<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
-------------------
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
/ / 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 001-01416
SAMES CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-0808480
-------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9201 WEST BELMONT AVENUE, FRANKLIN PARK, ILLINOIS 60131
-------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code 847-737-5970
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- -----------
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Class Outstanding as of October 31, 2000
------------------------------ ----------------------------------
Capital Stock, par value $1.00 2,933,250
<PAGE>
SAMES CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Form 10-Q Index
Part I. Financial Information
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2000 (unaudited), December 31, 1999 (unaudited) and
November 30, 1999 2
Consolidated Statements of Operations (unaudited)
Three months and nine months ended September 30, 2000 and
August 31, 1999 and one month ended December 31, 1999 3
Consolidated Statements of Cash Flows (unaudited) Nine months
ended September 30, 2000 and August 31, 1999 and
one month ended December 31, 1999 4
Notes to Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Information Regarding Forward Looking Statement 16
Part II. Other Information
Item 1. Legal Proceedings 17-19
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
-1-
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Company or group of companies
for which report is filed:
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2000 (Unaudited), December 31, 1999 (Unaudited) and
November 30, 1999
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Sept 30, Dec 31, Nov 30,
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,574 4,006 6,171
Receivables, net 35,796 41,455 43,171
Inventories 14,271 15,801 15,999
Other current assets 3,071 3,030 3,971
Net assets of discontinued operations 353 1,246 1,301
-------- ------ ------
Total current assets 55,065 65,538 70,613
Other noncurrent assets 2,909 3,028 3,038
Property, plant and equipment, at cost 10,539 11,002 10,938
Less accumulated depreciation 5,998 6,234 6,172
-------- ------ ------
Net property, plant and equipment 4,541 4,768 4,766
-------- ------ ------
$ 62,515 73,334 78,417
======== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank overdrafts
and current maturities of long-term debt $ 9,116 8,306 8,543
Accounts payable 20,489 27,158 27,881
Other current liabilities 7,881 8,099 10,980
-------- ------ ------
Total current liabilities 37,486 43,563 47,404
Deferred compensation 6,121 6,394 6,426
Note payable, net of discount of $807, $942 and $964, respectively 2,227 3,182 3,500
Deferred income taxes 67 76 76
Long-term debt, less current maturities 2,420 2,762 2,767
-------- ------ ------
Total liabilities 48,321 55,977 60,173
-------- ------ ------
Stockholders' equity:
Capital stock, $1.00 par value. Authorized 12,000,000 shares; issued and
outstanding 2,966,837 shares at September 30, 2000, December 31, 1999
and November 30, 1999 2,967 2,967 2,967
Additional paid-in capital 19,677 19,677 19,677
Accumulated deficit (4,329) (2,727) (2,069)
Accumulated other comprehensive loss:
Foreign currency translation adjustments (3,581) (2,042) (2,035)
-------- ------ ------
14,734 17,875 18,540
Treasury stock, at cost, 33,587, 32,500 and 18,200 shares at September 30,
2000, December 31, 1999 and November 30, 1999, respectively (540) (518) (296)
-------- ------ ------
Total stockholders' equity 14,194 17,357 18,244
-------- ------ ------
$ 62,515 73,334 78,417
======== ====== ======
</TABLE>
-2-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited, in thousands except share and per share amounts)
<TABLE>
<CAPTION>
For the three For the nine For the one
months ended months ended month ended
---------------------- --------------------- ------------
Sept 30, August 31, Sept 30, August 31, Dec 31,
2000 1999 2000 1999 1999
-------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Net sales $ 16,952 24,522 59,538 65,198 5,023
Cost of goods sold 11,047 15,448 39,303 40,163 3,386
-------- ------ ------ ------ -----
Gross profit 5,905 9,074 20,235 25,035 1,637
Selling, general and administrative expenses 5,991 6,722 18,353 20,573 1,904
Research and development costs 686 887 1,984 2,903 299
-------- ------ ------ ------ -----
Operating income (loss) (772) 1,465 (102) 1,559 (566)
-------- ------ ------ ------ -----
Other expense (income):
Interest expense 203 424 572 947 69
Other expense (income), net (252) 225 (488) (945) (34)
-------- ------ ------ ------ -----
(49) 649 84 2 35
-------- ------ ------ ------ -----
Income (loss) from continuing operations
before income taxes (723) 816 (186) 1,557 (601)
Income tax expense (benefit) (165) 251 15 61 (81)
-------- ------ ------ ------ -----
Income (loss) from continuing operations,
net of tax (558) 565 (201) 1,496 (520)
Loss from discontinued operations, net of tax (444) (1,710) (1,401) (3,372) (138)
-------- ------ ------ ------ -----
Net loss $ (1,002) (1,145) (1,602) (1,876) (658)
======== ====== ====== ====== ====
Income (loss) per share - basic
Continuing operations $ (.19) .19 (.07) .50 (.18)
Discontinued operations (.15) (.58) (.48) (1.13) (.04)
-------- ------ ------ ------ -----
Net loss $ (.34) (.39) (.55) (.63) (.22)
======== ====== ====== ====== =====
Income (loss) per share - diluted
Continuing operations $ (.19) .19 (.07) .50 (.18)
Discontinued operations (.15) (.57) (.48) (1.13) (.04)
-------- ------ ------ ------ -----
Net loss $ (.34) (.38) (.55) (.63) (.22)
======== ====== ====== ====== =====
Weighted average shares:
Basic 2,932 2,966 2,932 2,965 2,942
Effect of stock options 10 32 7 15 4
-------- ------ ------ ------ -----
Diluted 2,942 2,998 2,939 2,980 2,946
======== ====== ====== ====== =====
</TABLE>
-3-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited, in thousands of dollars)
<TABLE>
<CAPTION>
For the nine For the one
months ended month ended
-------------------- -------------
Sept 30, August 31, Dec 31,
2000 1999 1999
-------- ---------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Continuing operations:
Income (loss) from continuing operations, net of tax $ (201) 1,496 (520)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 701 725 77
Payments of previously deferred compensation (281) (642) (32)
Other, net 158 (1,974) 227
Cash provided (used) by changes in:
Receivables 1,043 2,374 1,644
Inventories 357 (3,630) (247)
Other current assets (251) 435 307
Accounts payable (4,324) 7,665 (985)
Accrued expenses (78) (3,966) (1,961)
------- ------- -------
Net cash provided (used) by operating activities (2,876) 2,483 (1,490)
------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (936) (768) (85)
Other investments and assets 27 205 9
------- ------- -------
Net cash provided (used) by investing activities (909) (563) (76)
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term borrowings -- 4,765 --
Net increase (decrease) in short term borrowings 2,745 2,180 74
Repurchase of capital stock (22) -- (222)
Principal payments on long-term debt (906) (917) (300)
------- ------- -------
Net cash provided (used) by financing activities 1,817 6,029 (448)
------- ------- -------
Net cash provided (used) by discontinued operations (431) (5,607) (154)
Effect of exchange rate changes on cash (33) 35 3
------- ------- -------
Net increase (decrease) in cash and cash equivalents (2,432) 2,377 (2,165)
Cash and cash equivalents at beginning of period 4,006 5,204 6,171
------- ------- -------
Cash and cash equivalents at end of period $ 1,574 7,581 4,006
======= ======= =======
</TABLE>
-4-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000 (Unaudited), December 31, 1999 (Unaudited) and
November 30, 1999
NOTE 1
The accompanying consolidated financial statements are unaudited, but in the
opinion of management include all adjustments, consisting only of normal
recurring adjustments except where indicated, necessary for a fair presentation
of the results of operations and financial position for the periods presented.
Results of operations for any interim period are not necessarily indicative of
results for any other period or for the full year. These interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements contained in the Annual Report on Form 10-K for the year
ended November 30, 1999.
On January 31, 2000, the Board of Directors determined to change the Company's
fiscal year end from November 30 to December 31 effective for the year beginning
January 1, 2000. Accordingly, the Company is presenting the unaudited financial
information for the month ended December 31, 1999 (the transition
period) in this quarterly report on Form 10-Q. This new fiscal year will allow
the Company to conform its quarterly reporting periods to those predominantly
used by other companies in its industry.
The Company has not presented financial statements for the three months and
nine months ended September 30, 1999 but has instead presented financial
statements for the three months and nine months ended August 31, 1999.
Because the adoption of the new fiscal year resulted in only a one month
change in annual and quarterly financial reporting periods, the Company
believes that fiscal 2000 financial information is sufficiently comparable to
the corresponding fiscal 1999 financial information, as originally reported,
in terms of seasonal and other factors. Accordingly, the Company did not deem
it practical nor could it justify the additional cost to prepare and present
financial statements for the three months and nine months ended September 30,
1999.
Certain amounts in the November 30, 1999 balance sheet and December 31, 1999
(the transition period) unaudited balance sheet, as previously reported in the
Form 10-K for the year ended November 30, 1999 and the Form 10-Q for the
quarters ended March 31, 2000 and June 30, 2000, have been reclassified to
conform to the amounts as reported in this Form 10-Q.
NOTE 2
On September 15, 1999 the Company announced a share repurchase program
authorizing the Company to repurchase up to 150,000 shares of its outstanding
capital stock. The shares can be repurchased from time to time in the open
market as market conditions warrant. Under the terms of the repurchase program,
the shares may be reissued to employees under the Company's stock option and
employee stock purchase plans. Through September 30, 2000, the Company
repurchased a total of 37,000 shares at a cost of $.6 million and has reissued
3,413 shares to employees under the Company's employee stock purchase plan.
-5-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000 (Unaudited), December 31, 1999 (Unaudited) and
November 30, 1999
Note 2 (continued)
On April 25, 2000, the Sames stockholders approved the adoption of the Sames
Employee Stock Purchase Plan, effective January 1, 2000, pursuant to which
employees of the Company have the opportunity to acquire shares of the capital
stock of the Company at a 15% discount. The purpose of the Plan is to advance
the interests of the Company and its stockholders by providing employees of the
Company and certain designated subsidiaries with an opportunity to acquire an
ownership interest in the Company. With respect to employees who reside in the
United States, the Plan is intended to qualify as an employee stock purchase
plan under Section 423 of the Internal Revenue Code.
NOTE 3
As part of the original sale agreement with Illinois Tool Works (ITW), dated
August 31, 1998, the Company assigned and transferred to ITW all of the accounts
receivable related to the "Binks Business". The agreement required the Company
to repurchase such accounts receivable which were not collected within 180 days.
On September 23, 1999, the Company agreed to repurchase certain receivables for
approximately $1.0 million, which was paid to ITW on September 28, 1999. Through
September 30, 2000, the Company had collected approximately $.7 million of the
accounts receivable. It is anticipated that any future collections below or
above the paid amount will be either charged or credited to loss from
discontinued operations.
The receivables repurchased from ITW and transferred back to the Company
include a receivable from Haden Drysys International Limited ("Haden"), a
United Kingdom corporation, in the amount of Pounds 434,885. On March 10,
2000, Haden filed an arbitration claim in the International Court of
Arbitration of the International Chamber of Commerce in the United Kingdom
against Binks Limited ("Binks UK"), a former subsidiary of the Company that
was sold to ITW as part of the sale of the Binks Business, in the amount of
approximately Pounds 3,300,000. The claim alleges that Binks UK breached its
agreements with Haden relating to automotive paint shop equipment for an
automobile plant. Pursuant to the original sale agreement with ITW, the
Company has agreed to indemnify ITW with respect to the claim and to assume
the defense of the claim on behalf of ITW. On April 13, 2000, the Company
filed an answer denying the claim and a counterclaim seeking to collect the
receivable. The arbitration is proceeding and the Company intends to
vigorously defend against the claim.
NOTE 4
The Company has certain contingent liabilities resulting from litigation and
claims incident to the ordinary course of business. Management believes that the
probable resolution of such contingencies will not materially affect the
financial position or results of operations of the Company.
-6-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000 (Unaudited), December 31, 1999 (Unaudited) and November 30, 1999
NOTE 4 (continued)
On May 28, 1999, Burke B. Roche, former Chairman and CEO of the Company, brought
suit against the Company seeking a judgment in the amount of all payments
alleged to be due him under a retirement contract, presently approximately
$444,000, and that the court direct the Company to make remaining installment
payments allegedly due under the contract. Mr. Roche claims that payments of
approximately $18,500 per month are due for at least 67 more months or until
June, 2006, and payments in this amount are due for an additional 60 months
thereafter, so long as Mr. Roche is living when each such monthly payment is
due. The Company had vigorously defended those claims and filed a counterclaim
seeking damages in an amount to be determined alleging various breaches of
fiduciary duty by Mr. Roche. On May 2, 2000, the Company amended its
counterclaim to include alleged breach of contract by Mr. Roche. On October 4,
2000, the Circuit Court of Cook County dismissed, without prejudice, Sames'
counterclaim relating to negligence and fraud; dismissed Sames' request for
rescission of the Employee Retirement Income Contract; but denied Mr. Roche's
motion to Sames' counterclaim to its action for breach of fiduciary duty and
breach of contract. Since the entry of the October 4, 2000 order, the parties
have engaged in settlement discussions and have agreed to settle the litigation,
including the counterclaim.
On November 3, 2000 a settlement was reached with Mr. Roche. Under the terms
of the settlement agreement, it was agreed that a)the Company shall pay $.75
million in a lump sum to Mr. Roche on November 17, 2000, subject to Federal
and state income tax withholding, and that the Company will have no further
obligation to Mr. Roche under the Employee Retirement Income Contract; b)Mr.
Roche will dismiss his suit against the Company and the Company will dismiss
its counterclaim against Mr. Roche; c)Mr. Roche and the Company will both
waive and release any claims they may have against each other; and d)each
party shall bear its own legal costs. Any adjustment resulting from this
settlement will be made to loss from discontinued operations.
For information relating to other legal matters involving the Company, reference
is made to "Item 3 - Legal Proceedings" in the Company's Annual Report on Form
10-K for the year ended November 30, 1999 and to "Part II, Item 1 - Legal
Proceedings" in this report.
NOTE 5
Comprehensive loss for the nine months ended September 30, 2000 and August 31,
1999 and one month ended December 31, 1999 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Nine months Nine months One month ended
ended Sept 30, ended August 31, December 31,
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Net loss $(1,602) (1,876) (658)
Other comprehensive loss:
Foreign currency translation adjustments (1,539) (628) (7)
------- ------- -------
Comprehensive loss $(3,141) (2,504) (665)
======= ======= =======
</TABLE>
-7-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2000 (Unaudited), December 31, 1999 (Unaudited) and
November 30, 1999
NOTE 6
The Company operates in one segment, the manufacture and distribution of
electrostatic spray finishing and coating application equipment. The Company's
products are sold to customers in North America, South America, Europe, Asia,
Africa, and Australia.
The table below presents the Company's consolidated continuing operations by
country: United States; France; and Japan. Sales are presented by originating
area. Interarea transfers comprise transactions among the Company and its
subsidiaries in different geographic areas; these transfers are eliminated in
consolidation.
<TABLE>
<CAPTION>
For the three For the nine For the one
months ended months ended month ended
-------------------- --------------------- --------------
Sept 30, Aug 31, Sept 30, Aug 31, December 31,
2000 1999 2000 1999 1999
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers (includes exports):
United States $ 4,813 6,219 16,210 17,698 1,666
France 11,524 17,329 39,504 43,847 3,060
Japan 615 974 3,824 3,653 297
Interarea transfers from:
France 2,397 3,120 7,584 10,168 818
Eliminations (2,397) (3,120) (7,584) (10,168) (818)
-------- -------- -------- -------- --------
Total $ 16,952 24,522 59,538 65,198 5,023
======== ======== ======== ======== ========
Operating income (loss):
United States $ (370) (10) (562) (890) (88)
France (133) 1,588 765 2,829 (401)
Japan (269) (113) (305) (380) (77)
-------- -------- -------- -------- --------
Total $ (772) 1,465 (102) 1,559 (566)
======== ======== ======== ======== ========
Identifiable assets of continuing operations at: Sept 30, Aug 31, December 31,
2000 1999 1999
-------- -------- ------------
United States $ 18,094 29,226 22,833
France 39,096 45,905 44,134
Japan 4,972 5,373 5,121
-------- -------- --------
Total $ 62,162 80,504 72,088
======== ======== ========
</TABLE>
-8-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIGNIFICANT DEVELOPMENTS
On November 13, 2000 the Board of Directors of Sames Corporation announced that
it had directed the Company's investment bankers, William Blair and Company, to
seek a buyer for the Company. The Company feels that a combination with a
strategic buyer or with a larger group will permit the Company to maintain
technology leadership in spray applications and provide working capital for
bigger automotive and general industry projects for which it competes. The Board
strongly believes that the current corporate and capital structures, left over
from the sale of the Binks business in 1998, will not permit the Company to take
full advantage of recent strategic multi-market alliances formed to broaden its
global distribution channels. It is anticipated that the Company's investment
bankers should be able to complete discussions with all interested parties by
early 2001.
As part of the original sale agreement with Illinois Tool Works (ITW), dated
August 31, 1998, the Company assigned and transferred to ITW all of the accounts
receivable related to the "Binks Business". The agreement required the Company
to repurchase such accounts receivable which were not collected within 180 days.
On September 23, 1999 the Company agreed to repurchase certain receivables for
approximately $1.0 million, which was paid to ITW on September 28, 1999. Through
September 30, 2000, the Company had collected approximately $.7 million of the
accounts receivable. It is anticipated that any future collections below or
above the paid amount will be either charged or credited to loss from
discontinued operations.
The receivables repurchased from ITW and transferred back to the Company
include a receivable from Haden Drysys International Limited ("Haden"), a
United Kingdom corporation, in the amount of Pounds 434,885. On March 10,
2000, Haden filed an arbitration claim in the International Court of
Arbitration of the International Chamber of Commerce in the United Kingdom
against Binks Limited ("Binks UK"), a former subsidiary of the Company that
was sold to ITW as part of the sale of the Binks Business, in the amount of
approximately Pounds 3,300,000. The claim alleges that Binks UK breached its
agreements with Haden relating to automotive paint shop equipment for an
automobile plant. Pursuant to the original sale agreement with ITW, the
Company has agreed to indemnify ITW with respect to the claim and to assume
the defense of the claim on behalf of ITW. On April 13, 2000, the Company
filed an answer denying the claim and a counterclaim seeking to collect the
receivable. The arbitration is proceeding and the Company intends to
vigorously defend against the claim.
On September 15, 1999 the Company announced a share repurchase program
authorizing the Company to repurchase up to 150,000 shares of its outstanding
capital stock. The shares can be repurchased from time to time in the open
market as market conditions warrant. Under the terms of the repurchase program,
the shares may be reissued to employees under the Company's stock option and
employee stock purchase plans. Through September 30, 2000, the Company
repurchased a total of 37,000 shares at a cost of $.6 million and has reissued
3,413 shares to employees under the Company's employee stock purchase plan.
-9-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
SIGNIFICANT DEVELOPMENTS (CONTINUED)
On January 31, 2000, the Board of Directors determined to change the Company's
fiscal year end from November 30 to December 31 effective for the year beginning
January 1, 2000. Accordingly, the Company is presenting the unaudited financial
information for the month ended December 31, 1999 (the transition
period) in this quarterly report on Form 10-Q. This new fiscal year will allow
the Company to conform its quarterly reporting periods to those predominantly
used by other companies in its industry.
The Company has not presented financial statements for the three months and nine
months ended September 30, 1999 but has instead presented financial statements
for the three months and nine months ended August 31, 1999. Because the adoption
of the new fiscal year resulted in only a one month change in annual and
quarterly financial reporting periods, the Company believes that fiscal 2000
financial information is sufficiently comparable to the corresponding fiscal
1999 financial information, as originally reported, in terms of seasonal and
other factors. Accordingly, the Company did not deem it practical nor could it
justify the additional cost to prepare and present financial statements for the
three months and nine months ended September 30, 1999.
-10-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS
NET SALES
Net sales for the three months ("Third Quarter 2000") and nine months ("Year
To Date 2000")ended September 30, 2000 were $17 million and $59.5 million
compared to $24.5 million and $65.2 million for the three months ("Third
Quarter 1999") and nine months ("Year To Date 1999") ended August 31,1999,
respectively, a decrease of $7.6 million for the Third Quarter 2000 and a
decrease of $5.7 million for the Year to Date 2000, or 31% and 9%,
respectively. Lower sales for both Year To Date 2000 and Third Quarter 2000
as compared to the corresponding periods in 1999 were primarily attributable
to Sames, S.A., the Company's French subsidiary, and were mainly the result of
weakening sales in large automotive installations. Net sales of Sames, S.A.
represented approximately 79% and 76% of Third Quarter 2000 and Year To Date
2000 consolidated net sales, respectively. The impact of a declining French
Franc from 1999 to 2000 reduced the U.S. dollar equivalent Year To Date 2000
and Third Quarter 2000 sales attributable to Sames, S.A., when compared to
1999, by $7.5 million and by $2.4 million, respectively.
GROSS PROFIT
Gross profit of $5.9 million for the Third Quarter 2000 decreased by $3.2
million, or (35%) from the comparable 1999 period, while Year To Date 2000 gross
profit of $20.2 million was lower than Year To Date 1999 gross profit by $4.8
million or (19%). Gross profit was 35% and 34% of net sales for Third Quarter
2000 and Year To Date 2000, respectively, compared to 37% and 38% for the Third
Quarter 1999 and Year To Date 1999, respectively. The decrease of $3.2 million
in the Third Quarter 2000 was primarily due to the reduction in volume of large
automotive installations compared to the prior year period. The decrease of $4.8
million in the Year To Date 2000 was also due to the reduction in volume of
large automotive installations as well as higher margin spare part sales
principally attributable to Sames, S.A.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expense was $6 million for the
Third Quarter 2000 compared to $6.7 million for the Third Quarter 1999, or a
decrease of 11%. For Year To Date 2000 and 1999, SG&A expense was $18.4
million and $20.6 million, respectively, or a decrease of 11%. SG&A expense
as a percentage of net sales was 35% and 31% for the Third Quarter 2000 and
Year To Date 2000, respectively, compared to 27% and 32% for the comparable
Third Quarter 1999 and Year To Date 1999 periods, respectively.
The decrease in SG&A expense is mainly the result of the continuation of
management's cost control programs. Sames France took a one-time charge relating
to severance costs in the amount of $.1 million and $.3 million in the Third
Quarter 2000 and Year to Date 2000, respectively, versus no charges in the Third
Quarter 1999 and $.4 million charges taken in Year to Date 1999. Excluding these
charges, SG&A expense would have decreased 13% and 10% for the Third Quarter
2000 and Year To Date 2000 versus the same periods in 1999, respectively.
-11-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development ("R&D") expense was $.7 million for the Third
Quarter 2000 compared to $.9 million for the Third Quarter 1999. For Year To
Date 2000 and 1999, R&D expense was $2 million and $2.9 million, respectively.
The costs were incurred primarily at the Company's largest facility at Sames
France. The Company is continually engaged in experimental work on various paint
and powder coating systems. The Company believes that a strong commitment to
research and development is necessary to drive long-term growth, consistent with
its objective to approve R&D projects that offer the most strategic value to the
Company.
INTEREST EXPENSE
Interest expense was $.2 million and $.6 million for the Third Quarter and Year
To Date 2000, respectively, compared with $.4 million and $.9 million for the
Third Quarter and Year To Date 1999, respectively. Interest expense decreased in
the Third Quarter and Year To Date 2000 primarily due to lower borrowing levels
in North America, where interest rates are higher than those in Europe.
Borrowing levels were at $.3 million at Sames North America at September 30,
2000 versus $3.1 million at the comparable period at August 31, 1999, a
reduction of 89% due to improved operational cash flow. Borrowing levels in
Sames Europe were $10.5 million at September 30, 2000, an increase of $2.7
million over borrowing levels at August 31, 1999.
OTHER INCOME, NET
Other income, net was $.3 million and $.5 million for the Third Quarter 2000 and
Year To Date 2000, respectively, compared with other expense of $.2 million and
other income of $.9 million in the Third Quarter 1999 and Year To Date 1999,
respectively. The majority of the variance in other income for the Third Quarter
2000 was attributable to foreign currency transaction gains fluctuation of $.5
million, principally at Sames, S.A., that arose due to the weakening value of
the French Franc versus the U.S. dollar. The variance in Year to Date other
income was principally due to variations in interest income of $.2 million on
lower cash balances at the headquarters office and changes in sundry
miscellaneous of $.2 million.
INCOME TAXES
The Company recorded an income tax benefit of $.2 million in the Third Quarter
2000 versus expense of $.3 million for the Third Quarter 1999. The income tax
expense for the Year To Date 2000 was nominal and the Year to Date 1999 was $.1
million. The relationship between consolidated income tax expense and pretax
income or loss is a function of the Company's geographical mix of pretax
profitability, and, generally, the utilization of available domestic net
operating loss carryforwards.
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
LOSS FROM DISCONTINUED OPERATIONS -
NET OF TAX
The Company's loss from discontinued operations, net of tax, was $.4 million for
the Third Quarter 2000 versus $1.7 million for the Third Quarter 1999. The
amount reported in the Third Quarter 1999 reflects a $1.2 million charge
resulting from a purchase price adjustment associated with the 1998 sale to
Illinois Tool Works ("ITW") of the Company's Binks Business. Loss from
discontinued operations, net of tax, decreased from $3.4 million ($1.13 loss per
diluted share) in Year to Date 1999 to $1.4 million ($.48 loss per diluted
share) in Year to Date 2000 principally due to the loss from the sale of the
Canadian operation in the First Quarter 1999 and the charge resulting from the
ITW adjustment mentioned above.
NET INCOME (LOSS)
As a result of all of the factors above, the Company recorded a net loss of $1.0
million ($.34 loss per diluted share) and $1.1 million ($.38 loss per diluted
share) for the Third Quarter 2000 and for the Third Quarter 1999, respectively.
For the Year To Date 2000 and 1999, the Company recorded losses of $1.6 million
($.55 loss per diluted share) and $1.9 million ($.63 loss per diluted share),
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations are the primary source of the Company's liquidity. In
the nine months ended September 30, 2000, the Company utilized cash of $2.8
million in operating activities primarily due to significant payments of
accounts payable offset only partially by collections of accounts receivables
and reductions in inventory levels from the period ended December 31, 1999.
Working capital was $17.6 million at September 30, 2000 compared to $22 million
at December 31, 1999, a reduction of 25%.
Short-term funds are also provided for current operations through lines of
credit and overdraft facilities. At September 30, 2000, the Company had
aggregate credit facilities of $15.9 million, borrowings under these
facilities of $8.9 million, and amounts available under these facilities of
$7 million.
During the Year to Date 2000 the Company increased short-term borrowing levels
by $2.7 million while paying down long-term debt by $.9 million. Borrowings were
used to support current levels of operations.
The Company increased capital spending levels to $.4 million in the Third
Quarter 2000 for a total of $.9 million in Year to Date 2000. $.2 million of the
spending in the Third Quarter 2000 is partly attributable to the construction of
the Company's General Industry systems demonstration center in Livonia,
Michigan, while the remainder is attributable to spending at Sames France. In
the Year to Date 2000, Sames North America spent a total of $.5 million on
capital improvements, most of which related to the demonstration center.
Overall, cash and cash equivalents decreased in the Year To Date 2000 by $2.4
million.
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (continued)
Based upon its current level of operations, the Company believes that its
cash flow from operations together with the available borrowing capacity
under its credit agreements will be adequate to meet its presently
anticipated requirements to fund operations, capital expenditures, interest
payments on its borrowings and scheduled principal payments on its
borrowings. There can be no assurance, however, that future industry-specific
development, general economic trends or other situations will not adversely
affect the Company's operations or ability to meet cash requirements.
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (as amended), and SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities",
are effective for financial statements for all fiscal quarters of all fiscal
years beginning after June 15, 2000, but may be adopted in earlier periods. The
Company has not yet assessed the effects that these statements will have on its
results of operations, financial position or cash flows. The Company intends to
adopt the standards on January 1, 2001.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) No. 101 regarding recognition, presentation and disclosure of
revenue. Management believes that SAB No. 101 will not have any material impact
on its financial position, results of operations or cash flows.
QUARTERLY FLUCTUATIONS
The Company has experienced significant quarterly fluctuations in operating
results and anticipates that those fluctuations will continue. The
fluctuations have been primarily caused by periodic changes in the components
of the Company's sales mix. In particular, the Company's sales of large
automotive installations can fluctuate substantially and generally result in
relatively lower gross profit margins. Sales of standard products and spare
parts typically generate relatively higher gross profit margins. The Company
therefore believes that quarter-to-quarter comparisons of its results are not
necessarily meaningful and should not be relied upon as indications of future
performance.
CONVERSION TO THE EURO
On January 1, 1999, eleven European Union member states adopted the Euro as
their common national currency. From that date until January 1, 2002, either the
Euro or a participating country's present currency will be accepted as legal
tender. Beginning on January 1, 2002, Euro-denominated bills and coins will be
issued, and by July 1, 2002, only Euro currency will be used.
The Company is evaluating the strategic, financial, legal, and systems issues
related to the various phases of transition to the Euro currency. While the
Company does not believe the ultimate costs of conversion will be material to
its results of operations, cash flow, or financial position, efforts will be
made to address customer and business needs on a timely basis and anticipate and
prevent any complications.
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A substantial portion of the Company's non-U.S. transactions is denominated in
French Francs. Although Sames, S.A. is not typically subject to significant
foreign exchange transaction gains or losses, its financial statements are
translated into U.S. dollars as part of the Company's consolidated financial
reporting. Fluctuations in the French Franc/U.S. dollar exchange rate therefore
will affect the Company's consolidated balance sheets and statements of
operations. At September 30, 2000, the value of the French Franc versus the U.S.
dollar had depreciated by approximately 14.2% compared to its value at December
31, 1999. The average French Franc/U.S. dollar exchange rate decreased
approximately 16.6% in the Year To Date 2000 compared to the Year To Date 1999
period. The Company also has operations in Japan and Sweden, where transactions
are denominated in Japanese yen and Swedish krona.
In the nine months ended September 30, 2000, the net change in the cumulative
foreign currency translation adjustment account, which is a component of
stockholders' equity, was an unrealized loss of $1.5 million. An unrealized
foreign currency translation loss of $.6 million was recorded in the nine months
ended August 31, 1999.
Foreign currency exchange transactions have not typically resulted in
significant periodic gains or losses, although Sames, S.A. recorded a gain of
approximately $.3 million during the nine months ended September 30, 2000. The
gain was recorded due to the depreciation of the French Franc relative to the
U.S. dollar during the period. The Company generally does not use derivative
financial instruments to manage currency exchange risks and no such instruments
were outstanding at September 30, 2000.
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Statements regarding the Company's future plans and expectations, operating
performance, product development and distribution, strategic alternatives and
alliances, and effects of the Euro conversion constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, and are subject
to the safe harbor created thereby. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations reflected in such forward-looking
statements will prove to be correct. The Company's ability to predict results or
the actual effect of future plans or strategies is inherently uncertain.
Important factors that could cause actual results to differ materially from the
Company's expectations include, without limitation, the Company's ability to
receive, negotiate and accept agreements involving a sale of the Company, the
timing of any transaction involving a sale of the Company, adverse changes in
the economy or overall market generally, increased competition relating to the
Company's products and services both within the United States and globally,
lower than expected sales of the Company's products and services, the Company's
inability to successfully implement manufacturing assembly and cost-reduction
programs, adverse results of the testing of the Company's products and
validation programs or the failure of such products or programs to gain wide
market acceptance, the inability of the Company to enter into or secure new or
anticipated strategic alliances, continuing losses resulting from discontinued
operations relating to the resolution and conclusion of the matters relating to
the sale of the Binks business, fluctuation in the sales revenues caused in part
by currency fluctuations and translations, uncertainty relating to economic and
political conditions in the countries and international markets in which the
Company operates and competes, and changes in accounting principles, policies
and guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements.
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On February 24, 1997, Chester Baranowski, the former President of
Binks Canada, brought suit against the Company seeking US $4.55 million claiming
wrongful dismissal, breach of contract and non-payment of certain salary and
employee benefits. The Company has denied all substantive allegations and filed
a counterclaim on November 28, 1997 against Baranowski for breach of fiduciary
duty and conspiracy with Burke B. Roche to injure the Company. The case went to
trial in the Superior Court of Justice at Toronto, Canada and reasons for
judgement were issued January 12, 2000. Both parties have filed notices of
appeal.
On May 28, 1999, Burke B. Roche, former Chairman and CEO of the
Company, brought suit against the Company seeking a judgment in the amount of
all payments alleged to be due him under a retirement contract, presently
approximately $444,000, and that the court direct the Company to make remaining
installment payments allegedly due under the contract. Mr. Roche claims that
payments of approximately $18,500 per month are due for at least 67 more months
or until June, 2006, and payments in this amount are due for an additional 60
months thereafter, so long as Mr. Roche is living when each such monthly payment
is due. The Company had vigorously defended those claims and filed a
counterclaim seeking damages in an amount to be determined alleging various
breaches of fiduciary duty by Mr. Roche. On May 2, 2000, the Company amended its
counterclaim to include alleged breach of contract by Mr. Roche. On October 4,
2000, the Circuit Court of Cook County dismissed, without prejudice, Sames'
counterclaim relating to negligence and fraud; dismissed Sames' request for
rescission of the Employee Retirement Income Contract; but denied Mr. Roche's
motion to Sames' counterclaim to its action for breach of fiduciary duty and
breach of contract. Since the entry of the October 4, 2000 order, the parties
have engaged in settlement discussions and have agreed to settle the litigation,
including the counterclaim.
On November 3, 2000 a settlement was reached with Mr. Roche.
Under the terms of the settlement agreement, it was agreed that a)the Company
shall pay $.75 million in a lump sum to Mr. Roche on November 17, 2000,
subject to Federal and state income tax withholding, and that the Company
will have no further obligation to Mr. Roche under the Employee Retirement
Income Contract; b)Mr. Roche will dismiss his suit against the Company and
the Company will dismiss its counterclaim against Mr. Roche; c)Mr. Roche and
the Company will both waive and release any claims they may have against each
other; and d)each party shall bear its own legal costs. Any adjustment
resulting from this settlement will be credited to loss from discontinued
operations.
As of September 23, 1999, the Company reached agreement with ITW to
resolve its outstanding dispute relating to the purchase price adjustment
associated with the sale to ITW, effective September 30, 1998 of certain assets,
operations and subsidiaries that included specific standard or non-electrostatic
products comprising the Binks Business. Under the terms of the settlement, the
Company agreed to pay ITW approximately $6.1 million in sixteen quarterly
installments, without interest, of $385,458 each, which commenced on September
30, 1999 and end June 30, 2003.
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings (continued)
As part of the original sale agreement with ITW, the Company
assigned and transferred to ITW all of the accounts receivable related to the
Binks Business. The sale agreement also provided for indemnification of ITW with
respect to such accounts receivable not collected within 180 days of the date of
the agreement. The Company and ITW have resolved disputes that arose regarding
these receivables. As a result, the Company paid approximately $1.0 million to
ITW on September 28, 1999 and ITW transferred back to the Company accounts
receivable in the aggregate amount of approximately $3.7 million. Through
September 30, 2000, the Company had collected $.7 million of the accounts
receivable. It is anticipated that any future collections below or above the
paid amount will be either charged to or credited to loss from discontinued
operations.
The receivables repurchased from ITW and transferred back to the
Company include a receivable from Haden Drysys International Limited
("Haden"), a United Kingdom corporation, in the amount of Pounds 434,885. On
March 10, 2000, Haden filed an arbitration claim in the International Court
of Arbitration of the International Chamber of Commerce in the United Kingdom
against Binks Limited ("Binks UK"), a former subsidiary of the Company that
was sold to ITW as part of the sale of the Binks Business, in the amount of
approximately Pounds 3,300,000. The claim alleges that Binks UK breached its
agreements with Haden relating to automotive paint shop equipment for an
automobile plant. Pursuant to the original sale agreement with ITW, the
Company has agreed to indemnify ITW with respect to the claim and to assume
the defense of the claim on behalf of ITW. On April 13, 2000, the Company
filed an answer denying the claim and a counterclaim seeking to collect the
receivable. The arbitration is proceeding and the Company intends to
vigorously defend against the claim.
On June 23, 2000, Doran Unschuld, the former President and Chief
Executive Officer of the Company, filed suit against the Company alleging breach
of contract by the Company with respect to certain benefits payable to Mr.
Unschuld under his retirement contract with the Company. The complaint was filed
in the Circuit Court of Cook County, Illinois and seeks damages from the Company
in the amount of the monthly payments that allegedly should have been made under
the contract since May 2000, equal to $11,076 per month. He is also seeking a
constructive trust against the Company for the amount of such payments that are
allegedly required to be paid by the Company under and for the life of the
contract, which total $1,329,120 over 120 months.
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings (continued)
In the same action, Mr. Unschuld has filed suit against Mr. Arnold
Dratt, the Company's Chairman, President and Chief Executive Officer, claiming
his alleged intentional interference with Mr. Unschuld's retirement contract.
The complaint alleges that Mr. Dratt intentionally influenced the Company to
terminate Mr. Unschuld's contract with the Company for his own personal gain. He
seeks compensatory damages against Mr. Dratt for the full amount of the contract
in addition to punitive damages in excess of $500,000. The Company has agreed to
indemnify Mr. Dratt in connection with this action according to the terms of his
indemnification agreement with the Company. The Company has answered Mr.
Unschuld's complaint and has denied that it breached the retirement contract. In
addition, the Company has filed a two-count counterclaim against Mr. Unschuld
and has alleged that Mr. Unschuld breached certain fiduciary duties he owed to
the Company and breached the retirement contract. Mr. Dratt has moved to dismiss
Mr. Unschuld's claim for intentional interference with the retirement contract.
On June 21, 2000, eleven former executive employees of the Company
filed suit against the Company and ITW claiming breach of certain retirement
contracts by the Company, which include provisions for the payment of certain
medical insurance expenses by the Company on behalf of the retirees pursuant to
the terms of the contracts. The action alleges that the Company improperly
amended the terms of the contracts to provide for the payment of 10% of such
retirees' medical insurance expense versus the 90% reimbursement that the
plaintiffs claim the Company originally contracted to pay. The plaintiffs filed
a declaratory judgement action in the Circuit Court of Cook County, Illinois
asking the court to make a determination as to whether the Company properly
amended the contracts, and asking the court to reinstate the contracts as
originally executed. The plaintiffs are seeking unspecified damages. The Company
removed the action to the United States District Court for the Northern District
of Illinois since plaintiffs' action is governed by the Employee Retirement
Income Security Act of 1974 ("ERISA"). Subsequent to the removal of the action,
plaintiffs filed an amended complaint. The Company has until November 22, 2000
to respond to the plaintiffs' amended complaint.
For all legal matters discussed above, after consulting with
counsel, management believes that the probable resolution of such contingencies
will not materially affect the financial position or results of operations of
the Company.
See Note 4 to Consolidated Financial Statements for the period ended September
30, 2000 (Unaudited) contained herein.
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION (CONTINUED)
Items 2. and 3.
4. and 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
- Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K - None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAMES CORPORATION
/s/ Arnold H. Dratt
-------------------
Arnold H. Dratt - Chairman, President and Chief Executive Officer
Principal Executive Officer
/s/ Ronald A. Koltz
-------------------
Vice President - Controller Corporate Accounting
Principal Accounting and Financial Officer
Date November 13, 2000
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