UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
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 Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such 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 7, 1996
Common Stock, par value $.01 30,250,000
per share
SMITH CORONA CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - September 30, 1996
and June 30, 1996 1
Consolidated Statements of Operations - For the
three months ended September 30, 1996 and 1995 2
Consolidated Statement of Changes in Stockholders'
Equity - For the three months
ended September 30, 1996 3
Consolidated Statements of Cash Flows - For the
three months ended September 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5-17
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 17-22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 5. Other Information 22-23
Item 6. Exhibits and Reports on Form 8-K 23-24
Signatures 25
Exhibit Index
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
<S> <C> <C>
ASSETS (audited)
Current assets:
Cash and cash equivalents $ 30,869 $ 29,929
Accounts receivable (net of allowance
for doubtful accounts of $816 and
$1,576, respectively) 14,641 17,185
Inventories 15,657 16,873
Prepaid expenses and other current
assets 4,716 4,754
Total current assets 65,883 68,741
Property, plant and equipment, net 11,713 12,639
Other assets 2,472 2,492
TOTAL $ 80,068 $ 83,872
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 3,918 $ 3,569
Accrued liabilities 9,797 10,353
Income taxes payable 663 702
Total current liabilities 14,378 14,624
Liabilities subject to compromise 56,477 60,120
Total liabilities 70,855 74,744
Stockholders' equity:
Common stock-30,250,000 shares issued
and outstanding 303 303
Additional paid-in capital 44,697 44,697
Accumulated deficit (35,787) (35,872)
Total stockholders' equity 9,213 9,128
TOTAL $ 80,068 $ 83,872
</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
September 30,
1996 1995
<S> <C> <C>
Net sales $ 20,986 $ 33,463
Cost of goods sold 17,057 29,460
Gross margin 3,929 4,003
Selling, administrative
and research expenses 1,384 6,755
Reorganization costs 2,125 3,209
Restructuring expense(income) - (1,524)
Other expense 347 415
Operating income (loss) 73 (4,852)
Interest expense (income) (5) 402
Income (loss) before income
taxes 78 (5,254)
Income taxes (benefit) (7) 175
Net income (loss) $ 85 ($ 5,429)
Earnings per common share-
Net income (loss) per share $. - $(.18)
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended September 30, 1996
($ in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Accumulated
Stock Capital Deficit Total
<S> <C> <C> <C> <C>
Balance June 30, 1996 $303 $44,697 $(35,872) $ 9,128
Net income - - 85 85
Balance September 30, 1996 $303 $44,697 $(35,787) $ 9,213
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Three months ended
September 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 85 $(5,429)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,054 1,448
Loss (gain) on disposition of
property, plant equipment (458) 70
Inventory provisions 745 762
Pension curtailment gain (3,394) (1,524)
Other noncash items - 415
Changes in assets and liabilities:
Accounts receivable 2,544 131
Inventories 471 7,473
Prepaid expenses and
other current assets 38 (1,851)
Other assets 20 18
Trade payables 349 (4,039)
Accrued liabilities and income taxes
payable (595) 1,578
Postretirement benefits and pension
liability - 337
Other long-term liabilities - 112
Net cash provided by (used in)
operating activities 859 (499)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property,
plant and equipment 466 -
Capital expenditures (136) (68)
Net cash provided by (used in)
investing activities 330 (68)
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank loans (repayments), net - (4,200)
Liabilities subject to compromise (249) -
Net cash used in financing activities (249) (4,200)
Increase (decrease) in cash
and cash equivalents 940 (4,767)
Cash and cash equivalents:
Beginning of period 29,929 7,003
End of period $30,869 $ 2,236
</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 (the "Petition Date"), Smith Corona Corporation
(the "Company") filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). 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 Corporation (formerly known as "Histacount Corporation") and
Hulse Manufacturing Company, all wholly-owned nonoperating
subsidiaries of the Company (collectively, the "Nonoperating
Subsidiaries"), filed Chapter 11 petitions (collectively, the
"Bankruptcy Proceedings"). The Bankruptcy Proceedings primarily
relate to all U.S. assets and operations and do not pertain to
the Company's international subsidiaries. Condensed
consolidating proforma financial information for the entities
included in the Bankruptcy Proceedings are presented in Note 9.
Since July 5, 1995, the Company has been operating as a debtor-
in-possession. See Note 10 for a description of other domestic
subsidiaries of the Company added to the Bankruptcy Proceedings.
The consolidated financial statements have been presented in
accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7: "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code." 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. 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 had recurring losses from operations
in the twelve months ended June 30, 1996 and 1995 ("Fiscal 1996"
and "Fiscal 1995," respectively); had difficulty meeting its
Amended and Restated Credit Agreement (as hereinafter defined)
covenants during the fourth quarter of Fiscal 1995; has had to
obtain waivers to certain of its Debtor-In-Possession Credit
Agreement covenants during Fiscal 1996; has an accumulated
deficit at September 30, 1996; 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 along with uncertainties surrounding the
Company's Third Amended Second Joint Plan of Reorganization
("POR") 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 September 30, 1996 and
June 30, 1996, respectively, that are expected to be compromised
under any plan of reorganization consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
<S> <C> <C>
Trade payables $10,429 $10,417
Accrued liabilities 11,240 10,787
Income taxes payable 3,088 3,088
Postretirement benefits 12,556 12,497
Pension liability 13,482 17,681
Other long-term liabilities 5,682 5,650
Total(1) $56,477 $60,120
</TABLE>
(1) Excludes a net intercompany payable in the amount of $24,505
and $24,637, respectively, to the Company's subsidiaries not
included in the Bankruptcy Proceedings.
The Company recorded reorganization costs relating to its
Bankruptcy Proceedings aggregating $2,125 for the three months
ended September 30, 1996. These charges include professional
fees and costs associated with the distribution of the POR for
the solicitation of creditors offset by interest income earned on
domestic cash balances of $334 and a purchase deposit forfeiture
of $500.
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 income an estimated loss on
liquidation of approximately $415 and $291 in the first and third
quarters, respectively, of Fiscal 1996. The Company has
established a distributor relationship and is currently exploring
other potential distributor relationships in the Australian
market for the purpose of maintaining its distribution capacity.
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 is reconciling claims that differ
from the Company's records, and any differences that cannot be
resolved by negotiated agreements 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.
The Company's Disclosure Statement in connection with the POR was
mailed to eligible creditors on September 16, 1996. Other dates
approved by the Bankruptcy Court for the Company's events are:
October 18, 1996, administrative claims bar date for claims that
occurred on or before August 16, 1996; and October 18, 1996 (4:30
P.M., Prevailing Eastern Time), deadline for receipt of all
ballots. The confirmation hearing, originally scheduled for
October 31, 1996, has been postponed and has not yet been
rescheduled.
During Fiscal 1996, the Company had discussions with various
third party investors, none of which resulted in a transaction
being consummated. The POR does not contemplate any third party
investment.
The POR is subject to Bankruptcy Court approval. Under the POR,
the Company intends to satisfy all allowed general unsecured
claims through the distribution of the unsecured class cash of
$10,780 (less any amounts paid to holders of allowed convenience
class claims discussed below) and 85% of the reorganized
company's common stock to holders of such claims. The Company
intends to satisfy all allowed claims senior to allowed general
unsecured claims by the payment in full in cash or notes (as
provided for by the Bankruptcy Code) or the assumption of all
such claims. In addition, allowed convenience class claims
(general unsecured claims of one thousand five hundred dollars or
less) shall receive payment in cash in an amount equal to 60% of
the amount of such claim. Finally, registered holders of the
Company's Common Stock shall receive warrants to purchase one
share of common stock in the reorganized company for each ten
shares of Common Stock of the Company.
Under the POR, the reorganized company would significantly
expand its product line, primarily by sourcing new products from
outside manufacturers. Such sourcing may, over time, include
entering into strategic alliances with third parties to provide
products or services. In that respect, the reorganized company
would focus its efforts on forging alliances with foreign
companies having technologically advanced office products but
which presently do not have a substantial United States market
share or market presence and are intent on building or increasing
market share by selling their products under the well known
"Smith Corona" name. The reorganized company intends to rely on
its existing distribution network to become a leading vendor of
technologically advanced office products manufactured abroad.
Further, the reorganized company intends to continue to focus on
its core business of manufacturing and distributing its current
product line of typewriters and personal word processors to
satisfy continuing worldwide demand for these products.
On an operational level, initially the reorganized company will
continue its business on a global basis with manufacturing
operations in Mexico and sales and marketing operations in the
United States and certain international markets. The
reorganized company's Mexico facility also plans to provide
contract manufacturing services to other equipment manufacturers
("OEMs") on a cost plus basis thereby providing a contribution
towards manufacturing overhead expenses. Ideally, prospective
OEMs may also form the basis for new product strategic alliances.
Additionally see Note 4 for a description of the termination
proceedings for the Defined Benefit Plans.
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 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, 1996, as
contained in the Company's Annual Report on Form 10-K.
Certain reclassifications have been made to the prior year's
financial statements to conform with the fiscal 1997
presentation.
NOTE 3 - CONTINGENCIES
See Note 4 for a description of the termination proceedings for
the Defined Benefit Plans. See Note 1 for a description of the
Bankruptcy Proceedings.
Certain aspects of the Company's past handling and/or disposal of
hazardous substances have been the subject of investigation by
federal and state regulatory authorities, or are the subject of
lawsuits filed by such authorities or by private parties. At
September 30, 1996 and June 30, 1996, the Company had recorded
liabilities of approximately $4,041 and $4,160, respectively,
related to environmental matters. Because of the uncertainties
associated with assessing environmental matters, the related
ultimate liability is not presently 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 was the owner and operator of manufacturing
facilities in Groton, New York (the "Groton Site") and
Cortlandville, New York (the "Cortlandville Site" and, together
with the Groton Site, the "Owner/Operator Sites"). The Company's
liability, if any, at the Owner/Operator Sites stems from
groundwater contamination at the Cortlandville Site and soil
contamination at the Groton Site. Remediation programs at the
Owner/Operator Sites currently consist of round-the-clock pumping
and filtering (Cortlandville) or soil venting with a soil
infiltration injection system (Groton). The costs associated
with the respective programs had largely been paid by the Company
prior to the Petition Date. To the Company's knowledge, the only
future costs that will be associated with remediation of those
sites are for operation, maintenance, monitoring, shutdown, and
post-shutdown of the systems. The Company believes it has set
aside adequate reserves for the payment of expenses for the
ongoing remediation programs at the Groton and Cortlandville
sites. Claims asserted by the New York Department of
Environmental Conservation ("DEC") in the Company's bankruptcy
proceedings for past and future costs at the Groton and
Cortlandville Sites, and at eight other sites, were resolved by
the Company and the State of New York on August 6, 1996 at
amounts which were not material to the Company's financial
results.
The Company is involved in proceedings with the DEC and the
Suffolk County Department of Health ("Suffolk DOH") regarding the
clean-up of a now-closed manufacturing facility in Melville, New
York (the "Melville Site"). The Company's wholly-owned
subsidiary SCC LI Corp., formerly known as Histacount, was a
lessee of the Melville Site beginning in June 1989, and sublessor
of the Site to HC Delaware Acquisition Corp., now known as
Histacount ("New Histacount"), beginning in November 1994. The
Company has never been an owner, operator, or lessee of the
Melville Site.
On March 9, 1995, New Histacount, in contemplation of vacating
the facility, submitted to the DEC its updated closure plan (the
"Closure Plan") for the Melville Site pursuant to the applicable
law. The DEC approved the Closure Plan on or about July 25, 1995
and, on August 12, 1995, SCC LI Corp. terminated its lease.
Accordingly, the property was vacated and all operations at the
Melville Site ceased. On June 27, 1996, O'Brien & Gere
Engineers, Inc. ("O'Brien & Gere") prepared a scope of work for
the Melville Site that reflects agreements reached between the
Company and the DEC (the "Scope of Work"). The Company proceeded
to perform the testing and work specified in the Scope of Work.
Test results on soil borings and groundwater samples taken by
O'Brien & Gere pursuant to the Scope of Work indicate that any
contaminants are below levels that would require clean-up action
under New York law.
In June 1992, the Company was served with a summons and complaint
in the United States District Court for the Northern District of
New York in a private contribution action, brought pursuant to
the federal Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA"). The plaintiffs in this action are
Cooper 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 and fourteen other persons or entities as defendants,
seeks contribution or reimbursement for response costs incurred
to date, and to be incurred in the future, for the environmental
remediation of a site in Cortland, New York known as the Rosen
Site ("Rosen Site"). Based on the Company's records and other
evidence available to it, management does not believe that the
Company disposed of any hazardous substances at this site and is
vigorously contesting this matter. Claims concerning the Rosen
Site have been filed against the Company in the Bankruptcy Court
by the United States Environmental Protection Agency, the United
States Department of the Interior, the DEC, and certain
plaintiffs and defendants in the Cooper Industries action. Based
on agreements previously reached with those parties and an
October 23, 1996 decision by the District Court for the District
of Delaware denying certain Rosen Site claimants' motion to
withdraw the reference to Bankruptcy Court, all claims against
the Company relating to the Rosen Site will be tried together in
the Bankruptcy Court. Trial is currently scheduled for December
3, 1996.
The Company is also a defendant or plaintiff in various other
legal actions that have arisen in the ordinary course of its
business. It is the opinion of management 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 - PENSION PLAN TERMINATION
The Company sponsors and maintains two defined benefit pension
plans: (i) The Smith Corona Corporation Hourly Employees'
Retirement Plan and SCM Office Supplies, Inc. Salaried Employees'
and Hourly Employees' Retirement Plan, as amended and restated as
of December 31, 1995; and (ii) the Smith Corona Corporation
Salaried Employees' Retirement Plan, as amended and restated as
of January 1, 1994 (collectively, the "Defined Benefit Plans").
Employees do not contribute to the Defined Benefit Plans.
Management believes that estimated minimum funding contributions
to the Defined Benefit Plans would aggregate approximately
$14,800 over the next 5.5 years. The Company consequently
determined that termination of the Defined Benefit Plans would be
in its best interests and would maximize the chances that the
reorganized entity will survive. Exercising its business
judgment, the Company on August 6, 1996, decided to discontinue
future benefit accruals under the Defined Benefit Plans as of
September 1, 1996 and to seek termination of the Defined Benefit
Plans as of October 6, 1996. On August 7, 1996, pursuant to
applicable Federal law and regulations, the Company caused a
Notice of Intent to Terminate to be issued to affected parties
under the Defined Benefit Plans. The freezing of benefit
accruals resulted in a $3,394 curtailment gain in the three
months ended September 30, 1996.
On August 23, 1996, the Company filed with the Bankruptcy Court a
Motion for Approval of Distress Termination of Pension Plans (the
"Termination Motion"), together with supporting materials. Among
other things, the Termination Motion asks the Bankruptcy Court to
find that the Company meets the standards for distress
termination of the Defined Benefit Plans, to approve such a
termination pursuant to applicable statutes and regulations, and
to determine the claims of the Pension Benefit Guaranty
Corporation (the "PBGC"), if any, arising from such a
termination.
The PBGC has opposed distress termination of the Defined Benefit
Plans. On September 5, 1996, the PBGC filed in the Bankruptcy
Court claims for minimum funding contributions and for unfunded
benefit liabilities. The PBGC has stated that its claims against
the Company and its subsidiaries upon termination of the Defined
Benefit Plans would total approximately $26,000. On or about
September 6, 1996, the PBGC moved to withdraw the reference of
the Termination Motion and related issues from the Bankruptcy
Court, and to have such issues decided by the United States
District Court for the District of Delaware. On October 8, 1996
the PBGC's motion was denied. The Company, the PBGC, and the
Official Committee of Unsecured Creditors have conducted
discovery relating to certain aspects of the Termination Motion
on an expedited basis. On October 31 and November 1, 1996, the
Company, the Nonoperating Subsidiaries and the PBGC presented
evidence in the Bankruptcy Court on the question of whether the
Company and the Nonoperating Subsidiaries had met applicable
statutory tests for distress termination of the Defined Benefit
Plans. The Bankruptcy Court is expected to decide the issue
after post-trial briefing concludes on November 20, 1996.
Confirmation of the POR is subject to termination of the Defined
Benefit Plans.
Management believes that, if resolved adversely to the Company,
issues relating to termination of the Defined Benefit Plan would
have a material adverse effect on the Company's ability to
reorganize.
NOTE 5 - INVENTORIES
A summary of inventories, by major classification and net of
reserves, is as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
<S> <C> <C>
Raw materials and work-in-process $ 5,914 $ 6,180
Finished goods 9,743 10,693
Total $15,657 $16,873
</TABLE>
NOTE 6 - 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 whereby the Company's typewriter
manufacturing would be relocated from its Singapore and Batam
Island, Indonesia facilities to its Mexico facility. This action
resulted in the termination of approximately 1,300 workers in
Singapore and Batam Island. Original expectations were to
replace these workers with approximately 600 additional workers
in Mexico which would have resulted in approximately $10,000
pretax annual savings, primarily through lower labor costs as
well as the greater utilization of the Mexico facility. However,
due to lower than expected volumes, fewer replacement workers
have been hired. 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 certain of its Singapore machinery and equipment
for proceeds of approximately $2,333 resulting in a loss of
approximately $1,489 which was accrued as part of the Fiscal 1995
restructuring charge. Additionally, the Company sold its
Singapore facility and the underlying land lease on February 8,
1996 for net proceeds of approximately $21,041. The sale of the
facility resulted in a pretax gain of approximately $17,755 and
was included in restructuring income for the third quarter of
Fiscal 1996.
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 (collectively the
"Restructuring"). 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 pension
curtailment gain of approximately $1,524 included in
restructuring income for the first quarter of fiscal 1996.
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 shutdown of Singapore operations, of
approximately $1,622 pretax (originally expected to be
approximately $6,000 pretax), were recognized as charges to
operations as incurred during Fiscal 1996 as they do not qualify
as restructuring costs.
The activity for the three months ended September 30, 1996 in
the restructuring accrual is as follows:
<TABLE>
<CAPTION>
Other
Severance Costs Total
<S> <C> <C> <C>
June 30, 1996 balance $ 4,685 $ 320 $ 5,005
1997 Activity (1) - (39) (39)
September 30, 1996
balance $ 4,685 $ 281 $ 4,966
</TABLE>
(1) Represents cash payments for liquidation of Singapore
operations.
The remaining severance amount of $4,685 and $279 of other costs
are reflected on the September 30, 1996 consolidated balance
sheet as liabilities subject to compromise.
NOTE 7 - CASH FLOWS
There were no borrowings or repayments under the Company's credit
facility for the three months ended September 30, 1996. However,
aggregate borrowings amounted to $846,000 for the three months
ended September 30, 1995, while aggregate repayments were
$850,200 for the same period.
NOTE 8 - 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 reduced 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. A fee was payable quarterly on the commitment.
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 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,
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
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 Bankruptcy Court 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 $24,000 through June 30, 1996 and $10,000
from June 30, 1996 through the December 31, 1996 termination
date. The lenders have retained the right to terminate the loans
under the Debtor-In-Possession Credit Agreement with 60 days'
notice at their sole discretion. 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. Payment 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. 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 all of
the Company's assets. In January 1996, the Company repaid the
funded portion of its bank loans. Other obligations remain
outstanding under the Debtor-In-Possession Credit Agreement or
the Amended and Restated Credit Agreement including reimbursement
obligations under letters of credit and certain indemnification
obligations.
The Company is currently in discussion with its lenders to extend
the Debtor-In-Possession Credit Agreement through March 31, 1997
or confirmation of the POR, whichever is earlier. As part of the
POR, the Company will attempt to secure a line of credit of
approximately $10.0 million. The Company is currently in
discussions with a lender to finalize such financing.
NOTE 9 - 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 sheet as of September 30,
1996, and consolidated statement of operations and cash flow for
the three 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 $ 55,164 $ 10,719 $ - $ 65,883
Property, plant
and equipment 10,338 1,375 - 11,713
Other assets 79,597 16,733 (93,858) 2,472
Total assets $145,099 $28,827 $(93,858) $ 80,068
Other current
liabilities $13,147 $ 1,231 $ - $ 14,378
Intercompany with
affiliates 24,505 (24,505) - -
Liabilities subject
to compromise 56,477 - - 56,477
Stockholders' equity 50,970 52,101 (93,858) 9,213
Total liabilities and
stockholders' equity $145,099 $28,827 $(93,858) $ 80,068
</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 $ 17,663 $3,323 $ - $ 20,986
Net sales to affiliates 1,890 2,233 (4,123) -
Cost of goods sold 14,221 2,836 - 17,057
Cost of goods sold to
affiliates 1,890 2,233 (4,123) -
Gross margin 3,442 487 - 3,929
Selling, administrative
and research expenses (282) 1,666 - 1,384
Reorganization costs 2,125 - - 2,125
Other expense 347 - - 347
Operating income (loss) 1,252 (1,179) - 73
Interest income - (5) - (5)
Income (loss) from operations
before income tax 1,252 (1,174) - 78
Income taxes (benefit) 75 (82) - (7)
Net income (loss) $ 1,177 $ (1,092) $ - $ 85
</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 income (loss) $ 1,177 $(1,092) $ - $ 85
Adjustments to
reconcile net income
(loss) to net cash
used in operating
activities:
Noncash items and
changes in
operating assets
and liabilities 908 (134) - 774
Net cash flow provided
by (used in) operating
activities 2,085 (1,226) - 859
Cash flows from
investing activities:
Proceeds from the sale
of property, plant
and equipment 466 - - 466
Capital expenditures (136) - - (136)
Net cash provided by
investing activities 330 - - 330
Cash flows from
financing activities:
Liabilities subject
to compromise (249) - - (249)
Net cash used in
financing activities (249) - - (249)
Increase (decrease)
in cash and
cash equivalents 2,166 (1,226) - 940
Cash and cash
equivalents at
beginning of year 26,720 3,209 - 29,929
Cash and cash
equivalents at
end of year $ 28,886 $ 1,983 $ - $30,869
</TABLE>
<PAGE>
NOTE 10 - SUBSEQUENT EVENT
On October 31, 1996 the Company filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code for three wholly-
owned domestic subsidiaries: Smith Corona Overseas Holdings,
Inc.; SCM Inter-America Corporation; and SCM (United Kingdom)
Limited. The primary purpose of the filings, which will have no
effect on operations, is to better protect corporate assets
during the reorganization period. As a result of these filings,
substantially all claims against such subsidiaries prior to
October 31, 1996 are subject to automatic stay provisions under
the Bankruptcy Code. Pre-petition claims may arise from the
determination by the Bankruptcy Court of allowed claims for
contingencies and other disputed amounts.
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, the Company filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code in the
Bankruptcy Court 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 Corporation (formerly Histacount Corporation) and Hulse
Manufacturing Company, all wholly-owned Nonoperating
Subsidiaries of the Company, filed Chapter 11 petitions. On
October 31, 1996 the Company's other three wholly-owned domestic
subsidiaries: Smith Corona Overseas Holdings, Inc.; SCM Inter-
America Corporation; and SCM (United Kingdom) Limited (the
"Wholly-Owned Domestic Subsidiaries")filed voluntary petitions
for relief under Chapter 11 of the Bankruptcy Code for.
Since July 5, 1995, the Company has confined expenditures to
those manufacturing and operating costs that are necessary to
preserve and maintain going-concern value. In light of its
financial condition, the Company has also implemented and
continues to implement a planned reduction in its workforce and
a consolidation of its manufacturing and distribution operations
and, as announced on October 7, 1996, the Company is relocating
its world headquarters from New Canaan, Connecticut to its
facility in Cortland, New York. Additionally, as part of a
major restructuring plan announced by the Company on May 8,
1995, the Company has relocated its typewriter manufacturing
operations to its Mexico facility from facilities in Singapore
and Batam Island, Indonesia.
The forward-looking comments in this Management's Discussion and
Analysis of Results of Operations and Financial Condition are
estimates by the Company's management of future performance and
are subject to a variety of risks and uncertainties that could
cause actual results to differ from management's current
expectations.
Results of Operations
Net sales declined 37.3 percent to $21.0 million in the first
quarter ended September 30, 1996 compared to the same period in
Fiscal 1996. Unit sales of typewriters, personal word
processors and related accessories and supplies are lower than a
year ago, both domestically and internationally, as a result of
a shrinking domestic market and a continuing difficult and
competitive environment. This trend in volume comparisons to
the prior year is expected to continue in the foreseeable
future. Under the POR, the reorganized company would
significantly expand its product line, primarily by sourcing new
products from outside manufacturers. Such sourcing may, over
time, include entering into strategic alliances with third
parties to provide products or services. In that respect, the
reorganized company would focus its efforts on forging alliances
with foreign companies having technologically advanced office
products but which presently do not have a substantial United
States market share or market presence and are intent on
building or increasing market share by selling their products
under the well known "Smith Corona" name. The reorganized
company intends to rely on its existing distribution network to
become a leading vendor of technologically advanced office
products manufactured abroad. Further, the reorganized company
intends to continue to focus on its core business of
manufacturing and distributing its current product line of
typewriters and personal word processors to satisfy continuing
worldwide demand for these products.
On an operational level, initially the reorganized company will
continue its business on a global basis with manufacturing
operations in Mexico and sales and marketing operations in the
United States and certain international markets. The
reorganized company's Mexico facility also plans to provide
contract manufacturing services to OEMs on a cost plus basis
thereby providing a contribution towards manufacturing overhead
expenses. Ideally, prospective OEMs may also form the basis for
new product strategic alliances.
Gross margin as a percentage of net sales was 18.7 percent for
the three months ended September 30, 1996, as compared to 12.0
percent for the same period last year. The margin improvement
is a result of manufacturing efficiencies gained from the
Restructuring, an increased portion of sales relating to higher
margin products and a $.5 million gain from the sale of
property, plant and equipment.
Selling, administrative and research expenses decreased $5.4
million to $1.4 million for the quarter ended September 30,
1996. This significant decrease reflects the impact of a
pension plan curtailment gain of $3.4 million, as well as an
overall savings in employee-related costs as a result of the
Restructuring and reorganization efforts. On October 7, 1996
the Company announced the relocation of its world headquarters
from New Canaan, Connecticut to its facility in Cortland, New
York which will result in an estimated second quarter charge of
approximately $1.1 million.
The Company recorded reorganization costs for its bankruptcy
proceedings aggregating $2.1 million for the first quarter ended
September 30, 1996 compared to $3.2 million in the same period a
year ago. These charges primarily include professional fees
attributable to the bankruptcy proceedings. Additionally,
reorganization costs for the first quarter ended September 30,
1996 include a purchase deposit forfeiture and interest income
earned on domestic cash balances totaling $.8 million.
Other expense for the three months ended September 30, 1996
represents amounts for additional claims arising from the
bankruptcy claims reconciliation process. The amount for the
three months ended September 30, 1995 represents an estimated
loss for liquidation of the Company's wholly-owned Australian
subsidiary.
Financial Condition
The Company's primary source of liquidity and capital resources,
on both a short- and long-term basis, are cash balances, cash
flows generated from operations and available borrowing capacity
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 with two banks which was approved by
the Bankruptcy Court on August 2, 1995. Proceeds from the
Debtor-In-Possession Credit Agreement were used to pay off
amounts outstanding under the Amended and Restated Credit
Agreement dated April 7, 1995 under which the Company was, as of
June 30, 1995, in technical default. The Debtor-In-Possession
Credit Agreement, as amended, provided 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. On July 10, 1996, the Company and its
lenders amended and extended the Debtor-In-Possession Credit
Agreement whereby the June 30, 1996 termination date was
extended to the earlier of Confirmation or September 30, 1996,
and the bank commitment was reduced to $10.0 million. The
Debtor-In-Possession Credit Agreement was amended on September
30, 1996, extending the expiration date to December 31, 1996.
The lenders have retained the right to terminate the loans under
the Debtor-In-Possession Credit Agreement with 60 days' notice
at their sole discretion. The Debtor-In-Possession Credit
Agreement provides for a security interest in substantially all
of the Company's assets. The Debtor-In-Possession Credit
Agreement provides certain restrictive covenants for which
management believes that it has adequate flexibility and that
such covenants should not impose undue restrictions on the
operations of the Company during its Chapter 11 proceedings.
The Company is currently in compliance with the terms of the
Debtor-In-Possession Credit Agreement or has obtained waivers as
necessary. In January 1996, the Company repaid the funded
portion of its bank loans. Other obligations remain outstanding
under the Debtor-In-Possession Credit Agreement or the Amended
and Restated Credit Agreement including reimbursement
obligations under letters of credit and certain indemnification
obligations.
The Company is currently in discussion with its lenders to
extend the Debtor-In-Possession Credit Agreement through March
31, 1997 or confirmation of the POR, whichever is earlier. As
part of the POR, the Company will attempt to secure a line of
credit of approximately $10.0 million. The Company is currently
in discussions with a lender to finalize such financing.
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 and prior to
October 31, 1996 for the three Wholly-Owned Domestic
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 contingent liabilities
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 the POR which is subject to
confirmation by the Bankruptcy Court and, accordingly, are not
presently determinable. The claims reconciliation process is
ongoing and during Fiscal 1996 did not result in any material
adjustments to the Company's financial records. The claims
reconciliation process resulted in an adjustment for the first
quarter ended September 30, 1996 which is recorded as other
expense in the statement of operations.
The Company's Disclosure Statement in connection with the POR
was mailed to eligible creditors on September 16, 1996. Other
dates approved by the Bankruptcy Court for the Company's events
are: October 18, 1996, administrative claims bar date for claims
that occurred on or before September 16, 1996; and October 18,
1996 (4:30 P.M., Prevailing Eastern Time), deadline for receipt
of all ballots. The confirmation hearing, originally scheduled
for October 31, 1996, has been postponed and has not yet been
rescheduled.
The POR is subject to Bankruptcy Court approval. Under the POR,
the Company intends to satisfy all allowed general unsecured
claims through the distribution of cash of approximately $10.8
million (less any amounts paid to holders of allowed convenience
class claims discussed below) and 85% of the reorganized
company's common stock to holders of such claims. The Company
intends to satisfy all allowed claims senior to allowed general
unsecured claims by the payment in full in cash or notes (as
provided for by the Bankruptcy Code) or the assumption of all
such claims. In addition, allowed convenience class claims
(general unsecured claims of one thousand five hundred dollars
or less) shall receive payment in cash in an amount equal to 60%
of the amount of such claim. Finally, the POR cancels all
Common Stock of the Company and provides shareholders with
warrants to purchase one share of common stock in the
reorganized company for each ten shares of Common Stock of the
Company.
During the quarter ended September 30, 1996, the Company's
operating activities provided $.9 million of cash, primarily the
result of a decrease in accounts receivable. Accounts
receivable declined $2.5 million and is attributable to the
reduction in sales levels.
As part of its ongoing reorganization efforts under the
Bankruptcy Proceedings, on August 7, 1996, the Company issued a
notice of intent to terminate its Defined Benefit Plans. As of
September 1, 1996 no future benefits for plan participants are
earned, and, if the required approvals are obtained, such plans
would then terminate on October 6, 1996. The termination
resulted in a first quarter curtailment gain of approximately
$3.4 million. On October 15, 1996, the Company and the
Nonoperating Subsidiaries moved in Bankruptcy Court for
instructions as to whether approximately $.8 million of minimum
funding contributions otherwise due to the Defined Benefit Plans
on October 15, 1996 should be paid. That motion has not yet
been decided. The Company estimates that termination of the
Defined Benefit Plans will save approximately $14.8 million in
minimum funding cash contributions over the next 5.5 years.
The PBGC has opposed distress termination of the Defined Benefit
Plans. On September 5, 1996, the PBGC filed in the Bankruptcy
Court claims for minimum funding contributions and for unfunded
benefit liabilities. The PBGC has stated that its claims
against the Company and its subsidiaries upon termination of the
Defined Benefit Plans would total approximately $26.0 million.
On or about September 6, 1996, the PBGC moved to withdraw the
reference of the Termination Motion and related issues from the
Bankruptcy Court, and to have such issues decided by the United
States District Court for the District of Delaware. On October
8, 1996 the PBGC's motion was denied. The Company, the PBGC,
and the Official Committee of Unsecured Creditors have conducted
discovery relating to certain aspects of the Termination Motion
on an expedited basis. On October 31 and November 1, 1996, the
Company, the Nonoperating Subsidiaries and the PBGC presented
evidence in the Bankruptcy Court on the question of whether the
Company and the Nonoperating Subsidiaries had met applicable
statutory tests for distress termination of the Defined Benefit
Plans. The Bankruptcy Court is expected to decide the issue
after post-trial briefing concludes on November 20, 1996.
Confirmation of the POR is subject to termination of the Defined
Benefit Plans.
The Company had no material commitments for capital expenditures
at September 30, 1996.
While the Company believes it has adequate cash and 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 the POR that will enable the
Company to emerge from bankruptcy proceedings, obtaining
adequate post-confirmation financing to fund working capital
requirements and generating sufficient cash from future
operations to meet obligations. There can be no assurances 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 1 - Petition for Reorganization
Under Chapter 11 and Basis of Presentation," "Note 3 -
Contingencies" and "Note 4 - Pension Plan Termination"
in the Notes to Consolidated Financial Statements
appearing in this Form 10-Q Quarterly Report.
Item 5. Other Information
On October 7, 1996 the Company announced its intent to
relocate its world headquarters in New Canaan,
Connecticut to its facility in Cortland, New York.
Relocation activities will culminate with the closing
of the New Canaan office before the end of calendar
1996.
On October 23, 1996 the Company announced the
appointment of W. Michael Driscoll to the position of
president and chief executive officer, effective when
the Company emerges from Chapter 11. Mr. Driscoll
will serve the Company in a consulting capacity until
the reorganization is complete.
On October 28, 1996 the Company announced that it has
asked the Bankruptcy Court for a new date to confirm
the Company's POR, which it hopes to obtain soon. The
original October 31 date was utilized instead for
hearings to terminate the Company's pension plans.
On October 31, 1996 the Company's other three wholly-
owned domestic subsidiaries, Smith Corona Overseas
Holdings, Inc., SCM Inter-America Corporation and SCM
(United Kingdom) Limited, filed voluntary petitions
for relief under Chapter 11 of the Bankruptcy Code.
The primary purpose of the filings, which will have no
effect on operations, is to better protect corporate
assets during the reorganization period.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Fifth Amendment to the Debtor-In-Possession
Credit Agreement dated as of September 30,
1996
27 Financial Data Schedule
99.1 News release dated October 7, 1996
99.2 News release dated October 23, 1996
99.3 News release dated October 29, 1996
99.4 News release dated October 31, 1996
(b) Reports on Form 8-K
Three Current Reports on Form 8-K were filed with
the Commission during the first quarter of the
Company's 1997 fiscal year.
(a) The July 2, 1996 Form 8-K Current Report
disclosed under Item 5 that (i) on July 2,
1996, The Company issued a press release
announcing that it filed an amended Plan of
Reorganization and Disclosure Statement with
the Bankruptcy Court on July 2, 1996, which
contained several new provisions to the
Plan; (ii) on July 8, 1996, The Company
issued a press release announcing that it
had reached agreement with Chemical Bank,
agent, and Bank of America Illinois to amend
the debtor-in-possession financing agreement
and extend the maturity date to the earlier
of September 30, 1996, or confirmation of a
plan of reorganization; and (iii) on July
16, 1996, The Company issued a press release
announcing that it had received approval
from the Bankruptcy Court on three
significant motions: the company's
Disclosure Statement for the second amended
Plan of Reorganization; the sale of The
Company's labeler machine manufacturing
capability and technology to Kroy, Inc.; and
the extension of exclusivity to the earlier
of September 27, 1996 or confirmation of a
Plan of Reorganization.
(b) The July 29, 1996 Form 8-K Current Report
disclosed under Item 5 that (i) on July 29,
1995, The Company issued a press release
announcing that it had received approval
from the Bankruptcy Court to adjust the
scheduled confirmation of its Plan of
Reorganization from Sept. 9 to Oct. 7, 1996
and (ii) on August 7, 1996, the Company
reported that it filed a notice of intent to
terminate the company's defined benefit
retirement plans for salaried and hourly
U.S. employees with the Pension Benefit
Guaranty Corporation.
(c) The August 16, 1996 Form 8-K Current Report
disclosed under Item 5 that the Company
signed a stock purchase agreement with
MaraFund, Ltd., a New York-based investment
firm, for the sale of 15 percent of the new
common stock in the reorganized company for
$5 million, and on August 27, 1996, the
Company terminated its stock purchase
agreement with MaraFund, Ltd. due to
MaraFund's failure to meet its contractual
obligations under the agreement.
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 13, 1996
By: /s/ John A. Piontkowski
John A. Piontkowski
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Martin D. Wilson
Martin D. Wilson
Vice President/Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
EX-10 Fifth Amendment to Debtor-In-Possession
Credit Agreement
EX-27 Financial Data Schedule (electronically
filed only)
EX-99.1 News release dated October 7, 1996
EX-99.2 News release dated October 23, 1996
EX-99.3 News release dated October 29, 1996
EX-99.4 News release dated October 31, 1996
EXHIBIT 99.1
News Release
- -----------
Sitrick and Company, Inc.
Los Angeles/New York
Contact: Sitrick and Company, Inc.
Rivian Bell
(310) 788-2850
(800) 686-1910 (24 hours)
For Immediate Release
- ---------------------
SMITH CORONA TO RELOCATE WORLD HEADQUARTERS TO CORTLAND, N.Y.
New Canaan, Conn. -- Oct. 7, 1996 -- Smith Corona
Corporation today announced its intent to relocate its world
headquarters in New Canaan, Conn. to its facility in Cortland,
N.Y. near the Syracuse metropolitan area.
Smith Corona employs approximately 30 people in Connecticut.
Of these, half will either retain their current positions or be
offered identical positions at the Cortland facility. For those
facing job terminations, the company's normal severance policies
will remain in effect. Relocation activities will culminate with
the closing of the New Canaan office before year-end.
Job junctions affected by the headquarters relocation
include the offices of the chief executive officer and chief
financial officer, as well as personnel in finance, marketing,
and domestic and international sales. Domestic sales personnel
and the Dallas regional sales office will remain in their
respective locations.
Ronald F. Stengel, president and chief executive officer at
Smith Corona, said "The relocation will further enhance day-to-day
communications between our operating groups by consolidating
functional activities under one roof. In addition, significant
cost savings will be realized by shedding the costs associated
with maintaining a separate facility in New Canaan. By
maintaining our domestic sales team throughout the U.S., we will
continue to serve our customer base without interruption."
Smith Corona is a leading worldwide manufacturer and
marketer of personal word processors, portable electric
typewriters, fax machines, label printers, and other products and
accessories for use in the office, home and school.
The company filed under Chapter 11 of the U.S. Bankruptcy
Code on July 5, 1995. The reorganization is proceeding on
schedule, with ballots due from creditors on Oct. 18, 1996 and
the confirmation hearing planned for Oct. 31 in Wilmington, Del.
# # #
EXHIBIT 99.2
News Release
- -----------
Sitrick and Company, Inc.
Los Angeles/New York
Contact: Sitrick and Company, Inc.
Rivian Bell
(310) 788-2850
(800) 686-1910 (24 hours)
For Immediate Release
- ---------------------
Smith Corona Appoints New Chief Executive
New Canaan, Conn. - Oct. 23, 1996 - Smith Corona Corporation
today announced the appointment of W. Michael Driscoll to the
position of president and chief executive officer, effective when
the company emerges from Chapter 11.
Subject to Bankruptcy Court approval, Mr. Driscoll, age 50,
will serve the company in a consulting capacity until the
reorgazation is completed. On the Effective Date of the Plan of
Reorganization, he will replace Ronald F. Stengel, who joined
Smith Corona on July 1, 1995 to direct the company through its
reorganization.
"We are pleased to welcome Mike Driscoll back to Smith
Corona, a company to which he has made so many contributions
through the years," stated Mr. Stengel, president and chief
executive officer. "It is fitting that an executive with Mike
Driscoll's financial and operating expertise take Smith Corona to
its next evolutionary stage."
Mr. Driscoll's career spans a 23-year history with Smith
Corona that encompasses positions in finance, manufacturing and
engineering. Until 1995, he served as senior vice president -
operations and engineering when he left to become chief executive
officer of I.P.C. Technologies, Inc., a $250 million computer
manufacturer based in Austin, Texas.
In the mid-1980's, Mr. Driscoll founded and served as chief
executive officer of Technology Applications Limited, a $120
million telecommunications organization with operations in the
U.S., Singapore and Thailand. Mr. Driscoll's experience also
includes financial management positions with AT & T
Microelectronics/Bell Laboratories and Honeywell, Inc.
Mr. Driscoll holds a B.S. degree in accounting from Ithaca
College. He currently resides in Ithaca, N.Y. with his wife,
Carol.
Smith Corona is a leading worldwide manufacturer and
marketer of personal word processors, portable electric
typewriters, fax machines, label printers, and other products and
accessories for use in the office, home and school. The company
filed under Chapter 11 of the U.S. Bankruptcy Code on July 5,
1995.
###
EXHIBIT 99.3
News Release
- -----------
Sitrick and Company, Inc.
Los Angeles/New York
Contact: Sitrick and Company, Inc.
Rivian Bell
(310) 788-2850
(800) 686-1910 (24 hours)
For Immediate Release
- ---------------------
SMITH CORONA POSTPONES CONFIRMATION HEARING
NEW DATE TO BE DETERMINED SOON
New Canaan, Conn. -- Oct. 28, 1996 -- Smith Corona
Corporation today announced that it has asked the Bankruptcy
Court for a new date for the hearing to confirm the company's
Plan of Reorganization, which it hopes to obtain soon. The
original Oct. 31 date will be utilized instead for hearings to
terminate the company's pension plans, which the company had
previously announced.
Smith Corona is a leading worldwide manufacturer and
marketer of personal word processors, portable electric
typewriters, fax machines, label printers, and other products and
accessories for use in the office, home and school. The company
filed under Chapter 11 of the U.S. Bankruptcy Code on July 5,
1995.
# # #
EXHIBIT 99.4
News Release
- -----------
Sitrick and Company, Inc.
Los Angeles/New York
Contact: Sitrick and Company, Inc.
Rivian Bell
(310) 788-2850
(800) 686-1910 (24 hour pager)
For Immediate Release
- ---------------------
SMITH CORONA BRINGS THREE UNITS INTO CHAPTER 11 CASE
TO PROTECT ASSETS
New Canaan, Conn. -- Oct. 31, 1996 -- Smith Corona
Corporation today filed voluntary Chapter 11 petitions for three
wholly-owned domestic subsidiaries: Smith Corona Overseas,
Holdings, Inc.; SCM Inter-American Corporation; and SCM (United
Kingdom) Limited. The primary purpose of the filings, which will
have no effect on operations, is to better protect corporate
assets during the reorganization period.
According to Ronald F. Stengel, Smith Corona president and
chief executive officer, "These units are legal entities with
virtually no employees. By bringing them under Chapter 11
protection, we hope to include them in the substantive
consolidation for the previously filed debtors which was recently
approved by the Bankruptcy Court. Today's filings will have no
effect on any of the company's operations in the U.S. or abroad."
Smith Corona is a leading worldwide manufacturer and
marketer of personal word processors, portable electric
typewriters, fax machines, label printers, and other products and
accessories for use in the office, home and school. The company
filed under Chapter 11 of the U.S. Bankruptcy Code on July 5,
1995.
# # #
EX-10
SMITH CORONA CORPORATION
FIFTH AMENDMENT TO
DEBTOR-IN-POSSESSION CREDIT AGREEMENT
This FIFTH AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT
AGREEMENT (this "Amendment") is dated as of September 30, 1996
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 THE CHASE MANHATTAN BANK (formerly known as "Chemical
Bank"), a New York banking corporation, as agent for the
Lenders (in such capacity, the "Agent"), and, for purposes of
Section 4 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, that certain Second
Amendment to Debtor-in-Possession Credit Agreement dated as of
August 15, 1995 that certain Third Amendment to Debtor-In-
Possession Credit Agreement dated as of December 6, 1995 and
that certain Fourth Amendment to Debtor-In-Possession Credit
Agreement dated as of June 30, 1996 (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, the Borrower has requested the Agent and
Lenders to, among other things, (i) extend the maturity date
of the Credit Agreement, (ii) restrict the expiration date of
Letters of Credit as provided herein and (iii) provide for the
amendment of the financial covenants as provided herein; and
WHEREAS, subject to the terms and conditions
contained herein, the Agent and Lenders are willing to consent
to such amendments as provided herein;
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
The definition of "Termination Date" contained
in subsection 1.1 of the Credit Agreement is hereby amended by
(i) deleting the date "September 30, 1996" therefrom and
substituting therefor the date "December 31, 1996", and (ii)
deleting clause (vi) from such subsection and substituting the
following therefor:
"and (vi) if subsections 6.1(a)
and 6.1(b) have not been amended
by October 16, 1996 in a manner
satisfactory to the Lenders in
their sole discretion in order to
extend the application of such
covenants to December 31, 1996,
October 16, 1996."
1.2 Amendments to Section 2: Amount and Terms of
Commitments
Subsection 2.12(b) is hereby amended by deleting
clause (ii) therefrom and substituting the following therefor:
"(ii) shall expire on or before
June 30, 1997."
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 "Amendment Effective Date"):
A. The Agent shall have received counterparts of
this Amendment (i) executed by the Borrower, each Lender and
the Agent and (ii) for purposes of Section 4 only, executed by
each Credit Support Party (as hereinafter defined) 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.
Section 3. 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 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 4. 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 representations
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 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 5. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement
and the Other Loan Documents.
(i) On and after the 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.]
<PAGE>
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: /s/ John A.
Piontkowski
Title: Sr. VP & CFO
THE CHASE MANHATTAN BANK
(formerly known as "Chemical
Bank"),
as Agent and as a Lender
By: /c/ Charles O. Freedgood
Title: Vice President
BANK OF AMERICA ILLINOIS
By: /s/ H. G. Wheelock
Title: VP
SCM (UNITED KINGDOM) LIMITED,
(for purposes of Section 4 only)
as a Credit Support Party
By:/s/ John A. Piontkowski
Title:
SMITH CORONA OVERSEAS
HOLDINGS, INC., (for purposes of
Section 4 only) as a Credit
Support Party
By:/s/ John A. Piontkowski
Title:
SMITH CORONA (UK), LIMITED, (for
purposes of Section 4 only) as a
Credit Support Party
By: /s/ Ray Sugden
Title: Director
<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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 30869
<SECURITIES> 0
<RECEIVABLES> 15457
<ALLOWANCES> 816
<INVENTORY> 15657
<CURRENT-ASSETS> 65883
<PP&E> 30979
<DEPRECIATION> 19266
<TOTAL-ASSETS> 80068
<CURRENT-LIABILITIES> 14378
<BONDS> 0
<COMMON> 303
0
0
<OTHER-SE> 8910
<TOTAL-LIABILITY-AND-EQUITY> 80068
<SALES> 20986
<TOTAL-REVENUES> 20986
<CGS> 17057
<TOTAL-COSTS> 17057
<OTHER-EXPENSES> 347
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5)
<INCOME-PRETAX> 78
<INCOME-TAX> (7)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
