UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10281
Smith Corona Corporation
(Exact name of registrant as specified in its charter)
Delaware 51-0286862
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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)
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
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 Sections 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
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Outstanding at
Class May 4, 1998
Common Stock, par value $.001 2,914,589
per share
SMITH CORONA CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
March 31, 1998 and June 30, 1997 1
Consolidated Statements of Operations - For the
three and nine months ended March 31, 1998
and 1997 2
Consolidated Statement of Changes in Stockholders'
Equity - For the nine months ended
March 31, 1998 3
Consolidated Statements of Cash Flows - For the
nine months ended March 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index
</TABLE>
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
<S> <C> <C>
ASSETS (audited)
Current assets:
Cash and cash equivalents $24,506 $21,985
Accounts receivable (net of allowance
for doubtful accounts of $756 and
$931, respectively) 11,178 11,238
Inventories 9,812 12,627
Prepaid expenses and other current
assets 3,498 2,108
Total current assets 48,994 47,958
Property, plant and equipment, net 5,679 12,092
Other assets 357 579
TOTAL $55,030 $60,629
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 6,128 $ 5,199
Accrued liabilities 8,725 11,614
Income taxes payable 4,081 4,100
Total current liabilities 18,934 20,913
Pension liability 4,814 4,777
Postretirement benefits 4,297 5,904
Other long-term liabilities 2,645 2,645
Total liabilities 30,690 34,239
Stockholders' equity:
Common stock-3,071,056 shares
and 2,754,238 shares issued
and outstanding, respectively 3 3
Additional paid-in capital 55,503 55,164
Deferred compensation (440) (232)
Accumulated deficit (30,726) (28,545)
Total stockholders' equity 24,340 26,390
</TABLE>
TOTAL $55,030 $60,629
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $15,096 $16,905 $46,893 $60,354
Cost of goods sold 10,600 13,988 34,360 47,396
Gross margin 4,496 2,917 12,533 12,958
Selling, general and
administrative expenses 7,722 4,964 19,758 12,181
Reorganization (income) costs - 1,208 (249) 6,416
Gain on sale of
manufacturing operations - - (3,700) -
Other (income) expense (49) - (149) 150
Operating income (loss) (3,177) (3,255 (3,127) (5,789)
Interest (income) expense (340) (89) (779) (98)
Loss before income
taxes and extraordinary
gain (2,837) (3,166) (2,348) (5,691)
Income taxes 70 20 293 46
Loss before
extraordinary gain (2,907) (3,186) (2,641) (5,737)
Extraordinary gain-net - 8,122 460 8,122
Net income (loss) $(2,907)$ 4,936 $(2,181)$ 2,385
Earnings (loss) per common
share-basic and diluted:
Income (loss) before
extraordinary gain $ (1.04)$ (1.42) $ (.97)$ (2.55)
Extraordinary gain-net - 3.61 .16 3.61
Net income (loss) $ (1.04)$ 2.19 $ (.81)$ 1.06
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the nine months ended March 31, 1998
($ in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Deferred Accumulated
Stock Capital Compensation Deficit Total
<S> <C> <C> <C> <C> <C>
Balance June 30, 1997 $ 3 $55,164 $(232) $(28,545) $26,390
Net loss - - - (2,181) (2,181)
Deferred compensation - 339 (339) - -
Amortization of deferred
compensation - - 131 - 131
Balance March 31, 1998 $ 3 $55,503 $(440) $(30,726) $24,340
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Nine months ended
March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,181) $ 2,385
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,768 2,708
Gain on sale of manufacturing operations (3,700) -
(Gain) loss on disposition of
property, plant and equipment 10 (439)
Inventory provisions (561) 1,812
Pension curtailment gain - (3,394)
Extraordinary gain (460) (8,122)
Other noncash items 16 (132)
Changes in assets and liabilities:
Accounts receivable (32) 4,958
Inventories (592) 2,517
Prepaid expenses and
other current assets (1,578) 1,515
Other assets (19) (85)
Trade payables 1,077 1,496
Accrued liabilities and income taxes
payable (2,672) 210
Postretirement benefits and pension
liability (1,570) (1,181)
Other long-term liabilities - 337
Net cash provided by (used in)
operating activities (10,494) 4,585
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property,
plant and equipment 100 466
Proceeds from the sale of
manufacturing operations 14,719 -
Capital expenditures (1,804) (247)
Net cash provided by
investing activities 13,015 219
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made to settle liabilities
subject to compromise - (12,474)
Net cash used in
financing activities - (12,474)
Increase (decrease) in
cash and cash equivalents 2,521 (7,670)
Cash and cash equivalents:
Beginning of period 21,985 29,929
End of period $24,506 $22,259
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
($ and shares in thousands, except per share amounts)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim consolidated financial statements, although not
necessarily indicative of results of operations for the entire fiscal year,
include all adjustments of a normal recurring nature which are, in the
opinion of management, necessary for a fair presentation of the results for
the periods covered. They have been prepared by Smith Corona Corporation
(the "Company") without audit in accordance with the instructions to Form
10-Q and should be read in conjunction with the consolidated financial
statements and the notes thereto for the fiscal year ended June 30, 1997 as
contained in the Company's Annual Report on Form 10-K.
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"), which was issued in
March 1997 and was effective for periods ended after December 15, 1997.
SFAS 128 simplifies the standards for computing earnings per share ("EPS")
and makes them comparable to international standards for computing EPS.
This statement replaces the presentation of primary EPS with presentation
of basic EPS and requires a dual presentation of basic EPS and diluted EPS
on the face of the Consolidated Statements of Operations (See Note 5).
NOTE 2 - PETITION FOR REORGANIZATION UNDER CHAPTER 11
On July 5, 1995, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code. The Company emerged from
Chapter 11 on February 28, 1997. From July 5, 1995 to February 28, 1997,
the Company operated as a debtor-in-possession (See Note 7).
NOTE 3 - CONTINGENCIES
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 March 31, 1998 and June 30, 1997,
the Company had recorded liabilities of approximately $2,770 and $2,952,
respectively, related primarily to remediation and monitoring of
environmental sites. 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
consists of round-the-clock pumping and filtering. The soil venting with a
soil infiltration injection system for the Groton Site remediation has been
idled and the remediation program is now reduced to periodic soil and water
sampling. 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.
NOTE 4 - INVENTORIES
A summary of inventories, by major classification and net of reserves, is
as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
<S> <C> <C>
Raw materials and work-in-process $ 313 $ 4,961
Finished goods 9,499 7,666
Total $ 9,812 $12,627
NOTE 5 - EARNINGS PER SHARE
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:
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31, 1998
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Basic Earnings per Share
Income (loss) before
extraordinary gain $(2,907) 2,801 $(1.04)
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 $(2,907) 2,801 $(1.04)
Nine months ended March 31, 1998
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
Basic Earnings per Share
Income (loss) before
extraordinary gain $(2,641) 2,718 $(.97)
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 $(2,641) 2,718 $(.97)
</TABLE>
(a) Warrants to purchase 1,512 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 156 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.
(c) Assumed exercise would have anti-dilutive effect in computation.
For comparability purposes, basic and diluted earnings (loss) per common
and common equivalent share for the three and nine months ended March 31,
1997 is based on the weighted average number of common shares outstanding
from February 28, 1997, the date of emergence from bankruptcy proceedings,
until March 31, 1997 and the effect of considering common stock
equivalents.
NOTE 6 - SALE OF MANUFACTURING OPERATIONS
On November 24, 1997, the Company completed the sale of its manufacturing
operations to The MATCO Electronics Group, Inc. ("MATCO") (the "Sale"). In
addition, the Company entered into a long-term manufacturing agreement with
MATCO pursuant to which MATCO will manufacture certain Smith Corona brand
name products, including typewriters and related supplies and accessories.
The Sale included the purchase by MATCO of (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
net proceeds from the Sale, as of March 31, 1998, were $14,719. The Sale
resulted in a gain of $3,700.
NOTE 7 - EXTRAORDINARY GAIN
During the nine months ended March 31, 1998, the Company favorably resolved
bankruptcy claims which resulted in a pre-tax and after-tax extraordinary
gain of approximately $460.
For the quarter and nine months 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. Additionally,
in accordance with the Plan of Reorganization, as of March 31, 1997,
2,456,634 common shares were issued to allowed general unsecured claim
holders. 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.
ITEM 2. 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.
Results of Operations
Net sales of $15.1 million for the third quarter ended March 31, 1998
decreased 10.7 percent from last year's third quarter net sales of $16.9
million. For the nine month period ended March 31, 1998, net sales were
$46.9 million, a 22.3 percent decrease from last year's comparable period
of $60.4 million. For the three and nine months ended March 31, 1998, net
sales included newly sourced product sales of $1.5 million and $2.0
million, respectively. Net sales decreases in both periods were primarily
due to overall lower volumes as a result of a shrinking market and the
Company's June 1997 decision to cease manufacturing of personal word
processors. The lower volumes are partially offset by new product sales.
During the third quarter the Company continued to receive inventory of
newly sourced products and continued with its advertising and marketing
programs related to newly sourced products. The Company's plans to
significantly expand its product line continues to gain momentum. Efforts
are focused on forging and expanding 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
presence, and desire to build or increase their United States 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
including telephony and facsimile products. The Company views its new
products with favorable anticipation considering that the small office and
home office environment, globally, represents opportunities in growth
markets. 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.
Gross margin, as a percentage of net sales, was 29.8 percent for the third
quarter ended March 31, 1998, as compared to 17.3 percent for the third
quarter ended March 31, 1997. For the nine months ended March 31, 1998,
the gross margin as a percentage of net sales was 26.7 percent as compared
to 21.5 percent last year. The margin improvements are primarily due to
prior year's inventory writedowns and a change in sales mix of the
Company's product line. Last year's three and nine month periods included
sales of personal word processors that resulted in a negative impact on
gross margins.
Selling, general and administrative expenses for the three and nine months
ended March 31, 1998 were $7.7 million and $19.8 million as compared to
$5.0 million and $12.2 million for the three and nine months ended March
31, 1997, respectively. For the three and nine months ended March 31, 1998
expenses include increased spending of approximately $3.2 million and $6.9
million, respectively, to support development and advertising of the
Company's newly sourced products which are offset by a decrease in expenses
of approximately $.2 million and $2.2 million, respectively, associated
with the June 1997 change in postretirement benefits and savings in
employee-related costs. The Company expects the trend of increased
spending to support development and advertising of newly sourced products
to continue. Included in selling, general and administrative expenses for
the nine months ended March 31, 1997 is a pension plan curtailment gain of
$3.4 million.
The Company recorded reorganization (income) costs for its bankruptcy
proceedings of $(.2) million for the nine months ended March 31, 1998,
compared to $1.2 million and $6.4 million for the three and nine months
ended March 31, 1997. This year's income includes the forgiveness of a
portion of the professional fees that were withheld pending final
bankruptcy court approval. Reorganization costs for the three and nine
months ended March 31, 1997 were primarily professional fees, but included
$.7 million for the relocation of the Company's world headquarters from New
Canaan, Connecticut to Cortland, New York. Additionally, reorganization
costs for the nine months ended March 31, 1997 include a purchase deposit
forfeiture of $.5 million and interest income earned on domestic cash
balances of $.6 million.
On November 24, 1997, the Company completed the sale of its manufacturing
operations to MATCO (the "Sale"). The Sale generated total net proceeds of
$14.7 million and resulted in a gain of $3.7 million. In addition the
Company entered into a long-term manufacturing agreement with MATCO
pursuant to which MATCO will manufacture certain Smith Corona brand name
products, including typewriters and related supplies and accessories.
For the nine months ended March 31, 1998 the Company recorded an
extraordinary gain of $.5 million for the favorable resolution of
bankruptcy claims. Included in the three and nine months ended March 31,
1997 is an extraordinary gain of $8.1 million 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 balances, cash flows generated from
operations and available borrowing capacity.
During the nine months ended March 31, 1998, the Company's operating
activities used $10.5 million of cash, primarily as a result of the net
loss before consideration of the $3.7 million gain on the Sale. Prepaid
expenses and other current assets increased $1.6 million as a result of an
escrow account established for the appeal of an unsettled bankruptcy claim,
prepaid advertising to support the release of new product and prepayments
to vendors for inventory. Trade payables increased primarily as a result
of purchases of inventory offset by a payment of $1.9 million for
professional fees that were held back during the bankruptcy proceedings.
The net change in inventory levels was due primarily to new product
inventory receipts offset by a decrease of $4.4 million in raw material and
work-in-process inventories associated with the Sale. Accrued liabilities
and income taxes payable decreased $2.7 million due to payment of employee
related items and customer marketing programs, while the postretirement
benefits and pension liability also decreased $1.6 million primarily as a
result of the June 1997 change in participants' contribution structure of
the postretirement benefit program.
Capital expenditures for the nine months ended March 31, 1998 were $1.8
million compared to $.3 million in the prior year. Capital expenditures
are comprised primarily of new product tooling and progress payments for
the new information systems hardware and SAP R/3 software. The Company had
no material commitments for additional capital expenditures at March 31,
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
PART II - Other Information
Item 1. Legal Proceedings
Information required by this item is incorporated by reference from "Note 3
- - Contingencies" in the Notes to the Consolidated Financial Statements
appearing in this Form 10-Q Quarterly Report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SMITH CORONA CORPORATION
May 14, 1998
By: /s/ John A. Piontkowski
John A. Piontkowski
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Martin D. Wilson
Martin D. Wilson
Vice President/Controller
(Principal Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description
EX-27 Financial Data Schedule
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SMITH CORONA CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO OF THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 24,506
<SECURITIES> 0
<RECEIVABLES> 11,934
<ALLOWANCES> 756
<INVENTORY> 9,812
<CURRENT-ASSETS> 48,994
<PP&E> 40,389
<DEPRECIATION> 34,710
<TOTAL-ASSETS> 55,030
<CURRENT-LIABILITIES> 18,934
<BONDS> 0
<COMMON> 3
0
0
<OTHER-SE> 24,337
<TOTAL-LIABILITY-AND-EQUITY> 55,030
<SALES> 46,893
<TOTAL-REVENUES> 46,893
<CGS> 34,360
<TOTAL-COSTS> 34,360
<OTHER-EXPENSES> (149)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (779)
<INCOME-PRETAX> (2,348)
<INCOME-TAX> 293
<INCOME-CONTINUING> (2,641)
<DISCONTINUED> 0
<EXTRAORDINARY> 460
<CHANGES> 0
<NET-INCOME> (2,181)
<EPS-PRIMARY> (.81)
<EPS-DILUTED> (.81)
</TABLE>
