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 September 30, 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 November 5, 1994
Common Stock, par value $.01 30,250,000
per share<PAGE>
SMITH CORONA CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1994
and June 30, 1994 1
Consolidated Income Statements - For the three
months ended September 30, 1994 and 1993 2
Consolidated Statement of Changes in Stockholders'
Equity - For the three months ended
September 30, 1994 3
Consolidated Statements of Cash Flows - For the
three months ended September 30, 1994 and 1993 4
Notes to Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 8-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
SMITH CORONA CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1994 1994
(audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,404 $ 6,472
Accounts receivable (net of allowance
for doubtful accounts of $1,478 and
$1,563, respectively) 55,960 49,343
Inventories 70,888 64,247
Prepaid expenses and other current
assets 4,458 3,794
Deferred income taxes 9,149 10,131
Net assets of discontinued operations - 14,780
Total current assets 143,859 148,767
Property, plant and equipment, net 37,836 38,090
Deferred income taxes 5,222 4,471
Other assets 4,297 3,706
TOTAL $191,214 $195,034
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 27,626 $ 28,219
Accrued liabilities 25,133 27,441
Income taxes payable 3,801 5,001
Dividends payable 1,513 1,512
Total current liabilities 58,073 62,173
Bank loans 20,500 20,002
Postretirement benefits 12,786 12,650
Pension liability 19,865 20,361
Other long-term liabilities 4,567 4,126
Total liabilities 115,791 119,312
Stockholders' equity:
Common stock-30,250,000 shares issued
and outstanding 303 303
Additional paid-in capital 44,697 44,697
Retained earnings 30,423 30,722
Total stockholders' equity 75,423 75,722
TOTAL $191,214 $195,034
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
SMITH CORONA CORPORATION
CONSOLIDATED INCOME STATEMENTS
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
September
1994 1993
<S> <C> <C>
Net sales $ 64,141 $ 76,271
Cost of goods sold 49,265 56,496
Gross margin 14,876 19,775
Selling, administrative
and research expenses 12,705 13,690
Operating income 2,171 6,085
Interest expense 243 193
Income from continuing
operations before income
taxes 1,928 5,892
Income taxes 714 2,007
Income from continuing operations 1,214 3,885
Income from discontinued operations,
net of income taxes - 142
Net income $ 1,214 $ 4,027
Earnings per common share-
Income from continuing
operations $.04 $.13
Income from discontinued operations,
net of income taxes - -
Net income per share $.04 $.13
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
SMITH CORONA CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended September 30, 1994
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
<S> <C> <C> <C> <C>
Balance June 30, 1994 $303 $44,697 $30,722 $75,722
Net income - - 1,214 1,214
Dividends declared ($.05 per
share) - - (1,513) (1,513)
Balance September 30, 1994 $303 $44,697 $30,423 $75,423
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
SMITH CORONA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Three months ended
September 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,214 $ 4,027
Adjustments to reconcile net
income to net cash used in
continuing operating activities:
Discontinued operations - (142)
Depreciation and amortization 1,660 1,596
Deferred income taxes 231 -
Changes in assets and liabilities:
Accounts receivable (6,617) (20,324)
Inventories (6,641) 7,321
Prepaid expenses and
other current assets (664) (899)
Other assets (708) -
Trade payables (722) (499)
Accrued liabilities and income taxes
payable (1,599) 2,702
Postretirement benefits and pension
liability (360) (250)
Other long-term liabilities 441 166
Net cash used in continuing operations (13,765) (6,302)
Net cash provided by discontinued
operations - 1,756
Net cash used in operating activities (13,765) (4,546)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (1,289) (1,787)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of SCM Office
Supplies, Inc. 13,000 -
Bank loans, net 498 1,331
Dividends paid (1,512) (1,513)
Net cash provided by (used in) financing
activities 11,986 (182)
Decrease in cash and cash
equivalents (3,068) (6,515)
Cash and cash equivalents:
At beginning of period 6,472 13,800
At end of period $ 3,404 $ 7,285
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
SMITH CORONA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
($ in thousands, except per share amounts)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim consolidated financial
statements, although not necessarily indicative of results of
operations for the entire fiscal year, include all adjustments of
a normal recurring nature which are, in the opinion of
management, necessary for a fair presentation of the results for
the periods covered. They have been prepared by Smith Corona
Corporation (the "Company") without audit 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, 1994, as contained in the
Company's Annual Report to Stockholders on 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. At September
30, 1994 and June 30, 1994, the Company recorded approximately
$3,131 and $3,274, respectively, related to environmental
matters, of which $128 and $606, respectively, are classified as
a current liability in the consolidated balance sheets. Certain
estimated costs of performing environmental remediation were
discounted at a rate of 5% per annum based on the estimated
timing of such payments. Because of the uncertainties associated
with assessing environmental matters, the related ultimate
liability is not determinable. However, based on facts presently
known, 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 effect
on the Company's financial position or results of operations.
The Company is involved in proceedings with the New York
Department of Environmental Conservation (DEC) 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 and
feasibility study of the now-closed manufacturing facility site
has been completed. The feasibility study report has been
approved by the DEC and the record of decision has been
finalized. On March 31, 1993, the Company executed a final
signed consent order from the DEC and remedial actions commenced.
Remediation activities at the site have been delayed as a result
of an extension of the public comment period to address the
remediation plan approved by the DEC. Management believes that
the Company has made adequate provision for the approved
remediation activities.
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 June 8, 1990, the Company filed suit in the United States
District Court for the District of Tennessee against Pelikan,
Inc. alleging patent infringement and false advertising. On
February 24, 1992, the Court entered a judgment awarding the
Company approximately $3,120 plus post-judgment interest.
Pelikan filed an appeal, petitioning for a rehearing by the Court
of Appeals, and subsequently offered to pay to the Company a
portion of the judgment aggregating approximately $1,900. The
$1,900 portion of the judgment was reflected in the June 30, 1993
financial statements. Pelikan's petition for rehearing was
subsequently denied and on August 9, 1993, the Company and
Pelikan entered into an agreement pursuant to which Pelikan
agreed to pay $525 to the Company for fees, expenses and costs
incurred in the suit along with the remaining $1,220 judgment.
On August 11, 1993, Pelikan paid the settlement amount to the
Company and satisfied the judgment, including interest.
The Company is also a defendant or plaintiff in various
other legal actions which have arisen in the ordinary course of
its business. It is the opinion of management, based on advice
of counsel with respect to legal matters, that the ultimate
resolution of these matters and the environmental matters
discussed above will not have a material adverse effect on the
Company's financial position or results of operations.
<PAGE>
NOTE 3 - INVENTORIES
A summary of inventories, by major classification, is as
follows:
<TABLE>
<CAPTION>
September 30, June 30,
1994 1994
($ in thousands)
<S> <C> <C>
Raw materials and supplies $ 2,667 $ 2,612
Work-in-process 26,744 27,796
Finished goods 41,828 34,190
Total 71,239 64,598
Lifo reserve (351) (351)
Total $70,888 $64,247
</TABLE>
NOTE 4 - RESTRUCTURING COSTS
Over the past few years, the Company has faced intense
competition from foreign producers. In July 1992, in order to
maintain its leadership as the low-cost producer in a highly
competitive worldwide business, the Board of Directors approved,
and the Company announced, a plan to phase out the Company's
manufacturing operations in Cortland, New York and relocate them
to a new facility in Mexico. As a result of this decision,
during fiscal 1993, the Company provided $16,500 in restructuring
charges, of which approximately $3,000 was non-cash in nature.
Now that the Mexican facility is fully operational, this action
is expected to result in lower manufacturing costs of
approximately $15,000 annually, primarily due to lower labor
costs. The activity in the restructuring accrual is as follows:
<TABLE>
<CAPTION>
Asset
($ in thousands) Severance Impairments Total
<S> <C> <C> <C>
June 30, 1994 balance $3,305 $827 $4,132
Activity (806) - (806)
September 30, 1994 balance $2,499 $827 $3,326
</TABLE>
NOTE 5 - CASH FLOWS
Aggregate borrowings under the Company's revolving credit
facility amounted to $355,549 and $230,188 for the three months
ended September 30, 1994 and 1993, respectively, while aggregate
repayments were $355,051 and $228,857 for the same periods,
respectively.
NOTE 6 - DISCONTINUED OPERATIONS
On July 5, 1994 the Company sold substantially all of the
assets and liabilities of SCM Office Supplies, Inc., a wholly-
owned subsidiary. The sale proceeds of approximately $13.0
million were used to reduce the Company's debt. Accordingly, the
prior year income statement reflects SCM Office Supplies, Inc.'s
operating results as discontinued operations and the balance
sheet segregates the net assets of discontinued operations.
NOTE 7 - DIVIDENDS
On August 18, 1994, the Board of Directors declared a
quarterly cash dividend of $.05 per share of common stock payable
on October 5, 1994 to stockholders of record as of September
20, 1994. The dividend in the first quarter of fiscal 1994 was
$.05 per share of common stock.
NOTE 8 - SUBSEQUENT EVENT
On November 4, 1994 the Company sold substantially all of
the assets and liabilities of Histacount Corporation, a wholly-
owned subsidiary, for $14.5 million subject to final closing
balance sheet adjustment. The sale proceeds will be used to
reduce the Company's debt. The Company will realize an after-tax
gain on the sale, including utilization of a capital tax-loss
carry-forward, of approximately $8.6 million, or $.29 per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Net sales during the quarter ended September 30, 1994 of
$64.1 million declined $12.2 million or 16.0 percent from $76.3
million for the same period in fiscal 1994 of which approximately
$11.1 million relates to a decline in volume. Last year's
quarter results benefited from shipments of new model year
products. In addition to the volume decline, domestic product
prices declined from a year ago. New product sales increased
$1.9 million over the previous year. Internationally, new
product sales and improved product mix offset volume declines in
core products.
Gross margin, as a percentage of net sales, was 23.2 percent
as compared to 25.9 percent for the comparable quarter last year.
Included in last year's gross margin was a benefit of $1.8
million pretax (2.4 percent of net sales), representing the final
payment from Pelikan, Inc. in a patent infringement case. In
spite of price reductions experienced in the first quarter of
fiscal year 1995, the gross margin percentage on manufactured
products was maintained through lower product costs, primarily
labor in the Mexican manufacturing operations.
Selling, administrative and research expenses decreased $1.0
million or 7.2 percent from the prior fiscal 1994 quarter
primarily as a result of lower selling expenses.
The Company's effective tax rate was 37.0 percent as
compared to 34.0 percent for the same period a year ago. The
change in the effective tax rate relates principally to the
expiration of the "pioneer tax status" at the Company's Singapore
location late in fiscal 1994.
Financial Condition
The Company's primary sources of liquidity and capital
resources, on both a short- and long-term basis, are cash flows
generated from operations and borrowings under its credit
facility.
During the quarter ended September 30, 1994, the Company's
operating activities employed $13.8 million of cash largely as a
result of increased receivables and inventories. Accounts
receivable increased $6.6 million from June 30, 1994 primarily
related to increased sales late in the quarter. Inventories
also increased $6.6 million as reductions in production levels
lagged sales declines. A quarterly cash dividend of $1.5 million
($.05 per share) was paid in each of the first fiscal quarters.
On October 25, 1994, management announced it will recommend to
the Board of Directors a reduction in dividends by up to 50
percent at the Board of Directors' meeting scheduled for November
15, 1994. The Company had no material commitments for capital
expenditures at September 30, 1994.
The Company's borrowing resources at September 30, 1994
consisted of a revolving credit agreement with two banks, which
provides availability of $32.0 million expiring on June 25, 1996.
The Company also has an uncommitted line of credit arrangement
which was reduced from $20.0 million at June 30, 1994 to $10.0
million on November 4, 1994. Bank loans remained at
approximately the same levels as the $13.0 million proceeds from
the sale of SCM Office Supplies, Inc., used to pay down bank
loans, was offset by increased accounts receivables and
inventories.
From time to time the Company enters into foreign exchange
contracts to reduce its exposure to foreign currency rate
changes. As of September 30, 1994 the Company had approximately
$16.9 million of such contracts outstanding which mature at
various dates through June 28, 1995. Gains and losses on these
contracts are recorded in net income in the period in which the
exchange rate changes.
The Company believes that its funds generated from
operations together with its borrowing capabilities will be
sufficient to meet its operating cash and capital expenditure
requirements in the foreseeable future.
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
10.43 Asset Purchase Agreement, dated as of June
8, 1994, among Ampad Corporation (the
"Purchaser"), SCM Office Supplies, Inc.
(the "Seller") and Smith Corona Corporation
(the "Stockholder") (incorporated by
reference to exhibit 1 to the Company's
Form 8-K Current Report dated July 19,
1994, which is on file with the
Commission).
27 Financial Data Schedule
(b) Reports on Form 8-K
One Current Report on Form 8-K was filed with the
Commission during the first quarter of the Company's
1995 fiscal year.
1. The Form 8-K Current Report dated July 19, 1994
reported a press release under Item 2 announcing
the Company sold substantially all the assets and
liabilities of SCM Office Supplies, Inc., a
wholly-owned subsidiary, to Ampad Corporation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SMITH CORONA CORPORATION
November 14, 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SMITH
CORONA CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF
THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1994
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<RECEIVABLES> 57438
<ALLOWANCES> 1478
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<CURRENT-ASSETS> 143859
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<BONDS> 0
<COMMON> 303
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<TOTAL-COSTS> 49265
<OTHER-EXPENSES> 0
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</TABLE>
