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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 September 29, 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 October 15, 2001: 66,091.25 and 8,968.01, respectively.
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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
September 29, 2001 3
Consolidated Statements of Operations - three and nine
months ended September 30, 2000 and September 29, 2001 4
Consolidated Statements of Cash Flows - nine months
ended September 30, 2000 and September 29, 2001 5
Consolidated Statements of Shareholders' Equity (Deficit)-
for the nine months ended September 30, 2000 and
September 29, 2001 6
Notes to Consolidated Financial Statements -
September 29, 2001 7
Item 2. Management's Discussion and Analysis of Financial 17
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
2
Part 1. Financial Information
Item 1. Financial Statements (Unaudited)
SIMONDS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
(unaudited)
DECEMBER 30, SEPTEMBER 29,
2000 2001
--------- ---------
ASSETS
------
CURRENT ASSETS:
Cash $ 8,913 $ 1,414
Accounts receivable, net of allowance for doubtful accounts of $909 and $824 16,948 15,421
Inventories (Note 3) 24,869 24,609
Other current assets 3,573 3,787
Currently deferred tax asset 818 818
--------- ---------
TOTAL CURRENT ASSETS 55,121 46,049
PROPERTY, PLANT & EQUIPMENT:
Land 2,147 2,139
Building and improvements 10,275 10,326
Machinery and equipment 33,952 37,972
Construction-in-progress 988 3,774
--------- ---------
47,362 54,211
Less - Accumulated depreciation 14,207 17,461
--------- ---------
NET PROPERTY, PLANT & EQUIPMENT 33,155 36,750
OTHER ASSETS:
Goodwill, net of accumulated amortization of $2,830 and $3,303 22,221 22,278
Deferred financing costs, net of accumulated amortization of $1,077 and $1,461 3,390 3,134
Other, including buildings held for resale 1,567 1,951
--------- ---------
TOTAL ASSETS 27,178 27,363
--------- ---------
TOTAL ASSETS $ 115,454 $ 110,162
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Overdraft facilities $ 128 $ 334
Revolving credit loans and notes payable 421 3,008
Current portion of long-term debt 2,409 --
Accounts payable 7,807 7,075
Accrued payroll and employee benefits 4,371 3,442
Accrued interest 5,153 2,662
Other accrued liabilities 1,794 1,302
Currently deferred income taxes 1,547 1,544
--------- ---------
TOTAL CURRENT LIABILITIES 23,630 19,367
LONG-TERM DEBT, net of current portion (Note 4) 100,000 104,421
DEFERRED INCOME TAXES 4,891 4,918
OTHER NONCURRENT LIABILITIES 2,266 2,984
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDERS' EQUITY (DEFICIT):
Common stok, $.01 par value-Authorized - 200,000 shares
Issued and outstanding - 75,267 and 75,059 1 1
Capital in excess of par value (24,387) (24,387)
Retained earnings 12,909 7,805
Accumulated other comprehensive income (loss) (2,740) (3,740)
Treasury stock, at cost (1,116) (1,207)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (15,333) (21,528)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 115,454 $ 110,162
========= =========
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 Nine Months Ended
Sept. 30, Sept 29, Sept. 30, Sept 29,
2000 2001 2000 2001
-------- -------- -------- --------
Net sales $ 30,569 $ 26,068 $ 95,908 $ 85,057
Cost of goods sold 22,573 20,367 67,467 64,201
-------- -------- -------- --------
Gross profit 7,996 5,701 28,441 20,856
Selling, general and administrative expenses 6,343 5,937 19,140 18,230
-------- -------- -------- --------
Operating income (loss) 1,653 (236) 9,301 2,626
Other expenses (income):
Interest expense 2,740 2,880 8,148 8,520
Other, net 268 (72) 739 224
-------- -------- -------- --------
Income (loss) before income taxes (1,355) (3,044) 414 (6,118)
Provision (benefit) for income taxes 86 28 871 (1,014)
-------- -------- -------- --------
Net income (loss) ($ 1,441) ($ 3,072) ($ 457) ($ 5,104)
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
4
SIMONDS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in Thousands)
-----------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 29,
2000 2001
-----------------------------------
(Unaudited) (Unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net Loss $ (457) $ (5,104)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,935 4,445
Gain on sale of assets 80 3
Provision (benefit) from deferred income taxes (51) 24
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 417 1,527
Inventories 2,225 1,286
Income tax refunds receivable 951 -
Other current and non-current assets 13 125
Accounts payable (939) (732)
Accrued expenses (3,588) (4,749)
Other non-current liabilities (195) 194
-------- --------
Net cash provided by (used in) operating activities 2,391 (2,981)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 930 44
Purchases of equipment (2,828) (2,004)
Acquisition of Bluebonnet Tools (483) -
Acquisition of Cirtec, Inc. (462) -
Acquisition of Nicholson Inc. - (4,540)
Acquisition of Interest in Hermacasa - (691)
-------- --------
Net cash used in investing activities (2,843) (7,191)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in overdrafts 52 206
Net uses under revolving credit (42) (848)
Proceeds from issuance of long-
term debt-net of issuance costs - 27,107
Principal payments of long-term debt (125) (22,686)
Issuance of common stock 18 -
Purchase of treasury stock (995) (91)
Other - (169)
-------- --------
Net cash (used in ) provided by financing activities (1,092) 3,519
-------- --------
EFFECT OF EXCHANGE RATE ON CASH (859) (846)
-------- --------
NET DECREASE IN CASH (2,403) (7,499)
-------- --------
CASH AT BEGINNING OF PERIOD 8,383 8,913
-------- --------
CASH AT END OF PERIOD $ 5,980 $ 1,414
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
5
SIMONDS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the nine months ended September 30,
2000 and September 29, 2001
(In thousands, except share amounts)
(Unaudited)
Accumulated Total
Capital Other Treasury Shreholders'
Common Common in Excess Retained Comprehensive Stock Equity Comprehensive
Shares Stock of Par Earnings Loss (Deficit) (loss) Income (loss)
------ ----- ------ -------- ---- --------- ------ -------------
Balance at January 1, 2000 77,360 $ 1 $ (24,405) $ 14,130 $ (1,850) $ (121) $ (12,245) $ -
Net income (loss) - - - (457) - - (457) (457)
Foreign currency translation adjustment - - - - (1,485) - (1,485) (1,485)
Amortization of stock option compensation - - 18 - - - 18 -
Acquisition of treasury stock (2,093) - - - - (995) (995) -
---------------------------------------------------------------------------------------
Balance at September 30, 2000 75,267 $ 1 $ (24,387) $ 13,673 $ (3,335) $ (1,116) $ (15,164) $ (1,942)
=======================================================================================
Balance at December 30, 2000 75,267 $ 1 $ (24,387) $ 12,909 $ (2,740) $ (1,116) $ (15,333) $ -
Net income (loss) (5,104) - - (5,104) (5,104)
Foreign currency translation adjustment - - - - (1,033) - (1,033) (1,033)
Additional minimum pension liability - - - - - - 33 33
Amortization of stock option compensation - - - - 33 - - -
Acquisition of Treasury Stock (208) - - - - (91) (91) -
---------------------------------------------------------------------------------------
Balance at September 29, 2001 75,059 $ 1 $ (24,387) $ 7,805 $ (3,740) $ (1,207) $ (21,528) $ (6,104)
=======================================================================================
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 nine months ended September 29, 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
On September 29, 2001, the Company acquired 45% of the outstanding stock of
Herreamientas Manuales Centroamericanas, SA ("Hermacasa") for approximately
$691,000 which was paid in cash with additional financing from the Company's
revolving credit facility with Citizens Bank. The acquisition was accounted for
as a purchase and the purchase price was allocated based on the fair market
value of the underlying assets and liabilities. The purchase price in excess of
fair value of net assets acquired will be recorded as goodwill. The results of
operations of Hermacasa subsequent to the date of the acquisition will be
reflected in the Company's financial statements.
7
2. Acquisitions and Divestitures (continued)
Operating results for the nine months ended September 29, 2001 and September 30,
2000, respectively, include a restructuring charge of $200 and $1,440. In
accordance with Emerging Issues Task Force (EITF) Opinion 94-3 and Statement of
Accounting Bulletin (SAB) #100, the restructuring charge is comprised of costs
to eliminate certain product lines of $0 and $880, respectively, costs
associated with moving equipment of other facilities, and the costs to write-off
excess assets of $0 and $220, respectively, and employee related costs of $200
and $215, respectively, and other miscellaneous restructuring costs of $0 and
$125, respectively. The cash impact of these costs totals $200 and $365,
respectively. The non-cash impact totals $0 and $1,075, respectively. These
restructuring costs were all recognized in the third quarter ended September 29,
2001 and September 30, 2000, respectively, and are reflected in the accompanying
financial statements.
3. Inventories at December 30, 2000 and September 29, 2001 were as follows
(in thousands).
December 30, September 29,
2000 2001
Raw materials 4,921 5,287
Work in process 6,731 5,382
Finished goods 13,217 13,940
--------- --------
$ 24,869 $ 24,609
========= ========
8
4. Debt
Debt consists of the following at December 30, 2000 and September 29, 2001 (in
thousands):
(Unaudited)
December 30, September 29,
2000 2001
----------------- -----------------
Line of credit facility with First Union National Bank up to approximately $2,409 $1,791
$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 Scotland Gmbh up
to the same limit as above with interest payable upon expiration of each
maturity at contracted EUROBOR rate (4.523% at September 29, 2001) plus 1%
payable in Deutschmarks.
Line of credit facilities with Banco Sabadell and Banco Popular of Spain, 206 191
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, 2001, bearing 215 0
interest at 8.5%, payable in British Pounds.
Note Payable to Cooper Industries, bearing interest at 7% and maturing on 0 1,026
December 31, 2001
Senior Credit Facility with Citizens Bank up to $40,000 bearing interest at 0 4,421
prime rate (6.00% at September 29, 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%. ----------------- -----------------
102,830 107,429
Less-current maturities 2,830 3,008
----------------- -----------------
$100,000 $104,421
================= =================
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
9
of cash flow to fixed charges to be greater than 1.00 to 1.00 for all fiscal
quarters during 2001 and 1.20 to 1.00 thereafter. At June 30, 2001 the Company
secured a waiver of compliance with respect to cash flow coverage under the New
Senior Credit Facility for the quarter. Additionally, the cash flow coverage
ratios required for the quarters ending September 29, 2001 and December 29, 2001
were amended to .65 to 1.00 and .69 to 1.00, respectively.
On August 8, 2001, the Company and Citizens Bank of Massachusetts agreed to an
amendment to the Loan and Security Agreement dated December 29, 2000. Section 17
(c), covering cash flow coverage, has been amended in its entirety. For the
twelve month period ending on the last day of any fiscal quarter, the ratio of
cash flow to fixed charges to be not less than .65 to 1.00 for the fiscal
quarter ended September 29, 2001; .69 to 1.00 for the fiscal quarter ended
December 29, 2001; 1.20 to 1.00 for any fiscal quarter ending during calendar
year 2002 and 1.30 to 1.00 for any fiscal quarter thereafter.
Simonds Industries, Inc. was not in compliance with the negative covenant
regarding the ratio of cash flow to fixed charges under Section 17 (c) of the
loan agreement dated December 29, 2000. Effective November 5, 2001, Citizens
Bank has waived the provisions of Section 17 (c) "Cash Flow Coverage" of the
Loan Agreement for the quarterly accounting period ended September 29, 2001
subject to Simonds Industries, Inc's agreement to additional conditions set
forth below:
In consideration for the covenant waiver, Citizens established as of September
29, 2001, a reserve against Accounts in the calculation of the Borrowing Base.
This reserve equals the amount by which fixed charges exceed cash flow on
September 29, 2001 pursuant to the calculations under Section 17(c). Citizens
has reserved its right to alter the amount of this reserve against Accounts
under Section 5(i). The amount of the loan restriction as of September 29, 2001
was $4,247.
The waiver of Section 17(c) relates only to the quarterly accounting period
ended September 29, 2001. Except to the extent waived as set forth above all
terms of the Loan Agreement and related documents remain in full force and
effect.
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 31, 2000, the Company adopted 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.
10
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 $170 and $498 for
the three months and nine months ended September 30, 2000, respectively and $154
and $496 for the three months and nine months ended September 29, 2001,
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 of accounting and that all acquired intangible assets
be recorded separate from Goodwill if they meet certain criteria. The adoption
of SFAS 141 did not have a material effect on the Company's operating results or
financial condition.
The Company adopted Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN
FINANCIAL STATEMENTS (SAB 101) in the fourth quarter of fiscal 2001. The
adoption of SAB 101 did not have a material impact on the Company's operating
results or financial position.
In June 2001, the FASB issued SFAS No 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets, and
the associated asset retirement costs. This statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002. Management
does not believe that the adoption of this statement will have a material effect
on the Company's financial condition.
In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS, which supersedes SFAS No. 121 and portions of APB
Opinion No. 30. This statement addresses the recognition of an impairment loss
for long-lived assets to be held and used, or disposed of by sale or otherwise.
This statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. Management does not believe that the adoption of this statement will have
a material effect on the Company's financial condition.
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:
11
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 process 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
========= ========= ========= ========= =========
12
SIMONDS INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
(In Thousands)
(Unaudited)
As of September 29, 2001
Parent Guarantor Non-Guarantors Eliminations Consolidated
--------- --------- --------- --------- ---------
ASSETS
CURRENT ASSETS:
Cash $ 633 $ 16 $ 765 $ - $ 1,414
Accounts receivable 8,293 627 6,501 - 15,421
Intercompany accounts receivable 4,181 3,699 3,117 (10,997) -
Inventories:
Raw materials 3,712 47 1,528 - 5,287
Work in process 4,483 346 553 - 5,382
Finished goods 7,176 537 6,417 (190) 13,940
Other current assets 4,414 40 151 - 4,605
--------- --------- --------- --------- ---------
Total current assets 32,892 5,312 19,032 (11,187) 46,049
--------- --------- --------- --------- ---------
Net property, plant and equipment 28,613 2,595 5,542 - 36,750
OTHER ASSETS:
Investment in subsidiaries 39,787 6,228 - (45,324) 691
Intercompany loan receivable - 23,997 283 (24,280) -
Other assets 19,115 3,492 4,065 - 26,672
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 120,407 $ 41,624 $ 28,922 $ (80,791) $ 110,162
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES $ 17,499 $ 1,544 $ 11,341 $ (11,017) $ 19,367
LONG-TERM DEBT, net of current portion 104,421 - - - 104,421
INTERDIVISION LONG-TERM DEBT 15,145 283 8,852 (24,280) -
OTHER NONCURRENT LIABILTIES 4,870 531 2,501 - 7,902
SHAREHOLDERS' EQUITY (DEFICIT) (21,528) 39,266 6,228 (45,494) (21,528)
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND SHAREFHOLDERS' EQUITY $ 120,407 $ 41,624 $ 28,922 $ (80,791) $ 110,162
========= ========= ========= ========= =========
13
SIMONDS INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Nine Months ended September 30, 2000
--------------------------------------------------------------------------
Parent Guarantors Non-guarantors Eliminations Consolidated
-------- -------- -------- -------- --------
Net sales $ 66,004 $ 7,093 $ 34,429 ($11,618) $ 95,908
Cost of goods sold 46,442 4,557 28,086 (11,618) 67,467
-------- -------- -------- -------- --------
Gross profit 19,562 2,536 6,343 0 28,441
Selling, general and administrative expenses 11,432 1,796 5,912 0 19,140
-------- -------- -------- -------- --------
Operating income 8,130 740 431 0 9,301
Other expenses (income):
Interest expense 9,339 299 1,146 (2,469) 8,315
Interest income (153) (2,254) (229) 2,469 (167)
Other, net 292 265 182 0 739
Equity in earnings of subsidiaries (546) 931 0 (385) 0
-------- -------- -------- -------- --------
Income (loss) before income taxes (802) 1,499 (668) 385 414
Provision (benefit) for income taxes (345) 953 263 0 871
-------- -------- -------- -------- --------
Net income (loss) ($ 457) $ 546 ($ 931) $ 385 ($ 457)
======== ======== ======== ======== ========
SIMONDS INDUSTRIES, INC
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Nine Months ended September 29, 2001
--------------------------------------------------------------------------
Parent Guarantors Non-guarantors Eliminations Consolidated
-------- -------- -------- -------- --------
Net sales $ 60,968 $ 5,216 $ 29,806 ($10,933) $ 85,057
Cost of goods sold 46,828 3,859 24,447 (10,933) 64,201
-------- -------- -------- -------- --------
Gross profit 14,140 1,357 5,359 0 20,856
Selling, general and administrative expense 11,487 1,575 5,168 0 18,230
-------- -------- -------- -------- --------
Operating income (loss) 2,653 (218) 191 0 2,626
Other expenses (income):
Interest expense 9,376 198 860 (1,873) 8,561
Interest income (22) (1,708) (184) 1,873 (41)
Other, net 18 3 203 0 224
Equity in earnings of subsidiaries (277) 451 0 (174) 0
-------- -------- -------- -------- --------
Income (loss) before income taxes (6,442) 838 (688) 174 (6,118)
Provision (benefit) for income taxes (1,338) 561 (237) 0 (1,014)
-------- -------- -------- -------- --------
Net income (loss) ($ 5,104) $ 277 ($ 451) $ 174 ($ 5,104)
======== ======== ======== ======== ========
14
SIMONDS INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Three months ended September 30, 2000
----------------------------------------------------------------------------
Parent Guarantors Non-guarantors Eliminations Consolidated
-------- -------- -------- -------- --------
Net sales $ 21,386 $ 1,918 $ 10,826 $ (3,561) $ 30,569
Cost of goods sold 14,806 1,318 10,010 (3,561) 22,573
-------- -------- -------- -------- --------
Gross profit 6,580 600 816 -- 7,996
Selling, general and administrative expenses 3,784 505 2,054 -- 6,343
-------- -------- -------- -------- --------
Operating income (loss) 2,796 95 (1,238) -- 1,653
Other expenses (income):
Interest expense 3,125 95 402 (831) 2,791
Interest income (47) (758) (77) 831 (51)
Other, net 27 50 191 -- 268
Equity in earnings of subsidiaries 1,175 1,597 -- (2,772) --
-------- -------- -------- -------- --------
Income (loss) before income taxes (1,484) (889) (1,754) 2,772 (1,355)
Provision (benefit) for income taxes (43) 286 (157) -- 86
-------- -------- -------- -------- --------
Net income (loss) $ (1,441) $ (1,175) $ (1,597) $ 2,772 $ (1,441)
======== ======== ======== ======== ========
SIMONDS INDUSTRIES, INC
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Three months ended September 29, 2001
----------------------------------------------------------------------------
Parent Guarantors Non-guarantors Eliminations Consolidated
-------- -------- -------- -------- --------
Net sales $ 18,586 $ 1,583 $ 9,388 $ (3,489) $ 26,068
Cost of goods sold 14,861 1,183 7,812 (3,489) 20,367
-------- -------- -------- -------- --------
Gross profit 3,725 400 1,576 -- 5,701
Selling, general and administrative expenses 3,753 505 1,679 -- 5,937
-------- -------- -------- -------- --------
Operating income (loss) (28) (105) (103) -- (236)
Other expenses (income):
Interest expense 3,139 58 252 (559) 2,890
Interest income (2) (509) (58) 559 (10)
Other, net (8) (114) 50 -- (72)
Equity in earnings of subsidiaries 23 279 -- (302) --
-------- -------- -------- -------- --------
Income (loss) before income taxes (3,180) 181 (347) 302 (3,044)
Provision (benefit) for income taxes (108) 204 (68) -- 28
-------- -------- -------- -------- --------
Net income (loss) $ (3,072) $ (23) $ (279) $ 302 $ (3,072)
======== ======== ======== ======== ========
15
SIMONDS INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------------
Parents Guarators Non-Guarantors Eliminations Consolidated
------- ------- ------- ------- -------
Net cash (used in) provided by operating
activities: $ (535) $ 1,353 $ 1,593 $ (20) $ 2,391
Cash flows from investing activities:
Proceeds from asset sales 895 - 35 - 930
Purchase of equipment (2,400) (99) (329) - (2,828)
Acquisitions (945) - - - (945)
------- ------- ------- ------- -------
Net cash used in investing activities (2,450) (99) (294) - (2,843)
Cash flows from financing activities:
Change in overdraft - - 52 - 52
Net uses from revolving credit facility - - (42) - (42)
Principal payments of long-term debt - - (125) - (125)
Intercompany loans - 737 (736) (1) -
Issuance of common stock 18 144 (2) (142) 18
Purchase of treasury stock 1,646 (1,646) - - -
Dividends paid (995) - - - (995)
------- ------- ------- ------- -------
Net cash (used in) provided by financing activities 669 (765) (853) (143) (1,092)
Effect of Foreign Exchange 30 (500) (552) 163 (859)
------- ------- ------- ------- -------
Decrease in cash (2,286) (11) (106) - (2,403)
Cash at beginning of the period 7,159 340 884 - 8,383
------- ------- ------- ------- -------
Cash at end of the period $ 4,873 $ 329 $ 778 $ - $ 5,980
======= ======= ======= ======= =======
16
SIMONDS INDUSTRIES, INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 29, 2001
--------------------------------------------------------------------------
Parents Guarantors Non-Guarantors Eliminations Consolidated
-------- -------- -------- -------- --------
Net cash (used in) provided by operating
activities: $ (4,718) $ 235 $ 1,704 $ (202) $ (2,981)
Cash flows from investing activities:
Proceeds from asset sales - 10 34 - 44
Purchase of equipment (1,441) (58) (505) - (2,004)
Acquisitions (5,231) - - - (5,231)
-------- -------- -------- -------- --------
Net cash used in investing activities (6,672) (48) (471) - (7,191)
Cash flows from financing activities:
Change in overdraft - 135 71 - 206
Net repayment from revolving credit facility - - (848) - (848)
Proceeds from issuance of long-term debt-
net of issuance cost 27,107 - - - 27,107
Principal payments of long-term debt (22,686) - - - (22,686)
Intercompany loans - (51) (99) 150 -
Dividends (paid) received 432 (432) - - -
Purchase of treasury stock (91) - - - (91)
Other (136) - (33) - (169)
-------- -------- -------- -------- --------
Net cash (used in) provided by financing activities 4,626 (348) (909) 150 3,519
Effect of Foreign Exchange - (99) (799) 52 (846)
-------- -------- -------- -------- --------
Decrease in cash (6,764) (260) (475) - (7,499)
Cash at beginning of the period 7,397 276 1,240 - 8,913
-------- -------- -------- -------- --------
Cash at end of the period $ 633 $ 16 $ 765 $ - $ 1,414
======== ======== ======== ======== ========
17
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 three months ended September 29, 2001 and September 30, 2000,
respectively.
Net Sales: Net Sales for the three months ended September 29, 2001 were $26,068
or (14.7%) lower than net sales for the three months ended September 30, 2000 of
$30,569. 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 16% versus prior year; currency and price negatively impacted sales by 2%
while acquisitions and divestitures offset these decreases by 3%.
Gross Profit Margin: Gross Profit was $5,701 for three months ended September
29, 2001, a decrease of ($2,295) from $7,996 for the corresponding period in
2000. Gross Profit as a percentage of net sales was 21.9% and 26.2% for the
three months ended September 29, 2001 and September 30, 2000, respectively.
Gross profit was negatively impacted by significantly lower unit volume and
unfavorable product mix as well as the negative impact of currency exchange.
Selling, General and Administrative Expenses: Selling, general and
administrative (SG&A) expenses as a percent of net sales were 22.8% or $5,937
and 20.7% or $6,343 for the three months ended September 29, 2001 and September
30, 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 three months last
year by 2.1% and is primarily attributable to the shortfall in sales and the
fixed component of SG&A expenses not decreasing at the same rate as sales.
Operating Income (loss): As a result of the foregoing, operating income
decreased $1,889 to ($236) for the three months ended September 29, 2001 when
compared to the comparable three month period ended September 30, 2000.
Interest Expense: Interest expense was higher by $99 in the three month period
ended September 29, 2001 compared to the corresponding three month period ending
September 30, 2000 due to increased borrowings used to finance the Nicholson
acquisition.
Income Taxes: The provision for income taxes was approximately $28 or a (.9)%
effective tax rate for the three months ended September 29, 2001 as compared to
approximately $86 or 101.2% effective tax rate for the three months ended
September 30, 2000. The effective tax rates differ from the statutory rates
primarily as a result of permanent differences generated from goodwill
amortization and certain expenses that are not deductible for tax purposes.
18
Net Income (loss): As a result of the foregoing, net income decreased $1,631 for
the three months ended September 29, 2001 when compared to the three month
period ending September 30, 2000.
Comparison of Nine Months Ended September 29, 2001 and September 30, 2000,
respectively.
Net Sales: Net Sales for the nine months ended September 29, 2001 were $85,057
or 11.3% lower than nine months ended September 30, 2000 net sales of $95,908.
In round numbers, core volume was down 13%, foreign exchange rates impacted
sales negatively 1%, and acquisitions accounted for a 3% improvement in sales.
Gross Profit Margin: Gross Profit was $20,856 for the nine months ending
September 29, 2001, a decrease of $7,585 from $28,441 for the corresponding nine
month period ending September 30, 2000. Gross Profit as a percentage of net
sales was 24.5% and 29.7% for the nine months ended September 29, 2001 and
September 30, 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 21.4% or $18,230 and
20.0% or $19,140 for the nine months ended September 29, 2001 and nine months
ended September 30, 2000, respectively. Expenses were lower by $406 in the most
recent nine month period due to headcount and spending reductions.
Operating Income: As a result of the foregoing, operating income decreased
$6,675 to $2,626 in the nine month period ended September 29, 2001 when compared
to the nine month period ended September 30, 2000.
Interest Expense: Interest expense was higher by $372 in the nine months ending
September 29, 2001 compared to the corresponding period in 2000. This is
primarily attributable to additional acquisitions and increased operating losses
that are being partially funded through the Company's revolving bank loan.
Other, net: The primary reason for other expense of $224 in the nine months
ended September 29, 2001 and $739 in the comparable nine month period ended
September 30, 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 benefit from income taxes was $1,014 or a 16.6% effective tax
rate for the nine months ended September 29, 2001, as compared to $871 or an
effective tax rate of 47.0% for the nine months ended September 30, 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 $4,647 in
the nine months ending September 29, 2001 when compared to the comparable nine
moth period ended September 30, 2000.
19
Liquidity and Capital Resources
Simond's 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 September 29, 2001 in
the amount of $4,421. 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: Cash flow used in operations was ($2,981) for the nine months
ended September 29, 2001 versus cash flow from operations of $2,391 for the nine
months ended September 20, 2000. The primary causes have continued to be
additional incremental losses incurred in the nine months ended September 29,
2001 over losses generated in the nine months ended September 30, 2000 in the
amount of ($4,647). In addition, an increase in inventories has used ($939),
accrued expenses have used approximately ($1,161) primarily because of the
timing of interest payments. These uses of cash were partially offset by
additional depreciation of $500 and an overall decrease in accounts receivable
year over year.
Cash flow from investing activities used an additional $4,348 in cash for the
nine months ended September 29, 2001 versus the nine months ended September 30,
2000 predominantly being driven by the Nicholson and Hermacasa acquisitions.
Cash flow from financing activities increased by $4,611 for the nine months
ended September 29, 2001 versus the nine months ended September 30, 2000. This
is caused by additional draws on the Company's revolving loan facility which was
an incremental $4,421 in proceeds year over year.
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.
20
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.
21
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 September 29, 2001.
22
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
November 5, 2001
23