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 June 30, 1997
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 August 4, 1997: 6,563,064
<PAGE>
SMC CORPORATION
INDEX TO FORM 10-Q
Page
----
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - December 31, 1996 and
June 30, 1997.....................................................3
Consolidated Statement of Income - Three Months
Ended June 30, 1996 and June 30, 1997.............................4
Consolidated Statement of Income - Six Months
Ended June 30, 1996 and June 30, 1997.............................5
Consolidated Statement of Changes in Shareholders'
Equity - Year Ended December 31, 1996 and Six
Months Ended June 30, 1997........................................6
Consolidated Statement of Cash Flows - Six Months
Ended June 30, 1996 and June 30, 1997.............................7
Notes to Consolidated Financial Statements........................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................9
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders..............12
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, June 30,
1996 1997
---------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 316 $ 350
Accounts receivable, net 12,859 11,665
Inventories (Note 2) 23,633 23,893
Prepaid expenses and other 574 963
Deferred tax asset 2,358 2,358
---------------- -----------------
Total current assets 39,740 39,229
Property, plant and equipment, net 19,584 20,706
Intangible assets, net 2,154 2,222
Deferred tax asset 343 343
Other assets 99 69
---------------- -----------------
Total assets $ 61,920 $ 62,569
================ =================
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 5,798 $ 3,899
Current portion of long-term debt 1,752 1,577
Accounts payable 17,251 19,071
Income taxes payable 1,365 --
Royalties payable 652 --
Product warranty liabilities 2,808 3,401
Current portion of capital lease obligation 16 16
Accrued liabilities 4,095 6,223
Accrued restructuring costs 488 6
---------------- -----------------
Total current liabilities 34,225 34,193
Long-term debt, net of current portion 6,626 5,961
Capital lease obligation, less current portion 75 67
---------------- -----------------
Total liabilities 40,926 40,221
---------------- -----------------
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 1,556 1,556
Retained earnings 8,524 9,878
---------------- -----------------
Total shareholders' equity 20,994 22,348
---------------- -----------------
Total liabilities and shareholders' equity $ 61,920 $ 62,569
================ =================
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
June 30,
1996 1997
-------------- ------------
(unaudited)
<S> <C> <C>
Sales $ 48,731 $ 48,977
Cost of sales 41,790 43,695
-------------- ------------
Gross profit 6,941 5,282
Selling, general and administrative expenses 4,128 4,781
-------------- ------------
Income from operations 2,813 501
Interest expense 141 202
Other income, net (13) 25
-------------- ------------
Income before provision for taxes 2,685 274
Provision for income taxes 1,072 110
-------------- ------------
Net income $ 1,613 $ 164
============== ============
Net income per share (Note 3) $ .24 $ .02
============== ============
Weighted average number of shares 6,661 6,563
============== ============
The accompanying notes are an integral part of this financial statement.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SMC Corporation
Consolidated Statement of Income
(in thousands, except per share amounts)
- --------------------------------------------------------------------------------
Six Months Ended
June 30,
1996 1997
-------------- ------------
(unaudited)
<S> <C> <C>
Sales $ 91,833 $ 99,065
Cost of sales 78,919 87,186
-------------- ------------
Gross profit 12,914 11,879
Selling, general and administrative expenses 7,816 9,182
-------------- ------------
Income from operations 5,098 2,697
Interest expense 299 475
Other income, net (49) (36)
-------------- ------------
Income before provision for taxes 4,848 2,258
Provision for income taxes 1,940 904
-------------- ------------
Net income $ 2,908 $ 1,354
============== ============
Net income per share (Note 3) $ .44 $ .21
============== ============
Weighted average number of shares 6,016 6,564
============== ============
The accompanying notes are an integral part of this financial statement.
</TABLE>
5
<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, 1995 6,563 $ 10,914 $ 1,556 $ 4,941 $ 17,411
Net Income -- -- -- 3,583 3,583
-------------- ------------- ------------ ------------- --------------
Balance, December 31, 1996 6,563 10,914 1,556 8,524 20,994
-------------- ------------- ------------ ------------- --------------
Net Income -- -- -- 1,354 1,354
-------------- ------------- ------------ ------------- --------------
Balance, June 30, 1997 6,563 $ 10,914 $ 1,556 $ 9,878 $ 22,348
============== ============= ============ ============= ==============
The accompanying notes are an integral part of this financial statement.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SMC Corporation
Consolidated Statement of Cash Flows
(in thousands)
- --------------------------------------------------------------------------------
Six Months Ended
June 30,
1996 1997
-------------- ------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 2,908 $ 1,354
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 779 1,040
Changes in current assets and liabilities:
Accounts receivable 973 1,194
Inventories (1,703) (260)
Prepaid expenses and other (22) (389)
Other assets 138 30
Accounts payable 3,053 1,820
Income taxes payable 399 (1,365)
Accrued liabilities and other obligations 1,599 1,587
-------------- ------------
Net cash provided by operating activities 8,124 5,011
-------------- ------------
Cash flows from investing activities:
Capital expenditures (3,095) (2,035)
Acquisition of a business (1,059) --
Other -- (195)
-------------- ------------
Net cash used in investing activities (4,154) (2,230)
-------------- ------------
Cash flows from financing activities:
Net repayments on notes payable (1,671) (1,899)
Proceeds from issuance of long-term debt -- 174
Repayments of long-term debt (707) (1,014)
Principal payments on capital lease obligation -- (8)
-------------- ------------
Net cash used in financing activities (2,378) (2,747)
-------------- ------------
Net increase in cash and cash equivalents 1,592 34
Cash and cash equivalents, beginning of period 69 316
-------------- ------------
Cash and cash equivalents, end of period $ 1,661 $ 350
============== ============
The accompanying notes are an integral part of this financial statement.
</TABLE>
7
<PAGE>
SMC Corporation
Form 10-Q
For the Second Quarter Ended June 30, 1997 (unaudited)
Notes to Consolidated 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 1996 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>
December 31, June 30,
1996 1997
--------------- ---------------
<S> <C> <C>
Raw materials $ 11,560 $ 12,460
Work-in-progress 7,285 6,663
Finished goods 4,788 4,770
--------------- ---------------
Total $ 23,633 $ 23,893
=============== ===============
</TABLE>
3. 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.
4. Related Party Transactions
During the three month and six-month periods ended June 30, 1997, the
Company had sales of $7.5 million and $11.0 million, respectively, to a
dealership that is owned by parties related to an officer of the Company.
This dealer relationship began operations in March 1997; therefore, no
sales were made to this related party in 1996.
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 Six months ended
June 30, June 30,
------------------ Percentage change ------------------ Percentage change
1996 1997 in dollar amounts 1996 1997 in dollar amounts
------- ------- ----------------- ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Sales.............................. 100.0% 100.0% .5% 100.0% 100.0% 7.9%
Cost of sales...................... 85.8 89.2 4.6 85.9 88.0 10.5
------- ------- ------- ------
Gross profit....................... 14.2 10.8 (23.9) 14.1 12.0 (8.0)
Selling, general and
administrative expenses.......... 8.4 9.8 15.8 8.5 9.3 17.5
------- ------- ------- ------
Income from operations............. 5.8 1.0 (82.2) 5.6 2.7 (47.1)
Interest expense................... .3 .4 43.3 .3 .5 58.9
Other (income) expense............. -- .1 (292.3) -- (.1) (26.5)
------- ------- ------- ------
Pretax income...................... 5.5 .5 (89.8) 5.3 2.3 (53.4)
Provision for income taxes......... 2.2 .2 (89.7) 2.1 .9 (53.4)
------- ------- ------- ------
Net income......................... 3.3% .3% (89.8) 3.2% 1.4% (53.4)
</TABLE>
Sales increased .5% to $49.0 million for the second quarter of 1997 from
$48.7 million for the comparable period in 1996. The Company had a decrease in
unit sales of 2.4%, from 455 units in 1996 to 444 units in 1997. Increased
competition in the high-line market, as well as reduced demand, resulted in
relatively stagnant sales levels over the past year. For the six months ended
June 30, 1997, sales increased 7.9% to $99.1 million from $91.8 million for the
comparable period in 1996. For the six-month period, unit sales increased to 892
units, up 4.1% from 857 units sold in the same period in 1996. The majority of
the increased unit sales were Class C sales.
Gross profit margin decreased 23.9% to $5.3 million from $6.9 million in
the comparable period in 1996, and decreased as a percentage of sales from 14.2%
to 10.8%. The lower margin performance was caused by higher than normal warranty
costs compared to the prior year, and the negative impact of the Company's Class
C motor coaches. For the six-month period ended June 30, 1997, gross profit
margin decreased 8.0% to $11.9 million from $12.9 million in the comparable
period in 1996, and decreased as a percentage of sales from 14.1% to 12.0%. The
impact of higher warranty costs and start-up operations of the Company's Class C
motor coach production facility caused the downturn in gross margin performance.
Selling, general, and administrative expenses increased 15.8% to $4.8
million for the quarter ended June 30, 1997 from $4.1 million for the comparable
period of 1996. These costs increased more than sales due to higher
sales-related dealer support costs associated
9
<PAGE>
with selling out the last 1997 model year units and increased costs associated
with the start-up operations at the Company's Class C motor coach facility. For
the six-month period ended June 30, 1997, selling, general, and administrative
costs increased 17.5% to $9.2 million from $7.8 million for the same period in
1996, also due primarily to increased marketing and dealer support costs
incurred in order to compete in a more competitive sales environment.
Given the factors affecting gross margin and selling, general and
administrative expenses, operating income decreased 82.2% to $500,000 for the
second quarter of 1997 from $2.8 million in the comparable period of 1996.
Operating income decreased 47.1% to $2.7 million for the six months ended June
30, 1997 from $5.1 million for the comparable period in 1996.
Interest expense increased 43.3% to $202,000 for the second quarter of 1997
from $141,000 in the comparable period of 1996. The increase was due to higher
borrowings on the Company's revolving lines of credit during the second quarter
of 1997 compared to 1996. Compared to the second quarter of 1996, higher levels
of finished goods inventory were held in the second quarter of 1997, thus
requiring more borrowing on the Company's line of credit. This was also the case
during the six-month period ended June 30, 1997; interest expense increased
58.9% from the comparable period in 1996.
For the second quarter of 1997, the effective tax rate was 40.0%, resulting
in an income tax provision of $110,000. For the second quarter of 1996, the
Company's income tax provision was $1.1 million, also at an effective rate of
40%.
Net income after tax for the second quarter of 1997 was $164,000, down from
1996's second-quarter net income of $1.6 million. Net income after tax was $1.4
million for the six months ended June 30, 1997, down from $2.9 million in 1996.
The Company's revenues historically have been subject to some seasonal
fluctuation. Demand for high-line 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 six months of 1997, SMC generated $5.0 million in cash
flows from operations while its working capital position decreased from $5.5
million at December 31, 1996 to $5.0 million at June 30, 1997 (including cash
and cash equivalents of $350,000). Cash generated from operations during the
first half of 1997 was used to finance capital expenditures of approximately
$2.0 million, to pay down the line of credit facility by approximately $1.9
million, and to service term debt payments of approximately $1.0 million.
10
<PAGE>
The Company anticipates that its aggregate capital expenditures for 1997
will be approximately $3.0 million. 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 $10.0 million ($6.1 million of which is
available at June 30, 1997), plus an additional $5.1 million equipment financing
line of credit, of which $3.1 million is available at June 30, 1997. Amounts
outstanding under these lines of credit bear interest at annual rates ranging
from prime (8.5% at June 30, 1997) to prime plus 1/4% 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 Company does not believe any of these covenants will have a
material impact on the Company's ability to meet its cash obligations. The
Company was not in compliance with all covenants and agreements at June 30,
1997. A waiver has been obtained from the Company's primary lending institution
through September 30, 1997.
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 June 30, 1997, the Company estimates its total
contingent liability under repurchase obligations was approximately $90.0
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 repurchase
obligations are not material, a repurchase obligation can represent a
significant cash requirement for the Company.
11
<PAGE>
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
On June 19, 1997 at the Company's Annual Meeting of shareholders, the
holders of the Company's outstanding Common Stock took the actions described
below. As of the record date for the Annual Meeting, 6,563,064 shares of Common
Stock were eligible to vote on the matters presented.
1. The shareholders elected each of Mathew M. Perlot, Curtis W. Lawler,
Connie M. Perlot, Jim L. Traughber, Lawrence S. Black, Milton L. Ray, and Jay L.
Howard, by the votes indicated below, to serve on the Company's Board of
Directors for the ensuing year:
<TABLE>
<CAPTION>
Shares Against
Shares in Favor or Withheld Abstentions
--------------- ----------- -----------
<S> <C> <C> <C>
Mathew M. Perlot 6,281,729 91,285 0
Curtis W. Lawler 6,281,809 91,205 0
Connie M. Perlot 6,280,729 92,285 0
Jim L. Traughber 6,281,809 91,205 0
Lawrence S. Black 6,281,929 91,085 0
Milton L. Ray 6,281,529 91,485 0
Jay L. Howard 6,282,129 90,885 0
Total Shares Eligible 6,563,064
Total Shares Present 6,373,014
</TABLE>
2. The shareholders voted to amend the Company's 1994 Stock Incentive Plan
(the "Plan") to increase the number of shares available for issuance under the
Plan by the following vote:
6,068,842 shares in favor
296,922 shares against or withheld
7,250 abstentions
-- broker nonvotes
Total Shares Eligible 6,563,064
Total Shares Present 6,373,014
12
<PAGE>
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 June 30, 1997.
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
Date: August 13, 1997 By: JAY L. HOWARD
-------------------------------------
Jay L. Howard
President, SMC Corporation
JOHN L. VARNER
-------------------------------------
John L. Varner
Chief Accounting Officer,
SMC Corporation
14
<PAGE>
Exhibit Index
Exhibit
No. Description
- ------- -----------
11 Statement of Calculation of Average
Common Shares Outstanding
27 Financial Data Schedule
15
<TABLE>
<CAPTION>
SMC CORPORATION EXHIBIT 11
STATEMENT OF CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING
Three Months Six Months
Ended Ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Primary Earnings Per Share:
Weighted average number of shares 6,563,064 6,563,064
Stock option plan shares to be issued at
prices ranging from $7.25 to $11.50 per share 890,000 890,000
Warrant issues at a price of $9.30 per share 125,000 125,000
Less: Assumed purchase of shares by the Company
at the average market price during the period
using the proceeds received upon the assumed
exercise of the outstanding options and warrants. (1,014,745) (1,014,391)
---------- ----------
Total Primary Shares 6,563,319 6,563,673
========== ==========
Fully Diluted Earnings Per Share:
Weighted average number of shares 6,563,064 6,563,064
Stock option plan shares to be issued at prices
ranging from $7.25 to $11.50 per share 890,000 890,000
Warrant issues at a price of $9.30 per share 125,000 125,000
Less: Assumed purchase of shares by the Company at
the higher of ending or average market price
during the period using the proceeds received
upon the assumed exercise of the outstanding
options and warrants (1,014,745) (1,000,793)
---------- ----------
Total Diluted Shares (1) 6,563,319 6,577,271
========== ==========
(1) Fully diluted EPS was not presented as its effect was less than 3% of
primary earnings per share.
</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 JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 350
<SECURITIES> 0
<RECEIVABLES> 11,665
<ALLOWANCES> 0
<INVENTORY> 23,893
<CURRENT-ASSETS> 39,229
<PP&E> 25,115
<DEPRECIATION> 4,409
<TOTAL-ASSETS> 82,589
<CURRENT-LIABILITIES> 34,193
<BONDS> 0
0
0
<COMMON> 10,914
<OTHER-SE> 11,434
<TOTAL-LIABILITY-AND-EQUITY> 62,569
<SALES> 99,065
<TOTAL-REVENUES> 99,065
<CGS> 87,186
<TOTAL-COSTS> 87,186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 475
<INCOME-PRETAX> 2,258
<INCOME-TAX> 904
<INCOME-CONTINUING> 1,354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,354
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
