-----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, HxqGcUJccV+YufMBTjPCv1oKbe11Jul78BxeFaGRc2RVmDH8GIIfuUtygyeZ/vIf DtC7LWr0iP6Mhsw1rINf+Q== 0001072613-01-501076.txt : 20020410 0001072613-01-501076.hdr.sgml : 20020410 ACCESSION NUMBER: 0001072613-01-501076 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010929 FILED AS OF DATE: 20011113 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: 1934 Act SEC FILE NUMBER: 333-62795 FILM NUMBER: 1785147 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 form10-q_10896.txt SIMONDS INDUSTRIES, INC. FORM 10-Q 9/30/2001 ================================================================================ 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. ================================================================================ 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 -----END PRIVACY-ENHANCED MESSAGE-----