UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission File No. 0-25390
SMC CORPORATION
(Exact name of Registrant as specified in its charter)
Oregon 93-0939076
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
30725 Diamond Hill Road
Harrisburg, Oregon 97446
(Address of principal executive offices) (Zip Code)
(541) 995-8214
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of outstanding shares of Common Stock at May 3, 1996: 6,563,064
1
<PAGE>
SMC CORPORATION
INDEX TO FORM 10-Q
Page
----
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1996 and
December 31, 1995............................................... 3
Consolidated Statement of Income - Three Months
Ended March 31, 1996 and March 31, 1995......................... 4
Consolidated Statement of Changes in Shareholders'
Equity - Year Ended December 31, 1995 and Three
Months Ended March 31, 1996..................................... 5
Consolidated Statement of Cash Flows - Three Months
Ended March 31, 1996 and March 31, 1995......................... 6
Notes to Consolidated Financial Statements...................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 9
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K................................13
Signatures..................................................................14
Exhibit Index...............................................................15
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SMC CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
- - -----------------------------------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31,
1995 1996
--------------- ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 69 $ 478
Accounts receivable, net 8,445 7,351
Claims receivable 120 105
Inventories (Note 2) 16,311 14,571
Prepaid expenses and other 412 16
Deferred tax asset 752 752
----------- -----------
Total current assets 26,109 23,273
Property, plant and equipment, net 12,061 13,608
Intangible assets, net 2,328 2,284
Other assets 700 689
----------- -----------
Total assets $ 41,198 $ 39,854
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 1,671 $ 299
Current portion of long-term debt 1,401 1,409
Accounts payable 11,053 8,801
Income taxes payable -- 556
Royalties payable 542 542
Product warranty liabilities 1,165 1,243
Accrued liabilities 2,422 3,129
----------- -----------
Total current liabilities 18,254 15,979
Long-term debt, net of current portion 4,676 4,311
Noncurrent royalties 480 480
Deferred income taxes 377 377
----------- -----------
Total liabilities $ 23,787 $ 21,147
----------- -----------
Shareholders' equity:
Preferred stock, 5,000 shares authorized, none issued or outstanding -- --
Common stock, 30,000 shares authorized, 6,563 shares issued
and outstanding 10,914 10,914
Additional paid-in capital (Note 4) 1,556 1,556
Retained earnings (Note 4) 4,941 6,237
----------- -----------
Total shareholders' equity 17,411 18,707
----------- -----------
Total liabilities and shareholders' equity $ 41,198 $ 39,854
=========== ===========
The accompanying notes are an integral part of this financial statement.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SMC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- - --------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
----------------------------
1995 1996
---------- ----------
(unaudited)
<S> <C> <C>
Sales $ 34,045 $ 43,102
Cost of sales 28,984 37,129
---------- ----------
Gross profit 5,061 5,973
Selling, general and administrative expenses 2,645 3,688
---------- ----------
Income from operations 2,416 2,285
Interest expense 249 158
Other income, net (47) (37)
---------- ----------
Income before provision for taxes 2,214 2,164
Provision for income taxes (Note 3) 177 868
---------- ----------
Net income $ 2,037 $ 1,296
========== ==========
Net income per share (Note 5) $ .31 $ .20
========== ==========
Weighted average number of shares 6,500 6,563
========== ==========
PRO FORMA DATA (NOTE 3):
Income before provision for income taxes $ 2,214
Pro forma provision for income taxes 863
----------
Pro forma net income $ 1,351
==========
Pro forma net income per share $ .21
==========
Weighted average number of shares 6,500
==========
The accompanying notes are an integral part of this financial statement.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SMC CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS)
- - -----------------------------------------------------------------------------------------------------------
Common stock Additional
----------------------- paid-in Retained
Shares Amount capital earnings Total
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 5,000 $ 707 $ -- $ 1,556 $ 2,263
Common stock issued in
public offering 1,553 12,032 -- -- 12,032
Common stock issued upon
exercise of options 10 82 -- -- 82
Equity issuance costs related
to public offering -- (1,907) -- -- (1,907)
Reclassification of retained
earnings to additional paid-in
capital (Note 4) -- -- 1,556 (1,556) --
Net income -- -- -- 4,941 4,941
--------- --------- ---------- ---------- ----------
Balance, December 31, 1995 6,563 10,914 1,556 4,941 17,411
--------- --------- ---------- ---------- ----------
Net Income -- -- -- 1,296 1,296
--------- --------- ---------- ---------- ----------
Balance, March 31, 1996 6,563 $ 10,914 $ 1,556 $ 6,237 $ 18,707
========= ========= ========== ========== ==========
The accompanying notes are an integral part of this financial statement.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SMC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
- - ---------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
--------------------------
1995 1996
---------- ----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,037 $ 1,296
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 196 378
Changes in current assets and liabilities:
Accounts and claims receivable 977 1,109
Inventories (2,496) 1,740
Prepaid expenses and other 213 396
Deferred tax asset (731) --
Other assets -- 11
Accounts payable (2,940) (2,252)
Income taxes payable 908 556
Accrued liabilities and other obligations 454 785
-------- --------
Net cash (used in) provided by operating activities (1,382) 4,019
-------- -------
Cash flows from investing activities:
Capital expenditures (719) (1,881)
-------- --------
Net cash used in investing activities (719) (1,881)
-------- --------
Cash flows from financing activities:
Net repayments on notes payable (2,674) (1,372)
Repayments of long-term debt (469) (357)
Payments of notes payable to shareholders (5,133) --
Proceeds from issuance of common stock 11,069 --
Public offering costs (243) --
-------- --------
Net cash provided by (used in) financing activities 2,550 (1,729)
-------- --------
Net increase in cash and cash equivalents 449 409
Cash and cash equivalents, beginning of period 180 69
-------- --------
Cash and cash equivalents, end of period 629 478
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest 269 172
======== ========
The accompanying notes are an integral part of this financial statement.
</TABLE>
6
<PAGE>
SMC CORPORATION
FORM 10-Q
FOR THE FIRST QUARTER ENDED MARCH 31, 1996 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION OF INTERIM PERIOD STATEMENTS
The accompanying financial statements are unaudited and have been
prepared by SMC Corporation (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures typically included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the financial statements
include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the
interim periods reported. The financial statements should be read in
conjunction with the audited financial statements and notes thereto
included in the 1995 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for an
interim period are not necessarily indicative of the results of
operations for a full year.
2. INVENTORIES
Inventories by major classification are as follows (in thousands):
<TABLE>
<CAPTION>
DEC. 31, 1995 MAR. 31, 1996
------------- -------------
<S> <C> <C>
Raw materials $ 8,961 $ 6,407
Work-in-progress 5,097 5,077
Finished goods 2,253 3,087
----------- -----------
Total $ 16,311 $ 14,571
=========== ===========
</TABLE>
3. PROVISION FOR INCOME TAXES AND PRO FORMA PROVISION FOR INCOME TAXES
The provision for income taxes for the three months ended March 31,
1995 is offset by recognition of a cumulative net deferred tax asset
of $686,000 associated with the Company's change from S Corporation
status to C Corporation status on January 1, 1995, in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." A pro forma provision for income taxes
that would have been recorded if the Company had been a C Corporation
for all periods presented is provided for comparative purposes.
4. RECAPITALIZATION AND INITIAL PUBLIC OFFERING
On January 20, 1995, the Company sold 1,552,500 shares of common stock
of SMC Corporation at an offering price of $7.75 per share pursuant to
an initial public offering (the "Offering"). The proceeds of the
Offering (net of underwriting discounts and commissions and offering
expenses) of $10.1 million were used to repay borrowings in the amount
of approximately $3 million, $2.6 million of which were outstanding at
December 31, 1994,
7
<PAGE>
SMC CORPORATION
FORM 10-Q
FOR THE FIRST QUARTER ENDED MARCH 31, 1996 (UNAUDITED)
NOTES TO FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
and repay $5.1 million due under promissory notes issued to
shareholders. The remaining proceeds were used for working capital
needs.
As discussed in Note 3, the Company terminated its S corporation
status effective January 1, 1995 in conjunction with the Offering and,
accordingly, the remaining undistributed S Corporation retained
earnings at December 31, 1994 were reclassified as additional paid-in
capital.
5. NET INCOME PER SHARE
Net income per share is computed based on the weighted average number
of shares outstanding during the period after giving effect to stock
options and warrants which are considered to be common stock
equivalents as such securities aggregate more than 3% of shares
outstanding and thus are considered dilutive.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
consolidated statement of income data, expressed as a percentage of sales,
and the percentage change in such data from the comparable prior period.
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------- Percentage change in
1995 1996 dollar amounts
----- ----- --------------------
<S> <C> <C> <C>
Sales............................... 100.0% 100.0% 26.6%
Cost of sales ...................... 85.1 86.1 28.1
----- -----
Gross profit........................ 14.9 13.9 18.0
Selling, general and
administrative expenses............ 7.8 8.6 39.4
----- -----
Income from operations.............. 7.1 5.3 (5.4)
Interest expense.................... .7 .4 (36.5)
Other (income)...................... (0.1) (0.1) (21.3)
----- -----
Pretax income....................... 6.5 5.0 (2.3)
Provision for income taxes.......... .5 2.0 390.4
----- -----
Net income.......................... 6.0% 3.0% (36.4)
Pro forma provision
for income taxes................... 2.5%
Pro forma net income................ 4.0%
</TABLE>
Sales increased 26.6% to $43.1 million for the first quarter of 1996
from $34.0 million for the comparable period in 1995. The increase was
largely the result of a 24% unit sales increase to 402 units, up from 325
in the prior year. The unit increase is principally the result of sales to
dealers who became Beaver dealers during 1995. Beaver's Monterey model was
introduced in June of 1995 and was priced significantly lower than other
Beaver models in order to expand the brand's offerings to the market. In
the process of introducing the new Monterey model, Beaver increased its
dealer distribution network by 21 dealers, some of which carry Beaver's
higher priced Patriot and Marquis models. Sales of Safari product remained
consistent with the prior year as production levels and sales demand
remained relatively constant.
Gross profit margin increased $912,000 (18.0%) in the first quarter of
1996 compared to 1995, but decreased as a percentage of sales between the
two time periods to 13.9% from 14.9%. As a percentage of sales, gross
margin was lower due to very favorable product mix in the first quarter of
1995, while the product mix was more typical in the first quarter of 1996.
The Company's products generally achieve higher margins for products with
higher selling prices.
Selling, general, and administrative expenses increased 39.4% to $3.7
million for the first quarter of 1996 from $2.6 million in the comparable
period of 1995. Proportionately,
9
<PAGE>
these costs increased more than sales due to higher legal and accounting
costs associated with the change to public company status, increases in
staffing, and the commencement of operations at the Company's newly formed
subsidiaries, Electronic Design and Assembly, Inc. and Composite
Technologies, Inc.
Given the factors affecting gross margin and selling, general, and
administrative expenses, operating income decreased 5.4% to $2.3 million
for the first quarter of 1996 from $2.4 million in the comparable period of
1995.
Interest expense decreased 36.5% to $158,000 for the first quarter of
1996 from $249,000 in the comparable period of 1995. The decrease was due
to lower borrowings on the Company's revolving lines of credit in the first
quarter of 1996. Cash flows created by profits from operations, reductions
in raw materials inventories and decreases in accounts receivable were used
to reduce revolving indebtedness.
Other income was $37,000 for the first quarter of 1996 compared to
$47,000 for the first quarter of 1995. There was no significant change in
the composition of the balance in other income between the two periods.
For the first quarter of 1996, the effective tax rate was 40.0%,
resulting in an income tax provision of $868,000. The Company terminated
its S corporation tax status effective January 1, 1995 and became a
tax-paying C corporation as of that date. The Company's effective tax rate
in the first quarter of 1995 was 8.0%, resulting in an income tax provision
of $177,000. If the Company had been an ongoing C corporation, its pro
forma effective rate would have been 39.0%, and the income tax provision
would have been $863,000. The conversion from S corporation to C
corporation tax status on January 1, 1995 resulted in the recording of a
transition deferred tax asset of $686,000, in accordance with SFAS No. 109,
"Accounting for Income Taxes."
Net income after tax for the first quarter of 1996 was $1.3 million,
down from 1995's first quarter pro forma net income of $1.35 million.
Comparison of net income for 1996 is made to 1995's pro forma results to
compare earnings after tax on a normal basis without the effect of the
one-time recognition of the deferred tax asset of $686,000 in January of
1995.
The Company's revenues historically have been subject to some seasonal
fluctuation. Demand for high quality Class A motor coaches tends to
increase with the beginning of the new model year, which occurs during the
Company's third quarter ending September 30.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1996, SMC generated $4.0 million in
cashflows from operations while its working capital position decreased from
$7.9 million at December 31, 1995 to $7.3 million at March 31, 1996
(including cash and cash equivalents of $478,000).
10
<PAGE>
Cash generated from operations during the first quarter of 1996 was used to
finance capital expenditures of approximately $1.9 million, to pay down the
line of credit facility by approximately $1.4 million, and to service term
debt payments of approximately $357,000.
The Company anticipates that its aggregate capital expenditures for
1996 will be approximately $6 million, including $3 million for the new
Hines, Oregon production plant acquisition and outfitting. Other major
planned expenditures involve a $1.2 million project to automate and
computerize cabinet shop production at both Safari and Beaver and a $1.0
million production operation upgrade at Beaver. The Company plans to use
cash generated from operations and issuance of long-term debt to fund these
expenditures.
The Company has lines of credit of $7.0 million (all available at
March 31, 1996), plus an additional $1.6 million equipment financing line
of credit, of which $1.3 million is available. Amounts outstanding under
these lines of credit bear interest at annual rates ranging from prime to
prime plus 1/4% (8.25% to 8.50% at March 31, 1996) and are secured by all
assets not specifically identified in other financing obligations. The
terms of the revolving credit and equipment financing agreements require
compliance with certain financial covenants and other covenants which
provide that the Company receive consent from the lender to declare or pay
dividends in cash, stock or other property. The covenants also include
restrictions relating to (1) mergers, consolidations and sale of assets,
(2) guarantees by the Company of debts or obligations of other persons or
entities, and (3) acquisition of the Company's own stock. The Plan of
Reorganization pursuant to which the Company completed the acquisition of
Beaver also prohibits the Company from paying dividends if Beaver defaults
on payment obligations under the Plan. The Company is in compliance with
all covenants and agreements at March 31, 1996. The Company does not
believe any of these covenants will have a material impact on the Company's
ability to meet its cash obligations.
Most dealer purchases of motor coaches from the Company are financed
under flooring financing arrangements between the dealer and a bank or
finance company. Under these flooring arrangements, the financing
institution lends the dealer all or substantially all of the wholesale
purchase price of a motor coach and retains a security interest in the
coach purchased. These financing arrangements provide that, for a period of
time after a coach is financed (generally 12 to 18 months), if the dealer
defaults on its payment or other obligations to the lender, the Company is
obligated to repurchase the dealer's inventory for the amount then due from
the dealer plus, in certain circumstances, costs incurred by the lender in
connection with repossession of the inventory. The repurchase price may be
more than the resale value of the coach. The Company's contingent liability
under its repurchase obligations varies from time to time. As of March 31,
1996, the Company estimates its total contingent liability under repurchase
obligations was approximately $47.5 million. To date, losses incurred by
the Company pursuant to repurchase obligations have not been material. The
Company cannot predict with certainty its future losses, if any, pursuant
to repurchase obligations, and these amounts may vary materially from the
expenditures historically made by the Company. Furthermore, even in
circumstances where losses in connection with
11
<PAGE>
repurchase obligations are not material, a repurchase obligation can
represent a significant cash requirement for the Company.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement of Calculation of Average Common Shares Outstanding
27 Financial Data Schedule
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Registrant
during the quarter ended March 31, 1996.
13
<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.
SMC CORPORATION
(Registrant)
Date: May 10, 1996 By: PAUL M. BROWN, JR.
-----------------------------------
Paul M. Brown, Jr.
Vice President - Finance
and Chief Financial Officer
(Principal Financial Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- -----------
11 Statement of Calculation of Average
Common Shares Outstanding
27 Financial Data Schedule
15
SMC CORPORATION EXHIBIT 11
STATEMENT OF CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1996
--------------
<S> <C>
Primary Earnings Per Share:
Weighted average number of shares (1) 6,563,064
=========
Fully Diluted Earnings Per Share:
Weighted average number of shares (1) 6,563,064
Stock option plan shares to be issued at prices ranging from
$7.25 to $11.50 per share 796,000
Warrant issues at a price of $9.30 per share 125,000
Less: Assumed purchase at the higher of ending
or average market price during the period
using proceeds received upon exercise of
options and purchase of stock. (873,328)
Total Diluted Shares (2) 6,610,736
=========
<FN>
(1) The average market value per share of the Company's stock during the
three months ended March 31, 1996 was less than the exercise price of the
outstanding options and warrants; therefore, there was no dilutive effect
on earnings per share.
(2) Fully diluted EPS was not presented as its effect was less than 3% of
primary earnings per share.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEETS AND RELATED STATEMENTS OF OPERATIONS FOR THE
PERIOD ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 478
<SECURITIES> 0
<RECEIVABLES> 7,456
<ALLOWANCES> 0
<INVENTORY> 14,571
<CURRENT-ASSETS> 23,273
<PP&E> 16,397
<DEPRECIATION> 2,789
<TOTAL-ASSETS> 39,854
<CURRENT-LIABILITIES> 15,979
<BONDS> 0
0
0
<COMMON> 10,914
<OTHER-SE> 7,793
<TOTAL-LIABILITY-AND-EQUITY> 39,854
<SALES> 43,102
<TOTAL-REVENUES> 43,102
<CGS> 37,129
<TOTAL-COSTS> 37,129
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 158
<INCOME-PRETAX> 2,164
<INCOME-TAX> 868
<INCOME-CONTINUING> 1,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,296
<EPS-PRIMARY> 0.2
<EPS-DILUTED> 0.2
</TABLE>
