159
-------- --------
Total current assets ....................................... 10,234 9,933
-------- --------
Property and equipment, at cost ....................................................... 2,127 2,045
Less accumulated depreciation ................................................ (1,413) (1,344)
-------- --------
714 701
-------- --------
Investments:
Equity ....................................................................... 2,905 1,125
Other ........................................................................ 1,379 1,379
Note receivable ....................................................................... 1,330 1,330
Excess of cost over net assets acquired, net .......................................... 1,983 2,080
Other assets .......................................................................... 305 328
-------- --------
7,902 6,242
-------- --------
$ 18,850 $ 16,876
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................. $ 5,610 $ 5,662
Accrued compensation ......................................................... 487 509
Current maturities of long-term obligations .................................. 243 218
Current maturities of long-term obligations, related parties ................. 88 88
Accrued interest ............................................................. 276 78
Other accrued expenses ....................................................... 168 399
-------- --------
Total current liabilities .................................. 6,872 6,954
-------- --------
Long-term obligations:
Long-term debt ............................................................... 5,404 4,669
Long-term debt, related parties .............................................. 5,873 3,408
Other long-term obligations .................................................. 157 177
-------- --------
Total long-term obligations ................................ 11,434 8,254
-------- --------
Commitments and contingencies ......................................................... -- --
Stockholders' equity:
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) ..................................... (46,708) (45,584)
Treasury stock, at cost, 207 common shares ................................... (1) (1)
-------- --------
Total stockholders' equity ................................. 544 1,668
-------- --------
$ 18,850 $ 16,876
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE> 4
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
Ended Ended
August 31, 1999 August 31, 1998
--------------- ---------------
<S> <C> <C>
Sales ............................................................... $ 8,952 $ 8,946
Other income ........................................................ 131 125
----------- -----------
9,083 9,071
----------- -----------
Cost of goods sold, including occupancy and buying expenses ......... 7,293 7,338
Operating, selling and administrative expenses ...................... 1,596 1,660
Provision for doubtful accounts ..................................... 18 48
Amortization of excess of cost over net assets acquired ............. 49 49
Interest expense .................................................... 315 137
----------- -----------
9,271 9,232
----------- -----------
Loss before loss on equity investment and income taxes .............. (188) (161)
Loss from equity investment ......................................... (382) --
Income tax expense .................................................. (1) --
----------- -----------
Net loss ............................................................ $ (571) $ (161)
=========== ===========
Basic and diluted net loss per share ................................ $ (0.12) $ (0.05)
=========== ===========
Weighted average number of shares outstanding used in computing
basic and diluted per share amounts ........................ 4,943,018 3,212,962
=========== ===========
</TABLE>
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)
<TABLE>
<CAPTION>
Six months Six months
Ended Ended
August 31, 1999 August 31, 1998
--------------- ---------------
<S> <C> <C>
Sales ............................................................... $ 17,172 $ 16,956
Other income ........................................................ 184 157
----------- -----------
17,356 17,113
----------- -----------
Cost of goods sold, including occupancy and buying expenses ......... 13,896 13,915
Operating, selling and administrative expenses ...................... 3,224 3,285
Provision for doubtful accounts ..................................... 72 58
Amortization of excess of cost over net assets acquired ............. 98 97
Interest expense .................................................... 561 273
----------- -----------
17,851 17,628
----------- -----------
Loss before loss on equity investment and income taxes .............. (495) (515)
Loss from equity investment ......................................... (628) --
Income tax expense .................................................. (1) (6)
----------- -----------
Net loss ............................................................ $ (1,124) $ (521)
=========== ===========
Basic and diluted net loss per share ................................ $ (0.23) $ (0.16)
=========== ===========
Weighted average number of shares outstanding used in computing
basic and diluted per share amounts ........................ 4,943,018 3,210,982
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE> 6
OAKHURST COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Six months Ended Six months Ended
August 31, 1999 August 31, 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................. $(1,124) $(521)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................... 285 271
Employee stock awards ........................... -- 5
Loss from equity investment ..................... 628 --
Other changes in operating assets and liabilities:
Accounts receivable ............................. (568) (127)
Inventories ..................................... 292 688
Accounts payable ................................ (52) (318)
Other ........................................... (121) (151)
------- -----
Net cash used in operating activities of:
Continuing operations ........................... (660) (153)
Discontinued operations ......................... -- (180)
------- -----
Net cash used in operating activities .................... (660) (333)
------- -----
Cash flows from investing activities:
Additions to property and equipment ............. (144) (134)
Increase in investment .......................... (2,408) --
Other ........................................... -- --
------- -----
Net cash used in investing activities .................... (2,552) (134)
------- -----
Cash flows from financing activities:
Net borrowings under
revolving credit agreement ................... 664 687
Borrowings under long-term obligations .......... 2,617 --
Principal payments on long-term obligations ..... (73) (107)
Deferred loan costs ............................. (75) --
------- -----
Net cash provided by financing activities ................ 3,133 580
------- -----
Net (decrease) increase in cash .......................... (79) 113
Cash at beginning of period .............................. 241 47
------- -----
Cash at end of period .................................... $ 162 $ 160
======= =====
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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<PAGE> 7
OAKHURST COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 1999
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, with the result that the
aggregate fair market value of SCPI's common stock and Series A Preferred Stock
owned by Oakhurst is equal to approximately 90% of the aggregate fair market
value of all the issued and outstanding capital stock of SCPI and represents
90% of the voting stock of SCPI. The accompanying condensed consolidated
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").
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. Upon New Heights' emerging from bankruptcy in December 1998 OTI
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. The evaluation of the impact of adopting fresh-start accounting
following New Heights' emergence from bankruptcy was completed in August, 1999
and summarized financial information has been included with these financial
statements.
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 28, 1999 ("fiscal 1999") as filed in the Company's Annual Report on
Form 10-K.
Operating results for the three and six months ended August 31, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ended February 29, 2000.
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2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities" which is
presently required to be adopted in years (as amended by SFAS No. 137)
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.
3. SEGMENT INFORMATION
Until December 1998, Oakhurst operated as a wholesale distributor to
the automotive aftermarket. SCPI, operating under the trade name Steel City
Products, principally sells automotive accessories, primarily to discount
retail chains, hardware and supermarket retailers and to automotive specialty
stores. Its customers are based primarily in the Northeastern United States.
Dowling's is a wholesale distributor of automotive radiators and related parts
mostly serving radiator repair shops in the New York, Connecticut, New Jersey,
and Greater Philadelphia, Pennsylvania markets. 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. The Company's operations are thereby
organized into the three management segments included in the following table
(in thousands):
<TABLE>
<CAPTION>
======================================================================================================
Three months ended August 31, 1999 CONSOLIDATED
------------
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
---- --------- --- --------- -----
<S> <C> <C> <C> <C> <C>
Net sales $ 5,328 $ 3,624 -- -- $ 8,952
======= ======= ======= ======= =======
Operating profit (loss) $ 311 $ 136 $ (36) $ (284) $ 127
Segment assets $ 6,941 $ 4,287 $ 5,678 $ 1,944 $18,850
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================================================================
Three months ended August 31, 1998 CONSOLIDATED
------------
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
---- --------- --- --------- -----
<S> <C> <C> <C> <C> <C>
Net sales $ 4,850 $ 4,096 -- -- $ 8,946
======= ======= ======= ======= =======
Operating profit (loss) $ 134 $ 198 -- $ (356) $ (24)
Segment assets (a) $ 6,754 $ 4,983 -- $ 2,086 $13,823
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================================================================
Six months ended August 31, 1999 CONSOLIDATED
------------
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
---- --------- --- --------- -----
<S> <C> <C> <C> <C> <C>
Net sales $10,953 $ 6,219 -- -- $17,172
======= ======= ======= ======= =======
Operating profit (loss) $ 687 $ 16 $ (81) $ (556) $ 66
Segment assets $ 6,941 $ 4,287 $ 5,678 $ 1,944 $18,850
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================================================================
Six months ended August 31, 1998 CONSOLIDATED
------------
SEGMENTS SCPI DOWLING'S OTI CORPORATE TOTAL
---- --------- --- --------- -----
<S> <C> <C> <C> <C> <C>
Net sales $ 9,705 $ 7,251 -- -- $16,956
======= ======= ======= ======= =======
Operating profit (loss) $ 346 $ 117 -- $ (705) $ (242)
Segment assets (a) $ 6,754 $ 4,983 -- $ 2,086 $13,823
======================================================================================================
</TABLE>
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<PAGE> 9
(a) In fiscal 1999, SCPI elected to change its method of inventory valuation
from the last-in, first-out method (LIFO) to the first-in, first-out method
(FIFO). Segment assets for the three and six months ended August 31, 1998 have
been restated as if the change had taken place at the beginning of such period.
4. CHANGE IN ACCOUNTING PRINCIPLE
In the fourth quarter of fiscal 1999, SCPI elected to change its
method of inventory valuation from the last-in, first-out, (LIFO) method to the
first-in, first-out (FIFO) method. As no change in the LIFO reserve was made
during the first three quarters of fiscal 1999, there was no effect on the
August 31, 1998 three and six month condensed consolidated statement of
operations or cash flows.
5. SUMMARY FINANCIAL INFORMATION
In December 1998, OTI acquired a 50% equity interest in, and became
the managing member of, New Heights. The valuation of the impact of adopting
fresh-start accounting upon New Heights' emergence from bankruptcy in December
1998 was completed in August 1999. Accordingly, summarized financial
information is provided herein for New Heights for the fiscal year to date (in
thousands):
<TABLE>
<CAPTION>
August 31, 1999
---------------
<S> <C>
Current assets .................................... $ 185
Non-current assets ................................ 27,486
Current liabilities ............................... 901
Non-current liabilities ........................... 2,202
</TABLE>
<TABLE>
<CAPTION>
Six months Ended
August 31, 1999
---------------
<S> <C>
Total revenues(a) ................................. $ 156
Gross profit (b) .................................. 156
Net loss .......................................... (1,256)
</TABLE>
(a) New Heights began operations in July 1999.
(b) Because all revenue through August 1999 was received from waste processing,
including tipping fees received on waste tires, there have been no costs
associated with the revenue generated from the facility; thus gross profit is
equal to revenues generated.
6. SUBSEQUENT EVENT
In September, 1999 certain shareholders of Sterling exercised their
right to sell a second tranche of equity to OTI. As such, in October, 1999 OTI
is expected to invest approximately $1.36 million in Sterling to be financed
through the issuance of notes. These notes will be payable by OTI one year
after issuance and will bear interest at 14%, payable quarterly in arrears.
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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 fiscal 1992 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 $154 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.
Until the formation of its wholly-owned subsidiary, Oakhurst
Technology, Inc. ("OTI") in December 1998, Oakhurst was involved primarily in
the distribution 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. Oakhurst's subsidiary, Dowling's Fleet Service Co., Inc.
("Dowling's") is a New York-headquartered distributor of automotive radiators
and related products.
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") 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. In conjunction with the private placement of stock,
KTI committed to lend Oakhurst up to $11.5 million, and in certain
circumstances up to $17 million, under a loan agreement. KTI is an integrated
waste management company with specific experience in the turnaround of
co-generation facilities. In December 1998 OTI 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.
In addition to the recycling business, in January 1999 OTI made a
minority investment 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
spending in Texas, and may offer synergies with New Heights by using crumb
rubber from recycled tires in "rubberized asphalt".
The equity interest in Sterling of approximately 7% was increased to
approximately 12% in September 1999 when certain shareholders of Sterling
exercised their right to sell a second tranche of equity to OTI. The equity
purchase of approximately $1.36 million is expected to be financed through the
issuance of notes. These notes will be payable by OTI one year after issuance
and will bear interest at the rate of 14%, payable quarterly in arrears.
Activities of New Heights are reported on the equity method of
accounting. The investment in Sterling, which consists of the equity interest
together with subordinated debt of $1.35 million, is reported on the cost
method of accounting.
The Sterling subordinated debt 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
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<PAGE> 11
the debt, OTI would own between approximately 16% and 17% of Sterling,
including the equity to be acquired in October 1999.
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, 1999, Oakhurst's debt primarily consisted of (i) a
credit facility with an institutional lender (the "Credit Facility"), pursuant
to which approximately $5.3 million was borrowed under a revolving credit
facility (the "Revolver"), (ii) notes payable of $154,000 that were issued in
connection with the fiscal 1995 acquisition of Dowling's (the "DFS Notes"),
(iii) notes payable with outstanding principal balances aggregating
approximately $144,000 that were issued in connection with the settlement of
certain contingent liabilities related to SCPI's former retail division, (iv) a
Subordinated Loan of $83,000, (v) notes payable aggregating $103,000 for the
purchase of vehicles at Dowling's, and (vi) a balance of $5.8 million
outstanding under the KTI Loan.
Oakhurst and its subsidiaries, except OTI, 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 automotive distribution
subsidiaries' accounts receivable and inventories. At August 31, 1999, the
aggregate borrowing base under the Revolver was $5.6 million. In March 1999 the
Revolver was extended to April 2000 and was amended to (i) increase certain
borrowing rate percentages at SCPI, (ii) increase the interest rate to Citibank
N.A. base rate plus 2% and (iii) amend the financial covenants to include a
minimum level of Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA"). The Revolver 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 margin. At August 31, 1999, Oakhurst was in compliance with the
financial covenants as defined under the Revolver.
YEAR 2000
The Year 2000 issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from
the use of computer programs which have been written using two digits, rather
than four, to define the applicable year of business transactions.
In fiscal 1999, SCPI acquired a new, integrated, Year 2000 compliant
computer system to completely replace its old information technology system.
SCPI completed the implementation of the new system in September 1999. At
Dowling's, the consultant who developed the existing software of its customized
information technology system was engaged to re-write the computer code to be
Year 2000 compliant; this was completed in December 1998. No critical
noninformation technology systems have been identified by Oakhurst and its
subsidiaries which are not Year 2000 compliant. The Company's Year 2000 plan
also included the contacting of its major suppliers and other significant third
parties with which it does business
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<PAGE> 12
to obtain their assurance of Year 2000 compliance. This phase of Oakhurst's
Year 2000 plan was completed in July 1999.
To date, the Company has spent approximately $230,000 on the Year 2000
issue and believes that the remaining potential cost related to the issue will
be less than $25,000. The amount spent to date includes approximately $10,000
for the software upgrade at Dowling's and approximately $220,000 for the
purchase of the new system at SCPI. In addition to achieving Year 2000
compliance, SCPI's new system is expected to provide other important operating
benefits as compared with its former system.
The Company believes that only minor and temporary interruptions in
service may be experienced by the Company and its subsidiaries, suppliers and
customers regarding Year 2000 issues. In the worst case, the Company would be
able to continue to conduct its business through the use of manual systems.
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 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, 1999, there had been no material changes in the
Company's financial condition from February 28, 1999, as discussed in Item 7 of
the Company's Annual Report on Form 10-K for fiscal 1999.
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; Dowling's, a distributor of automotive radiators and related parts
headquartered in Mt. Vernon, New York; together with OTI and the administrative
costs of SCPI and Oakhurst.
THREE MONTHS ENDED AUGUST 31, 1999 COMPARED WITH THREE MONTHS ENDED
AUGUST 31, 1998
Consolidated sales in the current year second quarter were essentially
equal to the prior year.
Sales by SCPI increased by approximately $480,000 compared with the
second quarter of the prior year. Sales to existing automotive customers
increased by approximately $224,000, due primarily to the addition of new
stores through an acquisition by one major customer. Sales to new automotive
customers totaled $214,000 for the quarter. Sales of non-food pet products
totaled $550,000, an increase of $41,000 compared with the second quarter of
the prior year, due primarily to increased sales to existing customers.
Sales at Dowling's decreased by $470,000 compared with the second
quarter of the prior year due principally to a greater proportion of the
Company's sales coming from its Global (TM) private label line, which are
generally priced lower than the Modine brand products combined with a general
slowness in the radiator replacement industry.
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<PAGE> 13
Gross profits were $1.7 million, or 18.5% of sales, in the current
year period compared with $1.6 million, or 18.0% of sales, in the prior year
period. The increase in gross profit resulted from the higher sales volume at
SCPI, and improved margins at both SCPI and Dowling's.
Operating, selling and administrative expenses decreased by $64,000.
At SCPI, expenses decreased by $18,000 primarily due to fewer sales
representatives and warehouse personnel. At Dowling's, expenses decreased by
$33,000 due to staffing reductions at Dowling's warehouses. Corporate expenses
were below prior year levels by $76,000 due to staffing reductions, lower
insurance, legal, travel and office expenses. These savings were offset by the
addition of OTI in the current year, which had overhead expenses of $63,000,
mostly related to salaries.
There was a decrease in the provision for doubtful accounts of $30,000
compared with the second quarter of the prior year. Results for the second
quarter of the prior year included an increase to SCPI's reserve due to the
pending liquidation of one customer.
Interest expense increased by $178,000 when compared to the prior
year, due primarily to interest incurred on the KTI loan, which increased by
$2.3 million to fund OTI's capital and start-up expenditure commitments at New
Heights.
There was a loss from affiliates of approximately $382,000 related to
OTI's equity investment in New Heights, which represents OTI's share of
start-up activities at the New Heights facility.
SIX MONTHS ENDED AUGUST 31, 1999 COMPARED WITH SIX MONTHS ENDED AUGUST 31, 1998
Consolidated sales in the current year period increased by
approximately $216,000, or by 1.3% when compared with the prior year.
Sales by SCPI increased by approximately $1.2 million compared with
the first six months of the prior year. Sales to existing automotive customers
increased by approximately $621,000, due primarily to the addition of new
stores through an acquisition by one major customer. Sales to new automotive
customers totaled $432,000 for the year to date. Sales of non-food pet products
totaled $1.1 million, an increase of $196,000 compared with the first six
months of the prior year, due primarily to increased sales to existing
customers.
Sales at Dowling's decreased by $1.0 million compared with the first
six months of the prior year due principally to a greater proportion of the
Company's sales coming from its Global (TM) private label line, which are
generally priced lower than the Modine brand products, combined with general
slowness throughout Dowling's markets caused by a reduction in the overall
number of radiator failures industry-wide.
Gross profits were $3.3 million, or 19.1% of sales in the current year
period compared with $3.0 million, or 18.0% of sales, in the prior year period.
The increase in gross profit resulted from the higher sales volume at SCPI, and
improved margins at both SCPI and Dowling's.
Operating, selling and administrative expenses decreased by $61,000
for the six months due to staffing changes at Dowling's ($51,000) and lower
expenses, principally salaries ($76,000), insurance and other administrative
expenses ($60,000) at the corporate level. These savings were offset in part by
$135,000 of expenses incurred by OTI in its first year of operations.
-13-
<PAGE> 14
Interest expense increased by $282,000 when compared to the prior
year, due primarily to interest incurred on the KTI loan, draws on which began
in January 1999 to fund OTI's capital and start-up expenditure commitments at
New Heights.
There was a loss from affiliates of approximately $628,000 related to
OTI's equity investment in New Heights, which represents OTI's share of
start-up activities at the New Heights facility.
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 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.
-14-
<PAGE> 15
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 (EDGAR transmission only).
----------------
[X] Management contract or compensatory plan or arrangement
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
-15-
<PAGE> 16
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 9, 1999 By: /s/ Robert M. Davies
-----------------------------------
Mr. Robert M. Davies
Chief Executive Officer
Date: October 9, 1999 By: /s/ Maarten D. Hemsley
-----------------------------------
Mr. Maarten D. Hemsley
Chief Financial Officer
-16-
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
27. Financial Data Schedule (EDGAR transmission only).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 162
<SECURITIES> 0
<RECEIVABLES> 4,311
<ALLOWANCES> 413
<INVENTORY> 5,753
<CURRENT-ASSETS> 10,234
<PP&E> 2,127
<DEPRECIATION> 1,413
<TOTAL-ASSETS> 18,850
<CURRENT-LIABILITIES> 6,872
<BONDS> 11,434
0
0
<COMMON> 49
<OTHER-SE> 495
<TOTAL-LIABILITY-AND-EQUITY> 18,850
<SALES> 17,172
<TOTAL-REVENUES> 17,357
<CGS> 13,896
<TOTAL-COSTS> 13,896
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 72
<INTEREST-EXPENSE> 561
<INCOME-PRETAX> (1,124)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,124)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,124)
<EPS-BASIC> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
