-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cj1QT9AiBzM+aySnAxzllJ9tUEoUhwbIHLYmoNUkjJNAmbnyXJZ7V1InHIo9pNc8 B/QxnDBueBlKaU9FkX18uA== 0000894579-99-000154.txt : 19990816 0000894579-99-000154.hdr.sgml : 19990816 ACCESSION NUMBER: 0000894579-99-000154 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL KNIFE & SAW INC CENTRAL INDEX KEY: 0001027909 STANDARD INDUSTRIAL CLASSIFICATION: CUTLERY, HANDTOOLS & GENERAL HARDWARE [3420] IRS NUMBER: 570697252 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-17305 FILM NUMBER: 99687658 BUSINESS ADDRESS: STREET 1: 1299 COX AVENUE CITY: ERLANGER STATE: KY ZIP: 41018 BUSINESS PHONE: 6063710333 MAIL ADDRESS: STREET 1: 1299 COX AVENUE CITY: ERLANGER STATE: KY ZIP: 41018 10-Q 1 QUARTERLY REPORT ================================================================================ 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 30,1999 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from______ to _______ Commission file number: 333-17305 International Knife & Saw, Inc. (Exact name of registrant as specified in its charter) Delaware 57-0697252 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1299 Cox Avenue Erlanger, Kentucky 41018 (Address of principal executive offices) (606) 371-0333 (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 __ As of July 31, 1999, there were 481,971 shares of the registrant's common stock outstanding, all of which were owned by an affiliate of the registrant. ================================================================================ 1 International Knife & Saw, Inc. and Subsidiaries Index Page No. Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Income 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II. Other Information Item 1. Legal Proceedings 14 Item 2. Change in Securities 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 (a) Exhibits (b) Reports on Form 8-K 14 Signatures 15 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements International Knife & Saw, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) June 30, December 31, 1999 1998 ------------------------------ Assets (in thousands) Current assets: Cash and cash equivalents $ 3,575 $ 2,032 Accounts receivable, trade, less allowances for doubtful accounts of $1,694 and $1,780 25,517 25,595 Inventories 27,401 30,981 Due from parent 1,297 249 Other current assets 2,786 2,964 ------------------------------ Total current assets 60,576 61,821 Other assets: Goodwill 16,927 18,284 Debt issuance costs 2,970 3,203 Other noncurrent assets 2,312 2,307 ------------------------------ 22,209 23,794 Property, plant and equipment-net 47,394 49,360 ------------------------------ Total assets $ 130,179 $ 134,975 ============================== See accompanying notes. 3 International Knife & Saw, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited) June 30, December 31, 1999 1998 ------------------------------- (in thousands) Liabilities and shareholder's deficit Current liabilities: Notes payable $ 4,458 $ 12,667 Current portion of long-term debt 2,776 2,555 Accounts payable 9,702 9,546 Accrued liabilities 10,835 10,958 ------------------------------- Total current liabilities 27,771 35,726 Long-term debt, less current portion 113,542 107,954 Other liabilities 6,712 7,004 ------------------------------- Total liabilities 148,025 150,684 Minority interest 2,448 2,384 Shareholder's deficit: Common stock, no par value - authorized - 580,000 shares; issued - 526,904 shares; outstanding - 481,971 shares 5 5 Additional paid-in capital 10,153 10,153 Retained deficit (23,196) (22,508) Accumulated other comprehensive loss (3,824) (2,311) Treasury stock, at cost (3,432) (3,432) ---------------------------- Total shareholder's deficit (20,294) (18,093) ============================ Total liabilities and shareholder's deficit $ 130,179 $ 134,975 ============================ See accompanying notes. 4 International Knife & Saw, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)
Quarter ended Six months ended June 30, June 30, 1999 1998 1999 1998 ----------------------------------------------------- (in thousands, except per share amounts) Net sales $ 37,280 $ 37,334 $ 76,516 $ 76,037 Cost of sales 26,934 25,676 54,510 52,781 ----------------------------------------------------- Gross profit 10,346 11,658 22,006 23,256 Selling, general and administrative expenses 8,348 7,480 16,615 14,892 ----------------------------------------------------- Operating income 1,998 4,178 5,391 8,364 Other expenses (income): Interest income (34) (35) (57) (40) Interest expense 3,144 3,021 6,311 6,011 Minority interest 127 - 181 23 ----------------------------------------------------- 3,237 2,986 6,435 5,994 ----------------------------------------------------- Income (loss) before income taxes (1,239) 1,192 (1,044) 2,370 Provision (benefit) for income taxes (435) 531 (356) 1,055 Net (loss) income $ (804) $ 661 $ (688) $ 1,315 ===================================================== Net (loss) income per common share $ (1.67) $ 1.37 $ (1.43) $ 2.73
See accompanying notes. 5 International Knife & Saw, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 1999 1998 ---------------------------- (in thousands) Operating activities Net (loss) income $ (688) $ 1,315 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 3,307 3,024 Loss on sale of property, plant and equipment 31 22 Minority interest in income of subsidiary 181 23 Changes in operating assets and liabilities, net of effects from purchases of operations: Accounts receivable (754) (87) Inventories 2,605 (1,252) Accounts payable (190) (254) Accrued liabilities 821 398 Other (337) 400 ---------------------------- Net cash provided by operating activities 4,976 3,589 Investing activities Purchases of operations, net of cash acquired - (1,219) Purchases of property, plant and equipment (3,731) (3,935) Proceeds from sale of property, plant and equipment 423 30 Decrease in notes receivable and other assets 322 71 ---------------------------- Net cash used by investing activities (2,986) (5,053) Financing activities Decrease in amounts due to parent (1,048) (86) Increase in notes payable and long-term debt 15,366 6,509 Repayment of notes payable and long-term debt (14,733) (4,828) Cash received from investees - 4 ---------------------------- Net cash (used) provided by financing activities (415) 1,599 Effect of exchange rates on cash and cash equivalents (32) (69) ---------------------------- Increase in cash and cash equivalents 1,543 66 Cash and cash equivalents at beginning of period 2,032 2,349 ---------------------------- Cash and cash equivalents at end of period $ 3,575 $ 2,415 ============================
See accompanying notes. 6 International Knife & Saw, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (in thousands) 1. Basis of Presentation The unaudited interim consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, which are, in the opinion of the management of International Knife & Saw, Inc. and its consolidated subsidiaries ("the Company"), necessary to present fairly the consolidated financial position and consolidated results of operations and cash flows of the Company. Results of operations for the periods presented are not necessarily indicative of the results for the full fiscal year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1998. The consolidated balance sheet at December 31, 1998 has been derived from the audited consolidated financial statements at that date. Certain 1998 amounts have been reclassified to conform to the current year presentation. 2. Comprehensive Income The Company includes minimum pension liabilities and foreign currency translation adjustments in other comprehensive income. During the first half of 1999 and 1998, total comprehensive (losses) gains amounted to $(2,201) and $567, respectively, including $1,513 and $748 of other comprehensive losses related to foreign currency translation adjustments. 3. Notes Payable and Long-Term Debt
June 30, December 31, 1999 1998 ---------------------------- Notes payable: Notes payable on demand in German Marks to a German bank, issued under revolving credit agreements, interest payable quarterly $ 1,634 $7,922 Notes payable on demand in Chinese Yuan Renminbi to Chinese banks, issued under revolving credit agreements, interest payable monthly 1,700 1,259 Notes payable on demand in U.S. Dollars to a German bank, issued under revolving credit agreements, interest payable quarterly 1,050 3,280 Other 74 206 ---------------------------- $4,458 $12,667 ============================
7 International Knife & Saw, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Unaudited) (in thousands) 3. Notes Payable and Long-Term Debt (continued)
June 30, December 31, 1999 1998 ---------------------------- Long-term debt: 11-3/8% Senior Subordinated Notes due 2006 $90,000 $90,000 Notes payable in German Marks to a German bank 17,197 12,830 Notes payable in Chinese Yuan Renminbi to Chinese banks 1,921 2,989 Capitalized lease obligations in U.S. dollars to U.S. banks 3,892 721 Promissory note payable in German Marks to a former shareholder of the Rolf Meyer Company 740 787 Promissory note payable in Dutch Guilders to a former shareholder of the Diacarb Company 2,413 2,682 Other 155 500 ---------------------------- 116,318 110,509 Less current portion 2,776 2,555 ---------------------------- $113,542 $107,954 ============================
At June 30, 1999, the Company had revolving credit facilities of $20,000 ($16,015 unused), DM 8,500 (all used), DM 7,500 (all used) and DM 8,500 (all used). A facility fee of 0.25% per annum is charged on the U.S. dollar facility. 4. Income Taxes IKS Corporation, of which the Company is a wholly-owned subsidiary, files a consolidated Federal income tax return which includes the Company. The Company's provision/benefit for income taxes includes U.S. federal, state, and local income taxes as well as non-U.S. income taxes in certain jurisdictions. The current and deferred tax expense and benefit for the Company are recorded as if it filed on a stand-alone basis. All participants in the consolidated income tax return are separately liable for the full amount of the taxes, including penalties and interest, if any, which may be assessed against the consolidated group. The current provision/benefit for United States income taxes is recorded to the intercompany account with IKS Corporation. 8 International Knife & Saw, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Unaudited) (in thousands) 5. Inventories June 30, December 31, 1999 1998 ------------------------------- Finished goods $ 18,746 $ 20,373 Work in process 3,738 4,101 Raw materials and supplies 4,917 6,507 ------------------------------- $ 27,401 $ 30,981 =============================== 6. Organization The Company operates in one business segment - industrial knives and saws. The Company manufactures, markets and services primarily industrial knives and saws internationally, and its customers include distributors, original equipment manufacturers and customers purchasing replacement parts and services. The Company has a leading market share in each of the major sectors it serves: Paper & Packaging; Wood; Metal; and Plastic/Recycling. The Company's operations are principally in the United States, Germany and Canada, representing 57%, 23% and 8% of 1999 net sales, respectively. The Company plans to continue its international growth. As a result of the Company's broad product range and numerous applications, no customer accounts for more than 3% of net sales. The Company performs periodic credit evaluations of its customers and generally does not require collateral. Sales attributable to German and Canadian operations are based on external sales generated by subsidiaries located in those countries. 9 International Knife & Saw, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) (Unaudited) (in thousands) 6. Organization (continued) The following table summarizes the Company's United States, German, Canadian and other operations. Six months ended June 30, 1999 1998 - -------------------------------------------------------------------------------- United States Operations: Net sales - Customers $ 43,623 $ 47,910 Long Lived Assets 22,157 20,498 German Operations: Net sales - Customers $ 17,764 $ 16,733 Long Lived Assets 13,841 13,306 Canadian Operations: Net sales - Customers $ 5,941 $ 7,014 Long Lived Assets 1,143 1,279 Other Operations: Net sales - Customers $ 9,188 $ 4,380 Long Lived Assets 10,813 5,341 Consolidated: Net sales $ 76,516 $ 76,037 Long Lived Assets 47,954 40,424 10 The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward looking statements. Certain matters discussed in this filing could be characterized as forward looking statements, such as statements relating to plans for future expansion, other capital spending, financing sources and effects of regulation and competition. Such forward looking statements involve important risks and uncertainties that could cause actual results to differ materially from those expressed in such forward looking statements. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes included in the Company's Form 10-K as of and for each of the three years in the period ended December 31, 1998. General The Company is a global leader in the manufacturing, servicing and marketing of industrial and commercial machine knives and saws. The Company has been manufacturing knives and saws for nearly 100 years, beginning in Europe and expanding its presence to the United States in the 1960s. The Company operates on an international basis with facilities in North America, Europe, Asia and South America and products sold in over 75 countries. The Company offers a broad range of products, used for various applications in numerous markets. Presence outside the U.S. The Company's North American operations account for 65% of its net sales and 47% of its operating income for the first half of 1999. Its other international operations account for the remainder and are located primarily in Europe, 31% of first half sales, and to a lesser extent in Asia. The Company's operating results are subject to fluctuations in foreign currency exchange rates as well as the currency translation of its foreign operations into U.S. dollars. The Company manufactures products in the U.S., Germany, Canada and China and exports products to more than 75 countries. The Company's foreign sales, the majority of which occur in European countries, are subject to exchange rate volatility. In addition, the Company consolidates German, Dutch, French, Canadian, Mexican and Asian operations and changes in exchange rates relative to the U.S. dollar have impacted financial results. As a result, a decline in the value of the dollar relative to these other currencies can have a favorable effect on the profitability of the Company and an increase in the value of the dollar relative to these other currencies can have a negative effect on the profitability of the Company. Comparing exchange rates for the first six months of 1999 to the first six months of 1998, there was minimal effect on sales or net income. In addition, in the first half of 1999 there was a decrease in shareholder's equity from December 31, 1998 due to a $1.5 million change in foreign currency translation adjustment. To mitigate the short-term effect of changes in currency exchange rates on the Company's foreign currency based purchases and its functional currency based sales, the Company occasionally hedges its exposure by entering into foreign exchange and U.S. dollar forward contracts to hedge a portion of its budgeted (future) net foreign exchange and U.S. dollar transactions over periods ranging from one to six months. Results of Operations As used in the following discussion of the Company's results of operations, (i) the term "gross profit" means the dollar difference between the Company's net sales and cost of sales and (ii) the term "gross margin" means the Company's gross profit divided by its net sales. 11 Second quarter and six months ended June 30, 1999 compared to second quarter and six months ended June 30, 1998 Net Sales: Net sales remained constant at $37.3 million and increased .6% to $76.5 million for the second quarter and first half of 1999, respectively from $37.3 and $76.0 million for the same periods in 1998. The Company experienced sales declines in its North American operations of 10.7% and 9.6% to $24.1 and $49.9 million for the second quarter and first half of 1999, respectively, from $27.0 and $55.2 million for the same periods in 1998. The sales declines are primarily attributable to organizational issues and to a lesser extent due to pricing pressures from Asian, South American and domestic competitors that led to a loss of business in the major markets sectors the Company serves. The Company has addressed these organizational issues through several senior management changes, including the hiring of a new CEO. In its other operations, the Company experienced sales improvements of 28.2% and 27.9% to $13.2 and $26.6 million for the second quarter and first half of 1999, respectively, from $10.3 and $20.8 million for the same periods in 1998, primarily attributable to the Diacarb and Buland acquisitions. Gross Profit: Gross profit decreased 12.0% and 5.6% to $10.3 and $22.0 million for the second quarter and first half of 1999 down from $11.7 and $23.3 million for the same periods in 1998. Gross margin decreased to 27.8% and 28.8% for the second quarter and first half of 1999 compared to 31.2% and 30.6% in the second quarter and first half of 1998. The Company experienced gross profit declines in its North American operations of 32.6% and 23.9% to $6.0 and $13.4 million for the second quarter and first half of 1999, respectively, from $8.9 and $17.6 million for the same periods in 1998. The gross profit declines are primarily attributable to the above mentioned factors. Gross profit for the Company's other operations increased 53.6% and 50.9% to $4.3 and $8.6 million for the second quarter and first half of 1999, respectively, from $2.8 and $5.7 million for the same periods in 1998, primarily attributable to the Diacarb and Buland acquisitions. Selling, General and Administrative Expenses: Selling, general and administrative expenses were $8.3 and $16.6 million for the second quarter and first half of 1999 as compared to $7.5 and $14.9 million for the same periods in 1998 and increased as a percentage of sales to 22.4% and 21.7% from 20.0% and 19.6% of sales for the respective periods. The increase is primarily attributable to the Diacarb and Buland acquisitions. Interest Expense, net: Net interest expense increased slightly to $3.1 and $6.3 million for the second quarter and first half of 1999 from $3.0 and $6.0 million for the same periods in 1998 due to higher average debt outstanding in the first half of 1999 compared to the first half of 1998. Income Taxes: Due to pre-tax losses in the second quarter and first half of 1999, the Company recorded tax benefits at effective tax rates of 35.1% and 34.1% respectively. For the same periods in 1998, the Company had pre-tax income and recorded tax provisions at an effective tax rate of 44.5%. The change in the effective tax rates from 1998 is due to significant changes in income contributions from the Company's operations in certain tax jurisdictions. Liquidity and Capital Resources The Company's principal capital requirements are to fund working capital needs, to meet required debt and interest payments, and to complete planned maintenance and expansion expenditures. The Company anticipates that its operating cash flow, together with available borrowings of $16.0 million under existing credit facilities, will be sufficient to meet its capital requirements. As of June 30, 1999, the Company's total debt and shareholder's deficit was $120.8 million and $20.3 million, respectively. Net cash flow provided by operations aggregated $5.0 million for the first half of 1999 compared to $3.6 million for the same period in 1998. The increase was primarily attributable to a $3.1 million decrease in working capital needs, partially offset by a $2.0 million decrease in net income. 12 Cash used in investing activities for the first half of 1999 was $3.0 million compared to $5.1 million for the same period in 1998. The decreased use of cash is primarily due to the acquisition in the first half of 1998. Cash used in financing activities for the first half of 1999 was $.4 million compared to $1.6 million of cash provided for the same period in 1998. The increased use of cash compared to the prior year is primarily due to repayments of amounts due to parent and decreased net borrowings in 1999 compared to 1998. Year 2000 The Year 2000 problem exists because many computer systems and applications use two-digit fields to designate a year. As the century date change occurs, date sensitive systems may recognize the year 2000 as 1900, or not at all. This inability to recognize or properly treat the year 2000 may cause systems to process financial and operational information incorrectly. In 1996, the Company began to develop a plan to upgrade its information systems to enable it to realize cost savings through centralization of functions that would result in reductions in working capital items such as inventory and accounts receivable. This plan also was developed to assess and resolve Year 2000 compliance issues potentially affecting the Company, both with respect to internal systems and systems on which the Company's major vendors, suppliers, and distributors are reliant. To date, the Company has completed the assessment phase of its internal information systems and successfully implemented its plan to resolve potential problems. The Company believes that 100% of its critical systems are Year 2000 compliant. The Company has also assessed the embedded systems that operate such items as manufacturing, phone, security, heating and air conditioning systems. This assessment was completed in September 30, 1998. All non-compliant embedded systems have been replaced or modified as necessary. The Company has incurred approximately $3.8 million in costs primarily to upgrade its systems, and to a lesser extent to address Year 2000 issues. The Company estimates costs associated with scheduled system upgrades for the remainder of 1999 will approximate $.8 million. The Company has made inquiries and gathered information regarding Year 2000 compliance exposures faced by its principal vendors and suppliers, and its major dealers and distributors. No major part or critical operation of any segment of the Company's business is reliant on a single source for raw materials, supplies, or services, and the Company has multiple distribution channels for most of its products. Based on our inquiries, the Company believes that no critical supplier, vendor or distributor will be adversely affected or experience business interruptions due to Year 2000 issues. However, should this occur, the Company believes it will be able to find cost-competitive, alternative sources for raw materials, supplies, and services necessary to continue production and distribution. The costs of the project and the completion dates are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the availability of certain resources, third party Year 2000 compliance modification plans, and other factors. There can be no guarantee that the Company will be completely successful in its efforts to address Year 2000 issues, or that these estimates will be achieved and actual results could differ materially from these estimates. The Company has no contingency plans in place. To date, the Company has completed its Year 2000 project with respect to internal systems and discontinued the use of any non-compliant business systems. Item 3. Quantitative and Qualitative Disclosures about Market Risk Information required by Item 3 is included in Item 2 on page 11 of this form 10-Q. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company is from time to time involved in legal proceedings arising in the normal course of business. The Company believes there is no outstanding litigation which could have a material impact on its financial position or results of operations. Item 2. Change in Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit No. Description -------- -------------------------------- 27 Financial Data Schedule (b) Reports on Form 8-K None. 14 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. INTERNATIONAL KNIFE & SAW, INC. By: /s/ P. Daniel Miller --------------------------------------- P. Daniel Miller President and Chief Executive Officer By: /s/ William M. Schult --------------------------------------- William M. Schult Vice President-Finance, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) August 13, 1999 15 EXHIBIT INDEX Exhibit No. Description -------- -------------------------------- 27 Financial Data Schedule 16 EX-27 2 FDS --
5 OTHER DEC-31-1999 JAN-01-1999 JUN-30-1999 3,575,000 0 27,211,000 1,694,000 27,401,000 60,576,000 78,394,000 (31,000,000) 130,179,000 27,771,000 0 0 0 5,000 (20,299,000) 130,179,000 76,516,000 76,516,000 54,510,000 54,510,000 16,615,000 0 6,311,000 (1,044,000) (356,000) (688,000) 0 0 0 (688,000) (1.43) (1.43)
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