Smith Corona nears black ink after closing manufacturing operations

CNY Business Journal (1996+), Nov 12, 1999 by Hubbard, Kim L

CORTLAND--The sea of red ink that has been threatening to sink Smith Corona Corporation (SCC) in recent years appears to be turning black. After shutting down all manufacturing operations company-wide and turning to selling products manufactured by a host of other national and international companies under the SCC logo and product standards, the former typewriter manufacturer has just reported first-quarter financial results that show it is on the verge of breaking even.

For the first quarter ending Sept. 30, 1999, SCC reported a net loss of only $0.3 million, or $0. 10 per share, on sales of $8.3 million, compared with a loss of $5.7 million, or $1.90 per share, on sales of $11.6 million for the same period last year. Excluding $1. 8 million in sales last year from discounted telephony and facsimile products, the company reported $9.8 million in core business sales last year.

"Our first-quarter results continue the positive trends demonstrated over the past several quarters," states John A. Bermingham, president and CEO of SCC.

Even though there were still some operating losses for the company, a favorable trend continues for the second, third, and fourth quarters in fiscal-year 1999, of $6.2 million, $4.9 million, and $1.8 million, respectively. Last year's figures included $1.2 million in restructuring expense recorded in the first quarter. With the positive figures recorded in this quarter's results, SCC said it expects the cash burn evident in past quarters, due to what it termswere "unfavorable gross margins and high operating costs," to be eliminated. SCC also predicts EBITDA (earnings before interest, taxes, depreciation, and amortization) to be approximately $0.2 million.

"We have not shown a positive EBITDA in the last 16 quarters, ending September of 1996," says Martin D. Wilson, senior vice president and chief financial officer for SCC. "That's a long time."

At that time, SCC employed over 2,300 workers world-wide. That figure is now set at 85, with 80 employed at the Cortland facility.

"We've accomplished an amazing turnaround in the last year," adds Wilson. "This has not been slow and steady, but extremely fast and very dramatic. We're very excited about where we're headed."

SCC said it expects to derive new sales revenue with strong margins from consumable supplies, including its new Inkjet SolutionsTM line of inkjet cartridges. Additionally, SCC will begin shipping the first of its commercial TelEspritTM headsets and amplifiers to telecommunications distributors.

Gross margins as a percent of sales in the first quarter were 29 percent. This is the highest percentage recorded in the past five quarters and more than double last year's gross margins, at 13 percent. One of the most important figures for the struggling company involves the reduction of selling, general, and administrative expenses for the quarter. These expenses were cut by 20 percent, to just 32 percent of sales, compared to 52 percent for the same period last year.

"In essence, we have made excellent progress and have reached a break-even point due to a clear business focus and strategy with tight operatingexpense controls," declares Bermingham.

Part of the "tight operating-expense controls" referred to by Bermingham involve the sale of the 422,000-sq.-ft. South Cortland plant, the laying off of roughly 100 employees, and the relocation to the smaller marketing facility on Bennie Road.

"We recognize that we must maintain our momentum to bring value to our stockholders," continues Bermingham. "Our efforts will be enhanced through the expertise of Robert J. Basso, who recently joined Smith Corona as vice president of marketing."

Basso, 50, was appointed to his position effective Nov. 1, 1999. He is responsible for all marketing, sales promotion, packaging, and advertising functions and reports exclusively to Bermingham. Basso has been operating as a consultant for SCC since April.

In the current fiscal year, SCC says it plans to maintain its focus on effective expense controls to optimize cash flow and maximize product investment. To realize profitability in fiscal year 2000, the company says it must, "source products at advantageous prices, accelerate its market share gains, and continue to exercise tight expense controls."

In keeping with its business plan, Wilson says SCC is emphasizing product sales in its core typewriter and supplies product line, as well as those retail and commercial products that fit the company's legacy in "ink on paper" or "data on documents." Plans also call for generating a greater percentage of sales from international territories, including Central and Latin America, Europe, and Asia.