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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended March 31, 2001.
[ ] 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: N/A
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 principal executive offices)
(978) 343-3731
(Registrant's telephone number, including area code)
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 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 [ ]
Number of shares outstanding of the registrant's voting and non-voting common
stock, as of April 30, 2001: 68,478.72 and 8,968.01, respectively.
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Simonds Industries Inc.
Form 10-Q Index
Page No.
Part I. Financial Information
------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - December 30, 2000 and
March 31, 2001 3
Consolidated Statements of Operations - three months
ended April 1, 2000 and March 31, 2001 4
Consolidated Statements of Cash Flows - three months
ended April 1, 2000 and March 31, 2001 5
Consolidated Statements of Shareholders' Equity (Deficit)-
for the three months ended April 1, 2000 and March 31, 2001 6
Notes to Consolidated Financial Statements - March 31, 2001 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II. Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
-2-
Part 1. Financial Information
Item 1. Financial Statements (Unaudited)
SIMONDS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
ASSETS
------
December 30, March 31,
2000 2001
--------- ---------
(unaudited)
CURRENT ASSETS:
Cash $8,913 $1,320
Accounts receivable, net of reserves of $909 and $857 16,948 16,894
Inventories (Note 3) 24,869 26,977
Other current assets 3,162 3,334
Refundable income taxes 818 818
--------- ---------
Total current assets 55,121 49,343
PROPERTY, PLANT AND EQUIPMENT:
Land 2,147 2,132
Buildings and improvements 10,275 10,132
Machinery and equipment 33,952 36,570
Construction-in-progress 988 2,255
--------- ---------
47,362 51,089
Less- Accumulated depreciation 14,207 15,133
--------- ---------
Net property, plant and equipment 33,155 35,956
OTHER ASSETS:
Goodwill and other intangible assets, net
of accumulated amortization of $2,830 and $2,972 22,221 22,516
Deferred financing costs, net of accumulated
amortization of $1,077 and $1,182 3,390 3,296
Other, including buildings held for resale 1,567 1,366
--------- ---------
Total other assets 27,178 27,178
--------- ---------
Total assets $115,454 $112,477
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Overdraft facilities $128 $79
Revolving credit loans and notes payable 421 2,902
Current portion of long-term debt 2,409 1,885
Accounts payable 7.807 6,644
Accrued payroll and employee benefits 4,371 3,122
Accrued interest 5,153 2,679
Other accrued liabilities 1,794 1,099
Currently deferred income taxes 1,547 1,546
--------- ---------
Total current liabilities 26,630 19,956
LONG-TERM DEBT, net of current portion (Note 4) 100,000 102,500
DEFERRED INCOME TAXES 4,891 4,953
OTHER NONCURRENT LIABILITIES 2,266 2,116
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value-
Authorized - 200,000 shares
Issued and outstanding - 75,267 and 75,114 1 1
Capital in excess of par value (24,387) (24,387)
Retained earnings 12,909 12,373
Accumulated other comprehensive income (loss) (2,740) (3,851)
Treasury stock, at cost (1,116) (1,184)
--------- ---------
Total shareholders' equity (deficit) (15,333) (17,048)
--------- ---------
Total liabilities and shareholders' equity $115,454 $112,477
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
-----------------------
Three Months Ended
April 1, March 31,
2000 2001
-------- --------
Net sales $ 32,956 $ 30,653
Cost of goods sold 22,591 22,220
-------- --------
Gross profit 10,365 8,433
Selling, general and administrative expense 6,489 6,294
-------- --------
Operating income 3,876 2,139
Other expenses (income):
Interest expense, net 2,736 2,834
Other, net 191 53
-------- --------
Income (loss) before income taxes 949 (748)
Provision (benefit) for income taxes 435 (212)
-------- --------
Net income (loss) $ 514 ($ 536)
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
---------------------------
THREE MONTHS ENDED
APRIL 1, MARCH 31,
2000 2001
---------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (loss) $514 ($536)
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,306 1,492
Gain on asset sales (2) (10)
Provision from deferred income taxes 15 61
Changes in assets and liabilities, net
of acquisitions:
Accounts receivable (552) 54
Inventories (421) (1,082)
Income tax refunds receivable 283 -
Other current and noncurrent assets (113) 392
Accounts payable (623) (1,163)
Accrued expenses (3,283) (4,418)
Other non-current liabilities (70) (150)
---------------------------
Net cash (used in) operating activities (2,946) (5,360)
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 14 34
Purchases of equipment (726) (788)
Acquisition of assets - Nicholson
Bandsaw Business - (2,566)
---------------------------
Net cash (used in) investing activities (712) (3,320)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in overdrafts (41) (49)
Net (uses) under revolving credit (135) (599)
Proceeds from issuance of long-
term debt-net of issuance costs - 2,500
Principal payments of long-term debt (328) -
Issuance of common stock 18 -
Purchase of treasury stock - (68)
Other (55)
---------------------------
Net cash (used in) provided by financing
activities (486) 1,729
---------------------------
EFFECT OF EXCHANGE RATE ON CASH (297) (642)
---------------------------
NET (DECREASE) IN CASH (4,441) (7,593)
CASH AT BEGINNING OF PERIOD 8,383 8,913
---------------------------
CASH AT END OF PERIOD $3,942 $1,320
===========================
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
AND COMPREHENSIVE INCOME (LOSS)
For the three months ended April 1, 2000 and March 31, 2001
(In thousands, except share amounts)
(Unaudited)
ACCUMULATED
CAPITAL OTHER TOTAL COMPREHENSIVE
COMMON COMMON IN EXCESS RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS' INCOME
SHARES STOCK OF PAR EARNINGS LOSS STOCK EQUITY(DEFICIT) (LOSS)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at January 1, 2000 76,289 $ 1 ($24,405) $ 14,130 ($ 1,850) ($ 121) ($12,245) --
Net Income -- -- -- 514 -- -- 514 $ 514
Foreign Currency
Translation Adjustment -- -- -- -- (464) -- (464) (464)
Amortization of Stock
Option
Compensation -- -- 18 -- -- -- 18 --
-------- -------- -------- -------- -------- -------- -------- --------
Balance at April 1, 2000 76,289 $ 1 ($24,387) $ 14,644 ($ 2,314) ($ 121) ($12,177) $ 50
======== ======== ======== ======== ======== ======== ======== ========
Balance at December 30, 2000 75,267 $ 1 ($24,387) $ 12,909 ($ 2,740) ($ 1,116) ($15,333)
Net Loss -- -- -- (536) -- -- (536) (536)
Foreign Currency
Translation Adjustment -- -- -- -- (1,111) -- (1,111) (1,111)
Acquisition of Treasury
Stock (153) -- -- -- -- (68) (68) --
-------- -------- -------- -------- -------- -------- -------- --------
Balance at March 31, 2001 75,114 $ 1 ($24,387) $ 12,373 ($ 3,851) ($ 1,184) ($17,048) ($ 1,647)
======== ======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
-6-
Notes to Consolidated Financial Statements
(In thousands except share and per share amounts)
(Unaudited)
1. Basis of Presentation
The unaudited interim consolidated financial statements presented herein have
been prepared by Simonds Industries Inc. ("Simonds" or the "Company") and, in
the opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair presentation. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of December 30, 2000 has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The unaudited consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to those
rules and regulations, but the Company believes that the disclosures are
adequate to make the information presented not misleading. Operating results for
the three months ended March 31, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 29, 2001. For further
information, refer to the financial statements and footnotes included in the
Company's annual report on Form 10-K for the year ended December 30, 2000.
2. Acquisitions and Divestitures
ACQUISITIONS
As part of the Company's May 8, 1998 acquisition of W. Notting Limited
("Notting"), approximately $1,000 in property, plant and equipment was
reclassified to other assets for buildings held for resale. Buildings held for
resale are stated at fair value.
DIVESTITURES
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 excess and obsolete inventory resulting from 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
March 31,
-7-
2001 the Company had unutilized reserves of approximately $150 for employee
related and miscellaneous reorganization costs.
3. Inventories at December 30, 2000 and March 31, 2001 were as follows
(in thousands).
December 30, March 31,
2000 2001
-------------------- ---------------------
Raw Materials $4,921 $5,664
Work in progress 6,731 6,358
Finished goods 13,217 14,955
-------------------- ---------------------
Total $24,869 $26,977
==================== =====================
4. Debt
Debt consists of the following at December 30, 2000 and March 31, 2001 (in
thousands):
December 30, March 31,
2000 2001
------------ ------------
Line of credit facility for German Subsidiary with First Union National Bank $2,409 $1,885
up to approximately $2,650, interest payable quarterly at EURIBOR (4.86% at
December 30, 2000) plus 1.25% terminated on March 28, 2001 payable in
Deutschmarks. On March 28, 2001 a new line of credit facility was
established with Royal Bank of Scotland Gmbh up to the same limit as above
with interest payable upon expiration of each maturity at contracted
EURIOBOR rate (4.72% at March 31, 2001) plus 1% payable in Deutschmarks.
Line of credit facilities for Notting with Banco Sabadell and Banco Popular 206 210
of Spain, bearing interest at 6.25% and 6.50% and terminating on April 1,
2001 and May 17, 2001, respectively, payable in Spanish Pesetas.
A term loan payable by Notting to National Westminster Bank on June 30, 215 0
2001, bearing interest at 8.5%, payable in British Pounds.
-8-
Senior Credit Facility with Citizens Bank up to $40,000 bearing interest at 0 2,500
prime rate (8% at March 31, 2001) and terminating on December 29, 2003.
Senior Subordinated Notes issued July 8, 1998, and maturing July 1, 2008, 100,000 100,000
interest payable semi-annually at 10.25%.
------------ ------------
102,830 104,595
Less-current maturities 2,830 2,095
------------ ------------
$100,000 $102,500
============ ============
On December 29, 2000 the Company entered into a new agreement for a New Senior
Credit Facility ("Credit Facility"). The Credit Facility provides for $40,000 of
availability. Borrowings under the Credit Facility are available for permitted
acquisitions and working capital, including letters of credit. The 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 Credit Facility expires on December 29, 2003, unless extended.
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 1.0 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.
5. 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. On December
-9-
31, 2000, the Company adopted of SFAS No. 133 as amended by SFAS No. 138. The
adoption did not have a material impact on the Company's financial position or
results of operations.
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 $164
for the quarter ended April 1, 2000.
6. Selected consolidating financial statements of parent, guarantors, and
non-guarantors
The Company's wholly owned domestic subsidiaries fully and unconditionally
guarantee, on a senior subordinated basis, the 10.25% Senior Subordinated Notes,
jointly and severally. The guarantor subsidiary data below includes financial
statements of Armstrong Manufacturing Company. The non-guarantor subsidiaries
data below includes combining financial statements of Wespa, Simonds UK, UK
Holding Co., and Simonds Canada. Separate financial statements of the guarantor
subsidiary 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 the guarantor
subsidiary. The following data summarizes the consolidating results of the
Company on the equity method of accounting for the following periods presented:
-10-
SIMONDS INDUSTRIES INC.
CONSOLIDATING BALANCE SHEET
(In Thousands)
As of December 30, 2000
--------------------------------------------------------------------------
Parent Guarantor Non-Guarantors Eliminations Consolidated
--------- ------- ------- -------- ---------
ASSETS
CURRENT 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 $ 122,483 $39,482 $33,357 $(79,868) $ 115,454
========= ======= ======= ======== =========
SIMONDS INDUSTRIES INC.
CONSOLIDATING BALANCE SHEET
(In Thousands)
(Unaudited)
As of March 31, 2001
--------------------------------------------------------------------------
Parent Guarantor Non-Guarantors Eliminations Consolidated
--------- ------- ------- -------- ---------
ASSETS
CURRENT ASSETS:
Cash $ 252 $ 79 $ 989 -- $ 1,320
Accounts receivable 9,331 451 7,112 -- 16,894
Intercompany accounts receivable 4,542 2,693 3,518 (10,753) --
Inventories:
Raw materials 3,975 50 1,639 -- 5,664
Work in progress 5,135 520 703 -- 6,358
Finished goods 8,027 470 6,648 (190) 14,955
Other current assets 2,989 63 373 727 4,152
--------- ------- ------- -------- ---------
Total current assets 34,251 4,326 20,982 (6,486) 49,343
--------- ------- ------- -------- ---------
Net property, plant and equipment 27,957 2,679 5,320 -- 35,956
OTHER ASSETS:
Investment in subsidiaries 39,217 5,598 -- (44,815) --
Intercompany loan receivable -- 23,767 413 (24,180) --
Other assets 19,534 3,609 4,035 -- 27,178
--------- ------- ------- -------- ---------
Total assets $ 120,959 $39,979 $30,750 $(79,211) $ 112,477
========= ======= ======= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES $ 16,454 $ 1,057 $12,789 $(10,344) $ 19,956
LONG-TERM DEBT, net of current
portion 102,500 -- -- -- 102,500
INTERDIVISION LONG-TERM DEBT 15,145 413 8,621 (24,179) --
OTHER NONCURRENT LIABILITIES 3,908 531 2,542 88 7,069
SHAREHOLDERS' EQUITY (DEFICIT) (17,048) 37,978 6,798 (44,776) (12,048)
--------- ------- ------- -------- ---------
Total liabilities and shareholders'
equity $ 120,959 $39,979 $30,750 $(79,211) $ 112,477
========= ======= ======= ======== =========
-11-
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Three Months ended April 1, 2000
--------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net sales $ 22,177 $ 2,800 $ 12,293 $(4,314) $ 32,956
Cost of goods sold 15,835 1,736 9,334 (4,314) 22,591
-------- ------- -------- ------- --------
Gross profit 6,342 1,064 2,959 0 10,365
Selling, general and administrative
expense 3,875 677 1,937 0 6,489
-------- ------- -------- ------- --------
Operating income 2,467 387 1,022 0 3,876
Other expenses (income):
Interest expense 3,095 101 369 (798) 2,767
Interest income (27) (729) (73) 798 (31)
Other, net 87 136 (32) 0 191
Equity in earnings of subsidiaries (984) (446) 0 1,430 0
-------- ------- -------- ------- --------
Income before income taxes 296 1,325 758 (1,430) 949
Provision (benefit) for income taxes (218) 341 312 0 435
-------- ------- -------- ------- --------
Net income $ 514 $ 984 $ 446 $(1,430) $ 514
======== ======= ======== ======= ========
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Three Months ended March 31, 2001
--------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net sales $ 21,921 $ 1,880 $ 10,833 $(3,981) $ 30,653
Cost of goods sold 16,208 1,353 8,640 (3,981) 22,220
-------- ------- -------- ------- --------
Gross profit 5,713 527 2,193 0 8,433
Selling, general and administrative
expense 3,928 521 1,845 0 6,294
-------- ------- -------- ------- --------
Operating income 1,785 6 348 0 2,139
Other expenses (income):
Interest expense 3,155 76 327 (704) 2,854
Interest income (15) (641) (68) 704 (20)
Other, net 38 54 (39) 0 53
Equity in earnings of subsidiaries (332) (30) 0 362 0
-------- ------- -------- ------- --------
Income (loss) before income taxes (1,061) 547 128 (362) (748)
Provision (benefit) for income taxes (525) 215 98 0 (212)
-------- ------- -------- ------- --------
Net income (loss) $ (536) $ 332 $ 30 $ (362) $ (536)
======== ======= ======== ======= ========
-12-
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three months ended April 1, 2000
------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
------------------------------------------------------------------------
Net cash (used in)/provided by operating
activities: ($3,721) $ 449 $ 458 ($ 132) ($2,946)
Cash flows from investing activities:
Proceeds from asset sales 7 -- 7 -- 14
Purchase of equipment (598) (32) (96) -- (726)
Acquisitions -- -- -- -- --
------- ------- ------- ------- -------
Net cash (used in) investing activities (591) (32) (89) -- (712)
Cash flows from financing activities:
Change in overdraft -- -- (41) -- (41)
Net (uses) from revolving credit facility -- -- (135) -- (135)
Proceeds from issuance of long-term debt-
Net of issuance cost -- -- -- -- --
Principal payments of long-term debt -- -- (328) -- (328)
Intercompany loans -- (126) 127 (1) --
Issuance of common stock 18 -- (1) 1 18
Dividends (paid) received 422 (422) -- -- --
Other -- -- -- -- --
------- ------- ------- ------- -------
Net cash provided by financing activities 440 (548) (378) -- (486)
Effect of Foreign Exchange -- -- (429) 132 (297)
------- ------- ------- ------- -------
Increase (decrease) in cash (3,872) (131) (438) -- (4,441)
Cash at beginning of the period 7,159 340 884 -- 8,383
------- ------- ------- ------- -------
Cash at end of the period $ 3,287 $ 209 $ 446 -- $ 3,942
======= ======= ======= ======= =======
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three months ended March 31, 2001
-----------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
-----------------------------------------------------------------------
Net cash (used in)/provided by operating
activities: ($6,655) $ 257 $ 1,337 ($ 299) ($5,360)
Cash flows from investing activities:
Proceeds from asset sales -- 10 24 -- 34
Purchase of equipment (733) (10) (45) -- (788)
Acquisitions (2,566) -- -- -- (2,566)
------- ------- ------- ------- -------
Net cash (used in) investing activities (3,299) -- (21) -- (3,320)
Cash flows from financing activities:
Change in overdraft -- -- (49) -- (49)
Net (uses) from revolving credit facility -- -- (599) -- (599)
Proceeds from issuance of long-term debt-
net of issuance cost 2,500 -- -- -- 2,500
Intercompany loans -- 309 (329) 20 --
Dividends (paid) received 432 (432) -- -- --
Purchase of treasury stock (68) -- -- -- (68)
Other (55) -- -- -- (55)
------- ------- ------- ------- -------
Net cash (used in)/provided by financing
activities: 2,809 (123) (977) 20 1,729
Effect of Foreign Exchange -- (331) (590) 279 (642)
------- ------- ------- ------- -------
(Decrease) in cash (7,145) (197) (251) -- (7,593)
Cash at beginning of the period 7,397 276 1,240 -- 8,913
------- ------- ------- ------- -------
Cash at end of the period $ 252 $ 79 $ 989 -- $ 1,320
======= ======= ======= ======= =======
-13-
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in Thousands)
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.
Results of Operations
Comparison of First Quarter 2001 and First Quarter 2000
Net Sales: Net Sales for the first quarter of 2001 were $30,653 or 7.0% lower
than first quarter 2000 net sales of $32,956. The lower 2001 quarterly results
reflect reduced demand for our cutting tools in the wood, paper, and metal
products due to lower industrial production in our served markets. In round
numbers, the volume decline on core sales was 10% vs. prior year; currency as a
result of the strengthening of the U.S. dollar vs. other currencies reduced
sales 2%; the net effect of acquisitions, divestitures and price was an increase
of 5%.
Gross Profit Margin: Gross Profit was $8,433 for the first quarter of 2001, a
decrease of $1,932 from $10,365 for the corresponding period in 2000. Gross
Profit as a percentage of net sales was 27.5 % and 31.5% for the three months
ended March 31, 2001 and April 1, 2000, respectively. Lower sales and production
levels in 2001 impacted gross profit unfavorably causing higher volume and
spending variances. Product mix impacted profits by an estimated 0.8%.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses as a percent of net sales were 20.5% or $6,294 and 19.7%
or $6,489 for the first quarter of 2001 and 2000, respectively. Expenses were
below last year's level as the Company is controlling expenses and is monitoring
the economic environment and its impact on our business.
Operating Income: As a result of the foregoing, operating income decreased
$1,737 in the first quarter of 2001 when compared to the comparable period in
2000.
Interest Expense: Interest expense was higher by $98 in the first quarter of
2001 compared to the corresponding period in 2000. This is primarily due to
higher debt as a result of short-term borrowings to finance cash paid for an
acquisition. The vast majority of the Company's interest expense is for $100,000
of Senior Subordinated Notes at 10 1/4% per annum.
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Income Taxes: The provision (benefit) for income taxes was approximately ($212)
or a 28.3% effective tax rate for the first quarter of 2001, as compared to
approximately $435 or a 45.8% effective tax rate for the first quarter of 2000.
The effective tax rates differ primarily as a result of goodwill amortization
and certain expenses that are not deductible for tax purposes.
Net Income (Loss): As a result of the foregoing, net income (loss) decreased
$1,050 in the first quarter of 2001 when compared to the comparable period of
2000.
Liquidity and Capital Resources
Simonds principal capital requirements are to fund working capital needs, meet
required debt payments, and to complete planned maintenance and manufacturing
improvements.
The Company's Senior Credit Facility provides a $40,000 line of credit to meet
acquisition and expansion needs as well as seasonal working capital and general
corporate requirements. This credit line was drawn as of March 31, 2001 in the
amount of $2,500. Borrowings under the Senior Credit Facility bear interest at a
fluctuating rate based on, at the Company's option, either the lender's prime
rate, or LIBOR plus 2.7%. 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 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.
Net Cash Flow: During the first quarters of 2001 and 2000 net cash used in
operating activities was $6,040 and $2,946, respectively. In both years the
first quarter payment of interest on the Senior Subordinated Notes, which is
payable on January 1 and July 1, had a significant impact on cash flow. In the
first quarter of 2001 the Company acquired the assets of the Nicholson bandsaw
business that resulted in a significant use of cash for inventory and expenses
related to the removal, transport and installation of machinery and equipment.
Additionally, Net Income (loss) fell short of last year's first quarter by
$1,050.
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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.
Forward Looking Statements
Statements contained in this Form 10-Q 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 "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.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS
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None
REPORTS ON FORM 8-K
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No reports on Form 8-K were filed during the quarter ended March 31, 2001.
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SIGNATURES
Pursuant to the requirements 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.
SIMONDS INDUSTRIES INC.
By: /s/ Henry J. Botticello
---------------------------------
Henry J. Botticello
CFO
May 14, 2001
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