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 September 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 November 10, 1997: 6,343,064
<PAGE>
SMC CORPORATION
INDEX TO FORM 10-Q
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - December 31, 1996 and
September 30, 1997.................................................... 3
Consolidated Statement of Income - Three Months
Ended September 30, 1996 and September 30, 1997....................... 4
Consolidated Statement of Income - Nine Months
Ended September 30, 1996 and September 30, 1997....................... 5
Consolidated Statement of Changes in Shareholders'
Equity - Year Ended December 31, 1996 and Nine
Months Ended September 30, 1997....................................... 6
Consolidated Statement of Cash Flows - Nine Months
Ended September 30, 1996 and September 30, 1997....................... 7
Notes to Consolidated Financial Statements............................ 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K.................................13
Signatures....................................................................14
2
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
SMC Corporation
Consolidated Balance Sheet
(dollars in thousands)
- --------------------------------------------------------------------------------
December 31, September 30,
1996 1997
----------- ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 316 $ 285
Accounts receivable, net 12,859 11,540
Inventories (Note 2) 23,633 20,329
Prepaid expenses and other 574 451
Deferred tax asset 2,358 2,358
----------- ------------
Total current assets 39,740 34,963
Property, plant and equipment, net 19,584 18,988
Intangible assets, net 2,154 2,175
Deferred tax asset 343 343
Other assets 99 52
----------- ------------
Total assets $ 61,920 $ 56,521
=========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 5,798 $ 2,485
Current portion of long-term debt 1,752 1,589
Accounts payable 17,251 15,730
Income taxes payable 1,365 334
Royalties payable 652 --
Product warranty liabilities 2,808 3,685
Current portion of capital lease obligation 16 16
Accrued liabilities 4,095 4,474
Accrued restructuring costs 488 --
----------- ------------
Total current liabilities 34,225 28,313
Long-term debt, net of current portion 6,626 5,538
Capital lease obligation, less current portion 75 63
----------- ------------
Total liabilities 40,926 33,914
----------- ------------
Shareholders' equity:
Preferred stock, 5,000 shares authorized, none
issued or outstanding -- --
Common stock, 30,000 shares authorized, 6,563
and 6,343 shares issued
and outstanding, respectively 10,914 10,810
Additional paid-in capital 1,556 1,488
Retained earnings 8,524 10,309
----------- ------------
Total shareholders' equity 20,994 22,607
----------- ------------
Total liabilities and shareholders' equity $ 61,920 $ 56,521
=========== ============
The accompanying notes are an integral part of
this financial statement.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SMC Corporation
Consolidated Statement of Income
(dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Three Months Ended
September 30,
------------------------------
1996 1997
------------- -------------
(unaudited)
<S> <C> <C>
Sales $ 56,016 $ 51,578
Cost of sales 47,904 44,677
------------- -------------
Gross profit 8,112 6,901
Selling, general and administrative expenses 4,806 4,612
------------- -------------
Income from operations 3,306 2,289
Interest expense 194 276
Other expense (income) 88 (1)
------------- --------------
Income before provision for income taxes 3,024 2,014
Provision for income taxes 1,210 808
------------- -------------
Net income $ 1,814 $ 1,206
============= =============
Net income per share (Note 3) $ .27 $ .18
============== =============
Weighted average number of shares 6,742 6,556
============= =============
The accompanying notes are an integral part of
this financial statement.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SMC Corporation
Consolidated Statement of Income
(dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
Nine Months Ended
September 30,
-------------------------------
1996 1997
------------- ------------
(unaudited)
<S> <C> <C>
Sales $ 147,849 $ 150,643
Cost of sales 126,823 131,863
------------ ------------
Gross profit 21,026 18,780
Selling, general and administrative expenses 12,622 13,794
------------ ------------
Income from operations 8,404 4,986
Interest expense 493 751
Other expense (income) 39 (37)
------------ ------------
Income before provision for income taxes 7,872 4,272
Provision for income taxes 3,150 1,712
------------ ------------
Net income $ 4,722 $ 2,560
============ ============
Net income per share (Note 3) $ .71 $ .39
============ ============
Weighted average number of shares 6,655 6,561
============ ============
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, 1996 6,563 $ 10,914 $ 1,556 $ 8,524 $ 20,994
Net income -- -- -- 2,560 2,560
Stock repurchase (220) (104) (68) (775) (947)
---------- ---------- ---------- ---------- ----------
Balance, September 30, 1997 6,343 $ 10,810 $ 1,488 $ 10,309 $ 22,607
========== ========== ========== ========== ==========
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)
- --------------------------------------------------------------------------------
Nine months ended
September 30,
---------------------------
1996 1997
------------ -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,722 $ 2,560
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,196 1,563
Changes in current assets and liabilities (excluding acquisition
of a business):
Accounts receivable (4,869) 1,319
Inventories (3,329) 3,304
Prepaid expenses and other (96) 123
Other assets 51 47
Accounts payable 4,572 (1,521)
Income taxes payable 341 (1,031)
Accrued liabilities and other obligations 1,877 116
------------ -----------
Net cash provided by operating activities 4,465 6,480
------------ -----------
Cash flows from investing activities:
Capital expenditures (4,983) (2,173)
Acquisition of a business (1,420) --
Proceeds from disposal of equipment -- 16
Other -- (195)
------------ -----------
Net cash used in investing activities (6,403) (2,352)
------------ -----------
Cash flows from financing activities:
Net borrowings on notes payable 3,164 (3,313)
Proceeds from issuance of long-term debt -- 174
Repayments of long-term debt (1,046) (1,425)
Principal payments on capital lease obligation -- (12)
Proceeds from sale-leaseback -- 1,364
Repurchase of capital stock -- (947)
------------ -----------
Net cash provided by (used in) financing activities 2,118 (4,159)
------------ -----------
Net increase (decrease) increase in cash and cash equivalents 180 (31)
Cash and cash equivalents, beginning of period 69 316
------------ -----------
Cash and cash equivalents, end of period $ 249 $ 285
============ ===========
The accompanying notes are an integral part of
this financial statement.
</TABLE>
7
<PAGE>
SMC Corporation
Form 10-Q
For the Third Quarter Ended September 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 Company's 1996 Annual Report on Form 10-K
filed with the Securities and Exchange Commission. Certain financial
entries for 1996 have been reclassified to conform to current year
presentation. These changes have no impact on previously reported results
of operations or shareholders' equity. 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, 1996 Sept. 30, 1997
------------- ---------------
<S> <C> <C>
Raw materials $ 11,560 $ 10,611
Work-in-progress 7,285 7,604
Finished goods 4,788 2,114
----------- -----------
Total $ 23,633 $ 20,329
=========== ===========
</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, because
such options and warrants constitute more than 3% of shares outstanding and
thus are considered dilutive.
8
<PAGE>
4. Related Party Transactions
During the three- and nine-month period ended September 30, 1997, the
Company had sales of $7.4 million and $18.4 million, respectively, to a
dealership that is owned by parties related to an officer of the Company.
This dealership began operations in March 1997; therefore, no sales were
made to this related party in 1996.
9
<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
statement of operations data, expressed as a percentage of sales.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------ ------------
Percentage Percentage
change in change in
dollar dollar
1996 1997 amounts 1996 1997 amounts
------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales..................................... 100.0% 100.0% (7.9)% 100.0% 100.0% 1.9%
Cost of sales............................. 85.5 86.6 (6.7) 85.8 87.5 4.0
------ ------ ------ ------
Gross profit.............................. 14.5 13.4 (14.9) 14.2 12.5 (10.7)
Selling, general and administrative
expenses.................................. 8.6 8.9 (4.0) 8.5 9.2 9.3
------ ------ ------ ------
Income from operations.................... 5.9 4.5 (30.8) 5.7 3.3 (40.7)
Interest expense.......................... .3 .6 42.2 .4 .5 52.3
Other (income) and expense................ .2 --- (101.1) --- --- (194.9)
------ ------ ------ ------
Pretax income............................. 5.4 3.9 (33.4) 5.3 2.8 (45.7)
Provision for income taxes 2.2 1.6 (33.3) 2.1 1.1 (45.7)
------ ------ ------ ------
Net income 3.2% 2.3% (33.5) 3.2% 1.7% (45.8)
====== ====== ====== ======
</TABLE>
Sales decreased 7.9% to $51.6 million for the third quarter of 1997 from
$56.0 million for the comparable period in 1996. The decrease was primarily the
result of a 10.1% decrease in unit sales to 445 units, down from 495 units in
the prior year. For the nine months ended September 30, 1997, sales increased
1.9% to $150.6 million from $147.8 million for the comparable period in 1996.
This was the result of the impact of price increases across all model lines as
unit sales remained relatively unchanged at 1,337 during the nine months ended
September 30, 1997, compared to 1,353 units during the comparable period in
1996.
Gross profit margin decreased 14.9% to $6.9 million for the third quarter
of 1997 from $8.1 million for the comparable period in 1996, and decreased as a
percentage of sales to 13.4% from 14.5%. For the nine months ended September 30,
1997, gross profit margin decreased 10.7% to $18.8 million from $21.0 million
for the comparable period of 1996, and decreased as a percentage of sales to
12.5% from 14.2%. The decrease in gross margin percentage for both time periods
was due principally to the Company's investment in start-up operations at its
Eastern Oregon manufacturing facility.
Selling, general and administrative expenses decreased 4.0% to $4.6 million
for the quarter ended September 30, 1997 from $4.8 million for the comparable
period in 1996, and increased 9.3% to $13.8 million for the nine-month period
ended September 30, 1997 from $12.6 million for the comparable period of 1996.
The decrease for the third quarter of 1997
10
<PAGE>
compared to 1996 was due principally to lower sales. The increase for the
nine-month period compared to 1996 was primarily the result of a higher general
level of administrative overhead in relation to sales given the start-up
operations of the Company's Eastern Oregon manufacturing facility.
Given the factors affecting gross margin and selling, general, and
administrative expenses, operating income decreased 30.8% to $2.3 million for
the quarter ended September 30, 1997 from $3.3 million for the comparable period
of 1996. Operating income decreased 40.7% to $5.0 million for the nine months
ended September 30, 1997 from $8.4 million for the comparable period during
1996.
Interest expense increased to $276,000 for the quarter ended September 30,
1997 from $194,000 for the comparable period in 1996, and increased to $751,000
for the nine-month period ended September 30, 1997 compared to $493,000 for the
comparable period during 1996. The increases for both periods were due to higher
borrowings on the Company's revolving lines of credit.
For the third quarter of 1997, the Company's effective tax rate was 40.0%,
resulting in an income tax provision of $808,000 compared to the effective tax
rate of 40.0% resulting in an income tax provision of $1.2 million for the
comparable period in 1996. For the nine-month period ended September 30, 1997,
the Company's effective tax rate was 40.0% resulting in an income tax provision
of $1.7 million, compared to the effective tax rate of 40.0% resulting in an
income tax provision of $3.2 million for the comparable period in 1996.
Net income after tax decreased 33.5% to $1.2 million for the quarter ended
September 30, 1997 from $1.8 million for the comparable period of 1996. Net
income after taxes for the nine-month period ended September 30, 1997 decreased
45.8% to $2.6 million compared to 1996's net income of $4.7 million.
Historically, the Company's revenues have been subject to some seasonal
fluctuation. Sales demand for high line Class A motor coaches tends to increase
with the beginning of new model years, which occur during the Company's third
quarter ending September 30. Decreases in sales demand have typically occurred
during the second quarter, as dealers delay purchases in anticipation of the new
model year.
Liquidity and Capital Resources
During the first nine months of 1997, the Company generated $6.5 million in
cash flows from operations, while its net working capital position increased
from $5.5 million at December 31, 1996 to $6.7 million at September 30, 1997
(including cash and cash equivalents of $285,000).
Cash generated from operations during the first nine months of 1997 along
with $1.4 million received from the sale and lease-back of equipment was used to
finance capital
11
<PAGE>
expenditures of approximately $2.2 million, to pay-down the revolving line of
credit for approximately $3.3 million, to service term debt payments of
approximately $1.4 million, and to repurchase common stock in the amount of
$947,000.
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 ($7.5 million of which was
available at September 30, 1997), plus an additional $4.0 million equipment
financing line of credit, of which $4.0 million was available. Amounts
outstanding under these lines of credit bear interest at prime (8.5% at
September 30, 1997) 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
before engaging in any mergers, consolidations or sale of assets not in the
ordinary course of business, and any guarantees by the Company of debts or
obligations of other persons or entities. The Company was in compliance with all
covenants and agreements at September 30, 1997. 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 September 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 been minimal. 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.
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 September 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
(Registrant)
Date: November 14, 1997 By: JAY L. HOWARD
-------------------------------------
Jay L. Howard
President, SMC Corporation
By: 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 Nine Months
Ended Ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
Primary Earnings Per Share:
Weighted average number of shares 6,555,730 6,561,025
Stock option plan shares to be issued at
prices ranging from $7.25 to $11.50 per share 990,000 990,000
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. (1,115,000) (1,115,000)
----------- -----------
Total Primary Shares 6,555,730 6,561,025
=========== ===========
Fully Diluted Earnings Per Share:
Weighted average number of shares 6,555,730 6,561,025
Stock option plan shares to be issued at prices
ranging from $7.25 to $11.50 per share 990,000 990,000
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 (1,115,000) (1,115,000)
----------- -----------
Total Diluted Shares (1) 6,555,730 6,561,025
=========== ===========
(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 SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 285
<SECURITIES> 0
<RECEIVABLES> 11,540
<ALLOWANCES> 0
<INVENTORY> 20,329
<CURRENT-ASSETS> 34,963
<PP&E> 23,869
<DEPRECIATION> 4,881
<TOTAL-ASSETS> 56,521
<CURRENT-LIABILITIES> 28,313
<BONDS> 0
0
0
<COMMON> 10,810
<OTHER-SE> 11,797
<TOTAL-LIABILITY-AND-EQUITY> 56,521
<SALES> 150,643
<TOTAL-REVENUES> 150,643
<CGS> 131,863
<TOTAL-COSTS> 131,863
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 751
<INCOME-PRETAX> 4,272
<INCOME-TAX> 1,712
<INCOME-CONTINUING> 2,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,560
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
</TABLE>
