<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 June 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
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(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
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(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 July 31, 2000
------------------------------ --------------------------
Capital Stock, par value $1.00 2,931,818
<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
June 30, 2000 (unaudited), December 31, 1999 (unaudited) and
November 30, 1999 2
Consolidated Statements of Operations (unaudited)
Three months and six months ended June 30, 2000 and
May 31, 1999 and one month ended December 31, 1999 3
Consolidated Statements of Cash Flows (unaudited) Six months
ended June 30, 2000 and May 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
Forward Looking Statements 16
Part II. Other Information
Item 1. Legal Proceedings 17-19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
</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
June 30, 2000 (Unaudited), December 31, 1999 (Unaudited) and November 30, 1999
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, Dec 31, Nov 30,
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,486 4,006 6,171
Receivables, net 36,060 41,455 43,171
Inventories 14,420 15,801 15,999
Other current assets 3,405 3,030 3,971
Net assets of discontinued operations 355 1,246 1,301
-------------- --------------- -------------
Total current assets 56,726 65,538 70,613
Other noncurrent assets 2,959 3,028 3,038
Property, plant and equipment, at cost 10,999 11,002 10,938
Less accumulated depreciation 6,306 6,234 6,172
-------------- --------------- -------------
Net property, plant and equipment 4,693 4,768 4,766
-------------- --------------- -------------
$ 64,378 73,334 78,417
============== =============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank overdrafts
and current maturities of long-term debt $ 5,601 8,306 8,543
Accounts payable 23,379 27,158 27,881
Other current liabilities 7,851 8,099 10,980
-------------- --------------- -------------
Total current liabilities 36,831 43,563 47,404
Deferred compensation 6,249 6,394 6,426
Note payable, net of discount of $875, $942 and $964, respectively 2,545 3,182 3,500
Deferred income taxes 74 76 76
Long-term debt, less current maturities 2,625 2,762 2,767
-------------- --------------- -------------
Total liabilities 48,324 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
March 31, 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 (3,327) (2,727) (2,069)
Accumulated other comprehensive loss:
Foreign currency translation adjustments (2,686) (2,042) (2,035)
-------------- --------------- -------------
16,631 17,875 18,540
Treasury stock, at cost, 36,190, 32,500 and 18,200 shares
at June 30, 2000, December 31, 1999 and November 30,
1999, respectively (577) (518) (296)
-------------- --------------- -------------
Total stockholders' equity 16,054 17,357 18,244
-------------- --------------- -------------
$ 64,378 73,334 78,417
============== =============== =============
</TABLE>
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<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 six One month
months ended months ended ended
--------------------------- ------------------------- ------------
June 30, May 31, June 30, May 31, Dec 31,
2000 1999 2000 1999 1999
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 19,972 22,900 42,586 40,676 5,023
Cost of goods sold 13,442 15,033 28,256 24,715 3,386
------------ ----------- ----------- ----------- ------------
Gross profit 6,530 7,867 14,330 15,961 1,637
Selling, general and administrative expenses 5,873 7,163 12,362 13,851 1,904
Research and development costs 656 1,022 1,298 2,016 299
------------ ----------- ----------- ----------- ------------
Operating income (loss) 1 (318) 670 94 (566)
------------ ----------- ----------- ----------- ------------
Other expense (income):
Interest expense 106 172 369 523 69
Other income, net (285) (640) (236) (1,170) (34)
------------ ----------- ----------- ----------- ------------
(179) (468) 133 (647) 35
------------ ----------- ----------- ----------- ------------
Income (loss) from continuing operations
before income taxes 180 150 537 741 (601)
Income tax expense (benefit) 66 (177) 180 (190) (81)
------------ ----------- ----------- ----------- ------------
Income (loss) from continuing operations,
net of tax 114 327 357 931 (520)
Loss from discontinued operations, net of tax (473) (472) (957) (1,662) (138)
------------ ----------- ----------- ----------- ------------
Net loss $ (359) (145) (600) (731) (658)
============ =========== =========== =========== ============
Income (loss) per share - basic
Continuing operations $ .04 .11 .12 .31 (.18)
Discontinued operations (.16) (.16) (.32) (.56) (.04)
------------ ----------- ----------- ----------- ------------
Net loss $ (.12) (.05) (.20) (.25) (.22)
============ =========== =========== =========== ============
Income (loss) per share - diluted
Continuing operations $ .04 .11 .12 .31 (.18)
Discontinued operations (.16) (.16) (.32) (.56) (.04)
------------ ----------- ----------- ----------- ------------
Net loss $ (.12) (.05) (.20) (.25) (.22)
============ =========== =========== =========== ============
Weighted average shares:
Basic 2,930 2,965 2,932 2,965 2,942
Effect of stock options 7 9 6 7 4
------------ ----------- ----------- ----------- ------------
Diluted 2,937 2,974 2,938 2,972 2,946
============ =========== =========== =========== ============
</TABLE>
-3-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
<TABLE>
<CAPTION>
For the six One month
months ended ended
-------------------------------- ----------------
June 30, May 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 $ 357 931 (520)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 442 486 77
Deferred compensation, net of payments (161) (594) (32)
Other, net 65 (44) 227
Cash provided by (used in) changes in:
Receivables 3,433 9,446 1,644
Inventories 954 (2,841) (247)
Other current assets (577) 308 307
Accounts payable (2,627) 1,878 (985)
Accrued expenses (500) (5,682) (1,961)
-------------- -------------- ----------------
Net cash provided (used) by operating activities 1,386 3,888 (1,490)
-------------- -------------- ----------------
Cash flows from investing activities:
Purchases of property, plant and equipment (553) (395) (85)
Other investments and assets 5 221 9
-------------- -------------- ----------------
Net cash used in investing activities (548) (174) (76)
-------------- -------------- ----------------
Cash flows from financing activities:
Proceeds from long-term borrowings (481) 1,064 --
Net increase (decrease) in short term borrowings (1,823) 3,000 74
Repurchase of capital stock (59) -- (222)
Principal payments on long-term debt -- (1,007) (300)
-------------- -------------- ----------------
Net cash provided (used) by financing activities (2,363) 3,057 (448)
-------------- -------------- ----------------
Net cash provided (used) by discontinued operations 19 (4,124) (154)
Effect of exchange rate changes on cash (14) (378) 3
-------------- -------------- ----------------
Net increase (decrease) in cash and cash equivalents (1,520) 2,269 (2,165)
Cash and cash equivalents at beginning of period 4,006 5,204 6,171
-------------- -------------- ----------------
Cash and cash equivalents at end of period $ 2,486 7,473 4,006
============== ============== ================
</TABLE>
-4-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
June 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 in its industry.
The Company has not presented financial statements for the three months and
six months ended June 30, 1999 but has instead presented financial statements
for the three months and six months ended May 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 six months ended June 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
quarter ended March 31, 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 will 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 June 30, 2000, the Company repurchased a
total of 37,000 shares at a cost of $.6 million and has reissued 810 shares to
employees under the Company's employee stock purchase plan. On July 1, 2000, the
Company reissued an additional 1,171 shares to employees under the Company's
employee stock purchase plan.
-5-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
June 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
June 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 Pounds 3,000,000. 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.
-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
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. 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 six months ended June 30, 2000 and May 31, 1999
and one month ended December 31, 1999 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Six months Six months One month ended
ended June 30, ended May 31, December 31,
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Net loss
$ (600) (731) (658)
Other comprehensive loss:
Foreign currency translation adjustments (644) (850) (7)
------ ------ ----
Comprehensive loss $(1,244) (1,581) (665)
====== ====== ====
</TABLE>
-7-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
June 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 six One month
months ended months ended ended
------------------------ ------------------- --------------
June 30, May 31, June 30, May 31, December 31,
2000 1999 2000 1999 1999
----------- ----------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers
(includes exports):
United States $ 5,354 6,090 11,397 11,479 1,666
France 13,042 15,720 27,981 26,518 3,060
Japan 1,576 1,090 3,208 2,679 297
Interarea transfers from:
France 2,288 3,207 5,187 7,048 818
Eliminations (2,288) (3,207) (5,187) (7,048) (818)
----------- ------------ -------- --------- --------------
Total $ 19,972 22,900 42,586 40,676 5,023
=========== ============ ======== ========= ==============
Operating income (loss):
United States $ (100) (635) (192) (879) (88)
France 135 519 898 1,241 (401)
Japan (34) (202) (36) (268) (77)
----------- ------------ -------- --------- --------------
Total $ 1 (318) 670 94 (566)
=========== ============ ======== ========= ==============
Identifiable assets of continuing operations at: June 30, May 31, December 31,
2000 1999 1999
-------- --------- -------------
United States $ 18,890 26,679 22,833
France 39,806 38,432 44,134
Japan 5,327 4,833 5,121
------- ------- -------
Total $ 64,023 69,944 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
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
June 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 Pounds 3,000,000. 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.
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 will 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 June 30, 2000, the Company repurchased a
total of 37,000 shares at a cost of $.6 million and has reissued 810 shares
to employees under the Company's employee stock purchase plan. On July 1, 2000,
the Company reissued an additional 1,171 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 in its industry.
On April 25, 2000, 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.
On April 25, 2000, the Company elected Arnold H. Dratt, its President and CEO,
to the position of Chairman of the Board of Directors. Mr. Dratt succeeded Dr.
Wayne Edwards, who will remain a director. Philippe Vuillerme, the managing
director of the Company's largest subsidiary, Sames S.A., was promoted to Chief
Operating Officer. Mr. Vuillerme is also a director of the Company.
The Board of Directors approved a change in the Company's listing stock symbol
from BIN to SGT, effective May 22, 2000. As shorthand for "Sames Global
Technology", the symbol was chosen to underline the core strengths of Sames in
high technology electrostatic finishing on a global basis.
The Company has not presented financial statements for the three months and six
months ended June 30, 1999 but has instead presented financial statements for
the three months and six months ended May 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 six months ended June 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 ("Second Quarter 2000") and six months ("Year To
Date 2000")ended June 30, 2000 were $20.0 million and $42.6 million compared to
$22.9 million and $40.7 million for the three months ("Second Quarter 1999") and
six months ("Year To Date 1999") ended May 31,1999, respectively, a decrease of
$2.9 million for the Second Quarter 2000 and an increase of $1.9 million for the
Year to Date 2000, or (13%) and 5%, respectively. Higher Year To Date 2000 sales
over 1999 were primarily attributable to Sames France and Sames Japan and were
proportionately distributed across product lines. Lower sales in Second Quarter
2000 were affected mainly by weakening sales in large automotive installations.
Net sales of Sames France represented approximately 63% of Second Quarter and
Year To Date 2000 consolidated net sales. The impact of a declining French Franc
from 1999 to 2000 reduced the U.S. dollar equivalent Second Quarter and Year To
Date 2000 sales amounts, when compared to 1999, by over 15%.
GROSS PROFIT
Gross profit of $6.5 million for the Second Quarter 2000 decreased $1.3 million,
or (17%) from the comparable 1999 period while Year To Date 2000 gross profit of
$14.3 million was lower than Year To Date 1999 gross profit by $1.6 million or
(10%). Gross profit was 33% and 34% of net sales for Second Quarter and Year To
Date 2000, respectively, compared to 34% and 39% for the Second Quarter and Year
To Date 1999, respectively. The decrease of $1.3 million in the Second Quarter
2000 was primarily due to the reduction in volume of large automotive
installations compared to the prior year. The decrease of $1.6 million in the
Year To Date 2000 was due to the reduction in volume of higher margin standard
and spare part sales primarily from the first quarter 1999.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expense was $5.9 million for the
Second Quarter 2000 compared to $7.2 million for the Second Quarter 1999 or a
decrease of 18%. For Year To Date 2000 and 1999, SG&A expense was $12.4 million
and $13.9 million, respectively, or a decrease of 11%. SG&A expense as a
percentage of net sales was 29% both for the Second Quarter and Year To Date
2000 compared to 31% and 34% for the comparable Second Quarter and Year To Date
1999 periods, respectively.
The decrease in SG&A expense is mainly the result of the implementation and
continuation of management's cost control programs and emphasis on
profitability. In the Second Quarter 1999 the Sames France took a one-time
charge relating to severance costs in the amount of $.5 million while in the
Second Quarter 2000 this same division took a similar charge of $.1 million.
Excluding these charges, SG&A expense would have decreased 13% and 8% for the
Second Quarter 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 Second
Quarter 2000 compared to $1.0 million for the Second Quarter 1999. For Year To
Date 2000 and 1999, R&D expense was $1.3 million and $2.0 million, respectively.
The Company is continually engaged in experimental work on various paint and
powder coating systems. The costs were incurred primarily in its largest
facility at Sames France. 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 which offer the most strategic value to
the Company.
INTEREST EXPENSE
Interest expense was $.1 million and $.4 million for the Second Quarter and Year
To Date 2000, respectively, compared with $.2 million and $.5 million for the
Second Quarter and Year To Date 1999, respectively. Interest expense decreased
in the three months and six months ended June 30, 2000 primarily due to a 17%
reduction in borrowing levels since December 31, 1999 achieved from improved
operational cash flows by Sames France and Sames North America.
OTHER INCOME, NET
Other income, net was $.3 million and $.2 million for the Second Quarter and
Year To Date 2000, respectively, compared with other income, net of $.6 million
and $1.2 million in the Second Quarter and Year To Date 1999, respectively. The
majority of the variance in other income, net between the periods was
attributable to foreign currency transaction gains, principally by Sames North
America, that arose due to the weakening French Franc in the Second Quarter
1999.
INCOME TAXES
The Company recorded an income tax expense of $.1 million in the Second Quarter
2000 versus a benefit of $.2 million for the Second Quarter 1999.
The Company recorded an income tax expense of $.2 million for the Year To Date
2000 versus a benefit of $.2 million for the Year To Date 1999. The relationship
of 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.
LOSS FROM DISCONTINUED OPERATIONS -
NET OF TAX
Loss from discontinued operations, net of tax, decreased from $1.7 million ($.56
loss per diluted share) in Year To Date 1999 to $1.0 million ($.32 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. The loss from discontinued
operations was for both the Second Quarter 2000 and 1999 each $.5 million.
-12-
<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
NET INCOME (LOSS)
As a result of all of the factors above, the Company recorded a net loss of $.4
million ($.12 loss per diluted share) and $.1 million ($.05 loss per diluted
share) in the Second Quarter 2000 and in the Second Quarter 1999, respectively.
For the Year To Date 2000 and 1999, the Company recorded losses of $.6 million
($.20 loss per diluted share) and $.7 million ($.25 loss per diluted share),
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations are the primary source of the Company's liquidity.
Short-term funds are also provided for current operations through lines of
credit and overdraft facilities. At June 30, 2000, the Company had aggregate
credit facilities of approximately $17.8 million, borrowings under these
facilities of $5.5 million, and amounts available under these facilities of
$12.3 million.
In the six months ended June 30, 2000, the Company generated cash flow of $1.4
million from operating activities primarily due to a significant reduction in
accounts receivable and inventory offset by a decrease of accounts payable from
the period ended December 31, 1999. The Company increased capital spending
levels to $.3 million in the Second Quarter 2000 for a total of $.6 million in
Year to Date 2000.
During the Year to Date 2000 the Company paid down short-term borrowing levels
by approximately $2.4 million.
Overall, cash and cash equivalents decreased in the Year To Date 2000 by $1.5
million.
Based upon the current level of operations, the Company believes that its cash
flow from operations together with the available borrowing capacity under it
credit agreements will be adequate to meet its presently anticipated
requirements for working capital and accrued liabilities, capital expenditures,
interest payments, and scheduled principal payments. There can be no assurance,
however, that the Company's business will continue to generate cash flow at or
above current levels.
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 is evaluating the new standards' provisions and has not yet determined
what the effect of SFAS Nos. 133 and 138 will be on the earnings and the
financial position of the Company. The Company intends to adopt the standards on
January 1, 2001.
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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)
IMPACT OF NEW ACCOUNTING STANDARDS (continued)
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 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 they 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 June 30, 2000, the French Franc had depreciated by approximately
5.5% compared to December 31, 1999. However, the average French franc/U.S.
dollar exchange rate decreased approximately 17.1% 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 six months ended June 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 $.6 million. An unrealized foreign currency
translation loss of $.9 million was recorded in the six months ended May 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 $.1 million during the six months ended June 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 June 30, 2000.
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
FORWARD-LOOKING STATEMENTS
Statements regarding the Company's future plans and expectations, operating
performance, product development and distribution and 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, 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.
In October 1997, Robert Hashima, the former branch manager of Binks
Japan Limited, filed a lawsuit against the Company, claiming that he is entitled
to receive 145 million yen (approximately US$1.2 million) plus interest under
his retirement policy. The Company responded vigorously to Mr. Hashima's claim
and in June 1998, the Company filed a counterclaim for damages in the amount of
172 million yen (approximately US$1.4 million) for various wrongdoings on the
part of Mr. Hashima.
A settlement was reached with Mr. Hashima on May 30, 2000 at the
Tokyo District Court. Under the terms of the settlement agreement, it was agreed
that a)the Company shall pay approximately $.10 million to Mr. Hashima on or
before June 20, 2000 (this amount is included in loss from discontinued
operations for the six months ended June 30, 2000), b)Mr. Hashima shall withdraw
the case against the Company and the Company shall withdraw its counter-action
against Mr. Hashima c)Mr. Hashima and the Company shall both waive and release
any claims they may have against each other, d)on or before May 31, 2000, Mr.
Hashima shall release the provisional attachment order that froze a local bank
account of the Company in Tokyo (approximately $.2 million) and e)each party
shall bear its own legal costs. All settlement terms have been performed as
agreed.
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 $277,500, and that the court direct the Company to make remaining
installment payments allegedly due. Mr. Roche claims that payments of
approximately $18,500 per month are due for at least 76 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 is vigorously defending these claims and has 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.
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings (continued)
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.
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 which 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 June
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 Pounds 3,000,000. 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
August 2, 2000, the Company filed a notice of removal to the U.S. District Court
for the Northern District of Illinois. 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 the 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.
Both the Company and Mr. Dratt have until August 16, 2000 to respond to the
complaint.
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.
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 June 30,
2000 (Unaudited) contained herein.
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION (CONTINUED)
Items 2. and 3. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held
on April 25, 2000. Four proposals were submitted to
stockholders as described in the Company's proxy statement
dated March 20, 2000. The following is a brief description
of the matters voted upon, the number of votes cast for and
against each proposal, and the number of abstentions.
1. The election of one director of the Company;
Votes for: 2,421.434
Votes Against: 0
Abstain: 278,817
2. The approval of the Sames Employee Stock Purchase
Plan;
Votes for: 2,619,704
Votes Against: 70,435
Abstain: 10,112
3. The approval of the Sames Corporation Amended and
Restated 1996 Stock Option Plan;
Votes for: 2,352,184
Votes Against: 334,778
Abstain: 13,289
4. The ratification of KPMG LLP as the Company's
independent Accountants for the fiscal year ended
December 31, 2000;
Votes for: 2,661,622
Votes Against: 36,637
Abstain: 1,992
Item 5. Not applicable
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<PAGE>
SAMES CORPORATION AND CONSOLIDATED SUBSIDIARIES
PART II - OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
- Exhibit 10.1 - Sames Corporation Amended and
Restated 1996 Stock Option Plan (filed as Appendix
B to the Company's Proxy Statement for its 2000
Annual Meeting of Stockholders, and incorporated
herein by reference)
- Exhibit 10.2 - Sames Employee Stock Purchase
Plan (filed as Appendix A to the Company's Proxy
Statement for its 2000 Annual Meeting of
Stockholders, and incorporated herein by
reference)
- Exhibit 10.3 - Amended and Restated Consulting
Agreement between Sames Corporation and The
Dratt-Campbell Company dated as of March 1, 2000.
- 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 August 10, 2000
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