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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1001 SANTERRE DRIVE, GRAND PRAIRIE, TEXAS 75050
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 660-4499
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to section 12(g) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK, $0.01 PAR VALUE PER SHARE NASDAQ SMALLCAP MARKET
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......
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value at May 1, 1996 of the voting stock held by
non-affiliates of the registrant: $3,157,467
At May 1, 1996, the registrant had 3,195,235 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement to be filed pursuant to Section
14(a) of the Securities Exchange Act of 1934 in connection with the
registrant's 1996 annual meeting of stockholders are incorporated by reference
in Part III of this report.
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Item 1. PART I
General BUSINESS
Oakhurst Company, Inc. ("Oakhurst" or "the Company") was formed as
part of a merger transaction in July 1991, 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 the SCPI 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.
Pursuant to the merger, SCPI became a special, limited purpose
subsidiary that concentrates on its historical line of business, while any
growth and expansion opportunities are expected to be pursued by Oakhurst or
its subsidiaries. Because Oakhurst's ownership of SCPI is primarily in the
form of preferred stock, Oakhurst retains the value of SCPI, and Oakhurst's
income from SCPI is determined by the Series A Preferred stock dividend. This
form of ownership is designed to facilitate the preservation and utilization of
SCPI's net operating loss carryforwards, which amount to approximately $149
million.
Oakhurst, through SCPI and three wholly-owned 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 to
independent retailers from a facility in Pittsburgh, Pennsylvania.
In early 1994, Oakhurst adopted a program of diversification and
expansion within the automotive aftermarket, including through acquisitions,
intended to improve its long-term profit potential.
In January 1994, Oakhurst acquired all the outstanding capital stock
of H&H Distributors, Inc., d/b/a Harry Survis ("H&H"), a Pittsburgh-based
company involved in the distribution and installation of automotive
accessories, including stereos, alarms and cellular phones.
In August 1994, Oakhurst acquired all the outstanding capital stock of
Dowling's Fleet Service Co., Inc. ("Dowling's"), a distributor of automotive
radiators based in Mt. Vernon, New York that operates seven facilities in New
York, Connecticut, New Jersey and Pennsylvania.
In October 1994, Oakhurst acquired all the outstanding capital stock
of Puma Products, Inc., ("Puma") (formerly LBI Corp.), a distributor of
after-market products to the light truck and van conversion industry from
facilities in Grand Prairie, Texas and Elkhart, Indiana.
In March 1995, Oakhurst formed a wholly-owned subsidiary, Oakhurst
Management Corporation ("OMC"), to coordinate the provision of corporate
administrative services to the Company and its subsidiaries. Certain officers
of the Company and its subsidiaries are now paid and are provided benefits by
Oakhurst Management Corporation.
STEEL CITY PRODUCTS, INC.
BACKGROUND
SCPI was incorporated in West Virginia in 1959, and in 1963 became
known as Heck's, Inc. In 1969, the "Steel City Products" automotive
distribution business was acquired. SCPI was reincorporated in Delaware under
the name Hallwood Industries Incorporated in fiscal 1991. The name was changed
to Steel City Products, Inc. in January 1993.
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For many years prior to 1990, Heck's, Inc. operated a Retail Division
consisting of a chain of discount department stores. In September 1990, all of
the assets of the Retail Division were sold to Retail Acquisition Corp.
("RAC"), an unrelated company.
OPERATIONS
SCPI primarily distributes automotive accessories. These products
include functional and decorative car and truck accessories (such as floor
mats, seat covers, mirrors, running boards and lights), car care products
(including waxes and paints), chemicals (such as antifreeze, windshield washer
fluid and motor oil) and car repair and maintenance items (including spark
plugs, windshield wipers, and air and oil filters). In fiscal 1996, the
product selection was expanded to include selected "hard parts" such as brake
rotors, and in the first quarter of fiscal 1997, SCPI introduced non-food pet
supplies to its merchandise selection. Although such pet supplies are not
typical of SCPI's historical merchandise mix, management determined that the
availability of existing customers which sell both pet supplies and automotive
accessories, combined with SCPI's distribution expertise and infrastructure,
offered an opportunity for increased sales, but there can be no assurance that
this will lead to new sales. For about twenty-five years, SCPI's operations
have been conducted from the same facility in Pittsburgh.
Certain of SCPI's business is performed on a service basis, which
involves visits by its sales personnel to customers' stores to count and
re-order merchandise; generally, these re-orders are transmitted electronically
to SCPI's offices in Pittsburgh and shipments are either made directly to each
of the customers' stores or pre-packed for onward shipment to stores by the
retailers' own distribution centers. Certain customers electronically transmit
their orders to SCPI's headquarters. Because many orders are generated
electronically and are shipped within a few days of receipt, the size of SCPI's
order backlog is not relevant to an understanding of the business. SCPI also
provides price ticketing and associated services to those of its customers who
request such services.
SOURCES OF SUPPLY
SCPI acquires its merchandise from a large number of suppliers, none
of which accounts for more than 15% of its revenues. Many of the products sold
by SCPI carry nationally-advertised brand names, but because of the diversity
and number of suppliers and products carried, the business is not generally
dependent on the continued availability of individual products or continued
dealings with existing supply sources. From time to time, market or seasonal
conditions may affect the availability of certain merchandise, but not to the
extent that the Company believes would materially impact its business.
Steel City generally carries in inventory only those products that its
customers have identified as necessary for their own merchandising needs, and
does not acquire significant quantities of other merchandise.
SEASONALITY
SCPI's business is seasonal, being slower in the early winter months
than at other times of the year. In anticipation of higher sales volume in the
spring and summer, SCPI carries higher inventories, beginning in February. As
is customary in the industry, many suppliers allow extended payment terms for
such inventory build-ups and in turn, SCPI grants extended payment terms to
many of its customers to facilitate their inventory build-ups.
SCPI's needs for working capital are affected by these seasonal
fluctuations (see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources").
CUSTOMER BASE
SCPI's customers include general merchandise retail chains, automotive
specialty stores, grocery chains, drug stores, hardware stores and other
automotive accessory distributors. Most customers are
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based in the northeastern United States, although stores operated by some
customers are located outside the northeastern states. There are no foreign
sales.
SCPI's customers are continually affected by changes in the retail
environment, including the recent competitive pressures facing regional mass
merchandisers and the growing influence of national automotive specialty
chains. These have led to fluctuations in the level of business that SCPI
enjoys with individual customers. In recent years, SCPI has lost some
significant customers and has suffered reductions in business as certain
customers have closed stores in the face of competition, have been forced into
bankruptcy, or have reduced their automotive merchandise selection.
Furthermore, some customers have changed their buying practices to acquire
certain merchandise direct from manufacturers rather than through distributors
such as Steel City Products. In its efforts to offset these trends, SCPI has
added new customers, expanded its product offerings to certain customers,
enlarged the territory that it serves and introduced new categories of
products.
Examples of the changes discussed above include the fact that SCPI's
largest customer in fiscal 1992, Fisher Big Wheel, represented a diminishing
percentage of its total revenues in each subsequent fiscal year and then closed
all of its stores in 1993 following a bankruptcy filing, and that in fiscal
1996, SCPI lost two of its largest customers: Jamesway Corporation ("Jamesway")
filed for bankruptcy in October 1995 and shortly thereafter closed all its
stores, and Forest City Auto Parts, Inc. ("Forest City") informed management in
November 1995 of its decision to change distributors (see table below).
Although SCPI added several new customers during fiscal 1995, fiscal
1996 and the first quarter of fiscal 1997, and expanded sales to certain
existing customers, it has not yet obtained enough new business to offset all
of the lost business and return sales to historical levels. Management
continually attempts to identify new customers, but there can be no assurance
that further customers will be secured. Based on present information,
management anticipates that SCPI's sales in fiscal 1997 will be less than in
fiscal 1996.
Sales attributable to SCPI were approximately $24.6 million, or 52% of
Oakhurst's consolidated sales, in fiscal 1996. The following table shows sales
to customers that individually have accounted for more than 10% of consolidated
sales during any of the latest three fiscal years (all of these customers being
attributable to SCPI) (dollars in thousands):
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 29, 1996 February 28, 1995 February 26, 1994
------------------- ------------------- ---------------------
% of % of % of
Sales Total Sales Sales Total Sales Sales Total Sales
------ ----------- ------- ----------- ------- -----------
Fisher Big Wheel -- -- -- -- $3,198 10%
Forest City $4,641 10% $6,046 14% $6,250 19%
Jamesway $3,975 8% $4,465 10% $6,332 20%
Fisher Big Wheel and Jamesway both filed for Chapter 11 bankruptcy
protection in July 1993, and Fisher Big Wheel closed all of its stores in
December 1993. Jamesway emerged from bankruptcy in January 1995, and continued
to be one of SCPI's largest customers throughout this period until the second
quarter of fiscal 1996, when Jamesway began experiencing new financial
difficulty. In October 1995, Jamesway again filed for bankruptcy protection
and announced that it would close all of its stores.
During the third quarter of fiscal 1996, Forest City informed SCPI
that it had decided to change its source of supply, and sales to Forest City
ended in January 1996.
None of SCPI's business is based on government contracts, and there
are no long-term sales contracts with any customers.
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COMPETITION
The automotive parts and accessories distribution industry is highly
competitive, with several similar companies operating in SCPI's marketplace and
many of SCPI's suppliers also offer their products directly to retailers.
Management is unable to quantify SCPI's relative size in its industry or in
relation to its competitors. SCPI competes on the basis of the breadth of
merchandise offered, price, level of service, order fill rates and order
turnaround times. Management believes that SCPI's long history, good
reputation, experienced management, product variety, pricing, service levels
and high order fill rates enable it to compete favorably with other
distributors.
REGULATION
SCPI's management does not anticipate that existing or known pending
environmental legislation or other regulations will require major capital
expenditures or will affect its operations.
EMPLOYEES
SCPI employs approximately 65 persons, of whom about 50 are employed
in the headquarters office and distribution facility in Pittsburgh. Most of
the others are field personnel. Senior executives, including Bernard Frank (a
founder of Steel City Products in 1947), have many years of service with SCPI
and some are employed under long-term contracts.
The warehouse and certain office employees of SCPI are represented by
Local 636 of the International Brotherhood of Teamsters. SCPI believes that it
has experienced generally good labor relations, and no significant labor
disputes have affected its business in recent years. Renewal negotiations
related to the union agreement have continued beyond its expiration in November
1995.
H & H DISTRIBUTORS, INC.
BACKGROUND AND CUSTOMER BASE
The business operated by H&H was founded about sixty years ago and
operates under the name "Harry Survis Auto Center". Oakhurst acquired all the
capital stock of H&H in January 1994 from Harold Garfinkel, who owned and has
managed the business for many years. Mr. Garfinkel continues as President of
H&H under a long-term employment agreement.
The "Harry Survis" name is well known in the Pittsburgh market through
its long history and extensive ongoing advertising campaign. H&H sells and
installs products for the automotive aftermarket, both at wholesale and retail,
including automobile sound and alarm systems, sun roofs and other accessories.
In fiscal 1996, H&H added spoilers (wings) to its product selection, and in
fiscal 1997 will begin to offer light truck accessories.
In September 1994, H&H opened a second location, and in the first
quarter of fiscal 1997 it opened two additional locations, all in the
greater-Pittsburgh area.
In recent years, H&H has expanded its involvement in the cellular
phone business, and is currently one of the largest agents for Bell Atlantic
NYNEX Mobile Systems ("BANMS") in the Pittsburgh market, selling portable
cellular phones as well as installing phones in cars, and earning commissions
on the activation of new cellular subscribers for BANMS.
In addition to selling direct to the general public and to businesses,
H&H supplies accessories to many automobile dealers and provides installation
services for such products. H&H also uses a number of sub-agents in its
cellular phone business. There are no foreign sales.
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The cellular phone industry has recorded significant growth over the
past decade, with large numbers of new subscribers being added each year. The
industry is also constantly introducing innovations to existing systems,
including the change from "analog" to "digital" systems, and the introduction
of Personal Communication Services ("PCS"). The Company believes that this
growth environment and continued pattern of change within the industry present
opportunities for H&H, but in fiscal 1996 H&H experienced increased competition
following a significant increase in the number of retail outlets selling
cellular phones. In response to this situation, management opened two new
facilities in the first quarter of fiscal 1997 and restructured its cellular
sales force.
Sales attributable to H&H were approximately $4.6 million in fiscal
1996 and accounted for approximately 9% of Oakhurst's consolidated sales for
that year. H&H has a broad customer base, with no one customer representing a
material proportion of consolidated sales.
SOURCES OF SUPPLY
H&H acquires its accessory products from many well-known
manufacturers, and acquires its cellular phones from BANMS and direct from
manufacturers and other suppliers.
H&H has been an agent for BANMS since the Pittsburgh area cellular
system was established in 1984. Prior to its acquisition by Oakhurst, H&H
entered into a new five year agency agreement with BANMS, certain terms of
which have since been amended. BANMS also sells cellular phones and cellular
telephone service in competition with H&H.
SEASONALITY
The business conducted by H&H is seasonal, with higher revenues in the
summer months than at other times of the year. The cellular phone business
also experiences strong sales during the Christmas season.
COMPETITION
In its automotive accessories business, H&H competes with other
distributors of such products and with manufacturers that offer their products
directly to H&H's customer base. The Company believes that H&H differentiates
itself from such competition by its strong name recognition which the Company
believes has been synonymous with quality automotive products and installation
for over sixty years, supported by a wide selection of premium brand
accessories, and by experienced sales staff and installation technicians.
However, there can be no assurance that H&H will be able to continue to retain
its market position.
In its cellular phone business, in which H&H acts as an agent for
BANMS, H&H competes with other BANMS agents, with direct sales by BANMS
salespeople and retail outlets operated by BANMS, and with sales by AT&T
Wireless Communications (formerly "Cellular One") and its agents. As a
long-term BANMS agent in the Pittsburgh market, the Company believes that H&H's
experience and competitive position is enhanced by the recognition of the
"Harry Survis" name supported by a professional sales and installation staff.
However, the significant growth in the cellular phone industry has resulted in
a proliferation of retailers attempting to satisfy customers for these
services, and although the Company believes that such outlets generally fail to
provide services comparable to those which H&H delivers, there can be no
assurance that H&H will be able to maintain its competitive position.
REGULATION
While the cellular phone industry is regulated by the federal
government, such regulation has had no material adverse effect on the business
of H&H. It is anticipated that wireless communications activities will be
subject to some deregulation in the future, the effect of which on H&H's
cellular phone business cannot be predicted.
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EMPLOYEES
H&H employs an aggregate of approximately fifty persons at its
facilities in the greater Pittsburgh area. None of the employees is
represented by a labor union. Management believes that its relationship with
its employees is generally good, and H&H enjoys a high average length of
service among its employees.
DOWLING'S FLEET SERVICE CO., INC.
BACKGROUND AND CUSTOMER BASE
Dowling's was established in 1933. It operates two facilities in each
of New York, Connecticut and New Jersey, and in the first quarter of fiscal
1997 expanded to a seventh facility by the acquisition of all of the capital
stock of G&O Sales Company, a radiator distributor serving the greater
Philadelphia, Pennsylvania market. Dowling's is one of the largest
distributors of automotive radiators and related products in the northeastern
United States. Oakhurst acquired all the capital stock of Dowling's in August
1994 from James Dowling, who owned and managed the business for many years and
who is the son of the founder. Two long-service employees now manage the
business as President and Vice President under long-term employment agreements.
Most of Dowling's customers are radiator repair shops, which perform
repairs for car dealers, service stations and retail customers. Dowling's has
avoided a multi-level approach, so as to build strong allegiance from its
radiator repair shop customers, and has achieved a high market share in its
markets. There are no foreign sales. Dowling's has a broad customer base,
with no one customer representing a material proportion of consolidated sales.
The radiator replacement market has undergone important changes in
recent years. As manufacturers sought to reduce automobile weight,
aluminum/plastic radiators tended to replace the traditional copper/brass
models as original equipment. Initially, this product changeover extended
radiator lives, so that the replacement market experienced a decrease in
replacement demand. This trend is now reversing, as the aluminum/plastic
products are beginning to reach replacement age. Furthermore, these new
radiators are more difficult to repair than copper/brass, so that the
proportion of replacement to repair has increased. In addition, the number of
radiator models has increased in recent years. For these reasons, management
believes that repair shops have become more dependent on distributors for both
selection and service.
Sales attributable to Dowling's were approximately $11.6 million, or
25% of Oakhurst's consolidated revenues, in fiscal 1996.
SOURCES OF SUPPLY
Dowling's acquires its products from several well-known manufacturers,
and carries both name-brand and generic products. Because of its buying
position and storage facilities, Dowling's is able to obtain competitive
pricing from its suppliers. Dowling's concentrates on offering high quality
products and it purchases over sixty percent of the product it sells from a
major U.S. radiator manufacturer, Modine Manufacturing Company ("Modine"),
making Dowling's one of Modine's largest U.S. after-market customers.
SEASONALITY
Dowling's business is seasonal, with higher revenues in the hot summer
months and very cold winter months when automobile radiators are most affected
by extreme temperatures. Changes in weather patterns in Dowling's market area
may therefore affect its sales levels.
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COMPETITION
Dowling's competes with many other radiator distributors. Demand in
the radiator market was very strong in 1993 and 1994, which led to an increase
in the number of radiator distributors in Dowling's markets. Dowling's
reputation is based on its competitive pricing, quality products, and service
consisting of twice daily delivery to customers. Because of this, Oakhurst
believes that Dowling's is positioned to withstand such competition and to
build upon its historic sales and profits. However, there can be no assurances
that past levels of revenues and profitability can be maintained. In fact,
during fiscal 1996 one of Dowling's locations suffered a significant decline in
sales, due to the nearby opening of a competitor (see "Employees" below).
However, in the first quarter of fiscal 1997, Dowling's experienced an
improved competitive situation, with a return to historical levels of sales and
gross margins.
REGULATION
Dowling's management does not anticipate that any major capital
expenditures will be required by existing or known pending environmental
legislation or other regulations.
EMPLOYEES
Dowling's employs approximately fifty persons, none of whom is
represented by a union.
In March 1995, Dowling's suffered the loss of all five of its
employees at one major location to a new competitor with a resulting
significant loss of business. Most of these employees were re-hired in July
1995, and sales from this location subsequently returned to previous levels.
In other respects, Dowling's has not encountered any significant difficulties
in its employee relations.
PUMA PRODUCTS, INC.
BACKGROUND AND CUSTOMER BASE
Puma was founded in 1988 by Anthony N. Puma, from whom Oakhurst
acquired the business in October 1994. Mr. Puma continues as President under
a long-term employment agreement. Puma distributes accessories to automotive
and truck converters and restylers and to automotive accessory retail stores
throughout the U.S., with a market concentration in the five states around its
base in Grand Prairie, Texas, and in the Elkhart, Indiana market, where a new
facility was opened in September 1995. Puma's products include high quality
wood interior finishes for light trucks, sport utility vehicles and vans, and
other auto accessories including running boards, spoilers and exterior trim.
Puma has grown very rapidly since its founding by adding customers,
enlarging its market territory, and expanding its range of products. While the
Company believes that opportunity for expansion for Puma still exists, there
can be no assurance that Puma's past growth and profitability levels can be
maintained. Geographic expansion opportunities and new product lines are
currently under consideration. In November 1995, Puma developed a catalog to
support its efforts to enlarge its customer base, especially to small
accessories shops and restylers, and in the first quarter of fiscal 1997, Puma
expanded its wood accessories line to include vans. There are no foreign
sales.
In the past, a large proportion of Puma's business has been with
vehicle converters who, in turn, are dependent upon the availability of new
vehicles from the "Big Three" automobile manufacturers. In fiscal 1996,
shortages of such vehicles led to limits on the number of vehicles available to
converters and created an intensification of competition among suppliers to the
converter market, and to a consequent reduction in Puma's sales to these
customers. This decrease was only partly offset by increases in sales of
non-wood accessories.
Sales attributable to Puma were approximately $6.6 million, or about
14% of Oakhurst's consolidated revenues, for fiscal 1996.
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SOURCES OF SUPPLY
The wood products are developed to Puma's own specifications for most
domestic pickup trucks, sport utility vehicles and vans. Wood products, which
are mostly manufactured in Mexico, accounted for about half of Puma's sales in
fiscal 1996. Puma's non-wood products are acquired from established U.S.
suppliers and many carry brand names recognized in the industry.
Although from time to time Puma has experienced rapid growth in demand
for its wood products which has required an increase in the supply of such
products, management believes that its sources of supply are adequate for its
needs.
SEASONALITY
Although occasional seasonal sales interruptions can occur in relation
to a manufacturer's introduction of new vehicle models, Puma generally does not
otherwise experience significant seasonal sales fluctuations.
COMPETITION
Puma competes with many other distributors and also with manufacturers
of automotive interior wood products. Puma competes by offering high quality
products at competitive prices, enhanced by its volume purchasing ability and
ample storage facilities. Puma competes on a combination of price, quality and
its rapid order turnaround time which management believes is better than that
of its competitors.
REGULATION
Management does not anticipate that any major capital expenditures
will be required by existing or known pending environmental legislation or
other regulations.
EMPLOYEES
Puma employs approximately thirty persons, none of whom is represented
by a union. Many of its key employees have been with Puma since its inception,
and Puma believes that its relationships with its employees are generally good.
ITEM 2. PROPERTIES
SCPI operates its business from a 100,000 square-foot building that it
owns located in an industrial park in Pittsburgh, Pennsylvania. The original
building was constructed in 1970 and it has been expanded several times.
H&H is headquartered and operates from a 25,000 square foot building
near the downtown area of Pittsburgh, Pennsylvania, which is leased from Harold
Garfinkel, President and former owner of H&H. In fiscal 1995, H&H opened a
second facility comprised of approximately 1,100 square feet, which is located
in a shopping center in McMurray, Pennsylvania, and is leased for a remaining
term of 2.5 years from an independent landlord. In the first quarter of fiscal
1997, H&H expanded further through the lease, on short-term leases, of two mall
locations, located in Pittsburgh and Greensburg, Pennsylvania, and comprising
approximately 850 and 1,600 square feet, respectively.
Dowling's conducts it business from seven leased facilities
aggregating 92,000 square feet, which are located in Mt. Vernon and Hempstead,
New York, in Bridgeport and East Hartford, Connecticut, Hillside and Lodi, New
Jersey and in Philadelphia, Pennsylvania. Two of the facilities are leased
from James Dowling, the former owner of Dowling's. Dowling's main offices are
situated at the Mt. Vernon
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location. In fiscal 1997, Dowling's added the seventh location in
Philadelphia, Pennsylvania, comprised of 20,000 square feet, through an
acquisition (see Item 1, Business; Dowling's Fleet Service Company, Inc. -
Background and Customer Base); this location is leased from the former
shareholder.
Puma is headquartered and operates from a 27,000 square feet building
located in Grand Prairie, Texas which is leased from Tony Puma, President and
former owner of Puma Products. In fiscal 1996, Puma leased a second warehouse
of 8,000 square feet located in Elkhart, Indiana, which is leased for a
remaining term of 1.5 years from an independent landlord.
Oakhurst Management Corporation also maintains a corporate office in
the Grand Prairie facility.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending 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
fourth quarter of the fiscal year ended February 29, 1996.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the names, ages, positions and a brief description
of the business experience during the last five years of the executive officers
of the Company and its subsidiaries, all of whom serve until they resign or are
removed from such offices by the respective Board of Directors.
MARK AUERBACH (58): Chairman of the Board of Directors, President, Chief
Executive Officer and Chief Financial Officer. Mr. Auerbach has been Chairman
of the Board, President, Chief Executive Officer and Chief Financial Officer
since December 18, 1995 succeeding Mr. Maarten Hemsley who resigned from these
positions effective as of such date. Mr. Auerbach has been Senior Vice
President and Chief Financial Officer since April 1993 of Central Lewmar, L.P.,
a fine paper merchant. From September 1992 until April 1993, he was a partner
of Marron Capital, L.P., an investment banking company. From 1990 to 1992, he
was President, Chief Executive Officer and Chairman of the Board of Implant
Technology, Inc., a manufacturer of artificial hip systems. He is a director
of Pharmaceutical Resources, Inc., a generic drug manufacturer, and Acorn
Venture Capital Corporation. Mr. Auerbach is a certified public accountant,
and has been a director of the Company since 1991.
BERNARD H. FRANK (75): Executive Vice President, Chief Operating Officer and
Director. Mr. Frank was appointed to these positions in May 1994. Mr. Frank
was a founder of the Steel City Products business which SCPI's predecessor
acquired in 1969; he has been associated with its business for approximately
forty-nine years. He is a director of SCPI and assumed the title of Chief
Executive Officer of SCPI in January 1993 and was appointed its Chairman in
March 1994. Mr Frank was selected to fill a vacancy on Oakhurst's Board of
Directors effective May 31, 1995.
ROGER M. BARZUN (54): Senior Vice President, Secretary and General Counsel.
Mr. Barzun has been Secretary and General Counsel of Oakhurst since August 1991
and a Senior Vice President since May 1994. He is also Secretary and General
Counsel of SCPI. Mr. Barzun has been a lawyer since 1968 and is a member of
the New York and Massachusetts bars.
RICHARD RANDOLPH (71): Senior Vice President. Mr. Randolph was a Vice
President of the Company from November 1991 until May 1994, when he became a
Senior Vice President. He has been President of Dick Randolph Associates, a
consulting firm, since 1988. Before that, he was credit manager of Mattel
Toys, Inc. for many years. Mr. Randolph has also been a director of SCPI since
1989.
JOHN R. RUDA (54): Executive Vice President - Marketing. Mr. Ruda was a
director and an executive officer (most recently as President) of SCPI for more
than five years until his resignation in December 1995, when he was elected to
his current position with Oakhurst.
LAURENCE D. FINMAN (37): Vice President. Mr. Finman has been Vice President
and Chief Operating Officer of the Company's Puma Products subsidiary since
shortly before its acquisition in October 1994 and was elected a Vice President
of the Company in December 1995. Prior to joining Puma, Mr. Finman held senior
management positions in a family-owned tire distribution business.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed and traded on the Nasdaq
Small-Cap Market under the symbol OAKC.
The following table sets forth, for the periods indicated, the high
and low bid prices for the Company's Common Stock as reported by Nasdaq:
FISCAL YEAR ENDED FEBRUARY 29, 1996 FISCAL YEAR ENDED FEBRUARY 28, 1995
----------------------------------- -----------------------------------
QUARTER HIGH LOW HIGH LOW
------- ---- --- ---- ---
First $3.38 $2.50 $3.75 $2.50
Second $2.50 $1.88 $4.75 $3.13
Third $2.25 $1.38 $4.94 $3.50
Fourth $1.50 $1.13 $3.88 $3.13
The stock price ranges reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
There were approximately 3,600 holders of record of Oakhurst's common
stock on May 1, 1996.
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ITEM 6. SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial and other data of
Oakhurst Company, Inc. and subsidiaries and should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which follows, and with the Consolidated Financial Statements and
related Notes.
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26, FEBRUARY 27, FEBRUARY 29,
1996 (a) 1995 1994 1993 1992
------------- ------------ ------------ ------------ ------------
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
OPERATING RESULTS:
Sales.................................... $ 47,339 $ 43,142 $ 32,386 $ 33,584 $ 29,893
========== ========== ========== ========== ==========
(Loss) income from continuing operations
before income taxes and minority
interest............................... $ (2,158) $ 1,442 $ 786 $ 472 $ 210
Current income tax benefit (expense) .... 115 (155) (112) (148) (44)
Deferred income tax expense.............. (2,000) (468) (235) (115) (56)
Minority interest in SCPI's loss (income)
attributable to common stockholders.... - - - 533 (11)
---------- ---------- ---------- ---------- ----------
(Loss) income from continuing operations (4,043) 819 439 742 99
Income (loss) from
discontinued operations (b)........... 65 90 - (44) 130
---------- ---------- ---------- ---------- ----------
Net (loss) income....................... $ (3,978) $ 909 $ 439 $ 698 $ 229
========== ========== ========== ========== ==========
PER SHARE AMOUNTS:
(Loss) income from continuing operations $ (1.27) $ 0.27 $ 0.16 $ 0.27 $ 0.03
Income (loss) from
discontinued operations............... 0.02 0.03 - (0.02) 0.05
---------- ---------- ---------- ---------- ----------
Net (loss) income....................... $ (1.25) $ 0.30 $ 0.16 $ 0.25 $ 0.08
========== ========== ========== ========== ==========
BALANCE SHEET STATISTICS:
Total assets............................ $ 26,117 $ 33,301 $ 18,767 $ 14,632 $ 14,508
Long-term obligations................... $ 7,569 $ 6,612 $ 1,429 $ 1,766 $ 2,660
Book value per share of common stock.... $ 3.41 $ 4.65 $ 4.39 $ 2.20 $ 1.88
(a) Results for fiscal 1996 include a net non-cash deferred tax charge of $2
million, primarily relating to an increase in the Company's valuation
allowance of its deferred tax asset (see Note 7 to the Consolidated
Financial Statements).
(b) In fiscal 1991, SCPI sold its Retail Division to RAC as discussed in Note 8
to the Consolidated Financial Statements. SCPI remained contingently
liable for most mortgage debt, and for many lease obligations of the Retail
Division following the sale. RAC was forced into bankruptcy in March
1991. RAC's Reorganization Plan (the "RAC Plan") contained provisions for
releases in favor of SCPI together with an injunction against further
actions by contingent creditors against SCPI. Accordingly, SCPI was
released from further liability except for payment of the Creditor Notes as
further described in Notes 5 and 8 of the Consolidated Financial
Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Management believes that the corporate structure resulting from the
merger transaction, whereby Steel City Products Inc. ("SCPI") became a special,
limited purpose, majority-owned subsidiary of Oakhurst Company, Inc.
("Oakhurst"), will facilitate capital formation by Oakhurst while permitting
Oakhurst and SCPI to file consolidated tax returns so that both may utilize the
tax benefits (including approximately $149 million of net operating loss
carryforwards) attributable 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 carryforwards.
Until 1994, Oakhurst's principal business, which is conducted by SCPI
under the trade name "Steel City Products", was the distribution of automotive
parts and accessories to independent retailers from a facility in Pittsburgh,
Pennsylvania.
In January 1994, Oakhurst acquired all the outstanding capital stock
of H&H Distributors, d/b/a Harry Survis ("H&H"), a Pittsburgh-based company
that distributes and installs automotive accessories, including stereos, alarms
and cellular phones, for an aggregate purchase price of approximately $1.4
million that consisted of cash and the issuance of a short-term note payable of
$165,000 to the seller.
In August 1994, Oakhurst acquired all the outstanding capital stock of
Dowling's Fleet Service Co., Inc. ("Dowling's"), a New York-headquartered
distributor of automotive radiators and related products, for an aggregate
purchase price of approximately $5.5 million that consisted of $4 million in
cash, a note and earn-out payable aggregating $1 million issued to the seller,
and convertible debt of $500,000 issued to certain executives of Dowling's. In
fiscal 1996, the purchase price of Dowling's was reduced by approximately
$825,000 through the reduction of the note and earn-out payable to the former
owner as the result of the settlement of an arbitration proceeding brought by
Oakhurst against the former owner. In March 1997, the terms of the convertible
debt were modified (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources").
In October 1994, Oakhurst acquired all of the outstanding capital
stock of Puma Products, Inc. ("Puma"), a Texas-based distributor of
after-market products to the light truck and van conversion industry, for an
aggregate purchase price of approximately $4.2 million that consisted of cash
of $1.2 million, notes payable and an earn-out payable issued to the seller
aggregating approximately $2.3 million, and the issuance of 266,667 shares of
Oakhurst's common stock. In fiscal 1996, certain terms of the acquisition
notes were modified (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources").
SIGNIFICANT EVENTS AND TRENDS
SCPI SUBSIDIARY
SCPI's customers are continually affected by changes in the retail
environment, including the recent competitive pressures facing regional mass
merchandisers and the growing influence of automotive specialty chains. These
have led to fluctuations in the level of business that SCPI enjoys with
individual customers. In recent years, SCPI has lost some significant
customers and has suffered reductions in business as certain customers have
closed stores in the face of competition, have been forced into bankruptcy, or
have reduced their automotive merchandise selection. Furthermore, some
customers have changed their buying practices to acquire certain merchandise
direct from manufacturers rather than through distributors such as SCPI, and
one significant customer changed to an alternate distributor.
In fiscal 1993, SCPI's two then-largest customers filed for bankruptcy
protection. One of these customers closed all its stores in December 1993; the
other, Jamesway Corporation ("Jamesway")
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reorganized and emerged from Chapter 11 in January 1995. Jamesway continued to
be one of SCPI's largest customers until October 1995, when it again filed for
protection under the U.S. Bankruptcy Code, and shortly thereafter closed all
its stores. In the first seven months of fiscal 1996 through September 1995,
when sales to Jamesway ended, SCPI's sales to this customer were approximately
$4 million.
In November 1995, Forest City Auto Parts, Inc. ("Forest City")
informed SCPI of its decision to change its source of supply; sales to Forest
City ceased in January 1996. In fiscal 1996, sales to Forest City were
approximately $4.6 million.
In its efforts to offset these trends, SCPI strengthened its sales
team to help identify new customers and better serve existing customers,
expanded its product offerings to certain customers and enlarged the territory
that it serves. In fiscal 1996, SCPI began offering certain "hard parts" such
as brake rotors, and in the first quarter of fiscal 1997, SCPI introduced a new
merchandise category of non-food pet supplies. Although such pet supplies are
not typical of SCPI's historical merchandise mix, management determined that
the availability of existing customers which sell both pet supplies and
automotive accessories, combined with SCPI's distribution expertise and
infrastructure, offered an opportunity for increased sales.
During fiscal 1996, SCPI added two new large customers (NHD and Ames)
and other new customers, and in the first quarter of fiscal 1997 added another
large customer (Rich's), and expanded sales to certain other customers.
However, the level of sales to such customers is currently not sufficient to
offset the loss of the Jamesway and Forest City business. Without further
customer additions or significant increases in sales to existing customers,
sales in fiscal 1997 are expected to be lower than in fiscal 1996. In
anticipation of this reduction, management substantially reduced SCPI's
inventory levels and eliminated certain operating and overhead expenses.
H&H SUBSIDIARY
Despite the opening of a new facility in September 1994, sales at H&H
in fiscal 1996 were lower than in the prior year, due to reduced demand for car
accessories and increased competition in the cellular phone business, combined
with a decrease in the commission rate earned on each phone activation. These
factors placed pressure on gross margins, although margins improved somewhat in
the second half of fiscal 1996.
In response to these trends, management increased advertising and
promotions for car accessories and introduced new accessories to help improve
sales, and in the first quarter of fiscal 1997, H&H opened two new facilities
at malls in the greater Pittsburgh market area and restructured its sales
force.
DOWLING'S SUBSIDIARY
During the first half of fiscal 1996, Dowling's was faced with intense
competitive pressures in one of its markets due to the nearby opening of a
competitor that hired five Dowling's employees. Management's efforts to
overcome this competition succeeded in returning sales to historical levels
during the second half of fiscal 1996. Dowling's other facilities were also
adversely affected in the first half of fiscal 1996 by increased competition in
a generally weak market. This first half situation placed pressure on
Dowling's gross margins throughout fiscal 1996, but margins began to improve
during the second half of the year.
In the first quarter of fiscal 1997, Dowling's acquired an existing
radiator distributor in Philadelphia, Pennsylvania for approximately $200,000,
and in the same period Dowling's experienced an improved competitive situation
and a strengthening of demand in its existing markets, with a return to
historical levels of sales and gross margins.
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PUMA SUBSIDIARY
Beginning in the first quarter of fiscal 1996, the strong retail
demand for light trucks and sport utility vehicles had an adverse impact on
sales by Puma, because vehicle manufacturers sought to satisfy dealer demand at
the expense of converters, which represented an important segment of Puma's
customers. This situation led to an intensification of competition among
suppliers to the converter market, and for the remainder of fiscal 1996 Puma's
sales continued at lower levels than in the prior year. In response to this
situation, and in furtherance of Oakhurst's plans to develop the long-term
potential of Puma, management opened a second facility (in Elkhart, Indiana,
center of the vehicle conversion industry) during the second quarter of fiscal
1996, continued to strengthen its management team, especially its sales
department, and has enlarged its product offering, including the addition of
van products to its wood line, and introduced an extensive catalog targeted at
the restyler and accessories retailer market. These efforts succeeded in
increasing sales of non-wood accessories, but until April 1996, when Puma's
management intensified its efforts to recapture key converter accounts in
anticipation of the model year change, sales of wood accessories continued at
lower levels than in the past.
During the first quarter of fiscal 1997, Puma's gross margins
reflected an improvement over historical levels, due to changes in product mix
and in the source of certain products.
LIQUIDITY AND CAPITAL RESOURCES
FINANCING AND LINE OF CREDIT
In addition to cash derived from the operations of its four
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 level of working capital needs vary primarily
with the amounts 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
February 29, 1996, Oakhurst's debt primarily consisted of (i) the SCPI Term
Loan of $1.7 million, and the Oakhurst Credit Agreement with a balance of $3.8
million, which were refinanced in March 1996 by the Fixed Asset Loan and the
Credit Facility, respectively (see below), (ii) debt in connection with the
fiscal 1995 acquisitions of Dowling's and Puma, and (iii) the SCPI Creditor
Notes (see below).
In recent years, SCPI's operations were more profitable than in fiscal
1996 and its cash flow was sufficient to fund its own working capital needs, to
repay the scheduled principal reductions required by the Creditor Notes and
Term Loan, and to pay dividends to and make loans to Oakhurst.
In fiscal 1994, accumulated cash was used to acquire the H&H
subsidiary. In fiscal 1995, accumulated cash and borrowings under the Term
Loan and the Credit Agreement were used to satisfy the cash portion of the
purchase price of Dowling's and of Puma.
Continuing operations provided cash flow of approximately $2.5 million
in fiscal 1995. However, in fiscal 1996 continuing operations provided cash
flow of only $125,000. A reduction of approximately $1.2 million in working
capital levels which resulted from the lower levels of sales, particularly at
the SCPI subsidiary, was offset by a cash operating loss of $1.1 million (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations").
At November 30, 1995, Oakhurst and SCPI did not meet certain covenants
under the outstanding bank debt, and in March 1996, Oakhurst obtained
replacement financing from an institutional lender that provides a total
facility of $9.5 million, comprising a new SCPI term loan of $1.5 million (the
"Fixed Asset Loan") and a maximum revolving credit facility of $8 million (the
"Revolver") (collectively, the "Credit Facility"), and the amounts outstanding
under the Term Loan and existing Credit Agreement were repaid. The Credit
Facility provides a significant increase in financing available to Oakhurst and
its subsidiaries.
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The Credit Facility is secured by the accounts receivable,
inventories, and fixed assets of all of Oakhurst's subsidiaries. Like the Term
Loan that it replaced, the Fixed Asset Loan is secured by SCPI's building in
Pittsburgh, but provides a more beneficial amortization schedule of twenty-four
monthly principal and interest payments of approximately $32,000, with the
remaining principal balance due on April 1, 1998. The Fixed Asset Loan
provides for prepayment without penalty, and contains a provision for the
release of SCPI's building as collateral in the event of a refinancing, subject
to a right of first refusal by the current lender to refinance the loan on the
same terms as offered by a new lender.
Borrowings under the Credit Facility bear interest at the higher of
the Citibank N.A. base rate plus 1.5%, or $5,000 per month, and borrowings
under the Revolver are subject to a borrowing base that is calculated according
to defined levels of Oakhurst's subsidiaries' accounts receivable and
inventories. The Credit Facility has an initial term of two years, with
automatic renewal terms of one year each upon payment of a renewal fee of 0.5%
thereof, unless earlier terminated as provided for in the agreement, and
contains certain customary restrictive financial and non-financial covenants,
including the maintenance of defined subsidiary and consolidated tangible net
worth levels and consolidated current ratio, and limitations on cash dividends.
In February 1996, Oakhurst settled an arbitration proceeding that it
had brought in connection with the acquisition of Dowling's, with the result
that debt, interest, and earn-out payments due principally in fiscal 1996 and
1997 to the seller of that business, were decreased by approximately $950,000.
In February 1996, a $600,000 note issued to the seller in connection
with the acquisition of Puma that was due to be fully repaid in fiscal 1997 was
rescheduled to provide for five annual payments of $120,000 beginning in fiscal
1999.
In March 1996, convertible debt of $500,000 issued in connection with
the Dowling's acquisition that was due to be paid in full in fiscal 1998 or, at
the holders option, converted into Oakhurst common stock at that time, was
renegotiated into the form of cash payments made in March 1996 of approximately
$109,000, and the issuance of two long-term notes aggregating $440,000 payable
through fiscal 2001. The new notes eliminated the stock conversion option.
The creditor notes that were issued by SCPI in connection with the
bankruptcy of Retail Acquisition Corp., (the "Creditor Notes") (see Note 8 to
the consolidated financial statements) are payable in six equal annual
installments through July 1998, subject to a prepayment requirement whereby if
defined cash flow exceeds $900,000, $1,000,000 and $1,100,000 in each of fiscal
1995, 1996 and 1997, respectively, holders of the Creditor Notes may tender for
prepayment a portion thereof in the amount of the excess defined cash flow, but
not to exceed approximately $400,000 per annum. SCPI did not meet such
prepayment criteria in either of fiscal 1996 and fiscal 1995. The Creditor
Notes have been discounted using an imputed interest rate of 7.5% and are
included in the net obligation of the discontinued business segment.
In fiscal 1997, management expects sales to be lower than in fiscal
1996, principally due to the loss by SCPI in fiscal 1996 of two major
customers, which is expected to be only partly offset by new SCPI customers and
by increased sales by Dowling's.
As part of a strategic evaluation of its business, SCPI has reduced
expenses so as to mitigate negative cash flow from operations while new
customers and product lines are sought. Oakhurst undertook similar reviews in
connection with its other subsidiaries to address the causes of the fiscal 1996
operating loss. Management expects that, subject to unforeseen circumstances,
these efforts will result in a positive operating cash flow in fiscal 1997, but
there can be no assurance that the Company can obtain a sufficient number of
new customers or sufficient levels of new business to return it to
profitability. Management has also limited capital expenditures and plans a
small reduction in working capital levels during fiscal 1997. However, it is
expected that these sources of cash flow will be somewhat less than debt
service requirements in fiscal 1997.
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Management believes that the greater availability of financing
pursuant to the Credit Facility, together with steps taken in response to the
recent loss of certain significant customers and to the reduced operating
profits in fiscal 1996, will provide adequate funding for the Company's working
capital, debt service and capital expenditure requirements, including seasonal
fluctuations.
CAPITAL EXPENDITURES
The Company has no outstanding commitments for significant capital
expenditures.
TAX LOSS CARRYFORWARDS
At February 29, 1996, SCPI and Oakhurst had net operating tax loss
carryforwards (the "Tax Benefits") of approximately $149 million, which
principally expire in the years 2001 through 2005, and which shelter most of
SCPI's income from federal income taxes. A change in control of SCPI or
Oakhurst in any three-year period exceeding 50% may lead to the loss of the
majority of the Tax Benefits. In order to reduce the likelihood of such a
change of control occurring, SCPI's and Oakhurst's Certificates of
Incorporation include restrictions on the registration of transfers of stock
resulting in, or increasing, individual holdings exceeding 4.5% of each
company's common stock.
Since the regulations governing the Tax Benefits are highly complex
and may be changed from time to time, and since SCPI's and Oakhurst's attempts
to reduce the likelihood of a change of control occurring may not be
successful, management is unable to determine the likelihood of the continued
availability of the Tax Benefits. However, management believes that the Tax
Benefits are currently available in full and intends to take all appropriate
steps to help ensure that they remain available. Should the Tax Benefits
become unavailable to SCPI or Oakhurst, most future income of any consolidated
affiliate would not be shielded from federal taxation, thus reducing funds
otherwise available for corporate purposes (see Note 7 to the consolidated
financial statements).
As of February 29, 1996, Oakhurst is required to earn approximately
$12 million of consolidated taxable income before the expiration of the tax
benefits to realize the net recorded tax benefit.
FORWARD LOOKING STATEMENTS
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 Item 1 - "Business" and in this Item 7 - "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.
RESULTS OF OPERATIONS
Operations in fiscal 1995 include Steel City Products and H&H,
together with Dowling's and Puma for the respective periods of ownership, and
the administrative costs of SCPI and Oakhurst. Fiscal 1996 includes a full
year of results for Oakhurst and its consolidated subsidiaries, and there was
one additional day than in fiscal 1995, but the effect of this on results of
operations was not material.
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Fiscal Year Ended February 29, 1996 Compared with Fiscal Year Ended February
28, 1995
Compared with the prior year, sales increased by approximately $4.2
million, or 10%. Increased sales of about $7.7 million resulted from the full
year of sales attributable to Dowling's ($4.5 million) and Puma ($3.2 million).
Sales by existing businesses decreased by approximately $3.5 million.
Compared with the prior year, sales attributable to SCPI decreased by
about $2.7 million. SCPI sales increases aggregating $3 million resulted
primarily from the addition of several new customers, together with higher
sales to several existing customers. These sales increases were offset by
decreases at SCPI of $5.7 million, with a reduction in sales to Jamesway of
approximately $490,000, following that customer's bankruptcy in October 1995, a
reduction of $1.4 million in sales to Forest City, following that customer's
decision during the third quarter to change its source of supply, together with
other sales decreases attributable to SCPI's customers in the Northeast market
and certain other smaller SCPI customers that resulted from intense competitive
pressures on those customers and reduced sales of spring product lines due to a
rainy spring season. The remainder of the decrease resulted from lower sales
to other customers that have downsized or eliminated their automotive
departments, have filed bankruptcy, or that have changed their source of
supply.
Sales attributable to H&H decreased by approximately $840,000, despite
the opening of a second location in September 1994. Approximately 65% of the
decrease is attributed to reduced equipment sales and commission revenues
associated with H&H's cellular phone business as a result of increased
competition in the current year, combined with a reduced commission structure
related to cellular activations. The balance of the reduction is due to lower
sales of car accessories and lower installation fees earned.
Other income decreased by $184,000 compared with the prior year,
principally due to the recovery by SCPI of $175,000 in fiscal 1995 that was
placed in escrow in prior years as part of SCPI's predecessor's bankruptcy.
Consolidated gross profits were $10 million (21.2% of sales), compared
with $10.8 million (24.9% of sales) last year. The decrease in gross profits
resulted from the lower sales levels discussed above, combined with decreases
in gross margins. In addition to the fact that gross margin levels earned by
the newly-acquired businesses are expected to be at somewhat lower levels than
those earned by the Company's traditional businesses, each of the four
operating companies encountered a reduction in gross margins in fiscal 1996
compared with fiscal 1995. SCPI's margin reduction resulted primarily from
more competitive pricing to customers. H&H earned lower gross margins because
of increased promotions and the impact of a lower commission structure on its
cellular phone business. Dowling's was affected by increased competition,
especially in one of its Connecticut markets. Puma lowered pricing to many of
its customers, while absorbing certain manufacturers' price increases.
Operating, selling and administrative expenses increased by $1.7
million. Approximately $1.8 million is attributable to the two businesses
acquired in the prior year. SCPI's operating and selling expenses decreased by
approximately $40,000, along with lower SCPI executive salaries and profit
sharing expenses of approximately $300,000. There were higher corporate
overheads necessitated by the larger company, and expenses of approximately
$130,000 which related to a registration statement filing in fiscal 1996.
There was an increase in the provision for doubtful accounts of
$583,000 when compared with the prior year, of which $415,000 is attributable
to SCPI where the provision was increased by $150,000 in connection with the
balances due from Jamesway (one of SCPI's largest customers) at the end of the
current year second quarter, and by $265,000 to provide for the bankruptcies of
several of SCPI's small customers that occurred during the current year,
together with provisions for several other past due and disputed accounts.
Dowling's also included a provision of approximately $140,000, primarily
resulting from the bankruptcy of a customer in the fourth quarter.
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Amortization of the excess of costs over net assets acquired
("goodwill") increased by $149,000 compared with the prior year, as a result of
the acquisitions in fiscal 1995.
Interest expense increased by $235,000 principally as a result of the
debt incurred in connection with the acquisitions and higher average levels of
working capital borrowings.
Although there was a loss from continuing operations in the current
fiscal year, compared with income in the prior year, income tax expense
increased by $1.3 million because of a current year charge to deferred tax
expense of $2 million, that resulted from an increase in the valuation
allowance of the deferred tax asset.
Fiscal Year Ended February 28, 1995 Compared with Fiscal Year Ended February
26, 1994
Compared with the fiscal 1994, sales in fiscal 1995 increased by 33%,
or by $10.8 million. Increased sales of $15.5 million resulted from the
acquisitions; $5.1 million, $7.1 million and $3.3 million for H&H, Dowling's
and Puma, respectively, for the periods of ownership. These increases were
offset by a decrease in sales of $4.7 million by SCPI.
In fiscal 1995, SCPI suffered a decline in sales compared with fiscal
1994 of approximately $4.7 million, a decrease of 14.6%, as it was unable to
fully replace the sales to a large customer that was liquidated in fiscal 1994,
and as another of its large customers closed stores and bought more products on
a factory-direct basis. Sales decreases attributable to these two customers
were approximately $5.1 million; there was a net increase of approximately
$400,000 in sales by SCPI to all other customers following intensive efforts to
replace the lost business.
Other income increased by $287,000. Of the increase, $175,000 is
attributable to the recovery by SCPI of amounts placed in escrow in prior years
as part of SCPI's predecessor's bankruptcy.
Gross profits increased by $4.2 million, or by 65%, and as a
percentage of sales, increased from 20.2% to 24.9%. The increase is entirely
due to the acquisitions, with increased margins of approximately $2.7 million
earned by H&H (twelve months this year compared with one month last year) and
margins of approximately $1.5 million and $740,000 earned by Dowling's and
Puma, respectively. Gross margin earned by H&H at approximately 55% were at
much higher rates than traditionally earned by the Company; however, this is
offset by higher operating, selling and administrative costs which approximate
45% of H&H's sales.
These increases in gross profits were partially offset by a decrease
in gross profits attributable to SCPI of approximately $750,000 compared with
fiscal 1994. The decrease resulted from the reduction in SCPI's sales,
combined with an addition to the LIFO reserve of $25,000 compared with a
reduction in the reserve last year of $70,000.
Operating, selling and administrative costs reflected an increase of
82%, or $4.2 million, primarily as a result of the acquisitions, with $2.2
million, $940,000 and $510,000 attributable to H&H, Dowling's and Puma,
respectively. SCPI's results also included an increase of $210,000, primarily
due to increased sales expenses that were necessary to maintain the changing
customer base and identify new customers. Oakhurst's overhead expenses
increased as a result of the business growth. These factors, together with the
higher percentage of H&H's operating, selling and administrative costs to H&H's
sales, explain the increase in overhead expenses from 15.6% of sales last year
to 21.4% this year.
Amortization of the excess of costs over net assets acquired
("goodwill") was $290,000, compared with $11,000 in fiscal 1994 as a result of
the acquisitions.
The provision for doubtful accounts decreased by $852,000 in fiscal
1995 compared with fiscal 1994, when SCPI required a significant provision for
doubtful accounts related to two of its largest customers that filed for
Chapter 11 bankruptcy protection.
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Interest expense increased by $255,000 in fiscal 1995 compared with
fiscal 1994, reflecting interest on new debt that was issued in connection with
acquisitions, and on higher average working capital borrowings to support the
newly acquired businesses.
In fiscal 1995, pre-tax operating profits of approximately $1.3
million were contributed by the newly acquired businesses ($525,000 by H&H,
$570,000 by Dowling's and $250,000 by Puma).
Income from discontinued operations for fiscal 1995 of $90,000
reflected decreases in SCPI's reserve for contingent liabilities relating to
its former retail division, net of an income tax provision of $46,000.
The Company incurred a loss during the fourth quarter of fiscal 1995
as a result of decreased sales levels and higher expense due to increased sales
efforts. Also, corporate overhead expense increased during the quarter as a
result of the acquisitions of Dowling's and Puma.
-20-
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets: February 29, 1996 and February 28, 1995 . . . . . F-2
Consolidated Statements of Operations for the fiscal years ended
February 29, 1996, February 28, 1995 and February 26, 1994 . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity for the fiscal years ended
February 29, 1996, February 28, 1995 and February 26, 1994 . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the fiscal years ended
February 29, 1996, February 28, 1995 and February 26, 1994 . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . F-6
Supplementary Financial Data:
Selected Quarterly Financial Data (unaudited) for the fiscal years ended
February 29, 1996 and February 28, 1995 . . . . . . . . . . . . . . . . . F-18
Financial Statement Schedules for the fiscal years ended February 29, 1996,
February 28, 1995 and February 26, 1994:
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . F-20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE
NONE
-21-
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item regarding the Company's
directors is included in its Proxy Statement to be filed pursuant to Schedule
14A in connection with the Company's 1996 annual meeting of shareholders under
the section captioned "Election of Directors" and is incorporated herein by
reference thereto. Information regarding the Company's executive officers is
set forth in Part I above, under the caption "Executive Officers of the
Registrant" and will be incorporated herein by reference thereto or will be
filed as an amendment to this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the Company's
Proxy Statement to be filed pursuant to Schedule 14A in connection with the
Company's 1996 annual meeting of shareholders under the sections captioned
"Directors' Compensation" and "Executive Compensation", and is incorporated
herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the Company's
Proxy Statement to be filed pursuant to Schedule 14A in connection with the
Company's 1996 annual meeting of shareholders under the section captioned
"Security Ownership of Certain Beneficial Owners and Management," and is
incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the Company's
Proxy Statement to be filed pursuant to Schedule 14A in connection with the
Company's 1996 annual meeting of shareholders under the section captioned
"Certain Relationships and Related Transactions" and "Compensation Committee
Interlocks and Insider Participation," and is incorporated herein by reference
thereto.
-22-
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report.
1. Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets: February 29, 1996 and February
28, 1995
Consolidated Statements of Operations for the fiscal years
ended February 29, 1996, February 28, 1995 and February 26,
1994
Consolidated Statements of Stockholders' Equity for the
fiscal years ended February 29, 1996, February 28, 1995 and
February 26, 1994
Consolidated Statements of Cash Flows for the fiscal years
ended February 29, 1996, February 28, 1995 and February 26,
1994
Notes to Consolidated Financial Statements
Supplementary Financial Data:
Selected Quarterly Financial Data (unaudited) for the fiscal
years ended February 29, 1996 and February 28, 1995
2. The following Financial Statement Schedules for the fiscal years
ended February 29, 1996, February 28, 1995 and February 26, 1994
are submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or the notes thereto.
3. Exhibits
Exhibit No. Description
2.1 Agreement and Plan of Merger dated as of May 20, 1991 (filed as Appendix A to the Proxy
Statement/Prospectus dated April 16, 1991 of the Company and Steel City Products,
Inc.).
3.1 Restated and Amended Certificate of Incorporation (filed as Exhibit 3 to the Company's
Quarterly Report on Form 10-K for the fiscal quarter ended August 31, 1996).
3.2 By-laws (filed as Appendix C to the Proxy Statement/Prospectus of the Company and Steel
City Products, Inc. dated April 16, 1991).
-23-
25
4.1 Agreement and Plan of Merger dated as of May 20, 1991 (see Exhibit 2, above).
*10.1 Form of Option Agreement dated August 29, 1991 with directors and executive officers
(filed as Exhibit 10(b) to the Company's Annual report on Form 10-K for the fiscal
year ended February 29, 1992).
10.2 Agreement dated June 11, 1991 with Prudential-Bache Special Situations Fund (filed as
Exhibit 10(q) to the Annual Report on Form 10-K of Steel City Products, Inc. for the
fiscal year ended March 3, 1990).
*10.3 Employment Agreement with Harold Garfinkel dated as of November 1, 1993 (filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 26, 1994).
10.4 Agreement between Harold Garfinkel and H&H Distributors, Inc. dated as of November 1,
1993 (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal
year ended February 26, 1994).
10.5 Credit Agreement by and between Steel City Products, Inc. and Integra Bank Pittsburgh
(filed as Exhibit 10.1 to SCPI's Quarterly Report on Form 10-Q for the period ended
August 27, 1994).
10.6 Mortgage and Security Agreement by and between Steel City Products, Inc. and Integra
Bank Pittsburgh (filed as Exhibit 10.2 to SCPI's Quarterly Report on Form 10-Q for the
period ended August 27, 1994).
10.7 Credit Agreement by and between Oakhurst Capital, Inc. and Integra Bank Pittsburgh
(filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period
ended August 27, 1994).
10.8 Pledge and Security agreements between Oakhurst Capital, Inc. and Integra Bank
Pittsburgh (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the period ended August 27, 1994).
10.9 Purchase and Sale Agreement relating to the acquisition of Dowling's Fleet Service
Company, Inc. by Oakhurst Capital, Inc., also containing employment agreements with
James Dowling, Robert Keane and Joseph Quattrochi (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period ended August 27, 1994).
*10.10 Stock Purchase Agreement dated as of October 20, 1994 among Oakhurst Capital, Inc.,
Puma Products (formerly LBI Corporation) and Anthony Puma also containing employment
agreements with Anthony Puma and Laurence Finman (filed as an exhibit to Oakhurst's
Form 8-K filed on October 26, 1994).
10.11 Lease agreements by and between James Dowling and Dowling's Fleet Service Company, Inc.
(filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1995).
10.12 Lease agreement by and between Anthony Puma and Puma Products (filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K for the fiscal year ended February 28,
1995).
-24-
26
*10.13 The 1994 Omnibus Stock Plan with form of option agreement (filed as Exhibit 10.13 to
the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1995).
*10.14 The 1994 Non-Employee director Stock Option Plan with form of option agreement (filed
as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1995).
10.15 Letter agreement dated January 3, 1996 between SCPI and Integra Bank Pittsburgh
amending the Credit Agreement, dated August 1, 1994 between SCPI and Integra (filed as
Exhibit 10.17 to Oakhurst's Registration Statement on Form S-1, file #333-00173, filed
on January 12, 1996).
10.16 Letter agreement dated January 3, 1996 between Oakhurst and Integra Bank Pittsburgh
amending the Credit Agreement, dated August 1, 1994 between Oakhurst and Integra (filed
as Exhibit 10.16 to Oakhurst's Registration Statement on Form S-1, file #333-00173,
filed on January 12, 1996).
10.17 Loan and Security Agreement; Schedule to Loan and Security Agreement; Secured
Promissory Note with FINOVA Capital Corporation all dated March 28, 1996 - filed
herewith.
10.18 Open-End Mortgage between Steel City Products, Inc. and FINOVA Capital Corporation
dated March 28, 1996 - filed herewith.
10.19 Consulting Agreement with Bryanston Management, Ltd, dated as of December 19, 1995 -
filed herewith.
*10.20 Consulting Agreement with Mark Auerbach dated as of December 19, 1995 and Options
Agreement with Mark Auerbach dated as of December 19, 1995 - filed herewith.
*10.21 Employment Agreement between Oakhurst Management Corporation and John R. Ruda dated as
of December 19, 1995 - filed herewith.
11 Statement of re-computation of per-share earnings - filed herewith.
22 Subsidiaries: Steel City Products, Inc.
H&H Distributors, Inc.
Dowling's Fleet Service Company, Inc.
Puma Products, Inc.
Oakhurst Management Corporation
27 Financial Data Schedule (EDGAR transmission only) - filed herewith.
- -----------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the Company's fourth fiscal quarter ended February 29, 1996.
-25-
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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: June 4, 1996 By: /s/ Mark Auerbach
-----------------------------------
Mark Auerbach
Chairman of the Board, Chief
Executive Officer, Chief
Financial Officer, Principal
Accounting Officer, and
Director (duly authorized
officer)
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Bernard H. Frank, Mark Auerbach,
and Roger M. Barzun jointly and severally his true and lawful attorneys-in-fact
and agent with full powers of substitution for him and in his name, place and
stead in any and all capacities to sign on his behalf, individually and in each
capacity stated below and to file any and all amendments to this Annual Report
on Form 10-K with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises as fully as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLES DATE
---------- ------ ----
/s/ Bernard H. Frank Chief Operating Officer June 4, 1996
- ------------------------------------------- Director
Bernard H. Frank
/s/ John D. Abernathy Director June 4, 1996
- ------------------------------------------
John D. Abernathy
/s/ Robert M. Davies Director June 4, 1996
- -------------------------------------------
Robert M. Davies
/s/ Joel S. Lever Director June 4, 1996
- ----------------------------------------------
Joel S. Lever
/s/ Anthony N. Puma Director June 4, 1996
- ------------------------------------------
Anthony N. Puma
/s/ Richard Randolph Director June 4, 1996
- ------------------------------------------
Richard Randolph
-26-
28
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Oakhurst Company, Inc.:
We have audited the accompanying consolidated balance sheets of Oakhurst
Company, Inc. (formerly Oakhurst Capital, Inc.) and subsidiaries as of February
29, 1996 and February 28, 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended February
29, 1996, February 28, 1995, and February 26, 1994. Our audits also included
the financial statement schedule listed in the Index at Item 14(a)(2). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Oakhurst Company, Inc. and
subsidiaries as of February 29, 1996 and February 28, 1995, and the results of
their operations and their cash flows for the years ended February 29, 1996,
February 28, 1995 and February 26, 1994 in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
As discussed in Note 7 to the consolidated financial statements, the Company
changed its method of accounting for income taxes effective February 28, 1993
to conform with Statement of Financial Accounting Standards No. 109.
/s/ DELOITTE & TOUCHE LLP
- ---------------------------
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 17, 1996
-F1-
29
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except share data)
ASSETS FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
Current assets:
Cash and cash equivalents....................... $ 318 $ 314
Trade accounts receivable, less allowance of
$558 and $282, respectively.................... 4,027 5,760
Commissions receivable.......................... 230 226
Other receivables............................... 564 498
Inventories..................................... 8,080 10,400
Deferred tax asset.............................. 145 620
Other........................................... 467 280
-------- ---------
Total current assets.................. 13,831 18,098
-------- ---------
Property and equipment, at cost................... 3,216 2,993
Less accumulated depreciation................... (1,109) (921)
-------- ---------
2,107 2,072
-------- ---------
Deferred tax asset, less valuation allowance
of $46,800 and $44,300, respectively............ 3,941 5,466
Excess of cost over net assets acquired, net...... 6,035 7,399
Other assets...................................... 203 266
-------- ---------
10,179 13,131
-------- ---------
$ 26,117 $ 33,301
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable, related party..................... $ - $ 532
Accounts payable................................ 5,762 8,066
Accrued compensation............................ 369 757
Current maturities of long-term obligations..... 284 617
Current maturities of long-term obligations,
related parties................................ 169 800
Net obligation of discontinued business segment-
current portion................................ 465 505
Other........................................... 600 577
-------- ---------
Total current liabilities............. 7,649 11,854
-------- ---------
Long-term obligations:
Net obligation of discontinued business segment. 678 985
Long-term debt.................................. 5,179 3,237
Long-term debt, related parties................. 1,574 1,800
Convertible debt, related parties............... - 517
Other long-term obligations..................... 138 73
-------- ---------
7,569 6,612
-------- ---------
Commitments and contingencies.....................
Stockholders' equity:
Preferred stock, par value $0.01; authorized
1,000 shares, none issued.................... - -
Common stock, par value $0.01 per share;
authorized 14,000,000 shares; issued
3,195,235 and 3,189,326 shares, respectively. 32 32
Additional paid-in capital...................... 46,522 46,480
Deficit (Reorganized on August 26, 1989)........ (35,654) (31,676)
Treasury stock, at cost, 207 common shares...... (1) (1)
-------- ---------
Total stockholders' equity............ 10,899 14,835
-------- ---------
$ 26,117 $ 33,301
======== =========
The accompanying notes are an integral part of
these consolidated financial statements.
-F2-
30
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1996 1995 1994
------------ ------------ -------------
Sales........................................... $ 47,339 $ 43,142 $ 32,386
Other income.................................... 471 655 368
------------ ------------ -------------
47,810 43,797 32,754
------------ ------------ -------------
Cost of goods sold, including occupancy and
buying expenses............................... 37,321 32,384 25,849
Operating, selling and administrative expenses.. 10,952 9,243 5,073
Provision for doubtful accounts................. 610 27 879
Amortization of excess of cost over net assets
acquired...................................... 439 290 11
Interest expense................................ 646 411 156
------------ ------------ -------------
49,968 42,355 31,968
------------ ------------ -------------
(Loss) income from continuing
operations before income taxes................ (2,158) 1,442 786
------------ ------------ -------------
Current income tax benefit (expense)............ 115 (155) (112)
Deferred income tax expense..................... (2,000) (468) (235)
------------ ------------ -------------
(1,885) (623) (347)
------------ ------------ -------------
(Loss) income from continuing operations........ (4,043) 819 439
Discontinued operations:
Income on disposal, less income tax expense
of $0 and $46 in fiscal 1996 and fiscal
1995, respectively.......................... 65 90 -
------------ ------------ -------------
Net (loss) income............................... $ (3,978) $ 909 $ 439
============ ============ =============
Per share amounts:
(Loss) income from continuing operations...... $ (1.27) $ 0.27 $ 0.16
Income from discontinued operations........... 0.02 0.03 -
------------ ------------ -------------
Net (loss) income............................. $ (1.25) $ 0.30 $ 0.16
============ ============ =============
Weighted average number of shares outstanding
used in computing per share amounts........... 3,194,021 3,076,801 2,788,812
============ ============ =============
The accompanying notes are an integral part of
these consolidated financial statements.
-F3-
31
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTALS
------- --------- --------- ---------- -----------
BALANCE AT FEBRUARY 27, 1993............. $ 26 $ 38,669 $ (33,024) $ (1) $ 5,670
Cumulative effect of the
adoption of SFAS 109 resulting
in a net deferred tax asset............ 1,500 1,500
Net income............................... 439 439
Deferred tax benefit resulting from a
reduction in the valuation allowance
of the deferred tax asset.............. 3,735 3,735
------- --------- --------- ---------- -----------
BALANCE AT FEBRUARY 26, 1994............. 26 43,904 (32,585) (1) 11,344
Net income............................... 909 909
Deferred tax benefit resulting from a
reduction in the valuation allowance
of the deferred tax asset.............. 1,600 1,600
Exercise of warrants..................... 3 329 332
Issuance of Common Stock in connection with
the acquisition of Puma Products, Inc.. 3 647 650
------- --------- --------- ---------- -----------
BALANCE AT FEBRUARY 28, 1995............. 32 46,480 (31,676) (1) 14,835
Net loss................................. (3,978) (3,978)
Employee stock award..................... 19 19
Other.................................... 23 23
------- --------- --------- ---------- -----------
BALANCE AT FEBRUARY 29, 1996............. $ 32 $ 46,522 $ (35,654) $ (1) $ 10,899
======= ========= ========== ========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
-F4-
32
OAKHURST COMPANY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1996 1995 1994
------------- ----------- -----------
Cash flows from operating activities:
(Loss) income from continuing operations.................... $ (4,043) $ 819 $ 439
Adjustments to reconcile income from continuing
operations to net cash (used in) provided by operating
activities:
Depreciation and amortization............................. 873 596 153
Deferred tax expense...................................... 2,000 514 235
Loss on retirement of assets.............................. 37 - -
Employee stock award...................................... 19 - -
Other..................................................... 23 - -
Other changes in operating assets and liabilities:
Accounts receivable....................................... 1,667 (213) 1,112
Inventories............................................... 2,320 (1,051) 851
Accounts payable.......................................... (2,304) 1,759 (1,754)
Other..................................................... (467) 68 (75)
-------- -------- --------
Net cash provided by (used in) operating activities of:
Continuing operations....................................... 125 2,492 961
Discontinued operations..................................... (282) (161) (296)
-------- -------- --------
Net cash (used in) provided by operating activities:.......... (157) 2,331 665
-------- -------- --------
Cash flows from investing activities:
Additions to property and equipment......................... (430) (633) (36)
Acquisition of subsidiaries, net of cash acquired........... - (5,208) (1,038)
Net change in the excess of cost over net assets acquired... (284) - -
Other....................................................... - (35) (28)
-------- -------- --------
Net cash used in investing activities......................... (714) (5,876) (1,102)
-------- -------- --------
Cash flows from financing activities:
Net borrowings under revolving credit agreement............. 2,225 1,360 -
Repayment of notes payable.................................. (548) (406) -
Principal payments on long-term obligations................. (802) (1,058) (176)
Exercise of warrants........................................ - 332 -
Proceeds from issuance of long-term debt.................... - 2,560 -
Note payable issued in connection
with the acquisition of a subsidiary....................... - - 165
-------- -------- --------
Net cash provided by (used in) financing activities........... 875 2,788 (11)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents.......... 4 (757) (448)
Cash and cash equivalents at beginning of period.............. 314 1,071 1,519
-------- -------- --------
Cash and cash equivalents at end of period.................... $ 318 $ 314 $ 1,071
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for operating activities:
Interest................................................... $ 722 $ 334 $ 154
======== ======== ========
Income taxes, net of refunds received...................... $ 9 $ 20 $ 227
======== ======== ========
Non-cash investing and financing activities:
Fiscal year ending February 29, 1996:
Capital lease obligations of $76 were incurred in connection with leases
of new equipment.
A note and an earn-out payable totaling $825 were canceled in connection
with the settlement of an arbitration proceeding involving the former
owner of a subsidiary which was acquired in fiscal 1995, and another
earn-out payable was reduced by $400 as a result of the earnings trends of
another subsidiary also acquired in fiscal 1995.
Fiscal year ending February 28, 1995:
Convertible debt of $500, notes and earn-outs payable totaling $3,300, and
discounted restricted common stock of $650 were issued in connection with
the acquisition of subsidiaries.
The accompanying notes are an integral part of
these consolidated financial statements.
-F5-
33
OAKHURST COMPANY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
Oakhurst Company, Inc. ("Oakhurst" or "the Company"), formerly
Oakhurst Capital, Inc., 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 the issued and outstanding common and voting preferred stock of SCPI.
Accordingly, Oakhurst controls approximately 90% of the voting power of SCPI.
The accompanying consolidated financial statements reflect this control and
include the accounts of SCPI.
Oakhurst acquired all of the outstanding capital stock of H&H
Distributors d/b/a Harry Survis, ("H&H"), of Dowling's Fleet Service Co., Inc.
("Dowling's") and of Puma Products, Inc. (formerly LBI Corp.) ("Puma") in
January 1994, August 1994 and October 1994, respectively. In March 1995,
Oakhurst formed Oakhurst Management Corporation ("OMC"), a wholly-owned
subsidiary, to coordinate the provision of certain corporate administrative,
legal, and accounting services to the Company and its subsidiaries. The
accompanying consolidated financial statements include the accounts of these
subsidiaries for the respective periods of ownership, and all significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates:
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principals, which requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Business Activities:
The Company's operations at this time consist of four subsidiaries
primarily engaged in the wholesale distribution trade to the automotive
aftermarket. SCPI is a wholesale distributor operating under the trade name
Steel City Products selling primarily to discount retail chains and other
segments of the mass market, hardware, drug and grocery retail industries, and
to automotive specialty stores, based mainly in the Northeastern United States.
H&H is involved in the retail and wholesale distribution and installation of
automotive accessories, including stereos, alarms and cellular phones, in
western Pennsylvania. Dowling's is a wholesale distributor of automotive
radiators and related parts serving mostly radiator repair shops in the New
York, Connecticut, New Jersey and greater Philadelphia, Pennsylvania markets.
Puma is a wholesale distributor of high quality truck and van conversion
products to automotive and truck converters, restylers and accessories
retailers throughout the United States, with a market concentration around its
facilities in Grand Prairie, Texas and Elkhart, Indiana (see Note 3).
Fiscal Year:
The Company's fiscal year ends on the last day of February. Prior to
fiscal 1995, the Company's fiscal year end was the Saturday closest to the end
of February. The effect of the change on the consolidated financial statements
was not material.
-F6-
34
Cash and Cash Equivalents:
For the purpose of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories:
The Company's inventories are stated at the lower of cost or market.
Cost is determined by the last in, first out method (LIFO) for 56% and 61% of
the Company's inventories at February 29, 1996 and February 28, 1995,
respectively, and by the first in, first out (FIFO) method for the remaining
inventories. Had all the Company's inventories been valued using the FIFO
method, they would have been approximately $388,000 and $437,000 higher than
reported at February 29, 1996 and February 28, 1995, respectively.
Property and Equipment:
Depreciation and amortization are computed using the straight-line
method. Estimated useful lives used for computing depreciation and
amortization are: buildings, 15-40 years; building improvements, 5-20 years;
leasehold improvements, 3-25 years; and office furniture, equipment and
vehicles, 3-10 years. Depreciation expense was approximately $430,000,
$305,000 and $140,000 in fiscal 1996, 1995 and 1994, respectively.
Excess of Costs Over Net Assets Acquired:
The excess of cost over net assets acquired is associated with the
acquisition of Oakhurst's subsidiaries and is amortized over periods ranging
from 15 to 40 years. The unamortized values at February 29, 1996 and February
28, 1995, are net of accumulated amortization of approximately $816,000 and
$377,000, respectively.
Oakhurst assesses whether its excess of costs over net assets acquired
is impaired at each balance sheet date based upon an evaluation of undiscounted
projected cash flow through the remaining amortization period. If an
impairment is determined, the amount of such impairment is calculated based
upon the estimated fair value of the asset.
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles
to be disposed of. Management believes that the adoption of SFAS No. 121 in
fiscal 1997 will not have a material impact on the Company's carrying value of
such assets.
Revenue Recognition:
Revenues are recognized at the time products are shipped or installation
occurs.
Federal Income Taxes:
Oakhurst accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The standard requires an asset and liability
approach to accounting for income taxes. Deferred tax liabilities and assets
are recognized for the future tax consequences of events that have already been
recognized in the financial statements or tax returns. Net deferred tax assets
are recognized to the extent that realization of such benefits is considered
more likely than not. Changes in enacted tax rates or laws may result in
adjustments to the recorded deferred tax assets or liabilities in the period
that the tax law is enacted (see Note 7).
-F7-
35
Computation of Per Share Amounts:
Income per share amounts attributable to common stockholders are
computed on the basis of the weighted average number of outstanding common
shares and common stock equivalents determined by applying the treasury stock
method to stock options and warrants outstanding. Loss per share amounts do
not include common stock equivalents since that would reduce the net loss per
share.
2. CORPORATE REORGANIZATION
Under the merger (see Note 1), SCPI is required for a period of five
years following the merger to issue to Oakhurst (or cancel) such number of
shares of Series A Preferred Stock and/or common stock as shall be necessary,
in accordance with periodic determinations, to maintain Oakhurst's aggregate
stock ownership of SCPI at 90%. In accordance with a revaluation of the
Company as of February 26, 1994, the Series A Preferred shares outstanding were
reduced to 1,938,526 to reflect a decrease in the valuation to $10.1 million.
The decrease in the valuation as of February 26, 1994 was primarily
attributable to the abandonment of a proposed Oakhurst financing transaction.
Revaluations of SCPI as of February 28, 1995 and February 29, 1996,
respectively, have not yet been completed. Management expects that the
revaluation as of the end of February 29, 1996, when complete, will result in a
further decrease in the valuation of SCPI because of changes in the business
climate that occurred during fiscal 1996. Accordingly, additional Series A
Preferred shares outstanding may be canceled once such valuation is complete.
During fiscal 1993, the cumulative dividends on SCPI's Series A
Preferred Stock exceeded SCPI's net income for that year, thus creating a loss
attributable to SCPI's common stockholders in excess of Oakhurst's minority
interest and, accordingly, Oakhurst reduced to zero the minority interest
liability related to SCPI. At such time as SCPI's cumulative net income
attributable to common stockholders from the effective date of the merger
exceeds the cumulative Series A Preferred Stock dividends in arrears, Oakhurst
will again reflect the appropriate minority interest liability.
The Series A Preferred Stock carries a dividend rate of $0.5228 per
share and has a redemption price and liquidation preference of $5.2282 per
share plus any accumulated dividends in arrears. Through February 29, 1996,
dividends of approximately $5.2 million have accumulated since the effective
date of the merger; of this amount, approximately $3.6 million has been
declared by SCPI's Board of Directors and paid through fiscal 1995.
Approximately $1.6 million of undeclared dividends in arrears was outstanding
as of February 29, 1996.
3. ACQUISITIONS AND ARBITRATION
In January 1994, Oakhurst acquired all of the outstanding capital
stock of H&H. The purchase price of approximately $1.4 million consisted of
approximately $1.2 million in cash (funded by a loan from SCPI) and a note
payable to the seller for the balance, which was paid in July 1994. In
addition, Oakhurst incurred acquisition costs of approximately $50,000.
In August 1994, Oakhurst acquired all of the outstanding capital stock
of Dowling's. The purchase price of approximately $5.5 million consisted of $4
million in cash, a note payable to the seller of $700,000 that provided for
interest at prime and that was due in two annual installments commencing with
the first anniversary of the closing date, earn-out payments that were
estimated at $300,000 and convertible debt of $500,000 that was issued to
certain executives of Dowling's, which accrued interest at 6% and was due on
August 1, 1997 or was convertible, at the executives' option, to an aggregate
of 120,346 shares of Oakhurst common stock on such date. In addition, Oakhurst
incurred acquisition costs of approximately $290,000.
On March 1, 1996, the convertible debt issued in connection with the
Dowling's acquisition was renegotiated into the form of cash payments made in
March 1996 of approximately $109,000 (including accrued interest), and the
issuance of two long-term notes payable through March 1, 2001 aggregating
$440,000 (the "DFS Notes") (see Note 5). The DFS Notes do not contain a stock
conversion option.
-F8-
36
On February 2, 1996, Oakhurst entered into a settlement agreement (the
"Settlement") in connection with an arbitration proceeding that it had
commenced in July 1995 in connection with the acquisition of Dowling's. As a
result of the Settlement, all current and future amounts to be paid by Oakhurst
to the seller pursuant to the purchase and sale agreement were reduced to a sum
of $175,000. Accordingly, the aggregate purchase price of Dowling's was
reduced by approximately $1 million. Pursuant to the Settlement, Oakhurst was
also relieved of accrued and future interest charges on the note payable, and
amounts due under an employment and non-compete agreement.
The cash portion of the purchase price of Dowling's was funded by
Series A Preferred stock dividends of $2.8 million from SCPI (funded by the
Term Loan), by advances from SCPI and by advances under the Credit Agreement
(see Note 5).
In October 1994, Oakhurst acquired all of the outstanding capital
stock of Puma. The purchase price of approximately $4.2 million consisted of
$1.2 million in cash, a note payable to the seller of $600,000 which had
provided for interest at prime plus 1% and which had been due in two annual
installments commencing with the first anniversary of the closing date, a note
payable to the seller of approximately $750,000 that provided for interest at
prime plus 1% payable in fiscal 1996 (see Note 5), earn-out payments which were
initially estimated at $1,100,000 and the issuance of 266,667 shares of
Oakhurst's common stock, which was valued at $650,000 and is restricted for up
to three years following issuance. The purchase agreement provides for bonus
earn-out payments to be made to the former shareholder over five years in the
event that earnings exceed historical levels, to a maximum additional payment
of $500,000; however, based upon current earning trends of Puma, such bonus
earn-out payments are not anticipated. There was no earn-out earned during
fiscal 1996.
The cash purchase portion of the acquisition price of Puma was funded
by available cash and by borrowings under the Credit Agreement. In addition,
Oakhurst incurred acquisition costs of approximately $250,000.
The former owners and certain senior executives of these acquisitions,
except for the former owner of Dowling's, continue with the respective
subsidiaries under long-term employment contracts. Accordingly, amounts
payable to them with respect to the acquisitions have been classified as
related-party obligations.
The acquisitions were accounted for using the purchase method of
accounting. The excess of approximately $839,000, $2.8 million and $2.9
million, respectively, of the purchase prices over the fair values allocated to
H&H's, Dowling's and Puma's net assets, is being amortized over 15 years.
In connection with the acquisitions, assets were acquired and
liabilities were assumed as follows (in thousands):
H&H Dowling's Puma
--- --------- ----
Fair value of assets acquired . . . . . . . . . . $2,075 $7,080 $4,609
Liabilities assumed . . . . . . . . . . . . . . . 640 1,927 675
------ ------ ------
Net assets acquired . . . . . . . . . . . . . . $1,435 $5,153 $3,934
====== ====== ======
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the above acquisitions had occurred
at the beginning of the fiscal years ending February 28, 1995 and February 26,
1994 (in thousands, except per share):
FISCAL YEAR FISCAL YEAR
ENDED ENDED
FEBRUARY 28, 1995 FEBRUARY 26, 1994
----------------- -----------------
Net sales . . . . . . . . . . . . . $53,219 $54,719
Net income . . . . . . . . . . . . . $ 1,157 $ 1,028
Earnings per share . . . . . . . . . $0.36 $0.32
-F9-
37
The above pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations that
would actually have resulted had the acquisitions been in effect on the dates
indicated or that may result in the future. Specifically, these amounts do not
reflect the benefit of reductions in executive compensation and certain other
administrative expenses which may be realized in subsequent years following the
acquisitions.
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ -----------
Land . . . . . . . . . . . . . . . . . . . . . . . . . . $ 170 $ 170
Buildings . . . . . . . . . . . . . . . . . . . . . . . . 830 830
Leasehold and building improvements . . . . . . . . . . . 547 452
Office furniture, equipment and vehicles . . . . . . . . 1,669 1,541
------- ------
3,216 2,993
Less accumulated depreciation . . . . . . . . . . . . . . (1,109) (921)
------- ------
$ 2,107 $2,072
======= ======
5. LINE OF CREDIT AND LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
Term loan, due monthly through
July 1996 (refinanced in March 1996; see below) . . . . . . . . $1,663 $2,245
Revolving Credit Agreement through July 1996
(refinanced in March 1996; see below) . . . . . . . . . . . . . . . 3,750 1,525
Puma acquisition note, due in five annual installments beginning
in March 1998 (see Note 3) . . . . . . . . . . . . . . . . . . . . . 600 600
Puma estimated earn-out, payable in five annual installments
through May 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 600 1,000
Convertible debt payable in August 1997
(rescheduled in March 1996; see Note 3) . . . . . . . . . . . . . . 543 517
Dowling's acquisition note (see Note 3) . . . . . . . . . . . . . . . . . -- 700
Dowling's estimated earn-out (see Note 3) . . . . . . . . . . . . . . . . -- 300
Capital lease obligations for computer and warehouse equipment,
due monthly through August 2001 . . . . . . . . . . . . . . . . . . 66 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 157
------ ------
7,344 7,044
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . 453 1,417
------ ------
$6,891 $5,627
====== ======
In August 1994, Oakhurst entered into a two year revolving credit
agreement (the "Credit Agreement") that, until its amendment, provided for
maximum borrowings of $3 million, subject to a borrowing base as defined in the
Credit Agreement.
In August 1994, SCPI obtained a four year term loan in the amount of
$2,560,000 (the "Term Loan"), which was secured by a mortgage on SCPI's real
estate, and was guaranteed by Oakhurst and its subsidiaries, supported by a
pledge of the capital stock of Oakhurst's subsidiaries. The Term Loan provided
for monthly repayments beginning in September 1994 and interest at a fixed rate
of 9.25%.
-F10-
38
The Credit Agreement was amended during the third quarter of fiscal
1996 to reflect the Puma acquisition. Such amendment provided for an increase
in maximum borrowings to $4 million subject to a borrowing base and eliminated
all of the financial covenants, except for certain amended subsidiary and
consolidated net worth requirements. The Term Loan was also amended to reflect
such revised covenants. The amended Credit Agreement provided for interest at
prime plus 1.5%, and was secured by the accounts receivable, inventory and
capital stock of Oakhurst's subsidiaries.
At November 30, 1995, Oakhurst did not meet the amended consolidated
net worth covenant, and requested a modification of such covenant. The
modification was granted by the bank on January 3, 1996, in exchange for
Oakhurst's and SCPI's agreement to accelerate the maturity date of the Term
Loan to July 31, 1996, and to increase the interest rates on the Term Loan and
on borrowings under the Credit Agreement by 1.25% and 1%, respectively,
effective February 28, 1996.
On March 28, 1996, Oakhurst obtained replacement financing from an
institutional lender that provides for a total facility for Oakhurst and its
subsidiaries of $9.5 million, comprising a new SCPI term loan of $1.5 million
(the "Fixed Asset Loan"), and a maximum revolving credit facility of $8 million
(the "Revolver") (collectively, the "Credit Facility"), and the amounts
outstanding under the Term Loan and Credit Agreement were repaid. Accordingly,
the Credit Agreement and Term Loan have been presented as of February 29, 1996
reflecting the terms of the refinancing.
Borrowings under the Credit Facility bear interest at the higher of
the Citibank N.A. base rate plus 1.5%, or $5,000 per month, and borrowings
under the Revolver are subject to a borrowing base that is calculated according
to defined levels of Oakhurst's subsidiaries' accounts receivable and
inventories. The Credit Facility has an initial term of two years, with
automatic renewal terms of one year each upon payment of a renewal fee of 0.5%
thereof, unless earlier terminated as provided for in the agreement, and
contains certain restrictive financial covenants, including among other things,
the maintenance of defined subsidiary and consolidated tangible net worth
levels and consolidated current ratios, and limitations on annual cash
dividends.
The Credit Facility is secured by the accounts receivable,
inventories, and fixed assets of Oakhurst and its subsidiaries, contains
certain Revolver prepayment penalties, and provides for the payment of loan
management fees, unused Revolver facility fees and examination fees. Oakhurst
paid closing costs of approximately $225,000 in connection with the Credit
Facility, of which $25,000 was prepaid at February 29, 1996.
The Fixed Asset Loan provides for twenty-four monthly principal and
interest payments based on a five year amortization schedule, with the
remaining principal balance due on April 1, 1998. The Fixed Asset Loan
provides for prepayment without penalty, and contains a provision for the
release of SCPI's building as collateral for the Credit Facility in the event
of a refinancing of the Fixed Asset Loan, subject to a right of first refusal
by the current lender to refinance the Fixed Asset Loan on the same terms as
offered by a new lender.
The two year Puma note was rescheduled with the seller on February 1,
1996 to provide for five equal installments of $120,000 each, beginning in
March 1998, and for interest at prime minus 1% through March 1, 1998, and prime
plus 1% thereafter.
The DFS Notes, formerly convertible debt (see Note 3), bear interest
at 6% and provide for repayment in quarterly installments of $22,000 each,
together with accrued interest thereon, beginning in June 1996.
-F11-
39
Long-term obligations, including the present value of the Creditor
Notes (see Note 8), mature during each fiscal year as follows (in thousands):
LONG-TERM CREDITOR
FISCAL OBLIGATIONS NOTES TOTAL
------ ----------- --------- ---------
1997 . . . . . . . . . . . . . . . . . . $ 453 $ 386 $ 839
1998 . . . . . . . . . . . . . . . . . . 463 329 792
1999 . . . . . . . . . . . . . . . . . . 5,268 349 5,617
2000 . . . . . . . . . . . . . . . . . . 427 -- 427
2001 . . . . . . . . . . . . . . . . . . 440 -- 440
Thereafter . . . . . . . . . . . . . . . 292 -- 292
------ ------ ------
$7,343 $1,064 $8,407
====== ====== ======
6. FINANCIAL INSTRUMENTS
Financial instruments at February 29, 1996 consists of the following
(in thousands):
CARRYING FAIR
VALUE VALUE
---------- --------
Cash . . . . . . . . . . . . . . . . . $ 318 $ 318
Creditor Notes . . . . . . . . . . . . $1,064 $1,046
Long-term obligations (the Term Loan,
Credit Agreement and acquisition
notes) . . . . . . . . . . . . . . $6,556 $6,556
The fair values of the instruments were based upon the rate available
to the Company for instruments of the same maturities. The Creditor Notes,
which are non-interest bearing, were discounted using a current market rate of
11.75% to determine current fair value.
7. INCOME TAXES AND DEFERRED TAX ASSET
At February 29, 1996, Oakhurst has, for tax reporting purposes, net
operating tax loss carryforwards of approximately $149 million which
principally expire in the years 2001 through 2005. Under SFAS No. 109,
Oakhurst is required to recognize currently the estimated realizable value of
the future benefit of its net operating tax loss carryforwards along with other
tax benefits. The initial adoption of SFAS No. 109, effective February 28,
1993, resulted in the recognition of a deferred tax asset $1.5 million, net of
a valuation allowance of $49.5 million, with a corresponding increase of $1.5
million in additional paid-in capital. The accounting treatment to increase
paid-in capital results from SCPI's quasi-reorganization accounting in 1990.
Any subsequent utilization of the net operating tax loss carryforwards is
accounted for as a reduction of the deferred tax asset.
Fluctuations in market conditions and trends warrant periodic
management reviews of the recorded valuation allowance to determine if an
increase or decrease in such allowance would be appropriate. Accordingly,
management re-evaluated the allowance as of February 26, 1994 in light of
earnings trends and an acquisition, and determined that a reduction in the
valuation allowance of approximately $3.7 million was appropriate. During the
year ended February 29, 1996, SCPI experienced significant changes in its
customer base. As a result, management undertook an extensive review and
strategic evaluation of SCPI's operations to determine the impact of this lost
business on SCPI's future levels of revenues and profits, and to evaluate
future customer and product opportunities. In addition, the Company's other
operating subsidiaries have encountered lower sales and profits in the current
fiscal year than had been anticipated by management.
These efforts, combined with management's consideration of current
trends and historical operations, led management to conclude that the current
impact of these events warranted an increase of approximately $2.5 million in
the deferred tax asset valuation allowance with a corresponding charge to
deferred tax expense.
-F12-
40
If future profit levels exceed current expectations, and economic or business
changes warrant upward revisions in the estimate of the realizable value of net
operating tax loss carryforwards, the consequent reduction in the valuation
allowance would result in a corresponding deferred tax benefit in future
results of operations to the extent of the charge of $2.5 million to deferred
tax expense for the fiscal year ended February 29, 1996, and any benefit in
excess of such charge would be reflected as an addition to paid-in capital.
As of February 29, 1996, Oakhurst is required to earn approximately
$12 million of consolidated taxable income before the expiration of the tax
benefits to realize the net recorded tax benefit, as adjusted.
The deferred tax effects of temporary differences are not significant,
and current income taxes payable represent state income taxes.
Income tax expense consists of the following (in thousands):
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1996 1995 1994
------------ ------------ ------------
Current tax (benefit) expense . . . . $ (115) $623 $347
Current tax benefit from utilization of
net operating tax loss carryforwards . -- (468) (235)
------ ---- ----
(115) 155 112
Increase in valuation allowance
of the deferred tax asset . . . . . . 2,482 -- --
Deferred tax (benefit) expense . . . . . (482) 468 235
------ ---- ----
Income tax expense . . . . . . . . . . . $1,885 $623 $347
====== ==== ====
During the fiscal year ended February 29, 1996, SCPI settled a dispute
over a tax refund claimed from the state of Kentucky by SCPI's predecessor, and
accordingly, recorded a refund of approximately $142,000, including
approximately $35,000 in interest.
The income tax provision differs from the amount using the statutory
federal income tax rate of 34% applied to income or loss from continuing
operations for the following reasons (in thousands):
FISCAL FISCAL FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28, FEBRUARY 26,
1996 1995 1994
------------ ------------ ------------
Tax (benefit) expense at the U.S.
federal statutory rate . . . . . . . . . . . $ (734) $490 $267
State income tax (benefit) expense,
net of refunds and federal benefit . . . . . (75) 95 58
Increase in deferred tax asset
valuation allowance . . . . . . . . . . . . 2,482 -- --
Non-deductible costs . . . . . . . . . . . . . 212 98 22
Non-taxable escrow refund . . . . . . . . . . -- (60) --
------ ---- ----
Income tax expense . . . . . . . . . . . $1,885 $623 $347
====== ==== ====
-F13-
41
The availability of the net operating tax loss carryforwards may be
adversely affected by future ownership changes of SCPI or Oakhurst; at this
time, such changes cannot be predicted. Oakhurst's approximate estimated
operating tax loss carryforwards at February 29, 1996 expire as follows (in
thousands):
2001 . . . . . . . . . . . . $ 12,000
2002 . . . . . . . . . . . . 52,000
2003 . . . . . . . . . . . . 22,000
2004 . . . . . . . . . . . . 49,000
2005 . . . . . . . . . . . . 13,000
2010 . . . . . . . . . . . . 1,000
---------
$ 149,000
=========
8. DISCONTINUED OPERATIONS
SCPI disposed of its former Retail Division to an unrelated company,
Retail Acquisition Corp. ("RAC") in September 1990 when RAC acquired
substantially all of the assets of the former division and assumed
substantially all of its liabilities. SCPI remained contingently liable for
certain of these liabilities. In early 1991, SCPI received notices of default
in respect of the leased properties that SCPI had transferred to RAC. In March
1991, RAC was forced into bankruptcy by a group of creditors which included
SCPI. Pursuant to RAC's bankruptcy reorganization plan, which became effective
in September 1992, SCPI participated in a global settlement pursuant to which
SCPI issued $2.5 million of non-interest bearing notes (the "Creditor Notes")
solely for the benefit of contingent creditors. In return, SCPI and Oakhurst
were relieved of any further obligations to contingent creditors, except for
payment on the Creditor Notes.
The Creditor Notes, which are non-interest bearing, are payable in
equal annual installments through July 1998, subject to a prepayment provision
whereby if defined cash flow exceeds $900,000, $1,000,000 and $1,100,000 in
fiscal 1995, 1996 and 1997, respectively, holders of Creditor Notes may tender
for prepayment a portion thereof in the amount of the defined excess cash flow,
but not to exceed approximately $400,000 per annum. In fiscal 1995 and in
fiscal 1996, SCPI did not meet the defined criteria for such prepayment. The
Creditor Notes have been discounted using an imputed interest rate of 7.5% and,
together with accrued interest thereon, principally comprise the net obligation
of the discontinued business segment. Imputed interest expense of
approximately $76,000, $96,000 and $128,000 is included in results of
continuing operations for fiscal 1996, 1995 and 1994, respectively.
The accompanying consolidated statements of operations and cash flows
reflect any income or loss associated with the disposal of the former Retail
Division as discontinued operations. Income from discontinued operations of
$65,000 and $90,000 for the periods ended February 29, 1996 and February 28,
1995, primarily reflected decreases in SCPI's reserve for contingent
liabilities relating to the former retail division, net of an income tax
provision of $46,000 for fiscal 1995.
9. STOCK OPTIONS
In fiscal 1995, the Board of Directors and shareholders approved two
stock option plans, the 1994 Omnibus Stock Plan (the "Omnibus Plan") and the
1994 Non-Employee Director Stock Option Plan (the "Director Plan"). Under both
plans, the exercise price of the option granted may not be less than the fair
market value of the common stock on the date of the grant, and the term of the
grant may not exceed ten years.
The Omnibus Plan initially provided for the issuance of a maximum of
350,000 shares of Oakhurst's common stock pursuant to the grant of incentive
stock options to employees of Oakhurst and its subsidiaries, and the grant of
non-qualified stock options, stock or restricted stock to employees,
consultants, directors and officers of Oakhurst and its subsidiaries. In
fiscal 1996, the Board of Directors adopted an amendment to the
-F14-
42
plan whereby the maximum amount of shares issuable under the Omnibus Plan was
increased to 500,000 shares. Such amendment is subject to approval by the
shareholders.
In fiscal 1995, options covering 313,084 shares were granted at prices
ranging from $2.75 to $3.875 and in fiscal 1996, the price of 162,985 of such
options was reduced to $2.00 per share, and a further 129,500 options were
granted at prices ranging from $1.25 to $3.125, subject to the approval of the
Omnibus Plan amendment by the shareholders. The options generally vest over a
four year period and expire ten years from the date of the grant; however
100,000 of such options vest over a one year period. At February 29, 1996 and
February 28, 1995, no options had been exercised and options covering 254,959
and 136,234 shares, respectively, were exercisable.
The Director Plan (a "formula plan" under rule 16.3-3 of the Securities
Exchange Act of 1934) provides for the issuance of up to 100,000 shares of
common stock pursuant to options granted to directors who are not employees of
the Company. In April 1994, pursuant to the terms of the plan, eight
non-employee directors were each granted a fully-vested option to purchase
3,000 shares (24,000 shares in the aggregate) of common stock at $2.75 per
share, the market value on the date of the grant, to remain exercisable for ten
years following the grant date. On May 1 of each subsequent year, each
non-employee director holding office on such date will receive a
fully-exercisable ten year option to purchase an additional 3,000 shares. In
fiscal 1996, options to purchase 24,000 shares were granted at $3.375 per
share. None of these options had been exercised at February 29, 1996 and
February 28, 1995, respectively, and 6,000 shares that had been issued under
the fiscal 1995 grant expired during fiscal 1996, upon the resignation of two
directors.
In fiscal 1992, the Board of Directors granted options to purchase
194,388 shares of Oakhurst's common stock to key employees and to certain
members of the Board of Directors. The exercise price of the options, which
was equal to the market value of the stock at the date of the grant, is $2.75.
During fiscal 1996, 1995 and 1994, no options were exercised, and during fiscal
1995, 14,996 options were forfeited. All 179,392 options outstanding are fully
vested and will remain exercisable through 2001.
In connection with SCPI's predecessor's emergence in fiscal 1990 from
Chapter 11 bankruptcy proceedings, warrants to purchase 366,837 shares of
common stock were issued and were exercisable at a price of $1.00 per share
through September 28, 1994. As a result of the merger (see Note 1), the
warrant holders, upon exercise, were entitled to one share each of SCPI's and
Oakhurst's common stock for the aggregate purchase price of $1.00. During
fiscal 1995, 331,622 shares were purchased pursuant to these warrants and
35,215 warrants expired.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which requires adoption no
later than fiscal years beginning after December 15, 1995. The new standard
defines a fair value method of accounting for stock options and similar equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period.
Pursuant to the new standard, companies are encouraged, but not
required, to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per share
as if the company had applied the new method of accounting.
The accounting requirements of the new method are effective for all
employee awards granted after the beginning of the fiscal year of adoption.
Oakhurst has not yet determined if it will elect to change to the fair value
method, nor has it determined the effect the new standard will have on net
income and earnings per share should it elect to make such a change. Adoption
of the new standard will have no effect on Oakhurst's cash flows.
-F15-
43
10. EMPLOYEE PENSION PLAN
Steel City Products maintains a defined contribution profit-sharing
retirement plan ("the SCP Plan") covering substantially all its employees,
whereby employees may contribute a percentage of compensation, limited to
maximum allowed amounts under the Internal Revenue Code. Through fiscal 1995,
the SCP Plan provided for a 25% matching employer contribution and an annual
discretionary contribution determined by SCPI's Board of Directors. Total
expenses related to the SCP Plan were $150,000 for each of the years ended
February 28, 1995 and February 26, 1994. In October 1995, the 25% SCP Plan
matching employer contribution was suspended until further notice, and a
discretionary contribution was not made for fiscal 1996.
Through December 31, 1995, Dowling's maintained a profit-sharing plan
for all employees over the age of twenty-one with 1,000 hours of defined
service. Employer contributions to the plan are made on an annual basis at the
discretion of management. Total expense was approximately $29,000 and $8,000
in fiscal 1996 and fiscal 1995, respectively.
Through December 31, 1995, H&H maintained a defined contribution
profit-sharing retirement plan for all employees over the age of 21 who have
met one year of defined eligibility service. Employer contributions to the
plan are made on an annual basis at the discretion of management. There were
no plan related expenses in fiscal 1996, and such expense was approximately
$12,000 in fiscal 1995.
On June 1, 1995, by amendment to the SCP Plan, Oakhurst and Puma were
incorporated into the SCP Plan, the Plan was renamed the Oakhurst Company
Profit Sharing Plan (the "Profit Sharing Plan"), and on January 1, 1996 H&H and
Dowling's were also incorporated into the Profit Sharing Plan, and Dowling's
merged its former plan's assets and liabilities into the Profit Sharing Plan.
The Profit Sharing Plan covers substantially all persons employed by the
Company and its subsidiaries and provides for discretionary employer
contributions, the level of which, if any, may vary by subsidiary and is to be
determined annually by each company's Board of Directors.
11. LEASES
The Company leases its corporate office and certain of its
subsidiaries' offices and warehouses under operating leases which expire over
the next five years. Generally, leases are net leases that require the payment
of executory expenses such as real estate taxes, insurance, maintenance and
other operating costs. The leases generally provide for renewal options.
Certain of these leases are with related parties (see Note 14).
Minimum annual rentals for all operating leases having initial
noncancelable lease terms in excess of one year are as follows (in thousands):
Fiscal
------
1997 . . . . . . . . . . . . . . . . . . $ 607
1998 . . . . . . . . . . . . . . . . . . 568
1999 . . . . . . . . . . . . . . . . . . 529
2000 . . . . . . . . . . . . . . . . . . 329
2001 . . . . . . . . . . . . . . . . . . 152
------
Total future minimum rental payments $2,185
======
Total rent expense for all operating leases amounted to approximately
$600,000 and $420,000 for fiscal 1996 and fiscal 1995, respectively. There
were no material operating leases prior to fiscal 1995.
12. COMMITMENTS AND CONTINGENCIES
SCPI has employment agreements with two senior executives that provide
termination rights in the event of a change in control of SCPI, as defined.
The rights include payments ranging from six to twenty-four
-F16-
44
months of the executives' base salaries, along with continuation of benefits
and certain other payments to each executive. Each agreement also provides for
substantially the same provisions in the event that the executive's employment
were to be terminated by SCPI without cause. The agreements expire in August
1996, and contain certain renewal options.
In fiscal 1994, 1995, and 1996, Oakhurst entered into employment
agreements with certain senior executives of Oakhurst, H&H, Dowling's and Puma
that provide for certain termination rights in the event that the executive's
employment were to be terminated by Oakhurst without cause. The employment
agreements expire between February 1997 and October 1999.
Management is unaware of any other significant contingencies.
13. MAJOR CUSTOMERS
Sales to each of those major customers representing individually more
than 10% of Oakhurst's consolidated sales were as follows (in thousands):
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
February 29, 1996 February 28, 1995 February 26, 1994
------------------- -------------------- -------------------
% of % of % of
Sales Total Sales Sales Total Sales Sales Total Sales
------ ----------- ------ ----------- ------ -----------
Customer "A" -- -- -- -- $3,198 10%
Customer "B" $4,641 10% $6,046 14% $6,250 19%
Customer "C" $3,975 8% $4,465 10% $6,332 20%
In July 1993, SCPI's two then-largest customers filed for protection
under Chapter 11 of the United States Bankruptcy Code, at which time
approximately $1.2 million was outstanding from them to SCPI. As a result,
SCPI ultimately wrote off approximately $879,000 of these customer's
receivables.
One of these customers (customer A), closed all its stores in December
1993; the other customer, customer C, reorganized and emerged from Chapter 11
in January 1995. Customer C continued to be one of SCPI's largest customers
throughout this period until the second quarter of fiscal 1996, when management
curtailed the level of credit allowed to such customer after becoming aware
that it was experiencing new financial difficulties. In October 1995, customer
C again filed for protection under the U.S. Bankruptcy Code and announced that
it would close all its stores; the fiscal 1996 provision for doubtful accounts
contains a write-off of approximately $150,000 relating to this customer.
During the third quarter of fiscal 1996, customer B informed SCPI that
it had decided to change its source of supply, and sales to this customer ended
in January 1996.
14. RELATED PARTY TRANSACTIONS
From November 1989 until June 1993, SCPI engaged The Hallwood Group
Incorporated ("Hallwood"), a principal stockholder of Oakhurst until February
1994, under a financial advisory agreement. SCPI paid Hallwood approximately
$83,000 in fiscal 1994 in connection with this agreement.
Prior to fiscal 1994, SCPI and Oakhurst entered into agreements with
Integra Management Company ("IMC") to provide corporate office administrative
functions and certain tax services. IMC was a wholly owned subsidiary of
Hallwood until October 1992, when it became a wholly owned subsidiary of
Integra Hotels, Inc., formerly Integra - A Hotel and Restaurant Company. Mr.
Hemsley, Oakhurst's Chairman until December 1995, was President of both IMC and
Integra until March 1994. The agreements were approved by the Company's Board
of Directors, and were terminated in May 1994. SCPI paid IMC $11,000 in fiscal
1995 and $60,000 in fiscal 1994 pursuant to these agreements. Oakhurst paid
IMC $6,750 and $36,000 in fiscal 1995 and 1994, respectively, pursuant to these
agreements.
-F17-
45
In fiscal 1994, H&H entered into a seven-year lease with Harold
Garfinkel, the President and former owner of H&H, for the principal property
from which it conducts its business. The lease has one option to renew for an
additional five years, and requires annual lease payments of $144,000. H&H
paid Mr. Garfinkel $144,000 in each of fiscal 1996 and 1995, and $12,000 in
fiscal 1994 under this lease.
In fiscal 1995, Puma entered into a six-year lease with Anthony Puma,
the President and former owner of Puma, for the facility in which it conducts
its business. The lease has one option to renew for an additional four years,
contains an option to rent additional space that is exercisable every two
years, and requires minimum annual lease payments of approximately $80,000.
Puma paid Mr. Puma approximately $80,000 and $20,000 in fiscal 1996 and fiscal
1995, respectively, under this lease.
In fiscal 1995, Dowling's entered into two five-year leases with James
Dowling, for a facility in New York in which Dowling's is headquartered and
operates a warehouse, and for a facility in Connecticut where Dowling's
operates a warehouse. Mr. Dowling is the former owner of Dowling's and was
Vice Chairman of Dowling's until his resignation in fiscal 1996. Both leases
have one option to renew for an additional five years and require aggregate
annual rent payments of $211,000. Dowling's paid Mr. Dowling approximately
$122,000 in fiscal 1995 under these leases.
15. PREDECESSOR BANKRUPTCY
During fiscal 1995, SCPI recovered funds placed into escrow in prior
years as a part of SCPI's predecessor's bankruptcy in the amount of
approximately $175,000, which amount is included in other income. SCPI's
predecessor emerged from bankruptcy in 1990.
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollar amounts in thousands, except per share data)
FISCAL 1996 FIRST SECOND THIRD FOURTH
- ----------- ----- ------ ----- ------
Sales . . . . . . . . . . . . . . . . . . . . . $ 13,026 $ 13,517 $ 11,580 $ 9,216
Gross profit . . . . . . . . . . . . . . . . . 2,887 2,827 2,480 1,824
Loss from continuing operations . . . . . . . . (216) (449) (2,420) (958)
Income from discontinued operations . . . . . . -- -- -- 65
Net loss . . . . . . . . . . . . . . . . . . . (216) (449) (2,420) (893)
Per Share:
Loss from continuing operations . . . . . . . $ (.07) $ (.14) $ (.76) $ (.30)
Net loss . . . . . . . . . . . . . . . . . . $ (.07) $ (.14) $ (.76) $ (.28)
Average number of shares outstanding . . . . . 3,190,365 3,195,235 3,195,235 3,195,235
FISCAL 1995 FIRST SECOND THIRD FOURTH
- ----------- ----- ------ ----- ------
Sales . . . . . . . . . . . . . . . . . . . . . $ 9,869 $ 9,891 $ 11,329 $ 12,053
Gross profit . . . . . . . . . . . . . . . . . 2,418 2,467 2,946 2,927
Income (loss) from continuing operations. . . . 294 403 379 (257)
Income from discontinued operations . . . . . . -- 66 6 18
Net income (loss) . . . . . . . . . . . . . . 294 469 385 (239)
Per Share:
Income (loss) from continuing operations . . $ .10 $ .13 $ .11 $ (.08)
Net income (loss) . . . . . . . . . . . . . . $ .10 $ .15 $ .12 $ (.08)
Average number of shares outstanding . . . . . 2,866,277 3,034,650 3,318,073 3,182,734
-F18-
46
The net loss in third quarter of fiscal 1996 was primarily caused by a
deferred tax charge of $2 million related to an increase in the valuation
allowance of the deferred tax asset, and by reduced sales and profit levels due
to the loss of a major customer that filed bankruptcy. The loss in the fourth
quarter of fiscal 1996 was due principally to the loss of certain other
customers and to increases in the provision for doubtful accounts.
During fiscal 1996 and fiscal 1995, the previous estimate to provide
for the disposal of the discontinued Retail Division was reduced.
Oakhurst incurred a loss during the fourth quarter of fiscal 1995 as a
result of decreased sales levels and higher expenses due to increased sales
efforts. Corporate overhead expense increased during the quarter as a result
of the acquisition of Dowling's and Puma.
A reclassification of approximately $115,000 was made from
discontinued operations to continuing operations in the third quarter of fiscal
1995 results of operations, which related to the recovery of escrowed funds
associated with SCPI's predecessor's bankruptcy.
-F19-
47
SCHEDULE II
OAKHURST COMPANY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------------------------------------------------------------------------------------------
BALANCE AT CHARGED CHARGES TO BALANCE
BEGINNING TO COSTS OTHER ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF PERIOD AND EXPENSES -DESCRIBE - DESCRIBE OF PERIOD
===============================================================================================================
Allowance for doubtful accounts deducted
from trade accounts receivable:
Years ended:
February 29, 1996................. $ 282 $ 610 $ - $ 334 (A) $ 558
========= ========= ========== ====== =========
February 28, 1995................. $ 320 $ 27 $ - $ 65 (A) 282
========= ========= ========== ====== =========
February 26, 1994................. $ 304 $ 879 $ - $ 863 (A) 320
========= ========= ========== ====== =========
(A) Amounts were deemed uncollectible.
-F20-
48
INDEX TO EXHIBITS
Exhibit No. Description
2.1 Agreement and Plan of Merger dated as of May 20, 1991 (filed as Appendix A to the Proxy
Statement/Prospectus dated April 16, 1991 of the Company and Steel City Products,
Inc.).
3.1 Restated and Amended Certificate of Incorporation (filed as Exhibit 3 to the Company's
Quarterly Report on Form 10-K for the fiscal quarter ended August 31, 1996).
3.2 By-laws (filed as Appendix C to the Proxy Statement/Prospectus of the Company and Steel
City Products, Inc. dated April 16, 1991).
4.1 Agreement and Plan of Merger dated as of May 20, 1991 (see Exhibit 2, above).
*10.1 Form of Option Agreement dated August 29, 1991 with directors and executive officers
(filed as Exhibit 10(b) to the Company's Annual report on Form 10-K for the fiscal
year ended February 29, 1992).
10.2 Agreement dated June 11, 1991 with Prudential-Bache Special Situations Fund (filed as
Exhibit 10(q) to the Annual Report on Form 10-K of Steel City Products, Inc. for the
fiscal year ended March 3, 1990).
*10.3 Employment Agreement with Harold Garfinkel dated as of November 1, 1993 (filed as
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 26, 1994).
10.4 Agreement between Harold Garfinkel and H&H Distributors, Inc. dated as of November 1,
1993 (filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal
year ended February 26, 1994).
10.5 Credit Agreement by and between Steel City Products, Inc. and Integra Bank Pittsburgh
(filed as Exhibit 10.1 to SCPI's Quarterly Report on Form 10-Q for the period ended
August 27, 1994).
10.6 Mortgage and Security Agreement by and between Steel City Products, Inc. and Integra
Bank Pittsburgh (filed as Exhibit 10.2 to SCPI's Quarterly Report on Form 10-Q for the
period ended August 27, 1994).
10.7 Credit Agreement by and between Oakhurst Capital, Inc. and Integra Bank Pittsburgh
(filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period
ended August 27, 1994).
10.8 Pledge and Security agreements between Oakhurst Capital, Inc. and Integra Bank
Pittsburgh (filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the period ended August 27, 1994).
10.9 Purchase and Sale Agreement relating to the acquisition of Dowling's Fleet Service
Company, Inc. by Oakhurst Capital, Inc., also containing employment agreements with
James Dowling, Robert Keane and Joseph Quattrochi (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period ended August 27, 1994).
*10.10 Stock Purchase Agreement dated as of October 20, 1994 among Oakhurst Capital, Inc.,
Puma Products (formerly LBI Corporation) and Anthony Puma also containing employment
agreements with Anthony Puma and Laurence Finman (filed as an exhibit to Oakhurst's
Form 8-K filed on October 26, 1994).
10.11 Lease agreements by and between James Dowling and Dowling's Fleet Service Company, Inc.
(filed as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1995).
10.12 Lease agreement by and between Anthony Puma and Puma Products (filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K for the fiscal year ended February 28,
1995).
*10.13 The 1994 Omnibus Stock Plan with form of option agreement (filed as Exhibit 10.13 to
the Company's Annual Report on Form 10-K for the fiscal year ended February 28, 1995).
*10.14 The 1994 Non-Employee director Stock Option Plan with form of option agreement (filed
as Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1995).
10.15 Letter agreement dated January 3, 1996 between SCPI and Integra Bank Pittsburgh
amending the Credit Agreement, dated August 1, 1994 between SCPI and Integra (filed as
Exhibit 10.17 to Oakhurst's Registration Statement on Form S-1, file #333-00173, filed
on January 12, 1996).
10.16 Letter agreement dated January 3, 1996 between Oakhurst and Integra Bank Pittsburgh
amending the Credit Agreement, dated August 1, 1994 between Oakhurst and Integra (filed
as Exhibit 10.16 to Oakhurst's Registration Statement on Form S-1, file #333-00173,
filed on January 12, 1996).
10.17 Loan and Security Agreement; Schedule to Loan and Security Agreement; Secured
Promissory Note with FINOVA Capital Corporation all dated March 28, 1996 - filed
herewith.
10.18 Open-End Mortgage between Steel City Products, Inc. and FINOVA Capital Corporation
dated March 28, 1996 - filed herewith.
10.19 Consulting Agreement with Bryanston Management, Ltd, dated as of December 19, 1995 -
filed herewith.
*10.20 Consulting Agreement with Mark Auerbach dated as of December 19, 1995 and Options
Agreement with Mark Auerbach dated as of December 19, 1995 - filed herewith.
*10.21 Employment Agreement between Oakhurst Management Corporation and John R. Ruda dated as
of December 19, 1995 - filed herewith.
11 Statement of re-computation of per-share earnings - filed herewith.
22 Subsidiaries: Steel City Products, Inc.
H&H Distributors, Inc.
Dowling's Fleet Service Company, Inc.
Puma Products, Inc.
Oakhurst Management Corporation
27 Financial Data Schedule (EDGAR transmission only) - filed herewith.
- -----------------
* Management contract or compensatory plan or arrangement.