ITEM 1. BUSINESS
Introduction
SMC Corporation (SMC or the Company) is one of the largest manufacturers of high-line motor coaches in the United States. SMC was incorporated in Oregon in 1986 and production operations began in 1987. SMC has relocated its headquarters to Bend, Oregon from Harrisburg, Oregon and has six operating subsidiaries. The Company's executive offices are located at 20545 Murphy Road, Bend, Oregon, 97701, and its telephone number is (541) 995-8214. The subsidiaries of the Company are Safari Motor Coaches, Inc. (Safari), Magnum Manufacturing, Inc. (Magnum), Beaver Motor Coaches, Inc. (Beaver), Electronic Design & Assembly, Inc. (ED&A), Composite Technologies, Inc. (CTI), and Harney County Operations, Inc. (HCO). Safari and Magnum are located in Harrisburg, Oregon; Beaver and ED&A are located in Bend, Oregon; and CTI and HCO are located in Hines, Oregon.
General Background
Within the multi-billion dollar recreational vehicle industry, the majority of SMC's products are positioned among the most expensive. SMC predominately builds luxury Class A motor coaches - motorized, fully self-contained motorhomes with features such as solid hardwood cabinetry, powerful diesel engines, and residential decor that separate these coaches from the rest of the market.
This select segment was targeted from SMC's founding and the Company rapidly grew to become a leader in the luxury market. Mathew Perlot, SMC's founder and Chief Executive Officer, considered this market particularly attractive - anticipating the aging of the "baby boomers" and believing that this maturing, affluent group would provide growing support for this product. The initial product included coaches ranging from 30 to 34 feet and retailed for about $100,000. Over the next several years SMC expanded its product offerings to both higher and lower price points, to include coaches ranging in length from 24 to 40 feet, and with retail prices ranging from $70,000 to $230,000.
Magnum began production of chassis for Safari products in 1993 and has since expanded operations to provide chassis for seven of the eight model lines of Safari and Beaver products. By manufacturing chassis specially designed for applications in the recreational vehicle (RV) industry, the Company believes it has quality, ride and cost advantages over competitors that do not build their own chassis.
SMC acquired the Beaver brand names and production facilities in 1994. At that time the Beaver product ranged in retail price from $180,000 to $350,000. The line has since been broadened to include a lower-priced coach, the Monterey. This expansion of product offerings has enabled Beaver to expand distribution of its products.
In 1996 the Company began to seek product opportunities in the lower-priced segment of the recreational vehicle industry when it entered the Class C market through acquisition of a facility in the Midwest. The Company continued its penetration into the upper range Class C market in 1997 through its operations at HCO and the introduction of a Safari brand Class C motor coach. This model has retail prices ranging from $66,000 to $85,000. In 1998 the Company introduced the Desperado, another Class C model, as the Company continues to expand in the Class C market. Although the Company's primary market focus remains the high-line luxury motor coaches it built its foundation on, the Company plans to continue to develop this segment of its business.
In 1998 the Company maintained its core market -- high-line motor coaches with retail prices typically over $150,000. The Company's estimated market share of high-line retail sales was 25.3%, 27.6%, and 29.1% in 1998, 1997, and 1996, respectively. Total retail sales in this segment of the market was approximately 4,100 units in 1998.
Also, at the HCO facility, the Renegade, a new Class A motor coach, was introduced in 1998. With retail prices starting at $134,000, the Renegade is targeted toward the entry-level of the Class A market --buyers that are value-oriented but still demanding features and quality. This segment of the market has become very popular. The Company sold 178 Renegade units in 1998. The production facility in Hines, Oregon has ample production capacity to meet expected demand for both the Renegade Class A coaches as well as the Class C production.
At the Beaver facility, the newly designed Contessa Class A model was introduced in December 1997. The Contessa had been a Beaver product before the Company acquired Beaver in 1994, but had been dormant since that time. Priced below the existing Patriot model but above the Monterey, the Contessa has been resurrected with a new design and feature set that has been widely accepted. Sales for the Contessa were very favorable in 1998, with sales of 112 units.
At the Safari facility, a new Class A model, the Zanzibar, was introduced in June 1998. This model is priced at the lower range of the Class A market, targeting a market similar to that of the Renegade, but designed with the distinction of a Safari brand product. The sales for the Zanzibar unit were 148 in 1998.
At the Magnum facility, a new chassis was developed for the Beaver Marquis. Previously, the Marquis was constructed on a Gillig brand chassis. Gillig ceased production of the chassis in 1997. Magnum acquired the rights to manufacture the chassis from Gillig and, after making some modifications for the Marquis' specific requirements, now produces the chassis at a lower overall cost to the Company. With the new chassis, Magnum now produces the chassis for all of the Company's models except the Trek and Class C models, resulting in significant overall costs savings to the Company.
Originally the Company had acquired the Midwest facility to gain entrance into the Class C market. However in 1996 the Company determined that the losses being incurred through operation of the Midwest facility were not acceptable. The Midwest facility was
closed in 1996 and a pre-tax restructuring charge of $2.4 million was incurred related to this decision in 1996. The exit plan was completed as planned, and no further restructuring charges were necessary in 1997. Production of Class C motor coaches has been transferred to the Company's HCO production facilities in Hines, Oregon. This facility now produces the Renegade (Class A), Safari (Class C) and the Desperado (Class C) products.
In 1998, the Company opened a service center facility in Tampa, Florida to provide better, more timely, and cost effective customer service. This service center operation is a branch of the existing service centers located in Harrisburg and Bend, Oregon, and the Company is able to use the resources of skilled technicians during slow service periods in Oregon at the facility in Florida.
Industry Background
Recreational vehicles encompass a wide range of mobile housing options, including folding camping trailers, van conversions, truck campers, fifth wheel trailers, Class A, B and C motor coaches, and bus conversions. The retail prices of these vehicles range from under $3,000 for the simplest folding camping trailer to over $750,000 for the most expensive bus conversion. The Recreational Vehicle Industry Association (RVIA) has reported that one in ten households in the U.S. owns a recreational vehicle, resulting in a total ownership of approximately nine million recreational vehicles.
Although retail sales of recreational vehicles and Class A motor coaches have fluctuated over the last five years, retail sales of high-line motor coaches have remained steady during this period according to Statistical Surveys, Inc. The following table shows (i) unit shipments to dealers of all recreational vehicles, all motor coaches, and Class A motor coaches in the U.S., based on RVIA data, and (ii) unit retail sales of high-line motor coaches in the U.S. and unit retail sales of Safari and Beaver coaches as a percentage of the high-line market, based on data distributed by Statistical Surveys, Inc.
SMC focuses primarily on the high-line segment of the Class A motor coach market. Class A motor coaches incorporate kitchen, sleeping and bathroom facilities built on a self-powered chassis. The term "high-line motor coach" is almost synonymous with "diesel pusher." For reasons of cooling and drive train engineering, almost all motor coaches are powered either by a gasoline engine mounted in the front or a diesel engine mounted in the rear. Diesel pushers are more expensive, but can be built longer and are generally more powerful. Thus most high-line coaches are diesel pushers - with horse power ratings over 300, and at this time nearly all high-line diesel pushers retail for over $150,000.
All of SMC's products except the Trek, Desperado, Safari Class C, and Renegade models are high-line coaches with retail prices over $150,000. Although the Trek shares many high-line features of the Company's other models, its retail price ranges from $83,000 to $105,000, and it is therefore excluded from market data compiled for high-line products. The Desperado is a Class C motor coach with retail prices ranging from $61,000 to $80,000. The Safari Class C price ranges from $66,000 to 85,000. The new Class A Renegade model retails in the price range of $134,000 to $145,000.
The high-line segment of the Class A RV market has seen consistent growth since 1989, and in recent years this market has attracted many other companies. Many "mainstream" RV builders, such as Fleetwood, Winnebago, and Coachmen, have developed offerings in this market. Meanwhile, some luxury builders, such as Monaco Coach and Country Coach, have broadened their product lines. Some companies are not surviving. Beaver Coaches was acquired by SMC in 1994, Holiday Rambler was purchased by Monaco Coach in early 1996, and Country Coach was acquired by National RV Holdings in late 1996.
Several long-term trends favor the luxury segment of the RV industry. The most significant indicator of future growth potential is the change in RV-owner demographics. Households over fifty years old form the principal market for luxury RVs. As the "baby-boom" generation ages, this demographic group is expected to increase from approximately 50 million people today to 70 million by the year 2005. The Company believes that on average this generation is expected to retire earlier and have more discretionary income than preceding generations, which is expected to provide a growing base for RV sales.
This trend is also reflected in the substantial increase in the number and quality of facilities available for RV use and in companies serving the RV market. The increased availability of accessories and facilities will continue to make the RV lifestyle more attractive.
Three other factors also have a lesser impact on the RV industry:
Fuel Availability and Price Stability
Diesel fuel has been relatively abundant and inexpensive since the beginning of the 1980's. The Company believes the needs of the transportation industry for diesel fuel may contribute to continued availability and pricing stability. All of the Company's Class A motor coaches are powered by diesel engines. Consequently, an interruption in the supply or a significant increase in the price of or tax on the sale of diesel fuel on a regional or national basis could have a material adverse effect on the Company's results of operations. Diesel fuel has from time to time been difficult to obtain, and there is no assurance that the supply of diesel fuel will continue uninterrupted, that rationing of diesel fuel will not be imposed or that the price of or tax on diesel fuel will not significantly increase in the future.
Low Interest Rates
Interest rate levels affect the cost of a motor coach for consumers who finance their purchase and, more significantly, the cost of inventory maintenance for motor coach dealers. Recent periods of relatively low interest rates have facilitated dealer financing resulting in generally higher dealer stocking levels.
Favorable Tax Treatment
U.S. tax laws generally allow individuals who itemize deductions to deduct interest paid on loans used to finance the purchase of either a first or second residence. The definition of "residence" has been interpreted to include motor coaches of the type manufactured by the Company. The Company believes the tax deductibility of interest paid on loans used to purchase a Class A motor coach increases the attractiveness of ownership. These laws, however, have historically been amended frequently, and it is likely that further amendments and additional tax laws will be applicable to financing the purchase of motor coaches in the future. There is no assurance that favorable tax treatment for financing the purchase of motor coaches will not be amended or repealed.
Sales and Marketing
SMC has two distinctive brands that are marketed through separate dealer networks. (Sales of Class C motor coaches to date have not been a significant part of the Company's business.) The Beaver and Safari product are deliberately kept differentiated to help increase total penetration of the high-line market. The Beaver product is marketed as a "traditional" luxury RV. Its fiberglass wall construction, air suspension, and "classic" RV styling places the Beaver models near the mainstream of high-line coaches. The Safari product is avant-garde in comparison. Its aluminum exterior is unique in this market, and innovations such as the Velvet-Ride(TM) Suspension and power disk brakes further separate the Safari from the rest of the luxury RV market. This two-pronged attack on the luxury market has allowed SMC to successfully maintain a market share in this niche, with an estimated market share of over 25% in 1998.
The Company markets its products through independent dealers throughout the United States and Canada. Few dealers carry both the Safari and Beaver brand products. SMC has made dealer development a priority, because it believes that an expanded dealer base results in greater retail sales exposure and ultimately more retail sales volume. Total Class A dealer locations were 94, 87 and 107 as of December 31, 1998, 1997 and 1996 respectively.
The Company grants exclusive distribution rights to a dealer within a geographic region. Dealers are selected based on location, financial stability, marketing expertise, sales history, integrity and repair and service capability. The Company provides a variety of support services to its dealers, including promptly supplied product literature, display materials and space rental subsidies for trade shows and exhibitions and a dealer newsletter with updates on product development and other product information. The Company offers training and technical support to dealer salespeople, including a plant tour video and a product handbook, and Company representatives visit dealers on a regular basis for sales training and assistance.
The Company focuses its advertising on consumer publications which emphasize the RV lifestyle. In 1995, the Company consolidated all of its media production in-house because it was cost-effective to do so. In-house media development has also added flexibility and responsiveness to the process, which frequently involves "rush" jobs to take advantage of market opportunities.
A key part of the Company's marketing effort is the sponsorship and active promotion of Safari International and the Beaver Ambassador Club, both of which are active owners clubs for owners of Safari and Beaver products, respectively. Members of these groups socialize, discuss common experiences and enjoy motor coaching activities together, thus helping to build customer loyalty and enthusiasm. The Company publishes quarterly newsletters for members of the owners' clubs, as well as a quarterly magazine, the "Rendezvous," which is circulated to owners, prospective purchasers, suppliers, dealers
and employees. In addition, the Company annually sponsors "homecoming" rallies at the Safari and Beaver factories, open to all Safari and Beaver coach owners.
Dealers typically finance their inventory through revolving credit facilities established with asset-based lending institutions, including specialized finance companies and banks. It is industry practice for these "floor plan" financiers to require motor coach manufacturers to repurchase motor coaches previously sold to the dealer if the dealer defaults on its financing agreements or if the lender otherwise has a reasonable basis to be concerned about the ability of the dealer to meet its obligations to the lender. This agreement typically applies for a period of 12 to 18 months from the date of the dealer's purchase from the manufacturer. See "Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources."
The Company takes several steps to reduce its exposure to coach repurchase risk. A dealer is typically required to make periodic payments of principal, referred to as "curtailment," to the flooring financing institution commencing in the seventh month after purchase of the coach. A coach manufacturer may waive these curtailment payments at the request of a dealer, but the Company generally will not do so and, in any event, will do so only if the dealer owes to the flooring institution no more than 90% of the wholesale price of the coach. The Company also monitors the inventory levels and financial circumstances of its dealers through reports generated by the flooring institutions and through frequent contact by its sales personnel with the dealers. If a dealer is experiencing undue difficulty in selling the Company's coaches, the Company will often work with that dealer to voluntarily move the coaches to a dealer that can sell additional inventory. The Company believes, however, that its most fundamental protection against significant loss due to repurchase obligations is the production and marketing of motor coaches that are sufficiently popular to enable the Company quickly to resell, at satisfactory prices, any coaches it may be required to repurchase. For 1996 the Company made no repurchase payments under flooring arrangements. In both 1997 and 1998, the Company repurchased a total of 8 motor homes in each year under the requirements of the repurchase obligations with two of its flooring financing institutions when two separate motor home dealerships went out-of-business. No significant losses were incurred upon the subsequent resale of the motor homes.
For 1997, sales to one of the largest motor coach dealers in the U.S. and located just a few miles from the Safari facility, accounted for approximately 10% of net sales. Another large dealer, with two locations in Oregon, accounted for 12% of net sales in 1997, and 14% of net sales in 1998.
Product Information By Subsidiary
Beaver
Marquis
The Marquis is positioned at the top of the Beaver product line. With retail prices of over $390,000, it is one of the most expensive and luxurious motor coaches in production today. The Marquis has traditionally been the most visible and best recognized of the Beaver models. The Marquis motor coach was further upgraded in 1997 to its current ultra-luxury position. As part of this strategy, production of the Marquis was slowed and a craftsman-intensive team production program was developed to produce each vehicle. New cabinet technologies were introduced, allowing the use of exotic veneers and richer lacquers. The Marquis is now positioned as a limited production, prestige product. Previously built on a chassis supplied by an outside supplier, in 1997 the Company began building the Marquis on a chassis developed by Magnum at an overall cost savings for the Company.
Patriot
In July 1995, SMC introduced the 1996 Patriot on the all-new Magnum B-Series chassis. This new Magnum chassis replaced a chassis from an outside chassis vendor used since the Patriot model was introduced in 1992. The Patriot model has a retail price ranging from $223,000 to $309,000, depending upon options which include the upgraded Thunder option which features a powerful 425-horsepower engine and a heavy-duty transmission.
Contessa
In 1997, the Company introduced the completely redesigned Contessa, which had been a Beaver model prior to the acquisition of Beaver in 1994. The Contessa is a high-end coach powered by a 330-horsepower engine which retails from $196,000 to $244,000, depending upon options.
Monterey
The Monterey was the first all-new Beaver product since the acquisition of Beaver in 1994. Retailing from $156,000 to $201,000, depending upon options, the Monterey provides Beaver with a product priced for broader appeal. The Monterey uses chassis and floor plans that are similar to the Safari Sahara, but differs considerably from the Safari product in styling options. In addition, an air-ride option has been developed to provide the traditional RV owner an alternative which is typically seen in high-line motor coaches.
Safari
Continental
The Continental is the flagship product from Safari. Its design and technology features include disk brakes, B.F. Goodrich's Torsilastic suspension system, and Magnum Intellidrive computerized monitoring display, all as standard equipment. The Continental retails from $233,000 to $298,000, depending upon options, including the Panther option which features a powerful 425-horsepower engine and a heavy-duty transmission.
Serengeti and Ivory
As the oldest of the Safari brand names, the Serengeti has been the core Safari product since its introduction in 1988. The Serengeti retails from $191,000 to $251,000, depending upon options, and its sibling, the Ivory model, occupies the higher end of that price range.
Sahara
The Sahara model was introduced in 1993 and then repositioned in 1994 to stand as a value-oriented luxury coach. The Sahara model retails from $148,000 to $200,000, depending upon options. The product provides many of the features of the Serengeti and Ivory at a lower cost to the customer.
Zanzibar
The Zanzibar was introduced in 1998. The standard equipment offers an array of features found on higher priced models, but at an entry level price. It is constructed on the Magnum `R' chassis. The Zanzibar model retails from $147,000 to $160,000, depending on the options.
Trek
The Trek is constructed on a Chevrolet chassis. As the lowest priced SMC Class A motor coach, it also has a lower profit margin and is intended to acquaint new customers with SMC's products and attract them to the RV lifestyle. The Trek retails from $83,000 to $105,000, depending upon options.
Harney County Operations (DBA Harney Coach Works)
Safari Class C and Desperado
The Safari Class C and the Desperado are both constructed on a Ford or Chevrolet van chassis. The first sales of the Safari Class C were made in 1997 and initial sales of the Desperado were in 1998. These units retail from $61,000 to $85,000, depending upon options, and occupy the high-end of the Class C motor home market.
Renegade Class A
The Renegade is presently constructed on Magnum `R' series chassis with a Cat 275 engine. Shipments began in January 1998. With retail sales prices ranging from $134,000 to $145,000, depending upon options, the Renegade is priced lower than any of the Company's Class A product, except for the Safari Trek. The Renegade is targeted to the expanding entry level Class A market which offers many features of the higher-line models, but at a more affordable pricing structure.
Backlog
Motor coach dealers, particularly those with a relatively large sales volume, from time to time indicate to motor coach manufacturers the number of coaches they expect to purchase in the following months. While the Company regularly receives such indications, the Company includes in its backlog only purchase orders it has received that are sufficiently complete as to specifications (color, floor plan, options, etc.) to permit the Company to schedule production of the coach. Consequently, backlog generally represents orders for coaches scheduled to be manufactured and shipped in the following 45 to 60 days. The Company's backlog at December 31, 1998 was $12.8 million, compared to backlog of $21.3 million at December 31, 1997. Backlog can fluctuate substantially as the result of the receipt of purchase orders in connection with various major motor coach shows and rallies, which are not held at even intervals throughout the year. Consequently, and because orders are generally cancelable without penalty, the amount of backlog at any date is not necessarily indicative of sales in future periods. To date, order cancellations have not been material.
Customer Service
The Company believes one of the most important elements in the success of its business is understanding its customers and their preferences and providing excellent customer service. Customer service is important because many of the Company's customers are repeat purchasers and because a high level of service is expected by purchasers of high quality coaches. In addition, because motor coach purchasers tend to communicate freely their views on the quality of various coaches and business reputations of motor coach manufacturers, the quality of post-sale customer service provided by a motor coach manufacturer is a key factor in establishing a manufacturer's reputation among this group.
The Company offers a one-year or 12,000-mile warranty, whichever occurs first, on all coaches. Customers have the option to purchase extended warranties, written by others, from Company dealers. The Company's warranty covers all manufacturing-related problems and parts and system failures, regardless of whether the repair is made at a Company service facility or by one of the Company's dealers or authorized service centers. In addition to the Company's warranty, the chassis, drive train, engine and transmission are covered by separate warranties offered by the manufacturers of those components, or by the Company on the chassis manufactured by its Magnum Manufacturing subsidiary. The Company's warranty on the Magnum chassis and drive train is for three years or 36,000 miles, whichever occurs first. Appliances in the coaches are covered by the warranties of manufacturers of those items.
The Company maintains toll-free telephone lines for customers to call with repair or operating questions or problems. Although many questions can be resolved by telephone, the Company often refers the customer to a local dealer or repair facility for additional assistance.
The Company also opened a 24-bay service center in Harrisburg in November 1995 to better serve its customers. In 1997, a leased service center was opened in Tampa, Florida to expand its customer service opportunities further. In late 1998, the Company purchased a service center in Tampa, Florida and moved its service activities from the leased facility in that area. The Company also operates a service center adjacent to its Beaver manufacturing facility in Bend, Oregon.
Manufacturing
The Company uses "lean production" techniques in its coach manufacturing process. These techniques emphasize teamwork, include significant input from worker teams and employ just-in-time inventory controls to improve product quality and manufacturing efficiencies.
The Company believes its coach manufacturing operations are vertically integrated to a substantial degree compared to most other high-line motor coach builders. Components of the Company's motor coaches produced by the Company include chassis constructed by Magnum Manufacturing, Inc., the shell or "house" portion of the coach, fiberglass, countertops, hardwood cabinetry and portions of the interior upholstery. The Company believes this in-house production of certain components results in cost savings to the Company and greater control over quality and inventory.
The construction of each motor coach begins with the preparation of the chassis on which the superstructure of the "house" is built. The floors, walls and roof of the motor coach "house" are built off-line. The coach's front and rear caps are each single pieces molded from fiberglass resins that provide favorable strength-to-weight ratios. The Company believes the lightweight construction of its motor coaches combined with the diesel engines used in nearly all models add significantly to the performance of its motor coaches.
The Company purchases raw materials, parts, subcomponents, electric systems and appliances from approximately 1,000 suppliers. These items are either placed directly into the coach or are incorporated into subassemblies by the Company. All components, subassemblies and finished products are inspected for compliance with the Company's specifications. The Company attempts to minimize its inventory costs by ordering inventory only on an as-needed, or just-in-time, basis. Some supplies, such as fiberglass, are ordered and delivered to the Company's plant on a daily basis, while other items, particularly engines and transmissions, are ordered as much as four months in advance of the expected use date. While the Company generally commences construction on a coach only after receipt of an order from a dealer, it must nonetheless order certain parts or components, some of which represent a significant expenditure, in advance of orders.
Certain components and subassemblies included in the Company's motor coaches are obtained from a single or limited number of suppliers. Transmissions of the type used in the Company's coaches and those of most of its competitors are manufactured solely by Allison Transmission. Although the Company believes it would be able to develop alternate sources
for any of the components, other than transmissions, used in its products, significant delays or interruptions in the delivery of certain components from suppliers or difficulties or delays in shifting to new suppliers could have a material adverse effect on the Company. Presently the company is not experiencing any interruptions or supply limitations from its major suppliers.
Upon completion of the manufacturing process, each coach undergoes a thorough inspection and test drive, and problems discovered are corrected prior to shipment.
Competition
The market for manufacture of mid- to high-line motor coaches is very competitive, and the Company has significant competition in each of its product lines. Other manufacturers of high-line coaches include Blue Bird Corporation, Country Coach, Inc. (acquired in late 1996 by National RV Holdings, Inc.), Fleetwood Enterprises, Inc., Foretravel Inc., Gulf Stream Coach, Inc., Monaco Coach Corporation, and Holiday Rambler Corporation (acquired in early 1996 by Monaco Coach Corporation). The Company competes with a number of other manufacturers, some of which are much larger than the Company and have greater financial and other resources than the Company. Certain of these larger manufacturers have also identified value-oriented high-line motor coaches as an attractive market and have recently developed coaches more directly competitive with the Company's coaches.
The Company believes the principal competitive factors in the manufacture and sale of high-line motor coaches are product quality and design, price, customer service, performance and reliability. The Company believes it is competitive with respect to each of these factors and believes its customer service and the performance and reliability of its products compare favorably to those of its competitors.
Product Design; Patents
The Company strives to be a design innovator in motor coach floor plans, interior features, coach amenities and mechanical systems and believes it is generally recognized in the industry as a design leader. Among the innovations introduced by the Company are the first use of a side aisle floor plan, the Electro-Majic bed, a rear-mounted cooling system, 110 volt residential-style lighting and the successful use of Torsilastic suspension on a high-line motor coach. The Company updates the fabrics, carpets, fixtures and floor plans of its coaches each year and plans for a complete redesign of each model every three to four years.
The Company began development of its Electro-Majic bed in 1988 and in 1992 obtained a patent for this electric powered bed system. Using a hidden electric motor, the system uses small gear tracks attached to the living room walls to lower a double-size bed from the ceiling down to a desired sleeping level. The Electro-Majic bed is used in most Trek models. In two of the Company's best-selling Trek floor plans, the Electro-Majic bed is the primary sleeping space, which allows the entire coach to be used for living, kitchen and bathroom areas. The Company believes there is no comparable motor coach floor plan on the market.
The Company designed and patented an all new air ride suspension system in 1996 for use in its Beaver Patriot and Marquis models. The suspension system is designed to optimize the stability of the moving coach, while at the same time maximizing ride comfort.
Government Regulation
Motor coach manufacturers, such as the Company, are subject to federal, state, and local regulations governing the manufacture and sale of their products, including the provisions of the Motor Vehicle Act. The Motor Vehicle Act provides for, among other things, the recall for modification, repair or replacement of vehicles that contain defects which are potentially dangerous, or which fail to comply with applicable standards. The Company's motor coaches also may be subject to recall by chassis manufacturers in the event the chassis fail to comply with applicable standards. The Company relies upon certifications from its engine suppliers and chassis manufacturers that the Company's motor coaches comply with all applicable emission control standards. Although motor coaches manufactured by the Company have been voluntarily recalled for repair from time to time in the past, the Company has not incurred significant expenses in connection with recalls. Because the Company sells its products in Canada, it is also governed by similar laws and regulations issued by the Canadian government. There is no assurance that future recalls of the Company's products will not occur or that any such recalls will not adversely affect the Company's operations or financial condition.
The Company is also subject to regulations promulgated by the Occupational Safety and Health Administration ("OSHA") concerning workplace health and safety. The Company's plants are periodically inspected by OSHA.
The business and operations of the Company are affected by federal, state, and local environmental regulations relating to air and water pollution, hazardous wastes, and noise. These regulations control the Company's use, storage, and disposal of production chemicals and other wastes. The regulations also restrict the Company's air contaminant emissions and waste water discharges and prohibit noise in excess of certain levels.
The Company holds a federal operating permit as required by Title V of the federal Clean Air Act Amendments of 1990 (a "Title V Permit") for its Safari and Beaver motor coach manufacturing facilities. The combined CTI and HCO facility holds an air contaminant discharge permit ("ACDP"), issued by the Oregon Department of Environmental Quality and has applied for a Title V permit. The Company believes it will be issued the permits necessary to allow it to operate these facilities. The ACDPs and the Title V permits, however, are issued for operations at specified levels, and any increase in emissions beyond those levels, including increases resulting from expanded operations or process modifications, will require permit amendments.
To date, the Company has not been required to make significant expenditures for environmental compliance. The promulgation of additional safety or environmental regulations, or the need to acquire permit amendments, in the future, however, could require the Company to incur additional expense which could adversely impact the Company's results of operations. There is no assurance that the Company will not be required to make significant expenditures in the future with respect to such safety or environmental regulations.
The Company believes it is in material compliance with applicable laws relating to the manufacture and operation of motor coaches and operations of its manufacturing facilities. There is no assurance, however, that future governmental regulations will not be more
stringent, and that compliance with those regulations will not require the Company to incur additional cost.
Employees
At December 31, 1998 the Company had 1,661 full-time employees. None of the Company's employees are represented by a labor union, and the Company has never experienced a work stoppage, slowdown or strike. The Company believes it maintains good employee relations.
ITEM 2.
ITEM 2. PROPERTIES
The Company's Safari and Magnum manufacturing facilities are located in Harrisburg, Oregon on property owned by the Company. The Safari manufacturing facility consists of buildings totaling 163,000 square feet on 16 acres, with 11,300 square feet of office space and 151,700 square feet of manufacturing space. The Magnum manufacturing facility consists of four buildings with a combined size of approximately 93,000 square feet on 12 acres. The Company's Beaver manufacturing facility and corporate headquarters are located in Bend, Oregon and consist of four buildings totaling 34,600 square feet on 3.5 acres that are owned by the Company, and an additional 90,100 square feet on 7.8 acres that are leased on a long-term basis. In January 1996, the Company purchased a 172,000 square foot building on 16 acres in Hines, Oregon to meet future production requirements. The Company leases a 13,000 square foot facility in Bend, Oregon where ED&A operates. The present lease has an option to renew through December of 2005.
The Company also owns a 39,000 square foot facility on 5 acres in Tampa, Florida where it operates a service center and leases about 12,000 feet of this facility to an RV dealer. The Company also leases a facility in Bend, Oregon as a service center. Its service center in Harrisburg, Oregon is located on the Magnum Manufacturing property.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in litigation arising out of its operations in the normal course of business, including claims under the "lemon laws" of various states. The Company believes such legal proceedings, if determined adversely to the Company, would not have a material impact on the Company.
As a manufacturer and seller of motor coaches, the Company is subject to a risk of loss resulting from claims that its products or components of its products caused or contributed to damage or injury. The Company has obtained product liability insurance under terms it considers acceptable. In the past, the Company has not incurred material expenses for product liability; however, such liabilities, if incurred in the future, could have a material adverse effect on the Company's operations if they exceed the insurance coverage maintained. Furthermore, there can be no assurance that the Company will be able to obtain insurance coverage in the future at adequate levels or for a reasonable cost.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the executive officers of the Company as of March 18, 1999.
Name Age Position - ---- --- --------
Mathew M. Perlot 62 Chief Executive Officer and Chairman of the Board
William L. Rich 44 Chief Financial Officer
Janet Engles-Kehoe 54 Vice President - Administration
Thomas G. Kay 52 Vice President - Manufacturing
Mathew M. Perlot co-founded the Company in November 1986 and has served as Chief Executive Officer and Chairman of the Board since that time. Mr. Perlot also served as President until May of 1997. Mr. Perlot served as Director of Sales and Marketing for Monaco Coach Corporation from 1982 to 1985 and for Beaver Coaches, Inc. from 1985 to 1987. Mr. Perlot also served as President of RV Marketing, Inc. from 1980 to 1987. Mr. Perlot is married to Connie M. Perlot, a director and Secretary-Treasurer of the Company.
William L. Rich joined the Company as Chief Financial Officer in November 1998. Prior to joining the Company, Mr. Rich served as Vice President of Finance at Marus Dental International, a subsidiary of the Henry Schein Corporation. Prior to that, Mr. Rich held senior financial positions at manufacturing companies in the Midwest. Mr. Rich obtained his B.S. degree in Business from Miami University (Ohio). Mr. Rich is a CPA, CMA and holds a M.B.A. degree.
Janet Engles-Kehoe joined the Company in June 1994 as Personnel Manager for Beaver Motor Coaches. From July 1996 to December 1997 she served as Corporate Human Resources Director and now serves as Vice President of Administration. From April 1987 to June 1994 she held the position of Personnel Manager for Beaver Coaches, Inc., which was purchased in June 1994 by SMC corporation. Ms. Kehoe holds a Senior certification from the Society of Resources Management and a B.S. degree in Business Management from Linfield College.
Thomas G. Kay joined the Company in July 1998 as Vice President of Manufacturing. From 1978 to 1998 Mr. Kay was employed by the Dana Corporation, a major manufacturer of automotive and industrial components. Mr. Kay's most recent position at the Dana Corporation was General Manager for a group of three manufacturing facilities. Mr. Kay holds a B.S. degree in Industrial Systems Engineering from San Jose State University.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock has been traded on the Nasdaq National Market System since January 20, 1995 under the symbol SMCC. Information with respect to the high and low sales prices for the Common Stock is set forth on page.
At March 17, 1999 there were 91 shareholders of record of the Company's Common Stock and 5,890,208 shares were outstanding. The Company believes the number of beneficial owners is substantially greater than the number of record holders because a large portion of the Company's outstanding Common Stock is held of record in broker "street names" for the benefit of individual investors.
The Company did not pay any dividends in 1997 or 1998. The Company intends to retain future earnings for use in its business and therefore does not anticipate paying cash dividends in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for, and as of the end of, each of the years in the five-year period ended December 31, 1998 have been derived from the audited financial statements of the Company. This data should be read in conjunction with the financial statements, related notes and other financial information included elsewhere in this report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This analysis of the Company's financial condition and operating results should be viewed in conjunction with the accompanying financial statements, including the notes thereof.
Results of Operations
The following table sets forth, for the periods indicated, selected statement of operations data, expressed as a percentage of sales, and the percentage change in such data from the comparable prior period.
1998 Compared to 1997
Consolidated sales increased by $14.5 million or 7.1% to $217.5 million in 1998 from $203.0 million for 1997. Safari sales decreased from 1997 levels by $1.9 million or 1.8% to $102.2 million in 1998. Beaver sales increased from 1997 levels by $8.0 million or 9.5% to $92.2 million in 1998. Sales at the HCO division increased by $16.3 million or 206.3% to $24.2 million for 1998 from $7.9 million for 1997.
Excluding coach sales from discontinued operations, consolidated unit coach sales increased by 4 units or .2% to 1,706 units in 1998 from 1,702 units in 1997. Safari unit coach sales decreased by 124 units or 12.1% to 901 units in 1998 from 1,025 units in 1997. Beaver unit coach sales decreased by 20 units or 3.9% to 499 units in 1998 from 519 in 1997. HCO unit sales increased by 148 or 93.7% to 306 units in 1998 from 158 units in 1997.
Although unit sales were flat in 1998 compared to 1997, sales dollars increased due to a shift in mix towards the Company's higher priced coaches. A 2% price increase for all models was implemented during the fourth quarter, however its impact on annual revenues was not significant. The sales revenue increase is attributed to the decrease in sale units of the lower priced Trek model that were offset by increased units of the relatively higher priced Renegade. The Renegade began shipping in 1998.
Consolidated gross profit margins decreased $5.1 million or 18.9% and decreased as a percentage of sales to 10.2% from 13.4% in 1997. A number of factors led to this decrease. The new Class A Renegade model sales contributed to sales growth. However, the profit margins of this coach were low, due to the higher costs of introduction and production startup. It is anticipated that the profit margin on this coach will increase as it moves further into full production. Also, the gross margin was impacted by production difficulties of the Safari 1999 model changeover during the second and third quarters of 1998. However, these issues have been addressed and it is anticipated that the gross profit margin will improve in 1999.
Selling, general, and administrative expenses decreased by $358,000 or 2.0% to $17.6 million in 1998 from $18.0 million in 1997. As a percentage of sales, selling, general and administrative expenses decreased from 8.9% to 8.1% of sales for 1997 and 1998, respectively. Management will continue to focus on efforts to reduce these costs in 1999. During 1998, the Company recognized and reserved for costs associated with product claims. During the third quarter of 1998, the Company increased its reserves for these costs by approximately $1.1 million. The increase from 1997 levels represents reserves established on certain claims presently being appealed by the Company. The Company believes it has established proper control to limit these costs in the future.
Interest expense decreased 12.9% to $813,000 in 1998 from $933,000 in 1997. The operating revolving facility had no utilization as of December 31, 1998.
The Company's effective tax rate was 40.0%, resulting in an income tax provision of $272,000 compared to an effective rate of 39.7% and an income tax provision of $2.8 million for 1997.
Net income after tax decreased $3.8 million or 90.4% to $409,000 from 1997's net income after tax of $4.2 million. This is a result from the factors affecting gross margin, as discussed earlier.
1997 Compared to 1996
Consolidated sales increased by $2.2 million or 1.1% to $203.0 million for 1997 from $200.8 million for 1996. Safari sales were down by $12.7 million or 10.9% to $104.1 million in 1997 compared to 1996. Beaver sales were up by $7.2 million or 9.4% to $84.2 million in 1997 compared to 1996. Sales at the Company's newest division, HCO, were $7.9 million with no sales being generated in the start-up operation in 1996. Sales generated before the shut-down at Midwest were down by $1.1 million or 29.7% to $2.6 million in 1997 compared to 1996. Increases in parts and service sales of approximately $900,000 made up the rest of the increase in consolidated sales from 1996 to 1997.
Consolidated unit coach sales decreased by 94 units or 5.06% to 1,765 units in 1997 from 1,859 units in 1996. Safari unit coach sales decreased by 180 units or 14.9% to 1,025 units in 1997 from 1,205 units in 1996. Beaver unit coach sales decreased by 48 units or 8.5% to 519 units in 1997 from 567 in 1996. HCO unit sales were 158 in 1997. Midwest unit sales decreased by 24 units or 27.6% to 63 units in 1997 from 87 units in 1996.
Although unit sales decreased in 1997 compared to 1996, sales dollars increased due to a shift in mix towards the Company's higher valued coaches, which are generally more profitable. As discussed in Item 1 under the "Manufacturing" section, the Company was unable to obtain all of the medium-duty transmissions necessary to meet its initially planned production schedule. In response to this, the Company shifted its production to its higher-end models which use a heavy-duty transmission which was in available supply. This shift resulted in lower than planned unit sales, but higher sales dollars per unit. The Company believes that the lowered overall unit sales volume was also reflective of increased competition in 1997 compared to 1996. The Company believes that its overall market share of the high-line motor home market dropped slightly from the prior year, and it continues to monitor the performance of each of its model lines in relation to the competition.
Consolidated gross profit margin increased $832,000 or 3.2% and increased as a percentage of sales to 13.4% from 13.1% in 1996. A number of factors led to the overall increase in consolidated gross profit margin. On the positive side, in the prior year, gross margin was negatively impacted by the Company's start-up operations at Midwest. This facility was shut down in 1997 resulting in an overall $1.0 million positive impact on gross margin compared to the prior year. Additionally, sales of Beaver product continue to became a larger portion of the overall sales mix. Since most of Beaver's products sell at higher average prices than the Safari models, and the Company's products generally achieve a greater gross margin on higher priced products, the increase in Beaver sales in
1997 contributed approximately an additional $500,000 to gross margin compared to 1996. On the negative side, gross margin was negatively impacted by the Company's start up of HCO and CTI, which reduced gross margin by approximately $700,000 compared to 1996. The start-up phase was completed in 1997 during which time extra costs for set-up and training of the labor force were incurred.
Selling, general, and administrative expenses increased by $1.3 million or 7.8% to $18.0 million in 1997 from $16.7 million in 1996. As a percentage of sales, selling, general and administrative expenses were 8.9% and 8.3% of sales for 1997 and 1996, respectively. The Company incurred approximately $1.3 million in higher marketing related expenses in 1997 compared to 1996 in an effort to boost the lower than expected sales demand which was described above. Additionally, the decrease of approximately $300,000 in expenses associated with the shut-down of Midwest was offset by an increase of approximately $500,000 in costs related to the start up of HCO and CTI.
The Company recorded a pre-tax restructuring expense of $2.4 million in the fourth quarter of 1996. No further restructuring expense was required in 1997.
Given the factors affecting gross margin and selling, general, and administrative expenses, and the impact of the restructuring charge from 1996, operating income increased $1.5 million or 23.1% to $7.9 million from $6.4 million in 1996. As a percentage of sales, operating income was 3.9% of sales in 1997 compared to 3.2% of sales in 1996.
Interest expense increased 36.2% to $933,000 in 1997 from $685,000 in 1996. The increase was due to higher overall borrowings on the Company's revolving lines of credit during 1997 compared to 1996. Higher borrowings were required during the first half of the year when finished goods inventory levels were higher than expected due to the slower than anticipated sales demand described above. Production rates were lowered later in the year, and sales also increased, which resulted in reducing the finished goods inventory and the substantial payoff of the short-term borrowings; however, the net impact for the year was higher interest expense compared to 1996.
The Company's effective tax rate was 39.7%, resulting in an income tax provision of $2.8 million compared to an effective rate of 40.0% and an income tax provision of $2.4 million for 1996.
Net income after tax increased $663,000 or 18.5% to $4.3 million from 1996's net income after tax of $3.6 million.
Inflation
The Company does not believe inflation has had a material impact on its results of operations for the periods presented.
Factors Affecting Future Operating Results
The Company's operating results have fluctuated in the past and may fluctuate significantly in the future. Short-term fluctuations in operating results may be caused by a variety of factors, including the relatively high unit cost of the Company's motor coaches, the timing of orders from dealers, dealer cancellations of orders, the repurchase of coaches from dealers, new product introductions, production delays and the timing of trade shows and rallies. Because the Company's gross profit is generally greater with respect to its more expensive coaches, changes in the product mix of coaches sold can affect the Company's operating results. Over longer periods, the cyclical nature of the recreational vehicle industry, changes in interest rates and changes in the level of discretionary consumer spending may also adversely affect the Company's results of operations. The impact of these and other factors on the Company's sales and operating results in any future period cannot be predicted with certainty, and the results for any prior period may not be indicative of results for any future period.
The Company believes that the high-line motor coach market is much less volatile than the RV industry as a whole, and believes buyers purchasing high-line products are making lifestyle decisions largely independent of factors such as the state of the economy or interest rates. High-line coach sales have increased every year since 1989, while the sale of all Class A motor coaches have seen both increases and decreases during this period.
Liquidity and Capital Resources
During 1998 SMC generated $6.8 million in cashflows from operations, which was a decrease from the prior year level of $7.5 million. The change in net income levels from 1998 to 1997 (a decrease of $3.8 million) was offset by better management of working capital. Short term and long term debt was reduced by about $200,000. The Company repurchased 705,000 shares of its stock for $3.4 million without increasing its borrowings from its operating credit facility. The Company received $1.9 million from a former employee and officer who exercised his options to purchase stock during the year. The Company maintains a $10 million operating credit facility. At December 31, 1998 there was no utilization of this facility.
The Company made capital expenditures of $3.9 million during 1998. The primary expenditure was approximately $2.8 million for the service center in Florida. The other major expenditures included the completion of the geothermal project in Hines, Oregon and certain material handling equipment at the Hines, Oregon facility. The remaining expenditures were made on various capital projects needed to maintain the existing facilities.
The Company has an operating line of credit of $10 million and a real estate line of credit of $8.3 million, plus an additional $4.0 million equipment financing line of credit. There was no utilization of the operating and equipment lines. There was approximately $4.5 million utilized of the real estate line of credit at December 31, 1998. Amounts
outstanding under these lines of credit bear interest at prime (7.75% at December 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 which provide that the Company receive consent from the lender to declare or pay dividends in cash, stock or other property. The covenants also include restrictions relating to (1) mergers, consolidations and sale of assets, (2) guarantees by the Company of debts or obligations of other persons or entities, and (3) acquisition of the Company's own stock. The Company was in compliance with all covenants and agreements at December 31, 1998. The Company does not believe any of these covenants will have a material impact on the Company's ability to meet its cash obligations. See Notes 4 and 5 of Notes to Consolidated Financial Statements.
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 December 31, 1998, the Company estimates its total contingent liability under repurchase obligations to be approximately $106.8 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. See "Business -- Sales and Marketing" and Note 10 of Notes to Consolidated Financial Statements.
Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Computer programs that have date sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. To be in "Year 2000 compliance" a computer program must be written using four digits to define years. As a result, in less than two years, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements.
The Company has completed its evaluation of both information technology systems ("IT") and non-IT systems to determine Year 2000 compliance. Non-IT systems typically include embedded technology such as microcontrollers.
For most of the Company's IT systems, Year 2000 compliance issues have been identified and a remediation plan has been developed. Many of the Company's IT systems have been made Year 2000-compliant or require insignificant costs to become Year 2000 compliant. The Company estimates its costs for software and hardware upgrades to its systems to total approximately $75,000. The Company spent approximately $40,000 for the year ending December 31, 1998 for system upgrades to make its primary IT system Year-2000 compliant.
Additionally, the Company has begun to evaluate the readiness of its significant suppliers, financial institutions and customers to determine the extent to which the Company is vulnerable to those parties failing to remediate their own Year 2000 issues. Until additional information about such parties is received, the Company cannot complete that phase of its Year 2000 assessment. To date, the Company has not received notice of or become aware of a material Year 2000 deficiency by a significant vendor, financial institution, or customer.
At this time, the Company believes total costs incurred in responding to other parties' Year 2000 computer system deficiencies, together with the cost of any required modifications to the Company's internal systems, will not have a material impact on the Company's results of operations or financial condition. This analysis may be modified as the Company receives responses to inquiries from its significant vendors, financial institutions and customers. While the Company expects that the Year 2000 will not pose significant operational problems, delays in the installation of the new systems or upgrades to existing systems, or a failure of its vendors, customers or financial institutions to become Year 2000 compliant could have a material adverse effect on the Company's business, financial condition and results of operations. To address this contingency, the Company is in the process of developing a risk management plan which will be completed and tested during 1999.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are included on pages to of this report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors of the Company will be included under "Election of Directors" in the Company's definitive proxy statement for its 1999 annual meeting of shareholders (the "1999 Proxy Statement") to be filed not later than 120 days after the end of the fiscal year covered by this Report and is incorporated herein by reference. Information with respect to executive officers of the Company is included under Item 4(a) of Part I of this Report.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be included under "Executive Compensation" in the Company's 1999 Proxy Statement and is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners and management will be included under "Security Ownership of Certain Beneficial Owners and Management" in the Company's 1999 Proxy Statement and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions with management will be included under "Certain Transactions" in the Company's 1999 Proxy Statement and is incorporated herein by reference.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements Page in this Report
Report of Independent Accountants
Consolidated Balance Sheet at December 31, 1997 and 1998
Consolidated Statement of Income for the Years Ended December 31, 1996, 1997 and 1998
Consolidated Statement of Changes in Shareholders' Equity for the Years Ended December 31, 1996, 1997 and 1998
Consolidated Statement of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules - None
(a)(3) Exhibits
3.1 Restated Articles of Incorporation; incorporated by reference to Exhibit 3.1 to the 1995 S-1
3.2 Restated Bylaws; incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
4.1 See Articles II and V of Exhibit 3.1 and Articles I and VI of Exhibit 3.2
*10.1 1994 Stock Incentive Plan, as amended; incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.2 Stock Purchase Agreement dated March 28, 1988 among Curtis Lawler and Sandra Lawler, Mathew M. Perlot and the Registrant; incorporated by reference to Exhibit 10.2 to the 1995 S-1
10.3 Revised form of Representatives' Warrant Agreement, including form of warrant; incorporated by reference to Exhibit 10.5 to the 1995 S-1
10.4 Manufacturer Agreement dated June 24, 1987 between General Electric Credit Corporation and the Registrant; incorporated by reference to Exhibit 10.7 to the 1995 S-1
10.5 Repurchase Agreement dated November 30, 1993 between the Registrant and General Motors Acceptance Corporation; incorporated by reference to Exhibit 10.9 to the 1995 S-1
+10.6 Floorplan Agreement dated April 14, 1994 between ITT Commercial Finance Corp. and the Registrant, and amendment and amendment letters thereto; incorporated by reference to Exhibit 10.10 to the 1995 S-1
10.7 Lease Assignment and Assumption Agreement dated June 1994 between Beaver Coaches, Inc. and Beaver Motor Coaches, L.L.C., with Lease dated May 15, 1989 by and between Frank Storch and James Hogue, dba S&H Associates, and Beaver Coaches, Inc., and amendments thereto; incorporated by reference to Exhibit 10.11 to the 1995 S-1
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
- --------------
* This exhibit constitutes a management contract or compensatory plan or arrangement.
+ Confidential treatment has been granted by the Commission for certain portions of this agreement.
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the Company in the last quarter of 1998.
Report of Independent Accountants
To the Board of Directors and Shareholders of SMC Corporation
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of SMC Corporation and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Portland, Oregon February 10, 1999
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
1. Nature of Business and Summary of Significant Accounting Policies
Nature of business
SMC Corporation, an Oregon corporation, and its wholly owned subsidiaries (collectively, the "Company") design, manufacture, and market Class A and Class C motor coaches sold primarily to dealers which are independent of the Company throughout the United States and Canada.
Basis of consolidation The accompanying consolidated financial statements include the accounts of SMC Corporation and the following seven wholly owned subsidiaries which operate under the control of SMC Corporation: Safari Motor Coaches, Inc. ("Safari"), Beaver Motor Coaches, Inc. ("Beaver"), Magnum Manufacturing, Inc. ("Magnum"), Electronic Design and Assembly, Inc. ("ED&A"), Composite Technologies, Inc. ("CTI"), SMC Midwest, Inc. ("Midwest"), and Harney County Operations, Inc. ("HCO"). Safari, Beaver, and HCO purchase motor coach chassis and other components used in the manufacture of finished motor coaches from the other subsidiaries, excluding Midwest which was engaged in the manufacture of Class C motor coaches but ceased operations in 1997. All significant intercompany transactions have been eliminated for purposes of presentation of the consolidated financial statements of SMC Corporation.
Reporting periods The Company reports its annual results of operations on the basis of 52-week periods ending December 31 and its quarterly results of operations on the basis of 13-week periods ending on the Saturday nearest the calendar month end. For presentation purposes, the Company has indicated its quarters as ending March 31, June 30, September 30, and December 31.
Cash and cash equivalents Cash and cash equivalents consist of demand deposits with financial institutions. The Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents for purposes of the consolidated balance sheet and consolidated statement of cash flows. Noncash transactions have been excluded from the consolidated statement of cash flows (Note 9).
Accounts receivable Accounts receivable are net of an allowance for doubtful accounts of $58,000 and $66,000 at December 31, 1997 and 1998, respectively.
Inventories Inventories are stated at the lower of cost or market, with cost determined by the first-in, first-out method for raw materials, work-in-progress and finished goods and by the specific cost method for chassis. Cost includes the purchase price of raw materials, direct labor and an allocation of overhead costs. Raw materials inventory consists of component parts and motor coach chassis. Chassis manufacturers provide terms calling for payment generally upon completion of the motor coach.
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
1. Nature of Business and Summary of Significant Accounting Policies (Continued)
Property, plant and equipment Property, plant and equipment are stated at cost. Additions, renewals and betterments are capitalized. Expenditures for maintenance, repairs, and minor renewals and betterments are charged to expense. Gains or losses realized from sales or retirements are reflected in earnings. Gains of $183,000, $44,000 and $2,000 were recorded during the years ended December 31, 1996, 1997 and 1998, respectively. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of 15 years for land improvements, 20 to 30 years for buildings and improvements, and 5 to 12 years for machinery and equipment.
Intangible assets Costs in excess of the fair value of the assets of Beaver acquired in 1994 consists primarily of product trade names, which are being amortized using the straight-line method over 15 years (Notes 9 and 10). Amortization expense for the years ended December 31, 1996, 1997 and 1998 was $189,000, $220,000 and $186,000 respectively. At the end of each quarter, the Company reviews the recoverability of its intangible assets based on estimated undiscounted future cash flows from operating activities compared with the carrying value of the intangible assets. If the aggregate future cash flows are less than the carrying value, a write-down would be required, measured by the difference between the discounted future cash flows and the carrying value of the intangible assets. All goodwill recorded related to the Midwest acquisition was written-off in 1996 (Note 9).
Financial instruments The Company estimates the fair value of its monetary assets and liabilities based upon the existing interest rates related to such assets and liabilities compared to the current market rates of interest for instruments of a similar nature and degree of risk. Cash and cash equivalents, and notes payable to banks approximate fair value as reported in the consolidated balance sheet. The fair value of long-term debt is estimated using discounted cash flow analyses, based on the Company's incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company's long-term debt at December 31, 1997 and 1998 approximates the carrying value. The Company records all other financial instruments, including accounts receivable and accounts payable, at cost, which approximates market value.
Revenue recognition and accounts receivable The Company recognizes revenue from the sale of motor coaches when title and risk of ownership are transferred to the dealer, which generally is upon shipment or dealer pick-up. Motor coaches are shipped to dealers only upon verification of dealer financing from the finance company providing the motor coach financing. Finance companies remit funds directly to the Company upon receipt of the manufacturer's certificate of origin, generally within 10 days after shipment. A dealer may be invoiced for and receive title to motor coaches prior to taking physical possession when the dealer has made a fixed, written commitment to purchase, the motor coaches have been completed and are available for pick-up or delivery, and the dealer has requested the Company to hold the motor coaches until the dealer determines the most economical means of taking physical possession. Upon such a request, the Company has no further obligation except to segregate the motor coaches, invoice them under normal billing and credit terms and hold them for a short period of time as is customary in the industry, generally less than two weeks, until pick-up or delivery. Motor coaches are built to dealer specification and no right of return or exchange privileges are granted. Accordingly, no provision for sales allowances or returns is recorded.
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
1. Nature of Business and Summary of Significant Accounting Policies (Continued)
Revenue recognition and accounts receivable (continued) Sales and the percentage of total sales made to dealers representing more than 10% of consolidated sales in any of the following periods were as follows (dollar amounts in thousands):
Certain risks, uncertainties and concentration of credit risk The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
The Company has a concentration of credit risk in the recreational vehicle industry, and specifically related to amounts outstanding at any point in time in accounts receivable and/or under repurchase agreements (see Note 10) with any specific dealership to which it has sold motor coaches. The Company requires no collateral from its dealers upon sale of a motor coach, and most dealer financing arrangements provide for repurchase agreements which require the Company to repurchase previously sold motor coaches in the event of the dealer's default on its financing arrangement.
Product warranty The Company provides a one year warranty against defects in material and workmanship to dealers and purchasers of motor coaches and a similar three year warranty for chassis manufactured by the Company. Certain components used in the manufacture of the Company's motor coaches carry warranties of other manufacturers. Estimated warranty costs are reserved at the time of sale of the warranted products.
Income taxes The Company accounts for income taxes under the liability method, as set forth in Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS No. 109). Under the liability method, deferred taxes are determined based upon the difference between the financial statement and tax bases of assets and liabilities at enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax expense represents the change in the deferred tax asset/liability balance. A valuation allowance is established for deferred taxes if their realization is not likely.
Comprehensive Income The Company adopted SFAS No. 130, "Reporting Comprehensive Income" as of January 1, 1998. Comprehensive income is equal to net income for all periods presented.
Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. These changes had no impact on previously reported results of operations or shareholders' equity.
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
1. Nature of Business and Summary of Significant Accounting Policies (Continued)
Segment Disclosure The Company complies with segment reporting as set forth in 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.
Earnings per Share The Company has adopted FASB Statement 128, "Earnings Per Share". 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. Prior periods have been restated to conform to FASB 128.
2. Inventories
Inventories by major classification are as follows (in thousands):
December 31,
1997 1998 ------------- ------------ Raw materials $ 11,418 $ 14,982 Work-in-progress 9,581 8,527 Finished goods 2,039 3,206 ------------- ------------
Total $ 23,038 $ 26,715 ============= ============
3. Property, Plant and Equipment
The components of property, plant and equipment are as follows (in thousands):
December 31,
1997 1998 ------------- ------------ Land and improvements $ 2,950 $ 3,094 Buildings and improvements 10,344 10,449 Machinery and equipment 10,404 11,042 Construction in progress 171 3,150 ------------- ------------ 23,869 27,735
Less accumulated depreciation (5,284) (7,184) ------------- ------------ Property, plant and equipment, net $ 18,585 $ 20,551 ============= ============
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
4. Notes Payable
The Company has a $10.0 million revolving line of credit for working capital requirements. The available borrowings under the line of credit are limited to 80% of eligible accounts receivable plus 90% of eligible finished goods inventory plus 50% of eligible raw and work-in progress inventory. As of December 31, 1998, the operating credit utilization was zero. Outstanding borrowings under the line of credit are due on demand. The line of credit is secured by accounts receivable, inventory (excluding chassis inventory purchased from third parties), and equipment.
Further, the line of credit is cross-collateralized among the companies. The terms of the respective credit agreements require compliance with certain financial covenants, including working capital requirements.
The Company has entered into a credit agreement which enable borrowings of up to $4.0 million for equipment purchases, as needed. No amounts have been borrowed under this credit agreement at December 31, 1998.
As of December 31, 1998, the Company was in compliance with all of its financial covenants associated with its line of credit facilities and other bank loans.
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
5. Long-Term Debt
The aggregate maturities of long-term debt for the next five years and thereafter as of December 31, 1998 are $953,000, $1,234,000, $1,263,000, $1,294,000, $888,000 and $2,674,000, respectively.
Certain of the borrowings are subject to restrictive covenants, including working capital requirements, with which the Company is in compliance at December 31, 1998. Other terms of the borrowings require the lending bank's written consent prior to the issuance of any dividends.
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
6. Provision for Income Taxes
The provision for income taxes for the years ended December 31, 1996, 1997 and 1998 are as follows (in thousands):
Deferred tax assets (liabilities) are comprised of the following components (in thousands):
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
6. Provision for Income Taxes (continued)
The effective tax rate differs from the U.S. statutory federal tax rate due to the following:
Year ended December 31,
1996 1997 1998 ------ ------ ------ Statutory federal tax rate 34.0% 34.0% 34.0% State taxes, net of federal benefit 4.4 3.7 4.0 Nondeductible expenses 1.6 1.1 5.0 Other, net -- 0.9 (3.0) ------ ------ ------ 40.0% 39.7% 40.0% ====== ====== ======
7. Related Parties
A dealer is owned by principals related to a former officer of the Company. The Company's sales of motor coaches to this party are at prices consistent with sales to unrelated third parties. Sales to this dealer for the years ended December 31, 1997 and 1998 were $24.4 million and $29.5 million respectively. There were no sales to this dealer in 1996. The Company had accounts receivable due from this dealer of $799,000 and $888,000 at December 31, 1997 and 1998, respectively, related to the sales of motor coaches.
In 1998, the Company began purchasing electronic parts from a supplier company that is owned by a principal related to an officer. The total amount of purchases for the year ending December 31, 1998 was $449,000.
As part of the Company's program to repurchase 800,000 shares of stock, the Company repurchased 100,000 shares from an officer of the Company for $4.2375 per share. See note 11 for further details.
8. Leases
The Company is obligated under a capital lease for computer software that expires in September of 2001. At December 31, 1997 and December 31, 1998, the gross amount of equipment and related accumulated amortization recorded under capital leases was $95,000 and $24,000, and $95,000 and $55,000, respectively.
The Company also has noncancelable operating leases, primarily for facilities space, manufacturing equipment, telecommunications, transportation equipment, and computer software and hardware, which expire over the next five years and thereafter. Rental expense under operating leases was, $511,000, $783,000, and $944,000 for the years ended December 31, 1996, 1997, and 1998, respectively.
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
8. Leases (continued)
Future minimum lease payments under noncancelable operating leases and future minimum capital lease payments as of December 31, 1998 are:
9. Acquisition of the Assets of Honorbuilt Industries, Inc.
Effective June 14, 1996, the Company acquired certain assets of Honorbuilt Industries, Inc. ("Honorbuilt") for cash. Honorbuilt was primarily engaged in the design, manufacture, distribution and sale of Class C motor coaches (under the name brand of El Dorado) from its facility in Minneapolis, Kansas. The Company formed a new subsidiary, SMC Midwest, Inc., to operate the facility.
The acquisition was accounted for by the purchase method. Accordingly, the purchase price of $1.4 million was allocated to the assets acquired based on their estimated values as of the date of acquisition. The excess of the consideration paid over the estimated fair value of assets acquired totaled $561,000 and was written off in 1996.
The estimated fair value of assets acquired is summarized as follows:
Inventory $ 327,000 Equipment 432,000 Goodwill 561,000 Other Assets 100,000 ------------- Total Purchase Price $ 1,420,000
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
9. Acquisition of the Assets of Honorbuilt Industries, Inc. (continued)
On December 26, 1996, the Company announced the planned exit and closure of the operations at the Minneapolis, Kansas facility in an effort to reduce excessive costs that were not anticipated when the Company acquired the assets of Honorbuilt. The closure has been treated as a restructuring for financial reporting purposes, and a total charge of $2.4 million was made for the year ended December 31, 1996 related to the Midwest restructuring. Restructuring activities primarily involve the separation of the workforce, the closing of the facility, and the termination of existing leases. Costs for restructuring activities are limited to incremental costs that directly result from the restructuring activities and that provide no future benefit to the Company.
A reserve of $488,000 to cover expected future costs of the restructuring was recorded as of December 31, 1996. Additionally, the remaining unamortized goodwill, deferred acquisition costs, and certain property, plant, and equipment was charged to restructuring expense during the year ended December 31, 1996. Recording of the reserves for book purposes but not for tax purposes created a related deferred tax asset (Note 6) that was realized when the exit plan was completed during 1997. The restructuring reserve recorded at December 31, 1996 was adequate to cover the restructuring costs incurred during 1997, and no further restructuring charges were made or are expected to be made.
Commencing June 14, 1996, results of operations of Honorbuilt are included in the consolidated statement of income for the year ended December 31, 1996. The following unaudited pro forma summary presents information as if the acquisition of Honorbuilt had occurred at the beginning of 1996. The pro forma information is provided for informational purposes only. It is based on historical information and includes adjustments for interest expense that would have been incurred to finance the purchase, depreciation adjustments related to asset valuations, and amortization of intangibles. The pro forma information is not indicative of future results of operations of the combined companies.
Pro Forma Information (in thousands, except per share amounts)
Year Ended December 31, ----
Net sales ............................................... $ 207,763 Net income ............................................. $ 2,975 Earnings per share - basic............................... $ .45 Earnings per share - diluted ............................ $ .45
10. Commitments and Contingencies
As is customary in the recreational vehicle industry, the Company is contingently liable under the terms of repurchase agreements with finance companies which provide secured inventory financing for dealers of the Company's products. These agreements require the Company to repurchase its products from the finance company in the event of a dealer's default. The contingent liability under these agreements approximates the sales price of the motor coaches, less principal payments made by the dealer. The Company expects to resell any products repurchased to reduce any liabilities incurred. Historically, the Company has not experienced significant losses under these repurchase agreements.
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
10. Commitments and Contingencies (continued)
The risk of loss is spread over various dealers and finance companies. Total secured inventory financing obligations of the Company's dealers, for which the Company was contingently liable, were approximately $86.3 million and $106.8 million at December 31, 1997 and December 31, 1998, respectively.
From time to time, the Company is involved in various customer complaints which arise in the ordinary course of business. The Company does not believe that losses, if any, incurred under outstanding repurchase agreements or customer complaint settlements will have a significant impact on the Company's financial position or results of operations.
11. Common Stock Matters and Earnings Per Share
In conjunction with the Company's initial public offering, a total of 125,000 warrants were issued to the Underwriters of the Offering. Such warrants entitle the holder to purchase an equal amount of shares of common stock of the Company anytime after January 20, 1996 until their expiration on January 20, 2000 at a price of $9.30 per share. No stock has been purchased related to the warrants as of the date of this report.
Stock Incentive Plan Effective October 20, 1994, the Company adopted a stock incentive plan for key employees and directors of the Company. In 1997, the shareholders of the Company voted to increase the number of shares authorized under the plan from 1.1 million to 1.4 million shares of common stock; accordingly, these shares have been reserved for by the Company. The stock options generally become exercisable ratably over a period of three years from the date of grant at prices equal to the fair market value at the date of grant. The maximum option term is 10 years. The following table summarizes option transactions under the plan:
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
11. Common Stock Matters and Earnings Per Share (continued)
Stock Incentive Plan (continued)
The exercise prices of the 928,500 options granted as of December 31, 1998 range between $6.00 and $9.375 and have a weighted average remaining contractual life of 7.5 years; 630,694 of the total options granted are fully vested, and therefore may be exercised, as of December 31, 1998 at a weighted average exercise price of $8.83.
The Company applies ABP Opinion 25 and related Interpretations in accounting for the stock incentive plan. Had compensation cost for the stock incentive plan been determined based on the fair value at the grant dates for awards under the plan consistent with the method of FASB Statement 123, "Accounting for Stock-Based Compensation," the Company's net income and income per share would have been reduced to the pro forma amounts indicated below:
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1996: expected dividend yield: 0.0%, expected volatility: 68.17%, risk-free interest rate: 6.5%, expected life: 10 years. For both 1997 and 1998, the expected dividend yield and expected life were the same as 1996. However, the expected volatility was 71.49% and 72.11% for 1997 and 1998 respectively. The risk-free interest rate used was 6.3% and 5.5% for 1997 and 1998 respectively. Results may not be representative of future years because options are generally granted on an annual basis and vest over time.
Stock Repurchase During 1998, the Company repurchased 50,000 of its common shares from a director of the Company. The shares were purchased subject to the terms of Stock Purchase Agreement between the Company and the director. Under the terms of the agreement, the Company had first option to purchase the subject shares for two-thirds of the current market value. The shares were purchased for a price per share of $6.00, resulting in an overall purchase price of $300,000. The shares have been returned and canceled.
Pursuant to a board resolution, the Company authorized 800,000 shares of stock to be repurchased by the Company for the year ending December 31, 1998. Under this program, 655,000 shares were repurchased at the average price of $4.80, for an overall amount of $3,147,000.
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
11. Common Stock Matters and Earnings Per Share (continued)
Stock Repurchase (continued)
During 1997, the Company purchased 220,000 of its common shares from a former officer of the Company. The shares were purchased subject to the terms of Stock Purchase Agreement between the Company and the former officer. Under the terms of the agreement, the Company had first option to purchase the subject shares for two-thirds of the current market value. The shares were purchased for a price of $4.30, resulting in an overall purchase price of $947,000. The shares have been returned and canceled.
12. Preferred Stock
The Company has authorized 5,000,000 shares of Preferred Stock which may be issued from time to time in one or more series as authorized by the Company's Board of Directors. The Board of Directors, without any further approval by the shareholders of the Company is authorized to fix the dividend rights and terms, dividend rates, voting rights, terms of redemption price, conversion rights and liquidation preferences related to the Preferred Stock. There have been no shares of Preferred Stock issued, and the Company has no plans to issue any as of the date of this report.
13. Incentive and Deferred Compensation Plans
The Company has an incentive compensation plan for its key officers. The amounts charged to expense for the years ended December 31, 1996, 1997, and 1998 aggregated $487,000, $245,000, and $326,000, respectively.
The Company has established a joint 401(k) and Profit Sharing Plan which allows eligible employees to contribute up to 15% of their compensation annually. The plan allows for a Company matching percentage based upon the discretion of management, and $4,000 and $2,000 were contributed by the Company and its subsidiaries to the plan during the years ended December 31, 1996, and 1997, respectively. There were no contributions for 1998. To date there have been no amounts contributed by the Company or its subsidiaries to the profit sharing element of the plan.
SMC Corporation
Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
14. Quarterly Financial Information (Unaudited)
15. Market Information (Unaudited)
The Company's common stock is traded on the Nasdaq National Market System under the symbol SMCC. The following table sets forth the high and low daily closing prices of the stock for each quarter of 1997 and 1998:
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 26, 1999 SMC CORPORATION
By: WILLIAM L. RICH ------------------------------------- William L. Rich Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the following capacities on March 26, 1999.
Signature Title - --------- -----
MATHEW M. PERLOT - ---------------------------------- Chief Executive Officer Mathew M. Perlot and Chairman of the Board (Principal Executive Officer)
WILLIAM L. RICH - ---------------------------------- Chief Financial Officer William L. Rich (Principal Financial and Accounting Officer)
CURTIS W. LAWLER - ---------------------------------- Director Curtis W. Lawler
CONNIE M. PERLOT - ---------------------------------- Director Connie M. Perlot
LAWRENCE S. BLACK - ---------------------------------- Director Lawrence S. Black
JIM L. TRAUGHBER - ---------------------------------- Director Jim L. Traughber
EXHIBIT INDEX
Exhibit No. Description - ------- -----------
3.1 Restated Articles of Incorporation; incorporated by reference to Exhibit 3.1 to the 1995 S-1
3.2 Restated Bylaws; incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
4.1 See Articles II and V of Exhibit 3.1 and Articles I and VI of Exhibit 3.2
*10.1 1994 Stock Incentive Plan, as amended; incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
10.2 Stock Purchase Agreement dated March 28, 1988 among Curtis Lawler and Sandra Lawler, Mathew M. Perlot and the Registrant; incorporated by reference to Exhibit 10.2 to the 1995 S-1
10.3 Revised form of Representatives' Warrant Agreement, including form of warrant; incorporated by reference to Exhibit 10.5 to the 1995 S-1
10.4 Manufacturer Agreement dated June 24, 1987 between General Electric Credit Corporation and the Registrant; incorporated by reference to Exhibit 10.7 to the 1995 S-1
10.5 Repurchase Agreement dated November 30, 1993 between the Registrant and General Motors Acceptance Corporation; incorporated by reference to Exhibit 10.9 to the 1995 S-1
+10.6 Floorplan Agreement dated April 14, 1994 between ITT Commercial Finance Corp. and the Registrant, and amendment and amendment letters thereto; incorporated by reference to Exhibit 10.10 to the 1995 S-1
10.7 Lease Assignment and Assumption Agreement dated June 1994 between Beaver Coaches, Inc. and Beaver Motor Coaches, L.L.C., with Lease dated May 15, 1989 by and between Frank Storch and James Hogue, dba S&H Associates, and Beaver Coaches, Inc., and amendments thereto; incorporated by reference to Exhibit 10.11 to the 1995 S-1
21.1 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
- --------------
* This exhibit constitutes a management contract or compensatory plan or arrangement.
+ Confidential treatment has been granted by the Commission for certain portions of this agreement.