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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended September 30, 1997
[ ] 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 October 31, 1997, there were 481,971 shares of the registrant's common
stock outstanding, all of which were owned by an affiliate of the registrant.
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1
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Index
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Income 5
Consolidated Condensed Statements of Cash Flows 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Part II. Other Information
Item 1. Legal Proceedings 16
Item 2. Change in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. (a) Exhibits 16
(b) Reports on 8-K 16
Signatures 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
International Knife & Saw, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(Unaudited)
(in thousands)
September 30, December 31,
1997 1996
------------------------------
Assets
Current assets:
Cash and cash equivalents $ 4,341 $ 11,701
Accounts receivable, trade, less allowances
for doubtful accounts of $2,005 and $1,500 25,325 19,703
Inventories 30,190 28,546
Other current assets 3,527 2,830
----------------------------
Total current assets 63,383 62,780
Other assets:
Goodwill 11,303 3,660
Debt issuance costs 3,788 3,967
Other noncurrent assets 2,357 2,096
----------------------------
17,448 9,723
Property, plant and equipment-net 35,788 28,772
============================
Total assets $116,619 $101,275
============================
See accompanying notes.
3
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(Unaudited)
(in thousands)
September 30, December 31,
1997 1996
------------------------------------
Liabilities and Shareholder's deficit
Current liabilities:
Notes payable $ 3,964 $ 4,732
Current portion of long-term debt 1,595 2,390
Accounts payable 8,982 5,796
Accrued liabilities 12,781 7,586
Due to parent (216) 1,523
----------------------------------
Total current liabilities 27,106 22,027
Long-term debt, less current portion 103,369 92,953
Other liabilities 3,653 3,768
----------------------------------
Total liabilities 134,128 118,748
Minority interest 2,340 2,171
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 (24,839) (26,146)
Cumulative foreign currency
translation adjustment (1,736) (224)
Treasury stock, at cost (3,432) (3,432)
--------------------------------
Total shareholder's deficit (19,849) (19,644)
================================
Total liabilities and shareholder's deficit $ 116,619 $ 101,275
================================
See accompanying notes.
4
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Consolidated Condensed Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Quarter ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 37,172 $ 29,448 $ 105,076 $ 89,256
Cost of sales 26,276 20,855 73,486 62,748
---------------------------------------------------------
Gross profit 10,896 8,593 31,590 26,508
Selling, general and administrative
expenses 7,421 5,665 20,342 17,832
---------------------------------------------------------
Operating income 3,475 2,928 11,248 8,676
Other expenses (income):
Interest income (17) (45) (215) (242)
Interest expense 2,901 544 8,948 1,907
Minority interest 54 (19) 138 (191)
---------------------------------------------------------
2,938 480 8,871 1,474
---------------------------------------------------------
Income before income taxes 537 2,448 2,377 7,202
Provision for income taxes 240 945 1,070 2,350
---------------------------------------------------------
Net income $ 297 $ 1,503 $ 1,307 $ 4,852
==========================================================
Net income per common share $ .62 $ 3.12 $ 2.71 $ 10.07
See accompanying notes.
</TABLE>
5
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
Nine months ended
September 30,
1997 1996
----------------------------
<S> <C> <C>
Operating activities
Net income $ 1,307 $ 4,852
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,052 3,264
Deferred income taxes - (156)
Gain on sale of fixed assets (4) (50)
Minority interest in income (loss) of subsidiary 138 (191)
Changes in operating assets and liabilities net
of effects from purchases of operations:
Accounts receivable (2,816) (1,725)
Inventories 512 (1,437)
Accounts payable 2,930 (891)
Accrued liabilities 488 1,557
Other (313) (877)
----------------------------
Net cash provided by operating activities 6,294 4,346
Investing activities
Purchases of operations, net of cash acquired (14,842) (282)
Purchases of fixed assets (4,567) (7,312)
Proceeds from sale of fixed assets 85 87
Decrease in notes receivable and other assets 102 20
----------------------------
Net cash used in investing activities (19,222) (7,487)
Financing activities
Increase (decrease) in amounts due to parent (1,739) 7,188
Increase in notes payable and long-term debt 13,367 2,242
Repayment of notes payable and long-term debt (4,966) (8,915)
Cash received from investment 24 189
Dividends paid - (1,205)
----------------------------
Net cash provided (used) by financing activities 6,686 (501)
Effect of exchange rate on cash (1,118) (87)
----------------------------
Decrease in cash and cash equivalents (7,360) (3,729)
Cash and cash equivalents at beginning of period 11,701 10,273
----------------------------
Cash and cash equivalents at end of period $ 4,341 $ 6,544
============================
See accompanying notes.
</TABLE>
6
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(in thousands)
1. Basis of Presentation
The unaudited interim consolidated condensed 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.
Beginning in the second quarter of 1997, the captions Sundry-net and Other,
which previously were line items in the Statements of Income, have been included
in selling, general and administrative expenses. Related amounts and certain
other amounts reported for prior periods have been reclassified to conform to
the 1997 presentation.
These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended December
31, 1996. The consolidated condensed Balance Sheet at December 31, 1996, has
been derived from the audited consolidated financial statements at that date.
2. Acquisitions
In April, 1997, the Company purchased the assets of Systi Matic Company and
affiliated entities ("Systi Matic") for $6.4 million in cash, post-closing
contingent payments of $1.2 million for achieving certain annualized earnings
levels of which $.3 million is included in accrued liabilities at September 30,
1997, and $1.1 million in assumed debt, subject to post-closing adjustments.
Headquartered in Seattle, Washington, Systi Matic is the largest U.S. producer
of carbide edger saws and the largest independent provider of stock saws for the
secondary industry in North America with annual sales of approximately $18.0
million. The acquisition was accounted for under the purchase method and was
financed from available cash balances. Goodwill totaled $4.2 million on this
acquisition and will be amortized on the straight-line method over 40 years. The
consolidated financial statements include the results of operations generated by
and financial position of the Systi Matic assets from the date of acquisition.
7
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(in thousands)
2. Acquisitions(Continued)
In April, 1997, the Company purchased the assets of Rolf Meyer Company ("Rolf
Meyer") for DM 8.2 million (approximately $4.7 million) in cash, a promissory
note to the seller in the amount of DM 4.3 million (approximately $2.5 million)
and DM .4 million (approximately $.2 million) in assumed debt, subject to
post-closing adjustments. Headquartered in Germany, Rolf Meyer is a producer and
specialist in knives and spare parts for the printing industry, with annual
sales of approximately DM 15.0 million (approximately $8.7 million). The
acquisition was accounted for under the purchase method and was financed from
borrowings under the Company's existing revolving credit facilities. Goodwill
totaled $2.7 million on this acquisition and will be amortized on the
straight-line method over 40 years. The consolidated financial statements
include the results of operations generated by and financial position of the
Rolf Meyer assets from the date of acquisition.
In June, 1997, the Company purchased the assets of Cascade/Southern Saw Corp.
("Cascade") for $2.3 million in cash, subject to post-closing adjustments.
Located in Milwaukie, Oregon, Cascade is a wood saw and wood saw machinery
distributor with annual sales of approximately $7.9 million. The acquisition was
accounted for under the purchase method. Goodwill totaled $1.1 million on this
acquisition and will be amortized on the straight-line method over 40 years. The
consolidated financial statements include the results of operations generated by
and financial position of the Cascade assets from 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 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. The Company has not historically hedged its foreign
currency risk.
8
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(Unaudited)
(in thousands)
4. Notes Payable and Long-Term Debt
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------------------------
<S> <C> <C>
Notes payable:
Notes payable on demand in Deutsche Marks to German
banks, issued under revolving credit agreements,
interest payable quarterly $ 1,391 $ 2,680
Notes payable on demand in Chinese Renminbi to Chinese
banks, issued under revolving credit agreements that are
non-recourse to the Company, interest payable monthly 2,573 2,052
======================================
$ 3,964 $ 4,732
======================================
Long-term debt:
11-3/8% Senior Subordinated Notes due 2006 $ 90,000 $ 90,000
Notes payable in Deutsche Marks to a German bank 9,967 3,532
Notes payable in Chinese Renminbi to a Chinese
Bank 1,711 1,811
Capitalized lease obligations in U.S. dollars to a
U.S. Bank 1,001 -
Promissory note payable in Deutsche Marks to a former
sharehodler of the Rolf Meyer Company 2,285 -
--------------------------------------
104,964 95,343
Less current portion 1,595 2,390
--------------------------------------
$ 103,369 $ 92,953
======================================
</TABLE>
The 11-3/8% Notes are senior subordinated indebtedness of the Company ranking
pari passu with all other existing and future senior subordinated indebtedness
of the Company. Dividend payments are restricted under the covenants of the
indenture in connection with the notes.
The notes payable of $9,967 have maturities that extend to 2003 at rates of 2.5%
to 6.25%. Land and buildings in Germany with a net book value of $3,706 are
pledged as collateral for the German revolving credit agreements and the German
bank notes payable.
The note payable of $1,711 matures in 2003 at a rate of 7.66% and is
non-recourse to the Company. Plant and equipment in China with a net book value
of approximately $1,500 are pledged as collateral for the Chinese revolving
credit agreements and the Chinese bank note payable.
The capitalized lease obligations of $1,001 are for capital leases on equipment
that have maturities that extend to 2002 at rates of 8.1% to 8.7%. Included in
property, plant and equipment-net is equipment under capital lease of $801.
9
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (continued)
(Unaudited)
(in thousands)
4. Notes Payable and Long-Term Debt (Continued)
The promissory note payable to a former shareholder of the Rolf Meyer Company is
due in three equal, annual installments beginning February, 1998 at a rate of
5%, and is in connection with the Rolf Meyer acquisition.
At September 30, 1997, the Company had revolving credit facilities of $20,000
($18,393 unused), DM 7,500 (all used) and DM 8,500 (all unused). At December 31,
1996, the Company had revolving credit facilities of $ 20,000 (all unused) and
DM 7,500 (all unused).
5. 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 for income taxes includes U.S. federal, state, and local income taxes
as well as non-U.S. income taxes in certain jurisdictions. The Company's 1996
effective tax rate was favorably affected by increased profits in the Company's
European operations for which no tax provision was recorded because of the
availability $1,200 of net operating loss carry forwards ("NOLs") of which only
$65 existed at the beginning of 1997. The preceding factor, combined with
additional non-U.S. operations incurring losses for which no benefits are being
recognized, results in a consolidated effective tax rate that is greater than
the statutory rate and greater than the 1996 rate. The current and deferred tax
expense and benefit for the Company are recorded as if it files 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
for United States income taxes is recorded to the inter company account with IKS
Corporation.
6. Inventories
September 30, December 31,
1997 1996
----------------------------------------
Finished goods $ 18,113 $ 16,813
Work in process 4,732 4,519
Raw materials and supplies 7,345 7,214
----------------------------------------
$ 30,190 $ 28,546
========================================
10
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements (continued)
(Unaudited)
(in thousands)
7. Organization
The Company's operations are principally in North America representing
approximately 73% of net sales for the nine months ended September 30, 1997.
The following table summarizes the Company's North American operations and other
international operations.
Nine months ended
September 30,
----------------------------------------
1997 1996
----------------- -------------------
North American Operations
Net sales - Customers $ 76,403 $ 62,310
Interarea transfers 384 955
----------------- -------------------
Total $ 76,787 $ 63,265
Operating income 9,308 7,768
Other International Operations
Net sales - Customers $ 28,673 $ 26,946
Interarea transfers 5,118 2,044
----------------- -------------------
Total $ 33,791 $ 28,990
Operating income 2,204 777
Eliminations
Net sales $ (5,502) $ (2,999)
Operating income (264) 131
Consolidated
Net sales $ 105,076 $ 89,256
Operating income 11,248 8,676
11
<PAGE>
8. Subsequent Events
In October and November, 1997, the Company completed acquisitions of the assets
of four strategically located service centers for approximately $1.3 million in
cash and a $.1 million promissory note to one of the sellers, subject to
post-closing adjustments. The acquisitions were financed from available cash
balances. Acquired in October were Parker Industrial Tool Company, Nashville,
TN; Stafford Grinding Services, Chatanooga, TN; and B&W Industrial Grinding,
Inc., Appleton, WI. Acquired in November was North Quabbin Saw Shop, Athol, MA.
The above acquisitions generate annual sales of approximately $1.4 million and
will be accounted for by the purchase method.
12
<PAGE>
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,
1996.
General
The Company is a global leader in the manufacturing, servicing and
marketing of industrial and commercial machine knives and saws. Together with
its predecessor, 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 Latin 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 approximately 73% of
its net sales and 83% of its operating income while the Company's other
international operations account for the remainder and are spread throughout
Europe and Asia. Historically, the Company had focused its sales efforts in
North America and Europe, only recently establishing itself in other areas of
the world and has increased sales in these other markets from 1% in 1995 to 6%
of net sales for the first nine months of 1997. During 1994, 1995 and 1996, the
Company entered into joint ventures to establish itself in these emerging
markets.
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, Canadian and Chinese 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 nine months
of 1997 to the first nine months of 1996, the weaker German Mark had the
translation effect of decreasing the first nine months of 1997 sales and
operating income from the same period in 1996 by approximately $3.4 million and
$.3 million, respectively. In addition, in the first nine months of 1997 there
was a decrease in shareholder's equity from the same period in 1996 due to a
$1.5 million change in the foreign currency translation adjustment. The Company
has not historically hedged its foreign currency risk.
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.
13
<PAGE>
Third quarter and nine months ended September 30, 1997 compared to third
quarter and nine months ended September 30, 1996
Net Sales: Net sales increased 26.2% and 17.7% to $37.2 and $105.1 million
for the third quarter and first nine months of 1997, respectively from $29.4 and
$89.3 million for the same periods in 1996, primarily attributable to the second
quarter acquisitions. The Company experienced sales improvements in its North
American operations (36.8% to 27.5 million) and (22.6% to $76.4 million) for the
third quarter and first nine months of 1997 compared to the same periods in
1996, primarily attributable to the second quarter acquisitions. The Company
experienced sales improvements (5.4% to $9.7 million) and (6.7% to $28.7
million) in its other operations for the third quarter and first nine months of
1997 compared to the same periods in 1996. These improvements are attributable
to increased sales from the second quarter Rolf Meyer acquisition partially
offset by softness in the Asian markets due to adverse weather encountered by
mill customers and the negative translation effects of a weaker German Mark. The
effects of a weaker German Mark in the third quarter and first nine months of
1997 compared to the same periods in 1996 resulted in a translation effect that
reduced the third quarter and first nine months of 1997 sales by $1.6 and $3.4
million, respectively.
Gross Profit: Gross profit increased to $10.9 and $31.6 million for the
third quarter and first nine months of 1997 up from $8.6 and $26.5 million for
the same periods in 1996, primarily attributable to the second quarter
acquisitions. Gross margin increased slightly to 29.3% and 30.1% for the third
quarter and first nine months of 1997 compared to 29.2% and 29.7% for the same
periods in 1996. The Company experienced gross profit improvements in its North
American operations (32.8% to $8.5 million) and (22.1% to $23.8 million) for the
third quarter and first nine months of 1997 compared to the same periods in
1996. The Company experienced gross profit declines (20.0% to $2.4 million) and
improvements (11.4% to $7.8 million) in its other operations for the third
quarter and first nine months of 1997 compared to the same periods in 1996,
primarily attributable to the weaker German Mark which had a negative
translation effect of $.6 million and $.9 million on the third quarter and first
nine months of 1997 gross profit respectively, softness in the Asian markets as
discussed above, and offset by the second quarter Rolf Meyer acquisition.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses were $7.4 and $20.3 million for the third quarter and
first nine months of 1997 compared to $5.7 and $17.8 million for the same
periods in 1996 and increased to 19.9% and decreased to 19.3% of sales from
19.4% and 19.9% of sales for the respective periods.
Interest Expense, net: As expected, net interest expense increased to $2.9
and $8.7 million for the third quarter and first nine months of 1997 from $.5
and $1.7 million for the same periods in 1996 due to the issuance of $90 million
in aggregate principal amount of 11-3/8% Senior Subordinated Notes due 2006 (the
"Notes") on November 6, 1996 under an indenture dated November 6, 1996 by and
between the Company and the United States Trust Company of New York, as trustee
(the "Recapitalization").
Income Before Income Taxes: As expected, as a result of the increase in net
interest expense discussed above, income before income taxes of $.5 and $2.4
million for the third quarter and first nine months of 1997 was down
significantly from $2.4 and $7.2 million for the same periods in 1996. Excluding
the increase in net interest expense of $2.4 and $7.0 million in the third
quarter and first nine months of 1997 over the same periods of 1996, income
before income taxes would have been approximately $2.9 and $9.4 million
respectively.
Income Taxes: The Company's provision for income taxes decreased to $.2 and
$1.1 million for the third quarter and first nine months of 1997 down from $.9
and $2.4 million for the same periods in 1996 while the Company's effective tax
rate increased to 44.7% and 45.0% from 38.6% and 32.6% for those same periods.
The Company's 1996 effective tax rate was favorably affected by increased
profits in the Company's European operations for which no tax provision was
recorded because of the availability of net operating loss carry forwards
("NOLs") of which only $65,000 existed at the beginning of 1997. In
14
<PAGE>
1997, due to the minimal amount of NOLs available to offset European income and
additional non-U.S. losses for which no benefits are being recognized because it
is more likely than not that they will not be realized in certain non-U.S.
jurisdictions, the 1997 effective tax rate exceeds the U.S. statutory rate and
the prior year consolidated effective tax rate.
Net Income: Net income decreased to $.3 and $1.3 million or $.62 and $2.71
per share for the third quarter and first nine months of 1997, respectively from
$1.5 and $4.9 million or $3.12 and $10.07 per share for the same periods in
1996, as a result of the factors discussed above.
Liquidity and Capital Resources
The Company's principal capital requirements are to fund working capital
needs, to meet required debt payments, and to complete planned maintenance and
expansion expenditures. The Company anticipates that its operating cash flow,
together with available borrowings of $18.4 million and DM 8,500 under existing
credit facilities, will be sufficient to meet its working capital requirements,
capital expenditure requirements and interest service requirements on its debt
obligations. As of September 30, 1997, the Company's total debt and
shareholder's deficit was $108.9 million and $19.8 million, respectively.
Net cash flow provided by operations aggregated $6.3 million for the first
nine months of 1997 compared to $4.3 million provided for the first nine months
of 1996. The increase was primarily attributable to a $4.2 million decrease in
working capital needs and a $.8 million increase in depreciation and
amortization offset by a $3.5 million decrease in net income.
Cash used in investing activities for the first nine months of 1997 was
$19.2 million as compared to $7.5 million for the first nine months of 1996. The
increased use of cash is primarily due to the second quarter acquisitions,
offset by a $2.7 million reduction in fixed asset purchases.
Cash provided by financing activities for the first nine months of 1997 was
$6.7 million as compared to a $.5 million use for the first nine months of 1996.
The cash provided by financing activities in the first nine months of 1997
primarily represents an $8.4 million net increase in debt borrowings primarily
due to the second quarter acquisitions and a $1.7 million decrease in amount due
to parent. The cash provided by financing activities for the first nine months
of 1996 primarily represents an increase in amounts due to parent of $7.2
million offset by a net decrease in debt borrowings of $6.7 million and
dividends paid of $1.2 million.
Concurrent with the Recapitalization, the Company entered into a $20.0
million senior credit facility, and its German subsidiary entered into a DM 7.5
million credit facility. In the third quarter of 1997, the Company's German
subsidiary entered into an additional DM 8.5 million credit facility. At
September 30, 1997, $18.4 million was available under the U.S. dollar line and
DM 8.5 million was available under the DM lines. The Company did not draw upon
these facilities in connection with the Recapitalization or in the first quarter
of 1997, but did draw upon these facilities for the Rolf Meyer acquisition. The
11-3/8% Notes impose, and other debt instruments of the Company may impose,
various restrictions and covenants on the Company which could potentially limit
the Company's ability to respond to market conditions, to provide for
unanticipated capital investments or to take advantage of business
opportunities.
15
<PAGE>
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
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
------- -------------------------------------------------
10.1 Letter Agreement dated September 23, 1997
between Deutsche Bank and IKS Klingelnberg GmbH
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
16
<PAGE>
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: William M. Schult
--------------------------------------
William M. Schult
Vice President-Finance, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial
and Accounting Officer)
November 12, 1997
17
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- -------------------------------------------------
10.1 Letter Agreement dated September 23, 1997
between Deutsche Bank and IKS Klingelnberg GmbH
27 Financial Data Schedule
18
<PAGE>
Deutsche Bank
Filiale Remscheid
Blumenstra(beta)e 33
42849 Remscheid
IKS Klingelnberg GmbH
Attention: Thomas Meyer
In der Fleute 18
42897 Remscheid
Confirmation of Conditions
Dear Mr. Meyer:
In reference to our conversations, we would like to confirm to you, that we have
already made the following lines of credit / loans available to the IKS
Klingelnberg GmbH Group - Germany, within the framework of our general
conditions (AGB). For information on the durations, conditions, collaterals and
covenants, we refer you to the specific loan agreements.
Working Capital Line of Credit in the amount of DM 7,500,000
Loan through KfW (government agency) to IKS Klingelnberg GmbH
for the acquisition of the Rolf Meyer company DM 5,000,000
Loan through KfW (government agency) to IKS Klingelnberg GmbH
for the acquisition of the China Joint Venture DM 2,500,000
Loan through KfW (government agency) to IKS Klingelnberg GmbH
for the mortgage of the factory/office building in Remscheid DM 3,771,000
Loan through KfW (government agency) to IKS Falzmesser GmbH
for the acquisition of the Rolf Meyer Company DM 5,000,000
Loan through KfW (government agency) to IKS Messerfabrik
Geringswalde GmbH DM 731,000
Deutsche Bank Investment Loan to IKS Messerfabrik Geringswalde DM 504,000
GmbH
In addition to these loans / lines of credit, we are prepared
to make available to IKS Klingelnberg GmbH, Remscheid, an
additional line of credit for future investments/acquisitions
in the amount up to with a duration of up to 10 years in
accordance with framework of our general conditions (AGB). DM 8,500,000
<PAGE>
We will mutually agree on the conditions of this line of credit at a given time
in connection with the then current market conditions.
The assets which will be acquired with these funds will generally serve as
collateral for this loan. In addition, International Knife & Saw, Inc. must
confirm that its loan to IKS Klingelnberg GmbH in the amount of DM 9.4 million
will not have to be paid back until all of the loans from us have first been
paid back.
If you are in agreement with the content of this letter, please sign the
enclosed copy and send it back to us.
We thank you for your trust in us, wish you the best in your future plans, and
hope for a continued cooperative and confident relationship.
Deutsche Bank
Muller Jakobi
<PAGE>
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