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 First Quarter Ended June 30, 2000
Or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From _____________________ to ________________________
Commission File Number: 001-13657
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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)
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 August 11, 2000, the registrant had a total of 3,722,400 shares of
Common Stock outstanding and 1,132,600 shares of Preferred Stock outstanding.
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
For the Three Months Ended June 30, 2000
Form 10-Q Quarterly Report
Index
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2000 and March 31, 2000 3
Consolidated Statements of Income for the three months ended
June 30, 2000 and 1999 4
Consolidated Statements of Stockholders' Equity for the period
ended June 30, 2000 5
Consolidated Statements of Cash Flows for the three months
ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Part II. Other Information
Item 1 Legal Proceedings 14
Item 5. Other Information - 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>
June 30, 2000 March 31, 2000
(Unaudited) (Audited)
------------- --------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 3,141 $ 3,136
Marketable securities 102 102
Accounts receivable, net 21,861 25,217
Inventory, net 25,940 20,602
Prepaid expenses 1,612 1,269
Deferred taxes 768 768
-------- --------
Total current assets 53,424 51,094
Property and equipment, net 45,624 38,724
Intangible assets, net of accumulated amortization
of $2,995 and $2,522, respectively 55,169 44,151
Deferred financing costs 4,365 2,234
Other assets 1,012 1,062
-------- --------
Total assets $159,594 $137,265
======== ========
Liabilities and Stockholders' Equity
Accounts payable $ 12,170 $ 19,037
Accrued expenses 2,823 2,451
Current portion of long term debt 5,500 4,000
Other current liabilities 9,609 10,598
-------- --------
Total current liabilities 30,102 36,086
Long term debt 90,771 64,261
-------- --------
Total liabilities 120,873 100,347
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 31,038 30,208
Retained earnings 7,678 6,705
-------- --------
Total stockholders' equity 38,721 36,918
-------- --------
Total liabilities and stockholders' equity $159,594 $137,265
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Income (Unaudited)
(in thousands, except net income per share data)
Three months ended
June 30,
--------------------
2000 1999
------- -------
Revenues, net $39,134 $35,044
Operating costs and expenses:
Cost of revenues 30,147 28,261
Selling, general and administrative expenses 4,327 3,413
------- -------
Total operating costs and expenses 34,474 31,674
------- -------
Operating income 4,660 3,370
Interest expense 2,342 682
Other expense, net 63 42
------- -------
Income before income taxes 2,255 2,646
Provision for income taxes 993 1,106
------- -------
Net income 1,262 1,540
Preferred dividend 289 293
------- -------
Net income available to common stockholders $ 973 $ 1,247
======= =======
Basic net income per share $ 0.26 $ 0.35
======= =======
Diluted net income per share $ 0.26 $ 0.35
======= =======
Basic weighted average number of shares outstanding 3,689 3,530
Diluted weighted average number of shares outstanding 4,831 3,572
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
Standard Automotive Corporation
Consolidated Statement of Stockholders' Equity (Unaudited)
(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, 2000 1,133 $ 1 3,602 $ 4 $ 30,208 $ 6,705 $ 36,918
Shares Issued for
Acquisition -- -- 120 -- 780 -- 780
Options Issued -- -- -- -- 50 -- 50
Preferred Stock
Dividend -- -- -- -- -- (289) (289)
Net Income -- -- -- -- -- 1,262 1,262
-------- -------- -------- -------- -------- -------- --------
Balance - June 30, 2000 1,133 $ 1 3,722 $ 4 $ 31,038 $ 7,678 $ 38,721
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
June 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,262 $ 1,540
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,580 830
Non-cash interest and compensation 60 50
Change in assets and liabilities:
Accounts receivable 5,887 (6,498)
Inventory (1,105) (191)
Prepaid expenses and other (108) 536
Accounts payable, accrued expenses expenses and other (9,940) 6,214
-------- --------
Net cash (used in) provided by operating activities (2,364) 2,481
-------- --------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (21,393) (25,336)
Acquisition of property and equipment (1,031) (835)
-------- --------
Net cash used in investing activities (22,424) (26,171)
-------- --------
Cash flows from financing activities:
Proceeds from bank loan 28,708 25,000
Repayment bank loan (1,313) (625)
Deferred financing costs (2,313) (975)
Preferred dividend payment (289) (293)
-------- --------
Net cash provided by financing activities 24,793 23,107
-------- --------
Net Increase (decrease) in cash and cash equivalents 5 (583)
Cash and cash equivalents, beginning of period 3,136 3,686
-------- --------
Cash and cash equivalents, end of period $ 3,141 $ 3,103
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,509 $ 662
Income taxes 1,723 179
Noncash investing and financing activities:
Capital stock and debt issued for acquisition of
businesses and assets 780 7,865
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
STANDARD AUTOMOTIVE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
General
The information in this Quarterly Report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such statements are based upon current expectations that involve risks and
uncertainties. Any statements contained in this Quarterly Report that are not
statements of historical fact may be deemed to be forward-looking statements.
For example, words such as "may," "will," "should," "estimates," "predicts,"
"potential," "continue," "strategy," "believes," "anticipates," "plans,"
"expects," "intends" and similar expressions are intended to identify
forward-looking statements. Actual results and the timing of certain events may
differ significantly from the results discussed in forward-looking statements.
The financial statements for the three months ended June 30, 2000 are
unaudited. However, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of the
financial statements for the interim period have been made. The notes to the
financial statements have been prepared consistent with the Form 10-K/A filed
for the fiscal year ended March 31, 2000 and should be read in conjunction with
those financial statements.
1. Organizational and Business Combination
Standard Automotive Corporation (the "Company" or "Standard") is a
Delaware corporation that commenced operations in January, 1998. Standard
currently operates two divisions: (i) the Truck Body/Trailer Division, which
designs, manufactures and distributes trailer chassis for use primarily in the
transport of shipping containers and a broad line of specialized dump truck
bodies, dump trailers, truck suspensions and other related assemblies, and (ii)
the Critical Components Division, which specializes in the fabrication of
precision assemblies for the aerospace, nuclear, industrial and military
markets. Standard's Truck Body/Trailer Division operates through its
wholly-owned subsidiaries: Ajax Manufacturing Company ("Ajax"), R/S Truck Body
Co. ("R/S") and CPS Trailer Co. ("CPS"). Standard's Critical Components Division
operates through its wholly-owned subsidiaries: Ranor Inc. ("Ranor"), Airborne
Gear & Machine Ltd. ("Airborne") and Arell Machining Ltd. ("Arell").
In April 2000, the Company, through Critical Components Corporation's
newly established Canadian subsidiary, Critical Components Canada Ltd., acquired
all of the outstanding capital stock of Airborne and Arell.
The consideration paid for Airborne during the reporting quarter ended
June 30, 2000 was approximately $12,634,000, including acquisition-related
expenses of approximately $292,000, subject to final adjustment, of which
$12,342,000 was paid in cash to the sellers. The consideration paid for Arell
during the reporting quarter ended June 30, 2000 was approximately $8,759,000
including acquisition-related expenses of approximately $203,000, subject to
final adjustment, of which $8,556,000 was paid in cash to the sellers. We
obtained independent appraisals in order to value and determine the useful lives
of the assets of both Airborne and Arell. The excess of the purchase prices over
the net assets acquired from Airborne and Arell was approximately $6,279,000 and
$5,221,000, respectively. Funding to complete both the Airborne and Arell
acquisitions was obtained from the most recent amendment to our credit facility
to $100,000,000, the details of which are described in Note 4. These
acquisitions have been accounted for as purchases and, accordingly, our first
quarter ended June 30, 2000 financial statements reflect the activity of
Airborne and Arell for the period from April 26, 2000 through June 30, 2000.
7
<PAGE>
2. Pro Forma Information
The following summarized, unaudited pro forma information for the three
months ended June 30, 2000 assumes that the acquisitions of Airborne and Arell
occurred on April 1, 2000:
(in thousands, except net income per share data)
<TABLE>
<CAPTION>
Standard Airborne Arell Adjustment Pro Forma
-------- -------- ----- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenues, net $39,134 $ 905 $ 423 $ -- $40,462
Operating income 4,660 358 101 (273) 4,846
Net income $ 1,262 $ 200 $ 57 $ (153) $ 1,366
======= ====== ====== ======= =======
Preferred dividend 289 289
Basic net income per share $ 0.26 $ 0.29
======= =======
Diluted net income per share $ 0.26 $ 0.28
======= =======
Basic weighted average number
of shares outstanding 3,689 40 3,729
Diluted weighted average number
of shares outstanding 4,831 40 4,871
</TABLE>
The pro forma operating results for the period ended June 30, 2000 reflect
estimated adjustments for amortization expense on intangibles arising from the
Airborne and Arell acquisitions, interest expense attendant to the acquisition
debt and the 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 and Arell acquisitions been consummated as of April 1, 2000 or of
future results of the combined companies.
3. Inventory
Inventory is comprised of the following:
June 30, 2000 March 31, 2000
------------- --------------
Raw materials 11,646,000 $ 9,977,000
Work in progress 6,904,000 2,545,000
Finished goods 7,390,000 8,080,000
----------- -----------
$25,940,000 $20,602,000
=========== ===========
4. Long Term Debt and Credit Agreements
In July 1998, Standard and certain of its subsidiaries (acting as
Guarantors) entered into with PNC Bank, National Association ("PNC"), both
individually and as agent for other financial institutions, a $40,000,000 Term
Loan and Revolving Credit Agreement ("Credit Agreement"). The Credit Agreement
provided for a Term Loan in the amount of $25,000,000 and a Revolving Loan in
the principal amount of $15,000,000. In June 1999, Standard obtained an increase
in its credit facility arrangement from $40,000,000 to $68,125,000 through PNC
and PNC Capital Markets to consummate the acquisition of Ranor. Our Credit
Agreement, as then amended, provided for Term Loans in the principal amount of
$48,125,000 and a Revolving Loan in the principal amount of $20,000,000.
To consummate the acquisition of Airborne and Arell in April 2000, we
obtained an increase in our credit facility arrangement from $68,125,000 to
$100,000,000. ING Barings LLC and PNC Capital Markets arranged the financing.
Our Credit Agreement, with the latest amendment, provides for two Term Loans in
principal amounts totaling $75,000,000 and a Revolving Loan in the principal
amount of $25,000,000. A $25,000,000 acquisition line, which was
to be made available upon the fulfillment of certain conditions precedent, is
currently unavailable. The principal of the Term Loans is payable in two
installments of $50,000,000 and $25,000,000 ending in April 2006 and April 2007,
respectively.
8
<PAGE>
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. We incurred approximately $2,000,000 in bank, legal,
accounting and other professional fees in connection with the increase and
amendment to our credit facility.
Interest on the amounts outstanding under the Credit Agreement is payable
monthly and accrues at a variable rate based upon LIBOR or the Base Rate of PNC,
plus a percentage which adjusts from time to time based upon the ratio of our
indebtedness to EBITDA, as such terms are defined in the Credit Agreement. As of
June 30, 2000 the blended rate of interest for the Loans was approximately
11.5%. All amounts outstanding under the Credit Agreement are secured by a lien
on substantially all of our assets.
At June 30, 2000, we had $96,271,000 in total debt outstanding, consisting
of Term Loans totaling $73,688,000, a Revolving Loan balance of $16,453,000, a
note to the prior owners of Ranor for $5,300,000 and other debt of $830,000.
5. Basic and Diluted Net Income per Common Share
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard ("SFAS") No. 128, Earnings Per Share. We account for net
income per common share in accordance with the provisions of SFAS No. 128
wherein basic net income per share is calculated by dividing income available to
common shareholders by the weighted average number of common shares outstanding
during the period. Diluted net income per share is calculated by dividing income
available to common shareholders plus convertible preferred dividend payments,
if there is any dilutive convertible preferred stock used in computing common
equivalent shares, by the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon the conversion of
convertible preferred stock and the exercise of stock options and warrants
(using the "Treasury Stock" method); common equivalent shares are excluded from
the calculation if their effect is anti-dilutive.
The following table sets forth, for the periods indicated, the calculation
of basic and diluted net income per share:
<TABLE>
<CAPTION>
(in thousands, except net income per share data) For the Three Months Ended
June 30,
--------------------------
2000 1999
---------- -----------
<S> <C> <C>
NUMERATOR:
Income available to common stockholders
used in computing basic net income per share $ 973 $ 1,247
Convertible preferred dividends on dilutive
convertible preferred stock 289 --
---------- ----------
Income available to common stockholders
used in computing dilutive net income per share $ 1,262 $ 1,247
========== ==========
DENOMINATOR :
Weighted average number of
common shares outstanding
used in basic net income per share 3,689 3,530
Common equivalent shares:
Convertible preferred stock 1,133 --
Options 9 5
Warrants -- 37
========== ==========
Weighted average number of common
shares and common equivalent shares
used in dilutive net income per share 4,831 3,572
========== ==========
Basic net income per share $ 0.26 $ 0.35
========== ==========
Diluted net income per share $ 0.26 $ 0.35
========== ==========
</TABLE>
9
<PAGE>
6. Related Party Transactions
In April 2000, Standard, through Critical Components Corporation's newly
established Canadian subsidiary, Critical Components Canada Ltd., completed the
acquisition of all of the outstanding capital stock of Airborne and Arell. As
part of the fees and expenses related to the acquisitions, Redstone Advisors, a
partnership of which William Merker and Redstone Capital Corporation (a
corporation owned by Andrew Levy and certain of his affiliates) are principals,
was issued 120,000 shares of our common stock and received a cash fee of
$785,000.
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 June 30, 1999 for our
Critical Components Division represents Ranor's results of operations from June
15, 1999 through June 30, 1999.
The segment information for the period ended June 30, 2000 for our
Critical Components Division represents Ranor's results of operations for the
full period and also Airborne's and Arell's from April 26, 2000 through June 30,
2000.
Below is the selected financial segment data for the three months ended
June 30, 2000 and 1999:
(in thousands) Truck Critical
Body/Trailer Components Segment
June 30, 2000 Division Division Totals
------------ ---------- -------
Revenue $30,067 $ 9,067 $39,134
Operating Income 3,829 1,868 5,697
Identifiable Assets 56,382 40,929 97,311
Capital Expenditures 509 522 1,031
June 30, 1999
Revenue $33,894 1,150 $35,044
Operating Income 3,108 262 3,370
Identifiable Assets 49,626 10,176 59,802
Capital Expenditures 835 -- 835
The following is a reconciliation of reportable segment operating income
and assets to the Company's consolidated totals for the three months ended June
30, 2000:
(in thousands)
<TABLE>
<S> <C>
Operating income
Total operating profit or loss for reporting segments $ 5,697
Other corporate expenses (1,037)
---------
Income before income taxes and extraordinary items - consolidated $ 4,660
=========
Assets
Total assets for reporting segments $ 97,311
Goodwill not allocated to segments 55,169
Other unallocated amounts (primarily prepaid financing costs) 7,114
---------
Consolidated total $ 159,594
=========
</TABLE>
10
<PAGE>
Revenues by geographical area are comprised as follows:
(in thousands) Three months ended June 30,
---------------------------
2000 1999
------- -------
United States $35,720 $35,044
Canada 3,414 --
------- -------
Total net revenues $39,134 $35,044
======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The financial statements for the three months ended June 30, 2000 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of the
financial statements for the interim period have been made.
The notes to the financial statements have been prepared consistent with
the Form 10-K/A filed for the fiscal year ended March 31, 2000 and should be
read in conjunction with the financials contained in that report. The following
discussion and analysis should be read together with the consolidated financial
statements and notes thereto included elsewhere in this Quarterly Report and
with our 10-K/A Annual Report.
Overview
Standard is a Delaware corporation and diversified holding company. We
commenced operations in January 1998 with the acquisition of Ajax Manufacturing
Company. We have substantially expanded our operations through acquisitions,
facility expansion and internal growth. Standard is comprised of 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 gear and aircraft fuselages. We
acquired Arell in April 2000.
11
<PAGE>
Our business strategy is to expand through both internal growth and the
acquisition of premier companies. We focus our acquisition strategy on
businesses that are leaders in their markets as measured by market share,
innovation, profitability and return on assets. We believe that as a result of
our acquisitions, we serve diverse industries which typically operate in varying
business cycles.
Results of Operations (Unaudited)
The following table sets forth, for the periods indicated, certain
components of our Consolidated Statements of Income expressed in dollar amounts
and as a percentage of net revenues. The three months ended June 30, 1999
reflect the consolidated results of Standard, Ajax, R/S and CPS for the entire
period and Ranor from the date of its acquisition on June 15, 1999. The three
months ended June 30, 2000 reflect the consolidated amounts of Standard, Ajax,
R/S, CPS and Ranor for the entire period and also Airborne and Arell from the
date of their acquisitions on April 26, 2000.
(in thousands) For the Three Months Ended June 30,
----------------------------------------
2000 1999
----------------- -----------------
Revenues, net $39,134 100.0% $35,044 100.0%
Cost of revenues 30,147 77.0 28,261 80.6
Selling, general and
administrative 4,327 11.1 3,413 9.7
------- ----- ------- -----
Operating income 4,660 11.9 3,370 9.6
Interest expense 2,342 6.0 682 1.9
Other expense 63 0.2 42 0.1
------- ----- ------- -----
Income before provision
for taxes 2,255 5.8 2,646 7.6
Provision for income taxes 993 2.5 1,106 3.2
------- ----- ------- -----
Net income $ 1,262 3.2% $ 1,540 4.4%
======= ===== ======= =====
Comparison of Three Months Ended June 30, 2000 to June 30, 1999
Net Revenues for the three months ended June 30, 2000 were $39,134,000, an
increase of 12% from net revenues of $35,044,000 for the comparable period in
1999. The increase in revenues primarily results from the strategic development,
through acquisitions and internal growth of our Critical Components Division.
The quarter ended June 30, 2000 reflects the full-quarter results of Ranor plus
"short period" revenue for Airborne and Arell. The increase in revenues was
partially offset by slightly lower sales in our Truck Body/Trailer Division.
Cost of Revenues increased to $30,147,000 or 77.0% of net revenues for the
three months ended June 30, 2000 versus $28,261,000 or 80.6% of net revenues for
the comparable period in 1999. The more favorable cost of revenue ratio results
from our continuing shift into more profitable product lines.
Selling, General & Administrative Expenses ("SG&A") were $4,327,000 during
the three months ended June 30, 2000, an increase of $914,000 from $3,413,000
incurred during the comparable period in 1999. SG&A, as a percentage of net
revenue, increased to 11.1% of net revenues, up from 9.7% 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.
Interest Expense increased to $2,342,000 for the three months ended June
30, 2000 from $682,000 during the comparable period in 1999. This increase
reflects debt incurred in pursuing our acquisition and internal growth
strategies.
12
<PAGE>
Liquidity and Capital Resources
We used $2,364,000 of cash in operating activities during the three months
ended June 30, 2000 as compared to generating $2,481,000 in operating activities
during the comparable period in 1999. The use of cash in operating activities
was principally the result of a decrease in accounts payable, which was
partially offset by lower accounts receivable. The net cash used in investing
activities was $22,424,000 during the three months ended June 30, 2000 compared
to $26,171,000 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 and Arell. The cash generated by financing activities
principally reflects the financing of the purchase of Airborne and Arell.
Our Credit Agreement with PNC, 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 installments of $50,000,000 and $25,000,000 ending in April 2006 and April
2007, respectively. Amounts outstanding under the Revolving Loan are payable
in April 2005, subject to our 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
substantially all of our assets. The rate of interest for the amounts
outstanding under the Credit Agreement is approximately 11.5% at June 30, 2000.
We made scheduled principal payments of $1,313,000 in June 2000.
Capital expenditures were $1,031,000 for the three months ended June 30,
2000 compared to $835,000 for the comparable period in 1999. Capital
expenditures for the quarter ended June 30, 2000 were primarily for the purchase
of production equipment at Ranor and at our Ajax Mexico facility. We anticipate
moderate growth in capital expenditures, sufficient to support our expanding
operations.
The annual dividend requirement on the Preferred Stock is $1,155,000. Our
future earnings, if any, may not be adequate to pay the dividends on the
Preferred Stock, and, although we intend to pay quarterly dividends out of
available capital surplus, there can be no assurance that we will maintain
sufficient capital surplus or that future earnings, if any, will be adequate to
pay the dividends on the Preferred Stock. In addition, at June 30, 2000, we had
$96,271,000 in total debt outstanding, consisting of Term Loans totaling
$73,688,000, a Revolving Loan balance of $16,453,000, a note to the prior owners
of Ranor for $5,300,000 and other debt of $830,000.
We continue to seek opportunities for growth through acquisitions, and
accordingly, may seek to raise additional cash in the form of equity, bank debt
or other debt financing, or may seek to issue equity as consideration for
acquisition targets.
As of June 30, 2000, we had working capital of $23,322,000, which
management believes is sufficient to meet current operating requirements, and,
if necessary, such needs could be met out of the remaining cash available under
our Revolving Loan.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate risk primarily through our borrowings
under our Credit Agreement. As of June 30, 2000, we had approximately
$90,141,000 of prime based debt outstanding under our Credit Agreement. A
hypothetical 100 basis-point increase in the floating interest rate from the
current level corresponds to an increase in our interest expense over a one-year
period of approximately $902,000. 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
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 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 June 30, 2000, we had not established a
foreign currency hedging program. Because a majority of our transactions are
U.S. based and U.S. Dollar denominated, a hypothetical 10% change in the value
of the Canadian Dollar or the Mexican Peso would not have a material impact on
our financial position and cash flow.
13
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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 Standard's
financial position or results of operations. Furthermore, we are pursuing
through arbitration certain purchase price adjustments pursuant to the Ranor
Asset Purchase Agreement dated June 17, 1999. In addition, we are seeking
recovery against Ranor's former accountants relative to these matters.
Item 5. Significant Events
In April 2000, the Company, through Critical Components Corporation's
newly established Canadian subsidiary, Critical Components Canada Ltd., acquired
all of the outstanding capital stock of Airborne and Arell.
The consideration paid for Airborne in the quarter ended June 30, 2000 was
approximately $12,634,000 including acquisition-related expenses of
approximately $292,000, subject to final adjustment, of which $12,342,000 was
paid in cash to the sellers. The consideration paid for Arell in the quarter
ended June 30, 2000 was approximately $8,759,000 including acquisition-related
expenses of approximately $203,000, subject to final adjustment, of which
$8,556,000 was paid in cash to the sellers. We obtained independent appraisals
in order to value and determine the useful lives of the assets of Airborne and
Arell. The excess of the purchase price over the net assets acquired from
Airborne and Arell was approximately $6,279,000 and $5,221,000, respectively.
Funding to complete both the Airborne and Arell acquisitions was obtained
through an increase in our credit facility to $100,000,000, as previously
described in Notes to the Financial Statements. These acquisitions have been
accounted for as purchases and, accordingly, our first quarter ended June 30,
2000 financial statements reflect the operations of Airborne and Arell for the
period from April 26, 2000 through June 30, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this Quarterly Report on
Form 10-Q
Exhibit no. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K /A and Form 8-K
Form 8-K/A for April 26, 2000
Form 8-K for April 26, 2000
14
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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: August 11, 2000
-----------------------------------------
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 August 11, 2000
-----------------------------------------
Steven Merker
Chairman and Chief Executive Officer
/s/ Joseph Spinella August 11, 2000
-----------------------------------------
Joseph Spinella
Chief Financial Officer
15
