Document/Exhibit Description Pages Size
1: 10-K Annual Report 82± 412K
2: EX-10 Material Contract 35 197K
3: EX-10 Material Contract 59± 241K
4: EX-10 Material Contract 1 11K
5: EX-10 Material Contract 58± 236K
6: EX-10 Material Contract 15 62K
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11: EX-10 Material Contract 36 196K
12: EX-10 Material Contract 210± 815K
13: EX-10 Material Contract 11± 42K
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15: EX-10 Material Contract 3± 21K
16: EX-10 Material Contract 44 133K
17: EX-10 Material Contract 175 365K
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19: EX-10 Material Contract 1 10K
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25: EX-10 Material Contract 1 11K
26: EX-10 Material Contract 2± 15K
27: EX-10 Material Contract 4± 20K
28: EX-10 Material Contract 2± 15K
29: EX-21 Subsidiaries of the Registrant 1 10K
30: EX-23 Consent of Experts or Counsel 1 10K
31: EX-27 Financial Data Schedule (Pre-XBRL) 1 11K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1995
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:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 August 23, 1995: $8,774,606.
Number of shares of Common Stock outstanding as of August 23, 1995:
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 Reorganizations. . . . . . . . 1
Recent Changes in Senior Management . . . . . . . . . . . . 3
History of the Business . . . . . . . . . . . . . . . . . . 3
Products. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Marketing, Sales and Distribution . . . . . . . . . . . . . 5
Service . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Seasonality . . . . . . . . . . . . . . . . . . . . . . . . 6
Foreign Operations. . . . . . . . . . . . . . . . . . . . . 6
Competition . . . . . . . . . . . . . . . . . . . . . . . . 8
Patents, Trademarks and Licenses. . . . . . . . . . . . . . 8
Employees . . . . . . . . . . . . . . . . . . . . . . . . . 9
Research and Development. . . . . . . . . . . . . . . . . . 9
Raw Materials . . . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . .11
Item 4. Submission of Matters to a Vote of Security Holders.13
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . .13
Item 6. Selected Financial Data. . . . . . . . . . . . . . .14
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition..................16
Item 8. Financial Statements and Supplementary Data. . . . .23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . .23
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Item 10. Directors and Executive Officers of the Registrant .23
Item 11. Executive Compensation . . . . . . . . . . . . . . .28
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . .42
Item 13. Certain Relationships and Related Transactions . . .43
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. . . . . . . . . . . . . . . . .46
Index to Consolidated Financial Statements and Financial Statement
Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
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, printers 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 product 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 businesses 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 (the "Reorganization").
Restructuring and Bankruptcy Reorganizations
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 intended to lower the
Company's production costs pursuant to which the Company's
typewriter manufacturing will be relocated from its Singapore and
Batam Island, Indonesia facilities to its Mexico facility. This
action is expected to result in the termination of approximately
1,100 workers in Singapore and Batam Island who will be replaced
with approximately 600 workers in Mexico. This action is
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 expects to cease
production in Singapore and Batam Island by mid-November 1995,
thereafter relocating equipment to Mexico where typewriter
production is expected to commence in the third quarter of the
fiscal year ending June 30, 1996 ("Fiscal 1996"). The Company
has placed its Singapore facility and the underlying land lease
up for sale. The Batam Island facility lease expires December 26,
1995.
In addition to the relocation of the typewriter manufacturing to
Mexico, the Company has, in connection with the restructuring,
eliminated approximately 180 support positions within the
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 are expected from elimination of
these support positions. These reductions should be completed by
the end of the first quarter of Fiscal 1996.
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 program, the Company
filed a voluntary petition for reorganization under Chapter 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 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.
Substantially all of the assets of each of the Nonoperating
Subsidiaries had been sold, but 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 and,
as such, are not subject to the provisions of the federal
bankruptcy laws or the supervision of the Bankruptcy Court. The
Company, however, 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 has
obtained a debtor-in-possession revolving line of credit of up to
$24.0 million to finance operations and restructuring activities
during the bankruptcy reorganization.
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.
The Company is currently exploring potential distributor
relationships in its Australian market for the purpose of
maintaining its distribution capacity.
For further discussion of the Company's restructuring plan and
bankruptcy reorganization, see "Business - Foreign Operations"
and "Managements' Discussion and Analysis of Results of
Operations and Financial Condition."
Recent Changes in Senior Management
During 1995, the following changes in senior management of the
Company took place, primarily related to the restructuring.
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 was elected
to the Company's Board of Directors.
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 Thomas C. 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. On July 26, 1995, Martin D. Wilson was elected
Controller, succeeding Mr. Piontkowski.
See "Directors and Executive Officers of the Registrant,"
"Executive Compensation" and "Certain Relationships and Related
Transactions - Other Agreements."
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.
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 ("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 index on page 54 of 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 a restructuring plan and on
July 5, 1995, the Company filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code. See
"Business -- Restructuring and Bankruptcy Reorganizations" and
"Management's Discussion and Analysis of Results of Operations
and Financial Condition."
Products
The Company designs, manufactures and sells, 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. These products
are developed with focus on meeting the major desires of
purchasers: ease of use, incorporation of monitors or displays,
full array of word processing features including dictionary spell
checkers and grammar features. The Company's installed base of
typewriters and personal word processors results in a substantial
accessories and supplies business.
During the fiscal year ended June 30, 1994 ("Fiscal 1994"), the
Company began selling various other products for use in the home,
at school and in small offices. These items include facsimile
machines, laminators, calculators and product labelers.
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 39.7%, 40.6% and
41.3% of net sales in the fiscal years ended June 30, 1995, 1994
and 1993 respectively, and (ii) personal word processors, which
accounted for 34.5%, 37.1% and 34.7% of net sales in the fiscal
years ended June 30, 1995, 1994 and 1993, respectively.
Marketing, Sales and Distribution
Domestically, the Company extensively 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 over 8,000 outlets in all major channels of distribution,
including (i) national retail chain stores, such as K-
Mart, Montgomery Ward, Sears and Wal-Mart; (ii) department stores
and department store chains, such as Federated Department Stores
& May Co; (iii) catalog merchandisers, such as Best Products, and
Service Merchandise; (iv) national television and appliance
dealers, such as Best Buy and Circuit City; (v) office
superstores, such as Staples, Office Max and Office Depot; (vi)
office equipment dealers; (vii) regional discount stores, such as
Bradlees and Caldor; and (viii) the United States military
exchanges. The Company does not enter into long-term contracts
with its customers and, accordingly, there can be no assurance
that the Company will continue to receive sales revenues from any
particular source.
The Company offers various derivative product lines for each of
its major channels of distribution. In addition, the Company
supplies private label products to K-Mart, and private brand
products (which identify only the retailer brand name) to Singer
and Metro.
The Company also conducts sales activities in Canada, the United
Kingdom, Australia, 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 forty-
two distributors serving the Far East, Latin America, Europe and
the Caribbean. Reference is made to Note 10 to the Consolidated
Financial Statements (see index on page 54 of 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. Sales to the
Company's largest customer, Wal-Mart Stores, Inc., amounted to
14.0%, 12.2% and 12.3% of consolidated net sales during 1995,
1994 and 1993, respectively, and was the only customer
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 Smith Corona factory service
centers and at factory-appointed service stations. These service
centers 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; however, certain of its products sell more heavily in
gift-giving seasons such as the Christmas and school graduation
seasons.
Foreign Operations
The Company's foreign manufacturing operations are in Mexico,
Singapore and Indonesia. 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 pursuant to
which the Company's typewriter manufacturing will be relocated
from its Singapore and Batam Island, Indonesia facilities to its
Mexico facility. This action is expected to result in the
termination of approximately 1,100 workers in Singapore and Batam
Island who will be replaced with approximately 600 workers in
Mexico. This action is 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 expects to cease production in Singapore and Batam Island
by mid-November 1995, thereafter relocating equipment to Mexico
where typewriter production is expected to commence in the third
quarter of Fiscal 1996. The Company has placed its Singapore
facility and the underlying land lease up for sale. The Batam
Island facility lease expires December 26, 1995.
In addition to the relocation of the typewriter manufacturing to
Mexico, 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
are expected from elimination of these support positions. These
reductions should be completed by the end of the first quarter of
Fiscal 1996.
The net result of the restructuring should be a reduction in the
Company's May 8, 1995 workforce of approximately 2,500 by
approximately 680.
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 represents primarily non-
cash machinery and equipment asset write-offs, and the remainder
relates to employee severance. Additionally, certain costs,
primarily relating to the move of machinery and equipment,
temporary lease-back of facilities, and renovations, of
approximately $6.0 million pretax will be recognized as charges
to operations as incurred during Fiscal 1996. The fourth quarter
charge is lower than previously announced as a result of
revisions to prior estimates.
In July 1992, in order to maintain the Company's leadership as
the low-cost producer in a highly competitive worldwide business,
the Board of Directors approved and the Company announced a plan
to phase out the Company's manufacturing operations in Cortland,
New York and relocate them to a new facility in Mexico. As a
result of this decision, during the fiscal year ended June 30,
1993 ("Fiscal 1993"), the Company provided $16.5 million in
restructuring charges, of which approximately $3.0 million was
non-cash in nature. This action resulted in lower manufacturing
costs of approximately $15.0 million annually in Fiscal 1995,
primarily due to lower labor costs in Mexico.
The Company phased the relocation through the initial move of
assembly line operations in the third and fourth quarters of
Fiscal 1993 into a temporary Mexico location while site selection
activities for the permanent facility were undertaken. 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 of the
entire manufacturing operation into the permanent Mexico
facility. 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.
After completion of the May 1995 announced restructuring action,
the Company will have one foreign manufacturing operation located
in Mexico. Reference is made to Note 15 to the Consolidated
Financial Statements (see index on page 54 of this Form
10-K Annual Report) for additional information. 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. Reference is made
to Note 10 to the Consolidated Financial Statements (see index on
page 54 of 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.
Patents, Trademarks and Licenses
The Company owns or licenses a number of patents and patent
applications which are valuable to its business but are not
material to the business of the Company as a whole. 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, 1995, the Company employed approximately 2,300
people. The Company's Singapore manufacturing workers are
represented by the United Workers of Electronic and Electrical
Industries, a trade union registered under Singapore law.
Management considers its employee relations to be good. As of
August 31, 1995 the number of the Company's employees decreased
to approximately 2,100, primarily as a result of the
restructuring actions.
Research and Development
The Company's expenditures for research and development
activities were approximately $7.2 million, $8.0 million and
$10.0 million for the years ended June 30, 1995, 1994 and 1993,
respectively. Research and development expenses are concentrated
primarily in improving product manufacturing integration of
products/technology to the Company's product lines and
development of new products such as labelers, envelope printers
and software architecture for personal word processors. As part
of the restructuring program, research and development costs are
expected to significantly decline 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 a variety of sources in adequate quantities to
meet anticipated production schedules.
Item 2. Properties
The Company utilizes approximately 1,259,000 square feet of
space, of which about 671,000 square feet is in the United States
and the remaining 588,000 square feet is outside the United
States, primarily in Singapore and Mexico. Of the total of
1,259,000 square feet, approximately 618,000 square feet is owned
and 641,000 square feet is leased. The Company believes that its
properties are adequate for its needs and in good condition.
Information with respect to the principal facilities used by
Smith Corona is set forth below:
[Download Table]
Square Owned/
Location Primary Use Footage Leased
New Canaan, CT..... Headquarters 27,000 Leased
Cortland, NY....... Warehousing/Office 422,000 Owned
Cortland, NY (1)... Warehousing 108,000 Leased
Singapore (2)...... Manufacturing 196,000 Owned/
Leased
Batam, Indonesia (3) Manufacturing 99,000 Leased
Toronto, Canada.... Warehousing/Sales 27,000 Leased
Tijuana, Mexico.... Manufacturing 252,000 Leased
San Diego, CA...... Warehousing/Office 77,000 Leased
1,208,000
All other locations. Warehousing/
Sales/Service 51,000 Leased
Total............. 1,259,000
HM Holdings Inc., an indirect wholly-owned subsidiary of Hanson,
leased a Melville, New York facility, consisting of 100,000
square feet of manufacturing, warehousing and office space, to a
wholly-owned subsidiary of the Company, Histacount, for rent of
$75,000 per year, payable monthly, for a term which ended on
August 15, 1995. The rent charged under the lease was
substantially below market. After the sale of the assets of
Histacount on November 4, 1994, the Company subleased the
facility to HC Delaware Acquisition Corporation, the purchaser of
the Histacount assets. On May 31, 1995, the Melville, New York
facility and the rights of HM holdings, Inc. under the lease were
sold to U.S. Industries, Inc.
The Debtor-In-Possession Credit Agreement (as hereinafter
defined) is secured by, among other things, a security interest
in all of the Company's owned real property and the rights of the
Company pursuant to the lease agreements for certain other real
property occupied by the Company.
(1) The Company has entered into an agreement dated February 28,
1995 to purchase the building which comprises this facility, and
concurrently sell the building and the land on which the building
is located (which is owned by the Company) to a third party
purchaser. The Company anticipates closing on the transaction in
October 1995. The building is currently subleased by the Company
to the third party purchaser.
(2) The Company leases the land on which this facility is
located from the Housing and Development Board, an agency of
the Singapore government, for a term of 60 years ending
April 30, 2033.
(3) The Batam Island, Indonesia lease expires on December 26,
1995.
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 to all entities 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
Certain past practices of the Company regarding hazardous
substances and/or hazardous wastes are the subject of
investigation by federal and state regulatory authorities, or are
the subject of lawsuits filed by such authorities. At June 30,
1995 and 1994, the Company had recorded liabilities of
approximately $4.2 million and $3.3 million, respectively,
related to environmental matters. Because of the uncertainties
associated with assessing environmental matters, the related
ultimate liability is not determinable. However, based on facts
presently known, management does not believe that these
investigations or lawsuits, if resolved adversely to the Company,
would individually or in the aggregate have a material adverse
effect on the Company's financial position or results of
operations.
The Company is involved in proceedings with the New York
Department of Environmental Conservation ("DEC") and the United
States Environmental Protection Agency regarding the clean-
up of a now-closed manufacturing facility and certain waste
disposal sites in upstate New York. The remedial investigation
and feasibility study of the now-closed manufacturing facility
site has been completed. The feasibility study report has been
approved by the DEC and the record of decision has been
finalized. On March 31, 1993, the Company executed a final
signed consent order from the DEC and remedial actions commenced.
Remediation activities at the site have been delayed as a result
of an extension of the public comment period to address the
remediation plan approved by the DEC. Management believes that
the Company has made adequate provision for the approved
remediation activities.
In June 1992, the Company was served with a summons and complaint
in the U.S. District Court, Northern District of New York in a
private contribution action. The plaintiffs in this action are
Coopers 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 as a defendant with fourteen other defendants, seeks
contribution for response costs incurred to date, and to be
incurred in the future, for the remediation of a site in
Cortland, New York. Management does not believe it disposed of
any hazardous substances at this site and is vigorously
contesting this matter.
The Company filed a complaint on November 4, 1994 against CoStar
Corporation("CoStar") seeking (i) a declaratory judgment that the
Company was not infringing CoStar's trade dress, (ii) damages for
breach of warranty and fraud and (iii) rescission of contracts
induced by such fraud. The Complaint related to envelope
printers purchased by the Company from CoStar and label printers
manufactured by a third party for the Company. CoStar
subsequently filed an answer denying the Company's allegations
and asserting counterclaims alleging that the Company had
infringed its label printer's trade dress, breached the
provisions of a confidentiality agreement between the Company and
CoStar, and tortiously injured CoStar's business reputation. In
addition, CoStar filed a related third-party complaint against DH
Technology, Inc. ("DH"). On June 23, 1995, the Company entered
into a Settlement Agreement with CoStar and DH in connection with
the lawsuit. Pursuant to the Settlement Agreement, the Company
agreed, among other things, to pay CoStar the sum of $55,085 on
each of June 23, 1995, July 31, 1995, August 31, 1995 and
September 29, 1995 and to return certain tooling and equipment to
CoStar, in exchange for, among other things, the release by
CoStar of its claims against the Company. In anticipation of a
future settlement, the Company recorded a $1.3 million pretax
third quarter charge primarily related to the writeoff of
inventory and tooling.
On June 8, 1990, the Company filed suit in the United States
District Court for the District of Tennessee against Pelikan,
Inc. alleging patent infringement and false advertising. On
February 24, 1992, the Court entered a judgment awarding the
Company approximately $3.1 million plus post-judgment interest.
Pelikan filed an appeal, petitioning for a rehearing by the Court
of Appeals, and subsequently offered to pay to the Company a
portion of the judgment aggregating approximately $1.9 million.
The $1.9 million portion of the judgment was reflected in the
June 30, 1993 financial statements. Pelikan's petition for
rehearing was subsequently denied and on August 9, 1993, the
Company and Pelikan entered into an agreement pursuant to which
Pelikan agreed to pay $.5 million to the Company for fees,
expenses and costs incurred in the suit along with the remaining
$1.2 million judgment. On August 11, 1993, Pelikan paid the
settlement amount to the Company and satisfied the judgment,
including interest.
The Company is also a defendant or plaintiff in various other
legal actions which have arisen in the ordinary course of its
business. It is the opinion of management, based on advice of
counsel with respect to legal matters, that the ultimate
resolution of these matters and the environmental matters
discussed above will not have a material adverse effect on the
Company's financial position or results of 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
The Common Stock of the Company (NYSE symbol: SCO) commenced
trading on the New York Stock Exchange on July 28, 1989. Prior
to that time, there was no market for the Common Stock of the
Company. The following table sets forth the range of high and
low sale prices of the Company's Common Stock on the Exchange
during the two most recent fiscal years.
[Download Table]
Fiscal 1995 Fiscal 1994
High Low High Low
First quarter. . . . . . . . . .$4 7/8 $4 1/8 $5 5/8 $4 1/8
Second quarter . . . . . . . . .$4 5/8 $2 3/8 $6 1/2 $4 5/8
Third quarter. . . . . . . . . .$3 7/8 $2 1/2 $6 1/2 $5 1/8
Fourth quarter . . . . . . . . .$2 7/8 $1 3/8 $5 1/2 $4 3/8
As of August 15, 1995, there were approximately 1,061 holders of
record of the Common Stock.
The name and address of the Transfer Agent and Registrar for the
Company is Mellon Securities, Transfer Services, 85 Challenger
Road, Overpeck Center, Ridgefield Park, NJ 07660.
A cash dividend of $0.05 was declared in the first quarter of
Fiscal 1995. After reviewing the first quarter results and
outlook for the remainder of the fiscal year, the Board of
Directors voted to reduce the quarterly dividend by 50 percent to
$0.025 per share 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. For each of the four
quarters of Fiscal 1994, the Company declared cash dividends of
$0.05 per share of common stock.
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.")
In addition, the New York Stock Exchange may, as a result of the
Company's bankruptcy filing, apply additional or more stringent
criteria for continued inclusion of the Company's Common Stock on
the New York Stock Exchange or take action to suspend the
Company's Common Stock from trading on the New York Stock
Exchange or delist the Company's Common Stock from the New York
Stock Exchange. The New York Stock Exchange has not informed the
Company of any current intention to implement any of the
aforementioned measures.
The calculation of 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.
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.
[Download Table]
SELECTED FIVE-YEAR FINANCIAL DATA (1)
(Dollars in thousands, For the year ended June 30,
except per share amounts) 1995 1994 1993 1992 1991
Net sales $196,309 $261,306 $236,846 $300,023 $307,758
Gross margin 15,350 56,979 57,491 85,166 86,349
Operating income (loss) $(46,766)(2) $ 8,422 $(15,348)(2)$ 29,968 $ 29,029
Income (loss) from
continuing operations $(62,245) $5,094 $(10,244) $19,405 $17,365
Discontinued operations
(net of income taxes):
Income from operations 671 2,233 1,222 2,678 2,221
Gain (loss) on disposal
of discontinued
operations 9,127 (2,200) - - -
Net income (loss) $(52,447) $ 5,127 $(9,022) $22,083 $19,586
Earnings per common
share (3) -
Income (loss) from
continuing operations $ (2.05) $ .17 $ (.34) $ .64 $ .58
Discontinued operations:
Income from operations .02 .07 .04 .09 .07
Gain (loss) on disposal
of discontinued
operations .30 (.07) - - -
Net income (loss)
per share $ (1.73) $ .17 $ (.30) $ .73 $ .65
Working capital $ 30,016 $ 89,469 $97,375 $92,029 $95,988
Total assets 136,066 193,688 190,616 182,532 176,225
Bank loans 17,400 20,002 18,669 9,899 33,276
Stockholders' equity 20,250 75,722 76,645 91,717 80,684
Cash dividends declared
per common share $ .10 $ .20 $ .20 $ .20 $ .20
(1) Amounts have been reclassified, where applicable, to reflect the
discontinued operations of SCM Office Supplies, Inc. and Histacount
(see "Business - History of the Business" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition").
(2) Includes 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
program, 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 (collectively the "Bankruptcy Proceedings") (see Note
1 to the consolidated financial statements contained in this Form
10-K Annual Report).
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. The Company is
currently exploring potential distributor relationships in its
Australian market for the purpose of maintaining its distribution
capacity.
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
12 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.
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 are 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 is 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 plan
pursuant to which the Company's typewriter manufacturing will be
relocated from its Singapore and Batam Island, Indonesia facilities
to its Mexico facility. This action will result in the termination
of approximately 1,100 workers in Singapore and Batam Island who
will be replaced with approximately 600 workers in Mexico. This
action is 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 expects to cease
production in Singapore and Batam Island by mid-November 1995,
thereafter relocating equipment to Mexico where typewriter
manufacturing is expected to commence in the third quarter of
Fiscal 1996. The Company has placed its Singapore facility and
underlying land lease up for sale. The Batam Island facility lease
expires December 26, 1995.
In addition to the relocation of the typewriter manufacturing to
Mexico, the Company also eliminated approximately 180 support
positions which relate 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 are expected from elimination of these
support positions. These reductions should be completed by the end
of the first quarter of Fiscal 1996. The restructuring is expected
to reduce the Company's May 8, 1995 workforce of approximately
2,500 by approximately 680. 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 represents primarily non-cash machinery and equipment asset
write-offs, and the remainder relates to employee severance.
Additionally, certain costs, primarily relating to the move of
machinery and equipment, temporary lease-back of facilities, and
renovations, of approximately $6.0 million pretax, will be
recognized as charges to operations as incurred during Fiscal 1996.
The fourth quarter charge is lower than previously announced as a
result of revisions to prior estimates. As a consequence of this
restructuring action, severance costs of approximately $1.3 million
associated with the Fiscal 1993 restructuring charge will not be
incurred and accordingly, have been 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 reflects 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
The Company's primary source of liquidity and capital resources, on
both a short- and long-term basis, are cash flows generated from
operations and borrowing under its Debtor-In-Possession Credit
Agreement.
On July 5, 1995, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code and on August
18, 1995, SCM Office Supplies, Inc., SCC LI Corporation (Histacount
Corporation) and Hulse Manufacturing Company, all wholly-owned
Nonoperating Subsidiaries of the Company, also filed. Since that
date, the Company has continued business operations as debtor-in-
possession under the supervision of the Bankruptcy Court. The
Bankruptcy Proceedings primarily relate to all U.S. assets and
operations and do not pertain to the Company's international
subsidiaries. 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. An Administrator was appointed
as Liquidator on August 2, 1995 for the Company's wholly-owned
subsidiary in Australia. The Administrator was appointed as
Liquidator on August 29, 1995. The Company is currently exploring
potential distributor relationships in its Australian market for
the purpose of maintaining its distribution capacity.
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. The Debtor-In-Possession Credit Agreement
paid-off the Amended and Restated Credit Agreement (described
below). 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. 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.
On April 7, 1995, the Company entered into an Amended and Restated
Revolving Credit Agreement (the "Amended and Restated Credit
Agreement") with the Lenders. 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 $30.0 million up
through March 30, 1996; the aggregate principal amount of such
lending commitment decreased to an amount not in excess of $25.0
million 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. On June 9, 1995, the
Company announced that it was in technical default of the Amended
and Restated Credit Agreement due to the restructuring charge
announced May 8, 1995.
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 additional 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.
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
a plan of reorganization which is subject to approval by the
Bankruptcy Court and, accordingly, are not presently determinable.
Since the filing date, the Company has initiated preliminary
discussions with the official committee of its unsecured creditors
that was appointed by the U.S. Trustee pursuant to the Bankruptcy
Code. The timing of any filing of a Plan of Reorganization cannot
be predicted.
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 reflects 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 enters into foreign exchange
contracts to reduce its exposure to foreign currency rate changes.
As of June 30, 1995, no contracts were outstanding.
While the Company believes it has adequate 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 a plan of reorganization that will enable
the Company to emerge from bankruptcy proceedings, obtaining
adequate post-confirmation financing to fund restructuring and
working capital requirements, successfully implementing the
restructuring program, and generating sufficient cash from
operations and financing sources to meet obligations. There can be
no guarantee that any or all above noted actions will be
accomplished.
Fiscal 1994 Compared to Fiscal 1993
Results of Operations
Net sales increased by 10.3 percent or $24.5 million to $261.3
million in Fiscal 1994 compared to Fiscal 1993. Increased unit
sales of personal word processors and typewriters in both domestic
and international markets accounted for approximately $39.0 million
of the increased sales growth while lower pricing, principally in
the domestic market, offset approximately 50 percent of the unit
sales gains. New products, introduced late in Fiscal 1993,
accounted for approximately $7.6 million of the increase in net
sales. As noted above, domestic unit sales out paced revenue
increases as lower pricing impacted sales growth and gross margins.
Internationally, unit sales increased substantially as the Company
continued to increase its market share in Europe as well as other
geographic areas. Price pressures, while less than in the U.S.
market, nevertheless hindered net sales increases for the year.
Operating income of $8.4 million in Fiscal 1994 compared favorably
to a $15.3 million loss in Fiscal 1993 due principally to lower
advertising, administrative and research expenses in Fiscal 1994,
and the 1993 pretax restructuring charge of $16.5 million.
Payments of approximately $1.8 million from Pelikan, Inc. for
satisfaction of a judgment won by the Company for patent
infringement and misleading advertising litigation are included as
reductions in cost of goods sold in both Fiscal 1994 and 1993.
In July 1992, in order to maintain its leadership as the low-cost
producer in a highly competitive worldwide business, the Board of
Directors approved and the Company announced a plan to phase out
the Company's manufacturing operations in Cortland, New York and
relocate them to a new facility in Mexico. As a result of this
decision, during Fiscal 1993, the Company provided $16.5 million in
restructuring charges, of which approximately $3.0 million was non-
cash in nature. This action was expected to result in lower
manufacturing costs of approximately $15.0 million annually,
primarily due to lower labor costs in Mexico. The restructuring
charge included $8.3 million relating to severance of employees,
$3.3 million relating to asset redeployment costs, $3.0 million for
the write-down of impaired equipment and other assets predicated on
management's decision to close the facility and $1.9 million of
other costs, primarily costs associated with site selection and
outside consulting fees. The cash portion of the charge was
substantially expended by the end of Fiscal 1995. In addition, as
a result of the previously noted May 1995 restructuring action,
severance costs of approximately $1.3 million will not be incurred
and accordingly, have been reflected as a reduction in Fiscal 1995
restructuring costs.
In the first quarter of Fiscal 1993, $9.0 million was recorded for
employees' severance liabilities and asset impairments stemming
from the restructuring decision to close the Cortland manufacturing
facility. Additional direct costs of $1.3 million associated with
the relocation to the Mexico facility were charged to restructuring
during the second and third quarters of Fiscal 1993. In the fourth
quarter, the Company provided an additional $6.2 million, $2.5
million for asset redeployment costs, $1.9 million for the value of
additional fixed assets which became impaired, and the balance
principally for consulting and other costs associated with site
selection activities.
The fourth quarter provision of $2.5 million for asset redeployment
costs consisted primarily of incremental personnel costs, travel
and lodging for 39 employees responsible for the set-up and
establishment of the equipment in the Mexican facility. The
employees responsible for the set-up and establishment were
notified of their termination and subsequent temporary assignment.
As a consequence of final site selection in the fourth quarter,
certain additional fixed assets were identified which would not be
relocated to Mexico and the associated impairment of value was
recorded.
Financial Condition
The Company's primary sources of liquidity and capital resources
during fiscal 1994, on both a short- and long-term basis, were cash
flows generated from operations and borrowings under its Credit
Facility.
During Fiscal 1994, the Company's operating activities provided
cash of $8.7 million, largely a result of the increased net income
and lower inventories offset in part by increased accounts
receivable. Accounts receivable increased $16.8 million over the
prior fiscal year as a result of increased sales late in the fourth
quarter. The reduction in inventories reflects the Company's
continued focus on controlling inventory levels. Accrued
restructuring costs decreased principally due to the pay-out of
severance and other personnel related liabilities during Fiscal
1994. The balance of accrued restructuring costs at June 30, 1994
was expected to be paid in the next fiscal year. Capital
expenditures in Fiscal 1994 were $11.4 million compared to $5.0
million in the prior year increasing primarily as a result of
relocating manufacturing operations to Mexico. The Company had no
material commitments for capital expenditures at June 30, 1994 and
anticipated capital expenditures in Fiscal 1995 to return to pre-
fiscal 1994 levels.
During Fiscal 1994, the Company had a credit facility in the amount
of $32.0 million expiring June 25, 1996. As of June 30, 1994, the
Company was in compliance with all covenants of that credit
facility. The Company also had an uncommitted line of credit
arrangement for $20.0 million. At June 30, 1994, the interest rate
on combined borrowings was 5.63 percent per annum. The proceeds
from the sale of SCM Office Supplies, Inc. of approximately $13.0
million were used to pay down the bank loans subsequent to year-
end.
The Company's Singapore operations had been granted "pioneer tax
status" until February 1994 and as a result, have paid no Singapore
income tax on unremitted Singapore earnings up to that date. Since
the expiration of the "pioneer tax status," the Singapore
operations have been subject to a tax of approximately 27 percent.
The impact of the change in tax status, which serves to increase
the effective income tax rate, was not significant in Fiscal 1994.
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements and Schedules which
appears on page 54 of 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, 1995 and backgrounds are as follows:
[Download Table]
Name Position Age
Robert Van Buren............ Chairman of the Board and Director 70
Ronald F. Stengel........... President, Chief Executive
Officer and Director 47
John A. Piontkowski ........ Senior Vice President, Chief
Financial Officer, Treasurer
and Assistant Secretary 41
Mark A. Alexander........... Director 38
Thomas A. Cawley............ Vice President/Administration
and Director 39
John A. Cutrone ............ Senior Vice President/Marketing
and Sales 41
Jerry L. Diener ............ Senior Vice President/Sales 59
W. Michael Driscoll ........ Vice President/Operations 49
George H. Hempstead, III.... Director 51
Robert J. Kammerer ......... Director 58
John E. Lushefski .......... Director 39
Doris J. McRae ............. Vice President/Product
Development 44
Alfred N. Scallon .......... Vice President/International
Operations 44
Craig C. Sergeant .......... Director 49
David P. Verostko........... Vice President/Human Resources 52
Richard R. West ............ Director 57
Martin D. Wilson............ Controller 35
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. He has been a director of the Company since
August 1989.
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, Chief Financial
Officer and Treasurer of the Company on June 21, 1995. He has
served as an Assistant Secretary of the Company since May, 1992.
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. Alexander was named Senior Vice President - Corporate
Development and a Director of Hanson Industries on June 21, 1995.
Mr. Alexander served as Vice President-Corporate Development of
Hanson Industries from January 1993 to June 21, 1995, and has
served as a Director of Hanson Pacific since June 1994. He served
as Vice President-Mergers and Acquisitions of Hanson Industries
from January 1990 to January 1993. Mr. Alexander is currently a
director of Lynton Group, Inc. and an Associate Director of Hanson
PLC. He has been a director of the Company since June 21, 1995.
Mr. Cawley was named Vice President/Administration on July 27,
1995. He has served as a Director of the Company since July 1,
1995. Mr. Cawley is currently Vice President and Secretary 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. 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 from July 25, 1989 to March 30, 1992.
Mr. Driscoll was named Vice President/Operations on March 16, 1995.
He previously served as Vice President/Operations and Engineering
since July 1, 1992. He served as Director of Materials from
February 17, 1992 to July 1, 1992. Prior to joining the Company,
Mr. Driscoll was President and a director of Code-A-Phone, a
telephone sales company, from February through August 1991 and was
Chief Executive Officer and a director of Technology Applications,
Ltd., an electronic and telecommunications manufacturing company,
from November 1986 through August 1991.
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.
Ms. McRae was named Vice President/Product Development on July 1,
1994. Prior to that time, she served as Vice President/Product
Marketing of the Company from July 1, 1993 through June 30, 1994
and as Vice President/Product Development from May 1991 through
June 1993. She served as Staff Vice President, Advanced Product
Development of the Company from December 1990 through April 1991.
Prior to that time, Ms. McRae was Director, Strategic Planning and
Advanced Product Development of the Company from February 1987
through November 1990.
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. Prior to that
time, Mr. Verostko was Director, Employee Relations for seven
years.
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,
Browne & Co., Inc. and various registered investment companies
managed by Merrill Lynch Asset Management, Inc. Mr. West has been
a director of the Company since August 1989.
Mr. Wilson was named Controller of the Company on July 26, 1995.
Prior to that time, he served as 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.
Mark A. Alexander and John E. Lushefski, each of which was
appointed as a Director of the Company on June 21, 1995, did not
file with the Securities and Exchange Commission a Form 3 --
Initial Statement of Beneficial Ownership of Securities as required
by the Securities Exchange Act of 1934. The information required
by Form 3 was filed with the Securities and Exchange Commission by
each such person on Form 5 -- Annual Statement of Beneficial
Ownership of Securities. Each Form 5 was filed on a timely basis.
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 the Company's
compensation of both persons who served as chief executive officer
during Fiscal 1995 and certain other highly compensated executive
officers of the Company.
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
Annual Compensation Long-Term Compensation
Awards Payouts
Other Securities All
Fiscal Annual Restricted Underlying LTIP Other
Year Bonus Compen- Stock Options/SAR's Pay- Compen-
Name and Ending Salary(6) (7) sation(8) Awards (9) (10) outs(11) sation
Principal Position June 30 ($) ($) ($) ($) (#) ($) ($)
------------------ ------- -------- ----- --------- ---------- ----------- --------- -------------------
Robert Van Buren(1) 1995 $98,307 - - 0 100,000 0 - (12)
Chairman, Chief 1994 - - - 0 - 0 - (13)
Executive Officer 1993 - - - 0 - 0 -
and President
G. Lee Thompson(2) 1995 270,215 - 1,941 0 60,000 0 185,372(12,14,15,16,23)
Chairman and Chief 1994 360,222 257,250 479 0 50,000 0 10,240 (13)
Executive Officer 1993 350,016 - 756 0 150,000 0 9,957
John A. Cutrone, Jr. 1995 134,500 - - 0 25,000 0 5,640 (12)
Senior Vice President 1994 130,688 40,625 24,134(19) 0 13,000 0 38,772(13,18)
Sales and Marketing 1993 17,500 - - 0 10,000 0 165
John A. Piontkowski 1995 127,000 - - 0 20,000 0 21,547(12,17)
Senior Vice President, 1994 117,000 52,650 56,453(19) 0 24,000 0 102,199(13,18)
Chief Financial Officer 1993 84,167 - - 0 10,000 0 4,988
Treasurer and Assistant
Secretary
W. Michael Driscoll 1995 120,650 - - 0 25,000 0 42 (12)
Vice President - 1994 114,950 57,659 - 0 12,000 0 48 (13)
Operations 1993 110,000 - - 0 25,000 0 32
Jerry L. Diener 1995 118,025 - 4 0 20,000 0 3,950 (12)
Senior Vice President- 1994 132,484 36,138 - 0 10,000 0 3,975 (13)
Sales 1993 112,000 - - 0 25,000 0 3,982
William D. Henderson(4) 1995 277,449 - 3,715 0 50,000 0 20,892 (12,21,23)
President and Chief 1994 283,762 173,700 1,257 0 45,000 0 9,228 (13)
Operating Officer 1993 275,712 - 34,876 0 50,000 0 8,670
Thomas C. DeFazio(5) 1995 157,500 - 17,156(20) 0 50,000 0 28,861(12,22
23)
Executive Vice 1994 205,833 126,000 2,075 0 45,000 0 7,923 (13)
President and Chief 1993 200,000 - 1,541 0 80,000 0 7,484
Financial Officer
(1) Mr. Van Buren was elected Chairman and Chief Executive
Officer on March 24, 1995. On July 1, 1995, Mr. Van Buren
resigned as Chief Executive Officer and President, and Ronald F.
Stengel was elected Chief Executive Officer and President of the
Company. Mr. Van Buren remains Chairman of the Board of the
Company.
(2) Mr. Thompson's employment with the Company terminated on
March 24, 1995. See "-- Severance Agreements" below.
(3) Mr. Piontkowski was elected Senior Vice President, Chief
Financial Officer and Treasurer on June 21, 1995.
(4) Mr. Henderson's employment with the Company terminated on
June 3, 1995. See "-- Employment Agreements" below.
(5) Mr. DeFazio's employment with the Company terminated on
March 31, 1995.
(6) Amounts shown include compensation deferred under the
Company's Retirement Savings and Investment Plan ("RSIP").
(7) Amounts shown indicate the annual bonus earned by the
executive officers under the Company's Bonus Plan (as hereinafter
defined) in the fiscal years shown. The Company pays such bonus
amounts to the executive officers in the subsequent fiscal year.
(8) None of the executive officers, except for Mr. Cutrone and
Mr. Piontkowski during Fiscal 1994, and Mr. DeFazio in Fiscal
1995 received perquisites or other personal benefits, securities
or property that exceeded the lesser of $50,000 or 10 percent of
such officer's salary and bonus.
(9) No restricted stock awards have been made since shortly
after the closing of the Offerings. At that time, restricted
shares were awarded to certain key executives pursuant to the
Supplemental Performance Plan ("SPP"), which plan thereupon
terminated. Of the eight executives named in the Summary
Compensation Table only Mr. Thompson was awarded restricted
shares under the SPP. As of the end of Fiscal 1995, Mr. Thompson
owned 7,800 restricted shares.
(10) The Company does not grant Stock Appreciation Rights
("SAR's").
(11) The Company has no long-term incentive plans.
(12) Includes matching contributions by the Company under the
RSIP for Messrs. Van Buren, Thompson, Cutrone, Piontkowski,
Driscoll, Diener, Henderson and DeFazio of $0, $3,654, $5,254,
$4,755, $0, $3,950, $4,305 and $3,072, respectively. Includes
net term life insurance premium payments by the Company for
Messrs. Van Buren, Thompson, Cutrone, Piontkowski, Driscoll,
Diener, Henderson and DeFazio of $0, $5,741, $386, $47, $42, $0,
$4,524 and $2,457, respectively.
(13) Includes matching contributions by the Company under the
RSIP for Messrs. Van Buren, Thompson, Cutrone, Piontkowski,
Driscoll, Diener, Henderson and DeFazio of $0, $4,500, $0,
$3,510, $0, $3,975, $4,704 and $4,647, respectively. Includes
net term life insurance premium payments by the Company for
Messrs. Van Buren, Thompson, Cutrone, Piontkowski, Driscoll,
Diener, Henderson and DeFazio of $0, $5,740, $471, $47, $48, $0,
$4,524 and $3,276, respectively.
(14) Includes amount paid under the Supplemental Executive
Retirement Plan ("SERP") for Mr. Thompson of $18,344.
(15) Includes amount paid under a Severance Agreement for Mr.
Thompson of $97,297.
(16) Includes amount paid under a Severance Agreement for Mr.
Thompson for outplacement assistance of $25,000.
(17) Includes amount paid for mortgage assistance for Mr.
Piontkowski of $16,745.
(18) Includes amounts paid for relocation expenses for Messrs.
Cutrone and Piontkowski of $38,301 and $98,642, respectively.
(19) Includes taxes paid by the Company for relocation expenses
for Messrs. Cutrone and Piontkowski of $24,134 and $56,453,
respectively.
(20) Includes amount paid under the Company's Executive Medical
Plan of $15,870.
(21) Includes amount paid under a Termination Agreement for Mr.
Henderson of $6,496.
(22) Includes amount paid under a Supplemental Pension Benefit
provision included in the Employment Agreement for Mr. DeFazio of
$7,178.
(23) Includes amounts paid for accrued but unused vacation for
Messrs. Thompson, Henderson and DeFazio of $35,337, $5,567 and
$16,154, respectively.
The following table sets forth certain specific information
regarding options granted to the eight executive officers named
in the Summary Compensation Table under the Company's 1990 Stock
Option Plan, as amended (the "Stock Option Plan").
[Download Table]
OPTION GRANTS IN FISCAL 1995
Number of Percent of
Securities Total Exer- Grant
Underlying Options cise or Date
Options Granted to Base Expir- Present
Granted(1) Employees in Price(4) ation Value(9)
(#) Fiscal Year(1) ($/Sh) Date(5) ($)
Robert Van Buren 100,000(2) 16.00% 2.75 03/23/05 145,000
G. Lee Thompson 60,000(3) 9.60% 3.25 11/14/04(6) 106,200
John A. Cutrone, Jr. 25,000(3) 4.00% 3.25 11/14/04 44,250
John A. Piontkowski 20,000(3) 3.20% 3.25 11/14/04 35,400
W. Michael Driscoll 25,000(3) 4.00% 3.25 11/14/04 44,250
Jerry L. Diener 20,000(3) 3.20% 3.25 11/14/04 35,400
William D. Henderson 50,000(3) 8.00% 3.25 11/14/04(7) 88,500
Thomas C. DeFazio 50,000(3) 8.00% 3.25 11/14/04(8) 88,500
All other employees 274,000(10) 44.00% Various Various 484,180
624,000(10) 100.00% 1,071,680
[Download Table]
Value at Value on $3.092
Number of 6/30/95 ($1.375 Per Share
Outstanding Shares Per Share) (11)
30,250,000 $41,593,750 $93,533,000
(1) The Company does not grant SAR's.
(2) These options were granted on March 24, 1995 and become exercisable
June 24, 1995 upon receipt of approval of the Company's Stockholders.
(3) These options were granted on November 15, 1994 and will vest on
November 15, 1997.
(4) The exercise price is the fair market value of the Company's Common
Stock on the date of grant.
(5) The options granted expire the day before the tenth anniversary of
the date of grant.
(6) Due to the retirement of Mr. Thompson from the Pension Plan as
defined below on July 1, 1995, these options will expire on May 15,
1998.
(7) These nonvested options were canceled on June 3, 1995 due to Mr.
Henderson's termination of employment with the Company on such date.
(8) Due to the retirement of Mr. DeFazio from the Pension Plan as
defined below on April 1, 1995, these options will expire on May 15,
1998.
(9) The grant date present value, calculated using the Black-Scholes
options pricing method, is based on certain assumptions as to interest
rates, stock price volatility and future dividend yield. There is no
assurance that these assumptions will prove to be true in the future.
The actual value, if any, that an executive will realize upon exercise
of an option will be the excess of the stock price over the exercise
price.
(10) Amount shown is net of 60,000 options which the Company granted in
Fiscal 1995 but which have lapsed due to termination of employment.
(11) In order for the named executives to realize the value stated in
the "Grant Date Present Value" column upon the exercise of their
options, the price of the Common Stock on the date of exercise must be
$3.092 per share. At that price per share, the aggregate value of all
outstanding shares (30,250,000) would be $93,533,000. On June 30, 1995,
when the stock price was $1.375, the aggregate value of the same number
of outstanding shares was $41,593,750.
The following table sets forth certain information about
outstanding stock options held by the eight executive officers named in
the Summary Compensation Table pursuant to the Stock Option Plan. No
stock options have been exercised under the Plan.
[Download Table]
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Value of
Unexercised
Shares Number of Securities In-the-Money
Acquired Underlying Unexercised Options at
on Exer- Value Options at Fiscal Fiscal
cise Realized Year-End(1) Year-End(1)
Name (#) ($) (#) ($)
---- -------- -------- ---------------------- ------------
Unexer-
Exercisable cisable
----------- -------
Robert Van Buren -- -- 100,000 (2) 0 $0.00
G. Lee Thompson -- -- 100,000 (3) 260,000 $0.00
John A. Cutrone, Jr. -- -- 0 48,000 $0.00
John A. Piontkowski -- -- 5,000 (4) 54,000 $0.00
W. Michael Driscoll -- -- 16,000 (5) 62,000 $0.00
Jerry L. Diener -- -- 22,500 (6) 55,000 $0.00
William D. Henderson -- -- 185,000 (7) 0 $0.00
Thomas C. DeFazio -- -- 240,000 (8) 0 $0.00
(1) The Company does not grant SAR's.
(2) These options became exercisable on:
June 24, 1995 at an exercise price of $2.75 per share
(100,000)
(3) The options became exercisable on:
January 22, 1993 at an exercise price of $12.50 per
share (20,000)
November 13, 1993 at an exercise price of $6.00 per
share (20,000)
November 19, 1994 at an exercise price of $6.875 per
share (60,000)
(4) The options became exercisable on:
February 18, 1995 at an exercise price of $9.25 per
share (5,000)
(5) The options became exercisable on:
February 18, 1995 at an exercise price of $9.25 per
share (6,000)
May 19, 1995 at an exercise price of $8.75 per share
(10,000)
(6) The options became exercisable on:
January 22, 1993 at an exercise price of $12.50 per
share (7,000)
November 13, 1993 at an exercise price of $6.00 per
share (7,000)
November 19, 1994 at an exercise price of $6.875 per
share (8,500)
(7) The options became exercisable on:
July 2, 1993 at an exercise price of $5.625 per share
(145,000)
November 13, 1993 at an exercise price of $6.00 per
share (15,000)
November 19, 1994 at an exercise price of $6.875 per
share (25,000)
(8) The options became exercisable on:
April 1, 1994 at an exercise price of $9.25 per share
(40,000)
November 19, 1994 at an exercise price of $6.875 per
share (25,000)
April 1, 1995 at an exercise price of $6.50 per share
(80,000)
April 1, 1995 at an exercise price of $5.75 per share
(45,000)
April 1, 1995 at an exercise price of $3.25 per share
(50,000)
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 $24,500 $32,700 $40,880 $49,060 $49,060
$150,000 $30,200 $40,200 $50,260 $60,300 $60,300
$175,000 $30,200 $40,200 $50,260 $60,300 $60,300
$200,000 $30,200 $40,200 $50,260 $60,300 $60,300
$225,000 $30,200 $40,200 $50,260 $60,300 $60,300
$250,000 $30,200 $40,200 $50,260 $60,300 $60,300
$300,000 $30,200 $40,200 $50,260 $60,300 $60,300
$350,000 $30,200 $40,200 $50,260 $60,300 $60,300
$400,000 $30,200 $40,200 $50,260 $60,300 $60,300
$450,000 $30,200 $40,200 $50,260 $60,300 $60,300
$500,000 $30,200 $40,200 $50,260 $60,300 $60,300
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 Summary Compensation
table above is, in general, compensation covered by the Pension
Plan for those respective individuals. Mr. Van Buren did not
participate in the Pension Plan. Messrs. Thompson, Henderson and
DeFazio terminated employment with the Company during Fiscal
1995, and at such time of termination had 13, 5 and 5 years of
credited service under the Pension Plan, respectively, for
purposes of calculating annual retirement benefits under the
Pension Plan. As of June 30, 1995, Messrs. Cutrone, Piontkowski,
Driscoll and Diener had 2, 4, 14 and 36 years of credited service
under the Pension Plan, respectively, for purposes of calculating
annual retirement benefits under the Pension Plan.
Summarized below are actual accrued benefits under the
Pension Plan for Messrs. Thompson and DeFazio, and estimated
accrued benefits under the Pension Plan for Mr. Henderson, as of
the date each of them terminated employment with the Company.
G. Lee Thompson $50,790
William D. Henderson $12,700
Thomas C. DeFazio $13,465
Summarized below are estimated accrued benefits under the
Pension Plan as of June 30, 1995 for the four executive officers
named in the Summary Compensation Table who are currently
employed by the Company.
John A. Cutrone, Jr. $ 3,840
John A. Piontkowski $ 5,180
W. Michael Driscoll $20,600
Jerry Diener $56,980
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.
Supplemental Executive Retirement Plan
Certain executive officers of the Company participate in the
Smith Corona Supplemental Executive Retirement Plan (the "SERP")
which provides additional retirement benefits in excess of the
maximum allowable under plans qualified under the Code. As of
June 30, 1995, the only executive officers participating in the
SERP were Messrs. Diener, Driscoll, Scallon, Verostko and Ms.
McRae. The SERP provides for payment of 100% of the
participant's retirement benefit upon retirement from the Company
at age 62, and permits earlier retirement, with a reduced
benefit, in certain cases, but only if approved by the Plan
Administrator. The amount of the retirement benefit payable
under the SERP at age 62 is equal to the difference between (i) a
percentage (based on years of credited service (maximum 30 years)
with the Company) of the executive's Average Final Compensation
(as defined below), less an offset for the primary Social
Security benefit, and (ii) the sum of amounts payable under the
Pension Plan. "Average Final Compensation" is defined as the
greater of the executive's average earnings (excluding Company
payments or awards made under the RSIP, SPP or Pension Plan, as
such terms are described herein, or the stock option plan of
Hanson, and any income from other benefits) (x) in any three
highest paid years of the last ten calendar years of employment
or (y) during the last 36 months of employment. Executives with
at least 5 and less than 10 years of credited service receive
12.5% of Average Final Compensation plus 2.5% for each year over
5 years; those with at least 10 but less than 20 years of
credited service receive 25% of Average Final Compensation, plus
1.5% for each year over 10 years; those with at least 20 but less
than 30 years, receive 40% of Average Final Compensation, plus 1%
for each year over 20 years; and those with 30 years or more
receive 50% of Average Final Compensation.
Notwithstanding the early retirement provisions described in
the previous paragraph, if a Change of Control shall occur, any
executive with fewer than 5 years of credited service would
receive 2.5% of Average Final Compensation for each year of
credited service. "Change of Control" is defined as (1) a
reorganization, consolidation or merger of the Company with or
into another entity, (2) a sale, transfer or lease of
substantially all of the Company's property or (3) the
acquisition by an entity or group not affiliated with Hanson or
the Company, of 20% or more of the outstanding shares of Common
Stock of the Company, unless Hanson also owns 20% or more of such
shares on and after such acquisition.
The table below illustrates the estimated annual benefits
upon retirement pursuant to the SERP to persons in the specified
compensation and years-of-service classifications.
[Download Table]
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
Years of Service
Average
Final
Compen-
sation 15 20 25 30 35
------ ------- ------- ------- ------- -------
$125,000 $12,500 $12,500 $9,380 $6,250 $6,250
$150,000 $15,000 $15,000 $11,250 $7,500 $7,500
$175,000 $23,120 $25,000 $22,500 $20,000 $20,000
$200,000 $31,250 $35,000 $33,750 $32,500 $32,500
$225,000 $39,380 $45,000 $45,000 $45,000 $45,000
$250,000 $47,500 $55,000 $56,250 $57,500 $57,500
$300,000 $63,750 $75,000 $78,750 $82,500 $82,500
$350,000 $80,000 $95,000 $101,250 $107,500 $107,500
$400,000 $96,250 $115,000 $123,750 $132,500 $132,500
$450,000 $112,500 $135,000 $146,250 $157,500 $157,500
$500,000 $128,750 $155,000 $168,750 $182,500 $182,500
The total compensation set forth in the Summary Compensation
Table above is, in general, compensation covered by the SERP. The
amounts set forth on the table above are computed on a straight life
annuity basis and include offsets for the primary Social Security
benefit and for the amount payable under the Pension Plan.
Under the SERP, the Plan Administrator (as defined in the SERP)
may grant up to 5 years' age and up to 5 years' credited service to a
participant. In July of 1990, the Plan Administrator granted Mr.
Thompson 3 years' adjusted credited service and 3 years' adjusted
credited age.
Mr. Van Buren did not participate in the SERP. Due to the
termination of employment of Messrs. Henderson and DeFazio, their
eligibility to participate in the SERP was terminated. As of his
date of termination of employment with the Company, Mr. Thompson had
the credited age of 65 years and credited service of 15 years.
As of June 30, 1995, the four executive officers named in the
Summary Compensation Table who are currently employed by the Company
had the credited age and credited service set forth below:
Name Credited Age Credited Service
John A. Cutrone, Jr. 40 2
John A. Piontkowski 40 4
W. Michael Driscoll 49 14
Jerry L. Diener 60 36
Supplemental Pension Benefit
On December 5, 1990, the Compensation and Benefits Committee
authorized the Company to enter into an agreement with Mr. Manfred
Eckhardt, formerly Vice President and Treasurer of the Company,
pursuant to which the Company agreed to pay supplemental pension
benefits. As a result of his retirement on June 8, 1995, Mr.
Eckhardt received his supplemental pension benefit in a lump sum
payment of $53,060 on June 15, 1995. No other officers have received
this benefit.
Employment Agreements
On May 23, 1990, the Company entered into an employment
agreement with Mr. Henderson providing that he would serve as
President and Chief Operating Officer of the Company through June 30,
1992. The term of the agreement was subsequently extended through
June 30, 1995. The agreement provides that Mr. Henderson would be
paid an initial annual base salary of $250,000 and such additional
compensation as may be provided under the Company's benefit plans
including the SERP, which provides additionalretirement benefits in
excess of the maximum allowable under plans qualified under the Code.
The agreement provided for the payment of a supplemental pension
benefit equal to (a) the amount that would be payable to Mr.
Henderson under the Pension Plan based on credited
service with Hanson Industries and the Company, minus (b) the amount
payable to Mr. Henderson under the Pension Plan based on his credited
service with the Company, minus (c) the amount payable to Mr.
Henderson under the Hanson Industries Pension Plan, minus (d) the
amount payable under the SERP. In Mr. Henderson's case, the
supplemental pension benefit payment was terminated upon the
involuntary termination of his employment on June 3, 1995. The
employment agreement also provides that if Mr. Henderson's employment
is terminated by the Company for reasons other than cause, or if he
terminated his employment for good reason (as defined in the
agreement), he will continue to receive (a) his base salary at the
rate then in effect for the longer period of (i) the remainder of the
term of the agreement or (ii) 24 months and (b) certain benefits.
This continuation of salary is not applicable if Mr. Henderson
obtains employment or enters into any personal service arrangement
with a competitor of the Company. Substantially all of the terms of
Mr. Henderson's employment agreement were confirmed in an agreement
dated February 3, 1995 between the Company and Mr. Henderson. Mr.
Henderson's employment with the Company was terminated on June 3,
1995 pursuant to his involuntary resignation in connection with the
Company's restructuring for "reasons other than cause" within the
meaning of his employment agreement. Mr. Henderson has agreed to
provide consulting services to the Company upon its reasonable
request for a period of one year, at specified daily rates.
On January 23, 1991, the Company entered into an employment
agreement with Mr. DeFazio providing that he would serve as Executive
Vice President and Chief Financial Officer of the Company through
June 30, 1993. The agreement was subsequently extended through June
30, 1995. The agreement provides that Mr. DeFazio would be paid an
initial annual base salary of $185,000 and such additional
compensation as may be provided under the Company's benefit plans
including the SERP, which provides additional retirement benefits in
excess of the maximum allowable under plans qualified under the Code.
The agreement provides for the payment of a supplemental pension
benefit equal to (a) the amount that would be payable to Mr. DeFazio
under the Pension Plan based on his credited service with SCM
Corporation and the Company, minus (b) the amount that would be
payable to Mr. DeFazio under the Pension Plan based on his credited
service with the Company, minus (c) the amount payable to Mr. DeFazio
under the SCM Corporation Salaried Retirement Plan, minus (d) the
amount payable under the SERP. The agreement also provides that if
Mr. DeFazio's employment is terminated by the Company for reasons
other than cause, or if he terminates his employment for good reason
(as defined in the agreement), he will continue to receive (a) his
base salary at the rate then in effect for the longer period of (i)
the remainder of the term of the agreement or (ii) 24 months and (b)
certain benefits. This continuation of salary is not applicable if
Mr. DeFazio obtains employment or enters into any personal service
arrangement with a competitor of the Company. The terms of Mr.
DeFazio's employment agreement were confirmed in a letter agreement
dated February 3, 1995 between the Company and Mr. DeFazio.
Mr. DeFazio terminated his employment with the Company on March 31,
1995. Since the termination, Mr. DeFazio has been receiving a
supplemental pension benefit pursuant to the terms of his employment
agreement in the amount of $2,393 per month payable as a 50% joint
and survivor annuity.
On March 28, 1995, the Company entered into an employment agreement
with Mr. Van Buren providing that he would serve as Chairman and
Chief Executive Officer of the Company. Mr. Van Buren's employment
agreement had no expiration date; however, the agreement provided
that Mr. Van Buren's employment could be terminated by the Company at
any time at the discretion of the Board of Directors. The agreement
provided that Mr. Van Buren would be paid a monthly salary of
$30,000, would be eligible for option grants under the Company's
Stock Option Plan and would receive benefits under the Company's life
insurance and medical insurance plans. The agreement provided that
upon termination of Mr. Van Buren's employment for "reasons other
than cause" within the meaning of the employment agreement, he would
continue to receive his base salary plus his benefits until the last
day of the month in which such termination took place. Mr. Van
Buren's employment was terminated on July 1, 1995. He remains
Chairman of the Board and a Director of the Company.
Severance Agreements
Messrs. Cutrone, Piontkowski, Driscoll and Diener have entered
into severance agreements with the Company. The severance agreements
provide for the continued regular payment of an amount equal to the
executive's annual rate of base pay in effect on the date of
cessation of employment for a period of two years following the
involuntary termination (as defined in the severance agreement) of an
executive officer. The severance agreement of Mr. Piontkowski
expires on June 30, 1996. The severance agreements of Messrs.
Cutrone, Driscoll and Diener were to expire on June 30, 1995;
however, they were amended to extend the expiration date. In the
case of Messrs. Cutrone and Driscoll, the agreements were extended
to June 30, 1996 and in the case of Mr. Diener, to December 31, 1995.
The severance agreements provide for the lump sum payment of all
accrued vacation time in the current year, Pension Plan credit only
for service attributable to the severance period allotted under the
Company's Corporate Policy on Termination Allowance for Company
salaried employees generally, continuation of participation in the
Company's medical and life insurance programs during the period that
the executive officer is receiving severance payments, and
outplacement assistance at the Company's expense up to $10,000.
Messrs. Thompson and Noblitt entered into severance agreements
with the Company. The severance agreements provided for the
continued regular payment of an amount equal to the executive's
annual rate of base pay in effect on the date of cessation of
employment for a period of 2.99 years in Mr. Thompson's case and 2
years in Mr. Noblitt's case, following the involuntary termination
(as defined in the severance agreement) of an executive officer. The
severance agreements provided for the lump sum payment of all accrued
vacation time in the current year, Pension Plan credit only for
service attributable to the severance period allotted under the
Company's Corporate Policy on Termination Allowance for Company
salaried employees generally, continuation of participation in the
Company's medical and life insurance programs during the period that
the executive officer is receiving severance payments, and
outplacement assistance at the Company's expense up to $10,000, or,
in Mr. Thompson's case, $25,000. Since Mr. Thompson's termination of
employment with the Company on March 24, 1995, Mr. Thompson has
received severance benefits pursuant to the terms of his severance
agreement with the Company. Upon Mr. Noblitt's termination of
employment with the Company as a result of the sale of SCM Office
Supplies, Inc. by the Company on July 5, 1994, Mr. Noblitt received
severance benefits pursuant to the terms of his severance agreement
with the Company.
Certain other officers and employees of the Company have entered
into similar severance agreements with terms ranging from six months
to two years.
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. The Company and its major
subsidiaries maintain a short-term incentive compensation plan
("Bonus Plan"), pursuant to which management establishes graduated
performance targets for the Company and its major subsidiaries. At
each level of performance target reached, a portion of the bonus
amount is paid to top management pursuant to a schedule of payments
established at the beginning of the fiscal year. Typically, payments
under the Bonus Plan are tied to levels of operating income generated
and return on capital employed by the Company and its major
subsidiaries during the fiscal year. In Fiscal 1994, the payments
under the Bonus Plan to certain employees were also tied to other
factors, including gross margin, inventory control, research and
development costs and manufacturing performance. Performance levels
are established in coordination with the Company's operating plan for
the fiscal year.
All of the named executives, excluding Mr. Van Buren,
participated or participate in the Bonus Plan. No payments have been
made during Fiscal 1996 under the Bonus Plan with respect to Fiscal
1995, since no bonuses were earned by the named executives in Fiscal
1995.
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 has made a number of option grants to date under the
Stock Option Plan. See "Executive Compensation Option Grants in
Fiscal 1995" above. 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. Notwithstanding the previous sentence, the options
granted to Mr. Van Buren on March 24, 1995 vested on June 24, 1995.
Compensation of the Chief Executive Officer
The compensation of the Chief Executive Officer, like that of
the other executive officers of the Company, is comprised of base
salary, bonus and stock options. The Committee's policy with respect
to determining the Chief Executive Officer's base salary is based on
the same criteria used for determining the base salary of other
executives of the Company. The criteria for bonus payments made and
stock options granted to the Chief Executive Officer are the same as
those described above for other executives.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
The following table sets forth, as of June 30, 1995, 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 and nominee for
director of the Company, (c) the eight 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 *
G. Lee Thompson 7,800 *
John A. Piontkowski 2,242 *
Mark A. Alexander 0 0
Thomas A. Cawley 0 0
John E. Lushefski 400 *
George H. Hempstead, III 950 *
Craig C. Sergeant 0 0
John A. Cutrone, Jr. 2,064 *
Richard R. West 1,000 *
Robert J. Kammerer 500 *
Jerry L. Diener 75,216 *
W. Michael Driscoll 0 0
William D. Henderson 0 0
Thomas C. DeFazio 2,590 *
All directors and
executive officers
as a group (20 persons) 170,701 *
*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 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 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 SPP 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.
Other Agreements
Effective July 1, 1995, the Company engaged the firm of R.F. Stengel
& Co., Inc. ("RFS") to provide interim management and financial
consulting 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 will report 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 will be 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.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a)(1) Financial Statements. See Index to Consolidated
Financial Statements and Schedules which appears on page 54 of this
Form 10-K Annual Report.
(a)(2) Financial Schedules. See Index to Consolidated
Financial Statements and Schedules which appears on page 54 of 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. Two Current Reports on Form 8-K were
filed with the Commission during the last quarter of the Company's
1995 fiscal year.
1. The Form 8-K Current Report dated April 7, 1995 reported a
press release under Item 5 announcing Smith Corona Corporation
entered into an Amended and Restated Revolving Credit Agreement with
Chemical Bank and the Lenders parties thereto.
2. The Form 8-K Current Report dated June 3, 1995 reported a
press release under Item 5 announcing that it is in technical default
of its Credit Agreement as a result of the restructuring charge
announced May 8, 1995.
In addition, there was a second press release under Item 5
announcing the replacements of two members of its Board of Directors
effective June 8, 1995. It also stated that Robert Van Buren was
elected President, succeeding William D. Henderson who involuntarily
resigned in connection with the restructuring effective June 3, 1995.
(c) Exhibits (filed herewith or incorporated by reference; see
index to exhibits).
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.
*10.8 Smith Corona Corporation Retirement Savings and Investment Plan
adopted effective July 1, 1989, as amended through January 1, 1994.
*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.
*10.10 Histacount Corporation Retirement Savings and Investment Plan
adopted effective July 1, 1989, as amended through January 1, 1994.
10.11 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).
*10.12 Smith Corona Corporation Supplemental Executive Retirement Plan
as restated and amended as of July 28, 1989, through November 16,
1993.
10.13 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).
10.14 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)).
*10.15 Smith Corona Corporation Short Term Incentive Compensation Plan.
10.16 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)).
10.17 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)).
10.18 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)).
10.19 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).
10.20 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)).
10.21 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)).
10.22 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)).
10.23 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).
10.24 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).
10.25 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).
*10.26 Employment Agreement between Smith Corona Corporation and
William D. Henderson, dated as of February 3, 1995.
*10.27 Severance Letter between Smith Corona Corporation and G. Lee
Thompson, dated as of February 3, 1995.
10.28 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).
10.29 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).
*10.30 Employment Agreement between Smith Corona Corporation and Thomas
C. DeFazio, dated as of February 3, 1995.
10.31 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).
*10.32 Smith Corona Corporation Salaried Employees Retirement Plan, as
amended and restated as of January 1, 1994.
10.33 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).
10.34 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).
10.35 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).
10.36 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).
10.37 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).
10.38 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).
10.39 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).
10.40 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).
10.41 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).
10.42 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).
10.43 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).
*10.44 Debtor-in-Possession Credit Agreement dated as of July 10, 1995
among Smith Corona Corporation, the lenders party thereto and
Chemical Bank, as Agent.
*10.45 First Amendment to Debtor-In-Possession Credit Agreement dated
as of July 24, 1995.
*10.46 Second Amendment to Debtor-In-Possession Credit Agreement dated
as of August 15, 1995.
*10.47 Consulting Agreement between Smith Corona Corporation and R. F.
Stengel & Co., Inc., dated June 29, 1995.
*10.48 Lease between Smith Corona Corporation and J.M. Murray Center,
Inc., dated February 8, 1995.
*10.49 Purchase and Sale Agreement, dated as of February 28, 1995,
between Smith Corona Corporation and J.M. Murray Center.
*10.50 Severance Agreement between Smith Corona Corporation and John A.
Cutrone, dated as of June 13, 1994.
*10.51 One year extension, effective June 30, 1995, of Severance
Agreement described in 10.50.
*10.52 Severance Agreement between Smith Corona Corporation and W.
Michael Driscoll, dated as of June 13, 1994.
*10.53 One year extension, effective June 30, 1995, of Severance
Agreement described in 10.52.
*10.54 Severance Agreement between Smith Corona Corporation and John A.
Piontkowski, dated as of April 3, 1995.
*10.55 Amendment of Severance Letter, effective June 29, 1995,
described in 10.54.
*10.56 Severance Agreement between Smith Corona Corporation and Jerry
L. Diener, dated as of June 1, 1990.
*10.57 Six month extension, effective June 30, 1995, of Severance
Agreement described in 10.56.
*10.58 Consulting Agreement between Smith Corona Corporation and
Manfred J. Eckhardt, dated as of June 9, 1995.
*10.59 Stock Option Agreement between Smith Corona Corporation and
Robert Van Buren, dated as of April 13, 1995.
*10.60 Employment Agreement between Smith Corona Corporation and
Robert Van Buren, dated March 28, 1995.
*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 therefore, 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 28, 1995 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 28, 1995
(Robert Van Buren)
/s/ Ronald F. Stengel
........................ President, Chief Executive September 28, 1995
(Ronald F. Stengel) Officer and Director
/s/ John A. Piontkowski
........................ Senior Vice President, September 28, 1995
(John A. Piontkowski) Chief Financial Officer and
Treasurer (Principal Financial
Officer)
/s/ Mark A. Alexander
........................ Director September 28, 1995
(Mark A. Alexander)
/s/ Thomas A. Cawley
........................ Vice President/Administration September 28, 1995
(Thomas A. Cawley) and Director
/s/George H.Hempstead,III
........................ Director September 28, 1995
(George H. Hempstead,III)
/s/ Robert J. Kammerer
........................ Director September 28, 1995
(Robert J. Kammerer)
/s/ John E. Lushefski
........................ Director September 28, 1995
(John E. Lushefski)
/s/ Craig C. Sergeant
........................ Director September 28, 1995
(Craig C. Sergeant)
/s/ Richard R. West
........................ Director September 28, 1995
(Richard R. West)
/s/ Martin D. Wilson
........................ Controller September 28, 1995
(Martin D. Wilson) (Principal Accounting
Officer)
Index to Consolidated Financial Statements and Financial Statement Schedule
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . 55
Consolidated Balance Sheets as of June 30, 1995 and 1994 . . . . . . . . . . 57
Consolidated Statements of Operations for the Years Ended June 30, 1995,
1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended June 30, 1995, 1994 and 1993. . . . . . . . . . . . . . . . . . . . 59
Consolidated Statements of Cash Flows for the Years Ended June 30, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 61
Consolidated Supplemental Financial Statement Schedule for the Years
Ended June 30, 1995, 1994 and 1993
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . 87
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, 1995 and 1994, 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, 1995. 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, 1995 and 1994 and
the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995 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 to the consolidated financial statements, the
Company has recently experienced recurring losses from operations,
has an accumulated deficit at June 30, 1995, had difficulty in
meeting its Amended and Restated Revolving Credit Agreement
covenants, required waivers to its Debtor-In-Possession Credit
Agreement covenants and can not presently determine with certainty
the ultimate liability which may result from the filing of claims in
connection with the Bankruptcy Proceedings. Additionally, as
described in Note 8, the Company's Debtor-In-Possession Credit
Agreement expires on June 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
August 22, 1995
Smith Corona Corporation and Subsidiaries
Consolidated Balance Sheets
[Download Table]
June 30,
(Dollars in thousands) 1995 1994
Assets
Current assets:
Cash and cash equivalents $7,003 $6,472
Accounts receivable (net of allowance
for doubtful accounts of $1,484 and
$1,512 for 1995 and 1994, respectively) 37,654 48,210
Inventories 54,335 62,695
Prepaid expenses and other current
assets 9,471 3,716
Deferred income taxes - 10,131
Net assets of discontinued operations - 19,072
Total current assets 108,463 150,296
Property, plant and equipment-net 22,888 36,782
Deferred income taxes 3,406 4,371
Other assets 1,309 2,239
Total $136,066 $193,688
Liabilities and stockholders' equity
Current liabilities:
Bank loans $17,400 $ -
Trade payables 19,807 27,379
Accrued liabilities 35,449 26,935
Income taxes payable 5,791 5,001
Dividends payable - 1,512
Total current liabilities 78,447 60,827
Bank loans - 20,002
Postretirement benefits 12,999 12,650
Pension liability 18,801 20,361
Other long-term liabilities 5,569 4,126
Total liabilities 115,816 117,966
Stockholders' equity:
Common stock- 30,250,000 shares issued
and outstanding 303 303
Additional paid-in capital 44,697 44,697
Retained earnings (accumulated deficit) (24,750) 30,722
Total stockholders' equity 20,250 75,722
Total $136,066 $193,688
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) 1995 1994 1993
Net sales $196,309 $261,306 $236,846
Cost of goods sold 180,959 204,327 179,355
Gross margin 15,350 56,979 57,491
Selling, administrative and
research expenses 48,532 48,557 56,339
Restructuring costs 13,584 - 16,500
Operating income (loss) (46,766) 8,422 (15,348)
Interest expense 965 708 417
Income (loss) from continuing
operations before income taxes (47,731) 7,714 (15,765)
Income taxes (benefit) 14,514 2,620 (5,521)
Income (loss) from continuing
operations (62,245) 5,094 (10,244)
Discontinued operations (net of
income taxes):
Income from operations 671 2,233 1,222
Gain (loss) on disposal
of discontinued operations 9,127 (2,200) -
Net income (loss) $(52,447) $5,127 $(9,022)
Earnings per common share -
Income (loss) from continuing
operations $(2.05) $.17 $(.34)
Discontinued operations:
Income from operations .02 .07 .04
Gain (loss) on disposal
of discontinued operations .30 (.07) -
Net income (loss) per share $ (1.73) $ .17 $ (.30)
See accompanying notes to consolidated financial statements.
[Download Table]
Smith Corona Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the years ended June 30, 1995, 1994 and 1993
Retained
Additional Earnings
(Dollars in thousands, Common Paid-in (Accumulated
except per share amounts) Stock Capital Deficit) Total
Balance, June 30, 1992 $303 $44,697 $ 46,717 $91,717
Net loss - - (9,022) (9,022)
Dividends declared
($.20 per share) - - (6,050) (6,050)
Balance, June 30, 1993 303 44,697 31,645 76,645
Net income - - 5,127 5,127
Dividends declared
($.20 per share) - - (6,050) (6,050)
Balance, June 30, 1994 303 44,697 30,722 75,722
Net loss - - (52,447) (52,447)
Dividends declared
($.10 per share) - - (3,025) (3,025)
Balance, June 30, 1995 $303 $44,697 $(24,750) $20,250
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) 1995 1994 1993
Cash flows from operating
activities:
Net income (loss) $(52,447) $5,127 $(9,022)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
continuing operating activities:
Discontinued operations (9,798) (33) (1,222)
Depreciation and amortization 6,689 4,998 6,253
Restructuring costs 13,584 - 16,500
Deferred income taxes 11,096 1,818 (22,675)
Other noncash items 4,512 20 318
Changes in assets and liabilities:
Accounts receivable 10,556 (16,759) 20,496
Inventories 8,360 12,837 (14,155)
Prepaid expenses and other
current assets 139 (1,675) 2,080
Other assets 895 (1,112) 2,029
Trade payables (7,572) 3,804 (9,984)
Accrued liabilities and income
taxes payable (4,280) (651) (4,844)
Postretirement benefits and
pension liability (1,211) (731) 17,257
Other long-term liabilities 1,443 198 730
Net cash provided by (used in)
continuing operations (18,034) 7,841 3,761
Net cash provided by (used in)
discontinued operations 1,370 907 (70)
Net cash provided by (used in)
operating activities (16,664) 8,748 3,691
Cash flows from investing
activities:
Proceeds from sale of
discontinued operations 27,500 - -
Capital expenditures (3,166) (11,359) (4,952)
Net cash provided by (used in)
investing activities 24,334 (11,359) (4,952)
Cash flows from financing
activities:
Bank loans (repayments), net (2,602) 1,333 8,770
Dividends paid (4,537) (6,050) (6,050)
Net cash provided by (used in)
financing activities (7,139) (4,717) 2,720
Increase (decrease) in cash and
cash equivalents 531 (7,328) 1,459
Cash and cash equivalents at
beginning of year 6,472 13,800 12,341
Cash and cash equivalents at
end of year $ 7,003 $6,472 $13,800
Cash paid during the year for:
Interest $ 1,146 $ 842 $ 576
Income taxes $ 2,300 $2,077 $ 3,269
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 is presented in Note 17.
Since July 5, 1995, the Company has been operating as a debtor-in-
possession. The costs associated with the Bankruptcy Proceedings of
approximately $572 have been categorized as selling, administrative
and research expenses in the accompanying consolidated statements of
operations.
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 has recently experienced recurring losses from operations;
has an accumulated deficit at June 30, 1995; had difficulty in
meeting its Amended and Restated Revolving Credit Agreement
covenants and has had to obtain waivers to meet certain of its
Debtor-In-Possession Credit Agreement covenants 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 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, 1995 that
would be subject to compromise under any plan of reorganization
consist of the following:
Amount
Trade payables $11,760
Accrued liabilities 16,207
Income taxes payable 5,634
Postretirement benefits 12,999
Pension liability 18,801
Other long-term liabilities 5,569
Total(1) $70,970
(1) Excludes a net intercompany payable in the amount of $9,076 to
the entities not included in the Bankruptcy Proceedings.
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 a plan of
reorganization which is subject to approval by the Bankruptcy Court
and, accordingly, are not presently determinable.
Since the filing date, the Company has initiated preliminary
discussions with the official committee of its unsecured creditors
that was appointed by the U.S. Trustee pursuant to the Bankruptcy
Code. The timing of any filing of a Plan of Reorganization cannot
be predicted.
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.
Cash Equivalents: All highly liquid investments purchased with a
maturity of three months or less are considered to be cash
equivalents.
Inventories: Inventories are stated at the lower of cost or market.
Cost is determined principally by the first-in, first-out (FIFO)
method.
Property, Plant and Equipment: Property, plant and equipment are
stated at cost. Depreciation is provided on the straight-line basis
at rates based on estimated useful lives. Lives used in computing
depreciation range from two to twelve years for equipment and forty
years for buildings. Leasehold improvements are amortized over the
lease term. At the time properties are disposed, the property and
related accumulated depreciation accounts are relieved of the
applicable amounts and any profit or loss is included in operations.
Maintenance and repairs are charged against operations as
incurred. Expenditures that materially increase capacities or
extend useful lives of property, plant and equipment are
capitalized.
Retirement Plans: Substantially all domestic employees participate
in the Company's retirement plans for salaried and hourly employees.
The cost of United States pension plans is accrued in amounts equal
to the normal cost of current service under the plans together with
amortization of prior service costs. Outside of the United States,
costs are accrued and paid in accordance with local requirements.
Postretirement Plans: The Company provides for the expected cost of
postretirement benefits over the employee's years of active service.
Research and Development: The Company's product development costs
are expensed as incurred. Research and development expense was
$7,218, $7,966 and $10,064 for the years ended June 30, 1995, 1994
and 1993, respectively.
Goodwill: The excess of the allocated acquisition cost over the
fair value of net assets of businesses acquired is included in other
assets and is being amortized by the straight-line method over forty
years.
Foreign Currency: The functional currency of the Company's foreign
operations is deemed to be the United States dollar. Consequently,
all translation gains and losses are included in income.
Forward Foreign Currency Contracts: From time to time, the Company
may enter into forward foreign currency contracts to hedge against
foreign currency fluctuations. Gains and losses on these contracts
were recorded in net income in the period in which the exchange rate
changed. During the years ended June 30, 1995 and 1993, forward
foreign currency contracts were in place to reduce the impact of
foreign currency fluctuations on transactions designated in a
currency other than the U.S. dollar. At June 30, 1995 and 1993,
there were no outstanding forward contracts. There were no such
contracts in effect during Fiscal 1994.
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.
Reclassifications: Certain reclassifications have been made to the
prior years' financial statements to conform with the 1995
presentation. In addition, amounts in prior years' financial
statements have been reclassified to reflect continuing operations
(see Note 12).
3. Changes in Accounting Principles
Effective July 1, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," SFAS
No. 112, "Employers' Accounting for Postemployment Benefits," and
SFAS No. 109, "Accounting for Income Taxes." The sum of the
accounting changes in Fiscal 1993 amounted to $10.
SFAS 106 requires the accrual method of accounting for the
expected costs of postretirement benefits other than pensions during
the years of an employee's service. The cumulative effect of this
accounting change was a decrease to Fiscal 1993 net income of
$3,507, or $.12 per share. In addition, the effect of adopting this
statement in Fiscal 1993, exclusive of the cumulative effect, was a
decrease to net income of $265.
SFAS 112 requires the accrual method of accounting for benefits
to former or inactive employees after employment but before
retirement. In prior years, the expense was recognized when claims
were paid. The cumulative effect of this accounting change in
fiscal year 1993 was a reduction in net income of $183 (less than
$.01 per share).
SFAS 109 requires the liability method of accounting for income
taxes rather than the deferred method previously used. The
cumulative effect of this accounting change was an increase to
fiscal year 1993 net income of $3,700, or $.12 per share.
4. Inventories
A summary of inventories, by major classification, is as
follows:
June 30,
1995 1994
Raw materials and supplies $ 995 $ 1,352
Work-in-process 17,807 27,702
Finished goods 35,533 33,641
Total $54,335 $62,695
5. Property, Plant and Equipment
A summary of property, plant and equipment, by major
classification, is as follows:
June 30,
1995 1994
Land $ 501 $ 1,703
Buildings and improvements 1,245 17,122
Machinery and other equipment 55,716 57,246
Total 57,462 76,071
Accumulated depreciation (34,574) (39,289)
Total $22,888 $36,782
Included in prepaid and other current assets as of June 30,
1995 are fixed assets held for sale with a net book value of $5,894.
6. Accrued Liabilities
Accrued liabilities consist of the following:
June 30,
1995 1994
Accrued restructuring costs $13,268 $4,132
Payroll and related expenses 5,871 7,191
Accrued promotional expenses 7,050 6,471
Other 9,260 9,141
Total $35,449 $26,935
7. Leases
The Company has entered an agreement dated February 28, 1995 to
purchase this property, under a lease option, and concurrently sell
the property to a third party purchaser. The Company anticipates
closing on the transaction in September, 1995. The facility is
subleased by the Company to the third party purchaser.
The Company leases certain facilities, equipment and vehicles
for various periods through 2009 under non-cancelable operating
leases. Rental expense under these operating leases was $6,243,
$6,868 and $6,391 for the years ended June 30, 1995, 1994 and 1993,
respectively.
The future minimum rental commitments for the operating leases
are as follows:
Year Ended Amount
June 30, (In thousands)
1996 $ 4,420
1997 3,340
1998 2,867
1999 1,387
2000 888
Thereafter 2,822
Total $15,724
The Company has entered into an agreement dated February 28,
1995 to purchase warehousing property located in Cortland, New York,
under a lease option, and concurrently sell the property to a third
party purchaser. The Company anticipates closing on the transaction
in October 1995. The facility is subleased by the Company to the
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.
8. Bank Loans
On April 7, 1995, the Company entered into an Amended and
Restated Revolving Credit Agreement (the "Amended and Restated Credit
Agreement") with two banks (the "Lenders"), the use of which was
generally to satisfy working capital requirements. Aggregate
borrowings under the Amended and Restated Credit Agreement amounted
to $1,376,208, $750,548 and $699,950 for Fiscal 1995, 1994 and 1993,
respectively, while aggregate repayments were $1,378,810, $749,215
and $691,180 for Fiscal 1995, 1994 and 1993, respectively. 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 reduces 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. As of June 30,
1995, the interest rate on borrowings was 9.0 percent. A fee is
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 $24.0
million through the June 30, 1996 termination date. 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. Payments
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 substantially all of
the Company's assets.
The carrying value of the Company's bank loans as of June 30,
1995 approximates fair value, which was determined based on
transactions reflected under the Debtor-In-Possession Credit
Agreement.
9. 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, 1995 and 1994, 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, 1995. 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:
[Download Table]
Price Range Number of Shares
Outstanding June 30, 1992 $5.63 - 12.50 1,331,500
Granted 4.88 - 7.31 1,020,500
Canceled 6.00 - 12.50 (55,500)(1)
Outstanding June 30, 1993 $4.88 - 12.50 2,296,500
Granted 5.13 - 6.50 528,500
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
Exercisable June 30, 1995 $2.75 - 12.50 1,669,000
(1)Cancelations result from employees' termination.
10. 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 facilities located in Mexico and
Singapore 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,
1995 1994 1993
Net sales to customers:
United States $158,047 $215,539 $200,805
Singapore - 4,950 6,365
Other Foreign 38,262 40,817 29,676
Total $196,309 $261,306 $236,846
Inter-area transfers:
United States $21,108 $22,033 $16,728
Singapore 74,060 72,193 73,210
Other Foreign 9,457 7,398 1,081
Total $104,625 $101,624 $ 91,019
Operating income (loss):
United States $(24,466) $15,939 $(5,483)
Singapore (8,294) 5,422 4,274
Other Foreign (6,701) (7,295) (11,477)
Corporate (7,187) (5,617) (5,270)
Eliminations (118) (27) 2,608
Total $(46,766) $ 8,422 $(15,348)
Identifiable assets:
United States $88,741 $131,356 $137,131
Singapore 21,702 26,250 34,960
Other Foreign 25,623 36,082 18,525
Total $136,066 $193,688 $190,616
Sales to one of the Company's largest customers, Wal-Mart
Stores, Inc., amounted to 14.0%, 12.2% and 12.3% of consolidated net
sales during 1995, 1994 and 1993, respectively, and was the only
customer responsible for more than 10% of net sales.
11. Pension Plans and Postretirement Benefits
The plans covering salaried employees generally provide pension
benefits that are based upon formulas that reflect all service with
the Company and its predecessors and the employee's compensation
during the employee's highest five consecutive years of service
before retirement. Plans covering hourly employees generally
provide benefits of stated amounts for each year of service. The
Company's funding policy is to make annual contributions in an
amount which is not less than that required by the Internal Revenue
Service regulations.
The net periodic pension cost for the years ended June 30,
1995, 1994 and 1993 is comprised of the following components:
[Download Table]
1995 1994 1993
Service cost $1,664 $1,979 $1,829
Interest cost 5,398 5,396 5,278
Return on plan assets:
Actual (9,097) 143 (5,863)
Unrecognized (gain) loss 3,395 (5,687) 516
Amortization of deferred
costs and actuarial (gains)
and losses (595) (494) (676)
Pension cost $ 765 $1,337 $1,084
The assumptions used in the development of these amounts were:
[Download Table]
1995 1994 1993
Discount rate 8.00% 8.00% 8.50%
Rates of increase in
compensation levels 5.50% 5.50% 5.75%
Rate of return on
plan assets 9.25% 9.25% 9.25%
The following tables set forth the funded status and amounts
recognized in the Company's consolidated balance sheets:
[Download Table]
June 30, 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
The total amount of the June 30, 1995 net accrued pension liability
is reflected on the consolidated balance sheets as liabilities subject
to compromise.
[Download Table]
June 30, 1994
Over- Under-
Funded Funded
Plans Plans Total
Actuarial present value of
benefit obligation:
Vested benefit obligation $33,796 $30,898 $64,694
Accumulated benefit obligation $34,783 $31,311 $66,094
Projected benefit obligation $39,727 $31,951 $71,678
Market value of assets
(principally publicly traded
securities) 34,812 26,869 61,681
Funded status 4,915 5,082 9,997
Unrecognized gains 5,207 5,157 10,364
Net accrued pension liability $10,122 $10,239 $20,361
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 $543, $681 and $819 for
the years ended June 30, 1995, 1994 and 1993, 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 $1,893 and $1,458 at June
30, 1995 and 1994, respectively. Pension expense for the non-
qualified plan was $683, $450 and $260 in Fiscal 1995, 1994 and
1993, respectively.
The Company also provides health care and life insurance
benefits for certain retired employees. Substantially all of the
Company's domestic employees, and certain employees in foreign
countries, may become eligible for such benefits if they reach a
specified retirement age while working for the Company.
Summary information on the Company's postretirement benefit
plans, which are unfunded, is as follows:
[Download Table]
Year ended June 30,
1995 1994
Financial status of plans:
Accumulated postretirement
benefit obligation (APBO):
Retirees $7,893 $ 6,135
Fully eligible, active
plan participants 2,344 3,142
Other active plan
participants 2,112 2,411
Unrecognized gains 650 962
Accrued postretirement
benefit cost $12,999 $12,650
The accrued postretirement benefit cost as of June 30, 1995 has
been reflected on the balance sheets as liabilities subject to
compromise.
The components of net periodic postretirement benefit
cost are as follows:
[Download Table]
Year ended June 30,
1995 1994
Service cost, benefits attributed to
employee service during the year $189 $ 202
Interest cost on accumulated
postretirement benefit obligation 884 904
Amortization of gains (55) (17)
Net periodic postretirement benefit
cost $1,018 $1,089
The discount rate used in determining the APBO was 8.0% in 1995
and 1994. The assumed health care cost trend rate used in measuring
the accumulated postretirement benefit obligation was 11% in 1995
and 1994, 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, 1995 would be increased by 9%. The
effect of this change in health care cost trend rates on net
periodic postretirement benefit cost of 1995 would be an increase of
8%.
12. 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 and the balance sheets segregate
the net assets of discontinued operations.
Net assets and summary operating results of discontinued
operations are as follows:
June 30,1994
Current assets $15,665
Non-current assets 10,396
Total liabilities (6,989)
Net assets $19,072
[Download Table]
Year ended June 30,
1995 1994 1993
Net sales $5,774 $85,375 $76,768
Income from operations
before income taxes $1,018 $ 3,388 $1,879
Income taxes 347 1,155 657
Net income from operations 671 2,233 1,222
Gain (loss) on disposal
of assets (net of taxes
of $(196) and $(297), respectively) 9,127 (2,200) -
Net income $9,798 $ 33 $1,222
13. Income Taxes
The components of income (loss) from continuing operations
before income taxes are as follows:
[Download Table]
Year ended June 30,
1995 1994 1993
United States $(37,798) $2,723 $(18,521)
Foreign (9,933) 4,991 2,756
Total $(47,731) $7,714 $(15,765)
The components of income tax expense consist of:
[Download Table]
Year ended June 30,
1995 1994 1993
United States:
Current $141 $203 $ 274
Deferred 8,787 1,339 (4,948)
Foreign 2,071 165 934
State 3,666 1,771 (1,124)
Total $14,665 $3,478 $(4,864)
Income tax expense is included in the financial statements as
follows:
[Download Table]
Year ended June 30,
1995 1994 1993
Continuing operations $14,514 $2,620 $(5,521)
Discontinued operations 151 858 657
Total $14,665 $3,478 $(4,864)
The components of the net deferred tax assets were as follows:
[Download Table]
June 30,
1995 1994
Deferred tax assets:
Accounts receivable $1,049 $1,226
Inventory 2,311 749
Postretirement benefits
other than pensions 4,969 4,828
Pension 7,187 7,688
Restructuring 2,755 1,580
Other liabilities 8,529 6,959
Net operating loss carryforwards 18,288 12,124
Capital loss carryforwards 7,647 10,955
Miscellaneous 2,304 7
Valuation allowances (50,241) (21,320)
Total deferred tax assets $ 4,798 $24,796
Deferred tax liabilities:
Property, plant and equipment $1,392 $3,240
Miscellaneous - 7,054
Total deferred tax liabilities 1,392 10,294
Net deferred tax assets $ 3,406 $14,502
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,
1995 1994 1993
Income (loss) from continuing
operations before income taxes $(47,731) $ 7,714 $(15,765)
Statutory tax rate 34% 34% 34%
Tax computed at statutory rate (16,229) 2,623 (5,360)
Increase (reduction):
State income taxes,
net of federal benefit (1,685) (1,707) (1,137)
Effect of foreign earnings 1,105 (3,467) (4,719)
Valuation allowance 32,232 15,670 5,650
Other adjustments (909) (10,499) 45
Total $ 14,514 $ 2,620 $ (5,521)
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 both Fiscal 1995 and Fiscal 1994.
The U.S. income tax returns prior to 1986 have been examined by
the Internal Revenue Service and all matters have been settled. The
Internal Revenue Service is currently examining the U.S. income tax
returns for 1989 through 1994. No matters have arisen as a result
of the examination to date. The New York State Tax authority is
currently examining the Company's 1989 through 1994 New York State
tax returns. As a result of their examination to date, the New York
State tax authority has issued a preliminary notice of deficiency in
the amount of approximately $3,400. The Company intends to contest
the proposed assessment vigorously. The Company does not believe
that the ultimate resolution of this action will have a material
adverse impact on its results of operations or financial position.
14. Commitments and Other Matters
Certain past practices of the Company regarding hazardous
substances and/or hazardous wastes are the subject of investigation
by federal and state regulatory authorities, or are the subject of
lawsuits filed by such authorities. At June 30, 1995 and 1994, the
Company had recorded approximately $4,203 and $3,274, respectively,
related to environmental matters. Because of the uncertainties
associated with assessing environmental matters, the related
ultimate liability is not determinable. However, based on facts
presently known, management does not believe that these
investigations or lawsuits, if resolved adversely to the Company,
would individually or in the aggregate have a material adverse
effect on the Company's financial position or results of operations.
The Company is involved in proceedings with the New York
Department of Environmental Conservation (DEC) and the United States
Environmental Protection Agency regarding the clean-up of a now-
closed manufacturing facility and certain waste disposal sites in
upstate New York. The remedial investigation and feasibility study
of the now-closed manufacturing facility site has been completed.
The feasibility study report has been approved by the DEC and the
record of decision has been finalized. On March 31, 1993, the
Company executed a final signed consent order from the DEC and
remedial actions commenced. Remediation activities at the site have
been delayed as a result of an extension of the public comment
period to address the remediation plan approved by the DEC.
Management believes that the Company has made adequate provision for
the approved remediation activities.
In June 1992, the Company was served with a summons and
complaint in the U.S. District Court, Northern District of New York,
in a private contribution action. The plaintiffs in this action are
Coopers 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 as a
defendant with fourteen other defendants, seeks contribution for
response costs incurred to date, and to be incurred in the future,
for the remediation of a site in Cortland, New York. Management
does not believe it disposed of any hazardous substances at this
site and is vigorously contesting this matter.
The Company filed a complaint on November 4, 1994 against
CoStar Corporation("CoStar") seeking (i) a declaratory judgment that
the Company was not infringing CoStar's trade dress, (ii) damages
for breach of warranty and fraud and (iii) rescission of contracts
induced by such fraud. The Complaint related to envelope printers
purchased by the Company from CoStar and label printers manufactured
by a third party for the Company. CoStar subsequently filed an
answer denying the Company's allegations and asserting counterclaims
alleging that the Company had infringed its label printer's trade
dress, breached the provisions of a confidentiality agreement
between the Company and CoStar, and tortiously injured CoStar's
business reputation. In addition, CoStar filed a related third-
party complaint against DH Technology, Inc. ("DH"). On June 23,
1995, the Company entered into a Settlement Agreement with CoStar
and DH in connection with the lawsuit. Pursuant to the Settlement
Agreement, the Company agreed, among other things, to pay CoStar the
sum of $55,085 on each of June 23, 1995, July 31, 1995, August 31,
1995 and September 29, 1995 and to return certain tooling and
equipment to CoStar, in exchange for, among other things, the
release by CoStar of its claims against the Company. The Company
recorded a $1,300 pretax third quarter charge primarily relating to
the writeoff of inventory and tooling.
On April 18, 1991, an antidumping proceeding was commenced
against the Company at the Department of Commerce (Commerce) and
before the International Trade Commission, concerning portable
electric typewriters imported from Singapore. Subsequently, on June
22, 1993, the Company and Commerce signed a suspension agreement,
suspending the antidumping investigation and calling for the Company
to monitor its international prices. On February 4, 1994, all of
the parties signed a settlement agreement covering the antidumping
investigation and related litigation. Under the terms of the
agreement, the petitioner withdrew its petition against the
Company's Singapore imports and the Company sought revocation of
various antidumping duty orders against typewriters and word
processors from Japan. Pursuant to the agreement, the antidumping
proceedings have been terminated.
On June 8, 1990, the Company filed suit in the United States
District Court for the District of Tennessee against Pelikan, Inc.
alleging patent infringement and false advertising. On February 24,
1992, the Court entered a judgment awarding the Company
approximately $3,120 plus post-judgment interest. Pelikan filed an
appeal, petitioning for a rehearing by the Court of Appeals, and
subsequently offered to pay to the Company a portion of the judgment
aggregating approximately $1,900. The $1,900 portion of the
judgment was reflected in the June 30, 1993 financial statements.
Pelikan's petition for rehearing was subsequently denied and on
August 9, 1993, the Company and Pelikan entered into an agreement
pursuant to which Pelikan agreed to pay $525 to the Company for
fees, expenses and costs incurred in the suit along with the
remaining $1,220 judgment. On August 11, 1993, Pelikan paid the
settlement amount to the Company and satisfied the judgment,
including interest.
The Company is also a defendant or plaintiff in various other
legal actions which have arisen in the ordinary course of its
business. It is the opinion of management, based on advice of
counsel with respect to legal matters, that the ultimate resolution
of these matters and the environmental matters discussed above will
not have a material adverse effect on the Company's financial
position or results of operation.
The Company has severance agreements in place with certain
executive officers and other members of management. Substantially
all the agreements expire on June 30, 1996 and provide for severance
in the event of involuntary termination from the Company. Severance
benefits under these agreements range from one-half year to two
years salary and aggregate approximately $2,500 in the event all
employees under such severance agreements were involuntarily
terminated. In addition, 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 will serve 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.
15. 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 plan whereby the Company's
typewriter manufacturing will be relocated from its Singapore and
Batam Island, Indonesia facilities to its Mexico facility. This
action will result in the termination of approximately 1,300 workers
in Singapore and Batam who will be replaced with approximately 600
workers in Mexico. This action is expected to save approximately
$10,000 pretax annually primarily through lower labor costs as well
as the greater utilization of the Mexico facility. The Company
expects to cease production in Singapore and Batam Island, Indonesia
by mid-November 1995, thereafter relocating equipment to Mexico
where typewriter production is expected to commence in the third
quarter of Fiscal 1996. The Company placed its Singapore facility
and the underlying land lease up for sale. The Batam Island
facility lease expires December 26, 1995.
In addition to the relocation of typewriter manufacturing to
Mexico, the Company will also eliminate 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 should be completed by
the end of the first quarter of Fiscal 1996.
The net result of these actions will be to reduce the Company's
May 8, 1995 workforce of approximately 2,500 by approximately 680.
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 move of machinery and equipment, temporary lease-
back of facilities, and renovations, of approximately $6,000 pretax,
will be recognized as charges to operations as incurred during
fiscal year 1996. The fourth quarter charge is lower than
previously announced as a result of revisions to prior estimates.
The Fiscal 1995 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
(1) Represents cash payments, except for the asset impairments,
and other costs which are non-cash items.
In July 1992, in order to maintain its leadership as the low-
cost producer in a highly competitive worldwide business, the Board
of Directors approved and the Company announced a plan to phase out
the Company's manufacturing operations in Cortland, New York and
relocate them to a new facility in Mexico. As a result of this
decision, during Fiscal 1993, the Company provided $16,500 in
restructuring charges, of which approximately $3,000 was non-cash in
nature (see table below).
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
(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 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 1995 a reduction in
restructuring costs of $1,286 was recognized as a further result of
the Singapore restructuring activities.
16. Quarterly Financial Data (Unaudited)(1)
[Download Table]
Fiscal Year Ended First Second Third Fourth
June 30, 1995 Quarter Quarter Quarter(4) Quarter(5)
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)(2)
Income (loss) from
continuing operations 944 324 (12,102) (51,411)
Discontinued operations
(net of income taxes):
Income from 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 (3):
Income (loss) from
continuing operations $ .03 $ .01 $ (.40) $ (1.69)
Discontinued operations:
Income from operations .01 - - .01
Gain on disposal of
discontinued operations - .29 - .01
Net income (loss) per
share $ .04 $ .30 $ (.40) $ (1.67)
[Download Table]
Fiscal Year Ended First Second Third Fourth
June 30, 1994 Quarter Quarter Quarter Quarter
Net sales $72,217 $74,137 $60,528 $54,424
Gross margin 17,836 14,101 12,367 12,675
Operating income 5,696 1,245 207 1,274
Income from
continuing operations 3,632 708 50 704
Discontinued operations
(net of income taxes):
Income (loss) from
operations 395 836 1,337 (335)
Loss on disposal of
discontinued operations - - - (2,200)
Net income (loss) $ 4,027 $ 1,544 $ 1,387 $(1,831)
Earnings per common
share (3):
Income from
continuing operations $ .12 $ .02 $ .01 $ .02
Discontinued operations:
Income (loss) from
operations .01 .03 .04 (.01)
Loss on disposal of
discontinued
operations - - - (.07)
Net income (loss) per
share $ .13 $ .05 $ .05 $ (.06)
(1) Amounts have been reclassified, where applicable, to reflect
the discontinued operations of SCM Office Supplies, Inc. and
Histacount Corporation.
(2) Includes restructuring costs of $14,870.
(3) Based on 30,250,000 shares of common stock.
(4) Includes charges of approximately $1,200 and $2,600 for write-
downs of property, plant and equipment and inventory,
respectively.
(5) 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 tax
assets and a reserve for substantially all of the remaining
deferred income tax assets.
17. Condensed Consolidated Proforma Financial Information
The following proforma financial information shows the effects
of adoption of Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code," had the
guidelines of such statement been adopted as of June 30, 1995, and
separates the consolidated balance sheets as of June 30, 1995, 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 Proforma Balance Sheets
[Download Table]
Non-
Debtor-In Debtor-In Proforma Historical
Possession Possession Elimin- Consol- Consol-
Entities Entities ations idated idated
Current assets $ 71,393 $ 37,070 $ - $108,463 $108,463
Property, plant
and equipment 12,776 10,112 - 22,888 22,888
Other assets 81,875 16,698 (93,858) 4,715 4,715
Total assets $166,044 $63,880 $(93,858) $136,066 $136,066
Bank loans $ 17,400 $ - $ - $ 17,400 $ 17,400
Other current
liabilities 7,702 19,744 - 27,446 61,047
Intercompany with
affiliates 9,076 (9,076) - - -
Other long-term
liabilities - - - - 37,369
Liabilities subject
to compromise 70,970 - - 70,970 -
Stockholders' equity 60,896 53,212 (93,858) 20,250 20,250
Total liabilities and
stockholders' equity $166,044 $63,880 $(93,858) $136,066 $136,066
Condensed Proforma Statements of Operations
[Enlarge/Download Table]
Non-
Debtor-In Debtor-In Proforma Historical
Possession Possession Elimin- Consol- Consol-
Entities Entities ations idated idated
Net sales $150,778 $ 45,531 $ - $196,309 $196,309
Net sales to affiliates 21,108 70,343 (91,451) - -
Cost of goods sold 145,508 35,451 - 180,959 180,959
Cost of goods sold to
affiliates 18,905 72,546 (91,451) - -
Gross margin 7,473 7,877 - 15,350 15,350
Selling, administrative
and research expenses 40,465 7,495 - 47,960 48,532
Restructuring costs 5,592 7,992 - 13,584 13,584
Reorganization costs 572 - - 572 -
Operating loss (39,156) (7,610) - (46,766) (46,766)
Dividend income 29,555 - (29,555) - -
Interest expense 965 - - 965 965
Loss from continuing
operations before
income tax (10,566) (7,610) (29,555) (47,731) (47,731)
Income taxes 14,135 379 - 14,514 14,514
Loss from continuing
operations (24,701) (7,989) (29,555) (62,245) (62,245)
Discontinued operations
(net of income taxes):
Income from operations 671 - - 671 671
Gain on disposal of
discontinued operations 9,127 - - 9,127 9,127
Net Loss $(14,903) $ (7,989) $(29,555) $(52,447) $(52,447)
Condensed Proforma Statements of Cash Flows
[Download Table]
Non-
Debtor-In Debtor-In Proforma
Possession Possession Elimin- Consol-
Entities Entities ations idated(1)
Cash Flows from
operating activities:
Net loss $(14,903) $(7,989) $(29,555) $(52,447)
Adjustments to
reconcile net loss
to net cash used in
continuing operating
activities:
Noncash items and
changes in
operating assets
and liabilities (2,499) 7,357 29,555 34,413
Net cash used in
continuing operations (17,402) (632) - (18,034)
Net cash provided by
discontinued operations 1,370 - - 1,370
Net Cash flow used in
operating activities (16,032) (632) - (16,664)
Cash flows from
investing activities:
Proceeds from sale of
discontinued operations 27,500 - - 27,500
Capital expenditures (2,325) (841) - (3,166)
Net cash provided by
(used in) investing
activities 25,175 (841) - 24,334
Cash flows from
financing activities:
Bank loans
(repayments), net (2,602) - - (2,602)
Dividends paid (4,537) - - (4,537)
Net cash Used in
financing activities (7,139) - - (7,139)
Increase (decrease)
in cash and cash
equivalents 2,004 (1,473) - 531
Cash and cash
equivalents at
beginning of year 1,023 5,449 - 6,472
Cash and cash
equivalents at
end of year $ 3,027 $3,976 $ - $ 7,003
(1) Historical consolidated cash flows are the same as proforma
consolidated.
18. Subsequent Events
On July 5, 1995, the Company filed a voluntary petition for
reorganization under Title 11, United States Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the District of
Delaware. On August 18, 1995, the Company filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy
Code for three of its wholly-owned but nonoperating subsidiaries,
SCM Office Supplies, Inc., SCC LI Corporation(formerly Histacount
Corporation) and Hulse Manufacturing Company.
An Administrator was appointed on August 2, 1995 for the
Company's wholly-owned subsidiary in Australia. The Administrator
was appointed Liquidator on August 29, 1995. The Company is
currently exploring potential distributor relationships in its
Australian market for the purpose of maintaining its distribution
capacity. The ultimate effect of this event on the consolidated
financial position of the Company has not been determined.
Financial Statement Schedule II
SMITH CORONA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the years ended June 30, 1995, 1994 and 1993
(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, 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
Year ended June 30, 1993:
Allowance for doubtful
trade receivables $1,561 $ 288 $ 507 $ 1,342
Allowance for inventory
obsolescence and shrinkage $1,448 $8,549 $2,196 $ 7,801
EXHIBIT INDEX
EXHIBIT #
10.7 SCM Office Supplies, Inc. Salaried Employees' Retirement
Plan as amended and restated as of January 1, 1994.
10.8 Smith Corona Corporation Retirement Savings and Investment
Plan adopted effective July 1, 1989, as amended through January 1, 1994.
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.
10.10 Histacount Corporation Retirement Savings and Investment
Plan adopted effective July 1, 1989, as amended through January 1, 1994.
10.12 Smith Corona Corporation Supplemental Executive Retirement
Plan as restated and amended as of July 28, 1989, through November 16, 1993.
10.15 Smith Corona Corporation Short Term Incentive Compensation
Plan.
10.26 Employment Agreement between Smith Corona Corporation and
William D. Henderson, dated as of February 3, 1995.
10.27 Severance Letter between Smith Corona Corporation and G.
Lee Thompson, dated as of February 3, 1995.
10.30 Employment Agreement between Smith Corona Corporation and
Thomas C. DeFazio, dated as of February 3, 1995.
10.32 Smith Corona Corporation Salaried Employees Retirement
Plan, as amended and restated as of January 1, 1994.
10.44 Debtor-in-Possession Credit Agreement dated as of July 10,
1995 among Smith Corona Corporation, the lenders party thereto
and Chemical Bank, as Agent.
10.45 First Amendment to Debtor-In-Possession Credit Agreement
dated as of July 24, 1995.
10.46 Second Amendment to Debtor-In-Possession Credit Agreement
dated as of August 15, 1995.
10.47 Consulting Agreement between Smith Corona Corporation and
R. F. Stengel & Co., Inc., dated June 29, 1995.
10.48 Lease between Smith Corona Corporation and J.M. Murray
Center, Inc., dated February 8, 1995.
10.49 Purchase and Sale Agreement, dated as of February 28, 1995,
between Smith Corona Corporation and J.M. Murray Center.
10.50 Severance Agreement between Smith Corona Corporation and
John A. Cutrone, dated as of June 13, 1994.
10.51 one year extension, effective June 30, 1995, of Severance
Agreement.
10.52 Severance Agreement between Smith Corona Corporation and W.
Michael Driscoll, dated as of June 13, 1994.
10.53 One year extension, effective June 30, 1995, of Severance
Agreement.
10.54 Severance Agreement between Smith Corona Corporation and
John A. Piontkowski, dated as of April 3, 1995.
10.55 Amendment of Severance Letter, effective June 29, 1995.
10.56 Severance Agreement between Smith Corona Corporation and
Jerry L. Diener, dated as of June 1, 1990.
10.57 Six month extension, effective June 30, 1995, of Severance
Agreement.
10.58 Consulting Agreement between Smith Corona Corporation and
Manfred J. Eckhardt, dated as of June 9, 1995.
10.59 Stock Option Agreement between Smith Corona Corporation and
Robert Van Buren, dated as of April 13, 1995.
10.60 Employment Agreement between Smith Corona Corporation and
Robert Van Buren, dated March 28, 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
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