<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 June 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 August 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
June 30, 2000........................................................................ 3
Consolidated Statement of Operations - Three Months
Ended July 3, 1999 and June 30, 2000................................................. 4
Consolidated Statement of Operations - Six Months
Ended July 3, 1999 and June 30, 2000................................................. 5
Consolidated Statement of Changes in Shareholders'
Equity - Year Ended December 31, 1999 and Six
Months Ended June 30, 2000........................................................... 6
Consolidated Statement of Cash Flows - Six Months
Ended July 3, 1999 and June 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 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
<TABLE>
<CAPTION>
SMC CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
-------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 30,
1999 2000
------------ --------
(UNAUDITED)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 26 $ 385
Accounts receivable, net 15,056 10,708
Inventories (Note 2) 41,703 29,063
Prepaid expenses and other 292 460
Prepaid taxes - 2,024
Deferred tax asset 2,627 2,627
-------- --------
Total current assets 59,704 45,267
Property, plant and equipment, net 13,978 14,806
Intangible assets, net 1,756 1,663
Deferred tax asset 43 43
Other assets 188 179
-------- --------
Total assets $ 75,669 $ 61,958
======== ========
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 9,464 $ 6,767
Current portion of long-term debt 364 621
Accounts payable 22,969 14,953
Income taxes payable 700 -
Product warranty liabilities 3,481 3,841
Current portion of capital lease obligation 21 21
Accrued liabilities 7,128 6,817
-------- --------
Total current liabilities 44,127 33,020
Long-term debt, net of current portion 8,646 9,460
Capital lease obligation, less current portion 17 6
-------- --------
Total liabilities 52,790 42,486
-------- --------
Shareholders' equity:
Common stock, 30,000 shares authorized, and 5,780 shares issued
and outstanding 9,033 9,033
Additional paid-in capital 1,472 1,472
Retained earnings 12,374 8,967
-------- --------
Total shareholders' equity 22,879 19,472
-------- --------
Total liabilities and shareholders' equity $ 75,669 $ 61,958
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
<TABLE>
<CAPTION>
SMC CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
JULY 3, JUNE 30,
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
Sales $ 53,794 $ 45,425
Cost of sales 49,651 45,222
-------- --------
Gross profit 4,143 203
Selling, general and administrative expenses 3,861 4,052
Litigation and settlement costs 405 729
-------- --------
Loss from operations (123) (4,578)
Interest expense 334 487
Other (income) expense, net (209) 178
-------- --------
Loss before provision for taxes (248) (5,243)
Income tax benefit (99) (2,097)
-------- --------
Net loss $ (149) $ (3,146)
======== ========
Net loss per share - basic $ (0.03) $ (0.54)
======== ========
Net loss per share - diluted $ (0.03) $ (0.54)
======== ========
Weighted average number of shares - basic 5,845 5,780
======== ========
Weighted average number of shares - diluted 5,846 5,780
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
<TABLE>
<CAPTION>
SMC CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JULY 3, JUNE 30,
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
Sales $110,616 $ 98,477
Cost of sales 100,264 92,819
-------- --------
Gross profit 10,352 5,658
Selling, general and administrative expenses 8,796 9,001
Litigation and settlement costs 1,276 1,180
-------- --------
Income (loss) from operations 280 (4,523)
Interest expense 644 969
Other (income) expense, net (295) 186
-------- --------
Loss before provision for taxes (69) (5,678)
Income tax benefit (28) (2,271)
-------- --------
Net loss $ (41) $ (3,407)
======== ========
Net loss per share - basic $ (0.01) $ (0.59)
======== ========
Net loss per share - diluted $ (0.01) $ (0.59)
======== ========
Weighted average number of shares - basic 5,868 5,780
======== ========
Weighted average number of shares - diluted 5,868 5,780
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
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, 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 - - - (3,407) (3,407)
Balance, June 30, 2000 5,780 $ 9,033 $ 1,472 $ 8,967 $ 19,472
===== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
<TABLE>
<CAPTION>
SMC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
-------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JULY 3, 1999 JUNE 30, 2000
------------ -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (41) $ (3,407)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Gain on asset disposition (184) (9)
Depreciation and amortization 1,124 1,055
Changes in current assets and liabilities:
Accounts receivable 1,808 4,348
Inventories (12,518) 12,640
Prepaid expenses and other 747 (2,192)
Other assets 17 9
Accounts payable (4,670) (8,016)
Income taxes payable - (700)
Accrued liabilities and other obligations 2,230 49
-------- --------
Net cash provided (used in) by operating activities (11,487) 3,777
-------- --------
Cash flows from investing activities:
Capital expenditures (548) (1,796)
Lease abatement 1,104 -
Proceeds from sale of equipment 1,124 15
-------- --------
Net cash (used in) provided by investing activities 1,680 (1,781)
-------- --------
Cash flows from financing activities:
Net (repayments) borrowings on notes payable 6,489 (2,697)
Proceeds from long-term debt 2,695 1,071
Principal payments on capital lease obligation (9) (11)
Repurchase of common stock (571) -
-------- --------
Net cash provided by (used in) financing activities 8,604 (1,637)
-------- --------
Net increase (decrease) in cash and cash equivalents (1,203) 359
Cash and cash equivalents, beginning of period 1,310 26
-------- --------
Cash and cash equivalents, end of period $ 107 $ 385
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
7
<PAGE>
SMC CORPORATION
FORM 10-Q
FOR THE SECOND QUARTER ENDED JUNE 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, JUNE 30,
1999 2000
------------ --------
<S> <C> <C>
Raw materials $ 15,506 $ 10,998
Work-in-progress 10,080 9,115
Finished goods 16,117 8,950
-------- --------
Total $ 41,703 $ 29,063
======== ========
</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, 1,140,500 stock
option plan shares have been excluded from the diluted net loss per share
calculation for the three months and six months ended June 30, 2000.
8
<PAGE>
4. RELATED PARTY TRANSACTIONS
During the three month and six month periods ended June 30, 2000 the Company
purchased electronic parts for a total amount of $125,000 and $358,000
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 for the three-month and six-month periods
ended July 3, 1999 and June 30, 2000 was net losses of $149,000 and $41,000
and $3.1 million and $3.4 million, respectively.
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 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 SIX MONTHS ENDED
JULY 3, JUNE 30, PERCENTAGE CHANGE JULY 3, JUNE 30, PERCENTAGE CHANGE
1999 2000 IN DOLLAR AMOUNTS 1999 2000 IN DOLLAR AMOUNTS
------ -------- ----------------- ------- -------- -----------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% (15.6)% 100.0% 100.0% (11.0)%
Cost of sales 92.3 99.6 (8.9) 90.6 94.3 (7.4)
----- ----- ----- -----
Gross profit 7.7 .4 (95.1) 9.4 5.7 (45.3)
Selling, general and
administrative expenses 7.2 8.9 4.9 8.0 9.1 2.3
Litigation and
settlement costs 0.8 1.6 80.0 1.2 1.2 (7.5)
----- ----- ----- -----
Income (loss) from operations (.3) (10.1) 3,622.0 .2 (4.6) (1,715.4)
Interest expense .6 1.1 45.8 .6 1.0 50.5
Other expense (income) (.4) .4 (185.2) (.3) .2 (163.1)
----- ----- ----- -----
Pretax loss (.5) (11.6) 2,014.1 (.1) (5.8) 8,129.0
Income tax benefit (.2) (4.6) 2,018.2 0 (2.3) 8,010.7
----- ----- ----- -----
Net loss (.3)% (7.0)% 2,011.4% (.1)% (3.5)% 8,209.8%
===== ===== ===== =====
</TABLE>
Sales decreased 15.6% to $45.4 million for the second quarter of 2000
from $53.8 million for the comparable period in 1999. The sales revenue
decrease is attributed primarily to an $8.1 million decrease in sales of
Safari product. Beaver sales revenue decreased by $641,000 while Harney sales
increased by $1.0 million. For the six months ended June 30, 2000, sales
decreased by $12.1 million or 11% to $98.5 million from $110.6 million for
the comparable period in 1999. The decline in this period was concentrated in
the Safari product line. Sales revenues of both Beaver and Harney products
were at approximately the same levels in the six month comparison.
Gross profit for the quarter ended June 30, 2000 decreased 95.1% to
$203,000 from $4.1 million in the comparable period in 1999, and decreased as
a percentage of sales from 7.7% to 0.4%. Lower sales resulted in
approximately $2 million of the decrease. Decreased production loads coupled
with costs associated with model changes resulted in an additional $1.2
million decrease. Factory overheads and warranty costs account for the
remaining decrease in gross profit.
10
<PAGE>
In the six month comparison, gross profits decreased by 45.3% to $5.7
million from $10.4 million. Of this decrease, $3.9 million is explained above
and the remaining $800,00 was primarily due to decreased sales in the first
quarter of 2000.
Selling, general, and administrative expenses increased by approximately
$191,000 or 4.9% to $4.1 million for the quarter ended June 30, 2000 from $3.9
million for the comparable period of 1999. Administrative and finance costs
decreased by $138,000 while marketing and selling costs increased by
$330,000. The increased marketing expenses were the result of increased
spiffs and promotional costs. For the six-month period ended June 30, 2000,
selling, general, and administrative costs increased 2.3% to $9.0 million
from $8.8 million for the same period in 1999. Administrative expenses
decreased $349,000 due to reductions in accounting and finance costs, while
sales and marketing expense increased $554,000. The additional marketing
costs were incurred during the first quarter of 2000 primarily from
promotional costs and personnel expense.
Litigation and settlement costs increased 80% to $729,000 for the second
quarter of 2000 from $405,000 in the comparable period of 1999 due primarily
to the final resolution of older claims. Litigation and settlement costs
decreased 7.5% to $1.2 million for the six month period ended June 30, 2000
from $1.3 million for a comparable period in 1999.
Given the factors affecting gross margin and selling, general and
administrative expenses, and settlement and litigation expenses, operating
results decreased to a loss of $4.6 million for the second quarter of 2000
compared to a loss of $123,000 in the comparable period of 1999. An operating
loss of $4.5 million was recorded for the six months ended June 30, 2000
compared to operating income of $280,000 for the same period in 1999.
Interest expense increased 45.8% to $487,000 for the second quarter of
2000 from $334,000 in the comparable period of 1999. Interest expense
increased 50.5% to $969,000 for the six-month period ended June 30, 2000 from
$644,000 for the comparable period in 1999. This is a result of both higher
interest rates and a higher utilization of the credit line as compared to the
prior year.
Net loss after tax for the second quarter of 2000 was $3.1 million,
compared to a net loss of $149,000 for the second quarter of 1999. Net loss
after tax was $3.4 million for the six months ended June 30, 2000, a decrease
from net loss of $41,000 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.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2000, SMC generated cash flow from
operations
11
<PAGE>
of $3.8 million. This compares to a negative cash flow from operations of
$11.5 million recorded at July 3, 1999. This improvement of $15.2 million in
cash flow from operations was primarily the result of significant inventory
and receivable reductions that were offset by reductions in accounts payable
and the increased net loss. In the first half of 1999, inventories increased
over $12 million versus a reduction of over $12 million during the first half
of 2000. Receivables decreased by approximately 30% during the first half of
2000 compared to a reduction of 14% achieved during the first half of 1999.
In addition, rather than borrowing $8.6 million as the Company did in the
first half of 1999, SMC paid down $1.6 million in debt during the first half
of 2000.
The Company anticipates that its aggregate capital expenditures for 2000
will be approximately $1.8 million. The Company plans to use cash generated
from operations and borrowings under its credit arrangements to fund these
expenditures.
The Company has an operating line of credit of $10.0 million, a real
estate line of credit of $8.0 million and a $4.0 million equipment financing
line of credit. As of June 30, 2000, $3.9 million was available on the
operating line of credit, $4.0 million was available on the equipment line,
and $500,000 was available on the real estate line of credit. Of the amounts
outstanding on these three lines of credit, $12.5 million is at the LIBOR
based interest rate of 8.4% 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 June 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 June 30, 2000, the
Company estimates its total contingent liability under repurchase obligations
was approximately $100.9 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
12
<PAGE>
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
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
On May 18, 2000 at the Company's Annual Meeting of shareholders, the
holders of the Company's outstanding Common Stock took the actions described
below. As of the record date for the Annual Meeting, 5,780,599 shares of
Common Stock were eligible to vote on the matters presented.
1. The shareholders elected each of Mathew M. Perlot, Michael R.
Jacque, Curtis W. Lawler, Connie M. Perlot, Jim L. Traughber, and Lawrence S.
Black, by the votes indicated below, to serve on the Company's Board of
Directors until the Company's next Annual Meeting of shareholders:
<TABLE>
<CAPTION>
Shares Against
Shares in Favor or Withheld Abstentions
--------------- --------------- -----------
<S> <C> <C> <C>
Mathew M. Perlot 5,634,918 5,885 0
Michael R. Jacque 5,635,238 5,565 0
Curtis W. Lawler 5,634,438 6,365 0
Connie M. Perlot 5,634,918 5,685 0
Jim L. Traughber 5,634,838 5,965 0
Lawrence S. Black 5,635,838 4,965 0
Total Shares Eligible 5,780,599
Total Shares Present 5,640,803
</TABLE>
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 June 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: August 11, 2000 By: WILLIAM L. RICH
----------------------------------------
William L. Rich
Chief Financial Officer, SMC Corporation
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
-------- ------------
<S> <C>
11 Statement of Calculation of Average
Common Shares Outstanding
27 Financial Data Schedule
</TABLE>
17
