-----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, TaAgukyuNEpQubuEApYTUX6bOB7CeX5yrbfVzi8dZ3sUAxsKYC+kKFJnKinFldnJ PtC2xHl+MH8EOCE9HzWAVQ== 0000950135-98-005876.txt : 19981116 0000950135-98-005876.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950135-98-005876 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMONDS INDUSTRIES INC CENTRAL INDEX KEY: 0001067919 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 050484518 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-62795 FILM NUMBER: 98747864 BUSINESS ADDRESS: STREET 1: 135 INTERVALE RD CITY: FITCHBURG STATE: MA ZIP: 01420 BUSINESS PHONE: 9783433731 MAIL ADDRESS: STREET 1: 135 INTERVALE RD CITY: FITCHBURG STATE: MA ZIP: 01420 10-Q 1 SIMONDS INDUSTRIES INC 1 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 October 3, 1998 [ ] 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 [ ] No [X] As of October 3, 1998, there were 76,332.55 shares of the registrant's common stock outstanding. 1 2 Simonds Industries Inc. Form 10-Q Index Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets - December 27, 1997 and October 3, 1998 3 Consolidated Condensed Statements of Operations - three and nine months ended September 27, 1997 and October 3, 1998 4 Consolidated Statements of Cash Flows - nine months ended September 27, 1997 and October 3, 1998 5 Consolidated Statements of Shareholders' Equity - for the nine months ended September 27, 1997 and October 3, 1998 6 Notes to Consolidated Financial Statements - October 3, 1998 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 PART II. OTHER INFORMATION None Signatures 20 2 3 SIMONDS INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS (In Thousands, except share amounts)
ASSETS December 27, October 3, 1997 1998 ----------- ---------- (unaudited) CURRENTS ASSETS: Cash $ 1,255 $ 5,419 Accounts receivable, net of reserves of $806 and $1,005 16,185 18,292 Inventories 22,576 27,789 Other current assets 3,160 3,428 Refundable income taxes 101 101 -------- --------- Total current assets 43,277 55,029 PROPERTY, PLANT AND EQUIPMENT: Land 2,324 2,335 Buildings and improvements 10,557 12,045 Machinery and equipment 21,735 25,517 Construction-in-progress 348 1,632 -------- --------- 34,964 41,529 Less - Accumulated depreciation 5,308 7,620 -------- --------- Net property, plant and equipment 29,656 33,909 OTHER ASSETS: Goodwill, net of accumulated amortization of $1,026 and $1,440 20,613 21,605 Deferred financing costs, net of accumulated amortization of $909 and $132 880 4,868 Other 917 845 -------- --------- Total other assets 22,410 27,318 -------- --------- Total assets $ 95,343 $ 116,256 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Overdraft facilities $ 249 $ 0 Revolving credit loans and notes payable 1,481 2,121 Current portion of long-term debt 4,925 41 Accounts payable 4,797 5,960 Accrued payroll and employee benefits 4,827 4,050 Other accrued liabilities 2,691 4,311 Currently deferred income taxes 2,656 2,625 -------- --------- Total current liabilities 21,626 19,108 LONG-TERM DEBT, net of current portion 45,286 102,703 DEFERRED INCOME TAXES 4,321 4,421 ACCRUED PENSION LIABILITY 1,550 1,689 OTHER NONCURRENT LIABILITIES 945 899 COMMITMENTS AND CONTINGENCIES (NOTE 7) -- -- SHAREHOLDERS' EQUITY: Common stock, $.01 par value- Authorized - 200,000 shares Issued and outstanding - 148,371 and 76,333 1 1 Capital in excess of par value 10,553 (24,405) Retained earnings 11,859 12,646 Cumulative translation adjustment (798) (741) Treasury stock, at cost (65) -------- --------- Total shareholders' equity 21,615 (12,564) -------- --------- Total liabilities and shareholders' equity $ 95,343 $ 116,256 ======== =========
The accompanying notes are an integral part of these consolidated financial statements 3 4 SIMONDS INDUSTRIES INC. Consolidated Statements of Operations (In Thousands)
-------------------------------------------------------- Three Months Nine Months Ended Ended Ended Ended September 27, October 3, September 27, October 3, 1997 1998 1997 1998 ------------ --------- ------------ --------- (Unaudited) (Unaudited) Net sales $27,950 $33,170 $83,326 $95,811 Cost of goods sold 19,282 22,566 57,529 64,847 ------- ------- ------- ------- Gross profit 8,668 10,604 25,797 30,964 Selling, general and administrative expense 5,386 11,046 15,330 23,007 ------- ------- ------- ------- Operating income (loss) 3,282 (442) 10,467 7,957 Other expenses: Interest expense 1,294 2,840 3,688 5,317 Other, net 90 191 262 358 ------- ------- ------- ------- Income (loss) before income taxes 1,898 (3,473) 6,517 2,282 Provision (benefit) for income taxes 830 (1,475) 2,801 966 ------- ------- ------- ------- Income (loss) before extraordinary item 1,068 (1,998) 3,716 1,316 Extraordinary item- Write-off of deferred financing cost related to refinanced indebtedness, net of tax benefit of $374 0 (529) 0 (529) ------- ------- ------- ------- Net income (loss) $ 1,068 $(2,527) $ 3,716 $ 787 ======= ======= ======= =======
4 5 SIMONDS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
---------------------------- NINE MONTHS ENDED ENDED SEPTEMBER 27 OCTOBER 3 1997 1998 ------------ ----------- (Unaudited) CASH FLOW FROM OPERATING ACTIVITIES: Net Income $ 3,716 $ 787 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,105 2,903 Amortization of deferred financing 278 1,181 Gain on asset sales (13) (35) Provision (benefit) for deferred income taxes 1,086 (969) Changes in assets & liabilities, net of acquisitions Accounts receivable (244) 650 Inventories 1,429 (1,515) Income tax refunds receivable 40 Other current and noncurrent assets 774 (101) Accounts payable (144) (468) Accrued expenses 468 584 Other non-current liabilities (219) 93 -------- -------- Net cash provided by operating activities 9,276 3,110 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment 50 59 Purchases of equipment (2,884) (2,984) Acquisition of Pacific Hoe Company assets (5,578) Acquisition of Armstrong Manufacturing, net of cash acquired of $875 (8,125) Acquisition of W. Notting Ltd., net of cash acquired of $51 (5,471) -------- -------- Net cash (used in) investing activities (16,537) (8,396) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in overdrafts (82) (249) Net (uses) proceeds under revolving credit (1,442) 3,972 Proceeds from issuance of long- term debt-net of issuance costs 7,595 98,413 Principal payments of long-term debt 994 (57,404) Issuance of common stock 33 18,833 Stock redemption (53,791) Purchase of treasury stock (65) -------- -------- Net cash provided by financing activities 7,098 9,709 -------- -------- EFFECT OF EXCHANGE RATE ON CASH (168) (259) -------- -------- NET (DECREASE) INCREASE IN CASH (331) 4,164 CASH AT BEGINNING OF PERIOD 1,255 1,255 -------- -------- CASH AT END OF PERIOD $ 924 $ 5,419 ======== ========
5 6 SIMONDS INDUSTRIES INC CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997 AND OCTOBER 3, 1998 (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/(LOSS) -------- ------ --------- -------- ------------- -------- ------------ ------------- Balance at December 28,1996 148,037 1 10,520 6,858 (181) -- 17,198 Net Income -- -- -- 3,716 -- -- 3,716 3,716 Foreign Currency Translation Adjustment -- -- -- -- (706) -- (706) (706) Stock Options Exercised 334 -- 33 -- -- -- 33 -- -------- --- -------- ------- ----- ---- -------- ------ Balance at September 27,1997 148,371 $ 1 $ 10,553 $10,574 $(887) $ 0 $ 20,241 $3,010 ======== === ======== ======= ===== ==== ======== ====== Balance at December 27,1997 148,371 1 10,553 11,859 (798) -- 21,615 Issuance of Common Stock 41,073 -- 18,833 -- -- -- 18,833 -- Net Income -- -- -- 787 -- -- 787 787 Foreign Currency Translation Adjustment -- -- -- -- 57 -- 57 57 Stock Redemption (112,777) -- (53,791) -- -- -- (53,791) -- Acquisition of Treasury Stock (334) -- -- -- -- (65) (65) -------- --- -------- ------- ----- ---- -------- ------ Balance at October 3,1998 76,333 $ 1 $(24,405) $12,646 $(741) $(65) $(12,564) $ 844 ======== === ======== ======= ===== ==== ======== ====== Comprehensive income for the three month periods ended September 27, 1997 and October 3, 1998 was $871 and ($2,292). Translation Comprehensive Net Income Adjustment Income/(Loss) Period Ended September 27, 1997 $ 1,068 $(197) $ 871 Period Ended October 3, 1998 $(2,527) $ 235 $(2,292)
6 7 Simonds Industries Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands except share and per share amounts) (Unaudited) 1. Basis of Presentation The unaudited interim condensed 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 27, 1997, has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The unaudited condensed 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. The condensed consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in the Company's Registration Statement on form S-4. 2. Acquisitions On May 8, 1998, the Company acquired 100% of the outstanding stock of W. Notting Limited for approximately $6,945, of which $5,471 was paid in cash with additional financing from the Company's revolving credit facility and the balance was in the form of a term Promissory Note bearing interest at 8.5% and repayable April 30, 1999. The acquisition is accounted for as a purchase and the purchase price has been allocated based on the fair market value of the underlying assets and liabilities. The purchase allocation is preliminary and subject to adjustment. However, management believes that any actual variations will not materially impact the purchase price allocation. Goodwill totaled $1,444 on this acquisition and will be amortized on a straight-line basis over 40 years. The consolidated financial statements include the results of operations of W. Notting Limited subsequent to the date of acquisition. 3. Foreign Currency Risk 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 and / or distributes products in the U.S., Canada, Germany, Spain and the U.K. Operations in Canada, Germany and the U.K. are subject to exchange rate volatility. 7 8 4. Inventories
December 27, October 3, 1997 1998 ----------- --------- Raw Materials $ 4,176 $ 5,689 Work in progress 6,740 7,332 Finished goods 11,660 14,768 ------- ------- Total $22,576 $27,789 ======= =======
5. Debt In July 1998, the Company issued $100,000 of Senior Subordinated Notes (the "Notes"). Interest on the Notes accrues from the date of issuance at 10.25% and is payable semi-annually on January 1 and July 1, commencing January 1, 1999. The Notes are due in 2008 but may be redeemed on or after July 1, 2003 at specified premium prices. Proceeds from the Notes were primarily used for repayment of indebtedness, acquisition of treasury stock, and buyout of all outstanding stock options and warrants. Financing costs relating to the issuance of these Notes is estimated to be approximately $5,000 and is being amortized over the term of the debt. The Company concurrently entered into a new Senior Credit Facility with a commercial lender, that provides $30,000 availability, undrawn as of the offering date. Borrowings under the Senior Credit Facility are available for permitted acquisitions and working capital, including letters of credit. The Senior Credit Facility is secured by first priority liens on all tangible and intangible personal property and real property assets of the Company and its subsidiaries. The Senior Credit Facility expires in 2003, unless extended. The interest rate per annum applicable to the Senior Credit Facility is, at the Company's option, either LIBOR or the greater of the prime rate or the overnight federal funds rate plus 0.50%, in each case plus 0.125% to 2.375% depending on the Company's financial leverage (the "Applicable Margin"). The Company is required to pay certain fees in connection with the Senior Credit Facility, including a commitment fee of 0.50% initially and thereafter at a per annum rate equal to the Applicable Margin on the unutilized portion of the facility. On October 2, 1998 the Company's German facility, Wespa Metalsagenfabrik Simonds Industries GmbH entered into a credit agreement with First Union National Bank that provides a DM 5,500 working capital credit line. The revolving line of credit is at the Frankfort Inter-Bank Offer Rate (FIBOR) plus 1 1/4% and matures in five years. This facility replaces the prior credit agreement held with Bank Boston. 8 9
December 27, October 3, 1997 1998 ----------- -------- Revolving credit facility loan $12,945 -- Term notes payable 33,375 -- Line of credit facility for German Subsidiary 1,481 2,703 Term loan payable by German subsidiary 761 -- Line of credit facility for Notting -- 600 Term loan payable by Notting -- 41 Notes payable to Notting shareholders -- 1,521 Subordinated notes payable 3,130 -- 10 1/4% Senior Subordinated Notes due 2008 -- 100,000 ------- -------- 51,692 104,865 Less - current maturities 6,406 2,162 ------- -------- $45,286 $102,703 ======= ========
6. Warrants Issued In July 1998 the Company issued warrants to certain shareholders to purchase an aggregate of 4,377.81 shares of common stock at a price of $458.52 per share, and granted options to two executives to purchase an aggregate of 673 shares of common stock at $458.52 per share. 7. Selected consolidating financial statements of parent, guarantors, and non-guarantors The Company's wholly-owned domestic subsidiaries guarantee, on a senior subordinated basis, the Notes, jointly and severally. The guarantor subsidiaries data below includes combining financial statements of Armstrong, which was acquired in August 1997, and Simonds Holding 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 subsidiaries have not been presented because management believes that such financial statements are not material to investors. In addition, the Senior Credit Facility is guaranteed on a full and unconditional basis by all guarantors. The following data summarizes the consolidating results of the Company on the equity method of accounting for the following periods presented: 9 10 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands) (unaudited)
AS OF DECEMBER 27, 1997 ------------------------------------------------------------------------ PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- -------------- ------------ ------------ ASSETS CURRENTS ASSETS: Cash .......................................... $ 25 $ 188 $ 1,042 -- $ 1,255 Accounts receivable ........................... 8,896 872 6,417 -- 16,185 Intercompany accounts receivable .............. 20,929 285 -- (21,214) -- Inventories: Raw Materials ............................... 3,099 310 767 -- 4,176 Work in progress ............................ 5,527 421 792 -- 6,740 Finished goods .............................. 5,564 576 5,825 (305) 11,660 Other current assets .......................... 2,416 326 519 -- 3,261 -------- ------- ------- -------- ------- Total current assets ...................... 46,456 2,978 15,362 (21,519) 43,277 -------- ------- ------- -------- ------- Net property, plant and equipment ................. 22,098 2,582 4,976 -- 29,656 OTHER ASSETS: Investment in subsidiaries .................... 35,736 7,894 -- (43,630) -- Intercompany loan receivable .................. -- 17,051 -- (17,051) -- Other assets .................................. 17,130 4,366 913 1 22,410 -------- ------- ------- -------- ------- Total assets .............................. $121,420 $34,871 $21,251 $(82,199) $95,343 ======== ======= ======= ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES ............................... $ 36,202 $ 888 $ 5,751 $(21,215) $21,626 LONG-TERM DEBT, net of current portion ............ 44,863 -- 423 -- 45,286 INTERDIVISION LONG-TERM DEBT ...................... 15,145 -- 1,906 (17,051) -- OTHER NONCURRENT LIABILITIES ...................... 3,595 638 2,583 -- 6,816 SHAREHOLDERS' EQUITY .............................. 21,615 33,345 10,588 (43,933) 21,615 -------- ------- ------- -------- ------- Total liabilities and shareholders' equity .... $121,420 $34,871 $21,251 $(82,199) $95,343 ======== ======= ======= ======== =======
10 11 SIMONDS INDUSTRIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands) (unaudited)
AS OF OCTOBER 3, 1998 -------------------------------------------------------------------------- Parent Guarantors Non-Guarantors Eliminations Consolidated -------- ---------- -------------- ------------ ------------ ASSETS CURRENTS ASSETS: Cash ..................................... $ 4,400 $ 278 $ 741 -- $ 5,419 Accounts receivable ...................... 8,395 960 8,937 -- 18,292 Intercompany accounts receivable ......... 1,486 643 1,667 (3,796) -- Inventories: Raw Materials .......................... 3,577 377 1,735 -- 5,689 Work in progress ....................... 6,009 269 1,054 -- 7,332 Finished goods ......................... 5,650 644 8,779 (305) 14,768 Other current assets ..................... 2,408 285 836 -- 3,529 -------- ------- ------- -------- -------- Total current assets ................. 31,925 3,456 23,749 (4,101) 55,029 -------- ------- ------- -------- -------- Net property, plant and equipment ............ 23,151 2,543 8,215 -- 33,909 OTHER ASSETS: Investment in subsidiaries ............... 43,410 8,083 -- (51,493) -- Intercompany loan receivable ............. -- 28,198 -- (28,198) -- Other assets ............................. 20,779 4,172 2,367 -- 27,318 -------- ------- ------- -------- -------- Total assets ......................... $119,265 $46,452 $34,331 $(83,792) $116,256 ======== ======= ======= ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES .......................... $ 13,203 $ 739 $ 8,951 $ (3,785) $ 19,108 LONG-TERM DEBT, net of current portion ....... 100,000 -- 2,703 -- 102,703 INTERDIVISION LONG-TERM DEBT ................. 15,145 4,817 8,305 (28,267) -- OTHER NONCURRENT LIABILITIES ................. 3,481 638 2,890 -- 7,009 SHAREHOLDERS' EQUITY ......................... (12,564) 40,258 11,482 (51,740) (12,564) -------- ------- ------- -------- -------- Total liabilities and shareholders' equity ................................. $119,265 $46,452 $34,331 $(83,792) $116,256 ======== ======= ======= ======== ========
11 12 SIMONDS INDUSTRIES INC. Consolidated Statements of Operations (In Thousands) (Unaudited)
Three months ended September 27, 1997 ------------------------------------------------------------------------ Parent Guarantors Non-guarantors Eliminations Consolidated ------ ---------- -------------- ------------ ------------ Net sales $20,314 $1,431 $9,231 $(3,026) $27,950 Cost of goods sold 14,210 895 7,203 (3,026) 19,282 ------- ------ ------ ------- ------- Gross profit 6,104 536 2,028 0 8,668 Selling, general and administrative expense 3,610 392 1,384 0 5,386 ------- ------ ------ ------- ------- Operating income 2,494 144 644 0 3,282 Other expenses (income): Interest expense 1,608 83 175 (565) 1,301 Interest income 0 (494) (78) 565 (7) Other, net 71 17 2 0 90 Equity in earnings of subsidiaries (624) (290) 0 914 0 ------- ------ ------ ------- ------- Income before income taxes 1,439 828 545 (914) 1,898 Provision for income taxes 371 204 255 0 830 ------- ------ ------ ------- ------- Net income $ 1,068 $ 624 $ 290 $ (914) $ 1,068 ======= ====== ====== ======= =======
SIMONDS INDUSTRIES INC. Consolidated Statements of Operations (In Thousands) (Unaudited)
Three months ended October 3, 1998 ------------------------------------------------------------------------ Parent Guarantors Non-guarantors Eliminations Consolidated ------ ---------- -------------- ------------ ------------ Net sales $22,918 $2,750 $11,402 $(3,900) $33,170 Cost of goods sold 15,841 1,826 8,799 (3,900) 22,566 ------- ------ ------- ------- ------- Gross profit 7,077 924 2,603 0 10,604 Selling, general and administrative expense 8,341 640 2,065 0 11,046 ------- ------ ------- ------- ------- Operating income (loss) (1,264) 284 538 0 (442) Other expenses (income): Interest expense 3,139 125 405 (773) 2,896 Interest income (50) (702) (77) 773 (56) Other, net 201 26 (36) 0 191 Equity in earnings of subsidiaries (583) (61) 0 644 0 ------- ------ ------- ------- ------- Income (loss) before income taxes (3,971) 896 246 (644) (3,473) Provision (benefit) for income taxes (1,973) 313 185 0 (1,475) ------- ------ ------- ------- ------- Income (loss) before extraordinary item (1,998) 583 61 (644) (1,998) Extraordinary item- Write-off of deferred financing cost related to refinanced indebtedness, net of tax benefit of $374 (529) 0 0 0 (529) ------- ------ ------- ------- ------- Net income (loss) $(2,527) $ 583 $ 61 $ (644) $(2,527) ======= ====== ======= ======= =======
12 13 SIMONDS INDUSTRIES INC. Consolidated Statements of Operations (In Thousands) (Unaudited)
Nine months ended September 27, 1997 ------------------------------------------------------------------------ Parent Guarantors Non-guarantors Eliminations Consolidated ------ ---------- -------------- ------------ ------------ Net sales $63,010 $ 1,431 $29,263 $(10,378) $83,326 Cost of goods sold 44,399 895 22,613 (10,378) 57,529 ------- ------- ------- -------- ------- Gross profit 18,611 536 6,650 0 25,797 Selling, general and administrative expense 10,574 392 4,364 0 15,330 ------- ------- ------- -------- ------- Operating income 8,037 144 2,286 0 10,467 Other expenses (income): Interest expense 4,570 83 569 (1,521) 3,701 Interest income 0 (1,303) (231) 1,521 (13) Other, net 282 32 (52) 0 262 Equity in earnings of subsidiaries (1,920) (1,078) 0 2,998 0 ------- ------- ------- -------- ------- Income before income taxes 5,105 2,410 2,000 (2,998) 6,517 Provision for income taxes 1,389 490 922 0 2,801 ------- ------- ------- -------- ------- Net income $ 3,716 $ 1,920 $ 1,078 $ (2,998) $ 3,716 ======= ======= ======= ======== =======
SIMONDS INDUSTRIES INC. Consolidated Statements of Operations (In Thousands) (Unaudited)
Nine months ended October 3, 1998 ------------------------------------------------------------------------ Parent Guarantors Non-guarantors Eliminations Consolidated ------ ---------- -------------- ------------ ------------ ------- ------- ------- -------- ------- Net sales $66,878 $ 7,849 $32,674 $(11,590) $95,811 Cost of goods sold 46,185 5,170 25,082 (11,590) 64,847 ------- ------- ------- -------- ------- Gross profit 20,693 2,679 7,592 0 30,964 Selling, general and administrative expense 15,715 1,950 5,342 0 23,007 ------- ------- ------- -------- ------- Operating income 4,978 729 2,250 0 7,957 Other expenses (income): Interest expense 6,183 363 857 (2,022) 5,381 Interest income (50) (1,808) (228) 2,022 (64) Other, net 441 52 (135) 0 358 Equity in earnings of subsidiaries (2,237) (914) 0 3,151 0 ------- ------- ------- -------- ------- Income before income taxes 641 3,036 1,756 (3,151) 2,282 Provision (benefit) for income taxes (675) 799 842 0 966 ------- ------- ------- -------- ------- Income before extraordinary item 1,316 2,237 914 (3,151) 1,316 Extraordinary item- Write-off of deferred financing cost related to refinanced indebtedness, net of tax benefit of $374 (529) 0 0 0 (529) ------- ------- ------- -------- ------- Net income $ 787 $ 2,237 $ 914 $ (3,151) $ 787 ======= ======= ======= ======== =======
13 14 SIMONDS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (Unaudited)
NINE MONTHS ENDED SEPTEMBER 27, 1997 --------------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED ------ ---------- -------------- ------------ ------------ Net cash provided by operating activities: $(3,312) $ 1,126 $ 2,471 $ 8,991 $9,276 Cash flows from investing activities: Proceeds from asset sales 45 5 50 Purchase of equipment (2,286) (13) (585) (2,884) Acquisitions (5,578) (8,125) (13,703) ------- ------- -------- -------- ------ Net cash (used in) investing activities (7,819) (8,138) (580) (16,537) Cash flows from financing activities: Change in overdraft (29) (53) (82) Net proceeds from revolving credit facility (536) (906) (1,442) Proceeds from issuance of long-term debt- net of issuance cost 7,595 7,595 Principal payments of long-term debt 1,492 (498) 994 Intercompany loans 33 9,000 (1) (8,999) 33 Issuance of common stock Purchase of treasury stock Stock Redemption Dividends (paid) received 1,544 (1,544) Other 197 (196) (1) ------- ------- -------- -------- ------ Net cash (used in)/provided by financing activities 10,635 7,117 (1,654) (9,000) 7,098 Effect of Foreign Exchange (177) 9 (168) ------- ------- -------- -------- ------ Increase (decrease) in cash (496) 105 60 (331) Cash at beginning of the period 698 3 554 1,255 ------- ------- -------- -------- ------ Cash at end of the period $ 202 $ 108 $ 614 $ 924 ======= ======= ======== ======== ======
14 15 SIMONDS INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (Unaudited)
FOR NINE MONTH ENDED OCTOBER 3, 1998 ----------------------------------------------------------------------------- PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- -------------- ------------ ------------ Net cash (used in)/provided by operating activities: $ (5,128) $ 1,142 $ 429 $ 6,667 $ 3,110 Cash flows from investing activities: Proceeds from asset sales 3 56 59 Purchase of equipment (2,641) (125) (218) (2,984) Acquisitions (5,471) (5,471) -------- -------- -------- ------- ------- Net cash (used in) investing activities (2,638) (125) (5,633) (8,396) Cash flows from financing activities: Change in overdraft (246) (3) (249) Net proceeds from revolving credit facility 7,065 (3,093) 3,972 Proceeds from issuance of long-term debt- net of issuance cost 95,710 2,703 98,413 Principal payments of long-term debt (56,684) (720) (57,404) Intercompany loans (6,330) 6,399 (69) Issuance of common stock 18,833 6,722 (1) (6,721) 18,833 Purchase of treasury stock (65) (65) Stock Redemption (53,791) (53,791) Dividends (paid) received 1,319 (1,319) Other -------- -------- -------- ------- ------- Net cash (used in)/provided by financing activities 12,141 (927) 5,285 (6,790) 9,709 Effect of Foreign Exchange (382) 123 (259) -------- -------- -------- ------- ------- Increase (decrease) in cash 4,375 90 (301) 4,164 Cash at beginning of the period 25 188 1,042 1,255 -------- -------- -------- ------- ------- Cash at end of the period $ 4,400 $ 278 $ 741 $ 5,419 ======== ======== ======== ======= =======
15 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the Company's financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and notes thereto. Results of Operations Third quarter and nine months ended September 27, 1997 compared to third quarter and nine months ended October 3, 1998. Net Sales: Net Sales increased 18.7% and 15.0% to $33.2 million and $95.8 million for the third quarter and first nine months of 1998, respectively, from $28.0 million and $83.3 million for the same periods in 1997. These increases were primarily due to increased wood product sales from the acquisition of Armstrong, which was completed on August 1, 1997 and the purchase of W. Notting Limited, effective May 1, 1998. The combined effect of these two operations increased sales $3.5 million for the quarter ended September 1998 and $10.2 million for the nine months ended September 1998. To a lesser extent, the Company experienced increased sales in our carbide tip bits and Red Streak(R) bands. Changes in foreign currency exchange rates in the third quarter and first nine months of 1998 (primarily the weaker Canadian dollar and German Mark) negatively impacted the Company's Net Sales by $0.2 million and $1.1 million, respectively, when compared to the corresponding periods last year. Gross Profit Margin: Gross Profit increased to $10.6 million and $31.0 million for the third quarter and first nine months of 1998, respectively, from $8.7 million and $25.8 million for the same periods in 1997. Gross Profit as a percentage of net sales for 1998 was 32.0 % for the three months ended September 1998 and 32.3% for the nine months ended September 1998 compared to 31.0 % for both of the comparable periods in 1997. Favorable raw material prices for Red Streak(R) bands, carbide tips, and the majority of the Company's knife steel along with higher production levels without significant increases in fixed expenses are the main reasons for margin improvements. In addition, the Gross Profit of Armstrong in the third quarter and nine months of 1998 and of Notting for May through September of 1998 increased Gross Profit for the reported periods. Selling, General and Administrative Expenses: Selling, general and administrative expenses as a percent of net sales were 33.3% and 24% for the 1998 quarter and nine months, respectively, versus 19.3% and 18.4% for the comparable periods last year. The significant difference between both periods was due to a one time compensation charge in July 1998 of $4,541 from the repurchase of options relating to the recapitalization. Additionally there was a higher level of expenses in both 1998 periods as compared to the prior year due to the addition of Armstrong and Notting. 16 17 Operating Income: As a result of the foregoing, operating income decreased $3,734 and $2,510 in the third quarter and first nine months of 1998 when compared to the comparable periods in 1997. Interest Expense: Interest expense was higher in both periods of 1998 compared to the corresponding periods in 1997 due to the recapitalization of the Company in July 1998. The recapitalization constituted retiring most of the Company's debt and replacing it with $100 million of notes bearing an annual interest rate of 10.25%. Income Taxes: The Company's effective tax rate before extraordinary item decreased to 42.5% and 42.3% for the third quarter and first nine months of 1998, respectively, from 43.7% and 43.0% for the comparable periods in 1997. Improved profitability for the 1998 periods in the United Kingdom, which has a lower tax rate, has affected the consolidated effective tax rate. Extraordinary Item: As part of the debt retirement, deferred financing costs of $903 were written off with a related tax benefit of $374, which resulted in an extraordinary loss of $529. Net Income: As a result of the aforementioned factors, net income decreased $3,595 and $2,929 in the third quarter and first nine months of 1998 when compared to the comparable periods in 1997. Liquidity and Capital Resources In July 1998, the Company issued $100,000,000 of Senior Subordinated Notes. Interest on the Notes will accrue from date of issuance at 10.25% and is payable semi-annually on January 1 and July 1. The Notes are due in 2008 but may be redeemed on or after July 1, 2003 at specified premium prices. Proceeds from the Notes were primarily used for repayment of indebtedness, acquisition of treasury stock, and buyout of all outstanding stock options and warrants. The buyout of stock options resulted in a pretax compensation charge of approximately $4.5 million recorded in July 1998. The repayment of indebtness resulted in an extraordinary charge of approximately $0.5 million, net of tax benefit, recorded in July 1998 to write off unamortized debt discount and deferred financing costs. The Company concurrently entered into a new Senior Credit Facility with a commercial lender, that provides $30,000,000 availability, undrawn as of the October 3, 1998. Borrowings under the Senior Credit Facility are available for permitted acquisitions and working capital, including letters of credit. The Senior Credit Facility is secured by first priority liens on all tangible and intangible personal property and real property assets of the Company and its subsidiaries. 17 18 The Senior Credit Facility will expire in 2003, unless extended. The interest rate per annum applicable to the Senior Credit Facility will be, at the Company's option, either LIBOR or the greater of the prime rate or the overnight federal funds rate plus 0.50%, in each case plus 0.125% to 2.375% depending on the Company's financial leverage (the "Applicable Margin"). The Company will be required to pay certain fees in connection with the Senior Credit Facility, including a commitment fee of 0.50% initially and thereafter at a per annum rate equal to the Applicable Margin on the unutilized portion of the revolver. The Company's principal capital requirements are to fund working capital needs, meet required debt payments, and to complete planned maintenance and manufacturing improvements. The Company believes that future cash flows from operations, together with the borrowings available under the new Senior Credit Facility will provide the Company with sufficient liquidity and financial resources to finance its growth and satisfy its working capital requirements for the foreseeable future. The Company may not be able to generate sufficient cash flows from operations to pay the entire principal amount of the Notes when due in 2008. In such event, the Company would be required to refinance the Notes. However, there can be no assurance that the Company will be able to obtain acceptable financing terms. Net Cash Flow Net cash flow from operations aggregated $3.1 million for the nine month period ended October 3, 1998 compared to $9.3 million for the comparable period a year ago. 1998 reflects lower net income due primarily to the $4.5 million one-time compensation charge and higher interest expenses associated with the notes issued. Additionally, cash provided by operating activities was further reduced by an inventory build of $1.5 million, and the payout of bonus accruals pertaining to 1997. 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. 18 19 Year 2000 The Company has a formal Year 2000 Compliance Plan which it began to implement in 1996 to ensure that its hardware, operating systems and software will function properly with respect to dates in the year 2000 and thereafter. The Company does not expect that the cost to modify its information technology infrastructure to be Year 2000 compliant will be material to its financial condition or results of operations. The Company does not anticipate any material disruption in its operations as a result of any failure by the Company to be in compliance. The Company has initiated formal communication with all of its significant suppliers and large customers to determine the extent to which the Company's interface systems are vulnerable to their third parties' failure to remediate their own Year 2000 issues. In the event that any of the Company's significant suppliers or customers does not successfully and timely achieve Year 2000 compliance, the Company's business or operations could be adversely affected. 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 1998 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 on 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 will be beyond the control of the Company and its management. 19 20 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/Joseph L. Sylvia --------------------------------------- Joseph L. Sylvia Executive Vice President, CFO November 12, 1998 20 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR 9-MOS DEC-27-1997 JAN-02-1999 DEC-28-1996 DEC-28-1997 DEC-27-1997 OCT-03-1998 1 1 1,255 5,419 0 0 16,185 18,292 806 1,005 22,576 27,789 43,277 55,029 34,964 41,529 5,308 7,620 95,343 116,256 21,626 19,708 45,286 102,703 0 0 0 0 1 1 21,614 (12,565) 95,343 116,256 114,182 95,811 114,182 95,811 78,798 64,847 78,798 64,847 21,149 23,007 0 0 4,963 5,317 8,752 2,282 3,751 966 5,001 1,316 0 0 0 (529) 0 0 5,001 787 0 0 0 0
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