UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 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.)
839 Route 13 South, Cortland, New York 13045
(Address of principal executive offices)(Zip Code)
(607) 753-6011
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock and
non-voting common equity of the registrant held by non-affiliates
of the registrant as of September 1, 1998: $7,631,894 (Such amount
has been computed as described in "Market for Registrant's Common
Equity and Related Stockholder Matters.")
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
Number of shares of Common Stock outstanding as of September 1, 1998: 2,983,372.
Documents Incorporated by Reference
Document Part of Form 10-K
Portions of the Proxy Statement relating to registrant's Part III
1998 Annual Meeting of Stockholders, to be filed with the
Commission within 120 days after the close of the
registrant's fiscal year
TABLE OF CONTENTS
PART I 3
Item 1. Business 3
General 3
Recent Events 3
Restructuring and Bankruptcy Reorganization 4
History of the Business 5
Products 6
Marketing, Sales and Distribution 7
Service 8
Seasonality 8
Manufacturing Operations 8
Competition 9
Patents, Trademarks and Licenses 9
Employees 9
Research and Development 9
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote
of Security Holders 11
Executive Officers of the Registrant 11
PART II 13
Item 5. Market for Registrant's Common
Equity and Related Stockholder
Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and
Analysis of Results of Operations
and Financial Condition 16
Item 8. Financial Statements and
Supplementary Data 20
Item 9. Changes in and Disagreements with
Accountants on Accounting
and Financial Disclosure 20
PART III 20
Item 10. Directors and Executive Officers
of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain
Beneficial Owners and Management 20
Item 13. Certain Relationships and
Related Transactions 20
PART IV 21
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 21
Index to Consolidated Financial Statements
and Financial Statement Schedule 25
PART I
Item 1. Business
The Company
General
Smith Corona Corporation (the "Company") is dedicated to
providing productivity and communication solutions to the small
office and home office markets through new and emerging
technology products, in addition to its traditional portable
electronic typewriters and related accessories and supplies.
The Company was incorporated in 1985 in the State of Delaware.
Prior to 1986, the businesses of the Company were operated by
SCM Corporation ("SCM") which was acquired by Hanson PLC
("Hanson") in March 1986. At the time it was acquired, SCM
consisted of a number of businesses, including the manufacture
and sale of typewriters, personal word processors and supplies
and accessories and businesses in the chemical, paper and food
industries. On August 3, 1989, the Company completed a
registered public offering of 14,750,000 shares of common
stock, par value $.01 per share (the "Old Common Stock"). On
July 5, 1995, the Company filed for relief under Chapter 11 of
the United States Bankruptcy Code (the "Bankruptcy Code").
Upon the Company's emergence from bankruptcy proceedings on
February 28, 1997, the Old Common Stock was canceled,
registered holders of the Old Common Stock as of August 15,
1996 received warrants to purchase one share of common stock,
par value $.001 per share (the "Common Stock"), for each 20
shares of Old Common Stock and certain of the Company's
creditors received Common Stock. (See "Restructuring and
Bankruptcy Reorganization" for further discussion of the
bankruptcy proceedings.)
Recent Events
On July 17, 1998 Peter N. Parts, Chairman of the Board of
Directors assumed the post of President and Chief Executive
Officer. Peter Parts replaced W. Michael Driscoll, who retired
as the Company's President and Chief Executive Officer.
On July 22, 1998 Ronald F. Stengel resigned as Director of the
Company. Mr. Stengel stepped down as Chairman of the Board of
Directors in May 1998 due to constraints imposed by his current
business commitments.
On August 3, 1998 J. Thomas Malatesta joined the Company as
Vice President-New Market Development. Mr. Malatesta will
explore synergistic opportunities in related markets and seek
out new channels of distribution for new and existing products.
Effective October 1, 1998, Martin D. Wilson will serve as the
Company's Senior Vice President, Chief Financial Officer and
Assistant Secretary. Mr. Wilson, who previously served as Vice
President/Controller will replace John A. Piontkowski, who
resigned as the Company's Executive Vice President, Chief
Financial Officer and Assistant Secretary.
Effective September 28, 1998, the Company's Board of Directors
approved a restructuring program which includes: i.) the
elimination of approximately 130 positions primarily located at
the Company's Corporate Headquarters in Cortland, New York,
ii.) the sale or lease of the building in Cortland, New York,
iii.) relocation of the Corporate Headquarters to more
efficient facilities. The Company expects the restructuring
program to be completed by June 30, 1999. As a result of these
actions, the Company will record a first quarter pre-tax
charge, principally for severance payments, of approximately
$1.2 million.
Restructuring and Bankruptcy Reorganization
On May 8, 1995 the Company announced a major restructuring plan
whereby (i) the Company?s typewriter manufacturing would be
relocated from its Singapore and Batam Island, Indonesia
facilities to its Mexico facility and (ii) 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 would
be eliminated (the "Restructuring").
The Company had experienced sales declines and operating
losses, had extended payment of obligations owed to its trade
vendors, and needed additional financing to meet operating
requirements and fund the Restructuring. As a result, on July
5, 1995 (the "Petition Date"), the Company filed a voluntary
petition for relief under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). From July 5,
1995 to February 28, 1997 the Company operated as a debtor-in-
possession. 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. On October 31,
1996, Smith Corona Overseas Holdings, Inc., SCM Inter-American
Corporation and SCM (United Kingdom) Limited, all wholly-owned
domestic subsidiaries (the "Wholly-Owned Domestic
Subsidiaries"), also filed Chapter 11 petitions. (The
petitions of the Company, the Nonoperating Subsidiaries and the
Wholly-Owned Domestic Subsidiaries are referred to herein
collectively as the ?Bankruptcy Proceedings?). The primary
purpose of the October 31, 1996 filings, which had no effect on
operations, was to better protect corporate assets during the
reorganization period. The Bankruptcy Proceedings primarily
related to all U.S. assets and operations and did not involve
the Company's international subsidiaries.
On September 9, 1996, the Company filed its Third Amended
Second Joint Plan of Reorganization (the "Plan of
Reorganization") and Third Amended Second Disclosure Statement
with the Bankruptcy Court, which Disclosure Statement was
approved by the Bankruptcy Court for solicitation of creditor
acceptance of the Plan of Reorganization. On January 27, 1997
the Bankruptcy Court entered an order confirming the Company's
Plan of Reorganization (the "Confirmation Order"). The
Confirmation Order was subject to satisfaction of certain
conditions precedent to the effective date. The Company
satisfied the conditions and emerged from the Bankruptcy
Proceedings on February 28, 1997 (the "Effective Date").
Under the Plan of Reorganization, all allowed general unsecured
claims are being satisfied through the distribution to holders
of such claims of (i) the unsecured class cash of approximately
$11.3 million (less any amounts paid to holders of allowed
convenience class claims discussed below), and (ii) 85 percent
of the Common Stock (determined on a fully diluted basis, not
including the effect of the exercise of any of the below
described warrants). Each holder of an allowed general
unsecured claim receives one share of the Common Stock for each
ten dollars in allowed claim value. All allowed claims senior
to allowed general unsecured claims will be satisfied by the
payment in full in cash or notes (as provided by the Bankruptcy
Code) or the assumption of all such claims. The distributions
to holders of allowed general unsecured claims and claims
senior to such claims commenced in March 1997. In addition,
allowed convenience class claims (general unsecured claims of
one thousand five hundred dollars or less) have received
payment in cash in an amount equal to 60 percent of the amount
of such claims. Registered holders as of August 15, 1996, of
the Old Common Stock received warrants to purchase one share of
Common Stock for each twenty shares of Old Common Stock.
For further discussion of the Company's Restructuring and
bankruptcy reorganization, see ?Business - Manufacturing
Operations? and "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
History of the Business
The Company's typewriter and personal word processor business
traces its origins back to the 1880's with the development of
office typewriters. The Company introduced the world's first
portable electric typewriter in 1957 and, for the next decade,
the Company had the only portable electric typewriter available
in the marketplace. In 1973, the Company introduced its
revolutionary cartridge ribbon system, which is still used
today. Beginning in 1979, the Company moved into electronics
with major research and development efforts and, in 1981,
introduced its first electronic typewriter product to the
marketplace.
During the early 1980's, as the market shifted to electronic
typewriters, Japanese manufacturers became a significant factor
in the world marketplace. In order to compete effectively, the
Company implemented a major restructuring from 1984 to 1986 of
its typewriter operations which resulted in substantially
reduced manufacturing costs, a streamlined product line, a 50
percent reduction in worldwide employment and the consolidation
of certain of its United States operations.
In 1985, the Company developed and introduced one of the
industry's first personal word processors, and, in 1989, the
Company introduced the industry's first laptop personal word
processor.
During the year ended June 30, 1995, the Company sold
substantially all of the assets and liabilities of SCM Office
Supplies, Inc. and Histacount Corporation (?Histacount?),
respectively, two of its wholly-owned subsidiaries. The
results of operations and gain (loss) on sale related to SCM
Office Supplies, Inc., and Histacount are presented as
discontinued operations (see Item 6, Selected Financial Data).
Business operations of these two entities primarily consisted
of the manufacture and distribution of office supplies and
customized printed products, respectively.
From July 5, 1995 to February 28, 1997 the Company operated as
a debtor-in-possession while in the Bankruptcy Proceedings. On
January 27, 1997 the Bankruptcy Court entered the Confirmation
Order. The Confirmation Order was subject to satisfaction of
certain conditions precedent to the Effective Date. The
Company satisfied the conditions and emerged from the
Bankruptcy Proceedings on the Effective Date. During the
Bankruptcy Proceedings, the Company confined expenditures to
those manufacturing and operating costs that were necessary to
preserve and maintain going-concern value. In light of its
financial condition, the Company also implemented a planned
reduction in its workforce and a consolidation of its world
headquarters from New Canaan, Connecticut to its facility in
Cortland, New York. Additionally, as part of the
Restructuring, the Company relocated its typewriter
manufacturing operations to its Mexico facility from facilities
in Singapore and Batam Island, Indonesia. See "Business -
Restructuring and Bankruptcy Reorganization" and "Management's
Discussion and Analysis of Results of Operations and Financial
Condition."
On November 24, 1997, the Company sold its remaining
manufacturing operations (the "Sale"). In addition, the Company
entered into a long-term manufacturing agreement pursuant to
which the purchaser will manufacture certain Smith Corona Brand
name products, including typewriters and related supplies and
accessories. The Sale included (i) certain property, plant and
equipment used in the manufacturing operations, (ii) all the
outstanding common stock of Smith Corona de Mexico, S.A. de
C.V., the Company's Mexican subsidiary, and (iii) raw material
and work-in-process inventories. The Sale generated net
proceeds of $14.9 million and resulted in a gain of $3.9
million.
Products
Under the Plan of Reorganization, the Company's plans were to
expand its product line, primarily by sourcing new products
from outside manufacturers and that effort continues. Such
sourcing includes entering into strategic alliances with third
parties in the United States, Europe and the Far East to
provide products or services. In that respect, the Company's
efforts are focused on forging new and expanding existing
alliances with companies that provide technologically advanced
products for the small office and home office environment but
presently do not have a substantial United States market
penetration, and are intent on building or increasing market
penetration by selling their products under the well-known
"Smith Corona" name. The Company intends to rely on its
existing distribution network to become a leading vendor of
technologically advanced products for the small office and home
office. Additionally, the Company is exploring synergistic
opportunities in related markets that will provide new and
expand existing channels of distribution. In the fall of 1997,
newly sourced and manufactured products were available under
the Smith Corona brand name. The product offerings include
items in the telephony and plain paper inkjet facsimile product
lines. These new telephony products included a family of
corded, as well as cordless phones incorporating the latest in
900 MHz, analog, digital and spread spectrum technology. In
fiscal 1999 the Company intends to continue to introduce new
products for home office and small office applications. Some
of the new products will be systems-oriented, and intended to
increase personal productivity. Further, the Company
determined it would maintain its core business of distributing
its current product line of typewriters and related supplies
and accessories to satisfy continuing worldwide demand for
these products. Due to substantial sales volume reductions, in
June 1997 the Company ceased the manufacture of personal word
processors; servicing and customer support of personal word
processors, however, is continuing.
As a result of the Company's sourcing strategy to use third-
party manufacturers the Company's results of operations are
subject to risks of doing business abroad such as economic and
political uncertainty. Additionally, there can be no assurance
that a significant disruption of a third-party manufacturer
would not have a negative impact on the Company's business.
The success of the Company depends, in part, on its ability to
source, market and sell new products.
The products or classes of similar products that accounted for
10 percent or more of net sales of the Company in any of the
Company's last three fiscal years were (i) portable and compact
electronic typewriters, which accounted for 49.4 percent, 45.1
percent and 38.1 percent of net sales in the fiscal years ended
June 30, 1998, 1997 and 1996, respectively, (ii) personal word
processors, which accounted for 11.5 percent and 21.8 percent
of net sales in the fiscal years ended June 30, 1997 and 1996,
respectively, and (iii) typewriters and personal word processor
supplies and accessories, which accounted for 35.4 percent,
36.5 percent and 29.4 percent of net sales in fiscal years
ended June 30, 1998, 1997 and 1996, respectively.
Marketing, Sales and Distribution
In the United States, the Company advertises, markets and
promotes its products through television and national print
media, both consumer and trade. Advertisements focus on the
key features and benefits of the various products. During the
Bankruptcy Proceedings advertising expenditures consisted of
limited trade and print advertising. In the fiscal year ended
June 30, 1998 the Company significantly increased levels of
advertising to support introduction and sell-through of new
products. The Company also supports local advertising
campaigns of its customers, if the campaigns comply with
certain standards set by the Company.
The Company makes available for use, at retail store locations,
various point-of-sale materials and other in-store visual
supports. In addition, the Company provides training support
for its customers' sales staffs conducted by the Company's
marketing support representatives.
In the United States, the Company distributes its products
through outlets in all major channels of distribution,
including (i) national retail chain stores, such as Wal-Mart;
(ii) warehouse clubs, such as Sam's and BJ Wholesale; (iii)
catalog merchandisers, such as Service Merchandise; (iv)
national and regional office supply wholesalers such as United
Stationers and S.P. Richards; (v) office superstores, such as
Office Depot, Inc., OfficeMax and Staples; (vi) office
equipment dealers; (vii) regional discount stores, such as
FedCo; and (viii) United States military exchanges. The
Company does not enter into long-term contracts with its
customers and there can therefore be no assurance that the
Company will continue to receive sales revenues from any
particular source.
Internationally, the Company distributes its products in
Canada, European Community countries, Latin America, South
America, Caribbean markets and other international markets. The
channels of distribution in the international markets are
similar to those in the United States market and include
national retail chains, catalog merchandisers, department
stores, office equipment dealers, discount stores, stationers
and direct mail accounts. The Company relies primarily on
distributors for sales of its products in international
markets. As a result, the Company's results of operations are
subject to the risks of doing business abroad, including
currency exchange rate fluctuations, nationalization,
expropriation, limits on repatriation of funds and other risks
associated with economic or political uncertainty in countries
in which significant sales are made. See the footnotes to the
Consolidated Financial Statements in this Form 10-K Annual
Report for information regarding the Company's business
operations within and outside the United States.
Payment terms granted to customers reflect general practices in
the industry. Terms vary with product and competitive
conditions, but generally require payment within 30 to 90 days.
Historically, bad debts have been insignificant. Wal-Mart
Stores, Inc., one of the Company's largest customers, was
responsible for 29.7 percent of consolidated net sales in the
year ended June 30, 1998. Wal-Mart Stores, Inc. was the only
customer responsible for more than 10 percent of net sales.
All of the Company's sales are made to customers who are not
affiliated with the Company.
Service
The Company's products are serviced in the United States by a
Smith Corona factory service center located in Cortland, New
York as well as at independent service stations domestically
and internationally. The service center and stations employ
trained technicians, maintain parts inventory and perform
warranty and other repairs.
Seasonality
The Company believes that its business in the aggregate is not
seasonal, although certain of its products sell more heavily in
gift-giving seasons such as the winter holidays and school
graduation periods.
Manufacturing Operations
On November 24, 1997 the Company completed the Sale of its
manufacturing operations. In addition, the Company entered
into a long-term manufacturing agreement pursuant to which the
purchaser will manufacture certain Smith Corona brand name
products, including typewriters and related supplies and
accessories.
Prior to the Sale, the Company's sole manufacturing operation
was located in Mexico. As a result of the Restructuring, the
Company ceased production in Singapore and Batam Island in mid-
November 1995, and completed the process of relocating certain
equipment to Mexico where typewriter production commenced in
December 1995.
Competition
The portable and compact electronic typewriter business is
highly competitive. The Company faces competition from
Japanese and various other companies, including, among others,
Brother International Corporation, which manufacture portable
and compact electronic typewriters. Some of the competitors may
have greater financial resources than the Company. As the
portable and compact electronic typewriter market has continued
to mature, competition has increased. To remain competitive,
the Company has reduced the prices of its typewriters in line
with market pricing. Telephony products compete against brands
such as Lucent, Sony, Uniden and Panasonic. Facsimile products
compete against brands such as Brother, Canon and Sharp. The
telephony and facsimile markets are growing and are much larger
than those of the mature and shrinking markets for
typewriters, and supplies and accessories. In the fourth
quarter of the Company's 1998 fiscal year competitors began
reducing market prices for the low-end telephony and facsimile
products. These sharp price declines have resulted in the
Company having to reduce its low-end telephony and facsimile
product pricing as well as take charges for new product
inventory writedowns. (See "Management's Discussion and
Analysis of Results of Operations and Financial Conditions" for
further discussion on inventory writedowns.)
Patents, Trademarks and Licenses
The Company owns or licenses a number of patents and patent
applications which are valuable to its typewriters and supplies
and accessories business. The Company is the owner of a number
of trademarks and U.S. and foreign registrations thereof, the
most important of which is the trademark, "Smith Corona".
Employees
As of June 30, 1998, the Company employed approximately 225
people. Management considers its employee relations to be
good.
Research and Development
The Company's expenditures for research and development
activities were approximately $4.8 million,$1.9 million and
$2.0 million for the fiscal years ended June 30, 1998, 1997 and
1996, respectively. Research and development expenses were
concentrated primarily in the development of new products for
the year ended June 30, 1998 and in improving product
manufacturing and integration of products/technology to the
Company's product lines for the years ended June 30, 1997 and
1996.
Item 2. Properties
The Company utilizes approximately 527,000 square feet of space,
of which about 499,000 square feet are located in the United
States and about 28,000 square feet are located primarily in
Canada, the Netherlands and the United Kingdom. Of the total
square footage, approximately 422,000 square feet are owned and
the remaining 105,000 square feet are leased. Additionally, the
Company subleases approximately 12,600 square feet of the
77,000 square feet of warehousing and office space in the San
Diego facility. Information with respect to the principal
facilities used by the Company is set forth below:
Approximate
Square Owned/
Location Primary Use Footage Leased
Cortland, NY...... Headquarters/
Warehousing/Service 422,000 Owned
San Diego, CA..... Warehousing/Office 77,000 Leased
499,000
All other locations Warehousing/
Sales/Service 28,000 Leased
Total............. 527,000
Item 3. Legal Proceedings
Description of Legal 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 have been the
subject of lawsuits filed by such authorities or by private
parties. At June 30, 1998 and June 30, 1997, the Company had
recorded liabilities of approximately $1.9 million and $3.0
million, respectively, related to environmental matters.
Because of the uncertainties associated with assessing
environmental matters, the related ultimate liabilities are not
presently determinable. However, based on facts presently
known, management does not believe that these investigations,
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,
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. The remediation program at the
Cortlandville site currently consists of round-the-clock
pumping and filtering. The soil venting with a soil
infiltration injection system for the Groton Site is now
reduced to periodic soil and water sampling. A decommissioning
plan for the Groton Site has been approved and decommissioning
activities have commenced. 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 that it has set aside adequate reserves for the
payment of expenses for the ongoing remediation programs at the
Groton and Cortlandville Sites.
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.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The officers of the Company are elected by and serve at the
direction of the Board of Directors. The executive officers of
the Company and their respective positions, ages at September
14, 1998 and backgrounds are as follows:
Name Position Age
Peter N. Parts ............. Chairman of the Board,
President and Chief Executive
Officer 45
John A. Piontkowski ........ Executive Vice President,
Chief Financial Officer and
Assistant Secretary 44
Michael J. Murray ......... Executive Vice President,
Sales and Marketing 63
Michael W. Chernago......... Vice President/Operations 52
Gary J. Lynch ............ Vice President/Treasurer 48
J. Thomas Malatesta......... Vice President/New Market
Development 55
Martin D. Wilson ........... Vice President/Controller 38
John W. Wolff ............ Vice President/Product
Development 46
Mr. Parts, age 45, was elected Chairman of the Board of the
Company on May 23, 1998 and President and Chief Executive
Officer on July 17, 1998. He has served as President and Chief
Executive Officer of Peter Parts Electronics, Inc., a North
American sales group for electronic manufactures from Asia and
Europe, since 1986. Mr. Parts has been a director of the
Company since February 28, 1997.
Mr. Piontkowski, age 44, was named Executive Vice President and
Chief Financial Officer on May 7, 1997. From June 21, 1995 to
May 15, 1996, he also held the office of Treasurer. He has
served as an Assistant Secretary of the Company since July 1,
Mr. Piontkowski served as Senior Vice President and
Chief Financial Officer from June 1995 to May 1997, as Vice
President/Finance and Controller from March 1995 to June 1995
and as Vice President/Controller of the Company from July 1993
to March 1995. Mr. Piontkowski served as Director of Accounting
and Financial Reporting of the Company from December 1991 to July 1993.
Mr. Murray, age 63, has served as Executive Vice President of
Sales and Marketing for the Company since March 1, 1998. Mr.
Murray served as Vice President for Worldwide Sales, Marketing
and Technical Service operations of Harris/RF Communications
Company, a manufacturer of military radios from January 1993 to
January 1995. Mr. Murray served as Regional Business General
Manager and Vice President of the Office Imaging Division of
Eastman Kodak Company until his retirement in January 1993.
Mr. Murray is currently a director of Photikon Corporation.
Mr. Murray has been a director of the Company since February
28, 1997.
Mr. Chernago was named Vice President/Operations on January 26,
From July 1994 to January 1996, Mr. Chernago served as
Vice President Product Assurance and Vice President/Operations
of the Company. Mr. Chernago served as Director, Manufacturing
Engineering from September 1989 to July 1994. Mr. Chernago has
held various other positions within the Company since 1973.
Mr. Lynch has served as Vice President/Treasurer of the Company
since May 15, 1996. From April 1995 to May 1996, Mr. Lynch
served as Director of Treasury Services. Mr. Lynch served as
Director of Budgets and Financial Analysis from April 1987 to
April 1995. Mr. Lynch has held various other positions within
the Company since 1978.
Mr. Malatesta was named Vice President/New Market Development
on August 3, 1998. Prior to August 1998 Mr. Malatesta was
President of Global Marketing Services Incorporated, a
strategic marketing consulting firm serving multinational
company's. In August 1994, Mr. Malatesta filed for personal
bankruptcy under Chapter 11 of the United States Bankruptcy
Code. The filing was converted to Chapter 7 and upon appeal was
dismissed.
Mr. Wilson was named Vice President/Controller of the Company
on May 15, 1996. Prior to that time, he served as Controller
from July 1995 to May 1996, Assistant Controller from April
1995 to July 1995, and as Director/Accounting and Financial
Reporting from January 1994 to April 1995. Prior to joining
the Company, he served as Financial Reporting Manager for
Fisher-Price Inc., an international manufacturer, marketer and
distributor of infant and preschool toys and juvenile products,
from November 1991 through December 1993.
Mr. Wolff has served as Vice President/Product Development
since January 20, 1997. He served as Director of Materials
from February 1996 to January 1997, Director of Procurement and
Distribution from December 1995 to February 1996, Director of
Division Procurement and Cortland Materials from November 1994
to December 1995, Director of Engineering from August 1993 to
November 1994 and Director of Engineering - Singapore from
January 1989 to August 1993. Mr. Wolff has held various other
positions within the Company since 1981.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Common Stock (NASDAQ symbol: SCCO) commenced trading on the
Nasdaq SmallCap Market on May 29, 1997. From February 28, 1997
to May 29, 1997, the Common Stock was traded on the over-the-
counter market. Since the suspension of the trading on the New
York Stock Exchange on May 30, 1996 until the Old Common Stock
was canceled on February 28, 1997, there was no established
public trading market for the Old Common Stock although the Old
Common Stock continued to trade on the over-the-counter market.
The following table sets forth the range of high and low bid
prices of the Common Stock since February 28, 1997, the date of
the first trade of the Common Stock.
Year Ended
June 30, 1998
High Low
First quarter . . . . . . . . . . . . $4.88 $3.13
Second quarter . . . . . . . . . . . . 8.13 4.31
Third quarter . . . . . . . . . . . . 7.00 4.38
Fourth quarter . . . . . . . . . . . . 6.88 5.00
Year Ended
June 30, 1997
High Low
Third quarter (from February 28, 1997
to March 31, 1997)(1) . . . . . . . . . $6.00 $2.50
Fourth quarter (from April 1, 1997
to May 29, 1997)(1) . . . . . . . . . 4.13 2.38
Fourth quarter (from May 29, 1997
to June 30, 1997) . . . . . . . . . . . 5.06 3.88
(1) The range of high and low prices for the periods from
February 28, 1997 to March 31, 1997 and April 1, 1997 to May
29, 1997, were bid prices as reported by the National Quotation
Bureau, LLC (the "NQB") and the Nasdaq Trading and Marketing
Services (the "NTMS"), respectively. The bid prices obtained
from NQB and NTMS represent prices between dealers which do not
include retail markup, markdown or commission and may not
necessarily represent actual transactions.
As of September 1, 1998, there were approximately 349 holders
of record of Common Stock.
The Company's Transfer Agent and Registrar is Marine Midland
Bank, Corporate Trust Services, 140 Broadway, New York, NY
10005-1180.
The Company is prohibited from paying dividends by the terms of
its Loan and Security Agreement (as hereinafter defined),
except for non-cash dividends pursuant to the Rights Agreement.
The Company did not pay any cash dividends in the fiscal years
ended June 30, 1998 and 1997.
On February 28, 1997, pursuant to the Plan of Reorganization,
the Board of Directors of the Company declared a dividend
distribution of one Right for each outstanding share of Common
Stock, payable to stockholders of record at the close of
business on such date and payable with respect to Common Stock
issued thereafter.
The calculation of the number of shares of Common Stock held by
non-affiliates shown on the cover page of this Form 10-K Annual
Report was made on the assumption that there were not
affiliates other than the executive officers and directors of
the Company, the Pension Benefit Guaranty Corporation (the
"PBGC") and Peter Parts Electronics, Inc.
The Plan of Reorganization canceled all of the Old Common Stock
and provided registered shareholders of the Old Common Stock as
of August 15, 1996 with warrants to purchase one share of
Common Stock for each twenty shares of Old Common Stock. The
exercise price of the warrants is $8.50 per share. The
warrants may be exercised at any time to February 28, 1999.
Item 6. Selected Financial Data
The following table summarizes certain historical financial
information derived from the consolidated financial statements
of the Company. This information should be read in conjunction
with the consolidated financial statements and related notes
and Management's Discussion and Analysis of Results of
Operations and Financial Condition, both of which are contained
in this Form 10-K Annual Report.
SELECTED FIVE-YEAR FINANCIAL DATA
(Dollars in thousands, For the year ended June 30,
except per share amounts) 1998 1997 1996 1995(1) 1994(1)
Net sales $58,924 $77,313 $112,548 $196,309 $261,306
Gross margin 13,542 17,910 9,193 15,350 56,979
Operating income (loss)(2) $(8,497) $ (858) $ (8,576) $(46,766) $ 8,422
Income (loss) from
continuing operations $(7,778) $ (795) $(11,122) $(62,245) $ 5,094
Discontinued operations
(net of income taxes):
Income from discontinued
operations - - - 671 2,233
Gain(loss) on disposal
of discontinued
operations - - - 9,127 (2,200)
Income (loss) before
extraordinary gain (7,778) (795) (11,122) (52,447) 5,127
Extraordinary gain(3) 1,174 8,122 - - -
Net income (loss) $(6,604) $ 7,327 $(11,122) $(52,447) $ 5,127
Earnings (loss) per common
Share:
Income (loss) from
continuing operations $ (2.78) $ (.32) $ (4.50) $ (25.19) $ 2.06
Discontinued operations:
Income from discontinued
operations - - - .27 .90
Gain(loss) on disposal
of discontinued
operations - - - 3.69 (.89)
Income (loss) before
extraordinary gain (2.78) (.32) (4.50) (21.23) 2.07
Extraordinary gain .42 3.28 - - -
Net income (loss)
per common share
(basic & diluted) $ (2.36) $ 2.96 $ (4.50) $ (21.23) $ 2.07
Weighted average common
shares (000's omitted)(4) 2,793 2,471 2,471 2,471 2,471
Working capital $25,907 $27,045 $ 54,117 $ 27,116 $ 89,469
Total assets 50,087 60,629 83,872 136,066 193,688
Bank loans - - - 17,400 20,002
Stockholders equity 20,040 26,390 9,128 20,250 75,722
Cash dividends declared
per common share(5) $ - $ - $ - $ .10 $ .20
(1) Amounts have been reclassified, where applicable, to
reflect the discontinued operations of SCM Office Supplies,
Inc. and Histacount.
(2) Includes approximately a $3,902 gain from the sale of
manufacturing operations in 1998, a $3,400 pension curtailment
gain and a $6,500 postretirement curtailment gain in 1997;
$19,500 restructuring income in 1996 and $14,900 provision in
1995.
(3) Includes a $1,174 and $8,122 pre-tax and after-tax
extraordinary gain for debt forgiveness associated with
emergence from the Bankruptcy Proceedings.
(4) For all periods prior to June 30, 1997 the weighted
average common and common equivalent shares outstanding are
based on the weighted average number of common shares
outstanding from the Effective Date until June 30, 1997.
(5) Based on 30,250,000 shares of Old Common Stock,
outstanding as of June 30, 1995 and 1994.
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition
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.
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
Results of Operations
Net sales of $58.9 million for the year ended June 30, 1998
decreased 23.8 percent from net sales for the year ended June
30, 1997 of $77.3 million, primarily due to lower volumes.
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
market and a continuing difficult and competitive environment.
The lower volumes are partially offset by newly sourced
product net sales of $3.8 million. In June 1997, due to
substantial volume reductions, the Company ceased the
manufacture of personal word processors; servicing and customer
support, however is continuing.
The Company's plan to expand its product line continues.
Efforts are focused on forging new and expanding existing
alliances with companies that provide technologically advanced
products for the small office and home office environment but
presently do not have a substantial United states market
penetration and are intent on building or increasing market
penetration by selling their products under the well-known
"Smith Corona" name. Management believes that the Company is
well positioned to leverage the strength of its brand name with
business products that combine functionality and contemporary
design. The Company intends to rely on its existing
distribution network to become a leading provider of
technologically advanced products for the small office and home
office. Additionally, the Company is exploring synergistic
opportunities in related markets that will provide new and
expand existing channels of distribution. The Company believes
that the small office and home office market, globally,
represents growth opportunities. The Company intends to
maintain its core business of distributing its product line of
typewriters and related supplies and accessories to satisfy
continuing albeit declining worldwide demand. The success of
the Company depends, in part, on its ability to source, market
and sell new products.
In the fourth quarter of the Company's 1998 fiscal year
competitors began reducing market prices for the low-end
telephony and facsimile products. These sharp price declines
have resulted in the Company having to reduce its low-end
telephony and facsimile product pricing as well as take charges
for new product inventory writedowns.
Gross margin, as a percentage of net sales was 23.0 percent for
the year ended June 30, 1998 compared with 23.2 percent for the
same period last year. Included in cost of goods sold for the
year ended June 30, 1998 are $.8 million related to favorable
results of remediation activities of the Company's
environmental sites. Additionally, cost of goods sold for the
year ended June 30, 1998 includes inventory writedowns of
approximately $1.9 million primarily associated with certain
new product inventories. The gross margin has been favorably
impacted as a result of a reduction in sales of personal word
processors for which sales in the prior year had a negative
impact on margins. Included in cost of goods sold for the year
ended June 30, 1997 are writedowns of inventories of $1.9
million.
Selling, general and administrative expenses for the year ended
June 30, 1998 were $26.4 million or 44.8 percent of net sales
as compared to $12.7 million or 16.5 percent in the comparable
prior period. For the twelve months ended June 30, 1998,
selling, general and administrative expenses include increased
spending of $7.7 million to support development, introduction
and sell-through of newly sourced products offset by $4.0
million overall reductions in employee-related costs. The
Company expects to reduce spending to support development and
advertising of new products for the twelve months ended June
30, 1999. Selling, general and administrative expenses for the
twelve months ended June 30, 1997 includes a pension plan
curtailment gain of $3.4 million and a postretirement
curtailment gain of $6.5 million.
Effective September 28, 1998, the Company's Board of Directors
approved a restructuring program which includes: i.) the
elimination of approximately 130 positions primarily located at
the Company's Corporate Headquarters in Cortland, New York,
ii.) the sale or lease of the building in Cortland, New York,
iii.) relocation of the Corporate Headquarters to more
efficient facilities. The Company expects the restructuring
program to be completed by June 30, 1999. As a result of these
actions, the Company will record a first quarter pre-tax
charge, principally for severance payments, of approximately
$1.2 million.
On November 24, 1997, the Company completed the sale of its
manufacturing operations (the "Sale"). The Sale generated
total net proceeds of $14.9 million and resulted in a gain of
$3.9 million. In addition the Company entered into a long-term
manufacturing agreement pursuant to which the purchaser will
manufacture certain Smith Corona brand name products, including
typewriters and related supplies and accessories.
For the twelve months ended June 30, 1998 the Company recorded
an extraordinary gain of $1.2 million for the favorable
resolution of bankruptcy claims. Included in the twelve months
ended June 30, 1997 is an extraordinary gain of $8.1 million
(pre-tax and after-tax)as a result of the Company's emergence
from Chapter 11 on February 28, 1997 for debt forgiveness.
Financial Condition
The Company's primary source of liquidity and capital
resources, on both a short- and long-term basis, are cash and
available borrowing capacity.
On February 28, 1997, the Company entered into a loan and
security agreement ("Loan and Security Agreement") with its
lender. The Loan and Security Agreement provides for
extensions of revolving credit loans, term loans and letters of
credit, limited to a percentage of eligible accounts receivable
and inventories in the amount not to exceed $25.0 million
through the February 28, 2000 expiration date. Interest is .75
percent over the Prime Rate or 3 percent over the Adjusted
Eurodollar rate. Payment of dividends is prohibited by the
terms of the Loan and Securities Agreement, except for non-cash
dividends pursuant to the Rights Agreement. Pursuant to the
provisions of the Loan and Securities Agreement the Company
must maintain an adjusted net worth of $11.1 million.
Management believes that it has adequate flexibility and that
such a covenant should not impose an undue restriction on the
operations of the Company. The Loan and Security Agreement is
secured by all of the Company's assets. There are no
borrowings under the Loan and Securities Agreement as of June
30, 1998.
During the twelve months ended June 30, 1998 the Company's
operating activities used $18.5 million of cash, primarily as a
result of the net loss before consideration of the $3.9 million
gain on the Sale and increase of inventory levels. The
increase in inventory was due primarily to new product
inventory receipts partially offset by a decrease of $4.7
million in raw material and work-in-process inventories
associated with the Sale. Capital expenditures for the twelve
months ended June 30, 1998 were $3.2 million compared to $1.0
million in the prior year. Capital expenditures are comprised
primarily of new product tooling of $1.3 million and new
information systems hardware and SAP R/3 software of $1.7
million. The Company had no material commitments for
additional capital expenditures at June 30, 1998.
The Company believes that its cash and borrowing capabilities
will be sufficient to meet its operating cash and capital
expenditure requirements in the foreseeable future.
The Company's products and major operating systems are year
2000 compliant. The Company is in the process of gathering
information concerning the year 2000 compliance status of its
suppliers. In the event that any of the Company's significant
suppliers do not successfully and timely achieve year 2000
compliance, the Company's business could be adversely affected.
Any significant disruption of the Company's ability to
communicate electronically with its business partners could
negatively impact the Company's business.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
With the Company experiencing sales declines and operating
losses, having extended payment of obligations owed to its
trade vendors, and needing additional financing to meet
operating requirements and fund the Restructuring, the Company
filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in the Bankruptcy Court on July 5, 1995. On
August 18, 1995, SCM Office Supplies, Inc., SCC LI Corporation
(formerly Histacount Corporation) and Hulse Manufacturing
Company, the Nonoperating Subsidiaries, filed Chapter 11
petitions. On October 31, 1996 the Wholly-Owned Domestic
Subsidiaries, Smith Corona Overseas Holdings, Inc., SCM Inter-
American Corporation and SCM (United Kingdom) Limited, filed
voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code.
On January 27, 1997 the Bankruptcy Court entered the
Confirmation Order and the Company emerged from the Bankruptcy
Proceedings on the Effective Date of February 28, 1997.
During the Bankruptcy Proceedings, the Company confined
expenditures to those manufacturing and operating costs that
were necessary to preserve and maintain going-concern value.
In light of its financial condition, the Company also
implemented a planned reduction in its workforce and a
consolidation of its manufacturing and distribution operations
and relocated its world headquarters from New Canaan,
Connecticut to its facility in Cortland, New York.
Additionally, as part of the Restructuring, the Company
relocated its typewriter manufacturing operations to its Mexico
facility from facilities in Singapore and Batam Island,
Indonesia.
Results of Operations
Net sales of $77.3 million for the year ended June 30, 1997
decreased 31.3 percent from net sales for the year ended June
30, 1996 of $112.5 million, primarily due to lower volumes.
Unit sales of typewriters, personal word processors and related
accessories and supplies were lower than a year ago, both
domestically and internationally, as a result of a shrinking
market and a continuing difficult and competitive environment.
Due to substantial volume reductions, in June 1997 the Company
ceased the manufacture of personal word processors; servicing
and customer support of personal word processors, however, is
continuing.
Gross margin, as a percentage of net sales, was 23.2 percent
for the year ended June 30, 1997 as compared to 8.2 percent for
the comparable period last year. The margin improvement was
primarily the result of manufacturing efficiencies gained from
the Restructuring and proportionate increases of sales of
higher margin products. Included in cost of goods sold were
writedowns of inventories of $1.9 million and $4.3 million, for
the years ended June 30, 1997 and June 30, 1996, respectively.
Selling, general and administrative expenses for the year ended
June 30, 1997 were 16.5 percent of net sales as compared to
24.7 percent in the comparable period last year. The decreases
reflected the overall savings in employee-related costs as a
result of the Restructuring and reorganization efforts as well
as the impact of a pension plan curtailment gain of $3.4
million and a postretirement curtailment gain of $6.5 million.
During the Bankruptcy Proceedings professional fees were
charged to reorganization costs in the consolidated statements
of operations.
The Company recorded reorganization costs for its Bankruptcy
Proceedings aggregating $5.9 million for the year ended June
30, 1997 compared to $10.3 million for the same period a year
ago. The charges for the year ended June 30, 1997 included
professional fees, a provision for closing its world
headquarters in New Canaan, Connecticut and relocating such to
its facility in Cortland, New York and costs associated with
the distribution of the Plan of Reorganization, offset by
income from a purchase deposit forfeiture of $.5 million,
interest income earned on domestic cash balances of $.6 million
and a settlement the Company reached with its banks relating to the Company's
debtor-in-possession financing of $.5 million.
As a result of emergence from the Bankruptcy Proceedings the
Company recorded a pre-tax and after-tax extraordinary gain of
$8.1 million for debt forgiveness.
Item 8. Financial Statements and Supplementary Data
See Consolidated Financial Statements in this Form 10-K Annual
Report.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by
reference from Part I of this Form 10-K Annual Report and the
Company's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders, to be filed with the Securities and
Exchange Commission on or about September 28, 1998.
Item 11. Executive Compensation
The information required by this item is incorporated by
reference from the Company's definitive Proxy Statement for the
1998 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission on or about September 28,
1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by
reference from the Company's definitive Proxy Statement for the
1998 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission on or about September 28,
1998.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by
reference from the Company's definitive Proxy Statement for the
1998 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission on or about September 28,
1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a)(1) Financial Statements. See Consolidated
Financial Statements in this Form 10-K Annual Report.
(a)(2) Financial Schedules. See Consolidated Financial
Statements in this Form 10-K Annual Report. All other
schedules are omitted because they are not applicable
or the required information is shown in the financial
statements or notes thereto.
(b) Reports on Form 8-K.
None
(c) Exhibits (filed herewith or incorporated by
reference; see index to exhibits).
2.1 Debtors' Third Amended Second Joint Plan of
Reorganization under Chapter 11 of the United States
Bankruptcy Code (incorporated by reference to Exhibit 2.1 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 (File No. 1-10281) (see Exhibit A
included therein).
2.2 Motion to Approve Technical Amendments to the Debtors'
Third Amended Second Joint Plan of Reorganization, as approved
by the United States Bankruptcy Court for the District of
Delaware (incorporated by reference to Exhibit 2 to the
Registrant's Registration Statement on Form 8-A dated January
30, 1997 (File No. 1-10281)).
3.1 Restated Certificate of Incorporation of Smith Corona
Corporation (incorporated by reference to Exhibit 3.1 to the
Registrant's Form 8-K Current Report dated February 28, 1997
(File No. 1-10281)).
3.2 Certificate of Designation, Preferences and Rights of
Preferred Stock, Series A (incorporated by reference to
Exhibit 3.2 to the Registrant's Form 8-K Current Report dated
February 28, 1997 (File No. 1-10281)).
3.2 By-Laws of Smith Corona Corporation (incorporated by
reference to Exhibit 3.3 to the Registrant's Form 8-K Current
Report dated February 28, 1997 (File No. 1-10281)).
4.1 Rights Agreement between Smith Corona Corporation and
Marine Midland Bank, as Rights Agent, dated as of February 28,
1997 (incorporated by reference to Exhibit 4.1 to the
Registrant's Form 8-K Current Report dated February 28, 1997
(File No. 10281)).
4.2 Warrant Agreement between Smith Corona Corporation and
Marine Midland Bank, as Warrant Agent, dated as of February
28,1997 (incorporated by reference to Exhibit 4.2 to the
Registrant's Form 8-K Current Report dated February 28, 1997
(File No. 1-10281)).
10.1 Smith Corona Corporation Retirement Savings and
Investment Plan adopted effective July 1, 1989, as amended and
restated effective January 1, 1997. (incorporated by reference
to exhibit 10.1 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1997).
10.2 The CORPORATE plan for Retirement, The Profit
Sharing/401(K) Plan, Fidelity Basic Plan Document No. 07
effective July 1, 1997 (incorporated by reference to exhibit
10.2 for the fiscal year ended June 30, 1997).
10.3 Adoption Agreement - Article 1 between Smith Corona
Corporation and Fidelity Management Trust Company, as Trustee
effective July 1, 1997 (incorporated by reference to exhibit
10.3 for the fiscal year ended June 30, 1997).
10.4 Export Enterprise Certificate No. 156 granted to
Smith-Corona Private Limited by the Ministry of Trade and
Industry, Republic of Singapore, dated May 12, 1981
(incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on file with the Commission
(Registration No. 33-29101)).
10.5 Pioneer Certificate No. 942 granted to Smith Corona
PTE Ltd. by the Ministry of Trade and Industry, Republic of
Singapore, dated March 23, 1987 (incorporated by reference to
Exhibit 10.16 to the Company's Registration Statement on file
with the Commission (Registration No. 33-29101)).
10.6 Stockholders' Agreement between Smith Corona
Corporation and HM Holdings, Inc. dated as of June 2, 1989
(incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on file with the Commission
(Registration No. 33-29101)).
10.7 Amended and Restated Cross-Indemnification Agreement
between Smith Corona Corporation and HM Holdings, Inc. dated
as of July 14, 1989 (incorporated by reference to Exhibit
10.18 to the Company's Registration Statement on file with the
Commission (Registration No. 33-29101)).
10.8 Amended and Restated Tax Sharing and Indemnification
Agreement between Smith Corona Corporation and HM Holdings,
Inc. dated as of June 2, 1989 (incorporated by reference to
Exhibit 10.19 to the Company's Registration Statement on file
with the Commission (Registration No. 33-29101)).
10.9 Smith Corona Corporation Salaried Employees Retirement
Plan, as amended and restated as of January 1, 1994
(incorporated by reference to Exhibit 10.32 to the Company's
Form 10-K Annual Report for the fiscal year ended June 30,
1995, which is on file with the Commission).
10.10 Lease Agreement between Turnberry Associates and Smith
Corona Corporation dated May 5, 1993 (incorporated by
reference to Exhibit 10.49 to the Company's Form 10-K Annual
Report for the fiscal year ended June 30, 1993, which is on
file with the Commission).
10.11 Stock Purchase Agreement among Smith Corona
Corporation and W. Michael Driscoll, as Sellers and the MATCO
Electronics Group, Inc. and U.S. Assemblies San Diego, Inc.,
as Buyers dated of November 24, 1997 (incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K Current
Report dated November 17, 1997 which is on the file with the
Commission).
10.12 Asset Purchase Agreement among Smith Corona
Corporation, as Seller, U.S. Assemblies San Diego, Inc, as
Buyer, and the MATCO Electronics Group, Inc., as Guarantor
dated as of November 14, 1997 (incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K Current Report dated
November 17, 1997 which is on file with the Commission).
10.13 Contract manufacturing Agreement, The MATCO
Electronics Group, Inc., and Smith Corona Corporation dated
November 24, 1997 (incorporated by reference to Exhibit 10.3
to the Company's Form 8-K Current Report dated November 17,
1997 which is on file with the Commission).
10.14 Loan and Security Agreement by and between Congress
Financial Corporation, as Lender, and Smith Corona
Corporation, as Borrower, dated February 28, 1997
(incorporated by reference to Exhibit 10 to the Company's Form
10-Q Quarterly Report for the quarterly period ended March 31,
1997, which is on file with the Commission).
10.15 First Amendment to Loan and Security Agreement dated
July 2, 1997 (incorporated by reference to Exhibit 10.27 to
the Company's Form 10-K Annual Report for the fiscal year
ended June 30, 1997, which is on file with the Commission).
10.16 Employment Agreement between Smith Corona Corporation
and W. Michael Driscoll dated as of October 14, 1996 amended
as of June 2, 1997 (incorporated by reference to Exhibit 10.28
to the Company's Form 10-K Annual Report for the fiscal year
ended June 30, 1997, which is on file with the Commission).
10.17 Employment Agreement between Smith Corona Corporation
and John A. Piontkowski dated as of May 5, 1997 (incorporated
by reference to Exhibit 10.29 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1997, which
is on file with the Commission).
*10.18 Smith Corona Corporation Stock Incentive Plan
*21 Schedule of Subsidiaries of the Registrant
*27 Financial Data Schedule
* Filed herewith
Stockholders may, upon payment of a fee therefor, obtain copies
of any of the exhibits to this Form 10-K Annual Report by
writing to the Secretary, Smith Corona Corporation, 839 Route
13 South, Cortland, New York 13045.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
September 28, 1998 By /s/ Peter N. Parts
Peter N. Parts
Chairman of the Board,
Chief Executive Officer
and President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
/s/ Peter N. Parts
....................... Chairman of the Board,
(Peter N. Parts) Chief Executive Officer
and President September 28, 1998
/s/ John A. Piontkowski
........................ Executive Vice President and September 28, 1998
(John A. Piontkowski) Chief Financial Officer
(Principal Financial Officer)
/s/ Jerome A. Colletti
........................ Director September 28, 1998
(Jerome A. Colletti)
/s/ William J. Morgan
........................ Director September 28, 1998
(William J. Morgan)
/s/ Michael J. Murray
........................ Executive Vice President September 28, 1998
(Michael J. Murray) Sales and Marketing
and Director
/s/ Dr. Richard N. Rosett
........................ Director September 28, 1998
(Dr. Richard N. Rosett)
/s/ Martin D. Wilson
........................ Vice President/Controller September 28, 1998
(Martin D. Wilson) (Principal Accounting
Officer)
Index to Consolidated Financial Statements and Financial Statement Schedule
Page
Independent Auditors' Report 26
Consolidated Balance Sheets as of June 30, 1998 and 1997 27
Consolidated Statements of Operations for the Years Ended June
30, 1998, 1997 and 1996 28
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended June 30, 1998, 1997 and 1996 29
Consolidated Statements of Cash Flows for the Years Ended June
30, 1998, 1997 and 1996 30
Notes to Consolidated Financial Statements 32
Consolidated Supplemental Financial Statement Schedule for the
Years Ended June 30, 1998, 1997 and 1996
Schedule II - Valuation and Qualifying Accounts 55
INDEPENDENT AUDITORS? REPORT
Smith Corona Corporation:
We have audited the accompanying consolidated balance sheets of
Smith Corona Corporation and subsidiaries (the ?Company?) as of
June 30, 1998 and 1997, and the related consolidated statements
of operations, statements of changes in stockholders? equity and
statements of cash flows for each of the three years in the
period ended June 30, 1998. Our audits also include the
financial statement schedule listed in the Index to Consolidated
Financial Statements and Financial Statement Schedule. These
financial statements and financial statement schedule are the
responsibility of the Company?s management. Our responsibility is
to express an opinion on these financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Smith
Corona Corporation and subsidiaries at June 30, 1998 and 1997 and
the results of their operations and their cash flows for each of
the three years in the period ended June 30, 1998 in conformity
with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly in all material respects the information
set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Stamford, Connecticut
August 21, 1998
(September 28, 1998 as to note 16)
Smith Corona Corporation and Subsidiaries
Consolidated Balance Sheets
June 30,
(Dollars in thousands) 1998 1997
Assets
Current assets:
Cash and cash equivalents $ 15,293 $ 21,985
Accounts receivable (net of allowance
for doubtful accounts of $638 and
$931 for 1998 and 1997, respectively) 9,492 11,238
Inventories 15,399 12,627
Prepaid expenses and other current
assets 3,090 2,108
Total current assets 43,274 47,958
Property, plant and equipment-net 6,511 12,092
Other assets 302 579
Total $ 50,087 $ 60,629
Liabilities and stockholders' equity
Current liabilities:
Trade payables $ 6,025 $ 5,199
Accrued liabilities 8,204 11,614
Income taxes payable 3,138 4,100
Total current liabilities 17,367 20,913
Postretirement benefits 3,846 5,904
Pension liability 4,827 4,777
Other long-term liabilities 4,007 2,645
Total liabilities 30,047 34,239
Stockholders' equity:
Common stock- 3,141,665 shares and
2,754,238 shares issued
and outstanding, respectively 3 3
Additional paid-in capital 55,512 55,164
Deferred compensation (326) (232)
Accumulated deficit (35,149) (28,545)
Total stockholders' equity 20,040 26,390
Total $ 50,087 $ 60,629
See accompanying notes to consolidated financial statements.
Smith Corona Corporation and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, For the year ended June 30,
except per share amounts) 1998 1997 1996
Net sales $58,924 $ 77,313 $112,548
Cost of goods sold 45,382 59,403 103,355
Gross margin 13,542 17,910 9,193
Selling, general and administrative
Expenses 26,371 12,754 27,773
Gain on sale of manufacturing operations (3,902) - -
Reorganization (income) costs (280) 5,864 10,255
Restructuring expense (income) - - (19,461)
Other (income)expense (150) 150 (798)
Operating loss (8,497) (858) (8,576)
Interest (income) expense (1,063) (326) 515
Loss from continuing
operations before income taxes
and extraordinary gain (7,434) (532) (9,091)
Income taxes 344 263 2,031
Loss before extraordinary gain (7,778) (795) (11,122)
Extraordinary gain 1,174 8,122 -
Net income (loss) $(6,604) $ 7,327 $(11,122)
Earnings (loss) per common share
(basic and diluted):
Loss before extraordinary gain $ (2.78) $( .32) $ (4.50)
Extraordinary gain .42 3.28 -
Net income (loss) $ (2.36) $ 2.96 $ (4.50)
See accompanying notes to consolidated financial statements.
Smith Corona Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the years ended June 30, 1998, 1997 and 1996
Additional Deferred (Accumu-
Common Paid-In Compens- lated
Stock Capital ation Deficit) Total
Balance June 30, 1995 $303 $44,697 - $(24,750) $20,250
Net loss - - - (11,122) (11,122)
Balance June 30, 1996 303 44,697 - (35,872) 9,128
Net income - - - 7,327 7,327
Deferred compensation - 267 $(267) - -
Amortization of deferred
compensation - - 35 - 35
Cancellation of old
common stock (303) 303 - - -
Issuance of common
stock to creditors 3 9,897 - - 9,900
Balance June 30, 1997 3 55,164 (232) (28,545) 26,390
Net loss - - - (6,604) (6,604)
Deferred compensation - 345 (345) - -
Amortization of deferred
compensation - - 251 - 251
Exercise of warrants - 3 - - 3
Balance June 30, 1998 $ 3 $55,512 $ (326) $(35,149) $20,040
See accompanying notes to consolidated financial statements.
Smith Corona Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the year ended June 30,
(Dollars in thousands) 1998 1997 1996
Cash flows from operating activities:
Net (loss) income $(6,604) $7,327 $(11,122)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
continuing operating activities:
Depreciation and amortization 2,289 3,534 5,665
Loss (gain) on disposition of property,
plant and equipment 192 (450) (16,786)
Gain on sale of manufacturing operations (3,902) - -
Deferred income taxes - - 3,406
Inventory provisions 1,056 2,364 5,199
Pension curtailment gain - (3,394) (1,524)
Extraordinary gain (1,174) (8,122) -
Postretirement curtailment gain - (6,534) -
Other noncash items - (132) 832
Changes in assets and liabilities:
Accounts receivable 1,654 5,947 20,469
Inventories (7,980) 1,882 32,263
Prepaid expenses and other
current assets (1,170) 2,646 (1,177)
Other assets 36 (102) 777
Trade payables 974 1,696 (5,821)
Accrued liabilities and income
taxes payable (3,220) (158) (16,310)
Postretirement benefits and
pension liability (2,008) (1,270) (98)
Other long-term liabilities 1,362 (217) 81
Net cash (used in) provided by
operating activities (18,495) 5,017 15,854
Cash flows from investing activities:
Proceeds from sale of
manufacturing operations 14,903 - -
Proceeds from the sale of property,
plant and equipment 100 512 24,803
Capital expenditures (3,200) (999) (331)
Net cash provided by (used in)
investing activities 11,803 (487) 24,472
Smith Corona Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Continued
For the year ended June 30,
(Dollars in thousands) 1998 1997 1996
Cash flows from financing activities:
Bank loans (repayments), net - - (17,400)
Payments made to settle
liabilities subject to
compromise - (12,474) -
Net cash used in financing activities - (12,474) (17,400)
Increase (decrease) in cash and
cash equivalents (6,692) (7,944) 22,926
Cash and cash equivalents:
Beginning of year 21,985 29,929 7,003
End of year $15,293 $21,985 $29,929
Cash paid during the year for:
Interest $ - $ - $ 662
Income taxes $ 185 $ 610 $ 644
See accompanying notes to consolidated financial statements.
Smith Corona Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
1. Significant Accounting Policies
Basis of Consolidation and Presentation: The consolidated
financial statements include the accounts of Smith Corona
Corporation and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.
The consolidated financial statements for the year ended June
30, 1996 are 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 are 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
for the year ended June 30, 1996 did not reflect adjustments
or provide for the potential consequences of the bankruptcy
proceedings.
Management Estimates: The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenue and expenses during the reporting periods. Actual
results could differ from those estimates.
Statement of Cash Flows: All highly liquid investments
purchased with a maturity of three months or less are
considered to be cash equivalents. Included in the fiscal
year ended June 30, 1996 ("Fiscal 1996") gain (loss) on
disposition of property, plant and equipment is the gain from
the sale of a building in Singapore of $17,755. This item is
included in the Fiscal 1996 Statement of Operations as
restructuring income.
Inventories: Inventories are stated at the lower of cost or
market. Cost is determined principally by the first-in,
first-out (FIFO) method.
Property, Plant and Equipment: Property, plant and equipment
are stated at cost. Depreciation is provided on the
straight-line basis at rates based on estimated useful lives.
Lives used in computing depreciation range from two to
twelve years for equipment and up to forty years for
buildings. Leasehold improvements are amortized over the
lease term. Maintenance and repairs are charged against
operations as incurred. Expenditures that materially
increase capacities or extend useful lives of property, plant
and equipment are capitalized.
The Company periodically reviews the carrying value of its
long-lived assets to identify and assess impairment.
Retirement Plans: During the year ended June 30, 1997, the
Company terminated its defined benefit pension plan for
hourly employees and froze the benefits of its defined
benefit pension plan for salaried employees (see Note 10).
Outside of the United States, costs are accrued and paid in
accordance with local requirements.
Postretirement Plans: The Company provides for the expected
cost of postretirement benefits over the employee's years of
active service. In June 1997, the Company implemented a new
premium structure for retiree health care benefits whereby
retired employees will absorb the total cost of health care
premiums phased in over three years (see Note 10).
Revenue Recognition: Net sales are recognized when products
are shipped. Accruals for customer discounts and rebates, and
defective returns are recorded as the related revenue is
recognized.
Advertising Costs: Costs incurred in producing media
advertising are expensed the first time the advertising takes
place. Advertising associated with customer benefit programs
are accrued as the related revenues are recognized.
Research and Development: The Company's product development
costs are expensed as incurred. Research and development
expense was $4,805, $1,915 and $1,991 for the years ended
June 30, 1998, 1997 and 1996, respectively.
Goodwill: The excess of the allocated acquisition cost over
the fair value of net assets of businesses acquired are
amortized by the straight-line method over forty years. Due
to operating losses and uncertainty of future operations, the
Company wrote off the remaining net book value of goodwill of
approximately $739 in the year ended June 30, 1996.
Foreign Currency: The functional currency of the Company's
foreign operations is deemed to be the United States dollar.
Consequently, all translation gains and losses are included
in income.
Environmental Remediation Costs: The Company accrues for
losses associated with environmental remediation obligations
when such losses are probable and reasonably estimable.
Costs of future expenditures for environmental remediation
obligations are not discounted to their present value.
Income Taxes: Deferred income taxes are determined based on
the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect
for the year in which the differences are expected to
reverse.
Stock-Based Compensation - The Company adopted the
disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), in the first quarter of the year
ended June 30, 1997. The Company, as provided for by FAS
123, is continuing to apply Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
for employee stock compensation measurement.
Earnings (Loss) Per Common Share: In the second quarter of
the year ended June 30, 1998, the Company adopted Statement
of Financial Accounting Standards No. 128 " Earnings per
Share" ("SFAS 128"). Accordingly, all periods have been
restated to present basic and diluted earnings (loss) per
common share. Earnings (loss) per common share for the
twelve months ended June 30, 1997 are based on the weighted
average number of common shares outstanding from the
Effective Date until June 30, 1997.
The following tables reconcile the numerators and denominators
of the basic and diluted earnings per share for income (loss)
before extraordinary gain presented in the Consolidated
Statements of Operations:
Twelve months ended June 30, 1998
Shares
Income (loss) (000's omitted) Per-Share
(Numerator) (Denominator) Amount
Basic Earnings per Share
Income (loss) before
extraordinary gain $(7,778) 2,793 $(2.78)
Effect of dilutive securities
Warrants (a) (a)
Stock Options (b) (b)
Restricted Stock - (c)
Diluted Earnings per Share
Income (loss) before
extraordinary gain and
effect of
dilutive securities $(7,778) 2,793 $(2.78)
Twelve months ended June 30, 1997
Shares
Income (loss) (000's omitted) Per-Share
(Numerator) (Denominator) Amount
Basic Earnings per Share
Income (loss) before
extraordinary gain $ (795) 2,471 $(.32)
Effect of dilutive securities
Warrants (a) (a)
Stock Options - -
Restricted Stock - (c)
Diluted Earnings per Share
Income (loss) before
extraordinary gain and
effect of
dilutive securities $ (795) 2,471 $(.32)
(a) Warrants to purchase 1,512,073 shares of common stock at
$8.50 per share were outstanding but were not included in the
computation of diluted earnings per share because the
exercise price was greater than the market price of the common
shares.
(b) Options to purchase 144,625 shares of common stock at
$6.13 per share were outstanding but were not included in the
computation of diluted earnings per share because the option
price was greater than the average market price of the common
shares. There were no options outstanding as of June 30,
1997.
(c) Restricted stock of 158,282 shares at June 30, 1998 and
93,894 shares at June 30, 1997 would have had an anti-
dilutive effect in computation.
For comparability purposes, basic and diluted earnings (loss)
per common share for the twelve months ended June 30, 1996,
is based on 2,471,336 shares, the weighted average number of
common shares outstanding from February 28, 1997, the date of
emergence from bankruptcy proceedings, until June 30, 1997.
New Financial Accounting Standards Board Releases: Statements
of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS 130"), and No. 131, "Disclosures
About Segments of an Enterprise and Related Information"
("SFAS 131"), were issued in June, 1997.
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general purpose financial statements. It requires that all
items that are required to be recognized under accounting
standards as components of comprehensive income be reported
in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive
income is defined as "the change in equity of a business
enterprise during a period from transactions and other events
and circumstances from nonowner sources. It includes all
changes in equity during a period, except those resulting
from investments by owners and distributions to owners".
This statement is effective for fiscal years beginning after
December 15, 1997. The Company does not expect to be
affected by this new standard.
SFAS 131 established the way that public business enterprises
report information about operating segments in annual
financial statements and requires that those enterprises
report selected information about operating segments in
interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products
and services, geographic areas, and major customers. This
statement is effective for financial statements for periods
beginning after December 15, 1997. The disclosure impact of
this statement is currently being assessed by the Company.
Reclassifications: Certain reclassifications have been made
to the prior years' financial statements to conform with the
1998 presentation.
2. Petition for Reorganization Under Chapter 11
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"). 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. On October 31,
1996, Smith Corona Overseas Holdings, Inc., SCM Inter-
American Corporation and SCM (United Kingdom) Limited, all
wholly-owned domestic subsidiaries (the "Wholly-Owned
Domestic Subsidiaries"), also filed Chapter 11 petitions.
(The petitions of the Company, the Nonoperating Subsidiaries
and the Wholly-Owned Domestic Subsidiaries are referred to
herein collectively as the ?Bankruptcy Proceedings?). The
primary purpose of the October 31, 1996 filings, which had no
effect on operations, was to better protect corporate assets
during the reorganization period. The Bankruptcy Proceedings
primarily related to all U.S. assets and operations and did
not pertain to the Company's international subsidiaries.
From July 5, 1995 to February 28, 1997, the Company operated
as a debtor-in-possession.
On January 27, 1997 the Bankruptcy Court entered an
order confirming the Company's Third Amended Second Joint
Plan of Reorganization (the "Confirmation Order"). The
Confirmation Order was subject to satisfaction of certain
conditions precedent to the effective date. The Company
satisfied the conditions and emerged from the Bankruptcy
Proceedings on February 28, 1997 (the "Effective Date").
The Company recorded reorganization costs relating to
its Bankruptcy Proceedings aggregating $5,864 for the year
ended June 30, 1997. These charges include professional
fees, a provision for closing the New Canaan, Connecticut
headquarters and relocation of such headquarters to Cortland,
New York, and costs associated with the distribution of the
Company's Third Amended Second Joint Plan of Reorganization
(the "Plan of Reorganization") for the solicitation of
creditors, offset by interest income earned on domestic cash
balances of $607, a purchase deposit forfeiture of $500 and a
settlement the Company reached with its banks relating to the
Company's debtor-in-possession financing of $500.
Reorganization costs of $10,255 for the year ended June 30,
1996 were primarily professional fees.
Under the Plan of Reorganization, all allowed general
unsecured claims will be satisfied through the distribution
to holders of such claims of (i) the unsecured class cash of
approximately $11,330 (less any amounts paid to holders of
allowed convenience class claims discussed below), and (ii)
85 percent of the reorganized company's common stock to be
issued pursuant to the Plan of Reorganization (determined on
a fully diluted basis not including the effect of the
exercise of any of the below described warrants). Each holder
of an allowed general unsecured claim will receive one share
of the reorganized company's common stock for each ten
dollars in allowed claim value. All allowed claims senior to
allowed general unsecured claims will be satisfied by the
payment in full in cash or notes (as provided for by the
Bankruptcy Code) or the assumption of all such claims. As
described below, the distributions to holders of allowed
general unsecured claims and claims senior to such claims
have commenced. Allowed convenience class claims (general
unsecured claims of one thousand five hundred dollars or
less) have received payment in cash in an amount equal to 60
percent of the amount of such claims. In addition,
registered holders as of August 15, 1996, of the Company's
common stock, par value $.01 per share, which was outstanding
prior to the Effective Date (the "Old Common Stock") have
received warrants to purchase one share of common stock, par
value $.001 per share (the "Common Stock"), in the
reorganized company for each twenty shares of Old Common
Stock.
During the quarter ended March 31, 1997, the Company
made a disbursement of $12,474 to the distribution agent for
payment of allowed general unsecured claims and claims senior
to such claims. Once disputed general unsecured claims are
resolved and allowed, such claimants will share, on a pro
rata basis, in the aforementioned cash pool as well as in 85
percent of the Common Stock. On February 28, 1997 the
Company recorded a value of approximately $9,900 for 85
percent of the Common Stock. In connection with the Plan of
Reorganization going effective, certain liabilities recorded
as subject to compromise were retained by the Company and
approximately $30,496 of such liabilities were settled which
resulted in a pre-tax and after-tax extraordinary gain of
approximately $8,122 for the year ended June 30, 1997. An
additional gain of $1,174 (pre-tax and after-tax) was
recorded for the year ended June 30, 1998 as a result of
favorable resolutions of bankruptcy claims. As of June 30,
1998 2,983,022 shares of common stock were issued to allowed
general unsecured claim holders.
Under the Plan of Reorganization, the Company's plans were
to expand its product line, primarily by sourcing new products
from outside manufacturers and that effort continues. Such
sourcing includes entering into strategic alliances with third
parties in the United States, Europe and the Far East to
provide products or services. In that respect, the Company's
efforts are focused on forging new and expanding existing
alliances with companies that provide technologically advanced
products for the small office and home office environment but
presently do not have a substantial United States market
penetration, and are intent on building or increasing market
penetration by selling their products under the well-known
"Smith Corona" name. The Company intends to rely on its
existing distribution network to become a leading vendor of
technologically advanced products for the small office and home
office. Additionally, the Company is exploring synergistic
opportunities in related markets that will provide new and
expand existing channels of distribution. In the fall of 1997,
newly sourced and manufactured products were available under
the Smith Corona brand name. The product offerings include
items in the telephony and plain paper inkjet facsimile product
lines. These new telephony products included a family of
corded, as well as cordless phones incorporating the latest in
900 MHz, analog, digital and spread spectrum technology. In
fiscal 1999 the Company intends to continue to introduce new
products for home office and small office applications. Some
of the new products will be systems-oriented, and intended to
increase personal productivity. Further, the Company
determined it would maintain its core business of distributing
its current product line of typewriters and related supplies
and accessories to satisfy continuing worldwide demand for
these products. The Company's long-term viability is dependent
upon the successful implementation of its reorganization plan
and the attainment of profitable operations.
3. Inventories
A summary of inventories, by major classification and
net of reserves, is as follows:
June 30,
1998 1997
Raw materials and work-in-process $ 91 $ 4,961
Finished goods 15,308 7,666
Total $15,399 $12,627
4. Property, Plant and Equipment
A summary of property, plant and equipment, by major classification,
is as follows:
June 30,
1998 1997
Land $ 730 $ 810
Buildings and improvements 1,430 6,704
Machinery and other equipment 39,009 57,765
Total 41,169 65,279
Accumulated depreciation (34,658) (53,187)
Total $ 6,511 $12,092
5. Accrued Liabilities
Accrued liabilities consist of the following:
June 30,
1998 1997
Promotional expenses $2,198 $ 3,940
Payroll and related expenses 1,981 3,297
Warranty expenses 844 1,067
Bankruptcy expenses 75 1,762
Other 3,106 1,548
Total $8,204 $11,614
6. Leases
The Company leases certain facilities, equipment and
vehicles for various periods through 2003 under
non-cancelable operating leases. Rental expense under
these operating leases was $1,493, $3,461 and $4,184 for
the years ended June 30, 1998, 1997 and 1996,
respectively.
The future minimum rental commitments for the operating
leases are as follows:
Year Ending
June 30, Amount
1999 $ 622
2000 583
2001 545
2002 10
2003 6
Thereafter 2
Total $1,768
The Company subleases a portion of its San Diego
distribution facility. Rental income under this sublease was
$38 for the year ended June 30, 1998 and will be
approximately $65 each year until sublease expiration in May
2001.
7. Bank Loans
On February 28, 1997, the Company entered into a loan
and security agreement (the "Loan and Security
Agreement") with a new lender. The Loan and Security
Agreement provides for extensions of revolving credit
loans, term loans and letters of credit, limited to a
percentage of eligible accounts receivable and
inventories in the amount not to exceed $25,000 through
the February 28, 2000 expiration date. Interest is .75
percent over the Prime Rate or 3 percent over the
Adjusted Eurodollar Rate. Payment of dividends is
prohibited by the terms of the Loan and Security
Agreement, except for non-cash dividends pursuant to the
Rights Agreement (as described in Note 8). Pursuant to
the provisions of the Loan and Security Agreement the
Company must maintain an adjusted net worth of $11,074.
Management believes that it has adequate flexibility
and that such a covenant should not impose an undue
restriction on the operations of the Company. The Loan
and Security Agreement is secured by all of the
Company's assets.
There were no borrowings or repayments under the
Company's credit facilities during the years ended June
30, 1998 and 1997. However, aggregate borrowings under
the Company's prior credit facility for the year ended
June 30, 1996 amounted to $1,330,700, while aggregate
repayments were $1,348,100.
8. Stockholders' Equity
Common Stock
As of the Effective Date, the Company has authorized
100,000,000 shares of Common Stock, par value $.001 per
share. Prior to the Effective Date the Company had
authorized 90,000,000 shares of Old Common Stock.
Preferred Stock
As of the Effective Date, the Company has authorized
10,000,000 shares of preferred stock, par value of $.001 per
share. The Company has reserved for issuance 10,000 shares
of Preferred Stock, Series A, whose terms are fixed by the
Rights Agreement.
Rights Agreement
On February 28, 1997, pursuant to the Plan of Reorganization,
the Board of Directors of the Company declared a dividend
distribution of one Right for each outstanding share of
Common Stock, payable to stockholders of record at the close
of business on such date and payable with respect to Common
Stock issued thereafter. Each right, when it becomes
exercisable, entitles the registered holder to purchase from
the Company one one-thousandth of a share (a "Unit") of
Preferred Stock, Series A at a purchase price of $25.50 per
Unit, subject to adjustment. The Rights attach to all
certificates representing shares of Common Stock, and no
separate certificates evidencing the Rights were distributed.
The Rights will separate from the Common Stock and will be
exercisable upon the earlier of (i) ten days (or such later
date as the Board of Directors shall determine) following
public disclosure that a person or group of affiliated or
associated persons has become an "Acquiring Person" (as
defined below) or (ii) ten business days (or such later date
as the Board shall determine) following the commencement of a
tender offer or exchange offer that would result in a person
or group becoming an "Acquiring Person". Except for certain
claimants under the Plan of Reorganization, for whom the
percentage is higher, an "Acquiring Person" is a person or
group of affiliated or associated persons who has acquired
beneficial ownership of 15 percent or more of the outstanding
shares of Common Stock. The term "Acquiring Person" excludes
(i) the Company, (ii) any subsidiary of the Company, (iii)
any employee benefit plan of the Company or any subsidiary of
the Company or (iv) any person or entity organized, appointed
or established by the Company for or pursuant to the terms of
any such plan. The Rights, which do not have voting rights,
will expire on February 28, 2007 unless extended or earlier
redeemed by the Company.
In the event that a person becomes an Acquiring Person,
each holder of a Right will have the right to receive,
upon exercise of the Right, Common Stock having a value
equal to two times the exercise price of the Right.
Rights that are owned by any Acquiring Person will be
null and void. In the event that a person has become an
Acquiring Person and the Company is acquired in a merger
or other business combination transaction in which the
Company is not the surviving corporation, or more than
50 percent of the Company's assets or earning power is
sold, each holder of a Right (except Rights which
previously have been voided as set forth above) shall
thereafter have the right to receive, upon exercise,
common stock of the acquiring company having a value
equal to two times the exercise price of the Right.
The Rights may be redeemed by the Company at a price of
$.001 per Right at any time until ten days following the
date on which a person has become an Acquiring Person.
Warrants
Also on the Effective Date, the Company issued warrants to
stockholders of record as of August 15, 1996 of the Old
Common Stock. Eligible stockholders received one warrant to
purchase one share of Common Stock for every 20 shares of the
Old Common Stock held by them. The Old Common Stock was
canceled on the Effective Date. The exercise price of the
warrants is $8.50 per share. The warrants may be exercised
at any time from August 28, 1997 to February 28, 1999. As of
June 30, 1998, there were 1,512,073 warrants outstanding. In
the twelve months ended June 30, 1998, 350 warrants were
exercised.
Restricted Stock
Pursuant to the Plan of Reorganization, the Chief Executive
Officer, Chief Financial Officer, Executive Vice
President/Sales and Marketing and at the discretion of the
Chief Executive Officer, other officers of the Company may be
granted up to 5 percent of the total shares of Common Stock
which are issued under the provisions of the Plan of
Reorganization on a fully diluted basis (not including the
effect of the exercise of any of the above warrants). The
number of shares of the Company's Common Stock awarded and
outstanding under this plan as of June 30, 1998 and 1997 were
135,282 and 93,894 respectively. In the twelve months ended
June 30, 1998, 41,388 shares were awarded. Additionally,
under the provisions of the Employee Stock Incentive Plan (as
hereinafter described) the Company issued 23,000 shares of
Common Stock to employees during the twelve months ended June
30, 1998. Rights to these shares vest on the second
anniversary of the Effective Date (the "Restriction Period")
or upon a change in control. The market value of these
shares at the date of award is reflected as deferred
compensation in Stockholders' Equity and is being amortized
over the Restriction Period. During the twelve months ended
June 30, 1998 $251 of compensation expense was recorded.
Employee Stock Incentive Plan
Pursuant to the Plan of Reorganization, the Company
implemented an employee stock incentive plan, which provides
for the issuance of up to 10 percent of the total shares of
Common Stock (or options to acquire such shares) which are
issued pursuant to the provisions of the Plan of
Reorganization on a fully diluted basis (not including the
effect of the exercise of any of the above warrants). As of
June 30, 1998 23,000 shares of Common Stock (see Restricted
Stock) and 144,625 options to acquire Common Stock were
awarded and outstanding under this plan. Options were
granted on January 15, 1998 at an exercise price of $6.125,
the fair market value of the Common Stock at that date.
Forty percent of the options become exercisable March 1, 1999
and twenty percent on January 15, 2000, 2001 and 2002. The
options expire seven years after the date of grant. The
weighted average fair value of options granted in the twelve
months ended June 30, 1998 was $555 and was estimated by
using the Black Scholes pricing model. The assumptions used
in determining the weighted average fair value options
included (i) expected life of four years, (ii) risk-free
interest rate of 5.5 percent, (iii) volatility factor of .813
and (iv) dividend yield of zero percent. Had compensation
cost for the nonqualified stock option been determined based
on their estimated fair market value at the date of grant,
the Company's net loss for the twelve months ended June 30,
1998 would have increased by $64 or $.02 per basic and
diluted share.
9. Geographic Area Information
The Company operates predominantly in one industry
segment which includes marketing and distribution of
products to the small office and home office markets.
The products include typewriters and related supplies
and accessories as well as offerings in the telephony
and facsimile categories. The Company distributes its
products through a variety of distribution channels,
domestically and internationally. Transfers between
geographic areas are generally priced to recover cost
plus an appropriate markup for profit. Information
regarding the Company's operations in different
geographic locations is shown below:
For the year ended June 30,
1998 1997 1996
Net sales to customers:
United States $ 53,306 $67,918 $ 90,470
Europe 3,593 6,848 17,773
Other Foreign 2,025 2,547 4,305
Total $ 58,924 $77,313 $112,548
Inter-area transfers:
United States $ 3,293 $ 5,147 $ 11,287
Singapore - - 22,480
Europe 98 415 -
Other Foreign 3,860 8,890 6,735
Total $ 7,251 $14,452 $ 40,502
Operating income (loss):
United States $ (598) $ 8,177 $(14,944)
Singapore (119) (110) 15,737
Europe (3,082) (4,234) (6,461)
Other Foreign (637) (549) (730)
Corporate (4,061) (4,142) (3,815)
Eliminations - - 1,637
Total $ (8,497) $ (858) $ (8,576)
Identifiable assets:
United States $ 42,821 $51,535 $ 69,036
Europe 2,675 3,778 8,548
Other Foreign 4,591 5,316 6,288
Total $ 50,087 $60,629 $ 83,872
Sales to one of the Company's largest customers, Wal-
Mart Stores, Inc., amounted to 29.7%, 19.8% and 11.4% of
consolidated net sales during 1998, 1997 and 1996,
respectively. Additionally, in 1996, sales to Office
Depot amounted to 10.1% of consolidated net sales. The
above customers were the only customers responsible for
more than 10% of net sales in the periods noted.
10. Pension Plans and Postretirement Benefits
On September 1, 1996, the Company discontinued future
benefit accruals under its salaried defined benefit pension
plan (the "Salaried Plan") and as of October 6, 1996
terminated the hourly defined benefit pension plan (the
"Hourly Plan"). The freezing of benefit accruals resulted
in a $3,394 curtailment gain recorded in selling, general and
administrative expenses during the three months ended
September 30, 1996.
The Salaried Plan generally provides pension benefits
that are based upon formulas that reflect all service
with the Company and its predecessors and the employee's
compensation during the employee's highest five of the
last ten consecutive years of service before retirement.
The Hourly Plan generally provides benefits of stated
amounts for each year of service. The Company's policy
has been to fund, at a minimum, the amount necessary on
an actuarial basis to provide for benefits in accordance
with requirements of the Employee Retirement Income
Security Act of 1974 ("ERISA").
The net periodic pension cost (income) for the years
ended
June 30, 1998, 1997 and 1996 is comprised of the following
components:
1998 1997 1996
Service cost $ 393 $ 512 $1,455
Interest cost 2,929 4,185 5,656
Return on plan assets:
Actual (4,657) (8,845) (7,347)
Unrecognized loss 1,385 4,162 1,498
Amortization of deferred
costs and actuarial gains - - (227)
Settlement gain - (8,598) -
Net curtailment gain - (3,394) (1,524)
Pension cost (income) $ 50 $(11,978) $ (489)
The net curtailment gains for 1997 and 1996 were a
result of the freezing of benefit accruals and the May 1995
restructuring, respectively. The settlement gain is a result
of termination of the Hourly Plan and is included as a
component of the extraordinary gain recorded in 1997.
The assumptions used in the development of these amounts were:
1998 1997 1996
Discount rate 6.75% 7.50% 7.50%
Rates of increase in
compensation levels 4.50% 4.50% 4.50%
Rate of return on
plan assets 9.00% 9.25% 9.25%
The following table sets forth the funded status of the
Salaried Plan and amounts recognized in the Company's
consolidated balance sheets:
Year ended June 30,
1998 1997
Projected benefit obligation $45,623 $41,221
Fair value of assets
(principally publicly traded
securities) $42,841 $42,297
Funded status $ 2,782 $(1,076)
Unrecognized gains 2,045 5,853
Net accrued pension liability $ 4,827 $ 4,777
Summary information on the Company's Salary Plan in the
year ended June 30, 1998 and Salary Plan and Hourly Plan in
the year ended June 30, 1997 is as follows:
Year ended June 30,
1998 1997
Change in Projected Benefit Obligation:
Benefit obligation at the
beginning of the year $41,221 $78,822
Service cost 393 512
Interest cost 2,929 4,185
Assumption change 5,588 (4,077)
Curtailment/Settlement gain - (33,419)
Actuarial (gains) loss (395) 1,361
Benefits paid (4,113) (6,163)
Benefit obligation at the end
of the year $45,623 $41,221
Year ended June 30,
1998 1997
Change in Plan Assets:
Fair value of plan assets at
the beginning of the year $42,297 $68,766
Actual return on plan assets 4,657 8,845
Employer contributions - 904
Benefits paid (4,113) (6,163)
Settlement - (30,055)
Fair value of plan assets at
the end of the year $42,841 $42,297
The Company also has defined contribution savings plans
covering its domestic and certain of its foreign employees,
under which the Company matches a portion of the
contributions made by participating employees. The Company's
costs for matching contributions under savings plans totaled
$241, $254 and $337 for the years ended June 30, 1998, 1997
and 1996, respectively.
The Company also provides health care and life insurance
benefits for certain retired employees. Substantially all of
the Company's domestic employees, and certain employees in
foreign countries, may become eligible for such benefits if
they reach a specified retirement age while working for the
Company.
Effective January 1, 1998 retired employees were
required to absorb incremental increases in the total cost of
health care premiums. By January 1, 2000, retired employees
will absorb 100% of the health care premium. Furthermore,
the Company decided to terminate life insurance benefits for
retired employees effective January 1, 2000. These changes
resulted in a net curtailment gain of $6,534 which was
recorded in selling, general and administrative expenses
during the fourth quarter of the year ended June 30, 1997.
Summary information on the Company's postretirement benefit
plans, which are unfunded, is as follows:
Year ended June 30,
1998 1997
Change in Benefit Obligation:
Benefit obligation at the
beginning of the year $1,248 $9,573
Service cost - 83
Interest cost 68 687
Participant's contributions 489 609
Curtailment gain - (6,534)
Actuarial gains (223) (1,896)
Benefits paid (1,063) (1,274)
Benefit obligation at the end
of the year $ 519 $1,248
Year ended June 30,
1998 1997
Financial status of plans:
Accumulated postretirement
benefit obligation (APBO):
Retirees $ 519 $1,248
Fully eligible, active
plan participants - -
Other active plan
participants - -
Unrecognized gains 3,327 4,656
Accrued postretirement
benefit cost $3,846 $5,904
The components of net periodic postretirement benefit
income are as follows:
Year ended June 30,
1998 1997
Service cost $ - $ 84
Interest cost 68 687
Amortization of gains (1,552) (164)
Net curtailment gain - (6,534)
Net periodic postretirement benefit
income $(1,484) $(5,927)
The net curtailment gains were primarily the result of
the change in postretirement benefits in the year ended June
30, 1997.
The discount rate used in determining the APBO was 6.75
% in 1998 and 7.5% in 1997. The assumed health care cost
trend rate used in measuring the accumulated postretirement
benefit obligation was 9.5% and 10.0% in 1998 and 1997,
respectively, declining to an ultimate rate of 5.5% to the
year 2005 and beyond.
The impact of changing the health care cost trend rate
assumptions by 1.0% is not material to the plans.
12. Income Taxes
The components of loss from continuing operations before income taxes
are as follows:
Year ended June 30,
1998 1997 1996
United States $(4,922) $3,124 $(21,590)
Foreign (2,512) (3,656) 12,499
Total $(7,434) $ (532)$ (9,091)
The components of income tax expense consist of:
Year ended June 30,
1998 1997 1996
United States:
Current $ - $ - $(1,921)
Deferred - - 2,217
Foreign 158 104 1,218
State 186 159 517
Total $ 344 $ 263 $ 2,031
Income tax expense is included in the financial statements as
follows:
Year ended June 30,
1998 1997 1996
Continuing operations $ 344 $263 $2,031
Extraordinary Gain - - -
Total $ 344 $263 $2,031
The components of net deferred tax assets were as follows:
June 30,
1998 1997
Deferred tax assets:
Accounts receivable $ 664 $1,066
Inventory 2,076 1,960
Prepaid and other current assets 2,038 2,363
Postretirement benefits
other than pensions 1,470 2,257
Pension 1,845 1,825
Restructuring - 469
Other liabilities 3,902 4,050
Property, plant and equipment 1,936 3,291
Net operating loss carryforwards 27,253 21,195
Capital loss carryforwards 7,494 7,515
Miscellaneous 2,163 2,615
Valuation allowances (50,841)(48,606)
Net deferred tax assets $ - $ -
The valuation allowances for the year ended June 30,
1998 increased by $2,235 to provide for the full
valuation of all deferred income tax assets. For the
year ended June 30, 1996, the Company recorded a charge
to income tax expense increasing valuation allowances to
provide for full valuation of all of its deferred income
tax assets.
In the consolidated balance sheet for the year ended
June 30, 1998, refundable taxes of $2,306 are included in
prepaid expenses and other current assets. The current
and long-term portion of a federal tax note payable of
$848 and $2,366, respectively are included in accrued liabilities
and other long-term liabilities, respectively, at June 30, 1998.
The provisions for income taxes differ from the
amounts computed by applying the federal income tax
statutory rate. The following is a summary of the reasons
for these differences:
Year Ended June 30,
1998 1997 1996
Loss from continuing
operations before income taxes $(7,434) $ (532) $(9,091)
Statutory tax rate 34% 34% 34%
Tax computed at statutory rate (2,527) (181) (3,091)
Increase (reduction):
State income taxes,
net of federal benefit (40) 2,980 405
Effect of foreign earnings 1,059 1,661 (930)
Valuation allowance 2,235 (6,956) 8,425
Other adjustments (383) 2,759 (2,778)
Total $ 344 $ 263 $ 2,031
The other adjustments of $2,759 for the year ended June
30, 1997 resulted primarily from permanent
capitalization of certain professional services related
to the Bankruptcy Proceedings for income tax purposes.
The other adjustments of $2,778 for the year ended June
30, 1996 primarily relate to adjustments to current
taxes payable for the results of the Internal Revenue
Service and New York State tax examinations.
All U.S. income tax returns through June 30, 1995 have
been examined by the Internal Revenue Service.
Additionally, the New York State tax authority completed
its examination of all returns through June 30, 1995.
The U.S. income tax return for the year ended June 30,
1996 is currently under examination by the Internal
Revenue Service. Management does not expect a material
adjustment to result from this examination.
For U.S. federal income tax purposes the Company has a
net operating loss carryforward of approximately $28,759
which will expire on June 30, 2013. In addition, the
Company has net operating losses attributable to its
foreign subsidiaries of approximately $41,490 of which
approximately $36,110 may be carried forward
indefinitely and the remaining amount will expire in
five to seven years. The tax benefit of the net
operating loss carryforwards has been fully offset by
valuation allowances.
13. Commitments and Other Matters
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 have been the subject of lawsuits filed
by such authorities or by private parties. At June 30,
1998 and June 30, 1997, the Company had recorded
liabilities of approximately $1,889 and $2,952,
respectively, related to environmental matters. Because
of the uncertainties associated with assessing
environmental matters, the related ultimate liabilities
are not presently determinable. However, based on facts
presently known, management does not believe that these
investigations, 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, 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. The
remediation program at the Cortlandville Site currently
consists of round-the-clock pumping and filtering. The
soil venting with a soil infiltration injection system
at the Groton Site is now reduced to periodic soil and
water sampling. A decommissioning plan for the Groton
site has been approved and decommissioning activities
have commenced. 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. Under the
Plan of Reorganization, the Company will continue to be
responsible for those costs. The Company believes that
it has set aside adequate reserves for the payment of
expenses for the ongoing remediation programs at the
Groton and Cortlandville Sites.
The Company is also engaged 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.
The Company has severance agreements in place with
certain executive officers. Substantially all the
agreements expire by March 1, 2000 and provide for
severance benefits of one year salary and aggregate
approximately $460 in the event all employees under such
severance agreements were involuntarily terminated.
Subsequent to June 30, 1998 the Chief Executive Officer
of the Company terminated employment and was paid under
his severance agreement.
14. Restructuring Costs
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. 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 third quarter pretax gain of approximately
$17,755 and is included in restructuring income.
In addition to the relocation of typewriter
manufacturing to Mexico, the Company also eliminated
approximately 180 support positions within the 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 were
realized during the year ended June 30, 1997 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 and
were included in restructuring expense (income) for the
third 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 the year ended June 30, 1995, of which
approximately $1,877 represented primarily non-cash
machinery and equipment asset write-offs, and the
remainder related to employee severance. Additionally,
certain costs, primarily relating to the shutdown of
Singapore operations, of approximately $1,622, pretax
were recognized as charges to operations as incurred
during the year ended June 30, 1996 as they did not
qualify as restructuring costs.
15. Quarterly Financial Data (Unaudited)
Fiscal Year Ended First Second Third Fourth
June 30, 1998 Quarter Quarter(1) Quarter Quarter(1)
Net sales $14,792 $17,005 $15,096 $12,031
Gross margin 3,251 4,786 4,496 1,009
Operating income (loss) (1,502) 1,552 (3,177) (5,370)
Income (loss) before
extraordinary gain (1,459) 1,725 (2,907) (5,137)
Extraordinary gain (2) - 460 - 714
Net income (loss) $(1,459) $ 2,185 $(2,907) $(4,423)
Earnings (loss)per
common share - basic:
Income (loss) before
extraordinary gain $ (.55) $ .63 $ (1.02) $ (1.75)
Extraordinary gain - .17 - .24
Net income (loss) $ (.55) $ .80 $ (1.02) $ (1.51)
Weighted average common
shares (000's omitted) 2,677 2,708 2,845 2,935
Earnings (loss)per
common share - diluted:
Income (loss) before
extraordinary gain $ (.55) $ .62 $ (1.02) $ (1.75)
Extraordinary gain - .16 - .24
Net income (loss) $ (.55) $ .78 $ (1.02) $ (1.51)
Weighted average common
shares (000's omitted) 2,677 2,793 2,845 2,935
Fiscal Year Ended First Second Third Fourth
June 30, 1997 Quarter(3) Quarter Quarter Quarter(4)
Net sales $20,986 $22,463 $16,905 $16,959
Gross margin 3,929 6,112 2,917 4,952
Operating income (loss) 73 (2,607) (3,255) 4,931
Income (loss) before
extraordinary gain 85 (2,636) (3,186) 4,942
Extraordinary gain (2) - - 8,122 -
Net income (loss) $ 85 $(2,636) $ 4,936 $ 4,942
Earnings (loss) per common
share - basic:
Income (loss) before
extraordinary gain $ .04 $ (1.19) $ (1.44) $ 1.94
Extraordinary gain - - 3.67 -
Net income (loss) $ .04 $ (1.19) $ 2.23 $ 1.94
Weighted average common
shares (000's omitted)(5) 2,215 2,215 2,215 2,551
Earnings (loss) per common
share - diluted:
Income (loss) before
extraordinary gain $ .04 $ (1.19) $ (1.44) $ 1.89
Extraordinary gain - - 3.67 -
Net income (loss) $ .04 $(1.19) $ 2.23 $ 1.89
Weighted average common
shares (000's omitted)(5) 2,215 2,215 2,215 2,610
(1) Includes gain on sale of manufacturing operations for $3,700 and $202 in
the second and fourth quarters, respectively.
(2) Extraordinary gain resulted from the Company's Plan of Reorganization
(see footnote 2)
(3) Includes pension curtailment gain of approximately $3,400.
(4) Includes postretirement curtailment gain of approximately $6,500.
(5) For the first, second and third quarters in the fiscal year ended
June 30, 1997, the weighted average common and common equivalent
shares outstanding are based on the weighted average number of
common shares outstanding from the Effective Date until March 31,
1997.
16. Subsequent Event
Effective September 28, 1998, the Company's Board of
Directors approved a restructuring program which includes: i.)
the elimination of approximately 130 positions primarily located
at the Company's Corporate Headquarters in Cortland, New York,
ii.) the sale or lease of the building in Cortland, New York,
iii.) relocation of the Corporate Headquarters to more efficient
facilities. The Company expects the restructuring program to be
completed by June 30, 1999. As a result of these actions, the
Company will record a first quarter pre-tax charge, principally
for severance payments, of approximately $1,200.
Financial Statement Schedule II
SMITH CORONA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the years ended June 30, 1998, 1997 and 1996
(In thousands)
Balance at
Beginning Costs and Reductions- End of
of Period Expenses Writeoffs Period
Year ended June 30, 1998:
Allowance for doubtful
trade receivables $ 931 $ 51 $ 344 $ 638
Allowance for inventory
obsolescence and shrinkage $ 5,415 $ 1,056 $ 1,460 $ 5,011
Year ended June 30, 1997:
Allowance for doubtful
trade receivables $ 1,576 $ 394 $ 1,039 $ 931
Allowance for inventory
obsolescence and shrinkage $ 7,552 $ 2,364 $ 4,501 $ 5,415
Year ended June 30, 1996:
Allowance for doubtful
trade receivables $ 1,484 $ 523 $ 431 $ 1,576
Allowance for inventory
obsolescence and shrinkage $10,595 $5,199 $ 8,242 $ 7,552
EXHIBIT INDEX
EXHIBIT #
10.18 Smith Corona Corporation Stock Incentive Plan
21 Schedule of Subsidiaries of the Registrant
27 Financial Data Schedule (Edgar Filing Only)
11
SMITH CORONA CORPORATION Exhibit 10.18
STOCK INCENTIVE PLAN
SMITH CORONA CORPORATION
STOCK INCENTIVE PLAN
PURPOSE OF PLAN
Establishment of Plan.
The Company (as herein defined) hereby establishes a stock incentive plan, as
set forth herein, which shall be known as the Smith Corona Corporation Stock
Incentive Plan (hereinafter the "Plan").
Plan Purpose.
The purpose of the Plan is to assist the Company in retaining valued employees
by offering them a stake in the Company's success and to promote
decision-making at all levels that leads to the enhancement of shareholders
value and increased profitability for the Company.
DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below unless otherwise expressly provided. Any masculine terminology
shall be deemed to refer either to a male or a female, and the definition of
any terms in the singular shall also include the plural, whichever is
appropriate in the context.
"Award"
means any grant of restricted Shares under the Plan.
"Board"
means the Board of Directors of the Company.
"Change of Control"
means (1) a stock purchase by any person (as such term is used in Section 13(d)
and 14(d)(2) of the Securities and Exchange Act of 1934, as amended) who then
owns or by virtue of such purchase becomes the beneficial owner of, directly or
indirectly, voting securities of the Company representing 51% or more of the
combined voting power of the Company's outstanding voting securities and (2 any
change in the composition of the Company's Board in any one year which involves
a majority of such directors and which is not recommended by the Board and (3)
within one year thereafter, the Optionee or Grantee is discharged for any
reason other than Termination for Cause or incurs either a material reduction in
title, duties or responsibilities (including transfer to a worksite requiring a
relocation of such person's domicile) or a reduction in base salary. For
purposes of the Plan, the event in clause (3) above must take place on or after
March 1, 1999 in order to be considered a Change of Control.
"Code"
means the Internal Revenue Code of 1986, as amended.
"Company"
means Smith Corona Corporation and, where the context requires, a subsidiary of
Smith Corona Corporation allowed to participate in the Plan.
"Date of Grant"
means the date on which either an Option is granted or an Award is granted.
"Disability"
means disability as defined in the Company's Long-Term Disability Plan.
"Expiration Date"
means the earliest of the following:
if Optionee shall cease to be employed by the Company for any reason other than
death, Disability, Retirement or Termination for Cause, ninety (90) days after
the date of termination of employment (i.e., last day worked by Optionee); or
if Optionee shall cease to be employed by the Company because of Disability,
death or as a result of Retirement, the date thirty-six(36) months after either
(a) the date Optionee terminates employment because of Disability, death,
(b) Retirement or (b) March 1, 1999, if later; or
if Optionee ceases to be employed by the Company as a result of a Change of
Control, the date thrity-six (36) months after the date Optionee terminates
employment.
if the Optionee is Terminated for Cause, the date of termination of employment;
or the day before the seventh anniversary of the Date of Grant.
"Grantee"
means a person to whom an Award has been granted under the Plan.
"Option"
means any stock option granted under the Plan.
"Optionee"
means a person to whom an Option has been granted under the Plan, which Option
has not been exercised and has not expired or terminated.
"Retirement"
means termination from employment after attainment (i) of age 50 with at least
15 years of service (including accrued vacation and earned severance period, if
any,hereinafter referred to as the service period extension) or (ii) of age 60
with at least one year of service. For purposes of this definition, age is
determined at the end of the service period extension.
"Share" or "Shares"
means a share or shares of Common Stock, $.001 par value,of the Company.
"Special Employment Termination"
means termination of employment by action of the Company other than a
Termination for Cause.
"Terminated" or "Termination for Cause"
means a termination on account of (i) a material breach by Optionee or Grantee
of his or her obligations to the Company, (ii) theft, embezzlement, bribery or
act of comparable dishonesty or disloyalty or breach of trust against the
Company, (iii)the conviction of the Optionee or Grantee for a felony (or a plea
of nolo contendere thereto), or (iv) the willful engaging by the Optionee or
Grantee in conduct materially injurious to the Company.
RIGHTS TO BE GRANTED
Options and Awards.
Rights that may be granted under the Plan are non-qualified stock options,
incentive stock options or awards of restricted Shares.
STOCK SUBJECT TO PLAN
Shares Available.
The aggregate amount of Shares that will be reserved for and may be issued
pursuant to the Plan upon exercise of Options or grant of Awards shall be equal
to 10% of the total Shares issued pursuant to the Third Amended Joint Plan of
Reorganization of the Company Under Chapter 11 of the United States Bankruptcy
Code, determined on a fully diluted basis, not including the effect of the
exercise of any warrants for such Shares described in the aforementioned Plan of
Reorganization. The Shares so delivered may, at the option of the Company, be
either treasury Shares or Shares originally issued for such purposes.
Stock Subject to Expired Options or Forfeited Awards.
If an Option covering Shares terminates or expires without having been
exercised in whole or in part, or if an Award is forfeited in whole or in part,
the Shares as to which the unexercised Option relates or a forfeited Award may
be used for the grant of other Options or Awards.
ADMINISTRATION OF PLAN
Administration.
The Plan shall be administered by the Board. The Board may delegate part or
all of the Plan administration to a committee of the Board.
GRANT OF RIGHTS
Grants.
The Board may grant Options or Awards to eligible employees of the Company in
such number and with such frequency as the Board determines in its sole
discretion.
ELIGIBILITY
Eligibility.
Any employee of the Company shall be eligible to receive one or more Options or
Awards. No employee shall be eligible to receive an incentive stock option if
he owns stock (including stock the ownership of which is attributed to him
pursuant to Section 424 (d) of the Code) possessing more than 10% of the total
voting power of all classes of stock of the Company.
OPTION AGREEMENTS AND TERMS
All Options shall be evidenced by Option Agreements that shall be executed on
behalf of the Company and by the Optionee to whom such Options are granted.
The Board reserves the right to amend an Option Agreement provided that no
amendment shall adversely affect the Optionee's rights under the Agreement
without the Optionee's written consent. The terms of each Option Agreement
shall be determined from time to time by the Board, consistent, however, with
the following:
Time of Grant.
All Options shall be granted within ten (10) years from the effective date of
adoption of the Plan by the Board.
Incentive Options.
The terms and conditions of incentive options shall in all cases be consistent
with the provisions of the Code applicable to "incentive stock options" as
described in Section 422 of the Code including the annual limitation required by
Section 422(d) of the Code.
Option Price.
The option price per Share shall be determined by the Board but, with respect to
incentive stock options, shall be equal to or greater than the fair market
value of a Share on the Date of Grant. For the purposes of this Plan, the fair
market value on any date shall be the average of the high and low sale prices of
a Share as quoted on the NASDAQ composite index.
Restrictions on Transferability.
No Option shall be transferable or assignable otherwise than by will or the
laws of descent and distribution and, during the lifetime of the Optionee, an
Option shall be exercisable only by such Optionee. Upon the death of an
Optionee, the person to whom the rights shall have passed by will or by the laws
of descent and distribution may exercise any Options only in accordance with
the provisions of the Plan.
Payment Upon Exercise of Options.
Full payment for Shares purchased upon the exercise of an Option shall be made
in cash or in Shares already owned by the Optionee having a total fair market
value upon such exercise, as determined by the Board, equal to the option price
or a combination of cash and Shares having a total fair market value, as so
determined, equal to the option price. The Company may allow Options to be
paid under a cashless exercise program established for this purpose.
Issuance of Certificate Upon Exercise of Options.
Upon payment of the option price and satisfaction of the requirements of the
Option Agreement, a certificate for the number of whole Shares and a check for
the fair market value on the date of exercise of any fractional Share to which
the Optionee is entitled shall be delivered to such Optionee by the Company;
provided, however, that the Optionee has remitted to the Company an amount
determined by the Company, necessary to satisfy applicable federal, state or
local tax withholding requirements. The Company shall not be obligated to
deliver any certificates for Shares until there has been such compliance with
such laws or regulations as the Company may deem applicable including tax
withholding requirements under federal, state, or local laws. The Company
shall use its best efforts to effect such compliance. The Board may permit an
Optionee to satisfy the withholding obligations, in whole or in part, by
instructing the Company to withhold up to that number of Shares otherwise
deliverable to the Optionee with a fair market value equal to the tax
withholding.
Fractional Shares.
Only whole Shares shall be issuable upon exercise of Options. Any right to a
fractional Share shall be satisfied in cash.
Exercise of Options.
An Option shall become exercisable at such time or times as the Board
determines at the Date of Grant, provided, however, no Option shall be exercised
earlier than March 1, 1999 or 6 months following the Date of Grant, if later.
The Board, on the Date of Grant, shall provide that Options shall be fully
exercisable on a Change of Control, and may provide that Options shall be fully
exercisable on a termination of employment by reason of death, Disability,
Retirement or Special Employment Termination but in no event earlier than March
1, 1999.
Expiration of Options.
No Option granted hereunder shall be exercisable before March 1, 1999 or after
the Expiration Date.
Date of Exercise.
The date of exercise of an Option shall be the date on which written notice of
exercise, addressed to the Company at its main office, is hand delivered,
telecopied, or mailed first class postage prepaid; provided, however, that the
Company shall not be obligated to deliver any certificates for Shares pursuant
to the exercise of an Option until the Optionee shall have made payment in full
of the option price for such Shares in accordance with Section 8.5 and
applicable income withholding taxes.
Multiple Grants of Options.
The grant, exercise, termination or expiration of any Option shall have no
effect upon any other Option held by the same Optionee.
Shareholder Rights.
An Optionee shall not have any right as a shareholder with respect to any
Shares subject to his Option until after exercise and the date of the issuance
to him of a stock certificate for such Shares.
RESTRICTED STOCK AWARDS
Awards.
The Board may grant an Award to any eligible employee covering any number of
Shares as the Board may determine at the Date of Grant and may make such Awards
subject such restrictions, terms and conditions as it deems appropriate. All
Awards shall be evidenced by a Restricted Stock Agreement that shall be
executed on behalf of the Company and by the Grantee. The Board reserves the
right to amend a Restricted Stock Agreement provided that no amendment shall
adversely affect a Grantee's rights and the Agreement without the Grantee's
written consent.
Transfer Restrictions.
None of the Shares covered by an Award shall be sold, assigned, pledged or
otherwise transferred, voluntarily or involuntarily, by the Grantee. The
restrictions shall lapse at such time or times as the Board shall determine on
the Date of Grant but in no event earlier than March 1, 1999.
Termination of Employment.
If a Grantee terminates employment with the Company for any reason other than
Retirement, death, Disability or Special Employment Termination, prior the time
the restrictions on his Award lapse, the Award shall be forfeited and rescinded
as to all Shares which are, at the date of such employment termination, subject
to restriction and the Grantee shall promptly return such Shares to the Company
if stock certificates were issued respecting the Award.
Retirement, Death, Disability or Special Employment Termination.
If, prior to the time the restrictions on his Award lapse, a Grantee terminates
employment with the Company by reason of Retirement, death, Disability or
Special Employment Termination, the restrictions imposed upon any Shares of an
Award shall lapse and be of no further force and effect on the date of such
employment termination or March 1, 1999, if later. The Shares shall thereafter
be freely transferable by the Grantee.
Certificate Legend.
If a certificate for Shares is issued pursuant to an Award under the Plan prior
to the lapse of the transfer restrictions, such certificate shall bear the
following legend or such other legend as may be specified by the Board:
"The shares represented by this certificate may not be sold, assigned,
transferred, pledged, alienated, hypothecated or otherwise disposed of and are
subject to the restrictions on transfer and forfeiture set forth in the Smith
Corona Corporation Stock Incentive Plan, a copy of which is on file with the
Secretary of the Company."
Rights as Stockholders.
Subject to Article X, the Grantee shall not be entitled to vote the Award
Shares or to receive dividends and other distributions payable with respect to
such Shares while the restrictions on transfer apply to such Shares.
Government Regulations.
Notwithstanding anything contained herein to the contrary, the Company's
obligation to issue or deliver certificates evidencing the Award Shares shall be
subject to all applicable laws, rules and regulations and to such approvals by
any governmental agencies or national securities exchanges as may be required.
CHANGES IN CAPITALIZATION, MERGERS,
DISPOSITIONS AND CERTAIN OTHER TRANSACTIONS
Changes in Capitalization.
In the event of a stock dividend, stock split, recapitalization, subdivision,
issuance of rights, or other similar corporate change, the Board may take such
action as the Board shall determine reasonable under the circumstances in order
to permit an Optionee or Grantee to realize the value of the rights granted to
them under the Plan.
Other Transactions.
If during the term of any Option, the Company shall be merged into or
consolidated with or otherwise combined with or acquired by another person or
entity, or there is a divisive reorganization or a liquidation or partial
liquidation of the Company, the Board may take such action as the Board shall
determine to be reasonable under the circumstances in order to permit Optionees
to realize the value of rights granted to them under the Plan.
PLAN NOT TO AFFECT EMPLOYMENT
Employment.
Neither the Plan nor any Option or Award shall confer upon any employee of the
Company any right to continue in the employment of the Company or in any
position or level of such employment.
INTERPRETATION
In General.
The Board shall have the power to interpret the Plan and to make and amend
rules for putting it into effect and administering it. All interpretations and
determinations of the Board shall be final, conclusive and binding on all
interested parties. The Board may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any Option or Award in a manner
and to the extent the Board deems desirable to carry it into effect.
Securities Laws.
The Board shall have the power to make each grant under the Plan subject to
such conditions as it deems necessary or appropriate to comply with the then
existing requirements of the Securities Act of 1933 or the Securities Exchange
Act of 1934, and any applicable state securities laws.
AMENDMENTS
Amendments.
The Plan may be amended by the Board, but any amendment which increases the
aggregate number of Shares which may be issued pursuant to the Plan, shall
require the approval of the holders of such portion of the shares of the
capital stock of the Company present and entitled to vote on such amendment
as is required by applicable state law and the terms of the Company's By-laws,
as then in effect, to make the amendment effective. No outstanding Option or
Award shall be adversely affected by any Plan amendment without the written
consent of the Optionee, Grantee or other person then entitled to exercise such
Option, as the case may be.
EFFECTIVE DATE AND TERM OF PLAN
Effective Date and Term.
The Plan shall become effective on the date determined when the Plan is adopted
by the Board, and shall expire no later than ten (10) years from such date,
unless sooner terminated by the Board.
GENERAL
Applicable Law.
The issuance of Shares on the exercise of an Option or grant of an Award shall
be subject to all of the applicable requirements of the Delaware General
Corporation Law and other applicable laws, including federal or state
securities laws, and all Shares issued under the Plan shall be subject to the
terms and restrictions contained in the By-laws of the Company, as amended from
time to time. The interpretation or construction of the Plan shall be governed
by the laws of the State of New York, without bringing into effect the
principles of conflicts of law.
SMITH CORONA CORPORATION
STOCK INCENTIVE PLAN
TABLE OF CONTENTS
Page
ARTICLE I
PURPOSE OF PLAN
1.1 Establishment of Plan 1
1.2 Plan Purpose 1
ARTICLE II
DEFINITIONS
2.1 "Award 1
2.2 "Board 1
2.3 "Change of Control 1
2.4 "Code 1
2.5 "Company 1
2.6 "Date of Grant 1
2.7 "Disability 2
2.8 "Expiration Date 2
2.9 "Grantee 2
2.10 "Option 2
2.11 "Optionee 2
2.12 "Retirement 2
2.13 "Share" or "Shares 2
2.14 "Special Employment Termination 2
2.15 "Terminated" or "Termination for Cause 2
ARTICLE III
RIGHTS TO BE GRANTED
3.1 Options and Awards 3
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Shares Available 3
4.2 Stock Subject to Expired Options or
Forfeited Awards 3
ARTICLE V
ADMINISTRATION OF PLAN
5.1 Administration 3
ARTICLE VI
GRANT OF RIGHTS
6.1 Grants 3
ARTICLE VII
ELIGIBILITY
7.1 Eligibility 3
ARTICLE VIII
OPTION AGREEMENTS AND TERMS
8.1 Time of Grant 4
8.2 Incentive Options 4
8.3 Option Price 4
8.4 Restrictions on Transferability 4
8.5 Payment Upon Exercise of Options 4
8.6 Issuance of Certificate Upon
Exercise of Options 4
8.7 Fractional Shares 5
8.8 Exercise of Options 5
8.9 Expiration of Options 5
8.10 Date of Exercise 5
8.11 Multiple Grants of Options 5
8.12 Shareholder Rights 5
ARTICLE IX
RESTRICTED STOCK AWARDS
9.1 Awards 5
9.2 Transfer Restrictions 5
9.3 Termination of Employment 6
9.4 Retirement, Death, Disability or
Special Termination 6
9.5 Certificate Legend 6
9.6 Rights as Stockholders 6
9.7 Government Regulations 6
ARTICLE X
CHANGES IN CAPITALIZATION, MERGERS,
DISPOSITIONS AND CERTAIN OTHER TRANSACTIONS
10.1 Changes in Capitalization 6
10.2 Other Transactions 6
ARTICLE XI
PLAN NOT TO AFFECT EMPLOYMENT
11.1 Employment 7
ARTICLE XII
INTERPRETATION
12.1 In General 7
12.2 Securities Laws 7
ARTICLE XIII
AMENDMENTS
13.1 Amendments 7
ARTICLE XIV
EFFECTIVE DATE AND TERM OF PLAN
14.1 Effective Date and Term 7
ARTICLE XV
GENERAL
15.1 Applicable Law 8
Exhibit 21
SUBSIDIARIES OF
SMITH CORONA CORPORATION
Jurisdiction Name Doing
Name of Incorporation Business Under
Smith Corona Private Republic of Smith Corona Private
Ltd. Singapore Ltd.
Smith Corona United Kingdom Smith Corona
(UK) Holdings Limited (UK) Holdings Limited
Smith Corona Ontario, Canada Smith Corona
(Canada) Limited (Canada) Limited
Smith Corona (France) Paris, France Smith Corona (France)
S.A.R.L. S.A.R.L.
Smith Corona GmbH Dusseldorf, Germany Smith Corona GmbH
Smith Corona S.A. Waterloo, Belgium Smith Corona S.A.
Smith Corona Amsterdam - Holland Smith Corona
International B.V. International B.V.
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SMITH CORONA
CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF THIS
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
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