UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2001
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
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(Exact name of registrant as specified in its charter)
Delaware 52-2018607
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(State of Incorporation) (I.R.S. Employer Identification No.)
321 Valley Road, Hillsborough, NJ 08844-4056
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(Address of principal executive offices) (Zip Code)
(908) 874-7778
(Registrant's telephone number)
Not applicable
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(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
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Common Stock American Stock Exchange
8 1/2% Senior Convertible American Stock Exchange
Redeemable Preferred Stock
Securities registered under Section 12(g) of the Exchange Act: None.
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K of any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of July 12, 2001 was $1,465,936 based upon a
last sale price of $0.85 on the American Stock Exchange for such date.
As of July 12, 2001, the registrant had a total of 3,822,400 shares of
common stock outstanding and 1,132,600 shares of Preferred Stock outstanding.
STANDARD AUTOMOTIVE CORPORATION
For the Year Fiscal Ended March 31, 2001
Form 10-K Annual Report
Index
Page
Part I
Item 1 Business 1
Item 2 Properties 10
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Part II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters 12
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 7A Quantitative and Qualitative Disclosures about Market Risk 20
Item 7B Risk Factors That May Affect Future Results 21
Item 8 Financial Statements and Supplementary Data 27
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 27
Part III
Item 10 Directors and Executive Officers of the Registrant 28
Item 11 Executive Compensation 31
Item 12 Security Ownership of Certain Beneficial Owners and
Management 35
Item 13 Certain Relationships and Related Transactions 36
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 38
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The information herein contains forward-looking statements relating to
Standard Automotive Corporation ("we," "Standard" or "the Company") 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 herein 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. Our actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statements.
PART I
Item 1. Business
Recent Developments
We are currently in default of certain financial covenants under our
credit facility. In addition, we failed to make scheduled interest and principal
payments totaling approximately $2.7 million and $4.2 million under the credit
facility on March 31, 2001 and July 2, 2001, respectively, which constituted
additional events of default thereunder. Absent significant additional financing
or a restructuring, we expect to be unable to pay additional principal and
interest payments totaling approximately $4.1 million on the next payment date
of September 30, 2001. We are currently operating under the terms of a
forbearance agreement pursuant to which the lenders under our credit facility
have agreed to forbear enforcing their rights under the credit facility for a
period ending on July 17, 2001. Under the terms of the forbearance agreement, we
have agreed with our lenders, among other things, that, in exchange for their
forbearance, we will not request any additional loans under the credit facility,
pay any dividends on our preferred stock, pay any principal or interest on our
subordinated debt or make any payments in respect of earn-out obligations
relating to acquisitions. As a result of our defaults under the credit facility,
interest on the entire unpaid principal and interest of $95.1 million as of June
30, 2001 is accruing at default rates having a weighted average of 10.75% per
annum.
We are currently in arrears on payment of certain federal excise taxes of
approximately $6.7 million, on which approximately $1.5 million of interest was
accrued as of June 30, 2001. We expect to attempt to negotiate a payment plan
with the Internal Revenue Service ("IRS") to resolve the arrearage. Although no
formal plan is yet in place, we made a voluntary tax payment in the amount of
$634,135 on March 9, 2001, and intend to make voluntary monthly payments of
$20,000 on July 15, 2001, August 15, 2001 and September 15, 2001. This arrearage
has also resulted in an additional event of default under our credit facility.
Further, the IRS has the statutory authority to impose penalties which could be
material.
During the fiscal year ended March 31, 2001 and during the first quarter
of our 2002 fiscal year, we made a number of management changes:
o On March 23, 2001, James F. "Pat" O'Crowley, III was appointed our
President and Chief Executive Officer.
o On May 16, 2001, Mr. O'Crowley, James Edward Gross and John E.
Elliott II were elected to our board of directors. On the same date
William Merker resigned as a director of Standard.
o On June 5, 2001, Steven J. Merker resigned as our Chairman of the
Board, but continues to serve as a director.
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Overview
Standard Automotive Corporation is a diversified holding company. We
commenced operations in January 1998 with the acquisition of Ajax Manufacturing
Company ("Ajax"). We have expanded our operations through subsequent
acquisitions and growth within acquired companies. Standard is comprised of
seven operating companies located throughout the United States, Canada and
Mexico.
Our subsidiaries are currently organized into two operating divisions: the
Truck Body/Trailer Division and the Critical Components Division. These two
divisions operate separately.
Truck Body/Trailer Division
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 designs, manufactures and sells container chassis, refurbishes
(or "re-manufactures") used chassis, and manufactures specialty
transportation equipment. Container chassis are used to transport
maritime shipping containers from container ships to inland
destinations. Container chassis are sold to leasing companies, large
steamship lines, railroads and trucking companies to transport
overland 20-, 40-, 45- and 48-foot shipping containers. Ajax
operates facilities in Hillsborough, New Jersey and Sonora, Mexico.
o R/S Truck Body Co., Inc. ("R/S"), located in Ivel, Kentucky,
designs, manufactures and sells customized, high end, steel and
aluminum dump truck bodies, platform bodies, custom large dump
trailers, specialized truck suspension systems and related products
and parts. R/S recently introduced several new products to the
market, including the aluminum platform trailer and the aluminum
elliptical body.
o CPS Trailer Co. ("CPS"), located in Oran, Missouri, designs,
manufactures and sells bottom dump trailers, half-round end dump
trailers, light-weight end dump trailers, grain hopper trailers and
walking floor van trailers, used for hauling bulk commodities such
as gravel and grain, and for the construction, agriculture and waste
hauling industries.
Critical Components Division
Our Critical Components Division designs, manufactures, and sells
precision-machined components to original equipment manufacturers ("OEMs") in
the aerospace, nuclear, defense and industrial markets through the following
operating companies:
o Ranor, Inc. ("Ranor"), located in Westminster, Massachusetts,
specializes in the fabrication and precision machining of large
metal components that exceed one hundred tons for the aerospace,
nuclear, military, shipbuilding and power generation markets as well
as national laboratories. Ranor manufactures domes, machined in one
piece, for Boeing's Delta rocket program. Additionally, Ranor
manufactures and supplies steam accumulator tanks for U.S. Navy
nuclear-powered aircraft carriers, as well as large precision vacuum
chambers for the National Ignition Laboratories at Lawrence
Livermore. Ranor also manufactures and supplies large machined
casings for ground-based, gas turbine power generation engines, and
nuclear spent fuel canisters.
o Airborne Machine & Gear, Ltd. ("Airborne"), located in St. Leonard,
Quebec, Canada, is principally engaged in the manufacture and sale
of hot section engine components in exotic materials including
Inconel (a nickel alloy), titanium and beryllium copper. Airborne
operates under long-term agreements with, and is considered a
preferred vendor by its significant customers. We acquired Airborne
in April 2000.
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o Arell Machining, Ltd. ("Arell"), located in Anjou, Quebec, Canada,
manufactures hot and cold section engine components, airframe
structural components and landing gear kits and assemblies for the
aerospace market. Arell operates under long term agreements with,
and is considered a preferred supplier by its significant customers.
We acquired Arell in April 2000.
o The Providence Group, Inc. ("TPG"), located in Knoxville, Tennessee,
is a specialized engineering services company that provides
engineering services predominately in the environmental and nuclear
industries. TPG designs, manufactures and operates a line of remote
robotic retrieval systems used in the cleaning and transferring of
stored nuclear waste. We acquired TPG in September 2000.
Market Overview
Truck Body/Trailer Division
According to an industry source, unit volume in the overall truck trailer
industry during 2000, including trailers, containers, chassis and other related
equipment, declined 9.4% compared to unit volumes for the year ended December
31, 2000. This decline was primarily attributable to increased fuel prices which
greatly exceeded the increase in freight rates during the year, as well as a
general softening of the freight market. These conditions have led to a
significantly increased incidence of trucking business failures. Accordingly,
there has been a significant increase in the introduction of repossessed
trucking-related equipment during 2000 and 2001 which is likely to result in
greater price competition among truck trailer manufacturers. Industry sources
are currently projecting significantly reduced unit volume in the truck trailer
market during the 2002 calendar year. The dump trailer market has experienced
more favorable recent growth, approximately 35% in the 2000 calendar year, and
projected to be approximately 8% for the 2001 calendar year.
Critical Components Division
Due to an increase in demand for more regional aircraft (20 to 100 seats),
the Canadian aerospace industry is experiencing a favorable growth rate. Pratt &
Whitney Canada Corporation, a global leader in the fabrication of engines for
small aircraft and helicopters, stated in its last annual report its intent to
double revenues in the next decade and continue increasing its market share.
Bombardier Aerospace, a leader in regional jets and small aircraft, has a
current backlog for contracted airframe deliveries extending out to the year
2010. Messier-Dowty Canada, a Snecma Group Company, the world leader in the
manufacturing of landing gears, has a plant in Toronto dedicated to landing
gears for small aircraft and also enjoys similar backlog levels.
The ship-building market has revived substantially over the last year. The
U.S. Congress has approved funding for the construction of CVN 77 (the latest
nuclear-powered aircraft carrier) as well as projects to update the entire
Virginia and Ohio class submarine fleets in the U.S. Navy's arsenal.
The U.S. Department of Energy (DoE) Division of Environmental Clean-Up has
increased its fiscal 2002 budget by $1.0 billion over the fiscal 2001 budget.
The DoE currently estimates its future requirements for nuclear storage
containers to house hazardous radioactive waste and spent fuel at approximately
100,000 units.
Strategy
Our current business strategy is to create efficiencies by integrating the
companies in each of our divisions and each operating company, to increase sales
by improving the quality of our products and to decrease our costs through
progressive inventory and purchasing management, more effective cash management,
and improved labor efficiencies. We are negotiating with our senior lenders to
allow the Company to continue to evolve and implement our business strategy.
We believe that our competitive advantages include management experience
and the skill of our work force, as well as established relationships with
customers. Most of the individuals who formerly owned or managed our operating
companies have remained with the businesses after acquisition by Standard, and
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provide comprehensive knowledge of customer needs and markets, enabling our
operating companies to design and manufacture customized products.
Products
Truck Body/Trailer Division
Our Truck Body/Trailer Division designs, manufactures and sells trailer
chassis used to transport shipping containers and a broad line of customized
dump truck trailers, dump bodies, specialty trailers, truck suspensions and
related products. Many of the Truck Body/Trailer Division's products are
customized to fit customer needs or unique market requirements. Our current
products include:
o Container Chassis. We manufacture container chassis, which are
trailer chassis used to transport maritime shipping containers from
container ships to inland destinations. In addition to new chassis,
we remanufacture used chassis to customer order and industry
specifications, whether the chassis were originally built by us or
another manufacturer. The remanufacturing process involves removing
all components of a used chassis, except axles, which are
refurbished, and replacing the discarded components with new
components.
o Truck Trailers. We manufacture a diverse line of trailers used to
haul bulk materials such as refuse, scrap, demolition by-products,
rocks, gravel, sand and agricultural commodities. Our trailers
include: bottom dump trailers, half-round end dump trailers, grain
hopper trailers, walking floor van trailers and steel and aluminum
rear dump trailers.
o Truck Bodies. Our dump truck body products are often manufactured to
customer specifications. Light-weight aluminum dump truck bodies
allow for larger payloads of materials such as gravel and asphalt,
while heavy steel dump truck bodies are used to handle more abrasive
materials.
o Recently Introduced Products. The Truck Body/Trailer Division has
recently introduced or expects to introduce the following products:
o Superlite Trailer. Superlite trailers utilize many of the
components of half-round end dump trailers but weigh
significantly less, and are ideal for hauling sand and
gravel.
o Elliptical Body. Hard-metal elliptical truck bodies are
designed to address the market's needs for durability and a
high-clearance tailgate. This body has rounded sides, which
promotes substantially easier material handling during loading
and unloading.
o Bottom Dump Double. We introduced bottom dump doubles during
the fourth quarter of fiscal year 2001. They are comprised of
two 20-foot long bottom dump trailers. Bottom dump doubles are
designed to enhance productivity in the construction industry
by providing larger-scale hauling of sand, gravel and other
materials.
o Aluminum Platform Trailer and Aluminum Elliptical Body. We are
currently introducing aluminum platform trailers and aluminum
elliptical bodies to the market.
Other Truck Body/Trailer division products include chassis kits, truck and
trailer suspensions, platform bodies, roll-off and front-load refuse containers,
and replacement parts. As a service to our customers, we also sell original
equipment manufacturer (OEM) parts from other manufacturers.
Critical Components Division
Our Critical Components Division manufactures components and parts for
original equipment manufacturers (OEMs) in the aerospace, military, nuclear and
industrial markets. Critical Components Division products include:
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o Hot and Cold Section Engine Components. Hot section engine
components are flight-critical parts that generally make up the
compressor section of a jet engine. These are the rotating parts
associated with the thrust-to-weight ratio of the power plant which
will accommodate specified aircraft size and load configuration
requirements. Cold section components are usually the parts referred
to as casings or outer housings of the power plant. We specialize in
hot section engine components in exotic materials including Inconel
(a nickel alloy), titanium and beryllium copper.
o Airframe Structural Components. Airframe structural components are
included in aircraft fuselage and wing assemblies.
o Landing Gear Kits and Assemblies. Landing gear components include
pins, bushings, sleeves, spacers, armatures and actuators, which are
manufactured separately and in kits. We provide both separate parts
and assembly kits to the corporate, regional and military jet
markets.
o Rocket Domes. We manufacture domes for the Boeing Delta III and IV
heavy-lift rocket program that are used as end caps for the rockets'
fuel cells. We manufacture the domes in one piece using computer
numeric control ("CNC") machinery of our own design.
o Steam Accumulator Tanks. We manufacture and supply steam accumulator
tanks for U.S. Navy nuclear-powered aircraft carriers, as well as
large precision vacuum chambers for the National Ignition
Laboratories at Lawrence Livermore.
o Gas Turbine Casings. We manufacture and supply large machined
casings to producers of ground-based, gas turbine power generation
engines.
o Nuclear Spent Fuel Canisters. We manufacture highly specialized
containers used to store spent nuclear fuel and other nuclear waste.
o Remote Robotic Retrieval Equipment. We design, manufacture and
operate remote robotic retrieval systems used in the cleaning and
transferring of stored nuclear waste.
Revenue by Division
The table below shows the percentage of our consolidated revenue
attributable to the Truck Body/Trailer Division and Critical Components Division
of Standard for each of the last three fiscal years.
Fiscal Year Ended Truck Body/Trailer Critical Components
March 31, Division Division
----------------- ------------------ -------------------
2001 69% 31%
2000 87% 13%
1999 100% 0%
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Revenues by Market
Truck Body/Trailer Division
Year Ended March 31,
2001 2000 1999
---- ---- ----
Chassis 60% 62% 52%
Truck Bodies 16% 13% 14%
Truck Trailers 14% 17% 20%
Other Products 10% 8% 14%
Critical Components Division
Year Ended March 31,
2001 2000
---- ----
Aerospace 53% 11%
Nuclear 27% 44%
Process Machinery 7% 10%
Shipbuilding 2% 21%
Other Markets 11% 14%
Backlog
Total backlog at March 31, 2001 was $78.1 million compared to $112.5
million at March 31, 2000. The Truck Body/Trailer Division's backlog totaled
$18.7 million at March 31, 2001 compared to $84.8 million at March 31, 2000. The
Critical Components Division's backlog totaled $59.4 million at March 31, 2001
compared to $27.7 million at March 31, 2000.
The significant backlog decrease in our Truck Body/Trailer Division from
the March 31, 2000 backlog results from the impact of a significant softening of
the truck/trailer market as well as the postponement and deferral of certain
open orders. The increase in our Critical Components Division backlog from the
March 31, 2000 backlog results solely from the acquisitions of Airborne, Arell
and TPG during the fiscal year ended March 31, 2001.
Product Design and Manufacturing
Truck Body/Trailer Division
The Truck Body/Trailer Division manufactures container chassis at our
Hillsborough, New Jersey and Sonora, Mexico facilities and dump truck bodies and
trailers at our Ivel, Kentucky and Oran, Missouri facilities. Increasingly we
are shifting manufacture of our products among our facilities depending on
customer demand and facility capacity. Our products are manufactured from
customized designs based on customer specifications and applicable regulations.
Examples of custom design features include length, enhanced platform supports,
steel or aluminum construction depending on weight requirements and intended
use, support systems, contours of the dump bed (flat or round), specialized
brake systems, underside protection, specialized step placements and cargo tie
downs. We manufacture and maintain the majority of our tools and dies.
We use advanced three-dimensional modeling in the design of trailers and
their components. Designers use AutoCAD software to develop manufacturing and
presentation drawings. We also use computer-aided manufacturing software
programs that translate the lines on the drawings into cutting diagrams for
computer-controlled, high-production plasma cutting tables. Once cut, many of
these pieces are used in sub-assemblies that are welded together using a robotic
welding cell.
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Critical Components Division
In our Critical Components Division, we seek to improve our manufacturing
and tooling through process engineering. Our dome production facility uses large
proprietary manufacturing equipment. Our aerospace machining capabilities
include milling, turning, grinding, tapping, gun drilling, broaching and
electrical discharge machining. Support equipment includes complete
computer-aided design/computer-assisted manufacturing capabilities (known as
CAD/CAM). We also utilize software which interfaces with our customers'
databases and automatically notifies our facilities of upcoming project
schedules and requirements. Our cost containment systems are integrated with our
estimating and bidding systems and are regularly updated to accommodate change
orders of specific projects.
Raw Materials
We use a variety of raw materials, primarily metals and semi-processed or
finished components which are purchased from a number of sources. Raw materials
represent approximately 74% of the cost of goods sold for the Truck Body/Trailer
division and 28% for the Critical Components Division. To date, fluctuations in
the cost or availability of raw materials have not had a significant impact on
operating results for either division.
Sales and Marketing
Truck Body/Trailer Division
The Truck Body/Trailer Division utilizes an in-house sales force working
with independent dealers, distributors, and agents. We support our sales
activities with advertising in trade journals, participation at trade shows and
direct mailings to potential customers.
Critical Components Division
Due to the highly specialized nature of its products, Critical Components
Division sales are conducted based on long-standing relationships with key OEMs
and others within the industry.
Customers
Truck Body/Trailer Division
The Truck Body/Trailer Division's customers include companies that lease
container chassis to steamship and rail companies, truck dealers and
distributors, large private fleet owners and smaller end users. We also sell
manufactured products directly to many of these end users, including fleet
owners, truck dealers and distributors and steamship companies. Our sales of
container chassis to leasing companies slowed substantially during the last
fiscal year.
Sales to Trac Leasing and Flexi-Van Leasing represented 20% and 6%,
respectively, of the Truck Body/Trailer Division's sales for the fiscal year
ended March 31, 2001. In comparison, Trac Leasing and Flexi-Van Leasing
represented 38% and 17%, respectively, of Truck Body/Trailer Division sales for
the fiscal year ended March 31, 2000. While sales to leasing companies decreased
during the most recent fiscal year, Truck Body/Trailer Division direct sales to
end users increased from 45% of division sales in the fiscal year ended March
31, 2000 to 74% in the fiscal year ended March 31, 2001. The most significant
end-user customer in the fiscal year ended March 31, 2001 was Maersk, which
represented 19% and 4% of the Truck Body/Trailer Division's revenue during the
fiscal years ended March 31, 2001 and 2000, respectively. Other than Trac
Leasing, Flexi-Van Leasing and Maersk, no customer accounted for more than 10%
of our revenues during the 2000 and 2001 fiscal years.
Critical Components Division
The Critical Components Division operates under long-term agreements with,
and is a "Preferred Vendor" of, Pratt & Whitney Canada as well as other
aerospace manufacturers. Other customers include national energy laboratories,
nuclear waste storage facilities and the military. Sales to Pratt & Whitney
Canada, Transnuclear, Inc. and NAC International, Inc. represented 38%, 13% and
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10% respectively, of the Critical Components Division's sales for the fiscal
year ended March 31, 2001. Our preferred supplier agreement with Pratt & Whitney
expires in the second quarter of our 2001 fiscal year. We are currently
negotiating with Pratt & Whitney to renew our preferred supplier arrangement.
Transnuclear, Inc., University of California and Spincraft, a Standex Co.,
represented 43%, 22% and 10% respectively, of the Critical Components Division's
sales for the fiscal year ended March 31, 2000.
Competition
Truck Body/Trailer Division
Our Truck Body/Trailer Division operates in highly competitive markets. We
compete on the basis of product performance, quality, durability, reliability,
and customer relationships. With respect to container chassis, shipping costs
can substantially impact purchasing decisions and, correspondingly, competition
tends to be geographical. We face competition from Hyundai Motor Co. (Mexico),
Heil Trailer International, Galion Dump Bodies, Inc. and other large
transportation equipment manufacturers.
Critical Components Division
Our Critical Components Division competes with a wide range of companies
in the aerospace, military, nuclear and industrial markets on the basis of
adherence to low- or zero-tolerance specifications, product performance,
reliability and customer relationships. We face competition from British Nuclear
Fuels plc and Westinghouse Electric Co. in the nuclear market, ABB, the
Fabricated Products Division of Ionics, Inc., Precision Components Corporation
and Westinghouse in the industrial market for precision-machined metal
components, and in the Canadian aerospace market with Sider-Tech Ltee, Cross &
Associates Manufacturing Inc., Aero Machining Ltd., Harrington Tool & Die Inc.
and Strite Industries Ltd., as well as with many other companies in the United
States aerospace market.
Product Warranties and Sales Terms
As is common in our industries, we provide limited product warranties
covering replacement or repair of defective parts or workmanship for a specified
period of time following the date of sale. Additionally, customers and end-users
may receive warranties from the suppliers of components incorporated into the
final manufactured products. We offer extended term sales to some of our
dealers.
Regulation
Truck Body/Trailer Division
Truck trailer length, height, width, gross vehicle weight and other
specifications are regulated by the National Highway Traffic Safety
Administration and individual states. Changes and anticipated changes in these
regulations may impact demand for new trailers, thereby contributing to industry
cyclicality. We are also governed by a variety of regulations established by
various federal, state and local agencies governing such matters as employee
safety and working conditions, environmental protection and other activities.
Critical Components Division
Our Critical Components division operates under regulations of a number of
governing bodies relating to standards and specifications of products produced
by the Division. We manufacture products for the aerospace, nuclear, defense and
industrial markets and adhere to the following regulations and standards:
Association of Mechanical Engineers, ISO 9002, Department of Defense, Department
of Energy, U.S. military requirements and any standard drawings and
specifications relating to the requirements of original equipment manufacturer
(OEMs).
Environmental Matters
We are subject to federal, state and local laws and regulations relating
to our operations, including building and occupancy codes, occupational safety
and environmental laws, including laws governing the use, discharge and disposal
of hazardous materials. Except as otherwise described below, we are not aware of
any material non-compliance with any such laws and regulations.
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On March 16, 1999 we entered into a Stipulation of Settlement with the New
Jersey Department of Environmental Protection (NJDEP) by which we, without
admission of liability, agreed to withdraw legal challenges against NJDEP and
pay NJDEP $234,000 over a three-year period commencing December 31, 1999. The
initial installment of $95,000 was paid December 31, 1999. The Stipulation of
Settlement provided for a second payment of $95,000 in June 2001, which we did
not pay but plan to pay in the future. Under the Stipulation of Settlement,
failure to make a payment constitutes a final administrative order which NJDEP
considers enforceable in a summary action as to the balance of the unpaid
penalty. We are currently cooperating with NJDEP to finalize a mutually
acceptable revision of the payment plan. As part of the settlement, NJDEP has:
(1) withdrawn and settled all alleged emission violations of air volatile
compounds ("VOCs") by us dating from the initiation of our predecessor business
in 1992 through February 28, 1999; and (2) has granted us a new VOC permit that
substantially increases allowable VOC emissions. As required under the new VOC
permit, we have developed a computer program to track VOC emission data. Such
data are periodically reconciled with purchasing and production data. At current
rates of production, all VOC emissions are within permit limits.
Our New Jersey facility is subject to the New Jersey Industrial Site
Recovery Act ("ISRA"). Pursuant to ISRA, in 1997 we began an investigation to
determine whether environmental contamination may be present at the facility.
Environmental contamination may require testing and possibly remediation, which
could have a material adverse effect on us.
In March 1998, we performed soil and sediment sampling throughout our New
Jersey facility. The sampling results were within NJDEP compliance limits except
for certain metals detected in soil around certain roof downspouts. We have
engaged a contractor to perform additional sampling at these locations, the
results of which have been forwarded to NJDEP. NJDEP and the Company are
presently reviewing results generated January 31, 2001. If these results
indicate levels of metals higher than allowed, additional investigations may be
necessary or remedial action including removal and replacement of affected soil
may be needed. The cost of such additional investigation or action, if
necessary, is not expected to be material to our financial position.
There can be no assurance that additional investigations will not reveal
additional environmental regulatory compliance liabilities, nor can there be any
assurance that health-related or environmental issues will not arise in the
future and, if so, that they will not have a material adverse impact on our
financial position or results of operations.
Employees
As of March 31, 2001, we have 1,002 full-time employees of whom five are
officers, 62 are managers, 84 are supervisors, 106 are administrative personnel
and 745 are production workers.
We are currently in litigation with the National Labor Relations Board
before the Sixth Circuit Court of Appeals in Cincinnati, Ohio to determine
whether certain of our Truck Body/Trailer Division employees will be represented
under a collective bargaining agreement. See "Item 3. Legal Proceedings."
Factory workers at our Critical Components Division facilities in Canada
are represented by two labor unions under collective bargaining agreements which
expire in September 2001 and November 2002.
We consider our overall relationship with our employees to be good.
Patents and Trademarks
We do not consider patents material to our business, but when necessary in
the ordinary course, we seek patent and trademark protection. We value our
trademarks and brands and seek trademark protection when necessary.
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Item 2. Properties
We own or lease eight manufacturing plants and three other facilities, as
described below.
Truck Body/Trailer Division
o We lease a 182,000 square foot factory complex on 22 acres in
Hillsborough, New Jersey on a triple-net basis. Currently we use
approximately 2,500 square feet for administrative offices and the
balance for manufacturing and warehousing. The site surrounding the
plant is primarily used for storing chassis, inventory and employee
parking. The lease covering our Hillsborough facility provides for a
five-year initial term, which expires in January 2003, and is
renewable at our option for four successive, five-year renewal
terms, at an annual base rent of $600,000 for the initial term,
subject to an increase during each renewal term equal to the
percentage increase in the Consumer Price Index over the immediately
preceding five-year term. We have the option, exercisable during the
initial term of the lease, to purchase the facility and land for a
cash purchase price of $6.5 million, provided we are not then in
default under the lease.
o We lease a 64,000 square foot manufacturing facility located on five
acres of property in Sonora, Mexico. The lease provides for a
six-year term, which expires July 2004, at an annual rent of
$289,000. Standard has the option to purchase the land and facility
at the end of the fifth year for a price not to exceed $1.5 million.
We also own seven acres of land adjacent to our leased premises in
Sonora, Mexico.
o We own a 140,000 square foot manufacturing facility located on 21
acres in Ivel, Kentucky. Approximately 10,000 square feet of this
facility is utilized as administrative office space.
o We own a 120,000 square foot manufacturing facility located on 25
acres in Oran, Missouri. We utilize 105,000 square feet of the
facility for manufacturing purposes. The remaining 15,000 square
feet is used for administrative, office and storage space.
Additionally, we leased 60,000 square feet of manufacturing space on
13 acres in Morley, Missouri, between July 2000 and May 2001. The
lease was a month-to-month, triple-net lease with monthly
installments of $15,000.
Critical Components Division
o We own 65 acres in Westminster, Massachusetts. Manufacturing
facilities at this location total approximately 165,000 square feet.
o We own a 27,000 square foot manufacturing facility in St. Leonard,
Quebec. We also lease an additional 6,500 square feet of
manufacturing space adjacent to this facility. The five-year lease
expires in December 2005 with a base annual rent of approximately
$22,000 plus expenses.
o We own a 40,000 square foot manufacturing facility in Anjou, Quebec.
o We lease a 27,000 square foot manufacturing facility in Knoxville,
Tennessee, of which approximately 12,000 square feet is dedicated to
office operations. The primary lease agreement has three amendments
with an annual rent of approximately $115,000. The primary lease has
a three-year term and expires on December 31, 2002, with the
amendments expiring at an earlier date.
o We lease approximately 1,000 square feet of space in Wilmington,
Delaware, at an annual rent of $13,000, that houses administrative
offices of the Critical Components Division. The lease expires in
January 2004.
Corporate Offices
o We lease 4,100 square feet of executive office space in New York
City for an annual rent of $193,000. The lease expires on September
25, 2003.
10
o We lease 4,200 square feet of office space in Hillsborough, New
Jersey for an annual rent of $78,000. The lease expires on February
28, 2002. This space houses various corporate and subsidiary
financial functions.
Item 3. Legal Proceedings
From time to time the company is named as a defendant in various lawsuits,
none of which is expected to have a material adverse effect on Standard's
business, financial position or results of operations, except as described
below.
In connection with the Ranor acquisition, we arbitrated a dispute arising
from Ranor's misrepresentation, in the asset purchase agreement, in connection
with its financial statements. As a result of the arbitration, the asset
purchase price was reduced by $750,000.
We are subject to the New Jersey Industrial Site Recovery Act, pursuant to
which we have agreed to investigate and possibly remediate environmental
contamination that may be present at our New Jersey facility. The cost of any
required remediation determined to be necessary is not expected to be material
but could prove to be substantial and, in such case, could have a material
adverse affect on our business, financial position or results of operations. See
"Business--Environmental Regulation."
We are currently in arrears on payment of certain federal excise taxes of
approximately $6.7 million. We expect to attempt to negotiate a payment plan
with the Internal Revenue Service ("IRS") to resolve the arrearage. Although no
formal plan is yet in place, we made a voluntary tax payment in the amount of
$634,135 on March 9, 2001, and intend to make voluntary monthly payments of
$20,000 on July 15, 2001, August 15, 2001 and September 15, 2001. This arrearage
has also resulted in an additional event of default under our credit facility.
Our financial statements include approximately $1.3 million for interest on the
federal excise tax currently in arrears. Further, the IRS has the statutory
authority to impose penalties which could be material. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors."
On March 1, 2001, in the United States Court of Appeals for the Sixth
Circuit, we filed a Petition for Review of an order of the National Labor
Relations Board ("NLRB") ruling that 18 employees at our facility in Ivel,
Kentucky are to be represented under a collective bargaining agreement. The
matter is currently pending before the Sixth Circuit Court of Appeals in
Cincinnati, Ohio. If the Sixth Circuit rules in favor of the NLRB, the employees
will be reinstated with back pay.
On June 22, 2001, the United States District Court for the Eastern
District of Wisconsin entered a judgment of $570,000 against our subsidiary R/S
in a suit brought by a former distributor with whom R/S terminated its
relationship in September 1999. On July 3, 2001 we filed a motion with the court
seeking judgment in our favor as a matter of law notwithstanding the verdict and
filed a motion for a new trial, arguing that the evidence adduced at trial does
not support the jury's verdict. In our motion for a new trial, we requested that
the court, in the alternative, reduce the amount of the jury's verdict to a
figure reasonably supported by the evidence. The court has yet to rule on our
motions. We believe that our position is meritorious and intend to vigorously
defend our interests in this matter.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 2001.
11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Price Range of our Common Stock and Senior Convertible Redeemable Preferred
Stock
Our common stock and 8 1/2% Senior Convertible Redeemable Preferred Stock
("Preferred Stock") are traded on the American Stock Exchange under the symbols
"AJX" and "AJX.PR" respectively. The following table sets forth (in dollars per
share) the high and low sale prices for our common stock and our Preferred Stock
for each quarterly period from April 1, 1999 through March 31, 2001.
Common Stock Preferred Stock
------------ ---------------
High Low High Low
---- --- ---- ---
Fiscal Year 2000
Quarter ended June 30, 1999 18.375 8.500 18.375 9.000
Quarter ended September 30, 1999 19.500 9.375 19.375 10.750
Quarter ended December 31, 1999 11.875 7.375 12.500 9.250
Quarter ended March 31, 2000 9.500 6.625 10.750 8.250
Fiscal Year 2001
Quarter ended June 30, 2000 8.750 4.250 10.750 7.750
Quarter ended September 30, 2000 7.625 5.500 9.688 8.313
Quarter ended December 31, 2000 6.438 0.875 8.750 2.000
Quarter ended March 31, 2001 2.438 1.063 4.500 2.750
Holders
As of June 30, 2001 our common stock and Preferred Stock was held by
approximately 46 and 16 holders of record, respectively.
Dividend Policy
The holders of our Preferred Stock are entitled to receive cumulative
dividends at the rate of $1.02 per share per year, paid quarterly on the last
business day of March, June, September and December of each year, commencing on
March 31, 1998. To date, we have paid all required dividends on the Preferred
Stock with cash generated from operations with the exception of the dividends
for the three quarters ended December 31, 2000, March 31, 2001 and June 30,
2001. The cumulated arrearage at March 31, 2001 was $578,000 and as of June 30,
2001 was $867,000. If Standard is in arrearage on dividend payments for four or
more quarters, the holders of our Preferred Stock are entitled to appoint two
directors to Standard's board of directors.
The annual dividend requirement on our Preferred Stock is $1,155,000.
During the quarter ending December 31, 2000, we suspended payment of the
quarterly dividend of $289,000 on the Preferred Stock. Unpaid dividends on the
Preferred Stock are cumulative. Our future earnings, if any, may not be adequate
to pay the cumulative dividend or future dividends on the Preferred Stock.
Although we intend to pay the cumulative dividend and to resume payment of
regular quarterly dividends out of available surplus, there can be no assurance
that we will maintain sufficient surplus or that future earnings, if any, will
be adequate to pay the cumulative dividend or future dividends on the Preferred
Stock. Further, we will need approval of our senior lenders to resume payment of
dividends on the Preferred Stock.
We have not paid dividends on our common stock to date. The future payment
of dividends is subject to the discretion of the Board of Directors. Moreover,
our senior secured credit facility contains restrictions on our ability to pay
dividends. The current intention of the Board is to retain all earnings, other
than Preferred Stock dividends, for use in our business. Accordingly, we do not
currently expect to pay dividends on our common stock in the foreseeable future.
12
Recent Sales of Unregistered Securities
In April 2000, we acquired all of the outstanding capital stock of
Airborne and Arell. In exchange for advisory services relating to these
acquisitions, we issued an aggregate of 120,000 shares of our common stock to
Redstone Advisors, a partnership of which William Merker (one of our directors)
and Redstone Capital Corporation (a corporation owned by Andrew Levy, a 10%
beneficial owner of Standard's common stock, and certain of his affiliates) are
principals. The issuances were pursuant to exemptions from registration provided
by Section 4(2) of the Securities Act of 1933, as amended, because the issuances
did not involve any public offering.
We issued James F. O'Crowley, III 100,000 shares of restricted common
stock on March 23, 2001, valued at $120,000 on such date, in connection with our
compensation of Mr. O'Crowley pursuant to his employment agreement. See "Item
11. Executive Compensation." The issuance was pursuant to an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended,
because the issuance did not involve any public offering.
13
Item 6. Selected Financial Data
The following table sets forth for the periods indicated selected
historical financial information of Standard. The information for the fiscal
years ended March 31, 1999 and March 31, 2000 reflects the consolidated results
of Standard including Ajax, R/S, CPS and Ranor, from the date each of such
companies was acquired by Standard through the respective fiscal year ends. The
information for the fiscal years ended March 31, 2001 reflects the consolidated
results of Standard including Ajax, R/S, CPS, Ranor, for the full year and
Airborne, Arell and TPG from the date each of such companies was acquired by
Standard through the respective fiscal year ends. The information contained in
the table has been derived from audited financial statements. The selected
historical financial information should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, "Item 7B. Risk Factors That May Affect Future Results," the audited
consolidated financial statements (and notes thereto) and other financial and
statistical information of Standard appearing elsewhere in this report.
Selected Income Data
Year Ended March 31,
----------------------------------
2001 2000 1999
--------- -------- -------
(thousands, except per share data)
Revenues, net .............................................. $ 137,351 $ 159,476 $ 75,452
Selling, general and administrative ........................ 21,816 14,273 6,613
Operating income ........................................... 1,240 14,647 7,841
Interest expense ........................................... 11,927 5,045 1,813
Income (loss) before income taxes .......................... (11,051) 9,352 5,748
Net income (loss) before accounting change.................. (9,504) 5,397 3,482
Accounting change .......................................... (711) -- --
Net income (loss) .......................................... $ (10,215) $ 5,397 $ 3,482
========= ========= =========
Preferred stock dividend ................................... $ 1,155 $ 1,160 $ 1,173
========= ========= =========
Basic net income per share ................................. $ (3.06) $ 1.17 $ 0.69
========= ========= =========
Diluted net income per share ............................... $ (3.06) $ 1.11 $ 0.69
========= ========= =========
Basic weighted average number of common shares outstanding . 3,716 3,623 3,356
Diluted weighted average number of common shares outstanding 3,716 4,867 3,356
Selected Balance Sheet Data
As of Ended March 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
Cash and cash equivalents .......... $ 857 $ 3,136 $ 3,686
Accounts receivable, net ........... 10,620 25,217 7,032
Inventory .......................... 32,052 20,602 13,466
Property and equipment, net ........ 44,891 38,724 19,975
Intangible assets, net ............. 60,538 44,151 29,000
Current liabilities (excluding debt) 36,516 32,086 13,717
Total debt ......................... 95,641 68,261 32,819
Stockholders' equity ............... 26,451 36,918 30,916
Working capital .................... (78,877) 15,008 9,430
14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the financial condition and
results of operations of Standard Automotive Corporation should be read together
with the consolidated financial statements and notes thereto included elsewhere
herein. This discussion contains forward-looking statements that involve risks
and uncertainties. Standard Automotive's actual results may differ materially
from those expressed or implied by these forward-looking statements as a result
of various factors, such as those set forth under "Item 7B - Risk Factors That
May Affect Future Results."
Overview
General
Standard Automotive manufactures and sells trailer chassis, dump truck
bodies, specialty trailers and related assemblies for use in the North American
transportation industry, as well as precision-machined components for use in the
aerospace, nuclear, defense and industrial markets in North America. Our
business is currently operated through two divisions, the Truck Body/Trailer
Division and the Critical Components Division. The markets we serve,
particularly the U.S. truck trailer industry, are cyclical. During the 2000
calendar year, the U.S. truck trailer industry experienced a significant
decrease in the number of truck trailer units shipped overall.
We commenced operations in 1998 with the acquisition of the trailer
chassis business of our Ajax Manufacturing Co., Inc. subsidiary and since then
have expanded our operations primarily through acquisitions. Our acquisitions
have been accounted for using the purchase method of accounting and as a result
we have recorded significant intangible assets relating to goodwill totaling $30
million, $16 million and $21 million, respectively, for the fiscal years ending
March 31, 1999, 2000 and 2001. Accordingly our financial results reflect
increasing amortization of intangible assets over the periods disclosed. Our
results reflect the operations of acquired businesses from the respective dates
of their acquisition and therefore may not be directly comparable to our results
for prior periods.
Our acquisitions have been financed principally through the incurrence of
senior indebtedness and, to a lesser degree, through the issuance of
subordinated indebtedness and preferred stock. As of March 31, 2001, we had an
aggregate of approximately $96 million of debt, $91 million of which had been
incurred under our senior secured credit facility. Accordingly, our results
throughout the periods presented reflect increasing expenses associated with
interest and principal payments on acquisition-related indebtedness.
During the fiscal year ending March 31, 2001, we incurred net losses of
approximately $10.2 million. In December, 2000 we notified the agent under our
senior secured credit facility that we were not in compliance with certain
financial covenants under the credit facility. In addition, we failed to make
scheduled interest and principal payments totaling approximately $2.8 and $4.2
million under the credit facility on March 31, 2001 and July 2, 2001,
respectively, which constituted additional events of default thereunder. As of
June 30, 2001, we were also in default in interest payments totaling
approximately $548,000 in respect of convertible subordinated notes issued to
finance the acquisition of our Ranor subsidiary. We expect to be unable to pay
additional principal and interest payments totaling approximately $4.1 million
under the senior secured credit facility on the next payment date of September
30, 2001.
We are currently unable to meet our payment obligations under the credit
facility and will be unable to achieve compliance with the terms of the credit
facility absent additional equity or debt financing, restructuring of the terms
of the credit facility or a combination of such financing and restructuring. We
have engaged an investment banking firm to assist us in obtaining additional
financing, although we can give no assurance that our efforts to obtain
additional financing or restructure our existing indebtedness will be
successful. Due to our current condition of default, our entire long-term debt
has been reclassified to current liabilities.
We are currently in arrears on payment of certain federal excise taxes of
approximately $6.7 million, on which approximately $1.5 million of interest was
accrued as of June 30, 2001. We expect to attempt to negotiate a payment plan
with the Internal Revenue Service ("IRS") to resolve the arrearage. Although no
formal plan is yet in place, we made a voluntary tax payment in the amount of
$634,135 on March 9, 2001, and intend to make voluntary monthly payments of
$20,000 on July 15, 2001, August 15, 2001 and September 15, 2001. This arrearage
has also resulted in an additional event of default under our credit facility.
Further, the IRS has the statutory authority to impose penalties which could be
material.
15
In light of our recent history of losses and the unavailability of
additional acquisition financing, we have shifted our strategic emphasis from
growth through acquisitions to growth and management of our current core
businesses. Notwithstanding our strategic initiatives, we cannot provide any
assurance that the company will achieve or sustain profitability in the future.
Acquisitions
In April 2000, we acquired all of the outstanding capital stock of
Airborne and Arell. The consideration paid for Airborne during the quarter ended
June 30, 2000 was approximately $12.6 million, including acquisition-related
expenses of $300,000, of which approximately $12.3 was paid in cash to the
sellers at closing. The consideration paid for Arell during the quarter ended
June 30, 2000 was approximately $8.8 million including acquisition-related
expenses of $200,000, of which approximately $8.6 million was paid in cash to
the sellers at closing. To the extent that Airborne and Arell generate a
cumulative earnings before interest, taxes, depreciation and amortization
("EBITDA") of at least Cdn. $9 million in any of the three years following the
date of acquisition, the former owners are entitled to receive earn out payments
in respect of that year. In the event that all EBITDA targets are achieved in
the three years following the closing, these payments would total an additional
Cdn. $8 million.
As of March 31, 2001, Airborne and Arell have achieved the cumulative
earnings targets and as a result the purchase price has been adjusted.
Additionally, to the extent that Airborne and Arell generate cumulative EBITDA
of at least Cdn. $31,500,00, in any of the three years following the date of
acquisition, the former owners are entitled to secure 20% of the EBITDA in
excess of Cdn. $31,500,000. We recorded goodwill in connection with the Airborne
and Arell transactions of approximately $8.0 million and $6.5 million,
respectively.
On July 1, 2000, we entered into a 12 month operating lease agreement with
Wheeler Steel Works, Inc. and Wheeler Truck Equipment, Inc. (collectively
"Wheeler") to utilize their production facility. The lease called for 12 monthly
installments of $15,000 with a purchase option available at its expiration. The
lease was terminable at our sole discretion upon 30 days notice. Upon
termination, we were required to provide Wheeler net assets with a book value of
$144,000. Included in this lease is the obligation for us to fund the monthly
payments of all the outstanding debt of Wheeler. Should we decide to exercise
the purchase option, all loan payments made on behalf of Wheeler were to be
considered as a reduction of the purchase price. As of March 31, 2001, we
determined not to exercise the option to purchase the facility. In connection
with this decision, we recorded a one time charge of $456,000. Finally, we
incurred an additional $693,000 of losses relating to this transaction.
On August 1, 2000, we acquired substantially all of the assets of Better
Built, a manufacturer of trailers and hoists for the waste transportation
industry. The consideration paid for the assets was approximately $660,000, of
which approximately $110,000 was recorded as goodwill.
On August 31, 2000, we acquired all of the capital stock of TPG. The
consideration paid for TPG was approximately $3,322,000 consisting of a
$3,000,000 payment to the seller, subject to final adjustment, as well as
acquisition-related expenses of approximately $322,000. As part of the agreement
the seller agreed to deliver $1 million of net book value at the closing. We
decided that such amount was not delivered. The seller settled the matter by
waiving its future rights. The acquisition has been accounted for as a purchase.
During March 2001, we recorded a charge of $966,000 related to the writedown of
certain amounts due from the seller.
Change in Accounting Policy
Prior to January 1, 2001, we recognized revenue on sales of truck chassis
manufactured by an operating entity in our Truck Body/Trailer Division using the
"bill and hold" method of accounting. We employed this method because, based on
the customer's request, we manufactured and segregated truck chassis for
delivery based on the customers predetermined needs. We believe these
arrangements met all of the requirements of Staff Accounting Bulletin, Revenue
Recognition Financial Statements ("SAB 101") regarding "bill and hold" sales. In
the fourth quarter of fiscal 2001, we changed our accounting policy for revenue
recognition with respect to these sales to record revenue after receipt of the
chassis by the customer. The administrative effort to maintain the former policy
was too burdensome and not cost effective for us as well as our customers and
accordingly we will recognize revenue on these types of sales when the customer
takes physical possession of the chassis. The effect of the change in fiscal
2001 was to decrease revenue "bill and hold" sales recognized in fiscal 2001
prior to the change and to increase revenues as a cumulative adjustment for
"bill and hold" sales recognized in fiscal 2000. These changes increased fiscal
2001 revenues by $8,511,000, net income by $562,000, and earnings per share by
$0.15. The net effect of the change related to fiscal 2001 beginning retained
earnings of $(711,000) and $(0.19) earnings per share has been reflected as a
cumulative change in the accompanying consolidated statements of operations.
Recently Issued Accounting Pronouncements
In June 2001 the FASB approved SFAS Nos. 141 and 142 entitled Business
Combinations and Goodwill and Other Intangible Assets, respectively. The
statement on business combinations, among other things, eliminates the "Pooling
16
of Interests" method of accounting for business acquisitions entered into after
June 30, 2001. Statement 142 requires companies to use a fair-value approach to
determine whether there is an impairment of existing and future goodwill. These
statements are effective for us beginning April 1, 2002 and have certain
transition rules that require us to obtain independent appraisals of certain of
its operating units, which must be completed within six months from adoption.
During December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements.
Bulletin No. 101 expresses the views of the SEC staff in applying generally
accepted accounting principles to certain revenue recognition issues.
Revenue Recognition
Revenue under long-term contracts in the Critical Components Division is
recognized using the percentage-of-completion method of accounting. Costs
include value-added raw materials, direct engineering and manufacturing costs,
applicable overheads, and special tooling and test equipment. Revenues and
earnings on uncompleted contracts are based on our estimates to complete and are
reviewed periodically, with adjustments recorded in the period in which the
revisions are made. Management evaluates each contract to determine the best
indication of completion. Such indicators could be cost incurred, labor incurred
or units shipped. 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.
Results of Operations
The following table sets forth, for the indicated periods, certain
consolidated operating data expressed in dollar amounts and as a percentage of
consolidated net revenues. The fiscal years ended March 31, 2001, March 31, 2000
and March 31, 1999 reflect the consolidated results of Standard including Ajax,
R/S, CPS, Ranor, Airborne, Arell and TPG from their respective dates of
acquisition.
Year Ended March 31,
-------------------------------------------------------------------
2001 2000 1999
-------------------- -------------------- --------------------
Revenues, net ..................... $ 137,351 100.0% $ 159,476 100.0% $ 75,452 100.0%
Cost of revenues .................. 111,434 81.1 129,090 80.9 59,954 79.5
Selling, general and administrative 21,816 15.9 14,273 8.8 6,613 8.9
Amortization of intangible assets . 2,861 2.1 1,466 0.9 1,044 1.4
--------- ----- --------- ----- --------- -----
Operating income .................. 1,240 0.9 14,647 9.2 7,841 10.4
Other income (expense) ............ (12,291) 8.9 (5,295) (3.3) (2,093) (2.8)
--------- ----- --------- ----- --------- -----
Income (loss) before provision for
taxes ........................... (11,051) (8.0) 9,352 5.9 5,748 7.6
Provision (benefit) for income
taxes ........................... (1,547) (1.1) 3,955 2.5 2,266 3.0
Net income (loss) before
accounting change ............... (9,504) (6.9) 5,397 3.4 3,482 4.6
Accounting change ................. (711) (0.5) -- -- -- --
--------- ----- --------- ----- --------- -----
Net income ........................ $(10,215) (7.4)% $ 5,397 3.4% $ 3,482 4.6%
========= ===== ========= ===== ========= =====
Comparison of Year Ended March 31, 2001 to Year Ended March 31, 2000
Net Revenues. Net revenues in fiscal 2001 were approximately $137.4
million, a decrease of 13.9% from fiscal 2000 revenues of approximately $159.5
million. Net revenues for our Truck Body/Trailer Division decreased from
approximately $139.8 million to approximately $94.4 million, a decrease of
32.5%. The decrease in net revenues was primarily attributable to the
significant downturn in the truck body and trailer industries, which was in turn
attributable to higher interest rates and increased fuel prices as well as
reduced purchasing activities by our customers. Additionally, sales in the Truck
Body/Trailer Division increased $8.5 million because of our change in accounting
policy relating to "bill and hold" transactions. The decrease in net revenues in
our Truck Body/Trailer Division was partially offset by higher net revenues in
our Critical Components Division due to the inclusion of Airborne, Arell and
TPG, which were acquired during the fiscal year. As a result of acquisitions,
the Critical Components Division contributed 31.2% of revenues in fiscal 2001
versus 13% in fiscal 2000. While our Critical Components Division experienced
overall growth of 115%, net revenues at our Ranor subsidiary decreased from
approximately $20.0 million to $18.8 million, a decrease of 6%, primarily due to
reduced demand for nuclear canisters.
Cost of Revenues. Cost of revenues for fiscal 2001 decreased to
approximately $111.4 million, or 81.1% of net revenues, from $129.1 million, or
81% of net revenues, in fiscal 2000, principally because of lower demand for our
Truck/Trailer Division products. The consolidated cost of revenue ratio remained
17
relatively constant, with increased Critical Components Division product sales,
principally at our Canadian subsidiaries, which generally carry lower costs,
relative to selling prices, offsetting the higher cost products at our
Truck/Trailer Division, where volume declined year to year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $21.8 million during fiscal 2001, an
increase of 54% from the $14.2 million incurred during fiscal 2000. Selling
general and administrative expense as a percentage of net revenue increased to
15.9%, up from 8.8% for the comparable period in 2000. The increase resulted
from our expansion into product lines with higher selling and administrative
expenses and also higher corporate oversight expense. Additionally, we
experienced a time lag between the decreases in revenues attributable to
cost-reduction programs in our Truck Body/Trailer Division and the anticipated
favorable effects from those programs. Selling, general and administrative
expense also increased by a $966,000 change relating to the write-down of an
asset acquired in The Providence Group acquisition. Finally, during the year we
incurred approximately $1.0 million relating to banking and business development
activities.
Interest Expense. Interest expense increased to $11.9 million in fiscal
2001 from $5.0 million during fiscal 2000. This increase reflects a combination
of higher debt incurred to finance the acquisitions of Airborne and Arell, the
effect of increased interest rates and the inclusion of approximately $1.3
million of interest expense relating to federal excise taxes.
Comparison of Year Ended March 31, 2000 to Year Ended March 31, 1999
Net Revenues. Net revenues in fiscal 2000 were $159,476,000, an increase
of 111% from Fiscal 1999 revenues of $75,452,000. The increase reflects sales
from our chassis manufacturing facility in Sonora, Mexico, which commenced
operations in April 1999, nine months of ownership of Ranor and a general
improvement in the trailer industry. The Mexican facility represented 27% of
total Fiscal 2000 revenue while R/S, CPS and Ranor contributed 20%, 14% and 13%,
respectively.
Cost of Revenues. Cost of revenues for fiscal 2000 increased to
approximately $129.1 million, or 81% of net revenues, from approximately $60.0
million, or 79% of net revenues, in fiscal 1999. Cost of revenues as a
percentage of net revenues increased slightly during fiscal 2000, as a more
favorable cost mix associated with the products of R/S, CPS and Ranor was offset
by the start-up expenses resulting in lower margins at our Mexican facility.
Selling General and Administrative Expenses. Selling, general and
administrative expenses were approximately $14.3 million during fiscal 2000, an
increase of 116% from the $6.6 million incurred during fiscal 1999. Selling,
general and administrative expenses were 9% of sales for each of the periods.
During fiscal 2000, we experienced higher corporate oversight expenses which
were offset by generally more favorable sales-to-expense ratios at our
manufacturing locations.
Interest Expense. Interest Expense increased to $5.0 million in fiscal
2000 from $1.8 million during fiscal 1999, reflecting debt incurred in pursuing
our acquisition and internal growth strategies.
Liquidity and Capital Resources
We have historically funded our operations and capital expenditures
through cash flow generated by operations, from borrowings under our senior
credit facility and, to a lesser extent, through the incurrence of subordinated
indebtedness, capital lease transactions and the issuance of common and
preferred stock.
Our cash position as of March 31, 2001 was $857,000 a decrease of
approximately $2.3 million from our cash and cash equivalents at March 31, 2000
of approximately $3.1 million. This decrease was due to cash provided by
operating and financing activities of approximately $3.7 million and $24.9,
respectively, offset by cash used in investing activities of approximately $30.8
million.
We generated approximately $3.7 million of cash in operating activities
during fiscal 2001 compared to $3.8 million during fiscal 2000. The cash
generated in operating activities during fiscal 2001 primarily reflects the net
loss of approximately $10.2 million, offset by approximately $13.9 million of
depreciation and amortization, collection of receivables and other operating
activities.
18
Net cash used in investing activities was $30.8 million during fiscal 2001
as compared with $31.1 million during the prior year. The cash used in investing
activities during fiscal 2001 was primarily for the acquisitions of Airborne,
Arell and TPG, while the prior year principally reflected the acquisition of
Ranor. The cash generated by financing activities during 2001 principally
reflects the financing for the acquisitions of Airborne and Arell. The cash
generated by financing activities for the twelve months ended March 31, 2000 was
primarily from the increase in our credit facility used to finance the
acquisition of Ranor. In April 2000, we acquired Airborne and Arell. The funding
to complete the acquisitions was obtained through an increase in our credit
facility. In addition to financing the acquisitions of Arell and Airborne, the
credit facility was used to finance capital expenditures, and to provide
additional working capital.
Our cash position as of June 29, 2001 was approximately $1.1 million.
Excluding payment obligations in respect of indebtedness, preferred stock,
Internal Revenue Service payments and potential penalties, and earn-out payments
relating to acquired businesses, as discussed below, we believe that cash on
hand, together with cash provided from operations, would be sufficient to fund
our operations through March 31, 2002. Our existing cash, together with cash
generated from our operations will not be sufficient to fund our current
obligations in respect of our senior indebtedness, subordinated indebtedness,
preferred stock dividends and payment obligations under earn-out arrangements
relating to acquired businesses. We are currently in default under our credit
facility and are unable to borrow thereunder to fund our operations and other
obligations.
At March 31, 2001, we had $95.6 million in total debt outstanding,
consisting of an outstanding revolving loan of $20.0 million, term loans of
$71.0 million and subordinated notes to the prior owners of Ranor of $4.6
million. At March 31, 2001, we also had other debt of $79,000. Due to continuing
conditions of default described below, the entire $95.6 million of outstanding
debt has been reclassified, for reporting purposes, from long-term debt to
current liabilities.
Our senior secured credit facility, as amended on April 25, 2000, provides
for term loans in principal amounts of up to $75.0 million and revolving loans
in principal amounts of up to $25.0 million. The principal of the term loans is
payable quarterly commencing in June 2000 in specified amounts ranging from
approximately $1.3 million quarterly commencing in June 2000 and increasing
annually thereafter to approximately $1.6 million in June 2001, $1.9 million in
June 2002, $2.3 million in June 2003, $2.6 million in June 2004, and $3.2
million in June 2005. Amounts outstanding under the revolving loans are payable
in full in April, 2005. All remaining principal then outstanding is due in April
2007. In addition, the amounts outstanding under the credit facility are subject
to mandatory prepayments in certain circumstances. Subject to our request,
together with the approval of the lenders, the maturity of the revolving loans
may be extended for one year with a maximum extension of two one-year periods.
We made scheduled principal payments of approximately $4.0 million during the
nine months ended December 31, 2001. However, we did not make the March 2001
principal payment of $1.3 million or the June 2001 principal payment of $1.6
million.
All amounts outstanding under the credit facility are secured by a lien on
substantially all of our assets. In addition, the credit facility imposes
significant operating and financial restrictions on us, including certain
limitations on our ability to incur additional debt, make payments on
subordinated indebtedness, pay dividends, redeem capital stock, sell assets,
engage in mergers and acquisitions or make investments, make loans, transact
business with affiliates, enter into sale and leaseback transactions, and place
liens on our assets. In addition, our credit facility contains covenants
regarding the maintenance of certain financial ratios.
We are currently in default of certain financial covenants under our
credit facility. In addition, we failed to make scheduled interest and principal
payments totaling approximately $2.8 million and $4.2 million under the credit
facility on March 31, 2001 and July 2, 2001, respectively, which constituted
additional events of default thereunder. Absent significant additional financing
or a restructuring, we expect to be unable to pay additional principal and
interest payments totaling approximately $4.1 million on the next payment date
of September 30, 2001. We have engaged an investment banking firm to assist us
in obtaining additional financing, although we can give no assurance that our
efforts to obtain additional financing or restructure our existing indebtedness
will be successful. We are currently operating under the terms of a forbearance
agreement pursuant to which the lenders under our credit facility have agreed to
forbear enforcing their rights under the credit facility for a period ending on
July 17, 2001. Under the terms of the forbearance agreement, we have agreed with
our lenders, among other things, that, in exchange for their forbearance, we
will not request any additional loans under the credit facility, pay any
dividends on our preferred stock, pay any principal or interest on our
subordinated debt or make any payments in respect of earn-out obligations
relating to acquisitions. As a result of our defaults under the credit facility,
19
interest on the entire unpaid principal and interest of $92.5 million, as of
March 31, 2001, is accruing interest at default rates having a weighted average
of 10.75% per annum.
While we believe that we are currently in compliance with the terms of the
forbearance agreement, failure to observe or perform one or more covenants under
our credit facility not covered by the forbearance agreement, or failure to
observe or perform the covenants of the forbearance agreement itself, at any
given time will require us to obtain a waiver or consent from the lenders, or
refinance our credit facility. In addition, the forbearance agreement only
prohibits the lenders from exercising their rights in respect of specified
defaults for a period ending on July 17, 2001. If we are unable after the term
of the forbearance agreement to comply with the covenants of the credit
facility, including bringing our payment obligations thereunder current, our
failure to so comply could constitute an event of default under the credit
facility and we would be required to obtain a waiver or consent from the
lenders, or refinance the credit facility. Such a waiver, consent or refinancing
may not be available to us on reasonable terms. Upon the occurrence of an event
of default under our credit facility, the lenders could elect to declare all
amounts outstanding under our credit facility, together with our accrued
interest and certain expenses, to be immediately due and payable and could begin
to foreclose on our assets. Our failure to comply with any of these covenants or
restrictions could also limit our ability to obtain future financings.
The terms on which we sell our products vary by operating company, but
generally provide for payment within 30 days.
Capital expenditures were $3.8 million in fiscal 2001 compared to
approximately $4.0 million in fiscal 2000. Capital expenditures incurred during
fiscal 2001 were primarily for the purchase of production equipment and computer
software to maintain our current plant capacity. We expect that capital
expenditures during the fiscal year ending March 31, 2002 will not exceed those
of the preceding year.
The annual dividend requirement on our preferred stock at March 31, 2001
is $1,155,000. We suspended payment of the quarterly dividend of $289,000 during
the quarter ended December 31, 2000. Unpaid dividends on the preferred stock are
cumulative. Our future earnings, if any, may not be adequate to pay the
cumulative dividend or future dividends on the preferred stock. Although we
intend to pay the cumulative dividend and to resume payment of regular quarterly
dividends out of available surplus, there can be no assurance that we will
maintain sufficient surplus or that future earnings, if any, will be adequate to
pay the cumulative dividend or future dividends on our preferred stock. Further,
we will need the approval of the lenders under our credit facility to resume
payment of preferred dividends.
As of March 31, 2001, we had working capital of approximately $6.5 million
prior to the reclassification of $86.5 million of long-term debt to current
liabilities. Excluding payment obligations in respect of indebtedness, preferred
stock, Internal Revenue Service payments and potential penalties, and earn-out
payments relating to acquired businesses, management believes that our current
working capital position, along with anticipated results of operations, will be
sufficient to allow us to fund our working capital requirements for at least the
next twelve months. This assessment is dependent upon the successful outcome of
the negotiations with the lenders under our credit facility and with the
Internal Revenue Service with respect to our outstanding excise tax liabilities.
In April 2000 we acquired all of the outstanding capital stock of Airborne
and Arell. Under the terms of those acquisition agreements, we agreed to pay
approximately $5.1 million in the event that certain earnings targets were
achieved during the three years following the acquisition. Accordingly, we
accrued a liability of approximately $2 million for the fiscal year ended March
31, 2001, representing the portion of the earnout attributable to that year.
Airborne and Arell met their earnings targets for the fiscal year ended March
31, 2001. However, we are prohibited from paying this amount under the terms of
the forbearance agreement with our senior lenders. Additionally, we have also
agreed to pay a certain percentage of the earnings of both companies to the
extent that their cumulative earnings for the fiscal years ending March 31,
2001, 2002 and 2003 exceed a certain level.
Item 7A. Quantitative and Qualitative Discussions Concerning Market Risk
Interest Rate Risk
We are exposed to interest rate risk primarily through our borrowings
under the Credit Facility. As of March 31, 2001, we had approximately $91.0
million of prime based debt and accrued interest outstanding under the Credit
Facility. A hypothetical 100 basis-point increase in the floating interest rate
from the current level corresponds to an increase in our interest expense over a
20
one-year period of $951,000. This sensitivity analysis does not account for the
change in our competitive environment indirectly related to the change in
interest rates and the potential decisions which could be taken in response to
any of these changes. Furthermore, 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.
Foreign Currency Exchange Risk
In April 2000, we acquired Airborne and Arell, both located outside of
Montreal, Canada, and in April 1999 we commenced production at our facility in
Sonora, Mexico. Accordingly, fluctuations in the value of the Canadian dollar
and/or Mexican peso compared to the U.S. dollar upon currency conversion may
affect our financial position and cash flow. As of March 31, 2001, we had not
established any programs for hedging against foreign currency losses. Because a
majority of our transactions are U.S. based and U.S. dollar-denominated, a
hypothetical ten percent change in the value of the Canadian dollar or Mexican
peso would not have a material impact on our financial position and cash flow.
Item 7B. Risk Factors That May Affect Future Results
Our auditors have issued a "going concern" audit opinion.
The auditor's report on our financial statements for the fiscal year ended
March 31, 2001 states that because of operating losses and our continued
experience of negative cash flows from operations, there is substantial doubt
about our ability to continue as a going concern. A "going concern" opinion
indicates that the financial statements have been prepared assuming we will
continue as a going concern and do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
We have recently incurred losses which are likely to continue.
During the fiscal year ended March 31, 2001, we incurred net losses of
approximately $10.2 million. Because of the general decline in the trucking
industry, our significantly increased interest expense as a result of recent
acquisitions and our inability to successfully integrate acquired businesses,
these losses are likely to continue, and perhaps increase, during at least a
portion of our current fiscal year. In addition, our revenues declined from the
year ended March 31, 2000 to the year ended March 31, 2001. We will need to
generate additional revenue and achieve cost reductions if we are to regain and
sustain profitability. We may not achieve or sustain profitability and our
losses may continue to grow in the future. As a result, we may not be able to
pursue our business strategy effectively.
We are in default under our senior secured credit facility. If we fail to
obtain further forbearance or waivers with respect to these defaults or
obtain additional financing to enable us to cure them, then our lenders
under the credit facility may foreclose on substantially all of our
assets, which would severely impair our ability to operate our business
and perhaps require us to seek protection from our creditors.
We are currently in default under our senior secured credit facility with
respect to scheduled interest and principal payments totaling approximately $2.8
million due under the credit facility on March 31, 2001 and with respect to
certain financial covenants thereunder. We also failed to pay additional
principal and interest payments totaling approximately $4.2 million on June 30,
2001. We expect to be unable to pay additional principal and interest payments
totaling approximately $4.1 million on the next payment date of September 30,
2001. We are currently operating under the terms of a forbearance agreement
pursuant to which the lenders under our credit facility have agreed to forbear
enforcing their rights under the credit facility for a period ending on July 17,
2001. Under the terms of the forbearance agreement, we have agreed with our
lenders, among other things, that, in exchange for their forbearance, we will
not request any additional loans under the credit facility, pay any dividends on
our preferred stock or pay any principal or interest on our subordinated debt.
As a result of our defaults under the credit facility, interest on the entire
unpaid principal and interest at June 30, 2001 of $95.1 million is accruing
interest at default rates having a weighted average of 10.75% per annum.
21
While we believe that we are currently in compliance with the terms of the
forbearance agreement, failure to observe or perform one or more covenants under
the credit facility not covered by the forbearance agreement, or failure to
observe or perform the covenants of the forbearance agreement itself, at any
given time will require us to obtain a waiver or consent from the lenders, or
refinance our credit facility. In addition, the forbearance agreement only
prohibits the lenders from exercising their rights in respect of specified
defaults for a period ending on July 17, 2001. If we are unable after the term
of the forbearance agreement to comply with the covenants of the credit
facility, including bringing our payment obligations thereunder current, our
failure to so comply could constitute an event of default under the credit
facility and we would be required to obtain a waiver or consent from the
lenders, or refinance the credit facility. Such a waiver, consent or refinancing
may not be available to us on reasonable terms. Upon the occurrence of an event
of default under our credit facility, the lenders could elect to declare all
amounts outstanding under our credit facility, together with our accrued
interest and certain expenses, to be immediately due and payable and could begin
to foreclose on our assets. In that event, our ability to operate our business
would be severely impaired and we might be required to seek protection from our
creditors to continue our operations.
We need to obtain additional financing, and/or a significant restructuring of
obligations under our senior secured credit facility, in order to meet our
existing debt obligations and to fund our operations. We may not be able
to obtain such additional financing or restructuring. We could experience
a change of control as a result of such a financing or restructuring if
either of such events occurs. In addition, holders of our common stock and
preferred stock may be severely diluted or eliminated entirely in
connection with a restructuring transaction or if we become subject to
proceedings in respect of protection from our creditors.
We are currently developing a business plan that will offer a basis for a
restructuring proposal that we intend to provide to our creditors that we expect
will include additional, new equity or equity-linked financing. We have engaged
an investment banking firm to assist us in obtaining additional financing,
although we can give no assurance that our efforts to obtain additional
financing or restructure our existing indebtedness will be successful. Events of
default under our existing indebtedness, our recent history of losses and the
"going concern" audit opinion on our 2001 fiscal year financial statements
increase the difficulty of obtaining such additional financing. Any additional
financing will require the consent of our senior lenders and, to the extent it
contemplates the issuance of shares of preferred stock senior to our existing
preferred stock, holders of a majority of the shares of our preferred stock. We
may be unable to effectuate a restructuring proposal if we are unable to reach
agreement with our creditors or existing preferred stockholders or because we
are unable to obtain additional financing. In the event that we obtain
additional financing and/or a restructuring of our existing indebtedness, such
events could cause a change of control of the company.
If we are unable to accomplish an out-of-court restructuring, we may seek
protection from our creditors. Moreover, it is possible that our creditors may
seek to initiate involuntary proceedings against us or against one or more of
our subsidiaries in the United States and/or in Canada or Mexico, which would
force us to make defensive voluntary filing(s) of our own. Should we be forced
to take action with respect to one or more of our foreign subsidiaries, such
filings raise substantial additional risk to us and the success of our proposed
restructuring transaction due to both the uncertainty created by foreign
creditors' rights laws and the additional complexity that would be caused by
such additional filings. We can provide no assurance that we would be able to
successfully restructure our foreign subsidiaries should such filings be
required. In addition, if we restructure our debt or file for protection from
our creditors, it is very likely that our common stock and preferred stock will
be severely diluted if not eliminated entirely.
Restructuring our indebtedness may require us to sell assets. The terms of such
sales may not be advantageous and the loss of such assets may harm our
ability to operate our business.
In order to effect a restructuring of our indebtedness we will be required
to obtain the consent of the lenders under our credit facility. These lenders
may require as a condition of their consent that we dispose of certain assets or
businesses and apply the proceeds to reduce our indebtedness to them. In the
event that we are required to engage in such sales of assets, we may not be able
to negotiate favorable terms and may realize reduced values for such assets. In
addition, the loss of the assets that we sell could harm our ability to operate
our business.
22
We currently are, and will continue to be, highly leveraged and subject to
substantial restrictions as to our operations.
As of June 30, 2001, we had $95.6 million of debt outstanding, of which
$91.0 million was outstanding under our credit facilities. Due to conditions of
default previously described, the entire $95.6 million of outstanding debt was
reclassified, for reporting purposes, from long-term debt to current
liabilities. To date, a substantial portion of our cash flow has been devoted to
debt service. Our ability to make payments of principal and interest on our
outstanding indebtedness will be largely dependent upon our ability to raise
additional financing, restructure existing indebtedness and on our future
operating performance. Even if we are able to obtain additional financing and
restructure our existing indebtedness, we will remain highly leveraged. All
amounts outstanding under the credit facility are secured by a lien on
substantially all of our assets. In addition, our credit facility imposes, and
any new or restructured indebtedness will impose, significant operating and
financial restrictions on us, including certain limitations on our ability to
incur additional debt, make payments on subordinated indebtedness, pay
dividends, redeem capital stock, sell assets, engage in mergers and acquisitions
or make investments, make loans, transact business with affiliates, enter into
sale and leaseback transactions, and place liens on our assets. In addition, our
credit facility contains covenants regarding the maintenance of certain
financial ratios. Servicing our debt obligations will significantly reduce the
amount of cash available for investment in our businesses and, together with
restrictions imposed by the terms of our indebtedness, may cause our results of
operations to suffer.
We have recently undergone changes in our management team and cannot assure
you that our management team can effectively work together to operate our
business.
In March 2001, our board appointed our new President and Chief Executive
Officer. Our new President and Chief Executive Officer has not worked with our
remaining management team before and he, and additional managers that he may
hire, may not be able to forge effective working relationships with other
members of management at the corporate or operating unit levels. In addition,
our President and Chief Executive Officer, and any other newly hired managers,
will need to learn about our company and the industries in which we operate. If
our senior management cannot work together effectively, then our business and
strategies will be harmed and we will incur additional costs in seeking and
retaining new management personnel.
Even if we are able to secure additional financing, the trading prices of
shares of our common stock and preferred stock could decline and our
stockholders could experience significant ownership dilution, further
depressing the prices of shares of our common stock and preferred stock.
Any financing that we complete is likely to involve the issuance of our
equity securities. If we issue additional equity securities, such issuances may
depress the trading prices of our common stock and preferred stock and
stockholders may experience significant dilution of their ownership interest. In
addition, the newly issued securities may have rights superior to those of our
common stock and existing preferred stock. The dilutive effect of these
issuances will be increased to the extent our share price declines.
Our stock price has declined and may continue to decline, which could reduce
the value of your investment, subject us to litigation, cause us to be
unable to maintain our listing on the American Stock Exchange, and make
obtaining future equity financing more difficult for us.
The market prices of our common stock and preferred stock have declined
since we completed our initial public offering in January 1998, and it is likely
that they will continue to decline. In the past, companies whose stock prices
have declined have been the object of securities class action litigation. If we
were to become the object of securities class action litigation, it could result
in substantial additional costs for which we are unprepared and it could divert
our management's attention and resources.
Our common stock and preferred stock are each currently listed on the
American Stock Exchange (the "Exchange"). The Exchange has broad discretion to
suspend a company's securities from trading or to delist a company's securities
from the Exchange. The Exchange will consider suspending or delisting the
securities of a company if the company sustains losses which are so substantial
in relation to its existing financial resources that it appears questionable as
to whether such company will be able to continue operations and/or meet its
obligations as they mature. The Exchange will also consider suspension or
delisting if the aggregate market value of shares of common stock publicly held
is less than $1 million, if the number of shareholders is less than 300, if the
23
company has sold or disposed of a substantial portion of its operations, assets
or business as a result of foreclosure or receivership, or if the selling price
of shares of a company's stock sell at a low price per share for a substantial
period of time, among other reasons. If the Exchange should suspend or delist
our common stock or our preferred stock, the market for our shares would become
significantly less liquid, and the value of your investment would likely decline
substantially.
In addition, the declines in our stock price may have harmed and/or may
continue to harm our ability to issue, or significantly increase the ownership
dilution to stockholders caused by our issuing, equity in financing or other
transactions. The price at which we issue shares in such transactions is
generally based on the market price of our common stock and a decline in our
stock price would result in our needing to issue a greater number of shares to
raise a given amount of funding or acquire a given dollar value of goods or
services. The occurrence of any of the foregoing would likely have a material
adverse effect on Standard and your investment.
We are in arrears on payment of certain federal excise taxes of approximately
$6.7 million, which has resulted in an additional event of default under
our credit facility, and which could subject us to penalties in material
amounts.
We are currently in arrears on payment of certain federal excise taxes of
approximately $6.7 million, on which approximately $1.5 million of interest was
accrued as of June 30, 2001. We expect to attempt to negotiate a payment plan
with the Internal Revenue Service ("IRS") to resolve the arrearage. Although no
formal plan is yet in place, we made a voluntary tax payment in the amount of
$634,135 on March 9, 2001, and intend to make voluntary monthly payments of
$20,000 on July 15, 2001, August 15, 2001 and September 15, 2001. This arrearage
has also resulted in an additional event of default under our credit facility.
Our financial statements include approximately $1.3 million for interest on the
federal excise tax currently in arrears. Further, the IRS has the statutory
authority to impose penalties which could be material. If we are unable to
negotiate a payment plan with the IRS, or if the IRS imposes statutory penalties
on Standard, the IRS could commence proceedings to freeze or foreclose upon our
assets, including our bank accounts. In any of those events our business,
financial position or results of operations could be materially and adversely
affected.
Our quarterly operating results are likely to be subject to substantial
fluctuations in the future due to numerous factors, many of which are
outside of our control. These fluctuations can make assessing an
investment in our securities difficult and depress the trading prices of
our securities.
Our future quarterly operating results are likely to be subject to
substantial fluctuations as a result of a variety of factors, including:
o our ability to restructure our payment obligations under the credit
facility;
o general economic conditions;
o the conditions of the trucking, aerospace, defense, nuclear and
industrial industries in general;
o the collectability of accounts receivables from customers;
o further price depression in the industries in which we participate;
o our ability to introduce new products and services;
o timing of sales;
o changes in estimates of the cost of completion of long-term
contracts;
o the timing and costs of any acquisitions of services or
technologies;
o changes in vendor trade terms (payment terms); and
o our ability to further cut overhead costs.
Variability in our operating results could have a material adverse effect on our
business, financial condition and results of operations, as well as the trading
prices of our common and preferred stock.
24
Our reported revenue numbers may not prove to be comparable to prior or future
periods because accounting for our revenues on certain of our long-term
contracts requires us to estimate future costs which are uncertain.
We account for a significant percentage of our long-term contracts at our
Ranor and TPG facilities on a percentage-of-completion basis. For the year ended
March 31, 2001, Ranor and TPG accounted for approximately 16.7% of our total
revenues. This accounting method requires that, for each uncompleted long-term
contract, we recognize revenues and earnings based on management's estimates to
complete, which are reviewed periodically, with adjustments recorded in the
period in which the revisions are made. Accordingly, the revenue we recognize in
any given period on such contracts depends to a significant extent on our
estimate of the total remaining costs to complete individual projects. As with
any estimates, our estimates of costs of completion are subject to numerous
risks and uncertainties, including risks of increased costs for, or
unavailability of, raw materials, as well as engineering and manufacturing risks
in producing products on a timely basis. If in any period we significantly
increase our estimate of the total cost to complete a project, we may recognize
very little or no additional revenue with respect to that project. As a result,
our gross margin in that period may not be directly comparable to prior or
future periods and in such period and future periods may be significantly
reduced. In some cases we may recognize a loss on individual projects prior to
their completion.
We have suspended dividend payments that have and will continue to cumulate
and we are in default on certain of our subordinated debt.
The annual dividend requirement on our preferred stock at March 31, 2001
is $1,155,000. We suspended payment of the quarterly dividend of $289,000 during
the quarter ended December 31, 2000. Unpaid dividends on the preferred stock are
cumulative. Our future earnings, if any, may not be adequate to pay the
cumulative dividend or future dividends on the preferred stock. Although we
intend to pay the cumulative dividends and to resume payment of regular
quarterly dividends out of available surplus, there can be no assurance that we
will maintain sufficient surplus or that future earnings, if any, will be
adequate to pay the cumulative dividend or future dividends on our preferred
stock. In addition, we are in default of interest payments under approximately
$4.6 million of convertible subordinated notes issued in connection with our
acquisition of our Ranor subsidiary during 1999. We will need the approval of
the lenders under our credit facility to resume payment of preferred dividends
and payment of interest and principal on our subordinated debt.
Our business is concentrated in industries that are subject to economic cycles.
A significant portion of our business and business development efforts are
concentrated in the trucking, and, to a lesser extent, the aerospace, nuclear,
industrial and defense industries. Since March 2000, the U.S. economy has
suffered a sharp decline. As demonstrated by our decline in revenues from our
Truck Body/Trailer Division in the quarter ending March 31, 2001, many of our
customers have substantially curtailed, if not eliminated, significant
additional expenditures in these areas. Certain of these developments have
already had an adverse impact on our business. A continuation of the current
economic environment will likely further adversely affect our business.
The Critical Components Division relies on U.S. government contracts and
subcontracts for a substantial portion of its revenues.
A significant portion of our business and business development efforts are
concentrated in industries where the U.S. government is a major customer.
Approximately 31.2% of the Critical Components Division's net revenues for the
year ended March 31, 2001 were derived directly from contracts with the U.S.
government, or agencies or departments thereof, or indirectly from subcontracts
with U.S. Government contractors. The majority of these Government contracts are
subject to termination and renegotiation for the convenience of the government.
As a result, our business, financial condition and results of operations may be
materially affected by changes in U.S. Government expenditures in the industries
in which we operate.
We are dependent on a few customers for a substantial percentage of our
revenues.
Due to the nature of the markets we participate in, including the
heavy-duty trailer chassis and container industry and the nuclear waste disposal
industry, the available pool of potential customers is limited. For the fiscal
25
year ended March 31, 2001, two customers were responsible for 39% of the sales
of Truck Body/Trailer Division and one customer was responsible for 38% of the
sales of our Critical Components Division. Our preferred supplier arrangement
with this customer expires in the second quarter of our 2001 fiscal year. We are
currently negotiating with this customer to renew our preferred supplier
arrangement, although we cannot be sure we will be successful in doing so. The
loss of any major customer could have a material adverse effect on our business,
financial condition and operating results.
We could face additional regulatory requirements, tax liabilities and other
risks as a result of our international operations.
In April 2000, our Critical Components division acquired Airborne and
Arell, both based in Canada. In addition, our Truck Body/Trailer Division
operates a facility in Mexico. There are risks related to doing business in
international markets, such as changes in regulatory requirements, tariffs and
other trade barriers, fluctuations in currency exchange rates, more stringent
rules relating to labor or the environment, and adverse tax consequences.
Furthermore, we may face difficulties in staffing and managing any foreign
operations. One or more of these factors could harm any existing or future
international operations.
Many of the raw materials we use come from a small number of suppliers.
A significant portion of our precision machining business depends on the
adequate supply of specialty metals and exotic alloys at competitive prices and
on reasonable terms. Many of these raw materials may be obtained from a small
number of suppliers, and in some cases, a single supplier. Although we have not
experienced significant problems with our suppliers in the past, there can be no
assurance that such relationship will continue or that we will continue to
obtain such supplies at cost levels that would not adversely affect our gross
margins. The partial or complete loss of any of our suppliers, or production
shortfalls or interruptions that otherwise impair our supply of raw materials,
would have a material adverse effect on our business, financial condition and
results of operations. It is uncertain whether alternative sources of supply
could be developed without a material disruption in our ability to provide
products to our customers.
We must comply with strict government and environmental regulations. Both
compliance and non-compliance could result in substantial expenses and
liabilities.
Trailer chassis and container length, height, width, gross vehicle weight
and other specifications are regulated by the National Highway Traffic Safety
Administration and individual states. Historically, changes and anticipated
changes in these regulations have resulted in significant fluctuations in demand
for new trailer chassis and containers thereby contributing to industry
cyclicality. Standard's manufactured chassis are also subject to federal excise
taxes, for which we are in substantial arrears. Changes or anticipated changes
in these regulations or in applicable tax laws may have a material adverse
impact on the Truck Body/Trailer Division's manufacturing operations and sales.
We are subject to Federal, state and local laws and regulations relating
to our operations, including building and occupancy codes, occupational safety
and environmental laws including laws governing the use, discharge and disposal
of hazardous materials. Except as otherwise described above with regard to air
quality regulations, the Company is not aware of any material non-compliance
with any such laws and regulations. The Company is a manufacturer of truck
trailer chassis and is covered by Standard Industrial Code (SIC) #3715.
Companies covered by SIC Code #3715 are among those companies subject to the New
Jersey Industrial Site Recovery Act ("ISRA"). Pursuant to ISRA, the Company is
conducting an investigation into any environmental "Areas of Concern" ("AOCs")
that may be present at the facility. The Company has entered into a Remediation
Agreement with NJDEP by which the Company will fulfill its obligations under
ISRA. AOCs could require remediation, which could have a material adverse effect
on the Company.
Furthermore, there can be no assurance that additional similar or
different investigations will not reveal additional environmental regulatory
compliance liabilities, nor can there be any assurance that health-related or
environmental issues will not arise in the future or that any such issues will
not have a material adverse effect on the Company's operating results and
financial position.
26
We have acquired numerous businesses and we may not be able to successfully
integrate them.
Over the past years, we have made several acquisitions of complementary
businesses which we continue to integrate. The growth associated with these
acquisitions has resulted in a significant strain on our managerial, financial,
engineering and other resources. There can be no assurance that we will be
successful in the integration process.
Our largest stockholders could act together to exercise significant control
over us.
As of March 31, 2001, our three largest shareholders, including one
director and one former director who are brothers, collectively beneficially
owned approximately 51.9% of our outstanding common stock. As a result of this
concentration of ownership, these stockholders, should they choose to act
together, would be able to exercise significant influence over matters requiring
approval by our stockholders, including the election of directors and approval
of significant corporate transactions. This concentration of ownership could
also have the effect of delaying or preventing a change in control of the
company.
Certain anti-takeover provisions could cause harm to our shareholders.
Our certificate of incorporation and by-laws contain certain provisions
that could have the effect of delaying or preventing a change of control of the
company, even if such a transaction would be beneficial to our stockholders. For
example, our certificate of incorporation authorizes the board of directors to
issue one or more series of preferred stock without stockholder approval. Such
preferred stock could have voting and conversion rights that adversely affect
the voting power of the holders of preferred stock and/or common stock, or could
result in one or more classes of outstanding securities that would have
dividend, liquidation or other rights superior to those of the preferred stock
and/or common stock. Issuance of such preferred stock may have an adverse effect
on the then prevailing market price of the preferred stock and/or common stock.
Our certificate of incorporation also requires a vote of 75% for certain
business combination transactions, whether or not shareholders are otherwise
entitled to vote on such transactions under applicable law. Similarly, our
by-laws establish a "staggered" board of directors and contain provisions
limiting the ability of stockholders to nominate new directors. Additionally, we
are subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law, which prohibits us from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Section 203 could have the effect of delaying or preventing a change of control
of the company even if it would be in the best interests of the company or our
shareholders.
Item 8. Financial Statements and Supplementary Data
Financial statements required by this Item 8 are set forth at the pages
indicated in Item 14.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
27
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of Standard, and their ages and
positions as of July 12, 2001, are:
Name Age Position
------------------------------- --- ---------------------------------------------------
James F. "Pat" O'Crowley, III.. 47 Chief Executive Officer, President and Director
Karl M. Massaro................ 47 President, Truck Body/Trailer Division and Director
Joseph Spinella (1) ........... 44 Chief Financial Officer, Secretary and Director
James G. Reindl ............... 42 President, Critical Components Division
John E. Elliott II............. 44 Director
James E. Gross (2)............. 41 Director
Steven J. Merker (1) .......... 44 Director
William C. Needham, Jr. (1)(2) 60 Director
Paul Provost (2) ............. 41 Director
----------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
James F. "Pat" O'Crowley, III was named President and Chief Executive
Officer of Standard in March 2001 and was elected a director of the Company in
May 2001. From November 1998 until he joined Standard, he was Executive Vice
President, Corporate Development for Digital Lighthouse Corp., a provider of
e-commerce and direct-to-customer solutions for Fortune 1000 and emerging
Web-based companies, where he played a leadership role in bringing Digital
Lighthouse public in March 2000. From 1996 to November 1998, he was a founder
and managing director of Coalter Group International, a business consulting firm
focused on improving clients' sales and profitability. Prior to that Mr.
O'Crowley held senior management positions with HON Industries, Tenneco's
subsidiary J.I. Case, and Navistar and its predecessor company International
Harvester Company. Mr. O'Crowley is also a director of Spider Technologies. Mr.
O'Crowley received a B.S. degree in accounting from the University of Kansas in
1976 and earned his M.B.A. degree at Harvard University in 1978.
Karl M. Massaro has been a director of the Company since August 1997. Mr.
Massaro served as President until March 23, 2001 when he assumed the position of
President of the Company's Truck Body/Trailer Division. Mr. Massaro served as
Vice President and General Manager of Ajax from 1991 until August 1997. From
1984 to 1990, he was purchasing manager and chief product designer/engineer of
Ajax, and, prior to that, he worked for Ajax in various other capacities from
1963 to 1984.
Joseph Spinella, CPA, has been a director of Standard since August 1997,
Secretary since June 1999 and Chief Financial Officer since August 1999. From
July 1998 to August 1999, Mr. Spinella was Chief Financial Officer and Treasurer
of the Terminal Marketing Company, Inc., an equipment leasing company. From 1997
to 1998, Mr. Spinella was Controller of Sanwa Healthcare Finance Corporation.
From 1989 to 1996, Mr. Spinella was Vice President, Director of Financial
Services and Controller of Copelco Capital, a subsidiary of Itochu
International. Mr. Spinella received a B.S. degree in accounting, magna cum
laude, from Fairleigh Dickinson University in 1979 and an M.B.A. in finance from
that institution in 1988.
James G. Reindl has served as President of Standard's Critical Components
Division since May 2000. Between February 1999 and May 2000, Mr. Reindl was an
independent consultant to Standard, assisting the Company in its acquisitions.
From August 1996 until February 1999, Mr. Reindl was Managing Partner of
Searcroft, N.A., an aerospace consulting firm, where he assisted Fortune 500
companies with respect to their flight operations, facility installations and
management implementations. From July 1990 to August 1996, he was the President
and CEO of Aerotech Jet Services, Inc., a corporate aircraft completion and
modification center. Mr. Reindl received a B.S. in mechanical and aerospace
engineering from the University of Delaware in 1985.
28
John E. Elliott II was elected to Standard's board of directors on May 16,
2001. He co-founded Fidlar Doubleday Inc., a software technology company, in
1998. Prior to that Mr. Elliott was the managing principal of AMI Holding
Corporation, a holding company owning Allied Medical Supplies Inc., a regional
health care wholesaler that marketed its own brand-name products nationally, and
Guardian Medical Supplies Inc., a provider of home health services. Rotech
Medical, a division of integrated Health Care Inc., acquired both companies in
1997. Mr. Elliott received his B.S. degree in business administration from
Lawrence Technology University and completed the Executive Studies Program at
Harvard Business School.
James E. Gross was elected to Standard's board of directors on May 16,
2001. He is an attorney in private practice, specializing in antitrust
counseling, criminal defense, general business counseling and litigation. From
1985 to 1999, Mr. Gross served with the United States Department of Justice,
Antitrust Division as a Trial Attorney, concentrating in merger and acquisition
review, civil litigation and criminal prosecution. Mr. Gross received a B.A.
degree from the State University of New York at Stony Brook in 1982 and earned
his J.D. degree from Georgetown University Law Center in 1985.
Steven J. Merker served as Chairman of the Board of Directors from August
1997 until June 5, 2001. Mr. Merker was our Chief Executive Officer from August
1997 until March 2001. He continues to serve as a director of the Company. Mr.
Merker is a founder and Managing Director of Barclay Partners LLC, an investment
banking firm specializing in corporate buy-outs and founded in 1995 with his
brother, William Merker. Mr. Merker received a B.S. degree in accounting from
Fairleigh Dickinson University in 1980. He is the brother of William Merker, a
former Director and officer of the Company.
William C. Needham, Jr. has been a director of Standard since November
1997. Since March 1995, Mr. Needham has been a private consultant and investor.
Prior to 1995, Mr. Needham served as a corporate finance specialist, syndicate
manager and registered representative at various investment banking firms,
including Gruntal Securities, First Hanover Securities, Inc. and Oppenheimer &
Co. Mr. Needham is also a director of Cutting Edge Industries, Inc., Modal
Systems, Inc., and INTV, Inc. Mr. Needham graduated from Wesleyan University in
1963 with a B.A. degree in English.
Paul Provost has been a director of Standard since June 1999. Since 1984
he has served as President and CEO of Loving Hands Health Care Services, a
privately held home care provider with offices in New Jersey and New York. Mr.
Provost graduated with a B.S. degree in accounting from American University in
1982.
Composition of the Board
Our Certificate of Incorporation divides the board of directors into three
classes, each of whose members serve for a staggered three-year term. Upon the
expiration of the term of a class of directors, directors in such class will be
elected for three-year terms at the annual meeting of stockholders in the year
in which such term expires. With respect to each class, a director's term will
be subject to the election and qualification of such director's successor, or
the earlier death, resignation or removal of such director.
Board Committees
The Audit Committee of the board of directors reviews, acts on and reports
to the Board of Directors with respect to various auditing and accounting
matters, including the recommendation of the Company's auditors, the scope of
the annual audits, fees to be paid to the auditors, the performance of the
independent auditors and the accounting practices of the Company. The members of
the Audit Committee are Messrs. Gross, Needham and Provost.
The Compensation Committee of the board of directors recommends, reviews
and oversees the salaries, benefits and stock option plans for the Company's
employees, consultants, directors and other individuals compensated by the
Company. The Compensation Committee also administers the Company's compensation
plans. The members of the Compensation Committee are Messrs. Merker, Needham and
Spinella.
29
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires our directors, certain
officers and persons holding more than 10% of a registered class of our equity
securities to file reports of ownership and reports of changes in ownership with
the Securities and Exchange Commission ("SEC") and the American Stock Exchange.
Directors, certain officers and greater than 10% stockholders are also required
by SEC regulations to furnish us with copies of all reports that they file.
Based on our review of copies of such forms provided to us, we believe that all
filing requirements were complied with during the fiscal year ended March 31,
2001, except that Mr. Needham failed to file one Form 4 reporting the
disposition of shares indirectly beneficially owned by him.
30
Item 11. Executive Compensation
The following table sets forth the compensation paid by the Company for
services rendered in all capacities during the fiscal years ended March 31,
2001, 2000 and 1999 to all individuals serving as its chief executive officer in
the fiscal year ended March 31, 2001, and the other most highly compensated
executive officers other than the chief executive officer, whose annual salaries
and bonuses exceeded $100,000 and who were serving at March 31, 2001
(collectively, "Named Executive Officers"):
Summary Compensation Table
Annual Compensation Long-Term Compensation Awards
------------------- -----------------------------
Securities
Other Annual Restricted Underlying All Other
Year Ended Compensation Stock Options Compensation
Name and Principal Position March 31, Salary($) Bonus($) ($) Awards($) (#) ($)
--------------------------- --------- --------- -------- --- --------- --- ---
James F. O'Crowley, III, 2001 6,115 -- - 120,000 -- --
President and
Chief Executive Officer (1)
Steven J. Merker, 2001 270,462 -- - -- 80,000 133,714
Chairman and 2000 240,000 60,000 - -- 120,000 59,484
Chief Executive Officer (2) 1999 136,154 30,000 - -- 75,000 --
Karl M. Massaro, 2001 215,962 -- - -- 4,000 --
President (3) 2000 215,000 90,000 - -- 30,000 --
1999 203,461 -- - -- 15,000 --
Joseph Spinella, 2001 160,039 -- - -- 2,000 --
Chief Financial Officer (4) 2000 100,962 5,000 - -- 30,000 --
1999 -- -- - -- 2,000 --
John F. Silane, 2001 70,000 -- - -- -- --
Executive Vice President,
Operations (5)
James G. Reindl, 2001 137,500 -- - -- -- --
President, Critical 2000 -- -- - -- -- --
Components Division (6) 1999 -- -- - -- -- --
----------
(1) Mr. O'Crowley became our President and Chief Executive Officer on March
23, 2001. His base salary for the 2002 fiscal year is $265,000. Mr.
O'Crowley was issued 100,000 shares of restricted common stock on March
23, 2001, valued at $120,000 on such date. 25,000 shares vested
immediately and the remaining 75,000 shares vest ratably on September 22,
2001, March 22, 2002 and September 22, 2002. Mr. O'Crowley is entitled to
receive dividends, if declared, on the shares of restricted common stock.
(2) Mr. Merker resigned as our Chairman and Chief Executive Officer on March
23, 2001.
(3) Mr. Massaro resigned as our President on March 23, 2001 and became
President of our Truck Body/Trailer Division.
(4) Mr. Spinella has been a director since August 1997 and our Chief Financial
Officer since August 1999.
(5) Mr. Silane became our Executive Vice President, Operations in April 2000
and resigned on May 31, 2001.
(6) Mr. Reindl was a consultant to the Company between February 1999 and May
2000, and became President of our Critical Components Division in May
2000.
31
Option Grants In Last Fiscal Year
The following table sets forth all options granted to the Named Executive
Officers during the fiscal year ended March 31, 2001:
Number of Potential Realizable Value at
Securities Percent of Total Assumed Annual Rates Of
Underlying Options Granted Stock Price Appreciation
Options Granted to Employee in Exercise Price Expiration Date For Option Term (1)
Name (#) Fiscal Year ($/sh) (2) 0% ($) 5% ($) 10% ($)
---------------------------- --------------- ---------------- -------------- --------------- ------ ----- --------
James F. O'Crowley, III..... -- -- -- -- -- -- --
Steven J. Merker............ 80,000 65.6% 6.625 6/1/03 -- 83,541 175,430
Karl M. Massaro............. 4,000 3.3% 6.625 6/1/03 -- 2,716 5,565
Joseph Spinella............. 2,000 1.6% 6.625 6/1/03 -- 1,358 2,783
John F. Silane.............. -- -- -- -- -- -- --
James G. Reindl............. -- -- -- -- -- -- --
----------
(1) The potential realizable value amounts shown illustrate the values that
might be realized upon exercise immediately prior to the expiration of
their term using zero percent, five percent and ten percent appreciation
rates as required to be used in this table by the Securities and Exchange
Commission, compounded annually, and are not intended to forecast possible
future appreciation, if any, of our Common Stock price. Additionally,
these values do not take into consideration the provisions of the options
providing for non-transferability or termination of the options following
termination of employment. Therefore, the actual values realized may be
greater or less than the potential realizable values set forth in the
table.
(2) Options granted vest as follows: 0% at date of grant and 33 1/3% on each
subsequent anniversary of the date of grant.
Option Values at End of Fiscal Year
The following table sets forth the aggregate value as of March 31, 2001 of
unexercised stock options held by the Named Executive Officers. The Named
Executive Officers did not exercise any stock options during 2001 and the
relevant columns have therefore been omitted.
Number of Shares Value of
of Common Stock Underlying In-the-Money Options
Options at March 31, 2001 (#) at March 31, 2001 ($) (2)
----------------------------------------- ----------------------------------
Name Exercisable (1) Unexercisable (1) Exercisable (1) Unexercisble (1)
------------------------------------ --------------- ----------------- --------------- ----------------
James F. O'Crowley, III ............ -- -- -- --
Steven J. Merker ................... 90,000 185,000 -- --
Karl M. Massaro .................... 20,000 29,000 -- --
Joseph Spinella .................... 11,333 22,667 -- --
John F. Silane ..................... -- -- -- --
James Reindl ....................... -- -- -- --
----------
(1) Options granted during Fiscal Year 2000 and 2001 vest as follows: 0% at
date of grant and 33 1/3% on each subsequent anniversary of the grant.
Options indicated as exercisable are those options which were vested at
March 31, 2001. All options which had not vested at March 31, 2001 are
indicated as unexercisable.
32
(2) Value of underlying in-the-money options is based on the closing price of
our common stock on the American Stock Exchange on March 31, 2001 of $1.20
minus the exercise prices. None of the options were in-the-money on March
31, 2001.
Employment Agreements
We entered into an employment agreement with James F. O'Crowley, III as of
March 23, 2001. The agreement has a two-year term, subject to earlier
termination upon the occurrence of certain specified events. Pursuant to his
employment agreement, Mr. O'Crowley's current annual base salary is $265,000 and
such bonus compensation as the Board of Directors may determine. We have agreed
to pay or reimburse all expenses related to Mr. O'Crowley's relocation to the
New York City metropolitan area. Additionally, Mr. O'Crowley was granted 100,000
shares of restricted common stock, of which 25,000 shares vested immediately and
the remaining 75,000 shares vesting ratably on September 22, 2001, March 22,
2002 and September 22, 2002. If we terminate the agreement without cause or fail
to renew the agreement upon its expiration, we are obligated to pay Mr.
O'Crowley an amount equal to his then current annual base salary, payable over
the year following such termination or expiration, and his restricted stock
grant and any options to purchase stock will fully vest. In addition, in the
event Mr. O'Crowley is subject to any "golden parachute" provisions of the
Internal Revenue Code, we have agreed to pay Mr. O'Crowley a "gross-up" payment
to allow him to pay any excise taxes, interest or penalties due thereunder.
In January 1998, we entered into an employment agreement with Steven
Merker, which was amended in January 2001. The agreement as amended was to
terminate on January 27, 2004, subject to earlier termination upon the
occurrence of certain specified events. Pursuant to the amended agreement, Mr.
Merker's annual base salary was increased to $270,000. On May 31, 2001, Mr.
Merker's amended employment agreement was superceded by a separation and general
release agreement that provided for the payment of $270,000, payable over the
year commencing on June 1, 2001, and the continuation of health care and life
insurance benefits until May 31, 2002. The release agreement also contains
restrictive covenants preventing Mr. Merker from directly or indirectly
competing with us or from soliciting or servicing any of our suppliers or
customers for any competitive purpose prior to December 2002.
In January 1998, we entered into an employment agreement with Karl
Massaro, which was amended in January 2001. The agreement as amended terminates
on January 27, 2003, subject to earlier termination upon the occurrence of
certain specified events. Pursuant to the amended agreement, Mr. Massaro's
current annual base salary was increased to $220,000 and such bonus compensation
as the Board of Directors may determine. If we terminate the agreement without
cause, or if Mr. Massaro terminates his employment following a breach by us of
any material term of the agreement, his removal as President other than for
cause, a material change in his duties or responsibilities, our failure to
obtain a written agreement for our successor to assume and perform the
agreement, or a change in control of our company, we are obligated to continue
to pay Mr. Massaro his salary and bonus for the remainder of the term of the
agreement. The agreement also contains restrictive covenants prohibiting Mr.
Massaro from directly or indirectly competing with us east of the Mississippi
River during the three-month period commencing upon the termination of his
employment, and, during the six-month period following such termination, from
soliciting or servicing any of our suppliers or customers for any competitive
purpose, and from employing or retaining any employee of, or consultant to, the
Company, or soliciting any such employee or consultant to become affiliated with
any entity other than the Company.
In August 1999, we entered into an employment agreement with Joseph
Spinella. The agreement has a three year term, subject to earlier termination
upon the occurrence of certain specified events. Pursuant to his employment
agreement, Mr. Spinella's current annual base salary is $165,000 and such bonus
compensation as the Board of Directors may determine. In addition, pursuant to
the terms of the agreement, Mr. Spinella was eligible to receive an option to
purchase 25,000 shares of common stock and a signing bonus of $5,000. For the
convenience of the Company, Mr. Spinella has been provided with an apartment
near the Company's finance offices in Hillsborough, New Jersey. The agreement
also contains restrictive covenants preventing Mr. Spinella, for one year
following the termination of his employment, from directly or indirectly
competing with us or from soliciting or servicing any of our suppliers or
customers for any competitive purpose, and from employing or retaining any
employee of, or consultant to, the Company, or soliciting any such employee or
consultant to become affiliated with any entity other than the Company. We are
currently negotiating terms for Mr. Spinella's separation from the Company.
33
Compensation of Directors
Directors who are employees of the Company receive no additional
compensation for serving on the Board of Directors. Non-employee directors are
entitled to receive compensation of $500 per meeting attended and options to
purchase 2,000 shares of our common stock in respect of the first year of such
service as a director, and options to purchase 500 shares of our common stock
for each year of such service thereafter. We reimburse all directors for any
expenses incurred in attending board meetings. We have obtained liability
insurance for our officers and directors.
Compensation Committee Interlocks and Insider Participation
During the year ended March 31, 2001, the members of the Compensation
Committee were Messrs. Merker, Needham and Spinella. Mr. Spinella is our Chief
Financial Officer. Mr. Merker was our Chief Executive Officer from August 1997
until March 2001. None of our executive officers currently serves on the
compensation committee of another entity or another committee of the board of
another entity performing functions similar to the Compensation Committee. No
interlocking relationships exist between our board or our Compensation Committee
and the board of directors or compensation committee of any other company,
except that William Merker, a director of the Company from August 1997 until May
2001 and a 5% stockholder, Andrew A. Levy, a 5% stockholder and Steven J.
Merker, a director, member of our Compensation Committee and 5% stockholder, are
directors of Invatech Corporation ("Invatech"), a privately held environmental
services and products company. Joseph Spinella, a director, a member of our
Compensation Committee, our Secretary, and our Chief Financial Officer since
August 1999, and Paul Provost, a director, were directors of Invatech until
June 18, 2001. Beginning in the last fiscal year, we have provided Invatech with
office space and related office-support services in our New York City offices.
We do not have a formal written agreement with, nor do we receive any payments
from, Invatech. We estimate the value of the office space and services provided
in the last fiscal year to be approximately $88,000.
34
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to us regarding
beneficial ownership of the Company's common stock and preferred stock at July
12, 2001 by (i) each person known by us to own beneficially more than 5% of the
Company's common stock or preferred stock, (ii) each of our directors and Named
Executive Officers, and (iii) all Named Executive Officers and directors as a
group. Except as otherwise indicated, we believe, based on information furnished
by such owners, that the beneficial owners of the common stock and preferred
stock listed below have sole investment and voting power with respect to such
shares, subject to community property laws, where applicable. The table gives
effect to the shares of common stock and preferred stock issuable within 60 days
of July 12, 2001 upon the exercise of all options and other rights beneficially
owned by the indicated stockholders on that date. Beneficial ownership
percentage is based on 3,822,400 shares of common stock outstanding and
1,132,600 shares of preferred stock outstanding at July 12, 2001.
Number of Shares of Number of Shares of Percentage of
Common Stock Percentage of Common Preferred Stock Preferred Stock
Name and address of beneficial owner Beneficially Owned Stock Outstanding Beneficially Owned Outstanding
------------------------------------ ------------------ ----------------- ------------------ -----------
5% Stockholders
William Merker (1) ............................... 786,410 19.4% -- --
Andrew A. Levy (2) ............................... 669,650 17.5% -- --
Westport Resources Investment Services, Inc. (3).. 132,080 3.3% 101,601 8.2%
Directors and Executive Officers
James F. O'Crowley, III (4)....................... 100,000 2.6% -- --
Karl M. Massaro (5)............................... 173,000 4.5% -- --
Joseph Spinella (6)............................... 20,334 * -- --
John F. Silane (7) ............................... -- -- -- --
James G. Reindl .................................. -- -- -- --
Steven J. Merker (8).............................. 730,160 18.5% -- --
William C. Needham, Jr. (9)....................... 81,500 2.1% -- --
Paul Provost ..................................... -- -- -- --
John E. Elliott II ............................... 15,000 * -- --
James E. Gross (10)............................... 2,050 * -- --
All Directors and executive officers as a
group (10 persons) (11)........................ 1,122,044 27.5% -- --
----------
* Less than 1%.
(1) The address of Mr. Merker is c/o Industrial Precision Corp., 245 Park
Avenue, Suite 2444, New York, New York 10167. Based on the Form 4 filed by
Mr. Merker with the Securities and Exchange Commission for March 2001.
Includes 225,000 shares of common stock issuable upon exercise of a
warrant to purchase common stock exercisable within 60 days of July 12,
2001.
(2) The address of Mr. Levy is 46 Baldwin Farm North, Greenwich, CT 06831.
These shares include 158,330 shares owned by a family trust. Mr. Levy
disclaims beneficial ownership as to the shares owned by the family trust.
(3) The address for Westport Resources Investment Services, Inc. is 315 Post
Road West, Westport, Connecticut 06880. Common stock consists of shares
issuable upon the exercise of a warrant to purchase common stock
exercisable within 60 days of July 12, 2001. Preferred stock consists of
shares issuable upon the exercise of a warrant to purchase preferred stock
exercisable within 60 days of July 12, 2001.
(4) The shares listed are restricted stock. Mr. O'Crowley has sole voting
power over all shares. Mr. O'Crowley may not dispose of any unvested
portion of the shares. The shares vest semi-annually in three equal
installments beginning on September 22, 2001.
(5) Includes 28,000 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 12, 2001.
(6) The shares listed are issuable upon exercise of options exercisable within
60 days of July 12, 2001.
35
(7) Mr. Silane resigned on May 31, 2001.
(8) Includes 130,000 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 12, 2001.
(9) Consists of (i) 75,000 shares of common stock issuable upon exercise of a
warrant to purchase common stock exercisable within 60 days of July 12,
2001 and (ii) 6,500 shares held of record by the DDN Trust f/b/o William
C. Needham IV and Alexander Needham.
(10) Includes 2,000 shares of common stock issuable upon exercise of options
exercisable within 60 days of July 12, 2001.
(11) Includes 255,334 shares of common stock issuable upon exercise of options
and warrants to purchase common stock exercisable within 60 days of July
12, 2001.
Item 13. Certain Relationships and Related Transactions
Steven J. Merker and William Merker are brothers. There are no other
family relationships among our officers, directors and 5% stockholders.
In December 2000, we entered into an 18-month agreement with William
Merker, paying him $20,000 per month for operational consulting services. On May
16, 2001, that consulting services agreement, under which Mr. Merker had
received $100,000, was superceded by a separation and general release agreement
providing for a final payment of $20,000. Additionally, Mr. Merker is to receive
$500 per month and health insurance benefits through May 31, 2002. The release
also contains restrictive covenants prohibiting Mr. Merker from directly or
indirectly competing with us for an 18-month period or from soliciting or
servicing any of our suppliers or customers for any competitive purpose for a
24-month period.
On May 16, 2001, we entered into an agreement with William Merker, then a
director, to settle a dispute regarding the propriety of William Merker's
relationship with the agent associated with the purchase of Arell, Airborne and
TPG. Pursuant to the terms of this agreement, Mr. William Merker agreed to
transfer to us 200,000 shares of common stock held by him. In addition, Mr.
William Merker agreed to provide us with a promissory note, payable in three
months, in an aggregate principal amount equal to the amount by which $800,000
exceeds the fair market value of the transferred shares as determined by an
independent appraiser.
In August 2000, we acquired substantially all of the assets of Better
Built Equipment and all of the capital stock of TPG. We paid advisory fees in an
aggregate amount of $409,000 related to these acquisitions to Mayfair
Associates, an entity owned by William Merker.
In April 2000, we acquired all of the outstanding capital stock of
Airborne and Arell. We paid advisory fees related to these acquisitions,
consisting of an aggregate of 120,000 shares of our common stock and $785,000 in
cash, to Redstone Advisors, a partnership of which William Merker and Redstone
Capital Corporation (a corporation owned by Andrew A. Levy and certain of his
affiliates) are principals.
In January 1998, we, together with Carl Massaro, the father of Karl
Massaro, entered into a "triple net" lease of the former Ajax factory and office
facility owned by Carl Massaro and presently occupied by us. The lease provides
for annual rent of $600,000, which is payable monthly, and approximately $63,000
annually in triple net expenses for the first year. During the initial five-year
term of the lease, we have the option to purchase the leased facility and land
for a cash purchase price of $6.5 million, provided we are not in default under
the lease. The terms of the lease, including the purchase option, were
determined through arm's length negotiations.
William Merker, a director of the Company from August 1997 until May of
2001 and a 5% stockholder, is the sole director and stockholder of Industrial
Precision Corp. ("IPC"), a privately held precision machining company. During
April 2001, we entered into an agreement with IPC pursuant to which we assigned
to IPC our rights under letters of intent or otherwise with respect to
acquisition transactions for nine machining companies in exchange for 5% of the
founder's stock of IPC and the right to receive a fee of $225,000 in cash for
each acquisition that is consummated before May 2003 by IPC with the companies
subject to the agreement. Additionally, IPC is obligated to give us a right of
first refusal to manufacture any of its requirements for which we have the
capability (i.e., if IPC has a bona fide third-party offer to manufacture any
requirements, IPC must offer us ten days to commit to the requirement on the
same price, terms and conditions).
36
William Merker, a director of the Company from August 1997 until May 2001
and a 5% stockholder, Andrew A. Levy, a 5% stockholder and Steven J. Merker, a
director, member of our Compensation Committee and 5% stockholder, are directors
of Invatech Corporation ("Invatech"), a privately held environmental services
and products company. Joseph Spinella, a director, a member of our Compensation
Committee, our Secretary, and our Chief Financial Officer since August 1999 and
Paul Provost, a director, were directors of Invatech until June 18, 2001.
Beginning in the last fiscal year, we have provided Invatech with office space
and related office-support services in our New York City offices. We do not have
a formal written agreement with, nor do we receive any payments from, Invatech.
We estimate the value of the office space and services provided in the last
fiscal year to be approximately $88,000.
37
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 10-K
(a) Financial statements and schedules
The reports of independent certified public accountants, the consolidated
financial statements and the notes to the consolidated financial statements
required by this Item 14 are submitted as part of this Annual Report starting on
page F-1.
Financial Statements of Standard Automotive Corporation
Page
----
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of March 31, 2001 and 2000 F-2
Consolidated Statements of Operations for the years ended March 31, 2001, 2000 and 1999 F-3
Consolidated Statements of Stockholders' Equity for the years ended March 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Cash Flows for the years ended March 31, 2001, 2000 and 1999 F-5
Notes to Consolidated Financial Statements F-6
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
applicable or not required under the related instructions or because the
required information is presented in the financial statements or notes thereto
and therefore, have been omitted.
38
Exhibits
The following Exhibits are filed as a part of this Report as required by
Regulation S-K. The Exhibits designated by a pound sign (#) are management
contracts and compensation plans and arrangements required to be filed as
Exhibits to this Report.
Exhibit No. Description of Exhibit
----------- ------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of the
Company *
3.2 Form of Certificate of Designation, Preferences and Rights
of 8 1/2% Senior Convertible Redeemable Preferred Stock *
3.3 By-Laws of the Company *
10.1 Stock Purchase and Redemption Agreement between Standard
Automotive Corporation and Carl Massaro dated August 11,
1997 *
10.2 Form of Employment Agreement between the Company and Karl
Massaro *#
10.3 Form of Consulting Agreement between the Company and Carl
Massaro *#
10.4 Form of Employment Agreement between the Company and Steven
Merker *#
10.5 Form of Lease between the Company and Carl Massaro *
10.6 Form of Option Agreement between the Company and Carl
Massaro *
10.7 1997 Incentive Stock Option Plan *#
10.8 Advisory Agreement dated as of February 1, 1997 between the
Company and Barclay Partners LLC *
10.9 Advisory Agreement dated as of February 1, 1997 between the
Company and Redstone Capital Corp. *
10.10 Form of Redemption Note to be executed by the Company in
favor of Carl Massaro *
10.11 Form of Security Agreement between the Company and Carl
Massaro *
10.12 Form of Guaranty made by the Company in favor of Carl
Massaro *
10.14 Amendment dated December 8, 1997 to Stock Purchase and
Redemption Agreement dated August 11, 1997 between
Standard Automotive Corporation and Carl Massaro *
10.15 Remediation Agreement dated as of December 10, 1997 between
Ajax Manufacturing Company and the New Jersey Department
of Environmental Protection *
10.16 Second Amendment dated as of January 5, 1998 to Stock
Purchase and Redemption Agreement dated August 11, 1997
between Standard Automotive Corporation and Carl Massaro *
10.17 Stock Purchase Agreement by and among Barclay Investments,
Inc., CPS Trailer Company, Inc. and the sole shareholder
thereof **
10.18 Stock Purchase Agreement dated as of February 13, 1998 by
and among Barclay Investments, Inc., R/S Truck Body, Inc.
and the shareholders thereof ***
10.19 Stock Purchase Agreement dated as of February 24, 1998 by
and among Standard Automotive Corporation, Barclay
Investments, Inc. and the shareholders thereof ****
10.20 First Amendment dated as of June 10, 1998 to Stock Purchase
Agreement dated as of January 30, 1998 by and among
Barclay Investments, Inc., CPS Trailer Company, Inc. and the
sole shareholder thereof +
10.21 First Amendment dated as of May 31, 1998 to Stock Purchase
Agreement dated as of February 13, 1998 between Barclay
Investments, Inc., R/S Truck Body, Inc. and the shareholders
thereof +
10.22 Second Amendment dated as of June 22, 1998 to Stock
Purchase Agreement dated as of February 13, 1998 between
Barclay Investments, Inc., R/S Truck Body, Inc. and the
shareholders thereof +
10.22(a) Second Amendment dated as of July 8, 1998 to Stock Purchase
Agreement dated as of January 30, 1998 between Barclay
Investments, Inc., R/S Truck Body, Inc. and the shareholders
thereof ++
10.22(b) First Amendment dated as of July 7, 1998 to Stock Purchase
Agreement dated as of February 24, 1998 by and among
Standard Automotive Corporation, Barclay Investments, Inc.
and the shareholders thereof +++
10.23 Asset Purchase Agreement dated as of April 16, 1999 by and
among Standard, Critical Components Corporation, Ranor, Inc.
(Delaware), Ranor, Inc. (Massachusetts), the shareholders
thereof and Five N Leasing Co. ++++
10.24 Amended and Restated Credit Agreement dated June 16, 1999
between Standard, its subsidiaries and PNC Bank, National
Association, as agent ++++
10.25 Employment Agreement dated as of August 1, 1999 between
Standard and Joseph Spinella #
39
10.26 Stock Purchase Agreement dated as of March 3, 2000 by and
among 9088-0642 Quebec Inc., Atelier D'Usinage Arell Ltee
and the individuals named therein
10.27 Amended and Restated Credit Agreement dated April 25, 2000
by and among Standard and Critical Components Canada Ltd as
Borrowers, the several banks and other financial
institutions from time to time parties thereto as Banks, PNC
Bank, National Association as Administrative Agent, ING
(U.S.) Capital LLC as Syndication Agent and PNC Capital
Markets, Inc. and ING Barings LLC as Joint Arrangers
10.28 First Amendment dated as of May 15, 2000 to Employment
Agreement dated as of January 27, 1998 between Ajax
Manufacturing Company and Karl Massaro #
10.29 Purchase Agreement dated as of August 31, 2000 by and among
PGI Acquisition Inc., The Providence Group, Inc. and the
sole shareholder thereof
10.30 Consulting Agreement dated as of November 15, 2000 between
Standard and William Merker #
10.31 First Amendment dated as of January 10, 2001 to Employment
Agreement dated as of January 27, 1998 between Ajax
Manufacturing Company and Steven J. Merker #
10.32 Employment Agreement dated as of March 23, 2001 between
Standard and James F. O'Crowley III #
10.33 Forbearance Agreement dated as of April 2, 2001 by and among
Standard and Arell Machining Ltd. as Borrowers, PNC Bank,
National Association, ING (U.S.) Capital LLC, Fleet National
Bank, Sovereign Bank, The Bank of New York, Keybank National
Association, Oceanfirst Bank and Firstar Bank, N.A. as
Banks, PNC Bank, National Association as Administrative
Agent, ING (U.S.) Capital LLC as Syndication Agent and PNC
Capital Markets, Inc. and ING Barings LLC as Joint Arrangers
10.34 Assignment and Assumption Agreement dated as of April 25,
2001 between Standard and Industrial Precision Corporation
10.35 Second Forbearance Agreement dated as of May 21, 2001 by and
among Standard and Arell Machining Ltd. as Borrowers, PNC
Bank, National Association, ING (U.S.) Capital LLC, Fleet
National Bank, Sovereign Bank, The Bank of New York, Keybank
National Association, Oceanfirst Bank and Firstar Bank, N.A.
as Banks, PNC Bank, National Association as Administrative
Agent, ING (U.S.) Capital LLC as Syndication Agent and PNC
Capital Markets, Inc. and ING Barings LLC as Joint Arrangers
10.36 Separation and General Release Agreement dated as of May 31,
2001 between Standard and Steven J. Merker #
10.37 Separation and General Release Agreement dated as of May 31,
2001 between Standard and William Merker #
18 Letter re Change in Accounting Principles
21 Subsidiaries of the Registrant
----------
* Incorporated by reference to the identically numbered exhibit to the
Company's Registration Statement on Form S-1, File No. 333-33465.
** Incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1997.
*** Incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1997.
**** Incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1997.
+ Incorporated by reference to the identically numbered exhibit to the
Company's Form 10-K for the fiscal year ended March 31, 1998.
++ Incorporated by reference to Exhibit 2.7 to the Company's Form 8-K
dated August 5, 1998.
+++ Incorporated by reference to Exhibit 2.8 to the Company's Form 8-K
dated August 5, 1998.
++++ Incorporated by reference to the identically numbered exhibit to the
Company's Form 10-K for the fiscal year ended March 31, 1999.
40
(b) Reports on Form 8-K
The Company has filed the following reports on Form 8-K during and
subsequent to the fiscal year ended March 31, 2001.
Date of Report Item(s) Reported
-------------- -----------------------------------------------------
June 9, 2000 Acquisitions of Arell Machining Ltd. and Airborne
Gear & Machine Ltd.
July 11, 2000 Financial statements of Airborne Gear & Machine Ltd.
October 25, 2000 Restated financial statements of Ranor, Inc. for the
fiscal year ended December 31, 1998, litigation
between Standard and the independent auditors of
Ranor, Inc. relating thereto and arbitration
proceedings between Standard and Ranor, Inc. relating
to purchase price adjustments as a result thereof
December 27, 2000 Suspension of dividends on the Company's 8 1/2%
Senior Convertible Redeemable Preferred Stock
May 23, 2001 Resignation of William Merker from the board of
directors and election of James F. O'Crowley III,
James Edward Gross and John E. Elliott II to the
board of directors
June 7, 2001 Resignation of Steven J. Merker as Chairman of the
board of directors
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on July
16, 2001.
STANDARD AUTOMOTIVE CORPORATION
By: /s/ James F. O'Crowley, III
-------------------------------------
James F. O'Crowley, III
President and Chief Executive Officer
Pursuant to requirements of the Securities Exchange Act of 1934, as
amended, 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 Title(s) Date
------------------------------ ----------------------------------------------------- ---------------
/s/ James F. O'Crowley, III President, Chief Executive Officer and Director July 16, 2001
------------------------------ (principal executive officer)
James F. O'Crowley, III
/s/ Joseph Spinella Chief Financial Officer, Secretary and Director July 16, 2001
------------------------------ (principal financial and accounting officer)
Joseph Spinella
/s/ Karl M. Massaro President of Truck Body/Trailer Division and Director July 16, 2001
------------------------------
Karl M. Massaro
/s/ James E. Gross Director July 14, 2001
------------------------------
James E. Gross
/s/ John E. Elliott II Director July 16, 2001
------------------------------
John E. Elliott II
/s/ Steven J. Merker Director July 16, 2001
------------------------------
Steven J. Merker
/s/ William C. Needham, Jr. Director July 16, 2001
------------------------------
William C. Needham, Jr.
/s/ Paul Provost Director July 15, 2001
------------------------------
Paul Provost
42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of
Standard Automotive Corporation:
We have audited the accompanying consolidated balance sheets of Standard
Automotive Corporation (a Delaware Corporation) as of March 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years ended March 31, 2001. 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 audits.
We conducted our audits 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 audits provide 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 Standard Automotive Corporation
as of March 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years ended March 31, 2001 in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered net losses and is in
default of certain financial covenants under its credit facility. In addition,
the Company has failed to make scheduled interest and principal payments on the
credit facility and is currently in arrears on the payment of certain federal
excise taxes and preferred dividends. These issues raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plan in regards to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As explained in Note 3 to the financial statements, effective January 1, 2001,
the Company changed its method of accounting for certain sales transactions.
New York, New York
July 12, 2001
Arthur Andersen LLP
F-1
STANDARD AUTOMOTIVE CORPORATION
Consolidated Balance Sheets
(in thousands)
March 31,
-------------------------
2001 2000
--------- ---------
Assets
Cash and cash equivalents ...................................... $ 857 $ 3,136
Marketable securities .......................................... 102 102
Accounts receivable, net of allowance for doubtful accounts
of $424 and $136 respectively ............................... 10,620 25,217
Other receivables .............................................. 279 --
Inventory, net ................................................. 32,052 20,602
Prepaid expenses ............................................... 1,502 1,269
Federal tax receivable ......................................... 7,041 --
Deferred taxes ................................................. 827 768
--------- ---------
Total current assets ...................................... 53,280 51,094
Property and equipment, net .................................... 44,891 38,724
Intangible assets, net of accumulated amortization of $5,408 and
$2,522, respectively ........................................ 60,538 44,151
Deferred financing costs ....................................... 4,175 2,234
Other assets ................................................... 121 1,062
--------- ---------
Total assets .............................................. $ 163,005 $ 137,265
========= =========
Liabilities and Stockholders' Equity
Accounts payable ............................................... $ 12,721 $ 19,037
Accrued expenses ............................................... 7,726 2,451
Liabilities due to banks ....................................... 95,641 4,000
Income taxes payable ........................................... 800 219
Federal excise taxes payable ................................... 6,747 8,292
Cumulated preferred stock dividend ............................. 578 --
Other current liabilities ...................................... 7,944 2,087
--------- ---------
Total current liabilities ................................. 132,157 36,086
--------- ---------
Long term debt ................................................. -- 64,157
Other long term liabilities .................................... 99 104
Deferred taxes ................................................. 4,298 --
--------- ---------
Total long term liabilities ............................... 4,397 64,261
--------- ---------
Total liabilities ..................................... 136,554 100,347
========= =========
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,
3,822,400and 3,602,400 issued and outstanding, respectively . 4 4
Additional paid-in capital ..................................... 31,308 30,208
Deferred compensation .......................................... (90) --
Retained earnings (deficit) .................................... (4,665) 6,705
Accumulated other comprehensive income (loss) .................. (107) --
--------- ---------
Total stockholder's equity ..................... 26,451 36,918
--------- ---------
Total liabilities & stockholder's equity ....................... 163,005 100,347
========= =========
The accompanying notes are an integral part of these
consolidated balance sheets.
F-2
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Operations
(in thousands, except net income per share data)
For the Years Ended March 31,
----------------------------------------
2001 2000 1999
--------- --------- ---------
Revenues, net ............................................. $ 137,351 $ 159,476 $ 75,452
Operating costs and expenses:
Cost of revenues ..................................... 111,434 129,090 59,954
Selling, general and administrative expenses ......... 21,816 14,273 6,613
Amortization of intangible assets .................... 2,861 1,466 1,044
--------- --------- ---------
Total operating costs and expenses ................... 136,111 144,829 67,611
--------- --------- ---------
Operating income .......................................... 1,240 14,647 7,841
Interest expense .......................................... 11,927 5,045 1,813
Other expense (income), net ............................... 364 250 280
--------- --------- ---------
Income (loss) before income taxes ......................... (11,051) 9,352 5,748
Provision (benefit) for income taxes ...................... (1,547) 3,955 2,266
--------- --------- ---------
Net income (loss) before cumulative effect of change in
accounting principle ................................... (9,504) 5,397 3,482
Cumulative effect on prior years of changing to a different
method of recognizing revenue .......................... (711) -- --
--------- --------- ---------
Net income (loss) ......................................... (10,215) 5,397 3,482
--------- --------- ---------
Preferred dividend ........................................ 1,155 1,160 1,173
--------- --------- ---------
Net income (loss) available to common stockholders ........ $ (11,370) $ 4,237 $ 2,309
========= ========= =========
Per share amounts -- Basic net income (loss) per share:
Basic income (loss) per share attributable to
common stockholders before cumulative effect
of change in accounting principle ............. $ (2.87) $ 1.17 $ 0.69
Cumulative effect on prior years of changing
to a different method of recognizing revenue .. (0.19) -- --
--------- --------- ---------
$ (3.06) $ 1.17 $ 0.69
========= ========= =========
Diluted net income (loss) per share:
Diluted income (loss) per share attributable to
common stockholders before cumulative effect
of change in accounting principle ............. $ (2.87) $ 1.11 $ 0.69
Cumulative effect on prior years of changing to
a different method of recognizing revenue ..... (0.19) -- --
--------- --------- ---------
$ (3.06) $ 1.11 $ 0.69
========= ========= =========
Basic weighted average number of shares outstanding ....... 3,716 3,623 3,356
========= ========= =========
Diluted weighted average number of shares outstanding ..... 3,716 4,867 3,356
========= ========= =========
Pro forma amounts assuming the different method of
recognizing revenue is applied retroactively
Net income (loss) .................................... $ (9,504) $ 4,920 $ 3,248
========= ========= =========
Basic net income (loss) per share .................... $ (2.87) $ 1.04 $ 0.62
========= ========= =========
Diluted net income (loss) per share .................. $ (2.87) $ 1.01 $ 0.62
========= ========= =========
The accompanying notes are an integral part of these
consolidated statements.
F-3
Standard Automotive Corporation
Consolidated Statements of Stockholders' Equity (in thousands)
Preferred Common Common Stock
Shares Preferred Shares Subscription
Outstanding Stock Outstanding Common Stock Receivable
----------- -------- ----------- ------------ --------
Balance - March 31, 1998 ....... 1,150 $ 1 3,095 $ 3 $ (2)
Payment of Common Stock
Subscription Receivable ..... -- -- -- -- 2
Shares Issued for Acquisitions . -- -- 405 1 --
Warrants and Options Issued .... -- -- -- -- --
Preferred Stock Dividend ....... -- -- -- -- --
Net Income ..................... -- -- -- -- --
-------- -------- ------- -------- --------
Balance - March 31, 1999 ....... 1,150 1 3,500 4 --
Shares Issued for Acquisitions . -- -- 180 -- --
Warrants and Options Issued .... -- -- -- -- --
Preferred Stock Dividend ....... -- -- -- -- --
Conversion of Preferred Stock to
Common Stock ................ (17) -- 17 -- --
Purchase of Treasury Stock ..... -- -- (95) -- --
Net Income .....................
-------- -------- ------- -------- --------
Balance - March 31, 2000 ....... 1,133 $ 1 3,602 $ 4 $ --
======== ======== ======= ======== ========
Currency Translation Adjustment
Shares Issued for Acquisitions . -- -- 120 -- --
Shares Issued to Employees ..... 100
Warrants and Options Issued .... -- -- -- -- --
Preferred Stock Dividend ....... -- -- -- -- --
Net Income ..................... -- -- -- -- --
-------- -------- ------- -------- --------
Balance - March 31, 2001 ....... 1,133 $ 1 3,822 $ 4 $ --
======== ======== ======= ======== ========
Additional Other Accumulated Total
Paid In Deferred Retained Comprehensive Stockholders'
Capital Compensation Earnings Income (Loss) Equity
-------- -------- -------- --------- --------
Balance - March 31, 1998 ....... $ 24,548 $ -- $ 159 $ 24,709
Payment of Common Stock
Subscription Receivable ..... -- -- -- 2
Shares Issued for Acquisitions . 3,559 -- -- 3,560
Warrants and Options Issued .... 336 -- -- 336
Preferred Stock Dividend ....... -- -- (1,173) (1,173)
Net Income ..................... -- 3,482 3,482
-------- -------- -------- --------- --------
Balance - March 31, 1999 ....... 28,443 -- 2,468 -- 30,916
Shares Issued for Acquisitions . 2,565 -- -- 2,565
Warrants and Options Issued .... 200 -- -- 200
Preferred Stock Dividend ....... -- -- (1,160) (1,160)
Conversion of Preferred Stock to
Common Stock ................ -- -- --
Purchase of Treasury Stock ..... (1,000) -- -- (1,000)
Net Income ..................... 5,397 5,397
-------- -------- -------- --------- --------
Balance - March 31, 2000 ....... $ 30,208 $ -- $ 6,705 $ -- $ 36,918
======== ======== ======== ========= ========
Currency Translation Adjustment (107) (107)
Shares Issued for Acquisitions . 780 -- -- 780
Shares Issued to Employees ..... 120 (90) 30
Warrants and Options Issued .... 200 -- 200
Preferred Stock Dividend ....... -- -- (1,155) -- (1,155)
Net Income ..................... -- -- (10,215) -- (10,215)
-------- -------- -------- --------- --------
Balance - March 31, 2001 ....... $ 31,308 $ (90) $ (4,665) $ (107) $ 26,451
======== ======== ======== ========= ========
The accompanying notes are an integral part of these
consolidated statements.
F-4
STANDARD AUTOMOTIVE CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
For the Years Ended March 31,
-------------------------------------
2001 2000 1999
---------- ---------- ----------
Cash flows from operating activities:
Net income (loss) ............................................................ $ (9,504) $ 5,397 $ 3,482
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in accounting method ............................................. (711) -- --
Foreign currency translation adjustment ................................. (107) -- --
Non-cash purchase price adjustment ...................................... (636) -- --
Depreciation and amortization ........................................... 7,494 4,516 1,926
Non-cash interest and compensation ...................................... 1,149 240 337
Deferred taxes .......................................................... 1,176 -- (350)
Change in assets and liabilities:
Accounts receivable ..................................................... 17,720 (15,722) (331)
Inventory ............................................................... (6,646) (1,849) (2,948)
Income taxes receivable ................................................. (7,042) -- --
Prepaid expenses and other .............................................. 2,921 420 (656)
Accounts payable and accrued expenses ................................... (2,018) 10,770 6,665
Income taxes payable .................................................... (520) 48 (737)
Federal excise taxes payable ............................................ (1,545) -- --
Other liabilities ....................................................... 1,955 -- 1,707
---------- ---------- ----------
Net cash provided by operating activities .................................... 3,686 3,820 9,095
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired ........................... (27,034) (26,387) (21,470)
Deferred acquisition costs ................................................ -- (801) --
Purchase of marketable securities ......................................... -- --
Acquisition of property and equipment ..................................... (3,781) (3,959) (6,110)
---------- ---------- ----------
Net cash used in investing activities ........................................ (30,815) (31,147) (27,580)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from bank loan ................................................... 32,255 33,744 26,710
Repayment bank loan ....................................................... (4,008) (3,625) (1,875)
Deferred financing costs .................................................. (2,820) (1,182) (667)
Preferred dividend payment ................................................ (577) (1,160) (1,173)
Purchase of treasury stock ................................................ -- (1,000) --
Repayment of acquisition note ............................................. -- -- (4,000)
Other ..................................................................... -- -- (79)
---------- ---------- ----------
Net cash provided by financing activities .................................... 24,850 26,777 18,916
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ......................... (2,279) (550) 431
Cash and cash equivalents, beginning of period ............................... 3,136 3,686 3,255
---------- ---------- ----------
Cash and cash equivalents, end of period ..................................... $ 857 $ 3,136 $ 3,686
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ................................................................ $ 8,510 $ 4,934 $ 1,886
Income taxes ............................................................ 3,071 3,914 2,822
The accompanying notes are an integral part of these
consolidated statements.
F-5
STANDARD AUTOMOTIVE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization
Standard Automotive Corporation ("we," the "Company" or "SAC") was
incorporated in Delaware in January 1997. The Company conducted no operations
during the fiscal year ended March 31,1997. The Company has two operating
divisions: the Truck Body/Trailer Division and the Critical Components Division.
Truck Body/Trailer Division
The Truck Body/Trailer Division'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 the following wholly owned
subsidiaries:
Ajax designs, manufactures and sells container chassis, refurbishes (or
"re-manufactures") used chassis, and manufactures specialty
transportation equipment. Container chassis are used to transport
maritime shipping containers from container ships to inland
destinations. Container chassis are sold to leasing companies, large
steamship lines, railroads and trucking companies to transport overland
20-, 40-, 45- and 48-foot shipping containers. Ajax operates facilities
in Hillsborough, New Jersey and Sonora, Mexico.
R/S Truck Body Co., Inc. ("R/S"), located in Ivel, Kentucky, designs,
manufactures and sells customized, high end, steel and aluminum dump
truck bodies, platform bodies, custom large dump trailers, specialized
truck suspension systems and related products and parts. R/S recently
introduced several new products to the market, including the aluminum
platform trailer and the aluminum elliptical body.
CPS Trailer Co. ("CPS"), located in Oran, Missouri, designs,
manufactures and sells bottom dump trailers, half-round end dump
trailers, light-weight end dump trailers, grain hopper trailers and
walking floor van trailers, used for hauling bulk commodities such as
gravel and grain, and for the construction, agriculture and waste
hauling industries.
Critical Components Division
The Critical Components Division designs, manufactures and sells
precision-machined components to original equipment manufacturers ("OEMs") in
the aerospace, nuclear, defense and industrial markets through the following
wholly-owned subsidiaries:
Ranor, Inc. ("Ranor"), located in Westminster, Massachusetts,
specializes in the fabrication and precision machining of large metal
components that exceed one hundred tons for the aerospace, nuclear,
military, shipbuilding and power generation markets as well as national
laboratories. Ranor manufactures domes, machined in one piece, for
Boeing's Delta rocket program. Additionally, Ranor manufactures and
supplies steam accumulator tanks for U.S. Navy nuclear-powered aircraft
carriers, as well as large precision vacuum chambers for the National
Ignition Laboratories at Lawrence Livermore. Ranor also manufactures
and supplies large machined casings for ground-based, gas turbine power
generation engines, and nuclear spent fuel canisters.
Airborne Machine & Gear, Ltd. ("Airborne"), located in St. Leonard,
Quebec, Canada, is principally engaged in the manufacture and sale of
hot section engine components in exotic materials including Inconel (a
nickel alloy), titanium and beryllium copper. Airborne operates under
long-term agreements with, and is considered a preferred vendor by, its
significant customers. We acquired Airborne in April 2000.
F-6
Arell Machining, Ltd. ("Arell"), located in Anjou, Quebec, Canada,
manufactures hot and cold section engine components, airframe
structural components and landing gear kits and assemblies for the
aerospace market. Arell operates under long term agreements with, and
is considered a preferred supplier by, its significant customers. We
acquired Arell in April 2000.
The Providence Group, Inc. ("TPG"), located in Knoxville, Tennessee, is
a specialized engineering services company that provides engineering
services predominately in the environmental and nuclear industries. TPG
designs, manufactures and operates a line of remote robotic retrieval
systems used in the cleaning and transferring of stored nuclear waste.
We acquired TPG in September 2000.
Basis of Presentation
We are currently in default of certain financial covenants under our
credit facility. In addition, we failed to make scheduled interest and principal
payments totaling approximately $2.8 million and $4.2 million under the credit
facility on March 31, 2001 and July 2, 2001, respectively, which constituted
additional events of default thereunder. Absent significant additional financing
or a restructuring, we expect to be unable to pay additional principal and
interest payments totaling approximately $4.1 million on the next payment date
of September 30, 2001. We are currently operating under the terms of a
forbearance agreement pursuant to which the lenders under our credit facility
have agreed to forbear enforcing their rights under the credit facility for a
period ending on July 17, 2001. Under the terms of the forbearance agreement, we
have agreed with our lenders, among other things, that, in exchange for their
forbearance, we will not request any additional loans under the credit facility,
pay any dividends on our preferred stock, pay any principal or interest on our
subordinated debt or make any payments in respect of earn-out obligations
relating to acquisitions. As a result of our defaults under the credit facility,
interest on the entire unpaid principal and interest of $95.1 million as of June
30, 2001 is accruing at default rates having a weighted average of 10.75% per
annum. We are currently in arrears on payment of certain federal excise taxes of
approximately $6.7 million, on which approximately $1.5 million of interest was
accrued as of June 30, 2001. We expect to attempt to negotiate a payment plan
with the Internal Revenue Service ("IRS") to resolve the arrearage. Although no
formal plan is yet in place, we made a tax payment in the amount of $634,135 on
March 9, 2001, and intend to make monthly payments of $20,000 on July 15, 2001,
August 15, 2001 and September 15, 2001. Further, the IRS has the statutory
authority to impose penalties which could be material.
The above factors raise substantial doubt regarding the Company's
ability to continue as a going concern. These financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
We are currently developing a business plan that will offer a basis for
a restructuring proposal that we intend to provide to our creditors that we
expect will include additional, new equity or equity-linked financing. We have
engaged an investment banking firm to assist us in obtaining additional
financing, although we can give no assurance that our efforts to obtain
additional financing or restructure our existing indebtedness will be
successful. Events of default under our existing indebtedness and our recent
history of losses increase the difficulty of obtaining such additional
financing. Any additional financing will require the consent of our senior
lenders and, to the extent it contemplates the issuance of shares of preferred
stock senior to our existing preferred stock, holders of a majority of the
shares of our preferred stock. We may be unable to effectuate a restructuring
proposal if we are unable to reach agreement with our creditors or existing
preferred stockholders or because we are unable to obtain additional financing.
In the event that we obtain additional financing and/or a restructuring of our
existing indebtedness, such events could cause a change of control of the
company.
If we are unable to accomplish an out-of-court restructuring, we may
seek protection from our creditors. Moreover, it is possible that our creditors
may seek to initiate involuntary proceedings against us or against one or more
of our subsidiaries in the United States and/or in Canada or Mexico, which would
force us to make defensive voluntary filing(s) of our own. Should we be forced
to take action with respect to one or more of our foreign subsidiaries, such
filings raise substantial additional risk to us and to the success of our
proposed restructuring transaction due to both the uncertainty created by
foreign creditors' rights laws and the additional complexity that would be
caused by such additional filings. We can provide no assurance that we would be
able to successfully restructure our foreign subsidiaries should such filings be
F-7
required. In addition, if we restructure our debt or file for protection from
our creditors, it is very likely that our common stock and preferred stock will
be severely diluted if not eliminated entirely.
2. Acquisitions and Pro Forma Information
In January 1998, we executed an agreement to purchase all the
outstanding shares of Ajax for a total purchase price of approximately
$23,819,000 (including assumed liabilities of approximately $5,772,000),
comprised of a cash payment of approximately $19,618,000 and incurred a debt
obligation of approximately $4,000,000 to the Ajax shareholder and other
consideration valued at approximately $201,000. In connection with the
acquisition, we paid advisory fees of $160,000 to certain directors and officers
of the Company. The acquisition was accounted for as a purchase and,
accordingly, our 1998 financial statements include the results and activity of
Ajax for only the period of January 27, 1998 through March 31, 1998. The excess
of the purchase price over the fair value of Ajax's net assets at the date of
acquisition totaled approximately $15,257,000. This amount is being amortized on
a straight-line basis over a 20-year period. The final allocation of the Ajax
purchase price was subject to a post closing balance sheet adjustment which
increased the purchase price by $453,000. The total amount due of $4,453,000 has
been paid to the Ajax shareholder.
In July 1998, we purchased all the outstanding shares of Barclay
Investments, Inc. ("Barclay"), a non-operating entity, and R/S. In September
1998, we purchased all the outstanding shares of CPS. In connection with these
acquisitions, we paid advisory fees of $813,000 to certain directors and
officers of the Company. These acquisitions were accounted for using the
purchase-method of accounting. The aggregate purchase price of approximately
$24,000,000 (including assumed liabilities of approximately $9,982,000) has been
allocated to the assets acquired and liabilities assumed based on respective
fair values at the dates of acquisition. The excess of the purchase price over
the fair value of net assets of R/S and CPS at the dates of acquisition totaled
approximately $14,492,000. This amount is being amortized on a straight-line
basis over a period not to exceed forty years. The Company had independent
appraisals performed in order to properly value and amortize the useful lives of
the assets acquired.
In June 1999, we acquired all of the outstanding capital stock of
Critical Components Corporation ("CCC"), a non-operating company, and through
CCC, acquired substantially all of the assets of Ranor, a fabricator of large
precision assemblies for the aerospace, nuclear, industrial and defense markets.
In connection with the acquisition, we paid advisory fees consisting of 180,000
shares of common stock and $952,000 in cash to Redstone Advisors, a related
party. The consideration paid to Ranor was $28,800,000 (including assumed
liabilities of approximately $1,398,000), subject to final adjustment, of which
$23,500,000 was paid in cash and $5,300,000 was paid in the form of convertible
subordinated notes, issued by the Company and convertible into common stock of
Critical Components Corporation. The acquisition was accounted for as a
purchase. The excess of the purchase price over the fair value of the net assets
acquired was approximately $16,200,000.
In April 2000, we acquired all of the outstanding capital stock of
Airborne and Arell. In connection with the acquisition, we paid advisory fees
consisting of 120,000 shares of common stock and $785,000 in cash to Redstone
Advisors, a related party. The consideration paid for Airborne was approximately
$13,910,000, of which $12,342,000 was paid in cash to the seller and $1,568,000
was incurred in fees. The consideration for Arell was approximately $9,694,000,
of which $8,556,000 was paid in cash to the seller and $1,138,000 was incurred
in fees. The acquisiton was accounted for as a purchase.
We obtained independent appraisals 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
$8,001,000 and $6,468,000, respectively. Such amounts are recorded among the
intangible assets and are being amortized over 20 years.
To the extent that Airborne and Arell generate a cumulative earnings
before interest, taxes, depreciation and amortization ("EBITDA") of at least
$5.7 million in any of the three years following the date of acquisition the
former owners are entitled to receive earn out payments in respect of that year.
In the event that all EBITDA targets are achieved in the three years following
the closing, these payments would total an additional $5.1 million.
On August 31, 2000, we acquired all of the capital stock of TPG. In
connection with the acquisition, we paid advisory fees of $409,000 to Mayfair
F-8
Associates, a related party owned by William Merker, the brother of Steven
Merker, former Chairman. The consideration paid for TPG was approximately
$3,322,000 consisting of a $3,000,000 payment to the seller, as well as
acquisition-related expenses of approximately $322,000. As part of the agreement
the seller agreed to deliver $1 million of net book value at the closing. The
Company determined that such amount was not delivered. The seller settled the
matter by waving its future earn out rights. The acquisition has been accounted
for as a purchase. During March 2001, we recorded a charge of $966,000 against
gooodwill related to the writedown of certain amounts due from the seller.
The following unaudited pro forma consolidated statements of operations
data for the years ended March 31, 2001 and 2000 give effect of the acquisitions
of Airborne, Arell and TPG as if each of these acquisitions had occurred on
April 1, 2000 and 1999.
Year Ended Year Ended
March 31, 2001 March 31, 2000
-------------- --------------
Pro Forma:
Revenues, net.......................... $ 143,001 $ 183,068
Operating income....................... 893 19,911
Net income............................. (10,409) 8,032
================= =================
Preferred dividend..................... 1,155 1,160
Basic net income (loss) per share...... $ (3.11) $ 1.90
================= =================
Diluted net income (loss) per share.... $ (3.11) $ 1.65
================= =================
The pro forma operating results reflect estimated adjustments for
amortization expense on intangibles arising from the acquisitions and interest
expense on the acquisition debt and also the related tax effects thereon.
Pro forma results of operations information is not necessarily
indicative of either the results of operations that would have occurred had the
acquisitions been consummated as of April 1, 2000 or future results of the
combined companies.
3. Change in Accounting Policy
Prior to January 1, 2001, we recognized revenue on sales of truck
chassis manufactured by an operating entity in our Truck Body/Trailer Division
using the "bill and hold" method of accounting. We employed this method because,
based on the customer's request, we manufactured and segregated truck chassis
for delivery based on the customers predetermined needs. We believe these
arrangements met all of the requirements of Staff Accounting Bulletin, Revenue
Recognition in Financial Statements ("SAB 101") regarding "bill and hold" sales.
In the fourth quarter of fiscal 2001, we changed our accounting policy for
revenue recognition with respect to these sales to record revenue after receipt
of the chassis by the customer. The administrative effort to maintain the former
policy was too burdensome and not cost effective for us as well as our customers
and accordingly we will recognize revenue on these types of sales when the
customer takes physical possession of the chassis. The effect of the change in
fiscal 2001 was to decrease revenue for "bill and hold" sales recognized in
fiscal 2001 prior to the change and to increase revenue as a cumulative
adjustment for "bill and hold" sales recognized in fiscal 2000. These changes
increased fiscal 2001 revenues by $8,511,000, net income by $562,000, and
earnings per share by $0.15. The net effect of the change related to fiscal 2001
beginning retained earnings of $(711,000) and $(0.19) earnings per share has
been reflected as a cumulative change in the accompanying Consolidated
Statements of Operations.
4. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and our subsidiaries. All inter-company accounts and transactions are
eliminated in consolidation.
F-9
Revenue Recognition
Truck Body/Trailer Division
Revenue is recognized in all operating entities included in the Truck
Body/Trailer Division when there is pervasive evidence of an arrangement,
delivery has occurred, no future obligations exist, and payment is reasonably
assured. (See Note 3 for discussion of a change in accounting policy).
Critical Components Division
Revenue is recognized in all operating entities included in the
Critical Components Division when there is pervasive evidence of an arrangement,
delivery has occurred, no future obligations exist, and payment is reasonably
assured. In the case of long-term contracts revenue is recognized using the
percentage-of-completion method of accounting. Costs include value-added raw
materials, 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. Management evaluates each contract to determine the best indication of
completion. Such indicators could be cost incurred, labor incurred or units
shipped. 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.
Warranties
The Company accrues for its obligation to warrant that its products are
free from defects in design, materials and workmanship generally for one year
from the date of purchase.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
less than three months when purchased to be cash equivalents.
Marketable Securities
When applicable, the Company applies Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Under SFAS No.
115, marketable debt and equity securities are reported at fair value, with
unrealized gains and losses from those securities reported as separate component
of stockholders' equity.
Income Taxes
The Company follows SFAS No. 109, Accounting for Income Taxes, which
requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined on the difference between the financial statement and tax
basis of assets and liabilities using expected tax rates in effect for the year
in which the differences are expected to reverse.
Inventory
Inventory is stated at the lower of cost, determined on a first-in,
first-out basis, or market. Acquired inventory from the acquisitions was
adjusted to its then fair market value. Costs of revenues include charges of
$309,000, $295,000 and $531,000 in the fiscal years ended March 31, 2001, 2000
and 1999, respectively, representing the effects of this adjustment as the
inventory was sold.
F-10
Property and Equipment
Property and equipment related to acquisitions are stated at their fair
values at the acquisition dates. Property and equipment purchased by the Company
are stated at cost. Depreciation is computed using the straight-line method for
financial reporting purposes. The estimated lives used in depreciating the
assets are:
Years
-----
Transportation equipment 3 - 5
Furniture, fixtures and office equipment 5 - 10
Machinery and equipment 5 - 15
Buildings 30 - 40
Leasehold improvements Shorter of lease term or useful life
Expenditures for major renewals and improvements that extend the useful
lives of property and equipment are capitalized. Expenditures for routine
maintenance and repairs are charged to expense as incurred.
Long-Lived Assets
We account for long-lived assets in accordance with the provisions of
Statement of Financial Accounting Standards ("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 of. We review the recoverability
of the carrying values of long-lived assets, primarily property, plant and
equipment and related goodwill and other intangible assets for impairment
whenever events or changes in circumstances indicated that the carrying amount
of an asset may not be fully recoverable. Under the standard, impairment losses
are recognized when expected future cash flows are less than the asset's
carrying value. When indicators of the impairment are present, the carrying
values of the assets are evaluated in relation to the operating performance and
future discounted cash flows of the underlying business. The net book value of
the underlying assets is adjusted to fair value if the sum of the expected
future undiscounted cash flows is less than book value. Fair values are based on
quoted market prices and assumptions concerning the amount and timing of the
estimated cash flows and assumed discounted rates, reflecting varying degrees of
perceived risk. Management has performed a review of all long-lived assets and
determined that no impairment of the respective carrying values have occurred as
of March 31, 2001, 2000 and 1999.
Deferred Financing Costs
At March 31, 2001 and 2000 costs of approximately $4,175,000 and
$2,234,000, respectively, were capitalized in connection with financing
acquisitions. The deferred financing costs are amortized over the life of the
financing.
Net Income (Loss) per Common Share
We compute net income (loss) per common share in accordance with SFAS
No. 128, "Earnings Per Share". Under the provisions of SFAS No. 128, basic net
income (loss) per common share ("Basic EPS") is computed by dividing net income
(loss) by the weighted average number of common shares outstanding. Diluted net
income (loss) per common share ("Diluted EPS") is computed by dividing net
income (loss) by the weighted average number of common shares and dilutive
common share equivalents then outstanding. SFAS No. 128 requires the
presentation of both Basic EPS and Diluted EPS on the face of the consolidated
statements of operations.
F-11
Foreign Currency
All assets and liabilities of foreign subsidiaries are translated into
U.S. Dollars at fiscal year-end exchange rates. Income and expense items are
translated at average exchange rates during the fiscal year. The resulting
translation adjustments are recorded as a component of Stockholders' Equity in
accompanying Consolidated Financial Statement. Gains or losses resulting from
foreign currency transactions are included in the accompanying Consolidated
Statements of Operations.
Derivative Instruments and Hedging Activities
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133. The Statement defers for one year the effective date of SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, which was
issued in June 1998 and establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either as asset
or liability measured at its fair value. SFAS No. 133 also requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. SFAS No. 133 is effective for the
Company beginning April 1, 2001. We believe that the implementation of SFAS No.
133 will not have a material impact on our financial position or results of
operations.
Recently Issued Accounting Pronouncements
In June 2001, the FASB approved SFAS Nos. 141 and 142 entitled Business
Combinations and Goodwill and Other Intangible Assets, respectively. The
statement on business combinations, among other things, eliminates the "Pooling
of Interests" method of accounting for business acquisitions entered into after
June 30, 2001. SFAS No. 142 requires companies to use a fair-value approach to
determine whether there is an impairment of existing and future goodwill. These
statements are effective for the Company beginning April 1, 2002 and have
certain transition rules that require the Company to obtain independent
appraisals of certain of its operating units, which must be completed within six
months from adoption.
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 revenues and expenses during the
reporting period. The costs we will ultimately incur and the value of assets
ultimately realized could differ in the near term from the related amounts
reflected in the accompanying financial statements.
Significant accounting estimates include valuation of inventory, useful
lives of property, equipment and intangible assets, the allocation of purchase
prices, the measurement of contingencies and percentage of completion on
long-term contracts.
Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing fair value
to the extent practicable for financial instruments which are recognized or
unrecognized in the balance sheet. The fair value of the financial instruments
disclosed herein is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement. For cash equivalents, marketable
securities, accounts receivable, accounts payable, and debt instruments, it is
estimated that the carrying amounts at March 31, 2001 and 2000 approximated fair
values for these instruments because of their short-term maturity, their
interest rates or their payment terms.
F-12
Stock-Based Compensation
The Company accounts for its employee stock option plan in accordance
with the provisions of Accounting Principles Bulletin No. 25, Accounting for
Stock Issued to Employees ("APB 25") and related interpretations. Compensation
expense related to employee stock options is recorded only if, on the date of
grant, the fair value of the underlying stock exceeds the exercise price. The
Company adopted the disclosure-only requirements of SFAS No. 123, Accounting for
Stock-Based Compensation, which allows entities to continue to apply the
provisions of APB Opinion No. 25 for transactions with employees and provide pro
forma net income and pro forma earnings per share disclosures for employee stock
options as if the fair value based method of accounting in SFAS No. 123 had been
applied to these transactions.
The Company accounts for non-employee stock-based awards in which goods
or services are the consideration received for the equity instruments issued
based on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more readily determinable.
During March 2000, the FASB issued Interpretation No. 44, Accounting
for Certain Transactions Involving Stock Compensation, which clarifies the
application of APB Opinion No. 25, regarding (a) the definition of an employee
for purposes of applying APB Opinion No. 25, (b) the criteria for determining
whether a plan qualifies as a non-compensatory plan, (c) the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Interpretation No. 44 was effective on July 1,
2000.
5. Inventory
Inventory is comprised of the following:
March 31
--------------------------------
2001 2000
------------- -------------
Raw materials........... $ 10,762,000 $ 9,977,000
Work in progress........ 8,057,000 2,545,000
Finished goods.......... 13,233,000 8,080,000
------------- -------------
$ 32,052,000 $ 20,602,000
============= =============
6. Property and Equipment, net
Property and equipment are summarized by major classifications as
follows:
March 31,
-------------------------
2001 2000
----------- -----------
Transportation equipment ........................... $ 798,000 $ 765,000
Leasehold improvements ............................. 4,120,000 3,713,000
Furniture, fixtures and office equipment ........... 3,602,000 1,860,000
Machinery and equipment ............................ 26,718,000 20,142,000
Building ........................................... 14,536,000 12,546,000
Land ............................................... 3,595,000 3,139,000
----------- -----------
Total ..................................... 53,369,000 42,165,000
Less: Accumulated depreciation and amortization ... 8,478,000 3,441,000
----------- -----------
$44,891,000 $38,724,000
=========== ===========
F-13
Depreciation and amortization expense for the years ended March 31,
2001, 2000 and 1999 was $4,633,000, $2,625,000 and $581,000, respectively.
7. Long Term Debt and Credit Agreements
Classification
Due to the effects of the default events described below, all long term
debt has been classified as a current liability on the accompanying consolidated
balance sheet.
Term and Revolver Loans
In July 1998 the Company and certain of its subsidiaries (acting as
Guarantors) entered into, with PNC Bank, N.A. ("PNC"), both individually and as
agent for other financial institutions a $40,000,000 Term Loan and Revolving
Credit Facility ("Credit Facility"). The Credit Facility provided 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 acquisitions of R/S and CPS and to retire certain indebtedness of
R/S, CPS and the Company.
In June 1999, the Company obtained an increase in its existing Credit
Facility arrangement from $40,000,000 to $68,125,000 through PNC and PNC Capital
Markets to consummate the acquisition of Ranor. The Company's Credit Facility,
as 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 (the "Loans"). The
principal of the Term Loans was payable in two installments: $23,125,000 due
June 2004 and $25,000,000 due June 2005. Amounts outstanding under the Revolving
Loan were 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.
In April 2000, we acquired Airborne and Arell. The funding to complete
the acquisitions was obtained through increasing our existing Credit Facility of
$68,125,000 to $100,000,000.
Our Credit Facility, as amended on April 25, 2000, provides for term
loans in principal amounts of up to $75.0 million and revolving loans in
principal amounts of up to $25.0 million. The principal of the term loans is
payable quarterly commencing in June 2000 in specified amounts ranging from
approximately $1.3 million quarterly commencing in June 2000 and increasing
annually thereafter to approximately $1.6 million in June 2001, $1.9 million in
June 2002, $2.3 million in June 2003, $2.6 million in June 2004, and $3.2
million in June 2005. Amounts outstanding under the revolving loans are payable
in full in April, 2005. All remaining principal then outstanding is due in April
2007. In addition, the amounts outstanding under the Credit Facility are subject
to mandatory prepayments in certain circumstances. Subject to our request,
together with the approval of the lenders, the maturity of the revolving loans
may be extended for one year with a maximum extension of two one-year periods.
We made scheduled principal payments of approximately $4.0 million during the
nine months ended December 31, 2000. However, we did not make the March 2001
principal payment of $1.3 million or the June 2001 principal payment of $1.6
million.
All amounts outstanding under the Credit Facility are secured by a lien
on substantially all of our assets. In addition, the Credit Facility imposes
significant operating and financial restrictions on us, including certain
limitations on our ability to incur additional debt, make payments on
subordinated indebtedness, pay loans, transact business with affiliates, enter
into sale and leaseback transactions, and place liens on our assets. In
addition, our Credit Facility contains covenants regarding the maintenance of
certain financial ratios.
In December 2000, we informed the agent under the Credit Facility that
we were then in default of certain financial covenants under the Credit
Facility. In addition, we failed to make scheduled interest and principal
payments totaling approximately $2.7 million and $4.2 million under the Credit
Facility on March 31, 2001 and July 2, 2001, respectively, which constituted
additional events of default thereunder. Absent significant additional financing
or a restructuring, we expect to be unable to pay additional principal and
interest payments totaling approximately $4.1 million on the next payment date
of September 30, 2001. We have engaged an investment banking firm to assist us
in obtaining additional financing, although we can give no assurance that our
efforts to obtain additional financing or restructure our existing indebtedness
will be successful. We are currently operating under the terms of a forbearance
agreement pursuant to which the lenders under the Credit Facility have agreed to
forbear enforcing their rights under the Credit Facility for a period ending on
July 17, 2001. Under the terms of the forbearance agreement, we have agreed with
our lenders, among other things, that, in exchange for their forbearance, we
will not request any additional loans under the Credit Facility, pay any
dividends on our preferred stock, pay any principal or interest on our
subordinated debt or make any payments in respect of earn-out obligations
relating to acquisitions.
F-14
While we believe that we are currently in compliance with the terms of
the forbearance agreement, failure to observe or perform one or more covenants
under the Credit Agreement not covered by the forbearance agreement, or failure
to observe or perform the covenants of the forbearance agreement itself, at any
given time will require us to obtain a waiver or consent from the lenders, or
refinance the Credit Facility. In addition, the forbearance agreement only
prohibits the lenders from exercising their rights in respect of specified
defaults for a period ending on July 17, 2001. If we are unable after the term
of the forbearance agreement to comply with the covenants of the Credit
Facility, including bringing our payment obligations thereunder current, our
failure to so comply could constitute an event of default under the Credit
Facility, and we would be required to obtain a waiver or consent from the
lenders, or refinance the Credit Facility. Such a waiver, consent or refinancing
may not be available to us on reasonable terms. Upon the occurrence of an event
of default under our Credit Facility, the lenders could elect to declare all
amounts outstanding under the Credit Facility, together with our accrued
interest and certain expenses, to be immediately due and payable and could begin
to foreclose on our assets. Our failure to comply with any of these covenants or
restrictions could also limit our ability to obtain future financings.
Interest on the amounts outstanding under the Loans is payable monthly
and generally 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
Facility. As of March 31, 2001 the rate of interest for the Loans is 10.75%,
which is the default rate. All amounts outstanding under the Credit Facility are
secured by a lien on substantially all of the Company's assets. The Credit
Facility requires the Company to maintain compliance with certain financial and
non-financial covenants.
At March 31, 2001 the total amount outstanding under the Credit
Facility was $91,000,000, excluding $1,500,000 of accrued interest.
The following are the future net minimum principal payments under the
terms of the original Credit Agreement which do not include payments in default:
Year Ending March 31, Amount
------------------------------- ----------------------------
2002 $ 6,250,000
2003 7,750,000
2004 9,250,000
2005 10,250,000
2006 and thereafter 56,250,000
----------------------------
$ 89,750,000
Seller Financing
As part of the acquisition of Ranor in June 1999 the sellers of Ranor were
issued $5,300,000 of three-year, 6% interest only, convertible subordinated
notes, convertible into common stock of Critical Components Corporation. The
balance outstanding for the convertible subordinated notes at March 31, 2001 was
$4,550,000 as a result of the settlement from an arbitration entered into by the
parties. Interest is payable quarterly in arrears. As of March 31, 2001, we were
in default in respect of $411,300 in interest payments under the convertible
subordinated notes.
In connection with the acquisition of Ajax, the Company incurred an
obligation of approximately $4,000,000 to the Ajax shareholder. The note was
secured by the assets of the Company and accrued interest at a rate of 10% per
annum. The outstanding principal was paid in full in July 1999.
F-15
8. Stockholders' Equity
Initial Public Offering
In January 1998, the Company completed an Initial Public Offering (the
"IPO") of its securities consisting of 1,150,000 shares of convertible preferred
stock and 1,495,000 shares of common stock, including the exercise of the
Underwriters' over-allotment option, from which it derived net proceeds of
approximately $23,988,000.
Common Stock Reserved for Issuance
At March 31, 2001 and 2000, the Company had reserved 2,604,000 shares
for issuance upon the exercise of stock options, warrants and the conversion of
preferred stock.
Convertible Redeemable Preferred Stock ("Preferred Stock")
Dividends on the Company's Preferred Stock are payable at a rate of
$1.02 per year on a quarterly basis and are convertible into common stock on a
one to one basis after July 21, 1998. The Preferred Stock's conversion rate is
subject to adjustment under certain circumstances, which include the failure to
pay the dividend in a timely manner.
The Preferred Stock is redeemable by the Company, with advance notice,
on or after July 22, 2000 at a price of $12 per share (plus unpaid dividends) at
certain stock market price levels for the Common Stock. The Preferred Stock
holders have the authority, voting as a class, to approve or disapprove issuance
of any security which is senior to or comparable to the rights of the Preferred
Stock, and also has preference with respect to distribution of assets. In the
event that dividends are in arrears for four fiscal quarters, the Preferred
Stock holders will be entitled to elect two directors to the Company's Board of
Directors.
The Company's Board of Directors may not declare dividends on the
common stock if there are any dividend arrearages on its preferred stock.
The annual dividend requirement on our Preferred Stock is $1,155,000.
During the quarter ending December 31, 2000 and the quarter ending March 31,
2001, we suspended dividend payments amounting to $578,000 on the Preferred
Stock. Unpaid dividends on the Preferred Stock are cumulative. Our future
earnings, if any, may not be adequate to pay the cumulative dividend or future
dividends on the Preferred Stock. Although we intend to pay the cumulative
dividend and to resume payment of regular quarterly dividends out of available
surplus, if any, there can be no assurance that we will maintain sufficient
surplus or that future earnings, if any, will be adequate to pay the cumulative
dividends or future dividends on the Preferred Stock. Further, we will need
approval from our Senior Lenders to resume payment of the Preferred Dividend.
Stock Options and Warrants
Under the 1997 Stock Option Plan, as amended, the Company may grant
non-qualified and incentive stock options to certain officers, employees and
directors. The options expire one to ten years from the grant date or five years
for grants to shareholders who own more than 10% of the Company's stock. The
options may be exercised subject to continued service and certain other
conditions. Accelerated vesting occurs following a change in control of the
Company and under certain other conditions. The Company may grant an aggregate
of 1,000,000 shares under the plan. To date the Company has granted a total of
937,815 shares.
The per share exercise price for options granted under the Plan is
determined by the Board of Directors, provided that the exercise price of an
incentive stock options ("ISO") will not be less than 100% of the fair market
value of a share of the common stock on the date the option is granted (110% of
fair market value on the date of grant of an ISO if the grantee owns more than
10% of the common stock of the Company). Upon exercise of an option, the grantee
may pay the purchase price with previously acquired shares of common stock of
the Company or, at the discretion of the Board of Directors, the Company may
loan some or the entire purchase price to the grantee.
F-16
Both William Merker, a former director, holding 225,000 warrants and a
former employee holding 25,000 options have the right to cashless exercise of
these instruments without approval of the Board. As a result, these options are
accounted for on a variable basis. Because the market value of the underlying
stock has been less than the exercise price of the options, there has been no
impact to the Company's results of operations or financial position to date.
Under SFAS No. 123, the Company estimates the fair value of each stock
option and warrant at the grant date by using the Black-Scholes option-pricing
model with the following weighted average assumptions used for 1999 grants: (1)
expected lives of one to seven years; (2) dividend yield of 0%; (3) expected
volatility of 62.9%; and (4) risk-free interest rate of 4.89%. If compensation
cost for the Company's stock option grants had been determined in accordance
with SFAS No. 123, net income available to common stockholders and earnings per
share would have been reduced by approximately $221,000 and $0.07, respectively,
for the year ended March 31, 1999.
For the year ended March 31, 2000 the stock option and warrant grants
were valued with the following weighted average assumptions: (1) expected lives
of one to ten years; (2) dividend yield of 0%; (3) expected volatility of 54.4%;
and (4) risk-free interest rate of 6.36%. If compensation cost for the Company's
stock option grants had been determined in accordance with SFAS No. 123, net
income available to common stockholders and basic and diluted earnings per share
would have been reduced by approximately $399,984 and $0.11 and $0.08
respectively, for the year ended March 31, 2000.
For the year ended March 31, 2001 the stock option and warrant grants
were valued with the following weighted average assumptions: (1) expected lives
of five years; (2) dividend yield of 0%; (3) expected volatility of 73%; and (4)
risk-free interest rate of 6.66%. If compensation cost for the Company's stock
option grants had been determined in accordance with SFAS No. 123, net income
available to common stockholders and earnings per share would have been reduced
by approximately $570,613 and $0.15, respectively, for the year ended March 31,
2001.
The following table summarizes information about stock options and
warrants outstanding at March 31, 2001:
Options/Warrants Outstanding Options/Warrants Exercisable
---------------------------- ----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number of Options/ Contractual Exercise Number of Options/ Exercise
Prices Warrants Outstanding Life Price Warrants Exercisable Price
----------------- -------------------- ----------- -------- -------------------- --------
$5.94 - 8.56 516,265 4.15 $ 7.21 223,066 $ 7.01
$9.04 - 11.50 565,000 3.84 $ 10.64 485,666 $ 10.73
$15.88 - 19.80 152,000 6.13 $ 16.58 93,999 $ 16.78
------------------ ------------------
1,233,265 4.25 $ 9.94 802,731 $ 10.40
================== ==================
1999 2000 2001
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- --------- -------- --------- --------
Shares under Option/
Warrant beginning of
period.................. 352,000 $ 10.89 785,880 $ 9.38 1,111,265 $ 10.24
Granted.................... 436,500 $ 8.12 329,315 $ 12.29 122,000 $ 7.18
Canceled................... (2,620) $ 5.94 (3,930) $ 8.47 -- $ --
Exercised.................. -- $ -- -- $ -- -- $ --
------- -------- --------- -------- --------- --------
Shares under Option/
Warrant end of period... 785,880 $ 9.38 1,111,265 $ 10.24 1,233,265 $ 9.94
======= ======== ========= ======== ========= ========
F-17
Options available for grant total 62,185. The weighted average fair
value of options and warrants granted during the years ended March 31, 1999,
2000 and 2001 was $7.28, $6.77 and $4.68, respectively.
The Company granted 120,000 warrants in 1999 to a non-related third
party in connection with services rendered to the Company. Such warrants vest
over a period of five years. The expense related to the grants approximates
$200,000 in 1999, 2000 and 2001.
The Company granted 55,000 options to non-related third party in
connection with the acquisition of Ranor during the fiscal year ended March 31,
2000.
Underwriters' Warrants
In connection with the IPO, the Underwriters received 130,000 common
stock warrants and 100,000 preferred stock warrants with exercise prices of
$16.50 and $19.80, respectively. Such warrants expire on January 21, 2003.
During fiscal year 2000, the underwriter received an additional 2,080
common stock warrants and 1,601 preferred stock warrants with exercise prices of
$16.50 and $19.80, respectively. Such warrants expire on January 21, 2003.
9. Basic and Diluted Net Income Per Common Share
The Company accounts for net income per common share in accordance with
the provisions of SFAS No. 128, Earnings per Share. In accordance with SFAS No.
128, 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 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 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.
(in thousands, except net income per share data)
For the Fiscal Year Ended March 31,
----------------------------------
2001 2000 1999
-------- -------- --------
NUMERATOR:
Net income (loss) before cumulative effect of change
in accounting principle ............................ $ (9,504) $ 5,397 $ 3,482
Cumulative effect on prior years of changing to a
different method of recognizing revenue ............ $ (711) -- --
Convertible preferred dividends on dilutive convertible
preferred stock .................................... $ 1,155 1,160 1,173
-------- -------- --------
Income (loss) available to common stockholders used in
computing dilutive net income or net loss per share $(11,370) $ 4,237 $ 3,482
======== ======== ========
DENOMINATOR:
Weighted average number of common shares outstanding
used in computing basic net income or net loss per
share .............................................. 3,716 3,623 3,356
Common equivalent shares:
Convertible preferred stock ...................... -- 1,139 --
Options .......................................... -- 88 --
Warrants ......................................... -- 17 --
-------- -------- --------
F-18
(in thousands, except net income per share data)
For the Fiscal Year Ended March 31,
----------------------------------
2001 2000 1999
-------- -------- --------
Weighted average number of common shares and common
equivalent shares used in computing dilutive net
income or net loss per share ....................... 3,715 4,867 3,356
======== ======== ========
Basic net income (loss) per share ..................... $ (3.06) $ 1.17 $ 0.69
======== ======== ========
Diluted net income (loss) per share ................... $ (3.06) $ 1.11 $ 0.69
======== ======== ========
10. Income Taxes
The provision (benefit) for income taxes for the years ended March 31,
2001, 2000 and 1999 consists of the following components:
March 31,
------------------------------------------------
2001 2000 1999
----------- ----------- -----------
Current:
Federal ............. $(6,417,000) $ 3,065,000 $ 2,141,000
State ............... (175,000) 817,000 312,000
International ....... 6,592,000 -- --
----------- ----------- -----------
(2,860,950) 3,882,000 2,453,000
----------- ----------- -----------
Deferred:
Federal ............. 1,406,000 63,000 199,000
State ............... 671,000 10,000 (386,000)
----------- ----------- -----------
2,077,000 73,000 (187,000)
----------- ----------- -----------
Foreign ............. 2,968,000 -- --
Total provision .......... $(1,547,000) $ 3,955,000 $ 2,266,000
=========== =========== ===========
Deferred tax assets and liabilities consist of the following items:
March 31,
-------------------------------
2001 2000
----------- -----------
Deferred tax asset (liability):
KREDA .................................... $ 168,000 $ 124,000
Accounts receivable ...................... 144,000 84,000
Inventory ................................ 146,000 180,000
Accrued liabilities ...................... 364,000 45,000
Start-up costs ........................... -- 341,000
Net operating loss carry foward .......... 1,275,000 --
Depreciation ............................. (3,460,000) --
Other .................................... 95,000 (6,000)
----------- -----------
Total deferred tax assets, gross ......... (1,264,000) 768,000
Less valuation allowance ............ (2,207,000) --
----------- -----------
Total deferred tax assets ................ $(3,471,000) $ 768,000
=========== ===========
During 1996, R/S applied for and was granted status under the Kentucky
Rural Economic Development Act ("KREDA"). KREDA allows the Company to receive a
tax credit on income earned as a result of the Company increasing its plant size
and conducting operations in a rural county. Under KREDA, the Company is allowed
to use this tax credit as debt repayment.
F-19
Reconciliation between the Company's effective tax rate and the U.S.
statutory rate for the years ended March 31, 2001, 2000 and 1999 are as follows:
March 31,
-------------------------------
2001 2000 1999
---- ---- ----
U.S. statutory rate ................................. (34.0)% 34.0% 34.0%
State tax ........................................... (8.5) 6.3 7.8
Non deductible acquisition costs .................... -- -- (1.7)
Amortization of goodwill ............................ 5.9 4.9 6.2
KREDA ............................................... -- -- (2.1)
Valuation ........................................... 12.9 (3.4) (5.5)
Foreign ............................................. 6.1 (3.4) (5.5)
Other ............................................... 3.6 0.5 0.7
---- ---- ----
Total effective tax rate ............................ (14.0)% 42.3% 39.4%
==== ==== ====
11. Related Party Transactions
In January 1998, we, together with Carl Massaro, the former owner of
Ajax, entered into a "triple net" lease of the former Ajax factory and office
facility owned by Carl Massaro and presently occupied by us. The lease provides
for annual rent of $600,000, which is payable monthly, and approximately $63,000
annually in triple net expenses for the first year. During the initial five-year
term of the lease, we have the option to purchase the leased facility and land
for a cash purchase price of $6.5 million, provided we are not in default under
the lease. The terms of the lease, including the purchase option, were
determined through arms' length negotiation.
In December 2000, we entered into an 18-month agreement with William
Merker, paying him $20,000 per month for operational consulting services. On May
16, 2001, that consulting services agreement, under which Mr. Merker had
received $100,000, was superseded by a separation and general release agreement
providing for a final payment of $20,000. Additionally, Mr. Merker is to receive
$500 per month and health insurance benefits through May 31, 2002. The release
also contains restrictive covenants prohibiting Mr. Merker from directly or
indirectly competing with us for an 18-month period or from soliciting or
servicing any of our suppliers or customers for any competitive purpose for a
24-month period.
On May 16, 2001, we entered into an agreement with William Merker, then
a director, to settle a dispute regarding the propriety of William Merker's
relationship with the agent associated with the purchase of Arell, Airborne and
TPG. Pursuant to the terms of this agreement, Mr. William Merker agreed to
transfer to us 200,000 shares of common stock held by him. In addition, Mr.
William Merker agreed to provide us with a promissory note, payable in three
months, in an aggregate principal amount equal to the amount by which $800,000
exceeds the fair market value of the transferred shares as determined by an
independent appraiser.
William Merker, a director of the Company from August 1997 until May of
2001 and a 5% stockholder, is the sole director and stockholder of Industrial
Precision Corp. ("IPC"), a privately held precision machining company. During
April 2001, we entered into an agreement with IPC pursuant to which we assigned
to IPC our rights under letters of intent or otherwise with respect to
acquisition transactions for nine machining companies in exchange for 5% of the
founder's stock of IPC and the right to receive a fee of $225,000 in cash for
each acquisition that is consummated before May 2003 by IPC with the companies
subject to the agreement. Additionally, IPC is obligated to give us a right of
first refusal to manufacture any of its requirements for which we have the
capability (i.e., if IPC has a bona fide third-party offer to manufacture any
requirements, IPC must offer us ten days to commit to the requirement on the
same price, terms and conditions).
William Merker, a director of the Company from August 1997 until May
2001 and a 5% stockholder, and Steven J. Merker, a director, member of our
Compensation Committee and 5% stockholder, are directors of Invatech Corporation
("Invatech"), a privately held environmental services and products company.
Joseph Spinella, a director, a member of our Compensation Committee, our
Secretary, and our Chief Financial Officer since August 1999, and Paul Provost,
a director, were directors of Invatech in the last fiscal year. Beginning in the
last fiscal year, we have provided Invatech with office space and related
office-support services in our New York City offices. We do not have a formal
written agreement with, nor do we receive any payments from, Invatech. We
estimate the value of the office space and services provided in the last fiscal
year to be approximately $88,000.
F-20
The Company and certain officers and consultants have executed
employment agreements which provide for, in certain circumstances, minimum
annual salaries to be paid over specified terms. Future commitments for such
payments are as follows:
Year Ending March 31, Amount
--------------------- ------
2002........................ 975,000
2003........................ 576,000
----------
$1,551,000
==========
12. Major Customers and Concentrations
Major Customers
Three customers individually accounted for 14%, 13% and 12% of net
sales for the fiscal year ended March 31, 2001. Three customers individually
accounted for 33%, 15% and 5% of net sales for the fiscal year ended March 31,
2000. Three customers individually accounted for 21%, 19% and 14% of net sales
for the fiscal year ended March 31, 1999.
Historically, the Company has relied on a limited number of customers
for a substantial portion of its total revenues. The Company expects that a
significant portion of its future revenues will continue to be generated by a
limited number of customers. The loss of any of these customers or any
substantial reduction in orders by any of these customers could have a material
adverse effect on operating results.
Concentrations
The Company maintains cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. At March 31, 2001, approximately $44,000 were
invested in a domestic money market fund. At March 31, 2000 approximately
$1,018,000 and $25,000 were invested in two domestic money market funds. At
March 31, 1999 approximately $506,000 and $526,000 were invested in two domestic
money market funds.
Credit Risk
Accounts receivable are primarily composed of unsecured balances. The
Company does not require collateral as a condition of sale.
At March 31, 2001, the Company had one customer with an individual
balance in excess of [10%] of consolidated accounts receivable. In the
aggregate, this customer comprised approximately [30%] of the net accounts
receivable balance. At March 31, 2000, the Company had two customers with
individual balances in excess of 10% of consolidated accounts receivable. In the
aggregate, these two customers comprise approximately 48% of the net accounts
receivable balance.
F-21
13. Commitments and Contingencies
Environmental Matters
The Company is subject to various federal, state and local laws and
regulations including those governing the use, discharge and disposal of
hazardous materials. Except as noted below, management believes that the Company
is in substantial compliance with current laws and regulations. Accordingly, no
reserve has been established for such exposures. Compliance with current laws
and regulations has not had, and is not expected to have, a material adverse
effect on the Company's financial condition. However, it is possible that
additional health related or environmental issues may arise in the future, which
the Company cannot predict at present.
Violation of Federal and State Air Quality Regulation
On March 16, 1999 the Company and the New Jersey Department of
Environmental Protection (NJDEP) entered into a Stipulation of Settlement by
which the Company, without admission of liability, agreed to withdraw legal
challenges against NJDEP and pay NJDEP $234,000 over a three-year period
commencing December 31, 1999. The initial installment of $95,000 was paid
December 31,1999. The Company plans to pay the second installment of $95,000 in
September 2001 which was due in April 2001. As part of the settlement, NJDEP (1)
has withdrawn and settled all alleged Company emission violations of air
volatile compounds ("VOCs") dating from the initiation of the Company's
predecessor business in 1992 through February 28, 1999; and (2) has granted the
Company a new VOC permit that roughly doubles allowable VOC emissions to 51.5
tons per year. As required under the new VOC permit, the Company has installed a
computer system to calculate VOC emission data. Such data are periodically
reconciled with purchasing and production data. At current rates of production,
all VOC emissions are within permit limits. The remaining balance as of March
31, 2001 has been accrued.
Other Environmental and Regulatory Compliance
Truck trailer length, height, width, gross vehicle weight and other
specifications are regulated by the National Highway Traffic Safety
Administration and individual states. Changes and anticipated changes in these
regulations may impact demand for new trailers, thereby contributing to industry
cyclicality. We are also governed by a variety of regulations established by
various federal, state and local agencies governing such matters including
employee safety and working conditions, environmental protection and other
activities.
We are subject to Federal, state and local laws and regulations
relating to our operations, including building and occupancy codes, occupational
safety and environmental laws including laws governing the use, discharge and
disposal of hazardous materials. Except as otherwise described above with regard
to air quality regulations, the Company is not aware of any material
non-compliance with any such laws and regulations. The Company is a manufacturer
of truck trailer chassis and is covered by Standard Industrial Code (SIC) #3715.
Companies covered by SIC Code #3715 are among those companies subject to the New
Jersey Industrial Site Recovery Act ("ISRA"). Pursuant to ISRA, the Company is
conducting an investigation into any environmental "Areas of Concern" ("AOCs")
that may be present at the facility. The Company has entered into a Remediation
Agreement with NJDEP by which the Company will fulfill its obligations under
ISRA. AOCs could require remediation, which could have a material adverse effect
on the Company.
In March 1998, as part of the ISRA Remediation Agreement with NJDEP,
the Company performed soil and sediment sampling at various locations at the
facility. The sampling results were within NJDEP compliance limits with the
exception of results for 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 have been forwarded to NJDEP.
NJDEP and the Company are presently reviewing results generated January 31,
2001. If these results indicate, additional investigations may be necessary or
remedial action including removal and replacement of affected soil may be
needed. The cost of such additional investigation or action, if necessary, is
not expected to be material to the Company's financial position.
F-22
Legal Proceedings
From time to time, we are named as a defendant in various lawsuits,
none of which is expected to have a material adverse effect on our business,
financial position or results of operations, except as described below.
In connection with the Ranor acquisition, we arbitrated a dispute
arising from Ranor's misrepresentation, in the asset purchase agreement, in
connection with its financial statements. As a result of the arbitration, the
asset purchase price was reduced by $750,000.
We are subject to the New Jersey Industrial Site Recovery Act, pursuant
to which we have agreed to investigate and possibly remediate environmental
contamination that may be present at our New Jersey facility. The cost of any
required remediation determined to be necessary is not expected to be material
but could prove to be substantial and, in such case, could have a material
adverse affect on our business, financial position or results of operations.
We are currently in arrears on payment of certain federal excise taxes
of approximately $6.7 million. We expect to attempt to negotiate a payment plan
with the Internal Revenue Service ("IRS") to resolve the arrearage. Although no
formal plan is yet in place, we made a tax payment in the amount of $634,135 on
March 9, 2001, and intend to make monthly payments of $20,000 on July 15, 2001,
August 15, 2001 and September 15, 2001. This arrearage has also resulted in an
additional event of default under our Credit Facility. Our financial statements
include approximately $1.3 million for interest on the federal excise tax
currently in arrears. Further, the IRS has the statutory authority to impose
penalties which could be material. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Risk Factors."
On March 1, 2001, in the United States Court of Appeals for the Sixth
Circuit, we filed a Petition for Review of an order of the National Labor
Relations Board ("NLRB") ruling that 18 employees at our facility in Ivel,
Kentucky are to be represented under a collective bargaining agreement. The
matter is currently pending before the Sixth Circuit Court of Appeals in
Cincinnati, Ohio. If the Sixth Circuit rules in favor of the NLRB, the employees
will be reinstated with back pay.
On June 22, 2001, the United States District Court for the Eastern
District of Wisconsin entered a judgment of $570,000 against our subsidiary R/S
in a suit brought by a former distributor with whom R/S terminated its
relationship in September 1999. On July 3, 2001, we filed a motion with the
court seeking judgment in our favor as a matter of law notwithstanding the
verdict and filed a motion for a new trial, arguing that the evidence adduced at
trial does not support the jury's verdict. In our motion for a new trial, we
requested that the court, in the alternative, reduce the amount of the jury's
verdict to a figure reasonably supported by the evidence. The court has yet to
rule on our motions. We believe that our position is meritorious and intend to
vigorously defend our interests in this matter. The Company set up an accrual
for $570,000.
Operating Leases
The Company leases facilities and equipment under operating leases
expiring through 2004. Some of the leases have renewal options and most contain
provision for passing though certain incremental cost. Future net minimum annual
rental payments under non-cancelable leases are as follows:
Year Ending March 31, Amount
--------------------- ------
2002........................ 2,364,426
2003........................ 2,032,473
2004........................ 1,018,207
2005........................ 116,856
2006........................ 13,904
-------------
$ 5,545,866
=============
Rent expense for the year ended March 31, 2001, 2000 and 1999 totaled
$1,525,000, $1,273,000 and $610,000, respectively.
F-23
On July 1, 2000, CPS entered into a 12 month operating lease agreement
(the "Lease") with an unrelated party (the "Lessor") to utilize the Lessor's
production facility. The Lease called for 12 monthly installments of $15,000
with a purchase option available at its expiration. The Lease was terminable at
the Company's sole discretion upon 30 days notice. Upon termination, CPS was
required to provide the Lessor net assets with a book value of $144,000.
Included in this Lease is the obligation of CPS to fund the monthly payments of
all the outstanding debt of the Lessor.
As of March 31, 2001, management decided that at the end of the 12
months the option to purchase would not be exercised. In connection with this
decision, the Company recorded a one time charge of $456,000. Finally, the
Company incurred an additional $693,000 of losses relating to this activity.
Defined Contribution Plan
In Fiscal 1999 the Company adopted a defined contribution 401(k) plan.
All eligible U.S. employees of the Company may participate in the plan.
Participants may contribute up to 15% of their eligible compensation, as
defined. The Company may make discretionary profit sharing contributions to the
plan. For the fiscal years ended March 31, 2001, 2000 and 1999 the Company's
expense related to the plan was $347,000, $338,846 and $33,036, respectively.
Approximately $190,000 of the contribution for 2001 has not been funded.
In February 2001, the Company paid $145,000 relating to the amounts due
under this plan for the months ended November and December 2000. Effective
January 1,2001, the Company has suspended its discretionary contribution
requirements under further notice.
14. Quarterly Information (Unaudited)
Below is selected quarterly information (in thousands, except for per
share data) for the year ended March 31, 2001.
Fiscal Year 2001, Quarters ended
-------------------------------------------------------
March 31 December 31 September 30 June 30
----------- ----------- ------------ -----------
Revenue ............................ $ 19,511 $ 32,329 $ 41,342 $ 44,169
Operating income ................... (8,583) 972 3,944 4,907
Income Taxes ....................... (1,795) (1,335) 506 1,077
Net Income (loss) .................. (10,166) (1,876) 577 1,250
Net income (loss) available to
common stockholders ............. $ (10,454) $ (2,165) $ 288 $ 961
=========== =========== =========== ===========
Basic net income (loss) per share .. $ (2.81) $ (0.58) $ 0.07 $ 0.26
=========== =========== =========== ===========
Diluted net income (loss) per share $ (2.81) $ (0.58) $ 0.07 $ 0.26
=========== =========== =========== ===========
We made an adjustment to the first, second, and third quarter of fiscal
year ended March 31, 2001, for accrued interest expense on the
arrearage of our federal excise tax which was not previously reflected
in the quarterly statements in the amount of $175, $152, and $197,
respectively.
The revenue for the three months ended June 30, 2000 and September 30,
2000 have been restated to reflect the change in accounting policy
described in Footnote 3 in the amounts of $7,365 and $3,082,
respectively.
During the fourth quarter of fiscal 2001 the Company determined that
first quarter sales related to one of its business units included in
the Truck Body Division were overstated by $2,330. The second and third
quarter ended September 30, 2000, and December 31, 2000 were
understated by $280 and $223, respectively.
The impact of the above items on earnings per share for the June,
September, and December quarters was $ (0.01), $0.02, and $(0.04),
respectively.
F-24
Below is selected quarterly information (in thousands, except for per
share data) for the year ended March 31, 2000.
Fiscal Year 2000, Quarters ended
--------------------------------------------------
March 31 December 31 September 30 June 30
----------- ----------- ------------ -----------
Revenue ...................... $ 38,374 $ 41,238 $ 44,820 $ 35,044
Operating income ............. 3,696 3,808 3,773 3,370
Income Taxes ................. 863 983 1,003 1,106
Net Income ................... 1,533 1,167 1,222 1,475
Net income available to common
stockholders .............. $ 1,244 $ 878 $ 933 $ 1,182
=========== =========== =========== ===========
Basic net income per share ... $ 0.21 $ 0.24 $ 0.28 $ 0.33
=========== =========== =========== ===========
Diluted net income per share . $ 0.19 $ 0.24 $ 0.26 $ 0.33
=========== =========== =========== ===========
We made an adjustment to the first, second, and third quarter of fiscal
year ended March 31, 2000, for accrued interest expense on the
arrearage of our federal excise tax which was not previously reflected
in the quarterly statements in the amount of $65 and $0.02 per share;
$104 and $0.03 per share; and $144 and $0.04 per share, respectively.
15. Segment Information
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information 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 years ended March
31, 2001 and 2000:
Truck Body/Trailer Critical Components
March 31, 2001 Division Division Total
------------------------------ ------------------ ------------------- ------------
(in thousands)
Revenue ...................... $ 94,375 $ 42,977 $ 137,351
Operating Income ............. 3,035 6,528 9,562
Identifiable Assets .......... 5,444 41,386 92,830
Capital Expenditures ......... 1,973 2,004 3,977
March 31, 2000
Revenue ...................... $ 139,803 $ 19,993 $ 159,796
Operating Income ............. 16,161 3,945 20,106
Identifiable Assets .......... 33,474 39,646 73,120
Capital Expenditures ......... 2,276 1,683 3,959
The following is a reconciliation of reportable segment revenues,
operating income, assets and other significant items to the Company's
consolidated totals for March 31, 2001:
Revenue
-------
Total revenues for reporting segments .......................... $ 137,351
Elimination of intersegment revenues ...........................
---------
Total consolidated revenues .................................... $ 137,351
=========
F-25
Operating income
----------------
Total operating profit or loss for reporting segments .......... $ 9,563
Other corporate expenses ....................................... (8,323)
---------
Income before income taxes and extraordinary items ............. $ (1,240)
=========
Assets
------
Total assets for reporting segments ............................ 92,830
Goodwill not allocated to segments ............................. 61,100
Other unallocated amounts ...................................... 9,079
---------
Consolidated total ............................................. $ 163,005
=========
Consolidated
Segment Totals Adjustments Totals
-------------- ----------- -------------
Other Significant Items
Interest expense ................ $1,516 $10,411 $11,927
Goodwill amortization ........... -- 2,861 2,801
The following is a reconciliation of reportable segment revenues,
operating income, assets and other significant items to the Company's
consolidated totals for March 31, 2000:
Revenue
Total revenues for reporting segments ........................ $ 159,796
Elimination of intersegment revenues ......................... (320)
---------
Total consolidated revenues .................................. $ 159,476
=========
Operating income
Total operating profit or loss for reporting segments ........ $ 20,106
Other corporate expenses ..................................... (5,459)
---------
Operating income ............................................. $ 14,647
=========
Assets
Total assets for reporting segments .......................... 73,120
Goodwill not allocated to segments ........................... 44,151
Other unallocated amounts .................................... 19,994
---------
Consolidated total ........................................... $ 137,265
=========
Consolidated
Segment Totals Adjustments Totals
-------------- ----------- ------
Other Significant Items
Interest expense .................. $ 270 $4,775 $5,045
Goodwill amortization ............. -- 1,466 1,466
F-26