<PAGE>
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, 2000
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.)
20545 Murray Road
Bend, Oregon 97701
(Address of principal executive offices) (Zip Code)
(541) 389-1144
(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, 2000: 5,780,599
<PAGE>
SMC CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - December 31, 1999 and
March 31, 2000.........................................................................3
Consolidated Statement of Income - Three Months
Ended April 3, 1999 and March 31, 2000.................................................4
Consolidated Statement of Changes in Shareholders'
Equity - Year Ended December 31, 1999 and Three
Months Ended March 31, 2000............................................................5
Consolidated Statement of Cash Flows - Three Months
Ended April 3, 1999 and March 31, 2000.................................................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......................................................12
Signatures..............................................................................................13
Exhibit Index...........................................................................................14
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SMC CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------
December 31, March 31,
1999 2000
------------ ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 26 $ 53
Accounts receivable, net 15,056 8,703
Inventories (Note 2) 41,703 38,798
Prepaid expenses and other 292 271
Deferred tax asset 2,627 2,627
------------ ------------
Total current assets 59,704 50,452
Property, plant and equipment, net 13,978 13,748
Intangible assets, net 1,756 1,709
Deferred tax asset 43 43
Other assets 188 184
------------ ------------
Total assets $ 75,669 $ 66,136
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 9,464 $ 5,199
Current portion of long-term debt 364 373
Accounts payable 22,969 19,315
Income taxes payable 700 92
Product warranty liabilities 3,481 3,656
Current portion of capital lease obligation 21 21
Accrued liabilities 7,128 6,437
------------ ------------
Total current liabilities 44,127 35,093
Long-term debt, net of current portion 8,646 8,412
Capital lease obligation, less current portion 17 12
------------ ------------
Total liabilities 52,790 43,517
------------ ------------
Shareholders' equity:
Preferred stock, 5,000 shares authorized, none issued or
outstanding -- --
Common stock, 30,000 shares authorized, 5,780 shares issued
and outstanding 9,033 9,033
Additional paid-in capital 1,472 1,472
Retained earnings 12,374 12,114
------------ ------------
Total shareholders' equity 22,879 22,619
------------ ------------
Total liabilities and shareholders' equity $ 75,669 $ 66,136
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
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<TABLE>
<CAPTION>
SMC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ---------------------------------------------------------------------
THREE MONTHS ENDED
April 3, March 31,
1999 2000
-------- --------
(unaudited)
<S> <C> <C>
Sales $ 56,822 $ 53,052
Cost of sales 50,613 47,596
-------- --------
Gross profit 6,209 5,456
Selling, general and administrative expenses 4,936 4,948
Legal and settlement costs 870 452
-------- --------
Income from operations 403 56
Interest expense 310 482
Other (income) expense, net (86) 8
-------- --------
Income (loss) before provision for taxes 179 (434)
Provision (benefit) for income taxes 71 (174)
-------- --------
Net income (loss) $ 108 $ (260)
======== ========
Net income (loss) per share - basic $ .02 $ (.05)
======== ========
Net income (loss) per share - diluted $ .02 $ (.05)
======== ========
Weighted average number of shares - basic 5,890 5,780
======== ========
Weighted average number of shares - diluted 5,890 5,780
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
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<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, 1998 5,890 $ 9,604 $ 1,472 $ 12,133 $ 23,209
Net income -- -- -- 241 241
Stock repurchase (110) (571) -- -- (571)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 5,780 9,033 1,472 12,374 22,879
------------ ------------ ------------ ------------ ------------
Net loss -- -- -- (260) (260)
------------ ------------ ------------ ------------ ------------
Balance, March 31, 2000 5,780 $ 9,033 $ 1,472 $ 12,114 $ 22,619
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
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<TABLE>
<CAPTION>
SMC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
APRIL 3, MARCH 31,
1999 2000
---------- ----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 108 $ (260)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 566 517
Changes in current assets and liabilities:
Accounts receivable 3,203 6,353
Inventories (5,252) 2,905
Prepaid expenses and other 291 21
Other assets 10 4
Accounts payable (5,086) (3,654)
Income taxes payable -- (608)
Accrued liabilities and other obligations 1,046 (516)
---------- ----------
Net cash (used in) provided by operating activities (5,114) 4,762
---------- ----------
Cash flows from investing activities:
Capital expenditures (214) (240)
Lease abatement 1,104 --
---------- ----------
Net cash provided by (used in) investing activities 890 (240)
---------- ----------
Cash flows from financing activities:
Net repayments on notes payable 3,377 (4,265)
Repayments of long-term debt (220) (225)
Principal payments on capital lease obligation (5) (5)
---------- ----------
Net cash provided by (used in) financing activities 3,152 (4,495)
---------- ----------
Net increase (decrease) in cash and cash equivalents (1,072) 27
Cash and cash equivalents, beginning of period 1,310 26
---------- ----------
Cash and cash equivalents, end of period $ 238 $ 53
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
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SMC CORPORATION
FORM 10-Q
FOR THE FIRST QUARTER ENDED MARCH 31, 2000 (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 1999 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, March 31,
1999 2000
------------ ------------
<S> <C> <C>
Raw materials $ 15,506 $ 13,103
Work-in-progress 10,080 8,906
Finished goods 16,117 16,789
------------ ------------
Total $ 41,703 $ 38,798
============ ============
</TABLE>
3. EARNINGS PER SHARE
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. Diluted EPS includes additional dilution from the effect of
potential issuance of common stock, such as stock issuance to the exercise
of stock options, warrants outstanding and the conversion of debt.
Due to the Company's net loss, stock options accounted for using the
treasury stock method would be antidilutive. Accordingly, 1,138,500 stock
option plan shares have been excluded from the diluted net loss per share
calculation for the three months ended March 31, 2000.
7
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4. RELATED PARTY TRANSACTIONS
During the three month period ending March 31, 2000, the Company purchased
electronic parts for a total amount of $234,000 from a supplier company
that is owned by a principal related to an officer.
5. SEGMENT DISCLOSURE
The Company complies with segment reporting as set forth in the Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of
an Enterprise and Related Information," (SFAS No. 131) effective December
1998. Under this statement, the Company employs the aggregation criteria of
this standard.
8
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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
April 3, March 31, Percentage change
1999 2000 in dollar amounts
-------- -------- -----------------
<S> <C> <C> <C>
Sales 100.0% 100.0% (6.6)%
Cost of sales 89.1 89.7 (6.0)
------ ------
Gross profit 10.9 10.3 (12.1)
Selling, general and
administrative expenses 8.7 9.3 .3
Legal and
settlement costs 1.5 .9 (48.0)
------ ------
Income from operations .7 .1 (86.2)
Interest expense (.6) (.9) 55.5
Other income .2 -- (109.4)
------ ------
Pretax income (loss) .3 (.8) (342.3)
Provision (benefit) for income taxes .1 (.3) (342.3)
------ ------
Net income (loss) .2% (.5)% (342.2)
</TABLE>
Sales decreased 6.6% to $53.1 million for the first quarter of 2000 from
$56.8 million for the comparable period in 1999. Sales decreased by $3.7
million primarily in the lower end models of the Safari product line. Sales
of Beaver product remained constant, however, the mix of Beaver product was
heavily weighted on the higher end models of Patriot, Marquis, and Solitaire.
Harney Coach Works product reflected a decrease in revenue primarily as the
result of lower Renegade sales that were partially offset by increased revenues
of Class C and Riata product.
Gross profits were lower in the quarter-to-quarter comparisons by
$753,000 due to lower sales volumes. Significant improvements were achieved
in lowering labor and overhead costs however. These positive developments
were the result of the continuing efforts of the "kaizen" program that
evaluates all efforts on the factory floor and has resulted in the
reduction of inventory, floor space, and personnel.
Administrative and finance costs decreased $212,000 or 8.4% as the
result of continued cost reduction activities. Selling and marketing costs
increased by $225,000 or 9.3% compared to the same period in 1999 due
primarily to a promotional contest and personnel costs. Legal and settlement
costs decreased $418,000 or 48% during the first quarter of 2000 compared to
the same period in 1999.
9
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Interest expense increased by $172,000 compared to the same period in
1999, due to a higher debt load that primarily was the result of higher
inventories. Since year end, inventories have been reduced by 7% as the
result of the Company's "kaizen" efforts. Further inventory reductions may be
achieved as the Company continues these efforts plus its shift from a "build
to forecast" to a "build to order" production process.
Given the factors affecting gross margin and selling, general and
administrative expenses, operating income decreased 86.2% to $56,000 for the
first quarter of 2000 from $403,000 in the comparable period of 1999.
The effective tax rate of 40.0% in the first quarter of 2000 is
comparable to the first quarter of 1999. Net loss after tax for the first
quarter of 2000 was $260,000, down from first quarter 1999 net income of
$108,000.
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 that begins July 1.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2000, SMC generated a cash flow from
operations of $4.8 million. This compares to a negative cash flow from
operations of $5.1 million from the first quarter of 1999. This improvement
of approximately $10 million is attributable to accounts receivable
reductions of approximately $3 million and inventory improvements of $8
million, offset by reductions in accounts payable and accrued liabilities
of about $1 million.
Capital expenditures remained virtually constant and the Company
received a one time benefit of a lease abatement of $1.1 million in the first
quarter of 1999 that was associated with the acquisition of the Florida
service center property.
The Company used $4.5 million to pay down long term and notes payable
debt in the first quarter of 2000. This compares to a $3.2 million increase
in net borrowing during the first quarter of 1999.
The Company anticipates that its aggregate capital expenditures for 2000
will be approximately $1.5 million. The Company plans to use cash generated
from operations, borrowings under its credit arrangements and long term lease
obligations to fund these expenditures.
The Company has an operating line of credit of $10 million, a real
estate line of credit of $10.1 million and a $4.0 million equipment financing
line of credit. As of March 31, 2000, $4.8 million was available on the
operating line of credit, $4.0 million was available on the equipment line,
and $2.5 million was available on the real estate line of
10
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credit. Of the amounts outstanding on these three lines of credit, $12.6
million is at the LIBOR based interest rate of 8.00% and the remaining
amounts are at the prime rate of 9.00%. These amounts 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, 2000.
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, 2000, the
Company estimates its total contingent liability under repurchase obligations
was approximately $120.5 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 repurchase obligations are not material, a
repurchase obligation can represent a significant cash requirement for the
Company.
FORWARD LOOKING STATEMENTS: The statements in this report concerning
inventory reductions constitute forward-looking statements that are subject
to risks and uncertainties. Factors that could materially affect inventory
reductions include, but are not limited to, competitive market pressures
(including increased competition, new product offerings by competitors and
price pressures), and unfavorable business conditions in the RV industry and
general economy.
11
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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, 2000.
12
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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 9, 2000 By: WILLIAM L. RICH
----------------------------
William L. Rich
Chief Financial Officer
(Principal Financial Officer)
13
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ----------------------------
<S> <C>
11 Statement of Calculation of Average
Common Shares Outstanding
27 Financial Data Schedule
</TABLE>
14
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SMC CORPORATION EXHIBIT 11
STATEMENT OF CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 2000
--------------
<S> <C>
Basic Earnings Per Share:
Weighted average number of shares 5,780,599
==============
Diluted Earnings Per Share:
Weighted average number of shares 5,780,599
Stock option plan shares to be issued at prices -
ranging from $4.625 to $9.00 per share
--------------
Total Diluted Shares 5,780,599
==============
</TABLE>
Due to the Company's net loss, stock options accounted for using the treasury
stock method would be antidilutive. Accordingly, 1,138,500 stock option plan
shares have been excluded from the diluted net loss per share calculation for
the three months ended March 31, 2000.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 53
<SECURITIES> 0
<RECEIVABLES> 8,703
<ALLOWANCES> 0
<INVENTORY> 38,798
<CURRENT-ASSETS> 50,452
<PP&E> 22,770
<DEPRECIATION> 9,022
<TOTAL-ASSETS> 66,136
<CURRENT-LIABILITIES> 35,093
<BONDS> 0
0
0
<COMMON> 9,033
<OTHER-SE> 13,586
<TOTAL-LIABILITY-AND-EQUITY> 66,136
<SALES> 53,052
<TOTAL-REVENUES> 53,052
<CGS> 47,596
<TOTAL-COSTS> 47,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 482
<INCOME-PRETAX> (434)
<INCOME-TAX> (174)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (260)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
