Smith International Hit With Federal Tax Claim

Financially beleaguered Smith International Inc.--which lost $149 million in 1986--has been hit with a $20-million federal claim for taxes and is negotiating to sell its Tustin-based Tungsten Carbide Manufacturing Division, the company confirmed Tuesday.

The Newport Beach manufacturer of drilling equipment for oil wells also is willing to sell two other divisions, McEvoy-Willis and Smith Energy Systems, “if we’re offered a reasonable price,” said Robert Gubrud, vice president and treasurer. Gubrud added, however, that he believes that chances are “pretty remote” that Smith will find a buyer willing to pay what it considers a fair price.

The possible sales and the Internal Revenue Service’s tax claim were made public Monday by Smith attorneys in U.S. Bankruptcy Court in Los Angeles.

J. Ronald Trost, a Los Angeles lawyer, told Judge James R. Dooley that he needs more time to prepare a plan for reorganization partly because Smith is selling Tungsten Carbide and trying to sell the other two divisions.

Smith filed last March for reorganization and protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. The company now has until June 30 to formulate a reorganization plan.

In an interview Tuesday, Gubrud said Smith has a buyer for Tungsten Carbide but stressed that a contract has not been signed. He declined to discuss price, the division’s revenues or why it may be sold.

The 2-month-old IRS claim relates to taxes allegedly due from 1980-1985, said Gubrud, who added, “We’re disputing the claim (and) . . . feel we’ve paid the appropriate tax” for those periods.

He said another Smith attorney, Richard T. Peters of Los Angeles, erroneously stated in court Monday that the IRS has filed a claim for $30 million.