================================================================================
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 June 30, 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 July 25, 2001: 66,145.77 and 8,968.01, respectively.
1
================================================================================
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
June 30, 2001 3
Consolidated Statements of Operations - three and six
months ended July 1, 2000 and June 30, 2001 4
Consolidated Statements of Cash Flows - six months ended
July 1, 2000 and June 30, 2001 5
Consolidated Statements of Shareholders' Equity (Deficit)-
for the six months ended July 1, 2000 and June 30, 2001 6
Notes to Consolidated Financial Statements - June 30, 2001 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
Part 1. Financial Information
Item 1. Financial Statements (Unaudited)
SIMONDS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
ASSETS December 30, June 30,
------ 2000 2001
--------- ---------
(unaudited)
CURRENT ASSETS:
Cash $ 8,913 $ 1,492
Accounts receivable, net of reserves of $909 and $764 16,948 15,539
Inventories (Note 2) 24,869 26,134
Other current assets 3,573 3,480
Refundable income taxes 818 818
--------- ---------
Total current assets 55,121 47,463
PROPERTY, PLANT AND EQUIPMENT:
Land 2,147 2,124
Buildings and improvements 10,275 10,138
Machinery and equipment 33,952 37,349
Construction-in-progress 988 3,827
--------- ---------
47,362 53,438
Less- Accumulated depreciation 14,207 16,194
--------- ---------
Net property, plant and equipment 33,155 37,244
OTHER ASSETS:
Goodwill, net of accumulated amortization of $2,830 and $3,139 22,221 22,368
Deferred financing costs, net of accumulated amortization of $1,077 and $1,317 3,390 3,195
Other, including buildings held for resale 1,567 1,240
--------- ---------
Total other assets 27,178 26,803
--------- ---------
Total assets $ 115,454 $ 111,510
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Overdraft facilities $ 128 $ 398
Revolving credit loans and notes payable 421 2,917
Current portion of long-term debt 2,409 --
Accounts payable 7,807 5,093
Accrued payroll and employee benefits 4,371 3,075
Accrued interest 5,153 5,200
Other accrued liabilities 1,794 968
Currently deferred income taxes 1,547 1,547
--------- ---------
Total current liabilities 23,630 19,198
LONG-TERM DEBT, net of current portion (Note 3) 100,000 102,782
DEFERRED INCOME TAXES 4,891 4,882
OTHER NONCURRENT LIABILITIES 2,266 2,796
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
SHAREHOLDERS' EQUITY:
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 10,877
Accumulated other comprehensive loss (2,740) (3,455)
Treasury stock, at cost (1,116) (1,184)
--------- ---------
Total shareholders' equity (deficit) (15,333) (18,148)
--------- ---------
Total liabilities and shareholders' equity $ 115,454 $ 111,510
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
3
SIMONDS INDUSTRIES INC.
Consolidated Statements of Operations
(In Thousands)
(Unaudited)
--------------------------------------------------
Three Months Ended Six Months Ended
July 1, June 30, July 1, June 30,
2000 2001 2000 2001
---------- ---------- ---------- ----------
Net sales $ 32,383 $ 28,336 $ 65,339 $ 58,989
Cost of goods sold 22,303 21,614 44,894 43,834
---------- ---------- ---------- ----------
Gross profit 10,080 6,722 20,445 15,155
Selling, general and administrative expense 6,308 5,999 12,797 12,293
---------- ---------- ---------- ----------
Operating income 3,772 723 7,648 2,862
Other expenses (income):
Interest expense 2,672 2,806 5,408 5,640
Other, net 280 243 471 296
---------- ---------- ---------- ----------
Income (loss) before income taxes 820 (2,326) 1,769 (3,074)
Provision (benefit) for income taxes 350 (830) 785 (1,042)
---------- ---------- ---------- ----------
Net income (loss) $ 470 ($ 1,496) $ 984 ($ 2,032)
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
4
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
--------------------
SIX MONTHS ENDED
JULY 1, JUNE 30,
2000 2001
------- -------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 984 ($2,032)
Adjustment to reconcile net income (loss) to
net cash (used in) provided by operating activities:
Depreciation and amortization 2,616 2,972
Gain (loss) on asset sales 56 (14)
(Benefit) Provision from deferred income taxes 7 (9)
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable (783) 1,409
Inventories (108) (239)
Income tax refunds receivable 951 --
Other current and non-current assets (159) 500
Accounts payable 172 (2,714)
Accrued expenses (408) (2,811)
Other non-current liabilities (82) 19
------- -------
Net cash (used in) provided by operating activities 3,246 (2,919)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 40 42
Purchase of equipment (1,615) (1,710)
Acquisition of assets of Bluebonnet Tool (483) --
Acquisition of Assets - Nicholson Bandsaw Business -- (4,516)
------- -------
Net cash used in investing activities (2,058) (6,184)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in overdrafts (58) 270
Net (uses) proceeds under revolving credit 30 (939)
Proceeds from issuance of long-
term debt-net of issuance costs -- 2,782
Principal payments of long-term debt 78 --
Issuance of common stock 18 --
Purchase of treasury stock (995) (68)
Other -- (88)
------- -------
Net cash (used in) provided by financing activities (927) 1,957
------- -------
EFFECT OF EXCHANGE RATE ON CASH (326) (275)
------- -------
NET DECREASE IN CASH (65) (7,421)
CASH AT BEGINNING OF PERIOD 8,383 8,913
------- -------
CASH AT END OF PERIOD $ 8,318 $ 1,492
======= =======
The accompanying notes are an integral part of these consolidated financial statements.
5
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the six months ended July 1, 2000 and June 30, 2001
(In thousands, except share amounts)
(Unaudited)
ACCUMULATED
CAPITAL OTHER TOTAL
COMMON COMMON IN EXCESS RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS' COMPREHENSIVE
SHARES STOCK OF PAR EARNINGS LOSS STOCK EQUITY INCOME
(DEFICIT) (LOSS)
----------- -------- ----------- ---------- ------------- --------- ------------- --------------
Balance at January 1, 2000 76,289 $1 ($24,405) $14,130 ($1,850) ($121) ($12,245) -
Net Income - - - 984 - - 984 $984
Foreign Currency
Translation Adjustment - - - - (645) - (645) (645)
Amortization of Stock
Option Compensation - - 18 - - - 18 -
Acquisition of (2,093) (995) (995)
Treasury Stock
----------- -------- ----------- ---------- ------------- --------- ------------- --------------
Balance at July 1, 2000 74,196 $1 ($24,387) $15,114 ($2,495) ($1,116) ($12,883) $339
=========== ======== =========== ========== ============= ========= ============= ==============
Balance at December 30, 75,267 $1 ($24,387) $12,909 ($2,740) ($1,116) ($15,333) -
2000
Net Loss - - - (2,032) - - (2,032) ($2,032)
Foreign Currency
Translation Adjustment - - - - (748) - (748) (748)
Additional Minimum
Pension Liability 33 33 33
Acquisition of
Treasury Stock (153) (68) (68)
----------- -------- ----------- ---------- ------------- --------- ------------- --------------
Balance at June 30, 2001 75,114 $1 ($24,387) $10,877 ($3,455) ($1,184) ($18,148) ($2,747)
=========== ======== =========== ========== ============= ========= ============= ==============
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 six months ended June 30, 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. Inventories at December 30, 2001 and June 30, 2001 were as follows
(in thousands).
December 30, June 30,
2000 2001
---------- ----------
Raw Materials $ 4,921 $ 5,539
Work in progress 6,731 5,914
Finished goods 13,217 14,681
---------- ----------
Total $ 24,869 $ 26,134
========== ==========
3. Debt
Debt consists of the following at December 30, 2000 and June 30, 2001 (in
thousands):
December 30, June 30,
2000 2001
-------- --------
Line of credit facility with First Union National Bank up to $2,409 $1,733
approximately $2,650, interest payable quarterly at EUROBOR
(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
7
Scotland Gmbh up to the same limit as above with interest
payable upon expiration of each maturity at contracted EUROBOR
rate (4.523% at June 30, 2001) plus 1% payable in Deutschmarks.
Line of credit facilities with Banco Sabadell and Banco Popular 206 158
of Spain, bearing interest at 6.5% and 6.0% and terminating on
April 1, 2002 and May 17, 2002, respectively, payable in Spanish
Pesetas.
A term loan payable to National Westminster Bank on June 30, 215 0
2001, bearing interest at 8.5%, payable in British Pounds.
Note Payable to Cooper Industries, bearing interest at 7%, and
terminating on December 31, 2001 0 1,026
Senior Credit Facility with Citizens Bank up to $40,000 bearing 0 2,782
interest at prime rate (6.75% at June 30, 2001) and terminating
on December 29, 2003.
Senior Subordinated Notes issued July 8, 1998, and maturing July 100,000 100,000
1, 2008, interest payable semi-annually at 10.25%.
-------- --------
102,830 105,699
Less-current maturities 2,830 2,917
-------- --------
$100,000 $102,782
======== ========
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. The Company is 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. As of December 30, 2000 and June 30, 2001, the
Company was in compliance with all covenants.
8
4. 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 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 adoption of this statement did not 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. In order to present the financial statements on a
comparable basis, sales and cost of sales were increased by $164 and $328 for
the three months and six-months ended July 1, 2000, respectively.
In July 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS, which
supercedes APB Opinion No. 16, BUSINESS COMBINATIONS and SFAS No. 38, ACCOUNTING
FOR PREACQUISITION CONTINGENCIES OF PURCHASED ENTERPRISES. SFAS No. 141 requires
all business combinations initiated after June 30, 2001 to be accounted for
using the purchase method and that all acquired intangible assets be recorded
separate from goodwill if they meet certain criteria.
9
In July 2001, the FASB issued SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS, which supercedes APB Opinion No. 17, INTANGIBLE ASSETS. SFAS No. 142
addresses the accounting for the acquisition of intangible assets and the
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. Under SFAS No. 142, goodwill will have an
indefinite useful life and no longer be amortized, but other intangible assets
will continue to be amortized over their determinable lives. These assets will
be subject to periodic impairment tests. This Statement is effective for all
fiscal years beginning after December 15, 2001. The Company is assessing the
statements requirements, but has not yet determined the impact the adoption of
this statement will have on its financial statements.
5. 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 June 30, 2001
-------------------------------------------------------------------
Parent Guarantor Non-Guarantors Eliminations Consolidated
--------- --------- --------- --------- ---------
ASSETS
CURRENT ASSETS:
Cash $ 779 $ 31 $ 682 -- $ 1,492
Accounts receivable 8,579 374 6,586 -- 15,539
Intercompany accounts receivable 4,166 3,183 2,363 (9,712) --
Inventories:
Raw materials 3,996 51 1,492 -- 5,539
Work in progress 5,033 397 484 -- 5,914
Finished goods 7,721 435 6,715 (190) 14,681
Other current assets 3,218 47 306 727 4,298
--------- --------- --------- --------- ---------
Total current assets 33,492 4,518 18,628 (9,175) 47,463
--------- --------- --------- --------- ---------
Net property, plant and equipment 29,167 2,631 5,446 -- 37,244
OTHER ASSETS:
Investment in subsidiaries 39,328 3,282 -- (42,610) --
Intercompany loan receivable -- 23,734 428 (24,162) --
Other assets 19,286 3,529 3,988 -- 26,803
--------- --------- --------- --------- ---------
Total assets $ 121,273 $ 37,694 $ 28,490 ($ 75,947) $ 111,510
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES $ 16,816 $ 903 $ 10,543 ($ 9,064) $ 19,198
LONG-TERM DEBT, net of current
portion 102,782 -- -- -- 102,782
INTERDIVISION LONG-TERM DEBT 15,145 428 8,589 (24,162) --
OTHER NONCURRENT LIABILITIES 4,678 531 2,381 88 7,678
SHAREHOLDERS' EQUITY (DEFICIT) (18,148) 35,832 6,977 (42,809) (18,148)
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity $ 121,273 $ 37,694 $ 28,490 ($ 75,947) $ 111,510
========= ========= ========= ========= =========
11
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Three Months ended July 1, 2000
----------------------------------------------------------------
Parent Guarantor Non-Guarantors Eliminations Consolidated
-------- -------- -------- -------- --------
Net sales $ 22,441 $ 2,375 $ 11,310 ($ 3,743) $ 32,383
Cost of goods sold 15,801 1,503 8,742 (3,743) 22,303
-------- -------- -------- -------- --------
Gross profit 6,640 872 2,568 0 10,080
Selling, general and administrative expense 3,773 614 1,921 0 6,308
-------- -------- -------- -------- --------
Operating income 2,867 258 647 0 3,772
Other expenses (income):
Interest expense 3,119 103 375 (840) 2,757
Interest income (79) (767) (79) 840 (85)
Other, net 178 79 23 0 280
Equity in earnings of subsidiaries (737) (220) 0 957 0
-------- -------- -------- -------- --------
Income before income taxes 386 1,063 328 (957) 820
Provision (benefit) for income taxes (84) 326 108 0 350
-------- -------- -------- -------- --------
Net income $ 470 $ 737 $ 220 ($ 957) $ 470
======== ======== ======== ======== ========
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Three Months ended June 30, 2001
----------------------------------------------------------------
Parent Guarantor Non-Guarantors Eliminations Consolidated
-------- -------- -------- -------- --------
Net sales $ 20,461 $ 1,753 $ 9,585 ($ 3,463) $ 28,336
Cost of goods sold 15,759 1,323 7,995 (3,463) 21,614
-------- -------- -------- -------- --------
Gross profit 4,702 430 1,590 0 6,722
Selling, general and administrative expense 3,806 549 1,644 0 5,999
-------- -------- -------- -------- --------
Operating income (loss) 896 (119) (54) 0 723
Other expenses (income):
Interest expense 3,082 64 281 (610) 2,817
Interest income (5) (558) (58) 610 (11)
Other, net (12) 63 192 0 243
Equity in earnings of subsidiaries 32 202 0 (234) 0
-------- -------- -------- -------- --------
Income (loss) before income taxes (2,201) 110 (469) 234 (2,326)
Provision (benefit) for income taxes (705) 142 (267) 0 (830)
-------- -------- -------- -------- --------
Net loss ($ 1,496) ($ 32) ($ 202) $ 234 ($ 1,496)
======== ======== ======== ======== ========
12
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Six Months ended July 1, 2000
----------------------------------------------------------------
Parent Guarantor Non-Guarantors Eliminations Consolidated
-------- -------- -------- -------- --------
Net sales $ 44,618 $ 5,175 $ 23,603 ($ 8,057) $ 65,339
Cost of goods sold 31,636 3,239 18,076 (8,057) 44,894
-------- -------- -------- -------- --------
Gross profit 12,982 1,936 5,527 0 20,445
Selling, general and administrative expense 7,648 1,291 3,858 0 12,797
-------- -------- -------- -------- --------
Operating income 5,334 645 1,669 0 7,648
Other expenses (income):
Interest expense 6,214 204 744 (1,638) 5,524
Interest income (106) (1,496) (152) 1,638 (116)
Other, net 265 215 (9) 0 471
Equity in earnings of subsidiaries (1,721) (666) 0 2,387 0
-------- -------- -------- -------- --------
Income before income taxes 682 2,388 1,086 (2,387) 1,769
Provision (benefit) for income taxes (302) 667 420 0 785
-------- -------- -------- -------- --------
Net income $ 984 $ 1,721 $ 666 ($ 2,387) $ 984
======== ======== ======== ======== ========
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Six Months ended June 30, 2001
----------------------------------------------------------------
Parent Guarantor Non-Guarantors Eliminations Consolidated
-------- -------- -------- -------- --------
Net sales $ 42,382 $ 3,633 $ 20,418 ($ 7,444) $ 58,989
Cost of goods sold 31,967 2,676 16,635 (7,444) 43,834
-------- -------- -------- -------- --------
Gross profit 10,415 957 3,783 0 15,155
Selling, general and administrative expense 7,734 1,070 3,489 0 12,293
-------- -------- -------- -------- --------
Operating income (loss) 2,681 (113) 294 0 2,862
Other expenses (income):
Interest expense 6,237 140 608 (1,314) 5,671
Interest income (20) (1,199) (126) 1,314 (31)
Other, net 26 117 153 0 296
Equity in earnings of subsidiaries (300) 172 0 125 0
-------- -------- -------- -------- --------
Income (loss) before income taxes (3,262) 657 (341) (128) (3,074)
Provision (benefit) for income taxes (1,230) 357 (169) 0 (1,042)
-------- -------- -------- -------- --------
Net income (loss) ($ 2,032) $ 300 ($ 172) ($ 128) ($ 2,032)
======== ======== ======== ======== ========
13
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months ended July 1, 2000
----------------------------------------------------------------
Parent Guarantor Non-Guarantors Eliminations Consolidated
-------- -------- -------- -------- --------
Net cash (used in) provided by operating
activities: ($ 2,031) $ 847 $ 384 ($ 16) $ 3,246
Cash flows from investing activities:
Proceeds from asset sales 8 -- 32 -- 40
Purchase of equipment (1,300) (97) (218) -- (1,615)
Acquisitions (483) -- -- -- (483)
-------- -------- -------- -------- --------
Net cash used in investing activities (1,775) (97) (186) -- (2,058)
Cash flows from financing activities:
Change in overdraft -- -- (58) -- (58)
Net repayment of revolving credit facility -- -- 30 -- 30
Proceeds from issuance of long-term debt-
net of issuance cost -- -- -- -- --
Principal payments of long-term debt -- -- 78 -- 78
Intercompany loans -- 274 (273) (1) --
Issuance of common stock 18 144 (1) (143) 18
Purchase of treasury stock (995) -- -- -- (995)
Dividends (paid) received 1,100 (1,100) -- -- --
Other -- -- -- -- --
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities 123 (682) (224) (144) (927)
Effect of Foreign Exchange -- (318) (168) 160 (326)
-------- -------- -------- -------- --------
Increase (decrease) in cash 379 (250) (194) -- (65)
Cash at beginning of the period 7,159 340 884 -- 8,383
-------- -------- -------- -------- --------
Cash at end of the period $ 7,538 $ 90 $ 690 -- $ 8,318
======== ======== ======== ======== ========
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months ended June 30, 2001
----------------------------------------------------------------
Parent Guarantor Non-Guarantors Eliminations Consolidated
-------- -------- -------- -------- --------
Net cash (used in) provided by operating
activities: ($ 4,089) $ 179 $ 1,078 ($ 87) ($ 2,919)
Cash flows from investing activities:
Proceeds from asset sales -- 10 32 -- 42
Purchase of equipment (1,276) (28) (406) -- (1,710)
Acquisitions (4,516) -- -- -- (4,516)
-------- -------- -------- -------- --------
Net cash used in investing activities (5,792) (18) (374) -- (6,184)
Cash flows from financing activities:
Change in overdraft 172 -- 98 -- 270
Net proceeds from revolving credit
facility -- -- (939) -- (939)
Proceeds from issuance of long-term debt-
net of issuance cost 2,782 -- -- -- 2,782
Principal payments of long-term debt -- -- -- -- --
Intercompany loans -- 357 (362) 5 --
Issuance of common stock -- -- -- -- --
Dividends (paid) received 432 (432) -- -- --
Purchase of treasury stock (68) -- -- -- (68)
Other (55) -- (33) -- (88)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities 3,263 (75) (1,235) 4 1,957
Effect of Foreign Exchange -- (331) (27) 83 (275)
-------- -------- -------- -------- --------
Decrease in cash (6,618) (245) (558) -- (7,421)
Cash at beginning of the period 7,397 276 1,240 -- 8,913
-------- -------- -------- -------- --------
Cash at end of the period $ 779 $ 31 $ 682 -- $ 1,492
======== ======== ======== ======== ========
14
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 Second Quarter 2001 and Second Quarter 2000
Net Sales: Net Sales for the second quarter of 2001 were $28,336 or 12.5% lower
than second quarter 2000 net sales of $32,383. 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 down 14% versus prior year;
currency and price negatively impacted sales by 3% while acquisitions and
divestitures offset these decreases by 4%.
Gross Profit Margin: Gross Profit was $6,722 for the second quarter of 2001, a
decrease of $3,358 from $10,080 for the corresponding period in 2000. Gross
Profit as a percentage of net sales was 23.7 % and 31.1% for the three months
ended June 30, 2001 and July 1, 2000, respectively. Gross profit was lower in
2001 due to the impact of lower sales ($1,763), lower standard margins ($598),
and higher manufacturing variances ($997).
Selling, General and Administrative Expenses: Selling, general and
administrative (SG&A) expenses as a percent of net sales were 21.2% or $5,999
and 19.5% or $6,308 for the second quarter of 2001 and 2000, respectively.
Expenses were below last year's level primarily due to lower research and
development and administrative expenses. However, the SG&A expenses as a percent
of sales were up from the comparable quarter last year due to the shortfall in
sales.
Operating Income: As a result of the foregoing, operating income decreased
$3,049 to $723 in the second quarter of 2001 when compared to the comparable
period in 2000.
Interest Expense: Interest expense was higher by $134 in the second quarter
of 2001 compared to the corresponding period in 2000 due to increased borrowings
used to finance the Nicholson acquisition.
Income Taxes: The provision (benefit) for income taxes was approximately ($830)
or a 35.7% effective tax rate for the second quarter of 2001, as compared
15
to approximately $350 or a 42.7% effective tax rate for the second quarter of
2000. The effective tax rates differ from the statutory rates 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 decreased $1,966 in
the second quarter of 2001 when compared to the comparable period of 2000.
Comparison of Six Months Ended June 30, 2001 and July 1, 2000
Net Sales: Net Sales for the six months ended June 30, 2001 were $58,989 or 9.7%
lower than six months ended July 1, 2000 net sales of $65,339. In round numbers,
core volume was down 12%, foreign exchange rates impacted sales negatively 2%,
and acquisitions accounted for a 4% improvement in sales.
Gross Profit Margin: Gross Profit was $15,155 for the first six months of 2001,
a decrease of $5,290 from $20,445 for the corresponding period in 2000. Gross
Profit as a percentage of net sales was 25.7 % and 31.3% for the six months
ended June 30, 2001 and July 1, 2000, respectively. This is the result of the
sales shortfall and lower manufacturing productivity in 2001 vs. 2000. The
Company is addressing the weakness in the market by reducing staffing and
controlling expenses.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses as a percent of net sales were 20.8% or $12,293 and
19.6% or $12,797 for the six months of 2001 and 2000, respectively. Expenses
were lower by $504 in the most recent quarter due to headcount and spending
reductions.
Operating Income: As a result of the foregoing, operating income decreased
$4,786 to $2,862 in the first six months of 2001 when compared to the comparable
period in 2000.
Interest Expense: Interest expense was higher by $232 in the first six months of
2001 compared to the corresponding period in 2000. This is primarily due to
higher outstanding debt.
Other, net: The primary reason for other expense of $296 in the six months of
2001 and $471 in the comparable six months of 2000 was realized foreign exchange
losses. The Company has managed its foreign currency exposure by redirecting
product flows to mitigate the strength of the U.S. dollar.
Income Taxes: The provision (benefit) for income taxes was approximately
($1,042) or a 33.9% effective tax rate for the first six months of 2001, as
compared to approximately $785 or a 44.4% effective tax rate for the first six
months of 2000. The effective tax rates differ from the statutory rates
primarily
16
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 decreased $3,016 in
the first six months 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 June 30, 2001 in the
amount of $2,782. 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: Operations used $2,919 for the six-month period ended June 30,
2001 compared to net cash provided of $3,246 for the comparable period last
year. The primary reason for the large swing between periods is the decrease in
Net Income ($3,016).
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.
17
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.
18
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibits
- --------
None
Reports On Form 8-K
- -------------------
No reports on Form 8-K were filed during the quarter ended June 30, 2001.
19
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
August 14, 2001
20