UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the First Quarter Ended June 30, 1999
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 offices) (Zip Code)
(908) 874-7778 3715
-------------- ----
(Registrant's telephone number) (Primary Standard Industrial Code)
Not applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered under Section 12(b) of the Exchange Act:
Title of each Class Name of each Exchange on which Registered
- ------------------- -----------------------------------------
Common Stock American Stock Exchange
8 1/2% Senior Convertible Redeemable American Stock Exchange
Preferred Stock
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 |_|
The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of July 28, 1999 was $34,872,000 based upon
a last sale price of $16.9375.
As of July 28, 1999, the registrant had a total of 3,680,124 shares of
Common Stock outstanding and 1,150,000 shares of Preferred Stock outstanding.
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
For the Three Months Ended June 30, 1999
Form 10-Q Quarterly Report
Index
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1999 (audited) and
June 30, 1999 3
Consolidated Statements of Income for the three months ended
June 30, 1998 and 1999 4
Consolidated Statements of Stockholders' Equity for the period
ended June 30, 1999 5
Consolidated Statements of Cash Flows for the three months
ended June 30, 1998 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Part II. Other Information
Item 5. Significant Events 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
STANDARD AUTOMOTIVE CORPORATION
Consolidated Balance Sheets
(in thousands, except share data )
<TABLE>
<CAPTION>
March 31, June 30,
1999 1999
-------- --------
<S> <C> <C>
Assets
Cash and cash equivalents $ 3,686 $ 3,103
Marketable Securities 102 102
Accounts receivable, net of allowance for doubtful accounts
of $112 and $119, respectively 7,032 15,989
Other receivables 551 109
Inventory, net 13,466 15,104
Prepaid expenses 980 701
Deferred taxes 768 768
-------- --------
Total current assets 26,585 35,876
Property and equipment, net of accumulated depreciation and
amortization of $917 and $1,383, respectively 19,975 25,306
Intangible assets, net of accumulated amortization of
$1,173 and $1,369, respectively 29,000 31,278
Excess of purchase price over net assets acquired -- 23,079
Deferred acquisition and financing costs 1,477 2,452
Other assets 415 608
-------- --------
Total assets $ 77,452 $118,599
======== ========
Liabilities and Stockholders' Equity
Accounts payable $ 9,941 $ 13,659
Accrued expenses 1,760 2,582
Current portion of long term debt 3,438 4,000
Income taxes payable 171 1,101
Other current liabilities 1,845 3,861
-------- --------
Total current liabilities 17,155 25,203
Long term debt 29,381 58,618
-------- --------
Total liabilities 46,536 83,821
Commitments and contingencies
Stockholders' equity:
Convertible Redeemable 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,
3,500,124 and 3,680,124 issued and outstanding, respectively 4 4
Additional paid-in capital 28,443 31,058
Retained earnings 2,468 3,715
-------- --------
Total stockholders' equity 30,916 34,778
-------- --------
Total liabilities and stockholders' equity $ 77,452 $118,599
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Income
For the Three Months Ended June 30,
(in thousands, except net income per share data)
1998 1999
------- -------
Revenues, net $ 7,880 $35,044
Operating costs and expenses:
Cost of revenues 6,153 28,261
Selling, general and administrative expenses 728 3,087
Amortization of intangible assests 190 326
------- -------
Total operating costs and expenses 7,071 31,674
------- -------
Operating income 809 3,370
Interest expense 86 682
Other expense, net 56 42
------- -------
Income before income taxes 667 2,646
Provision for income taxes 327 1,106
------- -------
Net income 340 1,540
Preferred dividend 293 293
------- -------
Net income available to common stockholders $ 47 $ 1,247
======= =======
Basic net income per share $ 0.02 $ 0.35
======= =======
Diluted net income per share $ 0.02 $ 0.35
======= =======
Basic weighted average number of shares outstanding 3,095 3,530
Diluted weighted average number of shares outstanding 3,095 3,572
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
Standard Automotive Corporation
Consolidated Statements of Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Preferred Common Additional Total
Shares Preferred Shares Common Paid In Retained Stockholders'
Outstanding Stock Outstanding Stock Capital Earnings Equity
----------- ----- ----------- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1999 1,150 $ 1 3,500 $ 4 $ 28,443 $ 2,468 $ 30,916
Shares Issued for
Acquisition -- -- 180 -- 2,565 -- 2,565
Options Issued -- -- -- -- 50 -- 50
Preferred Stock
Dividend -- -- -- -- -- (293) (293)
Net Income -- -- -- -- -- 1,540 1,540
-------- -------- -------- -------- -------- -------- --------
Balance - June 30, 1999 1,150 $ 1 3,680 $ 4 $ 31,058 $ 3,715 $ 34,778
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Cash Flows
For the Three Months Ended June 30,
(in thousands)
1998 1999
-------- --------
Cash flows from operating activities:
Net income $ 340 $ 1,540
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 244 830
Non-cash interest and compensation 98 50
Deferred taxes (68) --
Change in assets and liabilites:
Accounts receivable 1,770 (6,498)
Inventory (3,523) (191)
Prepaid expenses and other 74 536
Accounts payable and accrued expenses 1,333 5,284
Income taxes payable (455) 930
-------- --------
Net cash (used in) provided by operating activities (187) 2,481
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired -- (25,336)
Deferred acquisition costs (106) --
Acquisition of property and equipment (761) (835)
-------- --------
Net cash used in investing activities (867) (26,171)
-------- --------
Cash flows from financing activities:
Proceeds from bank loan -- 25,000
Repayment bank loan -- (625)
Deferred financing costs -- (975)
Preferred dividend payment (293) (293)
Other -- --
-------- --------
Net cash (used in) provided by financing activities (293) 23,107
-------- --------
Net decrease in cash and cash equivalents (1,347) (583)
Cash and cash equivalents, beginning of period 3,357 3,686
-------- --------
Cash and cash equivalents, end of period $ 2,010 $ 3,103
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 118 $ 662
Income taxes 850 179
Noncash investing and financing activities:
Capital stock and debt issued for acquisition of
businesses and assets -- 7,865
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organizational and Business Combination
Standard Automotive Corporation (the "Company" or "SAC") was formed and
incorporated in Delaware in January 1997. The Company's principal activity is
the manufacture of trailer chassis, dump truck bodies, dump trailers, truck
suspensions and other related assemblies for domestic customers in the
inter-modal industry, construction and agricultural industries, through its
wholly owned subsidiaries, Ajax Manufacturing Co., Inc. ("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 June 1999, pursuant to the terms of a Stock Purchase Agreement dated
April 1999, the Company acquired all of the outstanding capital stock of
Critical Components Corporation ("CCC"). In consideration for such capital stock
the Company issued to the shareholders of CCC an aggregate of 180,000 shares of
common stock of the Company.
Simultaneously with the acquisition of CCC, the Company, through CCC,
acquired substantially all of the assets of Ranor, Inc. ("Ranor") a fabricator
of large precision assemblies for the aerospace, nuclear, industrial and
military markets. The consideration paid for Ranor was $30,600,000 including
acquisition related expenses of approximately $1,800,000, subject to final
adjustment, of which $25,300,000 was paid in cash and $5,300,000 was paid in the
form of convertible subordinated notes of the Company. Management estimates that
a material portion of the excess purchase price over net assets acquired will be
allocated to property and equipment. The Company is in the process of obtaining
independent appraisals to value the assets and determine their useful lives.
Such determination should be completed by the end of September 1999. Funds to
complete the Ranor acquisition were obtained by increasing the amounts
outstanding under the Company's credit facility as described in Note 3. The
acquisition has been accounted for as a purchase and, accordingly, the Company's
first quarter ending June 30, 1999 financial statements reflect the activity of
Ranor for the period from June 16, 1999 through June 30, 1999.
2. Proforma Information (Unaudited)
The following summarized, unaudited proforma information for the three
months ended June 30, 1999 assumes that the acquisition of Ranor had occurred on
April 1, 1999 (in thousands except per share data):
SAC Ranor Adjustments Proforma
------- ------- ----------- --------
Revenues, net $35,044 $ 4,890 $ -- $39,934
Operating income 3,370 1,138 (544) 3,964
Net income $ 1,540 $ 1,008 $ (606) $ 1,942
======= ======= ======= =======
Preferred dividend 293 -- -- 293
Basic net income per share $ 0.35 $ 0.45
======= =======
Diluted net income per share $ 0.35 $ 0.44
======= =======
Basic weighted average number
of shares outstanding 3,530 -- 150 3,680
Diluted weighted average number
of shares outstanding 3,572 -- 150 3,722
The proforma operating results reflect estimated adjustments for
amortization expense on intangibles arising from the acquisition, interest
expense on the acquisition debt and the related tax effect.
Proforma results of operations information is not necessarily indicative
of the results of operations that would have occurred had the acquisitions been
consummated as of April 1, 1999 or of future results of the combined companies.
7
<PAGE>
3. 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 acquisitions and to retire certain indebtedness of
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 8.21% at June 30, 1999. All
amounts outstanding under the Credit Agreement are secured by a lien on
substantially all of the Company's assets.
In order for the Company to consummate the acquisition of Ranor in June
1999, the Company obtained an increase in its existing credit facility
arrangement from $40,000,000 to $68,125,000 through PNC Bank, NA and PNC Capital
Markets. The Company's Credit Agreement, as amended, provides for Term Loans in
the principal amount of $48,125,000 and a Revolving Loan in the principal amount
of $20,000,000. The principal of the Term Loans is payable in two tranches of
$23,125,000 and $25,000,000 in June 2004 and June 2005, respectively. Amounts
outstanding under the Revolving Loan are payable in full in July 2002, subject
to the Company's request, with the approval of the lenders, to extend the due
date for one year, with a maximum extension of two one year periods. The Company
incurred approximately $1,000,000 in fees and expenses, including bank fees, in
connection with the increase and amendment of the existing credit facility.
As part of the Ranor acquisition the seller's were issued $5,300,000 of
three year, 6% interest only, convertible subordinated notes.
At June 30, 1999 the total amount outstanding under the Credit Agreement
was $57,197,000.
4. Segment Information
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which supersedes SFAS No. 14, Financial Reporting for Segments of
A Business Enterprise, establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of a company
about which separate financial information is available that is evaluated
regularly by management in deciding how to allocate resources and in assessing
performance.
Below are the selected financial segment data for the three months ended June
30, 1999 and 1998. (in thousands)
Critical
Trailer/Truck Components
June 30, 1999 Division Division Consolidated
- ------------- -------- -------- ------------
Revenue $ 33,894 $ 1,150 $ 35,044
Operating Income 3,108 262 3,370
Identifiable Assets 85,344 33,255 118,599
Capital Expenditures 835 -- 835
June 30, 1998
- -------------
Revenue $ 7,880 -- 7,880
Operating Income 809 -- 809
Identifiable Assets 33,011 -- 33,011
Capital Expenditures 761 -- 761
8
<PAGE>
As a result of the acquisition of Ranor, Inc., the Company has gone
through a reorganization of its' operations, whereby creating the two divisions.
5. Related Party Transactions
In June 1999, the Company completed the acquisition of all the common
stock of CCC and simultaneously, through CCC, acquired substantially all of the
assets of Ranor. As part of the fees paid related to the acquisition, Redstone
Advisors, a partnership of which William Merker and Redstone Capital Corp. (a
corporation owned by Andrew Levy and certain of his affiliates) are principals
received a cash fee of $905,000 and related out-of-pocket expenses. In addition,
for their interests as shareholders of CCC, William Merker and Andrew Levy (and
certain of Mr. Levy's affiliates) were issued 120,000 and 60,000 shares of the
Company's Common Stock, respectively. They may receive up to a total of 120,000
shares of the Company's Common Stock if the Company acquires any of a group of
companies previously targeted for acquisition by CCC.
9
<PAGE>
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 in this
Quarterly Report and with the Company's 10-K Annual Report.
Overview
Due to the acquisition of Ranor in June 1999, the Company has organized
itself into two separate operating divisions, the Trailer/Truck Division and the
Critical Components Division. These two divisions are separate and distinct from
one another and require different management and reporting requirements.
The Trailer/Truck Division manufactures trailer chassis, dump truck bodies
and specialty trailers includes the following companies:
o Ajax, at both its New Jersey and Mexican Facilities, manufactures
trailer chassis to customer order and remanufactures existing chassis.
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 the
manufacturing of new chassis. Ajax was acquired in January 1998. The
Mexican facility began initial production in April 1999 with revenues
commencing in May 1999.
o 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. R/S was acquired in July 1998.
o CPS is primarily 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. CPS was acquired in September 1998.
The sales forces of R/S and CPS have begun to coordinate their activities
and each now offers the products of the other. The R/S and CPS product lines
complement each other. Coordinating activities allows each sales force to market
a more diverse product line and each of the product lines to be offered to a
wider customer base.
The Critical Components Division includes the following company:
o Ranor is primarily engaged in the fabrication, manufacture and sale of
large precision components and assemblies for the aerospace, nuclear,
industrial and military industries. Ranor was acquired in June 1999.
Part of the Company's strategy is to grow through expansion of product
lines and acquisitions such as the recently completed acquisition of Ranor and
the establishment of the Mexican facility. The Company's continued expansion may
place a strain on the Company's management, operational, financial and other
resources. The Company's expansion plans will depend on our ability to identify
appropriate targets for acquisition and obtain the necessary financing for
acquisitions. Further, the success of the Company's efforts will depend on its
ability to market new products, absorb new management and other personnel,
reduce duplicative overhead and manage geographically dispersed operations.
There can be no assurance that we can successfully expand our operations or
manage our 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. The three
months ended June 30, 1998 reflect the consolidated amounts of Standard and Ajax
only. The three months ended June 30, 1999 reflect the consolidated amounts of
Standard, Ajax, R/S, CPS for the entire period and Ranor from the date of
acquisition (rounded).
10
<PAGE>
For the Three Months Ended June 30,
----------------------------------
1998 1999
--------------- ---------------
Revenues, net $ 7,880 100.0% $35,044 100.0%
Cost of revenues 6,153 78.1 28,261 80.6
Selling, general and administrative 728 9.2 3,087 8.8
Amortization of intangiable assets 190 2.4 326 0.9
------- ----- ------- -----
Operating income 809 10.3 3,370 9.6
Other expense 142 1.8 724 2.1
------- ----- ------- -----
Income before provision for taxes 667 8.5 2,646 7.6
Provision for income taxes 327 4.1 1,106 3.2
------- ----- ------- -----
Net income $ 340 4.3% $ 1,540 4.4%
======= ===== ======= =====
The following discussion provides information regarding the Company's
results of operations for the three months ended June 30, 1999 ("1999") and June
30, 1998 ("1998").
Comparison of Three Months Ended June 30, 1999 to June 30, 1998
Net Revenues in 1999 were $ 35,044,000, an increase of 345% from net
revenues of $7,880,000 for 1998. The increase in revenues reflects a shift of
the Company's business from the remanufacture of used chassis to the manufacture
of new chassis, a general improvement in the trailer industry, along with the
acquisitions of R/S, CPS and Ranor. These acquisitions contributed revenue
representing 27%, 18% and 3%, respectively, of net revenues.
Cost of Revenues increased to $28,261,000 or 81% of net revenues in 1999
from $6,153,000 or 78% of net revenues in 1998, principally as a result of the
acquisitions of R/S, CPS and Ranor and the shift in the Company's product mix.
Cost of revenues as a percentage of net revenues increased during 1999 as the
mix of the Company's business reflected an increase in the sale of lower margin,
new trailer chassis.
Selling, General & Administrative Expenses were $3,087,000 during 1999 an
increase of $2,359,000 from $728,000 incurred during 1998. SG&A expenses, as a
percentage of net revenue, decreased to 8.8%, down from 9.2% during 1998. The
increase in the dollar amount of SG&A in 1999 principally reflects $1,675,000
arising from the addition of the R/S, CPS and Ranor acquisitions. Additional
expenses related to an increase in selling efforts, upgrade information
technology systems and general corporate overhead including officers' salaries
have been slowed.
Interest Expense increased to $682,000 in 1999 from $86,000 during 1998,
reflecting debt incurred to complete the acquisitions of R/S, CPS and Ranor
during 1999.
Liquidity and Capital Resources
The Company generated $2,481,000 of cash in operating activities during
1999 as compared to $187,000 used in operating activities during 1998. The cash
generated in operating activities during 1999 reflects primarily an increase in
net income, increased depreciation and amortization of intangible assets of
$830,000, an increase in accounts payable and accrued expenses and other
liabilities of $6,214,000, which was offset by an increase in accounts
receivable and inventory of $6,689,000. The net cash used in investing
activities was $26,029,000 during 1999 as compared to $867,000 used in investing
activities during the prior year. The cash used in investing activities during
1999 was primarily for the acquisition of Ranor and for the acquisition of other
property, plant and equipment and additional capitalized acquisition costs. The
cash generated by financing activities was solely derived from the incremental
proceeds from the $25,000,000 June 1999, Loan between the Company and certain of
its subsidiaries (acting as Guarantors) and PNC which was used for the
acquisition of Ranor.
11
<PAGE>
The Credit Agreement, as amended, provides for a Term Loan in the amount
of $48,125,000 and a Revolving Loan in the principal amount of $20,000,000
(collectively, the "Loans"). The principal of the Term Loans is payable in two
tranches of $23,125,000 and $25,000,000 in June 2004 and June 2005,
respectively. Amounts outstanding under the Revolving Loan are payable in full
in June 2002, subject to the Company's request, with the approval of the
lenders, to extend the due date for one year, with a maximum extension of two
one year periods. All amounts due under the Credit Agreement are secured by a
lien on all the Company's assets. The rate of interest for the amounts
outstanding under the Credit Agreement is 8.21% at June 30, 1999. The Company
made scheduled principal payments of $625,000 in June 1999.
Capital expenditures were $835,000 in 1999 compared to $761,000 in 1998.
Capital expenditures incurred during 1999 were primarily for the continued
investment of $269,000 in the 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 back office facility. The
Company anticipates that capital expenditures during the fiscal year ending
March 31, 2000 will not substantially exceed those of the preceding years as the
Company expands its operations.
The annual dividend requirement on the Preferred Stock is $1,173,000. The
future earnings of the Company, if any, may not be adequate to pay the dividends
on the 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 Preferred Stock. In addition,
at June 30, 1999, the Company had $62,618,000 in total debt outstanding,
primarily consisting of $57,197,000 in notes payable to PNC, $5,300,000 of three
year, 6%, convertible subordinated notes to the seller's of Ranor and the
balance to various other small creditors.
The Company continues 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 acquisition targets.
At June 30, 1999, the Company had working capital of $10,673,000, 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 Revolving Loan
facility.
Year 2000 Compliance
The Company continues to address the impact of the Year 2000 issue on its
business. The Year 2000 issue is the result of computer hardware and software
programs designed to use two digits rather than four digits to define the
applicable year. If not corrected, certain computer applications may fail or
create erroneous results at the year 2000.
The Company has performed a comprehensive review of its computer systems
identifying those systems, which could be adversely affected by the Year 2000
issue. The Company presently believes that with modifications to existing
hardware and software and conversion to new software the Year 2000 problem will
not pose significant operational problems for the Company's computer systems as
modified and converted.
The Company replaced substantial portions of its computer hardware and
software during fiscal 1999, as it integrated the operations of Ajax, R/S, CPS,
Ranor and the Mexican facility. The R/S and CPS facilities require additional
modification and conversion of their computer systems. Management estimates that
the cost of upgrading the R/S and CPS facilities will be approximately $200,000.
These operational upgrades would be necessary even without Year 2000 issues.
It is anticipated that testing of all modifications and conversions will
be complete by late-summer 1999. This timing will allow management to assess and
implement a contingency plan if required. With our comprehensive assessment and
modification and conversion protocol, management does not believe that the Year
2000 issue will have a materially adverse affect on other Company's operations.
However, if such protocol is not timely completed, the Year 2000 issues may have
a material impact on the Company's operation.
In connection with the Ranor acquisition, the Company received certain
representations and warranties from Ranor's Shareholders regarding its
compliance with the Year 2000 issue. Nevertheless, the Company will undertake an
analysis of Ranor's susceptibility to the Year 2000 issues.
12
<PAGE>
Because Year 2000 issues may also impact our customers and suppliers, the
Company is in the process of obtaining information from key suppliers and
customers on their Year 2000 readiness.
Statement Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the
meaning of Section 27A of the Exchange Act which represent the Company's
expectations or belief concerning future events that involve risks and
uncertainties, including the demand for our products, the costs of supplies and
raw materials. All statements other than statements of historical facts included
in this Quarterly Report including, without limitation, the statements under
"Management Discussion and Analysis of Results of Operations and Financial
Condition" and elsewhere in the Quarterly Report, are forward-looking
statements. While the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct.
13
<PAGE>
PART II. Other Information
Item 5. Significant Events
In June 1999, pursuant to the terms of a Stock Purchase Agreement dated
April 1999, the Company acquired all of the outstanding capital stock of
Critical Components Corporation ("CCC"). In consideration for such capital stock
the Company issued to the shareholders of CCC, who are also shareholders of the
Company, an aggregate of 180,000 shares of common stock of the Company. In
addition, the shareholders of CCC will receive up to an additional 120,000
shares of the Company's Common Stock if the Company acquires any of a group of
companies previously targeted for acquisition by CCC.
Simultaneously with the acquisition of CCC, the Company, through CCC,
acquired substantially all of the assets of Ranor, Inc. ("Ranor") a fabricator
of large precision assemblies for the aerospace, nuclear, industrial and
military markets. The consideration paid for Ranor was $30,600,000 including
acquisition related expenses of approximately $1,800,000, subject to final
adjustment, of which $25,300,000 was paid in cash and $5,300,000 was paid in the
form of convertible subordinated notes of the Company. Management estimates that
a material portion of the excess purchase price over net assets acquired will be
allocated to property and equipment. The Company is in the process of obtaining
independent appraisals to value the assets and determine their useful lives.
Such determination should be completed by the end of September 1999. Funds to
complete the Ranor acquisition were obtained by increasing the amounts
outstanding under the Company's Credit Agreement as previously described. The
acquisition has been accounted for as a purchase and, accordingly, the Company's
first quarter ending June 30, 1999 financial statements reflect the activity of
Ranor for the period from June 16, 1999 through June 30, 1999.
The Company incurred approximately $1,000,000 in fees and expenses,
including bank fees, in connection with the increase and amendment of the
existing credit facility.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
None.
14
<PAGE>
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: July 29, 1999
- ----------------------------------------
Steven Merker
Chairman and Chief Executive Officer
Pursuant to requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Date
- ---------- ----
/s/ Steven Merker July 29, 1999
- ----------------------------------------
Steven Merker
Chairman and Chief Executive Officer
/s/ Roy Ceccato July 29, 1999
- ----------------------------------------
Roy Ceccato
Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Statement of Income found on pages 3 & 4 of the
company's Form 10-Q for the year ending June 30, 1999 and is qualified in its
entirety by reference to such consolidated financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,103
<SECURITIES> 102
<RECEIVABLES> 16,210
<ALLOWANCES> 112
<INVENTORY> 15,104
<CURRENT-ASSETS> 35,876
<PP&E> 30,777
<DEPRECIATION> 5,471
<TOTAL-ASSETS> 118,599
<CURRENT-LIABILITIES> 25,203
<BONDS> 62,618
0
1
<COMMON> 4
<OTHER-SE> 34,773
<TOTAL-LIABILITY-AND-EQUITY> 118,599
<SALES> 35,044
<TOTAL-REVENUES> 35,044
<CGS> 28,261
<TOTAL-COSTS> 31,674
<OTHER-EXPENSES> 42
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 682
<INCOME-PRETAX> 2,646
<INCOME-TAX> 1,106
<INCOME-CONTINUING> 1,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,540
<EPS-BASIC> 0.35
<EPS-DILUTED> 0.35
</TABLE>
