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, 1998
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 1, 1998: 6,545,349
<PAGE>
SMC CORPORATION
INDEX TO FORM 10-Q
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - December 31, 1997 and
March 31, 1998................................................... 3
Consolidated Statement of Income - Three Months
Ended March 31, 1997 and March 31, 1998.......................... 4
Consolidated Statement of Changes in Shareholders'
Equity - Year Ended December 31, 1997 and Three
Months Ended March 31, 1998...................................... 5
Consolidated Statement of Cash Flows - Three Months
Ended March 31, 1997 and March 31, 1998.......................... 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............................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,
1997 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 103 $ 78
Accounts receivable, net 12,397 12,021
Inventories (Note 2) 23,038 26,302
Prepaid expenses and other 709 738
Deferred tax asset 2,834 2,834
-------------- --------------
Total current assets 39,081 41,973
Property, plant and equipment, net 18,585 18,495
Intangible assets, net 2,129 2,082
Other assets 47 40
-------------- --------------
Total assets $ 59,842 $ 62,590
============== ==============
Liabilities and Shareholders' Equity Current liabilities:
Notes payable $ 1,695 $ 1,011
Current portion of long-term debt 1,381 1,376
Accounts payable 17,342 16,904
Income taxes payable 405 482
Product warranty liabilities 3,769 3,749
Current portion of capital lease obligation 18 18
Accrued liabilities 4,725 6,270
-------------- --------------
Total current liabilities 29,335 29,810
Long-term debt, net of current portion 5,376 5,083
Capital lease obligation, less current portion 57 53
Deferred income taxes 781 781
-------------- --------------
Total liabilities 35,549 35,727
-------------- --------------
Shareholders' equity:
Preferred stock, 5,000 shares authorized, none issued or outstanding -- --
Common stock, 30,000 shares authorized, 6,343 and 6,545 shares issued
and outstanding 10,810 12,640
Additional paid-in capital 1,488 1,472
Retained earnings 11,995 12,751
-------------- --------------
Total shareholders' equity 24,293 26,863
-------------- --------------
Total liabilities and shareholders' equity $ 59,842 $ 62,590
============== ==============
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,
1997 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Sales $ 50,087 $ 47,805
Cost of sales 43,490 41,799
-------------- --------------
Gross profit 6,597 6,006
Selling, general and administrative expenses 4,402 4,598
-------------- --------------
Income from operations 2,195 1,408
Interest expense 273 140
Other income, net (62) (176)
-------------- --------------
Income before provision for taxes 1,984 1,444
Provision for income taxes 794 528
-------------- --------------
Net income $ 1,190 $ 916
============== ==============
Net income per share - basic $ .18 $ .14
============== ==============
Net income per share - diluted $ .18 $ .14
============== ==============
Weighted average number of shares - basic 6,564 6,440
============== ==============
Weighted average number of shares - diluted 6,564 6,507
============== ==============
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, 1996 6,563 $ 10,914 $ 1,556 $ 8,524 $ 20,994
Net income -- -- -- 4,246 4,246
Stock repurchase (220) (104) (68) (775) (947)
-------------- ------------- ------------ ------------- ------------
Balance, December 31, 1997 6,343 10,810 1,488 11,995 24,293
-------------- ------------- ------------ ------------- ------------
Net income -- -- -- 916 916
Common stock issued upon exercise
of stock options 252 1,954 -- -- 1,954
Stock repurchase (50) (124) (16) (160) (300)
----------- ------------- ------------ ------------- ------------
Balance, March 31, 1998 6,545 $ 12,640 $ 1,472 $ 12,751 $ 26,863
============== ============= ============ ============= ============
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,
1997 1998
-------------- --------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,190 $ 916
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 450 463
Changes in current assets and liabilities:
Accounts receivable 1,525 376
Inventories 1,511 (3,264)
Prepaid expenses and other 248 (29)
Other assets 17 7
Accounts payable 1,955 (438)
Income taxes payable (726) 77
Accrued liabilities and other obligations 509 1,525
-------------- --------------
Net cash provided by (used in) operating activities 6,679 (367)
-------------- --------------
Cash flows from investing activities:
Capital expenditures (1,417) (326)
-------------- --------------
Net cash used in investing activities (1,417) (326)
-------------- --------------
Cash flows from financing activities:
Net repayments on notes payable (4,803) (684)
Repayments of long-term debt (485) (298)
Principal payments on capital lease obligation (3) (4)
Proceeds from issuance of common stock -- 1,954
Repurchase of capital stock -- (300)
-------------- --------------
Net cash used in (provided by) financing activities (5,291) 668
-------------- --------------
Net decrease in cash and cash equivalents (29) (25)
Cash and cash equivalents, beginning of period 316 103
-------------- --------------
Cash and cash equivalents, end of period $ 287 $ 78
============== ==============
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, 1998 (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 1997 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,
1997 1998
----------- -----------
Raw materials $ 11,418 $ 12,550
Work-in-progress 9,581 8,274
Finished goods 2,039 5,478
----------- -----------
Total $ 23,038 $ 26,302
=========== ===========
3. Earnings Per Share
The Company adopted FASB Statement 128, "Earnings Per Share," in the fourth
quarter of 1997. FASB 128 requires dual presentation of basic and diluted
EPS. Previously, the Company had presented primary EPS. Diluted EPS is
calculated by dividing net income by the total of the weighted average
actual shares outstanding for each period plus the number of shares
calculated as having a dilutive impact, if any, related to the stock
options under the Company's Stock Incentive Plan, and the warrants issued
in conjunction with the Company's initial public offering. Previously
reported amounts for primary EPS are the same as the diluted EPS amounts
now reported. Basic EPS is computed by dividing the net income by the
weighted average actual shares outstanding for each period presented with
no consideration as to the dilutive impact of the Company's outstanding
stock options or warrants.
7
<PAGE>
4. Comprehensive Income
In June 1997, Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards, No. 130, "Reporting
Comprehensive Income." The Company has adopted the standard as of January
1, 1998. Total comprehensive income for the three months ended March 31,
1998 and 1997 was net income of $1.2 million and $916,000, respectively.
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
1997 1998 in dollar amounts
--------- --------- -----------------
<S> <C> <C> <C>
Sales.......................................................... 100.0% 100.0% (4.6)%
Cost of sales.................................................. 86.8 87.4 (3.9)
--------- ---------
Gross profit................................................... 13.2 12.6 (9.0)
Selling, general and
administrative expenses...................................... 8.8 9.6 4.5
--------- ----------
Income from operations......................................... 4.4 3.0 (35.9)
Interest expense............................................... (.5) (.3) (48.7)
Other income................................................... .1 .4 183.9
--------- ----------
Pretax income.................................................. 4.0 3.1 (27.2)
Provision for income taxes..................................... 1.6 1.2 (33.5)
--------- ----------
Net income..................................................... 2.4% 1.9% (23.0)
</TABLE>
Sales decreased 4.6% to $47.8 million for the first quarter of 1998 from
$50.1 million for the comparable period in 1997. The decrease was largely the
result of a 15.0% unit sales decrease to 381 units, down from 448 in the prior
year. The unit decrease is principally the result of lower than expected sales
during the winter show season.
Gross profit margin decreased $591,000 (9.0%) in the first quarter of 1998
compared to 1997, and decreased as a percentage of sales from 13.2% to 12.6%.
Gross margin percentage was lower due to the lower sales level and a shift in
the mix to lower priced motor homes, which generally have lower gross margins.
Selling, general and administrative expenses increased 4.5% to $4.6 million
for the first quarter of 1998 from $4.4 million in the comparable period of
1997.
Given the factors affecting gross margin and selling, general and
administrative expenses, operating income decreased 35.9% to $1.4 million for
the first quarter of 1998 from $2.2 million in the comparable period of 1997.
Interest expense decreased 48.7% to $140,000 for the first quarter of 1998
from $273,000 in the comparable period of 1997. The decrease was due to lower
borrowings on the Company's revolving lines of credit during the first quarter
of 1998 compared to 1997. Compared to the first quarter of 1997, lower levels of
finished goods inventory were held in the first quarter of 1998, thus requiring
less borrowing on the Company's line of credit.
9
<PAGE>
Other income was $176,000 for the first quarter of 1998 compared to $62,000
for the first quarter of 1997.
For the first quarter of 1998, the effective tax rate was 36.6%, resulting
in an income tax provision of $528,000. For the first quarter of 1997, the
Company's income tax provision was $794,000, at an effective rate of 40%. The
decrease in effective rate is due to the benefit of energy tax credits available
to the Company.
Net income after tax for the first quarter of 1998 was $916,000, down from
1997's net income of $1.2 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 1998, SMC generated a negative cash flow from
operations of $367,000 while its working capital position increased from $9.7
million at December 31, 1997 to $12.2 million at March 31, 1998 (including cash
and cash equivalents of $78,000). The Company received proceeds from the
issuance of common stock under its Stock Incentive Plan of $2.0 million during
the first quarter of 1998. These proceeds were used to finance the negative cash
flow from operations in addition to $326,000 in capital expenditures, $982,000
in repayment of short-term and long-term borrowings, and the repurchase of
common stock of $300,000.
The Company anticipates that its aggregate capital expenditures for 1998
will be approximately $2.0 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, 1998), plus an additional $4.0 million equipment
financing line of credit, which is all available at March 31, 1998. Amounts
outstanding under these lines of credit bear interest at prime (8.5% at March
31, 1998) 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. 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 in compliance with all covenants and agreements at March 31, 1998.
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
10
<PAGE>
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, 1998, the Company
estimates its total contingent liability under repurchase obligations was
approximately $88.0 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement of Calculation of Average Common Shares Outstanding
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
27.3 Restated 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, 1998.
12
<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 15, 1998 By: JOHN L. VARNER
-------------------------------------
John L. Varner
Chief Financial Officer
(Principal Financial Officer)
13
<PAGE>
Exhibit Index
Exhibit
No. Description
- ------- -----------
11 Statement of Calculation of Average
Common Shares Outstanding
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
27.3 Restated Financial Data Schedule
14
SMC CORPORATION EXHIBIT 11
STATEMENT OF CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1998
--------------
<S> <C>
Basic Earnings Per Share:
Weighted average number of shares 6,439,777
=========
Diluted Earnings Per Share:
Weighted average number of shares 6,439,777
Stock option plan shares to be issued at prices
ranging from $7.375 to $9.00 per share 965,500
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 (1,022,902)
Total Diluted Shares 6,507,375
=========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 12,021
<ALLOWANCES> 0
<INVENTORY> 26,302
<CURRENT-ASSETS> 41,973
<PP&E> 24,194
<DEPRECIATION> 5,699
<TOTAL-ASSETS> 62,590
<CURRENT-LIABILITIES> 29,810
<BONDS> 0
0
0
<COMMON> 12,751
<OTHER-SE> 14,112
<TOTAL-LIABILITY-AND-EQUITY> 62,590
<SALES> 47,805
<TOTAL-REVENUES> 47,805
<CGS> 41,799
<TOTAL-COSTS> 41,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> 1,444
<INCOME-TAX> 528
<INCOME-CONTINUING> 916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 916
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-30-1997 JUN-30-1997 SEP-30-1997
<CASH> 287 350 285
<SECURITIES> 0 0 0
<RECEIVABLES> 11,334 11,665 11,540
<ALLOWANCES> 0 0 0
<INVENTORY> 22,122 23,893 20,329
<CURRENT-ASSETS> 36,427 39,229 34,963
<PP&E> 24,496 25,115 23,869
<DEPRECIATION> 3,902 4,409 4,881
<TOTAL-ASSETS> 59,557 62,569 56,521
<CURRENT-LIABILITIES> 31,002 34,193 28,313
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 10,914 10,914 10,810
<OTHER-SE> 11,270 11,434 11,797
<TOTAL-LIABILITY-AND-EQUITY> 59,557 62,569 56,521
<SALES> 50,087 99,065 150,643
<TOTAL-REVENUES> 50,087 99,065 150,643
<CGS> 43,490 87,186 131,863
<TOTAL-COSTS> 43,490 87,186 131,863
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 273 475 751
<INCOME-PRETAX> 1,984 2,258 4,272
<INCOME-TAX> 794 904 1,712
<INCOME-CONTINUING> 1,190 1,354 2,560
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,190 1,354 2,560
<EPS-PRIMARY> 0.18 0.21 0.39
<EPS-DILUTED> 0.18 0.21 0.39
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-30-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 316 478 1,661 249
<SECURITIES> 0 0 0 0
<RECEIVABLES> 12,859 7,456 7,592 13,434
<ALLOWANCES> 0 0 0 0
<INVENTORY> 23,633 14,571 18,341 19,967
<CURRENT-ASSETS> 39,740 23,273 28,780 34,910
<PP&E> 23,080 16,397 18,043 19,971
<DEPRECIATION> 3,496 2,789 3,147 3,560
<TOTAL-ASSETS> 61,920 39,854 46,779 54,828
<CURRENT-LIABILITIES> 34,225 15,979 21,989 28,507
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 10,914 10,914 10,914 10,914
<OTHER-SE> 10,080 7,793 9,405 11,219
<TOTAL-LIABILITY-AND-EQUITY> 61,920 39,854 46,779 54,828
<SALES> 200,835 43,102 91,833 147,849
<TOTAL-REVENUES> 200,835 43,102 91,833 147,849
<CGS> 174,457 37,129 78,919 126,823
<TOTAL-COSTS> 174,457 37,129 78,919 126,823
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 685 158 299 493
<INCOME-PRETAX> 5,967 2,164 4,848 7,872
<INCOME-TAX> 2,384 868 1,940 3,150
<INCOME-CONTINUING> 3,583 1,296 2,980 4,722
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 3,583 1,296 2,908 4,722
<EPS-PRIMARY> 0.55 0.2 0.44 0.72
<EPS-DILUTED> 0.54 0.2 0.44 0.71
</TABLE>
