Document/Exhibit Description Pages Size
1: 10-K Annual Report 84± 410K
2: EX-2 Plan of Acquisition, Reorganization, Arrangement, 388± 1.56M
Liquidation or Succession
3: EX-10 Material Contract 2 12K
4: EX-10 Material Contract 2 10K
5: EX-10 Material Contract 3 8K
6: EX-10 Material Contract 45± 188K
7: EX-10 Material Contract 7± 28K
8: EX-10 Material Contract 10± 42K
9: EX-21 Subsidiaries of the Registrant 1 7K
10: EX-23 Consent of Experts or Counsel 1 6K
11: EX-27 Financial Data Schedule (Pre-XBRL) 1 8K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
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.)
65 Locust Avenue, New Canaan, Connecticut 06840
(Address of principal executive offices)(Zip Code)
(203) 972-1471
(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,
$.01 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 Annual Report or any
amendment to this Form 10-K Annual Report. [ ]
The aggregate market value of the voting stock
of the registrant held by non-affiliates of the
registrant as of September 4, 1996: $1,102,424 (Such amount has
been computed as described in "Market for Registrant's
Common Equity and Related Stockholder Matters.")
Number of shares of Common Stock outstanding as of September 4, 1996:
30,250,000 shares.
Documents Incorporated by Reference
Document Part of Form 10-K
None.
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Item 1. Business. . . . . . . . . . . . . . . . . . . . . .1
General. . . . . . . . . . . . . . . . . . . . . . . .1
Restructuring and Bankruptcy Reorganization. . . . . .1
Recent Changes in Senior Management. . . . . . . . . .4
History of the Business. . . . . . . . . . . . . . . .5
Products . . . . . . . . . . . . . . . . . . . . . . .6
Marketing, Sales and Distribution. . . . . . . . . . .6
Service. . . . . . . . . . . . . . . . . . . . . . . .8
Seasonality. . . . . . . . . . . . . . . . . . . . . .8
Manufacturing Operations . . . . . . . . . . . . . . .8
Competition. . . . . . . . . . . . . . . . . . . . . 10
Patents, Trademarks and Licenses . . . . . . . . . . 10
Employees. . . . . . . . . . . . . . . . . . . . . . 10
Research and Development . . . . . . . . . . . . . . 11
Raw Materials. . . . . . . . . . . . . . . . . . . . 11
Item 2. Properties. . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . 12
Automatic Stay of Litigation Due to Bankruptcy . . . 12
Description of Legal Proceedings . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . 15
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters .................................15
Item 6. Selected Financial Data . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition. . . . . 18
Item 8. Financial Statements and Supplementary Data . . . 26
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . 26
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 10. Directors and Executive Officers of the
Registrant. . . . . . . . . . . . . . . . . . . 27
Item 11. Executive Compensation . . . . . . . . . . . . . 31
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . 39
Item 13. Certain Relationships and Related Transactions . 39
Stockholders Agreement . . . . . . . . . . . . . . . 40
Cross-Indemnification Agreement. . . . . . . . . . . 40
Tax Sharing Agreement. . . . . . . . . . . . . . . . 41
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . 42
Index to Consolidated Financial Statements and Financial
Statement Schedule. . . . . . . . . . . . . . . . . 51
PART I
Item 1. Business
The Company
General
Smith Corona Corporation (the "Company") designs, manufactures
and sells portable and compact electronic typewriters, personal
word processors and related accessories and supplies. These
products are generally used in the home, at school and in small
offices. The Company also sells facsimile machines, laminators,
calculators and labelers.
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 current business of the
Company and businesses in the chemical, paper and food
industries. Although Hanson owned the businesses of the Company
through various subsidiaries, the typewriter and personal word
processor operations were managed as an integrated business. 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 "Common Stock"), in the United States and abroad (the
"Offerings"). In connection with the Offerings, Hanson initiated
a series of transactions to combine the electronic typewriter,
personal word processor and office supplies business under a
single parent entity being the Company.
Restructuring and Bankruptcy Reorganization
Over the past few years, the Company has faced intense
competition from foreign producers. On May 8, 1995 the Company
announced a major restructuring plan whereby the Company's
typewriter manufacturing would be relocated from its Singapore
and Batam Island, Indonesia facilities to its Mexico facility
(the "Restructuring"). This action resulted in the termination
of approximately 1,300 workers in Singapore and Batam Island.
Original expectations were to replace these workers with
approximately 600 workers in Mexico which would have resulted in
approximately $10 million pretax annual savings, primarily
through lower labor costs as well as the greater utilization of
the Mexico facility. However, due to lower than expected
volumes, fewer replacement workers have been hired. The Company
ceased production in Singapore and Batam Island, Indonesia in
November 1995, and relocated equipment to Mexico where typewriter
production commenced in December 1995. The Company sold certain
of its Singapore machinery and equipment for proceeds of
approximately $2.3 million resulting in a loss of approximately
$1.5 million which was accrued as part of the Restructuring.
Additionally, the Company sold its Singapore facility and the
underlying land lease on February 8, 1996 for net proceeds of
approximately $21.0 million. The sale of the facility resulted
in a pretax gain of approximately $17.8 million.
In addition to the relocation of typewriter manufacturing to
Mexico, the Company also eliminated approximately 180 support
positions within research and development, finance, service,
distribution, selling and marketing areas in both its Cortland,
New York and New Canaan, Connecticut locations. Approximately
$10.0 million in additional annual pretax savings were expected
from elimination of these support positions. These reductions
were completed by the end of the first quarter of the fiscal year
ended June 30, 1996 ("Fiscal 1996") and resulted in a pension
curtailment gain of approximately $1.5 million.
With the Company experiencing sales declines and operating
losses, having obtained extended payment terms from trade
vendors, and needing additional financing to meet operating
requirements and fund the Restructuring, the Company filed a
voluntary petition for reorganization under Chapter 11 of Title
11 of the United States Code (the "Bankruptcy Code") in the
United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court") on July 5, 1995 (the "Petition Date"). The
Company's management has continued to manage the operations and
affairs of the Company as debtor-in-
possession, subject to the jurisdiction of the Bankruptcy Court.
Consequently, certain actions of the Company during the pendency
of the bankruptcy proceedings including, without limitation,
transactions outside of the ordinary course of business, are
subject to the approval of the Bankruptcy Court.
Prior to August 18, 1995, the bankruptcy proceedings did not
include any of the subsidiaries of the Company. On August 18,
1995, three of the Company's wholly-owned but nonoperating
subsidiaries, SCM Office Supplies, Inc., SCC LI Corp. (formerly
known as Histacount Corporation), and Hulse Manufacturing Company
(such subsidiaries being hereinafter collectively referred to as
the "Nonoperating Subsidiaries"), filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code. The
bankruptcy proceedings of the Nonoperating Subsidiaries are being
jointly administered with the Company's bankruptcy case. Prior to
the filing, substantially all of the assets of each of the
Nonoperating Subsidiaries had been sold; however, each
Nonoperating Subsidiary retains certain residual liabilities.
The Company's other wholly-owned subsidiaries (including its
international subsidiaries) are not included in the bankruptcy
proceedings. The Company is generally unable to provide direct
financial support outside of the normal course of business to
such other subsidiaries without Bankruptcy Court approval. The
Company obtained a debtor-
in-possession revolving line of credit of up to $24.0 million
through June 30, 1996 and $10.0 million through September 30,
1996 to finance operations and restructuring activities during
the bankruptcy reorganization.
On September 9, 1996, the Company filed its Third Amended Second
Joint Plan of Reorganization (the "POR") 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 POR. The Court approved the
following schedule, as amended, for the Company's events:
September 16, 1996, mailing of notices and solicitation materials
to eligible creditors; October 18, 1996, administrative claims
bar date for claims that occurred on or before August 16, 1996;
October 18, 1996 (4:30 P.M., Prevailing Eastern Time), deadline
for receipt of all ballots; October 31, 1996, confirmation
hearing in Wilmington, Delaware.
The POR is subject to Bankruptcy Court approval. The following
is a brief summary of the POR. For a more complete description
of the POR, please refer to the document as filed as an exhibit
hereto.
Under the POR, the Company intends to satisfy all allowed general
unsecured claims through the distribution of cash of
approximately $10.8 million and 85% of the reorganized company's
common stock to holders of such claims. The Company intends to
satisfy all allowed claims senior to allowed general unsecured
claims by the payment in full in cash or notes (as provided for
by the Bankruptcy Code), or the assumption of all such claims.
In addition, allowed convenience class claims (general unsecured
claims of one thousand five hundred dollars or less) shall
receive payment in cash in an amount equal to 60% of the amount
of such claim. Finally, the POR cancels all Common Stock of the
Company and provides shareholders with warrants to purchase one
share of common stock in the reorganized company for each ten
shares of Common Stock of the Company.
Under the POR, the reorganized company would significantly
expand its product line, primarily by sourcing new products from
outside manufacturers. Such sourcing may, over time, include
entering into strategic alliances with third parties to provide
products or services. In that respect, the reorganized company
would focus its efforts on forging alliances with foreign
companies having technologically advanced office products but
which presently do not have a substantial United States market
share or market presence and are intent on building or increasing
market share by selling their products under the well known
"Smith Corona" name. The reorganized company intends to rely on
its existing distribution network to become a leading vendor of
technologically advanced office products manufactured abroad.
Further, the reorganized company intends to continue to focus on
its core business of manufacturing and distributing its current
product line of typewriters and personal word processors to
satisfy continuing worldwide demand for these products.
On an operational level, initially the reorganized company will
continue its business on a global basis with manufacturing
operations in Mexico and sales and marketing operations in the
United States and certain international markets. The
reorganized company's Mexico facility plans to also provide
contract manufacturing services to other equipment manufacturers
("OEMs") on a cost plus basis thereby providing a contribution
towards manufacturing overhead expenses. Ideally, prospective
OEMs may also form the basis for new product strategic alliances.
An administrator was appointed on August 2, 1995 for the
Company's wholly-owned subsidiary in Australia. The
Administrator was appointed as Liquidator on August 29, 1995.
Due to the liquidation, the Australian subsidiary's assets,
liabilities and operating results were removed from the
consolidated financial statements as of August 2, 1995 and the
Company has recorded an estimated loss on liquidation of
approximately $.7 million in Fiscal 1996. The Company has
established a distributor relationship and is currently exploring
other potential distributor relationships in the Australian
market for the purpose of maintaining its distribution capacity.
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."
Recent Changes in Senior Management
On March 24, 1995, G. Lee Thompson, then Chairman and Chief
Executive Officer of the Company, retired and was replaced by
Robert Van Buren, a member of the Board of Directors. Effective
June 3, 1995, Mr. Van Buren was elected President, succeeding
William D. Henderson upon his termination. On July 1, 1995,
Ronald F. Stengel was elected President and Chief Executive
Officer of the Company, succeeding Mr. Van Buren in those
positions only. Also on July 1, 1995, Mr. Stengel and Mr. Thomas
A. Cawley were elected to the Company's Board of Directors. On
July 26, 1995, Mr. Cawley was elected Vice
President/Administration of the Company.
Thomas C. DeFazio, Executive Vice President and Chief Financial
Officer of the Company, and Manfred E. Eckhardt, Vice President
and Treasurer of the Company, retired effective March 31, 1995
and June 30, 1995, respectively. Succeeding Mr. DeFazio, John A.
Piontkowski was elected Vice President/Finance and Controller of
the Company on March 28, 1995. Mr. Piontkowski held these
positions until June 21, 1995, when he was elected Senior Vice
President, Chief Financial Officer and Treasurer of the Company.
Mr. Piontkowski relinquished his Treasurer position on May 16,
1996. On July 26, 1995, Martin D. Wilson was elected Controller,
succeeding Mr. Piontkowski. Mr. Wilson was elected Vice
President and Controller on May 15, 1996. On the same date, Gary
J. Lynch was elected Vice President and Treasurer. In October,
1995, Robert Riddell, Vice President/Marketing, resigned. On
November 22, 1995, Doris J. McRae, Vice President/Product
Development, resigned. W. Michael Driscoll, Vice President of
Operations and Engineering, resigned effective December 15, 1995.
On January 26, 1996, Michael W. Chernago was elected Vice
President/Operations, James B. McCormick was elected Vice
President/Supplies Division, Eric J. Cleveland was elected Vice
President/West Coast Operations, Anthony A. Bartolone was
elected Vice President/Engineering and Anthony V. Giordano was
elected Vice President/Taxes. In March, 1996, Mark A. Alexander
resigned as a Director, Anthony A. Bartolone resigned as Vice
President/Engineering, and Anthony V. Giordano resigned as Vice
President/Taxes.
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 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,
between 1984 and 1986 the Company developed and implemented a
major business restructuring of its typewriter operations which
resulted in substantially reduced manufacturing costs, a
streamlined product line, a 50% reduction in worldwide employment
and the consolidation of certain of its United States operations.
In 1985, the Company developed and introduced the industry's
first personal word processors, and, in 1989, the Company
introduced the industry's first laptop personal word processor.
In mid-1992, Hulse Manufacturing Company ceased to do business as
a going concern and closed its plant and manufacturing
facilities. The building which housed Hulse's operations was
sold in late 1992 in a liquidating sale. Prior to its
liquidation, Hulse had manufactured typeface for typewriters and
mechanical printing devices.
On July 5, 1994 and November 4, 1994 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, gain (loss) on sale and net assets and liabilities
related to SCM Office Supplies, Inc. and Histacount are presented
as discontinued operations in the consolidated financial
statements (see Consolidated Financial Statements in this Form
10-K Annual Report). Business operations of these two entities
primarily consisted of the manufacture and distribution of office
supplies and customized printed products, respectively. As a
result of these dispositions, the Company currently consists of
one business segment -- the design, manufacture and distribution
of typewriters, personal word processors and related accessories.
On May 8, 1995, the Company announced the Restructuring and on
July 5, 1995, the Company filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code. On
September 9, 1996, the Company filed its Third Amended Second
Joint 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 POR. The POR is subject to the Bankruptcy
Court approval. See "Business --
Restructuring and Bankruptcy Reorganization" and "Management's
Discussion and Analysis of Results of Operations and Financial
Condition."
Products
The Company currently designs, manufactures and sells, both
domestically and internationally, portable and compact electronic
typewriters, personal word processors and related accessories and
supplies for use in the home, at school and in small offices.
The Company focuses its design and development of these products
on the major desires of purchasers: ease of use and incorporation
of monitors or displays, as well as a full array of word
processing features, including dictionary spell checkers and
grammar features. The Company's market base of typewriters and
personal word processors results in its accessories and supplies
business.
During the fiscal year ended June 30, 1994 ("Fiscal 1994"), the
Company broadened its product line by selling facsimile machines,
laminators, calculators and labelers, all of which are designed
for use at home, at school and in small offices.
The only products or classes of similar products that accounted
for 10% 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 38.1%, 39.7% and
40.6% of net sales in the fiscal years ended June 30, 1996, 1995
and 1994, respectively, and (ii) personal word processors, which
accounted for 21.8%, 34.5% and 37.1% of net sales in the fiscal
years ended June 30, 1996, 1995 and 1994, respectively.
Marketing, Sales and Distribution
In the United States, the Company advertises, markets and
promotes its electronic typewriters and personal word processors
through national print media, both consumer and trade.
Advertisements focus on the key features and benefits of the
various product lines. 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 Company field-based
marketing support representatives.
In the United States, the Company distributes its products
through more than 8,000 outlets in all major channels of
distribution, including (i) national retail chain stores, such as
Montgomery Ward, Sears and Wal-Mart; (ii) warehouse clubs, such
as Price CostCo., Sam's and BJ Wholesale; (iii) catalog
merchandisers, such as Service Merchandise; (iv) national
television and appliance dealers, such as Lechmere and Nobody
Beats the Wiz; (v) office superstores, such as Office Depot,
Inc., Office Max and Staples; (vi) office equipment dealers;
(vii) regional discount stores, such as FedCo and Caldor; and
(viii) the 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.
From time to time, the Company offers various derivative product
lines for each of its major channels of distribution, and
supplies private label products and private brand products (which
identify only the retailer brand name).
The Company also conducts sales activities in Canada, the United
Kingdom, Australia (through August 2, 1995), the Benelux
countries, France, Germany and in 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. In other international markets, the Company currently
has approximately 42 distributors serving the Australia (after
August 2, 1995), Far East, Latin America, Europe and Caribbean
markets. Reference is made to Note 9 to the Consolidated
Financial Statements (see 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. Office Depot
Inc. and Wal-Mart
Stores, Inc., two of the Company's largest customers, were
responsible for 12.5% and 10.1%, respectively, of consolidated
net sales in the year ended Fiscal 1996. These two customers
were the only customers responsible for more than 10% of net
sales. Substantially all of the Company's sales are to customers
who are not affiliated with the Company.
Service
The Company's typewriter and personal word processor products are
serviced in the United States by a Smith Corona factory service
center located in Cortland, New York and at approximately 400
factory-appointed service stations. 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 Christmas and school graduation
seasons.
Manufacturing Operations
The Company's foreign manufacturing operations were located in
Mexico, Singapore and Indonesia. Over the past few years, the
Company has faced intense competition from foreign producers.
Consequently, the Company announced a major Restructuring on May
8, 1995 pursuant to which the Company's typewriter manufacturing
would be relocated from its Singapore and Batam Island, Indonesia
facilities to its Mexico facility. Upon completion of the
Restructuring, Mexico became the only site for Company
manufacturing operations. The Company ceased production in
Singapore and Batam Island as of mid-November 1995, and completed
the process of relocating certain equipment to Mexico where
typewriter production commenced in December, 1995.
The Company placed its Singapore facility and the underlying land
lease up for sale following the Petition Date. The sale of the
Singapore facility, including the leasehold interest of the
Company's wholly-owned Singapore subsidiary, Smith Corona Private
Limited, to ST Computer Systems and Services Limited, a
subsidiary of Singapore Technologies Inc., took place on February
8, 1996. The Singapore sale resulted in net proceeds to the
Company of approximately $21.0 million and resulted in a Fiscal
1996 pretax gain for the Company of approximately $17.8 million.
The Batam Island facility lease expired December 26, 1995. In
addition, all manufacturing equipment at the Singapore and Batam
Island facilities which was not transferred to Mexico, was sold
resulting in proceeds of approximately $2.3 million resulting in
a loss of approximately $1.5 million.
The Restructuring resulted in the termination of approximately
1,300 workers in Singapore and Batam Island. Original
expectations were to replace these workers with approximately 600
workers in Mexico, which was expected to result in approximately
$10.0 million pretax annual savings, primarily through lower
labor costs and greater utilization of the Mexico facility.
However, due to lower than expected volumes, fewer replacement
workers have been hired.
In addition to the relocation of the typewriter manufacturing to
Mexico as a part of the Restructuring, the Company also
eliminated approximately 180 support positions within research
and development, finance, service, distribution, selling and
marketing areas in the Company's Cortland, New York and New
Canaan, Connecticut locations. Approximately $10.0 million in
additional annual pretax savings were expected from elimination
of these support positions. These reductions were completed by
the end of the first quarter of Fiscal 1996.
As a result of these actions, the Company recorded a pretax
charge of approximately $14.9 million in the fourth quarter of
the fiscal year ended June 30, 1995 ("Fiscal 1995"), of which
approximately $1.9 million represented primarily non-cash
machinery and equipment asset write-offs, and the remainder
related to employee severance. Additionally, approximately $1.6
million of pretax costs (originally estimated to be approximately
$6.0 million), primarily relating to the shutdown of Singapore
operations were recognized as charges to operations as incurred
during Fiscal 1996 as they do not qualify as restructuring costs.
In July 1992, in an effort to maintain its position as a 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. The Company
implemented this relocation plan in phases. In early 1993,
assembly line operations were moved from Cortland to a temporary
location in Mexico, while site selection activities for a
permanent facility were progressing. The original estimate for
completion of the relocation was one year; heavy spring rainfall
in 1993 and the Company's reevaluation of whether to lease or
purchase a facility, however, delayed the process. By the end of
Fiscal 1994, the Company had essentially completed the relocation
of the entire manufacturing operation from Cortland into a leased
facility in Mexico.
As a result of the relocation plan, the Company absorbed $16.5
million in restructuring charges during the fiscal year ended
June 30, 1993 ("Fiscal 1993"), of which approximately $3.0
million was non-cash in nature. The annual savings originally
anticipated from the plan were not realized in the fiscal year
ended June 30, 1994 ("Fiscal 1994"), as cost of sales continued
to reflect the higher Cortland manufacturing labor costs. In
Fiscal 1995, however, the relocation plan resulted in lower
manufacturing costs of approximately $15.0 million annually,
primarily due to lower labor costs in Mexico.
The Company also sells a portion of its products internationally.
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 or manufacturing operations are located. See Consolidated
Financial Statements and Notes thereto in this Form 10-K Annual
Report for financial information regarding the Company's business
operations within and outside the United States.
Competition
The portable and compact electronic typewriter and personal word
processor business is highly competitive. Competition focuses on
price, product features and product quality. The Company faces
competition from various Japanese and other companies, including,
among others, Brother International Corporation, which
manufacture portable and compact electronic typewriters and
personal word processors, some of which may have greater
financial resources than the Company. It also faces competition
from companies which manufacture office typewriters and word
processors, though these manufacturers currently serve a somewhat
different segment of the industry than the Company. As the
portable and compact electronic typewriter and personal word
processor market has continued to mature, competition has
increased. To remain competitive, the Company has been required
to reduce the prices of its typewriters and personal word
processors. Unless these price reductions are offset by
corresponding reductions in manufacturing and other costs, the
Company's results of operations will continue to be adversely
affected and its ability to remain competitive severely
restricted.
Patents, Trademarks and Licenses
The Company owns or licenses a number of patents and patent
applications which are valuable to its 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, 1996, the Company employed approximately 1,100
people. The Company's Singapore manufacturing workers were
represented by the United Workers of Electronic and Electrical
Industries, a trade union registered under Singapore law, until
the closing of the Singapore facility in November, 1995.
Management considers its employee relations to be good.
Research and Development
The Company's expenditures for research and development
activities were approximately $2.0 million, $7.2 million and $8.0
million for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively. Research and development expenses were
concentrated primarily in improving product manufacturing,
integration of products/technology to the Company's product lines
and development of new products such as software architecture for
personal word processors. As part of the restructuring program,
research and development costs have significantly declined and
are expected to continue at the lower levels in the future, being
limited primarily to manufacturing support.
Raw Materials
The Company's products are manufactured from a wide variety of
electronic components, plastics, metals, paper and other
materials. The Company generally is not dependent on any one
source for the materials or purchased components essential to its
business and believes that such materials and components will be
available from sources in adequate quantities to meet anticipated
production schedules.
Item 2. Properties
The Company utilizes approximately 819,000 square feet of space,
of which about 527,000 square feet is located in the United
States and about 292,000 square feet is located outside the
United States, primarily in Mexico. Of the total of 819,000
square feet, approximately 422,000 square feet is owned and the
remaining 397,000 square feet is leased. Information with
respect to the principal facilities used by the Company is set
forth below:
[Download Table]
Approximate
Square Owned/
Location Primary Use Footage Leased
New Canaan, CT.... Headquarters 27,000 Leased
Cortland, NY...... Warehousing/Office/Service 422,000 Owned
Toronto, Canada... Warehousing/Sales 27,000 Leased
Tijuana, Mexico... Manufacturing 252,000 Leased
San Diego, CA..... Warehousing/Office 77,000 Leased
805,000
All other locations.Warehousing/
Sales/Service 14,000 Leased
Total............. 819,000
Item 3. Legal Proceedings
Automatic Stay of Litigation Due to Bankruptcy
On July 5, 1995, the Company filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code. Upon the
filing of the Company's bankruptcy petition, the provisions of
the Bankruptcy Code operated as a stay of, among other things,
the commencement or continuation of judicial, administrative, or
other actions or proceedings against the Company that were or
could have been commenced before the bankruptcy petition was
filed. This stay is subject to certain exceptions. The
Bankruptcy Court also has discretion to terminate, annul, modify
or condition the stay. See "Business - Restructuring and
Bankruptcy Reorganization" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
Description of Legal Proceedings
For discussion of the bankruptcy proceedings of the Company, see
"Business -- Restructuring and Bankruptcy Reorganization."
Certain aspects of the Company's past handling and/or disposal of
hazardous substances have been the subject of investigation by
federal and state regulatory authorities, or are the subject of
lawsuits filed by such authorities or by private parties. At
June 30, 1996 and 1995, the Company had recorded liabilities of
approximately $4.2 million related to environmental matters.
Because of the uncertainties associated with assessing
environmental matters, the related ultimate liability is not
presently determinable. However, based on facts presently known,
management does not believe that these investigations or
lawsuits, if resolved adversely to the Company, would
individually or in the aggregate have a material adverse effect
on the Company's financial position or results of operations.
The Company was the owner and operator of manufacturing
facilities in Groton, New York (the "Groton Site") and
Cortlandville, New York (the "Cortlandville Site" and, together
with the Groton Site, the "Owner/Operator Sites"). The Company's
liability, if any, at the Owner/Operator Sites stems from
groundwater contamination at the Cortlandville Site and soil
contamination at the Groton Site. Remediation programs at the
Owner/Operator Sites currently consist of round-the-clock pumping
and filtering (Cortlandville) or soil venting with a soil
infiltration injection system (Groton). The costs associated
with the respective programs had largely been paid by the Company
prior to the Petition Date. To the Company's knowledge, the only
future costs that will be associated with remediation of those
sites are for operation, maintenance, monitoring, shutdown, and
post-shutdown of the systems. The Company believes it has set
aside adequate reserves for the payment of expenses for the
ongoing remediation programs at the Groton and Cortlandville
sites. Claims asserted by the New York Department of
Environmental Conservation ("DEC") in the Company's bankruptcy
proceedings for past and future costs at the Groton and
Cortlandville Sites, and at eight other sites, were resolved by
the Company and the State of New York on August 6, 1996 at
amounts which were not material to the financial results.
The Company is involved in proceedings with the DEC and the
Suffolk County Department of Health ("Suffolk DOH") regarding the
clean-up
of a now-closed manufacturing facility in Melville, New York
(the "Melville Site"). The Company's wholly-owned subsidiary SCC
LI Corp., formerly known as Histacount, was a lessee of the
Melville Site beginning in June 1989, and sublessor of the Site
to HC Delaware Acquisition Corp., now known as Histacount ("New
Histacount"), beginning in November 1994. The Company has never
been an owner, operator, or lessee of the Melville Site.
On March 9, 1995, New Histacount, in contemplation of vacating
the facility, submitted to the DEC its updated closure plan (the
"Closure Plan") for the Melville Site pursuant to the applicable
law. The DEC approved the Closure Plan on or about July 25, 1995
and, on August 12, 1995, SCC LI Corp. terminated its lease.
Accordingly, the property was vacated and all operations at the
Melville Site ceased. On June 27, 1996, O'Brien & Gere
Engineers, Inc. ("O'Brien & Gere") prepared a scope of work for
the Melville Site that reflects agreements reached between the
Company and the DEC (the "Scope of Work"). The Company has
proceeded to perform the testing and work specified in the Scope
of Work. Test results on soil borings and groundwater samples
taken by O'Brien & Gere pursuant to the Scope of Work indicate
that any contaminants are below levels that would require
clean-up action under New York law.
In June 1992, the Company was served with a summons and complaint
in the United States District Court for the Northern District of
New York in a private contribution action, brought pursuant to
the federal Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA"). The plaintiffs in this action are
Cooper Industries, Inc., Keystone Consolidated Industries, Inc.,
The Monarch Machine Tool Co., Niagara Mohawk Power Corporation
and Overhead Door Corporation. The action, which lists the
Company and fourteen other persons or entities as defendants,
seeks contribution or reimbursement for response costs incurred
to date, and to be incurred in the future, for the environmental
remediation of a site in Cortland, New York known as the Rosen
Site ("Rosen Site"). Based on the Company's records and other
evidence available to it, management does not believe that the
Company disposed of any hazardous substances at this site and is
vigorously contesting this matter. Claims concerning the Rosen
Site have been filed against the Company in the Bankruptcy Court
by the United States Environmental Protection Agency, the DEC,
and certain plaintiffs and defendants in the Cooper Industries
action. Based on agreements previously reached with those
parties, the Company expects that all claims relating to the
Rosen Site will be tried together in the Bankruptcy Court or the
United States District Court for the District of Delaware.
The Company sponsors and maintains two defined benefit pension
plans: (i) The Smith Corona Corporation Hourly Employees'
Retirement Plan and SCM Office Supplies, Inc. Salaried Employees'
and Hourly Employees' Retirement Plan, as amended and restated as
of December 31, 1995; and (ii) the Smith Corona Corporation
Salaried Employees' Retirement Plan, as amended and restated as
of January 1, 1994 (collectively, the "Defined Benefit Plans").
Employees do not contribute to the Defined Benefit Plans.
The Pension Benefit Guaranty Corporation ("PBGC") has required
that the Company make estimated minimum funding contributions to
the Defined Benefit Plans that management believes would cost the
Company approximately $4.0 million per year over the next 6
years. The Company consequently determined that termination of
the Defined Benefit Plans would be in its best interests.
Exercising its business judgment, the Company on August 6, 1996,
decided to discontinue future benefit accruals under the Defined
Benefit Plans as of September 1, 1996 and to seek termination of
the Defined Benefit Plans as of October 6, 1996. On August 7,
1996, pursuant to applicable Federal law and regulations, the
Company caused a Notice of Intent to Terminate to be issued to
affected parties under the Defined Benefit Plans.
On August 23, 1996, the Company filed with the Bankruptcy Court a
Motion for Approval of Distress Termination of Pension Plans (the
"Termination Motion"), together with supporting materials. Among
other things, the Termination Motion asks the Bankruptcy Court to
find that the Company meets the standards for distress
termination of the Defined Benefit Plans, to approve such a
termination pursuant to applicable statutes and regulations, and
to determine the PBGC's claims, if any, arising from such a
termination.
The PBGC has stated that it opposes distress termination of the
Defined Benefit Plans. On September 5, 1996, the PBGC filed in
the Bankruptcy Court claims for minimum funding contributions and
for unfunded benefit liabilities. The PBGC has stated that its
claims against the Company and its subsidiaries upon termination
of the Defined Benefit Plans would total approximately $26.0
million. On or about September 6, 1996, the PBGC moved to
withdraw the reference of the Termination Motion and related
issues from the Bankruptcy Court, and to have such issues decided
by the United States District Court for the District of Delaware.
The Company, joined by the Official Committee of Unsecured
Creditors, has opposed the PBGC's motion. Notwithstanding the
pendency of the PBGC's motion, the Company, the PBGC, and the
Official Committee of Unsecured Creditors have agreed to conduct
discovery relating to the Termination Motion on an expedited
basis.
Management believes that, if resolved adversely to the Company,
issues relating to termination of the Defined Benefit Plan would
have a material adverse effect on the Company's ability to
reorganize.
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 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 operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
There is currently no established public trading market for the
Company's Common Stock. On May 30, 1996, the New York Stock
Exchange (the "NYSE") announced that trading in the Common Stock
of the Company under the ticker symbol SCO would be suspended
immediately. The NYSE announcement also indicated that following
the suspension of trading in the Common Stock of the Company,
application would be made to the Securities and Exchange
Commission to delist the issue. The NYSE made such application
on July 23, 1996, which application was granted, and the Common
Stock was struck from listing and registration on the NYSE on
August 6, 1996.
The following table sets forth the range of high and low sale
prices of the Company's Common Stock on the NYSE during the two
most recent fiscal years prior to such delisting.
[Download Table]
Fiscal 1996 Fiscal 1995
High Low High Low
First quarter. . . . . . . . . . .$1.50 $ .44 $4.88 $4.13
Second quarter . . . . . . . . . .$ .69 $ .02 $4.63 $2.38
Third quarter. . . . . . . . . . .$ .69 $ .05 $3.88 $2.50
Fourth quarter (through
May 30, 1996)(1). . . . . . . . .$ .44 $ .31 $2.88 $1.38
(1) The Common Stock was suspended from trading on the New York
Stock Exchange on May 30, 1996. Therefore, the high and low sale
prices for the fourth quarter of Fiscal 1996 represents April 1,
1996 through May 30, 1996. The high and low bid prices for the
remainder of the fourth quarter of Fiscal 1996 were $.06 and
$.03, respectively, as reported by the National Quotation Bureau,
Inc. (the "NQB"). The bid prices obtained from the NQB
represent prices between dealers which do not include retail
markup, markdown or commission and as such may not represent
actual transactions (the "NQB Price").
As of August 2, 1996, there were approximately 1,041 holders of
record of the Common Stock.
The name and address of the Transfer Agent and Registrar for the
Company is ChaseMellon Shareholder Services, 85 Challenger Road,
Overpeck Center, Ridgefield Park, NJ 07660.
On May 4, 1995 the Board of Directors elected to discontinue the
dividend. The dividend declared in the first and second quarters
of Fiscal 1995 was $.05 and $.025 per share of Common Stock,
respectively.
The Company is prohibited from paying dividends under the
provisions of its Debtor-In-Possession Credit Agreement (see
"Management's Discussion and Analysis of Results of Operations
and Financial Condition.")
The calculation of the aggregate market value of voting stock
shown on the cover of this Form 10-K Annual Report was based on
the average bid price of $.06 and asked price of $.08 of the
Common Stock on September 4, 1996 as reported by the NQB. Such
prices reflect the NQB Price and may not necessarily reflect
actual transactions. Additionally, the number of shares of
Common Stock held by non-affiliates used in determining the
aggregate market value of voting stock shown on the cover of this
Form 10-K Annual Report was made on the assumption that there
were no affiliates other than the executive officers and
directors of the Company and Hanson.
The POR cancels all Common Stock of the Company and provides
shareholders with warrants to purchase one share of common stock
in the reorganized company for each ten shares of Common Stock of
the Company. See "Business - Restructuring and Bankruptcy
Reorganization."
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
[Download Table]
(Dollars in thousands, For the year ended June 30,
except per share amounts) 1996 1995(1) 1994(1) 1993(1) 1992 (1)
Net sales $112,548 $196,309 $261,306 $236,846 $300,023
Gross margin 9,193 15,350 56,979 57,491 85,166
Operating income (loss)(2)$ (8,576) $(46,766) $ 8,422 $(15,348) $ 29,968
Income (loss) from
continuing operations $(11,122) $(62,245) $5,094 $(10,244) $19,405
Discontinued operations
(net of income taxes):
Income from discontinued
operations - 671 2,233 1,222 2,678
Gain(loss) on disposal
of discontinued
operations - 9,127 (2,200) - -
Net income (loss) $(11,122) $(52,447) $ 5,127 $(9,022) $22,083
Earnings per common
share (3) -
Income (loss) from
continuing operations $ (.37) $ (2.05) $ .17 $ (.34) $ .64
Discontinued operations:
Income from discontinued
operations - .02 .07 .04 .09
Gain(loss) on disposal
of discontinued
operations - .30 (.07) - -
Net income (loss)
per share $ (.37) $ (1.73) $ .17 $ (.30) $ .73
Working capital $ 54,117 $ 27,116 $ 89,469 $97,375 $92,029
Total assets 83,872 136,066 193,688 190,616 182,532
Bank loans - 17,400 20,002 18,669 9,899
Stockholders' equity 9,128 20,250 75,722 76,645 91,717
Cash dividends declared
per common share $ - $ .10 $ .20 $ .20 $ .20
(1) Amounts have been reclassified, where applicable, to reflect the
discontinued operations of SCM Office Supplies, Inc. and Histacount.
(2) Includes $19.5 million restructuring income in 1996, a $14.9 million
provision in 1995 and a $16.5 million provision in 1993 for restructuring
costs.
(3) Based on 30,250,000 shares of common stock outstanding.
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
With the Company experiencing sales declines and operating losses,
having extended payments to trade vendors, and needing additional
financing to meet operating requirements and fund the
Restructuring, the Company filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware on July
5, 1995. Prior to August 18, 1995, the bankruptcy proceedings did
not include any of the subsidiaries of the Company. On August 18,
1995, SCM Office Supplies, Inc., SCC LI Corporation (formerly
Histacount Corporation) and Hulse Manufacturing Company, all
wholly-owned Nonoperating Subsidiaries of the Company, filed
Chapter 11 petitions (see Note 1 to the consolidated financial
statements contained in this Form
10-K Annual Report).
Since July 5, 1995, the Company has confined expenditures to those
manufacturing and operating costs that are necessary to preserve
and maintain going-concern value. In light of its financial
condition, the Company has also implemented and continues to
implement a planned reduction in its workforce and a consolidation
of its manufacturing and distribution operations. Additionally, as
part of a major restructuring plan announced by the Company on May
8, 1995, the Company has relocated its typewriter manufacturing
operations to its Mexico facility from facilities in Singapore and
Batam Island, Indonesia.
On July 5, 1994 and November 4, 1994, the Company sold
substantially all the assets and liabilities of SCM Office
Supplies, Inc. and Histacount Corporation, respectively (see Note
11 to the Consolidated financial statements included in this Form
10-K Annual Report). Accordingly, the consolidated statements of
operations reflect their operating results and gain or loss on
disposals as discontinued operations and the consolidated balance
sheets 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 Form 10-K Annual
Report.
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.
Fiscal 1996 Compared to Fiscal 1995
Results of Operations
Net sales of $112.5 million in Fiscal 1996 declined 42.7 percent
from Fiscal 1995's net sales of $196.3, primarily due to lower
volumes. Both domestically and internationally, typewriters and
personal word processor volumes are sharply lower than a year ago
as a result of the continued decline in the market and the
Company's share of that market. New product net sales for the year
were $7.5 million as compared with $11.8 million for last year.
For the year ended June 30, 1996, gross margin as a percentage of
net sales increased to 8.2 percent as compared with 7.8 percent in
Fiscal 1995. Included in Fiscal 1996 and Fiscal 1995 cost of sales
are writedowns of property, plant and equipment of $.9 million and
$4.6 million, respectively. Additionally, Fiscal 1996 and Fiscal
1995 cost of sales includes writedowns of inventories of $4.3
million and $8.1 million, respectively.
Selling, administrative and research expenses for the year ended
June 30, 1996 decreased $20.8 million from the prior year and was
24.7 percent of net sales in both Fiscal 1996 and Fiscal 1995.
This decrease in expenses was primarily due to lower advertising
expenses and an overall reduction in salaries as a result of the
Fiscal 1995 Restructuring. In Fiscal 1996 during the bankruptcy
proceedings, professional fees were charged to reorganization costs
in the consolidated statements of operations. Additionally, costs
associated with the restructuring action of approximately $1.6
million, primarily related to the shut-down of Singapore
operations, are included in selling, administrative and research
expenses as they do not qualify as restructuring costs.
The Company recorded reorganization costs for its bankruptcy
proceedings totaling $10.3 million in Fiscal 1996. These charges
primarily includes professional fees attributable to the bankruptcy
proceedings of the Company which were partially offset by $.3
million of interest income earned on domestic cash balances. There
were no such items in Fiscal 1995.
Restructuring income primarily represents a gain on the sale of the
Singapore facility and underlying land lease of approximately $17.8
million and a pension curtailment gain of approximately $1.5
million.
In October 1995, the Company completed a transaction to purchase a
building previously used as warehousing space located in Cortland,
New York and to concurrently sell the building and land on which
the building is located to a third party purchaser. The net
proceeds of approximately $1.4 million were used to pay down the
bank loan. This sale resulted in a Fiscal 1996 gain of
approximately $1.3 million included in other income. Additionally,
other income includes a gain of approximately $.7 million from an
insurance settlement, offset by charges of approximately $1.5
million for the estimated loss on liquidation of the Company's
wholly-owned subsidiary in Australia and the write-off of goodwill.
An administrator was appointed on August 2, 1995 for the Company's
wholly-owned subsidiary in Australia. The Administrator was
appointed as Liquidator on August 29, 1995. Due to the
liquidation, the Australian subsidiary's assets, liabilities and
operating results were removed from the consolidated financial
statements as of August 2, 1995 and the Company has recorded in
other income an estimated loss on liquidation of approximately $.4
million and $.3 million in the first and third quarters,
respectively, of Fiscal 1996. The Company has established a
distributor relationship and is currently exploring other potential
distributor relationships in the Australian market for the purpose
of maintaining its distribution capacity.
The Company repaid the funded portion of its bank loans in January
1996. Other obligations remain outstanding under the
Debtor-In-Possession Credit Agreement (as hereinafter defined) or
the Amended and Restated Credit Agreement including reimbursement
obligations under letters of credit and certain indemnification
obligations. Interest earned on domestic cash balances is included
in reorganization costs while interest earned on international cash
balances is included in interest expense in the statement of
operations.
The provision for income taxes for Fiscal 1996 relates principally
to valuation allowances set up for the Company's remaining deferred
tax assets due to uncertainty over future operations.
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 borrowing under its
Debtor-In-Possession Credit Agreement.
The bankruptcy proceedings restrict the Company's ability to
provide direct financial support outside of the normal course of
business to its international subsidiaries without the approval of
the Bankruptcy Court. Furthermore, certain actions, including
actions outside of the normal course of business, must be approved
by the Bankruptcy Court.
On July 10, 1995, the Company entered into a Debtor-In-Possession
Credit Agreement (the "Debtor-In-Possession Credit Agreement")
with two banks (the "Lenders") which was approved by the Bankruptcy
Court on August 2, 1995. Proceeds from the Debtor-In-Possession
Credit Agreement were used to pay off amounts outstanding under the
Amended and Restated Credit Agreement dated April 7, 1995 under
which the Company was, as of June 30, 1995, in technical default.
The Debtor-
In-Possession Credit Agreement, as amended, provides for extensions
of revolving credit loans, term loans and letters of credit,
limited to a percentage of eligible receivables and inventories, in
an amount not to exceed $24.0 million through the June 30, 1996
termination date. The Debtor-In-Possession Credit Agreement
provides for a security interest in substantially all of the
Company's assets. On July 10, 1996, the Company and its lenders
amended and extended the Debtor-In-Possession Credit Agreement
whereby the June 30, 1996 termination date was extended to the
earlier of Confirmation or September 30, 1996, and the bank
commitment was reduced to $10.0 million. The lenders have retained
the right to terminate the loans under the Debtor-In-Possession
Credit Agreement with 60 days' notice at their sole discretion.
The Debtor-In-Possession Credit Agreement provides certain
restrictive covenants for which management believes that it has
adequate flexibility and that such covenants should not impose
undue restrictions on the operations of the Company during its
Chapter 11 proceedings. The Company is currently in compliance
with the terms of the Debtor-In-Possession Credit Agreement or has
obtained waivers as necessary. In January 1996, the Company repaid
the funded portion of its bank loans. Other obligations remain
outstanding under the Debtor-In-Possession Credit Agreement or the
Amended and Restated Credit Agreement including reimbursement
obligations under letters of credit and certain indemnification
obligations.
The Company is currently in discussion with its lenders to extend
the Debtor-In-Possession Credit Agreement through confirmation of
the POR. As part of the POR, the Company will attempt to secure a
line of credit of approximately $10.0 million. The Company is
currently in discussions with lenders to secure such financing.
Due to the bankruptcy proceedings, substantially all claims against
the Company, prior to July 5, 1995, (and prior to August 18, 1995
for the three Nonoperating Subsidiaries added to the proceedings)
are subject to the automatic stay provisions under the Bankruptcy
Code while the Company continues business operations as a debtor-in-
possession. Pre-petition claims may arise from the determination by
the Bankruptcy Court of allowed claims for contingent liabilities
and other disputed amounts.
At the Company's request, the Bankruptcy Court established a bar
date of October 31, 1995 for pre-petition claims against the
Company. A bar date is the date by which claims against the
Company must be filed if the claimants wish to receive any
distribution in the bankruptcy proceedings. The Company has given
notice to all known actual or potential claimants subject to the
bar date of their need to file a proof of claim with the Bankruptcy
Court. The Company will reconcile claims that differ from the
Company's records, and any differences that cannot be resolved by
negotiated agreement between the Company and the claimant will be
resolved by the Bankruptcy Court. Accordingly, allowed claims may
arise which are not currently reflected in the Company's financial
statements and recorded claims are subject to change. The ultimate
amount of and settlement terms for such liabilities are subject to
the POR which is subject to confirmation by the Bankruptcy Court
and, accordingly, are not presently determinable. The claims
reconciliation process is ongoing and during Fiscal 1996 did not
result in any material adjustments to the Company's financial
records.
During Fiscal 1996, the Company has had discussions with various
third party investors about investment in the Company, none of
which has resulted in a transaction being consummated. The POR
does not contemplate any third party investment.
The Company's Disclosure Statement in connection with the POR was
mailed to eligible creditors on September 16, 1996. Other dates
approved by the Bankruptcy Court for the Company's events are:
October 18, 1996, administrative claims bar date for claims that
occurred on or before September 16, 1996; October 18, 1996 (4:30
P.M., Prevailing Eastern Time), deadline for receipt of all
ballots; October 31, 1996, confirmation hearing in Wilmington,
Delaware.
The POR is subject to Bankruptcy Court approval. Under the POR,
the Company intends to satisfy all allowed general unsecured claims
through the distribution of cash of approximately $10.8 million and
85% of the reorganized company's common stock to holders of such
claims. The Company intends to satisfy all allowed claims senior
to allowed general unsecured claims by the payment in full in cash
or notes (as provided for by the Bankruptcy Code) or the assumption
of all such claims. In addition, allowed convenience class claims
(general unsecured claims of one thousand five hundred dollars or
less) shall receive payment in cash in an amount equal to 60% of
the amount of such claim. Finally, the POR cancels all Common
Stock of the Company and provides shareholders with warrants to
purchase one share of common stock in the reorganized company for
each ten shares of Common Stock of the Company.
Under the POR, the reorganized company would significantly expand
its product line, primarily by sourcing new products from outside
manufacturers. Such sourcing may, over time, include entering into
strategic alliances with third parties to provide products or
services. In that respect, the reorganized company would focus
its efforts on forging alliances with foreign companies having
technologically advanced office products but which presently do not
have a substantial United States market share or market presence
and are intent on building or increasing market share by selling
their products under the well known "Smith Corona" name. The
reorganized company intends to rely on its existing distribution
network to become a leading vendor of technologically advanced
office products manufactured abroad. Further, the reorganized
company intends to continue to focus on its core business of
manufacturing and distributing its current product line of
typewriters and personal word processors to satisfy continuing
worldwide demand for these products.
On an operational level, initially the reorganized company will
continue its business on a global basis with manufacturing
operations in Mexico and sales and marketing operations in the
United States and certain international markets. The reorganized
company's Mexico facility also plans to provide contract
manufacturing services to OEMs on a cost plus basis thereby
providing a contribution towards manufacturing overhead expenses.
Ideally, prospective OEMs may also form the basis for new product
strategic alliances.
During Fiscal 1996, the Company's operating activities provided
$15.9 million of cash, primarily the result of a decrease in
inventories and accounts receivable partially offset by a decrease
in trade payables and accrued liabilities. The reduction in
inventories of $35.0 million reflects the Company's continued focus
on controlling inventory levels. Accounts receivable declined
$20.5 million and is attributable to the reduction in sales levels.
Trade payables and accrued liabilities decreased $22.1 million,
primarily as a result of the wind-down of Singapore operations,
including related severance payments.
As part of its ongoing reorganization efforts under the bankruptcy
proceedings, on August 7, 1996, the Company issued a notice of
intent to terminate its defined benefit pension plans. As of
September 1, 1996 no future benefits for plan participants will be
earned, and, if the required approvals are obtained, such plans
would then terminate on October 6, 1996. The termination will
result in a first quarter curtailment gain of approximately $3.4
million. The Company estimates that termination of the defined
benefit pension plans will save approximately $4.0 million annually
in minimum funding cash contributions. See "Legal Proceedings --
Description of Legal Proceedings" for a discussion of certain
matters relating to the PBGC.
The PBGC has stated that it opposes distress termination of the
Defined Benefit Plans. On September 5, 1996, the PBGC filed in the
Bankruptcy Court claims for minimum funding contributions and for
unfunded benefit liabilities. The PBGC has stated that its claims
against the Company and its subsidiaries upon termination of the
Defined Benefit Plans would total approximately $26.0 million. On
or about September 6, 1996, the PBGC moved to withdraw the
reference of the Termination Motion and related issues from the
Bankruptcy Court, and to have such issues decided by the United
States District Court for the District of Delaware. The Company,
joined by the Official Committee of Unsecured Creditors, has
opposed the PBGC's motion. Notwithstanding the pendency of the
PBGC's motion, the Company, the PBGC, and the Official Committee of
Unsecured Creditors have agreed to conduct discovery relating to
the Termination Motion on an expedited basis.
The Company had no material commitments for capital expenditures at
June 30, 1996. Under the provisions of the Debtor-In-Possession
Credit Agreement, the Company was restricted to $.5 million of
capital expenditures in each six month period ended December 31,
1995 and June 30, 1996.
In Fiscal 1996 there were no dividends paid. A quarterly cash
dividend of $1.5 million ($.05 per share) was paid in the first and
second quarters of Fiscal 1995.
From time to time the Company enters into foreign exchange
contracts to reduce its exposure to foreign currency rate changes.
As of June 30, 1996 and for the year then ended, no contracts were
in place.
While the Company believes it has adequate cash and financing to
operate in bankruptcy for a reasonable period of time, its ability
to successfully continue operations is dependent upon, among other
things, confirmation of the POR that will enable the Company to
emerge from bankruptcy proceedings, obtaining adequate post-
confirmation financing to fund working capital requirements and
generating sufficient cash from future operations to meet
obligations. There can be no assurances that any or all of the
above noted actions will be accomplished.
Fiscal 1995 Compared to Fiscal 1994
Results of Operations
Net sales declined 24.9 percent to $196.3 million in Fiscal 1995
compared to Fiscal 1994. Approximately 76.0 percent of the
decrease related to lower volumes with the balance related to
pricing reductions. Typewriters and personal word processors
volumes were sharply lower than a year ago, both domestically and
internationally, as a result of a continuing difficult competitive
environment. The Company believes that the market for typewriters
and personal word processors was declining along with its share of
that market. New product net sales for the year were $11.8 million
as compared with $7.6 million for last year.
Gross margin as a percentage of net sales was 7.8 percent for the
year, as compared to 21.8 percent last year. The Fiscal 1995 gross
margin decline was the result of lower volumes and price
reductions, as well as writedowns of property, plant and equipment
of approximately $4.6 million and inventory of approximately $8.1
million of which approximately $3.4 million and $5.5 million,
respectively, were recorded in the fourth quarter. The fourth
quarter charges resulted from continued price pressures and unit
volume decreases as well as the Company's projected usage of
certain property, plant and equipment and the outlook for Fiscal
1996. Included in gross margin for Fiscal 1994 was a benefit of
$1.8 million pretax representing the final payment from Pelikan,
Inc. in a patent infringement case.
Selling, administrative and research expenses as a percent of sales
increased to 24.7 percent from 18.6 percent primarily due to the
decrease in sales revenues and, to a lesser degree, higher
employee-
related expenses.
On May 8, 1995 the Company announced a major Restructuring pursuant
to which the Company's typewriter manufacturing would be relocated
from its Singapore and Batam Island, Indonesia facilities to its
Mexico facility. This action resulted in the termination of
approximately 1,300 workers in Singapore and Batam Island.
Original expectations were to replace these workers with
approximately 600 workers in Mexico. However, due to lower than
expected volumes, fewer replacement workers were hired. This
action was expected to save approximately $10.0 million pretax
annually primarily through lower labor costs as well as the greater
utilization of the Mexico facility. The Company expected to cease
production in Singapore and Batam Island by mid-November 1995,
thereafter relocating equipment to Mexico where typewriter
manufacturing was expected to commence in the third quarter of
Fiscal 1996. The Company placed its Singapore facility and
underlying land lease up for sale. The Batam Island facility lease
expired December 26, 1995.
In addition to the consolidation of typewriter manufacturing into
Mexico, the Company also eliminated approximately 180 support
positions which related to support staff within research and
development, finance, service, distribution, selling and marketing
areas in the Company's Cortland, New York and New Canaan,
Connecticut locations. Approximately $10.0 million in additional
annual pretax savings were expected from elimination of these
support positions. These reductions were completed by the end of
the first quarter of Fiscal 1996. As a result of these actions,
the Company recorded a pretax charge of approximately $14.9 million
in the fourth quarter of Fiscal 1995, of which approximately $1.9
million represented primarily non-cash machinery and equipment
asset write-offs, and the remainder related to employee severance.
Additionally, certain costs, primarily related to the shutdown of
Singapore operations of approximately $1.6 million of pretax costs
(originally estimated to be approximately $6.0 million pretax),
were recognized as charges to operations as incurred during Fiscal
1996 as they do not qualify as restructuring costs. As a
consequence of this restructuring action, severance costs of
approximately $1.3 million associated with the Fiscal 1993
restructuring charge were not incurred and accordingly, reflected
as a reduction of Fiscal 1995 restructuring costs.
The Company recorded a fourth quarter Fiscal 1995 charge to income
tax expense representing establishment of valuation allowances
against substantially all of its domestic deferred income tax
assets. The valuation allowance reflected the Company's assessment
that the bankruptcy proceedings and the short-term outlook resulted
in an impairment to the realization of such deferred income tax
assets.
Financial Condition
During Fiscal 1995, the Company's operating activities used $16.7
million of cash, primarily the result of the losses from
operations. Accounts Receivable decreased $10.6 million primarily
related to lower fourth quarter sales. The reduction in
inventories of $8.4 million reflected the Company's writedowns of
inventory due to obsolescence and continued focus on controlling
inventory levels. Accrued liabilities increased approximately $8.5
million primarily due to the recording of the May 1995
restructuring charge partially offset by certain payouts thereon
and adjustment of the Fiscal 1993 restructuring charge. At June
30, 1995, bank loans had been reduced to $17.4 million from $20.0
million at June 30, 1994. Proceeds from the sale of discontinued
operations of $27.5 million were used to pay down bank loans and
payment of accounts payable.
Capital expenditures in Fiscal 1995 were $3.2 million compared to
$11.4 million in the prior year, decreasing primarily as a result
of the Fiscal 1994 capital expenditure requirements for relocation
of manufacturing operations to Mexico. The Company had no material
commitments for capital expenditures at June 30, 1995. Under the
provisions of the Debtor-In-Possession Credit Agreement, the
Company is restricted to $.5 million of capital expenditures in
each six month period ended December 31, 1995 and June 30, 1996.
A quarterly cash dividend of $1.5 million ($.05 per share) was paid
in the first and second quarters of Fiscal 1995. After reviewing
the first quarter results and the outlook for the remainder of the
fiscal year, on November 15, 1994, the Board of Directors voted to
reduce the quarterly dividend by 50 percent to $.025 per share
which was effective for the dividends paid on January 6, 1995 and
April 6, 1995. On May 4, 1995 the Board of Directors elected to
discontinue the dividend.
From time to time the Company entered into foreign exchange
contracts to reduce its exposure to foreign currency rate changes.
As of June 30, 1995, no contracts were outstanding.
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 officers of the Company are elected by and serve at the
pleasure of the Board of Directors. The directors and executive
officers of the Company and their respective positions, ages at
September 14, 1996 and backgrounds are as follows:
[Download Table]
Name Position Age
Robert Van Buren............ Chairman of the Board and 71
Director
Ronald F. Stengel........... President, Chief Executive
Officer and Director 48
John A. Piontkowski ........ Senior Vice President, Chief
Financial Officer and Assistant
Secretary 42
Thomas A. Cawley............ Vice President/Administration
and Director 40
Michael W. Chernago......... Vice President/Operations 50
Eric J. Cleveland............Vice President/West Coast
Operations 55
John A. Cutrone, Jr......... Senior Vice President/Marketing
and Sales 42
Jerry L. Diener ............ Senior Vice President/Sales 60
George H. Hempstead, III.... Director 52
Robert J. Kammerer ......... Director 59
John E. Lushefski .......... Director 40
Gary J. Lynch............... Vice President/Treasurer 46
James B. McCormick.......... Vice President/Supplies
Division 62
Alfred N. Scallon .......... Vice President/International
Operations 45
Craig C. Sergeant .......... Director 50
David P. Verostko........... Vice President/Human Resources 53
Richard R. West ............ Director 58
Martin D. Wilson............ Vice President/Controller 36
Mr. Van Buren has served as Chairman of the Board of Directors of
the Company since March 24, 1995. He served as Chief Executive
Officer of the Company from March 24, 1995 to July 1, 1995. Mr.
Van Buren has been a Director of the Company since August 1989.
Mr. Van Buren served as Chairman of the Board and Chief Executive
Officer of Midlantic Corporation, a bank holding company, from 1978
until April 1991. Mr. Van Buren is currently a director of Foster
Wheeler Corporation.
Mr. Stengel was named President, Chief Executive Officer and
Director of the Company on July 1, 1995. Mr. Stengel served as
Chief Operating Officer of The Rytex Company, a printing and
catalog business, from February 1995 through June 1995. Mr.
Stengel is currently President of R.F. Stengel & Co., Inc. Founded
in 1985, the principal focus of R.F. Stengel & Co., Inc. is interim
crisis management and turnaround consulting services.
Mr. Piontkowski was named Senior Vice President and Chief Financial
Officer of the Company on June 21, 1995. 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, 1993. Mr.
Piontkowski served as Vice President/Finance and Controller from
March 28, 1995 to June 21, 1995 and as Vice President/ Controller
of the Company from July 1, 1993 to March 28, 1995. Mr.
Piontkowski served as Director of Accounting and Financial
Reporting of the Company from December 1991 to July 1, 1993. Prior
to joining the Company, Mr. Piontkowski was Chief Financial Officer
of Pyramid Management Group, a shopping mall management company,
from 1989 through 1991, and was Senior Vice President and Chief
Financial Officer of Addis & Dey's, a department store, prior to
that time.
Mr. Cawley was named Vice President/Administration on July 26,
1995. He has served as a Director of the Company since July 1,
1995. Mr. Cawley has been Vice President and Secretary of R.F.
Stengel & Co., Inc. since 1985. Founded in 1985, the principal
focus of R.F. Stengel & Co., Inc. is interim crisis management and
turnaround consulting services.
Mr. Chernago was named Vice President/Operations on January 26,
1996. From July, 1994 to January 26, 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 1977.
Mr. Cleveland was named Vice President/West Coast Operations on
January 26, 1996. From August 1, 1992 to January 26, 1996, Mr.
Cleveland served as Vice President/Operations of Smith Corona de
Mexico, a wholly-owned subsidiary of the Company. From February 1,
1986 to July 30, 1992, Mr. Cleveland served as Director of
Operations of the Company. Mr. Cleveland has held various other
positions within the Company since 1964.
Mr. Cutrone has served as Senior Vice President/Marketing and Sales
since November 1993. He served as Vice President/New Product
Development from May 1993 to November 1993. Prior to joining the
Company, Mr. Cutrone served as President of Vertical Marketing
Corporation, a consulting firm for consumer electronics companies,
from 1989 to 1993. From 1990 to 1992, Mr. Cutrone served as
President of Faxnet Corporation ("Faxnet"), a company which
provided public telecopying facilities. In November 1991, while
Mr. Cutrone was President of Faxnet, Faxnet filed for bankruptcy
under Chapter 7 of the United States Bankruptcy Code. In July
1993, Mr. Cutrone filed for personal bankruptcy under Chapter 7 of
the United States Bankruptcy Code.
Mr. Diener has served as Senior Vice President/Sales since January
1, 1992. He served as Vice President/Sales of the Company and its
predecessor, SCM/Consumer Products, from 1978 to January 1, 1992,
and as Secretary of Smith Corona International, LTD, a wholly-owned
subsidiary of the Company since July 25, 1989.
Mr. Hempstead has served as Senior Vice President-Law and
Administration of Hanson Industries since 1995, as Senior Vice
President and General Counsel since 1994 and as Vice President and
General Counsel since 1982. He has served as a director of Hanson
Industries since 1986 and as an Associate Director of Hanson since
1990. Mr. Hempstead also served as Vice President and Secretary of
the Company from 1985 to August 1989. He serves as a director of
the Lynton Group, Inc. Mr. Hempstead has been a director of the
Company since September 1985.
Mr. Kammerer has been a Partner of Baldwin Associates, Inc., a
management consulting firm, since April 1992. From July 1964
through March 1992, Mr. Kammerer was in management at Xerox
Corporation, serving as a Corporate Vice President of that company
from May 1979 through March 1992. Mr. Kammerer has been a director
of the Company since November 1993.
Mr. Lushefski has served as Senior Vice President, Chief Financial
Officer and Associate Director of Hanson since May 1995. He served
as Vice President and Chief Financial Officer of Peabody Holding
Company, Inc. from 1991 to 1995. Mr. Lushefski served as Vice
President and Controller of Hanson Industries from 1990 to 1991,
and as Corporate Controller from 1987 to 1990. He has been a
director of the Company since June 21, 1995.
Mr. Lynch has served as Vice President/Treasurer of the Company
since May 15, 1996. From April 16, 1995 to May 15, 1996, Mr. Lynch
served as Director of Treasury Services. Mr. Lynch served as
Director of Budgets and Financial Analysis from April 1987 to April
16, 1995. Mr. Lynch has held various other positions within the
Company since 1978.
Mr. McCormick has served as Vice President/Supplies Division since
June 12, 1995. From May 1993 to May 16, 1995, Mr. McCormick served
as Vice President of Imaging Supplies and Printers. Mr. McCormick
served as Director, Supplies and Accessories Marketing from June
1985 to May 1993. Mr. McCormick has held various other positions
within the Company since 1959.
Mr. Scallon has served as Vice President/International Operations
of the Company since 1987. Prior to that time, he served as
Director of Private Brand Sales of the Company for three years.
Mr. Sergeant has served as Group Vice President of Hanson
Industries for various consumer, building and industrial products
divisions since 1984. Prior to that time, commencing in 1974, Mr.
Sergeant was Vice President and Chief Financial Officer of Seacoast
Products, Inc., formerly a subsidiary of Hanson Industries. He has
also served as an Associate Director of Hanson since 1990. Mr.
Sergeant has been a director of the Company since June, 1989.
Mr. Verostko was named Vice President/Human Resources of the
Company on January 1, 1992. He served as Corporate Director/Human
Resources from September 1, 1990 to January 1, 1992. Mr. Verostko
was Director, Employee Relations from October, 1983 to September,
1990.
Mr. West is Dean Emeritus of the Leonard N. Stern School of
Business at New York University. He was the School's Dean from
1984 until 1993. Mr. West previously was the Nathaniel Leverone
Professor of Management at Dartmouth's Amos Tuck School of Business
Administration, where he also served as Dean for seven years. He
also serves as director of Alexander's, Inc., Vornado Realty Trust,
Bowne & Co., Inc. and various registered investment companies
managed by Merrill Lynch Asset Management, Inc. and Hotchkiss &
Wiley. Mr. West has been a director of the Company since August
1989.
Mr. Wilson was named Vice President/Controller of the Company on
May 15, 1996. Prior to that time, he served as Controller from
July 26, 1995 to May 15, 1996, Assistant Controller from April 16,
1995 to July 26, 1995, and as Director/Accounting and Financial
Reporting from January 3, 1994 to April 16, 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, and as Corporate Accounting Manager for
Sullivan Graphics, Inc., a printing company, from September 1989 to
November 1991.
It is expected that, following the effective date of the Company's
POR, all the executive officers listed above, with the exception of
Ronald F. Stengel, current President, Chief Executive Officer and
Director, and Thomas A. Cawley, current Vice
President/Administration and Director, will retain their positions
with the reorganized company.
The Company is currently in the process of conducting an executive
search to locate a new President and Chief Executive Officer.
Ronald F. Stengel will remain President and Chief Executive Officer
of the reorganized company until a qualified applicant is found and
appointed. The Company is also currently in the process of
conducting an executive search for a qualified executive to become
Vice President, Marketing, a newly-created position.
On or before the confirmation date of the Company's POR, the
Official Committee of Unsecured Creditors in the Company's Chapter
11 case, with the approval of the Company, will have named a new
slate of directors who will become directors of the reorganized
company on the effective date of the Company's POR.
Section 16(a) Beneficial Ownership Reporting Compliance
Gary J. Lynch, who was appointed Vice President/Treasurer on May
15, 1996, filed Form 3 -- Initial Statement of Beneficial Ownership
of Securities with the Securities and Exchange Commission on August
2, 1996 which was 69 days past the required filing time frame.
Certain Committees of the Board of Directors
The directors comprising the Company's Audit Committee are Messrs.
Kammerer, Van Buren and West. The directors comprising the
Company's Compensation and Benefits Committee are Messrs.
Hempstead, Kammerer, West and Sergeant. The directors comprising
the Company's Nominating Committee are Messrs. Kammerer, Van Buren
and West.
Item 11. Executive Compensation
Set forth below is information concerning compensation of the
chief executive officer and the other four most highly compensated
executive officers of the Company during Fiscal 1996.
[Enlarge/Download Table]
Annual Compensation Long-Term Compensation
Awards Payouts
Other Securities All
Fiscal Annual Restricted Underlying LTIP Other
Year Compen- Stock Options/SAR's Pay- Compen-
Name and Ending Salary(3) Bonus sation(8) Awards (9) outs(10) sation
Principal Position June 30 ($) ($) ($) ($) (#) ($) ($)
Ronald F. Stengel(1) 1996 $ - (4) - - 0 - 0 -
Chief Executive 1995 - - - 0 - 0 -
Officer and 1994 - - - 0 - 0 -
President
Thomas A. Cawleye(2) 1996 - (4) - - 0 - 0 -
Chairman and Chief 1995 - - - 0 - 0 -
Executive Officer 1994 - - - 0 - 0 -
John A. Piontkowski 1996 201,962 75,375 22,042 0 - 0 53,322(11,13,
Senior Vice President, (5) 14)
Chief Financial Officer 1995 127,000 - - 0 20,000 0 21,547(12,14)
and Assistant Secretary 1994 117,000 52,650 56,453 0 24,000 0 102,199
(7)
Eric J. Cleveland 1996 129,792 97,857 31,068 0 - 0 36,589(11,15,
Vice President - (5,6) 16)
Operations 1995 108,525 - 18,338 0 15,000 0 22,426(12,15,
17)
1994 103,750 40,163 12,970 0 7,000 0 28,894
(7)
John A. Cutrone, Jr. 1996 149,856 50,900 - 0 - 0 5,901 (11)
Senior Vice President 1995 134,500 - - 0 25,000 0 5,640 (12)
Sales and Marketing 1994 130,688 40,625 24,134 0 13,000 0 38,772
(1) Pursuant to a retention agreement between R. F. Stengel &
Co., Inc. ("RFS") and the Company ("the "Retention
Agreement"), Mr. Stengel, President of RFS, was elected
Chief Executive Officer and President on July 1, 1995.
(2) Pursuant to the Retention Agreement, Mr. Cawley, Vice
President of RFS, was elected a Director of the Company
on July 1, 1995, and named Vice President -
Administration on July 26, 1995.
(3) Amounts shown include compensation deferred under the
Company's Retirement Savings and Investment Plan
("RSIP").
(4) Pursuant to the Retention Agreement and pursuant to
Bankruptcy Court approval, the Company has retained RFS
to provide interim management services to the Company.
Fees for these services are billed by and paid to RFS.
Mr. Stengel's daily rate is $2,500 and Mr. Cawley's daily
rate is $1,700.
(5) Amounts shown include the bonus earned by the executive
officers under the Company's Incentive Compensation
Program (as hereinafter defined) in Fiscal 1996. Mr.
Piontkowski, Mr. Cleveland and Mr. Cutrone received
$75,375, $17,164, and $50,900, respectively, under the
Program.
(6) Includes amount paid under an Employment Agreement for
Mr. Cleveland of $80,693. See "--Employment Agreements"
below.
(7) Amounts shown indicate the annual bonus earned by the
executive officers under the Company Bonus Plan (as
hereinafter defined) in Fiscal 1994. The Company pays
such bonus amounts to the executive officers in the
subsequent fiscal year.
(8) Amounts shown with respect to Mr. Piontkowski for Fiscal
1996 and Fiscal 1994, Mr. Cleveland for Fiscal 1996,
Fiscal 1995 and Fiscal 1994, and Mr. Cutrone for Fiscal
1994, represent amounts reimbursed during the fiscal year
for the payment of taxes.
(9) The Company does not grant Stock Appreciation Rights
("SAR's").
(10)The Company has no long-term incentive plans.
(11)For Fiscal 1996, includes matching contributions by the
Company under the RSIP for Messrs. Piontkowski,
Cleveland, and Cutrone of $6,029, $2,551, and $5,558,
respectively. Includes net term life insurance premium
payments by the Company for Messrs. Piontkowski,
Cleveland and Cutrone of $47, $0, and $343, respectively.
(12)For Fiscal 1995, includes matching contributions by the
Company under the RSIP for Messrs. Piontkowski, Cleveland
and Cutrone of $4,755, $3,929, and $5,254, respectively.
Includes net term life insurance premium payments by the
Company for Messrs. Piontkowski, Cleveland, and Cutrone
of $47, $44, and $386, respectively.
(13)Includes amounts paid for housing expenses for Mr.
Piontkowski of $30,501.
(14)Includes amount paid for mortgage assistance for Mr.
Piontkowski of $16,745.
(15)Includes amounts paid for housing allowance for Mr.
Cleveland of $14,400.
(16)Includes amounts paid for relocation expenses and
allowances for Mr. Cleveland of $10,496 and $9,142,
respectively.
(17)Includes amounts paid for relocation expenses for Mr.
Cleveland of $4,053.
The Company did not grant any stock options during Fiscal 1996.
The following table sets forth certain information about
outstanding stock options, under the Company's 1990 Stock Option
Plan, as amended (the "Stock Option Plan"), held by the five
executive officers named in the Summary Compensation Table
pursuant to the Stock Option Plan. No stock options have been
exercised under the Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
[Download Table]
Value of
Unexercised
Shares Number of Securities In-the-Money
Acquired Underlying Unexercised Options at
on Exer- Value Options at Fiscal Fiscal Year-
cise Realized Year-End(1) End(1),(5)
Name (#) ($) (#) ($)
Unexer-
Exercisable cisable
Ronald F. Stengel -- -- 0 0 --
Thomas A. Cawley -- -- 0 0 --
John A. Piontkowski -- 15,000(2) 44,000 --
Eric J. Cleveland -- -- 33,000 (3) 22,000 --
John A. Cutrone, Jr. -- -- 10,000 (4) 38,000 --
(1) The Company does not grant SAR's.
(2) The options became exercisable on:
February 18, 1995 at an exercise price of $9.25 per share
(5,000)
November 17, 1995 at an exercise price of $6.50 per
share (10,000).
(3) The options became exercisable on:
January 22, 1993 at an exercise price of $12.50 per share
(6,000)
November 13, 1993 at an exercise price of $6.00 per share
(6,000)
November 19, 1994 at an exercise price of $6.875 per share
(6,000)
November 17, 1995 at an exercise price of $6.50 per
share (15,000).
(4) The options became exercisable on:
May 24, 1996 at an exercise price of $4.875 per share (10,000).
(5) Under the POR all of the Common Stock will be canceled.
The table below illustrates the estimated annual benefits upon
retirement under the Smith Corona Corporation Salaried Employees'
Retirement Plan (the "Pension Plan") to persons in the specified
compensation and years-of-service classifications.
[Download Table]
PENSION PLAN TABLE
Years of Service
Remuneration 15 20 25 30 35
$125,000 $24,380 $32,510 $40,640 $48,760 $48,760
$150,000 $30,010 $40,010 $50,010 $60,010 $60,010
$175,000 $30,010 $40,010 $50,010 $60,010 $60,010
$200,000 $30,010 $40,010 $50,010 $60,010 $60,010
$225,000 $30,010 $40,010 $50,010 $60,010 $60,010
$250,000 $30,010 $40,010 $50,010 $60,010 $60,010
$300,000 $30,010 $40,010 $50,010 $60,010 $60,010
$350,000 $30,010 $40,010 $50,010 $60,010 $60,010
$400,000 $30,010 $40,010 $50,010 $60,010 $60,010
$450,000 $30,010 $40,010 $50,010 $60,010 $60,010
$500,000 $30,010 $40,010 $50,010 $60,010 $60,010
On August 6, 1996, the Board of Directors of the Company
resolved to discontinue benefit accruals under the Pension Plan
as of September 1, 1996 and filed for distress termination to be
effective as of October 6, 1996, subject to necessary legal
approvals. When the Pension Plan termination is finally
approved, the maximum retirement benefit payment under the PBGC
guidelines would be $31,705 annually.
The amounts set forth in the table above as estimated
benefits are computed on a straight life annuity basis and
include an offset for a percentage of Social Security benefits.
Effective on January 1, 1989, the amount of compensation taken
into account under a qualified plan is limited (the "Annual
Compensation Limitation") under Section 401(a)(17) of the
Internal Revenue Code of 1986, as amended (the "Code"), subject
to a cost-of-living adjustment announced by the Secretary of the
Treasury. The cap on pension earnings has been limited to
$150,000 as of January 1, 1994 due to the Omnibus Budget
Reconciliation Act of 1993. This limit is reflected in the above
chart. The above chart does not, however, reflect any additional
benefits payable pursuant to grandfathering provisions as a
result of changes in the earnings cap. This Annual Compensation
Limitation may reduce future benefit accruals payable to highly
compensated individuals under the Pension Plan.
The total compensation set forth in the table above is, in
general, compensation covered by the Pension Plan for those
respective individuals. Messrs. Stengel and Cawley did not
participate in the Pension Plan. As of June 30, 1996, Messrs.
Piontkowski, Cleveland and Cutrone, had 5, 32, and 3 years of
credited service under the Pension Plan, respectively, for
purposes of calculating annual retirement benefits under the
Pension Plan.
Summarized below are estimated accrued benefits under the
Pension Plan as of June 30, 1996 for the three executive officers
named in the Summary Compensation Table.
John A. Piontkowski $ 7,410
Eric J. Cleveland $51,350
John A. Cutrone, Jr. $ 5,630
These benefits represent the annual benefit payable at
normal retirement age. Unlike the pension plan table, these
benefits include the grandfathered portion of the benefit
attributable to the prior pay cap. The Company has decided to
use the transitional method under the Omnibus Budget
Reconciliation Act of 1993 which produces the largest possible
benefit under the Pension Plan. When the Pension Plan
termination is finally approved, Mr. Cleveland's estimated
accrued benefits would be subject to reduction under the PBGC
guidelines.
Supplemental Executive Retirement Plan
The Company maintained the Smith Corona Supplemental
Executive Retirement Plan (the "SERP") which provided additional
retirement benefits in excess of the maximum allowable under
plans qualified under the Code pursuant to which certain
executive officers participated. The Board of Directors of the
Company terminated the SERP effective January 31, 1996. None of
the named executive officers have any rights under the SERP.
Employment Agreements
The Company had an employment agreement with Mr. Cleveland
which provided for salary and certain benefits. This agreement
expired on December 31, 1995 and has not been extended.
Severance Agreements
Messrs. Piontkowski and Cutrone had agreements with the
Company for severance benefits, including salary continuation for
two years, which expired June 30, 1996 and were not renewed.
Certain other officers and employees of the Company have
entered into similar severance agreements with terms ranging from
six months to two years, all of which expired on or before June
30, 1996 and were not renewed.
Retention Agreements
Effective July 1, 1995, the Company engaged the firm of R.F.
Stengel & Co., Inc. ("RFS") to provide interim management
services pursuant to the terms of a letter agreement dated June
29, 1995 (the "RFS Agreement") between the Company and RFS. The
RFS Agreement provides, among other things, that RFS will provide
the Company with leadership to guide the Company through the
bankruptcy proceeding and to work toward the confirmation and
consummation of a plan of reorganization. The RFS Agreement also
provides that RFS will support as required the information
requests of, and ongoing conversations with, the Lenders, and
will work with the Company's other outside professionals. RFS
reports directly to the Company's Board of Directors.
The terms of the RFS Agreement provide that Ronald F.
Stengel, President of RFS, will serve as President, Chief
Executive Officer and a director of the Company while the RFS
Agreement is in effect. On July 1, 1995, Mr. Stengel was elected
President and Chief Executive Officer of the Company, and was
elected to the Board of Directors of the Company. On July 1,
1995, Thomas A. Cawley, Vice President and Secretary of RFS, was
also elected a director of the Company, and on July 26, 1995, Mr.
Cawley was elected Vice President-Administration of the Company.
RFS has also agreed to provide additional professional staff as
necessary for RFS to perform its obligations under the RFS
Agreement.
Pursuant to the terms of the RFS Agreement, RFS's fees are
billed and payable monthly. The daily professional fees of Mr.
Stengel and Mr. Cawley are $2,500 and $1,700 respectively. In
addition, the billing rate for other professional staff is from
$1,700 to $2,500 per day. Twenty percent of professional fees
incurred by the Company for services rendered by RFS is set aside
and accumulated as incentive compensation, and will be payable,
subject to the approval of the Bankruptcy Court, upon the
successful completion of activities and timetables. The
Bankruptcy Court authorized and approved the retention of RFS
under Sections 327 and 328 of the Bankruptcy Code pursuant to the
terms of the RFS Agreement on July 5, 1995.
REPORT OF THE COMPENSATION AND BENEFITS COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Board of
Directors of the Company is comprised of directors who are not
and have not been employees of the Company. The Committee is
responsible for reviewing and approving all matters related to
executive compensation and reviewing the structure of long-term
incentive plans and approving grants to executives under such
plans.
The Company adheres to a policy of blending several
components of executive compensation in order to attract and
retain top employees, reward its executives for performance that
results in profits to the Company, and motivate management to
continue to optimize value for the Company's shareholders. The
three aspects of each executive's compensation are:
base salary,
short-term incentive compensation based on the Company's
annual performance, and
stock option grants to reward successful long-range
planning.
Base Salary. In 1993, the Company engaged a consultant to
perform a study of its executive officers' base salaries as
compared with those of other durable manufacturing companies.
The study revealed that the Company's executive officers'
salaries ranged from 19% below average market value to 15% above.
Based on the findings of this study, as well as ongoing research
performed by the Company, the Company believes that the base
salaries paid to its executives compare favorably overall with
those paid to executives of similar companies.
Increases in base salary are considered annually and reflect
the Company's profitability and return on capital employed, the
individual executive's salary level as compared with those of
similar executives of the Company's competitors, and the
individual executive's level of responsibility and performance.
Executive performance is measured using a "management by
objectives" system. Salary increases for executives other than
the Chief Executive Officer are recommended to the Committee by
the Chief Executive Officer.
Short-Term Incentive Compensation. In Fiscal 1996, the
Company and its major subsidiaries maintained a short-term
incentive compensation plan ("Bonus Plan"), pursuant to which
management established graduated performance targets for the
Company and its major subsidiaries. At each level of performance
target reached, a portion of the bonus amount was paid to all
domestic and certain international employees pursuant to a
schedule of payments established at the beginning of the fiscal
year. Payments under the Bonus Plan were tied to levels of
operating income generated by the Company and its major
subsidiaries during the fiscal year. The payments under the
Bonus Plan to certain employees were also based upon other
factors, including sales and gross margin. Performance levels
were established in coordination with the Company's operating
plan for the fiscal year.
All of the named executives, excluding Messrs. Stengel and
Cawley, participated in the Bonus Plan.
Stock Option Grants. In order to encourage executives to
make decisions for the Company based on long-range planning, and
to stress the importance of maximizing shareholder returns
through strong performance, the Company instituted the Stock
Option Plan in 1990. The Company did not grant any stock options
in Fiscal 1996. Option grants are made by the Company based upon
each recipient's performance, impact on profitability, level of
responsibility and salary level. The exercise price of any
option granted under the Stock Option Plan may not be less than
the fair market value of the Company's stock on the date of
grant. Except under certain circumstances, options may not be
exercised until at least three years after they were granted,
thereby creating a personal incentive for executives to maximize
shareholder gains over the long-term.
Compensation of the Chief Executive Officer
Under the Retention Agreement and pursuant to Bankruptcy
Court approval, the Company has retained RFS to provide interim
management services to the Company. Fees for these services are
billed by and paid to RFS. Mr. Stengel's daily rate is $2,500.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
The following table sets forth, as of June 30, 1996, certain
information regarding beneficial ownership of Common Stock by (a)
each person known by the Company to own beneficially more than 5%
of its outstanding Common Stock, (b) each director of the
Company, (c) the five executive officers named in the Summary
Compensation Table, and (d) all directors and executive officers
as a group. Unless otherwise indicated, each person has sole
investment and voting power with respect to the shares indicated.
[Download Table]
Name of Number of Percent of Common
Beneficial Owner Shares Stock Outstanding
Hanson PLC (1) 14,480,000 47.9%
Ronald F. Stengel 0 0
Robert Van Buren 2,500 *
John A. Piontkowski 0 0
Thomas A. Cawley 0 0
John E. Lushefski 400 *
George H. Hempstead, III 450 *
Craig C. Sergeant 0 0
John A. Cutrone, Jr. 0 0
Richard R. West 1,000 *
Robert J. Kammerer 500 *
Eric J. Cleveland 4,160 *
All directors and
executive officers
as a group (18 persons) 12,070 *
*Less than one percent of the outstanding shares of Common
Stock.
(1) Record ownership of the shares indicated is in the name of
Hanson Natural Resources Company. The business address of
Hanson PLC is 1 Grosvenor Place, London SW1X 7JH, England.
The business address of Hanson Natural Resources Company is
c/o Hanson Industries, 99 Wood Avenue South, Iselin, New
Jersey 08830.
Item 13. Certain Relationships and Related Transactions
On August 3, 1989, the Company completed the Offerings. In
connection with the Offerings, Hanson initiated a series of
transactions to continue the electronic typewriter, personal word
processor and office supplies businesses under a single parent
entity being the Company ("the Reorganization"). Prior to the
closing of the Offerings, the Company had been an indirect,
wholly-owned subsidiary of Hanson, an industrial management
company. Pursuant to the Offerings, the Company sold 14,750,000
shares of Common Stock to the public in public offerings
registered pursuant to the Securities Act of 1933, as amended
(the "1933 Act"). Following the Offerings, Hanson owned 47.9% of
the outstanding Common Stock and, pursuant to a Stockholders
Agreement, retained the right, subject to certain conditions, to
elect four of the Company's directors. See "Stockholders
Agreement" below. Subsequent to the Offerings, all proposed
agreements between the Company and Hanson or its affiliates must
be approved in advance by the Audit Committee.
Stockholders Agreement
The Company and Hanson Natural Resources Company, an indirect,
wholly-owned subsidiary of Hanson ("HNR"), as assignee of HM
Holdings, Inc. ("HMH"), have entered into a Stockholders
Agreement, dated as of June 2, 1989 (the "Stockholders
Agreement"), which provides that, so long as HNR and its
affiliates own 38% or more of the outstanding Common Stock, the
Company shall nominate at least four designees of HNR for
election to the Company's Board of Directors. The Company agreed
in the Stockholders Agreement to use its best efforts to cause
the Board of Directors to consist of nine members during the term
of the Stockholders Agreement, which expires on June 2, 1999.
However, HNR consented to the increase of the Company's Board of
Directors to ten members, and the Board of Directors authorized
such increase on August 20, 1991. The number of HNR designees is
subject to reduction as follows: (i) if HNR's share ownership is
at least 27% but less than 38%, three designees; (ii) if HNR's
share ownership is at least 16% but less than 27%, two designees;
and (iii) if HNR's share ownership is at least 5% but less than
16%, one designee. In the Stockholders Agreement, HNR agreed
that immediately after the Reorganization and the Offerings it
would cause stockholders' equity of the Company to equal $50
million and the ratio of net debt (bank debt and indebtedness to
HNR less invested cash and cash equivalents) to equity not to
exceed 195%. The Stockholders Agreement also grants HNR the
right to require the Company to register under the 1933 Act
shares of Common Stock held by HNR and its affiliates and certain
members of management on not more than two occasions provided
that at least 10% of the outstanding shares of Common Stock are
registered pursuant to each such request. It further provides
that HNR may require its shares to be registered if it notifies
the Company within 30 days of receiving notice that the Company
has determined to register its own securities. The Company and
HNR have agreed to indemnify each other against certain
liabilities incurred in connection with the registration of such
shares.
Cross-Indemnification Agreement
The Company and HMH entered into an Amended and Restated Cross-
Indemnification Agreement dated as of June 2, 1989 (the "Cross-
Indemnity Agreement"). In the Cross-Indemnity Agreement, the
Company agreed generally to indemnify HMH and Hanson against
substantially all liabilities relating to the business of the
Company, including environmental liabilities but excluding tax
liabilities which are addressed under the Tax Sharing Agreement
(as defined below). HMH, in turn, agreed to indemnify the
Company against substantially all liabilities relating to the
business of Hanson (other than the business of the Company),
including environmental liabilities but excluding tax liabilities
which are addressed under the Tax Sharing Agreement described
below.
Tax Sharing Agreement
Following Hanson's acquisition of the Company's predecessor, SCM,
the Company and its subsidiaries were included as members of the
Hanson affiliated group of corporations, which filed a
consolidated United States federal income tax return (the
"Consolidated Group"). After the Offerings, the Company no
longer qualified to be a member of the Consolidated Group for
federal income tax purposes. The Company and HMH entered into an
Amended and Restated Tax Sharing and Indemnification Agreement
dated as of June 2, 1989 (the "Tax Sharing Agreement"). Under
the Tax Sharing Agreement, HMH generally will indemnify the
Company with respect to all income tax liabilities or obligations
in respect of all tax periods prior to the closing of the
Offerings and for all tax liabilities which arise solely with
respect to the Reorganization. Similarly, the Company agreed to
indemnify HMH for all income tax liabilities or obligations
imposed on the Company attributable to periods beginning on or
after the closing of the Offerings and all other non-income tax
liabilities and obligations imposed on the Company for all prior
and future periods. With respect to income tax liabilities or
obligations attributable to periods prior to the date of the
closing of the Offerings, but which have been reserved for or
accrued for in the ordinary course of business prior to the
closing of the Offerings, the Company will indemnify HMH and HMH
will be under no obligation to indemnify the Company to the
extent so reserved or accrued. The Tax Sharing Agreement also
provides that the Company will assign to HMH (i) all refunds of
taxes for which HMH indemnifies the Company and (ii) any tax
benefits realized by the Company on or after the date on which
the Company ceased to be a member of the Consolidated Group as a
result of payments by the Company pursuant to the Supplemental
Performance Plan adopted by Hanson and the Company soon after
Hanson's acquisition of SCM in 1986. The Tax Sharing Agreement
also provides that HMH generally will direct any audit, legal or
administrative proceedings concerning any tax matters for which
HMH has indemnified the Company or with respect to any refund to
which HMH is entitled. To implement the Tax Sharing Agreement,
Hanson funded certain tax liabilities which became liabilities of
the Company as a result of the Reorganization. During Fiscal
1996, the Company gave notice to HMH of a claim for
indemnification arising out of certain tax claims asserted
against the Company by the State of New York in the amount of $.3
million.
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) Report on Form 8-K. One Current Report on Form 8-K was
filed with the Commission during the last quarter of the
Company's 1996 fiscal year.
1. The Form 8-K Current Report dated May 28, 1996 reported
a press release under Item 5 announcing that it filed a
Plan of Reorganization and Disclosure Statement with
the U.S. Bankruptcy Court for the District of Delaware
on May 24, 1996.
In addition, there was a second press release under
Item 5 confirming New York Stock Exchange actions to
suspend trading and intention to initiate delisting of
Smith Corona common stock.
(c) Exhibits (filed herewith or incorporated by reference;
see index to exhibits).
*2.1 Third Amended Second Disclosure Statement pursuant to
section 1125 of the Bankruptcy Code in respect of Debtors'
Third Amended Second Joint Plan of Reorganization and
exhibits thereto.
3.1 Amended and Restated Certificate of Incorporation of Smith
Corona Corporation (incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on file with
the Commission (Registration No. 33-29101)).
3.2 By-Laws of Smith Corona Corporation (incorporated by
reference to Exhibit 3.2 to the Company's Registration
Statement on file with the Commission (Registration No. 33-
29101)).
4.1 Form of Common Stock Certificate (incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on
file with the Commission (Registration No. 33-29101)).
10.1 Lease Agreement between Cherry Street Associates and Smith
Corona Corporation dated March 13, 1992 (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-K Annual
Report for the fiscal year ended June 30, 1992, which is on
file with the Commission).
10.2 Lease between REBA Properties, Inc. and SCM Corporation
dated June 15, 1970 (incorporated by reference to Exhibit
10.1b to the Company's Registration Statement on file with
the Commission (Registration No. 33-29101)).
10.3 Lease between the Housing and Development Board and Corona
Manufacturers (PTE) Limited dated April 18, 1975
(incorporated by reference to Exhibit 10.1e to the
Company's Registration Statement on file with the
Commission (Registration No. 33-29101)).
10.4 Tenancy between Jurong Town Corporation and Smith Corona
(Private) Limited dated February 16, 1989 (incorporated by
reference to Exhibit 10.1f to the Company's Registration
Statement on file with the Commission (Registration No.
33-29101)).
10.5 Lease between HM Holdings, Inc. and Histacount Corporation
dated June 1, 1989 (incorporated by reference to Exhibit
10.1g to the Company's Registration Statement on file with
the Commission (Registration No. 33-29101)).
10.6 Memorandum dated August 11, 1994 evidencing Lease Extension
between HM Holdings, Inc. and Histacount Corporation dated
June 1, 1989 (incorporated by reference to Exhibit 10.6 to
the Company's Form 10-K Annual Report for the fiscal year
ended June 30, 1994, which is on file with the Commission).
10.7 SCM Office Supplies, Inc. Salaried Employees' Retirement
Plan as amended and restated as of January 1, 1994
(incorporated by reference to Exhibit 10.9 to the Company's
Form 10-K Annual Report for the fiscal year ended June 30,
1995, which is on file with the Commission).
10.8 Smith Corona Corporation Retirement Savings and Investment
Plan adopted effective July 1, 1989, as amended through
April 15, 1993 (incorporated by reference to Exhibit 10.9
to the Company's Form 10-K Annual Report for the fiscal
year ended June 30, 1995, which is on file with the
Commission).
10.9 Memorandum dated July 28, 1995 amending the Smith Corona
Corporation Retirement Savings and Investment Plan adopted
effective July 1, 1989, as amended through January 1, 1994
(incorporated by reference to Exhibit 10.9 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 Smith Corona Corporation Retirement Savings and Investment
Plan Amendment effective October 18, 1995.
10.11 Histacount Corporation Retirement Savings and Investment
Plan adopted effective July 1, 1989, as amended through
January 1, 1994 (incorporated by reference to Exhibit 10.10
to the Company's Form 10-K Annual Report for the fiscal
year ended June 30, 1995, which is on file with the
Commission).
*10.12 Histacount Corporation Retirement Savings and Investment
Plan Amendment effective October 18, 1995.
10.13 Histacount Corporation Salaried and Non-Union Hourly
Employees' Pension Plan as amended and restated effective
October 1, 1989 (incorporated by reference to Exhibit 10.12
to the Company's Form 10-K Annual Report for the fiscal
year ended June 30, 1992, which is on file with the
Commission).
10.14 Smith Corona Corporation Supplemental Executive Retirement
Plan as restated and amended as of July 28, 1989, through
November 16, 1993 (incorporated by reference to Exhibit
10.12 to the Company's Form 10-K Annual Report for the
fiscal year ended June 30, 1995, which is on file with the
Commission).
*10.15 Smith Corona Corporation Secretary's Certificate resolving
the termination of the Smith Corona Corporation
Supplemental Executive Retirement Plan effective January
31, 1996.
10.16 Smith Corona Corporation 1990 Stock Option Plan, effective
as of December 1, 1989, amended through November 15, 1994
(incorporated by reference to Exhibit 10.12 to the
Company's Form 10-Q Quarterly Report for the quarter ended
December 31, 1994, which is on file with the Commission).
10.17 Trust Agreement between SCM Corporation, The Chase
Manhattan Bank, N.A. and Kwasha Lipton dated October 7,
1985 (incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on file with the
Commission (Registration No. 33-29101)).
10.18 Smith Corona Corporation Short Term Incentive Compensation
Plan (incorporated by reference to Exhibit 10.15 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1995, which is on file with the Commission).
10.19 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)).
10.20 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)).
10.21 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)).
10.22 Memorandum of Sale dated May 22, 1991 between HM Holdings,
Inc. and Hanson Natural Resources Company; Consent and
Amendment Agreement dated May 21, 1991 between Smith Corona
Corporation and HM Holdings, Inc.; and Letter of George H.
Hempstead III to G. Lee Thompson dated May 28, 1991
(incorporated by reference to Exhibit 10.17 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1991, which is on file with the Commission).
10.23 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)).
10.24 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)).
10.25 Stock Purchase Agreement by and among Smith Corona Overseas
Holdings, Inc., SCM Industries Limited and Smith Corona
Corporation dated as of June 2, 1989 (incorporated by
reference to Exhibit 10.21 to the Company's Registration
Statement on file with the Commission (Registration
No. 33-29101)).
10.26 Employment Agreement between Smith Corona Corporation and
William D. Henderson, dated as of May 22, 1990
(incorporated by reference to Exhibit 10.29 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1990, which is on file with the Commission).
10.27 One year extension, effective June 30, 1992, of Employment
Agreement described in 10.23 (incorporated by reference to
Exhibit 10.30 to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1993, which is on file with
the Commission).
10.28 Two year extension, effective June 30, 1993, of Employment
Agreement described in 10.23 (incorporated by reference to
Exhibit 10.31 to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1993, which is on file with
the Commission).
10.29 Employment Agreement between Smith Corona Corporation and
William D. Henderson, dated as of February 3, 1995
(incorporated by reference to Exhibit 10.26 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1995, which is on file with the Commission).
10.30 Severance Letter between Smith Corona Corporation and G.
Lee Thompson, dated as of February 3, 1995 (incorporated by
reference to Exhibit 10.27 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1995,
which is on file with the Commission).
10.31 Employment Agreement between Smith Corona Corporation and
Thomas C. DeFazio, dated as of January 23, 1991
(incorporated by reference to Exhibit 10.30 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1991, which is on file with the Commission).
10.32 Two year extension, effective June 30, 1993, of Employment
Agreement described in 10.28 (incorporated by reference to
Exhibit 10.34 to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1993, which is on file with
the Commission).
10.33 Employment Agreement between Smith Corona Corporation and
Thomas C. DeFazio, dated as of February 3, 1995
(incorporated by reference to Exhibit 10.30 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1995, which is on file with the Commission).
10.34 Memorandum evidencing severance agreement between Smith
Corona Corporation and Manfred J. Eckhardt (incorporated by
reference to exhibit 10.31 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1991,
which is on file with the Commission).
10.35 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).
*10.36 Smith Corona Corporation Hourly Employees' Retirement Plan
and SCM Office Supplies, Inc. Salaried Employees' and
Hourly Employees' Retirement Plan.
10.37 Supplemental pension benefit arrangement between Smith
Corona Corporation and William D. Henderson dated November
19, 1992 (incorporated by reference to Exhibit 10.40 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1993, which is on file with the Commission).
10.38 Supplemental pension benefit arrangement between Smith
Corona Corporation and Thomas C. DeFazio dated November 19,
1992 (incorporated by reference to Exhibit 10.41 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1993, which is on file with the Commission).
10.39 Memorandum dated January 14, 1994 evidencing retention
agreement between John R. Noblitt and Smith Corona
Corporation (incorporated by reference to Exhibit 10.37 to
the Company's Form 10-K Annual Report for the fiscal year
ended June 30, 1994, which is on file with the Commission).
10.40 Credit Agreement dated as of April 7, 1995 among Smith
Corona Corporation, the lenders party thereto and Chemical
Bank, as Agent (incorporated by reference to Exhibit 99.2
to the Company's Form 8-K Current Report dated April 7,
1995, which is on file with the Commission).
10.41 Lease Agreement between City of Marion, Indiana and SCM
Corporation dated as of March 1, 1971 (incorporated by
reference to Exhibit 10.44 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1993, which
is on file with the Commission).
10.42 Lease Agreement between Inmobiliarian Mex-Hong, S.A. De
E.V. and Smith Corona De Mexico, S.A. De C.V. dated
November 24, 1992 (incorporated by reference to Exhibit
10.47 to the Company's Form 10-K Annual Report for the
fiscal year ended June 30, 1993, which is on file with the
Commission).
10.43 Lease Agreement between Inmobiliarian Mex Hong, S.A. De
E.V. and Smith Corona De Mexico, S.A. De C.V. dated June 4,
1993 (incorporated by reference to Exhibit 10.48 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1993, which is on file with the Commission).
10.44 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).
10.45 Asset Purchase Agreement, dated as of June 8, 1994, among
Ampad Corporation, SCM Office Supplies, Inc. and Smith
Corona Corporation (incorporated by reference to exhibit 1
to the Company's Form 8-K Current Report dated July 19,
1994, which is on file with the Commission).
10.46 Asset Purchase Agreement, dated as of November 4, 1994, by
and among HC Delaware Acquisition Corporation, Histacount
Corporation and Smith Corona Corporation (incorporated by
reference to Exhibit 10.44 to the Company's Form 10-Q
Quarterly Report for the quarter ended December 31, 1994,
which is on file with the Commission).
10.47 Security Agreement, dated as of April 7, 1995, among Smith
Corona Corporation and Chemical Bank, as Agent
(incorporated by reference to Exhibit 10.45 to the
Company's Form 10-Q Quarterly Report for the quarter ended
March 31, 1995, which is on file with the Commission).
10.48 Debtor-in-Possession Credit Agreement dated as of July 10,
1995 among Smith Corona Corporation, the lenders party
thereto and Chemical Bank, as Agent (incorporated by
reference to Exhibit 10.44 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1995,
which is on file with the Commission).
10.49 First Amendment to Debtor-In-Possession Credit Agreement
dated as of July 24, 1995 (incorporated by reference to
Exhibit 10.45 to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1995, which is on file with
the Commission).
10.50 Second Amendment to Debtor-In-Possession Credit Agreement
dated as of August 15, 1995 (incorporated by reference to
Exhibit 10.46 to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1995, which is on file with
the Commission).
10.51 Third Amendment to Debtor-In-Possession Credit Agreement
dated as of December 6, 1995 incorporated by reference to
Exhibit 10 to the Company's Form 10-Q Quarterly Report for
the quarter ended December 31, 1995, which is on file with
the Commission).
*10.52 Fourth Amendment to Debtor-In-Possession Credit Agreement
dated as of June 30, 1996.
10.53 Consulting Agreement between Smith Corona Corporation and
R. F. Stengel & Co., Inc., dated June 29, 1995
(incorporated by reference to Exhibit 10.47 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1995, which is on file with the Commission).
10.54 Lease between Smith Corona Corporation and J.M. Murray
Center, Inc., dated February 8, 1995 (incorporated by
reference to Exhibit 10.48 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1995,
which is on file with the Commission).
10.55 Purchase and Sale Agreement, dated as of February 28, 1995,
between Smith Corona Corporation and J.M. Murray Center
(incorporated by reference to Exhibit 10.49 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1995, which is on file with the Commission).
*10.56 Sale by Tender between Smith Corona Private Limited and ST
Computer Systems & Services Ltd., dated November 2, 1995.
10.57 Severance Agreement between Smith Corona Corporation and
John A. Cutrone, dated as of June 13, 1994 (incorporated by
reference to Exhibit 10.50 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1995,
which is on file with the Commission).
10.58 One year extension, effective June 30, 1995, of Severance
Agreement described in 10.57 (incorporated by reference to
Exhibit 10.51 to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1995, which is on file with
the Commission).
10.59 Severance Agreement between Smith Corona Corporation and W.
Michael Driscoll, dated as of June 13, 1994 (incorporated
by reference to Exhibit 10.52 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1995,
which is on file with the Commission).
10.60 One year extension, effective June 30, 1995, of Severance
Agreement described in 10.59 (incorporated by reference to
Exhibit 10.53 to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1995, which is on file with
the Commission).
10.61 Severance Agreement between Smith Corona Corporation and
John A. Piontkowski, dated as of April 3, 1995
(incorporated by reference to Exhibit 10.54 to the
Company's Form 10-K Annual Report for the fiscal year ended
June 30, 1995, which is on file with the Commission).
10.62 Amendment of Severance Letter, effective June 29, 1995,
described in 10.61 (incorporated by reference to Exhibit
10.55 to the Company's Form 10-K Annual Report for the
fiscal year ended June 30, 1995, which is on file with the
Commission).
10.63 Severance Agreement between Smith Corona Corporation and
Jerry L. Diener, dated as of June 1, 1990 (incorporated by
reference to Exhibit 10.56 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1995,
which is on file with the Commission).
10.64 Six month extension, effective June 30, 1995, of Severance
Agreement described in 10.63 (incorporated by reference to
Exhibit 10.57 to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1995, which is on file with
the Commission).
10.65 Consulting Agreement between Smith Corona Corporation and
Manfred J. Eckhardt, dated as of June 9, 1995 (incorporated
by reference to Exhibit 10.58 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1995,
which is on file with the Commission).
10.66 Stock Option Agreement between Smith Corona Corporation and
Robert Van Buren, dated as of April 13, 1995 (incorporated
by reference to Exhibit 10.59 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1995,
which is on file with the Commission).
10.67 Employment Agreement between Smith Corona Corporation and
Robert Van Buren, dated March 28, 1995 (incorporated by
reference to Exhibit 10.60 to the Company's Form 10-K
Annual Report for the fiscal year ended June 30, 1995,
which is on file with the Commission).
*21 Schedule of Subsidiaries of the Registrant
*23 Consent of Deloitte & Touche LLP
*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, 65 Locust Avenue, New
Canaan, Connecticut 06840.
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 30, 1996 By /s/ Robert Van Buren
Robert Van Buren
Chairman of the Board
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.
[Download Table]
<CAPTION
Signature Title Date
/s/ Robert Van Buren
....................... Chairman of the Board September 30, 1996
(Robert Van Buren)
/s/ Ronald F. Stengel
........................ President, Chief Executive September 30, 1996
(Ronald F. Stengel) Officer and Director
/s/ John A. Piontkowski
........................ Senior Vice President and September 30, 1996
(John A. Piontkowski) Chief Financial Officer
(Principal Financial Officer)
/s/ Thomas A. Cawley
........................ Vice President/Administration September 30, 1996
(Thomas A. Cawley) and Director
/s/ George H.Hempstead,III
........................ Director September 30, 1996
(George H. Hempstead,III)
/s/ Robert J. Kammerer
........................ Director September 30, 1996
(Robert J. Kammerer)
/s/ John E. Lushefski
........................ Director September 30, 1996
(John E. Lushefski)
/s/ Craig C. Sergeant
........................ Director September 30, 1996
(Craig C. Sergeant)
/s/ Richard R. West
........................ Director September 30, 1996
(Richard R. West)
/s/ Martin D. Wilson
........................ Vice President/Controller September 30, 1996
(Martin D. Wilson) (Principal Accounting
Officer)
Index to Consolidated Financial Statements and Financial
Statement Schedule
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . 52
Consolidated Balance Sheets as of June 30, 1996 and 1995 . . . 54
Consolidated Statements of Operations for the Years Ended June
30, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . . 55
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended June 30, 1996, 1995 and 1994 . . . . . . . . . 56
Consolidated Statements of Cash Flows for the Years Ended June
30, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . . . 57
Notes to Consolidated Financial Statements . . . . . . . . . . 58
Consolidated Supplemental Financial Statement Schedule for the
Years Ended June 30, 1996, 1995 and 1994
Schedule II - Valuation and Qualifying Accounts . . . . 85
INDEPENDENT AUDITORS' REPORT
Smith Corona Corporation:
We have audited the accompanying consolidated balance sheets of
Smith Corona Corporation and subsidiaries (in reorganization
under Chapter 11 of the Federal Bankruptcy Code since July 5,
1995 - see Note 1) (the "Company") as of June 30, 1996 and 1995,
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, 1996.
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 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, 1996 and 1995 and
the results of their operations and their cash flows for each of
the three years in the period ended June 30, 1996 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.
As discussed in Note 1 to the consolidated financial statements,
on July 5, 1995, Smith Corona Corporation filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code.
In addition, 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 Smith Corona Corporation, filed Chapter 11
petitions. The accompanying financial statements do not purport
to reflect or provide for the consequences of the Bankruptcy
Proceedings. In particular, such financial statements do not
purport to show (a) as to assets, their realizable value on a
liquidation basis or their availability to satisfy liabilities;
(b) as to prepetition liabilities, the amounts that may be
allowed for claims or contingencies, or the status and priority
thereof; (c) as to stockholder accounts, the effect of any
changes that may be made in the capitalization of the Company; or
(d) as to operations, the effect of any changes that may be made
in its business. The outcome of these matters is not presently
determinable.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 and Note 17 to the consolidated
financial statements, the Company has recurring losses from
operations, has an accumulated deficit at June 30, 1996, and
cannot presently determine with certainty the ultimate liability
which may result from the filing of claims in connection with the
bankruptcy proceedings and the ability to successfully implement
the Company's reorganization plan. Additionally, as contemplated
in the Company's reorganization plan, the Company anticipates
having in place a new credit agreement to help finance future
operations under the Plan. As described in Note 7, the Company's
Debtor-In-Possession Credit Agreement expires on September 30,
1996. These circumstances raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans concerning these matters are also discussed in Note 1. The
consolidated financial statements do not include adjustments that
might result from the outcome of the uncertainties referred to
herein and in the preceding paragraph.
/s/ Deloitte & Touche LLP
-------------------------
DELOITTE & TOUCHE LLP
Stamford, Connecticut
September 19, 1996
Smith Corona Corporation and Subsidiaries
Consolidated Balance Sheets
[Download Table]
June 30,
(Dollars in thousands) 1996 1995
Assets
Current assets:
Cash and cash equivalents $ 29,929 $7,003
Accounts receivable (net of allowance
for doubtful accounts of $1,576 and
$1,484 for 1996 and 1995, respectively) 17,185 37,654
Inventories 16,873 54,335
Prepaid expenses and other current
assets 4,754 6,571
Total current assets 68,741 105,563
Property, plant and equipment-net 12,639 22,888
Deferred income taxes - 3,406
Other assets 2,492 4,209
Total $ 83,872 $136,066
Liabilities and stockholders' equity
Current liabilities:
Bank loans $ - $17,400
Trade payables 3,569 19,807
Accrued liabilities 10,353 35,449
Income taxes payable 702 5,791
Total current liabilities 14,624 78,447
Postretirement benefits - 12,999
Pension liability - 18,801
Other long-term liabilities - 5,569
Liabilities subject to compromise 60,120 -
Total liabilities 74,744 115,816
Stockholders' equity:
Common stock- 30,250,000 shares issued
and outstanding 303 303
Additional paid-in capital 44,697 44,697
Accumulated deficit (35,872) (24,750)
Total stockholders' equity 9,128 20,250
Total $ 83,872 $136,066
See accompanying notes to consolidated financial statements.
Smith Corona Corporation and Subsidiaries
Consolidated Statements of Operations
[Download Table]
(Dollars in thousands, For the year ended June 30,
except per share amounts) 1996 1995 1994
Net sales $112,548 $196,309 $261,306
Cost of goods sold 103,355 180,959 204,327
Gross margin 9,193 15,350 56,979
Selling, administrative and
research expenses 27,773 48,532 48,557
Reorganization costs 10,255 - -
Restructuring expense (income) (19,461) 13,584 -
Other income (798) - -
Operating income (loss) (8,576) (46,766) 8,422
Interest expense 515 965 708
Income (loss) from continuing
operations before income taxes (9,091) (47,731) 7,714
Income taxes 2,031 14,514 2,620
Income (loss) from continuing
operations (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)
Net income (loss) $(11,122) $(52,447) $5,127
Earnings per common share -
Income (loss) from continuing
operations $ (.37) $ (2.05) $ .17
Discontinued operations (net of
income taxes):
Income from discontinued operations - .02 .07
Gain (loss) on disposal
of discontinued operations - .30 (.07)
Net income (loss) per share $ (.37) $ (1.73) $ .17
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, 1996, 1995 and 1994
[Download Table]
Retained
Additional Earnings
(Dollars in thousands, Common Paid-in (Accumulated
except per share amounts) Stock Capital Deficit) Total
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
Net loss - - (52,447) (52,447)
Dividends declared
($.10 per share) - - (3,025) (3,025)
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
See accompanying notes to consolidated financial statements.
Smith Corona Corporation and Subsidiaries
Consolidated Statements of Cash Flows
[Download Table]
For the year ended June 30,
(Dollars in thousands) 1996 1995 1994
Cash flows from operating activities:
Net income (loss) $(11,122)$(52,447) $5,127
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
continuing operating activities:
Discontinued operations - (9,798) (33)
Depreciation and amortization 5,665 6,689 4,998
(Gain) loss on disposition of property,
plant and equipment (16,786) 1,532 20
Restructuring costs - 13,584 -
Deferred income taxes 3,406 11,096 1,818
Inventory provisions 5,199 9,930 3,021
Other noncash items (692) 2,980 -
Changes in assets and liabilities:
Accounts receivable 20,469 10,556 (16,759)
Inventories 32,263 (1,570) 9,816
Prepaid expenses and other
current assets (1,177) 139 (1,675)
Other assets 777 895 (1,112)
Trade payables (5,821) (7,572) 3,804
Accrued liabilities and income
taxes payable (16,310) (4,280) (651)
Postretirement benefits and
pension liability (98) (1,211) (731)
Other long-term liabilities 81 1,443 198
Net cash provided by (used in)
continuing operations 15,854 (18,034) 7,841
Net cash provided by
discontinued operations - 1,370 907
Net cash provided by (used in)
operating activities 15,854 (16,664) 8,748
Cash flows from investing activities:
Proceeds from sale of
discontinued operations - 27,500 -
Proceeds from the sale of property,
plant and equipment 24,803 - -
Capital expenditures (331) (3,166) (11,359)
Net cash provided by (used in)
investing activities 24,472 24,334 (11,359)
Cash flows from financing activities:
Bank loans (repayments), net (17,400) (2,602) 1,333
Dividends paid - (4,537) (6,050)
Net cash used in financing activities (17,400) (7,139) (4,717)
Increase (decrease) in cash and
cash equivalents 22,926 531 (7,328)
Cash and cash equivalents:
Beginning of year 7,003 6,472 13,800
End of year $29,929 $ 7,003 $6,472
Cash paid during the year for:
Interest $ 662 $ 1,146 $ 842
Income taxes $ 644 $ 2,300 $2,077
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. Petition for Reorganization Under Chapter 11 and Basis of
Presentation
On July 5, 1995, Smith Corona Corporation filed a voluntary
petition for relief under Chapter 11 of the United States
Bankruptcy Code in the District of Delaware. Prior to August 18,
1995, the bankruptcy proceedings did not include any of the
subsidiaries of the Company. On August 18, 1995, SCM Office
Supplies, Inc., SCC LI Corporation (formerly known as "Histacount
Corporation") and Hulse Manufacturing Company, all wholly-owned
Nonoperating Subsidiaries of Smith Corona Corporation, filed
Chapter 11 petitions (collectively the "Bankruptcy Proceedings").
The Bankruptcy Proceedings primarily relate to all U.S. assets
and operations and do not pertain to Smith Corona Corporation's
international subsidiaries. Condensed consolidated proforma
financial information for the entities included in the Bankruptcy
Proceedings are presented in Note 16. Since July 5, 1995, the
Company has been operating as a debtor-in-possession.
The consolidated financial statements for Fiscal 1996 have
been presented in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7:
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code." The consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles applicable to a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. Accordingly, the consolidated
financial statements do not reflect adjustments or provide for
the potential consequences of the Bankruptcy Proceedings of the
Company. In particular, the consolidated financial statements do
not purport to show (a) the realizable value of assets on a
liquidation basis or their availability to satisfy liabilities;
(b) prepetition liability amounts that may be allowed for claims
or contingencies or the status and priority thereof; (c) the
effect of any changes that may be made to the capitalization of
the Company; or (d) the effect of any changes that may be made in
the Company's business operations. The outcome of these matters
is not presently determinable. The Company had recurring losses
from operations in Fiscal 1996 and Fiscal 1995; had difficulty
meeting its Amended and Restated Revolving Credit Agreement
covenants during the fourth quarter of Fiscal 1995; has had to
obtain waivers to certain of its Debtor-In-Possession Credit
Agreement covenants during Fiscal 1996; has an accumulated
deficit at June 30, 1996; and cannot presently determine with
certainty the ultimate liability which may result from the filing
of claims in connection with the Bankruptcy Proceedings. These
conditions along with uncertainties surrounding the POR raise
substantial doubt as to the Company's ability to continue as a
going concern.
Due to the Bankruptcy Proceedings, substantially all claims
against the Company, prior to July 5, 1995, (and prior to August
18, 1995 for the three Nonoperating Subsidiaries added to the
proceedings) are subject to the automatic stay provisions under
the Bankruptcy Code while the Company continues business
operations as a debtor-in-possession. Pre-petition claims may
arise from the determination by the Bankruptcy Court of allowed
claims for contingencies and other disputed amounts.
Liabilities recorded by the Company as of June 30, 1996 and
1995, respectively, that are expected to be compromised under any
plan of reorganization consist of the following:
[Download Table]
1996 1995
Trade payables $10,417 $11,760
Accrued liabilities 10,787 16,207
Income taxes payable 3,088 5,634
Postretirement benefits 12,497 12,999
Pension liability 17,681 18,801
Other long-term liabilities 5,650 5,569
Total(1) $60,120 $70,970
(1) Excludes a net intercompany payable in the amount of $24,637
and $9,076, respectively, to the Company's subsidiaries not
included in the Bankruptcy Proceedings.
The Company recorded reorganization costs relating to its
Bankruptcy Proceedings aggregating $10,255 for the year ended
June 30, 1996. These charges primarily include professional fees
incurred during the year.
An administrator was appointed on August 2, 1995 for the
Company's wholly-owned subsidiary in Australia. The
Administrator was appointed as Liquidator on August 29, 1995.
Due to the liquidation, the Australian subsidiary's assets,
liabilities and operating results were removed from the
consolidated financial statements as of August 2, 1995 and the
Company has recorded in other income an estimated loss on
liquidation of approximately $400 and $300 in the first and third
quarters, respectively, of Fiscal 1996. The Company has
established a distributor relationship and is currently exploring
other potential distributor relationships in the Australian
market for the purpose of maintaining its distribution capacity.
At the Company's request, the Bankruptcy Court established a
bar date of October 31, 1995 for pre-petition claims against the
Company. A bar date is the date by which claims against the
Company must be filed if the claimants wish to receive any
distribution in the Bankruptcy Proceedings. The Company has
given notice to all known actual or potential claimants subject
to the bar date of their need to file a proof of claim with the
Bankruptcy Court. The Company is reconciling claims that differ
from the Company's records, and any differences that cannot be
resolved by negotiated agreements between the Company and the
claimant will be resolved by the Bankruptcy Court. Accordingly,
allowed claims may arise which are not currently reflected in the
Company's financial statements and recorded claims are subject to
change. The ultimate amount of and settlement terms for such
liabilities are subject to a plan of reorganization which is
subject to approval by the Bankruptcy Court and, accordingly, are
not presently determinable.
The Company's Disclosure Statement in connection with the
POR was mailed to eligible creditors on September 16, 1996.
Other dates approved by the Bankruptcy Court for the Company's
events are: October 18, 1996, administrative claims bar date for
claims that occurred on or before August 16, 1996; October 18,
1996 (4:30 P.M., Prevailing Eastern Time), deadline for receipt
of all ballots; October 31, 1996, confirmation hearing in
Wilmington, Delaware.
During Fiscal 1996, the Company has had discussions with
various third party investors, none of which has resulted in a
transaction being consummated. The POR does not contemplate any
third party investment.
The POR is subject to Bankruptcy Court approval. Under the
POR, the Company intends to satisfy all allowed general unsecured
claims through the distribution of the unsecured class cash of
$10,780 and 85% of the reorganized company's common stock to
holders of such claims. The Company intends to satisfy all
allowed claims senior to allowed general unsecured claims by the
payment in full in cash or notes (as provided for by the
Bankruptcy Code) or the assumption of all such claims. In
addition, allowed convenience class claims (general unsecured
claims of one thousand five hundred dollars or less) shall
receive payment in cash in an amount equal to 60% of the amount
of such claim. Finally, registered holders of the Company's
Common Stock shall receive warrants to purchase one share of
common stock in the reorganized company for each ten shares of
Common Stock of the Company.
Under the POR, the reorganized company would significantly
expand its product line, primarily by sourcing new products from
outside manufacturers. Such sourcing may, over time, include
entering into strategic alliances with third parties to provide
products or services. In that respect, the reorganized company
would focus its efforts on forging alliances with foreign
companies having technologically advanced office products but
which presently do not have a substantial United States market
share or market presence and are intent on building or increasing
market share by selling their products under the well known
"Smith Corona" name. The reorganized company intends to rely on
its existing distribution network to become a leading vendor of
technologically advanced office products manufactured abroad.
Further, the reorganized company intends to continue to focus on
its core business of manufacturing and distributing its current
product line of typewriters and personal word processors to
satisfy continuing worldwide demand for these products.
On an operational level, initially the reorganized company
will continue its business on a global basis with manufacturing
operations in Mexico and sales and marketing operations in the
United States and certain international markets. The
reorganized company's Mexico facility also plans to provide
contract manufacturing services to other equipment manufacturers
("OEMs") on a cost plus basis thereby providing a contribution
towards manufacturing overhead expenses. Ideally, prospective
OEMs may also form the basis for new product strategic alliances.
2. 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.
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 Fiscal 1996 gain (loss) on disposition
of property, plant and equipment is the gain from the sale of the
building in Singapore of $17,755 and included in the noncash
items is the pension curtailment gain of $1,524. Both of these
items are 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 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.
Retirement Plans: On August 7, 1996, the Company filed a notice
of intent to terminate its defined benefit pension plans (see
Notes 10 and 17). 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
$1,991, $7,218 and $7,966 for the years ended June 30, 1996, 1995
and 1994, 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 as of 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.
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 are recorded in net income in the period in which
the exchange rate changes. During the year ended June 30, 1995,
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,
1996 and June 30, 1995, there were no outstanding forward
contracts.
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.
Earnings Per Share: Earnings per share have been calculated
based upon 30,250,000 shares of common stock outstanding.
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.
Reclassifications: Certain reclassifications have been made to
the prior years' financial statements to conform with the 1996
presentation. In addition, amounts in prior years' financial
statements were reclassified to reflect continuing operations
(see Note 11).
Accounting Standards Not Yet Adopted:
Adoption of FAS 121 - In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 121 - Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of.
This statement established accounting standards for the
impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable
intangibles to be disposed of. This statement is not effective
until Fiscal 1997 and its impact on the Company's financial
statements is not expected to be material.
Adoption of FAS 123 - The Company will adopt the provisions of
Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation" ("FAS 123") in the first quarter of
Fiscal 1997. The Company, as provided for by FAS 123, will
continue to apply Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" for employee stock
compensation measurement. The anticipated effect of adopting
this new standard is not expected to have a material effect on
the Company's consolidated financial position or results of
operations.
3. Inventories
A summary of inventories, by major classification and net of
reserves, is as follows:
June 30,
1996 1995
Raw materials and work-in-process $ 6,180 $18,802
Finished goods 10,693 35,533
Total $16,873 $54,335
4. Property, Plant and Equipment
A summary of property, plant and equipment, by major
classification, is as follows:
[Download Table]
June 30,
1996 1995
Land $ 56 $ 501
Buildings and improvements 278 1,245
Machinery and other equipment 30,599 55,716
Total 30,933 57,462
Accumulated depreciation (18,294) (34,574)
Total $12,639 $22,888
Included in other assets as of June 30, 1996 and 1995 are
assets located in Cortland, New York held for sale with a net
book value of $2,000 and $2,900, respectively. The decrease in
net book value was based on updated appraisal information.
Included in prepaid and other current assets as of June 30, 1995
are assets located in Singapore held for sale with a net book
value of $2,994.
5. Accrued Liabilities
Accrued liabilities consist of the following:
[Download Table]
June 30,
1996 1995
Restructuring costs $ 5,005 $13,321
Bankruptcy professional fees 2,272 -
Payroll and related expenses 3,816 5,871
Accrued promotional expenses 3,654 7,050
Other 6,393 9,207
21,140 35,449
Less amounts reclassified as
liabilities subject to compromise (10,787) -
Total $10,353 $35,449
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 $4,184, $6,243 and $6,868 for the years ended June 30, 1996,
1995 and 1994, respectively.
The future minimum rental commitments for the operating
leases are as follows:
Year Ending Amount
June 30, (In thousands)
1997 $ 3,882
1998 3,080
1999 1,380
2000 925
2001 903
Thereafter 2,011
Total $12,181
In October 1995, the Company completed a transaction to
purchase a leased building previously used as warehousing space
located in Cortland, New York and to concurrently sell the
building and land on which the building is located to a third
party purchaser.
Under the Bankruptcy Code, the Company may elect to assume
or reject real estate leases, and other unexpired executory
pre-petition contracts, subject to Bankruptcy Court approval.
The Company cannot presently determine with certainty the
ultimate liability which may result from the filing of claims for
all contracts which may be rejected.
7. Bank Loans
On April 7, 1995, the Company entered into an Amended and
Restated Revolving Credit Agreement (the "Amended and Restated
Credit Agreement") with two banks (the "Lenders"), the use of
which was generally to satisfy working capital requirements. The
Amended and Restated Credit Agreement provided for extensions of
revolving credit loans and letters of credit, limited to a
percentage of eligible receivables and inventories, in an amount
not to exceed $30,000 up through March 30, 1996; the aggregate
principal amount of such lending commitment reduced to an amount
not in excess of $25,000 from March 31, 1996 through the July 1,
1996 termination date. The Amended and Restated Credit Agreement
was secured by a security interest in the domestic assets of the
Company pursuant to a Security Agreement of even date therewith.
Interest was at variable rates equal to the greater of the prime
rate of interest, the base certificate of deposit rate plus 1.0
percent or the federal funds effective rate plus .5 percent for
any day. A fee was payable quarterly on the commitment.
The Amended and Restated Credit Agreement contained certain
covenants including restrictions on payment of dividends, and
limitations on sale of assets, capital expenditures, incurrence
of other debt, liens or guarantees and making of investments,
loans and advances. The primary financial covenants included not
permitting consolidated tangible net worth at the end of any
fiscal quarter to be (a) less than it was as of March 31, 1995
minus $3,000 plus (b) 80.0 percent of consolidated net income for
all full fiscal quarters subsequent to March 31, 1995,
maintaining a ratio of current assets (other than inventories) to
current liabilities (other than loans outstanding under the
Amended and Restated Credit Agreement) of at least 0.9 to 1.0 and
maintaining minimum operating profit levels. As of June 30,
1995, the Company was in technical default of its Amended and
Restated Credit Agreement, however, the loan was paid in full in
July 1995.
On July 10, 1995, the Company entered into a
Debtor-In-Possession Credit Agreement (the "Debtor
In-Possession Credit Agreement") with its Lenders which was
approved by the United States Bankruptcy Court for the District
of Delaware on August 2, 1995. The proceeds of the
Debtor-In-Possession Credit Agreement were used to repay the
amounts outstanding under the Amended and Restated Credit
Agreement. The Debtor-In-Possession Credit Agreement, as
amended, provides for extensions of revolving credit loans, term
loans and letters of credit, limited to a percentage of eligible
receivables and inventories, in an amount not to exceed $24,000
through June 30, 1996 and $10,000 from June 30, 1996 through the
September 30, 1996 termination date. The lenders have retained
the right to terminate the loans under the Debtor-In-
Possession Credit Agreement with 60 days' notice at their sole
discretion. Interest is 2 percent over the greatest of the Prime
Rate, Base CD Rate plus 1 percent or Federal Funds Effective Rate
plus .5 percent. Payment of dividends is prohibited by the terms
of the Debtor-In-Possession Credit Agreement, under which the
Company is limited to maximum monthly amounts of inventory and
cash disbursements. Additionally, the Company is restricted to
$500 of capital expenditures in each six month period ended
December 31, 1995 and June 30, 1996. Management believes that it
has adequate flexibility and that such covenants should not
impose undue restrictions on the operations of the Company during
its Bankruptcy Proceedings. The Company is currently in
compliance with the terms of the Debtor-In-Possession Credit
Agreement or has obtained waivers as necessary. The
Debtor-In-Possession Credit Agreement is secured by all of the
Company's assets. In January 1996, the Company repaid the funded
portion of its bank loans. Other obligations remain outstanding
under the Debtor-In-Possession Credit Agreement or the Amended
and Restated Credit Agreement including reimbursement obligations
under letters of credit and certain indemnification obligations.
Aggregate borrowings under the Debtor-In-Possession Credit
Agreement for Fiscal 1996 and Amended and Restated Credit
Agreement for Fiscal 1995 and 1994 amounted to $1,330,700,
$1,376,208 and $750,548 for Fiscal 1996, 1995 and 1994,
respectively, while aggregate repayments were $1,348,100,
$1,378,810 and $749,215 for Fiscal 1996, 1995 and 1994,
respectively.
The Company is currently in discussion with its lenders to
extend the Debtor-In-Possession Credit Agreement through
confirmation of the POR. As part of the POR, the Company will
attempt to secure a line of credit of approximately $10.0
million. The Company is currently in discussions with lenders to
secure such financing.
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, 1996 and 1995, there were
30,250,000 shares of common stock and no shares of preferred
stock outstanding.
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, 1996. 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 after date of grant.
A summary of the stock option activity is presented as
follows:
Price Range Number of Shares
Outstanding June 30, 1993 $4.88 - 12.50 2,296,500
Granted 5.13 - 6.50 528,500
Canceled 5.75 - 12.50 (293,000)(1)
Outstanding June 30, 1994 $4.88 - 12.50 2,532,000
Granted 2.75 - 3.25 684,000
Canceled 3.25 - 12.50 (241,500)(1)
Outstanding June 30, 1995 $2.75 - 12.50 2,974,500
Canceled 3.06 - 12.50 (1,275,500)(1)
Outstanding June 30, 1996 $2.75 - 12.50 1,699,000
Exercisable June 30, 1996 $2.75 - 12.50 1,262,000
(1)Cancelations result from employees' termination.
The POR cancels all Common Stock of the Company and provides
shareholders with warrants to purchase one share of common stock
in the reorganized company for each ten shares of Common Stock of
the Company.
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
manufactures its products principally at its facility located in
Mexico and 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:
[Download Table]
For the year ended June 30,
1996 1995 1994
Net sales to customers:
United States $ 90,470 $158,047 $215,539
Singapore - - 4,950
Europe 17,773 26,645 27,277
Other Foreign 4,305 11,617 13,540
Total $112,548 $196,309 $261,306
Inter-area transfers:
United States $ 11,287 $21,108 $22,033
Singapore 22,480 74,060 72,193
Europe - - -
Other Foreign 6,735 9,457 7,398
Total $ 40,502 $104,625 $101,624
Operating income (loss):
United States $(14,944) $(24,466) $15,939
Singapore 15,737 (8,294) 5,422
Europe (6,461) (6,572) (6,022)
Other Foreign (730) (129) (1,273)
Corporate (3,815) (7,187) (5,617)
Eliminations 1,637 (118) (27)
Total $ (8,576) $(46,766) $ 8,422
Identifiable assets:
United States $ 69,036 $88,741 $131,356
Singapore 431 21,702 26,250
Europe 8,548 17,002 17,351
Other Foreign 5,857 8,621 18,731
Total $ 83,872 $136,066 $193,688
Sales to one of the Company's largest customers,
Wal-Mart Stores, Inc., amounted to 10.1%, 14.0% and 12.2% of
consolidated net sales during 1996, 1995 and 1994, respectively.
Additionally, in 1996, sales to Office Depot amounted to 12.5% 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
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 of the last ten
consecutive years of service before retirement. Plans covering
hourly employees generally provide benefits of stated amounts for
each year of service. Subject to its initiation of proceedings
to seek termination of its defined benefit pension plans
(discussed below), 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, 1996, 1995 and 1994 is comprised of the following
components:
[Download Table]
1996 1995 1994
Service cost $1,455 $1,664 $1,979
Interest cost 5,656 5,398 5,396
Return on plan assets:
Actual (7,347) (9,097) 143
Unrecognized (gain) loss 1,498 3,395 (5,687)
Amortization of deferred
costs and actuarial gains (227) (595) (494)
Net curtailment gain (1,524) - -
Pension cost (income) $ (489) $ 765 $1,337
</TABLE
The net curtailment gain was a result of the Restructuring.
The assumptions used in the development of these amounts
were:
[Download Table]
1996 1995 1994
Discount rate 7.50% 8.00% 8.00%
Rates of increase in
compensation levels 4.50% 5.50% 5.50%
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, 1996
Over- Under-
Funded Funded
Plans Plans Total
Actuarial present value
of benefit obligation:
Vested benefit obligation $37,869 $32,727 $70,596
Accumulated benefit obligation $38,693 $32,733 $71,426
Projected benefit obligation $42,972 $32,733 $75,705
Market value of assets
(principally publicly traded
securities) $39,528 29,238 68,766
Funded status 3,444 3,495 6,939
Unrecognized gains 5,241 5,501 10,742
Net accrued pension liability $ 8,685 $ 8,996 $17,681
The net accrued pension liability in the amount of $17,681
is reflected on the June 30, 1996 consolidated balance sheet as
liabilities subject to compromise.
[Download Table]
June 30, 1995
Over- Under-
Funded Funded
Plans Plans Total
Actuarial present value
of benefit obligation:
Vested benefit obligation $36,856 $29,246 $66,102
Accumulated benefit obligation $37,611 $29,265 $66,876
Projected benefit obligation $41,592 $29,265 $70,857
Market value of assets
(principally publicly traded
securities) $41,179 26,095 67,274
Funded status 413 3,170 3,583
Unrecognized gains 9,920 5,298 15,218
Net accrued pension liability $10,333 $ 8,468 $18,801
As part of its ongoing reorganization efforts under the
Bankruptcy Proceedings, on August 7, 1996 the Company issued a
notice of intent to terminate its defined benefit pension plans.
As of September 1, 1996 no future benefits for plan participants
will be earned and, if the required approvals are obtained, such
plans would then terminate on October 6, 1996. The termination
will result in a first quarter curtailment gain of approximately
$3,394. See Note 17 for a subsequent event related to the
Pension
Plans.
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 $337, $543 and $681 for
the years ended June 30, 1996, 1995 and 1994, 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 $1,869 and $1,893 at
June 30, 1996 and 1995, respectively. The net accrued pension
liability in the amount of $1,869 is reflected on the June 30,
1996 consolidated balance sheet as liabilities subject to
compromise. Pension expense for the non-qualified plan was $189,
$683 and $450 in Fiscal 1996, 1995 and 1994, respectively. The
plan was terminated and additional benefit accruals ceased on
January 31, 1996 which resulted in a curtailment gain of $213.
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,
1996 1995
Financial status of plans:
Accumulated postretirement
benefit obligation (APBO):
Retirees $ 8,626 $7,893
Fully eligible, active
plan participants 1,200 2,344
Other active plan
participants 929 2,112
Unrecognized gains 1,742 650
Accrued postretirement
benefit cost $12,497 $12,999
The accrued postretirement benefit cost as of June 30, 1996
has been reflected on the balance sheet as liabilities subject to
compromise.
The components of net periodic postretirement benefit
cost are as follows:
[Download Table]
Year ended June 30,
1996 1995
Service cost, benefits attributed to
employee service during the year $130 $189
Interest cost on accumulated
postretirement benefit obligation 802 884
Amortization of gains (109) (55)
Net curtailment gain (639) -
Net periodic postretirement benefit
cost $ 184 $1,018
The net curtailment gain was primarily the result of the
sale of Histacount Corporation and employee terminations.
The discount rate used in determining the APBO was 7.5% and
8.0% in 1996 and 1995, respectively. The assumed health care
cost trend rate used in measuring the accumulated postretirement
benefit obligation was 10.5% and 11% in 1996 and 1995,
respectively, declining to an ultimate rate of 5.5% over
approximately sixty years.
If the health care cost trend rate assumptions were
increased by 1%, the APBO as of June 30, 1996 would have been
increased by approximately 8%. The effect of this change in
health care cost trend rates on net periodic postretirement
benefit cost in Fiscal 1996 would have been an increase of
approximately 10%.
11. Discontinued Operations
On November 4, 1994 the Company sold substantially all of
the assets and liabilities of Histacount Corporation, a
wholly-owned subsidiary, for $14,500. The after-tax gain on the
sale includes utilization of a capital tax-loss carry-forward and
was recorded in the Fiscal 1995 statement of operations. On July
5, 1994 the Company sold substantially all the assets and
liabilities of SCM Office Supplies, Inc., a wholly-owned
subsidiary, for $13,000. The loss on the sale was recorded in
the Fiscal 1994 statement of operations. The sale proceeds of
approximately $27,500 were used to reduce the Company's debt and
accounts payable.
Accordingly, the consolidated statements of operations
reflect SCM Office Supplies, Inc. and Histacount Corporation's
operating results as discontinued operations.
Summary operating results of discontinued operations are as
follows:
[Download Table]
Year ended June 30,
1996 1995 1994
Net sales $ - $5,774 $85,375
Income from operations
before income taxes $ - $1,018 $ 3,388
Income taxes - 347 1,155
Net income from operations 671 2,233
Gain (loss) on disposal
of assets (net of taxes
of $0, $(196) and $(297),
respectively) - 9,127 (2,200)
Net income $ - $9,798 $ 33
12. Income Taxes
The components of income (loss) from continuing operations
before income taxes are as follows:
[Download Table]
Year ended June 30,
1996 1995 1994
United States $(21,590) $(37,798) $2,723
Foreign 12,499 (9,933) 4,991
Total $ (9,091) $(47,731) $7,714
The components of income tax expense consist of:
[Download Table]
Year ended June 30,
1996 1995 1994
United States:
Current $(1,921) $ 141 $ 203
Deferred 2,217 8,787 1,339
Foreign 1,218 2,071 165
State 517 3,666 1,771
Total $ 2,031 $14,665 $3,478
Income tax expense is included in the financial statements as
follows:
[Download Table]
Year ended June 30,
1996 1995 1994
Continuing operations $ 2,031 $14,514 $2,620
Discontinued operations - 151 858
Total $ 2,031 $14,665 $3,478
The components of the net deferred tax assets were as follows:
[Download Table]
June 30,
1996 1995
Deferred tax assets:
Accounts receivable $1,365 $1,049
Inventory 3,144 2,311
Postretirement benefits
other than pensions 4,777 4,969
Pension 6,758 7,187
Restructuring 3,476 2,755
Other liabilities 6,250 8,529
Property, plant and equipment 3,924 -
Net operating loss carryforwards 18,963 18,288
Capital loss carryforwards 7,529 7,647
Miscellaneous 2,480 2,304
Valuation allowances (58,666) (50,241)
Total deferred tax assets $ - $ 4,798
Deferred tax liabilities:
Property, plant and equipment $ - $1,392
Miscellaneous - -
Total deferred tax liabilities - 1,392
Net deferred tax assets $ - $ 3,406
The Company recorded a Fiscal 1996 charge to income tax
expense increasing valuation allowances to provide for full
valuation of all of its deferred income tax assets. The Company
recorded a Fiscal 1995 charge to income tax expense representing
establishment of valuation allowances against substantially all
of its domestic deferred income tax assets. The valuation
allowance reflects the Company's assessment that the Bankruptcy
Proceedings of Smith Corona Corporation and ongoing operating
losses have impaired the realization of such net deferred tax
assets.
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,
1996 1995 1994
Income (loss) from continuing
operations before income taxes $(9,091) $(47,731) $ 7,714
Statutory tax rate 34% 34% 34%
Tax computed at statutory rate (3,091) (16,229) 2,623
Increase (reduction):
State income taxes,
net of federal benefit 405 (1,685) (1,707)
Effect of foreign earnings (930) 1,105 (3,467)
Valuation allowance 8,425 32,232 15,670
Other adjustments (2,778) (909) (10,499)
Total $ 2,031 $ 14,514 $ 2,620
All U.S. income tax returns through June 30, 1995 have been
examined by the Internal Revenue Service. The examination
resulted in a current liability of approximately $2,500. The New
York State tax authority completed examination of all returns
through June 30, 1995. Settlement of this examination resulted
in a current liability of $300. The current liabilities to the
Internal Revenue Service and New York State as a result of the
examinations will be paid pursuant to the POR. The other
adjustments of $2,778, noted in the table above, primarily relate
to adjustments to current taxes payable for the results of the
Internal Revenue Service and New York State tax examinations.
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 1996, 1995 and 1994.
13. Commitments and Other Matters
See Note 1 and Note 17 for a description of certain matters
related to the Bankruptcy Proceedings.
Certain aspects of the Company's past handling and/or
disposal of hazardous substances have been the subject of
investigation by federal and state regulatory authorities, or are
the subject of lawsuits filed by such authorities or by private
parties. At June 30, 1996 and 1995, the Company had recorded
liabilities of approximately $4,160 and $4,203, respectively,
related to environmental matters. Because of the uncertainties
associated with assessing environmental matters, the related
ultimate liability is not presently determinable. However, based
on facts presently known, management does not believe that these
investigations or lawsuits, if resolved adversely to the Company,
would individually or in the aggregate have a material adverse
effect on the Company's financial position or results of
operations.
The Company was the owner and operator of manufacturing
facilities in Groton, New York (the "Groton Site") and
Cortlandville, New York (the "Cortlandville Site" and, together
with the Groton Site, the "Owner/Operator Sites"). The Company's
liability, if any, at the Owner/Operator Sites stems from
groundwater contamination at the Cortlandville Site and soil
contamination at the Groton Site. Remediation programs at the
Owner/Operator Sites currently consist of round-the-clock pumping
and filtering (Cortlandville) or soil venting with a soil
infiltration injection system (Groton). The costs associated
with the respective programs had largely been paid by the Company
prior to the Petition Date. To the Company's knowledge, the only
future costs that will be associated with remediation of those
sites are for operation, maintenance, monitoring, shutdown, and
post-shutdown of the systems. The Company believes it has set
aside adequate reserves for the payment of expenses for the
ongoing remediation programs at the Groton and Cortlandville
sites. Claims asserted by the New York Department of
Environmental Conservation ("DEC") in the Company's bankruptcy
proceedings for past and future costs at the Groton and
Cortlandville Sites, and at eight other sites, were resolved by
the Company and the State of New York on August 6, 1996 at
amounts which were not material to the financial results.
The Company is involved in proceedings with the DEC and the
Suffolk County Department of Health ("Suffolk DOH")regarding the
clean-up of a now-closed manufacturing facility in Melville, New
York (the "Melville Site"). The Company's wholly-owned
subsidiary SCC LI Corp., formerly known as Histacount, was a
lessee of the Melville Site beginning in June 1989, and sublessor
of the Site to HC Delaware Acquisition Corp., now known as
Histacount ("New Histacount"), beginning in November 1994. The
Company has never been an owner, operator, or lessee of the
Melville Site.
On March 9, 1995, New Histacount, in contemplation of
vacating the facility, submitted to the DEC its updated closure
plan (the "Closure Plan") for the Melville Site pursuant to the
applicable law. The DEC approved the Closure Plan on or about
July 25, 1995 and, on August 12, 1995, SCC LI Corp. terminated
its lease. Accordingly, the property was vacated and all
operations at the Melville Site ceased. On June 27, 1996,
O'Brien & Gere Engineers, Inc. ("O'Brien & Gere") prepared a
scope of work for the Melville Site that reflects agreements
reached between the Company and the DEC (the "Scope of Work").
The Company has proceeded to perform the testing and work
specified in the Scope of Work. Test results on soil borings and
groundwater samples taken by O'Brien & Gere pursuant to the Scope
of Work indicate that any contaminants are below levels that
would require clean-up action under New York law.
In June 1992, the Company was served with a summons and
complaint in the United States District Court for the Northern
District of New York in a private contribution action, brought
pursuant to the federal Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"). The plaintiffs in
this action are Cooper Industries, Inc., Keystone Consolidated
Industries, Inc., The Monarch Machine Tool Co., Niagara Mohawk
Power Corporation and Overhead Door Corporation. The action,
which lists the Company and fourteen other persons or entities as
defendants, seeks contribution or reimbursement for response
costs incurred to date, and to be incurred in the future, for the
environmental remediation of a site in Cortland, New York known
as the Rosen Site ("Rosen Site"). Based on the Company's records
and other evidence available to it, management does not believe
that the Company disposed of any hazardous substances at this
site and is vigorously contesting this matter. Claims concerning
the Rosen Site have been filed against the Company in the
Bankruptcy Court by the United States Environmental Protection
Agency, the DEC, and certain plaintiffs and defendants in the
Cooper Industries action. Based on agreements previously reached
with those parties, the Company expects that all claims relating
to the Rosen Site will be tried together in the Bankruptcy Court
or the United States District Court for the District of Delaware.
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 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.
On June 29, 1995, the Company entered into an agreement with
a consulting firm to provide interim management and financial
consulting services to the Company. Under the terms of the
agreement, the consulting firm's President is serving as the
President, Chief Executive Officer and Director of the Company.
This firm will also provide other professional staff as deemed
necessary. Fees for services range from $1.7 to $2.5 per day per
professional which currently aggregates approximately $125 per
month.
14. Restructuring Costs
Over the past few years, the Company has faced intense
competition from foreign producers. On May 8, 1995 the Company
announced a major Restructuring whereby the Company's typewriter
manufacturing would be relocated from its Singapore and Batam
Island, Indonesia facilities to its Mexico facility. This action
resulted in the termination of approximately 1,300 workers in
Singapore and Batam Island. Original expectations were to
replace these workers with approximately 600 additional workers
in Mexico which would have resulted in approximately $10,000
pretax annual savings, primarily through lower labor costs as
well as the greater utilization of the Mexico facility. However,
due to lower than expected volumes, fewer replacement workers
have been hired. The Company ceased production in Singapore and
Batam Island, Indonesia in November 1995, and relocated equipment
to Mexico where typewriter production commenced in December 1995.
The Company sold certain of its Singapore machinery and equipment
for proceeds of approximately $2,333 resulting in a loss of
approximately $1,489 which was accrued as part of the Fiscal 1995
restructuring charge. Additionally, the Company sold its
Singapore facility and the underlying land lease on February 8,
1996 for net proceeds of approximately $21,041. The sale of the
facility resulted in a 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 research and development, finance, service,
distribution, selling and marketing areas in both its Cortland,
New York and New Canaan, Connecticut locations. Approximately
$10,000 in additional annual pretax savings are expected from
elimination of these support positions. These reductions were
completed by the end of the first quarter of Fiscal 1996 and
resulted in a first quarter pension curtailment gain of
approximately $1,524 and is included in restructuring income.
As a result of these actions, the Company recorded a pretax
charge of approximately $14,870 in the fourth quarter of Fiscal
1995, of which approximately $1,877 represents primarily
non-cash machinery and equipment asset write-offs, and the
remainder relates to employee severance. Additionally, certain
costs, primarily relating to the shutdown of Singapore
operations, of approximately $1,622 pretax (originally expected
to be approximately $6,000 pretax), were recognized as charges to
operations as incurred during fiscal year 1996 as they do not
qualify as restructuring costs.
The Fiscal 1996 restructuring provision and subsequent
activity is as follows:
[Download Table]
Asset
Impair- Other
Severance ments Costs Total
1995 Provision $12,993 $1,492 $ 385 $14,870
1995 Activity (1) (1,499) - (100) (1,599)
June 30, 1995 balance 11,494 1,492 285 13,271
1996 Activity (2) (6,809) (1,492) 35 (8,266)
June 30, 1996 balance $ 4,685 $ - $ 320 $ 5,005
(1) Represents cash payments, except for other costs which are
non-cash items.
(2) Represents cash payments for severance of approximately
$6,286 and non-cash items for foreign currency exchange rate
changes, severance provision adjustments and writeoff of
property, plant and equipment. The net increase in other
costs represents expected future cash payouts for final
liquidation of Singapore operations.
The remaining severance amount of $4,685 and $279 of other
costs are reflected on the June 30, 1996 consolidated balance
sheet as liabilities subject to compromise.
In July 1992, in an effort to maintain its position as a
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).
The Fiscal 1993 restructuring provision and subsequent
activity is as follows:
[Download Table]
Asset Asset
Redeployment Impair- Other
Severance Costs ments Costs Total
1993 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
Activity (1) (1,969) - (827) - (2,796)
Credit Provision (2) (1,286) - - - (1,286)
June 30, 1995 balance 50 - - - 50
Activity (2) (50) - - - (50)
June 30, 1996 balance $ - $ - $ - $ - $ -
(1) Represents cash payments, except for the asset impairments,
which are non-cash items
(2) Severance no longer required due to Fiscal 1995
restructuring action.
The severance cost was 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. The annual savings of approximately $15.0 million was
substantially realized during Fiscal 1995. In Fiscal 1996 and
Fiscal 1995, a reduction in restructuring costs of $50 and
$1,286, respectively, were recognized as a further result of the
Singapore restructuring activities.
15. Quarterly Financial Data (Unaudited)
[Download Table]
Fiscal Year Ended First Second Third Fourth
June 30, 1996 Quarter(2) Quarter(3) Quarter(4) Quarter(5)
Net sales $33,463 $36,303 $20,026 $ 22,756
Gross margin 4,003 904 1,112 3,174
Operating income (loss) (4,852) (8,468) 9,322 (4,578)
Net income (loss) $(5,429) $(8,636) $ 9,071 $ (6,128)
Earnings per common
share (1):
Net income (loss) per
share $(.18) $(.29) $.30 $(.20)
Fiscal Year Ended First Second Third Fourth
June 30, 1995 (6) Quarter Quarter Quarter(7) Quarter(8)
Net sales $60,114 $63,351 $31,384 $41,460
Gross margin 13,011 13,275 (4,865) (6,071)
Operating income (loss) 1,741 826 (19,042) (30,291)(9)
Income (loss) from
continuing operations 944 324 (12,102) (51,411)
Discontinued operations
(net of income taxes):
Income from discontinued
operations 270 115 - 286
Gain on disposal of
discontinued operations - 8,722 - 405
Net income (loss) $ 1,214 $9,161 $(12,102) $(50,720)
Earnings per common
share (1):
Income (loss) from
continuing operations $ .03 $ .01 $ (.40) $ (1.69)
Discontinued operations
(net of income taxes):
Income from discontinued
operations .01 - - .01
Gain on disposal of
discontinued operations - .29 - .01
Net income (loss) per
share $ .04 $ .30 $ (.40) $ (1.67)
(1) Based on 30,250,000 shares of common stock.
(2) Includes pension curtailment gain of approximately $1,500.
(3) Incudes gain from sale of property located in Cortland, New
York of
approximately $1,300 and charges of approximately $4,300 for
writedown of inventory.
(4) Includes gain from sale of Singapore property of
approximately
$17,000.
(5) Includes charges related to writeoff of the remaining
deferred tax
assets of approximately $3,406 and goodwill of $739 as a
result of
uncertainty over future operations. In addition, included is
a charge
of $900 relating to writedown of property, plant and
equipment and an additional gain from the sale of the
Singapore building of $800.
(6) Amounts have been reclassified, where applicable, to reflect
the discontinued operations of SCM Office Supplies, Inc. and
Histacount Corporation.
(7) Includes charges of approximately $1,200 and $2,600 for
write-downs of property, plant and equipment and inventory,
respectively.
(8) Includes charges of approximately $3,400 and $5,500 for
write-downs of property, plant and equipment and inventory,
respectively, as well as an income tax charge of
approximately $20,000 relating to the utilization of certain
deferred income tax assets.
(9) Includes restructuring costs of $14,870.
16. Condensed Consolidated Proforma Financial Information
(unaudited)
The following financial information separates the
consolidated balance sheets as of June 30, 1996, and consolidated
statements of operations and cash flows for the twelve months
then ended, of those entities that are included in the Bankruptcy
Proceedings and those that are not.
Condensed Consolidating Balance Sheets
[Download Table]
Non-
Debtor-In Debtor-In
Possession Possession Elimin- Consol-
Entities Entities ations idated
Current assets $ 54,666 $ 14,075 $ - $ 68,741
Property, plant
and equipment 11,081 1,558 - 12,639
Other assets 79,708 16,642 (93,858) 2,492
Total assets $145,455 $32,275 $(93,858) $ 83,872
Other current
liabilities $13,120 $1,504 $ - $ 14,624
Intercompany with
affiliates 24,637 (24,637) - -
Liabilities subject
to compromise 60,120 - - 60,120
Stockholders' equity 47,578 55,408 (93,858) 9,128
Total liabilities and
stockholders' equity $145,455 $32,275 $(93,858) $ 83,872
Condensed Consolidating Statements of Operations
[Download Table]
Non-
Debtor-In Debtor-In
Possession Possession Elimin- Consol-
Entities Entities ations idated
Net sales $ 86,419 $ 26,129 $ - $112,548
Net sales to affiliates 11,287 25,813 (37,100) -
Cost of goods sold 83,511 19,844 - 103,355
Cost of goods sold to
affiliates 9,506 27,594 (37,100) -
Gross margin 4,689 4,504 - 9,193
Selling, administrative
and research expenses 20,486 7,287 - 27,773
Restructuring income (1,787) (17,674) - (19,461)
Reorganization costs 10,255 - - 10,255
Other (income) expense (2,258) 1,460 - (798)
Operating (loss)income (22,007) 13,431 - (8,576)
Dividend income 12,773 - (12,773) -
Interest expense (income) 643 (128) - 515
Income (loss) from
operations before
income tax (9,877) 13,559 (12,773) (9,091)
Income taxes (benefit) 2,356 (325) - 2,031
Net income (loss) $(12,233) $ 13,884 $(12,773) $(11,122)
Condensed Consolidating Statements of Cash Flows
[Download Table]
Non-
Debtor-In Debtor-In
Possession Possession Elimin- Consol-
Entities Entities ations idated
Cash Flows from
operating activities:
Net (loss) income $(12,233) $13,884 $(12,773) $(11,122)
Adjustments to
reconcile net income
(loss) to net cash
used in continuing
operating activities:
Noncash items and
changes in
operating assets
and liabilities 52,211 (38,008) 12,773 26,976
Net cash flow provided
by (used in)
operating activities 39,978 (24,124) - 15,854
Cash flows from
investing activities:
Proceeds from sale of
property, plant
& equipment 1,429 23,374 - 24,803
Capital expenditures (314) (17) - (331)
Net cash provided by
investing activities 1,115 23,357 - 24,472
Cash flows from
financing activities:
Bank loans
(repayments), net (17,400) - - (17,400)
Net cash used in
financing activities (17,400) - - (17,400)
Increase (decrease)
in cash and cash
equivalents 23,693 (767) - 22,926
Cash and cash
equivalents at
beginning of year 3,027 3,976 - 7,003
Cash and cash
equivalents at
end of year $26,720 $ 3,209 $ - $29,929
17. Subsequent Event
The Company sponsors and maintains two defined benefit pension
plans: (i) The Smith Corona Corporation Hourly Employees' Retirement
Plan and SCM Office Supplies, Inc. Salaried Employees' and Hourly
Employees' Retirement Plan, as amended and restated as of December 31,
1995; and (ii) the Smith Corona Corporation Salaried Employees'
Retirement Plan, as amended and restated as of January 1, 1994
(collectively, the "Defined Benefit Plans"). Employees do not
contribute to the Defined Benefit Plans.
The Pension Benefit Guaranty Corporation ("PBGC") has required
that the Company make estimated minimum funding contributions to the
Defined Benefit Plans that management believes would cost the Company
approximately $4,000 per year over the next 6 years. The Company
consequently determined that termination of the Defined Benefit Plans
would be in its best interests. Exercising its business judgment, the
Company on August 6, 1996, decided to discontinue future benefit
accruals under the Defined Benefit Plans as of September 1, 1996 and
to seek termination of the Defined Benefit Plans as of October 6,
1996. On August 7, 1996, pursuant to applicable Federal law and
regulations, the Company caused a Notice of Intent to Terminate to be
issued to affected parties under the Defined Benefit Plans.
On August 23, 1996, the Company filed with the Bankruptcy Court a
Motion for Approval of Distress Termination of Pension Plans (the
"Termination Motion"), together with supporting materials. Among
other things, the Termination Motion asks the Bankruptcy Court to find
that the Company meets the standards for distress termination of the
Defined Benefit Plans, to approve such a termination pursuant to
applicable statutes and regulations, and to determine the PBGC's
claims, if any, arising from such a termination.
The PBGC has stated that it opposes distress termination of the
Defined Benefit Plans. On September 5, 1996, the PBGC filed in the
Bankruptcy Court claims for minimum funding contributions and for
unfunded benefit liabilities. The PBGC has stated that its claims
against the Company and its subsidiaries upon termination of the
Defined Benefit Plans would total approximately $26,000. On or about
September 6, 1996, the PBGC moved to withdraw the reference of the
Termination Motion and related issues from the Bankruptcy Court, and
to have such issues decided by the United States District Court for
the District of Delaware. The Company, joined by the Official
Committee of Unsecured Creditors, has opposed the PBGC's motion.
Notwithstanding the pendency of the PBGC's motion, the Company, the
PBGC, and the Official Committee of Unsecured Creditors have agreed to
conduct discovery relating to the Termination Motion on an expedited
basis.
Management believes that, if resolved adversely to the Company,
issues relating to termination of the Defined Benefit Plan would have
a material adverse effect on the Company's ability to reorganize.
Financial Statement Schedule II
SMITH CORONA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the years ended June 30, 1996, 1995 and 1994
(In thousands)
[Download Table]
Balance
at Charged to Balance at
Beginning Costs and Reductions- End of
of Period Expenses Writeoffs Period
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
Year ended June 30, 1995:
Allowance for doubtful
trade receivables $1,512 $ 61 $ 89 $ 1,484
Allowance for inventory
obsolescence and shrinkage $4,037 $9,930 $3,372 $10,595
Year ended June 30, 1994:
Allowance for doubtful
trade receivables $1,342 $ 170 $ - $ 1,512
Allowance for inventory
obsolescence and shrinkage $7,801 $3,021 $6,785 $ 4,037
EXHIBIT INDEX
EXHIBIT #
2.1 Third Amended Second Disclosure Statement pursuant to
section 1125 of the Bankruptcy Code in respect of Debtors'
Third Amended Second Joint Plan of Reorganization and
exhibits thereto.
10.10 Smith Corona Corporation Retirement Savings and Investment
Plan Amendment effective October 18, 1995.
10.12 Histacount Corporation Retirement Savings and Investment
Plan Amendment effective October 18, 1995.
10.15 Smith Corona Corporation Secretary's Certificate resolving
the termination of the Smith Corona Corporation
Supplemental Executive Retirement Plan effective January
31, 1996.
10.36 Smith Corona Corporation Hourly Employees' Retirement Plan
and SCM Office Supplies, Inc. Salaried Employees' and
Hourly Employees' Retirement Plan.
10.52 Fourth Amendment to Debtor-In-Possession Credit Agreement
dated as of June 30, 1996.
10.56 Sale by Tender between Smith Corona Private Limited and ST
Computer Systems & Services Ltd., dated November 2, 1995.
21 Schedule of Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule (Edgar Filing Only)
Dates Referenced Herein and Documents Incorporated by Reference
| This ‘10-K’ Filing | | Date | | Other Filings |
|---|
| |  |
| | 6/2/99 |
| | 10/31/96 |
| | 10/18/96 |
| | 10/6/96 |
| Filed on: | | 9/30/96 | | 10-Q |
| | 9/19/96 |
| | 9/16/96 |
| | 9/14/96 |
| | 9/9/96 |
| | 9/6/96 |
| | 9/5/96 |
| | 9/4/96 |
| | 9/1/96 |
| | 8/23/96 |
| | 8/16/96 | | 8-K |
| | 8/7/96 |
| | 8/6/96 |
| | 8/2/96 |
| | 7/23/96 |
| | 7/10/96 |
| | 7/1/96 |
| For Period End: | | 6/30/96 |
| | 6/27/96 |
| | 5/30/96 |
| | 5/28/96 | | 8-K |
| | 5/24/96 |
| | 5/16/96 |
| | 5/15/96 |
| | 4/1/96 |
| | 3/31/96 | | 10-Q |
| | 3/30/96 |
| | 2/8/96 |
| | 1/31/96 |
| | 1/26/96 |
| | 12/31/95 | | 10-Q |
| | 12/26/95 |
| | 12/15/95 |
| | 12/6/95 |
| | 11/22/95 |
| | 11/17/95 |
| | 11/2/95 |
| | 10/31/95 |
| | 10/18/95 |
| | 8/29/95 |
| | 8/18/95 |
| | 8/15/95 |
| | 8/12/95 |
| | 8/2/95 |
| | 7/28/95 |
| | 7/26/95 |
| | 7/25/95 |
| | 7/24/95 |
| | 7/10/95 |
| | 7/5/95 |
| | 7/1/95 |
| | 6/30/95 | | 10-K |
| | 6/29/95 |
| | 6/21/95 |
| | 6/12/95 |
| | 6/9/95 | | SC 13D |
| | 6/3/95 | | 8-K |
| | 5/16/95 |
| | 5/8/95 |
| | 5/4/95 |
| | 4/16/95 |
| | 4/13/95 |
| | 4/7/95 | | 8-K |
| | 4/6/95 | | 8-K |
| | 4/3/95 |
| | 3/31/95 | | 10-Q |
| | 3/28/95 |
| | 3/24/95 |
| | 3/9/95 |
| | 2/28/95 |
| | 2/18/95 |
| | 2/8/95 |
| | 2/3/95 |
| | 1/6/95 |
| | 12/31/94 | | 10-Q |
| | 11/19/94 |
| | 11/15/94 |
| | 11/4/94 |
| | 8/11/94 |
| | 7/19/94 | | 8-K |
| | 7/5/94 | | 8-K, 8-K/A |
| | 6/30/94 | | 10-K, 8-K, DEF 14A, NT 10-K |
| | 6/13/94 |
| | 6/8/94 |
| | 1/14/94 |
| | 1/3/94 |
| | 1/1/94 |
| | 11/16/93 |
| | 11/13/93 |
| | 7/1/93 |
| | 6/30/93 |
| | 6/4/93 |
| | 5/5/93 |
| | 4/15/93 |
| | 1/22/93 |
| | 11/24/92 |
| | 11/19/92 |
| | 8/1/92 |
| | 7/30/92 |
| | 6/30/92 |
| | 3/13/92 |
| | 1/1/92 |
| List all Filings |
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