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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 333-62759
SIMONDS INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Delaware 05-0484518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 Intervale Road, Fitchburg, MA 01420
(Address of registrant's principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 343-3731
Securities registered pursuant to Section 12(b) of the Act: None
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 (ss.229.405) of this chapter) 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 or any amendment to this Form 10-K. [X].
Aggregate market value of the voting and non-voting common equity held by
non-affiliates area of the registrant: 0
Number of shares outstanding of the registrant's voting and non-voting common
stock, as of March 15, 2001: 68,435.10 and 8,968.01, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
(All dollars are in thousands unless otherwise noted)
ITEM 1. BUSINESS.
GENERAL
Simonds Industries Inc. and its subsidiaries ("Simonds" or the
"Company") is a leading global manufacturer and marketer of high quality
industrial cutting tools. With facilities in North America and Europe, the
Company sells its products into three end user markets: metal (51% of 2000 net
sales), wood (41%), and paper (8%). Management believes the Company holds a
number one, two or three share position in each of the markets it serves. See
Note 10 to the Consolidated Financial Statements included in Item 8 for
financial information with respect to the Company's industry end user markets
and foreign and domestic operations and export sales.
The Company manufactures saw blades, files, knives and steel rule that,
when mounted on industrial machinery, cut, shape, bend and perforate metal, wood
and paper. In addition, the Company manufactures and distributes machinery,
including a complete line of filing room equipment used primarily in saw mills.
The Company's more than 25,000 products are used in a wide variety of industrial
applications. The products are consumable and require replacement many times per
year. More than 85% of the Company's net sales are derived from sales of
replacement products for use in the aftermarket.
PRODUCTS AND MARKET
Simonds produces an array of world-class industrial cutting tools for a
wide variety of end user markets.
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METAL CUTTING PRODUCTS
The Company's metal cutting products primarily include metal band saw
blades and files for use in industrial/commercial applications. In addition, the
Company manufactures and markets other products for similar applications.
BAND SAW BLADES. Management believes that Simonds is the second largest
manufacturer of metal band saw blades both globally and in North America.
Management believes the Company markets the world's most technologically
advanced and complete metal band saw blade product line with three broad
varieties distributed for portable and stationary band saws. The three varieties
include bi-metal, carbide tip and carbon blades sold under brand names including
Extra Heavy Set(R) (EHS), EPIC(R), Si-Clone(R), Bundle Band(R), Si-Namic(R),
Copperhead Port-A-Band, and XL. These products are used on a variety of OEM
vertical and horizontal machines that are generally used in cut-off,
profile/contour and friction cutting applications. In cut-off applications, the
Company's products cut steel and non-ferrous bars from long to shorter lengths
that are ultimately used in finished steel products. This type of cutting is
most often found in steel mills, steel warehouses and manufacturing plants.
Profile/contour cutting involves the Company's narrower width blades, usually
one-half inch or less, which are used to saw arcs or curves in a wide variety of
materials ranging from sheet metal to tool steel, plastics and wood. Friction
cutting is a method of removing seams and other size overages created by metal
casting using a silicon carbon steel bandsaw blade, running at extremely high
speeds.
The Company's metal band products have a large number of industrial
applications. The largest consumers of these products include the automotive,
construction, home appliance and aerospace industries. Other important end user
markets, particularly in the United States, include specialty manufacturers,
maintenance shops, tool and die shops, machine shops, metal fabricators,
aluminum foundries and steel service centers. Purchasing criteria vary by end
user market but generally center around performance, durability and speed,
resulting in effective cost per cut. Management believes the Company provides
the highest quality products resulting in the most effective cost per cut.
FILE PRODUCTS. Management believes that Simonds is the second largest
manufacturer of industrial file products in North America and the third largest
worldwide. The Company's files are precision hand tools made from forged,
hardened steel, and are generally used to debur and shape metals and wood. These
files are also used to sharpen many types of cutting blades. In general, the
Company sells its file products under various brand names, including Red
Tang(R), Black Maxi-Sharp(R), Ralston and SI. The Company believes the Simonds
name itself is widely recognized by industrial/commercial users as a leader in
the manufacture of high quality files.
The Company's files are sold into two primary end user markets:
industrial and consumer. Industrial end users include machinists, millwrights,
welders, gunsmiths, plumbers, electricians, tool and die makers, watchmakers,
automobile body repair and manufacturing as well as many non-ferrous end user
applications such as filing copper, brass and aluminum. The consumer end user
market, a growing area for the Company, primarily consists of do-it-yourself
users. The Company manufactures a rapidly expanding line of files that are sold
to retail chains and specialty suppliers under private label brand names. In
addition, there are several niche commercial markets, such as the farrier and
formica markets, that are also important to the Company. Purchasing criteria
vary by end user market but generally center around product availability,
design, performance, durability, and price.
-3-
WOOD CUTTING PRODUCTS
The Company believes it is the North American leader in the manufacture
of wood cutting products. The Company offers a broad array of wood cutting
tools, including bandsaw blades, wood cutting knives, bits and shanks for
inserted tooth saws, large diameter circular saws, small diameter carbide
circular saws, and holesaws. The Company's products are generally used to cut
and shape logs into dimensional lumber and chip lumber for the pulp and paper
industry. In addition, the Company manufactures and sells a complete line of
filing room equipment used primarily in sawmills.
The Company markets its cutting and sawing tools and associated
products to the primary wood industry, including saw mills, pulp mills, wood
pallet producers and plywood, wafer board, and particle board plants. Purchasing
criteria vary by end user market but generally center around performance,
durability, and effective cost per cut.
PAPER PRODUCTS
The Company is a leading producer of precision steel rules used
primarily in the die making and packaging industries. Manufactured from hardened
and beveled steel, rule products are used to fold, cut and perforate paper,
cardboard and other packaging materials in addition to stamping and bending
various types and grades of sheet metal. The Company's paper products include
flat and perforated steel rule. Rule products purchasing criteria vary by end
user but generally center around performance, durability and cost.
MARKETING, SALES AND DISTRIBUTION
The Company's products are marketed and sold worldwide through an
extensive distributor base serviced by its subsidiaries located in the United
States, Canada, Germany, Spain and the United Kingdom. More than 85% of the
Company's sales are through its extensive independent distributor base. The
Company also employs direct end user shipments and agent channels as dictated by
private label programs, specific geographic markets, industry practice and
competition. The Company employs separate independent distributors for its
metal, wood and paper products in North America and internationally. The
Company's marketing and sales functions are divided geographically between North
America and the rest of the world.
The Company's distribution effort is comprised of three major
components: (i) independent distributors, (ii) the Company's field sales force,
and (iii) the Company's customer service representatives.
The Company's sales and distribution network encompasses approximately
3,800 metal products, 1,300 wood products and 200 paper products distributors in
North America and 1,300 metal products, 150 wood products and 200 paper products
distributors internationally. These distributors include mill supply houses, saw
shops, catalog houses, OEMs, welding suppliers and other manufacturers. The
Company offers extensive training, service, and technical support to its
distributors.
The Company's independent distributors are supported by 34 metal
product and 33 wood product representatives in North America and 8 metal product
representatives internationally. The Company's field sales professionals provide
technical service, in-house formal training and on-going field training to both
distributors and end users.
The Company's 25 customer service representatives in North America and
eight internationally are a critical element of the Company's distribution
network and service leadership. By responding to and processing many orders from
different points and providing tailored, real-time service, this group
-4-
provides a user-friendly interface with the network of distributors and end
users. Each distributor and field sales professional is assigned a customer
service representative who is trained in service techniques and product
knowledge.
Steel rule products are marketed through the direct sales force of the
Company's subsidiary, W. Notting Limited ("Notting") and independent specialized
distributors. In addition to this effort, the Company maintains a team of
customer service representatives to market the rule products to smaller
accounts.
The Company distributes private label products directly to retailers
and industrial products marketers through a dedicated private label sales
manager, supported by the Company's customer service organization.
The Company distributes certain industrial products through its wholly
owned subsidiary, Strongridge Limited ("Strongridge"), located in Brampton,
Ontario, Canada. Since its acquisition in 1996, Strongridge has been operating
as a separate division with a separate identity in the industrial market place.
The primary focus of Strongridge has been to sell metal products to the small
and mid-size industrial and contractor distributors. Weld centers and warehouse
locations in Ontario, Canada, Texas, Ohio, California, North Carolina and
Georgia provide local service support to these distributors.
RAW MATERIALS
The primary raw material for the Company's products is specialty steel.
The Company does not believe it is substantially dependent on any single
supplier. However, Theis Precision Steel Corporation provides approximately 50%
of the Company's domestic metal bandsaw steels. The Company's agreements with
its suppliers generally are for a period of one year, with prices, in some
instances, subject to adjustment.
In order to take advantage of volume price discounts, the Company
pursues a "primary" sourcing strategy through which most of the Company's strip
steel is purchased. Designated "primary" sources of steel inventory are
supported by identified secondary sources of raw materials. A centralized
procurement function has been established and the facilities are responsible for
the execution of the procurement strategies. A purchasing manager at each
facility oversees these purchases.
EMPLOYEES
At December 30, 2000 the Company had 867 full-time employees. Of such
employees, 699 were located in the United States, 43 were located in Canada, 93
were located in Germany, 10 were located in Spain and 22 were located in the
United Kingdom. The Company considers its relations with these employees to be
good.
The Fitchburg and Newcomerstown facilities employ members of the United
Steel Workers of America ("USWA") Union. Their contracts with the USWA expire on
April 27, 2003 and April 1,2001, respectively. The Company considers its
relations with the unions to be good.
-5-
COMPETITION
The cutting tool market is highly fragmented with numerous
participants. The Company is a leader in the global cutting tools market and is
consistently among the top three competitors in metal cutting saw blade, file,
wood cutting product and rule product market. Competition is principally on the
basis of price, service, delivery, quality and technical expertise. The
Company's competitors vary in each of the market sectors it serves. There is no
one company that competes with the Company in all three of the market sectors
served by the Company and there is no one company which is dominant in any of
such market sectors. The Company believes that its reputation over its long
history for quality products, extensive sales and service network and its
in-depth product knowledge provide it with a competitive advantage in all of the
market sectors it services.
ENVIRONMENTAL MATTERS
As with most industrial companies, the Company's facilities and
operations are required to comply with and are subject to a wide variety of
federal, state, local and foreign environment and worker health and safety laws,
regulations and ordinances, including those related to air emissions, wastewater
discharges and chemical and hazardous waste management and disposal
("Environmental Laws"). Certain of these Environmental Laws hold owners or
operators of land or businesses liable for their own and for previous owners' or
operators' releases of hazardous or toxic substances, materials or wastes,
pollutants or contaminants, including petroleum and petroleum products.
Compliance with Environmental Laws also may require the acquisition of permits
or other authorizations for certain activities and compliance with various
standards or procedural requirements. The nature of the Company's operations,
the long history of industrial uses at some of its current or former facilities,
and the operations of predecessor owners or operators of certain of the
businesses expose the Company to risk of liabilities or claims with respect to
environmental and worker health and safety matters. There can be no assurance
that material costs or liabilities will not be incurred in connection with such
liabilities or claims.
In 1992, the Company's property in Ashburnham, Massachusetts, was
identified as having groundwater contamination. The Company has been indemnified
from such liability by prior owners. The remediation project has been
substantially completed, and the costs have been covered by the indemnity
escrow. There remain only monitoring and some minor repaving to be done in the
Spring of 2001. All remaining costs are covered by the final indemnity escrow
distribution.
A release of No. 2 fuel oil into the Nashua River at the Fitchburg,
Massachusetts facility was reported to the Massachusetts Department of
Environmental Protection in December of 2000. Remediation is underway and will
take approximately three years. Management recorded an estimate of the clean up
costs in the accompanying balance sheet and statement of operations.
The state of Ohio has not yet issued its certification with respect to
the final clean up of the Newcomerstown site conducted and paid for by a prior
owner. The prior owner has agreed to indemnify the Company for any post-closure
care expenses at the Newcomerstown site. The Company, however, will be
connecting about two dozen residences to the town's public water supply as part
of the clean up, at the Company's expense.
-6-
ITEM 2. PROPERTIES.
The following table provides information on the Company's facilities
and the products produced at these locations.
PRODUCT OWNED/ SIZE
LOCATION GROUP PRODUCT TYPES LEASED (SQ. FT)
--------------------------- ------------- ------------------------------- ------------- -----------
FITCHBURG, MA Metal o Weld Edged Bandsaw Blades Owned 401,000
o Carbide Tipped Bandsaw
Blades
o Carbon Bandsaw Blades
o Power Tool Accessories
Wood o Bits & Shanks
o Red Streak(R) Bandsaw Blade
o Holesaws
Paper o Perforating
o Flat
BIG RAPIDS, MI Wood o Circular Saws Owned 127,500
o Knives
o Inserted Tooth Saws
NEWCOMERSTOWN, OH Metal o Files Owned 208,000
SPRINGFIELD, OR Wood o Wide Bandsaw Blades Leased 11,000
SPRINGFIELD, OR Wood o Wide Bandsaw Blades Owned 28,400
PORTLAND, OR Wood o Filing Room Equipment Owned 40,000
SANTA FE SPRINGS, CA Metal o Carbon Bandsaw Blades Leased 6,800
o Bi-Metal Bandsaw Blades
o Carbide Tip Bandsaw Blades
FARMERS BRANCH, TX Metal o Carbon Bandsaw Blades Leased 11,075
o Bi-Metal Bandsaw Blades
o Carbide Tip Bandsaw Blades
CORONA, CA Paper o Perforating Rule Leased 42,100
o Die Rule
TOTTENHAM, UK Paper o Facility for sale Owned 30,000
SHEFFIELD, UK Metal o Carbon Bandsaw Blades Leased 10,000
o Bi-Metal Bandsaw Blades
o Carbide Tip Bandsaw Blades
o Files
BARCELONA, SPAIN Paper o Rule Leased 4,040
SPANGENBERG, GERMANY Metal o Carbon Bandsaw Blades Owned 57,000
o Bi-Metal Bandsaw Blades
o Hacksaw Blades
BRAMPTON, ONTARIO Metal o Carbon Bandsaw Blades Leased 11,890
o Bi-Metal Bandsaw Blades
o Portable Tools
-7-
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to a lawsuit that was litigated in China involving
a Chinese joint venture established by the Company's predecessor. Management
believes the lawsuit to be without merit. In addition, the Company is a party to
other lawsuits arising in the normal course of business. In the opinion of
management, the final resolutions of these lawsuits are not expected to
materially affect the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
-8-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Company's common
stock. The Company's voting common stock is held by approximately 40 holders and
its non-voting common stock is held by approximately 2 holders.
The Company has not paid any dividends on its capital stock since its
inception. The Company currently intends to retain future earnings, if any, for
use in the operation and expansion of its business. The Company does not
anticipate paying any cash dividends in the foreseeable future. The Company's
debt agreements restrict the ability of the Company and certain of its
subsidiaries to pay dividends.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated operating and balance sheet data
for and as of the years ended December 28, 1996, December 27, 1997, January 2,
1999, January 1, 2000, and December 30, 2000 are derived from the Company's
audited consolidated financial statements. The following selected consolidated
financial data should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto (see Item 8. Financial Statements and
Supplementary Data) and the information contained in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
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(In Thousands)
Fiscal Fiscal Fiscal Fiscal Fiscal
Year Year Year Year Year
1996 1997 1998 1999 2000
----------- ------------- ----------- ----------- -----------
Operating Data:
Net Sales $98,661 $114,182 $126,927 $128,125 $126,544
Cost of Goods Sold 69,828 78,798 87,381 89,021 89,827
----------- ------------- ----------- ----------- -----------
Gross Profit 28,833 35,384 39,546 39,104 36,717
Selling, General and Administrative Expense 17,135 21,149 24,230 25,753 25,178
Special compensation expense - - 4,541 - -
----------- ------------- ----------- ----------- -----------
Operating Income 11,698 14,235 10,775 13,351 11,539
Interest Expense 4,399 4,963 7,900 10,948 10,834
Other expense (income) net 245 520 554 (249) 1,167
----------- ------------- ----------- ----------- -----------
Income (Loss) Before Income Taxes 7,054 8,752 2,321 2,652 (462)
Income Taxes 3,071 3,751 955 1,218 623
----------- ------------- ----------- ----------- -----------
Income (loss) before
extraordinary item 3,983 5,001 1,366 1,434 (1,085)
Extraordinary item-Write-off of deferred
financing cost related to refinanced
indebtedness, net of tax benefit of
$374 and $61 - - (529) - (136)
----------- ------------- ----------- ----------- -----------
Net Income (Loss) $3,983 $5,001 $837 $1,434 ($1,221)
=========== ============= =========== =========== ===========
Other Data:
EBITDA from operations (1) $14,026 $17,299 $19,187 $17,715 $16,152
Depreciation and amortization 2,712 3,459 5,176 4,879 5,320
Capital expenditures 3,638 3,708 4,348 4,364 4,085
Ratio of earnings to fixed charges (2) 2.5x 2.7x 1.3x 1.2x 1.0x
Balance Sheet Data:
Working Capital $22,209 $21,651 $35,796 $35,282 $31,491
Total Assets 82,620 95,343 118,239 118,287 115,454
Total Debt 46,175 51,692 104,010 102,858 102,830
Shareholders' equity (deficit) 17,198 21,615 (12,680) (12,245) (15,333)
(1) EBITDA is defined as operating income plus depreciation, amortization
(other than amortization of debt discount and deferred financing costs)
and special compensation expense. The Company believes that EBITDA
provides additional information for determining its ability to meet debt
service requirements. EBITDA does not represent and should not be
considered as an alternative to net income or cash flow from operations as
determined by generally accepted accounting principles, and EBITDA does
not necessarily indicate whether cash flow will be sufficient to meet cash
requirements.
(2) For purposes of calculating this ratio, "income" consists of income before
provision for income taxes and fixed charges. "Fixed charges" consist of
interest expense and the estimated interest portion of rental payments on
operating leases.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Company's
consolidated financial statements and notes thereto, as well as the selected
financial information, all appearing elsewhere herein.
GENERAL
In July 1998, Simonds and its subsidiaries issued $100 million of
10-1/4% Senior Subordinated Notes due 2008 (the "Notes"). Proceeds from the
Notes were primarily used for the repayment of indebtedness, the acquisition of
treasury stock, and the buyout of all outstanding stock options and warrants.
The Company concurrently entered into a Senior Credit Facility with First Union
("Old Credit Facility") with a commercial lender that provided $30 million
availability. Borrowings under the Old Credit Facility were available for
permitted acquisitions and working capital, including letters of credit. The Old
Credit Facility was secured by first priority liens on all tangible and
intangible personal property and real property assets of the Company and its
subsidiaries. All of the foregoing transactions are herein referred to
collectively as the "Recapitalization." For additional information with respect
to this Recapitalization, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Item 13. Certain Relationships
and Related Transactions. The Old Credit Facility was replaced with a New Senior
Credit Facility as defined in the Liquidity and Capital Resources section herein
on December 29, 2000. -------------------------------
Simonds has been in continuous operation selling cutting tools for over
167 years. Since 1996, the Company has completed four acquisitions, including
the bit and shank product line of Pacific Hoe Company in January 1997, Armstrong
Manufacturing Company ("Armstrong") in August 1997, Notting in May, 1998, and
the holesaw product line of Andersen Products Inc. in October 1999. The
Company's results of operations for the periods 1997 through 2000 reflect the
impact of all of the above mentioned acquisitions. In particular, the Company
benefited from five months of operations of Armstrong in 1997 and full years
thereafter, eight months of Notting operations in 1998 and full years
thereafter, and two months of Andersen Products in 1999 and a full year in 2000.
On May 26, 2000 the Company purchased certain assets, mainly inventory
and equipment, for $483 from Bluebonnet Tool Company, Inc. The Purchase price in
excess of fair value of assets acquired of $193 is being amortized on a
straight-line basis over 40 years. The results of operations of Bluebonnet
subsequent to the date of acquisition are reflected in the accompanying
financial statements for the year 2000.
On August 31, 2000 the Company purchased 100% of the outstanding stock
of Cirtec Inc. ("Cirtec") for $425 in cash. The acquisition was accounted for as
a purchase and the purchase price has been allocated based on the fair value of
the underlying assets and liabilities. The purchase price in excess of fair
value of net assets acquired of $337 is being amortized on a straight-line basis
over 40 years. The results of operations of Cirtec subsequent to the date of
acquisition are reflected in the accompanying financial statements for the year
2000.
On August 31, 2000 the Company sold certain assets, mainly inventory
and equipment, relating to its Rotary Rule business for $1,085 in cash to
National Steel Rule Company ("Buyer"). The selling price in excess of book value
of $785 was recorded as a gain. As part of the sale, the Company entered into an
agreement not to compete with the Buyer in the Rotary Rule business.
-11-
During the third quarter 2000 the Company sold and disposed of machinery with a
book value of $605 in its Fitchburg facility. The excess of book value and
removal costs over selling price of $648 was recorded as a loss.
-12-
RESULTS OF OPERATIONS
Percentage of Net Sales
---------------------------------------------
Year Ended December
---------------------------------------------
1998 1999 2000
------------ ------------ ------------
Net sales 100.0 % 100.0 % 100.0 %
Cost of goods sold 68.8 69.5 71.0
------------ ------------ ------------
Gross profit 31.2 30.5 29.0
Selling, general and administrative expense 22.7 20.1 19.9
------------ ------------ ------------
Operating income 8.5 10.4 9.1
Interest expense 6.2 8.5 8.6
Other expense (income), net 0.4 (0.2) 0.9
------------ ------------ ------------
Income (loss) before income taxes 1.9 2.1 (0.4)
Income taxes 0.8 1.0 0.5
------------ ------------ ------------
Income (loss) before extraordinary item 1.1 1.1 (0.9)
Extraordinary item-
Write-off of deferred financing cost related to refinanced
indebtedness, net of tax benefit of $374 and $61 (0.4) - (0.1)
------------ ------------ ------------
Net Income (Loss) 0.7 % 1.1 % (1.0) %
============ ============ ============
YEAR ENDED DECEMBER 30, 2000 COMPARED TO YEAR ENDED JANUARY 1, 2000
NET SALES: Net Sales for the year ended December 30, 2000 were
$126,544, or a 1.3% decrease from fiscal 1999 net sales of $128,125.
Acquisitions net of divestitures provided approximately $1,752 or 1.4% revenue
increase in 2000. This includes the additional sales provided by a full year of
sales relating to the acquisition of Andersen Holesaw assets, seven months of
sales relating to an acquisition from Bluebonnet Tools, and the purchase of
Cirtec Inc. on August 31, 2000. However, currency fluctuations negatively
impacted revenue by $3,111 as the U.S. dollar strengthened against the British
pound and the German mark.
GROSS PROFIT MARGIN: The cost of sales increased by $806 primarily as a
result of the Company recording a $988 reorganization reserve charge affecting
cost of sales for the closure of its Notting Rule operations in the United
Kingdom. Gross profit margin for the year dropped 1.5% from 30.5% to 29.0% in
2000. Of this approximately 0.8% is due to reorganization and the balance is the
result of improved margins by our core Domestic and Canadian operations offset
by lower margins in or German facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses ("SG&A") as a percent of net sales were 19.9% in 2000
and 20.1% in 1999. All components of SG&A were lower than the previous year
reflecting efforts to keep expenses in line with sales volume. Additionally,
2000 expenses were unfavorably impacted by $302 reorganization expenses relating
to our Notting U.K. operations that were offset by an exchange rate impact of
approximately $386 relating to the strengthening of the U.S. dollar against the
British pound and the German mark.
OPERATING INCOME: As a result of the foregoing, operating income
decreased $1,812 from the prior year.
-13-
INTEREST EXPENSE, NET : Net interest expense was lower in 2000 as a
result of higher interest earned on overnight investments during the course of
the year. The Company invests its idle cash during the course of the year as it
accumulates reserves for its semi-annual interest payments on its senior
subordinated notes.
INCOME TAXES: The Company recorded income tax expense in 2000 of $623
despite a loss before taxes of ($462) for an effective tax rate of (134.8%) as
opposed to 45.9% in 1999. The effective tax rates differed from the statutory
U.S. rate in both 2000 and 1999 due to non-deductible amortization of goodwill,
state tax provisions, and higher foreign income taxes on foreign source income.
In 2000 the effective tax rates also differed from the statutory U.S. rate as a
result of foreign losses not benefited. (See Note 7 to the Consolidated
Financial Statements included in Item 8)
EXTRAORDINARY Item: As part of the refinancing of the Company's credit
line, deferred financing costs of $197 were written off with the related tax
benefit of $61, which resulted in an extraordinary loss of $136.
NET INCOME: As a result of the aforementioned factors, net income
decreased $2,655 from $1,434 in 1999 to ($1,221) in 2000.
YEAR ENDED JANUARY 1, 2000 COMPARED TO YEAR ENDED JANUARY 2, 1999
NET SALES: Net sales for the year ended January 1, 2000 were $128,125,
or a 1.0% increase from fiscal 1998 net sales of $126,927. An increase in net
sales of $3,678 was attributable to the inclusion of Notting net sales for the
full year of 1999 versus 8 months of 1998. This was offset by lower sales volume
of core products in the North American and European markets. Overall sales in
1999 were negatively impacted by deterioration in the value of the British pound
and the German mark when compared to 1998 by approximately $400 and $600,
respectively.
GROSS PROFIT Margin: The cost of sales increased by $1,640 as a result
of higher sales volume. Gross profit margin dropped 0.7% to 30.5% in 1999
primarily as a result of unfavorable manufacturing variances resulting from
lower productions levels in reaction to decreased demand and inventory
reductions in excess of plan.
SELLING, GENERAL AND ADMINISTRATIVE Expenses: Selling, general and
administrative expenses as a percent of net sales were 20.1% in 1999 and 22.7%
for 1998. The lower level of expenses in 1999 as compared to 1998 was primarily
due to a one-time compensation charge in July 1998 of $4,541 from the repurchase
of options relating to the Recapitalization. This was partly offset by a full
year's expenses of Notting in 1999 versus 8 months in 1998.
OPERATING INCOME: As a result of the foregoing, operating income
increased $2,576 in 1999 from the prior year.
INTEREST EXPENSE: Interest expense was higher in 1999 due to the
Recapitalization of the Company in July 1998. The Recapitalization constituted
retiring most of the Company's debt and replacing it with $100,000 of notes
bearing an annual interest rate of 10.25%.
INCOME TAXES: The Company's effective tax rate increased to 45.9% in
1999 from 41.1% for 1998. The effective tax rates differed from the statutory
U.S. rate primarily due to non-deductible expenses that include amortization of
goodwill and business meals and entertainment. The rate was also affected by
higher foreign income taxes on foreign source income and state tax provisions.
-14-
EXTRAORDINARY Item: As part of the debt retirement in 1998, deferred
financing costs of $903 were written off with a related tax benefit of $374,
which resulted in an extraordinary loss of $529.
NET INCOME: As a result of the aforementioned factors, net income
increased 71.3% to $1,434 for 1999 from $837 for 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working
capital needs, meet required debt payments, and to complete planned maintenance
and manufacturing improvements.
During 1998, 1999 and 2000, net cash provided by operations was $9,113,
$6,508 and $6,097, respectively. During 1998, 1999 and 2000, net cash used in
investing activities was $9,747, $5,884 and $3,453, respectively, consisting
primarily of capital expenditures and acquisitions. In 1998, approximately
$5,500 was used to acquire Notting, a manufacturer of rule products. In 1999,
approximately $1,600 was used to acquire specific assets of Andersen Products
Inc. In 2000, approximately $425 was used to acquire Cirtec, Inc., a
manufacturer of wood products and approximately $483 was used to acquire
specific assets of Bluebonnet Tools. During 1998, 1999 and 2000, net cash
provided by (used in) financing activities was $8,978, ($1,205), and ($1,267),
respectively.
The Company had an Old Credit Facility that provided a line of credit
to meet acquisition and expansion needs as well as seasonal working capital and
general corporate requirements. The Old Credit Facility provided for $30,000 of
availability in 1999 and 2000. At December 29, 2000 the existing Old Credit
Facility was replaced with a new Senior Credit Facility ("New Senior Credit
Facility") that provides for $40,000 of availability. This credit line had not
been drawn on as of December 30, 2000. On March 29, 2001, the Senior Credit
Facility was amended to require that the ratio of cash flow to fixed charges be
greater than 1.0 to 1.0 for all fiscal quarters during 2001. Borrowings under
the New Senior Credit Facility bear interest at a fluctuating rate based on, at
the Company's option, either Prime Rate, or LIBOR plus the applicable margin. A
commitment fee calculated based upon the unused portion of the revolving credit
facility is payable quarterly in arrears.
The Company believes that future cash flows from operations, together
with the borrowings available under the New Senior Credit Facility, will provide
the Company with sufficient liquidity and financial resources to finance its
growth and satisfy its working capital requirements for the foreseeable future.
The Company may not be able to generate sufficient cash flows from operations to
pay the entire principal amount of the Notes when due in 2008. In such event,
the Company would be required to refinance the Notes. However, there can be no
assurance that the Company will be able to obtain financing on acceptable terms.
SEASONALITY
Historically, the Company's business has not been subject to
seasonality in any material respect. The Company's third quarter, which includes
July through September, is typically lower due to customers' and plant vacation
shutdowns.
INFLATION
Certain of the Company's expenses, such as wages and benefits,
occupancy costs and equipment repair and replacement, are subject to normal
inflationary pressures. Although the Company to date has been able to offset
inflationary cost increases through operating efficiencies, there can be no
assurance that the Company will be able to offset any future inflationary cost
increases through similar efficiencies.
-15-
TRANSITION TO THE EURO
Although the Euro was successfully introduced on January 1, 1999, the
legacy currencies of the 11 countries participating will continue to be used as
legal tender through January 1, 2002. Thereafter, the legacy currencies will be
cancelled and Euro bills and coins will be used in the participating countries.
Transition to the Euro creates a number of issues for the Company.
Business issues that must be addressed include product pricing policies and
ensuring the continuity of business and financial contracts. Finance and
accounting issues include the conversion of accounting systems, statutory
records, tax books and payroll systems to the Euro, as well as conversion of
bank accounts and other treasury and cash management activities.
The Company continues to address these transition issues and does not
expect the transition to the Euro to have a material effect on the results of
operations or financial condition of the Company.
FORWARD LOOKING STATEMENTS; RISKS AND UNCERTAINTIES
Statements contained in this Form 10-K that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "expects," "anticipates" and similar expressions are used to
identify forward looking statements. The Company cautions that a number of
important factors could cause actual results for fiscal 2001 and beyond to
differ materially from those expressed in any forward looking statements made by
or on behalf of the Company. All of these forward looking statements are based
on estimates and assumptions made by management of the Company, which although
believed to be reasonable, are inherently uncertain. Therefore, undue reliance
should not be placed on such estimates and statements. No assurance can be given
that any of such estimates or statements will be realized and it is likely that
actual results will differ materially from those contemplated by such forward
looking statements. Factors that may cause such differences include: (1)
increased competition; (2) increased costs; (3) loss or disruption of supply
sources of specialty steels; (4) loss or retirement of key members of
management; (5) increases in the Company's cost of borrowings or unavailability
of additional debt or equity capital on terms considered reasonable by
management; (6) adverse state, federal or foreign legislation or regulation or
adverse determinations by regulators; and (7) changes in general economic
conditions in the markets in which the Company may compete and fluctuations in
demand in the metal processing and primary wood industries. Many of such factors
are beyond the control of the Company and its management.
The above risks and uncertainties inherent in the Company's business
are set forth in detail below. However, this section does not discuss all
possible risks and uncertainties to which the Company is subject, nor can it be
assumed necessarily that there are no other risks and uncertainties that may be
more significant to the Company.
-16-
SUBSTANTIAL LEVERAGE
As of December 30, 2000 the Company had $102,830 of consolidated
indebtedness and consolidated stockholders' deficit of $15,333.
The Company's indebtedness has several important consequences
including, but not limited to, the following: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service
requirements and will not be available for other purposes; (ii) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, refinancing other indebtedness or general
corporate purposes may be impaired; (iii) the Company's leverage may increase
its vulnerability to economic downturns and limit its ability to withstand
competitive pressures; and (iv) the Company's ability to capitalize on
significant business opportunities may be limited.
The Company's ability to make payments with respect to the Notes and to
satisfy its other debt obligations will depend on its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control. The Company believes, based on current circumstances, that the
Company's cash flow, together with available borrowings under the New Senior
Credit Facility, will be sufficient to permit the Company to meet its operating
expenses and to service its debt requirements as they become due. Significant
assumptions underlie this belief, including, among other things, that the
Company will succeed in implementing its business strategy and there will be no
material adverse developments in its business, liquidity or capital
requirements. If the Company is unable to service its indebtedness, it will be
forced to adopt an alternative strategy that may include actions such as
reducing or delaying capital expenditures, selling assets, restructuring or
refinancing its indebtedness or seeking additional equity capital. There can be
no assurance that any of these strategies could be effected on satisfactory
terms, if at all.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture restricts the ability of the Company and certain of its
subsidiaries to, among other things, incur additional indebtedness, pay
dividends or make certain other restricted payments or investments, consummate
certain asset sales, enter into certain transactions with affiliates, incur
liens, or merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of their assets.
In addition, the New Senior Credit Facility contains other and more restrictive
covenants. The New Senior Credit Facility requires the Company to maintain
specified financial ratios and satisfy certain financial tests. The Company's
ability to meet such financial ratios and tests may be affected by events beyond
its control, and there can be no assurance that the Company will meet such
tests. A breach of any of these covenants could result in an event of default
under the New Senior Credit Facility. In an event of default under the New
Senior Credit Facility, the lenders thereunder could elect to declare all
amounts borrowed, together with accrued interest, to be immediately due and
payable and the lenders under the New Senior Credit Facility could terminate all
commitments thereunder. If such indebtedness were to be accelerated, there can
be no assurance that the assets of the Company would be sufficient to repay such
indebtedness and the Notes.
-17-
SUBORDINATION OF NOTES AND GUARANTEES
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Debt of the Company, including all
amounts owing or guaranteed under the Senior Credit Facility. The Guarantees of
the Notes by certain subsidiaries are similarly subordinated to Guarantor Senior
Debt. Consequently, in the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to the Company or a Guarantor,
assets of the Company or such Guarantor will be available to pay obligations on
the Notes or Guarantees only after all Senior Debt of the Company or Guarantor
Senior Debt of such Guarantor, as applicable, has been paid in full, and there
can be no assurance that there will be sufficient assets to pay amounts due on
any or all of the Notes. In addition, neither the Company nor any Guarantor may
pay principal, premium, interest or other amounts on account of the Notes or any
Guarantee in the event of a payment default (or, with respect to a non-payment
default on Designated Senior Debt (as defined), for a specified period) in
respect of Senior Debt. As of December 30, 2000, the Company and the Guarantor
had no Senior Debt or Guarantor Senior Debt outstanding. In addition, the Notes
are effectively subordinated in right of payment to all liabilities, including
indebtedness, of subsidiaries of the Company that are not Guarantors. As of
December 30, 2000 such subsidiaries had approximately $25,600 of total
liabilities, including approximately $2,800 of indebtedness.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company operates manufacturing, sales and service facilities in
Germany, the United Kingdom, Spain and Canada. In fiscal 2000, sales of its
products in foreign countries accounted for approximately 32% of the Company's
net sales. As a result, the Company is subject to risks associated with
operation in foreign countries, including fluctuations in currency exchange
rates, imposition of limitations on conversion of foreign currencies into
dollars or remittance of dividends and other payments by foreign subsidiaries,
imposition or increase of withholding and other taxes on remittances and other
payments by foreign subsidiaries, hyperinflation in certain foreign countries
and imposition or increase of investment, subjection to certain foreign labor
laws and other restrictions by foreign governments. Fluctuations in currency
exchange rates have had an impact on the Company's operations in the past, and
historically the Company has hedged some of its foreign currency risks. No
assurance can be given that the risks associated with operating in foreign
countries will not have a material adverse effect on the Company in the future.
DEPENDENCE ON SPECIALTY STEELS; RELIANCE ON LIMITED SOURCES OF SUPPLY
The principal raw material used by the Company is specialty steels. The
Company relies on limited sources for its supply of specialty steels. The loss
of any such source, or any major disruption in such source's business or failure
by it to meet the Company's needs on a timely basis could cause shortages in the
Company's supply of specialty steels that could have a material adverse effect
on the Company's business and financial condition.
The steel industry is highly cyclical in nature and steel prices are
influenced by numerous factors beyond the control of the Company, including
general economic conditions, labor costs, molybdenum and chrome costs,
competition, import duties, tariffs and currency exchange rates. If the Company
is unable to pass some or all of future steel price increases to its customers,
the Company could be materially and adversely affected.
-18-
RELIANCE ON METAL PROCESSING AND WOOD INDUSTRIES
Demand for the Company's metal and wood products generally follows
movements in the metal processing and primary wood industries. The metal
processing and primary wood industries are both cyclical in nature and are
affected by global and national economic conditions. A material change in either
industry or general economic conditions could have a material adverse effect on
the Company's business and financial condition.
ACQUISITION STRATEGY
The Company has pursued and intends to continue to pursue acquisitions
as an important component of its strategy. No assurance can be given that in the
future other suitable acquisition candidates can be acquired on acceptable terms
or that future acquisitions, if completed, will be successful. Future
acquisitions by the Company could result in the incurrence of additional debt
and contingent liabilities that could materially adversely affect the Company's
business, operating results and financial condition. The success of any
completed acquisition will depend on the Company's ability to integrate
effectively the acquired business into the Company's. The process of integrating
acquired businesses may involve numerous risks, including difficulties in the
assimilation of operations and products, the diversion of management's attention
from other business concerns and the potential loss of key employees of the
acquired businesses.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and
foreign laws and regulations relating to the storage, handling, generation,
treatment, emission, release, discharge and disposal of certain substances and
waste materials. While the Company believes that it is currently in material
compliance with those laws and regulations, there can be no assurance that the
Company will not incur significant costs to remediate violations thereof or to
comply with changes in existing laws and regulations (or the enforcement
thereof). Such costs could have a material adverse effect on the Company's
business, financial condition or results of operations.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in the
Indenture), each holder of Notes will have the right to require the Company to
repurchase all or a portion of such holder's Notes at a price in cash equal to
101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. However, the Company's ability to
repurchase the Notes upon a Change of Control may be limited by the terms of
then existing contractual obligations of the Company and its subsidiaries. In
addition, the occurrence of a Change of Control will constitute an Event of
Default under the New Senior Credit Facility. The New Senior Credit Facility
will prohibit the purchase of the Notes unless and until such time as the
indebtedness under the New Senior Credit Facility is paid in full. There can be
no assurance that the Company will have the financial resources to repay amounts
due under the New Senior Credit Facility, or to repurchase or redeem the Notes.
If the Company fails to repurchase all of the Notes tendered for purchase upon
the occurrence of a Change of Control, such failure will constitute an Event of
Default under the Indenture.
-19-
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under the applicable provisions of the federal bankruptcy law or
comparable provisions of state fraudulent transfer law, if the Company or any
Guarantor, at the time it issues the Notes or incurs a Guarantee, as the case
may be, (a)(i) was or is insolvent or rendered insolvent by reason of such
issuance or incurrence, as the case may be, (ii) was or is engaged in a business
or transaction for which the assets remaining with the Company or such
Guarantor, as the case may be, constituted unreasonably small capital or (iii)
intended or intends to incur, or believed or believes that it would incur, debt
beyond its ability to pay such debts as they mature and (b) received or receives
less than reasonably equivalent value or fair consideration, the obligations of
the Company under the Notes or such Guarantor under its Guarantee, as the case
may be, could be avoided or claims in respect of the Notes or such Guarantee, as
the case may be, could be subordinated to all other debts of the Company or such
Guarantor, as the case may be. Among other things, a legal challenge of the
Notes or a Guarantee, as the case may be, on fraudulent conveyance grounds may
focus on the benefits, if any, realized by the Company or such Guarantor, as the
case may be, as a result of the issuance of the Notes or the incurrence of a
Guarantee, as the case may be. To the extent that the Notes or any Guarantee was
a fraudulent conveyance or held unenforceable for any other reason, the holders
of the Notes would cease to have any claim in respect of the Company, in the
case of the Notes, or in respect of a Guarantor whose Guarantee was avoided or
held unenforceable. In such event, the claims of the holders of the Notes would
be subject to the prior payment of all liabilities of the Company, in the case
of the Notes, or the Guarantor whose Guarantee was avoided. There can be no
assurance that, after providing for all prior claims, there would be sufficient
assets to satisfy the claims of the holders of the Notes relating to any avoided
portion of the Notes or a Guarantee.
The Guarantor has agreed to contribute to the obligation under a
Guarantee of the Notes. Further, the Guarantee provides that it is limited to an
amount that would not render the Guarantor thereunder insolvent. The Company
believes that it and the Guarantor received equivalent value at the time the
indebtedness was incurred under the Notes and the Guarantees. In addition, the
Company believes that neither it nor the Guarantor was or will be insolvent or
was or will be engaged in a business or transaction for which its remaining
assets constitute unreasonably small capital and that neither it nor the
Guarantor intended or will intend to incur debts beyond its ability to pay such
debts as they mature. Since each of the components of the question of whether
the Notes or a Guarantee is a fraudulent conveyance is inherently fact based and
fact specific, there can be no assurance that a court passing on such questions
would agree with the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in foreign currency
exchange rates, as the Company entered into foreign forward exchange contracts
in each of the last two years. The Company did not enter into these contracts
for trading purposes. They were entered into to manage and reduce the impact of
changes in foreign currency exchange rates although a portion of these contracts
does not qualify for hedge accounting. Accordingly, the contracts were marked to
market at the end of each accounting period. (See Note 12 to the Consolidated
Financial Statements included in Item 8.)
-20-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial information required by Item 8 is included elsewhere in this
Report (see Part IV, Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-21-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information with respect to the
directors and executive officers of the Company. Directors serve for a term of
one year or until their successors are elected and qualified. Officers serve at
the discretion of the Board of Directors.
NAME AGE POSITION
- ------------------------ ------- ------------------------------------------------------
Ross B. George 68 Director
Raymond J. Martino 46 President, CEO, Director and Chairman of the Board
Henry Botticello 44 CFO and Treasurer
Roland Richard 59 Vice President - Sales and Marketing, Wood Products
James Palmer 59 Vice President - Sales and Marketing, Metal Products
Peter Hopper 50 Vice President - Engineering
Ron Owens 56 Senior Vice President - Manufacturing
Habib Y. Gorgi 44 Director
John A. Cosentino Jr. 51 Director
ROSS GEORGE: Mr. George was President, Chief Operating Officer and
member of the Board of Directors since 1988 and was made Chief Executive Officer
in 1995. From September 1999 through October 2000 Mr. George was Chairman of the
Board.
RAYMOND MARTINO: Mr. Martino has been Chief Executive Officer and
President since September 1999 and is a member of the Board of Directors of
Simonds. Most recently Mr. Martino was appointed Chairman of the Board in
October 2000. Mr. Martino formerly held the positions of President - Stanley
Fastening Systems, President Stanley Door Systems and President of Stanley Home
Decor, divisions of The Stanley Works.
HENRY BOTTICELLO: Mr. Botticello has been Chief Financial Officer since
April 2000 and is also Treasurer. Mr. Botticello formerly held the positions of
Chief Financial Officer Stanley Works Europe, VP Operations Stanley Fastening
Systems Europe and Vice President Controller Stanley Fastening Systems.
ROLAND RICHARD: Mr. Richard has been Vice President of Sales and
Marketing - Wood Products since 1991. He previously held the position of
Director of Corporate Development from 1989 to 1991 and was Corporate Sales
Manager of the acquired Michigan Knife Company from 1987 to 1989.
JAMES PALMER: Mr. Palmer has been Vice President of Sales and Marketing
for Metal Products since 1995. He was Vice President of Sales of Milford
Products for 10 years. Mr. Palmer joined Milford Products in 1982.
-22-
PETER HOPPER: Mr. Hopper was Vice President of Product Development from
1996 through April of 2000 at which time he assumed the position of Vice
President of Engineering. He has held positions of increasing responsibility
with Crucible Specialty Metals from 1976 to 1983. He held research, metallurgy
and quality control positions with Milford Products Corporation from 1983 to
1991. From 1991 to 1996 he served in various product development and design
positions with Milwaukee Electric Tool Corporation.
RON OWENS: Mr. Owens joined Simonds in 1998 as Vice President of
Business Development and was promoted to Senior Vice President of Manufacturing
in November of 1998. In 1990 Mr. Owens formed Sawell, Inc., a manufacturing
business that produced jigsaw and recip blades for their own brands, as well as
private label product for all major brands. Black and Decker purchased "Sawell,
Inc." in late 1994 and Mr. Owens was President of the subsidiary until October
1996.
HABIB GORGI: Mr. Gorgi has been a member of the Board of Directors
since 1995. Mr. Gorgi is currently a Managing Director of Navis Partners, LLC
and has been since June 30, 2000. Prior to this, Mr. Gorgi was President of
Fleet Equity Partners since December 1995. Mr. Gorgi also sits on the Board of
Directors for Ariba, Inc. and FTD.com, Inc.
JOHN A. COSENTINO JR.: Mr. Consentino has been a member of the Board of
Directors since December 2000. Mr. Cosentino is Currently a Partner in Capital
Resource Partners, and has been since 2000. Mr. Cosentino, is also currently a
Director of Spir-it, Inc., and Pro Group, Inc.. Prior to that he was Director
for World Power Technologies, Inc., The Wiremold Company and Todd Combustion,
Inc.. Mr. Cosentino was also Vice President - Operations, at the Stanley Works,
from October 1997 to October 1998.
-23-
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation earned in 1998,
1999 and 2000 by the Company's Chief Executive Officer and each of the four most
highly compensated executive officers whose remuneration exceeded $100,000 (the
"Named Executives").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ------------------------
SECURITIES ALL
UNDER-LYING OTHER
OPTIONS/ COMPEN-
YEAR SALARY BONUS OTHER(1) SARS SATION(2)
---- -------- --------- -------- ------ --------
Ross George 1998 $272,580 - $28,774 351.13 $753,256
Former Chairman of the Board, 1999 $250,112 - $29,979 671.13 $22,768
CEO and President 2000 $120,833 - $6,410 - $14,382
Raymond Martino 1999 $132,820 - $7,949 4,450 $32,672
Chairman of the Board 2000 $356,125 $200,000 $48,869 - $60,240
Chief Executive Officer,
President
James Palmer 1998 $129,260 $ 1,759 $12,809 - $347,834
Vice President - Sales, 1999 $140,233 $ 1,759 $13,045 275 $9,897
Metal Products 2000 $145,123 - $12,847 - $11,431
.
Roland Richard 1998 $121,518 $ 13,853 $12,809 - $132,863
Vice President - Sales & 1999 $126,379 $ 13,853 $13,850 275 $10,273
Marketing, Wood Products 2000 $131,434 $ 6,193 $15,035 - $11,475
Ronald Owens 1998 $ 90,462 - $10,811 - $2,609
Senior Vice President 1999 $142,133 - $ 4,829 275 $8,225
- -Manufacturing 2000 $146,083 - $12,228 - $12,261
Henry Botticello -
Chief Financial Officer 2000 $131,250 $ 14,583 $ 23,352 900 $67,034
(1) Consists of amounts reimbursed during the year for the payment of taxes
relating to company vehicles, tax preparation and club memberships.
(2) Consists of the Company's contributions to (1) the 401(k) Plan in 1998
($5,000 each for all executives listed above except Mr. Martino, $0,
and Mr. Owens, $0), in 1999 (Mr. George $5,000, Mr. Martino, $2,235,
Mr. Palmer, $3,855, Mr. Richard, $4,207and Mr. Owens, $3,164) and in
2000 (Mr. George, $3,625 Mr. Martino, $2,235, Mr. Palmer, $3,855; Mr.
Richard, $4,207, and Mr. Owens, $3,164) and (2) the Profit Sharing Plan
in 1998 ($4,800 each for all executives listed above except Mr.
Martino, $0, Mr. Owens, $0 and Mr. Botticello $0), in 1999 (Mr. George,
$4,800; Mr. Martino, $3,110; Mr. Palmer, $4,260; Mr. Richard, $4,207,
and Mr. Owens, $3,164) 2000 (Mr. George, $3,625; Mr. Martino, $51,000;
Mr. Palmer, $4,354; Mr. Richard, $3,943, Mr. Owens, $4,383, and Mr.
Botticello, $3,938) and; (3) group insurance payments in 1998 (Mr.
George, $23,583; Mr. Palmer, $2,945, Mr. Richard, $3,084, Mr. Owens
$2,609) in 1999 (Mr. George, $12,968; Mr. Martino, $425, Mr. Palmer,
$1,782; Mr. Richard, $1,859, Mr. Owens, $1,897) and in 2000 (Mr.
George, $7,132; Mr. Martino, $6,615, Mr. Palmer, $3,264; Mr. Richard,
$3,402, Mr. Owens, $3,496 and Mr. Botticello, $866) and (4) relocation
expenses in 1999 (Mr. Martino, $26,902) and in 2000 (Mr. Botticello,
$60,056) and (5) buyout of options in 1998 (Mr. Martino $0, Mr. George
$719,873; Mr. Palmer $335,089; Mr. Richard $119,979, and Mr. Owens,
$0).
-24-
OPTIONS
The following table sets forth certain information relating to option
grants in the year ended December 30, 2000 to the individuals named in the
Summary Compensation Table above.
Option Grants in Last Fiscal Year
Individual Grants
------------------------------------------------------------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base Grant Date
Options Employees in Price Expiration Present
Name Granted Fiscal Year ($/Sh) Date Value (2)
- --------------------------------- ------------- ------------ ------------ ------------- ----------
Henry Botticello (1) 900 70% $458.52 04/04/2010 $110.75
(1) These options were granted to Henry Botticello on April 4, 2000. The options
vest as follows: 225 on October 1, 2000, and 225 each on April 1, 2001, 2002,
and 2003.
(2) Based on the Black-Scholes option pricing model. The use of this model
should not be construed as an endorsement of its accuracy at valuing options.
The actual value, if any, an executive may realize will depend on the excess of
the stock price over the exercise price on the date the option is exercised, so
there is no assurance the actual value realized will be at or near the value
estimated by the Black-Scholes model. The estimated values under that model are
based on the following assumptions:
Henry Botticello
----------------
Stock price $474.25
Exercise price $458.52
Expected option term 5 years
Stock price volatility 0
Dividend yield 0
Risk-free interest rate 6.17%
-25-
The following table sets forth certain information with respect to
unexercised options to purchase the Company's Common Stock granted to the
individuals named in the Summary Compensation Table above. No options were
exercised in 2000 by such individuals.
FY - END OPTION VALUES
NO. OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FY-END OPTIONS AT FY-END(1)
--------------------------------------- -------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------- ------------------- ---------------- ------------------
Ross George 564.46 106.67 $0 $0
Raymond Martino 1,450 3,000.00 $0 $0
Henry Botticello 225 675.00 $0 $0
James Palmer 183.33 91.67 $0 $0
Roland Richard 183.33 91.67 $0 $0
Ron Owens 183.33 91.67 $0 $0
(1) Based on the difference between the fair value of the securities underlying
the options and the exercise or base price of the options at fiscal year-end.
EMPLOYMENT CONTRACTS
The Company has employment agreements with key executive management.
The agreement with the President/Chief Executive Officer provides for twelve
months' severance on termination by the Company at any time without cause and
termination by the employee upon at least thirty (30) days' prior written
notice. No severance is provided if the Company terminates for cause or if the
employee terminates for no good reason. The non-competition provisions apply
during the term of the agreements and provide a two-year non-competition period
beginning on the date of termination. In addition, the Company has employment
agreements with all vice presidents, providing for at least twelve (12) months'
written notice prior to termination by the Company without cause (thirty days
with cause) and ninety (90) days' prior written notice by the employee. Annual
salary reviews are done by the Board of Directors.
-26-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock (i) by each person known to
the Company to own more than 5% of the Company's Common Stock and (ii) by each
director of the Company, each of the executive officers of the Company listed
under "Management" and the directors and executive officers of the Company as a
group.
SHARES BENEFICIALLY OWNED (1)
-----------------------------
NUMBER OF SHARES %OF CLASS
----------------- ---------
Fleet Venture Resources, Inc. and related
entities (2) 37,810.78 57.0
The Private Market Fund, L.P. 8,723.72 13.2
Heller Financial Inc. 3,373.75 5.1
First Union Merchant Banking 1998, L.L.C. 3,373.75 5.1
Ross George 5,997.56 9.0
Roland Richard 1,090.46 1.6
James Palmer 381.66 *
Peter Hopper 163.57 *
Ron Owens --- ---
Raymond Martino --- ---
Henry Botticello --- ---
Habib Y. Gorgi (2) 37,810.78 57.0
John Cosentino --- ---
All directors and executive officers as a group, 60,915.25 91.9
including the above named persons
*Less than 1%
(1) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of, a security or the sole or shared power
to dispose, or direct the disposition of, a security, and includes options
and warrants exercisable within 60 days.
(2) This includes the following number of shares held by the following
entities: Fleet Venture Resources, Inc. ("FVR") (20,869.43); Fleet Equity
Partners VI, L.P. ("FEP6") (8,944.04); Chisholm Partners III, L.P. ("CP3")
(7,562.16); and Kennedy Plaza Partners ("KPP") (435.15).
Voting and investment control over the shares of the shares of the
Company's Common Stock held by FVR is exercised by Silverado III Corp.
("S3C"), and may thus be deemed to possess indirect beneficial
ownership of the shares held by FVR. Voting and investment control over
the shares of the Company's Common Stock held by FEP6 is exercised by
Silverado IV Corp. ("S4C"), and S4C may thus be deemed to possess
indirect beneficial ownership of the shares held by FEP6. In addition,
Silverado III, L.P. ("S3LP") is the general partner of CP3 and thus may
be deemed to possess indirect beneficial ownership of the shares held
by CP3. By virtue of (i) his control over S3C, (ii) his control over
S4C, (iii) S3C's position as general partner of S3LP and (iv) his
position as managing general partner of KPP, Mr. Gorgi may be deemed to
possess indirect beneficial ownership of the shares of the Company's
Common Stock directly beneficially owned by FVR, FEP6, CP3 and KPP,
respectively. Mr. Gorgi disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest therein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not Applicable
-27-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The consolidated balance sheets as of January 1, 2000 and December 30, 2000
and the related consolidated statements of operations, cash flows,
shareholders' equity (deficit), and financial statement schedule for each
of the three years in the period ended December 30, 2000 are filed as part
of this report:
-28-
(1) Financial Statements
SIMONDS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
ASSETS January 1, December 30,
------ 2000 2000
------------------- -------------------
CURRENT ASSETS:
Cash $8,383 $8,913
Accounts receivable, net of reserves of $993 and $909 17,400 16,948
Inventories (Note 3) 26,650 24,869
Other current assets 3,162 3,573
Refundable income taxes 1,037 818
------------------- -------------------
Total current assets 56,632 55,121
PROPERTY, PLANT AND EQUIPMENT:
Land 2,300 2,147
Buildings and improvements 10,684 10,275
Machinery and equipment 32,126 33,952
Construction-in-progress 314 988
------------------- -------------------
45,424 47,362
Less- Accumulated depreciation 11,585 14,207
------------------- -------------------
Net property, plant and equipment 33,839 33,155
OTHER ASSETS:
Goodwill, net of accumulated amortization of $2,223 and $2,830 22,308 22,221
Deferred financing costs, net of accumulated amortization of $764 and $1,077 3,900 3,390
Other, including buildings held for resale (Note 2) 1,608 1,567
------------------- -------------------
Total other assets 27,816 27,178
------------------- -------------------
Total assets $118,287 $115,454
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Overdraft facilities $190 $128
Revolving credit loans and notes payable 321 421
Current portion of long-term debt 14 2,409
Accounts payable 6,871 7,807
Accrued payroll and employee benefits 4,034 4,371
Accrued interest 5,153 5,153
Other accrued liabilities 2,739 1,794
Currently deferred income taxes 2,028 1,547
------------------- -------------------
Total current liabilities 21,350 23,630
LONG-TERM DEBT, net of current portion (Note 5) 102,523 100,000
DEFERRED INCOME TAXES 4,808 4,891
OTHER NONCURRENT LIABILITIES (Note 4) 1,851 2,266
COMMITMENTS AND CONTINGENCIES (Note 6) - -
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value-
Authorized - 200,000 shares
Issued and outstanding - 77,360 and 75,267 1 1
Capital in excess of par value (24,405) (24,387)
Retained earnings 14,130 12,909
Accumulated other comprehensive income (loss) (1,850) (2,740)
Treasury stock, at cost (121) (1,116)
------------------- -------------------
Total shareholders' equity (deficit) (12,245) (15,333)
------------------- -------------------
Total liabilities and shareholders' equity (deficit) $118,287 $115,454
=================== ===================
The accompanying notes are an integral part of these consolidated financial
statements.
-29-
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
Year Ended December
-----------------------------------------------------
1998 1999 2000
---------------- ----------------- ----------------
(52 Weeks) (53 Weeks) (52 Weeks)
Net sales $126,927 $128,125 $126,544
Cost of goods sold 87,381 89,021 89,827
---------------- ----------------- ----------------
Gross profit 39,546 39,104 36,717
Selling, general and administrative expense 28,771 25,753 25,178
---------------- ----------------- ----------------
Operating income 10,775 13,351 11,539
Other expenses:
Interest expense, net 7,900 10,948 10,834
Other, net 554 (249) 1,167
---------------- ----------------- ----------------
Income (loss) before income taxes 2,321 2,652 (462)
Provision for income taxes 955 1,218 623
---------------- ----------------- ----------------
Income (loss) before
extraordinary item 1,366 1,434 (1,085)
Extraordinary item-
Write-off of deferred financing cost related
to refinanced indebtedness, net of tax
benefit of $374 and $61 (529) - (136)
---------------- ----------------- ----------------
Net income (loss) $837 $1,434 ($1,221)
================ ================= ================
The accompanying notes are an integral part of these consolidated financial
statements.
-30-
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
YEAR ENDED
-----------------------------------------------------
JANUARY 2, JANUARY 1, DECEMBER 30,
1999 2000 2000
-----------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $837 $1,434 ($1,221)
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,176 4,879 5,320
Gain on asset sales (48) (17) (64)
Provision (benefit) for deferred
income taxes 249 1,061 (398)
Changes in assets and liabilities, net
of acquisitions:
Accounts receivable 2,692 (1,150) 542
Inventories (952) 1,125 1,792
Income tax refunds receivable (1,056) 120 219
Other current and non current assets 326 (254) (670)
Accounts payable 355 (37) 812
Accrued expenses 1,527 (94) (650)
Other non-current liabilities 7 (559) 415
-----------------------------------------------------
Net cash provided by operating
Activities 9,113 6,508 6,097
-----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 72 53 1,540
Purchases of equipment (4,348) (4,364) (4,085)
Acquisition of W. Notting Ltd.,
net of cash acquired of $51 (5,471) - -
Acquisition of Anderson Holesaw Assets - (1,573) -
Acquisition of the assets of Bluebonnet Tools - - (483)
Acquisition of Cirtec, Inc. - - (425)
-----------------------------------------------------
Net cash used in investing activities (9,747) (5,884) (3,453)
-----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in overdrafts (100) 41 (62)
Net (uses) proceeds under revolving credit 3,789 (1,292) 100
Proceeds from issuance of long-
term debt-net of issuance costs 98,063 161 -
Principal payments of long-term debt (57,751) (21) (128)
Issuance of common stock 18,833 -
-
Stock redemption (53,791)
- -
Purchase of treasury stock (65) (56) (995)
Other - (38) (182)
-----------------------------------------------------
Net cash provided by (used in ) financing
activities 8,978 (1,205) (1,267)
-----------------------------------------------------
EFFECT OF EXCHANGE RATE ON CASH (301) (334) (847)
-----------------------------------------------------
NET INCREASE (DECREASE) IN CASH 8,043 (915) 530
CASH AT BEGINNING OF PERIOD 1,255 9,298 8,383
-----------------------------------------------------
CASH AT END OF PERIOD $9,298 $8,383 $8,913
=====================================================
The accompanying notes are an integral part of these consolidated financial
statements.
-31-
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
AND COMPREHENSIVE INCOME (LOSS)
For the years ended January 2, 1999, January 1, 2000 and December 30, 2000
(In thousands, except share amounts)
ACCUMULATED
CAPITAL OTHER TOTAL
COMMON COMMON IN EXCESS RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS' COMPREHENSIVE
SHARES STOCK OF PAR EARNINGS ITEMS STOCK EQUITY(DEFICIT) INCOME(LOSS)
--------- --------- --------- --------- ----------- --------- ------------ -------------
Balance at December 27, 1997 148,371 $1 $10,553 $11,859 ($798) 0 $21,615 $4,384
=============
Issuance of Common Stock 42,144 1 18,832 - - - 18,833 -
Net Income - - - 837 - - 837 $837
Foreign Currency
Translation Adjustment - - - - (109) - (109) (109)
Stock Redemption (112,777) (1) (53,790) - - - (53,791) -
Acquisition of
Treasury Stock (334) - - - - (65) (65) -
--------- --------- --------- --------- ----------- --------- ------------ -------------
Balance at January 2, 1999 77,404 1 (24,405) 12,696 (907) (65) (12,680) $728
=============
Net Income - - - 1,434 - - 1,434 $1,434
Foreign Currency
Translation Adjustment - - - - (808) - (808) (808)
Additional minimum
pension liability,
net of $58 tax effects - - - - (135) - (135) (135)
Acquisition of Treasury Stock (44) - - - - (56) (56) -
----------- -------- ---------- --------- ----------- --------- ------------ -------------
Balance at January 1, 2000 77,360 1 (24,405) 14,130 (1,850) (121) (12,245) $491
=============
Net Loss - - - (1,221) - - (1,221) ($1,221)
Foreign Currency
Translation Adjustment - - - - (890) - (890) (890)
Amort. of Stock Compensation - - 18 - - - 18 -
Acquisition of
Treasury Stock (2,093) - - - - (995) (995) -
----------- -------- ---------- -------- ------------ --------- ------------ -------------
Balance at December 30, 2000 75,267 $1 ($24,387) $12,909 ($2,740) ($1,116) ($15,333) ($2,111)
=========== ======== ========== ======== ============ ========= ============ =============
The accompanying notes are an integral part of these consolidated financial
statements.
-32-
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS UNLESS OTHERWISE NOTED)
Simonds Industries Inc. (Simonds or the Company), a Delaware corporation
that manufactures and is a worldwide distributor of industrial cutting
tools. The primary products manufactured by Simonds include metal band and
wood saws, industrial knives and rules, files and band saw equipment.
Simonds' principal manufacturing operations are located in Fitchburg,
Massachusetts; Newcomerstown, Ohio; Big Rapids, Michigan; Corona and Santa
Fe Springs, California; Portland and Springfield, Oregon and Spangenberg,
Germany. Simonds also has sales subsidiaries in the United Kingdom, Canada,
and Spain.
(a) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Simonds Industries Inc. and its subsidiaries. All material
intercompany transactions and balances have been eliminated in
consolidation. Certain amounts in prior year financial statements have
been reclassified to conform to the current year's presentation.
(b) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable and accounts payable
approximate fair value because of their short-term nature. At December
30, 2000, the fair value of long-term indebtedness was approximately
$30,000 lower than the amount on the Company's consolidated balance
sheet based on market quotations. (See Note 5.)
(c) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
(d) FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to December 31.
As a result, the years ended January 2, 1999, January 1, 2000 and
December 30, 2000 include 53, 52, and 52 weeks, respectively.
(e) INVENTORIES
Approximately 57% and 62% of inventories as of January 1, 2000 and
December 30, 2000, respectively, are valued at the lower of cost
(last-in, first-out (LIFO) method) or market. All other inventories are
valued at the lower of cost (first-in, first-out (FIFO) method) or
market. Inventory costs include labor and manufacturing overhead.
Obsolete, damaged and excess inventories are carried at net realizable
value, with consideration given to obsolescence risks for excess stock.
Writedowns are charged to expense in the period in which the conditions
giving rise to writedowns are first recognized. The Company did not
incur material writedowns in any of the periods presented in the
accompanying consolidated financial statements.
-33-
(f) PROPERTY, PLANT AND EQUIPMENT
Depreciation is computed using the straight-line method based on the
following estimated useful lives:
ESTIMATED USEFUL LIVES
Buildings and improvements 20-40 years
Machinery and equipment 3-12 years
Furniture and fixtures 8 years
Maintenance and repairs are expensed as incurred. Depreciation expense
was approximately $3,100, $3,500 and $3,800 for the years ended January
2, 1999, January 1, 2000, and December 30, 2000, respectively.
(g) GOODWILL
Goodwill represents the cost in excess of fair value of the net assets
of companies acquired in purchase transactions. Goodwill is being
amortized on a straight-line method over 40 years. Amortization charged
to operations amounted to $561, $636 and $622 for years ended January
2, 1999, January 1, 2000, and December 30, 2000, respectively. At each
balance sheet date, the Company evaluates the realizability of goodwill
based on expectations of non-discounted cash flows and operating income
for each subsidiary having a material goodwill balance. Based on its
most recent analysis, the Company believes that no material impairment
of goodwill exists at December 30, 2000.
(h) FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries are
translated at year-end rates of exchange, and statement of operations
accounts are translated at weighted average rates of exchange. The
resulting translation adjustments are excluded from net income and are
accumulated as a separate component of shareholders' equity. Foreign
currency transaction gains and losses are included in income or expense
in the period in which the transaction occurs.
Foreign currency transaction losses (gains) included in the
determination of results for the periods ended January 2, 1999, January
1, 2000, and December 30, 2000 were approximately $682, ($197), and
$638, respectively.
(i) SALES RECOGNITION
The Company recognizes sales upon the shipment of its products net of
applicable provisions for discounts and allowances. Estimated future
warranty obligations related to certain products are provided by
charges to operations in the period in which the related revenue is
recognized. The Company did not incur material warranty costs in any of
the periods presented in the accompanying financial statements.
-34-
(j) INCOME TAXES
The Company accounts for its income taxes under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, ACCOUNTING
FOR INCOME TAXES. SFAS No. 109 utilizes the liability method, and
deferred taxes are determined based on the estimated future tax effects
of differences between the financial statement and tax bases of assets
and liabilities at currently enacted tax laws and rates.
(k) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. This statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair
value. The statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 as amended by
SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133,
is effective for fiscal years beginning after June 15, 2000. In June
2000, the FASB issued SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE
INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES, an amendment of FASB
Statement No. 133. The Company does not expect that the adoption of
SFAS No. 133 as amended by SFAS No. 138 will have a material impact on
the Company's financial position or results of operations.
The Securities and Exchange Commission released Staff Accounting
Bulletin (SAB) No. 101 REVENUE RECOGNITION IN FINANCIAL STATEMENTS, on
December 3, 1999. This SAB provides additional guidance on the
accounting for revenue recognition, including both broad conceptual
discussions as well as certain industry-specific guidance. This SAB was
amended by SAB 101B which deferred the effective date of SAB 101 to the
fourth quarter of fiscal 2000 for registrants with fiscal years that
begin between December 16, 1999 and March 15, 2000. The Company has
determined that the adoption of SAB 101 does not have a material impact
on its consolidated financial statements.
In September 2000, the FASB issued SFAS No. 140, ACCOUNTING FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES, a replacement to SFAS No. 125. This statement defines
specific provisions on when liabilities should be derecognized. This
statement is effective for transactions occurring after March 31, 2001.
The Company does not expect that the adoption of this statement will
have a material impact on the Company's financial position or statement
of operations.
The Emerging Issues Task Force (EITF) recently released Issue No.
00-10, ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS. This Issue
provides guidance as to the classification and disclosure of shipping
and handling costs that are billed to customers. As part of the
Company's adoption of SAB No. 101 this was also simultaneously
implemented. In order to present the financial statements on a
comparable basis, sales and cost of sales were increased by $631 and
$629 in 1998 and 1999, respectively.
-35-
(2) ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
On May 8, 1998, the Company acquired 100% of the outstanding stock of W.
Notting Limited ("Notting") for approximately $6,718, of which $5,471 was
paid in cash with additional financing from the Company's revolving credit
facility; the balance was in the form of a term Promissory Note to the
sellers bearing interest at 8.5% and was repaid April 30, 1999. The
acquisition was accounted for as a purchase and the purchase price has been
allocated based on the fair value of the underlying assets and liabilities.
Approximately $1,000 in property, plant and equipment was reclassified to
other assets for buildings held for resale. Buildings are stated at fair
value. Goodwill totaled $2,857 on this acquisition and is being amortized
on a straight-line basis over 40 years.
On October 19, 1999, the Company purchased certain assets, mainly
inventory, machinery, equipment, technical drawings and information,
customer lists and all other assets used by Anderson Products Division of
Wilton Corporation for $1,573. Purchase price in excess of fair value of
assets acquired, $917, is being amortized on a straight-line basis over 40
years.
On May 26, 2000 the Company purchased certain assets, mainly inventory and
equipment, for $483 from Bluebonnet Tool Company, Inc. The Purchase price
in excess of fair value of assets acquired of $193 is being amortized on a
straight-line basis over 40 years.
DIVESTITURES
On August 31, 2000 the Company purchased 100% of the outstanding stock of
Cirtec, Inc. ("Cirtec") for $425, which was paid in cash. The acquisition
was accounted for as a purchase and the purchase price has been allocated
based on the fair value of the underlying assets and liabilities. The
purchase price in excess of fair value of net assets acquired of $337 is
being amortized on a straight-line basis over 40 years. The results of
operations of Cirtec subsequent to the date of acquisition are reflected in
the accompanying financial statements.
On August 31, 2000 the Company sold certain assets, mainly inventory and
equipment, relating to its Rotary Rule business for $1,085 in cash to
National Steel Rule Company ("Buyer"). The selling price in excess of book
value of $785 was recorded as a gain. As part of the sale, the Company
entered into an agreement not to compete with the Buyer in the Rotary Rule
business.
On September 12, 2000 the decision was made to close the Notting facility
in the UK. Accordingly, the Company established a reserve for
reorganization of $1,440. In accordance with EITF 94-3, the reserve is
comprised of approximately $880 relating to the elimination of certain
product lines, $220 to move equipment of other facilities and write off
excess assets, $215 employee related costs, and $125 miscellaneous
reorganization costs. These costs total $365 in cash expenses and $1,075 in
non-cash items. These reorganization costs were all recognized in the third
quarter of 2000 and reflected in the accompanying financial statements. As
of December 30, 2000 approximately $881 of the original reorganization
reserve was remaining. This is comprised of $784 relating to the
elimination of certain product lines, $88 for moving and disposal of
equipment and write-off of excess assets, and $9 miscellaneous costs.
During the third quarter of 2000 the Company sold and disposed of machinery
with a book value of $605 in its Fitchburg facility. The excess of book
value and removal costs over selling price of $648 was recorded as a loss.
-36-
RECAPITALIZATION
In July 1998, the Company issued $100 million of 10-1/4% Senior
Subordinated Notes due 2008 (the "Notes") (see Note 5). Proceeds from
the Notes were primarily used for the repayment of indebtedness, the
acquisition of treasury stock, and the buyout of all outstanding stock
options and warrants. The buyout of stock options resulted in a pre-tax
compensation charge of approximately $4,500 recorded in July 1998,
included in selling, general and administrative expense. The Company
concurrently entered into a Senior Credit Facility with First Union
("Old Credit Facility") with a commercial lender that provided $30
million of availability (see Note 5). All of the foregoing transactions
are herein referred to collectively as the "Recapitalization."
Pursuant to the Recapitalization (i) the Company repurchased certain of
its outstanding equity securities for an aggregate purchase price of
$58.3 million (or $458.52 per share of Common Stock and equivalents),
(ii) the Company issued new shares of voting and non-voting Common
Stock to certain existing stockholders and new investors with aggregate
proceeds to the Company of $18.8 million (or $458.52 per share), (iii)
the Company issued certain warrants and options to certain existing
stockholders and new investors, and (iv) certain of the Company's
existing stockholders retained voting Common Stock with an aggregate
value (based on per share value of $458.52) of approximately $16.2
million.
(3) INVENTORIES
Inventories at January 1, 2000 and December 30, 2000 were as follows (in
thousands):
1999 2000
Raw materials $ 4,967 $ 4,921
Work-in-process 6,429 6,731
Finished goods 15,254 13,217
------------- -------------
Total inventories $ 26,650 $ 24,869
=========== ===========
U.S. inventories of $15,296 and $15,394 at January 1, 2000 and December 30,
2000, respectively, were valued using the LIFO method. Under the first-in
first-out method (FIFO) of accounting, such inventories would have been
approximately $344 and $156 greater at January 1, 2000 and December 30,
2000, respectively.
(4) RETIREMENT PLANS
The Company has a combined defined-contribution profit sharing and 401(k)
retirement plan covering all domestic salaried and certain hourly
employees. Contributions to the profit sharing plan are determined by the
Board of Directors. The cost of this plan was approximately $518, $538 and
$526 for the fiscal years ended January 2, 1999, January 1, 2000, and
December 30, 2000, respectively. In the 401(k) portion of the plan, the
Company matches at a rate of 50% on the first 6% of an employee's salary
contribution. Company 401(k) matching contributions amounted to
approximately $400, $409 and $413 for the fiscal years ended January 2,
1999, January 1, 2000 and December 30, 2000, respectively.
Certain executives participate in a non-qualified deferred compensation
retirement plan. This was established for certain key employees as
determined by the board of directors and allows for salary deferral of 1%
to 15% of the employee's salary.
-37-
Notting also has a defined contribution 401(k) retirement plan in effect
during 1999. In this plan the Company matches 100% for the first 4% of an
employee's salary contribution. The Company's 401(k) matching contributions
amounted to approximately $26, for the year ended January 1, 2000. This
plan was merged into Simonds Pension Plan in 2000.
Certain of the Company's hourly employees participate in a union-sponsored,
multiemployer defined-contribution retirement plan. The cost of this plan
was approximately $418, $400 and $487 for the fiscal years ended January 2,
1999, January 1, 2000 and December 30, 2000, respectively. Contributions
are based on wages earned and are paid monthly to the pension
administrator.
All other domestic hourly employees are covered by a defined-contribution
plan. Contributions are based on a union contract as a percentage of wages
earned and are paid annually. The cost of this plan was approximately $154,
$140 and $151 for the fiscal years ended January 2, 1999, January 1, 2000
and December 30, 2000, respectively.
Certain foreign employees are covered under defined-contribution plans.
Total costs for these plans amounted to approximately $120, $106 and $101,
for the fiscal years January 2, 1999, January 1, 2000 and December 30,
2000, respectively.
Certain employees of one of Simonds' subsidiaries, Wespa Metallsagenfabrik
Simonds Industries Gmbh ("Wespa"), are covered by an unfunded pension plan.
In addition, certain employees of Notting are also covered by a defined
benefit plan. In conjunction with the reorganization of the Notting
facility in the UK the Company decided to curtail the W. Notting Limited
Retirement Benefits Plan effective as of September 30, 2000. The
curtailment resulted in a reduction in the plan's projected benefit
obligation, but the curtailment gain was significantly less than the
unrecognized net actuarial loss reflected in the funded status below, and,
thus, the unrecognized actuarial loss is materially unaffected as a result
of the curtailment.
The amount of accrued pension liability is included in the accompanying
consolidated balance sheets in accrued payroll and employee benefits and
other noncurrent liabilities. The following table sets forth the funded
status and the amount recognized for the defined benefit plans of the
foreign subsidiaries Wespa and Notting in the Company's accompanying
consolidated balance sheets at January 1, 2000, and December 30, 2000 (in
whole dollars):
-38-
1999 2000
---------------- ----------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $4,009 $3,410
Service Cost 121 54
Interest Cost 206 184
Actuarial loss (237) (169)
Effect of the change in foreign currency
exchange rates (174) (278)
Benefits paid (515) (68)
---------------- ----------------
Benefit obligation at end of year 3,410 3,133
---------------- ----------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 1,910 1,581
Actual return on plan assets 140 89
Plan participants' contribution 17 11
Effect of the change in foreign currency
exchange rates (51) (121)
Benefits Paid (435) -
---------------- ----------------
Fair value of plan assets at end of year 1,581 1,560
---------------- ----------------
Funded Status 1,829 1,573
Unrecognized net actuarial gain (loss) (243) (18)
---------------- ----------------
Accrued benefit cost $1,586 $1,555
================ ================
Amounts recognized in the accompanying balance sheets consists of:
1999 2000
---- ----
Accrued benefit cost $1,586 $1,555
Additional minimum pension liability 193 193
------- -------
Accrued benefits liability $1,779 $1,748
======= =======
The following table breaks out the components of net pension expense for
the years ending January 2, 1999, January 1, 2000, and December 30, 2000:
1998 1999 2000
------ ------ ------
Service Cost $71 $103 $53
Interest Cost 166 114 184
Expected return on plan assets (85) (139) (86)
Actuarial (gain) loss (5) 32 -
Members contributions (11) (17) (11)
------ ------ ------
Net periodic benefit cost $136 $93 $140
====== ====== ======
-39-
The primary assumptions used in determining related obligations of the
plans are shown below:
1998 1999 2000
---- ---- ----
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate 5.0-6.5% 5.0-6.5% 5.5-6.5%
Expected return on plan assets 6.5% 6.5% 6.5%
Rate of compensation increase 4.0-6.5% 4.0-6.5% 4.5-6.5%
-40-
(5) DEBT
Debt consists of the following at January 1, 2000 and December 30, 2000 (in
thousands):
January 1, December 30,
2000 2000
----------------- -----------------
Line of credit facility for German Subsidiary with First Union $2,523 $2,409
National Bank up to approximately $2,650, interest payable
quarterly at EURIBOR (4.86% at December 30, 2000) plus 1.25%
terminating on March 28, 2001 payable in Deutschmarks.
Line of credit facilities for Notting with Banco Sabadell and 135 206
Banco Popular of Spain, bearing interest at 6.75% and 7.85% and
terminating on April 15, 2001 and May 17, 2001, respectively,
payable in Spanish Pesetas.
Two term loans payable by Notting to National Westminster Bank on 200 215
September 30, 2000 and June 30, 2001, bearing interest at 9.5 %
and 8.75%, payable in British Pounds.
Senior Subordinated Notes issued July 8, 1998, and maturing July 100,000 100,000
1, 2008, interest payable semi-annually at 10.25%.
----------------- -----------------
102,858 102,830
Less-current maturities 335 2,830
----------------- -----------------
$102,523 $100,000
================= =================
The Senior Subordinated Notes ("Notes") may be redeemed on or after
July 1, 2003 at specified premium prices. Proceeds from the Notes were
primarily used for the repayment of approximately $53.1 million of
indebtedness, the acquisition of treasury stock, and the buyout of all
outstanding stock options and warrants.
The repayment of the indebtedness resulted in an extraordinary charge
of approximately $529, net of tax benefit, recorded in July 1998 to
write off unamortized debt discount and deferred financing costs.
Financing costs relating to the issuance of the Notes was $4,190 and is
being amortized over the term of the debt.
The indenture governing the Notes restricts, among other things, the
incurrence of certain kinds of additional indebtedness, the payment of
dividends and the making of certain other restricted payments, mergers,
consolidations and sale of assets (all as defined in the Indenture).
-41-
Upon the occurrence of a Change of Control (as defined in the
Indenture), each holder of Notes will have the right to require the
Company to repurchase all or a portion of such holder's Notes at a
price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest, if any, to the date of repurchase.
However, the Company's ability to repurchase the Notes upon a Change of
Control may be limited by the terms of then existing contractual
obligations of the Company and its subsidiaries. In addition, the
occurrence of a Change of Control will constitute an event of default
under the New Senior Credit Facility, as described below. The New
Senior Credit Facility will prohibit the purchase of the Notes unless
and until such time as the indebtedness under the New Senior Credit
Facility is paid in full. There can be no assurance that the Company
will have the financial resources to repay amounts due under the New
Senior Credit Facility, or to repurchase or redeem the Notes. If the
Company fails to repurchase all of the Notes tendered for purchase upon
the occurrence of a Change of Control, such failure will constitute an
Event of Default under the Indenture.
Until December 29, 2000 the Company had a Credit Facility ("Old Credit
Facility") with a commercial lender that provided $30,000 availability.
On December 29, 2000 the then existing Old Credit Facility was replaced
with a New Senior Credit Facility. The New Senior Credit Facility
provides for $40,000 of availability and was unused as of year-end.
Borrowings under the New Senior Credit Facility are available for
permitted acquisitions and working capital, including letters of
credit.
As a result of obtaining the New Senior Credit Facility an
extraordinary charge of approximately $136, net of tax benefit, was
recorded in December 2000 to reflect the write off of unamortized
deferred financing costs.
The New Senior Credit Facility is secured by first priority liens on
all tangible and intangible personal property and real property assets
of the Company and its subsidiaries.
The New Senior Credit Facility expires on December 29, 2003, unless
extended. The interest rate per annum applicable to the New Senior
Credit Facility is, at the Company's option, either LIBOR plus 2.7%
(the "Margin") or prime rate or the overnight federal funds rate. The
Company is required to pay certain fees in connection with the New
Senior Credit Facility.
Under the New Senior Credit Facility the Company is required to comply
with certain covenants. At December 30, 2000 the Company was required
to maintain a ratio of Debt to Worth where indebtedness is required to
be less than 1.0 times the amount of its tangible capital base, capital
expenditures during any fiscal year is to be less than $5,000, and cash
flow coverage requires that the ratio of cash flow to fixed charges to
be greater than 1.10 to 1.0 for all fiscal quarters during 2001 and
1.20 to 1.0 thereafter. At December 30, 2000 the Company was in
compliance with all covenants under the New Senior Credit Facility.
At December 30, 2000 the Company still had the German credit facility
with First Union for our German operations. However, the Company was
not in compliance with all covenants pertaining to that First Union
German Credit Facility. At year-end the Company was out of compliance
on the Fixed Charge Coverage Ratio and Leverage Ratio. As a result, the
Company secured a standby letter of credit on January 2, 2001 in the
amount of $2,700 to satisfy requirements. The Company's available
borrowing amount of the New Senior Credit Facility is reduced by the
face amount of all outstanding letters of credit.
-42-
The following is a summary of maturities of all of the Company's debt
obligations due after December 30, 2000 (in thousands):
FISCAL YEAR AMOUNT
2001 $ 2,830
2002 -
2003 -
2004 -
2005 -
Thereafter 100,000
---------------
$ 102,830
===============
(6) COMMITMENTS AND CONTINGENCIES
(A) COMMITMENTS UNDER OPERATING LEASES
Certain of the Company's operations are conducted from facilities
rented under operating leases that expire over the next 10 years. The
Company also has operating leases covering certain office equipment.
Substantially all leases provide for the Company to pay operating
expenses in addition to basic rent. Rent expense was approximately
$916, $1,016 and $1,192 for the fiscal years ended January 2, 1999,
January 1, 2000 and December 30, 2000, respectively.
Future minimum annual rentals on non-cancelable leases in effect at
January 1, 2000, which have initial or remaining terms of more than one
year, are as follows:
FISCAL YEAR AMOUNT
2001 $ 674
2002 656
2003 464
2004 461
2005 397
Thereafter 342
----------
$ 2,994
==========
(B) LITIGATION AND ENVIRONMENTAL MATTERS
The Company is party to a lawsuit that was litigated in China involving
a Chinese joint venture, established by the Company's predecessor.
Company management believes the lawsuit to be without merit. In
addition, the Company is a party to other lawsuits that arose in the
normal course of business. In the opinion of management, the final
resolutions of these lawsuits are not expected to materially affect the
financial condition or results of operations of the Company.
-43-
In 1992, the Company's property in Ashburnham, Massachusetts was
identified as having groundwater contamination. The Company has been
indemnified from such liability by prior owners. In 1999, $2.0 million
was disbursed from escrow for remediation of contamination; $1.0
million was spent and there is $1.0 million recorded in other accrued
liabilities for existing remediation contracts entered into in 1999. In
2000 payments for remediation totaled $.9 million. Subsequent to
year-end an additional $.2 million was disbursed from escrow for
present and future liabilities. This was determined to be the final
liability for which the escrow was established. The balance of the
escrow account was distributed to prior owners. As of the end of
February there is $.2 million remaining from the disbursements, which
management believes will be sufficient to cover the upcoming
environmental liabilities, although there can be no assurance that such
amounts will be sufficient.
A release of No. 2 fuel oil into the Nashua River at the Fitchburg, MA
facility was reported to the Massachusetts Department of Environmental
Protection in December of 2000. Remediation is underway and will take
approximately three years at an estimated total cost of approximately
$400, which was recorded in the current liability section on the
accompanying balance sheet.
(C) EMPLOYMENT CONTRACTS
The Company also has employment agreements with key executive
management. The agreements with the President/Chief Executive Officer
and the Chief Financial Officer provide for twelve months' severance on
termination by the Company at any time without cause and termination by
the employee upon at least thirty (30) days' prior written notice. No
severance is provided if the Company terminates for cause or if the
employee terminates voluntarily. In addition, the Company has
employment agreements with all vice presidents, providing for at least
twelve months' written notice prior to termination by the Company
without cause (thirty days with cause) and ninety (90) days' prior
written notice by the employee.
(7) INCOME TAXES
Components of income before income taxes are as follows (in thousands):
YEAR YEAR YEAR
ENDED ENDED ENDED
JANUARY 2, JANUARY 1, DECEMBER 30,
1999 2000 2000
Domestic $ 852 $ 566 $ 382
Foreign 1,469 2,086 (844)
----------- ----------- ------------
Total $ 2,321 $ 2,652 $ (462)
=========== =========== ============
-44-
The provision for income taxes consists of the following components for
the periods ended (in thousands):
YEAR ENDED
JANUARY 2, 1999
---------------
CURRENT DEFERRED TOTAL
Domestic-
Federal $ 154 $ 186 $ 340
State 80 14 94
Foreign 472 49 521
----------- ----------- -----------
Total $ 706 $ 249 $ 955
=========== =========== ===========
YEAR ENDED
JANUARY 1, 2000
---------------
CURRENT DEFERRED TOTAL
Domestic-
Federal $ (345) $ 677 $ 332
State (141) 220 79
Foreign 643 164 807
----------- ----------- -----------
Total $ 157 $ 1,061 $ 1,218
=========== =========== ===========
YEAR ENDED
DECEMBER 30, 2000
-----------------
CURRENT DEFERRED TOTAL
Domestic-
Federal $ 223 $ 74 $ 297
State (11) 64 53
Foreign 809 (536) 273
----------- ------------ -----------
Total $ 1,021 $ (398) $ 623
=========== ============ ===========
-45-
An income tax rate reconciliation of the difference between actual and statutory
effective tax rates is as follows (in thousands):
YEAR YEAR YEAR
ENDED ENDED ENDED
JANUARY 2, JANUARY 1, DECEMBER 30,
1999 2000 2000
Provision (benefit) for
income taxes at the
federal statutory rate $ 789 $ 902 $ (157)
State taxes, net of
federal
tax effect 62 52 34
Goodwill amortization
not deductible
for tax purposes 141 174 162
Foreign losses not
benefited 0 0 415
Foreign taxes 6 56 121
Other, net (43) 34 48
------------ ----------- -----------
Recorded provision $ 955 $ 1,218 $ 623
=========== =========== ===========
Deferred taxes are recorded based on the differences between the financial
statement and tax bases of assets and liabilities. The tax effect of the
temporary differences that give rise to a significant portion of deferred tax
liabilities is as follows at January 1, 2000 and December 30, 2000 (in
thousands):
1999 2000
Tax assets-
Net operating losses $ (260) $ (1,185)
Reserves and accruals not
yet deductible for tax
purposes (890) (788)
Valuation allowance 260 675
---------- -----------
Net deferred tax assets (890) (1,298)
Tax liabilities-
Property-basis differences 4,802 4,867
Inventory-basis differences 2,143 1,876
Other current assets-basis differences 907 971
Other (126) 22
---------- -----------
Total tax liabilities 7,726 7,736
----------- -----------
Net tax liabilities $ 6,836 $ 6,438
=========== ===========
Net deferred tax liabilities are included in the accompanying consolidated
balance sheets in deferred income taxes and currently deferred income taxes. The
valuation allowance has been provided for certain
-46-
foreign net operating loss carryforwards as it is more likely than not that the
related deferred tax asset for these carryforwards will not be realizable.
(8) STOCK OPTION PLANS
On July 25, 1995, the Board of Directors of the Company approved the
Stock Incentive Plan (the "Plan") for key executives, management and
employees. The Company has reserved 9,568 shares of the Company's common
stock for issuance under the Plan. All stock options were exercised in
July 1998 in conjunction with the issuance of the Notes. The buyout of
stock options resulted in a pretax compensation charge of approximately
$4,500 recorded in July 1998.
In July 1998, the Company adopted the Amended and Restated 1998 Stock
Incentive Plan pursuant to which key employees (including officers who
are also directors of the Company) will be eligible for discretionary
awards of stock options at the discretion of the Board of Directors. The
terms and prices of options will be at the discretion of the Board. Key
officers were granted options in July 1998 to purchase 573.58 shares of
Common Stock at a price of $458.52 per share. Additional options were
granted under this Plan to purchase 8,735 shares in 1999 and 1,300 shares
in 2000.
Stock option activity for the period December 27, 1997 through December
30, 2000 is summarized below:
TOTAL SHARES WEIGHTED RANGE OF FAIR
AVERAGE VALUE OF OPTIONS
EXERCISE GRANTED
PRICE
Outstanding, December 27, 1997 36,904.19 $333.52
Granted 573.58 458.52 $ 109.37
Canceled (200.00) 100.00
Purchased (36,704.19) 334.79
----------- ------
Outstanding, January 2, 1999 573.58 $458.52
Granted 8,735.00 462.84 $ 97.50 - $131.92
Canceled (497.45) 463.38
----------- ------
Outstanding, January 1, 2000 8,811.13 $462.53
Granted 1,300.00 $458.52 $110.75 - $117.74
Canceled (100.00) $467.32
-------- -------
Outstanding, December 30, 2000 10,011.13 $461.96
Options exercisable 4,732.80 $463.37
======== ========
-47-
The Company has elected to account for its stock-based compensation plans
under APB Opinion 25, as permitted by the Statement of Financial
Accounting Standard No. 123 ACCOUNTING FOR STOCK BASED COMPENSATION. No
accounting recognition is given to stock options with exercise prices
equal to fair value on the grant date until the options are exercised, at
which time the proceeds are credited to the shareholders' equity
accounts. For options with an exercise price less than fair value on the
grant date, the amount that the fair value exceeds the exercise price is
charged to compensation expense over the period the options vest. Had
compensation cost for these plans been determined consistent with SFAS
No. 123, the Company's net income (loss) would have been $63, $335 and
$363 lower in the years ended January 2, 1999, January 1, 2000 and
December 30, 2000, respectively.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following
assumptions used:
1998 1999 2000
-----------------------------------
Risk-free interest rate 5.45% 4.68-6.09% 6.17-6.59%
Expected life 5 years 5 years 5 years
Expected volatility 0% 0% 0%
Expected dividend yield 0% 0% 0%
In addition, in July 1998 the Company issued warrants to certain
non-employee shareholders to purchase an aggregate of 4,377.81 shares of
common stock at a price of $458.52 per share. Warrants for 2,180.93
shares were exercisable immediately. Warrants for 2,196.88 shares are
exercisable only if the Company is either sold or closes an initial
public offering of its common stock, and the warrant holders do not
receive certain minimum returns on their investment in the Company's
common stock.
(9) SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash payments for interest and income taxes and certain noncash
transactions were as follows for the following periods (in thousands):
YEAR YEAR YEAR
ENDED ENDED ENDED
JANUARY 2, JANUARY 1, DECEMBER 30,
1999 2000 2000
---- ---- ----
Interest paid $ 3,393 $ 10,456 $ 10,574
Income taxes paid (refunded) 2,310 828 (5)
Liabilities assumed in acquisitions 5,273 - -
-48-
(10) OPERATING AND GEOGRAPHIC SEGMENT INFORMATION AND CONCENTRATION OF
CREDIT RISK
The Company has identified its reportable operating business segment as
industrial cutting tools and related machinery, based on how the business is
strategically managed.
The Company's cutting tool business segment consists of metal (51% of 2000 net
sales), wood (41%), and paper (8%) cutting products. The cutting tool business
segment is managed as a single strategic unit which derives its revenues
primarily from sales to privately owned distributors throughout the world.
No single customer accounts for 10% or more of consolidated net sales. Foreign
net sales are attributed based on the location of the Company's subsidiary
responsible for the sale. The following information by geographic area is
presented for 1998, 1999 and 2000.
For the year ended January 2, 1999 (in thousands):
Net Sales to
Unaffiliated Long-Lived
Customers Assets
----------------- -----------------
Geographic areas:
Domestic Operations $ 85,720 $ 27,435
Canadian Operations 16,038 629
German Operations 14,789 3,960
UK & Spanish Operations 10,380 2,361
----------------- -----------------
Consolidated Totals 126,927 34,385
For the year ended January 1, 2000 (in thousands):
Net Sales to
Unaffiliated Long-Lived
Customers Assets
----------------- -----------------
Geographic areas:
Domestic Operations $ 86,871 $ 28,698
Canadian Operations 16,891 661
German Operations 13,316 3,240
UK & Spanish Operations 11,047 1,240
----------------- -----------------
Consolidated Totals 128,125 33,839
For the year ended December 30, 2000 (in thousands):
Net Sales to
Unaffiliated Long-Lived
Customers Assets
----------------- -----------------
Geographic areas:
Domestic Operations $ 86,177 $ 29,597
Canadian Operations 17,001 239
German Operations 13,256 2,847
UK & Spanish Operations 10,110 472
----------------- -----------------
-49-
Consolidated Totals 126,544 33,155
(11) SELECTED CONSOLIDATING FINANCIAL STATEMENTS OF PARENT, GUARANTORS, AND
NON-GUARANTORS
The Company's wholly-owned domestic subsidiaries guarantee, on a senior
subordinated basis, the Notes, jointly and severally. The guarantor subsidiaries
data below includes combining financial statements of Armstrong and Simonds
Holding Company. The non-guarantor subsidiaries' data below includes combining
financial statements of Wespa (German Operations), Simonds Industries Ltd. and
Simonds UK Holding Ltd. (UK Operations), and Simonds Industries Inc. (Canadian
Operations). Separate financial statements of the guarantor subsidiaries have
not been presented because management believes that such financial statements
are not material to investors. In addition, the Senior Credit Facility is
guaranteed on a full and unconditional basis by all guarantors. The following
data summarizes the consolidating results of the Company on the equity method of
accounting for the following periods presented:
SIMONDS INDUSTRIES INC.
CONSOLIDATING BALANCE SHEET
(In Thousands)
AS OF JANUARY 1, 2000
---------------------------------------------------------------------------
PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ------------- ---------------------------------------------
ASSETS
CURRENT ASSETS:
Cash....................... $7,159 $340 $884 - $8,383
Accounts receivable........ 8,245 1,228 7,927 - 17,400
Intercompany accounts
receivable................ 1,563 1,271 1,215 (4,049) -
Inventories:
Raw materials............ 2,999 183 1,785 - 4,967
Work in progress......... 5,300 259 870 - 6,429
Finished goods........... 5,926 629 8,984 (285) 15,254
Other current assets....... 3,524 79 596 - 4,199
------------ ------------- ------------- -------------- -------------
Total current assets.. 34,716 3,989 22,261 (4,334) 56,632
------------ ------------- ------------- -------------- -------------
Net property, plant and
equipment..................... 24,515 3,035 6,289 - 33,839
OTHER ASSETS:
Investment in subsidiaries. 43,638 5,939 - (49,577) -
Intercompany loan
receivable................ - 25,420 - (25,420) -
Other assets............... 19,288 3,843 4,685 - 27,816
------------ ------------- ------------- -------------- -------------
Total assets.......... $122,157 $42,226 $33,235 $(79,331) $118,287
============ ============= ============= ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES............ $15,275 $1,075 $8,922 $(3,922) $21,350
LONG-TERM DEBT, net of current
portion...................... 100,000 - 2,523 - 102,523
INTERDIVISION LONG-TERM DEBT... 15,145 - 10,275 (25,420) -
OTHER NONCURRENT
LIABILITIES.................. 3,982 638 2,039 - 6,659
SHAREHOLDERS' EQUITY (DEFICIT) (12,245) 40,513 9,476 (49,989) (12,245)
------------ ------------- ------------- -------------- -------------
Total liabilities and
shareholders' equity....... $122,157 $42,226 $33,235 $(79,331) $118,287
============ ============= ============= ============== =============
-50-
SIMONDS INDUSTRIES INC.
CONSOLIDATING BALANCE SHEET
(In Thousands)
AS OF DECEMBER 30, 2000
----------------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------------- ------------- ---------------------------------------------
ASSETS
CURRENTS ASSETS:
Cash............................... $7,397 $276 $1,240 - $8,913
Accounts receivable................ 8,996 572 7,380 - 16,948
Intercompany accounts receivable... 3,478 2,162 4,219 (9,859) -
Inventories:
Raw Materials................... 3,295 43 1,583 - 4,921
Work in progress................ 5,376 436 919 - 6,731
Finished goods.................. 5,888 554 6,965 (190) 13,217
Other current assets.............. 3,909 81 401 - 4,391
------------- ------------- ------------- -------------- --------------
Total current assets.......... 38,339 4,124 22,707 (10,049) 55,121
------------- ------------- ------------- -------------- --------------
Net property, plant and equipment..... 24,600 2,745 5,810 - 33,155
OTHER ASSETS:
Investment in subsidiaries........ 40,428 4,860 - (45,288) -
Intercompany loan receivable...... - 24,097 434 (24,531) -
Other assets...................... 19,116 3,656 4,406 - 27,178
------------- ------------- ------------- -------------- --------------
Total assets.................. $122,483 $39,482 $33,357 $(79,868) $115,454
============= ============= ============= ============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES................... $19,004 $709 $14,730 $(10,813) $23,630
LONG-TERM DEBT, net of current
portion........................... 100,000 - - - 100,000
INTERDIVISION LONG-TERM
DEBT.............................. 15,145 434 8,952 (24,531) -
OTHER NONCURRENT
LIABILITIES....................... 3,667 638 1,890 962 7,157
SHAREHOLDERS' EQUITY (DEFICIT) (15,333) 37,701 7,785 (45,486) (15,333)
------------- ------------- ------------- -------------- --------------
Total liabilities and
shareholders' equity (deficit)... $122,483 $39,482 $33,357 $(79,868) $115,454
============= ============= ============= ============== ==============
-51-
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
(In Thousands)
TWELVE MONTHS ENDED JANUARY 2, 1999
--------------------------------------------------------------------
Parent Guarantors Non-guarantors Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $89,019 $9,532 $43,662 ($15,286) $126,927
Cost of goods sold 61,854 6,361 34,410 (15,244) 87,381
------------ ------------ ------------ ------------ ------------
Gross profit 27,165 3,171 9,252 (42) 39,546
Selling, general and administrative expense 18,667 2,504 7,600 - 28,771
------------ ------------ ------------ ------------ ------------
Operating income 8,498 667 1,652 (42) 10,775
Other expenses (income):
Interest expense 9,184 470 1,084 (2,699) 8,039
Interest income (120) (2,426) (292) 2,699 (139)
Other, net 636 126 (208) - 554
Equity in earnings of subsidiaries (2,176) (657) - 2,833 -
------------ ------------ ------------ ------------ ------------
Income before income taxes 974 3,154 1,068 (2,875) 2,321
Provision (benefit) for income taxes (392) 936 411 - 955
------------ ------------ ------------ ------------ ------------
Income before
extraordinary item 1,366 2,218 657 (2,875) 1,366
Extraordinary item-
Write-off of deferred financing cost related
to refinanced indebtedness, net of tax
benefit of $374 (529) - - - (529)
------------ ------------ ------------ ------------ ------------
Net income $837 $2,218 $657 ($2,875) $837
============ ============ ============ ============ ============
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
TWELVE MONTHS ENDED JANUARY 1, 2000
--------------------------------------------------------------------
Parent Guarantors Non-guarantors Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $85,559 $10,746 $44,965 ($13,145) $128,125
Cost of goods sold 60,838 6,834 34,555 (13,206) 89,021
------------ ------------ ------------ ------------ ------------
Gross profit 24,721 3,912 10,410 61 39,104
Selling, general and administrative expense 15,123 2,686 7,944 - 25,753
------------ ------------ ------------ ------------ ------------
Operating income 9,598 1,226 2,466 61 13,351
Other expenses (income):
Interest expense 12,271 432 1,349 (2,949) 11,103
Interest income (139) (2,695) (270) 2,949 (155)
Other, net (332) 145 (62) - (249)
Equity in earnings of subsidiaries (2,980) (871) - 3,851 -
------------ ------------ ------------ ------------ ------------
Income before income taxes 778 4,215 1,449 (3,790) 2,652
Provision (benefit) for income taxes (656) 1,296 578 - 1,218
------------ ------------ ------------ ------------ ------------
Net income $1,434 $2,919 $871 ($3,790) $1,434
============ ============ ============ ============ ============
-52-
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
(In Thousands)
TWELVE MONTHS ENDED DECEMBER 30, 2000
--------------------------------------------------------------------
Parent Guarantors Non-guarantors Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $87,849 $9,115 $44,838 ($15,258) $126,544
Cost of goods sold 62,007 5,928 37,245 (15,353) 89,827
------------ ------------ ------------ ------------ ------------
Gross profit 25,842 3,187 7,593 95 36,717
Selling, general and administrative expense 15,173 2,314 7,691 - 25,178
------------ ------------ ------------ ------------ ------------
Operating income (loss) 10,669 873 (98) 95 11,539
Other expenses (income):
Interest expense 12,467 390 1,504 (3,264) 11,097
Interest income (242) (2,988) (297) 3,264 (263)
Other, net 582 273 312 - 1,167
Equity in earnings of subsidiaries (379) 1,644 - (1,265) -
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (1,759) 1,554 (1,617) 1,360 (462)
Provision (benefit) for income taxes (674) 1,270 27 - 623
------------ ------------ ------------ ------------ ------------
Income (loss) before
extraordinary item (1,085) 284 (1,644) 1,360 (1,085)
Extraordinary item-
Write-off of deferred financing cost related
to refinanced indebtedness, net of tax
benefit of $61 (136) - - - (136)
------------ ------------ ------------ ------------ ------------
Net income (loss) ($1,221) $284 ($1,644) $1,360 ($1,221)
============ ============ ============ ============ ============
-53-
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
TWELVE MONTHS ENDED JANUARY 2, 1999
--------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
------------ ----------- ------------ ------------ ------------
Net cash provided by operating
activities: $3,726 $1,569 $2,622 $1,196 $9,113
Cash flows from investing activities:
Proceeds from asset sales 4 - 68 - 72
Purchase of equipment (3,899) (168) (281) - (4,348)
Acquisitions (5,471) (5,471) (5,471) 10,942 (5,471)
------------ ----------- ------------ ------------ ------------
Net cash (used in) investing activities (9,366) (5,639) (5,684) 10,942 (9,747)
Cash flows from financing activities:
Change in overdraft (246) - 146 - (100)
Net proceeds from revolving credit facility 7,065 - (3,276) - 3,789
Proceeds from issuance of long-term
debt - net of issuance cost 95,420 - 2,643 - 98,063
Principal payments of long-term debt (56,684) - (1,067) - (57,751)
Inter company loans - (641) 6,112 (5,471) -
Issuance of common stock 18,833 6,722 - (6,722) 18,833
Purchase of treasury stock (65) - - - (65)
Stock Redemption (53,791) - - - (53,791)
Dividends (paid) received 3,685 (1,990) (1,695) - -
------------ ----------- ------------ ------------ ------------
Net cash provided by financing activities 14,217 4,091 2,863 (12,193) 8,978
Effect of Foreign Exchange - - (356) 55 (301)
------------ ----------- ------------ ------------ ------------
Increase (decrease) in cash 8,577 21 (555) - 8,043
Cash at beginning of the period 25 188 1,042 - 1,255
------------ ----------- ------------ ------------ ------------
Cash at end of the period $8,602 $209 $487 - $9,298
============ =========== ============ ============ ============
-54-
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
Twelve months ended January 1, 2000
--------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
------------ ----------- ------------ ------------ ------------
Net cash provided by operating
activities: $1,317 $2,381 $246 $2,564 $6,508
Cash flows from investing activities:
Proceeds from asset sales 30 - 23 - 53
Purchase of equipment (2,724) (777) (863) - (4,364)
Acquisitions (1,573) - - - (1,573)
------------ ----------- ------------ ------------ ------------
Net cash (used in) investing activities (4,267) (777) (840) - (5,884)
Cash flows from financing activities:
Change in overdraft - - 41 - 41
Net (uses) from revolving credit facility - - (1,292) - (1,292)
Proceeds from issuance of long-term
debt-net of issuance cost - - 161 - 161
Principal payments of long-term debt - - (21) - (21)
Intercompany loans - (2,257) 2,257 - -
Issuance of common stock - 2,385 2 (2,387) -
Purchase of treasury stock (56) - - - (56)
Stock Redemption - - - - -
Dividends (paid) received 1,601 (1,601) - -
Other (38) - - - (38)
------------ ----------- ------------ ------------ ------------
Net cash (used in) provided by
financing activities 1,507 (1,473) 1,148 (2,387) (1,205)
Effect of Foreign Exchange - - (157) (177) (334)
------------ ----------- ------------ ------------ ------------
Increase (decrease) in cash (1,443) 131 397 - (915)
Cash at beginning of the period 8,602 209 487 - 9,298
------------ ----------- ------------ ------------ ------------
Cash at end of the period $7,159 $340 $884 - $8,383
============ =========== ============ ============ ============
-55-
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
TWELVE MONTHS ENDED DECEMBER 30, 2000
-------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
----------- ----------- ------------ ------------ ------------
Net cash provided by operating
activities: $1,885 $1,344 $2,232 $636 $6,097
Cash flows from investing activities:
Proceeds from asset sales 891 13 636 - 1,540
Purchase of equipment (3,430) (84) (571) - (4,085)
Acquisitions (908) - - - (908)
----------- ----------- ------------ ------------ ------------
Net cash (used in) investing activities (3,447) (71) 65 - (3,453)
Cash flows from financing activities:
Change in overdraft - - (62) - (62)
Net proceeds from revolving credit facility - - 100 - 100
Principal payments of long-term debt - - (128) - (128)
Intercompany loans - 1,757 (1,324) (433) -
Issuance of common stock - 278 131 (409) -
Purchase of treasury stock (995) - - - (995)
Dividends (paid) received 2,951 (2,951) - - -
Other (182) - - - (182)
----------- ----------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities 1,774 (916) (1,283) (842) (1,267)
Effect of Foreign Exchange 26 (421) (658) 206 (847)
----------- ----------- ------------ ------------ ------------
Increase (decrease) in cash 238 (64) 356 - 530
Cash at beginning of the period 7,159 340 884 - 8,383
----------- ----------- ------------ ------------ ------------
Cash at end of the period $7,397 $276 $1,240 - $8,913
=========== =========== ============ ============ ============
(12) FOREIGN EXCHANGE CONTRACTS
In order to reduce the impact of changes in foreign exchange rates on
consolidated results of operations and future cash flows, the Company enters
into foreign currency forward contracts with a major bank from time to time. The
majority of these contracts relate to intercompany accounts receivable, with
specified minimum amounts of foreign currency to be sold on a monthly basis
during the calendar year. A portion of the contracts entered into in 1999 did
not qualify for hedge accounting and were marked to market at the end of each
accounting period.
-56-
(13) SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summarizes unaudited quarterly financial data for the years
ended January 1, 2000, and December 30, 2000 (in thousands):
1999
For the Quarters Ended
---------------------------------------------------
April 3 July 3 Oct. 2 Jan. 1, 2000
------- ------ ------ ------------
Net Sales $ 31,581 $ 31,741 $ 32,226 $ 32,577
Gross Profit 9,742 9,930 10,001 9,431
Net Income (loss) 317 410 780 (73)
2000
For the Quarters Ended
---------------------------------------------------
April 1 July 1 Sept. 30 Dec. 30
------- ------ -------- -------
Net Sales $ 32,956 $ 32,382 $ 30,569 $ 30,637
Gross Profit 10,365 10,080 7,996 8,276
Net Income (loss) 514 470 (1,441) (764)
(14) COMMON STOCK
The company has two classes of common stock outstanding: 68,435.10 shares of
voting and 8,968.01 of nonvoting. Other than voting rights, all other terms of
the common stock are the same.
(15) SUBSEQUENT PURCHASE OF ASSETS
On January 3, 2001 the Company agreed to purchase certain assets from Cooper
Tools, Inc. for approximately $4,426. This is comprised of machinery and
equipment valued at $3,400 and inventories valued at $1,026. $1,870 has been
paid to date with and additional $1,530 due April 1, 2001 and $1,026 payable on
December 31, 2001.
(16) SUBSEQUENT EVENT
On March 29, 2001, the New Senior Credit Facility was amended for fiscal year
2001. Under the amended New Senior Credit Facility the Company's cash flow
coverage requires that the ratio of cash flow to fixed charges be greater than
1.0 to 1.0 for all fiscal quarters during 2001.
-57-
SCHEDULE II
SIMONDS INDUSTRIES INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
JANUARY 2, 1999, JANUARY 1, 2000, AND DECEMBER 30, 2000
(IN THOUSANDS)
ADDITIONS CURRENCY
BEGINNING WRITE- FROM TRANSLATION ENDING
BALANCE PROVISIONS OFFS ACQUISITIONS ADJUSTMENTS BALANCE
------------- ------------ ------------- ------------- ---------------- -------------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS, CASH DISCOUNTS AND
CREDIT MEMOS
Year Ended January 2, 1999 (1) $806 $1,155 $(1,089) $126 $(6) $992
Year Ended January 1, 2000 (1) $992 $1,113 $(1,093) $0 $(19) $993
Year Ended December 30, 2000 (1) $993 $1,131 $(1,194) $0 $(21) $909
ACCRUED REORGANIZATION
Year Ended January 2, 1999 $0 $0 $0 $1,100 $0 $1,100
Year Ended January 1, 2000 $1,100 $0 $(370) $0 $0 $730
Year Ended December 30, 2000 $730 $1,440 $(1,289) $0 $0 $881
(1) Write-Offs includes credit memos, cash discounts and write-offs.
-58-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders and Board of Directors of Simonds Industries Inc.:
We have audited the accompanying consolidated balance sheets of Simonds
Industries Inc. (a Delaware corporation) and subsidiaries listed in Item 14 (a)
of this Form 10-K as of December 30, 2000 and January 1, 2000, and the related
statements of operations, shareholders' equity (deficit) and comprehensive
income (loss) and cash flows for each of the three years in the period ended
December 30, 2000. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Simonds Industries Inc. and
subsidiaries as of December 30, 2000 and January 1, 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 30, 2000 in conformity with accounting principles generally
accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14 (a) is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 28, 2001 (except with respect to
the matter discussed in Note 16, as to
which date is March 29, 2001)
-59-
(b) Reports on Form 8-K.
None
(c) Exhibits
Exhibit
Number Description
- -------- ---------------------------------------------------------------------
2.1 Stockholder Agreement dated as of July 7, 1998 among the Company and
its stockholders*
2.2 Stock Purchase Agreement dated August 1, 1997 among Simonds Holding
Company, Inc., Armstrong Manufacturing Company and Frederic B.
Andrianoff*
2.3 Share Purchase Agreement dated May 7, 1998 among Time Eclipse
Limited, SI Holding Corporation and the shareholders of W. Notting
Limited*
3.1 Amended and Restated Certificate of Incorporation of Simonds*
3.2 By-laws of Simonds*
3.3 Certificate of Incorporation of Armstrong Manufacturing Company*
4.1 Indenture dated as of July 7, 1998 among the Company, the Guarantors
and the Trustee*
4.3 Credit Agreement dated as of July 2, 1998 among the Company, certain
of its Subsidiaries and First Union National Bank*
4.4 Pursuant to Item 601 (b) (4) (iii) of Regulation S-K, the
registrant has not filed herewith any instrument with respect
to long-term debt which does not exceed 10% of the total
assets of the registrant and its subsidiaries on a
consolidated basis. The registrant hereby agrees to furnish a
copy of any such instrument to the Securities and Exchange
Commission upon request.
4.5 Promissory Notes of Simonds UK Holdings Ltd.*
10.1 Employment and Non-Competition Agreement between the Company and
Ross George dated May 26, 1995, as amended July 7, 1998* and
September 30, 1999.
10.2 Employment and Non-Competition Agreement between the Company and
Joseph Sylvia dated May 26, 1995, as amended July 7, 1998*
10.4 Employment agreement between the Company and James Palmer dated
March 31, 1995*
10.5 Employment agreement between the Company and Roland Richard dated
May 7, 1992*
10.7 Employment Agreement dated March 31, 1998 between the Company and
Ronald Owens*
10.8 Simonds Industries Inc. Amended and Restated 1998 Stock Incentive
Plan*
10.9 Escrow Agreement dated May 26 1995 among SI Holding Corporation, the
Company, Charles W. Doulton, the Massachusetts Capital Resource
Company, the shareholders of Simonds Industries, Inc., the option
holders of the Company and Fleet Bank of Massachusetts, N.A.*
10.10 Labor Agreement dated May 5, 1997 between the Company and Local
No. 7896 of the United Steel Workers of America*
10.11 Agreement dated April 6, 1998 between the Company and Local 2737-16
of the United Steelworkers of America, AFL-CIO*
10.12 Agreement dated April 6, 1998 between the Company and Local 2737-17
of the United Steelworkers of America, AFL-CIO*
10.14 Employment and Non-Competition Agreement between the Company and
Raymond Martino dated August 12, 1999**
12.1 Statement regarding computation of ratios
21.1 Subsidiaries
- ---------------
* The exhibits of the Company's Registration Statement on Form S-4, File No.
333-62795.
** Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended January 1, 2000.
-60-
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, on the 30th day of
March, 2001.
Simonds Industries Inc.
By:
----------------------
Raymond Martino
Chief Executive Officer
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 indicated on the 30th day of March, 2001.
Signatures Title
---------- -----
_______________________________________ President, Chief Executive Officer,
Raymond Martino Director and Chairman of the Board
_______________________________________ CFO
Henry Botticello
_______________________________________ Director
Ross George
_______________________________________ Director
Habib Gorgi
-61-