UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the year ended December 31, 1999
---------------------------
OR
[ ] 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 registrant's principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (606) 371-0333
-------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 Exchange 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ x ].
As of January 1, 2000, there were 481,971 shares of the registrant's
common stock outstanding, all of which were owned by an affiliate of the
registrant.
Documents incorporated by reference: None
<PAGE>
Unless otherwise indicated, industry and market data used throughout
this report are based on Company estimates which, while believed by the Company
to be reliable, have not been verified by independent sources. Unless otherwise
indicated or the context otherwise requires, references to "IKS" or the
"Company" are to International Knife & Saw, Inc. and its consolidated
subsidiaries.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward looking statements. Certain matters discussed in
this filing could be characterized as forward looking statements, such as
statements relating to plans for future expansion, other capital spending,
financing sources and effects of regulation and competition. Such forward
looking statements involve important risks and uncertainties that could cause
actual results to differ materially from those expressed in such forward looking
statements.
PART I
ITEM 1. BUSINESS
General
International Knife & Saw, Inc. ("IKS" or the "Company") is a
wholly-owned subsidiary of IKS Corporation, a Delaware corporation. The Company
is a global leader in the manufacturing, servicing and marketing of industrial
and commercial machine knives and saws, operating in an estimated worldwide
market of at least $1.0 billion. The Company's products, which are consumed in
the normal course of machine operation and need resharpening or replacement many
times a year, are mounted in industrial machines and are used in virtually every
facet of cutting, slitting, chipping and forming of materials. The Company
serves the following major market sectors: (i) Wood (44% of 1999 net sales);
(ii) Paper & Packaging (41%); (iii) Metal (11%); and (iv) Plastic & Recycling
(4%). The Company believes that it has a leading worldwide market share in each
of these market sectors and that there is no other company that serves all four
such sectors.
IKS traces its origins to 1814, when Klingelnberg Soehne was founded in
Germany as a textile and hardware trading house. Klingelnberg Soehne began
manufacturing industrial knives and saws in the early 1900s and by 1940 was
serving a variety of product segments. Klingelnberg Soehne expanded its sales
into the North American market during the 1960s and subsequently established
manufacturing and resharpening operations which were complemented by several
strategic acquisitions. The Company was incorporated in 1973, and by 1991 it had
acquired the European and North American operations of Klingelnberg Soehne.
Since 1991, the Company has expanded its resharpening operations by adding an
additional 21 service centers, commenced operations in Asia, Australia and Latin
America and expanded its manufacturing operations by acquiring three
manufacturing operations.
The Recapitalization
The Company issued $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 as of November 6, 1996 (the "Indenture"), by and between the
Company and United States Trust Company of New York, as trustee. The Notes were
issued concurrently with the consummation of a recapitalization (the
"Recapitalization") of IKS Corporation. Prior to the Recapitalization, all of
the issued and outstanding capital stock of IKS Corporation was held by members
of the Klingelnberg family and the Company's issued and outstanding capital
stock was held approximately 97% by IKS Corporation and approximately 3% by
certain executive officers of the Company (the "Existing Management Investors").
The Recapitalization involved the following transactions: (i) the
Existing Management Investors exchanged their holdings of capital stock issued
by the Company for capital stock of IKS Corporation, and the Company became a
wholly owned subsidiary of IKS Corporation; (ii) IKS Corporation amended its
charter to change its corporate name from "The Klingelnberg Corporation" to "IKS
Corporation" and to authorize three classes of capital stock, consisting of
preferred stock (the "Corp. Preferred Stock"), voting common stock (the "Corp.
Class A Stock") and non-voting common stock (the "Corp. Class B Stock" and,
together with the Corp. Class A Stock, the "Corp.
I-1
<PAGE>
Common Stock"); (iii) the issued and outstanding capital stock of IKS
Corporation was exchanged for a recapitalization distribution (the
"Recapitalization Distribution") which consisted of (a) approximately $86.6
million in cash and (b) Junior Subordinated Debentures of IKS Corporation (the
"Corp. Debentures"), Corp. Preferred Stock and Corp. Class A Stock with an
aggregate value of approximately $9.4 million issued to Arndt Klingelnberg,
Diether Klingelnberg and certain Existing Management Investors; (iv) certain
Existing Management Investors, together with certain other key employees of the
Company who were not Existing Management Investors (the "New Management
Investors" and, together with the Existing Management Investors, the "Management
Investors"), purchased Corp. Debentures, Corp. Preferred Stock and Corp. Class A
Stock from IKS Corporation for approximately $1.3 million in cash; and (v)
Citicorp Venture Capital Ltd. ("CVC") purchased Corp. Debentures, Corp.
Preferred Stock and Corp. Common Stock from IKS Corporation for $14.3 million in
cash.
The gross proceeds to the Company from the sale of the Notes, together
with the aggregate investment of $15.6 million made in IKS Corporation by the
Management Investors and CVC in connection with the Recapitalization, were used
to (i) finance the cash portion of the Recapitalization Distribution
(approximately $86.6 million), (ii) repay approximately $11.4 million of
outstanding indebtedness referred to below and (iii) pay approximately $4.5
million of fees and expenses related to the transactions.
In accordance with certain provisions contained in the documentation
governing the Recapitalization, the amount of the Recapitalization Distribution
was adjusted upwards by approximately $2.8 million in March, 1997, and such
amount was paid in cash by the Company to the recipients of the Recapitalization
Distribution.
Business Strategy
The Company believes that it can enhance its leading market position
through the continued implementation of its business strategy. Key elements of
this strategy include (i) maximizing stable, high margin end-user sales; (ii)
increasing its global manufacturing, sourcing and marketing capabilities through
strategic alliances; (iii) expanding its own or independently owned network of
resharpening service center operations, which increases direct access to
end-users and enables the Company to capture both resharpening and additional
replacement business; (iv) expanding and improving its product offering; (v)
maintaining its focus on cost improvement opportunities; and (vi) continuing to
evaluate acquisitions in the highly fragmented knife and saw industry. The
Company is presently evaluating potential acquisition opportunities and as part
of its strategy will continue to do so in the future. There can be no assurance
that the Company will consummate any such acquisitions or, if consummated, the
timing thereof.
Products and Markets
The Company manufactures and sells its products in four major market
sectors including (i) Wood (44% of 1999 net sales); (ii) Paper & Packaging
(41%); (iii) Metal (11%); and (iv) Plastic & Recycling (4%). IKS offers an
extensive variety of knives and saws which are mounted in industrial machines
and are sold across a wide customer base and over numerous industries throughout
the world. The Company's knives and saws are consumed in the normal course of
machine operation and need resharpening or replacement many times per year.
Wood
IKS believes it is the largest manufacturer of industrial wood knives
and saws with 1999 net sales of approximately $67 million. Industrial wood
knives and saws are utilized in applications by companies such as Weyerhauser
Co. and Louisiana Pacific Corp. for sawing logs into specific dimensional sized
lumber for use in the housing industry; by companies such as Georgia Pacific
Corp., Willamette Industries and Boise Cascade Corp. for peeling large diameter
logs into veneer for use in the production of plywood, paneling and furniture;
and by companies such as Fletcher Challenge and International Paper Co., Inc.
for the production of wood chips used in their pulp mills to produce fine paper,
newsprint and craft paper. In addition, the Company's knives are used to cut
wood into chips, used for fuel by wood and coal burning power plants as well as
generating power and steam for large paper and pulp mills worldwide.
I-2
<PAGE>
Industrial wood cutting knives and saws are consumed in the normal
course of operation and, due to their rough service applications, generally need
resharpening as often as every six to eight hours and up to 40 to 50 times over
the life of the product. Wood circular and band saws are generally resharpened
and retensioned daily and replaced often.
As wood becomes more expensive, the industry is increasingly cognizant
of the need for more effective tree utilization and reducing material lost to
inefficient sawing. As a result, the industry is trending toward engineered and
composite materials made from specially sized wood chips leading to increased
sales of waferizer and flaker knives, and wear parts. In the past, plywood was
typically used in favor of engineered and composite materials. However, plywood
requires the use of large diameter logs as raw material, leaving considerable
waste on the forest floor, whereas wafer board and oriented strand board use
tighter tolerance waferizer and flaker knives to reduce smaller, less expensive
raw material logs into specifically sized and shaped wood chips. The chips are
then assembled with synthetic binders into boards, sheets and specialty
profiles, having properties superior to plywood or solid wood predecessors. The
Company believes that it is the leading North American manufacturer of these
specialty knives and has the ability to grow with this rapidly increasing
market.
The Company is a leader in the manufacture of carbide edger saws and
also one of the largest providers of stock saws for the secondary industry in
North America as a result of its purchase of the assets of the Systi-Matic
Company ("Systi-Matic") in April, 1997. Located near Seattle, WA, Systi-Matic
represents one of the most modern precision wood saw manufacturing facilities in
the U.S. Using automated equipment in combination with skilled craftsmen,
Systi-Matic produces extremely accurate saws used for primary wood, to mitre cut
wood moldings for cabinet making and furniture production. State-of-the-art
laser cutting equipment provides Systi-Matic with both extreme precision in the
manufacturing process and reduced costs due to automated production.
The Company is also a leader in the manufacture of long wood-peeling
and slicing veneer knives. Veneer knives are among the more difficult industrial
knives to manufacture due to their length (up to six meters) and quality
requirements. IKS is one of only a limited number of manufacturers that can
produce such a knife. As the market demands higher quality veneer knives, the
Company believes that its expertise in the design and manufacture of such knives
gives it a competitive advantage.
The Company increased its presence in the wood saw machinery market
with its acquisition of the assets of Cascade/Southern Saw Corp. ("Cascade") in
June, 1997. Located near Portland, OR and in Hot Springs, AR, Cascade provides
technical assistance to the primary wood industry particularly in the area of
thin kerf sawing for yield and productivity improvements. The highly trained,
experienced, technical sales staff provides primary wood end users with a
valuable resource to improve their mills' performance, thereby creating mutually
beneficial long-term exclusive supplier relationships for saws, saw maintenance
equipment, and supplies.
The market for wood cutting knives and saws is growing in Latin
America and other developing regions as many of the nations in these regions
begin to export products further along the production cycle. As the Company
expands in these regions, it believes that it will benefit from the increased
exportation of finished products. The Company is also using its service center
operations to increase its sales, as more wood cutting operations are
outsourcing their knife and saw servicing needs.
Paper & Packaging
The Company believes it is the largest manufacturer and supplier of
industrial paper & packaging knives with 1999 net sales of approximately $62
million. Among the Company's four major markets, the paper & packaging knife
market is the largest and most diverse, with the widest variety of cutting
methods. These knives are used in applications by companies such as
Kimberly-Clark Corp., Fort James and Proctor & Gamble Co. for cutting and
perforating tissue paper and paper towels and the production of disposable
diapers; by companies such as Frito-Lay, Inc. and M&M Mars, Inc. which utilize
Zig Zag knives to cut the top and bottom of snack food, salt and pepper and
candy packages sold by convenience stores and fast food chains; and by companies
such as Quebecor World, Champion International Corp. and RR Donnelly & Sons Co.,
Inc. for cutting and trimming paper in the production of copy paper, books and
business forms. As a result of their many uses, paper & packaging knives
represent the largest
I-3
<PAGE>
category of the Company's approximately 10,000 products with more than 2,500
paper & packaging knife products relating to every aspect of paper & packaging
manufacturing and converting.
Paper converting knives are made from a wide range of steel grades,
from inlaid carbon steels to carbide. Recent trends in the paper industry,
including an increase in the use of recycled fiber and a change in paper
chemistry to more abrasive alkaline additives, have required upgrades by paper
producers to higher quality, more expensive knife materials and designs which
are better suited for more sophisticated and diverse cutting applications. As a
result, the market for industrial paper converting knives is experiencing price
and margin expansion as higher-end knives are increasing in demand. The Company
has developed an expertise in the manufacture of these more sophisticated
cutting tools which allow the paper converter to run longer and produce better
quality cuts. The Company believes that few of its competitors have the
expertise to manufacture machine knives out of the more expensive materials,
which gives IKS a competitive edge and positions it to offer the most complete
package of new knife products and services in the world paper market.
The Company expanded its presence in the printing market with its
acquisition of the assets of the Rolf Meyer Company ("Rolf Meyer") in April,
1997. Located in northern Germany, Rolf Meyer, over the past 30 years, has
developed a reputation of being a leading producer of high precision printing
press knives and spare parts. By acquiring Rolf Meyer's technical expertise and
proprietary machining methods, IKS has also been able to expand its precision
toothed knife manufacturing capabilities into the packaging and food industry,
growing markets for the IKS group.
Industrial paper knives are generally consumed rapidly in the normal
course of operation and can need resharpening as often as once per week and 50
times over the life of the product. The Company has a strong presence in the
knife servicing market in North America, capitalizing on the preference of users
of paper knives to outsource their knife servicing needs rather than resharpen
their knives themselves. Customers often find that the performance of these
tools can be better maintained if the sharpening is outsourced to professional
service shops having more specialized equipment and technically trained
personnel. The Company believes that it has the largest network of
Company-owned, strategically located service shops equipped with the IKS
Hyperhone(TM) system, which system maintains new knife performance throughout
the life of a tool and is not available at most other independent or in-house
grinding shops. Through Company owned service facilities in strategic locations,
IKS can offer customers a local supply of consumable cutting tools as well as
factory trained service facilities to sharpen and maintain cutting tools for
peak performance and productivity. In addition to Company owned service centers,
the Company works very closely with independently owned dealers and regrind
shops. The Company is continuously expanding its paper knife servicing business
by educating paper mills on the benefits of outsourcing their knife resharpening
needs to the Company's service centers.
The Company believes that the market for paper & packaging knives is
strong worldwide and is growing in Europe, Latin America and Asia. The Company
should benefit in Asia and Latin America as consumer markets in those regions
emerge and the use of packaged consumer products rapidly increases. The Company
has expanded its penetration of the European market to include packaging and
food knives previously not marketed in Europe through the IKS organization,
primarily due to the increased capacities in precision serrated edge tool
products the Company obtained when it acquired Rolf Meyer. The Company believes
that, through its continued emphasis on providing specialized technical
assistance, it will continue to grow in these markets.
Metal
The Company believes it is the second largest manufacturer of metal
knives with 1999 net sales of approximately $16 million. The Company's metal
knives are used by steel processing facilities such as Heyco Corp., Edgecomb
Metals Co. and Allegheny Ludlum Corp. and metal products manufacturers such as
Deere & Co. Inc., Caterpillar, Inc. and Steelcase Corp.; in the cutting,
shearing and chopping of steel being produced in steel mills used by companies
such as Bethlehem Steel Corp., Rouge Steel Co. and USX Corp.; and in cutting
metal sheets and slitting strips from rolls of sheet steel processed by
companies such as California Steel Corp. and Joseph T. Ryerson & Son, Inc.
I-4
<PAGE>
Steel circular slitter knives are highly accurate, requiring thickness
tolerances of up to 40 millionths of an inch for a high degree of precision and
customization. There is a trend toward increased tensile strengths of metals and
maximizing the efficiency of metal slitting machines. This trend requires tool
technology that extends the normal resharpening cycle. The Company is a leader
in this field, utilizing fine-grained raw materials, triple-tempered vacuum heat
treatment procedures, and finely lapped surfaces which enable this degree of
precision.
In setting up their steel slitting lines, the Company's customers order
knives specifically designed for the particular demands and characteristics of
each production line. IKS offers expert technical and computer software
assistance to companies setting up such a line. The Company has developed a
proprietary software package, Slitting Assembly Very Easy ("SAVE"), which
assists customers in choosing and setting up metal slitting knives. The IKS
(SAVE) technology makes use of custom computer software to guide the personnel
setting up the arbor in the selection of the individual slitter knife and spacer
combination to an exact thickness, assuring that, as the arbor is loaded, the
accumulated error is maintained near zero. The accuracy of this knife clearance
directly affects the cut edge quality of the steel strip. By offering this
technology, as well as personal technical assistance, the Company is an integral
part of the steel slitting knife purchasing process, which the Company believes
increases the likelihood that a customer will choose an IKS product.
Another method the Company utilizes to maintain its position with its
customers of steel slitting knives is its focus on metal knife resharpening
centers. Metal knives are consumable and generally need resharpening as often as
once per week and as often as 100 times over the life of a product. Although
most users of metal knives have expertise in metalworking processes, there is a
trend in the United States to outsource their resharpening requirements due to
the increasing sophistication and tolerance required of metal knives. IKS is
capitalizing on this opportunity. The market for industrial metal knives is
dependent upon the steel usage by numerous industries including the automotive
industry and metal and consumer product manufacturers, such as aluminum can and
appliance manufacturers.
Plastic & Recycling
The Company believes it is one of the largest manufacturer of
industrial plastic & recycling knives with 1999 net sales of approximately $6
million. Industrial plastic granulator knives are used for the manufacture of
plastic, typically by companies such as Mobil Chemical Corp. and I.C.I.
Americas, Inc. where pelletizing knives are used to cut plastic into small,
precise pieces for processing; by companies such as E.I. DuPont de Nemours & Co.
for cutting artificial fibers; by companies such as Wellman Inc. for recycling
plastic containers; and by companies such as Waste Recovery Corp. for the
environmental recycling of styrofoam, rubber and glass. The Company manufactures
knives for all of these uses, as well as related knives used to cut computer
tape, foil and film by companies such as Alcoa Aluminum Co. of America, Inc. and
Eastman Kodak Co. and household products produced by Hasbro Corp. and Rubbermaid
Inc.
IKS is one of North America's largest manufacturer of plastic
granulator knives and is also one of the largest manufacturers of such knives in
Europe. The market for industrial plastic granulator knives is currently strong
in Europe as a result of government mandated recycling programs and is also
growing in North America due to the increased focus on the environment and
recycling. There is a growing emphasis on recycling with respect to reclaiming
the reusable value of material in plastic, rubber, glass and metal products, as
well as with respect to easing the disposal of urban waste, medical waste,
aluminum cans and soda bottles in accordance with environmental regulations.
The Company is also a leader in the development and production of
knives used in the size reduction and recycling of automobile tires and glass.
The Company believes the use of tire granulating knives will continue to
increase as new uses are developed for the reprocessed material. The Company
believes that the recycling of copper and aluminum cable and wires will also
increase as fiber optic and satellite communication technologies become more
widespread. The Company manufactures the knives which are used in the granulator
systems used in recycling these materials and is thus well positioned to benefit
as demand for these products increases.
I-5
<PAGE>
Industrial plastic granulator knives are consumed in the normal course
of machine operation and need resharpening as often as once per month and as
many a 15 times over the life of a product. Most users of industrial plastic
granulator knives do not service their own knives and the servicing of such
knives is also an important area for the potential expansion of the Company's
customer base.
Marketing and Distribution
The Company is the only industrial knife and saw manufacturer with
operations in North America, Europe, Asia, Australia and Latin America and
products sold in more than 75 countries. Historically, the Company's sales have
been principally in North America and Europe. However the Company has recently
expanded operations into the emerging markets of Asia and Latin America, and
plans to continue its international growth, entering new geographic markets
while broadening existing ones.
The Company has one of the largest direct salesforces focused on
industrial knives and saws. Complementing the Company's knowledgeable worldwide
salesforce, the Company has a significant staff of product managers who are
experts in their respective fields and are responsible for product coordination
among the Company's salespeople, customers and manufacturing operations. The
Company concentrates its sales efforts on end-users, which represent 92% of 1999
net sales, through its direct sales force, distributors, agents and
Company-owned and independent resharpening service centers. The remaining 8% of
the Company's net sales are to original equipment manufacturers ("OEMs") of
cutting machines through its direct sales force.
In order to better serve its customers, the Company strategically
places its inventory around the world to best suit geographical and customer
needs. This results in the Company being able to ship most products to the
end-users more rapidly than many of its competitors.
End-users -- Direct Salesforce and Company-Owned Service Centers.
Approximately 65% of the Company's 1999 net sales were direct to end-users
through the Company's salesforce and Company-owned service centers, representing
approximately 7,500 customer accounts. The Company believes that it has been
successful in selling to end-users because of its large and knowledgeable
salesforce, broad product offering, customer service, the strategic placement of
its inventory and its relationships with OEMs. The Company's salesforce develops
close working relationships with end-users, continually providing customers with
direct technical support, offering advice about the types of knives, materials
and specifications which would be appropriate for their specific machines.
The Company is afforded additional direct access to end-users by
providing resharpening services to end-users of both its own and its
competitors' products through its 21 service centers, fourteen in the United
States, three in Canada, one in the Netherlands, one in France, one in Mexico,
and one in Chile. In addition to company-owned service centers, the Company
works very closely in conjunction with a network of independently owned dealers
and regrind shops. This enables the Company to create even closer customer
relationships which better position it to be the first choice of the end-user
when a replacement is needed. Since industrial knives and saws are consumable,
and generally need resharpening at least once per week and as often as 50 times
over the life of a product, resharpening revenues can be significantly in excess
of the cost of the product.
The resharpening service centers also act as distributors as they sell
replacement knives and saws. By owning and operating these service centers, the
Company can replace competitors' products with IKS products, including IKS
products that the service center may not have previously sold. The Company
believes that the number of service center users will continue to increase as a
result of a slow but emerging trend toward outsourcing resharpening operations.
This outsourcing trend results from end-users implementing overhead reductions
and requiring expertise in resharpening blades that are increasingly more
sophisticated in materials and design.
End-users -- Distributors and Independent Service Centers. The Company
sells approximately 27% of its net sales to end-users through distributors and
independent resharpening service centers. The Company's long term relationships
with these distributors, agents and independent resharpening service centers
complements its salesforce by providing the opportunity to access additional
niche markets. The Company will continue to utilize its distribution network to
expand its sales reach and carry the IKS products in their inventory, ready to
be sold to end-users.
I-6
<PAGE>
OEMs. Approximately 8% of IKS' 1999 net sales were directly to a
variety of OEM manufacturers. The Company believes it is the leading supplier to
the OEM market, placing the original knife or saw in the OEM machine, and has a
close relationship with many of the major cutting machine manufacturers
worldwide. The Company has developed and maintains these close relationships by
providing advice to OEM manufacturers about the types of knives, materials and
specifications which would be appropriate for their particular machines. In
supplying over 350 OEMs, the Company's market managers have an enhanced ability
to identify the needs of its customers and to coordinate the Company's technical
capabilities with those needs. As a result, the Company believes that it has
greater opportunities to place its products into OEM machines and by doing so
provides itself with a competitive advantage in capturing the resultant end-user
replacement sales.
Strategic Alliances
The Company's strategic alliances include over 50 business
relationships with suppliers of finished industrial knives and saws throughout
the world, five joint ventures and several strategic relationships with
independent resharpening centers. These alliances enable the Company to expand
its international presence, increase its product offerings and align itself with
local entrepreneurs in international markets where local market expertise is
needed while broadening its customer base with limited additional investment.
Finished Goods Suppliers. The Company's relationships with suppliers of
finished goods are typically with small manufacturers throughout the world. The
Company's relationships with finished goods suppliers allow it the flexibility
to manufacture or source a product based upon cost and delivery time, the
quality of product needed, the region to be supplied and the material to be
used. The more significant of these relationships provide the Company with the
exclusive or semi-exclusive rights to market certain of its partners' products
within the Company's markets and allow the Company to purchase finished goods
for a relatively low cost and then resell these products at attractive margins
often using the Company's trademarks and tradenames. The Company generally has
at least two suppliers for most of the products it sources. In addition, the
loss of any particular supplier would not have a material effect upon the
Company, since the Company is able to manufacture substantially all of the
products it sources.
Joint Ventures. The Company also maintains its international presence
through joint ventures in Asia, Australia, and Latin America. These include two
joint ventures in China which commenced operations in January. The Company
increased its interest from 51% to 80% in 1999 in both China joint ventures.
These joint ventures sell products domestically within China and IKS exclusively
exports these products to the rest of the world, providing the Company with a
relatively low cost source of supply for resale to its customers. These joint
ventures provide a distribution network for the Company to import its products
from North America and Europe into the rapidly developing market in China as the
economy expands and demands a greater variety of cutting tool products. The
Company's other joint venture interests are a 42.5% interest in a distributor
and service center in Chile which had net sales of approximately $1.0 million in
1999, a 30% interest in a distributor in the Philippines which had net sales of
approximately $.9 million in 1999, and a 45% interest in a distributor in
Australia which had net sales of approximately $.8 million in 1999.
Raw Materials
The Company has numerous suppliers of raw materials, including over 20
raw material suppliers of steel. IKS's steel purchase volume is typically large
enough to allow the Company to purchase steel directly from steel mills, which
results in reduced raw material costs. The Company believes that its
relationships with all of its steel vendors are good. The Company is not
dependent on any one of its suppliers for all of its raw materials.
In 1995, the Company experienced an unexpected increase in the price of
tool steel because of an unusual general market price increase which affected
the knife industry worldwide. This price escalation was attributable to a major
reduction in specialty tool steel production resulting from the closing of a
major German steel mill and the consolidation of steel producers in Latin
America and Europe coupled with a strong demand for raw materials in North
America and Europe. Due to the unexpected nature of the price increase, the
Company was not able to pass along this increase to its customers on a timely
basis. The Company has taken measures to prevent such a
I-7
<PAGE>
reoccurrence by negotiating a 90-day fixed price term into most of its sales
contracts as opposed to the previous one year term, increasing prices on a more
regular basis and expanding the number of its steel suppliers.
Backlog Orders
As of February 29, 2000, the dollar amount of backlog orders, which
includes BMMS (see Note 13 on page II-29), believed by the Company to be firm
totaled approximately $35 million. It is expected that a significant portion of
all such orders will be filled during 2000. As of February 28, 1999 the dollar
amount of backlog orders totaled approximately $37 million.
Competition
The industrial knife and saw market is highly fragmented with numerous
participants. The Company competes principally on the basis of price, service,
delivery, quality and technical expertise. The Company's competitors vary in
each of the market sectors that the Company serves. No single company which
competes with the Company in all four of the market sectors that the Company
serves and no single company is dominant in any of such market sectors. The
Company believes that the reputation it has established over its long history
for quality products, sales and service network and its in-depth product
knowledge provide it with a competitive advantage in all the market sectors it
serves.
Trademarks and Tradenames
The Company markets its products under certain trademarks, including
"IKS(TM)," "IKS Klingelnberg," "Cascade Southern", "Chromavan," "Chromalit,"
"Compaflex," "Compalloy," "Durakut," "Durapid," "Duritan," "Dynabloc(TM),"
"Dynapren," "Dynatherm," "KeyMatic," "Hyperhone(TM)," "Klirit," "KSFmicroplan,"
"Novacrom(TM)," "Novador," "QCP," "Quality Cut Knife Maintenance Program and
Design," "Rolf Meyer", "SAVE," "Sawyer's Choice," "Stop," "Surekut(TM),"
"Systi-Matic", "Tecalloy(TM)," "Tecnolite(TM)," "Tungsten Carbide Quattro,"
"Diamond Cut," "New Wave," "Dialux," "Ultrid," and "Workalit." In addition, the
Company uses the following tradenames: American Custom Metals; Ban-Carb; Buland;
Canadian Knife & Saw; Diacarb; AK Vander Wijngaart Beheer; Diacarb Stansvormen;
Mayemyton Trading; Durakut; Econokut; Hannaco; Hyperhone; IKS de Mexico; IKS
Shanghai; Kodiak; SPS; Tuff-Tip; and Ultrakut.
Employees
At December 31, 1999, the Company had 1,453 full-time employees. Of
such employees, 780 were located in North America, 341 were located in Europe
and 332 were located in Asia. The Company considers its relations with its
employees to be good.
The Company's employees are primarily non-union. The Company's Bergisch
Born, Germany facility, its China facilities (operated in connection with its
joint venture arrangements) and its Systi-Matic facility in Kirkland, Washington
are the only facilities which employ union workers. The Company estimates that
45 of its German employees and 72 of its U.S employees are union members. The
majority of the 315 employees at the facilities of the two China joint ventures
are part of a governmental bargaining unit. The Company considers its relations
with the unions to be good.
Environmental and Regulatory Matters
As with most industrial companies, the Company's facilities and
operations are required to comply with and are subject to a wide variety of
federal, state, local and foreign environmental and worker health and safety
laws, regulations and ordinances, including those related to air emissions,
wastewater discharges and chemical and hazardous waste management and disposal
("Environmental Laws"). Certain of these Environmental Laws hold owners or
operators of land or businesses liable for their own and for previous owners' or
operators' releases of hazardous or toxic substances, materials or wastes,
pollutants or contaminants, including petroleum and petroleum products.
Compliance with Environmental Laws also may require the acquisition of permits
or other authorizations
I-8
<PAGE>
for certain activities and compliance with various standards or procedural
requirements. The nature of the Company's operations, the long history of
industrial uses at some of its current or former facilities, and the operations
of predecessor owners or operators of certain of the businesses expose the
Company to risk of liabilities or claims with respect to environmental and
worker health and safety matters. There can be no assurance that material costs
or liabilities will not be incurred in connection with such liabilities or
claims.
In connection with the Recapitalization, the Company obtained an
indemnity for fines and penalties for violations of Environmental Laws and for
losses suffered by the Company with respect to certain environmental conditions
occurring prior to the Recapitalization. The environmental indemnities are
subject to certain time limitations depending on the nature of the environmental
claim, a $15.0 million cap and, except for fines and penalties for violations of
Environmental Laws, a $2.5 million deductible. Based on the Company's experience
to date and the indemnities obtained in connection with the Recapitalization,
the Company believes that the future cost of compliance with existing
Environmental Laws (or liability for known environmental liabilities or claims)
should not have a material adverse effect on the Company's business, financial
condition or results of operations. However, future events, such as changes in
existing laws and regulations or their interpretation, may give rise to
additional compliance costs or liabilities that could have a material adverse
effect on the Company's business, financial condition or results of operations.
Compliance with more stringent laws or regulations, as well as more vigorous
enforcement policies of regulatory agencies or stricter or different
interpretations of existing laws, may require additional expenditures by the
Company that may be material.
ITEM 2. PROPERTIES
The Company is headquartered in Erlanger, Kentucky, located a few miles
south of Cincinnati, Ohio. The Company currently owns or leases 30 facilities in
North America, Europe, Asia, and Australia that are used for manufacturing,
distribution, sales, warehousing and service center activity.
I-9
<PAGE>
The following table sets forth the location, square footage and
principal functions of each of the Company's facilities.
<TABLE>
<CAPTION>
Location Approx. Sq. Ft. Use
-------------------------------- --------------- ---------------------------------
<S> <C> <C>
North American Facilities
Florence, SC................... 106,600 Manufacturing/Service
Center/Distribution/Sales
Erlanger, KY (corporate Manufacturing/Service
Headquarters)............... 99,700 Center/Distribution/Sales
Camden, AL..................... 44,700 Manufacturing/Service
Center/Distribution/Sales
McMinnville, OR................ 55,000 Manufacturing/Service
Center/Distribution/Sales
Granby, Quebec*................ 20,000 Manufacturing/Service
Center/Distribution/Sales
Langley, British Columbia........ 19,200 Manufacturing/Service
Center/Distribution/Sales
Elmhurst, IL*.................. 18,500 Service Center/Distribution/Sales
Kirkland,WA *.................. 30,000 Manufacturing/Service
Center/Distribution/Sales
Milwaukie, OR *................ 8,600 Manufacturing/Service Center
Hot Springs, AR................ 6,700 Distribution/Sales
Atlanta, GA *.................. 3,900 Service Center/Distribution/Sales
Appleton, WI *................. 5,000 Service Center/Distribution/Sales
Nashville, TN *................ 2,400 Service Center/Distribution/Sales
Bangor, ME..................... 12,400 Service Center/Distribution/Sales
Mississauga, Ontario*.......... 11,800 Service Center/Distribution/Sales
West Monroe, LA................ 7,500 Service Center/Distribution/Sales
Richmond, VA *................. 7,400 Service Center/Distribution/Sales
Mexico City, Mexico*........... 3,500 Service Center/Distribution/Sales
Statesboro, GA*................ 2,700 Service Center/Distribution/Sales
European Facilities
Bargteheide, Germany........... 64,500 Manufacturing/Distribution/Sales
Bergisch Born, Germany............. 56,000 Manufacturing/Distribution/Sales
Geringswalde, Germany.......... 30,700 Manufacturing
Rotterdam, the Netherlands.... 23,700 Service Center/Distribution/Sales
Palaiseau, France.............. 17,200 Service Center/Distribution/Sales
Asian Facilities
Jakarta, Indonesia*............ 2,700 Distribution/Sales
Kuala Lumpur, Malaysia*........ 1,000 Distribution/Sales
Joint Venture Facilities
Shanghai, China** (80%)........ 32,000 Manufacturing/Distribution/Sales
Coffs Harbour, Australia*(45%) 2,000 Distribution/Sales
Concepcion, Chile (42.5%)....... 3,700 Service Center/Distribution/Sales
Manila, Philippines (30%)....... 2,500 Distribution/Sales
- ----------
* Leased.
** Facility owned, land leased.
</TABLE>
The Company believes that its facilities are suitable for its
operations and provide sufficient capacity to meet the Company's requirements
for the foreseeable future.
I-10
<PAGE>
The Company places a strong emphasis on producing high quality
products. The Company's European facility located in Bergisch Born, Germany has
been awarded ISO 9001 certification, while its Erlanger, Kentucky facility has
been awarded ISO 9002 certification indicating that these facilities have
achieved and sustained a high degree of quality and consistency with respect to
their production systems. The Company believes that ISO certification is an
increasingly important selling feature both domestically and internationally, as
it provides evidence to purchasers that the Company's systems have achieved
specified standards and are being sustained.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in legal proceedings arising
in the ordinary 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
This item is not applicable to the registrant for this filing on Form
10-K.
I-11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The Company is a wholly owned subsidiary of IKS Corporation. The
Company's common equity is not publicly traded and, accordingly, an established
market does not exist for such common equity.
IKS Corporation has two classes of common equity outstanding as well as
two classes of preferred stock. As of March 1, 2000, there were 36 holders of
IKS Corporation' outstanding common equity. In August and September 1997, IKS
Corporation issued 11,319 shares of Class A Stock, 96 shares of Series A 12%
Cumulative Compounding Preferred Stock and 96 shares of Series B 12% Cumulative
Compounding Preferred Stock to Participants for total consideration of $305,190.
During 1998, IKS Corporation issued 200 shares of Class A Stock, 24 shares of
Series A 12% Cumulative Compounding Preferred Stock and 24 shares of Series B
12% Cumulative Compounding Preferred Stock to Participants for total
consideration of $50,000. During 1999, IKS Corporation issued 312 shares of
Class A stock, 2.4 shares of Series A 12% Cumulative Compounding Preferred Stock
and 2.4 shares of Series B 12% Cumulative Compounding Preferred Stock to
Participants for total consideration of $7,920. The above securities were
purchased under certain employee stock purchase plans in reliance upon the
exemptions available under Section 4 (2) of the Securities Act of 1993, as
amended, and Regulation D thereunder. See "Item 12. Security Ownership of
Certain Beneficial Owners and Management."
On November 6, 1996, IKS Corporation completed the Recapitalization.
See "Item 1. Business - The Recapitalization." As part of the Recapitalization,
the Company paid a special cash dividend of approximately $63.5 million to IKS
Corporation to finance, in part, the cash portion of the Recapitalization
Distribution. See "Item 1. Business - The Recapitalization."
The Company did not pay any dividends in 1999 because the Indenture
prohibits the Company from declaring or paying any dividend or making any
distribution on account of the Company's equity interests unless certain
conditions, as outlined in the Indenture, exist at the time of such payment. The
Company is not prohibited from declaring or paying dividends in the form of
capital stock of the Company.
ITEM 6. SELECTED FINANCIAL DATA
The following table contains selected historical financial data of the
Company as of and for each of the five years in the period ended December 31,
1999. The information contained in this table should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations", and the Company's historical consolidated financial statements,
including the notes thereto, included elsewhere herein.
II-1
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
(dollars in thousands)
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales $ 151,087 $ 150,132 $ 142,265 $ 118,996 $ 107,030
Cost of sales 106,431 105,020 99,176 83,122 77,026
--------- --------- --------- --------- ---------
Gross profit 44,656 45,112 43,089 35,874 30,004
Selling, general and administrative
expenses 34,517 30,299 27,681 23,952 19,734
--------- --------- --------- --------- ---------
Operating income 10,139 14,813 15,408 11,922 10,270
Interest expense, net 12,354 12,006 11,687 3,245 1,416
Minority interest 295 71 174 (271) -
----------- --------- --------- ---------- ---------
Income (loss) before income taxes (2,510) 2,736 3,547 8,948 8,854
Provision for income taxes 880 1,146 1,499 2,924 3,606
--------- --------- ---------- --------- ---------
Net income (loss) $ (3,390) $ 1,590 $ 2,048 $ 6,024 $ 5,248
========== ========== ========== ========= =========
Net income (loss) per common share $ (7.03) $ 3.30 $ 4.25 $ 12.50 $ 10.89
Other Data:
EBITDA (1) $ 16,893 $ 20,803 $ 20,027 $ 17,055 $ 14,687
Net cash provided by operating
activities 6,889 10,694 7,282 9,999 2,963
Net cash used in investing
activities (5,497) (17,687) (25,183) (8,998) (3,783)
Net cash (used) provided by
financing activities (1,332) 6,690 8,676 965 4,494
Depreciation and amortization (2) 6,360 5,620 5,145 4,596 3,786
Capital expenditures (3) 6,019 9,320 7,734 8,157 4,663
Gross margin 29.6% 30.0% 30.3% 30.1% 28.0%
EBITDA margin 11.2% 13.9% 14.1% 14.3% 13.7%
EBITDA including LIFO charges and
credits $ 16,499 $ 20,434 $ 20,553 $ 16,518 $ 14,056
Balance Sheet Data:
Working capital $ 28,869 $ 26,095 $ 32,910 $ 40,753 $ 32,564
Total assets 127,618 134,975 115,274 101,275 85,697
Debt (4) 114,957 122,455 109,265 100,075 23,716
Shareholder's equity (deficit) (22,846) (18,093) (19,607) (19,644) 38,029
(1) EBITDA is defined as operating income plus depreciation and
amortization adjusted to exclude LIFO charges (credits) of $394, $370,
($526), $537, and $631 for the years ended December 31, 1999, 1998,
1997, 1996 and 1995, respectively. EBITDA should not be construed as an
alternative to operating income, net income or cash flows from
operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as an
indication of the Company's operating performance or as a measure of
liquidity. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations." The EBITDA measure
presented by the Company may not be comparable to similarly titled
measures reported by other companies.
(2) Depreciation and amortization as presented will not agree with amounts
in the consolidated statement of cash flows because of the amortization
of debt issuance costs reported below the operating income line.
(3) 1998 includes $2,172 of capital expenditures related to the
implementation of a new computer system (SAP) and related system
software. 1996 includes $1,524 of capital expenditures related to the
consolidation of the Company's west coast operations and the expansion
of the Cincinnati facility, and $1,105 of capital expenditures related
to the expansion of the China joint venture operations.
(4) Debt includes notes payable and current portion of long-term debt and
excludes capital lease obligations.
</TABLE>
II-2
<PAGE>
ITEM 7. 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.
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 accounted for 66% of its 1999
net sales. The Company's other international operations account for the
remainder and are located primarily in Europe, 30% of 1999 sales, and to a
lesser extent in 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 4% of
1999 net sales. During 1994, 1995, 1996 and 1997, 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 Canada and European
countries, are subject to exchange rate volatility. In addition, the Company
consolidates German, Dutch, French, Canadian, Mexican, Chinese and other Asian
operations and changes in exchange rates relative to the U.S. dollar have
impacted financial results. As a result, a decline in the value of the dollar
relative to these other currencies can have a favorable effect on the
profitability of the Company and an increase in the value of the dollar relative
to these other currencies can have a negative effect on the profitability of the
Company. Comparing exchange rates for 1999 to 1998, the weaker German Mark,
Dutch Guilder, and French Franc had the translation effect of decreasing 1999
sales by $1.6, $.5 and $.5 million, respectively with immaterial impact on 1999
operating income. To mitigate the short-term effect of changes in currency
exchange rates on the Company's foreign currency based purchases and its
functional currency based sales, the Company occasionally enters into foreign
exchange and U.S. dollar forward contracts to hedge a portion of its budgeted
(future) net foreign exchange and U.S. dollar transactions over periods ranging
from one to twelve months.
At December 31, 1999 the result of a hypothetical 10% adverse change in
foreign currency rates would not significantly impact the Company's future
results of operations, cash flows or financial position. This calculation
assumes that each exchange rate would change in the same direction relative to
the U.S. dollar. In addition to the direct effects of the changes in exchange
rates, changes in exchange rates also affect the volume of sales and the foreign
currency sales price as competitors' products become more or less attractive.
The Company's sensitivity analysis of the effects of changes in foreign currency
exchange rates does not factor in the potential change in sales levels or local
currency prices.
II-3
<PAGE>
Results of Operations
The following table sets forth the items in the Company's consolidated
statements of income as percentages of its net sales for the periods indicated:
Year Ended December 31,
1999 1998 1997
---------- --------- ----------
Net sales.............................. 100.0% 100.0% 100.0%
Cost of sales.......................... (70.4)% (70.0)% (69.7)%
---------- ---------- ----------
Gross margin........................... 29.6% 30.0% 30.3%
Selling, general and administrative
expenses.......................... (22.8)% (20.2)% (19.5)%
---------- ---------- ----------
Operating income....................... 6.8% 9.8% 10.8%
Interest expense, net.................. 8.2% 8.0% 8.2%
Minority interest...................... 0.2% 0.0% 0.1%
--------- --------- ---------
Income (loss) before income
taxes.................................. (1.6)% 1.8% 2.5%
Provision for income taxes............. (0.6)% (0.8)% (1.1)%
---------- ---------- ----------
Net (loss) income............ (2.2)% 1.0% 1.4%
========== ========= =========
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.
Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
Net Sales: Net sales increased .6% to $151.1 million in 1999 from
$150.1 million in 1998. The Company experienced sales declines in its North
American operations (6.5% to $99.2 million) compared to $106.1 million in 1998,
primarily attributable to organizational issues and to a lesser extent due to
pricing pressures from Asian, South American and domestic competitors that led
to a loss of business in the major market sectors the Company serves. The
Company has addressed these organizational issues through several senior
management changes, including the hiring of a new CEO in May 1999. The Company
experienced sales improvements (18.0% to $51.9 million) in its other operations
compared to $44.0 million in 1998, primarily attributable to the Buland and
Diacarb acquisitions in the fourth quarter of 1998.
Gross Profit: Gross profit decreased slightly to $44.7 million in 1999
from $45.1 million in 1998. Gross margin also decreased slightly to 29.6% for
1999 compared to 30.0% for 1998. The Company experienced a significant decrease
in gross profit in its North American operations (16.7% to $27.0 million) for
1999 compared to $32.4 million for 1998, while gross margin also significantly
declined to 27.2% from 30.5%. The decrease in gross profit and gross margin is
attributable to the factors noted above. The Company experienced significant
gross profit improvements (39.4% to $17.7 million) in its other operations for
1999 compared to $12.7 million for 1998, while gross margin also significantly
increased to 34.1% from 28.9%. The gross profit and gross margin improvement was
primarily due to the fourth quarter 1998 acquisitions of Buland and Diacarb.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses ("SG&A") were $34.5 million for 1999 compared to $30.3
million for 1998 and increased to 22.8% of sales from 20.2% of
II-4
<PAGE>
sales for the respective periods. The increase in SG&A was primarily due to the
Diacarb and Buland acquisitions and to a lesser extent due to reorganization
costs in North America.
Interest Expense, net: Net interest expense increased to $12.4 million
in 1999 from $12.0 in 1998 due to an increase in borrowings primarily related to
the Diacarb and Buland acquisitions in the fourth quarter of 1998 and increased
working capital needs due to the drop in sales in North America.
Income Taxes: Due to pre-tax losses in the United States in 1999 for
which the Company did not fully realize the related current tax benefits in
accordance with income tax accounting rules, and as a result of pre-tax income
in the Company's other operations for which the Company recorded related tax
provisions, the Company has recorded a consolidated provision for income tax on
a consolidated pre-tax loss of $2,510. The Company's effective tax rate was
41.9% in 1998. The significant change in income taxes from 1998 is due to the
above factors and significant changes in income contributions for the Company's
operations in certain tax jurisdictions.
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Net Sales: Net sales increased 5.5% to $150.1 million in 1998 from
$142.2 million in 1997, primarily attributable to 1998 and 1997 acquisitions,
significantly offset by softness in the wood, paper, and metal industries caused
by pricing pressures from Asian, South American, Russian and domestic
competitors. The Company experienced sales improvements in its North American
operations (2.6% to $106.1 million) compared to $103.4 million in 1997,
primarily attributable the above mentioned factors and the negative translation
effects of a weaker Canadian dollar that had the effect of decreasing sales by
$.7 million. The Company experienced sales improvements (13.1% to $44.0 million)
in its other operations compared to $38.9 million in 1997, attributable to
increased sales from the Buland and Diacarb acquisitions in the fourth quarter
of 1998 which accounted for about half of the increase, and the Rolf Meyer
acquisition in the second quarter of 1997, partially offset by the factors noted
above.
Gross Profit: Gross profit increased to $45.1 million in 1998 up from
$43.1 million in 1997, primarily attributable to the 1998 and 1997 acquisitions,
significantly offset by the softness in the wood paper and metal industries
caused by pricing pressures from Asian, South American, Russian and domestic
competitors. Gross margin decreased slightly to 30.0% for 1998 compared to 30.3%
for 1997. The Company experienced gross profit improvements in its North
American operations (.6% to $32.4 million) for 1998 compared to $32.2 million
for 1997, although gross margin declined to 30.5% from 31.2%. The increase in
gross profit and slight decline in gross margin is attributable to the factors
noted above. The Company also experienced gross profit improvements (16.5% to
$12.7 million) in its other operations for 1998 compared to $10.9 million for
1997, and gross margin increased to 28.9% from 28.0%. The gross profit
improvement was primarily due to the fourth quarter 1998 acquisitions of Buland
and Diacarb and the second quarter 1997 Rolf Meyer acquisition, partially offset
by the factors noted above.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses were $30.3 million for 1998 compared to $27.7 million
for 1997 and increased to 20.2% of sales from 19.5% of sales for the respective
periods. The increase in SG&A was primarily due to acquisitions.
Interest Expense, net: Net interest expense increased to $12.0 million
in 1998 from $11.7 in 1997 due to an increase in borrowings primarily related to
the Diacarb and Buland acquisitions in the fourth quarter of 1998, and the Rolf
Meyer acquisition in the second quarter of 1997.
Income Taxes: The Company's effective tax rate remained relatively
constant at 41.9% compared to 42.3% in 1997.
II-5
<PAGE>
Liquidity and Capital Resources
The Company's principal capital requirements are to fund working
capital needs, to meet required debt and interest payments and to complete
planned maintenance and expansion expenditures. The Company anticipates that its
operating cash flow, together with available borrowings of $16.8 million under
existing credit facilities, will be sufficient to meet its capital requirements.
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. As of December 31, 1999, the Company's total long term debt and
shareholder's deficit was $114.9 million and $22.9 million, respectively.
Net cash flow from operations aggregated $6.9 million for 1999 as
compared to $10.7 million for 1998. The decrease was primarily attributable to a
$5.0 million decrease in net income offset by a $.9 million decrease in working
capital and additional depreciation and amortization of $.7 compared to 1998.
Net cash flow from operations aggregated $10.7 million for 1998 as compared to
$7.3 in 1997. The increase was primarily attributable to a $2.7 million decrease
in working capital compared to 1997.
Cash used in investing activities for 1999 was $5.5 million as compared
to $17.7 million for 1998 and $25.2 million of 1997. The decrease in use of cash
compared to 1998 was primarily attributable to a $8.9 million decrease in
purchases of operations net of cash acquired and $3.3 million less capital
expenditures. The decrease in 1998 from 1997 was primarily due to a $7.8 million
decrease in purchases of operations net of cash acquired.
Cash used in financing activities for 1999 was $1.3 million as compared
to cash provided of $6.7 million for 1998 and $8.7 million in 1997. The 1999 use
of cash is primarily due to repayments of $.9 million due to parent and $.5
million net payments of notes payable and long-term debt. The cash provided by
financing activities in 1998 primarily represents a net increase of $7.5 million
in notes payable and long term debt due primarily to the acquisitions of Buland
and Diacarb in the fourth quarter of 1998, offset by a $.8 million decrease in
amounts due to parent.
The Company is currently involved in discussions with potential
acquisition candidates. If consummated, the consideration for such acquisitions
would likely be funded from a combination of the Company's existing cash and
cash equivalent balances as well as its borrowing availability under its senior
credit facilities. However, any material acquisitions could require the Company
to obtain additional sources of financing. There can be no assurance that the
Company will consummate any such acquisitions or, if consummated, the timing
thereof.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in fiscal years beginning after June 15, 2000. The
Statement will require the Company to recognize any derivatives on the balance
sheet at fair value. The Company does not anticipate that the adoption of the
new Statement will have a significant effect on its earnings or financial
position.
Impact of Year 2000
The Company has addressed the Year 2000 issue by both replacing and
modifying its existing mission critical information and non-information
technology systems. In 1996, the Company began to develop a plan to upgrade its
information systems to enable it to realize cost savings through centralization
of functions that would result in reductions in working capital items such as
inventory and accounts receivable. This plan also was developed to assess and
resolve Year 2000 compliance issues potentially affecting the Company, both with
respect to internal systems and systems on which the Company's major vendors,
suppliers, and distributors are reliant. In the
II-6
<PAGE>
first quarter of 1999, the Company completed its remediation and testing of
systems, and was fully Y2K compliant as of June 1, 1999. As a result of those
planning and implementation efforts, as of the filing date of this Form 10-K,
the Company has experienced no significant disruptions in mission critical
information technology and non-information technology systems and concludes
those systems successfully responded to the Year 2000 date change. The Company
is not aware of any material problems resulting from Year 2000 issues, either
with its products, its internal systems, or the products and services of third
parties. The Company spent approximately $4.5 million primarily to upgrade its
systems and to a lesser extent to address Year 2000 issues. No further expenses
of a material nature are anticipated. The Company will continue to monitor its
mission critical computer applications and those of its suppliers and vendors
throughout the year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information required by Item 7a is included in Item 7 on page II-3 of
this form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INTERNATIONAL KNIFE & SAW, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
----
Report of Independent Auditors...................................... II-8
Consolidated Balance Sheets as of December 31, 1999 and 1998........ II-9
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.................................. II-11
Consolidated Statements of Changes in Shareholder's Deficit
for the years ended December 31, 1999, 1998 and 1997.............. II-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.................................. II-13
Notes to Consolidated Financial Statements.......................... II-14
II-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
International Knife & Saw, Inc.
We have audited the accompanying consolidated balance sheets of
International Knife & Saw, Inc. and Subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of income, changes in
shareholder's deficit, and cash flows for each of the three years in the period
ended December 31, 1999. Our audits also included the financial statement
schedule listed in the index at Item 14(a)(2). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
International Knife & Saw, Inc. and Subsidiaries at December 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Cincinnati, Ohio
March 3, 2000
II-8
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
1999 1998
-------------------------
(in thousands)
Assets
Current assets:
Cash and cash equivalents $ 1,862 $ 2,032
Accounts receivable, trade, less allowances for
doubtful accounts of $1,856 and $1,780 25,620 25,595
Inventories 27,922 30,981
Due from parent 1,159 249
Other current assets 2,759 2,964
--------------------------
Total current assets 59,322 61,821
Other assets:
Goodwill 17,015 18,284
Debt issuance costs 2,736 3,203
Other noncurrent assets 2,163 2,307
-------------------------
21,914 23,794
Property, plant and equipment-net 46,382 49,360
=========================
Total assets $ 127,618 $ 134,975
=========================
See accompanying notes.
II-9
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
1999 1998
--------------------------
(in thousands)
Liabilities and shareholder's deficit
Current liabilities:
Notes payable $ 4,362 $ 12,667
Current portion of long-term debt 2,465 2,555
Accounts payable 13,007 9,546
Accrued liabilities 10,619 10,958
------------------------
Total current liabilities 30,453 35,726
Long-term debt, less current portion 112,391 107,954
Other liabilities 6,557 7,004
------------------------
Total liabilities 149,401 150,684
Minority interest 1,063 2,384
Shareholder's deficit:
Common stock, no par value - authorized - 580,000
shares; issued - 526,904 shares; outstanding -
481,971 shares 5 5
Additional paid-in capital 10,153 10,153
Accumulated deficit (25,898) (22,508)
Accumulated other comprehensive loss (3,674) (2,311)
Treasury stock, at cost (3,432) (3,432)
---------------------------
Total shareholder's deficit (22,846) (18,093)
==========================
Total liabilities and shareholder's deficit 127,618 $ 134,975
==========================
See accompanying notes.
II-10
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
--------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $ 151,087 $ 150,132 $ 142,265
Cost of sales 106,431 105,020 99,176
--------------------------------------------
Gross profit 44,656 45,112 43,089
Selling, general and administrative
expenses 34,517 30,299 27,681
--------------------------------------------
Operating income 10,139 14,813 15,408
Other expenses (income):
Interest income (141) (175) (261)
Interest expense 12,495 12,181 11,948
Minority interest 295 71 174
--------------------------------------------
12,649 12,077 11,861
--------------------------------------------
Income (loss) before income taxes (2,510) 2,736 3,547
Provision for income taxes 880 1,146 1,499
============================================
Net income (loss) $ (3,390) $ 1,590 $ 2,048
============================================
Net income (loss) per common share $ (7.03) $ 3.30 $ 4.25
See accompanying notes.
</TABLE>
II-11
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholder's Deficit
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Accumulated Comprehensive Treasury Shareholder's
Stock Capital Deficit Income (Loss) Stock Deficit
----------- -------------- ------------- ---------------- ------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 5 $ 10,153 $ (26,146) $ (224) $ (3,432) $ (19,644)
Net income for the year 2,048 2,048
Foreign currency translation
adjustments, net of tax of $537 (2,011) (2,011)
---------------
Total comprehensive income 37
----------- -------------- ------------- ---------------- ------------- ---------------
Balance at December 31, 1997 5 10,153 (24,098) (2,235) (3,432) (19,607)
Net income for the year 1,590 1,590
Minimum pension liability adjustment (297) (297)
Foreign currency translation
adjustments, net of tax of $50 221 221
---------------
Total comprehensive income 1,514
----------- -------------- ------------- ---------------- ------------- ---------------
Balance at December 31, 1998 5 10,153 (22,508) (2,311) (3,432) (18,093)
Net loss for the year (3,390) (3,390)
Minimum pension liability adjustment 222 222
Foreign currency translation
adjustments, net of tax of $17 (1,585) (1,585)
---------------
Total comprehensive loss (4,753)
----------- -------------- ------------- ---------------- ------------- ---------------
Balance at December 31, 1999 $ 5 $ 10,153 $ (25,898) $ (3,674)(A) $ (3,432) $ (22,846)
=========== ============== ============= ================ ============= ===============
(A) At December 31, 1999, accumulated other comprehensive income was a loss of
$3,674 comprised of net foreign currency translation adjustments of $3,599
and a minimum pension liability of $75.
See accompanying notes.
</TABLE>
II-12
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
-------------------------------------------
(in thousands)
<S> <C> <C> <C>
Operating activities
Net (loss) income $ (3,390) $ 1,590 $ 2,048
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 6,827 6,087 5,606
Deferred income taxes 432 1,032 699
Loss (gain) on sale of property, plant and 51 89 (342)
equipment
Minority interest in income of subsidiary 295 71 174
Changes in operating assets and liabilities net
of effects from purchases of operations:
Accounts receivable (1,164) 1,832 (1,526)
Inventories 1,936 (336) 811
Accounts payable 1,078 (502) 1,357
Accrued liabilities 1,393 31 (2,478)
Other (569) 800 933
-------------------------------------------
Net cash provided by operating activities 6,889 10,694 7,282
Investing activities
Purchases of operations, net of cash acquired (650) (9,418) (17,198)
Purchases of property, plant and equipment (6,019) (9,320) (7,734)
Proceeds from sale of property, plant and equipment 578 349 411
Decrease (increase) in notes receivable and other 594 702 (662)
assets
-------------------------------------------
Net cash used in investing activities (5,497) (17,687) (25,183)
Financing activities
Decrease in amounts due to parent (910) (810) (559)
Increase in notes payable and long-term debt 20,175 20,538 15,457
Repayment of notes payable and long-term debt (20,631) (13,042) (6,257)
Cash received from investees 34 4 35
-------------------------------------------
Net cash (used) provided by financing activities (1,332) 6,690 8,676
Effect of exchange rate on cash and cash equivalents (230) (14) (127)
-------------------------------------------
Decrease in cash and cash equivalents (170) (317) (9,352)
Cash and cash equivalents at beginning of year 2,032 2,349 11,701
===========================================
Cash and cash equivalents at end of year $ 1,862 $ 2,032 $ 2,349
===========================================
See accompanying notes.
</TABLE>
II-13
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands)
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of International
Knife & Saw, Inc. and its majority-owned subsidiaries (the "Company").
Investments in business entities in which the Company does not have control, but
has the ability to exercise significant influence over operating and financial
policies, are accounted for by the equity method. All significant intercompany
balances and transactions have been eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost or market. Cost in the United States
is determined principally by use of the last-in, first-out method. Subsidiaries
use the first-in, first-out method.
Property, Plant, and Equipment
Property, plant and equipment are stated at cost or, for assets acquired through
business combinations, at fair value at the dates of the respective
acquisitions. Depreciation is computed by the straight-line method based on the
estimated useful lives of the assets.
Depreciation expense includes amortization of assets recorded under capitalized
leases.
Amortization of Intangibles
Goodwill is being amortized over 10-40 years by the straight-line method. The
carrying value of goodwill is periodically reviewed using estimated undiscounted
cash flows for the businesses acquired over the remaining amortization periods.
Amortization charged to earnings amounted to $731, $633 and $489 for 1999, 1998
and 1997, respectively. As of December 31, 1999, accumulated goodwill
amortization was $2,658.
Debt issuance costs, which originated in 1996, are being amortized over the
ten-year life of the related debt. Amortization of debt issuance costs charged
to earnings amounted to $467, $467 and $461 for 1999, 1998 and 1997,
respectively. As of December 31, 1999, accumulated amortization was $1,479.
Income Taxes
Deferred taxes are provided for accumulated temporary differences due to basis
differences for assets and liabilities for financial reporting and income tax
purposes. The Company's temporary differences are due to accelerated
depreciation and amortization, allowances for doubtful accounts, expenses not
currently deductible, and income not currently taxable.
II-14
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
1. Significant Accounting Policies (continued)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Revenue Recognition
Revenue from product sales is recognized when the product is shipped and revenue
from services is recognized as the services are performed. Revenue is reduced
for estimated customer returns and allowances.
Dividend Payments
Dividend payments are restricted under the covenants of an indenture dated as of
November 6, 1996 between the Company and United States Trust Company of New York
in connection with the issuance of the $90,000 Senior Subordinated Notes.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassification
Certain 1998 and 1997 amounts have been reclassified to conform to the current
year presentation.
Net (Loss) Income Per Common Share
Net (loss) income per common share is based on the weighted average number of
common shares outstanding, which amount has remained unchanged at 481,971 shares
for 1999, 1998 and 1997, respectively. The Company does not have any common
stock equivalents.
II-15
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
1. Significant Accounting Policies (continued)
Foreign Currency Translation
The Company maintains the accounting records and prepares the financial
statements of its foreign subsidiaries in their respective functional
currencies. The accompanying financial statements, which include the effects of
the consolidated results of operations of these companies, are expressed in U.S.
dollar equivalents in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, Foreign Currency Translation. It should not be
construed that the assets and liabilities included at U.S. dollar equivalents
can actually be realized in or extinguished by U.S. dollars at the exchange
rates used in translation. The gains and losses resulting from the changes in
exchange rates from year to year have been reported in other comprehensive
income. The effects on the statements of income of transaction gains and losses
is insignificant for all years presented.
Foreign Currency Forwards
To mitigate the short-term effect of changes in currency exchange rates on the
Company's foreign currency based purchases and its functional currency based
sales, the Company occasionally hedges by entering into foreign exchange and
U.S. dollar forward contracts. A forward contract obligates the Company to
exchange predetermined amounts of specified foreign currencies or U.S. dollars
at specified exchange rates on specified dates or to make an equivalent foreign
currency or U.S. dollar payment equal to the value of such exchange. Discounts
or premiums (the difference between the spot exchange rate and the forward
exchange rate at inception of the contract) are accreted or amortized to other
operating expenses over the contract lives using the straight-line method while
realized and unrealized gains and losses resulting from changes in the spot
exchange rate (included those from open, matured, and terminated contracts), net
of related taxes, are included in the accumulated other comprehensive loss in
shareholders' deficit (the deferral accounting method). The related amounts due
to or from counterparties are included in other assets or other liabilities. The
unrecognized gains or losses were immaterial at year end.
Accounting Changes
In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in fiscal years beginning after June 15, 2000. The Statement will
require the Company to recognize any derivatives on the balance sheet at fair
value. The Company does not anticipate that the adoption of the new Statement
will have a significant effect on its earnings or financial position.
II-16
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
2. Acquisitions
In November, 1999, the Company acquired an additional 29% interest in its two
Chinese joint venture companies, Shanghai IKS Lida Mechanical Blade Co., Ltd.
and Shanghai IKS Mechanical Blade Co., Ltd. for approximately $1,100. There was
no goodwill recorded on this acquisition.
In November, 1998, the Company acquired all of the shares of A.K. van der
Wijngaart Beheer B.V. and subsidiaries ("Diacarb"). Diacarb's business includes
the regrinding and distribution of industrial knives in the Netherlands, Belgian
and Luxembourg markets. Diacarb is also involved in the manufacture of
stansformen (molds to punch holes) for the carton industry. Diacarb is located
in Rotterdam, the Netherlands. The purchase price consisted of 12,000 Dutch
guilders in cash (approximately $6,250), financed from existing lines of credit,
1,088 Dutch guilders (approximately $567) in assumed debt, and a 5.0% promissory
note to the Seller for 5,000 Dutch guilders (approximately $2,605), subject to
post closing adjustments. The promissory note is payable in installments of
1,000 Dutch guilders (approximately $521) on January 15, 2000, and 2,000 Dutch
guilders (approximately $1,042) on January 15, 2001 and 2002. The acquisition
was accounted for under the purchase method. Goodwill totaled $4,683 on this
acquisition.
In October, 1998, the Company executed an agreement to purchase the shares of
Buland S.A. ("Buland") for 8,700 French Francs (approximately $1,560) in cash
and 2,175 French Francs (approximately $395) in assumed debt, subject to
post-closing adjustments. Headquartered in France, Buland is a reseller and
regrinder of industrial knives for the printing industry and reseller of rotary
and flexible dies, with annual sales of 36,000 French Francs (approximately
$6,545). The acquisition was accounted for under the purchase method and was
financed from borrowings under the Company's existing revolving credit
facilities. Additional consideration is contingent upon Buland achieving certain
annual earnings and is payable in 2002. Goodwill totaled $558 on this
acquisition.
In June and February, 1998, the Company completed the acquisitions of the assets
of Valiquet, Inc., Des Plaines, IL, the Atlanta, GA division of K.S.W.
Corporation, and Sheridan Saw Works, Sheridan, OR for approximately $1,200 in
cash, $29 in assumed debt, post closing contingent payments of $55 for achieving
certain annualized earnings levels and promissory notes totaling $140 to two of
the sellers, subject to post-closing adjustments. These service center
acquisitions were financed from available cash balances. These operations have
historically generated combined annual sales of approximately $1,700, and were
accounted for under the purchase method. Goodwill totaled approximately $835 on
these acquisitions.
In October and November, 1997, the Company completed acquisitions of the assets
of four strategically located service centers for approximately $1,300 in cash
and a $75 promissory note to one of the sellers, subject to post-closing
adjustments. The acquisitions were financed from available cash balances. In
October, 1997, the Company acquired Parker Industrial Tool Company, Nashville,
TN; Stafford Grinding
II-17
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
2. Acquisitions (continued)
Services, Chattanooga, TN; and B&W Industrial Grinding, Inc., Appleton, WI. In
November, the Company acquired North Quabbin Saw Shop, Athol, MA. These
operations have historically generated combined annual sales of approximately
$1,400 and were accounted for by the purchase method. Goodwill totaled
approximately $700 on these acquisitions.
In June, 1997, the Company purchased the assets of Cascade/Southern Saw Corp.
("Cascade") for $2,300 in cash, subject to post-closing adjustments. Located in
Milwaukie, OR, Cascade is a wood saw and wood saw machinery distributor with
annual sales of approximately $7,900. The acquisition was accounted for under
the purchase method. Goodwill totaled $1,242 on this acquisition.
In April, 1997, the Company purchased the assets of Rolf Meyer Company ("Rolf
Meyer") for DM 8,200 (approximately $4,700) in cash, post-closing contingent
payments of DM 658 (approximately $400) for achieving certain earning levels of
which DM 405 (approximately $200) is included in accrued liabilities at December
31, 1998, a promissory note to the seller in the amount of DM 4,300
(approximately $2,500) and DM 400 (approximately $200) 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 15,000 (approximately $8,700). The acquisition was
accounted for under the purchase method and was financed from borrowings under
the Company's existing revolving credit facilities. Goodwill totaled $2,500 on
this acquisition. Additional consideration of approximately DM 400 ($200) is
contingent upon Rolf Meyer achieving certain annual earnings levels and is
payable December 31, 2000.
In April, 1997, the Company purchased the assets of Systi-Matic Company and
affiliated entities ("Systi- Matic") for $6,400 in cash, post-closing contingent
payments of $1,200 for achieving certain annualized earnings levels and $1,100
in assumed debt, subject to post-closing adjustments. Headquartered in Seattle,
WA, 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 $18,000. The acquisition was
accounted for under the purchase method and was financed from available cash
balances. Goodwill totaled approximately $4,280 on this acquisition.
The consolidated financial statements include the results of operations
generated by and financial position of the above acquisitions from the dates of
acquisition.
II-18
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
3. Inventories
December 31,
1999 1998
-------------------------------
Finished goods $ 17,120 $ 20,373
Work in process 5,088 4,101
Raw materials and supplies 5,714 6,507
===============================
$ 27,922 $ 30,981
===============================
Inventories include approximately $14,285 in 1999 and $16,220 in 1998 determined
by the LIFO method. If the cost of LIFO inventories had been determined by the
FIFO method for financial reporting, they would have been approximately $3,806
and $3,412 higher than the amounts reported at December 31, 1999 and 1998,
respectively.
4. Property, Plant and Equipment-Net
December 31,
1999 1998
---------------------------------
Land and land improvements $ 5,784 $ 6,274
Buildings and leasehold improvements 16,875 16,826
Machinery and equipment 50,119 45,015
Furniture and fixtures 4,020 4,485
Construction in progress 740 3,729
Motor vehicles 2,432 2,498
---------------------------------
79,970 78,827
Less accumulated depreciation 33,588 29,467
=================================
$46,382 $49,360
=================================
Depreciation expense, including depreciation for assets under capital lease, was
$5,629, $4,987 and $4,656, for 1999, 1998 and 1997, respectively. Depreciation
is provided for on the straight-line method over the following estimated useful
lives:
Land improvements: 15 years
Buildings and leasehold improvements: 15 to 40 years
Machinery and equipment: 5 to 12 years
Furniture and fixtures: 10 years
Motor vehicles: 3 to 5 years
II-19
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
5. Notes Payable and Long-Term Debt
<TABLE>
<CAPTION>
December 31,
1999 1998
------------------------------
<S> <C> <C>
Notes payable:
Notes payable on demand in German Marks to a
German bank, issued under revolving credit
agreements, interest payable quarterly $ 1,347 $ 7,922
Notes payable on demand in Chinese Yuan Renminbi
to Chinese banks, issued under revolving credit
agreements, interest payable monthly 1,765 1,259
Notes payable on demand in U.S. Dollars to a German
bank, issued under revolving credit agreements,
interest payable quarterly 1,250 3,280
Other - 206
==================================
$ 4,362 $ 12,667
==================================
Long-term debt:
11-3/8% Senior Subordinated Notes due 2006 $ 90,000 $ 90,000
Notes payable in German Marks to a German bank 16,399 12,830
Notes payable in Chinese Yuan Renminbi to Chinese
banks 1,680 2,989
Capitalized lease obligations in U.S. dollars to U.S.
lenders 4,261 721
Promissory note payable in German Marks to a
former shareholder of the Rolf Meyer Company - 787
Promissory note payable in Dutch Guilders to a
former shareholder of the Diacarb Company 2,414 2,682
Other 102 500
---------------------------------
114,856 110,509
Less current portion 2,465 2,555
==================================
$ 112,391 $ 107,954
==================================
</TABLE>
II-20
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
5. Notes Payable and Long-Term Debt (continued)
Except for the 11-3/8% notes, the carrying amount of the Company's long-term
debt approximates fair value, which is determined using discounted cash flow
analysis based on the Company's incremental borrowing rate for similar types of
financing arrangements. At year-end 1999, the fair value of the 11-3/8% notes
was $68,400. Such amounts are based on recent trade prices through registered
securities brokers.
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.
The notes payable of $16,399 have maturities that extend to 2011 at rates of
2.5% to 6.05%. Outstanding borrowings under the Company's senior credit
facilities are included in long-term debt based on the expectation that these
borrowings will remain outstanding for more than one year. Land and buildings in
Germany with a net book value of $8,281 are pledged as collateral for the German
revolving credit agreements and the German bank notes payable.
The notes payable of $1,680 mature in 2003 at rates of 7.2% to 7.7% and are
non-recourse to the Company. Plant and equipment in China with a net book value
of approximately $2,084 are pledged as collateral for the Chinese revolving
credit agreements and the Chinese bank note payable.
The capitalized lease obligations of $4,261 are for capital leases on equipment
that have maturities that extend to 2004 at rates of 6.99% to 8.7%. Included in
property, plant and equipment-net is equipment under capital lease of $4,600.
The promissory note payable to a former shareholder of Diacarb is due in
installments of 1,000 Dutch guilders in 2000 and 2,000 Dutch guilders in 2001
and 2002 at a rate of 5.0% in connection with the Diacarb acquisition.
At December 31, 1999, the Company had a DM 62,796 (US$ 32,312) committed global,
multi-currency credit facility. Unused committed lines of credit from this
global facility were US$ 16,801, compared to US$ 15,188 at December 31, 1998.
Fees for these revolving credit arrangements were $22 in 1999 and were $24 in
1998.
The short-term note payable of $1,347 represents short-term bank borrowings at
rates from 6.0% to 6.5%.
The short-term notes payable of $1,765 represent short-term bank borrowings at a
rate of 5.4% to 7.4%.
The short-term note payable of $1,250 represents short-term bank borrowings at a
rate of 7.3%.
II-21
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
5. Notes Payable and Long-Term Debt (continued)
At December 31, 1999, amounts due as minimum payments under long-term debt were
as follows:
2000 $ 2,465
2001 4,731
2002 3,800
2003 4,920
2004 2,113
Thereafter 96,827
----------------
$ 114,856
================
Cash paid for interest amounted to $12,097, $11,670 and $11,713 in the years
ended December 31, 1999, 1998 and 1997, respectively.
6. Accrued Liabilities
December 31,
1999 1998
-----------------------------------
Salaries, wages and bonuses $ 2,157 $ 2,097
Profit sharing and 401(k) plans 809 1,078
Interest 1,322 1,419
Other employee related accruals 1,397 930
Other 4,934 5,434
===================================
$ 10,619 $ 10,958
===================================
7. Income Taxes
IKS Corporation files a consolidated Federal income tax return that includes the
Company. The current and deferred tax expense and benefit for the Company are
recorded as if it filed on a stand-alone basis. All participants in the
consolidated income tax return are separately liable for the full amount of the
taxes, including penalties and interest, if any, which may be assessed against
the consolidated group. The current provision (benefit) for United States income
taxes is recorded to the intercompany account with IKS Corporation.
II-22
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
7. Income Taxes (continued)
Summarized in the following tables are the Company's income (loss) before income
taxes, its provision (benefit) for income taxes, the components of the deferred
income taxes and a reconciliation of the U.S. statutory rate to the tax
provision rate.
Income (Loss) Before Income Taxes
Year ended December 31,
1999 1998 1997
------------------- ----------------- ----------------
United States $ (7,287) $ (705) $ 1,199
Non-U.S. 3,441 2,348 4,777
=================== ================= ================
$ (2,510) $ 2,736 $ 3,547
=================== ================= ================
<TABLE>
<CAPTION>
Components of Deferred Tax Assets and Liabilities
December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Current deferred tax assets (liabilities):
Inventories, primarily obsolescence and additional costs
inventoried for tax purposes $ 559 $ 253
Reserve for bad debts (366) (432)
Accrued employee benefits 292 168
Other 166 64
---------- -----------
Total current deferred tax assets 651 53
Noncurrent deferred tax assets (liabilities):
Net operating loss carryforwards 2,545 -
Property, plant and equipment, primarily differences in
depreciation methods (4,028) (3,754)
Deferred compensation 143 157
Goodwill, difference in amortization methods (523) (327)
Other (21) (18)
---------- -----------
Total noncurrent deferred tax liabilities (1,884) (3,942)
Less valuation allowance (1,490) -
---------- -----------
Total net noncurrent deferred tax liabilities (3,374) (3,942)
----------- -----------
Net deferred tax liabilities $ (2,723) $ (3,889)
=========== ===========
</TABLE>
II-23
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
7. Income Taxes (continued)
<TABLE>
<CAPTION>
Provision (benefit) for Income Taxes Year Ended December 31,
--------------- -------------- --------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Current (benefit) provision
Federal $ - $ (562) $ 436
State and local (219) - 36
Foreign 1,504 676 328
---------------
-------------- --------------
1,285 114 800
Deferred provision (benefit)
Federal (909) 321 (115)
State and local (6) 28 (10)
Foreign 510 683 824
--------------- -------------- --------------
(405) 1,032 699
=============== ============== ==============
$ 880 $ 1,146 $ 1,499
=============== ============== ==============
The differences between the provision and the amount computed by applying the
statutory Federal income tax rate are as follows:
Year Ended December 31,
1999 1998 1997
----------------------------------------------
Income (loss) before income taxes $ (2,510) $ 2,736 $ 3,547
==============================================
Tax (benefit) provision on above amount at 34% $ (853) $ 930 $ 1,206
Change in valuation allowance 1,490 - -
State income tax (benefit) provision, net of federal tax impact
(225) 28 36
Foreign tax rates different than U.S. statutory rate 387 134 254
Foreign losses without tax benefit 69 56 90
Other, net 12 (2) (87)
==============================================
Provision for income taxes $ 880 $ 1,146 $ 1,499
==============================================
</TABLE>
At year-end 1999, the Company's U.S. operations had net loss carry forwards
aggregating $6,900 which expire in 2019. The Company has recorded a deferred tax
asset of $2,545 and a corresponding valuation allowance of $1,490 related to
these net operating loss carry forwards.
II-24
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
7. Income Taxes (continued)
Undistributed earnings of foreign subsidiaries which are intended to be
indefinitely reinvested aggregated approximately $9,492 at the end of 1999. In
the event these earnings were to be repatriated, foreign income tax credits and
deductions under existing U.S. federal income tax laws would offset a portion of
any additional U.S. tax liability.
8. Employee Benefit Plans
The Company has profit sharing plans for its U.S. and Canadian employees. Profit
sharing contributions are determined annually by the respective Boards of
Directors. Contributions to the 401 (k) plan are equal to one-half of employee
contributions, up to a maximum of 2% of an employee's annual compensation,
subject to certain statutory limitations.
The expense for profit sharing contributions was $560 in 1999, $953 in 1998, and
$1,095 in 1997. The Company's matching contributions to the 401(k) plan amounted
to $285 in 1999, $368 in 1998 and $249 in 1997.
Included in other liabilities are amounts for deferred compensation plans for
former officers of $387 and $424 at December 31, 1999 and 1998, respectively.
The plans provide for a maximum payment of $25 annually to each officer or
beneficiary for a period of ten years commencing at retirement or death.
The Company's German subsidiaries have pension plans covering a majority of
their employees who qualify as to age and length of service. Entrance into the
plan is at age 30 with defined benefits payable at age 65. Vesting requirements
vary depending on employment category, contracts and years of service
requirements which range from five to fifteen years. The following table sets
forth the status of the Company's defined pension plan for certain employees in
Germany. Consistent with customary practice in Germany, this plan has not been
funded. Benefit payments are funded from current operations.
Change in benefit obligation
December 31,
1999 1998
----------------- --------------
Benefit obligation at beginning of year $ 1,736 $ 1,413
Service cost 23 14
Interest cost 100 92
Actuarial (gains) losses (60) 144
Loss (gain) currency exchange rate (248) 117
Benefits paid (48) (44)
=========== ===========
Benefit obligation at end of year $ 1,503 $ 1,736
=========== ===========
II-25
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
8. Employee Benefit Plans (continued)
Funded status at year-end
<TABLE>
<CAPTION>
December 31,
1999 1998
----------------- ----------------
<S> <C> <C>
Projected benefit obligation $ 1,503 $ 1,736
Unrecognized net loss (108) (195)
Unrecognized net obligation (177) (224)
Additional minimum liability 252 382
================= ================
Accrued pension cost - included in other liabilities $ 1,470 $ 1,699
================= ================
</TABLE>
<TABLE>
<CAPTION>
Components of net periodic benefit costs Year Ended December 31,
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 24 $ 14 $ 14
Interest cost on projected benefit obligation 100 92 93
Net amortization and deferral 19 12 13
==============================================
Net periodic benefit cost $ 143 $ 118 $ 120
==============================================
</TABLE>
<TABLE>
<CAPTION>
Weighted-average actuarial assumptions Year Ended December 31,
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Discount rate 6.5% 6.5% 6.5%
Rate of increase in future compensation levels 2.5% 2.5% 2.0%
</TABLE>
9. Related Parties
The consolidated financial statements include the following transactions and
balances with companies which had been under common controlling ownership with
the Company prior to the Recapitalization. Such companies are, and have been
since the Recapitalization, controlled by a minority shareholder and board
member of IKS Corporation.
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Other payables to affiliated companies $ (35) $ (62) $ (174)
Purchased administrative and manufacturing services 670 712 1,015
</TABLE>
II-26
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
10. Operating Leases
Future minimum rentals required under operating leases are as follows:
Year ending December 31 Buildings Other Total
- ------------------------------------------------------------------------------
2000 $ 534 $ 57 $ 591
2001 525 55 580
2002 331 32 363
2003 84 9 93
2004 30 4 34
Rent expense was $553 for 1999, $566 for 1998 and $545 for 1997.
11. Organization
The Company operates in one business segment - industrial knives and saws. The
Company manufactures, markets and services primarily industrial knives and saws
internationally, and its customers include distributors, original equipment
manufacturers and customers purchasing replacement parts and services. The
Company has a leading market share in each of the major sectors it serves: Paper
& Packaging; Wood; Metal; and Plastic/Recycling. The Company's operations are
principally in the United States, Germany and Canada, representing 57%, 23% and
8% of 1999 net sales, respectively. The Company plans to continue its
international growth. As a result of the Company's broad product range and
numerous applications, no customer accounts for more than 3% of net sales. The
Company performs periodic credit evaluations of its customers and generally does
not require collateral.
Sales attributable to German and Canadian operations are based on external sales
generated by subsidiaries located in those countries
II-27
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands)
11. Organization (continued)
The following table summarizes the Company's United States, German, Canadian and
other operations.
Year Ended December 31,
1999 1998 1997
-------------- ------------------ -----------------
United States Operations:
Net sales - Customers $ 86,450 $ 92,875 $ 88,175
Long Lived Assets 22,111 22,479 19,395
German Operations:
Net sales - Customers 35,183 $ 34,762 $ 30,675
Long Lived Assets 13,428 14,457 11,974
Canadian Operations:
Net sales - Customers 11,932 $ 12,644 $ 14,639
Long Lived Assets 1,081 1,078 1,288
Other Operations:
Net sales - Customers 17,522 $ 9,851 $ 8,776
Long Lived Assets 10,371 11,898 5,344
Consolidated:
Net sales 151,087 $ 150,132 $ 142,265
Long Lived Assets 46,991 49,912 38,001
II-28
<PAGE>
International Knife & Saw, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(in thousands, except per share data)
12. Operating Results by Quarter (Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------
1999
------------------------------------------------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales $ 39,236 $ 37,280 $ 37,473 $ 37,098
Gross profit 11,660 10,346 11,174 11,476
Net income (loss) 116 (804) (289) (2,413)
Net income (loss) per common share .24 (1.67) (.60) (5.01)
------------------------------------------------------------
1998
------------------------------------------------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4
-------------- --------------- -------------- --------------
Sales $ 38,703 $ 37,334 $ 35,844 $ 38,251
Gross profit 11,598 11,658 10,602 11,254
Net income 654 661 270 5
Net income per common share 1.36 1.37 .56 .01
</TABLE>
13. Subsequent Event
In January 2000 the Company's German subsidiary acquired all of the shares of
Boehler Miller Messer und Saegen GmbH ("BMMS"). BMMS is headquartered in
Waidhofen, Austria. The purchase price consisted of 24,700 Austrian Schilling
(approximately $1,776) in cash and 63,000 Austrian Schilling (approximately
$4,530) in assumed debt. The Company's lines of credit were increased in order
to finance the cash payment. Additional consideration is contingent upon BMMS
achieving certain annual earnings and would be payable in 2002. BMMS produces
knives, saws and ground flats for the wood, paper, and metal industries with
annual sales of approximately 30,000 Austrian Shillings (approximately $21,600).
The acquisition was accounted for under the purchase method. There was no
goodwill on this acquisition.
II-29
<PAGE>
III-9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
persons who are members of the Board of directors or executive officers of the
Company. Directors serve for a term of one year or until their successors are
elected and qualified; officers serve at the discretion of the Board of
Directors.
Name Age Position
--------------------- ------ ----------------------------------------
P. Daniel Miller 51 President, Chief Executive Officer and
Director
Thomas W. G. Meyer 43 Executive Vice President -- Europe and
Asia
William M. Schult 38 Executive Vice President -- Chief
Financial Officer, Treasurer and
Secretary
Bradley H. Widmann 53 Vice President -- Operations/Americas
W. Randolph Underhill 50 Vice President -- Operations
Paul A. Severt 37 Vice President -- Financial
Reporting/Controller
David M. Hofmeister 40 Chief Information Officer
W. Rayburn Connell 59 Vice President -- Service and Sales
Director, North America
Diether Klingelnberg 55 Director
James A. Urry 45 Director
Michael A. Delaney 45 Director
Richard J. Puricelli 53 Director
- ----------
P. Daniel Miller, President, Chief Executive Officer and Director. Mr.
Miller has been President and Chief Executive Officer since May 1999 when he
joined the Company. Prior to joining the Company, Mr. Miller served as President
and Chief Operating Officer of Overhead Door Corporation. Prior to that, Mr.
Miller spent eleven years with Whirlpool Corporation in various management
positions, the last of which was Executive Vice President-Latin America.
Thomas W. G. Meyer, Executive Vice President -- Europe and Asia. Mr.
Meyer has served as Executive Vice President since he joined the Company in
1993. Prior thereto, Mr. Meyer worked in the textile industry for ten years,
including service as the head of marketing for Barmag AG from 1988 until 1991
and as a director of A. Monforts GmbH & Co., from 1991 until 1992.
William M. Schult, Executive Vice President --Chief Financial Officer,
Treasurer and Secretary. Mr. Schult joined the Company as Vice President --
Finance in July 1996. Prior to joining the Company, he served as Controller of
IKS Corporation since 1995 and in several capacities at Siemens Corporation from
1987 until 1995. Prior to that, Mr. Schult held various accounting and auditing
positions with the Allen Group, Salomon Brothers and Coopers & Lybrand.
Bradley H. Widmann, Vice President - Operations/Americas. Mr. Widmann
joined the Company in November 1999 as Vice President - Operations/Americas.
From 1996 - 1999, he headed the global supply chain
III-1
<PAGE>
management for Magnetek, Inc. Prior to working with Magnetek, Inc., Mr. Widmann
held senior operations positions with Textron, Inc., Gould, Inc. and General
Electric Co. in both aerospace and commercial products industries.
W. Randolph Underhill, Vice President -- Operations. Mr. Underhill
joined the Company in 1977 as Product Manager. Mr. Underhill served in various
capacities, including purchasing agent and sales manager, from 1977 to 1990, and
became Vice President -- Operations in 1996.
Paul A. Severt, Vice President -- Financial Reporting/Controller. Mr.
Severt joined the Company as Vice President - Financial Reporting/Controller in
April 1997. Prior to joining the Company, Mr. Severt held various accounting and
auditing positions with Ernst & Young with which he was employed for 12 years.
David M. Hofmeister - Chief Information Officer. Mr. Hofmeister joined
the company as Chief Information officer in June 1997. From 1984 to 1997, Mr.
Hofmeister worked for E.I.Du Pont de Nemours, holding various management
positions in Du Pont's Consolidation Coal and Remington Arms subsidiaries. Prior
to working with Du Pont, Mr. Hofmeister worked as a Management Science Analyst
for the Gulf Oil Corporation.
W. Rayburn Connell, Vice President, Service and Sales Director, North
America. Mr. Connell joined the Company in 1991 as Vice President -- Service and
Sales Director. From 1990 to 1991, Mr. Connell was the owner of Connell
Distribution and prior to that was the part owner of Austin Saw and Knife, which
the Company acquired in 1991. Between 1974 and 1990, Mr. Connell was the
Company's sales manager.
Diether Klingelnberg, Director. Mr. Klingelnberg served as Chief
Executive Officer of the Company until March 1996. In addition, he served as
Chairman of the Board and Chief Executive Officer of IKS Corporation from its
formation until consummation of the Recapitalization. Mr. Klingelnberg is
currently Managing Director of Klingelnberg Beteiligungs-GmbH, Chairman of
Oerlikon Geartec AG and Eickhoff GmbH. He is also a Director of Clark Material
Handling Company.
James A. Urry, Director. Mr. Urry has been with Citibank, N.A. since
1981, serving as a Vice President since 1986. He has been a Vice President of
CVC since 1989. He is a Director of Intersil Corporation, Hancor Holding
Corporation, Airxcel, Inc., Palomar Technologies Corporation and York
International Corporation.
Michael A. Delaney, Director. Mr. Delaney has been a Vice President of
CVC since 1989. Mr. Delaney is a Director of AmeriSource Health Corporation,
Clark Material Handling Company, Chip PAC Inc., Delco Remy International, Inc.,
Great Lakes Dock and Dredge Corporation, GVC Holdings, JAC Holdings, Palomar
Technologies Corporation, Paper Pak Products, Inc., SC Processing, Inc., MSX
International and Triumph Holdings, Inc.
Richard J.Puricelli, Director. Mr. Puricelli has been associated with
JAC Products since 1995. He became a Director in 1995 and Chairman in 1997. As
Chairman, he is responsible for the company's operations that produce
approximately $300 million in annual sales and employ approximately 1,500 people
in Europe and North America. JAC Products is the leading supplier of roof racks
and related accessories to automobile OEMs. Mr. Puricelli is also Chairman and a
Director of FabriSteel Products, Inc.
III-2
<PAGE>
Director Compensation and Arrangements
With the exception of Mr. Puricelli, who receives $4,000 per quarter,
other directors of the Company do not currently receive compensation for their
services as directors. Members of the Board of Directors are elected pursuant to
a Securities Purchase and Holders Agreement (the "Stockholders' Agreement")
entered into in connection with the Recapitalization among IKS, IKS Corporation
and its stockholders. Pursuant to the Stockholders' Agreement, the Board of
Directors of the Company is composed at all times of five directors as follows:
P. Daniel Miller (as long as he continues to serve as President of the Company);
one individual designated by Diether Klingelnberg, two individuals designated by
CVC; and one independent director who shall be designated by CVC subject to the
right of holders of the majority of the outstanding shares of Holdings Class A
Stock to veto the election of any such independent director.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth certain information concerning the
compensation received for services rendered in 1999 by (i) each person who
served as the Company's Chief Executive Officer during 1999 and, (ii) the four
most highly compensated executive officers of the Company (other than the
individuals who served as the Company`s Chief Executive Officer) in office on
December 31, 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
-------------------------------------------------------------------------------
All Other
Salary Bonus Other Compensation
Name and Principal Position Year ($) ($) ($) ($)
- ---------------------------------- ---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
John E. Halloran (1).............. 1999 190,192 -- 24,853 (2) 3,486 (3)
President and Chief Executive 1998 220,000 70,000 26,268 11,661 (4)
Officer 1997 200,000 85,000 29,728 11,661 (4)
P. Daniel Miller (1).............. 1999 216,705 302,400 -- 12,646 (5)
President and Chief Executive 1998 -- -- -- --
Officer 1997 -- -- -- --
Thomas W.G. Meyer................. 1999 201,251 159,006 -- --
Executive Vice President -- 1998 184,600 165,430 -- --
Europe and Asia 1997 173,100 103,860 -- --
William M. Schult................. 1999 155,954 97,336 -- 7,899 (6)
Executive Vice President -- 1998 135,000 38,750 -- 11,036 (7)
Finance, Chief Financial Officer, 1997 127,000 45,000 -- 11,302 (8)
Treasurer and Secretary
W. Randolph Underhill............. 1999 125,000 49,365 -- 7,059 (9)
Vice President -- Operations 1998 120,000 31,150 -- 10,972 (10)
1997 111,000 36,200 -- 10,567 (11)
W. Rayburn Connell .............. 1999 120,000 47,390 -- 13,366 (12)
Vice President -- Sales and 1998 117,500 41,125 -- 12,720 (13)
Service Director, North America 1997 113,000 41,500 -- 11,352 (14)
</TABLE>
III-3
<PAGE>
(1) In May 1999, John E. Halloran was replaced as President and Chief Executive
Officer by P. Daniel Miller. Mr. Halloran's employment with the company
terminated effective October 22, 1999.
(2) Paid by IKS Corporation. Represents additional compensation sufficient to
permit Mr. Halloran to pay interest payments to IKS Corporation on a loan
made in the amount of income taxes incurred by Mr. Halloran in connection
with the securities received by him as a part of the Recapitalization
Distribution.
(3) Includes $3,200 in Company 401(k) contributions and $286 in group term life
insurance premiums.
(4) Includes $3,200 in Company 401(k) contributions, $8,000 in Company Profit
Sharing Plan contributions and $461 in group term life insurance premiums.
(5) Includes $5,418 in Company Profit Sharing Plan contributions, $7,154 in car
allowance, and $74 in group term life insurance premiums.
(6) Includes $4,818 in Company Profit Sharing Plan contributions, $2,911 in
Company 401(k) plan contributions, and $170 in group term life insurance
premiums.
(7) Includes $2,930 in Company 401(k) contributions, $8,000 in Company Profit
Sharing Plan contributions and $106 in group term life insurance premiums.
(8) Includes $3,200 in Company 401(k) contributions, $8,000 in Company Profit
Sharing Plan contributions and $102 in group term life insurance premiums.
(9) Includes $3,744 in Company Profit Sharing Plan contributions, $2,995 in
Company 401(k) plan contributions, and $320 in group term life insurance
premiums.
(10) Includes $2,728 in Company 401(k) contributions, $8,000 in Company Profit
Sharing Plan contributions and $244 in group term life insurance premiums.
(11) Includes $2,995 in Company 401(k) contributions, $7,360 in Company Profit
Sharing Plan contributions and $212 in group term life insurance premiums.
(12) Includes $2,920 in Company 401(k) contributions, $3,650 in Company Profit
Sharing Plan contributions $6,300 in car allowance and $496 in group term
life insurance premiums.
(13) Includes $2,600 in Company 401(k) contributions, $6,058 in Company Profit
Sharing Plan contributions, $3,450 in car allowance and $612 in group term
life insurance premiums.
(14) Includes $3,060 in Company 401(k) contributions, $7,725 in Company Profit
Sharing Plan contributions and $567 in group term life insurance premiums.
Employment Arrangements and Deferred Compensation Agreements
P. Daniel Miller was hired by the Company as President and Chief
Executive Officer pursuant to an Employment Agreement effective May 24, 1999
which expires on May 31, 2001. As compensation, Mr. Miller receives a
predetermined annual salary ($350,000 in 1999) and receives certain fringe
benefits including a bonus, a car allowance, reimbursement of club expenses, and
insurance coverage. Following any termination of Mr. Miller's employment, Mr.
Miller will be subject to a non-competition covenant for up to two years. The
Company also granted Mr. Miller a non-qualified stock option to purchase shares
of common stock of its parent with a term of eight years from the grant date
(May 24, 1999). Upon full exercise of the option, Mr. Miller would own 5% of the
issued and outstanding shares of the parent's common stock on a fully diluted
basis, assuming full conversion of all convertible securities and full exercise
of all options, warrants and other rights to acquire common stock.
III-4
<PAGE>
Thomas Meyer was hired by IKS Klingelnberg GmbH as its Chief Executive
Officer pursuant to an Employment Agreement effective January 1, 1993 which,
following an extension on December 17, 1998, expires on December 31, 2003. As
compensation, Mr. Meyer receives a predetermined annual salary (DM 370,000 in
1999) and receives certain fringe benefits including a bonus, an automobile, and
insurance coverage. Following any termination of Mr. Meyer's employment, Mr.
Meyer will be subject to a non-competition covenant for up to two years, in
exchange for payment in each year of an amount equal to one-half of Mr. Meyer's
most recently agreed upon annual compensation.
William M. Schult was hired by the Company as Vice President - Finance
pursuant to an Employment Agreement effective August 16, 1995. Mr. Schult was
promoted to Chief Financial Officer on November 6, 1996 and to Executive Vice
President on October 15, 1999. As compensation, Mr. Schult receives a
predetermined annual salary ($191,700 as of September 1999) and receives certain
fringe benefits including a bonus, a company car and insurance coverage.
Following any termination of Mr. Schult's employment, Mr. Schult will be subject
to a non-competition covenant for one year. The Company or Mr. Schult may
terminate this employment agreement upon six months written notice.
401(k) and Profit Sharing Plan
In 1997, the Company's tax qualified profit sharing plan was merged
into the IKS Corporation 401(k) retirement plan. The combined plan was renamed
the International Knife & Saw, Inc. 401(k) and Profit Sharing Plan. All of the
Company's domestic non-unionized employees are eligible to participate after
completing one year of service and attaining age 20 1/2. Subject to certain
statutory limitations, employees may contribute up to 15 percent of their
compensation to the plan on a pre-tax basis. The Company may make discretionary
matching contributions equal to a percentage of the employees' pre-tax
contributions. However, in determining the amount of matching contributions,
only employee pre-tax contributions up to four percent of compensation are taken
into account. Employees are fully vested in their benefits under the plan after
two years of service.
In addition to discretionary matching contributions on employees'
pre-tax contributions, the Company may also make profit sharing contributions.
These contributions are allocated to the accounts of the eligible employees in
the same ratio that each eligible employee's compensation for the year bears to
the total compensation of all eligible employees for the year. For allocation
purposes, the compensation of any employee in excess of $170,000 is disregarded.
Employees are fully vested in their benefits under the plan after five years of
service. An employee may not receive a distribution of his benefits under the
plan until following his termination of employment.
Compensation Committee Interlocks and Insider Participation
Each of the five current members of the Company's Board of Directors
also serve on the compensation committee. See "Item 13. Certain Relationships
and Related Transactions" for disclosure with respect to certain relationships
of the some of the members of the compensation committee and the Company.
In the event that Messrs. Urry and Delaney are unwilling or unable to
serve, or otherwise cease to serve, CVC shall be entitled to select their
replacement on the Board of Directors. In addition, the Stockholders' Agreement
provides that Diether Klingelnberg or his designated representative shall serve
as a director.
III-5
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All of the outstanding capital stock of the Company is currently owned
by IKS Corporation. The following table sets forth certain information with
respect to the beneficial ownership of the Corp. Preferred Stock and Corp.
Common Stock by (i) each person or entity who owns five percent or more thereof,
(ii) each director of the Company who is a stockholder, (iii) the Chief
Executive Officer of the Company and the other executive officers named in the
"Summary Compensation Table" above who are stockholders, and (iv) the directors
and executive officers of the Company as a group. Unless otherwise specified,
all shares are directly held.
<TABLE>
<CAPTION>
Number and Percent of Shares
--------------------------------------------------------------------------------------------
Holdings Holdings Holdings Class A Holdings Class B
Series A Preferred Stock Series B Preferred Stock Stock(2) Stock(3)
------------------------ ------------------------ ------------------ ------------------
Name of Beneficial Owner (1) Number Percent Number Percent Percent Percent Number Percent
- ---------------------------- ------ ------- ------ ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Citicorp Venture Capital Ltd 8,241 68.7% -- -- 31,453 35.1% 11,234 76.5%
399 Park Avenue
New York, New York 10043
Haulux, AG -- -- -- -- 17,000 19.0% -- --
Dualux, AG -- -- -- -- 17,000 19.0% -- --
John E. Halloran........... 600 600 67.2% 5,000 5.6% -- --
P.O. Box 80307
Simpsonville, SC 29680-0307
Thomas W.G. Meyer.......... 242 2.0% 2 0.3% 4,534 5.1% -- --
William M. Schult.......... 48 0.4% 48 5.4% 956 1.1% -- --
W. Rayburn Connell......... 48 0.4% 48 5.4% 800 0.9% -- --
W. Randolph Underhill..... 12 0.1% 12 1.3% 500 0.6% -- --
James A. Urry (4).......... 58 0.5% -- -- 221 0.2% 79 0.5%
Michael Delaney (4)........ 58 0.5% -- -- 221 0.2% 79 0.5%
Richard J. Puricelli...... 41 0.3% -- -- 200 0.2% -- --
All directors and executive officers
as a group (10 persons)(4) 556 4.6% 158 17.7% 24,958 27.9% 157 1.1%
- ----------
(1) Unless otherwise indicated, the address of each shareholder listed above is
1299 Cox Avenue, Erlanger, KY 41018.
(2) Does not include shares of Corp. Class A Stock issuable upon conversion of
Corp. Class B Stock. See "--- Corp. Common Stock".
(3) Does not include shares of Corp. Class B Stock issuable upon conversion of
Corp. Class A Stock. See "---Corp. Common Stock".
(4) Does not include shares beneficially held by CVC, which may be deemed
beneficially owned by Messrs. Delaney and Urry. Messrs. Delaney and Urry
disclaim beneficial ownership of shares held by CVC.
</TABLE>
III-6
<PAGE>
Corp. Common Stock
The Certificate of Incorporation of IKS Corporation provides that IKS
Corporation may issue 400,000 shares of Corp. Common Stock, divided into two
classes consisting of 200,000 shares of Corp. Class A Stock and 200,000 shares
of Corp. Class B Stock. The holders of Corp. Class A Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of the
stockholders. Except as required by law, the holders of Corp. Class B Stock have
no voting rights. Under the Certificate of Incorporation of IKS Corporation, a
holder of either class of Corp. Common Stock may convert any or all of his
shares into an equal number of shares of the other class of Corp. Common Stock;
provided that in the case of a conversion from Corp. Class B Stock, which is
nonvoting, into Corp. Class A Stock, which is voting, the holder of shares to be
converted would be permitted under applicable law to hold the total number of
shares of Corp. Class A Stock which would be held after giving effect to the
conversion.
Stockholders' Agreement
In connection with the Recapitalization, the stockholders of IKS
Corporation entered into the Stockholders' Agreement containing certain
agreements among such stockholders with respect to the capital stock and
corporate governance of IKS Corporation and the Company.
The Stockholders' Agreement contains certain provisions which, with
certain exceptions restrict the ability of the stockholders from transferring
any Corp. Common Stock, Corp. Preferred Stock or Corp. Debentures except
pursuant to the terms of the Stockholders' Agreement. If holders of more than
50% of the Corp. Common Stock approve the sale of the Company, each stockholder
has agreed to consent to such sale and, if such sale includes the sale of stock,
each stockholder has agreed to sell all of such stockholder's Corp. Common Stock
on the terms and conditions approved by holders of a majority of the Corp.
Common Stock then outstanding. In the event IKS Corporation proposes to issue
and sell (other than in a public offering pursuant to a registration statement)
any shares of Corp. Common Stock or any securities containing options or rights
to acquire any shares of Corp. Common Stock or any securities convertible into
Corp. Common Stock to CVC or its affiliates, IKS Corporation must first offer to
each of the other shareholders a pro rata portion of such shares. Such
preemptive rights are not applicable to the issuance of shares of Corp. Common
Stock upon the conversion of shares of one class of Corp. Common Stock into
shares of the other class.
Pursuant to the Stockholders' Agreement, the Board of Directors of the
Company is composed at all times of five directors as follows: P. Daniel Miller
(as long as he continues to serve as President of the Company); one individual
designated by Diether Klingelnberg, two individuals designated by CVC; and one
independent director who shall be designated by CVC subject to the right of
holders of the majority of the outstanding shares of Corp. Class A Stock to veto
the election of any such independent director.
The Stockholders' Agreement also provides for certain additional
restrictions on transfer of shares acquired by members of management pursuant to
certain employee stock purchase plans adopted by IKS Corporation in 1997
("Incentive Shares"), including the right of IKS Corporation to repurchase
Incentive Shares held by a member of management (a "Participant") upon
termination of such Participant's employment prior to 2001, at a formula price,
and the grant of a right of first refusal in favor of IKS Corporation in the
event a Participant elects to transfer such Incentive Shares of Corp. Common
Stock.
Registration Rights Agreement
In connection with their entry into the Stockholders' Agreement, IKS
Corporation, CVC and certain other stockholders of IKS Corporation entered into
a Registration Rights Agreement (the "Corp. Registration Rights Agreement").
Pursuant to the Corp. Registration Rights Agreement, upon the written request of
CVC, IKS Corporation has agreed to prepare and file a registration statement
with the Commission concerning the distribution of all or part of the shares
held by CVC and use its best efforts to cause such registration statement to
become effective. If at any time IKS Corporation files a registration statement
for the Corp. Common Stock pursuant to a request by CVC or otherwise (other than
a registration statement on Form S-8, Form S-4 or any similar form, a
III-7
<PAGE>
registration statement filed in connection with a share exchange or an offering
solely to IKS Corporation' employees or existing stockholders, or a registration
statement registering a unit offering), IKS Corporation will use its best
efforts to allow the other parties to the Corp. Registration Rights Agreement to
have their shares of Corp. Common Stock (or a portion of their shares under
certain circumstances) included in such offering of Corp. Common Stock if the
registration form proposed to be used may be used to register such shares.
Registration expenses of the selling stockholders (other than underwriting fees,
brokerage fees and transfer taxes applicable to the shares sold by such
stockholders or the fees and expenses of any accountants or other
representatives retained by a selling stockholder) are to be paid by IKS
Corporation.
Employee Stock Purchase Plans
In 1997, IKS Corporation adopted a Restricted Stock Plan, pursuant to
which Participants were offered the opportunity to purchase Corp. Class A Stock.
The Participants were given the opportunity to acquire an aggregate of up to 10%
of the Corp. Class A Stock outstanding on a fully-diluted basis.
Also in 1997, IKS Corporation adopted an Equity Investment Plan,
pursuant to which Participants were offered the opportunity to purchase Corp.
Class A Stock, Series A 12% Cumulative Compounding Preferred Stock, par value
$.01 per share, and Series B 12% Cumulative Compounding Preferred Stock, par
value $.01 per share. The Participants were given the opportunity to acquire an
aggregate of up to 1,020 shares of Corp. Class A Stock, 122.4 shares of Series A
Preferred Stock and 122.4 shares of Series B Preferred Stock.
Upon the Participants' purchase of securities under the Restricted
Stock Plan or the Equity Investment Plan (the "Plans"), such Participants became
subject to the terms and conditions of the Stockholders' Agreement. See
"--Stockholders' Agreement." In addition to the restrictions set forth above in
the discussion of the Stockholders Agreement, the Stockholders' Agreement also
provides the following restrictions with respect to the Participants: (i) the
Incentive Shares acquired by a Participant will be subject to repurchase by IKS
Corporation or its designee if such Participant's employment with the Company is
terminated within five years after acquiring such securities at formula prices
which vary based upon the time and circumstance of such termination, (ii) IKS
Corporation has a right of first refusal through such date on all securities
acquired by a Participant pursuant to a Plan, and (iii) if holders of a majority
of Corp. Class A Stock approve a sale of IKS Corporation, Participants will
consent to such sale.
Other
In connection with the Recapitalization, Arndt Klingelnberg, Diether
Klingelnberg and CVC entered into an agreement pursuant to which their ownership
percentages of the Corp. Preferred Stock and the Corp. Debentures may be
adjusted. Upon the occurrence of certain events, their respective ownership
percentages of Corp. Preferred Stock and Corp. Debentures will be adjusted so
that they will be pro rata with their respective ownership percentages of Corp.
Common Stock.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Recapitalization, IKS Corporation entered into a
letter agreement with Mr. Halloran, the former President and Chief Executive
Officer of the Company, pursuant to which IKS Corporation loaned to Mr. Halloran
an amount equal to the income taxes which were incurred by him in respect of the
securities received by him as a part of the Recapitalization Distribution. The
loan is secured by a pledge of the securities and the recourse to the Company
for repayment of the loan is limited to the securities. The loan bears interest
at the "applicable federal rate" under the Internal Revenue Code of 1986, as
amended, and the Company makes payments to Mr. Halloran in amounts sufficient to
permit him to pay such interest payments.
III-8
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) List of Financial Statements.
- Financial Data Schedule
The following Consolidated Financial Statements of the Company and the
Report of Independent Auditors set forth on pages II-9 through II-29
and II-8, respectively, are incorporated by reference into this item 14
of Form 10-K by item 8 hereof:
- Report of Independent Auditors
- Consolidated Balance Sheets as of December 31, 1999 and 1998.
- Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.
- Consolidated Statements of Changes in Shareholder's Deficit for
the years ended December 31, 1999, 1998 and 1997.
- Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
- Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts and Reserves is
attached hereto at page IV-5 and is incorporated by reference into this
Item 14 of Form 10-K. No other financial statement schedules have been
filed herewith since they are either not required, are not applicable,
or the required information is shown in the consolidated financial
statements or related notes.
IV-1
<PAGE>
(a)(3) Exhibits.
Exhibit
No. Description
------- --------------------------------------------------
3.1 Restated Certificate of Incorporation, as
amended, of the Company (incorporated by
reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
3.2 By-laws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
4.1 Indenture dated as of November 6, 1996 between
the Company and United States Trust Company of
New York, as Trustee (incorporated by reference
to Exhibit 4.1 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
4.2 Registration Rights Agreement dated as of
November 6, 1996 among the Company, Schroder
Wertheim & Co. Incorporated and Smith Barney
Inc. (incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form
S-4, Registration No. 333-17305)
4.3 Form of 113/8% Senior Subordinated Notes due
2006 (included in Exhibit 4.1) 10.1 Purchase
Agreement dated October 31, 1996 among the
Company, Schroder Wertheim & Co. Incorporated
and Smith Barney Inc. (incorporated by reference
to Exhibit 10.1 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
10.2 Letter Agreement dated October 8, 1996 between
Deutsche Bank and the Company (incorporated by
reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
10.3 Letter Agreement dated October 8, 1996 between
Deutsche Bank and IKS Klingelnberg GmbH
(incorporated by reference to Exhibit 10.3 to
the Company's Registration Statement on Form
S-4, Registration No. 333-17305)
10.4 Agreement and Plan of Recapitalization dated
September 17, 1996 among Citicorp Venture
Capital Ltd., IKS Corporation"), the
stockholders of IKS Corporation and certain
stockholders of the Company (incorporated by
reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
10.5 Commercial Lease Contract dated March 1, 1992
between Howard & Howard Real Estate Partnership
and IKS Service, Inc., as amended (incorporated
by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
10.6 Lease dated June 5, 1996 between Century
Development Co. and the Company (incorporated by
reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
10.7 Lease dated July 21, 1995 between 1st American
Management Co., Inc. and the Company
(incorporated by reference to Exhibit 10.7 to
the Company's Registration Statement on Form
S-4, Registration No. 333-17305)
10.8 Lease Agreement dated April 17, 1991 between
Tate Engineering, Inc. and IKS Eastern Services,
Inc., as amended (incorporated by reference to
Exhibit 10.8 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
IV-2
<PAGE>
10.9 Offer to Lease dated October 25, 1995 between
Sigma Enterprises Ltd. and IKS Canadian Knife &
Saw Ltd. (incorporated by reference to Exhibit
10.9 to the Company's Registration Statement on
Form S-4, Registration No. 333-17305)
10.10 Industrial Multiple Tenancy Lease dated June 14,
1995 between Geary Investments Limited "in
Trust" and IKS Canadian Knife & Saw Ltd.
(incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement on Form
S-4, Registration No. 333-17305)
10.11 Lease dated March 12, 1992 between Gestion W. &
L. Choiniere Inc. and IKS Canadian Knife & Saw
Ltd., as amended (incorporated by reference to
Exhibit 10.11 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
10.12 Joint Venture Company Contract dated September
24, 1995 between IKS Klingelnberg Far East GmbH
and Shanghai Printing & Packaging Machinery
General Corporation (incorporated by reference
to Exhibit 10.12 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
10.13 Joint Venture Company Contract dated September
24, 1995 between IKS Klingelnberg Far East GmbH
and Shanghai Printing & Packaging Machinery
General Corporation (incorporated by reference
to Exhibit 10.13 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
10.14 Letter Agreement dated September 23, 1997
between Deutsche Bank and IKS Klingelnberg GmbH
(incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q, for
the quarterly period ended September 30, 1997,
Registration No. 333-17305)
21.1 Subsidiaries of the Company
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
IV-3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL KNIFE & SAW, INC.
By: /s/ P. Daniel Miller
--------------------------------------
P. Daniel Miller
President and Chief Executive Officer
March 17, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 17, 2000.
Signature Title
- -------------------- -------------------------------------------
/s/ P. Daniel Miller President, Chief Executive
- ------------------------ Officer and Director (Principal Executive
P. Daniel Miller Officer)
/s/ William M. Schult Executive Vice President- Chief Financial
- ------------------------ Officer, Treasurer and Secretary (Principal
William M. Schult Financial and Accounting Officer)
/s/ Diether Klingelnberg Director
- ------------------------
Diether Klingelnberg
/s/ James A. Urry Director
- ------------------------
James A. Urry
IV-4
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The registrant has not sent the following to security holders: (i) any
annual report to security holders covering the registrant's last fiscal year; or
(ii) any proxy statements, forms of proxy or other proxy soliciting material
wither respect to any annual or other meeting of security holders.
IV-5
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
INTERNATIONAL KNIFE & SAW, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(DOLLARS IN THOUSANDS)
COL. C
COL. B ADDITIONS COL. E
BALANCE AT CHARGED TO COL. D BALANCE
COL. A BEGINNING COSTS AND OTHER DEDUCTIONS AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- ----------- ---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED 1999
Allowance for doubtful accounts $ 1,780 $ 1,005 $ - $ 575(a) $ 1,856
354(c)
Allowance for inventory obsolescence 2,788 1,001 - 1,438(a) 2,118
233(c)
YEAR ENDED 1998
Allowance for doubtful accounts 1,480 231 261(b) 164(a) 1,780
28(c)
Allowance for inventory obsolescence 2,381 768 170(b) 481(a) 2,788
50(c)
YEAR ENDED 1997
Allowance for doubtful accounts 1,500 297 116(b) 189(a) 1,480
244(c)
Allowance for inventory obsolescence 2,327 539 40(b) 340(a) 2,381
185(c)
(a) Represents amounts charged against the reserves during the year.
(b) Consists of reserves of subsidiaries purchased during the year.
(c) Represents foreign currency translation adjustments during the year.
</TABLE>
IV-6
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
------- ------------------------------------------------
3.1 Restated Certificate of Incorporation, as
amended, of the Company (incorporated by
reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
3.2 By-laws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
4.1 Indenture dated as of November 6, 1996 between
the Company and United States Trust Company of
New York, as Trustee (incorporated by reference
to Exhibit 4.1 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
4.2 Registration Rights Agreement dated as of
November 6, 1996 among the Company, Schroder
Wertheim & Co. Incorporated and Smith Barney
Inc. (incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form
S-4, Registration No. 333-17305)
4.3 Form of 113/8% Senior Subordinated Notes due
2006 (included in Exhibit 4.1) 10.1 Purchase
Agreement dated October 31, 1996 among the
Company, Schroder Wertheim & Co. Incorporated
and Smith Barney Inc. (incorporated by reference
to Exhibit 10.1 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
10.2 Letter Agreement dated October 8, 1996 between
Deutsche Bank and the Company (incorporated by
reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
10.3 Letter Agreement dated October 8, 1996 between
Deutsche Bank and IKS Klingelnberg GmbH
(incorporated by reference to Exhibit 10.3 to
the Company's Registration Statement on Form
S-4, Registration No. 333-17305)
10.4 Agreement and Plan of Recapitalization dated
September 17, 1996 among Citicorp Venture
Capital Ltd., IKS Corporation"), the
stockholders of IKS Corporation and certain
stockholders of the Company (incorporated by
reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
10.5 Commercial Lease Contract dated March 1, 1992
between Howard & Howard Real Estate Partnership
and IKS Service, Inc., as amended (incorporated
by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
10.6 Lease dated June 5, 1996 between Century
Development Co. and the Company (incorporated by
reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-4, Registration
No. 333-17305)
10.7 Lease dated July 21, 1995 between 1st American
Management Co., Inc. and the Company
(incorporated by reference to Exhibit 10.7 to
the Company's Registration Statement on Form
S-4, Registration No. 333-17305)
10.8 Lease Agreement dated April 17, 1991 between
Tate Engineering, Inc. and IKS Eastern Services,
Inc., as amended (incorporated by reference to
Exhibit 10.8 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
IV-7
<PAGE>
10.9 Offer to Lease dated October 25, 1995 between
Sigma Enterprises Ltd. and IKS Canadian Knife &
Saw Ltd. (incorporated by reference to Exhibit
10.9 to the Company's Registration Statement on
Form S-4, Registration No. 333-17305)
10.10 Industrial Multiple Tenancy Lease dated June 14,
1995 between Geary Investments Limited "in
Trust" and IKS Canadian Knife & Saw Ltd.
(incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement on Form
S-4, Registration No. 333-17305)
10.11 Lease dated March 12, 1992 between Gestion W. &
L. Choiniere Inc. and IKS Canadian Knife & Saw
Ltd., as amended (incorporated by reference to
Exhibit 10.11 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
10.12 Joint Venture Company Contract dated September
24, 1995 between IKS Klingelnberg Far East GmbH
and Shanghai Printing & Packaging Machinery
General Corporation (incorporated by reference
to Exhibit 10.12 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
10.13 Joint Venture Company Contract dated September
24, 1995 between IKS Klingelnberg Far East GmbH
and Shanghai Printing & Packaging Machinery
General Corporation (incorporated by reference
to Exhibit 10.13 to the Company's Registration
Statement on Form S-4, Registration No.
333-17305)
10.14 Letter Agreement dated September 23, 1997
between Deutsche Bank and IKS Klingelnberg GmbH
(incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q, for
the quarterly period ended September 30, 1997,
Registration No. 333-17305)
21.1 Subsidiaries of the Company
27 Financial Data Schedule
IV-8
<PAGE>
EXHIBIT 21.1
Subsidiaries
Name Jurisdiction
---- ------------
Hannaco Knives & Saws, Inc. Delaware
IKS Canadian Knife & Saw Ltd. Canada
IKS Klingelnberg GmbH Germany
IKS Klingelnberg Asia Pte. Ltd. Singapore
IKS Knives & Saws (M) Sdn. Bhd. Malaysia
IKS Klingelnberg Far East GmbH Germany
Shanghai IKS Lida Mechanical Blade Co. Ltd. China
Shanghai IKS Mechanical Blade Co. Ltd. China
IKS Messerfabrik Geringswalde GmbH Germany
Rolf Meyer GmbH Germany
A.K. van der Wijngaart Beheer B.V. and subsidiaries the Netherlands
Buland S.A. France
IKS Mexican Holdings S.A. de C.V. Mexico
International Knife and Saw de Mexico S.A. de C.V. Mexico
International Knife and Saw Trading Corporation U.S. Virgin Islands
P.T. Bevenmas Jaya Indonesia
IV-9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,862,000
<SECURITIES> 0
<RECEIVABLES> 27,476,000
<ALLOWANCES> 1,856,000
<INVENTORY> 27,922,000
<CURRENT-ASSETS> 59,322,000
<PP&E> 79,970,000
<DEPRECIATION> (33,588,000)
<TOTAL-ASSETS> 127,618,000
<CURRENT-LIABILITIES> 30,453,000
<BONDS> 0
0
0
<COMMON> 5,000
<OTHER-SE> (22,851,000)
<TOTAL-LIABILITY-AND-EQUITY> 127,618,000
<SALES> 151,087,000
<TOTAL-REVENUES> 151,087,000
<CGS> 106,431,000
<TOTAL-COSTS> 106,431,000
<OTHER-EXPENSES> 34,517,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,354,000
<INCOME-PRETAX> (2,510,000)
<INCOME-TAX> 880,000
<INCOME-CONTINUING> (3,390,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,390,000)
<EPS-BASIC> (7.03)
<EPS-DILUTED> (7.03)
</TABLE>
