UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Second Quarter Ended September 30, 2000
Or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From ______________________ to _______________________
Commission File Number: 001-13657
STANDARD AUTOMOTIVE CORPORATION
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-2018607
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification
No.)
321 Valley Road, Hillsborough, NJ 08876-4056
- --------------------------------- ----------
(Address of principal executive (Zip Code)
offices)
(908) 874-7778
--------------
(Registrant's telephone number)
Not applicable
--------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
As of November 13, 2000, the registrant had a total of 3,722,400 shares of
Common Stock outstanding.
STANDARD AUTOMOTIVE CORPORATION
For the Three and Six Months Ended September 30, 2000
Form 10-Q Quarterly Report
Index
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2000 and
March 31, 2000 3
Consolidated Statements of Income for the three and six
months ended September 30, 2000 and 1999 4
Consolidated Statements of Stockholders' Equity for the
period ended September 30, 2000 5
Consolidated Statements of Cash Flows for the six months
ended September 30, 2000 and 1999 6
Notes to Consolidated 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 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
PART I. Financial Information
Item 1. Financial Statements
STANDARD AUTOMOTIVE CORPORATION
Consolidated Balance Sheets
(in thousands, except share data )
September 30, 2000 March 31, 2000
(Unaudited) (Audited)
------------------ ------------------
Assets
Cash and cash equivalents $ 2,864 $ 3,136
Marketable securities 102 102
Accounts receivable, net 17,317 25,217
Inventory, net 29,558 20,602
Prepaid expenses 1,675 1,269
Deferred taxes 846 768
------------------ ------------------
Total current assets 52,362 51,094
Property and equipment, net 46,101 38,724
Intangible assets, net of accumulated amortization
of $3,082 and $2,522, respectively 57,515 44,151
Deferred financing costs 4,361 2,234
Other assets 991 1,062
------------------ ------------------
Total assets $ 161,330 $ 137,265
================== ==================
Liabilities and Stockholders' Equity
Accounts payable $ 13,231 $ 19,037
Accrued expenses 3,170 2,451
Current portion of long term debt 5,767 4,000
Other current liabilities 8,886 10,598
------------------ ------------------
Total current liabilities 31,054 36,086
Long term debt 89,983 64,261
Deferred income taxes and other long term liabilities 1,336 --
------------------ ------------------
Total liabilities 122,373 100,347
Commitments and contingencies
Stockholders' equity:
Convertible redeemable preferred stock; $ .001 par value;
3,000,000 shares authorized; 1,132,600 issued
and outstanding 1 1
Common stock; $ .001 par value; 10,000,000 shares
authorized; 3,722,400 and 3,602,400 issued
and outstanding, respectively 4 4
Additional paid-in capital 31,088 30,208
Retained earnings 7,876 6,705
Accumulated other comprehensive income (12) --
------------------ ------------------
Total stockholders' equity 38,957 36,918
------------------ ------------------
Total liabilities and stockholders' equity $ 161,330 $ 137,265
================== ==================
The accompanying notes are an integral part of these consolidated statements.
3
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Income (Unaudited)
(in thousands, except net income per share data)
Three months ended Six months ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
-------- ------- ------- -------
Revenues, net $37,980 $44,820 $77,114 $79,864
Operating costs and expenses:
Cost of revenues 29,781 36,947 59,928 65,223
Selling, general and administrative expenses 4,622 4,100 8,949 7,499
------- ------- ------- -------
Total operating costs and expenses 34,403 41,047 68,877 72,722
------- ------- ------- -------
Operating income 3,577 3,773 8,237 7,142
Interest expense 2,433 1,399 4,724 2,082
Other expense, net 276 45 389 86
------- ------- ------- -------
Income before income taxes 868 2,329 3,124 4,974
Provision for income taxes 381 1,003 1,374 2,109
------- ------- ------- -------
Net income 487 1,326 1,750 2,865
Preferred dividend 289 289 578 582
------- ------- ------- -------
Net income available to common stockholders $ 198 $ 1,037 $ 1,172 $ 2,283
======= ======= ======= =======
Basic net income per share $ 0.05 $ 0.28 $ 0.32 $ 0.63
======= ======= ======= =======
Diluted net income per share $ 0.05 $ 0.26 $ 0.32 $ 0.58
======= ======= ======= =======
Basic weighted average number of shares outstanding 3,722 3,690 3,706 3,610
Diluted weighted average number of shares outstanding 3,730 5,043 3,715 4,956
The accompanying notes are an integral part of these consolidated statements.
4
Standard Automotive Corporation
Consolidated Statement of Stockholders' Equity (Unaudited)
(in thousands)
Preferred Common Additional Other Total
Shares Preferred Shares Common Paid In Retained Comprehensive Stockholders'
Outstanding Stock Outstanding Stock Capital Earnings Income Equity
----------- ---------- ----------- -------- ---------- -------- ------------- -------------
Balance - March 31, 2000 1,133 $ 1 3,602 $ 4 $ 30,208 $ 6,705 $ -- $ 36,918
Shares Issued for
Acquisition -- -- 120 -- 780 -- -- 780
Options Issued -- -- -- -- 50 -- -- 50
Preferred Stock
Dividend -- -- -- -- -- (289) -- (289)
Net Income -- -- -- -- -- 1,262 -- 1,262
-------- -------- -------- -------- -------- -------- -------- --------
Balance - June 30, 2000 1,133 $ 1 3,722 $ 4 $ 31,038 $ 7,678 $ -- $ 38,721
======== ======== ======== ======== ======== ======== ======== ========
Shares Issued for
Acquisition -- -- -- -- -- -- -- --
Options Issued -- -- -- -- 50 -- -- 50
Preferred Stock
Dividend -- -- -- -- -- (289) -- (289)
Currency Translation
Adjustment -- -- -- -- -- -- (12) (12)
Net Income -- -- -- -- -- 487 -- 487
-------- -------- -------- -------- -------- -------- -------- --------
Balance - September 30, 2000 1,133 $ 1 3,722 $ 4 $ 31,088 $ 7,876 $ (12) $ 38,957
======== ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
5
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
Six months ended
September 30,
--------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income $ 1,750 $ 2,865
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 3,667 2,227
Non-cash interest and compensation 120 120
Change in assets and liabilities:
Accounts receivable 11,715 (6,263)
Inventory (4,031) (4,202)
Prepaid expenses and other receivables (407) 872
Accounts payable and accrued expenses (9,714) 10,392
-------- --------
Net cash provided by operating activities 3,100 6,011
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (25,605) (25,530)
Acquisition of property and equipment (2,238) (2,301)
-------- --------
Net cash used in investing activities (27,843) (27,831)
-------- --------
Cash flows from financing activities:
Proceeds from bank loan 30,208 26,800
Repayment bank loan (2,625) (1,625)
Deferred financing costs (2,534) (995)
Preferred dividend payment (578) (582)
-------- --------
Net cash provided by financing activities 24,471 23,598
-------- --------
Net Increase (decrease) in cash and cash equivalents (272) 1,778
Cash and cash equivalents, beginning of period 3,136 3,686
-------- --------
Cash and cash equivalents, end of period $ 2,864 $ 5,464
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,131 $ 2,109
Income taxes 2,192 2,194
Noncash investing and financing activities:
Capital stock and debt issued for acquisition
of businesses and assets 780 7,865
The accompanying notes are an integral part of these consolidated statements.
6
STANDARD AUTOMOTIVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General
The information in this Quarterly Report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements are based upon current expectations that involve risks and
uncertainties. Any statements contained in this Quarterly Report that are not
statements of historical fact may be deemed to be forward-looking statements.
For example, words such as "may," "will," "should," "estimates," "predicts,"
"potential," "continue," "strategy," "believes," "anticipates," "plans,"
"expects," "intends" and similar expressions are intended to identify
forward-looking statements. Actual results and the timing of certain events may
differ significantly from the results discussed in forward-looking statements.
The financial statements for the six months ended September 30, 2000 are
unaudited. However, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of the
financial statements for the interim period have been made. The notes to the
financial statements have been prepared consistent with the Form 10-K/A filed
for the fiscal year ended March 31, 2000 and should be read in conjunction with
those financial statements. The results of operations for any interim period are
not necessarily indicative of results for the full year.
1. Organizational and Business Combination
Standard Automotive Corporation (the "Company" or "Standard") is a
Delaware corporation that commenced operations in January, 1998. Standard
currently operates two divisions: (i) the Truck Body/Trailer Division, which
designs, manufactures and distributes trailer chassis for use primarily in the
transport of shipping containers and a broad line of specialized dump truck
bodies, dump trailers, truck suspensions and other related assemblies, and (ii)
the Critical Components Division, which specializes in the fabrication of
precision assemblies for the aerospace, nuclear, industrial and military
markets. Standard's Truck Body/Trailer Division operates through its
wholly-owned subsidiaries: Ajax Manufacturing Company ("Ajax"), R/S Truck Body
Co. ("R/S") and CPS Trailer Co. ("CPS"). Standard's Critical Components Division
operates through its wholly-owned subsidiaries: Ranor Inc. ("Ranor"), Airborne
Gear & Machine Ltd. ("Airborne"), Arell Machining Ltd. ("Arell") and The
Providence Group, Inc. ("TPG").
On July 1, 2000, CPS entered into an operating lease agreement ("Lease")
with Wheeler Steel Works, Inc. and Wheeler Truck Equipment, Inc. (collectively
"Wheeler"). The Wheeler manufacturing facility is located in Southeast Missouri.
Wheeler manufactures grain trailers, grain beds and dump bodies. The Lease is
terminable in the Company's sole discretion upon 30 days notice. The Wheeler
facility includes 60,000 square feet of manufacturing space on thirteen acres.
The agreement is a "triple net lease" and calls for 12 monthly installments of
$15,000. Additionally, the Company has a purchase option available at the
expiration of the agreement. The purchase option requires a $500,000 payment at
closing, plus twelve annual payments of $140,000 as additional purchase price.
On August 1, 2000, the Company, through CPS, acquired from Better Built
Equipment, LLC ("Better Built") substantially all of the assets of Better Built,
a manufacturer of trailers and hoists for the waste transportation industry,
pursuant to an Asset Purchase Agreement. CPS, which already manufactures walking
floor trailers for the waste industry, now adds to its product offerings a pup
trailer, one and two container roll-off trailers and a roll-off hoist. The
Better Built assets were all relocated to our CPS manufacturing facility in
Southeast Missouri. The consideration paid for the assets was approximately
$660,000, of which approximately $110,000 represented goodwill. The purchase
price for the assets was determined by CPS and Better Built through
negotiations. The acquisition of the Better Built assets was funded through the
Company's cash flow. The assets also included the trade name "Better Built" and
a pending patent.
On August 31, 2000, the Company, through its Critical Components Division,
acquired from Malinda A. Morrow all of the capital stock of TPG. The
consideration paid for TPG was approximately $3,322,000 consisting of a
$3,000,000 payment to the seller, subject to final adjustment, as well as
acquisition related expenses of approximately $322,000. Additionally, the
Company has established potential earn-outs payable to the seller based on
meeting certain established EBIT hurdles. The purchase price for the capital
stock of TPG was determined by the Company and Melinda A. Morrow through
negotiations. The acquisition of TPG was funded through the Company's cash flow.
The acquisition has been accounted for as a purchase and, accordingly, our six
months ended September 30, 2000 financial statements reflect the activity of TPG
for the period from August 30, 2000 through September 30, 2000. The Company is
currently in the process of finalizing the allocation of purchase price.
7
2. Pro Forma Information
The following summarized, unaudited pro forma information for the six
months ended September 30, 2000 assumes that the acquisitions of Airborne, Arell
and TPG occurred on April 1, 2000:
(in thousands, except net income per share data)
Standard Airborne Arell TPG Adjustment Pro Forma
-------- -------- ----- --- ---------- ---------
Revenues, net $77,114 $ 905 $ 423 $ 3,864 $ -- $82,306
Operating income 8,237 358 101 1,217 (446) 9,467
Net income $ 1,750 $ 200 $ 57 $ 682 $ (250) $ 2,439
======= ======= ======= ======= ======= =======
Preferred dividend 578 578
Basic net income per share $ 0.32 $ 0.50
======= =======
Diluted net income per share $ 0.32 $ 0.50
======= =======
Basic weighted average number
of shares outstanding 3,706 3,706
Diluted weighted average number
of shares outstanding 3,715 3,715
The pro forma operating results for the period ended September 30, 2000
include estimated adjustments for amortization expense on intangibles arising
from the Airborne, Arell and TPG acquisitions, interest expense associated with
the acquisition debt, and related tax effects. Our pro forma results of
operations are not necessarily indicative of the results of operations that
would have occurred had the Airborne, Arell and TPG acquisitions been
consummated as of April 1, 2000 or of future results of the combined companies.
3. Inventory
Inventory is comprised of the following:
September 30, 2000 March 31, 2000
------------------ --------------
Raw materials 16,508,000 $ 9,977,000
Work in progress 7,676,000 2,545,000
Finished goods 5,374,000 8,080,000
------------ ------------
$ 29,558,000 $ 20,602,000
============ ============
4. Long Term Debt and Credit Agreements
In July 1998, the Company and certain of its subsidiaries (acting as
Guarantors) entered into with PNC Bank, National Association ("PNC"), both
individually and as agent for other financial institutions, a $40,000,000 Term
Loan and Revolving Credit Agreement ("Credit Agreement"). The Credit Agreement
provided for a Term Loan in the amount of $25,000,000 and a Revolving Loan in
the principal amount of $15,000,000.
In June 1999, the Company obtained an increase in its credit facility
arrangement from $40,000,000 to $68,125,000 through PNC and PNC Capital Markets
to consummate the acquisition of Ranor. Our Credit Agreement, as then amended,
provided for Term Loans in the principal amount of $48,125,000 and a Revolving
Loan in the principal amount of $20,000,000.
In April 2000, to consummate the acquisition of Airborne and Arell, we
obtained an increase in our credit facility arrangement from $68,125,000 to
$100,000,000. ING Barings LLC and PNC Capital Markets arranged the financing.
Our Credit Agreement, with the latest amendment, provides for two Term Loans in
principal amounts totaling $75,000,000. The principal of the Term Loans is
payable in two installment tranches of $50,000,000 and $25,000,000 ending in
April 2006 and April 2007, respectively. Amounts outstanding under the Revolving
Loan are payable in full in April 2005. Subject to
8
our request, together with the approval of the lenders, the Revolving Loan's due
date can be extended for one year, with a maximum extension of two one-year
periods.
Interest on the amounts outstanding under the Credit Agreement is payable
monthly and accrues at a variable rate based upon LIBOR or the Base Rate of PNC,
plus a percentage which adjusts from time to time based upon the ratio of our
indebtedness to EBITDA, as such terms are defined in the Credit Agreement. On
August 8, 2000, we converted substantially all of our PNC debt from the Prime to
the LIBOR base rate pricing option. As of September 30, 2000, the blended rate
of interest for the Loans was approximately 10.49%. All amounts outstanding
under the Credit Agreement are secured by a lien on substantially all of our
assets.
At September 30, 2000, we had $95,750,000 in total debt outstanding,
consisting of Term Loans totaling $72,375,000, a Revolving Loan balance of
$17,953,000, a note to the prior owners of Ranor for $5,300,000 and other debt
of $122,000.
5. Basic and Diluted Net Income per Common Share
For the three and six months ended September 30, 2000, the Company's
preferred stock was deemed anti-dilutive and therefore not included in the
calculation of diluted net income per share. For the comparable 1999 periods,
since diluted net income per share exceeded the preferred stock dividend rate,
the preferred shares were deemed dilutive and were included in the calculation
of diluted net income per share.
The following table sets forth, for the periods indicated, the calculation
of basic and diluted net income per share:
(in thousands, except net income per share data)
For the Three For the Six
Months Ended Months Ended
September 30, September 30,
--------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
NUMERATOR:
Income available to common stockholders
used in computing basic net income per share $ 198 $1,037 $1,172 $2,283
Convertible preferred dividends on dilutive
convertible preferred stock 289 289 578 582
------ ------ ------ ------
Income available to common stockholders
used in computing dilutive net income per share $ 487 $1,326 $1,750 $2,865
====== ====== ====== ======
DENOMINATOR :
Weighted average number of
common shares outstanding
used in basic net income per share 3,722 3,690 3,706 3,610
Common equivalent shares:
Convertible preferred stock -- 1,152 -- 1,145
Options 8 122 9 122
Warrants -- 79 -- 79
------ ------ ------ ------
Weighted average number of common
shares and common equivalent shares
used in dilutive net income per share 3,730 5,043 3,715 4,956
====== ====== ====== ======
Basic net income per share $ 0.05 $ 0.28 $ 0.32 $ 0.63
====== ====== ====== ======
Diluted net income per share $ 0.05 $ 0.26 $ 0.32 $ 0.58
====== ====== ====== ======
9
6. Related Party Transactions
In August 2000, the Company, through its Critical Components division,
completed the acquisition of substantially all of the assets of TPG. As part of
the fees and expenses related to the acquisition, Mayfair Associates, owned by
William Merker, received a fee of $203,000 for investment advisory services.
7. Segment Information
As a result of the acquisition of Ranor in June 1999, we reorganized
operations by creating two operating divisions: the Truck Body/Trailer Division
and the Critical Components Division.
The segment information for the period ended September 30, 1999 for our
Critical Components Division represents Ranor's results of operations from June
15, 1999 through September 30, 1999.
The segment information for the period ended September 30, 2000 for our
Critical Components Division represents Ranor's results of operations for the
full period, Airborne's and Arell's from April 26, 2000 through September 30,
2000, and TPG's from August 30, 2000 through September 30, 2000.
Below is the selected financial segment data for the six months ended
September 30, 2000 and 1999:
(in thousands) Truck Critical
Body/Trailer Components Segment
September 30, 2000 Division Division Totals
------------------ ------------ ---------- -------
Revenue $57,461 $19,653 $77,114
Operating Income 5,794 4,072 9,866
Identifiable Assets 53,224 45,239 98,463
Capital Expenditures 1,054 1,184 2,238
Truck Critical
Body/Trailer Components Segment
September 30, 1999 Division Division Totals
------------------ ------------ ---------- -------
Revenue $73,311 $ 6,553 $79,864
Operating Income 8,534 1,109 9,643
Identifiable Assets 57,490 10,554 68,044
Capital Expenditures 1,469 832 2,301
The following is a reconciliation of reportable segment operating income
and assets to the Company's consolidated totals for the six months ended
September 30, 2000:
Operating income 2000 1999
-------- --------
Total operating profit or loss for reporting segments $ 9,866 $ 9,643
Other corporate expenses 1,629 2,501
-------- --------
Consolidated operating income $ 8,237 $ 7,142
======== ========
Assets
Total assets for reporting segments $ 98,463 $ 68,044
Goodwill not allocated to segments 57,515 54,550
Other unallocated amounts (primarily prepaid
financing costs) 5,352 2,472
-------- --------
Consolidated total assets $161,330 $125,066
======== ========
10
Revenues by geographical area are comprised as follows:
(in thousands) Six months ended September 30,
------------------------------
2000 1999
------- -------
United States $68,585 $79,864
Canada 8,529 --
------- -------
Total net revenues $77,114 $79,864
======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The financial statements for the six months ended September 30, 2000 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of the
financial statements for the interim period have been made.
The notes to the financial statements have been prepared consistent with
the Form 10-K/A filed for the fiscal year ended March 31, 2000 and should be
read in conjunction with the financial statements contained in that report. The
following discussion and analysis should be read together with the consolidated
financial statements and notes thereto included elsewhere in this Quarterly
Report and with our 10-K/A Annual Report.
Overview
Standard is a Delaware Corporation and diversified holding company. We
commenced operations in January 1998 with the acquisition of Ajax Manufacturing
Company. We have substantially expanded our operations through acquisitions,
facility expansion and internal growth. Standard is comprised of eight operating
companies geographically dispersed throughout North America, including Canada
and Mexico.
We are currently organized into two operating divisions: the Truck
Body/Trailer Division and the Critical Components Division. These two divisions
operate separately and have distinct management at both the division level and
the operating subsidiary level.
Our Truck Body/Trailer Division designs, manufactures and sells trailer
chassis, dump truck bodies, specialty trailers, truck suspensions and related
assemblies through the following operating companies:
o Ajax manufactures trailer chassis and re-manufactures existing
chassis. Ajax operates in Hillsborough, New Jersey and Sonora,
Mexico. The Mexican facility commenced production in April 1999.
o R/S designs, manufactures and sells customized dump trucks and
trailers, specialized truck suspension systems and related products
and parts. R/S also acts as a distributor for truck equipment
manufactured by other companies, including cranes, tarpaulins,
spreaders, plows and specialized service bodies. We acquired R/S in
July 1998.
o CPS designs, manufactures and sells dump trailers, specializing in
trailers for hauling bulk commodities such as gravel and grain and
for the construction, agriculture and waste hauling industries. We
acquired CPS in September 1998.
Our Critical Components Division operates through the following operating
companies:
o Ranor fabricates and machines large metal precision components and
assemblies for the aerospace, nuclear, industrial and military
markets. We acquired Ranor in June 1999.
o Airborne, located in Montreal, Canada, primarily manufactures
high-precision rotating parts for jet engines made from exotic
alloys. We acquired Airborne in April 2000.
11
o Arell, also located in Montreal, Canada, manufactures high-precision
parts for aircraft engines, landing gear and aircraft fuselages. We
acquired Arell in April 2000.
o TPG, located in Knoxville, Tennessee, specializes in the design,
assembly and fabrication of advanced robotics and other remotely
operated systems for use in nuclear and hazardous environments. We
acquired TPG in August 2000.
Our business strategy is to expand through both internal growth and the
acquisition of premier companies. We focus our acquisition strategy on
businesses that are leaders in their markets as measured by market share,
innovation, profitability and return on assets. We believe that as a result of
our acquisitions, we serve diverse industries which typically operate in varying
business cycles.
Results of Operations (Unaudited)
The following table sets forth, for the periods indicated, certain
components of our Consolidated Statements of Income expressed in dollar amounts
and as a percentage of net revenues. The three and six months ended September
30, 1999 reflect the consolidated results of the parent company, Ajax, R/S and
CPS for the entire period and Ranor from the date of its acquisition on June 15,
1999. The three and six months ended September 30, 2000 reflect the consolidated
amounts of the parent company, Ajax, R/S, CPS and Ranor for the entire period
and also Airborne, Arell and TPG from the date of their respective acquisition
on April 26, 2000, April 26, 2000 and August 30, 2000.
(in thousands) For the Three Months Ended September 30, For the Six Months Ended September 30,
---------------------------------------- --------------------------------------
2000 1999 2000 1999
------------------ ------------------ ----------------- -----------------
Revenues, net $37,980 100.0% $44,820 100.0% $77,114 100.0% $79,864 100.0%
Cost of revenues 29,781 78.4 36,947 82.4 59,928 77.7 65,223 81.7
Selling, general and
administrative 4,622 12.2 4,100 9.1 8,949 11.6 7,499 9.4
------- ----- ------- ----- ------- ----- ------- -----
Operating income 3,577 9.4 3,773 8.5 8,237 10.7 7,142 8.9
Interest expense 2,433 6.4 1,399 3.1 4,724 6.1 2,082 2.6
Other expense 276 0.7 45 0.1 389 0.5 86 0.1
------- ----- ------- ----- ------- ----- ------- -----
Income before provision
for taxes 868 2.3 2,329 5.3 3,124 4.1 4,974 6.2
Provision for income taxes 381 1.0 1,003 2.2 1,374 1.8 2,109 2.6
------- ----- ------- ----- ------- ----- ------- -----
Net income $ 487 1.3% $ 1,326 3.1% $ 1,750 2.3% $ 2,865 3.6%
======= ===== ======= ===== ======= ===== ======= =====
Comparison of Six Months Ended September 30, 2000 to September 30, 1999
Net Revenues for the six months ended September 30, 2000 were $77,114,000,
a decrease of 3.4% from net revenues of $79,864,000 for the comparable period in
1999. The decrease in revenues primarily results from a general slowdown in the
truck and trailer industry attributed to higher interest rates and increased
fuel prices. This decrease was partially offset by higher sales in our Critical
Components Division. The Critical Components Division, primarily through the
timing of its acquisitions, contributed 25% of revenues in the six months of the
current fiscal year versus 8% in the six months of the prior fiscal year.
Cost of Revenues decreased to $59,928,000 or 77.7% of net revenues for the
six months ended September 30, 2000 versus $65,223,000 or 81.7% of net revenues
for the comparable period in 1999. The more favorable cost of revenue ratio
results from our continuing shift into more profitable product lines and
improved manufacturing efficiencies, that were partially offset by lower margins
at our CPS and Ranor facilities.
Selling, General & Administrative Expenses ("SG&A") were $8,949,000 during
the six months ended September 30, 2000, an increase of $1,450,000 from
$7,499,000 incurred during the comparable period in 1999. SG&A, as a percentage
of net revenue, increased to 11.6% of net revenues, up from 9.4% for the
comparable period in 1999. The increase represents our expansion into product
lines with higher selling and administrative expenses and also higher corporate
oversight expense.
12
Interest Expense increased to $4,724,000 for the six months ended
September 30, 2000 from $2,082,000 during the comparable period in 1999. This
increase reflects a combination of higher debt incurred in pursuing our
acquisition and internal growth strategies, as well as the effect of increased
borrowing rates.
Comparison of Three Months Ended September 30, 2000 to September 30, 1999
Net Revenues for the three months ended September 30, 2000 were
$37,980,000, a decrease of 15% from net revenues of $44,820,000 for the
comparable period in 1999. The decrease in revenues primarily results from the
slowdown in the truck and trailer industry attributed to higher interest rates
and increased fuel prices. The quarter ended September 30, 2000 reflects the
full-quarter results of Airborne and Arell plus "short period" revenue for TPG.
Our Critical Components Division contributed 28% of revenues in the current
quarter versus 12% in the comparable 1999 quarter.
Cost of Revenues decreased to $29,781,000 or 78.4% of net revenues for the
three months ended September 30, 2000 versus $36,947,000 or 82.4% of net
revenues for the comparable period in 1999. The more favorable cost of revenue
ratio results from our continuing shift into more profitable product lines with
higher profit margins.
Selling, General & Administrative Expenses ("SG&A") were $4,622,000 during
the three months ended September 30, 2000, an increase of $522,000 from
$4,100,000 incurred during the comparable period in 1999. SG&A, as a percentage
of net revenue, increased to 12.2% of net revenues, up from 9.1% for the
comparable period in 1999. The increase in SG&A during the three months ended
September 30, 2000 reflects our expansion into product lines with higher selling
and administrative expenses as well as higher corporate oversight expense.
Interest Expense increased to $2,433,000 for the three months ended
September 30, 2000 from $1,399,000 during the comparable period in 1999. This
increase reflects a combination of higher debt levels incurred in pursuing our
acquisition and internal growth strategies, as well as the effect of increased
borrowing rates.
Liquidity and Capital Resources
The Company generated $3,100,000 of cash from operating activities during
the six months ended September 30, 2000 as compared to generating $6,011,000 in
operating activities during the comparable period in 1999. The cash provided by
operating activities resulted from collections on trade accounts receivable
(principally from our Ajax subsidiary), combined with non-cash expenses and net
income, which were offset by a decrease in payables and higher inventory levels.
The net cash used in investing activities was $27,843,000 during the six months
ended September 30, 2000 compared to $27,831,000 used in investing activities
during the comparable period in 1999. The cash used in investing activities
during 2000 was primarily for the acquisition of Airborne, Arell and TPG. The
cash used in investing activities during the six months ended September 30, 1999
was primarily for the acquisition of Ranor. The cash generated by financing
activities during 2000 principally reflects the financing for the purchase of
Airborne, Arell and TPG. For the six months ended September 30, 1999 cash
provided by financing activities was predominantly from the increase in the our
credit facility, which was used for the acquisition of Ranor.
Our Credit Agreement with PNC and ING Barings, as most recently amended,
provides for two Term Loans in principal amounts totaling $75,000,000 and a
Revolving Loan in the principal amount of $25,000,000. The $25,000,000
acquisition line, which was to be made available upon the fulfillment of certain
conditions precedent, is cancelled. The principal of the Term Loans is payable
in two installment tranches of $50,000,000 and $25,000,000 ending in April 2006
and April 2007, respectively. Amounts outstanding under the Revolving Loan are
payable in full in April 2005. Subject to our request, together with the
approval of the lenders, the Revolving Loan's due date can be extended for one
year with a maximum extension of two one-year periods. All amounts outstanding
under the Credit Agreement are secured by a lien on substantially all of our
assets. As of September 30, 2000 the blended rate of interest for the Loans was
approximately 10.49%. We made scheduled principal payments of $2,625,000 during
the six months ended September 30, 2000.
At September 30, 2000, we had $95,750,000 in total debt outstanding,
consisting of Term Loans totaling $72,375,000, a Revolving Loan balance of
$17,953,000, a note to the prior owners of Ranor for $5,300,000 and other debt
of $122,000.
Capital expenditures were $2,238,000 for the six months ended September
30, 2000 compared to $2,301,000 for the comparable period in 1999. Capital
expenditures during the six months ended September 30, 2000 were primarily for
the
13
purchase of production equipment at Ranor and at our CPS facility. Capital
expenditures incurred during the six months ended September 30, 1999 were
primarily for the purchase of new machinery for expanding the production
capacity at Ranor and for equipment purchases at our chassis manufacturing plant
in Mexico. In 1999 we also upgraded and expanded our computer network system. We
anticipate moderate growth in capital expenditures, sufficient to support our
expanding operations.
During the quarter ended September 30, 2000 we entered into three
operating equipment leases at Airborne and Arell, for high-speed CNC machining
centers. The equipment had a total cost of approximately $1.6 million. The lease
agreements call for 36 monthly payments of $40,000 and include purchase options
aggregating $409,000.
The annual dividend requirement on the Preferred Stock is $1,155,000. Our
future earnings, if any, may not be adequate to pay the dividends on the
Preferred Stock, and, although we intend to pay quarterly dividends out of
available capital surplus, there can be no assurance that we will maintain
sufficient capital surplus or that future earnings, if any, will be adequate to
pay the dividends on the Preferred Stock.
We continue to seek opportunities for growth through acquisitions, and
accordingly, may seek to raise additional cash in the form of equity, bank debt
or other debt financing, or may seek to issue equity as consideration for
acquisition targets.
As of September 30, 2000, we had working capital of $21,308,000, which
management believes is sufficient to meet current operating requirements, and,
if necessary, such needs could be met out of the remaining cash available under
our Revolving Loan.
Recently Issued Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133. The Statement defers for one year the effective date
of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
which was issued in June 1998 and establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either as asset or liability measured at its fair value. SFAS No. 133 also
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. Management believes
that the implementation of SFAS No. 133 will not have a material impact on the
Company's results of operations.
During March 2000, the FASB issued interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation, which clarifies the
application of APB Opinion No. 25, regarding (a) the definition of an employee
for purposes of applying APB Opinion No. 25, (b) the criteria for determining
whether a plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Interpretation No. 44 became effective on July
1, 2000. Management has reviewed its stock compensation events covered by
Interpretation No. 44 and has determined that no events require consideration.
During December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements.
Bulletin No. 101 expresses the views of the SEC staff in applying generally
accepted accounting principles to certain revenue recognition issues. The
Company has concluded that the implementation of this Bulletin will not have a
material impact on its financial position or its results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate risk primarily through our borrowings
under our Credit Agreement. As of September 30, 2000, we had approximately
$90,328,000 of variable rate debt outstanding under our Credit Agreement. A
hypothetical 100 basis-point increase in the floating interest rate from the
current level corresponds to an increase in our interest expense over a one-year
period of approximately $903,000. This sensitivity analysis does not account for
the change in our
14
competitive environment indirectly related to the change in interest rates and
the potential managerial action which could be taken in response to these
changes. Further, on April 25, 2000 we entered into an interest rate hedge with
a notional amount of $37,500,000 to protect against interest rate increases.
In April 2000, we acquired Airborne and Arell located in Montreal, Canada
and in April 1999, we commenced production at our facility in Sonora, Mexico.
Accordingly, fluctuations in the value of the Canadian Dollar or the Mexican
Peso, compared to the U.S. Dollar upon currency conversion, may affect our
financial position and cash flow. As of September 30, 2000, we had not
established a foreign currency hedging program. Because a majority of our
transactions are U.S. based and U.S. Dollar denominated, a hypothetical 10%
change in the value of the Canadian Dollar or the Mexican Peso would not have a
materially adverse impact on our financial position or cash flow.
15
PART II. Other Information
Item 1. Legal Proceedings
We are involved in litigation arising in the normal course of our
business. Management believes that the litigation in which we are currently
involved, either individually or in the aggregate, is not material to our
financial position or results of operations.
Included in the litigation in which we are involved are an arbitration
against the sellers of the assets of Ranor, Inc., and a lawsuit against Ranor's
former accountants for damages and certain purchase price adjustments relative
to the Ranor purchase.
Item 5. Significant Events
On July 1, 2000, CPS entered into an operating lease agreement with
Wheeler Steel Works, Inc. and Wheeler Truck Equipment, Inc. The Wheeler
manufacturing facility is located in Southeast Missouri. Wheeler manufactures
grain trailers, grain beds and dump bodies. The Lease is terminable in the
Company's sole discretion upon 30 days notice. The Wheeler facility includes
60,000 square feet of manufacturing space on thirteen acres. The agreement is a
"triple net lease" and calls for 12 monthly installments of $15,000.
Additionally, the Company has a purchase option available at the expiration of
the agreement. The purchase option requires a $500,000 payment at closing, plus
twelve annual payments of $140,000 as additional purchase price.
On August 1, 2000, the Company, through CPS, acquired from Better Built
Equipment, LLC substantially all of the assets of Better Built, a manufacturer
of trailers and hoists for the waste transportation industry, pursuant to an
Asset Purchase Agreement. CPS, which already manufactures walking floor trailers
for the waste industry, now adds to its product offerings a pup trailer, one and
two container roll-off trailers and a roll-off hoist. The Better Built assets
were all relocated to our CPS manufacturing facility in Southeast Missouri. The
consideration paid for the assets was approximately $660,000, of which
approximately $110,000 represented goodwill. The purchase price for the assets
was determined by CPS and Better Built through negotiations. The acquisition of
the Better Built assets was funded through the Company's cash flow. The assets
also included the trade name "Better Built" and a pending patent.
On August 31, 2000, the Company, through its Critical Components Division,
acquired from Malinda A. Morrow all of the capital stock of The Providence
Group, Inc. The consideration paid for TPG was approximately $3,322,000
consisting of a $3,000,000 payment to the seller, subject to final adjustment,
as well as acquisition related expenses of approximately $322,000. As part of
the fees and expenses related to the acquisition, Mayfair Associates, owned by
William Merker, received a fee of $203,000 for investment advisory services.
Additionally, the Company has established potential earn-outs payable to the
seller based on meeting certain established EBIT hurdles. The purchase price for
the capital stock of TPG was determined by the Company and Melinda A. Morrow
through negotiations. The acquisition of TPG was funded through the Company's
cash flow. The acquisition has been accounted for as a purchase and,
accordingly, our six months ended September 30, 2000 financial statements
reflect the activity of TPG for the period from August 30, 2000 through
September 30, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this Quarterly Report on
Form 10-Q
Exhibit no. Description
----------- -----------
27 Financial Data Schedule
(b) The following Reports on Form 8-K were filed relating to this
Quarterly Report on Form 10-Q:
Form 8-K/A for July 10, 2000
Form 8-K/A for October 25, 2000
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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.
STANDARD AUTOMOTIVE CORPORATION
/s/ Steven Merker Date: November 14, 2000
By:
________________________________________
Steven Merker
Chairman and Chief Executive Officer
/s/ Joseph Spinella Date: November 14, 2000
________________________________________
Joseph Spinella
Chief Financial Officer
(Principal Financial and Accounting Officer)