Exhibit 99.1
RANOR, INC.
RESTATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Standard Automotive Corp.:
We have audited the accompanying restated balance sheet of Ranor, Inc. as of
December 31, 1998, and the related restated statement of income and retained
earnings and cash flows for the year ended December 31, 1998 (see Note 1). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ranor, Inc. as of December 31,
1998, and the results of its operations and its cash flows for the year ended
December 31, 1998, in conformity with accounting principles generally accepted
in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary schedule on page 6 is presented
for purposes of additional analysis and is not a required part of the basic
financial statements. This information has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York
May 31, 2000
<PAGE>
RANOR, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS Restated
------ -----------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,723,921
Marketable securities 520,321
Accounts receivable 2,635,973
Costs and estimated earnings in excess of billings on uncompleted
contracts 1,170,786
Inventory 2,238,683
Other 905
-----------
Total current assets 9,290,589
Property, plant and equipment, net 2,908,642
-----------
Total assets $12,199,231
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital lease $ 10,861
Accounts payable 482,152
Accrued expenses 328,206
Billings in excess of costs and estimated earnings on
uncompleted contracts 3,810,927
-----------
Total current liabilities 4,632,146
OBLIGATIONS UNDER CAPITAL LEASE, less current portion 27,082
OTHER 31,000
-----------
Total liabilities 4,690,228
-----------
COMMITMENTS (Note 8)
SHAREHOLDERS' EQUITY:
Common stock; no par value; 1,100 shares authorized, 1,000 issued
and outstanding 75,000
Additional paid-in capital 99,801
Retained earnings 7,334,202
-----------
Total shareholders' equity 7,509,003
-----------
Total liabilities and shareholders' equity $12,199,231
===========
</TABLE>
The accompanying notes are an integral part of this restated balance sheet.
<PAGE>
RANOR, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
Restated
------------
NET SALES $ 15,957,580
COST OF SALES 10,355,871
------------
Gross profit 5,601,709
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,085,279
------------
Income from operations 3,516,430
------------
OTHER INCOME (EXPENSE):
Other income, net 226,535
Interest (expense) (2,920)
------------
Total other income (expense) 223,615
------------
Income before provision for income taxes 3,740,045
PROVISION FOR INCOME TAXES 153,000
------------
NET INCOME 3,587,045
RETAINED EARNINGS, beginning of year 5,547,157
Distributions to shareholders (1,800,000)
------------
RETAINED EARNINGS, end of year $ 7,334,202
============
The accompanying notes are an integral part of this restated statement.
<PAGE>
RANOR, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
Restated
-----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,587,045
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 340,664
Gain on sale of machinery and equipment (29,067)
Deferred income taxes (12,000)
Changes in operating assets and liabilities:
Marketable securities (121,537)
Accounts receivable 214,842
Costs and estimated earnings in excess of billings on
uncompleted contracts (1,081,528)
Inventory (514,656)
Other (905)
Accounts payable (49,692)
Accrued expenses 115,217
Billings in excess of costs and estimated earnings on
uncompleted contracts 925,219
-----------
Net cash provided by operating activities 3,373,602
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,608,846)
Proceeds from sale of machinery and equipment 52,887
-----------
Net cash used in investing activities (1,555,959)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of obligations under capital lease (5,226)
Distributions to shareholders (1,800,000)
-----------
Net cash used in financing activities (1,805,226)
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,417
CASH AND CASH EQUIVALENTS, beginning of year 2,711,504
-----------
CASH AND CASH EQUIVALENTS, end of year $ 2,723,921
===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 2,920
===========
Cash paid for income taxes $ 68,864
===========
The accompanying notes are an integral part of this restated statement.
<PAGE>
RANOR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. NATURE OF BUSINESS AND RESTATEMENT OF FINANCIAL STATEMENTS
Nature of Business
Ranor, Inc. (the "Company") is a manufacturer specializing in the fabrication
and machining of high tolerance steel weldments to customer specifications. The
Company serves many domestic markets, including U.S. Government agencies such as
National Laboratories, the Department of Defense, the Department of Energy, and
the paper, pulp, maritime, aerospace, power generation and medical technology
industries.
Restatement of Financial Statements
The Company has restated its previously filed 1998 financial statements. The
nature of this restatement is due to a misapplication of an accounting principle
- the American Institute of Certified Public Accountant's Statement of Position
81-1 "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts" - ("SOP 81-1"). Accordingly, the Company believes
that the 1998 financial statements, as restated, are fairly stated in accordance
with the provisions of SOP 81-1.
This restatement has resulted in the following effect on net sales, net income
and earnings per share for the year ended December 31, 1998:
Basic and Diluted
Net Sales Net Income Earnings Per Share
--------- ---------- ------------------
As originally reported $ 17,713,802 $ 4,024,758 $4,024.76
Effect of restatement (1,756,222) (437,713) (437.71)
------------ ------------ ---------
As restated $ 15,957,580 $ 3,587,045 $3,587.05
============ ============ =========
This restatement also resulted in net sales from 1997 of approximately $862,000
being deferred into 1998 and $3,778,000 of billings in excess of costs and
estimated earnings on uncompleted contracts as of December 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company records revenue using either the completed contract method of
accounting or the percentage of completion method of accounting, depending upon
the specific nature and length of a given contract. The Company specifically
evalutes the best measure of percentage of completion accounting and accordingly
has determined that either the units of delivery or labor-to-labor methodology
is the best indication of completion. Costs include raw materials made to
specification, direct engineering and manufacturing costs, applicable overheads,
and special tooling and test equipment. Revenues and earnings on uncompleted
contracts are based on the Company's estimates to complete and are reviewed
periodically, with adjustments recorded in the period in which the revisions are
made. Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Progress billings are made according
to the terms of the contract.
The asset "Costs and estimated earnings in excess of billings on uncompleted
contracts" represents revenue recognized in excess of amounts billed. The
liability "Billings in excess of costs and estimated earnings on uncompleted
contracts" represents billings in excess of revenue recognized.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents.
<PAGE>
RANOR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Concentration of Credit Risk
Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents and trade accounts
receivable. At times, the Company maintains deposits in federally insured
financial institutions which may be in excess of federally insured limits of
$100,000. The Company performs ongoing credit evaluations, generally does not
require collateral, and establishes an allowance for doubtful accounts, if
necessary, based upon factors surrounding the credit risk of customers,
historical trends and other information.
For the year ended December 31, 1998, 3 customers accounted for 14%, 11% and 10%
of total revenue, respectively. As of December 31, 1998, 3 customers accounted
for 37%, 21% and 10% of total accounts receivable, respectively.
Fair Value of Financial Instruments
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial
Instruments." This pronouncement requires that the Company calculate the fair
value of financial instruments and include this additional information in the
notes to financial statements when the fair value is different than the book
value of those financial instruments. At December 31, 1998, the carrying value
of all financial instruments approximated fair value.
Marketable Securities
The Company classifies its investments in marketable securities as "trading" in
accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Such securities are reported at fair value, with unrealized
gains and losses included in earnings. Gains and losses on the disposition of
securities are recognized on the specific identification method in the period in
which they occur. As of December 31, 1998, these trading securities consisted of
stock funds with an aggregate fair value of $520,321 based upon quoted market
prices. For the year ended December 31, 1998, gross unrealized holding gains for
these securities totaled $48,522 and are included in earnings on the statement
of income.
Inventory
Inventory is comprised of raw steel purchased for future production and is
stated at the lower of cost or market using the first-in, first-out method.
Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives of
the assets which are as follows:
Building and improvements 15-35 years
Leasehold improvements 15-25 years
Machinery and equipment 3-10 years
Furniture and fixtures 5-10 years
Income Taxes
The Company has elected to be taxed under Subchapter S of the Internal Revenue
Code and, accordingly, is not subject to Federal income taxes and pays certain
state income taxes. The shareholders include their pro-rata share of the
Company's taxable income on their personal tax returns. The Company makes
distributions to the shareholders for any tax liability resulting from the
inclusion of the Company's taxable income in their personal income tax returns.
2
<PAGE>
RANOR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting For
Income Taxes". This pronouncement establishes financial accounting and reporting
standards for the effects of income taxes that result from the Company's
activities during the current and preceding years. It requires an asset and
liability approach for financial accounting and reporting for income taxes.
Since the Company is taxed as a subchapter "S" corporation, the Statement has no
impact on the Company's reported Federal income tax. The effect of this
statement on state corporate income taxes is not material to the Company's
financial statements.
Long-Lived Assets
The Company follows the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement establishes financial accounting and reporting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used, and for long-lived assets and
certain identifiable intangibles to be disposed. Management has performed a
review of all long-lived assets and has determined that no impairment of the
respective carrying values has occurred as of December 31, 1998.
Comprehensive Income
The Company complies with the provisions of SFAS No. 130, "Reporting
Comprehensive Income," which requires companies to report all changes in equity
during a period, except those resulting from investment by owners and
distribution to owners, in the financial statements for the period in which they
are recognized. During 1998, the Company's operations did not give rise to items
includable in comprehensive income which were not already included in net
income. Therefore, the Company's comprehensive income is the same as its net
income for the period presented.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings in excess of billings on uncompleted contracts
consist of the following:
December 31, 1998
-----------------
Costs incurred on uncompleted contracts $ 1,695,240
Estimated earnings 836,751
-----------
2,531,991
Less: Billings to date (1,361,205)
-----------
$ 1,170,786
===========
Billings in excess of costs and estimated earnings on uncompleted contracts
consist of the following:
December 31, 1998
-----------------
Costs incurred on uncompleted contracts $ 450,983
Estimated earnings 156,808
-----------
607,791
Less: Billings to date (4,418,718)
-----------
$(3,810,927)
===========
3
<PAGE>
RANOR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consist of the following:
December 31, 1998
-----------------
Machinery and equipment $ 9,320,432
Building and improvements 590,442
Leasehold improvements 357,490
Furniture and fixtures 171,360
Construction in progress 1,288,575
-----------
11,728,299
Less: Accumulated depreciation and amortization 8,819,657
-----------
Property, plant and equipment, net $ 2,908,642
===========
During 1998, the Company began an expansion of its facility. As of December 31,
1998, the Company had incurred capital expenditures of approximately $846,000
related to the new building and had made deposits of approximately $443,000 on
new equipment.
5. DEBT
Line of Credit
The Company has a line of credit with a bank, secured by substantially all
Company assets. The line of credit provides for borrowings up to $1,500,000
based on a defined contractual formula. There were no amounts outstanding on the
line of credit as of December 31, 1998.
Obligations Under Capital Lease
The Company leases certain equipment under capital leases. Future minimum lease
payments under capital lease obligations are as follows:
1999 $ 10,861
2000 10,861
2001 10,861
2002 10,861
2003 2,714
---------
46,158
Less: portion attributable to interest (8,215)
---------
Present value of net minimum obligation $ 37,943
=========
The Company paid $2,920 for interest related to capital leases for the year
ended December 31, 1998.
6. PROFIT SHARING PLAN
The Company has a profit sharing and 401(k) savings plan covering substantially
all employees with more than one year of service. Contributions to the plan are
made at the discretion of the Company's Board of Directors and were $138,426 for
the year ended December 31, 1998.
4
<PAGE>
RANOR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
7. RELATED PARTY TRANSACTIONS
The Company rents its building from an affiliate under common ownership.
Payments to this affiliate during 1998 totaled $252,000. In the opinion of the
Company's management, the transactions with this affiliate are on terms which
approximate fair market value.
8. COMMITMENTS
The Company is obligated under a noncancellable operating lease covering land
and facilities through 2003. Future minimum lease commitments are as follows:
Year Ending:
1999 $ 252,000
2000 252,000
2001 252,000
2002 252,000
2003 252,000
----------
Total minimum lease payments $1,260,000
==========
9. SUBSEQUENT EVENT
Subsequent to December 31, 1998, the Company was sold to an unrelated third
party.
5
<PAGE>
SCHEDULE 1
RANOR, INC.
CURRENT UNCOMPLETED CONTRACTS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Cumulative
Cost of
Earned Revenue Estimated Total Estimated
Total through Costs Estimated Earnings at
Contract Number Contract Price December 31, 1998 to Complete Contract Costs Completion
--------------- -------------- ----------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
7000FM $ 3,864,005 $ 77,150 $ 2,653,564 $ 2,730,714 $ 1,133,291
981000FM 3,395,230 86,990 2,722,103 2,809,093 586,137
981100FM 3,937,902 1,185 3,058,894 3,060,079 877,823
980900FM 3,237,956 724 2,911,943 2,912,667 325,289
980861FM 2,663,624 967,648 675,808 1,643,456 1,020,168
980863FM 1,372,968 81,442 764,705 846,147 526,821
980862FM 1,339,748 163,061 662,781 825,842 513,906
980700FM 1,142,000 118,976 954,939 1,073,915 68,085
980733FM 970,656 1,573 645,919 647,492 323,164
980730FM 970,656 4,591 642,901 647,492 323,164
980729FM 950,304 122,637 511,326 633,963 316,341
6000FM/1 707,000 -- 250,016 250,016 456,984
980732FM 506,520 1,559 332,448 334,007 172,513
980731FM 506,520 1,446 332,561 334,007 172,513
8500-03FM 859,200 517,241 121,728 638,969 220,231
----------- ----------- ----------- ----------- -----------
$26,424,289 $ 2,146,223 $17,241,636 $19,387,859 $ 7,036,430
=========== =========== =========== =========== ===========
<CAPTION>
Cumulative Cumulative Costs and Billings in
Cumulative Revenue Earnings Estimated Excess of
Billings Recognized Recognized Earnings in Costs and
through through through Excess of Estimated
Contract Number Dcember 31, 1998 December 31, 1998 December 31, 1998 Billings Earnings
--------------- ---------------- ----------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
7000FM $ 707,346 $ 77,150 $ -- $ -- $ 630,196
981000FM -- 86,990 -- 86,990 --
981100FM 845,932 1,185 -- -- 844,747
980900FM -- 724 -- 724 --
980861FM 915,621 1,564,928 597,280 649,307 --
980863FM 343,242 132,149 50,707 -- 211,093
980862FM 334,937 264,532 101,471 -- 70,405
980700FM 122,358 118,976 -- -- 3,382
980733FM 97,066 2,359 786 -- 94,707
980730FM 97,066 6,883 2,292 -- 90,183
980729FM 95,030 183,832 61,195 88,802 --
6000FM/1 -- -- -- -- --
980732FM 50,652 2,364 805 -- 48,288
980731FM 50,652 2,193 747 -- 48,459
8500-03FM 350,554 695,517 178,276 344,963 --
----------- ----------- ----------- ----------- -----------
$ 4,010,456 $ 3,139,782 $ 993,559 $ 1,170,786 2,041,460
=========== =========== =========== =========== ===========
Billings in excess of costs and estimated
earnings on all other contracts 1,769,467
-----------
$ 3,810,927
===========
</TABLE>
This schedule should be read in conjunction with the accompanying financial
statements and notes thereto.
6
