<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 September 30, 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 October 20, 2000: 5,745,599
<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
September 30, 2000..................................................3
Consolidated Statement of Operations - Three Months
Ended October 2, 1999 and September 30, 2000....................... 4
Consolidated Statement of Operations - Nine Months
Ended October 2, 1999 and September 30, 2000....................... 5
Consolidated Statement of Changes in Shareholders'
Equity - Year Ended December 31, 1999 and Nine
Months Ended September 30, 2000.................................... 6
Consolidated Statement of Cash Flows - Nine Months
Ended October 2, 1999 and September 30, 2000....................... 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 4. Submission of Matters to a Vote of Security Holders............... 14
Item 5. Other Information..................................................14
Item 6. Exhibits and Reports on Form 8-K.................................. 15
Signatures .................................................................. 16
Exhibit Index................................................................... 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SMC CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 26 $ 294
Accounts receivable, net 15,056 11,065
Inventories (Note 2) 41,703 25,724
Prepaid expenses and other 292 603
Deferred tax asset 2,627 6,374
------------ ------------
Total current assets 59,704 44,060
Property, plant and equipment, net 13,978 14,462
Intangible assets, net 1,756 1,616
Deferred tax asset 43 43
Other assets 188 174
------------ ------------
Total assets $ 75,669 $ 60,355
============ ============
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 9,464 $ 2,346
Current portion of long-term debt 364 499
Accounts payable 22,969 21,415
Income taxes payable 700 --
Product warranty liabilities 3,481 4,026
Current portion of capital lease obligation 21 21
Accrued liabilities 7,128 5,561
------------ ------------
Total current liabilities 44,127 33,868
Long-term debt, net of current portion 8,646 9,223
Capital lease obligation, less current portion 17 1
------------ ------------
Total liabilities 52,790 43,092
------------ ------------
Shareholders' equity:
Common stock, 30,000 shares authorized, and 5,780 and 5,745 shares
issued and outstanding 9,033 8,914
Additional paid-in capital 1,472 1,472
Retained earnings 12,374 6,877
------------ ------------
Total shareholders' equity 22,879 17,263
------------ ------------
Total liabilities and shareholders' equity $ 75,669 $ 60,355
============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
SMC CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 2, SEPTEMBER 30,
1999 2000
---------- -------------
(UNAUDITED)
<S> <C> <C>
Sales $ 46,711 $ 49,515
Cost of sales 41,699 46,664
---------- -------------
Gross profit 5,012 2,851
Selling, general and administrative expenses 4,796 4,679
Litigation and settlement costs 705 1,074
---------- -------------
Loss from operations (489) (2,902)
Interest expense 416 486
Other (income) expense, net (1,122) 95
---------- -------------
Income (loss) before provision for taxes 217 (3,483)
Income tax expense (benefit) 87 (1,393)
---------- -------------
Net income (loss) $ 130 $ (2,090)
========== =============
Net income (loss) per share - basic $ 0.02 $ (0.36)
========== =============
Net income (loss) per share - diluted $ 0.02 $ (0.36)
========== =============
Weighted average number of shares - basic 5,839 5,763
========== =============
Weighted average number of shares - diluted 5,841 5,763
========== =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
SMC CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 2, SEPTEMBER 30,
1999 2000
---------- -------------
(UNAUDITED)
<S> <C> <C>
Sales $ 157,327 $ 147,992
Cost of sales 141,962 139,483
---------- -------------
Gross profit 15,365 8,509
Selling, general and administrative expenses 13,593 13,680
Litigation and settlement costs 1,981 2,254
---------- -------------
Loss from operations (209) (7,425)
Interest expense 1,060 1,455
Other (income) expense, net (1,417) 282
---------- -------------
Income (loss) before provision for taxes 148 (9,162)
Income tax expense (benefit) 59 (3,665)
---------- -------------
Net income (loss) $ 89 $ (5,497)
========== =============
Net income (loss) per share - basic $ 0.02 $ (0.95)
========== =============
Net income (loss) per share - diluted $ 0.02 $ (0.95)
========== =============
Weighted average number of shares - basic 5,839 5,775
========== =============
Weighted average number of shares - diluted 5,841 5,775
========== =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE>
SMC CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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 -- -- -- (5,497) (5,497)
Stock repurchase (35) (119) -- -- (119)
------ -------- ---------- -------- --------
Balance, September 30, 2000 5,745 $ 8,914 $ 1,472 $ 6,877 $ 17,263
====== ======== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
SMC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 3, SEPTEMBER 30,
1999 2000
---------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 89 $ (5,497)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Gain on asset disposition (1,340) (10)
Depreciation and amortization 1,679 1,611
Changes in current assets and liabilities:
Accounts receivable 6,477 3,991
Inventories (21,252) 15,979
Prepaid expenses, deferred taxes and other 731 (4,058)
Other assets 23 14
Accounts payable (1,508) (1,554)
Income taxes payable (6) (700)
Accrued liabilities and other obligations 104 (1,022)
---------- -------------
Net cash provided by (used in) operating activities (15,003) 8,754
---------- -------------
Cash flows from investing activities:
Capital expenditures (440) (1,978)
Lease abatement 1,104 --
Proceeds from sale of equipment 5,738 33
---------- -------------
Net cash provided by (used in) investing activities 6,402 (1,945)
---------- -------------
Cash flows from financing activities:
Net (repayments) borrowings on notes payable 7,334 (7,118)
Proceeds from long-term debt 750 712
Principal payments on capital lease obligation (14) (16)
Repurchase of common stock (571) (119)
---------- -------------
Net cash provided by (used in) financing activities 7,499 (6,541)
---------- -------------
Net (decrease) increase in cash and cash equivalents (1,102) 268
Cash and cash equivalents, beginning of period 1,310 26
---------- -------------
Cash and cash equivalents, end of period $ 208 $ 294
========== =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
7
<PAGE>
SMC CORPORATION
FORM 10-Q
FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 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, SEPTEMBER 30,
1999 2000
------------ -------------
<S> <C> <C>
Raw materials $15,506 $10,563
Work-in-progress 10,080 10,355
Finished goods 16,117 4,806
------- -------
Total $41,703 $25,724
======= =======
</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 pursuant to the
exercise of stock options or warrants 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, 1,140,500 stock
option plan shares have been excluded from the diluted net loss per share
calculation for the three months and nine months
8
<PAGE>
ended September 30, 2000.
4. RELATED PARTY TRANSACTIONS
During the three month and nine month periods ended September 30, 2000 the
Company purchased electronic parts for a total amount of $135,000 and
$495,000, respectively, from a supplier company that is owned by a principal
related to an officer of the Company.
5. 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 (loss) for the three-month and nine-month
periods ended October 2, 1999 and September 30, 2000 did not differ from net
income.
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
consolidated statement of operations data, expressed as a percentage of sales,
and the percentage change in such data from the comparable prior period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
PERCENTAGE PERCENTAGE
CHANGE CHANGE
OCTOBER 2, SEPTEMBER 30, IN DOLLAR OCTOBER 2, SEPTEMBER 30, IN DOLLAR
1999 2000 AMOUNTS 1999 2000 AMOUNTS
---------- ------------- ----------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 6.0% 100.0% 100.0% (5.9)%
Cost of sales 89.3 94.2 11.9 90.2 94.3 (1.8)
----- ----- ----- -----
Gross profit 10.7 5.8 (43.1) 9.8 5.7 (44.6)
Selling, general and
administrative expenses 10.3 9.4 (2.4) 8.6 9.2 0.6
Litigation and
settlement costs 1.5 2.2 52.3 1.3 1.5 13.8
----- ----- ----- -----
Income (loss)from operations (1.1) (5.8) 493.5 (0.1) (5.0) 3,452.6
Interest expense .9 1.0 16.8 0.7 1.0 37.3
Other expense (income) (2.4) .2 (108.5) (0.9) .2 (119.9)
----- ----- ----- -----
Pretax income (loss) .4 (7.0) (1,705.1) 0.1 (6.2) (6,290.5)
Income tax expense (benefit) .2 (2.8) (1,701.2) 0.0 (2.5) (6,311.9)
----- ----- ----- -----
Net loss .2% (4.2)% (1,707.7)% 0.1% (3.7)% (6,276.4)%
===== ===== ===== =====
</TABLE>
Sales increased 6.0% to $49.5 million for the third quarter of 2000
compared to $46.7 million for the comparable period in 1999. The sales revenue
increase is attributed to a 40% increase in unit sales of Harney County product.
Also contributing to the revenue increase was a modest 3% average price increase
at the start of the new model year 2001 which began on July 1, 2000. The
increase was negatively impacted by 17% lower unit sales of the Safari product.
Beaver unit sales were relatively constant from year to year. Because there were
so few unsold 2000 model units available at the end of the 2000 model year,
discounts were very insignificant. There have been no discounts offered on units
of the 2001 model year.
Sales increased 9.0%, or $4.1 million for the third quarter of 2000
compared to second quarter of 2000. The Company believes this increase reflects
a positive reception of the 2001 models introduced during the third quarter as
well as the price increase previously discussed. Also, with the Company's
emphasis on reducing inventories earlier this year,
10
<PAGE>
there were few prior model year coaches available in the third quarter and
almost 90% of the third quarter sales were represented by the new model year
coaches.
For the nine months ended September 30, 2000, revenues decreased 5.9% from
$157.3 million in 1999 compared to $148.0 million for the same period of
2000. This was the result of large revenues in the first quarter of 1999 that
were not matched in the first quarter of 2000. Unit sales for the nine months
ended September 30, 2000 of both the Safari and Beaver product were lower than
in the same period of 1999; however, Harney product unit sales were higher than
in 1999.
Gross profit for the quarter ended September 30, 2000 decreased 43.1% from
$5.0 million in 1999 to $2.9 million for the third quarter of 2000. This was a
result of lower production levels in July, as the shift to build to order
production rather than build to forecast production methods continued. Also, the
introduction of the 2001 model involved many changes and upgrades and as a
result, additional production costs were incurred during this time period. The
Company believes that costs associated with the production methodology change
and the 2001 model changes have been incurred and additional costs, if any, will
be minimal.
In the nine month comparison, gross profits decreased in 2000 by 44.6% to
$8.5 million from $15.4 million. This decrease is also explained by the factors
above.
Selling, general, and administrative expenses decreased by approximately
$117,000 or 2.4% to $4.7 million for the quarter ended September 30, 2000 from
$4.8 million for the comparable period of 1999. For the nine-month period ended
September 30, 2000, selling, general, and administrative costs increased 0.6% to
$13.7 million from $13.6 million for the same period in 1999. Administrative
expenses decreased approximately $600,000 due to reductions in accounting and
finance costs, while sales and marketing expense increased by approximately
$682,000. The additional marketing costs were incurred during the first and
second quarters of 2000 primarily from promotional costs and personnel expense.
Litigation and settlement costs increased 52.3% to $1.1 million for the
third quarter of 2000 from $705,000 in the comparable period of 1999. Litigation
and settlement costs increased 13.9% to $2.3 million for the nine month period
ended September 30, 2000 from $2.0 million for a comparable period in 1999.
Given the factors affecting gross margin, selling, general and
administrative expenses, and settlement and litigation expenses, operating
results decreased to a loss of $2.9 million for the third quarter of 2000
compared to a loss of $489,000 in the comparable period of 1999. An operating
loss of $7.4 million was recorded for the nine months ended September 30, 2000
compared to operating loss of $209,000 for the same period in 1999.
11
<PAGE>
Interest expense increased 16.8% to $486,000 for the third quarter of 2000
from $416,000 in the comparable period of 1999. Interest expense increased 37.3%
to $1.5 million for the nine-month period ended September 30, 2000 from $1.1
million for the comparable period in 1999. This is a result of both higher
average interest rates and a higher average utilization of the credit line as
compared to the prior year. However, at September 30, 2000, the Company had
decreased the outstanding balance on the operating line of credit by
approximately $5.0 million or 73% from October 2, 1999.
In the comparison of other income and expense, in 1999, the Company
recorded a one time gain of $1.1 million when the corporate aircraft was sold.
This compares to a $95,000 expense recorded for the same period in 2000. For the
nine month period, the Company recorded one time gains from the sale of other
assets as well as the aircraft previously mentioned. Net of other expenses,
these gains amounted to $1.4 million in 1999 compared to expenses of $282,000
recorded in the first nine months of 2000.
Net loss after tax for the third quarter of 2000 was $2.1 million, compared
to a net loss of $130,000 for the third quarter of 1999. Net loss after tax was
$5.5 million for the nine months ended September 30, 2000, a decrease from net
income of $89,000 in 1999.
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. The 2001 model year incorporated many significant and
substantial changes to virtually all products. These changes have been well
received in the market place as evidenced by increased sales to dealers and
record sales by dealers at the Company's homecoming events held in September,
2000.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2000, SMC generated cash flow
from operations of $8.8 million. This compares to a negative cash flow from
operations of $15.0 million recorded at October 2, 1999. This improvement of
$23.8 million in cash flow from operations was primarily the result of
significant inventory and receivables reductions that were offset by reductions
in accounts payable and the increased net loss. During the first nine months of
1999, inventories increased over $21.3 million versus a reduction of $16.0
million during the same time period in 2000. In addition, rather than borrowing
$7.3 million as the Company did in the first nine months of 1999, SMC paid down
$7.1 million in notes payable during the first nine months of 2000.
The Company anticipates that its aggregate net capital expenditures for
2000 will be approximately $2.0 million. The Company plans to use cash generated
from operations and borrowings under its credit arrangements to fund these
expenditures.
12
<PAGE>
The Company has an operating line of credit of $10.0 million and a real
estate line of credit of $8.0 million. As of September 30, 2000, $8.0 million
was available on the operating line of credit and $542,000 was available on the
real estate line of credit. Of the amounts outstanding on these two lines of
credit, $8.0 million is at the prime-based interest rate of 11.5% and the
remaining amounts are at the prime rate of 9.5%. 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 September 30, 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 September 30, 2000, the Company estimates its
total contingent liability under repurchase obligations was approximately $95.4
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.
FORWARD LOOKING STATEMENTS: The statements in this report may be regarded as
forward looking statements. A number of factors could cause actual results to
differ materially from these statements, including statements regarding future
sales and production levels and anticipated capital expenditures. These factors
include a general slowdown in the economy or the RV market specifically and the
introduction of new products from competitors. Please also refer to the
Company's SEC reports, including, but not limited to its Annual Report on Form
10-K for the year ended December 31, 1999.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
14
<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 September 30, 2000.
15
<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: November 6, 2000 By: WILLIAM L. RICH
-------------------------
William L. Rich
Chief Financial Officer, SMC Corporation
16
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
--- -----------
11 Statement of Calculation of Average Common Shares Outstanding
27 Financial Data Schedule
17
