Annual Report — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K Annual Report 23± 122K
2: EX-10 Material Contract 1 6K
7: EX-10 Material Contract 3 14K
3: EX-13 Annual or Quarterly Report to Security Holders 24± 100K
4: EX-21 Subsidiaries of the Registrant 1 5K
5: EX-23 Consent of Experts or Counsel 1 6K
6: EX-27 Financial Data Schedule (Pre-XBRL) 1 7K
EX-13 — Annual or Quarterly Report to Security Holders
| EX-13 | 1st “Page” of 9 | TOC | ↑Top | Previous | Next | ↓Bottom | Just 1st |
|---|
EXHIBIT 13
Smith Corona Corporation
SELECTED FIVE-YEAR FINANCIAL DATA
[Download Table]
(Dollars in thousands, For the year ended June 30,
except per share amounts) 1994 1993(1) 1992(1) 1991(1) 1990(1)
Net sales $278,636 $253,823 $316,741 $324,483 $396,929
Gross margin 64,556 66,067 93,486 93,934 115,362
Operating income (loss) 9,917 (12,354)(2) 32,685 31,289 49,524
Income (loss) from
continuing operations 6,078 (8,297) 21,253 18,999 29,839
Discontinued operations
(net of income taxes):
Income (loss) from
operations 1,249 (725) 830 587 3,704
Provision for loss on
disposal of
discontinued
operations (2,200) - - - -
Net income (loss) $5,127 $(9,022) $22,083 $19,586 $33,543
Earnings per common
share(3) -
Income (loss) from
continuing operations $.20 $(.28) $.70 $.63 $.99
Discontinued operations:
Income (loss) from
operations .04 (.02) .03 .02 .12
Provision for loss on
disposal of
discontinued
operations (.07) - - - -
Net income (loss)
per share $.17 $(.30) $.73 $.65 $1.11
Working capital $85,136 $93,586 $88,936 $93,544 $115,540
Total assets 195,034 191,967 185,295 179,093 215,312
Bank loans 20,002 18,669 9,899 33,276 70,603
Stockholders' equity 75,722 76,645 91,717 80,684 67,148
Cash dividends declared
per common share $.20 $.20 $.20 $.20 $.45
(1) Amounts have been reclassified, where applicable, to reflect the
discontinued operations of SCM Office Supplies, Inc.
(2) Includes a $16.5 million provision for restructuring costs.
(3) Based on 30,250,000 shares of common stock.
Management's Discussion
and Analysis of Results of Operations
and Financial Condition
On July 5, 1994 Smith Corona Corporation (the "Company") sold
substantially all the assets and liabilities of SCM Office
Supplies, Inc. (see Note 11). Accordingly, the income statements
reflect their operating results and provision for loss on sale as
discontinued operations and the balance sheet segregates the net
assets and liabilities of discontinued operations. The following
discussion of results of operations and financial condition is
presented for continuing operations only and should be read in
conjunction with the consolidated financial statements and notes
thereto, contained in this annual report.
Fiscal 1994 Compared to Fiscal 1993
Results of Operations
Net sales increased by 9.8 percent or $24.8 million to $278.6
million in fiscal 1994 compared to fiscal 1993. Increased unit
sales of personal word processors and typewriters in both domestic
and international markets accounted for approximately $39.0 million
of the increased sales growth while lower pricing, principally in
the domestic market, offset approximately 50 percent of the unit
sales gains. New products, introduced late in fiscal 1993,
accounted for approximately $7.4 million of the increase in net
sales. As noted above, domestic unit sales outpaced revenue
increases as lower pricing impacted sales growth and gross margins.
Internationally, unit sales increased substantially as the Company
continued to increase its market share in Europe as well as other
geographic areas. Price pressures, while less than in the U.S.
market, nevertheless hindered net sales increases for the year.
Operating income of $9.9 million in fiscal 1994 compared
favorably to a $12.4 million loss in fiscal 1993 due principally to
lower advertising, administrative and research expenses in fiscal
1994, and the 1993 pretax restructuring charge of $16.5 million.
Payments of approximately $1.8 million from Pelikan, Inc. for
satisfaction of a judgment won by the Company for patent
infringement and misleading advertising litigation are included as
reductions in cost of goods sold in both fiscal 1994 and 1993.
In fiscal 1993, the Company announced a plan to phase out
the Company's manufacturing operations in Cortland, New York and
move them to a new facility in Mexico. The pretax charges related
to this move were $16.5 million in fiscal 1993, equivalent to $10.1
million after tax, or $.33 per share. The move to Mexico was
substantially completed by the end of the first calendar quarter of
1994. The annual savings, resulting from the restructuring,
originally anticipated in 1994 were not realized as cost of sales
continued to reflect the higher Cortland manufacturing labor costs.
Cost of sales in fiscal 1995 is expected to reflect the full
benefit of the lower manufacturing costs.
Financial Condition
The Company's primary sources of liquidity and capital resources,
on both a short- and long-term basis, are cash flows generated from
operations and borrowings under its Credit Facility. During the
year ended June 30, 1994, the Company's operating activities
provided cash of $9.2 million, largely a result of the increased
net income and lower inventories offset in part by increased
accounts receivable. Accounts receivable increased $16.6 million
over the prior fiscal year as a result of increased sales late in
the fourth quarter. The reduction in inventories reflects the
Company's continued focus on controlling inventory levels. Accrued
restructuring costs decreased principally due to the pay- out of
severance and other personnel related liabilities during fiscal
1994. The balance of accrued restructuring costs at June 30, 1994
is expected to be paid in the next fiscal year. Capital
expenditures in the year ended June 30, 1994 were $11.7 million
compared to $5.3 million in the prior year increasing primarily as
a result of relocating manufacturing operations to Mexico. The
Company had no material commitments for capital expenditures at
June 30, 1994 and anticipates capital expenditures in fiscal 1995
to return to pre-fiscal 1994 levels.
The Company has a Credit Facility in the amount of $32.0
million expiring June 25, 1996. As of June 30, 1994, the Company
was in compliance with all covenants of the Credit Facility.
Management believes that it has adequate flexibility under these
covenants and that the covenants should not impose undue
restrictions on the operations of the Company. The Credit Facility
provides for interest at the Company's option at variable rates,
ranging from London Interbank Offering Rate (LIBOR) plus 0.5
percent to the prime rate of interest. The Company also has an
uncommitted line of credit arrangement for $20.0 million which
bears interest at a rate which changes daily based on money market
rates. At June 30, 1994, the interest rate on combined borrowings
was 5.63 percent per annum. The proceeds from the sale of SCM
Office Supplies, Inc. of approximately $13.0 million were used to
pay down the bank loans subsequent to year-end.
The Company's Singapore operations had been granted "pioneer
tax status" until February 1994 and as a result, have paid no
Singapore income tax on unremitted Singapore earnings up to that
date. Since the expiration of the "pioneer tax status," the
Singapore operations have been subject to a tax of approximately 27
percent. The impact of the change in tax status, which serves to
increase the effective income tax rate, was not significant in
fiscal 1994.
The Company believes that its funds generated from
operations together with its borrowing capabilities will be
sufficient to meet its operating cash and capital expenditure
requirements in the foreseeable future.
Fiscal 1993 Compared to Fiscal 1992
Results of Operations
Net sales declined $62.9 million, or 19.9 percent, to $253.8
million in fiscal 1993 compared to fiscal 1992, 80 percent of which
was attributed to decreased unit volume. Personal word processor
sales increased both domestically and abroad, while total unit
sales declined. Domestic sales continued to be hurt by a sluggish
consumer spending environment and by intense price competition
across our product line. In addition, the new model year product
launch, initiated in the fourth quarter of fiscal 1992, began in
the first quarter of fiscal 1994. The severe recessionary climate
in the U.K., Canada and Europe impacted sales and international
sales declined substantially in the fourth quarter and for the
year. Development of direct marketing in continental Europe
continued. However, European sales were down markedly as compared
to the prior year, when there were sizable shipments to a large OEM
European distributor. Operating income declined from $32.7 million
in fiscal 1992 to a $12.4 million loss in fiscal 1993, primarily
due to lower sales volumes and gross margins and the fiscal 1993
$16.5 million pretax charge for the move of the Company's Cortland,
New York manufacturing facility to Mexico. Selling, administrative
and research expenses increased as the Company launched its direct
marketing in continental Europe.
Over the past few years, the Company has faced intense
competition from foreign producers. In July 1992, in order to
maintain its leadership as the low-cost producer in a highly
competitive worldwide business, the Board of Directors approved and
the Company announced a plan to phase out the Company's
manufacturing operations in Cortland, New York and relocate them to
a new facility in Mexico. As a result of this decision, during
fiscal 1993, the Company provided $16.5 million in restructuring
charges, of which approximately $3.0 million was non-cash in
nature. Once the Mexico facility is fully operational, this action
is expected to result in lower manufacturing costs of approximately
$15.0 million annually, primarily due to lower labor costs in
Mexico. The restructuring charge included $8.3 million relating to
severance of employees, $3.3 million relating to asset redeployment
costs, $3.0 million for the write-down of impaired equipment and
other assets predicated on management's decision to close the
facility and $1.9 million of other costs, primarily costs
associated with site selection and outside consulting fees. The
cash portion of the charge is expected to be fully expended by the
end of fiscal 1995.
In the first quarter of fiscal 1993, $9.0 million was
recorded for employees' severance liabilities and asset impairments
stemming from the restructuring decision to close the Cortland
manufacturing facility. Additional direct costs of $1.3 million
associated with the relocation to the Mexico facility were charged
to restructuring during the second and third quarters of fiscal
1993. In the fourth quarter, the Company provided an additional
$6.2 million, $2.5 million for asset redeployment costs, $1.9
million for the value of additional fixed assets which became
impaired, and the balance principally for consulting and other
costs associated with site selection activities. The fourth quarter
provision of $2.5 million for asset redeployment costs consisted
primarily of incremental personnel costs, travel and lodging for
39 employees responsible for the set-up and establishment of the
equipment in the Mexican facility. The employees responsible for
the set-up and establishment were notified of their termination and
subsequent temporary assignment.
As a consequence of final site selection in the fourth quarter,
certain additional fixed assets were identified which would not be
relocated to Mexico and the associated impairment of value was recorded.
Interest expense of $.4 million in fiscal 1993 was lower
than fiscal 1992 due to the reduction in average outstanding
borrowings and lower interest rates. As discussed in Note 2 to the
Consolidated Financial Statements, effective July 1, 1992, the
Company adopted Statement of Financial Accounting Standards (SFAS)
No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," SFAS No. 109, "Accounting for Income Taxes," and
SFAS No. 112, "Employers' Accounting for Postemployment Benefits."
The cumulative effect of adopting these accounting changes in
fiscal 1993 was a reduction in earnings per share of $.01.
Financial Condition
The Company's primary sources of liquidity and capital resources,
on both a short- and long-term basis, are cash flows generated from
operations and borrowings under its Credit Facility. During the
year ended June 30, 1993, the Company's operating activities
provided $5.4 million in net cash, enough to fund all its operating
needs. The increase in inventories and the decrease in accounts
receivable were primarily attributable to lower than anticipated
fourth quarter sales. Accrued liabilities increased approximately
$13.4 million mainly due to the accrued restructuring cost.
At June 30, 1993, loans payable were $18.7 million, up from
$9.9 million at June 30, 1992. Stockholders' equity was $76.6
million, and the ratio of loans payable to total invested capital
was 19.6 percent at June 30, 1993.
Smith Corona Corporation
Consolidated Balance Sheets
[Download Table]
June 30,
(Dollars in thousands) 1994 1993
Assets
Current assets:
Cash and cash equivalents $6,472 $13,800
Accounts receivable (net of allowance
for doubtful accounts of $1,563 and
$1,390 for 1994 and 1993, respectively) 49,343 32,744
Inventories 64,247 77,008
Prepaid expenses and other current
assets 3,794 2,203
Deferred income taxes 10,131 12,688
Net assets of discontinued operations 14,780 15,584
Total current assets 148,767 154,027
Property, plant and equipment-net 38,090 31,801
Deferred income taxes 4,471 3,714
Other assets 3,706 2,425
Total $195,034 $191,967
Liabilities and stockholders' equity
Current liabilities:
Trade payables $28,219 $24,190
Accrued liabilities 28,899 30,198
Income taxes payable 5,001 4,541
Dividends payable 1,512 1,512
Total current liabilities 63,631 60,441
Bank loans 20,002 18,669
Postretirement benefits 12,650 12,703
Pension liability 20,361 21,039
Other long-term liabilities 2,668 2,470
Total liabilities 119,312 115,322
Stockholders' equity:
Common stock- 30,250,000 shares issued
and outstanding 303 303
Additional paid-in capital 44,697 44,697
Retained earnings 30,722 31,645
Total stockholders' equity 75,722 76,645
Total $195,034 $191,967
See accompanying notes to consolidated financial statements.
Smith Corona Corporation
Consolidated Income Statements
[Download Table]
(Dollars in thousands, For the year ended June 30,
except per share amounts) 1994 1993 1992
Net sales $278,636 $253,823 $316,741
Cost of goods sold 214,080 187,756 223,255
Gross margin 64,556 66,067 93,486
Selling, administrative and
research expenses 54,639 61,921 60,801
Restructuring costs - 16,500 -
Operating income (loss) 9,917 (12,354) 32,685
Interest expense 708 417 1,431
Income (loss) from continuing
operations before income taxes 9,209 (12,771) 31,254
Income taxes (benefit) 3,131 (4,474) 10,001
Income (loss) from continuing
operations 6,078 (8,297) 21,253
Discontinued operations (net of
income taxes):
Income (loss) from operations 1,249 (725) 830
Provision for loss on disposal
of discontinued operations (2,200) - -
Net income (loss) $5,127 $(9,022) $22,083
Earnings per common share -
Income (loss) from continuing
operations $.20 $(.28) $.70
Discontinued operations:
Income (loss) from operations .04 (.02) .03
Provision for loss on disposal
of discontinued operations (.07) - -
Net income (loss) per share $.17 $(.30) $.73
See accompanying notes to consolidated financial statements.
Smith Corona Corporation
Consolidated Statements of Changes in Stockholders' Equity
For the years ended June 30, 1994, 1993 and 1992
[Download Table]
Additional
(Dollars in thousands, Common Paid-in Retained
except per share amounts) Stock Capital Earnings Total
Balance, June 30, 1991 $303 $49,697 $30,684 $80,684
Net income - - 22,083 22,083
Dividends declared
($.20 per share) - - (6,050) (6,050)
Partial return of
proceeds from initial
public offering - (5,000) - (5,000)
Balance, June 30, 1992 303 44,697 46,717 91,717
Net loss - - (9,022) (9,022)
Dividends declared
($.20 per share) - - (6,050) (6,050)
Balance, June 30, 1993 303 44,697 31,645 76,645
Net income - - 5,127 5,127
Dividends declared
($.20 per share) - - (6,050) (6,050)
Balance, June 30, 1994 $303 $44,697 $30,722 $75,722
See accompanying notes to consolidated financial statements.
Smith Corona Corporation
Consolidated Statements of Cash Flows
[Download Table]
For the year ended June 30,
(Dollars in thousands) 1994 1993 1992
Cash flows from operating
activities:
Net income (loss) $5,127 $(9,022) $22,083
Adjustments to reconcile net income
(loss) to net cash provided by
continuing operating activities:
Discontinued operations 951 725 (830)
Depreciation and amortization 5,576 6,697 7,494
Restructuring costs - 16,500 -
Deferred income taxes 1,800 (6,421) 4,442
Other noncash items 72 303 192
Changes in assets and liabilities:
Accounts receivable (16,599) 21,742 (1,323)
Inventories 12,761 (13,480) (10,566)
Prepaid expenses and other
current assets (1,591) 411 27
Other assets (1,557) 1,461 663
Trade payables 4,029 (10,023) 8,858
Accrued liabilities and income
taxes payable (839) (5,257) 4,828
Postretirement benefits and
pension liability (731) 1,313 419
Other long-term liabilities 198 470 -
Net cash provided by continuing
operations 9,197 5,419 36,287
Net cash provided by (used in)
discontinued operations (147) (1,421) 92
Net cash provided by operating
activities 9,050 3,998 36,379
Cash flows used in investing
activities:
Capital expenditures (11,661) (5,259) (5,475)
Cash flows from financing
activities:
Bank loans (repayments), net 1,333 8,770 (23,377)
Partial return of proceeds from
initial public offering - - (5,000)
Dividends paid (6,050) (6,050) (6,050)
Net cash provided by (used in)
financing activities (4,717) 2,720 (34,427)
Increase (decrease) in cash and
cash equivalents (7,328) 1,459 (3,523)
Cash and cash equivalents at
beginning of year 13,800 12,341 15,864
Cash and cash equivalents at
end of year $6,472 $13,800 $12,341
Cash paid during the year for:
Interest $842 $576 $1,720
Income taxes $2,077 $3,269 $3,271
See accompanying notes to consolidated financial statements.
Smith Corona Corporation
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
1. Significant Accounting Policies
Basis of Consolidation: The consolidated financial statements
include the accounts of Smith Corona Corporation and its wholly-
owned subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated.
Cash Equivalents: All highly liquid investments purchased with a
maturity of three months or less are considered to be cash
equivalents.
Inventories: Inventories are stated at the lower of cost or
market. Cost is determined principally by the first-in, first-
out (FIFO) method. Inventories valued using the last-in, first-
out (LIFO) method at June 30, 1994 and 1993 are $1,903 and
$1,724, respectively.
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 forty years for buildings. Leasehold improvements
are amortized over the lease term. At the time properties are
disposed, the property and related accumulated depreciation
accounts are relieved of the applicable amounts and any profit or
loss is included in operations.
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.
Retirement Plans: Substantially all domestic employees
participate in the Company's retirement plans for salaried and
hourly employees. The cost of United States pension plans is
accrued in amounts equal to the normal cost of current service
under the plans together with amortization of prior service
costs. 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.
Research and Development: The Company's product development
costs are expensed as incurred. Research and development expense
was $7,966, $10,064 and $11,026 for the years ended June 30,
1994, 1993 and 1992, respectively.
Goodwill: The excess of the allocated acquisition cost over the
fair value of net assets of businesses acquired is included in
other assets and is being amortized by the straight-line method
over forty years.
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.
Forward Foreign Currency Contracts: From time to time, the
Company may enter into forward foreign currency contracts to
hedge against foreign currency fluctuations. Gains and losses on
these contracts were recorded in net income in the period in
which the exchange rate changed. During the year ended June 30,
1993, forward foreign currency contracts were in place to reduce
the impact of foreign currency fluctuations on transactions
designated in a currency other than the U.S. dollar. At June 30,
1993, there were no outstanding forward contracts. There were no
such contracts in effect during fiscal 1994 or 1992.
Income Taxes: Deferred income taxes are determined based on the
difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
Earnings Per Share: Earnings per share have been calculated
based upon 30,250,000 shares of common stock outstanding.
Reclassifications: Certain reclassifications have been made to
the prior years' financial statements to conform with the 1994
presentation. In addition, amounts in prior years' financial
statements have been reclassified to reflect continuing
operations (see Note 11).
2. Changes in Accounting Principles
Effective July 1, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," SFAS
No. 112, "Employers' Accounting for Postemployment Benefits," and
SFAS No. 109, "Accounting for Income Taxes." The sum of the
accounting changes in fiscal 1993 amounted to $10.
SFAS 106 requires the accrual method of accounting for
the expected costs of postretirement benefits other than pensions
during the years of an employee's service. The cumulative effect
of this accounting change was a decrease to fiscal 1993 net
income of $3,507, or $.12 per share. In addition, the effect of
adopting this statement in fiscal 1993, exclusive of the
cumulative effect, was a decrease to net income of $265.
SFAS 112 requires the accrual method of accounting for
benefits to former or inactive employees after employment but
before retirement. In prior years, the expense was recognized
when claims were paid. The cumulative effect of this accounting
change in fiscal year 1993 was a reduction in net income of $183
(less than $.01 per share).
SFAS 109 requires the liability method of accounting for
income taxes rather than the deferred method previously used.
The cumulative effect of this accounting change was an increase
to fiscal year 1993 net income of $3,700, or $.12 per share.
3. Inventories
A summary of inventories, by major classification, is as follows:
[Download Table]
June 30,
(In thousands) 1994 1993
Raw materials and supplies $ 2,612 $ 3,478
Work-in-process 27,796 20,566
Finished goods 34,190 53,213
Total 64,598 77,257
LIFO reserve (351) (249)
Total $64,247 $77,008
4. Property, Plant and Equipment
A summary of property, plant and equipment, by major
classification, is as follows:
[Download Table]
June 30,
(In thousands) 1994 1993
Land $ 1,703 $ 1,634
Buildings and improvements 17,122 13,081
Machinery and other equipment 59,919 53,175
Total 78,744 67,890
Accumulated depreciation (40,654) (36,089)
Total $38,090 $31,801
5. Accrued Liabilities
Accrued liabilities consist of the following:
[Download Table]
June 30,
(In thousands) 1994 1993
Accrued restructuring costs $ 4,132 $11,779
Payroll and related expenses 9,064 6,766
Accrued promotional expenses 6,471 4,094
Other 9,232 7,559
Total $28,899 $30,198
6. Leases
The Company leases certain facilities, equipment and vehicles for
various periods through 2009 under non-cancelable operating
leases. Rental expense under these operating leases was $6,954,
$6,507 and $6,262 for the years ended June 30, 1994, 1993 and
1992, respectively.
The future minimum rental commitments for the operating
leases are as follows:
[Download Table]
Year Ended Amount
June 30, (In thousands)
1995 $ 5,359
1996 4,318
1997 3,934
1998 2,590
1999 1,036
Thereafter 3,128
Total $20,365
7. Bank Loans
The Company has a revolving credit agreement (the "Credit
Facility") with two banks for $32,000 expiring June 25, 1996, the
use of which is generally to satisfy its working capital
requirements. Aggregate borrowings under the Credit Facility
amounted to $750,548, $699,950 and $1,461,385 for fiscal 1994,
1993 and 1992, respectively, while aggregate repayments were
$749,215, $691,180 and $1,484,762 for fiscal 1994, 1993 and 1992,
respectively. Payment of dividends is limited by the terms of
the Credit Facility, under which the Company is obligated to
maintain minimum consolidated net worth of $68,479 at June 30,
1994, with increases equal to 50 percent of net income subsequent
to June 30, 1994. The required minimum interest coverage ratio
is 2.25 and the maximum leverage ratio is 55 percent. As of June
30, 1994, the Company was in compliance with all covenants of the
Credit Facility. The Credit Facility provides for interest at
the Company's option at variable rates, ranging from LIBOR plus
0.5 percent to the prime rate of interest. The Company also has
an uncommitted line of credit arrangement for $20,000 which bears
interest at a rate which changes daily based on money market
rates. At June 30, 1994, the interest rate on combined
borrowings was 5.63 percent per annum. The carrying value of the
Company's bank loans approximates fair value, which was estimated
based upon the current rates offered to the Company for debt with
similar remaining maturities.
8. Stockholders' Equity
Authorized capital consisted of 90,000,000 shares of common stock
and 10,000,000 shares of preferred stock, both having $0.01 par
value per share. As of June 30, 1994 and 1993, there were
30,250,000 shares of common stock and no shares of preferred
stock outstanding. During 1992, the Company recorded a $5,000
charge to paid-in capital as its share of the settlement of the
shareholders' litigation.
Under the Company's stock option plan, as amended,
3,900,000 shares of common stock were reserved for issuance to
officers and key employees at June 30, 1994. Options are granted
at the fair market value of the stock at the date of grant. The
options become exercisable beginning three years from and expire
ten years from date of grant.
A summary of the stock option activity is presented as follows:
[Download Table]
Price Range Number of Shares
Outstanding June 30, 1991 $5.63 - 12.50 871,500
Granted 6.88 - 9.25 498,000
Canceled 6.00 - 12.50 (38,000)(1)
Outstanding June 30, 1992 $5.63 - 12.50 1,331,500
Granted 4.88 - 7.31 1,020,500
Canceled 6.00 - 12.50 (55,500)(1)
Outstanding June 30, 1993 $4.88 - 12.50 2,296,500
Granted 5.13 - 6.44 528,500
Canceled 5.75 - 12.50 (293,000)(1)
Outstanding June 30, 1994 $4.88 - 12.50 2,532,000
Exercisable June 30, 1994 $5.63 - 12.50 744,000
(1)Cancelations result from employees' termination.
9. Geographic Area Information
The Company operates in one industry segment which includes
design, manufacture and distribution of typewriters, personal
word processors and related accessories. The Company also
manufactures and markets forms and customized printed products.
The Company manufactures its products principally at its
facilities located in Mexico and Singapore and distributes its
products through a variety of distribution channels, domestically
and internationally. Information regarding the Company's
operations in different geographic locations is shown below:
[Download Table]
For the year ended June 30,
(In thousands) 1994 1993 1992
Net sales to customers:
United States $232,869 $217,782 $249,732
Singapore 4,950 6,365 33,677
Other Foreign 40,817 29,676 33,332
Total $278,636 $253,823 $316,741
Inter-area transfers:
United States $22,033 $16,728 $18,869
Singapore 72,193 73,210 94,549
Other Foreign 7,398 1,081 -
Total $101,624 $91,019 $113,418
Operating income (loss):
United States $17,434 $(2,486) $22,056
Singapore 5,422 4,274 24,460
Other Foreign (7,295) (11,477) (6,327)
Corporate (5,617) (5,270) (5,687)
Eliminations (27) 2,605 (1,817)
Total $9,917 $(12,354) $32,685
Identifiable assets:
United States $133,845 $138,484 $126,834
Singapore 26,250 34,960 42,042
Other Foreign 34,939 18,523 16,419
Total $195,034 $191,967 $185,295
Transfers between geographic areas are generally priced to
recover cost plus an appropriate markup for profit. In fiscal
1994, the Company presented its geographic information based on
revenues derived from geographic locations; 1993 and 1992 data
have been restated to reflect this change in presentation.
Sales to one of the Company's largest customers amounted to
11.4%, 11.4% and 6.0% of consolidated net sales during 1994, 1993
and 1992, respectively, and was the only customer responsible for
more than 10% of net sales.
10. Pension Plans and Postretirement Benefits
The plans covering salaried employees generally provide 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 consecutive years
of service before retirement. Plans covering hourly employees
generally provide benefits of stated amounts for each year of
service. The Company's funding policy is to make annual
contributions in an amount which is not less than that required
by the Internal Revenue Service regulations.
The net periodic pension cost for the years ended June 30,
1994, 1993 and 1992 is comprised of the following components:
[Download Table]
(In thousands) 1994 1993 1992
Service cost $1,979 $1,829 $1,075
Interest cost 5,396 5,278 5,009
Return on plan assets:
Actual 143 (5,863) (6,871)
Unrecognized (gain) loss (5,687) 516 1,754
Amortization of deferred
costs and actuarial (gains)
and losses (494) (676) (430)
Pension cost $1,337 $1,084 $ 537
The assumptions used in the development of these amounts were:
[Download Table]
1994 1993 1992
Discount rate 8.00% 8.50% 8.50%
Rates of increase in
compensation levels 5.50% 5.75% 5.75%
Rate of return on
plan assets 9.25% 9.25% 9.25%
The following tables set forth the funded status and amounts
recognized in the Company's consolidated balance sheets:
[Download Table]
June 30, 1994
Over- Under-
Funded Funded
(In thousands) Plans Plans Total
Actuarial present value
of benefit obligation:
Vested benefit obligation $33,796 $30,898 $64,694
Accumulated benefit obligation $34,783 $31,311 $66,094
Projected benefit obligation $39,727 $31,951 $71,678
Market value of assets
(principally publicly traded
securities) 34,812 26,869 61,681
Funded status 4,915 5,082 9,997
Unrecognized gains 5,207 5,157 10,364
Net accrued pension liability $10,122 $10,239 $20,361
[Download Table]
June 30, 1993
Over- Under-
Funded Funded
(In thousands) Plans Plans Total
Actuarial present value of
benefit obligation:
Vested benefit obligation $34,145 $28,767 $62,912
Accumulated benefit obligation $35,730 $28,963 $64,693
Projected benefit obligation $41,151 $28,963 $70,114
Market value of assets
(principally publicly traded
securities) 38,816 26,466 65,282
Funded status 2,335 2,497 4,832
Unrecognized gains 9,351 6,856 16,207
Net accrued pension liability $11,686 $9,353 $21,039
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 $733, $938 and $901 for
the years ended June 30, 1994, 1993 and 1992, respectively.
The Company has a non-qualified supplemental pension plan
covering certain employees which provides for incremental pension
payments from the Company's funds. The net accrued pension
liability related to the unfunded plan was $1,458 and $1,034 at
June 30, 1994 and 1993, respectively. Pension expense for the
plan was $450, $260 and $120 in fiscal 1994, 1993 and 1992,
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.
Summary information on the Company's postretirement benefit
plans, which are unfunded, is as follows:
[Download Table]
Year ended June 30,
(In thousands) 1994 1993
Financial status of plans:
Accumulated postretirement
benefit obligation (APBO):
Retirees $ 6,135 $ 6,273
Fully eligible, active
plan participants 3,142 3,660
Other active plan
participants 2,411 2,770
Unrecognized gains 962 -
Accrued postretirement
benefit cost $12,650 $12,703
The components of net periodic postretirement benefit
cost are as follows:
[Download Table]
Year ended June 30,
(In thousands) 1994 1993
Service cost, benefits attributed to
employee service during the year $ 202 $ 216
Interest cost on accumulated
postretirement benefit obligation 904 956
Amortization of gains (17) -
Net periodic postretirement benefit
cost $1,089 $1,172
In 1992, the Company expensed $750, representing the amount
of claims paid.
The discount rate used in determining the APBO was 8.0% in
1994 and 1993. The assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation was
11% in 1994 and 12% in 1993, declining to an ultimate rate of 6%
over approximately sixty years.
If the health care cost trend rate assumptions were
increased by 1%, the APBO as of June 30, 1994 would be increased
by 3%. The effect of this change in health care cost trend rates
on net periodic postretirement benefit cost of 1994 would be an
increase of 15%.
11. Discontinued Operations
On July 5, 1994 the Company sold substantially all the assets and
liabilities of SCM Office Supplies, Inc., a wholly-owned
subsidiary. The sale proceeds of approximately $13,000 were used
to reduce the Company's debt. Accordingly, the income statements
reflect SCM Office Supplies, Inc. operating results and provision
for loss on sale as discontinued operations and the balance sheet
segregates the net assets of discontinued operations.
Net assets and summary operating results of discontinued
operations are as follows:
[Download Table]
June 30,
(In thousands) 1994 1993
Current assets $12,902 $13,221
Non-current assets 7,521 8,301
Total liabilities (5,643) (5,938)
Net assets $14,780 $15,584
[Download Table]
Year ended June 30,
(In thousands) 1994 1993 1992
Net sales $68,045 $59,791 $60,684
Income (loss) from operations
before income taxes $ 1,893 $(1,115) $ 1,221
Income taxes (benefit) 644 (390) 391
Net income (loss) from
operations 1,249 (725) 830
Provision for loss on
disposal of assets (net
of taxes of $297) (2,200) - -
Net income (loss) $ (951) $ (725) $ 830
12. Income Taxes
The components of income (loss) from continuing operations
before income taxes are as follows:
[Download Table]
Year ended June 30,
(In thousands) 1994 1993 1992
United States $4,218 $(15,527) $6,914
Foreign 4,991 2,756 24,340
Total $9,209 $(12,771) $31,254
The components of income tax expense consist of:
[Download Table]
Year ended June 30,
(In thousands) 1994 1993 1992
United States:
Current $ 203 $ 274 $ 3,196
Deferred 1,339 (4,948) 3,226
Foreign 165 934 2,996
State 1,771 (1,124) 974
Total $3,478 $(4,864) $10,392
Income tax expense is included in the financial statements as
follows:
[Download Table]
Year ended June 30,
(In thousands) 1994 1993 1992
Continuing operations $3,131 $(4,474) $10,001
Discontinued operations 347 (390) 391
Total $3,478 $(4,864) $10,392
The components of the net deferred tax assets were as follows:
[Download Table]
June 30,
(In thousands) 1994 1993
Deferred tax assets:
Accounts receivable $ 1,226 $ 1,399
Inventory 749 788
Postretirement benefits
other than pensions 4,828 4,954
Pension 7,688 8,205
Manufacturing relocation
to Mexico 1,580 4,593
Other liabilities 6,959 5,568
Net operating loss carryforwards 12,124 7,289
Capital loss carryforwards 10,955 -
Miscellaneous 7 396
Valuation allowances (21,320) (5,650)
Total deferred tax assets $24,796 $27,542
Deferred tax liabilities:
Property, plant and equipment $3,240 $3,279
Miscellaneous 6,954 7,861
Total deferred tax liabilities 10,194 11,140
Net deferred tax assets $14,602 $16,402
The valuation allowances pertain to foreign and state net
operating loss carryforwards and capital loss carryforwards that
are not expected to be realized.
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:
[Download Table]
Year Ended June 30,
(In thousands) 1994 1993 1992
Income (loss) from continuing
operations before income taxes $9,209 $(12,771) $31,254
Statutory tax rate 34% 34% 34%
Tax computed at statutory rate 3,131 (4,342) 10,626
Increase (reduction):
State income taxes,
net of federal benefit 901 (687) 582
Effect of foreign earnings (991) 481 (1,188)
Other adjustments 90 74 (19)
Total $3,131 $(4,474) $10,001
The Company's Singapore operations had been granted
"pioneer tax status" until February 1994 by the Singapore
government and, as a result, have paid no Singapore taxes on
unremitted Singapore earnings to that date. The impact of the
change in status was not significant in fiscal 1994. No U.S.
federal income taxes have been provided on unremitted foreign
earnings of approximately $55,526 at June 30, 1994 because such
earnings are considered to be permanently invested. The amount
of income tax payable upon the remittance of such earnings is not
practicable to determine.
The U.S. income tax returns prior to 1986 have been
examined by the Internal Revenue Service and all matters have
been settled.
13. Commitments and Other Matters
Certain past practices of the Company regarding hazardous
substances and/or hazardous wastes are the subject of
investigation by federal and state regulatory authorities, or are
the subject of lawsuits filed by such authorities. At June 30,
1994 and 1993, the Company has recorded approximately $3,274 and
$4,970, respectively, related to environmental matters, of which
$606 and $2,500, respectively, are classified as a current
liability in the consolidated balance sheets. Certain estimated
costs of performing environmental remediation were discounted at
a rate of 5% per annum based on the estimated timing of such
payments. Because of the uncertainties associated with assessing
environmental matters, the related ultimate liability is not
determinable. However, based on facts presently known,
management does not believe that these investigations or
lawsuits, if resolved adversely to the Company, would
individually or in the aggregate have a material adverse effect
on the Company's financial position or results of operations.
The Company is involved in proceedings with the New York
Department of Environmental Conservation (DEC) and the United
States Environmental Protection Agency regarding the clean-up of
a now-closed manufacturing facility and certain waste disposal
sites in upstate New York. The remedial investigation and
feasibility study of the now-closed manufacturing facility site
has been completed. The feasibility study report has been
approved by the DEC and the record of decision has been
finalized. On March 31, 1993, the Company executed a final
signed consent order from the DEC and remedial actions commenced.
Remediation activities at the site have been delayed as a result
of an extension of the public comment period to address the
remediation plan approved by the DEC. Management believes that
the Company has made adequate provision for the approved
remediation activities.
In June 1992, the Company was served with a summons and
complaint in a private contribution action. The action, which
lists the Company as a defendant with fourteen other defendants,
seeks contribution for response costs incurred to date, and to be
incurred in the future, for the remediation of a site in
Cortland, New York. Management does not believe it disposed of
any hazardous substances at this site and is vigorously
contesting this matter.
On April 18, 1991, an antidumping proceeding was
commenced against the Company at the Department of Commerce
(Commerce) and before the International Trade Commission,
concerning portable electric typewriters imported from Singapore.
Subsequently, on June 22, 1993, the Company and Commerce signed a
suspension agreement, suspending the antidumping investigation
and calling for the Company to monitor its international prices.
On February 4, 1994, all of the parties signed a settlement
agreement covering the antidumping investigation and related
litigation. Under the terms of the agreement, the petitioner
withdrew its petition against the Company's Singapore imports and
the Company sought revocation of various antidumping duty orders
against typewriters and word processors from Japan. Pursuant to
the agreement, the antidumping proceedings have been terminated.
On June 8, 1990, the Company filed suit in the United
States District Court for the District of Tennessee against
Pelikan, Inc. alleging patent infringement and false advertising.
On February 24, 1992, the Court entered a judgment awarding the
Company approximately $3,120 plus post-judgment interest.
Pelikan filed an appeal, petitioning for a rehearing by the Court
of Appeals, and subsequently offered to pay to the Company a
portion of the judgment aggregating approximately $1,900. The
$1,900 portion of the judgment was reflected in the June 30, 1993
financial statements. Pelikan's petition for rehearing was
subsequently denied and on August 9, 1993, the Company and
Pelikan entered into an agreement pursuant to which Pelikan
agreed to pay $525 to the Company for fees, expenses and costs
incurred in the suit along with the remaining $1,220 judgment.
On August 11, 1993, Pelikan paid the settlement amount to the
Company and satisfied the judgment, including interest.
The Company is also a defendant or plaintiff in various
other legal actions which have arisen in the ordinary course of
its business. It is the opinion of management, based on advice
of counsel with respect to legal matters, that the ultimate
resolution of these matters and the environmental matters
discussed above will not have a material adverse effect on the
Company's financial position or results of operation.
14. Restructuring Costs
Over the past few years, the Company has faced intense
competition from foreign producers. In July 1992, in order to
maintain its leadership as the low-cost producer in a highly
competitive worldwide business, the Board of Directors approved
and the Company announced a plan to phase out the Company's
manufacturing operations in Cortland, New York and relocate them
to a new facility in Mexico. As a result of this decision,
during fiscal 1993, the Company provided $16,500 in restructuring
charges, of which approximately $3,000 was non-cash in nature (see
table below). Once the Mexico facility is fully operational, this
action is expected to result in lower manufacturing costs of
approximately $15,000 annually, primarily due to lower labor costs
in Mexico.
The fiscal 1993 restructuring provision consisted of the
following items:
[Download Table]
Asset
Redeployment Asset Other
Severance Costs Impairments Costs Total
Provision $8,300 $3,300 $3,000 $1,900 $16,500
Activity(1) (1,050) (1,150) (621) (1,900) (4,721)
June 30, 1993 balance 7,250 2,150 2,379 - 11,779
Activity(1) (3,945) (2,150) (1,552) - (7,647)
June 30, 1994 balance $3,305 $ - $ 827 $ - $4,132
(1) Represents cash payments, except for the asset impairments, which are
non-cash items
The severance cost related to approximately 875 employees
at the Cortland facility. Severance benefit arrangements that
would be available to employees whose positions were eliminated
were communicated through a Company memorandum to all Cortland,
N.Y. employees when the restructuring action was adopted and
announced in July 1992. By the end of June 1994 all affected
individuals had been terminated.
The charge for asset redeployment costs consisted
primarily of incremental personnel costs, travel and lodging for
39 employees responsible for the set-up and establishment of the
equipment in the Mexican facility. The employees responsible for
the set-up and establishment were notified of their termination
and subsequent temporary duty assignment. As a consequence of
management's decision, the value of certain assets which were
used in the Cortland manufacturing process became impaired and
such impairment was included in the restructuring charge. Other
costs, which were expensed as incurred, consisted of incremental
costs associated with the site selection and outside consulting
fees.
The relocation plan, originally anticipated to take
approximately one year to complete, was delayed as a consequence
of heavy spring 1993 rainfall in Baja California together with a
reevaluation of lease versus purchase of the facility. By the
end of fiscal 1994, the Company had essentially completed the
relocation. The annual savings resulting from the restructuring
originally anticipated in 1994 were not realized as cost of sales
continued to reflect the higher Cortland manufacturing labor
costs. At June 30, 1994 there remained approximately $4.1
million in accrued restructuring costs, primarily employee-
associated costs payable within the next year.
15. Quarterly Financial Data (Unaudited)(1)
[Enlarge/Download Table]
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
September 30, December 31, March 31, June 30,
(In thousands) 1993 1992(2) 1993 1992(2) 1994 1993(2) 1994 1993(2)
Net sales $76,271 $68,140 $78,845 $75,629 $65,273 $61,028 $58,247 $49,026
Gross margin 19,775 17,972 16,368 22,300 14,518 15,800 13,895 9,995
Operating income (loss) 6,085 (6,292) 1,969 5,466 1,038 1,177 825 (12,705)
Income (loss) from
continuing operations 3,885 (4,684) 1,188 4,212 598 704 407 (8,529)
Discontinued operations
(net of income taxes):
Income (loss) from
operations 142 (414) 356 (165) 789 85 (38) (231)
Provision for loss on
disposal of
discontinued operations - - - - - - (2,200) -
Net income (loss) $4,027 $(5,098) $1,544 $4,047 $1,387 $789 $(1,831)$(8,760)
Earnings per common
share(3):
Income (loss) from
continuing operations $.13 $(.16) $.04 $.14 $.02 $.02 $.01 $(.28)
Discontinued operations:
Income (loss) from
operations - (.01) .01 (.01) .03 .01 - (.01)
Provision for loss on
disposal of
discontinued
operations - - - - - - (.07) -
Net income (loss) per
share $.13 $(.17) $.05 $.13 $.05 $.03 $(.06) $(.29)
(1) Amounts have been reclassified, where applicable, to reflect the
discontinued operations of SCM Office Supplies, Inc.
(2) Includes restructuring costs of $9,000, $460, $830 and $6,210 for
the first, second, third and fourth quarters, respectively.
(3) Based on 30,250,000 shares of common stock.
INDEPENDENT AUDITORS' REPORT
Smith Corona Corporation:
We have audited the accompanying consolidated balance
sheets of Smith Corona Corporation and subsidiaries as of June 30,
1994 and 1993 and the related consolidated income statements,
statements of changes in stockholders' equity and statements of
cash flows for each of the three years in the period ended June 30,
1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audits 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, 1994 and 1993
and the results of their operations and their cash flows for each
of the three years in the period ended June 30, 1994 in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Stamford, Connecticut
July 27, 1994
Dates Referenced Herein and Documents Incorporated by Reference
↑Top
Filing Submission 0000851292-94-000023 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Sat., Apr. 27, 6:11:59.1am ET 
