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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 2000.
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the transition period from _____ to _____
Commission file number: N/A
Simonds Industries Inc.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 05-0484518
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
135 Intervale Road
Fitchburg, MA 01420
-------------------
(Address of principal executive offices)
(978) 343-3731
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of the registrant's voting and non-voting common
stock, as of October 20, 2000: 66,298.39 and 7,897.45, respectively.
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<PAGE>
Simonds Industries Inc.
Form 10-Q Index
Page No.
Part I. Financial Information
------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - January 1, 2000 and September
30, 2000 3
Consolidated Statements of Operations - three and nine months
ended October 2, 1999 and September 30, 2000 4
Consolidated Statements of Cash Flows - nine months ended
October 2, 1999 and September 30, 2000 5
Consolidated Statements of Shareholders' Equity (Deficit)- for
the nine months ended October 2, 1999 and September 30, 2000 6
Notes to Consolidated Financial Statements - September 30,
2000 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibit No. 27 - Financial Data Schedule 21
2
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements (Unaudited)
<TABLE><CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
ASSETS
------ January 1, September 30,
2000 2000
--------- ---------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 8,383 $ 5,980
Accounts receivable, net of reserves of $993 and $946 17,400 17,108
Inventories (Note 3) 26,650 24,436
Other current assets 3,162 2,917
Refundable income taxes 1,037 86
--------- ---------
Total current assets 56,632 50,527
PROPERTY, PLANT AND EQUIPMENT:
Land 2,300 2,265
Buildings and improvements 10,684 10,451
Machinery and equipment 32,126 32,535
Construction-in-progress 314 940
--------- ---------
45,424 46,191
Less- Accumulated depreciation 11,585 13,493
--------- ---------
Net property, plant and equipment 33,839 32,698
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $2,223 and $2,680 22,308 22,341
Deferred financing costs, net of accumulated
amortization of $764 and $1,145 3,900 3,513
Other, including buildings held for resale 1,608 1,523
--------- ---------
Total other assets 27,816 27,377
--------- ---------
Total assets $ 118,287 $ 110,602
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Overdraft facilities $ 190 $ 242
Revolving credit loans and notes payable 321 279
Current portion of long-term debt 14 0
Accounts payable 6,871 6,030
Accrued payroll and employee benefits 4,034 4,026
Accrued interest 5,153 2,589
Other accrued liabilities 2,739 1,747
Currently deferred income taxes 2,028 2,025
--------- ---------
Total current liabilities 21,350 16,938
LONG-TERM DEBT, net of current portion (Note 4) 102,523 102,412
DEFERRED INCOME TAXES 4,808 4,760
OTHER NONCURRENT LIABILITIES 1,851 1,656
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized - 200,000 shares
Issued and outstanding - 76,289 and 74,196 1 1
Capital in excess of par value (24,405) (24,387)
Retained earnings 14,130 13,673
Additional minimum pension liability, net of
$58 tax effect (135) (135)
Cumulative translation adjustment (1,715) (3,200)
Treasury stock, at cost (121) (1,116)
--------- ---------
Total shareholders' equity (deficit) (12,245) (15,164)
--------- ---------
Total liabilities and shareholders' equity $ 118,287 $ 110,602
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE><CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
--------------------------------------------------
Three Months Ended Nine Months Ended
October 2, September 30, October 2, September 30,
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 32,072 $ 30,399 $ 95,076 $ 95,410
Cost of goods sold 22,071 22,403 65,403 66,969
-------- -------- -------- --------
Gross profit 10,001 7,996 29,673 28,441
Selling, general and administrative expense 6,156 6,343 18,790 19,140
-------- -------- -------- --------
Operating income 3,845 1,653 10,703 9,301
Other expenses (income):
Interest expense 2,764 2,740 8,266 8,148
Other, net (280) 268 (381) 739
-------- -------- -------- --------
Income (loss) before income taxes 1,361 (1,355) 2,818 414
Provision for income taxes 581 86 1,311 871
-------- -------- -------- --------
Net income (loss) $ 780 ($ 1,441) $ 1,507 ($ 457)
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
--------------------
NINE MONTHS ENDED
OCTOBER 2, SEPTEMBER 30,
1999 2000
--------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (loss) $ 1,507 ($ 457)
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,635 3,935
Gain (loss) on asset sales (11) 80
(Benefit) from deferred income taxes (38) (51)
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable (2,209) 417
Inventories (1,142) 2,225
Income tax refunds receivable -- 951
Other current and non-current assets (120) 13
Accounts payable (745) (939)
Accrued expenses (2,265) (3,588)
Other non-current liabilities (84) (195)
------- -------
Net cash (used in) provided by operating activities (1,472) 2,391
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 34 930
Purchase of equipment (3,631) (2,828)
Acquisition of assets of Bluebonnet Tool -- (483)
Acquisition of Cirtec, Inc. -- (462)
------- -------
Net cash (used in) investing activities (3,597) (2,843)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in overdrafts 43 52
Net (uses) under revolving credit (1,205) (42)
Proceeds from issuance of long-
term debt-net of issuance costs 602 --
Principal payments of long-term debt (15) (125)
Issuance of common stock -- 18
Purchase of treasury stock (56) (995)
Other (38) --
------- -------
Net cash (used in ) financing activities (669) (1,092)
------- -------
EFFECT OF EXCHANGE RATE ON CASH (207) (859)
------- -------
NET (DECREASE) IN CASH (5,945) (2,403)
CASH AT BEGINNING OF PERIOD 9,298 8,383
------- -------
CASH AT END OF PERIOD $ 3,353 $ 5,980
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
<TABLE><CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the nine months ended October 2, 1999 and September 30, 2000
(In thousands, except share amounts)
(Unaudited)
CAPITAL ACCUMULATED TOTAL
IN OTHER SHAREHOLDERS' COMPREHENSIVE
COMMON COMMON EXCESS RETAINED COMPREHENSIVE TREASURY EQUITY INCOME
SHARES STOCK OF PAR EARNINGS LOSS STOCK (DEFICIT) (LOSS)
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 2, 1999 76,333 $ 1 $(24,405) $ 12,696 $ (907) $ (65) $(12,680) --
Net Income -- -- -- 1,507 -- -- 1,507 $ 1,507
Foreign Currency
Translation Adjustment -- -- -- -- (385) -- (385) (385)
Acquisition of Treasury Stock (44) -- -- -- -- (56) (56)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at October 2, 1999 76,289 $ 1 $(24,405) $ 14,203 $ (1,292) $ (121) $(11,614) $ 1,122
======== ======== ======== ======== ======== ======== ======== ========
Balance at January 1, 2000 76,289 $ 1 ($24,405) $ 14,130 ($ 1,850) ($ 121) ($12,245) --
Net Income -- -- -- (457) -- -- (457) $ (457)
Foreign Currency
Translation Adjustment -- -- -- -- (1,485) -- (1,485) (1,485)
Amortization of Stock Option
Compensation -- -- 18 -- -- -- 18 --
Acquisition of Treasury Stock (2,093) -- -- -- -- (995) (995)
-------- -------- -------- -------- -------- -------- -------- --------
Balance at September
30, 2000 74,196 $ 1 $(24,387) $ 13,673 $ (3,335) $ (1,116) $(15,164) $ (1,942)
======== ======== ======== ======== ======== ======== ======== ========
Comprehensive income (loss) for the three month periods ended October 2, 1999 and September 30, 2000 was $915 and $(2,281).
Net Translation Comprehensive
Income (Loss) Adjustment Income(Loss)
Period Ended October
2, 1999 $ 780 $ 135 $ 915
Period Ended September
30, 2000 $ (1,441) $ (840) $ (2,281)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
6
<PAGE>
Notes to Consolidated Financial Statements
(In thousands except share and per share amounts)
(Unaudited)
1. Basis of Presentation
The unaudited interim consolidated financial statements presented herein have
been prepared by Simonds Industries Inc. ("Simonds" or the "Company") and, in
the opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair presentation. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of January 1, 2000 has been derived
from the consolidated financial statements that have been audited by the
Company's independent public accountants. The unaudited consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to those
rules and regulations, but the Company believes that the disclosures are
adequate to make the information presented not misleading. Operating results for
the nine months ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 30, 2000. For further
information, refer to the financial statements and footnotes included in the
Company's annual report on Form 10-K for the year ended January 1, 2000.
2. Acquisitions and Divestitures
On May 8, 1998, the Company acquired 100% of the outstanding stock of W. Notting
Limited ("Notting") for approximately $6,718, of which $5,471 was paid in cash
with additional financing from the Company's revolving credit facility; the
balance was in the form of a term Promissory Note to the sellers bearing
interest at 8.5% and was repaid April 30, 1999. The acquisition was accounted
for as a purchase and the purchase price has been allocated based on the fair
market value of the underlying assets and liabilities. Goodwill totaled $2,857
on this acquisition and is being amortized on a straight-line basis over 40
years. The consolidated financial statements include the results of operations
of Notting subsequent to the date of acquisition.
On September 12, 2000 the decision was made to close the Notting facility in the
UK. Accordingly, the Company established a reserve for reorganization of $1,440.
In accordance with EITF 94-3, the reserve is comprised of approximately $880
relating to the elimination of certain product lines, $220 to move equipment to
other facilities and write off excess assets, $215 employee related costs, and
$125 miscellaneous reorganization costs. These costs total $365 cash expenses
and $1,075 of non-cash items. This reorganization cost was all recognized in the
September quarter of 2000 and reflected in the accompanying financial
statements.
In conjunction with the reorganization of the Notting facility in the UK the
Company has decided to curtail the W. Notting Limited Retirement Benefits Plan
effective as of
7
<PAGE>
September 30, 2000. Any gain or loss of the curtailment is pending an actuarial
valuation.
On May 26, 2000 the Company purchased certain assets, mainly inventory and
equipment, for $483 from Bluebonnet Tool Company, Inc. The Purchase price in
excess of fair value of assets acquired of $193 is being amortized on a
straight-line basis over 40 years.
On August 31, 2000 the Company purchased 100% of the outstanding stock of Cirtec
Inc. ("Cirtec") for $462, which was paid in cash. The acquisition was accounted
for as a purchase and the purchase price has been allocated based on the fair
market value of the underlying assets and liabilities. The purchase price in
excess of fair value of net assets acquired of $342 is being amortized on a
straight-line basis over 40 years. The results of operations of Cirtec
subsequent to the date of acquisition are reflected in the accompanying
financial statements.
On August 31, 2000 the Company sold certain assets, mainly inventory and
equipment, relating to its Rotary Rule business for $1,085 in cash to National
Steel Rule Company ("Buyer"). The selling price in excess of book value of $785
was recorded as a gain. As part of the sale, the Company entered into an
agreement not to compete with the Buyer in the Rotary Rule business.
During the third quarter 2000 the Company sold and disposed of machinery with a
book value of $605 in its Fitchburg facility. The excess of book value and
removal costs over selling price of $648 was recorded as a loss.
3. Inventories at January 1, 2000 and September 30, 2000 were as follows (in
thousands).
January 1, September 30,
2000 2000
--------------- ---------------
Raw Materials $4,967 $5,061
Work in progress 6,429 7,512
Finished goods 15,254 11,863
--------------- ---------------
Total $26,650 $24,436
=============== ===============
8
<PAGE>
4. Debt
Debt consists of the following at January 1, 2000 and September 30, 2000 (in
thousands):
January 1, September 30,
2000 2000
-------- --------
Line of credit facility for German Subsidiary with $ 2,523 $ 2,412
First Union National Bank up to approximately $2,480,
interest payable quarterly at EURIBOR (4.79% at
September 30, 2000) plus 1.25% terminating on October
1, 2003, payable in Deutschmarks
Line of credit facilities for Notting with Banco 135 60
Sabadell and Banco Popular of Spain, bearing interest
at 7.00% and 6.75% and terminating on April 15, 2001
and May 17, 2001, respectively, payable in Spanish
Pesetas
Two term loans payable by Notting to National 200 219
Westminster Bank on October 31, 2000 and December 31,
2000 and bearing interest at 9.5% and 9.0%,
respectively, payable in British Pounds
Senior Subordinated Notes issued July 8, 1998, and 100,000 100,000
maturing July 1, 2008, interest payable semi-annually
at 10.25%
-------- --------
102,858 102,691
Less-current maturities 335 279
-------- --------
$102,523 $102,412
======== ========
5. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133, as amended by SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities Deferral of the Effective Date of FASB Statement No. 133"
shall be effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company will adopt SFAS No. 133 for the next fiscal year,
which begins on December 31, 2000.
The Securities and Exchange Commission released Staff Accounting Bulletin (SAB)
No. 101 "Revenue Recognition in Financial Statements," on December 3, 1999. This
SAB provides additional guidance on the accounting for revenue recognition,
including both
9
<PAGE>
broad conceptual discussions as well as certain industry-specific guidance. The
Company is in the process of accumulating the information necessary to quantify
the potential impact, if any, of this new guidance. This SAB was amended by SAB
101B which defers the effective date of SAB 101 to the fourth quarter of fiscal
2000 for registrants with fiscal years that begin between December 16, 1999 and
March 15, 2000. The Company does not believe the adoption of SAB 101 will have a
material impact on its consolidated financial statements.
6. Selected consolidating financial statements of parent, guarantors, and
non-guarantors
The Company's wholly owned domestic subsidiaries fully and unconditionally
guarantee, on a senior subordinated basis, the 10.25% Senior Subordinated Notes,
jointly and severally. The guarantor subsidiary data below includes financial
statements of Armstrong Manufacturing Company. The non-guarantor subsidiaries
data below includes combining financial statements of Wespa, Simonds UK, UK
Holding Co., and Simonds Canada. Separate financial statements of the guarantor
subsidiary have not been presented because management believes that such
financial statements are not material to investors. In addition, the Senior
Credit Facility is guaranteed on a full and unconditional basis by the guarantor
subsidiary. The following data summarizes the consolidating results of the
Company on the equity method of accounting for the following periods presented:
10
<PAGE>
<TABLE><CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATING BALANCE SHEET
(In Thousands)
AS OF JANUARY 1, 2000
--------------------------------------------------------------------
PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 7,159 $ 340 $ 884 -- $ 8,383
Accounts receivable 8,245 1,228 7,927 -- 17,400
Intercompany accounts receivable 1,563 1,271 1,215 (4,049) --
Inventories:
Raw materials 2,999 183 1,785 -- 4,967
Work in progress 5,300 259 870 -- 6,429
Finished goods 5,926 629 8,984 (285) 15,254
Other current assets 3,524 79 596 4,199 --
--------- --------- --------- --------- ---------
Total current assets 34,716 3,989 22,261 (4,334) 56,632
--------- --------- --------- --------- ---------
Net property, plant and equipment 24,515 3,035 6,289 -- 33,839
OTHER ASSETS:
Investment in subsidiaries 43,638 5,939 -- (49,577) --
Intercompany loan receivable -- 25,420 -- (25,420) --
Other assets 19,288 3,843 4,685 -- 27,816
--------- --------- --------- --------- ---------
Total assets $ 122,157 $ 42,226 $ 33,235 $ (79,331) $ 118,287
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES $ 15,275 $ 1,075 $ 8,922 $ (3,922) $ 21,350
LONG-TERM DEBT, net of current
Portion 100,000 -- 2,523 -- 102,523
INTERDIVISION LONG-TERM DEBT 15,145 -- 10,275 (25,420) --
OTHER NONCURRENT LIABILITIES 3,982 638 2,039 -- 6,659
SHAREHOLDERS' EQUITY (DEFICIT) (12,245) 40,513 9,476 (49,989) (12,245)
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 122,157 $ 42,226 $ 33,235 $ (79,331) $ 118,287
========= ========= ========= ========= =========
SIMONDS INDUSTRIES INC.
CONSOLIDATING BALANCE SHEET
(In Thousands)
(Unaudited)
AS OF SEPTEMBER 30, 2000
--------------------------------------------------------------------
PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED
--------- --------- --------- --------- ---------
ASSETS
CURRENT ASSETS:
Cash $ 4,873 $ 329 $ 778 -- $ 5,980
Accounts receivable 9,229 671 7,208 -- 17,108
Intercompany accounts receivable 3,231 1,943 2,102 (7,276) --
Inventories:
Raw materials 3,359 49 1,653 -- 5,061
Work in progress 5,451 441 1,620 -- 7,512
Finished goods 4,547 645 6,956 (285) 11,863
Other current assets 2,667 37 299 -- 3,003
--------- --------- --------- --------- ---------
Total current assets 33,357 4,115 20,616 (7,561) 50,527
--------- --------- --------- --------- ---------
Net property, plant and equipment 24,171 2,926 5,601 -- 32,698
OTHER ASSETS:
Investment in subsidiaries 41,167 5,031 -- (46,198) --
Intercompany loan receivable -- 24,683 -- (24,683) --
Other assets 19,349 3,643 4,385 -- 27,377
--------- --------- --------- --------- ---------
Total assets $ 118,044 $ 40,398 $ 30,602 $ (78,442) $ 110,602
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES $ 14,081 $ 680 $ 9,452 $ (7,275) $ 16,938
LONG-TERM DEBT, net of current
Portion 100,000 -- 2,412 -- 102,412
INTERDIVISION LONG-TERM DEBT 15,145 -- 9,538 (24,683) --
OTHER NONCURRENT LIABILITIES 3,982 638 1,796 -- 6,416
SHAREHOLDERS' EQUITY (DEFICIT) (15,164) 39,080 7,404 (46,484) (15,164)
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 118,044 $ 40,398 $ 30,602 $ (78,442) $ 110,602
========= ========= ========= ========= =========
</TABLE>
11
<PAGE>
<TABLE><CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Three Months ended October 2, 1999
------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net sales $ 21,092 $ 2,863 $ 10,854 ($ 2,737) $ 32,072
Cost of goods sold 14,686 1,779 8,401 (2,795) 22,071
-------- -------- -------- -------- --------
Gross profit 6,406 1,084 2,453 58 10,001
Selling, general and administrative expense 3,639 661 1,856 0 6,156
-------- -------- -------- -------- --------
Operating income 2,767 423 597 58 3,845
Other expenses (income):
Interest expense 3,089 108 344 (753) 2,788
Interest income (20) (689) (68) 753 (24)
Other, net 89 (348) (21) 0 (280)
Equity in earnings of subsidiaries (1,071) (166) 0 1,237 0
-------- -------- -------- -------- --------
Income before income taxes 680 1,518 342 (1,179) 1,361
Provision (benefit) for income taxes (100) 505 176 0 581
-------- -------- -------- -------- --------
Net income $ 780 $ 1,013 $ 166 ($ 1,179) $ 780
======== ======== ======== ======== ========
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Three Months ended September 30, 2000
------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net sales $ 21,216 $ 1,918 $ 10,826 ($ 3,561) $ 30,399
Cost of goods sold 14,636 1,318 10,010 (3,561) 22,403
-------- -------- -------- -------- --------
Gross profit 6,580 600 816 0 7,996
Selling, general and administrative expense 3,784 505 2,054 0 6,343
-------- -------- -------- -------- --------
Operating income (loss) 2,796 95 (1,238) 0 1,653
Other expenses (income):
Interest expense 3,125 95 402 (831) 2,791
Interest income (47) (758) (77) 831 (51)
Other, net 27 50 191 0 268
Equity in earnings of subsidiaries 1,175 1,597 0 (2,772) 0
-------- -------- -------- -------- --------
(Loss) before income taxes (1,484) (889) (1,754) 2,772 (1,355)
Provision (benefit) for income taxes (43) 286 (157) 0 86
-------- -------- -------- -------- --------
Net (loss) ($ 1,441) ($ 1,175) ($ 1,597) $ 2,772 ($ 1,441)
======== ======== ======== ======== ========
</TABLE>
12
<PAGE>
<TABLE><CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Nine Months ended October 2, 1999
------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net sales $ 62,618 $ 8,060 $ 33,703 ($ 9,305) 95,076
Cost of goods sold 43,803 5,094 25,869 (9,363) 65,403
-------- -------- -------- -------- --------
Gross profit 18,815 2,996 7,834 58 29,673
Selling, general and administrative expense 11,040 1,991 5,939 0 18,970
-------- -------- -------- -------- --------
Operating income 7,775 975 1,895 58 10,703
Other expenses (income):
Interest expense 9,213 328 998 (2,172) 8,367
Interest income (90) (1,984) (199) 2,172 (101)
Other, net (296) (29) (56) 0 (381)
Equity in earnings of subsidiaries (2,310) (623) 0 2,933 0
-------- -------- -------- -------- --------
Income before income taxes 1,258 3,283 1,152 (2,875) 2,818
Provision (benefit) for income taxes (249) 1,031 529 0 1,311
-------- -------- -------- -------- --------
Net income $ 1,507 $ 2,252 $ 623 ($ 2,875) $ 1,507
======== ======== ======== ======== ========
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
Nine Months ended September 30, 2000
------------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net sales $ 65,506 $ 7,093 $ 34,429 ($11,618) $ 95,410
Cost of goods sold 45,944 4,557 28,086 (11,618) 66,969
-------- -------- -------- -------- --------
Gross profit 19,562 2,536 6,343 0 28,441
Selling, general and administrative expense 11,432 1,796 5,912 0 19,140
-------- -------- -------- -------- --------
Operating income 8,130 740 431 0 9,301
Other expenses (income):
Interest expense 9,339 299 1,146 (2,469) 8,315
Interest income (153) (2,254) (229) 2,469 (167)
Other, net 292 265 182 0 739
Equity in earnings of subsidiaries (546) 931 0 (385) 0
-------- -------- -------- -------- --------
Income (loss) before income taxes (802) 1,499 (668) 385 414
Provision (benefit) for income taxes (345) 953 263 0 871
-------- -------- -------- -------- --------
Net income (loss) ($ 457) $ 546 ($ 931) $ 385 ($ 457)
======== ======== ======== ======== ========
</TABLE>
13
<PAGE>
<TABLE><CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
NINE MONTHS ENDED OCTOBER 2, 1999
---------------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash (used in)/provided by operating
activities: ($4,829) $ 2,049 ($ 809) $ 2,117 ($1,472)
Cash flows from investing activities:
Proceeds from asset sales 12 -- 22 -- 34
Purchase of equipment (2,323) (774) (534) -- (3,631)
Acquisitions -- -- -- -- --
------- ------- ------- ------- -------
Net cash (used in) investing activities (2,311) (774) (512) -- (3,597)
Cash flows from financing activities:
Change in overdraft -- -- 43 -- 43
Net repayment of revolving credit facility -- -- (1,205) -- (1,205)
Proceeds from issuance of long-term debt- -- -- 602 -- 602
net of issuance cost
Principal payments of long-term debt -- -- (15) -- (15)
Intercompany loans -- (2,097) 2,088 9 --
Issuance of common stock -- 2,085 1 (2,086) --
Purchase of treasury stock (56) -- -- -- (56)
Dividends (paid) received 1,201 (1,201) -- -- --
Other (38) -- -- -- (38)
------- ------- ------- ------- -------
Net cash (used in)/provided by
financing activities 1,107 (1,213) 1,514 (2,077) (669)
Effect of Foreign Exchange -- -- (167) (40) (207)
------- ------- ------- ------- -------
Increase (decrease) in cash (6,033) 62 26 -- (5,945)
Cash at beginning of the period 8,602 209 487 -- 9,298
------- ------- ------- ------- -------
Cash at end of the period $ 2,569 $ 271 $ 513 -- $ 3,353
======= ======= ======= ======= =======
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2000
---------------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------------------------------------------------------------------------
Net cash (used in)/provided by operating
activities: ($ 535) $ 1,353 $ 1,593 ($ 20) $ 2,391
Cash flows from investing activities:
Proceeds from asset sales 895 -- 35 -- 930
Purchase of equipment (2,400) (99) (329) -- (2,828)
Acquisitions (945) -- -- -- (945)
------- ------- ------- ------- -------
Net cash (used in) investing activities (2,450) (99) (294) -- (2,843)
Cash flows from financing activities:
Change in overdraft -- -- 52 -- 52
Net repayments of revolving credit facility -- -- (42) -- (42)
Proceeds from issuance of long-term debt-
net of issuance cost -- -- -- -- --
Principal payments of long-term debt -- -- (125) -- (125)
Intercompany loans -- 737 (736) (1) --
Issuance of common stock 18 144 (2) (142) 18
Dividends (paid) received 1,646 (1,646) -- -- --
Purchase of treasury stock (995) -- -- -- (995)
Other -- -- -- -- --
------- ------- ------- ------- -------
Net cash (used in)/provided by
financing activities 669 (765) (853) (143) (1,092)
Effect of Foreign Exchange 30 (500) (552) 163 (859)
------- ------- ------- ------- -------
(Decrease) in cash (2,286) (11) (106) -- (2,403)
Cash at beginning of the period 7,159 340 884 -- 8,383
------- ------- ------- ------- -------
Cash at end of the period $ 4,873 $ 329 $ 778 -- $ 5,980
======= ======= ======= ======= =======
</TABLE>
14
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Company's consolidated
financial statements and notes thereto.
Results of Operations
Comparison of Third Quarter 2000 and Third Quarter 1999
Net Sales: Net Sales for the third quarter of 2000 were $30.4 million or 5.2%
lower than third quarter 1999 net sales of $32.1 million. The lower 2000
quarterly results were the result of a depressed wood market for both machinery
and consumable products during the period. Sales from our German operations were
significantly better than last year in their own currency, but were impacted
unfavorably by the comparably strong U.S. dollar. The strong U.S dollar also
affected UK operations unfavorably. Sales would have been higher in 2000 by $536
and $334 in our German and UK operations, respectively, if exchange rates were
unchanged from last year's third quarter.
Gross Profit Margin: Gross Profit was $7,996 for the third quarter of 2000, a
decrease of $2,005 from $10,001 for the corresponding period in 1999. Gross
Profit as a percentage of net sales was 26.3% and 31.2% for the three months
ended September 30, 2000 and October 2, 1999, respectively. Gross Profits for
the third quarter of 2000 reflect $988 reorganization charge to operations due
to the shutdown of our Notting UK plant. Excluding this charge our gross profits
would have been $8,894 or 29.6% of sales for the quarter.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses as a percent of net sales were 20.9% or $6,343 and 19.2%
or $6,156 for the second quarter of 2000 and 1999, respectively. The September
2000 quarter includes $302 as part of the Notting UK reorganization reserves.
Excluding this charge, selling, general and administrative expenses would have
been $6,041 or 19.9% of sales for the quarter.
Operating Income: As a result of the foregoing, operating income decreased
$2,192 to $1,653 in the third quarter of 2000 when compared to the comparable
period in 1999.
Other, Net: Other, Net was $268 in the third quarter of 2000 and $(280) in the
comparable quarter of 1999. This swing from quarter to quarter is primarily
comprised of unfavorable realized foreign exchange losses, the gain on certain
assets relating to the sale of our rotary rule business, losses on disposal of
U.S. fixed assets, and loss on disposal of fixed assets in the restructure of
Notting UK in our 2000 third quarter, and realized exchange gains in the third
quarter of 1999.
15
<PAGE>
Interest Expense: Interest expense was higher by $24 in the third quarter of
2000 compared to the corresponding period in 1999. The vast majority of the
Company's interest expense is for $100,000 of Senior Subordinated Notes at 10
1/4% per annum, which does not change from one quarter to the next.
Income Taxes: The provision for income taxes was approximately $86 compared to
approximately $581 or a 42.7% effective tax rate for the third quarter of 1999.
The primary reason for the tax provision in the third quarter of 2000 is that no
tax benefits have been recognized on $1,440 of certain foreign losses in 2000.
Net Income: As a result of the foregoing, net income decreased $2,221 in the
third quarter of 2000 when compared to the comparable period of 1999.
Comparison of Nine Months Ended September 30, 2000 and October 2, 1999
Net Sales: Net Sales for the nine months ended September 30, 2000 were $95.4
million or 0.4% higher than nine months ended October 2, 1999 net sales of $95.1
million. The higher 2000 year-to-date results were realized primarily in our
North American operations. Sales from our European operations were better than
last year in their own currencies, but were impacted unfavorably by the
comparably strong U.S. dollar. Sales would have been higher in 2000 by $1,448
and $603 in our German and UK operations, respectively, if exchange rates were
unchanged from last year's.
Gross Profit Margin: Gross Profit was $28,441 for the first nine months of 2000,
a decrease of $1,232 from $29,673 for the corresponding period in 1999. Gross
Profit as a percentage of net sales was 29.8 % and 31.2% for the nine months
ended September 30, 2000 and October 2, 1999, respectively. As mentioned above,
gross profits for the third quarter of 2000 reflect $988 reorganization charge
to operations due to the shutdown of our Notting UK plant. Excluding the
reorganization charge, gross profits were 30.8% of sales for the period in 2000.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses as a percent of net sales were 20.1% or $19,140 and
20.0% or $18,970 for the nine months of 2000 and 1999, respectively. Excluding
reorganization charges of $302 year-to-date 2000 would have been 19.7% or
18,838.
Operating Income: As a result of the foregoing, operating income decreased
$1,402 to $9,301 in the first nine months of 2000 when compared to the
comparable period in 1999.
Interest Expense: Interest expense was lower by $118 in the first nine months of
2000 compared to the corresponding period in 1999. This is primarily due to
lower debt outstanding in the Company's European operations and higher interest
income. The vast majority of the Company's interest expense is for $100,000 of
Senior Subordinated Notes at 10 1/4% per annum which is the same in both
periods.
16
<PAGE>
Other, net: The primary reasons for other expense of $739 in the nine months of
2000 and other (income) of $(381) in the comparable nine months of 1999 was
primarily comprised of realized foreign exchange losses in 2000 and gains in
1999 as well as losses on disposal of fixed assets pertaining to U.S Domestic
operations in the third quarter of 2000, and loss on disposal of fixed assets in
the restructure of Notting UK.
Income Taxes: The provision for income taxes was approximately $871 or a 210.4%
effective tax rate for the first nine months of 2000, as compared to
approximately $1,311 or a 46.5% effective tax rate for the first nine months of
1999. The primary reason for this increase is that since their realization is
uncertain, tax benefits have not been recognized on $1,440 of certain foreign
losses in 2000.
Net Income: As a result of the foregoing, net income decreased $1,964 in the
first nine months of 2000 when compared to the comparable period of 1999.
Liquidity and Capital Resources
Simonds principal capital requirements are to fund working capital needs, meet
required debt payments, and to complete planned maintenance and manufacturing
improvements.
The Company's Senior Credit Facility provides a $30,000 line of credit to meet
acquisition and expansion needs as well as seasonal working capital and general
corporate requirements. This credit line was undrawn as of September 30, 2000.
Borrowings under the Senior Credit Facility bear interest at a fluctuating rate
based on, at the Company's option, either the lender's alternate base rate, as
defined, or LIBOR plus the applicable margin. A commitment fee calculated based
upon the unused portion of the revolving credit facility is payable quarterly in
arrears.
The Company believes that future cash flows from operations, together with the
borrowings available under the Senior Credit Facility will provide the Company
with sufficient liquidity and financial resources to finance its growth and
satisfy its working capital requirements for the foreseeable future. The Company
may not be able to generate sufficient cash flows from operations to pay the
entire principal amount of the Notes when due in 2008. In such event, the
Company would be required to refinance the Notes. However, there can be no
assurance that the Company will be able to obtain financing on acceptable terms.
Net Cash Flow: Operations generated $2,391 for the nine month period ended
September 30, 2000 compared to a use of cash of $1,472 for the comparable period
a year ago. The primary reasons for the large swing between periods are an
aggregate increase in accounts receivable and inventory in 1999 of $3,351 versus
an aggregate decrease of $2,642. This favorable difference was offset somewhat
by lower net income in 2000 when compared to 1999 of $1,964. However, $1,440 of
the difference in net income is the result of the Notting reorganization charges
to operations in the September 2000 quarter, of which, $1,075 represents
non-cash items.
17
<PAGE>
Seasonality
Historically, the Company's business has not been subject to seasonality in any
material respect. The Company's third quarter, which includes July through
September, is typically lower due to customers' and plant vacation shutdowns.
Inflation
Certain of the Company's expenses, such as wages and benefits, occupancy costs
and equipment repair and replacement, are subject to normal inflationary
pressures. Although the Company to date has been able to offset inflationary
cost increases through operating efficiencies, there can be no assurance that
the Company will be able to offset any future inflationary cost increases
through similar efficiencies.
Forward Looking Statements
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words "believes,"
"expects," "anticipates" and similar expressions are used to identify forward
looking statements. The Company cautions that a number of important factors
could cause actual results for fiscal 2000 and beyond to differ materially from
those expressed in any forward looking statements made by or on behalf of the
Company. All of these forward looking statements are based on estimates and
assumptions made by management of the Company, which although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed on such estimates and statements. No assurance can be given that any of
such estimates or statements will be realized and it is likely that actual
results will differ materially from those contemplated by such forward looking
statements. Factors that may cause such differences include: (1) increased
competition; (2) increased costs; (3) loss or disruption of supply sources of
specialty steels; (4) loss or retirement of key members of management; (5)
increases in the Company's cost of borrowings or unavailability of additional
debt or equity capital on terms considered reasonable by management; (6) adverse
state, federal or foreign legislation or regulation or adverse determinations by
regulators; and (7) changes in general economic conditions in the markets in
which the Company may compete and fluctuations in demand in the metal processing
and primary wood industries. Many of such factors are beyond the control of the
Company and its management.
18
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibits
--------
Exhibit No. 27 - Financial Data Schedule
Reports On Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended September 30, 2000.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIMONDS INDUSTRIES INC.
By: /s/ Henry J. Botticello
---------------------------------
Henry J. Botticello
CFO
November 10, 2000
20
