FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10281
Smith Corona Corporation
(Exact name of registrant as specified in its charter)
Delaware 51-0286862
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
65 Locust Avenue, New Canaan, Connecticut 06840
(Address of principal executive offices) (Zip Code)
(203) 972-1471
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Outstanding at
Class May 9, 1994
Common Stock, par value $.01 30,250,000
per share
SMITH CORONA CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1994
and June 30, 1993 1
Consolidated Income Statements - For the three and
nine months ended March 31, 1994 and 1993 2
Consolidated Statements of Cash Flows - For the
nine months ended March 31, 1994 and 1993 3
Consolidated Statement of Changes in Stockholders'
Equity - For the nine months ended March 31, 1994 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
SMITH CORONA CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1994 1993
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,773 $ 13,800
Accounts receivable (net of allowance
for doubtful accounts of $2,081 and
$1,661, respectively) 58,373 38,902
Inventories 67,902 84,051
Prepaid expenses and other current assets 3,466 2,223
Deferred income taxes 10,450 12,688
------- -------
Total current assets 144,964 151,664
Property, plant and equipment, net 42,200 38,885
Deferred income taxes 5,810 4,714
Other assets 3,267 2,642
-------- --------
TOTAL $196,241 $197,905
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 34,079 $ 29,048
Accrued liabilities 26,104 31,278
Income taxes payable 5,735 4,541
Dividends payable 1,513 1,512
------- -------
Total current liabilities 67,431 66,379
Bank loans 13,000 18,669
Postretirement benefits 13,033 12,703
Pension liability 21,089 21,039
Other long-term liabilities 2,623 2,470
------- -------
Total liabilities 117,176 121,260
------- -------
Stockholders' Equity:
Common stock-30,250,000 shares issued
and outstanding 303 303
Additional paid-in capital 44,697 44,697
Retained earnings 34,065 31,645
-------- --------
Total stockholders' equity 79,065 76,645
-------- --------
TOTAL $196,241 $197,905
</TABLE> ======== ========
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION
CONSOLIDATED INCOME STATEMENTS
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine months ended
March 31, March 31,
------------------ ----------------
(unaudited) (unaudited)
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 81,256 $ 76,846 $268,617 $244,797
Cost of goods sold 64,497 59,691 213,183 185,877
------- ------- ------- -------
Gross margin 16,759 17,155 55,434 58,920
Selling, administrative
and research expenses 14,526 15,018 44,394 49,038
Restructuring costs - 830 - 10,290
------- ------- ------- -------
Operating income (loss) 2,233 1,307 11,040 (408)
Interest expense 131 106 497 318
------- ------- ------- -------
Income (loss) before income
taxes and cumulative effects
of accounting changes 2,102 1,201 10,543 (726)
Income taxes (benefit) 715 412 3,585 (454)
------- ------- ------- -------
Income (loss) before
cumulative effects of
accounting changes 1,387 789 6,958 (272)
Cumulative effects of
accounting changes - - - 10
------- ------- ------- -------
Net income (loss) $ 1,387 $ 789 $ 6,958 $ (262)
======= ======= ======= =======
Earnings per share-
Income (loss) before
cumulative effects
of accounting changes $.05 $.03 $.23 $(.01)
Cumulative effects of
accounting changes - - - -
---- ---- ---- ----
Net income (loss) per share $.05 $.03 $.23 $(.01)
==== ==== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Nine months ended
March 31,
----------------
(unaudited)
1994 1993
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,958 $ (262)
Adjustments to reconcile net
income (loss) to cash provided
by (used in) operating activities:
Depreciation and amortization 4,779 5,689
Other noncash items 42 194
Changes in assets and liabilities:
Accounts receivable (19,471) 6,129
Inventories 16,149 (5,004)
Prepaid expenses and
other current assets (1,243) 301
Other assets (800) 1,464
Deferred income taxes 1,142 (1,971)
Trade payables 5,031 (9,398)
Accrued and other current liabilities (3,979) 7,196
Postretirement benefits and pensions 380 (3,392)
Other long-term liabilities 153 4,063
------ ------
Net cash provided by operating activities 9,141 5,009
------ ------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (7,961) (4,678)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loans (repayments) (5,669) 5,101
Dividends paid (4,538) (4,538)
------ ------
Net cash provided by (used in) financing
activities (10,207) 563
------ ------
Increase (decrease) in cash and cash
equivalents (9,027) 894
Cash and cash equivalents
at beginning of period 13,800 12,341
------ ------
Cash and cash equivalents
at end of period $4,773 $13,235
</TABLE> ====== ======
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine months ended March 31, 1994
($ in thousands)
<TABLE>
<CAPTION>
Common Paid-In Retained
Stock Capital Earnings Total
------ ------- -------- -------
<S> <C> <C> <C> <C>
Balance June 30, 1993 $303 $44,697 $31,645 $76,645
Net income - - 6,958 6,958
Dividends declared - - (4,538) (4,538)
---- ------- -------- -------
Balance March 31, 1994 $303 $44,697 $34,065 $79,065
==== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial
statements, although not necessarily indicative of results of
operations for the entire fiscal year, include all adjustments
which are, in the opinion of management, necessary for a fair
presentation of the results for the periods covered. They have
been prepared in accordance with the instructions to Form 10-Q
and should be read in conjunction with the consolidated financial
statements and the notes thereto for the fiscal year ended
June 30, 1993, as contained in the Smith Corona Corporation (the
"Company") Annual Report to Stockholders and Form 10-K.
NOTE 2 - CONTINGENCIES
Certain past practices of the Company regarding hazardous
substances and/or hazardous wastes are the subject of
investigation by federal and state regulatory authorities, or are
the subject of lawsuits filed by such authorities. Management
does not believe that these investigations or lawsuits, if
resolved adversely to the Company, would individually or in the
aggregate have a material adverse impact on the Company. The
Company is involved in proceedings with the New York Department
of Environmental Conservation and the United States Environmental
Protection Agency regarding the clean-up of a now-closed
manufacturing facility and certain waste disposal sites in
upstate New York. The remedial investigation of the now-closed
manufacturing facility site has been completed. The feasibility
study report has been approved by the New York Department of
Environmental Conservation and the Record of Decision has been
finalized. On March 31, 1993, the Company executed a final
signed consent order from the Department of Environmental
Conservation and remedial actions have commenced. Adequate
provision for such remedial costs has been made by the Company.
In June 1992, the Company was served with a summons and
complaint in a private contribution action. The action, which
lists the Company as a defendant with fourteen other defendants,
seeks contribution for response costs incurred to date, and to be
incurred in the future, for the remediation of a site in
Cortland, New York. Management does not believe it disposed of
any hazardous substances at this site and is vigorously
contesting this matter.
On April 18, 1991, an antidumping proceeding was commenced
against the Company at the Department of Commerce (Commerce) and
before the International Trade Commission, concerning portable
electric typewriters imported from Singapore. Subsequently, on
June 22, 1993, the Company and Commerce signed a suspension
agreement, suspending the antidumping investigation and calling
for the Company to monitor its international prices. On
February 4, 1994, all of the parties signed a settlement
agreement covering the antidumping investigation and related
litigation. Under the terms of the agreement, the petitioner
will withdraw its petition against the Company's Singapore
imports and the Company will seek revocation of various
antidumping duty orders against typewriters and word processors
from Japan. Pursuant to the agreement, the antidumping
proceedings have been terminated.
The Company is also defendant or plaintiff in various other
legal actions which have arisen in the ordinary course of its
business. It is the opinion of management, based on advice of
counsel with respect to legal matters, that the ultimate
resolution of these matters and the environmental matters
discussed above will not have a material adverse effect on the
Company's financial position.
NOTE 3 - INVENTORIES
A summary of inventories, by major classification, is as
follows:
<TABLE>
<CAPTION>
March 31, June 30,
1994 1993
------- -------
($ in thousands)
<S> <C> <C>
Raw materials and supplies $ 4,291 $ 5,668
Work-in-process 25,508 21,215
Finished goods 38,945 58,312
------- -------
Total 68,744 85,195
Lifo reserve (842) (1,144)
------- -------
Total $67,902 $84,051
======= =======
</TABLE>
NOTE 4 - DIVIDENDS
On February 7, 1994 the Board of Directors declared a
quarterly cash dividend of $.05 per share of common stock payable
on April 6, 1994 to stockholders of record as of March 22, 1994.
The dividend for the third quarter of fiscal 1993 was $.05
per share of common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Net sales for the third quarter, which ended March 31, 1994,
were $81.2 million, an increase of 5.7% over $76.8 million for
the same quarter last year. Net sales for the nine months ended
March 31, 1994 were $268.6 million, a 9.7% increase over net
sales of $244.8 million for the same period last year. Unit
shipments of typewriters and personal word processors increased
over last year in both the domestic and international markets.
Internationally, sales and unit shipments increased substantially
due to increased penetration in Europe and gradually improving
economic conditions in certain markets. Net sales of the office
supplies businesses increased for the quarter and nine month
periods. The increase for the nine month period is a result of
higher unit volume and more stable pricing.
Gross margin, as a percentage of net sales, was 20.6% for
the three and nine months ended March 31, 1994, as compared to
22.3% and 24.1%, respectively, for the comparable periods last
year. These decreases in gross margin were primarily the result
of lower selling prices for personal word processors and
typewriters. Included in gross margin for the nine months ended
March 31, 1994 is a benefit of $1.8 million pre-tax, representing
the final payment from Pelikan, Inc. in a patent infringement
case.
In July 1992, Smith Corona Corporation (the "Company")
announced a plan to phase out the Company's manufacturing
operations in Cortland, New York and move them to a new facility
in Mexico. The Company provided $9.5 million in restructuring
costs in the first six months of fiscal 1993 and $.8 million in
the third quarter of fiscal 1993. The Company essentially
completed the move by the end of March 1994. This action should
result in substantially lower manufacturing costs in future
years.
Selling, general and administrative expenses for the three
and nine months ended March 31, 1994 decreased $.5 million and
$4.6 million, respectively, over the comparable prior periods.
The decrease for the nine month period was primarily the result
of reduced expenses for certain advertising programs.
The Company's effective tax rate was 34.0% for the three and
nine months ended March 31, 1994 as compared to 34.3% and 62.5%
for the comparable periods a year ago. The change in the
effective tax rate relates principally to the projected mix of
domestic and foreign source income.
Financial Condition
During the nine months ended March 31, 1994, the Company's
operating activities provided $9.1 million of cash compared with
$5.0 million in the same period a year ago. Accounts receivable
increased $19.5 million from June 30, 1993 which was primarily
related to increased sales levels. Inventories decreased $16.1
million from June 30, 1993 as a result of the Company's focus on
reduction of inventory levels. The increase in accounts payable
of $5.0 million is due primarily to timing of purchasing
activity. The decrease in accrued liabilities of $5.2 million
from June 30, 1993 is primarily due to the move of manufacturing
operations to Mexico.
Capital expenditures for the nine months ended March 31,
1994 were $8.0 million compared with $4.7 million for the
comparable period last year. The increase in spending is due to
the move of manufacturing operations to Mexico.
The Company's borrowing resources at March 31, 1994 were
comprised of a revolving credit facility with two banks, which
provides availability of $32 million expiring on June 25, 1996.
The Company also has an uncommitted line of credit arrangement
for $20 million. The March 31, 1994 bank loans represent the
outstanding amounts under the revolving credit facility.
PART II - Other Information
Item 1. Legal Proceedings.
Information required by this item is incorporated by
reference from "Note 2 - Contingencies" in the Notes to
Consolidated Financial Statements appearing on page 5
of this Form 10-Q Quarterly Report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SMITH CORONA CORPORATION
May 10, 1994 By: /s/ Thomas C. DeFazio
----------------------
Thomas C. DeFazio
Executive Vice President and
Chief Financial Officer
By: /s/ John A. Piontkowski
------------------------
John A. Piontkowski
Vice President & Controller
(Principal Accounting Officer)
