U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30,December 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission file number: 1-9083
OVERHILL CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 23-2708876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4800 Broadway, Suite A
Addison, Texas 75001
(Address of principal executive offices)
(972) 386-0101
(Registrants's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12
months ( or(or for such shorter period 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value 17,827,464
-----------------------------18,615,464
---------------------------------------
Outstanding at August 6, 2001February 4, 2002
OVERHILL CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30,DECEMBER 31, 2001
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page No.
- ----------------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
June 30, 2001 and September 30, 2000 2
Consolidated Condensed Statements of
Operations for the Three Months Ended
June 30, 2001 and 2000 4
Consolidated Condensed Statements of
Operations for the Nine Months Ended
June 30, 2001 and 2000 5
Consolidated Condensed Statements of
Cash Flows for the Nine Months Ended
June 30, 2001 and 2000 7
Notes to Consolidated Condensed Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
December 31, 2001 and September 30, 2001 2
Consolidated Condensed Statements of
Operations for the Three Months Ended
December 31, 2001 and 2000 4
Consolidated Condensed Statements of
Cash Flows for the Three Months Ended
December 31, 2001 and 2000 5
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 16
Signature Page 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
-1-
OVERHILL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
Assets
June 30,Assets
December 31, September 30,
------------ -------------
2001 2001
------------ 2001 2000
------------ -------------------------
(Unaudited)
Current assets:
Cash $ 1,145,0491,971,147 $ 1,522,347686,382
Receivables, net of allowance for doubtful accounts
of $403,358 and $433,359$626,200
Trade accounts 18,990,666 20,399,2652,344,744 3,399,591
Current portion of sales contracts 3,855,959 4,145,3184,737,987 5,029,362
Related parties 2,077,022 1,927,768
Notes 4,041,037 3,642,1123,761,378 4,191,128
Inventories 36,159,511 36,120,18716,725,235 16,374,797
Net current assets of discontinued operations 18,373,935 17,271,667
Prepaid expenses and other 3,480,200 3,062,9322,094,030 2,044,969
------------ ------------
Total current assets 67,672,422 68,892,16152,085,478 50,925,664
------------ ------------
Property and equipment:
Land 432,000 432,000
Buildings and improvements 3,840,128 3,792,0092,727,352 2,722,595
Machinery, equipment and other 13,090,640 11,986,4653,276,558 3,053,909
------------ ------------
17,362,768 16,210,4746,435,910 6,208,504
Less-Accumulated depreciation (8,985,957) (8,281,568)(2,503,454) (2,348,410)
------------ ------------
8,376,811 7,928,9063,932,456 3,860,094
------------ ------------
Other assets:
Noncurrent receivables, net of allowance for
doubtful accounts of $1,200,000$1,033,671
Sales contracts 2,318,745 2,094,7182,552,334 2,627,468
Related parties 2,039,374 1,202,183375,928 375,928
Excess of cost over fair value of net assets
of businesses acquired net of accumulated
amortization of $5,522,522 and $4,687,461 16,079,292 16,881,886
Other intangible assets 1,302,993 1,734,8583,612,580 3,612,580
Restricted cash 518,688 633,124520,363 522,709
Assets held for sale 1,926,264 1,926,264
Other 3,377,676 3,338,6531,749,099 1,192,074
------------ ------------
27,563,032 27,811,68610,736,568 10,257,023
------------ ------------
$103,612,265 $104,632,753$ 66,754,502 $ 65,042,781
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
-2-
OVERHILL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (continued)SHEET
Liabilities and Stockholders' Equity
June 30,December 31, September 30,
----------- ------------
-------------
2001 20002001
----------- ------------ -------------
(Unaudited)
(Unaudited)
Current liabilities:
Notes payable $ 8,611,17913,708,553 $ 7,674,131
Accounts payable 17,988,892 14,903,684
Accrued expenses and other 3,184,337 4,004,971
Current maturities of long-term debt 2,880,763 3,891,579
------------ -------------
Total current liabilities 32,665,171 30,474,365
Long term debt, less current maturities 35,156,299 40,859,61313,313,743
Note payable and accrued interest to related party 21,936,796 20,746,38422,738,466 -
Accounts payable 1,740,748 2,085,200
Accrued expenses and other 1,344,908 1,066,932
------------ ------------
Total current liabilities 39,532,675 16,465,875
Notes payable and accrued interest to related party - 22,337,631
Net long-term liabilities related to discontinued operations 18,785,317 17,668,829
Reserve for credit guarantees 518,688 633,124520,363 522,709
------------ -------------------------
Total liabilities 90,276,954 92,713,48658,838,355 56,995,044
------------ -------------
Warrants to purchase common stock
in subsidiary 3,104,972 2,806,175------------
Stockholders' equity:
Common stock, $.01 par value, authorized
100,000,000 shares, issued and outstanding
17,827,464 and 17,812,46418,615,464 shares 178,275 178,125186,155 186,155
Paid-in capital 27,612,146 27,650,73428,156,204 28,156,204
Notes receivable from officers and directors (497,250) (497,250)
Accumulated deficit (17,560,082) (18,715,767)(19,928,962) (19,797,372)
------------ -------------------------
Total stockholders' equity 10,230,339 9,113,0927,916,147 8,047,737
------------ -------------
$103,612,265------------
$ 104,632,75366,754,502 $ 65,042,781
============ =========================
The accompanying notes are an integral part
of these consolidated financial statements.
-3-
OVERHILL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
June 30,
------------------------December 31,
--------------------------
2001 2000
----------- -----------
Net revenues $53,500,367 $46,647,829$ 8,777,235 $ 8,250,086
Cost of sales 43,695,938 37,509,9936,652,059 6,295,883
----------- -----------
Gross profit 9,804,429 9,137,8362,125,176 1,954,203
Selling, general and administrative expenses 7,102,874 6,390,4441,765,392 2,077,339
----------- -----------
Operating income 2,701,555 2,747,392(loss) 359,784 (123,136)
----------- -----------
Other income (expenses):
Interest expense (1,980,034) (2,040,163)(544,564) (626,490)
Interest income and other 46,519 318,144(64,286) 428,044
----------- -----------
Total other income (expenses) (1,933,515) (1,722,019)(608,850) (198,446)
----------- -----------
IncomeLoss before income taxes and discontinued operations (249,066) (321,582)
Income tax benefit 119,629 217,689
----------- -----------
Loss before discontinued operations (129,437) (103,893)
Discontinued operations, net of income allocable
to subsidiary warrant holder 768,040 1,025,373
Income taxes - -
Income allocable to subsidiary warrant holder (128,522) -(2,153) 267,846
----------- -----------
Net income (loss) $ 639,518(131,590) $ 1,025,373163,953
=========== ===========
Net income (loss) per share - basic and diluteddiluted:
Before discontinued operations $ .04(.01) $ .06(.01)
Discontinued operations -- .02
----------- -----------
Net income (loss) per share $ (.01) $ .01
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
OVERHILL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONSCASH FLOWS
(Unaudited)
For the NineThree Months Ended
June 30,December 31,
----------------------------
2001 2000
------------ -------------------------
Cash flows provided by (used in) operating activities:
Net revenues $149,346,356 $134,578,013
Cost ofincome (loss) $ (131,590) $ 163,953
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 120,912 228,137
Provision for doubtful accounts 5,577 96,976
Interest accrual on notes to related party 400,835 400,835
(Income) loss on investment in limited
liability company 248,778 (11,076)
(Income) loss from discontinued operations (145,761) (267,846)
Changes in:
Accounts and sales 121,550,976 107,201,464
------------ ------------
Gross profit 27,795,380 27,376,549
Selling, general and administrativecontracts receivable 1,415,779 300,297
Inventories (350,438) (1,684,061)
Prepaid expenses 20,659,343 18,683,658
------------ ------------
Operating income 7,136,037 8,692,891
------------ ------------
Other income (expenses):
Interest expense (6,185,706) (6,114,518)
Interest income and other 504,151 650,020
------------ ------------
Total100,939 1,104,719
Accounts payable (334,471) 926,398
Accrued expenses and other income (expenses) (5,681,555) (5,464,498)
------------ ------------
Income before income taxes, income allocable to
subsidiary warrant holder(279,049) (1,393,258)
----------- -----------
Net cash provided by (used in)
operating activities 1,051,511 (134,926)
----------- -----------
Cash flows provided by (used in)
investing activities:
Notes and extraordinary item 1,454,482 3,228,393
Income taxes - (112,442)
Income allocable to subsidiary warrant holder (298,797) -
------------ ------------
Income before extraordinary item 1,155,685 3,115,951
Extraordinary item--early extinguishment of debt - (1,290,431)
------------ ------------other receivables 429,750 (451,674)
Receivables from related parties (398,032) (28,457)
Capital expenditures, net (193,274) (279,299)
----------- -----------
Net income 1,155,685 1,825,520
Gain on reacquired preferred stock - 351,457
------------ ------------
Net income attributable to common stockholderscash provided by (used in)
investing activities $ 1,155,685(161,556) $ 2,176,977
============ ============(759,430)
----------- -----------
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
OVERHILL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (continued)
(Unaudited)
For the Nine Months Ended
June 30,
----------------------------
2001 2000
------------ ------------
Net income per share - basic and diluted:
Before extraordinary item $ .06 $ .19
Extraordinary item - (.07)
------------ ------------
Net income per share: $ .06 $ .12
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
-6-
OVERHILL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
June 30,
-------------------------
2001 2000
----------- -----------
Cash flows provided by (used in) operating activities:
Net income $ 1,155,685 $ 1,825,520
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 2,524,965 2,485,264
Provision for doubtful accounts 224,421 74,820
Income allocable to subsidiary warrant holder 298,797 -
Extraordinary item - 1,290,431
Changes in:
Accounts and sales contracts receivable 1,249,510 (2,531,951)
Inventories (39,324) (2,675,084)
Prepaid expenses and other (456,291) (1,036,006)
Accounts payable 3,085,208 1,080,390
Accrued expenses and other 369,778 611,597
----------- -----------
Net cash provided by (used in)
operating activities 8,412,749 1,124,981
----------- -----------
Cash flows provided by (used in) investing activities:
Notes and other receivables (398,925) (522,146)
Receivables from related parties (837,191) (218,072)
Capital expenditures, net (1,307,911) (769,029)
----------- -----------
Net cash provided by (used in)
investing activities $(2,544,027) $(1,509,247)
----------- -----------
The accompanying notes are an integral part
of these consolidated financial statements.
-7-
OVERHILL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the NineThree Months Ended
June 30,
--------------------------December 31,
----------------------------
2001 2000
----------- ------------ -------------
Cash flows provided by (used in) financing activities:
Net borrowings (principal payments) on line
of credit arrangements $(2,850,462) $ 2,586,035394,810 $ 842,370
Borrowings on other notes payable and long-term debt - 185,205 28,282,602
Principal payments on long-term debt (3,542,325) (1,534,372)
Repayment of subordinated debt - (22,675,000)(344,150)
Exercise of common stock options - 7,500 -
Repurchase of stock purchase warrants - (45,938)
-
Redemption of Overhill Farms warrants - (3,700,000)
Deferred financing costs - (1,832,907)
Repurchase of preferred stock - (450,000)
----------- ------------ ----------
Net cash provided by (used in)
financing activities (6,246,020) 676,358
-----------394,810 644,987
------------ ----------
Net increase (decrease) in cash (377,298) 292,0921,284,765 (249,369)
Cash - beginning of period 1,522,347 375,408
-----------686,382 963,387
------------ ----------
Cash - end of period $ 1,145,0491,971,147 $ 667,500
===========714,018
============ ==========
Supplemental schedule of cash flow information:
Cash paid during the period for :
Interest $ 4,499,417129,650 $ 4,465,218186,173
Income taxes $ 78,76458,000 $ 19,85850,000
Supplemental schedule of noncash investing and financing activities:
In November 1999, in connection with the Overhill Farms refinancing, warrants
were issued having an estimated fair market value of $2,370,000.
The accompanying notes are an integral
part of these consolidated financial statements.
-8--6-
OVERHILL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
June 30,December 31, 2001
1. NATURE OF BUSINESS
Overhill Corporation, formerly Polyphase Corporation, (the "Company") is a
diversified holding company that, through its subsidiaries, currently operates in
two
industry segments: the food segmentforestry and the forestry segment. The food segment
(the "Food Group"), which consists of the Company's 99% owned subsidiary,
Overhill Farms, Inc. ("Overhill"), produces high quality entrees, plated
meals, soups, sauces and poultry, meat and fish specialities. The Company's
ownership of Overhill is subject to warrants outstanding to purchase a
minority position in Overhill. The forestry segment (the "Forestry Group"),
which consists oftimber related businesses. These operations are conducted
through the Company's wholly-owned subsidiary Texas Timberjack, Inc.
("Timberjack" or "TTI") and itsTTI's majority-owned subsidiaries Southern Forest
Products LLC ("SFP") and Wood Forest Products LLC ("WFP"),. Through these
entities, the Company distributes, leases and provides financing for
industrialconstruction and commercial timber equipment and is also engaged in certain related timber and
sawmill operations.
The Company's Board of Directors, in August 2001, approved a plan to spin off
all of its shares of Overhill Farms, Inc. ("Overhill Farms") to the holders
of the Company's common stock. Overhill Farms, a producer of high quality
entrees, plated meals, meal components, soups, sauces and poultry, meat and
fish specialties, previously comprised the Company's food segment. Overhill
Farms has been accounted for as discontinued operations in the accompanying
financial statements.
2. BASIS OF PRESENTATION
The consolidated financial statements include the continuing operations and
related accounts of the Company, its wholly-owned subsidiaries and its
majority-owned subsidiaries. All material intercompany accounts and
transactions have beenare eliminated. Certain prior year amounts have been
reclassified to conform to the current year presentation.
The financial statements included herein have been prepared by the Company,
without an audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. The Company believes that the disclosures are
adequate to make the information presented not misleading. The information
presented reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods when read in conjunction with
the financial statements and the notes thereto included in the Company's
latest financial statements filed as part of its Form 10-K for the year ended
September 30, 2000.
-9-2001.
The balance sheet at September 30, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the
United States for complete financial statements.
-7-
3. INVENTORIES
Inventories are summarized as follows: June 30, September 30,
2001 2000
----------- ------------
Finished goods $25,919,170 $ 26,179,043
Raw materials 10,310,077 10,091,144
Inventory reserve (69,736) (150,000)
----------- ------------
Total $36,159,511 $ 36,120,187
=========== ============
As of June 30, 2001 and September 30, 2000, finished goods inventories
consisted of approximately $9,356,000 and $9,655,000 in inventories at the
Food Group, $15,800,000 and $15,690,000 in timber and logging related
equipment, and $763,000 and $834,000 in finished wood products, respectively.
As of June 30, 2001 and September 30, 2000, raw materials inventories
consisted of approximately $9,090,000 and $9,289,000 in inventories at the
Food Group and $1,220,000 and $802,000 in both unharvested and harvested but
unprocessed timber, respectively.
Inventories are summarized as follows: December 31, September 30,
2001 2001
---------------- ---------------
Timber and construction equipment $ 14,101,433 $ 14,469,372
Finished wood products 1,359,828 1,050,468
Unharvested and harvested but unprocessed timber 1,263,974 854,957
---------------- ---------------
Total $ 16,725,235 $ 16,374,797
================ ===============
4. TAXES
For the nine monthsquarter ended June 30,December 31, 2001, the actualCompany recorded a tax benefit
to the extent that current and prior year operating losses reduce the income
taxes attributable to the discontinued operations of Overhill Farms. This
benefit amounted to approximately $120,000 for the current quarter and the
results of operations of Overhill Farms included in the accompanying
financial statements are presented net of income tax expense attributable to income from continuing operations differed fromof the net
amounts recorded by the Company. The Company's subsidiaries recorded a
provision for income taxes of approximately $1,200,000, based upon their
effective tax rates determined as if they were separate taxpayers; the Company
then applied a like amount of its existing valuation allowance as a reduction
of this amount, resulting in a net income tax provision for the period of
zero.same
amount. The Company continues to maintain a valuation allowance against a
portion of itsall
net deferred tax assets that relate to its continuing operations due to
uncertainty with respect to the future recoverability of all such amounts.
5. LONG-TERM DEBTDISCONTINUED OPERATIONS
In November 1999,August 2001, the Company's Board of Directors approved a plan to spin
off all of the Company's shares of Overhill Farms Inc. refinanced substantially all its
existing debt.to the holders of the
Company's common stock. The new facility amountedtransaction to $44 million, consisting of a $16
million line of credit provided by Union Bank of California, N.A. ("Union
Bank"), together with $28 millioneffect the spin-off will result
in the form ofissuance, expected to be a five-year term loan
provided by Levine Leichtman Capital Partners II, L.P. ("LLCP").
The line of credit with Union Bank expires in November 2002 and provides for
borrowings limitedtax free dividend to the lesserCompany's
stockholders, of $16 millionone share of Overhill Farms common stock for every two
shares of the Company's common stock owned on the record date as
established by the Board. The Company is currently in the process of
completing the various steps necessary to effect the spin-off transaction.
These steps include, among other things, obtaining final lender approvals,
making necessary changes to Overhill Farms' capital structure to effect the
distribution of the dividend, the updating and refiling of information with
the Securities and Exchange Commission and finalizing a possible decision
by management to eliminate all, or an amount determined by a defined borrowing base consistingpart, of eligible receivablesthe intercompany receivable
and inventories.
Borrowings under the line bear interest at a rate, as selected by Overhill at
the time of borrowing, of prime plus .25% or LIBOR plus 2.75%. The agreement
contains various covenants including restrictions on capital expenditures,
requirements to maintain specified net worth levels and debt service ratios,
and generally prohibits loans, advances or dividends from Overhill topayable accounts between the Company and limits payments of taxes and other expensesOverhill Farms prior to the
parent company
to specified levels.spin-off, which may include eliminating the contractualization previously
anticipated for all or a part of such amounts.
-8-
The line of credit is guaranteed by the Company and
collateralized by certain assetsoperating results of Overhill and the Overhill common stock
owned by the Company.
-10-
The term loan with LLCP is a secured senior subordinated note bearing interest
at 12% per annum, with interest payable monthly until maturity in October
2004. Principal payments in an amount equal to 50% of the excess cash flow,Farms have been classified as
defined, for Overhill's previous fiscal year are also payable annually;
such paymentdiscontinued operations in the amount of $2,020,000 was paid in January 2001. Voluntary
principal payments are permitted after Octoberaccompanying financial statements for the
periods ended December 31, 2001 subject to certain
prepayment penalties. The agreement contains various covenants including
restrictions on capital expenditures, minimum EBITDA and net worth levels,2000 and specified debt service and debt to equity ratios. In addition, the terms of
the agreement restrict changes in control, generally prohibit loans, dividends
or advances by Overhill to the Company and limit payments of taxes and other
expenses to the parent company to specified levels. The term loan with LLCP is
guaranteed by the Company and collateralized by certain assets of Overhill.
The agreement also requires Overhill to pay to LLCP, during each January,
annual consulting fees of $180,000.
In connection with the agreement, LLCP was issued warrants to purchase 17.5%
of the common stock of Overhill, exercisable immediately at a nominal exercise
price. During the first two years following the date of the agreement,
Overhill has the right to repurchase 5% of Overhill's shares from LLCP for $3
million and/or to repurchase all 17.5% of the Overhill shares subject to the
LLCP warrant within five days of the term loan being repaid at their then
determined fair market value. If such shares are not purchased, LLCP will be
entitled under the agreement to receive a cash payment of $500,000 from
Overhill. At the date of issuance, the warrants granted to LLCP were
estimated to have a fair value of $2.37 million.
As a result of the transactions, Overhill repaid in full the $22.7 million
senior subordinated notes and the $9.7 million balance of its revolving line
of credit with previous lenders. Additionally, Overhill repurchased, for $3.7
million, the warrants held by a previous lender to purchase 30% of Overhill's
common stock; the excess of such repurchase amount over the carrying value of
the warrant amounted to approximately $2.3 million and was recordedsummarized as goodwill. In connection with the refinancing, Overhill was permitted to make a
one-time advance of $1.25 million to the Company for working capital and other
specified purposes. Overhill incurred costs and expenses in connection with
the refinancing totaling approximately $1.9 million, substantially all of
which has been, or will be, paid to the lenders. The early extinguishment of
the previous indebtedness resulted in an extraordinary loss of approximately
$1.3 million (net of a $500,000 refund for early payment of the senior
subordinated notes) during the nine months ended June 30, 2000.
-11-
6. EARNINGS PER SHARE
The following tables set forth the computations of basic and diluted earnings
per share:
For the Three Months Ended
June 30,
---------------------------
2001 2000
----------- -----------
Numerator:
Net income $ 639,518 $ 1,025,373
=========== ===========
Denominator:
Denominator for basic earnings per share-
weighted average shares 17,827,464 17,812,464
----------- -----------
Effect of dilutive securities:
Stock options 44,576 75,329
Warrants - -
----------- -----------
Dilutive potential common shares 44,576 75,329
----------- -----------
Denominator for diluted earnings per share 17,872,040 17,887,793
=========== ===========
Net income per share - basic and diluted $ .04 $ .06
=========== ===========
-12-
follows:
For the NineThree Months Ended
June 30,
----------------------------December 31,
--------------------------
2001 2000
----------- ----------------------- ------------
Net revenues $ 33,357,719 $ 38,478,489
Gross profit 5,184,865 6,646,054
Operating income 1,642,431 2,151,114
Income before income taxes 298,036 542,351
Net income $ 178,407 $ 324,662
6. EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted
earnings per share:
For the Three Months Ended
--------------------------
December 31,
------------ ------------
2001 2000
------------ ------------
Numerator:
Income (loss) before extraordinary itemdiscontinued operations $ 1,155,685(129,437) $ 3,115,951
Gain on reacquired preferred stock - 351,457
----------- -----------
1,155,685 3,467,408
Extraordinary item - (1,290,431)
----------- -----------(103,893)
Discontinued operations (2,153) 267,846
------------ ------------
Net income (loss) attributable to common stockholders $ 1,155,685(131,590) $ 2,176,977
=========== ===========163,953
============ ============
Denominator:
Denominator for basic earnings
per share-share - weighted average shares 17,826,090 17,812,464
----------- -----------18,615,464 17,823,387
------------ ------------
Effect of dilutive securities:
Convertible preferred stock - 358,618
Stock options 52,541 6,019- 50,290
Warrants - -
----------- ----------------------- ------------
Dilutive potential common shares 52,541 364,637
----------- ------------ 50,290
------------ ------------
Denominator for diluted earnings per share 17,878,631 18,177,101
=========== ===========18,615,464 17,873,677
============ ============
Net income (loss) per share - basic and diluted:
Before extraordinary itemdiscontinued operations $ .06(.01) $ .19
Extraordinary item(.01)
Discontinued operations - (.07)
----------- -----------.02
------------ ------------
Net income per share $ .06(.01) $ .12
=========== ===========.01
============ ============
-13--9-
7. STOCKHOLDERS' EQUITY
Stock OptionsOptions-
During the periodthree months ended June 30, 2001,December 31, 2000, options to purchase 15,000
shares of
the Company's common stock, at an exercise price of $.50 per share were exercised.
WarrantsWarrants-
During the periodthree months ended June 30, 2001,December 31, 2000, the Company repurchased
warrants covering 210,000 shares of its common stock, exercisable at $1.125 per share for total
consideration of approximately $46,000.
Subsidiary Warrants8. INVESTMENT IN LIMITED LIABILITY COMPANY
TTI has a 49.9% ownership in a construction related limited liability
company (the "LLC"), which is accounted for under the equity method. TTI
does not exercise control over this minority investment. TTI's initial
capital investment in the LLC was nominal and its investment in the LLC is
comprised primarily of related party receivables arising from operating
advances and financed equipment sales to the LLC, with such sales being
transacted primarily at Texas Timberjack's cost of acquiring the related
equipment. During the periodquarter ended JuneDecember 31, 2001, the net related
party receivables from the LLC increased approximately $429,000 from
September 30, 2001, warrants issued in 1997 to purchase
1% of2001. Additionally, upon obtaining updated financial
information from the common stock of Overhill Farms, Inc., at an exercise price of
$50,000, were exercised.
Convertible Preferred Stock
During November 1999, the Company and Infinity Investors Limited, the holder
of a series of the Company's preferred stock, entered into an agreement
whereby, among other things, the Company agreed to repurchase all remaining
preferred stock owned by Infinity, including all accrued but unpaid
dividends, for $450,000 cash, and Infinity agreed to the dismissal of all
litigation against the Company with respect to various matters related to
its ownership of the preferred stock. As a result of the settlement,LLC, the Company recorded a gainloss of approximately
$351,000, related$249,000 relating to the differenceTTI's investment in the carrying value of the preferred stock plus the accrued dividends and
the settlement amount. Such amount was accounted for by recording a
reduction of the Company's accumulated deficitLLC during the nine monthsquarter ended
June 30, 2000.
8.December 31, 2001.
9. RECENT ACCOUNTING PRONOUNCEMENTPRONOUNCEMENTS
In June, 2001, the Financial Accounting Standards Board issued Statement
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142)("SFAS 142"), which
requires that goodwill will no longer be amortized, but instead will be tested
at least annually for impairment by reporting unit. The Company is requiredhas elected
to early adopt SFAS 142 effective as of October 1, 2002, though early adoption as of
October 1, 2001 is permitted.2001. The Company is currently
in the process of
evaluatingreviewing the relevant provisions of SFAS 142 and has not yet determined
when SFAS 142 will be adopted or whether the adoption of SFAS 142 will have an immediate effect on the financial statements.carrying value of
goodwill. However, amortization of goodwill, which amounted to
approximately $835,000 and $683,000$71,000 for the nine
month periodsthree months ended June 30, 2001 andDecember 31, 2000, respectively, before
any related tax effects, will bewas eliminated upon the adoption of SFAS 142.
-14--10-
ItemITEM 2. Management's Discussion and AnalysisMANAGEMENT'S DISCUSSION AND ANALYSIS
Statements contained in this Form 10-Q that are not historical facts, including,
but not limited to, any projections contained herein, are forward-looking
statements and involve a number of risks and uncertainties. The actual results
of the future events described in such forward-looking statements in this Form
10-Q could differ materially from those stated in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are: adverse economic conditions, industry competition and other
competitive factors, government regulation and possible future litigation.
Results of Operations
Net Revenues for- For the ninethree months ended June 30,December 31, 2001, revenues increased
$14,768,000 (11%$527,000 (6.4%) to $149,346,000$8,777,000 from $134,578,000$8,250,000 during the ninethree months ended
June 30,December 31, 2000. TheThis increase in revenues during the first quarter is primarily attributabledue to
increased sales gainsof $709,000 in the Company's equipment segment, while revenues
from the timber segment decreased by Overhill.$182,000.
Gross Profits - For the quarter ended December 31, 2001, gross profits increased
only $418,000$171,000 to $27,795,000$2,125,000 in the current year from $27,377,000$1,954,000 in the comparable periodprior year,
due primarily to the increase in volume, as gross margin rates remained
generally unchanged between years.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for the three months ended December 31, 2001 decreased
$312,000 to $1,765,000 from $2,077,000 during the three months ended December
31, 2000, due to a decreasereductions in gross margin
ratespersonnel costs in both the equipment and timber
segments of TTI, together with the adoption by TTI of SFAS 142 effective October
1, 2001, thereby eliminating the amortization of goodwill which amounted to
18.6%approximately $71,000 during the three months ended December 31, 2000.
Other Expenses - For the three months ended December 31, 2001, net other
expenses increased $411,000 to $609,000 in the current year as comparedfrom $198,000 for
the three months ended December 31, 2000. This decrease is largely attributable
to 20.3%recorded losses related to Timberjack's 49.9% investment in a construction
company accounted for on the comparableequity method. See "Management's Discussion and
Analysis--Related and Certain Other Parties."
Income Taxes - The Company records a tax benefit to the extent that current and
prior year operating losses reduce the income taxes attributable to the
discontinued operations of Overhill Farms. Accordingly, the results of
operations of Overhill Farms are presented within the consolidated financial
statements net of income tax expense of $120,000 for the three months ended
December 31, 2001 and $218,000 for the same period in fiscal 2000.
During the current nine month period, operating income decreased
to $7,136,000 from $8,693,000 in fiscal 2000.
Consolidated income before extraordinary itemLiquidity and Capital Resources
Principal sources of liquidity for the nine months ended June 30,
2001 decreasedCompany are cash flow from operations,
cash balances and additional financing capacity. The Company's cash and cash
equivalents increased $1,285,000 to $1,156,000 from $3,116,000 during the nine months ended June
30, 2000. After the effect in the prior year of an extraordinary expense of
$1,290,000 related to the early extinguishment of debt in connection with major
refinancing by Overhill Farms, and a gain of $351,000 on the reacquisition of
preferred stock, net income attributable to common stockholders amounted to
$1,156,000 ($.06 per share) in the current year compared to $2,177,000 ($.12 per
share) in fiscal 2000.
The Food Group's revenues increased $15,640,000 (15%) to $119,586,000 for the
nine months ended June 30,$1,971,000 at December 31, 2001 as compared
to $103,946,000 for$686,000 at September 30, 2001.
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During the ninethree months ended June 30, 2000. Gross profits increased $1,040,000 to $21,575,000, compared
to $20,535,000 in the prior year. A decrease in the gross margin rate to 18.0%
in 2001 from 19.8% in 2000, as well as an increase in operating expenses, were
both attributable, in part, to startup expenses related to the Chicago Brothers
acquisition and increased energy costs in the California based facilities and
resulted in a decrease in operating income to $7,339,000 in 2001 from $8,204,000
in 2000.
Revenues for the Forestry Group for the nine months ended June 30, 2001
decreased $872,000 (2.8%) to $29,760,000 from $30,632,000 for the nine months
ended June 30, 2000. Operating income for the same period decreased $403,000 to
$370,000 for the nine months ended June 30, 2001 from $773,000 for the nine
months ended June 30, 2000. These decreases are due to a continued softness in
the East Texas timber market, affecting both the Texas Timberjack core equipment
business as well as its sawmill operations.
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Liquidity and Capital Resources
During the nine months ended June 30,December 31, 2001, the Company's operating
activities resulted in a source of cash provided of approximately $8,413,000, as$1,052,000, compared to
a use of cash provided of $1,125,000$135,000 during the comparable period in fiscal 2000.the previous year. The
source of cash provided induring the current year is related primarily due to the operations of Overhill
Farms, with decreases in receivables and increases in
trade accounts payable.and sales contracts receivable, offset somewhat by increases in
inventories and by reductions in accounts payable and accrued expenses.
During the ninethree months ended June 30,December 31, 2001, the Company's investing
activities resulted in a use of cash of approximately $2,544,000, as$162,000, compared to a
use of cash of $1,509,000$759,000 during the comparable period in fiscal 2000.the previous year. The
Company's use of cash induring the current year resulted from increases in notes and related
party receivables by Texas Timberjack andprimarily from capital
expenditures by both
operating units.TTI, with decreases in notes and other receivables being
somewhat offset by increases in related party receivables.
During the ninethree months ended June 30,December 31, 2001, the Company's financing
activities resulted in a use of cash provided of approximately $6,246,000, as$395,000, compared to cash
provided of $676,000approximately $645,000 during the comparable period in fiscal 2000.the previous
year. The usecash provided resulted from additional borrowings under Timberjack's
lines of cashcredit.
The Company's note payable to Mr. Harold Estes has a current balance at December
31, 2001 of approximately $21.2 million, including accrued interest, and is
collateralized by the stock and certain assets of Texas Timberjack and matures
in October 2002. Since the note's inception in 1994, Mr. Estes and the Company
have agreed to a number of extensions of the maturity date and related terms of
this note. The Company intends to seek further extension of the maturity date
from Mr. Estes prior to its maturity. There can be no assurance, however, that
the maturity date of the note can be successfully extended on favorable terms,
or at all.
SFP's Quantum Fuel & Refining, Inc. subsidiary ("Quantum") has a note payable to
Mr. Estes. As of December 31, 2001, the note had a total unpaid balance,
including accrued interest, of approximately $1.5 million, bearing interest at
12%, with maturity in October 2002 and collateralized by the assets of Quantum.
Mr. Estes has agreed to previous extensions of the maturity date with Quantum,
including one extension since Quantum's acquisition by SFP. Timberjack intends
to seek further extension of the maturity date from Mr. Estes prior to its
maturity. There can be no assurance, however, that the maturity date of the note
can be successfully extended on favorable terms, or at all.
Texas Timberjack and SFP's notes payable to Bank of America, N.A. have a current
balance at December 31, 2001 of approximately $8.3 million and mature in March
2002. In each of the past several years, Texas Timberjack and SFP have
successfully renewed these notes with Bank of America, N.A. Timberjack intends
to renew these lines of credit prior to their maturity in March 2002. There can
be no assurance, however, that these lines of credit can be successfully renewed
on favorable terms, or at all.
Texas Timberjack guarantees on behalf of various customers certain lines of
credit and secured borrowings with banks and financial institutions, primarily
related to customer purchases of its equipment products. The portion of the
credit lines or secured borrowings guaranteed ranges from zero to 100% on a
customer-by-customer basis. Funds held in escrow by the lenders, amounting to
approximately $520,000 at December 31, 2001, are included in the current year resulted consistedconsolidated
balance sheet as restricted cash and are fully offset by the Company's reserve
for credit guarantees. Historically, amounts held in escrow by lenders have been
sufficient to cover any losses incurred by Texas Timberjack as a result of these
guarantees. However, losses on
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guarantees significantly in excess of amounts held in escrow by the
lenders could have a material impact on the Company's liquidity position and
results of operations.
Texas Timberjack has a 49.9% investment in a construction related business which
operates as a limited liability company. As of December 31, 2001, Timberjack has
guaranteed approximately $400,000 of indebtedness of this company. See
"Management's Discussion and Analysis--Related and Certain Other Parties."
The Company has various other commitments incurred through the ordinary course
of its business, primarily noncancelable operating leases related to its
facilities and equipment in Bon Weir, Texas and inventory purchase commitments
from three companies which supply the majority of principal payments on
indebtedness by Overhill Farms.its new units and parts. There
has been no significant change in the type or amount of these commitments since
September 30, 2001.
The Company believes that funds available to it from operations and existing
capital resources will be adequate for its capital requirements, including any
cash requirements resulting from the various commitments and contingencies
described above, for the next twelve months.
ItemRelated and Certain Other Parties
TTI has a 49.9% ownership in a construction related limited liability company
(the "LLC"), which is accounted for under the equity method. TTI does not
exercise control over this minority investment. TTI's initial capital investment
in the LLC was nominal and its investment in the LLC is comprised primarily of
related party receivables arising from operating advances and financed equipment
sales to the LLC, with such sales being transacted primarily at Texas
Timberjack's cost of acquiring the related equipment. During the quarter ended
December 31, 2001, the net related party receivables from the LLC increased
approximately $429,000 from September 30, 2001. Additionally, upon obtaining
updated financial information from the LLC, the Company recorded a loss of
approximately $249,000 relating to TTI's investment in the LLC during the
quarter ended December 31, 2001.
See "Management's Discussion and Analysis--Liquidity and Capital Resources" for
discussion of notes payable to Mr. Harold Estes, former owner and current
President of Texas Timberjack and holder of approximately 4,000,000 shares of
the Company's common stock.
In connection with the acquisition of TTI, the Company acquired a note
receivable from an officer of TTI collateralized by marketable securities and a
receivable from Mr. Estes for insurance premiums paid by TTI on his behalf. As
of December 31, 2001, such receivables have remained substantially unchanged
since September 30, 2001.
The former owner of Quantum is TTI's 25% minority partner in SFP. TTI's 25%
minority partner in SFP is a guarantor of TTI's and SFP's note payable to, and
SFP's revolving line of credit with, Bank of America, N.A. The father of TTI's
25% minority partner is a former officer of SFP. The Company's outstanding
receivables from this former officer of SFP, or from companies owned or
controlled by him, have not substantially changed since September 30, 2001.
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ITEM 3. Quantitative and Qualitative Disclosures About Market RiskQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's interest expense is affected by changes in prime and LIBORlending rates as
a result of its various line of credit arrangements. If these market rates were
to increase by an average of 1%, in fiscal 2002, the Company's interest expense
for the next twelve months would increase by approximately $215,000,$90,000, based on the
outstanding line of credit balances at June 30,December 31, 2001.
The Company's Texas Timberjack subsidiary periodically makes advances under
promissory notes to certain unrelated individuals and corporations. These notes
generally have fixed interest rates ranging from 10% to 18%, are generally due
within one year and, in a majority of cases, are collateralized by a variety of
marketable assets, primarily timber and land. The value of these notes is
subject to market risk due to changing interest rates and the condition of the
related collateral.
The Company does not own, nor does it have an interest in any other market risk
sensitive instruments.
-16--14-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During fiscal 1997, five substantially identical complaints were filed in the
United States District Court for the District of Nevada against the Company
and certain of its current and past officers and directors. The complaintslawsuits each sought
certification as a class action and asserted liability based on alleged
misrepresentations that the plaintiffs claimed resulted in the market price
of the Company's stock being artificially inflated. The defendants filed
motions to dismiss in each of the lawsuits. Without certifying the cases as
class actions, the District Court consolidated the cases into a single
action.
In March 2000, the District Court dismissed the plaintiffs' claims against
one of the Company's officers and directors and restricted the plaintiffs
from pursuing a number of their claims against the other defendants. The
Court also granted the remaining defendants leave to file motions for summary
judgment. Motions for summary judgment were thereafter filed, pointing out
that thethere was no evidence did notto support the plaintiffs' claims. In November
2000, in a lengthy decision addressing the plaintiffs' claims against each of
the remaining defendants, the District Court granted the motions for summary
judgment, thereby disposing of all of the claims asserted by the plaintiffs.
The plaintiffs then filed a motion for rehearing, which the Court denied in
March 2001.
The decision
inplaintiffs have appealed these suits, which the Company maintained all along were without merit, has
now been appealed by the plaintiffsdecisions to the United States Court of
Appeals for the Ninth Circuit. Appellate briefs have been filed by both
sides, and oral argument in the Court of Appeals took place on February 13,
2002.
Recently, the plaintiffs requested the Ninth Circuit to enjoin the Company's
proposed spin-off of Overhill Farms. The Court of Appeals denied the
plaintiffs' request and directed them to address their request to the
District Court. The plaintiffs thereafter filed an application with the
District Court, which restrained the spin-off for a few days until a hearing
could be conducted with respect to the proposed spin-off. Following a hearing
at which counsel for all parties appeared, the District Court dissolved its
temporary restraining order, thereby allowing the Company to proceed with the
proposed spin-off. The plaintiffs have not appealed the most recent decision
by the District Court.
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. However, managementManagement believes
(based, in part, on the advice of legal counsel) that such litigation and
claims will be resolved without material effect on the Company's financial
condition, results of operations or cash flows.
-15-
Item 6. Exhibits and Reports on Form 8-K8-K.
(a) Exhibits
None
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter ended June 30,December 31, 2001.
-17--16-
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
OVERHILL CORPORATION
(Registrant)
Date: August 8, 2001February 18, 2002 By: /s/ James Rudis
----------------------------------------------------------
James Rudis
Chairman, President and
Chief Executive Officer
Date: August 8, 2001February 18, 2002 By: /s/ William E. Shatley
----------------------------------------------------------
William E. Shatley
Senior Vice President and
Chief Financial Officer
-18--17-