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 December 31, 1995
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 January 31, 1996
Common Stock, par value $.01 30,250,000
per share
SMITH CORONA CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - December 31, 1995
and June 30, 1995 1
Consolidated Statements of Operations - For the
three months and six months ended
December 31, 1995 and 1994 2
Consolidated Statement of Changes in Stockholders'
Equity - For the six months ended December 31, 1995 3
Consolidated Statements of Cash Flows - For the
six months ended December 31, 1995 and 1994 4
Notes to Consolidated Financial Statements 5-14
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 15-19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19-20
Signatures 21
Exhibit Index
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
(audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,851 $ 7,003
Accounts receivable (net of allowance
for doubtful accounts of $1,875 and
$1,484, respectively) 36,064 37,654
Inventories 27,711 54,335
Prepaid expenses and other current
assets 13,244 9,471
Total current assets 82,870 108,463
Property, plant and equipment, net 16,452 22,888
Deferred income taxes 3,406 3,406
Other assets 1,257 1,309
TOTAL $103,985 $136,066
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans $ 5,800 $ 17,400
Trade payables 3,219 19,807
Accrued liabilities 24,340 35,449
Income taxes payable - 5,791
Total current liabilities 33,359 78,447
Postretirement benefits 22 12,999
Pension liability 555 18,801
Other long-term liabilities 114 5,569
Liabilities subject to compromise 63,750 -
Total liabilities 97,800 115,816
Stockholders' equity:
Common stock-30,250,000 shares issued
and outstanding 303 303
Additional paid-in capital 44,697 44,697
Accumulated deficit (38,815) (24,750)
Total stockholders' equity 6,185 20,250
TOTAL $103,985 $136,066
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 36,303 $ 63,351 $69,766 $123,465
Cost of goods sold 35,399 50,076 64,859 97,179
Gross margin 904 13,275 4,907 26,286
Selling, administrative
and research expenses 7,812 12,449 14,567 23,719
Reorganization costs 2,848 - 6,057 -
Restructuring expense(income) 223 - (1,301) -
Other income (1,511) - (1,096) -
Operating income (loss) (8,468) 826 (13,320) 2,567
Interest expense 198 312 600 555
Income (loss) from continuing
operations before income
taxes (8,666) 514 (13,920) 2,012
Income taxes (benefit) (30) 190 145 744
Income (loss) from continuing
operations (8,636) 324 (14,065) 1,268
Discontinued operations (net of
income taxes):
Income from discontinued
operations - 115 - 385
Gain on disposal of discontinued
operations - 8,722 - 8,722
Net income (loss) ($ 8,636) $ 9,161 ($14,065)$ 10,375
Earnings per common share-
Income (loss) from continuing
operations ($.29) $.01 ($.47) $.04
Discontinued operations (net of
income taxes):
Income from discontinued
operations - - - .01
Gain on disposal of discontinued
operations - .29 - .29
Net income (loss) per share ($.29) $.30 ($.47) $.34
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the six months ended December 31, 1995
($ in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
<S> <C> <C> <C> <C>
Balance June 30, 1995 $303 $44,697 $(24,750) $20,250
Net loss - - (14,065) (14,065)
Balance December 31, 1995 $303 $44,697 $(38,815) $ 6,185
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Six months ended
December 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($14,065) $10,375
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) continuing
operating activities:
Discontinued operations - (9,107)
Depreciation and amortization 2,966 2,913
Deferred income taxes - (2,349)
Inventory provisions 4,243 175
Other noncash items (929) 627
Changes in assets and liabilities:
Accounts receivable 1,175 (7,874)
Inventories 23,381 (575)
Prepaid expenses and
other current assets (1,731) 524
Other assets 16 (262)
Trade payables (5,987) (8,145)
Accrued liabilities and income taxes
payable (596) (83)
Postretirement benefits and pension
liability 577 (1,202)
Other long-term liabilities 114 218
Net cash provided by (used in)
continuing operations 9,164 (14,765)
Net cash provided by discontinued
operations - 679
Net cash provided by (used in)
operating activities 9,164 (14,086)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of discontinued
operations - 27,500
Proceeds from the sale of property,
plant and equipment 1,389 -
Capital expenditures (105) (2,601)
Net cash provided by investing activities 1,284 24,899
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loans (repayments), net (11,600) (5,002)
Dividends paid - (3,025)
Net cash used in financing activities (11,600) (8,027)
Increase (decrease) in cash and cash
equivalents (1,152) 2,786
Cash and cash equivalents:
Beginning of period 7,003 6,472
End of period $ 5,851 $ 9,258
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
($ in thousands, except per share amounts)
NOTE 1 - PETITION FOR REORGANIZATION UNDER CHAPTER 11 AND BASIS
OF PRESENTATION
On July 5, 1995, Smith Corona Corporation (the "Company") filed a
voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code in the District of Delaware. Prior to
August 18, 1995, the bankruptcy proceedings did not include any
of the subsidiaries of the Company. On August 18, 1995, SCM
Office Supplies, Inc., SCC LI Corp. (formerly known as Histacount
Corporation) and Hulse Manufacturing Company, all wholly-owned
nonoperating subsidiaries of Smith Corona Corporation, filed
Chapter 11 petitions (collectively, the filings by the Company
and such debtor subsidiaries are referred to herein as the
"Bankruptcy Proceedings"). The Bankruptcy Proceedings primarily
relate to all U.S. assets and operations and do not pertain to
Smith Corona Corporation's international subsidiaries. Condensed
consolidating financial information for the entities included in
the Bankruptcy Proceedings is presented in Note 10. Since July
5, 1995, the Company has been operating as a debtor-in-
possession. Consequently, the consolidated financial statements
have been presented in accordance with the guidelines established
by Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code," as issued by the
American Institute of Certified Public Accountants in November
1990.
The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles
applicable to a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal
course of business. Accordingly, the consolidated financial
statements do not reflect adjustments or provide for the
potential consequences of the Bankruptcy Proceedings on the
Company. In particular, the consolidated financial statements do
not purport to show (a) the realizable value of assets on a
liquidation basis or their availability to satisfy liabilities;
(b) prepetition liability amounts that may be allowed for claims
or contingencies or the status and priority thereof; (c) the
effect of any changes that may be made to the capitalization of
the Company; or (d) the effect of any changes that may be made in
the Company's business operations. The outcome of these matters
is not presently determinable. The Company has recently
experienced recurring losses from operations; has an accumulated
deficit at December 31, 1995; had difficulty in meeting its
Amended and Restated Revolving Credit Agreement covenants and has
had to obtain waivers to meet certain of its Debtor-In-Possession
Credit Agreement covenants; and cannot presently determine with
certainty the ultimate liability which may result from the filing
of claims in connection with the Bankruptcy Proceedings. These
conditions raise substantial doubt as to the Company's ability to
continue as a going concern.
Due to the Bankruptcy Proceedings, substantially all claims
against the Company prior to July 5, 1995 (and prior to August
18, 1995 for the three nonoperating subsidiaries added to the
proceedings) are subject to the automatic stay provisions under
the Bankruptcy Code while the Company continues business
operations as a debtor-in-possession. Pre-petition claims may
arise from the determination by the Bankruptcy Court of allowed
claims for contingencies and other disputed amounts.
Liabilities recorded by the Company as of December 31, 1995 and
June 30, 1995, respectively, that are expected to be compromised
under any plan of reorganization consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
<S> <C> <C>
Trade payables $10,601 $11,760
Accrued liabilities 11,670 16,207
Income taxes payable 5,634 5,634
Postretirement benefits 12,999 12,999
Pension liability 17,277 18,801
Other long-term liabilities 5,569 5,569
Total(1) $63,750 $70,970
</TABLE>
(1) Excludes a net intercompany payable in the amount of $16,691
and $9,076, respectively, to the Company's subsidiaries not
included in the Bankruptcy Proceedings.
The Company recorded reorganization costs for its Bankruptcy
Proceedings aggregating $6,057 for the six months ended December
31, 1995. These charges include professional fees incurred
during the six month period.
At the Company's request, the Bankruptcy Court established a bar
date of October 31, 1995 for pre-petition claims against the
Company. A bar date is the date by which claims against the
Company must be filed if the claimants wish to receive any
distribution in the Bankruptcy Proceedings. The Company has
given notice to all known actual or potential claimants subject
to the bar date of their need to file a proof of claim with the
Bankruptcy Court. The Company will reconcile claims that differ
from the Company's records, and any differences that cannot be
resolved by negotiated agreement between the Company and the
claimant will be resolved by the Bankruptcy Court. Accordingly,
allowed claims may arise which are not currently reflected in the
Company's financial statements and recorded claims are subject to
change. The ultimate amount of and settlement terms for such
liabilities are subject to a plan of reorganization which is
subject to approval by the Bankruptcy Court and, accordingly, are
not presently determinable.
On October 24, 1995, the Company announced that it had reached an
agreement to sell its ongoing business to a group led by Empire
Capital Corporation, an investment company based in Southport,
CT. On November 20, 1995 the Company announced that it had
terminated the agreement because Empire Capital Corporation did
not fulfill certain contractual requirements necessary to
complete the transaction. Discussions with other parties which
have expressed interest in acquiring the Company are continuing.
NOTE 2 - 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
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, 1995, as contained in the Company's Annual Report on Form
10-K.
An administrator was appointed on August 2, 1995 for the
Company's wholly-owned subsidiary in Australia. The
Administrator was appointed as Liquidator on August 29, 1995.
Due to the liquidation, the Australian subsidiary's assets,
liabilities and operating results were removed from the
consolidated financial statements as of August 2, 1995 and the
Company has recorded in other expense an estimated loss on
liquidation of approximately $415 in the first quarter of fiscal
1996. The Company is currently exploring potential distributor
relationships in its Australian market for the purpose of
maintaining its distribution capacity.
Amounts in the prior year's financial statements have been
reclassified to reflect continuing operations (see Note 8).
NOTE 3 - 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 December
31, 1995 and June 30, 1995, the Company had recorded
approximately $4,161 and $4,203, respectively, related to
environmental matters and the amount at December 31, 1995 is
included in liabilities subject to compromise. 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 and the record of decision has been finalized.
On March 31, 1993, the Company executed a final consent order
with the DEC for the implementation of a remedial program for the
site. Design, construction and start-up activities related to
the selected remedial program are underway. 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 the U.S. District Court, Northern District of New York, in a
private contribution action. The plaintiffs in this action are
Coopers Industries, Inc., Keystone Consolidated Industries, Inc.,
The Monarch Machine Tool Co., Niagara Mohawk Power Corporation
and Overhead Door Corporation. 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.
The Company filed a complaint on November 4, 1994 against CoStar
Corporation("CoStar") seeking (i) a declaratory judgment that the
Company was not infringing CoStar's trade dress, (ii) damages for
breach of warranty and fraud and (iii) rescission of contracts
induced by such fraud. The complaint related to envelope
printers purchased by the Company from CoStar and label printers
manufactured by a third party for the Company. CoStar
subsequently filed an answer denying the Company's allegations
and asserting counterclaims alleging that the Company had
infringed its label printer's trade dress, breached the
provisions of a confidentiality agreement between the Company and
CoStar, and tortiously injured CoStar's business reputation. In
addition, CoStar filed a related third-party complaint against DH
Technology, Inc. ("DH"). On June 23, 1995, the Company entered
into a Settlement Agreement with CoStar and DH in connection with
the lawsuit. Pursuant to the Settlement Agreement, the Company
agreed, among other things, to pay CoStar the sum of $55,085 on
each of June 23, 1995, July 31, 1995, August 31, 1995 and
September 29, 1995 and to return certain tooling and equipment to
CoStar, in exchange for, among other things, the release by
CoStar of its claims against the Company. The payments required
for June 23, 1995, July 31, 1995 and August 31, 1995 are included
in liabilities subject to compromise at December 31, 1995.
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 operation.
NOTE 4 - INVENTORIES
A summary of inventories, by major classification, is as
follows:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
<S> <C> <C>
Raw materials and supplies $ 43 $ 995
Work-in-process 9,046 17,807
Finished goods 18,622 35,533
Total $27,711 $54,335
</TABLE>
NOTE 5 - RESTRUCTURING COSTS
Over the past few years, the Company has faced intense
competition from foreign producers. On May 8, 1995 the Company
announced a major restructuring plan whereby the Company's
typewriter manufacturing will be relocated from its Singapore and
Batam Island, Indonesia facilities to its Mexico facility. This
action will result in the termination of approximately 1,300
workers in Singapore and Batam who will be replaced with
approximately 600 workers in Mexico. This action is expected to
save approximately $10,000 pretax annually primarily through
lower labor costs as well as the greater utilization of the
Mexico facility. The Company ceased production in Singapore and
Batam Island, Indonesia in November 1995, and relocated equipment
to Mexico where typewriter production commenced in December 1995.
The Company sold its Singapore facility and the underlying land
lease on February 8, 1996 for net proceeds of approximately
$20,300. The sale is expected to result in a third quarter
pretax gain of approximately $16,700.
In addition to the relocation of typewriter manufacturing to
Mexico, the Company also eliminated approximately 180 support
positions within research and development, finance, service,
distribution, selling and marketing areas in both its Cortland,
New York and New Canaan, Connecticut locations. Approximately
$10,000 in additional annual pretax savings are expected from
elimination of these support positions. These reductions were
completed by the end of the first quarter of fiscal 1996 and
resulted in a first quarter pension curtailment gain of
approximately $1,524.
The net result of these actions reduced the Company's May 8, 1995
workforce of approximately 2,500 by approximately 680.
As a result of these actions, the Company recorded a pretax
charge of approximately $14,870 in the fourth quarter of fiscal
1995, of which approximately $1,877 represents primarily non-cash
machinery and equipment asset write-offs, and the remainder
relates to employee severance. Additionally, certain costs,
primarily relating to the move of machinery and equipment,
temporary lease-back of facilities, and renovations, of
approximately $6,000 pretax, will be recognized as charges to
operations as incurred during fiscal year 1996.
The activity in the restructuring accrual is as follows:
<TABLE>
<CAPTION>
Asset
Impair- Other
Severance ments Costs Total
<S> <C> <C> <C> <C>
June 30, 1995 balance $11,494 $1,492 $ 285 $13,271
Fiscal 1996 Activity(1) (593) (1,354) - (1,947)
December 31, 1995
balance $10,901 $ 138 $ 285 $11,324
</TABLE>
(1) Represents cash payments for severance of approximately $101
and non-cash items for foreign currency exchange rate
changes, severance provision adjustments and asset
impairments.
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. The Mexican facility was fully operational in
fiscal year 1995 and the anticipated annual savings of
approximately $15,000 were substantially realized. The fiscal
1996 activity in the restructuring accrual is as follows:
<TABLE>
<CAPTION>
Severance Total
<S> <C> <C>
June 30, 1995 balance $50 $50
Fiscal 1996 Activity (50) (50)
December 31, 1995 balance $ - $ -
</TABLE>
NOTE 6 - CASH FLOWS
Aggregate borrowings under the Company's credit facility amounted
to $1,291,100 and $560,008 for the six months ended December 31,
1995 and 1994, respectively, while aggregate repayments were
$1,302,700 and $565,010 for the same periods, respectively.
NOTE 7 - BANK LOANS
On April 7, 1995, the Company entered into an Amended and
Restated Revolving Credit Agreement (the "Amended and Restated
Credit Agreement") with two banks (the "Lenders"), the use of
which was generally to satisfy working capital requirements. The
Amended and Restated Credit Agreement provided for extensions of
revolving credit loans and letters of credit, limited to a
percentage of eligible receivables and inventories, in an amount
not to exceed $30,000 up through March 30, 1996; the aggregate
principal amount of such lending commitment reduces to an amount
not in excess of $25,000 from March 31, 1996 through the July 1,
1996 termination date. The Amended and Restated Credit Agreement
was secured by a security interest in the domestic assets of the
Company pursuant to a Security Agreement of even date therewith.
Interest was at variable rates equal to the greater of the prime
rate of interest, the base certificate of deposit rate plus 1.0
percent or the federal funds effective rate plus .5 percent for
any day.
The Amended and Restated Credit Agreement contained certain
covenants, including restrictions on payment of dividends and
limitations on sale of assets, capital expenditures, incurrence
of other debt, liens or guarantees and making of investments,
loans and advances. The primary financial covenants included (i)
not permitting consolidated tangible net worth at the end of any
fiscal quarter to be (a) less than it was as of March 31, 1995
minus $3,000 plus (b) 80.0 percent of consolidated net income for
all full fiscal quarters subsequent to March 31, 1995, (ii)
maintaining a ratio of current assets (other than inventories) to
current liabilities (other than loans outstanding under the
Amended and Restated Credit Agreement) of at least 0.9 to 1.0 and
(iii) maintaining minimum operating profit levels. As of June
30, 1995, the Company was in technical default of its Amended and
Restated Credit Agreement; however, the loan was paid in full in
July 1995.
On July 10, 1995, the Company entered into a Debtor-In-Possession
Credit Agreement (the "Debtor-In-Possession Credit Agreement")
with its Lenders which was approved by the United States
Bankruptcy Court for the District of Delaware on August 2, 1995.
The proceeds of the Debtor-In-Possession Credit Agreement were
used to repay the amounts outstanding under the Amended and
Restated Credit Agreement. The Debtor-In-Possession Credit
Agreement, as amended, provides for extensions of revolving
credit loans, term loans and letters of credit, limited to a
percentage of eligible receivables and inventories, in an amount
not to exceed $24.0 million through the June 30, 1996 termination
date. Interest is 2 percent over the greatest of the Prime Rate,
Base CD Rate plus 1 percent or Federal Funds Effective Rate plus
.5 percent. Payments of dividends is prohibited by the terms of
the Debtor-In-Possession Credit Agreement, under which the
Company is limited to maximum monthly amounts of inventory and
cash disbursements. Additionally, the Company is restricted to
$500 of capital expenditures in each six month period ended
December 31, 1995 and June 30, 1996. Management believes that it
has adequate flexibility and that such covenants should not
impose undue restrictions on the operations of the Company during
its Bankruptcy Proceedings. The Company is currently in
compliance with the terms of the Debtor-In-Possession Credit
Agreement or has obtained waivers as necessary. The Debtor-In-
Possession Credit Agreement is secured by substantially all of
the Company's assets.
NOTE 8 - DISCONTINUED OPERATIONS
On November 4, 1994 the Company sold substantially all of the
assets and liabilities of Histacount Corporation, a wholly-owned
subsidiary, for $14,500. The after-tax gain on the sale includes
utilization of a capital tax-loss carry-forward. On July 5, 1994
the Company sold substantially all of the assets and liabilities
of SCM Office Supplies, Inc., a wholly-owned subsidiary, for
$13,000. The proceeds from the two sales were used to reduce the
Company's debt. Accordingly, the prior year income statement
reflects Histacount Corporation's operating results as
discontinued operations.
Summary operating results of discontinued operations are as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, 1994 December 31, 1994
<S> <C> <C>
Net sales $1,747 $5,774
Income from operations
before income taxes 182 612
Income taxes 67 227
Net income from operations 115 385
Gain on disposal of assets
(Net of tax benefit of $285) 8,722 8,722
Net income $8,837 $9,107
</TABLE>
NOTE 9 - DIVIDENDS
On May 4, 1995 the Board of Directors elected to omit the
dividend. The dividend declared in the first and second quarters
of fiscal 1995 was $.05 and $.025 per share of common stock,
respectively.
NOTE 10 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The following proforma financial information shows the effects of
adoption of Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code," and
separates the consolidated balance sheets as of December 31,
1995, and consolidated statements of operations and cash flows
for the six months then ended, of those entities that are
included in the Bankruptcy Proceedings and those that are not.
Condensed Consolidating Balance Sheets
<TABLE>
<CAPTION>
Non-
Debtor-In Debtor-In
Possession Possession Elimin- Consol-
Entities Entities ations idated
<S> <C> <C> <C> <C>
Current assets $ 55,934 $ 26,936 $ - $ 82,870
Property, plant
and equipment 13,002 3,450 - 16,452
Other assets 81,864 16,657 (93,858) 4,663
Total assets $150,800 $47,043 $(93,858) $103,985
Bank loans $ 5,800 $ - $ - $ 5,800
Other current
liabilities 16,040 11,519 - 27,559
Intercompany with
affiliates 16,691 (16,691) - -
Other long-term
liabilities 691 - - 691
Liabilities subject
to compromise 63,750 - - 63,750
Stockholders' equity 47,828 52,215 (93,858) 6,185
Total liabilities and
stockholders' equity $150,800 $47,043 $(93,858) $103,985
</TABLE>
Condensed Consolidating Statements of Operations
<TABLE>
<CAPTION>
Non-
Debtor-In Debtor-In
Possession Possession Elimin- Consol-
Entities Entities ations idated
<S> <C> <C> <C> <C>
Net sales $ 54,366 $15,400 $ - $ 69,766
Net sales to affiliates 6,706 16,775 (23,481) -
Cost of goods sold 51,807 13,052 - 64,859
Cost of goods sold to
affiliates 5,630 17,851 (23,481) -
Gross margin 3,635 1,272 - 4,907
Selling, administrative
and research expenses 11,107 3,460 - 14,567
Restructuring expense (income) (1,524) 223 - (1,301)
Reorganization costs 6,057 - - 6,057
Other expense (income) (2,596) 1,500 - (1,096)
Operating loss (9,409) (3,911) - (13,320)
Interest expense 600 - - 600
Loss from operations
before income tax (10,009) (3,911) - (13,920)
Income taxes (benefit) 251 (106) - 145
Net loss $(10,260) $ (3,805) $ - $(14,065)
</TABLE>
Condensed Consolidating Statements of Cash Flows
<TABLE>
<CAPTION>
Non-
Debtor-In Debtor-In
Possession Possession Elimin- Consol-
Entities Entities ations idated
<S> <C> <C> <C> <C>
Cash Flows from
operating activities:
Net loss $(10,260) $(3,805) $ - $(14,065)
Adjustments to
reconcile net loss
to net cash used in
continuing operating
activities:
Noncash items and
changes in
operating assets
and liabilities 18,635 4,594 - 23,229
Net cash flow provided
by operating activities 8,375 789 - 9,164
Cash flows from
investing activities:
Proceeds from sale of
property, plant and
equipment 1,389 - - 1,389
Capital expenditures (75) (30) - (105)
Net cash provided by
(used in) investing
activities 1,314 (30) - 1,284
Cash flows from
financing activities:
Bank loans
(repayments), net (11,600) - - (11,600)
Net cash Used in
financing activities (11,600) - - (11,600)
Increase (decrease)
in cash and cash
equivalents (1,911) 759 - (1,152)
Cash and cash
equivalents at
beginning of year 3,027 3,976 - 7,003
Cash and cash
equivalents at
end of year $ 1,116 $4,735 $ - $ 5,851
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
With the Company experiencing sales declines and operating
losses, having extended payments to trade vendors, and needing
additional financing to meet operating requirements and fund the
restructuring program, the Company filed a voluntary petition
for reorganization under Chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court for the District of Delaware
on July 5, 1995. Prior to August 18, 1995, the bankruptcy
proceedings did not include any of the subsidiaries of the
Company. On August 18, 1995, SCM Office Supplies, Inc., SCC LI
Corp. (formerly Histacount Corporation) and Hulse Manufacturing
Company, all wholly-owned nonoperating subsidiaries of the
Company, filed Chapter 11 petitions.
An administrator was appointed on August 2, 1995 for the
Company's wholly-owned subsidiary in Australia. The
Administrator was appointed as Liquidator on August 29, 1995.
Due to the liquidation, the Australian subsidiary's assets,
liabilities and operating results were removed from the
consolidated financial statements as of August 2, 1995 and the
Company has recorded in other expense an estimated loss on
liquidation of approximately $.4 million in the first quarter of
fiscal 1996. The Company is currently exploring potential
distributor relationships in its Australian market for the
purpose of maintaining its distribution capacity.
On November 4, 1994 the Company sold substantially all the
assets and liabilities of Histacount Corporation. Accordingly,
the consolidated statement of operations for fiscal year 1995
reflects their operating results as discontinued operations.
The following discussion of results of operations and financial
condition is presented for continuing operations only.
Results of Operations
Net sales of $36.3 million for the quarter ended December 31,
1995 decreased 42.7 percent from last year's second quarter net
sales of $63.4 million. Approximately 92.7 percent of the
second quarter decrease related to lower volumes with the
balance related to pricing reductions.
Typewriters and personal word processor volumes are sharply
lower than a year ago, both domestically and internationally, as
a result of a continuing difficult competitive environment. The
Company believes that the market for typewriters and personal
word processors is declining along with its share of that
market. New product net sales for the quarter were $2.1 million
as compared with $4.2 million a year ago.
In the second quarter the Company had a gross margin as a
percentage of net sales of 2.5 percent reducing the gross margin
to 7.0 percent for the six months ended December 31, 1995, as
compared to 21.0 percent and 21.3 percent, for the comparable
periods last year. In addition to volume declines noted above,
gross margin was also adversely impacted by a second quarter
charge of approximately $4.4 million for inventory-related
provisions.
Selling, general and administrative expenses for the three and
six months ended December 31, 1995 decreased $4.6 million and
$9.2 million, respectively, from the comparable prior periods
last year, which reflects the impact of fiscal 1995
restructuring actions.
The Company recorded reorganization costs for its Bankruptcy
Proceedings aggregating $2.8 million and $6.1 million for the
three and six months, respectively. These charges included
professional fees incurred during the first six months of fiscal
1996. There were no such items during the first six months of
fiscal 1995.
Restructuring expense (income) primarily represents a pension
plan curtailment gain offset by additional machinery and
equipment writedowns resulting from the restructuring action
announced in May 1995. Additionally, costs associated with the
restructuring action of approximately $.3 million and $.7
million, primarily related to the move of machinery, equipment
and inventory and shut-down of Singapore manufacturing
operations, are included in cost of sales and selling, general
and administrative expenses, respectively.
In October 1995, the Company completed a transaction to purchase
a building previously used as warehousing space located in
Cortland, New York and to concurrently sell the building and
land on which the building is located to a third party
purchaser. The net proceeds of approximately $1.3 million were
used to paydown the bank loan and represent a fiscal year 1996
second quarter gain included in other income and expense.
The provision for income taxes for the three and six months
ended December 31, 1995 relates principally to foreign-sourced
income. As a result of the Bankruptcy Proceedings and the
short-term outlook, deferred tax assets, which resulted from
year-to-date fiscal 1996 operating losses, have been fully
offset by valuation allowances.
Financial Condition
The Company's primary source of liquidity and capital resources,
on both a short- and long-term basis, are cash flows generated
from operations and borrowing under its Debtor-In-Possession
Credit Agreement.
The Bankruptcy Proceedings restrict the Company's ability to
provide direct financial support outside of the normal course of
business to its international subsidiaries without the approval
of the Bankruptcy Court. Furthermore, certain actions,
including actions outside of the normal course of business, must
be approved by the Bankruptcy Court.
On July 10, 1995, the Company entered into a Debtor-In-
Possession Credit Agreement (the "Debtor-In-Possession Credit
Agreement") with two banks (the "Lenders") which was approved by
the Bankruptcy Court on August 2, 1995. The Debtor-In-
Possession Credit Agreement paid-off the Amended and Restated
Credit Agreement (described below). The Debtor-In-Possession
Credit Agreement, as amended, provides for extensions of
revolving credit loans, term loans and letters of credit,
limited to a percentage of eligible receivables and inventories,
in an amount not to exceed $24.0 million through the June 30,
1996 termination date. The Debtor-In-Possession Credit
Agreement provides for a security interest in substantially all
of the Company's assets and imposes certain restrictive
covenants. Management believes that it has adequate flexibility
under the Debtor-In-Possession Credit Agreement and that such
covenants should not impose undue restrictions on the operations
of the Company during its Bankruptcy Proceedings. The Company
is currently in compliance with the terms of the Debtor-In-
Possession Credit Agreement or has obtained waivers as
necessary. Subsequent to December 31, 1995, the Company has
reduced its bank loans to zero.
On April 7, 1995, the Company entered into an Amended and
Restated Revolving Credit Agreement (the "Amended and Restated
Credit Agreement") with the Lenders. The Amended and Restated
Credit Agreement provided for extensions of revolving credit
loans and letters of credit, limited to a percentage of eligible
receivables and inventories, in an amount not to exceed $30.0
million up through March 30, 1996; the aggregate principal
amount of such lending commitment decreased to an amount not in
excess of $25.0 million from March 31, 1996 through the July 1,
1996 termination date. The Amended and Restated Credit
Agreement was secured by a security interest in the domestic
assets of the Company pursuant to a Security Agreement of even
date therewith. On June 9, 1995, the Company announced that it
was in technical default of the Amended and Restated Credit
Agreement due to the restructuring charge announced May 8, 1995.
Due to the Bankruptcy Proceedings, substantially all claims
against the Company prior to July 5, 1995 (and prior to August
18, 1995 for the three nonoperating subsidiaries added to the
Bankruptcy Proceedings) are subject to the automatic stay
provisions under the Bankruptcy Code while the Company continues
business operations as a debtor-in-possession. Pre-petition
claims may arise from the determination by the Bankruptcy Court
of allowed claims for contingencies and other disputed amounts.
At the Company's request, the Bankruptcy Court established a bar
date of October 31, 1995 for pre-petition claims against the
Company. A bar date is the date by which claims against the
Company must be filed if the claimants wish to receive any
distribution in the Bankruptcy Proceedings. The Company has
given notice to all known actual or potential claimants subject
to the bar date of their need to file a proof of claim with the
Bankruptcy Court. The Company will reconcile claims that differ
from the Company's records, and any differences that cannot be
resolved by negotiated agreement between the Company and the
claimant will be resolved by the Bankruptcy Court. Accordingly,
allowed claims may arise which are not currently reflected in
the Company's financial statements and recorded claims are
subject to change.
The ultimate amount of and settlement terms for such liabilities
are subject to a plan of reorganization which is subject to
approval by the Bankruptcy Court and, accordingly, are not
presently determinable.
On October 24, 1995, the Company announced that it had reached
an agreement to sell its ongoing business to a group led by
Empire Capital Corporation, an investment company based in
Southport, CT. On November 20, 1995 the Company announced that
it had terminated the agreement to sell because Empire Capital
Corporation did not fulfill certain contractual requirements
necessary to complete the transaction. Discussions with other
parties which have expressed interest in acquiring the Company
are continuing.
As represented in the consolidated statement of cash flows for
the six months ended December 31, 1995, the Company's operating
activities provided $9.2 million of cash, primarily the result
of a decrease in inventories. The reduction in inventories of
$23.4 million reflects the Company's continued focus on
controlling inventory levels. Trade payables decreased $6.0
million primarily as a result of the wind-down of Singapore
operations.
The Company had no material commitments for capital expenditures
at December 31, 1995. Under the provisions of the Debtor-In-
Possession Credit Agreement, the Company is restricted to $.5
million of capital expenditures in each six month period ended
December 31, 1995 and June 30, 1996.
From time to time the Company enters into foreign exchange
contracts to reduce its exposure to foreign currency rate
changes. As of December 31, 1995, no contracts were
outstanding.
The Company sold its Singapore facility and underlying land
lease on February 8, 1996 for net proceeds of approximately
$20.3 million. The sale is expected to result in a third
quarter pretax gain of approximately $16.7 million.
While the Company believes it has adequate financing to operate
in bankruptcy for a reasonable period of time, its ability to
successfully continue operations is dependent upon, among other
things, confirmation of a plan of reorganization that will
enable the Company to emerge from bankruptcy proceedings,
obtaining adequate post-confirmation financing to fund
restructuring and working capital requirements, successfully
implementing the restructuring program, and generating
sufficient cash from operations and financing sources to meet
obligations. There can be no guarantee that any or all of the
above noted actions will be accomplished.
PART II - Other Information
Item 1. Legal Proceedings.
Information required by this item is incorporated by
reference from "Note 3 - Contingencies" in the Notes
to Consolidated Financial Statements appearing on
page 7 of this Form 10-Q Quarterly Report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Third Amendment to the Debtor-In
-Possession Credit Agreement dated
as of December 6, 1995.
27 Financial Data Schedule
(b) Reports on Form 8-K
Two Current Reports on Form 8-K were filed
with the Commission during the second
quarter of the Company's 1996 fiscal year.
1. The Form 8-K Current Report dated October 30,
1995 announced under Item 5 that Smith Corona Corporation
solicited and received proposals from third parties to acquire
the ongoing business of the Company through a plan of
reorganization which would satisfy a portion of the Company's
liabilities but which would provide no consideration to
stockholders.
Also, the Company reported on such date under
Item 5 that it had reached an agreement to sell its ongoing
business to a group led by Empire Capital Corporation.
2. The Form 8-K Current Report dated December
4, 1995 announced under Item 5 that Smith Corona Corporation
terminated the agreement reached on October 24, 1995 to sell its
business to Empire Capital Corporation. Smith Corona said the
action was taken because Empire did not fulfill certain
contractual requirements necessary for the transaction to be
completed, and that discussions with other parties which have
expressed interest in acquiring Smith Corona would continue.
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
February 13, 1996
By: /s/ John A. Piontkowski
John A. Piontkowski
Senior Vice President,
Chief Financial Officer and
Treasurer (Principal Financial
Officer)
By: /s/ Martin D. Wilson
Martin D. Wilson
Controller (Principal
Accounting Officer)
EXHIBIT INDEX
Exhibit
EX-10 Third Amendment to the Debtor-In-Possession Credit
Agreement dated as of December 6, 1995.
EX-27 Financial Data Schedule (electronically filed only)
EXHIBIT 10
SMITH CORONA CORPORATION
THIRD AMENDMENT TO
DEBTOR-IN-POSSESSION CREDIT AGREEMENT
This THIRD AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT
AGREEMENT (this "Amendment") is dated as of December 6, 1995
and entered into by and among SMITH CORONA CORPORATION, a
Delaware corporation, as debtor and debtor-in-possession (the
"Borrower"), the several banks and other financial
institutions from time to time parties thereto (the
"Lenders") and CHEMICAL BANK, a New York banking corporation,
as agent for the Lenders (in such capacity, the "Agent"),
and, for purposes of Section 5 hereof, the Credit Support
Parties (as hereinafter defined) named on the signature pages
hereto, and is made with reference to that certain Debtor-In-
Possession Credit Agreement dated as of July 10, 1995, as
amended by that certain First Amendment to Debtor-in-
Possession Credit Agreement dated as of July 24, 1995 and
that certain Second Amendment to Debtor-in-Possession Credit
Agreement dated as of August 15, 1995 (as so amended, the
"Credit Agreement"), by and among the Borrower, the Lenders
and the Agent. Capitalized terms used herein without
definition shall have the same meanings herein as set forth
in the Credit Agreement.
RECITALS
WHEREAS, since the Borrower has determined to enter
into negotiations with potential purchasers of the Borrower
and to propose a plan of reorganization funded by such a
purchaser, on an expedited basis, the terms of the Credit
Agreement relating to the Business Plan and the Business Plan
Event are no longer relevant, and accordingly the Borrower,
Lenders and the Agent desire to amend the Credit Agreement as
provided herein;
WHEREAS, the Borrower has requested the Agent and
the Lenders to modify certain financial covenants in the
Credit Agreement and, subject to the terms and conditions
contained herein, the Agent and the Lenders are willing to
agree to such modification; and
WHEREAS, the Borrower has requested the Agent and
Lenders to amend certain provisions of the Credit Agreement
to permit SCC Singapore to enter into a credit facility with
OCBC Bank for the purpose of financing certain retrenchment
expenses of SCC Singapore;
NOW, THEREFORE, in consideration of the premises and
the agreements, provisions and covenants herein contained,
the parties hereto agree as follows:
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendments to Section 1: Definitions
A. Subsection 1.1 of the Credit Agreement is
hereby amended by deleting the definition of Business Plan
and Business Plan Event contained therein.
B. Subsection 1.1 of the Credit Agreement is
hereby amended by inserting the following definitions in
proper alphabetical order:
"`Lenders' Election': the election by the Agent,
with the consent, or at the request, of the Required Lenders,
in their sole and exclusive discretion, to terminate this
Agreement and demand that all Loans and all other amounts
owed under this Agreement (including without limitation the
L/C Obligations) be paid on the Termination Date."
"`OCBC Facility Letter' means that certain facility
letter from OCBC Bank dated October 17, 1995, as supplemented
by the facility letters dated October 27, 1995 and November
6, 1995, respectively, attached as Annex A to the Third
Amendment."
"`Singapore Factory' means the factory property of
SCC Singapore located at 7 Bedok South Road, Singapore
469272."
"`Third Amendment' means that certain Third
Amendment to Debtor-in-Possession Credit Agreement dated as
of December 6, 1995 by and among the Borrower, the Lenders
and the Agent."
C. The definition of "Termination Date" contained
in subsection 1.1 of the Credit Agreement is hereby amended
and restated as follows:
"`Termination Date': the earliest to occur of (i)
June 30, 1996, (ii) the date the Lenders elect to
terminate the Commitments pursuant to Section 7, (iii)
the date of prepayment in full by the Borrower of the
Loans and all other amounts owed under this Agreement
(including without limitation the L/C Obligations) and
termination of the Commitments in accordance with the
provisions of subsection 2.5, (iv) the effective date of
a plan of reorganization providing for the final payment
in full in cash on the effective date thereof of all
Loans and all other amounts owed under this Agreement
(including without limitation the L/C Obligations) and
(v) the sixtieth (60th) day following the date the Agent
provides the Borrower with notice of the exercise of the
Lenders' Election."
Section 1.2 Amendments to Section 6: Negative
Covenants
A. Subsection 6.1(a) of the Credit Agreement is
hereby amended and restated in its entirety as follows:
"(a) Maximum Inventory. Permit the aggregate
amount of Inventory of the Borrower and its
Subsidiaries, calculated on a consolidated basis in
accordance with GAAP, as of the last day of any
Fiscal Month set forth below to be greater than the
corresponding amount set forth below:
Fiscal Month Amount
October 1995 $51,000,000
November 1995 48,000,000
December 1995 46,000,000
January 1996 44,000,000
February 1996 42,000,000
March 1996 41,000,000
April 1996 40,000,000
May 1996 40,000,000
June 1996 40,000,000"
B. Subsection 6.1(b) of the Credit Agreement is
hereby amended and restated in its entirety as follows:
"(b) Maximum Cash Disbursements Permit the
aggregate amount of Cash disbursements, measured on
a consolidated basis for the Borrower and its
Subsidiaries, for the cumulative periods set forth
below to be greater than the corresponding amount
indicated below:
Period Amount
October 1 through October 31, 1995 $13,100,000
October 1 through November 30, 1995 24,000,000
October 1 through December 31, 1995 37,800,000"
C. Subsection 6.2 of the Credit Agreement is
hereby amended by (i) deleting the word "and" from the end
of clause (b) thereof, (ii) deleting the punctuation "." from
the end of clause (c) thereof and substituting "; and"
therefor, and (iii) adding the following clause (d) at the
end of such subsection:
"(d) SCC Singapore may become and remain liable
with respect to Indebtedness in an aggregate
principal amount not to exceed Singapore $14,000,000
incurred in accordance with the terms and provisions
of the OCBC Facility Letter; provided that all
proceeds of such Indebtedness are used in accordance
with the provisions of the OCBC Facility Letter."
D. Subsection 6.3 of the Credit Agreement is
hereby amended by (i) deleting the word "and" from the end of
clause (i) thereof, (ii) deleting the punctuation "." from
the end of clause (y) thereof and substituting "; and"
therefor, and (iii) adding the following clause (k) at the
end of such subsection:
"(k) Liens on the Singapore Factory to secure
Indebtedness permitted under subsection 6.2(d)."
E. Subsection 6.6 of the Credit Agreement is
hereby amended by (i) deleting the word "and" from the end of
clause (d) thereof, (ii) deleting the punctuation "." from
the end of clause (e) thereof and substituting "; and"
therefor, and (iii) adding the following clause (f) at the
end of such subsection:
"(f) the sale of the Singapore Factory; provided
that the proceeds of such sale are used first to repay
Indebtedness permitted under subsection 6.2(d) and then
to pay retrenchment costs of SCC Singapore and that the
balance of such proceeds, if any, shall be the property
of SCC Singapore and may be distributed to the Borrower
to be applied in accordance with the provisions of the
Credit Agreement."
Section 2. CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective
only upon the satisfaction of all of the following conditions
precedent (the date of satisfaction of such conditions being
referred to herein as the "Third Amendment Effective Date"):
A. The Agent shall have received counterparts of
this Amendment executed by the Borrower, each Lender and the
Agent and written or telephonic notification of such
execution and authorization of delivery thereof.
B. The Bankruptcy Court shall have approved the
execution of this Amendment by the Borrower.
C. Any portion of the Prior Indebtedness for which
the Borrower has been billed but which has not heretofore
been paid shall have been paid.
Section 3. OTHER AGREEMENTS
Without limiting the provisions of subsection 5.15
or subsection 9.5 of the Credit Agreement, the Borrower
hereby agrees to pay all Prior Indebtedness owed by the
Borrower in respect of fees and expenses promptly upon
receipt.
Section 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this
Amendment and to amend the Credit Agreement in the manner
provided herein, the Borrower represents and warrants to each
Lender that the following statements are true, correct and
complete:
A. Corporate Power and Authority. The Borrower
has all requisite corporate power and authority to enter into
this Amendment and to carry out the transactions contemplated
by, and perform its obligations under, the Credit Agreement
as amended by this Amendment (the "Amended Agreement").
B. Authorization of Agreements. The execution and
delivery of this Amendment and the performance of the Amended
Agreement have been duly authorized by all necessary
corporate action on the part of the Borrower.
C. No Conflict. The execution and delivery by the
Borrower of this Amendment and the performance by the
Borrower of the Amended Agreement do not and will not
(i) violate any provision of any law or any governmental rule
or regulation applicable to the Borrower or any of its
Subsidiaries, the Certificate or Articles of Incorporation or
Bylaws of the Borrower or any of its Subsidiaries or any
order, judgment or decree of any court or other agency of
government binding on the Borrower or any of its
Subsidiaries, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a
default under any Contractual Obligation of the Borrower or
any of its Subsidiaries, (iii) result in or require the
creation or imposition of any Lien upon any of the properties
or assets of the Borrower or any of its Subsidiaries (other
than any Liens created under any of the Loan Documents in
favor of the Agent on behalf of the Lenders), or (iv) require
any approval of stockholders or any approval or consent of
any Person under any Contractual Obligation of the Borrower
or any of its Subsidiaries.
D. Governmental Consents. The execution and
delivery by the Borrower of this Amendment and the
performance by the Borrower of the Amended Agreement do not
and will not require any registration with, consent or
approval of, or notice to, or other action to, with or by,
any federal, state or other governmental authority or
regulatory body.
E. Binding Obligation. This Amendment and the
Amended Agreement have been duly executed and delivered by
the Borrower and are the legally valid and binding
obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or limiting creditors' rights
generally or by equitable principles relating to
enforceability.
F. Incorporation of Representations and Warranties
From Credit Agreement. The representations and warranties
contained in Section 3 of the Credit Agreement are and will
be true, correct and complete in all material respects on and
as of the Third Amendment Effective Date to the same extent
as though made on and as of that date, except to the extent
such representations and warranties specifically relate to an
earlier date, in which case they were true, correct and
complete in all material respects on and as of such earlier
date.
G. Absence of Default. No event has occurred and
is continuing or will result from the consummation of the
transactions contemplated by this Amendment that would
constitute a Default.
Section 5. ACKNOWLEDGEMENT AND CONSENT
The Borrower is a party to the Security Agreement
and the Borrower Pledge Agreement pursuant to which the
Borrower has created Liens in favor of the Agent on certain
Collateral to secure the Obligations. Each Subsidiary
Guarantor is party to the Subsidiary Guaranty pursuant to
which the Subsidiary Guarantors have guarantied the
Obligations. The Subsidiary Guarantors party to the
Guarantor Pledge Agreement have created Liens in favor of the
Agent to secure the obligations of such Subsidiary Guarantor
under the Subsidiary Guaranty. The Borrower and the
Subsidiary Guarantors are collectively referred to herein as
the "Credit Support Parties."
Each Credit Support Party hereby acknowledges that
it has reviewed the terms and provisions of the Credit
Agreement and this Amendment and consents to the amendment of
the Credit Agreement effected pursuant to this Amendment.
Each Credit Support Party hereby confirms that each
Collateral Document to which it is a party or otherwise bound
and all Collateral encumbered thereby will continue to
guaranty or secure, as the case may be, to the fullest extent
possible the payment and performance of all "Obligations,"
"Guarantied Obligations" and "Secured Obligations," as the
case may be (in each case as such terms are defined in the
applicable Collateral Document), including without limitation
the payment and performance of all such "Obligations,"
"Guarantied Obligations" or "Secured Obligations," as the
case may be, in respect of the Obligations of the Borrower
now or hereafter existing under or in respect of the Amended
Agreement and the Notes.
Each Credit Support Party acknowledges and agrees
that any of the Collateral Documents to which it is a party
or otherwise bound shall continue in full force and effect
and that all of its obligations thereunder shall be valid and
enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit
Support Party represents and warrants that all repre-
sentations and warranties contained in the Amended Agreement
and the Collateral Documents to which it is a party or
otherwise bound are true, correct and complete in all
material respects on and as of the Third Amendment Effective
Date to the same extent as though made on and as of that
date, except to the extent such representations and
warranties specifically relate to an earlier date, in which
case they were true, correct and complete in all material
respects on and as of such earlier date.
Each Credit Support Party (other than the Borrower)
acknowledges and agrees that (i) notwithstanding the
conditions to effectiveness set forth in this Amendment, such
Credit Support Party is not required by the terms of the
Credit Agreement or any other Loan Document to consent to the
amendments to the Credit Agreement effected pursuant to this
Amendment and (ii) nothing in the Credit Agreement, this
Amendment or any other Loan Document shall be deemed to
require the consent of such Credit Support Party to any
future amendments to the Credit Agreement.
Section 6. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement
and the Other Loan Documents.
(i) On and after the Third Amendment Effective
Date, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of
like import referring to the Credit Agreement, and each
reference in the other Loan Documents to the "Credit
Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement shall mean and
be a reference to the Amended Agreement.
(ii) Except as specifically amended by this
Amendment, the Credit Agreement and the other Loan
Documents shall remain in full force and effect and are
hereby ratified and confirmed.
(iii) The execution, delivery and performance of
this Amendment shall not, except as expressly provided
herein, constitute a waiver of any provision of, or
operate as a waiver of any right, power or remedy of the
Agent or any Lender under, the Credit Agreement or any
of the other Loan Documents.
B. Fees and Expenses. The Borrower acknowledges
that all costs, fees and expenses as described in subsection
9.5 of the Credit Agreement incurred by Agent and its counsel
with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of
the Borrower.
C. Headings. Section and subsection headings in
this Amendment are included herein for convenience of
reference only and shall not constitute a part of this
Amendment for any other purpose or be given any substantive
effect.
D. Applicable Law. THIS AMENDMENT SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same
instrument; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so
that all signature pages are physically attached to the same
document.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed and delivered by their
respective officers thereunto duly authorized as of the date
first written above.
SMITH CORONA CORPORATION,
as debtor and debtor-in-possession
By:
Title:
CHEMICAL BANK, as
Agent and as a Lender
By:
Title:
BANK OF AMERICA ILLINOIS
By:
Title:
SCM (UNITED KINGDOM) LIMITED,
(for purposes of Section 5
only) as a Credit Support Party
By:
Title:
SMITH CORONA OVERSEAS
HOLDINGS, INC., (for purposes
of Section 5 only) as a Credit
Support Party
By:
Title:
SMITH CORONA (UK), LIMITED,
(for purposes of Section 5
only) as a Credit Support Party
By:
Title:
ANNEX A
OCBC BANK
Our Ref: AOS/SC.LO
17 October 1995
SMITH-CORONA PRIVATE LIMITED
7 Bedok South Road
Singapore 469272 CONFIDENTIAL
Attention: Mr. Ronald F. Stengel, President & CEO, Smith
Corona Corporation
Mr. C.C. Tang, Managing Director, Smith-Corona
Private Limited
Dear Sirs:
We refer to your recent request and are pleased to advise you
that Oversea-Chinese Banking Corporation Limited (hereinafter
called "the Bank") is prepared, subject to satisfactory
completion of legal documentation and upon the following
terms and conditions, to grant to Smith-Corona Private
Limited (hereinafter called "the borrower") an overdraft
facility of up to S$14 million (hereinafter called "the
facility") as follows:
Interest rate: 1% (one per cent) per annum
above the Bank's prime lending
rate. The Bank's current prime
lending rate is at 6% per
annum.
Facility
Expiry Date: The facility shall expire one
year from date of acceptance
but no later than 31 October
1996 or upon the completion of
the sale of the factory
building at 7 Bedok South Road
Singapore 469272, whichever is
earlier.
2 PURPOSE
The facility shall be for the sole purpose of
paying retrenchment benefits of up to S$12.4 million to the
borrower's employees and the remaining amount of S$1.6
million may be used to meet interest accruing up to a maximum
of one year.
3 SECURITY
The facility shall be secured by a first legal
mortgage over the factory building at 7 Bedok Road Singapore
469272.
4 SPECIAL CONDITIONS
The facility is granted to the borrower subject
to the Bank receiving the following in a form and substance
satisfactory to the Bank:
a An acceptable United States legal
counsel's confirmation that the
creation of the first legal mortgage
over the factory building at 7 Bedok
South Road Singapore 469272 would not
be inconsistent with or negatively
affected by the provisions under
Chapter 11 of the Bankruptcy Laws of
the United States as applied to the
borrower's parent, Smith Corona
Corporation.
b Receipt of a waiver from the existing
bankers of the borrower's parent, Smith
Corona Corporation consenting to the
creation of the mortgage over the
factory building at 7 Bedok South Road
Singapore 469272.
c Approval from The Monetary Authority of
Singapore for the facility to be
extended in S$.
d An acceptable and independent auditor
certifying that the borrower is a going
concern on the day the mortgage is
executed and has the means to honour
all its obligations as and when they
fall due.
5 CONDITIONS PRECEDENT
The borrower's right to utilise the facility
and the obligation of the Bank to advance the same shall be
subject to the condition precedent that there shall have been
previously delivered to the Bank duly executed loan and
security documentation and the following documents in form
and substance satisfactory to the Bank:
I a Copy of the borrower's
Memorandum and Articles of
Association certified as a true
copy by the Director or
Secretary.
b Copy of Certificate of
Incorporation of the borrower
certified as true copy by the
Director or Secretary.
c Copy of the Board of Directors'
resolution of the borrower
certified as true copy by the
Chairman and/or Secretary duly
authorizing:
i the acceptance of the facility upon the terms and
conditions enumerated herein.
ii the appointment of an authorised signatory or
signatories to execute on behalf of the borrower all
legal documents, notices and any other documents
connected with the facility.
iii the affixing of the common seal to all documents, when
required, in accordance with the Memorandum and
Articles of Association of the borrower.
d Legal mortgage duly executed
and registered in favour of the
Bank with lodgment of Forms 33
and 34.
e Receipt of the United States
legal counsel's confirmation as
enumerated in paragraph 4(a)
above.
f Receipt of the waiver from the
bankers of Smith Corona
Corporation as enumerated in
paragraph 4(b) above.
g Receipt of confirmation from an
acceptable and independent
auditor as enumerated in
paragraph 4(d) above.
h The duplicate of this letter
duly endorsed with the
borrower's acceptance.
i Any other documents that may be
required by the Bank from time
to time.
II Receipt of the approval from The
Monetary Authority of Singapore, as
enumerated in paragraph 4(c) above.
6 CONDITIONS
So long as the facility is available, the
borrower shall promptly advise the Bank of any material
adverse change in the condition (financial or otherwise) of
the borrower or of any subsidiary of the borrower and notify
the Bank of the institution of any litigation or proceedings
against the borrower or of any subsidiary before any court or
administrative agency which, in the opinion of the officers
of the borrower might materially affect the continued
operations or financial condition of the borrower. Such
advice or notice will be given to the Bank within seven (7)
days after the borrower has knowledge of the said change or
of proceedings and (in the latter case), the amount of
contingent liability if such amount is ascertainable.
7 You shall agree that the Bank shall have the
right to set-off and apply any credit balances including
fixed deposits with the Bank whether in Singapore Dollars or
in any other currency (whether or not then due) towards
payment of the moneys owing under the facility and the right
to withdraw such deposits so long as any moneys are
outstanding (including contingent liabilities) under the
facility.
8 Any goods and services tax or other levies
now or hereafter imposed by law (including but not limited to
the Goods and Services Tax Act 1993) or required to be paid
in respect of any moneys payable to or received or receivable
by the Bank or any expenses incurred by the Bank shall
(except to the extent prohibited by law) be borne and paid by
the borrower and the Bank will be entitled to debit the same
from the account(s) of the borrower.
9 All reasonable expenses including stamp duty
(whether as penalty of otherwise), legal administrative,
registration, execution fees and any other costs or charges
(including abortive costs) whether of the Bank or otherwise
and incurred or expended by the Bank in connection with the
facility whether the same is accepted or otherwise shall be
borne by the borrower.
10 The facility shall be subject to periodic
reviews and the sole discretion of the Bank to continue with
the same. Amounts borrowed under the facility are repayable
on demand.
11 The legal fees and all other expenses
incurred by the Bank in connection with the facility or in
making a demand or in enforcing or attempting to enforce the
Bank's rights in relation thereto whether under this letter
or otherwise shall be borne by the borrower on a full
indemnity basis.
12 GOVERNING LAW AND JURISDICTION
This letter and interpretation thereof shall
be governed by the laws of Singapore and the borrower
irrevocably submits to the non-exclusive jurisdiction of the
courts of Singapore.
13 If you are agreeable to the above terms and
conditions, kindly indicate acceptance by signing on the
duplicate of this letter and returning it by 31 October 1995
afterwhich date the offer contained herein shall lapse unless
an extension thereof has been requested for and agreed to by
the Bank.
14 We assure you of our best services at all
times.
Yours faithfully
for OVERSEA-CHINESE BANKING CORPORATION LIMITED
/s/ Robert Chia /s/ Wong Soon Yum
------------------ ------------------------
ROBERT CHIA WONG SOON YUM
VICE PRESIDENT SENIOR VICE PRESIDENT
CORPORATE BANKING DEPARTMENT
TO: OVERSEA-CHINESE BANKING CORPORATION LIMITED
I/We confirm acceptance of the facilities on the above
stipulated terms and conditions and hereby irrevocably give
permission to the Bank and its officers and employees in
Singapore to disclose at any time particulars of my/our
accounts with the Bank in Singapore to officers and employees
of the Bank and its branches, agencies and representative
officers outside Singapore and also irrevocably permit such
officers and employees of the Bank to disclose particulars of
my/our accounts with the Bank outside Singapore to its Head
Office and its officers and employees in Singapore.
I/We hereby irrevocably consent to the Bank and its officers
and agents disclosing to any guarantor(s), co-debtor(s), co-
mortgagor(s), joint holder(s), or any authority the moneys
and other particulars relating to my/our accounts with the
Bank.
/s/ W. M. Driscoll 10/11/95
--------------------------- ----------
Authorised Signatory/(ies) Date
for and on behalf of
SMITH-CORONA PRIVATE LIMITED
OCBC BANK
Our Ref: AO14/(WP)SMITH.LTR
6 November 1995
SMITH-CORONA PRIVATE LIMITED
7 Bedok South Road
Singapore 469272 CONFIDENTIAL
Attention: Mr. Ronald F. Stengel, President & CEO,
Smith Corona Corporation
Mr. C.C. Tang, Managing Director, Smith-
Corona Private Limited
Dear Sirs:
Re: Facility letters dated 17 October 1995 and 27 October
1995 to Smith-Corona Private Limited
We refer to our facility letters dated 17
October 1995 and 27 October 1995 and your fax of 2 November
1995. We are pleased to advise that the Bank is agreeable to
amend paragraph 4(d) of the said facility letters which will
now read as follows:
4(d) - An updated statement of account
of this borrower as at 31
October 1995 by an acceptable
and independent auditor showing
that there is no significant
adverse changes to the
borrower's financial position
as compared to the management
accounts as at 30 September
1995 which was earlier
presented to the Bank.
Save for the aforesaid, all other terms and
conditions as enumerated in our facility letters dated 17
October 1995 and 27 October 1995 shall remain unchanged.
We would be pleased to be of assistance should you require
any further clarification.
Yours faithfully
for OVERSEA-CHINESE BANKING CORPORATION LIMITED
/s/ Robert Chia /s/ Wong Soon Yum
------------------ ------------------------
ROBERT CHIA WONG SOON YUM
VICE PRESIDENT SENIOR VICE PRESIDENT
CORPORATE BANKING DEPARTMENT
/s/ W. M. Driscoll
10/11/95
OCBC BANK
Our Ref: AO14/SMITH.LO
27 October 1995
SMITH-CORONA PRIVATE LIMITED
7 Bedok South Road By Fax & Mail
Singapore 469272 CONFIDENTIAL
Attention: Mr. Ronald F. Stengel, President & CEO,
Smith Corona Corporation
Mr. C.C. Tang, Managing Director, Smith-
Corona Private Limited
Dear Sirs:
Re: Facility letter dated 17 October 1995 to Smith-Corona
Private Limited
We refer to our facility letter dated 17
October 1995 and your fax of 25 October 1995 and are pleased
to advise that the Bank is agreeable to amend paragraphs
4(d), 6 and 10 of our facility letter which will now read as
follows:
4(d) - An acceptable and independent
auditor certifying that the
borrower is solvent on the day
the mortgage is executed and
has the means to honour all its
obligations as and when they
fall due.
6 - So long as the facility is
available, the borrower shall
promptly advise the Bank of any
material adverse change of the
borrower, other than the
systematic winding-down of its
operations, and notify the Bank
of any litigation or
proceedings against the
borrower or of any subsidiary
before any court or
administrative agency. Such
advice or notice will be given
to the Bank within seven (7)
days after the borrower has
knowledge of the said
proceedings and the amount of
contingent liability if such
amount is ascertainable.
10 - The facility shall be subject
to periodic reviews and the
sole discretion of the Bank to
continue with the same.
Amounts borrowed under the
facility are repayable on
demand. In the event a demand
is made by the Bank, the Bank
shall proceed to enforce the
security as enumerated in
paragraph 3, for the repayment
of all outstanding under the
facility.
Save for the aforesaid, all other terms and
conditions as enumerated in our facility letter dated 17
October 1995 shall remain unchanged.
We would be pleased to be of assistance should you require
any further clarification.
Yours faithfully
for OVERSEA-CHINESE BANKING CORPORATION LIMITED
/s/ Robert Chia /s/ Wong Soon Yum
------------------ ------------------------
ROBERT CHIA WONG SOON YUM
VICE PRESIDENT SENIOR VICE PRESIDENT
CORPORATE BANKING DEPARTMENT
/s/ W. M. Driscoll
10/11/95
SMITH CORONA CORPORATION
-------------------------------------------------------------
November 9, 1995
VIA FACSIMILE
Mr. Robert Chia
Vice President
Corporate Banking
Overseas-Chinese Banking Corporation Limited
65 Chulea Street
OCBC Center
SINGAPORE 0104
Dear Mr. Chia:
I am in receipt of OCBC's Offer Letter dated October
17, 1995 regarding an overdraft facility for Smith Corona
Private Limited, as well as your letters dated October 27,
1995 and November 6, 1995, which amended certain provisions
of the October 17, 1995 letter.
I am pleased to state that Smith Corona Private
Limited will accept OCBC's Offer Letter, as amended. Signed
documents should be in your possession not later than Monday,
November 13, 1995. Additionally, I intend to authorize
Deloitte & Touche to begin their audit work the week of
November 13, 1995, and to authorize the Wong Partnership to
begin the required legal work.
I look forward to a continuing and prosperous
relationship.
Very truly yours,
/s/ Ronald F. Stengel
-----------------------------------
Ronald F. Stengel
President and Chief Executive Officer
RFS/lmc
cc: M. Driscoll
R. Epling, Esq.
J. Piontkowski
C. C. Tang
<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>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 5851
<SECURITIES> 0
<RECEIVABLES> 37939
<ALLOWANCES> 1875
<INVENTORY> 27711
<CURRENT-ASSETS> 82870
<PP&E> 16452
<DEPRECIATION> 0
<TOTAL-ASSETS> 103985
<CURRENT-LIABILITIES> 33359
<BONDS> 0
<COMMON> 303
0
0
<OTHER-SE> 5882
<TOTAL-LIABILITY-AND-EQUITY> 103985
<SALES> 69766
<TOTAL-REVENUES> 69766
<CGS> 64859
<TOTAL-COSTS> 64859
<OTHER-EXPENSES> 3660
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 600
<INCOME-PRETAX> (13920)
<INCOME-TAX> 145
<INCOME-CONTINUING> (14065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14065)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> 0
</TABLE>
