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, 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 May 2, 1997: 6,563,064
1
<PAGE>
SMC CORPORATION
INDEX TO FORM 10-Q
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - December 31, 1996 and
March 31, 1997.......................................... 3
Consolidated Statement of Income - Three Months
Ended March 31, 1996 and March 31, 1997................. 4
Consolidated Statement of Changes in Shareholders'
Equity - Year Ended December 31, 1996 and Three
Months Ended March 31, 1997............................. 5
Consolidated Statement of Cash Flows - Three Months
Ended March 31, 1996 and March 31, 1997................. 6
Notes to Consolidated Financial Statements.............. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 8
Part II - Other Information
Item 6. Exhibits Reports on Form 8-K......................... 11
Signatures........................................................ 12
Exhibit Index..................................................... 13
2
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
SMC Corporation
Consolidated Balance Sheet
(in thousands)
- -------------------------------------------------------------------------------
December 31, March 31,
1996 1997
------------ ----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 316 $ 287
Accounts receivable, net 12,859 11,334
Inventories (Note 2) 23,633 22,122
Prepaid expenses and other 574 326
Deferred tax asset 2,358 2,358
------- -------
Total current assets 39,740 36,427
Property, plant and equipment, net 19,584 20,594
Intangible assets, net 2,154 2,111
Deferred tax asset 343 343
Other assets 99 82
------- -------
Total assets $61,920 $59,557
======= =======
Liabilities and Shareholders' Equity Current liabilities:
Notes payable $ 5,798 $ 995
Current portion of long-term debt 1,752 1,594
Accounts payable 17,251 19,206
Income taxes payable 1,365 639
Royalties payable 652 255
Product warranty liabilities 2,808 2,998
Current portion of capital lease obligation 16 16
Accrued liabilities 4,095 5,178
Accrued restructuring costs 488 121
------- -------
Total current liabilities 34,225 31,002
Long-term debt, net of current portion 6,626 6,299
Capital lease obligation, less current portion 75 72
------- -------
Total liabilities 40,926 37,373
------- -------
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 9,714
------- -------
Total shareholders' equity 20,994 22,184
------- -------
Total liabilities and shareholders' equity $61,920 $59,557
======= =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
<TABLE>
<CAPTION>
SMC Corporation
Consolidated Statement of Income
(in thousands, except per share amounts)
- -------------------------------------------------------------------------------
Three Months Ended
March 31,
1996 1997
(unaudited)
<S> <C> <C>
Sales $43,102 $ 50,087
Cost of sales 37,129 43,490
------- --------
Gross profit 5,973 6,597
Selling, general and administrative expenses 3,688 4,402
------- --------
Income from operations 2,285 2,195
Interest expense 158 273
Other income, net (37) (62)
------- --------
Income before provision for taxes 2,164 1,984
Provision for income taxes 868 794
------- --------
Net income $ 1,296 $ 1,190
======= ========
Net income per share (Note 3) $ .20 $ .18
======= ========
Weighted average number of shares 6,563 6,564
======= ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
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, 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 -- -- -- 1,190 1,190
--------- --------- --------- --------- --------
Balance, March 31, 1997 6,563 $ 10,914 $ 1,556 $ 9,714 $ 22,184
========= ========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
<TABLE>
<CAPTION>
SMC Corporation
Consolidated Statement of Cash Flows
(in thousands)
- -------------------------------------------------------------------------------
Three Months Ended
March 31,
1996 1997
---------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,296 $ 1,190
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 378 450
Changes in current assets and liabilities:
Accounts receivable 1,109 1,525
Inventories 1,740 1,511
Prepaid expenses and other 396 248
Other assets 11 17
Accounts payable (2,252) 1,955
Income taxes payable 556 (726)
Accrued liabilities and other obligations 785 509
---------- --------
Net cash provided by operating activities 4,019 6,679
---------- --------
Cash flows from investing activities:
Capital expenditures (1,881) (1,417)
---------- --------
Net cash used in investing activities (1,881) (1,417)
---------- --------
Cash flows from financing activities:
Net repayments on notes payable (1,372) (4,803)
Repayments of long-term debt (357) (485)
Principal payments on capital lease obligation -- (3)
---------- --------
Net cash used in financing activities (1,729) (5,291)
---------- --------
Net increase (decrease) in cash and cash equivalents 409 (29)
Cash and cash equivalents, beginning of period 69 316
---------- --------
Cash and cash equivalents, end of period 478 287
========== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
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 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):
December 31, March 31,
1996 1997
---------- ----------
Raw materials $ 11,560 $ 10,259
Work-in-progress 7,285 6,850
Finished goods 4,788 5,013
---------- ----------
Total $ 23,633 $ 22,122
========== ==========
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.
7
<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.
Three months ended
March 31,
---------------------- Percentage change
1996 1997 in dollar amounts
---- ---- -----------------
Sales............................ 100.0% 100.0% 16.2%
Cost of sales.................... 86.1 86.8 17.1
------- --------
Gross profit..................... 13.9 13.2 10.5
Selling, general and
administrative expenses........ 8.6 8.8 19.4
------- --------
Income from operations........... 5.3 4.4 (3.9)
Interest expense................. .4 .5 72.8
Other income..................... .1 .1 67.6
------- --------
Pretax income.................... 5.0 4.0 (8.3)
Provision for income taxes....... 2.0 1.6 (8.5)
------- --------
Net income....................... 3.0% 2.4% (8.2)
Sales increased 16.2% to $50.1 million for the first quarter of 1997 from
$43.1 million for the comparable period in 1996. The increase was largely the
result of a 11.4% unit sales increase to 448 units, up from 402 in the prior
year. The unit increase is principally the result of the Company's expanded
product offerings.
Gross profit margin increased $624,000 (10.5%) in the first quarter of 1997
compared to 1996, but decreased as a percentage of sales from 13.9% to 13.2%.
Gross margin percentage was lower due to the negative impact of start-up
operations at the Company's operations in Harney County, Oregon.
Selling, general and administrative expenses increased 19.4% to $4.4
million for the first quarter of 1997 from $3.7 million in the comparable period
of 1996. Proportionately, these costs increased more than sales due to the
commencement of operations at the Company's newly formed operations in Harney
County, Oregon.
Given the factors affecting gross margin and selling, general and
administrative expenses, operating income decreased 3.9% to $2.2 million for the
first quarter of 1997 from $2.3 million in the comparable period of 1996.
Interest expense increased 72.8% to $273,000 for the first quarter of 1997
from $158,000 in the comparable period of 1996. The increase was due to higher
borrowings on the Company's revolving lines of credit during the first quarter
of 1997 compared to 1996.
8
<PAGE>
The borrowings on the line of credit were substantially repaid by March 31, 1997
when finished goods inventories were lowered. Compared to the first quarter of
1996, higher levels of finished goods inventory were held in the first quarter
of 1997, thus requiring more borrowing on the Company's line of credit.
Other income was $62,000 for the first quarter of 1997 compared to $37,000
for the first quarter of 1996. There was no significant change in the
composition of the balance in other income between the two periods.
For the first quarter of 1997, the effective tax rate was 40.0%, resulting
in an income tax provision of $794,000. For the first quarter of 1996, the
Company's income tax provision was $868,000, also at an effective rate of 40%.
Net income after tax for the first quarter of 1997 was $1.2 million, down
from 1996's net income of $1.3 million.
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 quarter of 1997, SMC generated $6.7 million in cashflows
from operations while its working capital position decreased from $5.5 million
at December 31, 1996 to $5.4 million at March 31, 1997 (including cash and cash
equivalents of $287,000). Cash generated from operations during the first
quarter of 1997 was used to finance capital expenditures of approximately $1.4
million, to pay down the line of credit facility by approximately $4.8 million,
and to service term debt payments of approximately $485,000.
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 ($9.0 million of which is
available at March 31, 1997), plus an additional $5.1 million equipment
financing line of credit, of which $3.1 million is available at March 31, 1997.
Amounts outstanding under these lines of credit bear interest at annual rates
ranging from prime (8.5% at March 31, 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 Plan of Reorganization
9
<PAGE>
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 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 March 31,
1997. A waiver has been obtained from the Company's primary lending institution
through June 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 March 31, 1997, the Company estimates its total
contingent liability under repurchase obligations was approximately $90.4
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.
10
<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, 1997.
11
<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: May 13, 1997 By: PAUL M. BROWN, JR.
------------------------------------
Paul M. Brown, Jr.
Vice President - Finance
and Chief Financial Officer
(Principal Financial Officer)
12
<PAGE>
Exhibit Index
Exhibit
No. Description
- -------- -----------
11 Statement of Calculation of Average
Common Shares Outstanding
27 Financial Data Schedule
13
EXHIBIT 11
<TABLE>
<CAPTION>
SMC CORPORATION
STATEMENT OF CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING
Three Months
Ended
March 31, 1997
--------------
<S> <C>
Primary Earnings Per Share:
Weighted average number of shares 6,563,064
Stock option plan shares to be issued at
prices ranging from $7.25 to $11.50 per share 890,000
Warrant issues at a price of $9.30 per share 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 (1,014,037)
Total Primary Shares 6,564,027
Fully Diluted Earnings Per Share:
Weighted average number of shares 6,563,064
Stock option plan shares to be issued at prices
ranging from $7.25 to $11.50 per share 890,000
Warrant issues at a price of $9.30 per share 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 (1,012,742)
----------
Total Diluted Shares (1) 6,565,322
==========
<FN>
(1) 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, 1997, 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 287
<SECURITIES> 0
<RECEIVABLES> 11,334
<ALLOWANCES> 0
<INVENTORY> 22,122
<CURRENT-ASSETS> 36,427
<PP&E> 24,496
<DEPRECIATION> 3,902
<TOTAL-ASSETS> 59,557
<CURRENT-LIABILITIES> 31,002
<BONDS> 0
0
0
<COMMON> 10,914
<OTHER-SE> 11,270
<TOTAL-LIABILITY-AND-EQUITY> 59,557
<SALES> 50,087
<TOTAL-REVENUES> 50,087
<CGS> 43,490
<TOTAL-COSTS> 43,490
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 273
<INCOME-PRETAX> 1,984
<INCOME-TAX> 794
<INCOME-CONTINUING> 1,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,190
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
