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, 1998
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 Rd., Hillsborough Township, NJ 08876-4056
- ------------------------------------------ ------------------------------------
(Address of principal executive offices) (Zip Code)
(908) 369-5544
--------------
(Registrant's telephone number, including area code)
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 11, 1999 the registrant had a total of 3,500,124 shares
of Common Stock outstanding and 1,150,000 shares of Preferred Stock outstanding.
STANDARD AUTOMOTIVE CORPORATION
Index to Quarterly Report on Form 10-Q
December 31, 1998
Page
----
Part I Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1998
(audited) and December 31, 1998 3
Consolidated Statement of Income for the three
and nine months ended December 31, 1997 and 1998 4
Consolidated Statement of Cash Flows for the
nine months ended December 31, 1997 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II Other Information
Item 5. Significant Events 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
Part 1. Financial Information
Item 1. Financial Statements
STANDARD AUTOMOTIVE CORPORATION
Consolidated Balance Sheets
(in thousands, except share data) March 31, December 31,
------------- ----------------
1998 1998
------------- ----------------
(Audited) (Unaudited)
Assets
Cash and cash equivalents $ 3,357 $ 2,348
Accounts receivable, net of allowance for doubtful accounts
of $30 and $188, respectively 4,838 6,098
Inventory 5,399 14,285
Prepaid expenses 515 795
Deferred tax asset 289 289
-------- --------
Total current assets 14,398 23,815
Property and equipment, net of accumulated depreciation and
amortization of $35 and $329, respectively 1,225 15,561
Intangible assets, net of accumulated amortization of $130 and $874 15,127 31,994
Capitalized acquisition and financing costs 810 2,635
-------- --------
Total assets $ 31,560 $ 74,005
======== ========
Liabilities and Stockholders' Equity
Accounts payable $ 1,146 $ 8,593
Accrued expenses 978 1,521
Income taxes payable 727 28
Revolving loan -- 8,877
Notes payable, current -- 3,125
Other current liabilities -- 1,263
-------- --------
Total current liabilities 2,851 23,407
Notes payable, non-current 4,000 20,625
Other non-current liabilities -- 144
-------- --------
Total liabilities 6,851 44,176
Commitments and contingencies
Stockholders' equity:
Preferred stock, $ .001 par value 3,000,000 shares authorized,
1,150,000 issued and outstanding 1 1
Common stock, $ .001 par value 10,000,000 shares authorized,
3,095,000 and 3,500,124 issued and outstanding 3 4
Additional paid-in capital 24,546 28,369
Retained earnings 159 1,455
-------- --------
Total stockholders' equity 24,709 29,829
-------- --------
Total liabilities and stockholders' equity $ 31,560 $ 74,005
======== ========
See accompanying notes to financial statements
3
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Income
For the Three and Nine Months Ended December 31,
(in thousands, except net income per share data)
(Unaudited)
Three months ended Nine months ended
------------------------ -------------------------
1997 1998 1997 1998
---------- ----------- ----------- -----------
Revenues $ 8,680 $ 23,732 $ 19,850 $ 48,857
Operating costs and expenses:
Cost of revenues 6,152 18,577 15,032 38,733
Selling, general and administrative expenses 475 2,034 1,275 3,957
Amortization of intangible assets -- 299 -- 744
------- ------- ------- -------
Total operating costs and expenses 6,627 20,910 16,307 43,434
------- ------- ------- -------
Operating income 2,053 2,822 3,543 5,423
Interest expense (144) (697) (316) (1,146)
Other income/(expense) 7 (185) 39 (403)
Excise tax settlement -- -- (829) --
------- ------- ------- -------
Income before income taxes 1,916 1,940 2,437 3,874
Provision for income taxes 824 785 1,110 1,698
------- ------- ------- -------
Net income before Preferred dividend 1,092 1,155 1,327 2,176
Preferred dividend -- 294 -- 880
------- ------- ------- -------
Net income available to common stockholders $ 1,092 $ 861 $ 1,327 $ 1,296
======= ======== ======== ========
Basic and diluted net income per share $ 0.68 $ 0.25 $ 0.83 $ 0.39
======= ======== ======== ========
Basic and diluted weighted average number
of shares outstanding 1,600 3,500 1,600 3,309
See accompanying notes to financial statements.
4
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Cash Flows
For the Nine Months Ended December 31,
(in thousands)
1997 1998
-------- --------
(Unaudited)
Cash flows from operating activities:
Net income $ 1,327 $ 2,176
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Interest expense related to settlement of debt 275 --
Bad debt provision 25 --
Depreciation and amortization 131 1,258
Non-cash compensation -- 263
Deferred taxes (47) --
Change in assets and liabilites:
Accounts receivable 464 1,542
Inventory (4,662) (4,273)
Prepaid expenses (1) (335)
Accounts payable and accrued expenses 617 5,618
Income taxes payable 736 (964)
-------- --------
Net cash (used in) provided by operating activities (1,135) 5,285
-------- --------
Cash flows from investing activities:
Businesses acquired -- (30,764)
Cash acquired from acquisitions -- 2,292
Capitalized acquisition costs -- (1,919)
Issuance of note receivable 299 --
Acquisition of property and equipment (234) (3,858)
-------- --------
Net cash provided by (used in) investing activities 65 (34,249)
-------- --------
Cash flows from financing activities:
Proceeds from PNC Bank loans -- 33,877
Repayment of PNC Bank loans -- (1,250)
Prepaid financing costs -- 208
Repayment of Ajax shareholder note -- (4,000)
Preferred dividend payment -- (880)
-------- --------
Net cash provided by (used in) financing activities -- 27,955
-------- --------
Net decrease in cash and cash equivalents (1,070) (1,009)
Cash and cash equivalents, beginning of period 1,558 3,357
-------- --------
Cash and cash equivalents, end of period $ 488 $ 2,348
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ -- $ 1,244
Income taxes 415 2,372
Noncash investing and financing activities
Capital stock and debt issued for acquisition of businesses and assets -- 4,144
See accompanying notes to financial statements.
5
STANDARD AUTOMOTIVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
General
The consolidated financial statements as of and for the three and nine
months ended December 31, 1998 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 10-K filed for the fiscal year ended March 31, 1998 and
should be read in connection with those financials. The comparative financial
statements for the period ended December 31, 1997 pertain to the sum total of
the results of operations for Ajax Manufacturing Company ("Ajax") and Standard
Automotive Corporation ("SAC"). SAC did not own Ajax until January 1998,
therefore Ajax was not consolidated with SAC during this period.
1. Organizational, Business Description and Recent Acquisitions
Standard Automotive Corporation (the "Company") was formed and
incorporated in January 1997. The Company is a specialty manufacturer of trailer
chassis for the intermodal shipping industry and both chassis and dump bodies
for domestic customers in the construction and agricultural industries, through
its wholly owned subsidiaries, Ajax, R/S Truck Body Co., Inc. ("R/S") and CPS
Trailer Co., Inc. ("CPS"), hereafter collectively referred to as the Company's
subsidiaries.
In July and September 1998, the Company purchased all the outstanding
shares of R/S and CPS, respectively. The acquisitions were accounted for using
purchase accounting. The excess of the purchase price over the fair market value
of R/S's and CPS's net assets at the dates of acquisition totaled approximately
$17,586,000. This amount is being amortized on a straight-line basis over a
period not to exceed forty years. The Company is in the process of having
appraisals and lifing studies performed in order to properly value and amortize
the useful lives of the assets acquired. The final allocation of the purchase
price of CPS is subject to a post closing audit and certain adjustments may be
made to the related goodwill resulting from the acquisition. Management does not
expect such adjustments to be material to the Company's financial position.
2. 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
provides for a Term Loan in the amount of $25,000,000 and a Revolving Loan in
the principal amount of $15,000,000 (collectively, the "Loans"). Portions of the
Term Loan were used to fund the R/S and CPS Acquisitions and to retire certain
indebtedness of R/S, CPS and the Company. Proceeds available under the Revolving
Loan may be used for general working capital. Interest on the amounts
outstanding under the Loans 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 the Company's indebtedness to EBITDA, as
such terms are defined in the Credit Agreement. The rate of interest for the
Loans is currently 8.13%. The principal amount of the Term Loan is payable
quarterly in gradually increasing amounts through July 2004. Amounts outstanding
under the Revolving Loan are payable in full in July 2001, subject to the
Company's request, with the approval of PNC, to extend the due date for a
one-year period, for a maximum extension period of three years. All amounts
outstanding under the Credit Agreement are secured by a lien on substantially
all of the Company's assets.
At December 31, 1998 the total amount outstanding under the Credit
Agreement was $32,627,000.
6
3. Commitments and Contingencies
Environmental Matters
In March 1998 the NJDEP issued a Notice of Violation ("NOV") to the
Company for emitting VOC's from paint spray booths at the Ajax facility in
excess of permissible limits in 1996. The NOV directed the Company to achieve
compliance by April 1998 and to submit a written report documenting the
corrective measures taken to achieve compliance. The Company remains in active
negotiations with NJDEP regarding the VOC's emitted from its paint spray booths.
As requested by NJDEP, the Company submitted in May 1998 a new air permit
application that would allow the Company to significantly expand permitted
emissions from the facility. The application is pending and the Company
continues to negotiate with NJDEP to resolve all air emission issues.
In March 1998, as part of the ISRA Remediation Agreement with NJDEP, NJDEP
required the Company to perform soil and sediment sampling at various locations
at the Ajax facility. The sampling results were within NJDEP compliance limits
with the exception of results for Ajax certain metals detected in soil around
roof downspouts at the facility. The Company has engaged a contractor to perform
additional sampling at these locations, the results of which are being forwarded
to NJDEP. If the additional sampling proves that additional areas of
contamination above NJDEP compliance levels need to be studied, the Company will
perform additional investigation as necessary.
The Company is presently negotiating a draft Stipulation of Settlement
with NJDEP by which the Company, without admission of liability, would pay NJDEP
$234,000 over the next three years. In exchange, NJDEP proposes to (i) settle
all alleged Company emission exceedences of VOC's from 1992 through the first
quarter 1999; and (ii) grant the Company a new air permit that would increase
the Company's permitted VOC emissions, to 51.5 tons per year, without requiring
that the Company install incineration or other VOC controls. The Company and
NJDEP are discussing detailed aspects of the settlement, which discussions are
expected to be completed shortly. The Company has accrued the proposed
settlement amount of $234,000 in the current quarter.
While it is not feasible to predict the outcome of all these matters,
management, based upon the available information, is of the opinion that the
ultimate disposition of these environmental matters will not have a material
adverse effect on the Company's financial position or results of operations.
4. Significant Events
In March 1999, the Company will begin initial production of trailer
chassis to service its West Coast customers at its manufacturing facility in San
Luis Rio Colorado, Sonora, Mexico which is 24 miles south of Yuma, Arizona. The
facility is a brand new 65,000 square foot concrete block building on 4.4 acres
with total annual rent expense of $289,000. The Company has also purchased 7.8
acres directly adjacent to the facility for future expansion. Total investment
in the Mexican facility is expected to be under $5,000,000.
5. Subsequent Events
In January 1999, the Company entered into an agreement (the "Asset
Purchase Agreement") to acquire substantially all of the assets of Al-Jon, Inc.
("Al-Jon"), subject to certain Al-Jon's liabilities. The Company anticipates
closing the transaction within 30 days.
The Asset Purchase Agreement provides for a purchase price of $10 million,
less Al-Jon's debt of approximately $4,600,000, with payment terms of $9,000,000
in cash and $1,000,000 in Common Stock of the Company. Further, the Asset
Purchase Agreement provides for the payment of additional compensation to Al-Jon
contingent upon the performance of the business through calendar year 2003. The
Company, at the closing, will enter into employment agreements with certain key
employees of Al-Jon, including its President.
Headquartered in Ottumwa, Iowa, Al-Jon manufactures car crushing and metal
baling equipment, and specialized heavy-duty tractors used to compact waste in
municipal landfills. Al-Jon operates a manufacturing facility with a total of
approximately 125,000 square feet of manufacturing, warehousing and office
space.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read together with the
consolidated financial statements and notes thereto included elsewhere herein.
Management's Discussion and Analysis for the three and nine months ended
December 31, 1998 include the unaudited consolidated operating results of SAC,
Ajax, R/S and CPS. The comparative financial statements for the period ended
December 31, 1997 pertain to the sum total of the results of operations for Ajax
and SAC. SAC did not own Ajax until January 1998, therefore Ajax was not
consolidated with SAC during this period.
Overview
The Company manufactures trailer chassis to customer order and revenues
are recognized when the finished product is inspected and accepted by the
customer or its agent and title has transferred. The market for chassis is
cyclical and is affected by overall economic conditions, in particular the needs
of the transportation industry. Remanufacturing existing chassis tends to be
counter-cyclical to manufacturing new chassis. R/S is engaged in the design,
manufacture and sale of 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. CPS is
engaged in the design, manufacture and sale of dump trailers, specializing in
trailers for hauling bulk commodities such as gravel, grain and corn, and for
the construction and waste hauling industries.
Part of the Company's strategy is to grow through expansion of product
lines and acquisitions such as the recently completed acquisitions of R/S and
CPS. The Company's proposed expansion may place a strain on the Company's
management, operational, financial and other resources. The Company's expansion
plans will be dependent upon its ability to identify appropriate targets for
acquisition and raise the necessary financing for acquisitions. Further, the
success of the Company's efforts will be dependent upon its ability to market
new products, absorb new management and other personnel, reduce duplicative
overhead and in managing geographically dispersed operations. There can be no
assurance that the Company can successfully expand its operations or manage its
growth.
Results of Operations
The following table sets forth, for the periods indicated, certain
components of the Company's Consolidated Statements of Income expressed in
dollar amounts (in thousands) and as a percentage of net revenues. Results of
operations for the three and nine months ended December 31, 1997 reflect Ajax
and SAC while the three and nine months ended December 31, 1998 reflect the
consolidated amounts of SAC, its subsidiaries, Ajax, R/S and CPS from their
respective dates of acquisition (rounded):
Three Months Ended December 31, Nine Months Ended December 31,
------------------------------------------ ----------------------------------------------
1997 1998 1997 1998
-------------------- --------------------- ---------------------- -----------------------
Revenues, net $ 8,680 100.0% $ 23,732 100.0% $ 19,850 100.0% $ 48,857 100.0%
Cost of revenues 6,152 70.9 18,577 78.3 15,032 75.7 38,733 79.3
Selling, general and
administrative 475 5.5 2,034 8.6 1,275 6.4 3,957 8.1
Operating income 2,053 23.7 2,822 11.9 3,543 17.8 5,423 11.1
Income before provision
for taxes 1,916 22.1 1,940 8.2 2,437 12.3 3,874 7.9
Provision for income taxes 824 9.5 785 3.3 1,110 5.6 1,698 3.5
Net income before
Preferred dividend $ 1,092 12.6% $ 1,155 4.9% $ 1,327 6.7% $ 2,176 4.5%
================= ================ ================= =================
8
Comparison of Nine Month Periods Ended December 31, 1998 and 1997
The following discussion provides information regarding the Company's
results of operations for the nine months ended December 31, 1997 ("1997") and
December 31, 1998 ("1998").
Net Revenues in 1998 were $48,857,000, an increase of 146% from net
revenues of $19,850,000 for 1997. The increase in net revenues is due to the
acquisitions of R/S and CPS, increased volume of business particularly in the
sales of new chassis, as well as a general improvement in the trailer industry.
During 1998, sales of new chassis represented 73% of Ajax's net revenues as
compared to 43% in 1997. The increase in sales of new chassis resulted
principally from an increase in the volume of new chassis sold in 1998 as
compared to 1997. In contrast, sales of remanufactured chassis represented 18%
of Ajax's net revenues in 1998 as compared to 44% in 1997. The Company's gross
margin declined in 1998 from 1997 due to the increase in trailer chassis revenue
being generated solely by new chassis sales.
Cost of Revenues increased to $38,733,000 or 79% of net revenues in 1998
from $15,032,000 or 76% of net revenue in 1997. Cost of revenues as a percentage
of net revenues increased during 1998 due to the growth in volume of lower
margin new chassis sales.
Selling, General & Administrative Expenses were $3,957,000 during 1998, an
increase of 210% from the $1,275,000 during 1997. SG&A expenses increased to 8%
of net revenues up from 6% of net revenues during the prior year period. The
increase in SG&A during the 1998 was primarily due to additional general and
administrative expenses arising from the operations of R/S and CPS which totaled
$1,464,000. Additional expenses related to an increase in selling efforts,
information technology systems and general corporate overhead including
officers' salaries incurred subsequent to the initial public offering.
Interest Expense was $1,146,000 during 1998 as compared to $316,000 during
1997. The interest in 1998 pertains to the PNC Credit Agreement and the
non-recurring interest on the note payable to the Ajax shareholder. In 1997, all
the interest was related to bridge notes provided by outside investors and is
non-recurring.
Comparison of Three Month Periods Ended December 31, 1998 and 1997
The following discussion provides information regarding the Company's
results of operations for the three months ended December 31, 1997 ("1997") and
December 31, 1998 ("1998").
Net Revenues in 1998 were $23,732,000, an increase of 173% from net
revenues of $8,680,000 for 1997. The increase in net revenues reflects the
acquisitions of R/S and CPS, an increase in the Company's sales of new chassis
and a general improvement in the trailer industry. During 1998, sales of new
chassis represented 94% of Ajax's net revenues as compared to 48% in 1997. The
increase in sales of new chassis resulted principally from an increase in the
volume of new chassis sold in 1998 as compared to 1997. In contrast, sales of
remanufactured chassis were negligible in 1998 as compared to 41% in 1997. The
Company's gross margin declined in 1998 from 1997 due to the increase in trailer
chassis revenue being generated solely by new chassis sales.
Cost of Revenues increased to $18,577,000 or 78% of net revenues in 1998
from $6,152,000 or 71% of net revenue in 1997. Cost of revenues as a percentage
of net revenues increased during 1998 due to the growth in volume of lower
margin new chassis sales.
Selling, General & Administrative Expenses were $2,034,000 during 1998, an
increase of 328% from the $475,000 during 1997. SG&A expenses increased to 9% of
net revenues from 6% of net revenues during the prior year period. The increase
in SG&A during the current quarter was primarily due to additional general and
administrative expenses arising from the operations of R/S and CPS which totaled
$899,000. Additional expenses related to an increase in selling efforts,
information technology systems and general corporate overhead including
officers' salaries incurred subsequent to the initial public offering.
Interest Expense was $697,000 during 1998 as compared to $144,000 during
1997. The interest in 1998 pertains to the PNC Credit Agreement and the
non-recurring interest on the note payable to the Ajax shareholder. In 1997, all
the interest was related to bridge notes provided by outside investors and is
non-recurring.
9
Liquidity and Capital Resources
In January 1998, the Company completed its Initial Public Offering
("IPO"). The Company sold Preferred and Common Stock at a price of $12.00 and
$10.00 per share, respectively, for an aggregate offering price of $28,750,000,
including exercise of the over-allotment in February 1998, and yielding net
proceeds of approximately $23,998,000.
Of the net proceeds, the Company used $19,618,000 to satisfy a portion of
the purchase price due the selling stockholder of Ajax and $347,000 to retire
the Company's other debt including accrued interest. The balance was utilized
for general working capital purposes and acquisition costs.
The Company generated $5,285,000 of cash in operating activities during
1998 as compared to $1,135,000 used in operating activities during 1997. The
cash generated in operating activities during 1998 reflects primarily a decrease
in accounts receivable of $1,542,000, and an increase in accounts payable and
accrued expenses of $5,384,000 which was partially offset by an increase in
inventory of $4,273,000. The net cash used in investing activities was
$34,249,000 during 1998 as compared to $65,000 generated by investing activities
during the prior year. The cash used in investing activities during 1998 was
primarily for the acquisition of R/S and CPS while the balance was used for the
acquisition of property, plant and equipment and additional capitalized
acquisition costs. The cash generated from finance activities during 1998 was
$27,955,000 compared to $0 generated by financing activities during the prior
year. The cash generated by finance activities was primarily the proceeds from
the PNC Loans offset by repayment of the Ajax shareholder note, prepaid
financing cost, repayment of PNC Loans and preferred dividend payments. The
Company made scheduled principal payments of $1,250,000 during 1998 which
reduced the initial term loan of $25,000,000 to $23,750,000 at December 31,
1998.
The terms on which the Company sells its products vary by individual
company but generally provide for payment within 30 days of acceptance. The
Company's accounts receivable was collected in an average of less than 35 days.
Capital expenditures were $3,858,000 in 1998 as compared to $234,000 for
the comparable period in the prior year. Capital expenditures incurred during
1998 were primarily for the initial investment of $1,978,000 in a new plant in
Mexico to service the Western part of the United States, the purchase and
installation of a new computer network system and the refurbishing of the new
corporate office facility. The Company anticipates that capital expenditures
during the fiscal year ending March 31, 1999 will substantially exceed those of
the proceeding years as the Company expands its operations. The Company
estimates that capital expenditures relating to the Mexican operation will total
approximately $5,000,000. The source of funds for the expansion will be from the
Company's internal cash flow and the PNC Credit Agreement. Nevertheless, the
Company could require substantial additional capital if it were to expand its
product lines by substantially modifying, improving, or modernizing its
facility, opening additional facilities or acquiring new business.
The annual dividend requirement on the Convertible Preferred Stock is
$1,173,000. The future earnings of the Company, if any, may not be adequate to
pay the dividends on the Convertible Preferred Stock, and, although the Company
intends to pay quarterly dividends out of available capital surplus, there can
be no assurance that the Company will maintain sufficient capital surplus or
that future earnings, if any, will be adequate to pay the dividends on the
Convertible Preferred Stock. In addition, the Company has $32,627,000 in debt
outstanding, consisting of the notes payable to PNC which currently bears
interest at a variable rate on LIBOR and payable monthly.
The Company anticipates that it will finance the Al-Jon acquisition
through an increase in its borrowing facility with PNC, both individually and as
agent for a consortium of lenders.
In connection with the Al-Jon Acquisition, the Company will incur
approximately $650,000 in banking and finders fees, and legal, accounting and
miscellaneous expenses.
The Company intends to seek opportunities for growth through acquisitions,
and, in connection therewith, may seek to raise additional cash in the form of
equity, bank debt or other debt financing, or may seek to issue stock as
consideration for assets.
10
At December 31, 1998, the Company had working capital of $421,000, which
is sufficient to meet its current operating requirements, and, if necessary,
such needs could be met out of the remaining cash on hand from the IPO and from
the Revolving Loan facility.
Year 2000
The Company is aware of the uncertainty surrounding the ability of
computer systems to function properly with the coming of the year 2000 and
related issues. The Company anticipates that it will replace substantial
portions of its existing computer software during 1999 as it integrates the
operations of its New Jersey facility with those of the businesses acquired in
Kentucky, Missouri and Mexico. The Kentucky and Missouri systems are not yet Y2K
compliant. Therefore , the Company will be upgrading these systems at a cost of
$200,000 approximately. Nevertheless, management intends to continue during 1999
to assess the functionality of all of the Company's computer systems, as well as
those of the businesses it acquires to determine which of the Company's systems
are susceptible to the year 2000 problem and what corrective measures need to be
taken. Subsequent to assessing its own computer inventory the Company will seek
to assess the functionality of the systems of its customers and suppliers in an
attempt to identify and ward off potential problems.
Forward-Looking Statements
The foregoing discussion of the Company's Financial Condition and Results
of Operations, and other portions of this Report contain forward-looking
statements including, but not limited to, statements regarding the Company's
future financial condition, results of operations, growth strategies, product
development and sales. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including the competitive conditions in the markets for the Company's
products, the Company's ability to identify and acquire suitable acquisition
candidates, the Company's ability to consolidate the operations of those
companies it acquires and the rate of growth of the industries, such as the
construction and transportation industries, to which the Company markets its
products.
11
Part 2. Other Information
Item 5. Significant Events
In January 1999, the Company entered into an agreement (the "Asset
Purchase Agreement") to acquire substantially all of the assets of Al-Jon, Inc.
("Al-John"), subject to Al-Jon's liabilities. The Company anticipates closing
the transaction within 30 days.
The Asset Purchase Agreement provides for a purchase price of $10 million,
less Al-Jon's debt of approximately $4,600,000, with payment terms of $9,000,000
in cash and $1,000,000 in Common Stock of the Company. Further, the Asset
Purchase Agreement provides for the payment of additional compensation to Al-Jon
contingent upon the performance of the business through calendar year 2003. The
Company, at the closing, will enter into employment agreements with certain key
employees of Al-Jon, including its President, Kendig Kneen.
Headquartered in Ottumwa, Iowa, Al-Jon manufactures car crushing and metal
baling equipment, and specialized heavy-duty tractors used to compact waste in
municipal landfills. Al-Jon operates a manufacturing facility with a total of
approximately 125,000 square feet of manufacturing, warehousing and office
space.
The Company anticipates that it will finance the Al-Jon acquisition
through an increase in its borrowing facility with PNC Bank, National
Association, both individually and as agent for a consortium of lenders.
In connection with the Al-Jon Acquisition, the Company will incur
approximately $650,000 in banking and finders fees, and legal, accounting and
miscellaneous expenses.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 Asset Purchase Agreement by and among SAC and Al-jon, Kendig Kneen
and Timothy Kneen dated January 15, 1999.
27.0 Financial Data Schedule
(b) Report on Form 8-K
Report dated September 18, 1998, as amended, November 30, 1998, with
respect to the acquisition of CPS Trailer Co., Inc.
12
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.
Date: STANDARD AUTOMOTIVE CORPORATION
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(Registrant)
February 11, 1999 /s/ Steven Merker
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Steven Merker
Chairman and Chief Executive Officer
February 11, 1999 /s/ Roy Ceccato
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Roy Ceccato
Director and Chief Financial Officer
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