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 Third Quarter Ended December 31, 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 08844-4056
--------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(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 February 20, 2001, the registrant had a total of 3,722,400 shares of
Common Stock outstanding.
STANDARD AUTOMOTIVE CORPORATION
For the Three and Nine Months Ended December 31, 2000
Form 10-Q Quarterly Report
Index
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2000 and
March 31, 2000 3
Consolidated Statements of Income for the three and
nine months ended December 31, 2000 and 1999 4
Consolidated Statements of Stockholders' Equity for
the period ended December 31, 2000 5
Consolidated Statements of Cash Flows for the nine
months ended December 31, 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 15
Part II. Other Information
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
PART I. Financial Information
Item 1. Financial Statements
STANDARD AUTOMOTIVE CORPORATION
Consolidated Balance Sheets
(in thousands, except share data )
December 31, 2000 March 31, 2000
----------------- --------------
Assets
Cash and cash equivalents $ 2,991 $ 3,136
Marketable securities 102 102
Accounts receivable, net 14,250 25,217
Inventory, net 25,919 20,602
Prepaid expenses 2,363 1,269
Deferred taxes 3,499 768
--------- --------
Total current assets 49,124 51,094
Property and equipment, net 45,778 38,724
Intangible assets, net of accumulated amortization
of $4,131 and $2,522, respectively 58,209 44,151
Deferred financing costs 4,389 2,234
Other assets 563 1,062
--------- --------
Total assets $ 158,063 $137,265
========= ========
Liabilities and Stockholders' Equity
Accounts payable $ 9,066 $ 19,037
Accrued expenses 4,380 2,451
Current portion of long term debt 6,000 4,000
Cumulated preferred stock dividend 289 --
Other current liabilities 10,053 10,598
--------- --------
Total current liabilities 29,788 36,086
Long term debt 90,487 64,261
Deferred income taxes and other long term liabilities 859 --
--------- --------
Total liabilities 121,134 100,347
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 31,121 30,208
Retained earnings 5,877 6,705
Accumulated other comprehensive loss (74) --
--------- --------
Total stockholders' equity 36,929 36,918
--------- --------
Total liabilities and stockholders' equity $ 158,063 $137,265
========= ========
The accompanying notes are an integral part of these consolidated statements.
3
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Income
(in thousands, except per share data)
Three months ended Nine months ended
December 31, December 31,
---------------------- ------------------------
2000 1999 2000 1999
-------- ------- --------- --------
Revenues, net $ 32,106 $41,238 $ 109,221 $121,103
Operating costs and expenses:
Cost of revenues 25,779 33,596 85,707 98,762
Selling, general and administrative expenses 5,402 3,834 14,352 11,390
-------- ------- --------- --------
Total operating costs and expenses 31,181 37,430 100,059 110,152
-------- ------- --------- --------
Operating income 925 3,808 9,162 10,951
Interest expense 3,516 1,382 8,239 3,436
Other expense, net 470 132 861 247
-------- ------- --------- --------
Income (loss) before income taxes (3,061) 2,294 62 7,268
Provision for income taxes (1,351) 983 24 3,092
-------- ------- --------- --------
Net income (loss) (1,710) 1,311 38 4,176
Preferred dividend 289 289 866 871
-------- ------- --------- --------
Net income (loss) available to common stockholders $ (1,999) $ 1,022 $ (828) $ 3,305
======== ======= ========= ========
Basic net income (loss) per share $ (0.54) $ 0.28 $ (0.22) $ 0.91
======== ======= ========= ========
Diluted net income (loss) per share $ (0.54) $ 0.27 $ (0.22) $ 0.85
======== ======= ========= ========
Basic weighted average number of shares outstanding 3,722 3,668 3,711 3,629
Diluted weighted average number of shares outstanding 3,722 4,842 3,711 4,888
The accompanying notes are an integral part of these consolidated statements.
4
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statement of Stockholders' Equity
(in thousands)
Accumulated
Preferred Common Additional Other Total
Shares Preferred Shares Common Paid In Retained Comprehensive Stockholders'
Outstanding Stock Outstanding Stock Capital Earnings Income (Loss) Equity
----------- -------- ----------- -------- ------- -------- ------------- --------
Balance - March 31, 2000 1,133 $ 1 3,602 $ 4 $30,208 $ 6,705 $ -- $ 36,918
-------- -------- -------- -------- ------- -------- -------- --------
Net Income -- -- -- -- -- 38 -- 38
Currency Translation
Adjustment -- -- -- -- -- -- (74) (74)
-------- -------- -------- -------- ------- -------- -------- --------
Comprehensive Income -- -- -- -- -- $ 38 $ (74) $ (36)
-------- -------- -------- -------- ------- -------- -------- --------
Shares Issued for
Acquisition -- -- 120 -- 780 -- -- 780
Options Issued -- -- -- -- 133 -- -- 133
Preferred Stock
Dividend -- -- -- -- -- (866) -- (866)
-------- -------- -------- -------- ------- -------- -------- --------
Balance - December 31, 2000 1,133 $ 1 3,722 $ 4 $31,121 $ 5,877 $ (74) $ 36,929
======== ======== ======== ======== ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
5
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
Nine months ended
December 31,
-----------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income $ 38 $ 4,176
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 5,525 3,228
Non-cash interest and compensation 163 180
Change in assets and liabilities:
Accounts receivable 14,722 (10,579)
Inventory (405) 497
Prepaid expenses and other assets (1,001) (364)
Accounts payable and accrued expenses (11,477) 8,701
Income taxes payable (3,202) (171)
-------- --------
Net cash from operating activities 4,363 5,668
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (26,463) (27,722)
Acquisition of property and equipment (2,966) (3,461)
-------- --------
Net cash from investing activities (29,429) (31,183)
-------- --------
Cash flows from financing activities:
Proceeds from bank loan 32,255 29,300
Repayment of bank loan (3,938) (2,625)
Deferred financing costs (2,793) (876)
Preferred dividend (577) (871)
Purchase of Treasury Stock -- (1,000)
-------- --------
Net cash from financing activities 24,947 23,928
-------- --------
Net decrease in cash and cash equivalents (119) (1,587)
Effects of exchange rates on cash (26) --
Cash and cash equivalents, beginning of period 3,136 3,686
-------- --------
Cash and cash equivalents, end of period $ 2,991 $ 2,099
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,965 $ 3,425
Income taxes 3,316 3,165
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
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 nine months ended December 31, 2000 are
unaudited. However, in the opinion of management, all 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.
For comparative purposes, certain prior year amounts have been
reclassified to conform with the current year.
1. Organization and Business Combination
Standard Automotive Corporation is a Delaware corporation which commenced
operations in January, 1998. We currently operate 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. Our 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"). Our 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").
In December, 2000 we notified PNC Bank, National Association ("PNC"), as
Administrative Agent of the bank syndication ("Senior Lenders") under our Term
Loan and Revolving Credit Agreement ("Credit Facility"), of an event of default
under our Credit Facility, having failed to comply with certain financial
covenants. Together with PNC, we have informally agreed to temporarily exclude
certain work in process inventory from the collateral base. As of December 31,
2000 we had a consolidated collateral shortfall on our revolving credit facility
of approximately $900,000; however, if eligible work in process inventory were
included in our collateral base, a collateral surplus of $515,000 would result
for the period. As a result of these events, PNC has directed that: (i) our
revolving Credit Facility not be further extended, (ii) no dividends be paid on
our Preferred Stock and, (iii) no principal or interest be paid on our
subordinated debt. We are in compliance with these directives. As of February
14, 2001, our Senior Lenders have refrained from exercising certain of their
rights and remedies. We can make no assurances that we will be able to meet
future obligations under our Credit Facility.
We are currently in arrears on payment of certain federal excise taxes of
approximately $7,310,000. We are in the process of an internal review and will
attempt to negotiate a payment plan with the Internal Revenue Service ("IRS") to
resolve the arrearage. This has also resulted in an additional Event of Default
under our Credit Facility. Our financial statements include approximately
$1,104,000 for interest on the federal excise tax currently in arrears. Further,
the IRS has the statutory authority to impose penalties which could be material.
7
2. Pro Forma Information
The following summarized, unaudited pro forma information for the nine
months ended December 31, 2000 assumes that the acquisitions of Airborne, Arell
and TPG occurred on April 1, 2000:
(in thousands, except per share data)
Standard Airborne Arell TPG Adjustment Pro Forma
--------- --------- --------- --------- ---------- ---------
Revenues, net $ 109,221 $ 905 $ 423 $ 3,864 $ -- $ 114,413
Operating income 9,162 358 101 1,217 (446) 10,392
Net income $ 38 $ 200 $ 57 $ 682 $ (250) $ 727
========= ========= ========= ========= ========= =========
Preferred dividend 866 866
Basic net income (loss) per share $ (0.22) $ (0.04)
========= =========
Diluted net income (loss) per share $ (0.22) $ (0.04)
========= =========
Basic weighted average number
of shares outstanding 3,711 3,711
Diluted weighted average number
of shares outstanding 3,711 3,711
The pro forma operating results for the period ended December 31, 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:
December 31, 2000 March 31, 2000
----------------- --------------
Raw materials $13,223,000 $ 9,977,000
Work in progress 7,883,000 2,545,000
Finished goods 4,813,000 8,080,000
----------- -----------
$25,919,000 $20,602,000
=========== ===========
4. Long Term Debt and Credit Facility
In July, 1998 we entered into with PNC, both individually and as agent for
other financial institutions, a $40,000,000 Credit Facility, which provided for
a Term Loan in the principal amount of $25,000,000 and a Revolving Loan in the
principal amount of $15,000,000.
In June, 1999 we obtained an increase in our 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 Facility, as then amended,
provided for a Term Loan 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 Facility, 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 in April 2006
and April 2007, respectively. Amounts outstanding under the Revolving Loan are
payable in full in April 2005. Subject to our
8
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.
As more fully discussed in Organization and Business Combination, we are
in default on some of the Credit Facility covenants (see Note 1 for more
information).
Interest on the amounts outstanding under the Credit Facility 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 under the Credit Facility. As
of December 31, 2000, the weighted average rate of interest for the Loans was
approximately 10.29%. Our Senior Lenders have notified us that certain of our
interest rates under the Credit Facility will be increased. All amounts
outstanding under the Credit Facility are secured by a lien on substantially all
of our assets.
At December 31, 2000, we had $96,486,000 total debt outstanding,
consisting of Term Loans totaling $71,083,000, a Revolving Loan balance of
$20,000,000, a subordinated note to the prior owners of Ranor for $5,322,000 and
other debt of $81,000.
5. Basic and Diluted Net Income per Common Share
For the three and nine months ended December 31, 2000, our Preferred
Stock, stock options and warrants were deemed anti-dilutive and therefore not
included in the calculation of diluted net income per share. In the comparable
1999 periods, because diluted net income per share exceeded the Preferred Stock
dividend rate, the Preferred Shares were deemed dilutive and were included along
with dilutive stock options and dilutive warrants 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 per share data) For the Three Months Ended For the Nine Months Ended
December 31, December 31,
--------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
NUMERATOR:
Income (loss) available to common stockholders
used in computing basic net income (loss) per share $(1,999) $ 1,022 $ (828) $ 3,305
Convertible preferred dividends on dilutive
convertible preferred stock 289 289 866 871
------- ------- ------- -------
Income (loss) available to common stockholders
used in computing dilutive net income (loss) per share $(1,710) $ 1,311 $ 38 $ 4,176
======= ======= ======= =======
DENOMINATOR :
Weighted average number of common shares
outstanding used in basic net income (loss) per share 3,722 3,668 3,711 3,629
Common equivalent shares:
Convertible preferred stock -- 1,132 -- 1,141
Options -- 41 -- 82
Warrants -- 1 -- 36
------- ------- ------- -------
Weighted average number of common shares
and common equivalent shares used in
dilutive net income (loss) per share 3,722 4,842 3,711 4,888
======= ======= ======= =======
Basic net income (loss) per share $ (0.54) $ 0.28 $ (0.22) $ 0.91
======= ======= ======= =======
Diluted net income (loss) per share $ (0.54) $ 0.27 $ (0.22) $ 0.85
======= ======= ======= =======
9
6. Related Party Transactions
Through our CPS subsidiary, we completed the acquisition of substantially
all of the assets of Better Built Equipment and, through our Critical Components
Division, we acquired the capital stock of TPG. As part of the fees and expenses
related to these acquisitions, Mayfair Associates, owned by William Merker,
received an advisory fee of $409,000.
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 December 31, 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 December 31,
2000, and TPG's from August 31, 2000 through December 31, 2000.
The segment information for the period ended December 31, 1999 for our
Critical Components Division represents Ranor's results of operations from June
16, 1999 through December 31, 1999.
Below is the selected financial segment data for the nine months ended
December 31, 2000 and 1999:
(in thousands) Truck Critical
Body/Trailer Components Segment
December 31, 2000 Division Division Totals
- ----------------- ------------ ---------- --------
Revenue $ 78,636 $ 30,585 $109,221
Operating income 6,198 7,017 13,215
Identifiable assets 47,387 44,164 91,551
Capital expenditures 1,329 1,637 2,966
Truck Critical
Body/Trailer Components Segment
December 31, 1999 Division Division Totals
- ----------------- ------------ ---------- --------
Revenue $107,468 $ 13,635 $121,103
Operating income 12,356 2,730 15,086
Identifiable assets 54,278 23,165 77,443
Capital expenditures 1,915 1,546 3,461
10
The following is a reconciliation of reportable segment operating income
and assets to our consolidated totals for the nine months ended December 31,
2000 and 1999:
Operating income (in thousands) 2000 1999
---------------- -------- --------
Total operating income for reporting segments $ 13,215 $ 15,086
Other corporate expenses 4,053 4,135
-------- --------
Consolidated operating income $ 9,162 $ 10,951
======== ========
Assets
------
Total assets for reporting segments $ 91,551 $ 77,443
Goodwill 58,210 43,938
Other unallocated amounts (primarily deferred
financing costs) 8,302 3,121
-------- --------
Consolidated total assets $158,063 $124,502
======== ========
Revenues by geographical area are comprised as follows:
(in thousands) Nine months ended December 31,
------------------------------
2000 1999
-------- --------
United States $ 95,278 $121,103
Canada 13,943 --
-------- --------
Total net revenues $109,221 $121,103
======== ========
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 our
results of operations.
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. We have
concluded that the implementation of this Bulletin will not have a material
impact on its financial position or its 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The financial statements for the nine months ended December 31, 2000 are
unaudited; however, in the opinion of management, all adjustments necessary for
a fair presentation of the financial statements for the interim period have been
made.
11
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
We are 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. We are comprised of seven 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.
o Arell, also located in Montreal, Canada, manufactures high-precision
parts for aircraft engines, landing gears 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. Currently, we are being negatively impacted by a downturn in
industries served by our Truck Body/Trailer Division.
12
Results of Operations
During the current fiscal year we initiated a variety of cost cutting
measures in order to minimize the impact of the downturn in industries served by
our Truck Body/Trailer Division. These initiatives included, but were not
limited to, staff reductions and hiring freezes, manufacturing and office
workflow improvements, and extended holiday plant shutdowns. We anticipate that
these actions could result in annualized savings ranging from $6,000,000 to
$7,000,000.
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.
(in thousands) For the Three Months Ended December 31, For the Nine Months Ended December 31,
-------------------------------------------- -----------------------------------------
2000 1999 2000 1999
-------------------- ------------------- ------------------- ------------------
Revenues, net $ 32,106 100.0% $ 41,238 100.0% $109,221 100.0% $121,103 100.0%
Cost of revenues 25,779 80.3 33,596 81.5 85,707 78.5 98,762 81.6
Selling, general and
administrative 5,402 16.8 3,834 9.3 14,352 13.1 11,390 9.4
-------- -------- -------- -------- -------- -------- -------- -------
Operating income 925 2.9 3,808 9.2 9,162 8.4 10,951 9.0
Interest expense 3,516 10.9 1,382 3.3 8,239 7.5 3,436 2.8
Other expense 470 1.5 132 0.3 861 0.8 247 0.2
-------- -------- -------- -------- -------- -------- -------- -------
Income (loss) before
provision for taxes (3,061) (9.5) 2,294 5.6 62 0.1 7,268 6.0
Provision for income taxes (1,351) (4.2) 983 2.4 24 0.1 3,092 2.6
-------- -------- -------- -------- -------- -------- -------- -------
Net income (loss) $ (1,710) (5.3)% $ 1,311 3.2% $ 38 --% $ 4,176 3.4%
======== ======== ======== ======== ======== ======== ======== =======
Comparison of Nine Months Ended December 31, 2000 to December 31, 1999
The results for the nine months ended December 31, 2000 reflect Ranor for
the full period, Airborne and Arell from April 26, 2000 plus TPG from August 31,
2000. The nine months ended December 31, 1999 reflects the results of Ranor from
June 16, 1999 through December 31, 1999.
Net Revenues for the nine months ended December 31, 2000 were $109,221,000
a decrease of 9.8% from net revenues of $121,103,000 for the comparable period
in 1999. The decrease in revenues primarily results from a downturn impacting
the truck body/trailer industries, 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 28% of revenues in the nine
months of the current fiscal year versus 11% in the nine months of the prior
fiscal year. During December, 2000 Ranor updated its "Cost-to-Complete"
estimates on a nuclear canister project, resulting in a decrease in revenues of
$679,000, with a corresponding decrease in operating income of $414,000.
Cost of Revenues decreased to $85,707,000 or 78.5% of net revenues for the
nine months ended December 31, 2000 versus $98,762,000 or 81.6% of net revenues
for the comparable period in 1999. The more favorable cost of revenue ratio is
primarily the result of our continuing shift into more profitable product lines
and improved manufacturing efficiencies, that was partially offset by lower
margins at our CPS and Ranor facilities.
Selling, General & Administrative Expenses ("SG&A") were $14,352,000
during the nine months ended December 31, 2000 an increase of $2,962,000 from
$11,390,000 incurred during the comparable period in 1999. SG&A, as a percentage
of net revenue, increased to 13.1%, 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.
Additionally, we experienced a time lag between the decrease in revenues
attributable to our Truck Body/Trailer Division and the anticipated favorable
effects from our cost cutting programs.
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Interest Expense increased to $8,239,000 for the nine months ended
December 31, 2000 from $3,436,000 during the comparable period in 1999. This
increase reflects a combination of higher debt incurred due to acquisitions, the
effect of increased interest rates and approximately $1,104,000 interest expense
relating to federal excise taxes of approximately $7,310,000.
Comparison of Three Months Ended December 31, 2000 to December 31, 1999
The three months ended December 31, 2000 reflects the results of Airborne
and Arell, both acquired on April 26, 2000, and TPG, acquired on August 31,
2000.
Net Revenues for the three months ended December 31, 2000 were
$32,106,000, a decrease of 22% from net revenues of $41,238,000 for the
comparable period in 1999. The decrease in revenues primarily results from
reduced orders for chassis manufactured in Mexico combined with a downturn in
the truck body/trailer industries, attributed to higher interest rates and
increased fuel prices. Our Critical Components Division contributed 34% of
revenues in the current quarter versus 17% in the comparable 1999 quarter.
During December, 2000 Ranor updated its "Cost-to-Complete" estimates on a
nuclear canister project resulting in a decrease in revenues of $679,000, with a
corresponding decrease in operating income of $414,000.
Cost of Revenues decreased to $25,779,000 or 80.3% of net revenues for the
three months ended December 31, 2000 versus $33,596,000 or 81.5% of net revenues
for the comparable period in 1999. The more favorable cost of revenue ratio is a
result of our continuing shift into more profitable product lines affording
higher profit margins.
Selling, General & Administrative Expenses ("SG&A") were $5,402,000 during
the three months ended December 31, 2000, an increase of $1,568,000 from
$3,834,000 incurred during the comparable period in 1999. SG&A, as a percentage
of net revenue, increased to 16.8% of net revenues, up from 9.3% for the
comparable period in 1999. The increase in SG&A during the three months ended
December 31, 2000 reflects our expansion into product lines with higher selling
and administrative expenses, as well as higher corporate oversight expense.
Additionally, we experienced a time lag between the decrease in revenues
attributable to our Truck Body/Trailer Division and the anticipated favorable
effects from our cost cutting programs.
Interest Expense increased to $3,516,000 for the three months ended
December 31, 2000 from $1,382,000 during the comparable period in 1999. This
increase reflects a combination of higher debt incurred due to acquisitions, the
effect of increased interest rates and approximately $1,104,000 interest expense
relating to federal excise taxes of approximately $7,310,000.
Liquidity and Capital Resources
We generated $4,363,000 of cash from operating activities during the nine
months ended December 31, 2000 as compared to generating $5,668,000 from
operating activities during the comparable period in 1999. The cash provided by
operating activities resulted from collections on trade accounts receivable,
combined with non-cash expenses and net income, which were offset by a decrease
in payables and higher inventory levels. As of December 31, 2000 our Truck
Body/Trailer Division had approximately $7,000,000 of excess inventory which we
anticipate utilizing as demand increases. Included in the decrease in payables
was a $418,000 payment to the former owners of Airborne and Arell representing a
permitted dividend under the terms of the Purchase Agreement. The net cash used
in investing activities was $29,429,000 during the nine months ended December
31, 2000 compared to $31,183,000 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 nine months ended December 31, 1999 was
primarily for the acquisition of Ranor. The cash generated by financing
activities during 2000 principally reflects the financing for the acquisitions
of Airborne, Arell and TPG. Cash provided by financing activities for the nine
months ended December 31, 1999 was predominantly from the increase in the our
Credit Facility used to finance the acquisition of Ranor.
Our Credit Facility, 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 principal of the Term Loans is payable in two
installment tranches of $50,000,000 and $25,000,000 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.
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All amounts outstanding under the Credit Facility are secured by a lien on
substantially all of our assets. As of December 31, 2000 the weighted average
rate of interest for the Loans was approximately 10.29%. We made scheduled
principal payments of $3,938,000 during the nine months ended December 31, 2000.
In December, 2000 we notified PNC of an event of default under our Credit
Facility. We failed to comply with certain financial covenants. Additionally, as
of December 31, 2000 and as of February 2, 2001, we had consolidated collateral
shortfalls on our revolving credit facility of approximately $900,000 and
$3,800,000, respectively. The February 2, 2001 deficiency consisted of a
$6,600,000 U.S. shortfall and a $2,800,000 Canadian surplus. Together with PNC,
we have informally agreed to temporarily exclude certain work in process
inventory from the collateral base. If eligible work in process inventory were
included in our collateral base, a collateral surplus of $515,000 as of December
31, 2000 and a collateral shortfall of $2,311,000 as of February 2, 2001 would
have resulted. As a result of these events, PNC has directed that: (i) our
revolving Credit Facility not be further extended, (ii) no dividends be paid on
our Preferred Stock and, (iii) no principal or interest be paid on our
subordinated debt. We are in compliance with these directives. As of February
14, 2001, our Senior Lenders have refrained from exercising certain of their
rights and remedies. We can make no assurances that we will be able to meet
future obligations under our Credit Facility.
We are currently in arrears on payment of certain federal excise taxes of
approximately $7,310,000. We are in the process of an internal review and will
attempt to negotiate a payment plan with the IRS to resolve the arrearage. This
has also resulted in additional Events of Default under our Credit Facility. Our
financial statements include approximately $1,104,000 for interest on the
federal excise tax currently in arrears. Further, the IRS has the statutory
authority to impose penalties which could be material.
At December 31, 2000, we had $96,486,000 in total debt outstanding,
consisting of Term Loans totaling $71,083,000, a Revolving Loan balance of
$20,000,000, a subordinated note to the prior owners of Ranor for $5,322,000 and
other debt of $81,000.
Capital expenditures were $2,966,000 for the nine months ended December
31, 2000 compared to $3,461,000 for the comparable period in 1999. Capital
expenditures during the nine months ended December 31, 2000 were primarily for
the purchase of production equipment and computer software. Capital expenditures
incurred during the nine months ended December 31, 1999 were primarily for the
purchase of new machinery for expanding the production capacity at our Critical
Components Division and for equipment purchased for our Truck Body/Trailer
Division. In 1999 we also upgraded and expanded our computer network system. We
anticipate moderate growth in capital expenditures, sufficient to support our
operations and to increase productivity.
The annual dividend requirement on our Preferred Stock is $1,155,000.
During the quarter ending December 31, 2000, we suspended payment of the
quarterly dividend of $289,000 on the Preferred Stock. Unpaid dividends on the
Preferred Stock are cumulative. Our future earnings, if any, may not be adequate
to pay the cumulative dividend or future dividends on the Preferred Stock.
Although we intend to pay the cumulative dividend and to resume payment of
regular quarterly dividends out of available surplus, there can be no assurance
that we will maintain sufficient surplus or that future earnings, if any, will
be adequate to pay the cumulative dividend or future dividends on the Preferred
Stock. Further, we will need approval of our Senior Lenders to resume payment of
the Preferred Dividend.
As of December 31, 2000, we had working capital of $19,336,000. Management
believes that its current working capital position along with anticipated
results of operations will be sufficient to allow us to continue in existence to
at least June 30, 2002. This assessment is dependent upon the successful outcome
of the negotiations with the our Senior Lenders and the IRS. We have been
advised by our independent accountants that if these matters are not resolved
prior to issuance of our March 31, 2001 annual report, they may have to modify
their report as to whether we are a going concern.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate risk primarily through our borrowings
under our Credit Facility. As of December 31, 2000, we had approximately
$91,063,000 of variable rate debt outstanding under our Credit Facility. 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 $911,000. This sensitivity analysis does not account for
the change in our competitive environment indirectly related to the change in
interest rates and the potential managerial action which could be taken in
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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 December 31, 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.
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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 is an arbitration
proceeding against the sellers of the assets of Ranor, Inc. for certain purchase
price adjustments relative to the purchase of Ranor's assets and a lawsuit
against Ranor's former accountants for damages.
Item 5. Significant Events
In December, 2000 we notified PNC of an event of default under our Credit
Facility, having failed to comply with certain financial covenants. Together
with PNC, we have informally agreed to temporarily exclude certain work in
process inventory from the collateral base. As of December 31, 2000 we had a
consolidated collateral shortfall on our revolving credit facility of
approximately $900,000; however, if eligible work in process inventory were
included in our collateral base, a collateral surplus of $515,000 would result
for the period. As a result of these events, PNC has directed that: (i) our
revolving Credit Facility not be further extended, (ii) no dividends be paid on
our Preferred Stock and, (iii) no principal or interest be paid on our
subordinated debt. We are in compliance with these directives. As of February
14, 2001, our Senior Lenders have refrained from exercising certain of their
rights and remedies. We can make no assurances that we will be able to meet
future obligations under our Credit Facility.
We are currently in arrears on payment of certain federal excise taxes of
approximately $7,310,000. We are in the process of an internal review and will
attempt to negotiate a payment plan with the IRS to resolve the arrearage. This
has also resulted in an additional Event of Default under our Credit Facility.
Our financial statements include approximately $1,104,000 for interest on the
federal excise tax currently in arrears. Further, the IRS has the statutory
authority to impose penalties which could be material.
Item 6. Exhibits and Reports on Form 8-K
(a)The following Reports on Form 8-K were filed relating to this Quarterly
Report on Form 10-Q:
Form 8-K for December 20, 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
By: /s/ Steven Merker Date: February 20, 2001
------------------------------------
Steven Merker
Chairman and Chief Executive Officer
By: /s/ Joseph Spinella Date: February 20, 2001
------------------------------------
Joseph Spinella
Chief Financial Officer
(Principal Financial and Accounting Officer)
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