<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2000
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 333-62759
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 registrant's principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 343-3731
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 (ss.229.405) of this chapter) 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].
Aggregate market value of the voting and non-voting common equity held by
non-affiliates area of the registrant: 0
Number of shares outstanding of the registrant's voting and non-voting common
stock, as of March 15, 2000: 68,391.48 and 7,897.45, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
Simonds Industries Inc. and its subsidiaries ("Simonds" or the "Company")
is a leading global manufacturer and marketer of high quality industrial cutting
tools. With facilities in North America and Europe, the Company sells its
products into three end user markets: metal (48% of 1999 net sales), wood (42%),
and paper (10%). Management believes the Company holds a number one, two or
three share position in each of the markets it serves. See Note 10 to the
Consolidated Financial Statements included in Item 8 for financial information
with respect to the Company's industry end user markets and foreign and domestic
operations and export sales.
The Company manufactures saw blades, files, knives and steel rule that,
when mounted on industrial machinery, cut, shape, bend and perforate metal, wood
and paper. In addition, the Company manufactures and distributes machinery,
including a complete line of filing room equipment used primarily in saw mills.
The Company's more than 25,000 products are used in a wide variety of industrial
applications. The products are consumable and require replacement many times per
year. More than 85% of the Company's net sales are derived from sales of
replacement products for use in the aftermarket.
PRODUCTS AND MARKET
Simonds produces an array of world-class industrial cutting tools for a
wide variety of end user markets.
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Metal Cutting Products
The Company's metal cutting products primarily include metal band saw
blades and files for use in industrial/commercial applications. In addition, the
Company manufactures and markets other products for similar applications.
BAND SAW BLADES. Management believes that Simonds is the second largest
manufacturer of metal band saw blades both globally and in North America.
Management believes the Company markets the world's most technologically
advanced and complete metal band saw blade product line with three broad
varieties distributed for portable and stationary band saws. The three varieties
include bi-metal, carbide tip and carbon blades sold under brand names including
Extra Heavy Set(R) (EHS), EPIC(R), Si-Clone(R), Bundle Band(R), Si-Namic(R),
Copperhead Port-A-Band, and XL. These products are used on a variety of OEM
vertical and horizontal machines which are generally used in cut off,
profile/contour and friction cutting applications. In cut-off applications, the
Company's products cut steel and non-ferrous bars from long to shorter lengths
which are ultimately used in finished steel products. This type of cutting is
most often found in steel mills, steel warehouses and manufacturing plants.
Profile/contour cutting involves the Company's narrower width blades, usually
one-half inch or less, which are used to saw arcs or curves in a wide variety of
materials ranging from sheet metal to tool steel, plastics and wood. Friction
cutting is a method of removing seams and other size overages created by metal
casting using a silicon carbon steel bandsaw blade, running at extremely high
speeds.
The Company's metal band products have a large number of industrial
applications. The largest consumers of these products include the automotive,
construction, home appliance and aerospace industries. Other important end user
markets, particularly in the United States, include specialty manufacturers,
maintenance shops, tool and die shops, machine shops, metal fabricators,
aluminum foundries and steel service centers. Purchasing criteria vary by end
user market but generally center around performance, durability and speed,
resulting in effective cost per cut. Management believes the Company provides
the highest quality products resulting in the most effective cost per cut.
FILE PRODUCTS. Management believes that Simonds is the second largest
manufacturer of industrial file products in North America and the third largest
worldwide. The Company's files are precision hand tools made from forged,
hardened steel, and are generally used to debur and shape metals and wood. These
files are also used to sharpen many types of cutting blades. In general, the
Company sells its file products under various brand names, including Red
Tang(R), Black Maxi-Sharp(R), Ralston and SI. The Company believes the Simond's
name itself is widely recognized by industrial/commercial users as a leader in
the manufacture of high quality files.
The Company's files are sold into two primary end user markets: industrial
and consumer. Industrial end users include machinists, millwrights, welders,
gunsmiths, plumbers, electricians, tool and die makers, watchmakers, automobile
body repair and manufacturing as well as many non-ferrous end user applications
such as filing copper, brass and aluminum. The consumer end user market, a
growing area for the Company, primarily consists of do-it-yourself users. The
Company manufactures a rapidly expanding line of files which are sold to retail
chains and specialty suppliers under private label brand names. In addition,
there are several niche commercial markets, such as the farrier and formica
markets, that are also important to the Company. Purchasing criteria vary by end
user market but generally center around product availability, design,
performance, durability, and price.
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Wood Cutting Products
The Company believes it is the North American leader in the manufacture of
wood cutting products. The Company offers a broad array of wood cutting tools,
including bandsaw blades, wood cutting knives, bits and shanks for inserted
tooth saws, large diameter circular saws, and holesaws. The Company's products
are generally used to cut and shape logs into dimensional lumber and chip lumber
for the pulp and paper industry. In addition, the Company manufactures and sells
a complete line of filing room equipment used primarily in saw mills.
The Company markets its cutting and sawing tools and associated products to
the primary wood industry, including saw mills, pulp mills, wood pallet
producers and plywood, wafer board, and particle board plants. Purchasing
criteria vary by end user market but generally center around performance,
durability, and effective costs per cut.
Paper Products
The Company is a leading producer of precision steel rules used primarily
in the die making and packaging industries. Manufactured from hardened and
beveled steel, rule products are used to fold, cut and perforate paper,
cardboard and other packaging materials in addition to stamping and bending
various types and grades of sheet metal. The Company's paper products include
flat, rotary and perforated steel rule. Rule products purchasing criteria vary
by end user but generally center around performance, durability and cost.
MARKETING, SALES AND DISTRIBUTION
The Company's products are marketed and sold worldwide through an extensive
distributor base serviced by its subsidiaries located in the United States,
Canada, Germany, Spain and the United Kingdom. More than 85% of the Company's
sales are through its extensive independent distributor base. Direct end user
shipments and agent channels are also employed by the Company as dictated by
private label programs, specific geographic markets, industry practice and
competition. The Company employs separate independent distributors for its
metal, wood and paper products in North America and internationally. The
Company's marketing and sales functions are divided geographically between North
America and the rest of the world.
The Company's distribution effort is comprised of three major components:
(i) independent distributors, (ii) the Company's field sales force, and (iii)
the Company's customer service representatives.
The Company's sales and distribution network encompasses approximately
3,800 metal products, 1,300 wood products and 200 paper products distributors in
North America and 1,300 metal products, 150 wood products and 200 paper products
distributors internationally. These distributors include mill supply houses, saw
shops, catalog houses, OEMs, welding suppliers and other manufacturers. The
Company offers extensive training, service, and technical support to its
distributors.
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<PAGE> 5
The Company's independent distributors are supported by 34 metal product
and 33 wood product representatives in North America and 8 metal product
representatives internationally. The Company's field sales professionals provide
technical service, in-house formal training and on-going field training to both
distributors and end users.
The Company's 22 customer service representatives in North America and
eight internationally are a critical element of the Company's distribution
network and service leadership. By responding to and processing many orders from
different points and providing tailored, real-time service, this group provides
a user-friendly interface with the network of distributors and end users. Each
distributor and field sales professional is assigned a customer service
representative who is trained in service techniques and product knowledge.
Steel rule products are marketed through the direct sales force of the
Company's subsidiary, W. Notting Limited ("Notting") and independent specialized
distributors. In addition to this effort, the Company maintains a team of
customer service representatives to market the rule products to smaller
accounts.
The Company distributes private label products directly to retailers and
industrial products marketers through a dedicated private label sales manager,
supported by the Company's customer service organization.
The Company distributes certain industrial products through its wholly
owned subsidiary, Strongridge Limited, ("Strongridge") located in Brampton,
Ontario, Canada. Since its acquisition in 1996, Strongridge has been operating
as a separate division with a separate identity in the industrial market place.
The primary focus of Strongridge has been to sell metal products to the small
and mid-size industrial and contractor distributors. Weld centers and warehouse
locations in Ontario, Canada, Texas, Ohio, California, North Carolina and
Georgia provide local service support to these distributors.
RAW MATERIALS
The primary raw material for the Company's products is specialty steel. The
Company does not believe it is substantially dependent on any single supplier.
However, Theis Precision Steel Corporation provides approximately 50% of the
Company's domestic metal bandsaw steels. The Company's agreements with its
suppliers generally are for a period of one year, with prices, in some
instances, subject to adjustment.
In order to take advantage of volume price discounts, the Company pursues a
"primary" sourcing strategy through which most of the Company's strip steel is
purchased. Designated "primary" sources of steel inventory are supported by
identified secondary sources of raw materials. Each production facility is
responsible for coordinating and executing the materials for their respective
inventory needs. A purchasing manager at each facility oversees these purchases.
EMPLOYEES
At January 1, 2000, the Company had 912 full-time employees. Of such
employees, 706 were located in the United States, 46 were located in Canada, 95
were located in Germany, 10 were located in Spain and 55 were located in the
United Kingdom. The Company considers its relations with these employees to be
good.
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<PAGE> 6
The Fitchburg and Newcomerstown facilities employ members of the United
Steel Workers of America ("USWA") Union. Their contracts with the USWA expire in
2000 and 2001, respectively. The Company considers its relations with the unions
to be good.
COMPETITION
The cutting tool market is highly fragmented with numerous participants.
The Company is a leader in the global cutting tools market and is consistently
among the top three competitors in metal cutting saw blade, file, wood cutting
product and rule product market. Competition is principally on the basis of
price, service, delivery, quality and technical expertise. The Company's
competitors vary in each of the market sectors it serves. There is no one
company which competes with the Company in all three of the market sectors
served by the Company and there is no one company which is dominant in any of
such market sectors. The Company believes that its reputation over its long
history for quality products, extensive sales and service network and its
in-depth product knowledge provide it with a competitive advantage in all of the
market sectors it services.
ENVIRONMENTAL 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 environment 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 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 1992, the Company's property in Ashburnham, Massachusetts, was
identified as having groundwater contamination. The Company has been indemnified
from such liability by prior owners. In 1999, $2.0 million was disbursed from
escrow for remediation of contamination; $1.0 million was spent and there is
$1.0 million recorded in other current liabilities for existing remediation
contracts entered into in 1999. Management believes the remaining $0.7 million
held in escrow will be sufficient to cover the remaining environmental
liabilities, although there can be no assurance that such amounts will be
sufficient. In addition, environmental issues were previously identified at the
Company's Fitchburg, Massachusetts, and Newcomerstown, Ohio, properties which
have since been remediated. However, the state of Ohio has not yet issued its
certification to that effect with respect to the Newcomerstown site. The prior
owner has agreed to indemnify the Company for any post-closure care expenses at
the Newcomerstown site.
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<PAGE> 7
ITEM 2. PROPERTIES.
The following table provides information on the Company's facilities and
the products produced at these locations.
<TABLE>
<CAPTION>
PRODUCT OWNED/ SIZE
LOCATION GROUP PRODUCT TYPES LEASED (SQ. FT)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FITCHBURG, MA Metal * Weld Edged Bandsaw Blades Owned 401,000
* Carbide Tipped Bandsaw Blades
* Carbon Bandsaw Blades
Wood * Bits & Shanks
* Red Streak(R) Bandsaw Blades
* Holesaws
Paper * Perforating
* Flat
* Rotary
BIG RAPIDS, MI Wood * Circular Saws Owned 127,500
* Knives
* Inserted Tooth Saws
NEWCOMERSTOWN, OH Metal * Files Owned 208,000
SPRINGFIELD, OR Wood * Wide Bandsaw Blades Owned 28,400
PORTLAND, OR Wood * Filing Room Equipment Owned 40,000
CORONA, CA Paper * Perforating Rule Leased 42,100
TOTTENHAM, UK Paper * Flat Rule Owned 30,000
* Perforating Rule
BARCELONA, SPAIN Paper * Rule Leased 4,040
SPANGENBERG, GERMANY Metal * Carbon Bandsaw Blades Owned 57,000
* Bi-Metal Bandsaw Blades
* Hacksaw Blades
BRAMPTON, ONTARIO Metal * Carbon Bandsaw Blades Owned 20,800
* Bi-Metal Bandsaw Blades
* Portable Tools
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to a lawsuit that was litigated in China involving a
Chinese joint venture established by the Company's predecessor. Management
believes the lawsuit to be without merit. In addition, the Company is a party to
other lawsuits arising in the normal course of business. In the opinion of
management, the final resolutions of these lawsuits are not expected to
materially affect the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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<PAGE> 8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Company's common
stock. The Company's voting common stock is held by approximately 40 holders and
its non-voting common stock is held by approximately 2 holders.
The Company has not paid any dividends on its capital stock since its
inception. The Company currently intends to retain future earnings, if any, for
use in the operation and expansion of its business. The Company does not
anticipate paying any cash dividends in the foreseeable future. The Company's
debt agreements restrict the ability of the Company and certain of its
subsidiaries to pay dividends.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated operating and balance sheet data for and as of
the years ended December 28, 1996, December 27, 1997, January 2, 1999, and
January 1, 2000 are derived from the Company's audited consolidated financial
statements. The selected consolidated operating and balance sheet data as of and
for the five month period ended May 26, 1995, and the seven months ended
December 30, 1995 are derived from the Predecessor's or the Company's audited
consolidated financial statements, as applicable. The following selected
consolidated financial data should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto (see Item 8. Financial Statements and
Supplementary Data) and the information contained in Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
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<PAGE> 9
<TABLE>
<CAPTION>
(In Thousands)
Predecessor Company
----------- ------------------------------------------------------
5 Months 7 Months Fiscal Fiscal Fiscal Fiscal
Ended Ended Year Year Year Year
5/26/1995 12/30/1995 1996 1997 1998 1999
--------- ---------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Net Sales $42,212 $58,932 $98,661 $114,182 $126,296 $127,496
Cost of Goods Sold 30,102 41,353 69,828 78,798 86,750 88,392
------- ------- ------- -------- -------- --------
Gross Profit 12,110 17,579 28,833 35,384 39,546 39,104
Selling, General and Administrative Expense 7,418 10,176 17,135 21,149 24,230 25,753
Special compensation expense 7,920 -- -- -- 4,541 --
------- ------- ------- -------- -------- --------
Operating Income (loss) (3,228) 7,403 11,698 14,235 10,775 13,351
Interest Expense 650 2,880 4,399 4,963 7,900 10,948
Other expense (income) net (276) (208) 245 520 554 (249)
------- ------- ------- -------- -------- --------
Income (Loss) Before Income Taxes (3,602) 4,731 7,054 8,752 2,321 2,652
Income Taxes (1,387) 1,856 3,071 3,751 955 1,218
------- ------- ------- -------- -------- --------
Income (loss) before
extraordinary item (2,215) 2,875 3,983 5,001 1,366 1,434
Extraordinary item-Write-off of deferred
financing cost related to refinanced
indebtedness, net of tax benefit of $374 -- -- -- -- (529) --
------- ------- ------- -------- -------- --------
Net Income (Loss) $(2,215) $ 2,875 $ 3,983 $ 5,001 $ 837 $ 1,434
======= ======= ======= ======== ======== ========
Other Data:
EBITDA from operations (1) $ 6,109 $ 8,673 $14,026 $ 17,299 $ 19,187 $ 17,715
Depreciation and amortization 1,498 1,500 2,712 3,459 5,176 4,879
Capital expenditures 745 1,895 3,638 3,708 4,348 4,364
Ratio of earnings to fixed charges (2) -- 2.6x 2.5x 2.7x 1.3x 1.2x
Balance Sheet Data:
Working Capital $16,033 $21,786 $22,209 $ 21,651 $ 35,796 $ 35,282
Total Assets 62,413 77,728 82,620 95,343 118,239 118,287
Total Debt 14,899 46,809 46,175 51,692 104,010 102,858
Shareholders' equity (deficit) 24,608 13,185 17,198 21,615 (12,680) (12,245)
</TABLE>
(1) EBITDA is defined as operating income plus depreciation, amortization
(other than amortization of debt discount and deferred financing
costs) and special compensation expense. The Company believes that
EBITDA provides additional information for determining its ability to
meet debt service requirements. EBITDA does not represent and should
not be considered as an alternative to net income or cash flow from
operations as determined by generally accepted accounting principles,
and EBITDA does not necessarily indicate whether cash flow will be
sufficient to meet cash requirements.
(2) For purposes of calculating this ratio, "income" consists of income
before provision for income taxes and fixed charges. "Fixed charges"
consist of interest expense and the estimated interest portion of
rental payments on operating leases. Such income was insufficient to
cover fixed charges by approximately $2,100 for the five months ended
May 26, 1995.
<PAGE> 10
ITEM 7. 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, as well as the selected financial
information, all appearing elsewhere herein.
GENERAL
In July 1998, Simonds and its subsidiaries issued $100 million of 10-1/4%
Senior Subordinated Notes due 2008 (the "Notes"). Proceeds from the Notes were
primarily used for the repayment of indebtedness, the acquisition of treasury
stock, and the buyout of all outstanding stock options and warrants. The Company
concurrently entered into a new Senior Credit Facility with a commercial lender
that provides $30 million availability. Borrowings under the Senior Credit
Facility are available for permitted acquisitions and working capital, including
letters of credit. The Senior Credit Facility is secured by first priority liens
on all tangible and intangible personal property and real property assets of the
Company and its subsidiaries. All of the foregoing transactions are herein
referred to collectively as the "Recapitalization." For additional information
with respect to this Recapitalization, see Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 13. Certain
Relationships and Related Transactions.
Simonds has been in continuous operation selling cutting tools for over 166
years. Since 1996, the Company has completed four acquisitions, including the
bit and shank product line of Pacific Hoe Company in January 1997, Armstrong
Manufacturing Company ("Armstrong") in August 1997, Notting on May 5, 1998, and
the holesaw product line of Andersen Products Inc. in October 1999. The
Company's results of operations for the periods 1997-1999 reflect the impact of
all of the above mentioned acquisitions. In particular, the Company benefited
from five months of operations of Armstrong in 1997 and full years in 1998 and
1999, and eight months of Notting operations in 1998 and a full year in 1999,
two months of Andersen Products in 1999.
<PAGE> 11
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Percentage of Net Sales
Year Ended December
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 %
Cost of goods sold 69.0 68.7 69.3
----- ----- -----
Gross profit 31.0 31.3 30.7
Selling, general and administrative expense 18.5 22.8 20.2
----- ----- -----
Operating income 12.5 8.5 10.5
Interest expense 4.3 6.3 8.6
Other expense (income), net 0.5 0.4 (0.2)
----- ----- -----
Income before income taxes 7.7 1.8 2.1
Income taxes 3.3 0.7 1.0
----- ----- -----
Income before extraordinary item 4.4 1.1 1.1
Extraordinary item-
Write-off of deferred financing cost related to refinanced
indebtedness, net of tax benefit of $374 -- (0.4) --
----- ----- -----
Net Income 4.4 % 0.7 % 1.1 %
===== ===== =====
</TABLE>
Year Ended January 1, 2000 Compared To Year Ended January 2, 1999
Net Sales: Net sales for the year ended January 1, 2000 were $127,496, or a
1.0% increase from fiscal 1998 net sales of $126,296. An increase in net sales
of $3,678 was attributable to the inclusion of Notting net sales for the full
year of 1999 versus 8 months of 1998. This was offset by lower sales volume of
core products in the North American and European markets. Overall sales in 1999
were negatively impacted by deterioration in the value of the British pound and
the German mark when compared to 1998 by approximately $400 and $600,
respectively.
Gross Profit Margin: The cost of sales increased by $1,642 as a result of
higher sales volume. Gross profit margin dropped .6% to 30.7% in 1999 primarily
as a result of unfavorable manufacturing variances resulting from lower
productions levels in reaction to decreased demand and inventory reductions in
excess of plan.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses as a percent of net sales were 20.2% in 1999 and 22.8%
for 1998. The lower level of expenses in 1999 as compared to 1998 was primarily
due to a one time compensation charge in July 1998 of $4,541 from the repurchase
of options relating to the Recapitalization. This was partly offset by a full
year's expenses of Notting in 1999 versus 8 months in 1998.
Operating Income: As a result of the foregoing, operating income increased
$2,576 in 1999 from the prior year.
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<PAGE> 12
Interest Expense: Interest expense was higher in 1999 due to the
Recapitalization of the Company in July 1998. The Recapitalization constituted
retiring most of the Company's debt and replacing it with $100,000 of notes
bearing an annual interest rate of 10.25%.
Income Taxes: The Company's effective tax rate increased to 45.9% in 1999
from 41.1% for 1998. The effective tax rates differed from the statutory U.S.
rate primarily due to non-deductible expenses which include amortization of
goodwill and business meals and entertainment. The rate was also effected by
higher foreign income taxes on foreign source income and state tax provisions.
Extraordinary Item: As part of the debt retirement in 1998, deferred
financing costs of $903 were written off with a related tax benefit of $374,
which resulted in an extraordinary loss of $529.
Net Income: As a result of the aforementioned factors, net income increased
71.3% to $1,434 for 1999 from $837 for 1998.
Year Ended January 2, 1999 Compared To Year Ended December 27, 1997
Net Sales: Net Sales for the twelve months ended January 2, 1999 were
$126,296, or a 10.6% increase from 1997 of $114,182. The increase in net sales
was primarily attributable to the inclusion of $6,185 W. Notting Ltd. net sales
and the inclusion of Armstrong Manufacturing Co. net sales for the entire year
of 1998 ($5,735). U.S. operations were up 2.7%, but mostly offset by lower sales
from Canadian operations due in large part to a significantly weaker Canadian
dollar in 1998.
Gross Profit Margin: The cost of sales increased by $7,952 as a result of
higher sales volume. Gross profit margin improved .3% to 31.3% in 1998 primarily
as a result of favorable raw material prices for Red Streak(R) bands, carbide
tips, and the majority of the Company's knife steel along with higher production
levels without significant increases in fixed expenses.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses as a percent of net sales were 22.8% for 1998 and 18.5%
in 1997. The higher level of expenses in 1998 as compared to 1997 was primarily
due to the addition of Armstrong and Notting in 1998 and a one time compensation
charge in July 1998 of $4,541 from the repurchase of options relating to the
Recapitalization.
Operating Income: As a result of the foregoing, operating income decreased
$3,460 in 1998 from the prior year.
Interest Expense: Interest expense was higher in 1998 due to the
Recapitalization of the Company in July. The Recapitalization constituted
retiring most of the Company's debt and replacing it with $100,000 of notes
bearing an annual interest rate of 10.25%.
Income Taxes: The Company's effective tax rate decreased to 41.1% for 1998
from 42.9% in 1997. The effective tax rates differed from the statutory U.S.
rate primarily due to state income tax provisions and nondeductible
amortization.
Extraordinary Item: As part of the debt retirement in 1998, deferred
financing costs of $903 were written off with a related tax benefit of $374,
which resulted in an extraordinary loss of $529.
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<PAGE> 13
Net Income: As a result of the aforementioned factors, net income decreased
83.3% to $837 for 1998 from $5,001 for 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital
needs, meet required debt payments, and to complete planned maintenance and
manufacturing improvements.
During 1997, 1998 and 1999, net cash provided by operations was $13,046,
$9,113 and $6,508, respectively. During 1997, 1998 and 1999, net cash used in
investing activities was $17,304, $9,747 and $5,884, respectively, consisting
primarily of capital expenditures and acquisitions. In 1997, approximately
$13,700 was used for the acquisitions of Armstrong and the bit and shank product
line of Pacific Hoe Company. In 1998, roughly $5,500 was used to acquire
Notting, a manufacturer of rule products. In 1999, approximately $1,600 was used
to acquire specific assets of Andersen Products Inc. During 1997, 1998 and 1999,
net cash provided by (used in) financing activities was $4,299, $8,978, and
($1,205), respectively.
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 January 1,
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.
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.
- 13 -
<PAGE> 14
TRANSITION TO THE EURO
Although the Euro was successfully introduced on January 1, 1999, the
legacy currencies of the 11 countries participating will continue to be used as
legal tender through January 1, 2002. Thereafter, the legacy currencies will be
cancelled and Euro bills and coins will be used in the participating countries.
Transition to the Euro creates a number of issues for the Company. Business
issues that must be addressed include product pricing policies and ensuring the
continuity of business and financial contracts. Finance and accounting issues
include the conversion of accounting systems, statutory records, tax books and
payroll systems to the Euro, as well as conversion of bank accounts and other
treasury and cash management activities.
The Company continues to address these transition issues and does not
expect the transition to the Euro to have a material effect on the results of
operations or financial condition of the Company.
YEAR 2000
The Company developed plans to address the possible exposure related to the
impact of the Year 2000 problem ("Y2K") on its computer systems and key service
providers. The Company aggressively monitored the transition of its computer
systems into 2000 and is pleased with the results. Minor exceptions were noted
and corrected quickly. Management will continue to monitor computer systems
throughout 2000 as a normal course of business, paying particular attention to
the remaining critical Y2K dates.
FORWARD LOOKING STATEMENTS; RISKS AND UNCERTAINTIES
Statements contained in this Form 10-K 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 such as
"believes," "anticipates," "expects" and similar expressions are intended 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. Such statements contain a number of risks and
uncertainties including, but not limited to, the Company's substantial leverage,
the restrictions imposed by the terms of its indebtedness, the subordination
provisions of the Notes and the related guarantees, the risks of international
operations, the Company's dependence on specialty steels, its reliance on
limited sources of supply and certain industries, its acquisition strategy and
environmental matters. The Company cannot assure that it will be able to
anticipate or respond timely to changes which could adversely affect its
operating results in one or more fiscal quarters. Results of operations in any
past period should not be considered indicative of results to be expected in
future periods.
The above risks and uncertainties inherent in the Company's business are
set forth in detail below. However, this section does not discuss all possible
risks and uncertainties to which the Company is subject, nor can it be assumed
necessarily that there are no other risks and uncertainties which may be more
significant to the Company.
- 14 -
<PAGE> 15
SUBSTANTIAL LEVERAGE
As of January 1, 2000, the Company had $102,858 of consolidated
indebtedness and consolidated stockholders' deficit of $12,245.
The Company's indebtedness has several important consequences including,
but not limited to, the following: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to debt service requirements on its
indebtedness and will not be available for other purposes; (ii) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, refinancing other indebtedness or general
corporate purposes may be impaired; (iii) the Company's leverage may increase
its vulnerability to economic downturns and limit its ability to withstand
competitive pressures; and (iv) the Company's ability to capitalize on
significant business opportunities may be limited.
The Company's ability to make payments with respect to the Notes and to
satisfy its other debt obligations will depend on its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control. The Company believes, based on current circumstances, that the
Company's cash flow, together with available borrowings under the Senior Credit
Facility, will be sufficient to permit the Company to meet its operating
expenses and to service its debt requirements as they become due. Significant
assumptions underlie this belief, including, among other things, that the
Company will succeed in implementing its business strategy and there will be no
material adverse developments in its business, liquidity or capital
requirements. If the Company is unable to service its indebtedness, it will be
forced to adopt an alternative strategy that may include actions such as
reducing or delaying capital expenditures, selling assets, restructuring or
refinancing its indebtedness or seeking additional equity capital. There can be
no assurance that any of these strategies could be effected on satisfactory
terms, if at all.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture restricts the ability of the Company and certain of its
subsidiaries to, among other things, incur additional indebtedness, pay
dividends or make certain other restricted payments or investments, consummate
certain asset sales, enter into certain transactions with affiliates, incur
liens, or merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of their assets.
In addition, the Senior Credit Facility contains other and more restrictive
covenants. The Senior Credit Facility requires the Company to maintain specified
financial ratios and satisfy certain financial tests. The Company's ability to
meet such financial ratios and tests may be affected by events beyond its
control, and there can be no assurance that the Company will meet such tests. A
breach of any of these covenants could result in an event of default under the
Senior Credit Facility. In an event of default under the Senior Credit Facility,
the lenders thereunder could elect to declare all amounts borrowed, together
with accrued interest, to be immediately due and payable and the lenders under
the Senior Credit Facility could terminate all commitments thereunder. If such
indebtedness were to be accelerated, there can be no assurance that the assets
of the Company would be sufficient to repay such indebtedness and the Notes.
- 15 -
<PAGE> 16
SUBORDINATION OF NOTES AND GUARANTEES
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Debt of the Company, including all
amounts owing or guaranteed under the Senior Credit Facility. The Guarantees of
the Notes by certain subsidiaries are similarly subordinated to Guarantor Senior
Debt. Consequently, in the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to the Company or a Guarantor,
assets of the Company or such Guarantor will be available to pay obligations on
the Notes or Guarantees only after all Senior Debt of the Company or Guarantor
Senior Debt of such Guarantor, as applicable, has been paid in full, and there
can be no assurance that there will be sufficient assets to pay amounts due on
any or all of the Notes. In addition, neither the Company nor any Guarantor may
pay principal, premium, interest or other amounts on account of the Notes or any
Guarantee in the event of a payment default (or, with respect to a non-payment
default on Designated Senior Debt (as defined), for a specified period) in
respect of Senior Debt. As of January 1, 2000, the Company and the Guarantor had
no Senior Debt and Guarantor Senior Debt outstanding. In addition, the Notes are
effectively subordinated in right of payment to all liabilities, including
indebtedness, of subsidiaries of the Company which are not Guarantors. As of
January 1, 2000, such subsidiaries had approximately $23,800 of total
liabilities, including approximately $2,900 of indebtedness.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company operates manufacturing, sales and service facilities in
Germany, the United Kingdom, Spain and Canada. In fiscal 1999, sales of its
products in foreign countries accounted for approximately 32% of the Company's
net sales. As a result, the Company is subject to risks associated with
operation in foreign countries, including fluctuations in currency exchange
rates, imposition of limitations on conversion of foreign currencies into
dollars or remittance of dividends and other payments by foreign subsidiaries,
imposition or increase of withholding and other taxes on remittances and other
payments by foreign subsidiaries, hyperinflation in certain foreign countries
and imposition or increase of investment, subjection to certain foreign labor
laws and other restrictions by foreign governments. Fluctuations in currency
exchange rates have had an impact on the Company's operations in the past, and
historically the Company has hedged some of its foreign currency risks. No
assurance can be given that the risks associated with operating in foreign
countries will not have a material adverse effect on the Company in the future.
DEPENDENCE ON SPECIALTY STEELS; RELIANCE ON LIMITED SOURCES OF SUPPLY
The principal raw material used by the Company is specialty steels. The
Company relies on limited sources for its supply of specialty steels. The loss
of any such source, or any major disruption in such source's business or failure
by it to meet the Company's needs on a timely basis could cause shortages in the
Company's supply of specialty steels that could have a material adverse effect
on the Company's business and financial condition.
The steel industry is highly cyclical in nature and steel prices are
influenced by numerous factors beyond the control of the Company, including
general economic conditions, labor costs, molybdenum and chrome costs,
competition, import duties, tariffs and currency exchange rates. If the Company
is unable to pass some or all of future steel price increases to its customers,
the Company could be materially and adversely affected.
- 16 -
<PAGE> 17
RELIANCE ON METAL PROCESSING AND WOOD INDUSTRIES
Demand for the Company's metal and wood products generally follows
movements in the metal processing and primary wood industries. The metal
processing and primary wood industries are both cyclical in nature and are
affected by global and national economic conditions. A material change in either
industry or general economic conditions could have a material adverse effect on
the Company's business and financial condition.
ACQUISITION STRATEGY
The Company has pursued and intends to continue to pursue acquisitions as
an important component of its strategy. No assurance can be given that in the
future other suitable acquisition candidates can be acquired on acceptable terms
or that future acquisitions, if completed, will be successful. Future
acquisitions by the Company could result in the incurrence of additional debt
and contingent liabilities which could materially adversely affect the Company's
business, operating results and financial condition. The success of any
completed acquisition will depend on the Company's ability to integrate
effectively the acquired business into the Company's. The process of integrating
acquired businesses may involve numerous risks, including difficulties in the
assimilation of operations and products, the diversion of management's attention
from other business concerns and the potential loss of key employees of the
acquired businesses.
ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and waste
materials. While the Company believes that it is currently in material
compliance with those laws and regulations, there can be no assurance that the
Company will not incur significant costs to remediate violations thereof or to
comply with changes in existing laws and regulations (or the enforcement
thereof). Such costs could have a material adverse effect on the Company's
business, financial condition or results of operations.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of Notes will have the right to require the Company to repurchase
all or a portion of such holder's Notes at a price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase. However, the Company's ability to repurchase the Notes
upon a Change of Control may be limited by the terms of then existing
contractual obligations of the Company and its subsidiaries. In addition, the
occurrence of a Change of Control will constitute an Event of Default under the
Senior Credit Facility. The Senior Credit Facility will prohibit the purchase of
the Notes unless and until such time as the indebtedness under the Senior Credit
Facility is paid in full. There can be no assurance that the Company will have
the financial resources to repay amounts due under the Senior Credit Facility,
or to repurchase or redeem the Notes. If the Company fails to repurchase all of
the Notes tendered for purchase upon the occurrence of a Change of Control, such
failure will constitute an Event of Default under the Indenture.
- 17 -
<PAGE> 18
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under the applicable provisions of the federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if the Company or any Guarantor, at
the time it issues the Notes or incurs a Guarantee, as the case may be, (a)(i)
was or is insolvent or rendered insolvent by reason of such issuance or
incurrence, as the case may be, (ii) was or is engaged in a business or
transaction for which the assets remaining with the Company or such Guarantor,
as the case may be, constituted unreasonably small capital or (iii) intended or
intends to incur, or believed or believes that it would incur, debt beyond its
ability to pay such debts as they mature and (b) received or receives less than
reasonably equivalent value or fair consideration, the obligations of the
Company under the Notes or such Guarantor under its Guarantee, as the case may
be, could be avoided or claims in respect of the Notes or such Guarantee, as the
case may be, could be subordinated to all other debts of the Company or such
Guarantor, as the case may be. Among other things, a legal challenge of the
Notes or a Guarantee, as the case may be, on fraudulent conveyance grounds may
focus on the benefits, if any, realized by the Company or such Guarantor, as the
case may be, as a result of the issuance of the Notes or the incurrence of a
Guarantee, as the case may be. To the extent that the Notes or any Guarantee was
a fraudulent conveyance or held unenforceable for any other reason, the holders
of the Notes would cease to have any claim in respect of the Company, in the
case of the Notes, or in respect of a Guarantor whose Guarantee was avoided or
held unenforceable. In such event, the claims of the holders of the Notes would
be subject to the prior payment of all liabilities of the Company, in the case
of the Notes, or the Guarantor whose Guarantee was avoided. There can be no
assurance that, after providing for all prior claims, there would be sufficient
assets to satisfy the claims of the holders of the Notes relating to any avoided
portion of the Notes or a Guarantee.
The Guarantor has agreed to contribute to the obligation under a Guarantee
of the Notes. Further, the Guarantee provides that it is limited to an amount
that would not render the Guarantor thereunder insolvent. The Company believes
that it and the Guarantor received equivalent value at the time the indebtedness
was incurred under the Notes and the Guarantees. In addition, the Company
believes that neither it nor the Guarantor was or will be insolvent or was or
will be engaged in a business or transaction for which its remaining assets
constitute unreasonably small capital and that neither it nor the Guarantor
intended or will intend to incur debts beyond its ability to pay such debts as
they mature. Since each of the components of the question of whether the Notes
or a Guarantee is a fraudulent conveyance is inherently fact based and fact
specific, there can be no assurance that a court passing on such questions would
agree with the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in foreign currency
exchange rates, as the Company entered into foreign forward exchange contracts
effective for fiscal year 1999. The Company did not enter into these contracts
for trading purposes. They were entered into to manage and reduce the impact of
changes in foreign currency exchange rates although a portion of these contracts
does not qualify for hedge accounting. Accordingly, the contracts were marked to
market at the end of each accounting period. All contracts expired in December
1999 and as of January 1, 2000 there were no contracts in place. (See Note 12 to
the Consolidated Financial Statements.)
- 18 -
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial information required by Item 8 is included elsewhere in this
Report (see Part IV, Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
- 19 -
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information with respect to the
directors and 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
- ----------------- ---- -----------------------------------------------------
Ross B. George 67 Director and Chairman of the Board
Raymond J. Martino 45 President, Chief Executive Officer and Director
Roland Richard 58 Vice President - Sales and Marketing, Wood Products
James Palmer 58 Vice President - Sales and Marketing, Metal Products
Peter Hopper 49 Vice President - Product Development
Ron Owens 55 Senior Vice President - Manufacturing
Habib Y. Gorgi 43 Director
Gregory M. Barr 34 Director
Ross George: Mr. George was President, Chief Operating Officer and member
of the Board of Directors since 1988 and was made Chief Executive Officer in
1995. As of September 1999, Mr. George became Chairman of the Board.
Raymond Martino: Mr. Martino has been Chief Executive Officer and President
since September 1999 and is a member of the Board of Directors of Simonds. Mr.
Martino formerly held the positions of President - Stanley Fastening Systems,
President Stanley Door Systems and President of Stanley Home Decor, divisions of
The Stanley Works.
Roland Richard: Mr. Richard has been Vice President of Sales and Marketing
- - Wood Products since 1991. He previously held the position of Director of
Corporate Development from 1989 to 1991 and was Corporate Sales Manager of the
acquired Michigan Knife Company from 1987 to 1989.
James Palmer: Mr. Palmer has been Vice President of Sales and Marketing for
Metal Products since 1995. He was Vice President of Sales of Milford Products
for 10 years. Mr. Palmer joined Milford Products in 1982.
- 20 -
<PAGE> 21
Peter Hopper: Mr. Hopper has been Vice President of Product Development
since 1996. He has held positions of increasing responsibility with Crucible
Specialty Metals from 1976 to 1983. He held research, metallurgy and quality
control positions with Milford Products Corporation from 1983 to 1991. From 1991
to 1996 he served in various product development and design positions with
Milwaukee Electric Tool Corporation.
Ron Owens: Mr. Owens joined Simonds in 1998 as Vice President of Business
Development and was promoted to Senior Vice President of Manufacturing in
November of 1998. In 1990 Mr. Owens formed "SAWELL, INC.", a manufacturing
business that produced jigsaw and recip blades for their own brands, as well as
private label product for all major brands. Black and Decker purchased "SAWELL,
INC." in late 1994 and Mr. Owens was President of the subsidiary until October
1996.
Habib Gorgi: Mr. Gorgi has been a member of the Board of Directors since
1995. Since 1995, Mr. Gorgi has been President of each of (i) Fleet Ventures
Resources, Inc., (ii) Fleet Growth Resources II, Inc., a general partner of
Fleet Equity Partners VI, L.P., and (iii) Silverado III, Corp., the general
partner of Silverado III, L.P., the general partner of Chisholm Partners III,
L.P. Mr. Gorgi is also managing general partner of Kennedy Plaza Partners.
Gregory Barr: Mr. Barr has been a member of the Board of Directors since
October 1999. Mr. Barr joined Fleet Equity Partners in 1994. Mr. Barr's previous
work experience was at McKinsey and Company where he worked as a management
consultant in a variety of Industries. Formerly, Mr. Barr worked at Goldman,
Sachs & Company in the Investment Banking Division. He received a BA from
Wesleyan University and an MBA from the Harvard Business School.
- 21 -
<PAGE> 22
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation earned in 1999 and
1998 by the Company's Chief Executive Officer and each of the four most highly
compensated executive officers whose remuneration exceeded $100,000 (the "Named
Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG
TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- --------------------
SECURITIES
UNDER- ALL
LYING OTHER
OPTIONS COMPEN-
YEAR SALARY BONUS OTHER(1) SARs SATION(2)
---- ------ ----- -------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Ross George 1999 $250,112 - $29,979 671.13 $ 22,768
Chairman of the Board 1998 $272,580 - $28,774 351.13 $753,256
Former CEO and President
Joseph Sylvia 1999 $176,649 - $28,742 - $ 11,414
Former Executive Vice President 1998 $185,820 - $30,026 222.45 $493,120
and CFO
Raymond Martino 1999 $132,820 - $ 7,949 4,450 $ 32,672
Chief Executive Officer, President
James Palmer 1999 $140,233 $ 1,759 $13,045 275 $ 9,897
Vice President - Sales, Metal 1998 $129,260 $ 1,759 $12,809 - $347,834
Products
Roland Richard 1999 $126,379 $13,853 $13,850 275 $ 10,273
Vice President - Sales & 1998 $121,518 $13,853 $12,809 - $132,863
Marketing, Wood Products
Ronald Owens 1999 $142,133 - $ 4,829 275 $ 8,225
Senior Vice President - 1998 $ 90,462 - $10,811 - $ 2,609
Manufacturing
Peter Hopper 1999 $ 94,367 - $15,996 100 $ 6,109
Vice President - Product 1998 $ 90,738 $40,088 $15,297 - $182,355
Development
</TABLE>
(1) Consists of amounts reimbursed during the year for the payment of taxes
relating to company vehicles, tax preparation and club memberships.
(2) Consists of the Company's contributions to (1) the 401(k) Plan in 1998
($5,000 each for all executives listed above except Mr. Martino, $0, and
Mr. Owens, $0) and in 1999 (Messrs. George and Sylvia, $5000; Mr. Martino,
$2,235, Mr. Palmer, $3,855; Mr. Richard, $4,207, Mr. Owens, $3,164, and Mr.
Hopper, $2,831) and (2) the Profit Sharing Plan in 1998 ($4,800 each for
all executives listed above except Mr. Martino, $0, Mr. Owens, $0, and Mr.
Hopper, $3,925) and in 1999 (Messrs. George and Sylvia, $4,800; Mr.
Martino, $3,110; Mr. Palmer, $4,260; Mr. Richard, $4,207, and Mr. Owens,
$3,164, and Mr. Hopper, $2,831) and; (3) group insurance payments in 1998
(Mr. George, $23,583; Mr. Sylvia, $3,399, Mr. Palmer, $2,945, Mr. Richard,
$3,084, Mr. Owens $2,609, and Mr. Hopper $811) and in 1999 (Mr. George,
$12,968; Mr. Sylvia, $1,614; Mr. Martino, $425, Mr. Palmer, $1,782; Mr.
Richard, $1,859, Mr. Owens, $1,897, and Mr. Hopper, $447) and (4) buyout of
options in 1998 (Mr. George $719,873; Mr. Sylvia $479,921, Mr. Palmer
$335,089; Mr. Richard $119,979, Mr. Owens, $0, and Mr. Hopper, $172,619)
and (5) relocation expenses in 1999 (Mr. Martino, $26,902).
- 22 -
<PAGE> 23
Options
The following table sets forth certain information relating to option
grants in the year ended January 1, 2000 to the individuals named in the Summary
Compensation Table above.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options/SARs Employees in Base Price Expiration Present
Name granted (1) Fiscal Year ($/Sh) Date Value (4)
- --------------------- -------------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Ross George (3) 320 4% $467.32 12/31/2008 $ 97.50
Joseph Sylvia -- -- -- -- --
Raymond Martino (2) 4,450 51% $458.52 9/30/2009 $131.92
James Palmer (3) 275 3% $467.32 12/31/2008 $ 97.50
Roland Richard (3) 275 3% $467.32 12/31/2008 $ 97.50
Ron Owens (3) 275 3% $467.32 12/31/2008 $ 97.50
Peter Hopper (3) 100 1% $467.32 12/31/2008 $ 97.50
</TABLE>
(1) None of the options granted were options with tandem SARs and no
free-standing SARs were granted.
(2) These options were granted to Raymond Martino on October 1, 1999. The
options vest as follows: 1,450 on February 29, 2000, and 1,000 each on February
28, 2001, 2002, and 2003.
(3) These options were granted to the named executives on January 1, 1999.
One third of the options vest on January 1 for each of the years 1999, 2000, and
2001.
(4) Based on the Black-Scholes option pricing model. The use of this model
should not be construed as an endorsement of its accuracy at valuing options.
The actual value, if any, an executive may realize will depend on the excess of
the stock price over the exercise price on the date the option is exercised, so
there is no assurance the actual value realized will be at or near the value
estimated by the Black-Scholes model. The estimated values under that model are
based on the following assumptions:
<TABLE>
<CAPTION>
Raymond Martino Others
--------------- ------
<S> <C> <C>
Stock price $470.07 $467.32
Exercise price $458.52 $467.32
Expected option term 5 years 5 years
Stock price volatility 0 0
Dividend yield 0 0
Risk-free interest rate 6.09% 4.68%
</TABLE>
- 23 -
<PAGE> 24
The following table sets forth certain information with respect to
unexercised options to purchase the Company's Common Stock granted to the
individuals named in the Summary Compensation Table above. No options were
exercised in 1999 by such individuals.
FY - END OPTION VALUES
<TABLE>
<CAPTION>
NO. OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FY-END OPTIONS AT FY-END (1)
---------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ross George 564.46 106.67 $8,997.54 $ 1,700.27
Joseph Sylvia - - - -
Raymond Martino - 4,450.00 - $70,933.00
James Palmer 183.33 91.67 $1,309.00 $ 654.50
Roland Richard 183.33 91.67 $1,309.00 $ 654.50
Ron Owens 183.33 91.67 $1,309.00 $ 654.50
Peter Hopper 66.67 33.33 $ 476.00 $ 238.00
</TABLE>
(1) Based on the difference between the fair market value of the securities
underlying the options and the exercise or base price of the options at fiscal
year-end.
Employment Contracts
The Company has an employment agreement with the Chairman of the Board,
which expires September 15, 2000, at which time the Chairman intends to retire.
The Company also has employment agreements with key executive management. The
agreement with the President/Chief Executive Officer provides for twelve months'
severance on termination by the Company at any time without cause and
termination by the employee upon at least thirty (30) days' prior written
notice. No severance is provided if the Company terminates for cause or if the
employee terminates for no good reason. The non-competition provisions apply
during the term of the agreements and provide a two-year non-competition period
beginning on the date of termination. In addition, the Company has employment
agreements with all vice presidents, providing for at least twelve (12) months'
written notice prior to termination by the Company without cause (thirty days
with cause) and ninety (90) days' prior written notice by the employee. Annual
salary reviews are done by the Board of Directors.
- 24 -
<PAGE> 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock (i) by each person known to the Company
to own more than 5% of the Company's Common Stock and (ii) by each director of
the Company, each of the executive officers of the Company listed under
"Management" and the directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
--------------------------------
NUMBER OF SHARES % OF CLASS
---------------- ----------
<S> <C> <C>
Fleet Venture Resources, Inc. (2) 22,073.18 31.0
Fleet Equity Partners VI, L.P. (2) 9,459.93 13.3
Chisholm Partners III, L.P. (2) 7,998.35 11.2
Kennedy Plaza Partners 460.25 *
The Private Market Fund, L.P. 8,723.72 12.3
Ross George 6,348.69 8.9
Joseph Sylvia 4,039.08 5.7
Robert Deedrick 436.19 *
Roland Richard 1,090.46 1.5
James Palmer 381.66 *
Harry Rogers 1,090.46 1.5
Peter Hopper 163.57 *
F.A. DeVilling 218.09 *
Ron Owens -- --
Habib Gorgi 39,991.71 56.2
Gregory Barr 39,991.71 56.2
All directors and executive officers as a group,
including the above named persons 53,759.91 75.5
</TABLE>
*Less than 1%
(1) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of, a security or the sole or shared power
to dispose, or direct the disposition of, a security, and includes options
and warrants exercisable within 60 days.
(2) Fleet Venture Resources, Inc. ("FVR"), Fleet Equity Partners VI, L.P.
("FEP"), Chisholm Partners III ("Chisholm") and Kennedy Plaza Partners
("Kennedy") are affiliated entities. As a result, they may be deemed to
have shared voting and investment power of the shares held by each of the
other entities. FVR and FEP are also affiliates of FleetBoston Financial
Group, Inc. ("FBF"). As a result, FBF may be deemed to have shared voting
and investment power of the shares held by such entities. Mr. Gorgi is
President of FVR and of the corporate general partners of FEP and Chisholm,
and a general partner of Kennedy. As a result, he may be deemed to have
shared voting and investment power of the shares held by such entities. Mr.
Barr is Vice President of FVR and of the corporate general partners of FEP
and Chisholm, and a general partner of Kennedy. As a result, he may be
deemed to have shared voting and investment power of the shares held by
such entities. Messrs. Gorgi and Barr disclaim beneficial ownership for all
shares held directly by these entities, except for the extent of their
pecuniary interest therein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to the Recapitalization (i) the Company repurchased certain of its
outstanding equity securities for an aggregate purchase price of $58.3 million
(or $458.52 per share of Common Stock and equivalents) (the "Recapitalization
Consideration"), (ii) the Company issued new shares of voting and non-voting
Common Stock to certain existing stockholders and new investors with aggregate
proceeds to the Company of $18.8 million (or $458.52 per share) (the "New
Shares"), (iii) the Company issued certain warrants and options to certain
existing stockholders and new investors, and (iv) certain of the Company's
existing stockholders retained voting Common Stock with an aggregate value
(based on per share value of $458.52) of approximately $16.2 million (the
"Retained Shares").
- 25 -
<PAGE> 26
Fleet (i) received approximately $39.0 million of the Recapitalization
Consideration, (ii) purchased approximately $7.8 million of the New Shares and
(iii) retained approximately $9.6 million of the Retained Shares. In addition,
Fleet received (a) warrants to purchase 2,180.93 shares of Common stock at a
price of $458.52 per share and (b) warrants to purchase 1,357.73 shares of
Common Stock at a price of $458.52 per share which will be exercisable in full
upon the occurrence of a sale of the Company or an initial public offering of
its stock ("Liquidity Events") if Fleet does not earn a specified return on its
cash investment in the Company.
Management of the Company (i) received approximately $16.0 million of the
Recapitalization Consideration, (ii) purchased approximately $0.3 million of the
New Shares and (iii) retained approximately $6.4 million of the Retained Shares.
Messrs. George, Sylvia, and Richard (or members of their respective families)
received approximately $6.7 million, $3.1 million, and $1.2 million,
respectively, of such Recapitalization Consideration. Mr. Palmer purchased
approximately $0.2 million of such New Shares, and Messrs. George, Sylvia, and
Richard retained approximately $3.8 million, $2.1 million, and $0.5 million,
respectively, of such Retained Shares. In addition, Messrs. George and Sylvia
were granted options to purchase 351.13 and 222.45 shares, respectively, of
Common Stock at a price of $458.52 per share.
First Union Investors, Inc., an affiliate of First Union Capital Partners,
one of the initial purchasers of the Notes, and First Union National Bank, the
principal lender under the Senior Credit Facility, acquired 3,373.75 voting and
7,530.90 non-voting New Shares for approximately $5 million and also received
warrants to purchase 391.57 shares of Common Stock at a price of $458.52 per
share which will be exercisable in full upon the occurrence of certain Liquidity
Events if the holder does not earn a specified return on its cash investment in
the Company. The Private Market Fund, L.P. received warrants to purchase 313.26
shares of Common Stock at a price of $458.52 per share which will be exercisable
in full upon the occurrence of certain Liquidity Events if the holder does not
earn a specified return on its cash investment in the Company.
- 26 -
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The consolidated balance sheets as of January 2, 1999 and January 1, 2000
and the related consolidated statements of operations, cash flows,
shareholders' equity (deficit), and financial statement schedule for each
of the three years in the period ended January 1, 2000 are filed as part of
this report:
- 27 -
<PAGE> 28
(1) Financial Statements
SIMONDS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS January 2, January 1,
------ 1999 2000
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 9,298 $ 8,383
Accounts receivable, net of reserves of $992 and $993 16,250 17,400
Inventories (Note 3) 27,226 26,650
Other current assets 3,208 3,162
Refundable income taxes 1,157 1,037
--------- ---------
Total current assets 57,139 56,632
PROPERTY, PLANT AND EQUIPMENT:
Land 2,332 2,300
Buildings and improvements 12,118 10,684
Machinery and equipment 27,009 32,126
Construction-in-progress 1,296 314
--------- ---------
42,755 45,424
Less- Accumulated depreciation 8,370 11,585
--------- ---------
Net property, plant and equipment 34,385 33,839
OTHER ASSETS:
Goodwill, net of accumulated amortization of $1,581 and $2,223 21,765 22,308
Deferred financing costs, net of accumulated amortization of $252 and $764 4,389 3,900
Other, including buildings held for resale at January 1, 2000 561 1,608
--------- ---------
Total other assets 26,715 27,816
--------- ---------
Total assets $ 118,239 $ 118,287
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Overdraft facilities $ 149 $ 190
Revolving credit loans and notes payable 1,613 321
Current portion of long-term debt 35 14
Accounts payable 6,783 6,871
Accrued payroll and employee benefits 3,953 4,034
Accrued interest 5,011 5,153
Other accrued liabilities 1,351 2,739
Currently deferred income taxes 2,448 2,028
--------- ---------
Total current liabilities 21,343 21,350
LONG-TERM DEBT, net of current portion (Note 5) 102,362 102,523
DEFERRED INCOME TAXES 4,939 4,808
OTHER NONCURRENT LIABILITIES (Note 4) 2,275 1,851
COMMITMENTS AND CONTINGENCIES (Note 6) -- --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized - 200,000 shares
Issued and outstanding - 76,333 and 76,289 1 1
Capital in excess of par value (24,405) (24,405)
Retained earnings 12,696 14,130
Additional minimum pension liability, net of $58 tax effect -- (135)
Cumulative translation adjustment (907) (1,715)
Treasury stock, at cost (65) (121)
--------- ---------
Total shareholders' equity (deficit) (12,680) (12,245)
--------- ---------
Total liabilities and shareholders' equity $ 118,239 $ 118,287
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
- 28 -
<PAGE> 29
<TABLE>
<CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
Year Ended December
---------------------------------------
1997 1998 1999
-------- --------- ---------
(52 Weeks) (53 Weeks) (52 Weeks)
<S> <C> <C> <C>
Net sales $114,182 $ 126,296 $ 127,496
Cost of goods sold 78,798 86,750 88,392
-------- --------- ---------
Gross profit 35,384 39,546 39,104
Selling, general and administrative expense 21,149 28,771 25,753
-------- --------- ---------
Operating income 14,235 10,775 13,351
Other expenses:
Interest expense, net 4,963 7,900 10,948
Other, net 520 554 (249)
-------- --------- ---------
Income before income taxes 8,752 2,321 2,652
Provision for income taxes 3,751 955 1,218
-------- --------- ---------
Income before
extraordinary item 5,001 1,366 1,434
Extraordinary item-
Write-off of deferred financing cost related
to refinanced indebtedness, net of tax
benefit of $374 -- (529) --
-------- --------- ---------
Net income $ 5,001 $ 837 $ 1,434
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
- 29 -
<PAGE> 30
<TABLE>
<CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
YEAR ENDED
-----------------------------------
DECEMBER 27, JANUARY 2, JANUARY 1,
1997 1999 2000
===================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,001 $ 837 $ 1,434
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,459 5,176 4,879
Gain on asset sales (16) (48) (17)
Provision for deferred
income taxes 258 249 1,061
Changes in assets and liabilities, net
of acquisitions:
Accounts receivable (927) 2,692 (1,150)
Inventories 2,902 (952) 1,125
Income tax refunds receivable 40 (1,056) 120
Other current and noncurrent assets 602 326 (254)
Accounts payable (346) 355 (37)
Accrued expenses 2,297 1,527 (94)
Other non-current liabilities (224) 7 (559)
-----------------------------------
Net cash provided by operating
activities 13,046 9,113 6,508
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 107 72 53
Purchases of equipment (3,708) (4,348) (4,364)
Acquisition of Pacific Hoe Company Assets (5,578) -- --
Acquisition of Armstrong Manufacturing
net of cash acquired of $875 (8,125) -- --
Acquisition of W. Notting Ltd.,
net of cash acquired of $51 -- (5,471) --
Acquisition of Anderson Holesaw Assets -- -- (1,573)
-----------------------------------
Net cash (used in) investing activities (17,304) (9,747) (5,884)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in overdrafts (539) (100) 41
Net (uses) proceeds under revolving credit (1,445) 3,789 (1,292)
Proceeds from issuance of long-
term debt-net of issuance costs 7,700 98,063 161
Principal payments of long-term debt (1,312) (57,751) (21)
Issuance of common stock 33 18,833 --
Stock redemption -- (53,791) --
Purchase of treasury stock -- (65) (56)
Other (138) -- (38)
-----------------------------------
Net cash provided by (used in) financing activities 4,299 8,978 (1,205)
-----------------------------------
EFFECT OF EXCHANGE RATE ON CASH (41) (301) (334)
-----------------------------------
NET INCREASE (DECREASE) IN CASH -- 8,043 (915)
CASH AT BEGINNING OF PERIOD 1,255 1,255 9,298
-----------------------------------
CASH AT END OF PERIOD $ 1,255 $ 9,298 $ 8,383
===================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 30 -
<PAGE> 31
<TABLE>
<CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the years ended December 27, 1997, January 2, 1999 and January 1, 2000
(In thousands, except share amounts)
ACCUMULATED
CAPITAL OTHER TOTAL
COMMON COMMON IN EXCESS RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS' COMPREHENSIVE
SHARES STOCK OF PAR EARNINGS ITEMS STOCK EQUITY (DEFICIT) INCOME
------ ----- ------ -------- ----- ----- ---------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 27, 1996 148,037 $ 1 $ 10,520 $ 6,858 $ (181) $ 0 $ 17,198 --
Exercise of stock options 334 -- 33 -- -- -- 33 --
Net Income -- -- -- 5,001 -- -- 5,001 $ 5,001
Foreign Currency
Translation Adjustment -- -- -- -- (617) -- (617) (617)
------ --- -------- ------- ------- ----- -------- -------
Balance at December 27, 1997 148,371 1 10,553 11,859 (798) 0 21,615 $ 4,384
=======
Issuance of Common Stock 41,073 1 18,832 -- -- -- 18,833 --
Net Income -- -- -- 837 -- -- 837 $ 837
Foreign Currency
Translation Adjustment -- -- -- -- (109) -- (109) (109)
Stock Redemption (112,777) (1) (53,790) -- -- -- (53,791) --
Acquisition of Treasury (334) -- -- -- -- (65) (65) --
------ --- -------- ------- ------- ----- -------- -------
Balance at January 2, 1999 76,333 1 (24,405) 12,696 (907) (65) (12,680) $ 728
=======
Net Income -- -- -- 1,434 -- -- 1,434 $ 1,434
Foreign Currency
Translation Adjustment -- -- -- -- (808) -- (808) (808)
Additional minimum pension
Liability, net of $58 tax
effects -- -- -- -- (135) -- (135) (135)
Acquisition of Treasury (44) -- -- -- -- (56) (56) --
------ --- -------- ------- ------- ----- -------- -------
Balance at January 1, 2000 76,289 $ 1 $(24,405) $14,130 $(1,850) $(121) $(12,245) $ 491
====== === ======== ======= ======= ===== ======== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 31 -
<PAGE> 32
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Effective June 11, 1998, SI Holding Corporation changed its name to Simonds
Industries Inc., and merged with its wholly owned operating subsidiary,
Simonds Industries Inc. (Simonds or the Company), a Delaware corporation
which manufactures and is a worldwide distributor of industrial cutting
tools. The primary products manufactured by Simonds include metal band and
wood saws, industrial knives and rules, files and band saw equipment.
Simonds' principal manufacturing operations are located in Fitchburg,
Massachusetts; Newcomerstown, Ohio; Big Rapids, Michigan; Corona and Santa
Fe Springs, California; Portland and Springfield, Oregon and Spangenberg,
Germany. Simonds also has sales subsidiaries in the United Kingdom, Canada,
and Spain.
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Simonds Industries Inc. and its subsidiaries. All material
intercompany transactions and balances have been eliminated in
consolidation. Certain amounts in prior year financial statements have
been reclassified to conform to the current year's presentation.
(b) Disclosures About Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable and accounts payable
approximate fair value because of their short-term nature. At January
1, 2000, the fair value of long-term indebtedness was approximately
$20,000,000 lower than the amount on the Company's consolidated
balance sheet based on market quotations. (See Note 5.)
(c) 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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
(d) Fiscal Year
The Company's fiscal year ends on the Saturday closest to December 31.
As a result, the years ended December 27, 1997, January 2, 1999 and
January 1, 2000 include 52, 53, and 52 weeks, respectively.
(e) Inventories
Approximately 55% and 57% of inventories January 2, 1999 and January
1, 2000, respectively, are valued at the lower of cost (last-in,
first-out (LIFO) method) or market. All other inventories are valued
at the lower of cost (first-in, first-out (FIFO) method) or market.
Inventory costs include labor and manufacturing overhead. Obsolete,
damaged and excess inventories are carried at net realizable value,
with consideration given to obsolescence risks for excess stock.
Writedowns are charged to expense in the period in which the
conditions giving rise to writedowns are first recognized. The Company
did not incur material writedowns in any of the periods presented in
the accompanying consolidated financial statements
- 32 -
<PAGE> 33
(f) Property, Plant and Equipment
Depreciation is computed using the straight-line method based on the
following estimated useful lives:
ESTIMATED USEFUL LIVES
Buildings and improvements 20-40 years
Machinery and equipment 3-12 years
Furniture and fixtures 8 years
Maintenance and repairs are expensed as incurred. Depreciation expense
was approximately $2,400,000, $3,100,000 and $3,500,000 for the years
ended December 27, 1997, January 2, 1999, and January 1, 2000,
respectively.
(g) Goodwill
Goodwill represents the cost in excess of fair value of the net assets
of companies acquired in purchase transactions. Goodwill is being
amortized on a straight-line method over 40 years. Amortization
charged to operations amounted to $489,000, $561,000 and $636,000 for
years ended December 27, 1997, January 2, 1999, and January 1, 2000,
respectively. At each balance sheet date, the Company evaluates the
realizability of goodwill based on expectations of non-discounted cash
flows and operating income for each subsidiary having a material
goodwill balance. Based on its most recent analysis, the Company
believes that no material impairment of goodwill exists at January 1,
2000.
(h) Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiaries are
translated at year-end rates of exchange, and statement of operations
accounts are translated at weighted average rates of exchange. The
resulting translation adjustments are excluded from net income and are
accumulated as a separate component of shareholders' equity. Foreign
currency transaction gains and losses are included in income or
expense in the period in which the transaction occurs.
Foreign currency transaction losses (gains) included in the
determination of results for the periods ended December 27, 1997,
January 2, 1999, and January 1, 2000 were approximately $537,000,
$682,000, and ($197,000), respectively.
(i) Sales Recognition
The Company recognizes sales upon the shipment of its products net of
applicable provisions for discounts and allowances. Estimated future
warranty obligations related to certain products are provided by
charges to operations in the period in which the related revenue is
recognized. The Company did not incur material warranty costs in any
of the periods presented in the accompanying financial statements.
- 33 -
<PAGE> 34
(j) Income Taxes
The Company accounts for its income taxes under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes. SFAS No. 109 utilizes the liability method, and
deferred taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax bases
of assets and liabilities at currently enacted tax laws and rates.
(k) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured
at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset
related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess
the effectiveness of transactions that receive hedge accounting. SFAS
No. 133 as amended by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133, is effective for fiscal years beginning after
June 15, 2000. SFAS No. 133 cannot be applied retroactively. SFAS No.
133 must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired or substantially modified after December 31, 1998 (and, at
the Company's election, before January 1, 1999). The Company does not
expect that the adoption of this statement will have a material impact
on the Company's financial position or results of operations.
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 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. The
guidance is effective for the first quarter of fiscal 2000 and would
be adopted by recording the effect of any prior revenue transaction
affected as a "cumulative effect of change in accounting principle" as
of January 2, 2000.
- 34 -
<PAGE> 35
(2) ACQUISITIONS AND RECAPITALIZATION
Acquisitions
On January 27, 1997, the Company purchased certain assets, mainly inventory
and equipment, for $5,578,000 from Pacific Hoe. Purchase price in excess of
fair value of assets acquired, $3,831,000, is being amortized on a
straight-line basis over 40 years.
On August 1, 1997, the Company acquired 100% of the outstanding stock of
Armstrong Manufacturing Company ("Armstrong,"), for $9,000,000, which
includes cash acquired of $875,000. The acquisition has been accounted for
as a purchase, with the purchase price in excess of the fair value of net
assets acquired, $3,601,000, being amortized on a straight-line basis over
40 years. Results of operations of Armstrong are included in the
accompanying consolidated financial statements subsequent to August 1,
1997.
On May 8, 1998, the Company acquired 100% of the outstanding stock of W.
Notting Limited ("Notting") for approximately $6,718,000, of which
$5,471,000 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. In accordance with EITF 95-3, the purchase price allocation
reflects accruals of approximately $500,000 for lease contracts on
facilities that are being closed; $300,000 for severance pay accruals for
24 employees to be terminated; and $300,000 for other reorganization
expenses. At January 1, 2000, the remaining accruals were $325,000 for
lease contracts on facilities; $280,000 for severance pay; and $125,000 for
other reorganization expenses. As of January 1, 2000, 6 employees of the 24
had been terminated. The remaining 18 were terminated by February 29, 2000.
Additionally, approximately $1,000,000 in property, plant and equipment was
reclassified to other assets for buildings held for resale. Buildings are
stated at fair market value. Goodwill totaled $2,857,000 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 October 19, 1999, the Company purchased certain assets, mainly
inventory, machinery, equipment, technical drawings and information,
customer lists and all other assets used by Anderson Products Division of
Wilton Corporation for $1,573,000. Purchase price in excess of fair value
of assets acquired, $700,000, is being amortized on a straight-line basis
over 40 years.
Recapitalization
In July 1998, the Company issued $100 million of 10-1/4% Senior
Subordinated Notes due 2008 (the "Notes")(see Note 5). Proceeds from the
Notes were primarily used for the repayment of indebtedness, the
acquisition of treasury stock, and the buyout of all outstanding stock
options and warrants. The buyout of stock options resulted in a pre-tax
compensation charge of approximately $4,500,000 recorded in July 1998,
included in selling, general and administrative expense. The Company
concurrently entered into a new Senior Credit Facility with a commercial
lender that provides $30 million availability (see Note 5). All of the
foregoing transactions are herein referred to collectively as the
"Recapitalization."
- 35 -
<PAGE> 36
Pursuant to the Recapitalization (i) the Company repurchased certain of its
outstanding equity securities for an aggregate purchase price of $58.3
million (or $458.52 per share of Common Stock and equivalents), (ii) the
Company issued new shares of voting and non-voting Common Stock to certain
existing stockholders and new investors with aggregate proceeds to the
Company of $18.8 million (or $458.52 per share), (iii) the Company issued
certain warrants and options to certain existing stockholders and new
investors, and (iv) certain of the Company's existing stockholders retained
voting Common Stock with an aggregate value (based on per share value of
$458.52) of approximately $16.2 million.
(3) INVENTORIES
Inventories at January 2, 1999 and January 2, 2000 were as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Raw materials $ 5,323 $ 4,967
Work-in-process 7,341 6,429
Finished goods 14,562 15,254
------- -------
Total inventories $27,226 $26,650
======= =======
</TABLE>
U.S. inventories of $15,153,000 and $15,296,000 at January 2, 1999 and
January 1, 2000, respectively, were valued using the LIFO method. The
replacement cost of these inventories was higher by approximately $527,000
and $344,000 in 1998 and 1999, respectively.
(4) RETIREMENT PLANS
The Company has a combined defined-contribution profit sharing and 401(k)
retirement plan covering all domestic salaried and certain hourly
employees. Contributions to the profit sharing plan are determined by the
Board of Directors. The cost of this plan was approximately $399,000,
$518,000 and $538,000 for the fiscal years ended December 27, 1997, January
2, 1999, and January 1, 2000, respectively. In the 401(k) portion of the
plan, the Company matches at a rate of 50% on the first 6% of an employee's
salary contribution. Company 401(k) matching contributions amounted to
approximately $302,000, $400,000 and $409,000 for the fiscal years ended
December 27, 1997, January 2, 1999 and January 1, 2000, respectively.
Notting also has a defined contribution 401(k) retirement plan in effect
during 1998 and 1999. In this Plan the Company matches 100% for the first
4% of an employee's salary contribution. The Company's 401(k) matching
contributions amounted to approximately $20,000 and $26,000, for the years
ended January 2, 1999 and January 1, 2000, respectively.
Certain of the Company's hourly employees participate in a union-sponsored,
multiemployer defined-contribution retirement plan. The cost of this plan
was approximately $392,000, $418,000 and $400,000 for the fiscal years
ended December 27, 1997, January 2, 1999 and January 1, 2000, respectively.
Contributions are based on wages earned and are paid monthly to the pension
administrator.
All other domestic hourly employees are covered by a defined-contribution
plan. Contributions are based on a union contract as a percentage of wages
earned and are paid annually. The cost of this plan was approximately
$151,000, $154,000 and $140,000 for the fiscal years ended December 27,
1997, January 2, 1999 and January 1, 2000, respectively.
- 36 -
<PAGE> 37
In connection with the acquisition of Armstrong, the Company acquired a
defined benefit plan to cover all employees of Armstrong. The defined
benefit plan was frozen as of December 27, 1997. The fair value of plan
assets exceeded the projected benefit obligation for services rendered as
of December 27, 1997. The plan was terminated effective April 30, 1998. On
January 28, 1999 the plan received a favorable determination from the
Internal Revenue Service (IRS) and Pension Benefit Guarantee Corporation
(PBGC). All Participants of this plan were eligible to participate in the
Company's 401(k) retirement plan, effective January 1, 1998 based on
eligibility, as defined.
In addition to the defined benefit plan, employees of Armstrong are also
covered under a profit sharing plan. The plan merged with the Company's
401(k) retirement plan effective January 1, 1998. Contributions to the
Armstrong profit sharing plan are determined by the Board of Directors. The
cost of this plan was approximately $260,000 in 1997.
Certain foreign employees are covered under defined-contribution plans.
Total costs for these plans amounted to approximately $148,000, $120,000
and $106,000, for the fiscal years December 27, 1997, January 2, 1999 and
January 1, 2000, respectively.
Certain employees of one of Simonds' subsidiaries, Wespa Metallsagenfabrik
Simonds Industries Gmbh ("Wespa"), are covered by an unfunded pension plan.
In addition, certain employees of Notting are also covered by a defined
benefit plan.
The amount of accrued pension liability is included in the accompanying
consolidated balance sheets in accrued payroll and employee benefits and
other noncurrent liabilities. The following table sets forth the funded
status and the amount recognized for the defined benefit plans of the
foreign subsidiaries Wespa and Notting, which was acquired May 5, 1998, in
the Company's accompanying consolidated balance sheets at January 2, 1999,
and January 1, 2000:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 1,356,705 $ 4,009,328
Obligations from an acquisition 1,823,976 --
Service Cost 70,564 120,822
Interest Cost 166,124 205,621
Actuarial loss 582,450 (236,640)
Effect of the change in foreign currency
exchange rates 87,452 (173,875)
Benefits paid (77,943) (515,150)
----------- -----------
Benefit obligation at end of year 4,009,328 3,410,106
----------- -----------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year -- 1,910,250
Plan Assets from an acquisition 1,827,760 --
Actual return on plan assets 55,275 139,536
Plan participants' contribution 10,725 16,780
Effect of the change in foreign currency
exchange rates 16,490 (50,449)
Benefits Paid -- (434,738)
----------- -----------
Fair value of plan assets at end of year 1,910,250 1,581,379
----------- -----------
Funded Status 2,099,078 1,828,727
Unrecognized net actuarial gain (loss) (395,196) (243,036)
----------- -----------
Accrued benefit cost $ 1,703,882 $ 1,585,691
=========== ===========
</TABLE>
- 37 -
<PAGE> 38
Amounts recognized in the accompanying balance sheets consists of:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Accrued benefit cost $1,703,882 $1,585,691
Additional minimum pension liability -- 193,000
---------- ----------
Accrued benefits liability $1,703,882 $1,778,691
========== ==========
</TABLE>
The following table breaks out the components of net pension expense for
the years ending December 27, 1997, January 2, 1999, and January 1, 2000:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Service Cost $ 17,953 $ 70,564 $ 103,109
Interest Cost 87,755 166,124 113,832
Expected return on plan assets -- (84,810) (138,863)
Recognized Actuarial gain (loss) -- (4,756) 31,918
Members contributions (3,699) (10,725) (16,780)
--------- --------- ---------
Net periodic benefit cost $ 102,009 $ 136,397 $ 202,718
========= ========= =========
</TABLE>
The primary assumptions used in determining related obligations of the
plans are shown below:
<TABLE>
<CAPTION>
1997 1998 1999
------ -------- --------
<S> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate 6.5% 5.0-6.5% 5.5-6.5%
Expected return on plan assets -- 6.5% 6.5%
Rate of compensation increase 6.5% 4.0-6.5% 4.5-6.5%
</TABLE>
- 38 -
<PAGE> 39
(5) DEBT
Debt consists of the following at January 2, 1999 and January 1, 2000 (in
thousands):
<TABLE>
<CAPTION>
January 2, January 1,
1999 2000
-------- --------
<S> <C> <C>
Line of credit facility for German Subsidiary with First Union National Bank $ 2,362 $ 2,523
up to approximately $2,832, interest payable quarterly at EURIBOR (3.18% at
January 1, 2000) plus 1.25% terminating on October 1, 2003, payable in
Deutschmarks
Line of credit facilities for Notting with Banco Sabadell and Banco Popular 62 135
of Spain, bearing interest at 5.07% and 5.75% and terminating on April 1, 2001
and May 17, 2000, respectively, payable in Spanish Pesetas
Two term loans payable by Notting to National Westminster Bank on June 30, 390 200
2000 and September 30, 2000, bearing interest at 8.75% and 9.5%, payable in
British Pounds
Notes payable to Notting shareholders, issued May 8, 1998, interest payable 1,196 0
semi-annually at 8.5%, matured April 30, 1999, secured by a guarantee of the
Company, paid in British Pounds
Senior Subordinated Notes issued July 8, 1998, and maturing July 1, 2008, 100,000 100,000
interest payable semi-annually at 10.25%
-------- --------
104,010 102,858
Less-current maturities 1,648 335
-------- --------
$102,362 $102,523
======== ========
</TABLE>
In July 1998, the Company issued $100,000,000 of Senior Subordinated Notes.
The Notes are due in 2008, but may be redeemed on or after July 1, 2003 at
specified premium prices. Proceeds from the Notes were primarily used for
the repayment of approximately $53.1 million of indebtedness, the
acquisition of treasury stock, and the buyout of all outstanding stock
options and warrants.
The repayment of the indebtedness resulted in an extraordinary charge of
approximately $500,000, net of tax benefit, recorded in July 1998 to write
off unamortized debt discount and deferred financing costs.
- 39 -
<PAGE> 40
Financing costs relating to the issuance of the Notes was $4,190,000 and is
being amortized over the term of the debt.
The indenture governing the Notes restricts, among other things, the
incurrence of additional indebtedness, the payment of dividends and the
making of certain other restricted payments, mergers, consolidations and
sale of assets (all as defined in the Indenture).
Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of Notes will have the right to require the Company to
repurchase all or a portion of such holder's Notes at a price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. However, the Company's ability
to repurchase the Notes upon a Change of Control may be limited by the
terms of then existing contractual obligations of the Company and its
subsidiaries. In addition, the occurrence of a Change of Control will
constitute an event of default under the Senior Credit Facility. The Senior
Credit Facility will prohibit the purchase of the Notes unless and until
such time as the indebtedness under the Senior Credit Facility is paid in
full. There can be no assurance that the Company will have the financial
resources to repay amounts due under the Senior Credit Facility, or to
repurchase or redeem the Notes. If the Company fails to repurchase all of
the Notes tendered for purchase upon the occurrence of a Change of Control,
such failure will constitute an Event of Default under the Indenture.
The Company concurrently entered into a new Senior Credit Facility with a
commercial lender that provides $30,000,000 availability, undrawn as of
January 1, 2000. Borrowings under the Senior Credit Facility are available
for permitted acquisitions and working capital, including letters of
credit.
The Senior Credit Facility is secured by first priority liens on all
tangible and intangible personal property and real property assets of the
Company and its subsidiaries.
The Senior Credit Facility expires in 2003, unless extended. The interest
rate per annum applicable to the Senior Credit Facility is, at the
Company's option, either LIBOR or the greater of the prime rate or the
overnight federal funds rate plus 0.50%, in each case plus 0.125% to 2.375%
depending on the Company's financial leverage (the "Applicable Margin").
The Company is required to pay certain fees in connection with the Senior
Credit Facility, including a commitment fee of 0.50% initially and
thereafter at a per annum rate equal to the Applicable Margin on the
unutilized portion of the facility.
As part of the Senior Credit Facility the Company is required to comply
with certain covenants. At January 1, 2000 the Company was required to
maintain a fixed charge coverage ratio of greater or equal to 1.0 to 1.0, a
net leverage ratio less than or equal to 5.5 to 1.0, and an interest
coverage ratio of greater than or equal to 1.65 to 1.0. At January 1, 2000
the Company was in compliance with all covenants.
- 40 -
<PAGE> 41
The following is a summary of maturities of all of the Company's debt
obligations due after January 1, 2000 (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
<S> <C>
2000 $ 335
2001 -
2002 -
2003 2,523
2004 -
Thereafter 100,000
---------
$ 102,858
=========
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES
(a) Commitments under Operating Leases
Certain of the Company's operations are conducted from facilities
rented under operating leases that expire over the next 10 years. The
Company also has operating leases covering certain office equipment.
Substantially all leases provide for the Company to pay operating
expenses in addition to basic rent. Rent expense was approximately
$710,000, $916,000 and $1,016,000 for the fiscal years ended December
27, 1997, January 2, 1999 and January 1, 2000, respectively.
Future minimum annual rentals on non-cancelable leases in effect at
January 1, 2000, which have initial or remaining terms of more than
one year, are as follows:
<TABLE>
FISCAL YEAR AMOUNT
<S> <C>
2000 $ 570,000
2001 483,000
2002 426,000
2003 315,000
2004 296,000
Thereafter 506,000
-----------
$ 2,596,000
===========
</TABLE>
(b) Litigation
The Company is party to a lawsuit that was litigated in China
involving a Chinese joint venture, established by the Company's
predecessor. Company management believes the lawsuit to be without
merit. In addition, the Company is a party to other lawsuits that
arose in the normal course of business. In the opinion of management,
the final resolutions of these lawsuits are not expected to materially
affect the financial condition or results of operations of the
Company.
In 1992, the Company's property in Ashburnham, Massachusetts, was
identified as having groundwater contamination. The Company has been
indemnified from such liability by prior owners. In 1999, $2.0 million
was disbursed from escrow for remediation of contamination; $1.0
million was spent and there is $1.0 million recorded in other current
liabilities for existing remediation contracts entered into in 1999.
Management believes the remaining $0.7 million held in escrow will be
sufficient to cover the remaining environmental liabilities, although
there can be no assurance that such amounts will be sufficient.
- 41 -
<PAGE> 42
(c) Employment Contracts
The Company has an employment agreement with the Chairman of the
Board, which expires September 15, 2000, at which time the Chairman
intends to retire. The Company also has employment agreements with key
executive management. The agreements with the President/Chief
Executive Officer and the future Chief Financial Officer provide for
twelve months' severance on termination by the Company at any time
without cause and termination by the employee upon at least thirty
(30) days' prior written notice. No severance is provided if the
Company terminates for cause or if the employee terminates
voluntarily. In addition, the Company has employment agreements with
all vice presidents, providing for at least twelve months' written
notice prior to termination by the Company without cause (thirty days
with cause) and ninety (90) days' prior written notice by the
employee.
(7) INCOME TAXES
Components of income before income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 27, JANUARY 2, JANUARY 1,
1997 1999 2000
<S> <C> <C> <C>
Domestic $6,441 $ 852 $ 566
Foreign 2,311 1,469 2,086
------ ------ ------
Total $8,752 $2,321 $2,652
====== ====== ======
</TABLE>
The provision for income taxes consists of the following components for the
periods ended (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 27, 1997
-------------------------
CURRENT DEFERRED TOTAL
<S> <C> <C> <C>
Domestic-
Federal $ 2,153 $ 57 $ 2,210
State 487 18 505
Foreign 853 183 1,036
------- ----- -------
Total $ 3,493 $ 258 $ 3,751
======= ===== =======
</TABLE>
- 42 -
<PAGE> 43
YEAR ENDED
JANUARY 2, 1999
---------------
CURRENT DEFERRED TOTAL
Domestic-
Federal $ 154 $ 186 $ 340
State 80 14 94
Foreign 472 49 521
------- -------- --------
Total $ 706 $ 249 $ 955
======= ======== ========
YEAR ENDED
JANUARY 1, 2000
---------------
CURRENT DEFERRED TOTAL
Domestic-
Federal $ (345) $ 677 $ 332
State (141) 220 79
Foreign 643 164 807
-------- -------- --------
Total $ 157 $ 1,061 $ 1,218
======== ======== ========
An income tax rate reconciliation of the difference between actual and
statutory effective tax rates is as follows (in thousands):
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 27, DECEMBER 27, DECEMBER 27,
1997 1999 2000
Provision for income taxes at
the federal statutory rate $ 2,976 $ 789 $ 902
State taxes, net of federal
tax effect 552 62 52
Goodwill amortization not
deductible or tax purposes 166 141 174
Foreign taxes 89 6 56
Other, net (32) (43) 34
------------ ----------- ------------
Recorded provision $ 3,751 $ 955 $ 1,218
============ =========== ============
Deferred taxes are recorded based on the differences between the financial
statement and tax bases of assets and liabilities. The tax effect of the
temporary differences that give rise to a significant portion of deferred
tax liabilities is as follows at January 2, 1999 and January 1, 2000 (in
thousands):
-43-
<PAGE> 44
1998 1999
Tax assets-
Reserves and accruals not yet
deductible for tax purposes $(1,541) $ (890)
------- ------
Tax liabilities-
Property-basis differences 4,958 4,802
Inventory-basis differences 2,744 2,143
Other current assets-basis differences 865 907
Other 361 (126)
------- ------
Total tax liabilities 8,928 7,726
------- ------
Net tax liabilities $ 7,387 $6,836
======= ======
Net deferred tax liabilities are included in the accompanying consolidated
balance sheets in deferred income taxes and currently deferred income taxes.
(8) STOCK OPTION PLANS
On July 25, 1995, the Board of Directors of the Company approved the
Stock Incentive Plan (the Plan) for key executives, management and
employees. The Company has reserved 9,568 shares of the Company's common
stock for issuance under the Plan. All stock options were exercised in
July 1998 in conjunction with the issuance of the Notes. The buyout of
stock options resulted in a pretax compensation charge of approximately
$4,500,000 recorded in July 1998.
In July 1998, the Company adopted the Amended and Restated 1998 Stock
Incentive Plan pursuant to which key employees (including officers who
are also directors of the Company) will be eligible for discretionary
awards of stock options at the discretion of the Board of Directors. The
terms and prices of options will be at the discretion of the Board. Key
officers were granted options in July 1998 to purchase 573.58 shares of
Common Stock at a price of $458.52 per share. The options to purchase
222.45 of these shares were cancelled in 1999. Additional options were
granted under this Plan in 1999 to purchase 8,735 shares.
-44-
<PAGE> 45
Stock option activity for the period December 28, 1996 through January 1, 2000
is summarized below:
<TABLE>
<CAPTION>
TOTAL SHARES WEIGHTED WEIGHTED
AVERAGE AVERAGE FAIR
EXERCISE VALUE OF
PRICE OPTIONS
GRANTED
<S> <C> <C> <C>
Outstanding, December 28, 1996 37,104.19 $332.08
Granted 500.00 113.28 $ 59.06
Canceled (366.00) 100.00
Exercised (334.00) 100.00
---------- -------
Outstanding, December 27, 1997 36,904.19 $333.52
Canceled (200.00) 100.00
Purchased (36,704.19) 334.79
Granted 573.58 458.52 $109.37
---------- -------
Outstanding, January 2, 1999 573.58 $458.52
Granted 8,735.00 462.84 $97.50-$131.92
Canceled (497.45) 463.38
---------- -------
Outstanding, January 1, 2000 8,811.13 $462.53
========== =======
Options exercisable 3,024.45 $466.30
========== =======
</TABLE>
The Company has elected to account for its stock-based compensation plans
under APB Opinion 25. No accounting recognition is given to stock options
with exercise prices equal to fair market value on the grant date until the
options are exercised, at which time the proceeds are credited to the
shareholders' equity accounts. For options with an exercise price less than
fair market value on the grant date, the amount that the fair market value
exceeds the exercise price is charged to compensation expense over the
period the options vest. Had compensation cost for these plans been
determined consistent with SFAS No. 123, the Company's net income would not
have been materially different from amounts reported.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions
used:
1997 1998 1999
-------------------------------------
Risk-free interest rate 6.62% 5.45% 4.68-6.09%
Expected life 10 years 5 years 5 years
Expected volatility 0% 0% 0%
Expected dividend yield 0% 0% 0%
-45-
<PAGE> 46
In addition, in July 1998 the Company issued warrants to certain
non-employee shareholders to purchase an aggregate of 4,377.81 shares of
common stock at a price of $458.52 per share. Warrants for 2,180.93 shares
were exercisable immediately. Warrants for 2,196.88 shares are exercisable
only if the Company is either sold or closes an initial public offering of
its common stock, and the warrant holders do not receive certain minimum
returns on their investment in the Company's common stock.
(9) SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash payments for interest and income taxes and certain noncash
transactions were as follows for the following periods (in thousands):
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 27, JANUARY 2, JANUARY 1,
1997 1999 2000
------------ ---------- ----------
Interest paid $4,429 $3,393 $10,456
Income taxes paid 2,733 2,499 890
Liabilities assumed in acquisitions 7,879 5,273 --
(10) OPERATING AND GEOGRAPHIC SEGMENT INFORMATION AND CONCENTRATION OF CREDIT
RISK
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for reporting operating segments of
business enterprise. The new rules establish revised standards for public
companies relating to the reporting of financial and descriptive information
about their operating segments in financial statements. Operating segments are
components of an enterprise which are evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. The Company's chief operating decision maker is the President,
Chief Executive Officer of the Company. The Company has identified its
reportable operating business segment as industrial cutting tools and related
machinery, based on how the business is strategically managed.
The Company's cutting tool business segment consists of metal (48% of 1999 net
sales), wood (42%), and paper (10%) cutting products. The cutting tool business
segment is managed as a single strategic unit which derives its revenues
primarily from sales to privately owned distributors throughout the world.
No single customer accounts for 10% or more of consolidated net sales. Foreign
net sales are attributed based on the location of the Company's subsidiary
responsible for the sale. The following information by geographic area is
presented for 1997, 1998 and 1999.
-46-
<PAGE> 47
For the year ended December 27, 1997 (in thousands):
<TABLE>
<CAPTION>
Transfers Income
Net Sales to between Before
Unaffiliated Geographic Income Long-Lived
Customers Areas Taxes Assets
------------ ---------- ------- ----------
<S> <C> <C> <C> <C>
Geographic areas:
Domestic Operations $ 75,903 $ 13,954 $11,538 $24,680
Canadian Operations 17,172 74 1,151 624
German Operations 13,831 474 1,155 4,037
UK Operations 7,276 83 391 315
--------- -------- ------- -------
114,182 14,585 14,235 29,656
Unallocated -- (14,585) (544) --
Interest Expense -- -- (4,963) --
Interest Income -- -- 24 --
--------- -------- ------- -------
Consolidated Totals $ 114,182 $ -- $ 8,752 $29,656
========= ======== ======= =======
For the year ended January 2, 1999 (in thousands):
Transfers Income
Net Sales to between Before
Unaffiliated Geographic Income Long-Lived
Customers Areas Taxes Assets
------------ ---------- ------- ----------
Geographic areas:
Domestic Operations $ 85,089 $ 14,858 $ 9,324 $27,435
Canadian Operations 16,038 325 304 629
German Operations 14,789 320 763 3,960
UK & Spanish Operations 10,380 640 384 2,361
--------- -------- ------- -------
126,296 16,143 10,775 34,385
Unallocated -- (16,143) (554) --
Interest Expense -- -- (8,039) --
Interest Income -- -- 139 --
--------- -------- ------- -------
Consolidated Totals $ 126,296 $ -- $ 2,321 $34,385
========= ======== ======= =======
For the year ended January 1, 2000 (in thousands):
Transfers Income
Net Sales to between Before
Unaffiliated Geographic Income Long-Lived
Customers Areas Taxes Assets
------------ ---------- ------- ----------
Geographic areas:
Domestic Operations $ 86,242 $ 12,898 $11,720 $28,698
Canadian Operations 16,891 163 496 661
German Operations 13,316 312 524 3,240
UK & Spanish Operations 11,047 986 611 1,240
--------- -------- ------- -------
127,496 14,359 13,351 33,839
Unallocated -- (14,359) 249 --
Interest Expense -- -- (11,103) --
Interest Income -- -- 155 --
--------- -------- ------- -------
Consolidated Totals $ 127,496 $ -- $ 2,652 $33,839
========= ======== ======= =======
</TABLE>
-47-
<PAGE> 48
(11) SELECTED CONSOLIDATING FINANCIAL STATEMENTS OF PARENT, GUARANTORS, AND
NON-GUARANTORS
The Company's wholly-owned domestic subsidiaries guarantee, on a senior
subordinated basis, the Notes, jointly and severally. The guarantor subsidiaries
data below includes combining financial statements of Armstrong, which was
acquired in August 1997, and Simonds Holding Company. The non-guarantor
subsidiaries' data below includes combining financial statements of Wespa
(German Operations), Simonds Industries Ltd. and Simonds UK Holding Ltd. (UK
Operations), and Simonds Industries Inc. (Canadian Operations). Separate
financial statements of the guarantor subsidiaries have not been presented
because management believes that such financial statements are not material to
investors. In addition, the Senior Credit Facility is guaranteed on a full and
unconditional basis by all guarantors. The following data summarizes the
consolidating results of the Company on the equity method of accounting for the
following periods presented:
SIMONDS INDUSTRIES INC.
CONSOLIDATING BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
AS OF JANUARY 2, 1999
-----------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENTS ASSETS:
Cash ............................................... $ 8,602 $ 209 $ 487 -- $ 9,298
Accounts receivable ................................ 7,705 714 7,831 -- 16,250
Intercompany accounts receivable ................... 2,015 626 383 (3,024) --
Inventories:
Raw materials ................................... 2,930 372 2,021 -- 5,323
Work in progress ................................ 5,614 289 1,438 -- 7,341
Finished goods .................................. 5,316 758 8,835 (347) 14,562
Other current assets ............................... 3,464 78 823 -- 4,365
--------- --------- -------- -------- ---------
Total current assets ......................... 35,646 3,046 21,818 (3,371) 57,139
--------- --------- -------- -------- ---------
Net property, plant and equipment ...................... 23,896 2,527 7,962 -- 34,385
OTHER ASSETS:
Investment in subsidiaries ......................... 40,817 7,555 -- (48,372) --
Intercompany loan receivable ....................... -- 23,163 -- (23,163) --
Other assets ....................................... 19,903 4,108 2,704 -- 26,715
--------- --------- -------- -------- ---------
Total assets ................................. $ 120,262 $ 40,399 $ 32,484 $(74,906) $ 118,239
========= ========= ======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES .................................... $ 14,301 $ 464 $ 9,600 $ (3,022) $ 21,343
LONGTERM DEBT, net of current
portion............................................. 100,000 -- 2,362 -- 102,362
INTERDIVISION LONG-TERM
DEBT................................................ 15,145 -- 8,018 (23,163) --
OTHER NONCURRENT
LIABILITIES ........................................ 3,496 638 3,080 -- 7,214
SHAREHOLDERS' EQUITY (DEFICIT) ......................... (12,680) 39,297 9,424 (48,721) (12,680)
--------- --------- -------- -------- ---------
Total liabilities and shareholders'
equity (deficit) ................................ $ 120,262 $ 40,399 $ 32,484 $(74,906) $ 118,239
========= ========= ======== ======== =========
</TABLE>
-48-
<PAGE> 49
SIMONDS INDUSTRIES INC.
CONSOLIDATING BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
AS OF JANUARY 1, 2000
-----------------------------------------------------------------------
PARENT GUARANTORS 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
LONGTERM DEBT, net of current
portion ............................................ 100,000 -- 2,523 -- 102,523
INTERDIVISION LONGTERM
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
========= ======== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
(In Thousands)
TWELVE MONTHS ENDED DECEMBER 27, 1997
--------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 86,060 $ 3,797 $38,910 $(14,585) $114,182
Cost of goods sold 60,635 2,401 30,298 (14,536) 78,798
-------- ------- ------- -------- --------
Gross profit 25,425 1,396 8,612 (49) 35,384
Selling, general and administrative expense 14,329 938 5,882 -- 21,149
-------- ------- ------- -------- --------
Operating income 11,096 458 2,730 (49) 14,235
Other expenses (income):
Interest expense 6,140 205 739 (2,121) 4,963
Interest income -- (1,826) (295) 2,121 --
Other, net 362 139 19 -- 520
Equity in earnings of subsidiaries (2,402) (1,231) -- 3,633 --
-------- ------- ------- -------- --------
Income before income taxes 6,996 3,171 2,267 (3,682) 8,752
Provision for income taxes 1,995 720 1,036 -- 3,751
-------- ------- ------- -------- --------
Net income $ 5,001 $ 2,451 $ 1,231 $ (3,682) $ 5,001
======== ======= ======= ======== ========
</TABLE>
-49-
<PAGE> 50
<TABLE>
<CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
(In Thousands)
TWELVE MONTHS ENDED JANUARY 2, 1999
---------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 88,388 $ 9,532 $ 43,662 $(15,286) $ 126,296
Cost of goods sold 61,223 6,361 34,410 (15,244) 86,750
-------- ------- -------- -------- ---------
Gross profit 27,165 3,171 9,252 (42) 39,546
Selling, general and administrative expense 18,667 2,504 7,600 -- 28,771
-------- ------- -------- -------- ---------
Operating income 8,498 667 1,652 (42) 10,775
Other expenses (income):
Interest expense 9,184 470 1,084 (2,699) 8,039
Interest income (120) (2,426) (292) 2,699 (139)
Other, net 636 126 (208) -- 554
Equity in earnings of subsidiaries (2,176) (657) -- 2,833 --
-------- ------- -------- -------- ---------
Income before income taxes 974 3,154 1,068 (2,875) 2,321
Provision (benefit) for income taxes (392) 936 411 -- 955
-------- ------- -------- -------- ---------
Income before
extraordinary item 1,366 2,218 657 (2,875) 1,366
Extraordinary item-
Write-off of deferred financing cost related
to refinanced indebtedness, net of tax
benefit of $374 (529) -- -- -- (529)
-------- ------- -------- -------- ---------
Net income $ 837 $ 2,218 $ 657 $ (2,875) $ 837
======== ======= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
(In Thousands)
TWELVE MONTHS ENDED JANUARY 1, 2000
----------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 84,930 $ 10,746 $ 44,965 $(13,145) $ 127,496
Cost of goods sold 60,209 6,834 34,555 (13,206) 88,392
-------- -------- -------- -------- ---------
Gross profit 24,721 3,912 10,410 61 39,104
Selling, general and administrative expense 15,123 2,686 7,944 -- 25,753
-------- -------- -------- -------- ---------
Operating income 9,598 1,226 2,466 61 13,351
Other expenses (income):
Interest expense 12,271 432 1,349 (2,949) 11,103
Interest income (139) (2,695) (270) 2,949 (155)
Other, net (332) 145 (62) -- (249)
Equity in earnings of subsidiaries (2,980) (871) -- 3,851 --
-------- -------- -------- -------- ---------
Income before income taxes 778 4,215 1,449 (3,790) 2,652
Provision (benefit) for income taxes (656) 1,296 578 -- 1,218
-------- -------- -------- -------- ---------
Net income $ 1,434 $ 2,919 $ 871 $ (3,790) $ 1,434
======== ======== ======== ======== =========
</TABLE>
-50-
<PAGE> 51
<TABLE>
<CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
TWELVE MONTHS ENDED DECEMBER 27, 1997
----------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities: $ 7,385 $ 1,644 $ 3,342 $ 675 $ 13,046
Cash flows from investing activities:
Proceeds from asset sales 65 37 4 1 107
Purchase of equipment (3,074) (18) (616) -- (3,708)
Acquisitions (13,703) (8,125) -- 8,125 (13,703)
-------- ------- ------- ------- --------
Net cash (used in) investing activities (16,712) (8,106) (612) 8,126 (17,304)
Cash flows from financing activities:
Change in overdraft (488) -- (51) -- (539)
Net proceeds from revolving credit facility -- (536) (909) -- (1,445)
Proceeds from issuance of long-term debt-
net of issuance cost 7,700 -- -- -- 7,700
Principal payments of long-term debt (722) -- (733) 143 (1,312)
Intercompany loans -- 452 (452) -- --
Issuance of common stock 33 9,000 (1) (8,999) 33
Purchase of treasury stock
Stock Redemption
Dividends (paid) received 2,269 (2,269) -- -- --
Other (138) -- -- -- (138)
-------- ------- ------- ------- --------
Net cash (used in)/provided by financing
activities 8,654 6,647 (2,146) (8,856) 4,299
Effect of Foreign Exchange -- -- (96) 55 (41)
-------- ------- ------- ------- --------
Increase (decrease) in cash (673) 185 488 -- --
Cash at beginning of the period 698 3 554 -- 1,255
-------- ------- ------- ------- --------
Cash at end of the period $ 25 $ 188 $ 1,042 -- $ 1,255
======== ======= ======= ======= ========
</TABLE>
-51-
<PAGE> 52
<TABLE>
<CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
TWELVE MONTHS ENDED JANUARY 2, 1999
---------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities: $ 3,726 $ 1,569 $ 2,622 $ 1,196 $ 9,113
Cash flows from investing activities:
Proceeds from asset sales 4 -- 68 -- 72
Purchase of equipment (3,899) (168) (281) -- (4,348)
Acquisitions (5,471) (5,471) (5,471) 10,942 (5,471)
-------- ------- ------- -------- --------
Net cash (used in) investing activities (9,366) (5,639) (5,684) 10,942 (9,747)
Cash flows from financing activities:
Change in overdraft (246) -- 146 -- (100)
Net proceeds from revolving credit facility 7,065 -- (3,276) -- 3,789
Proceeds from issuance of long-term debt-
net of issuance cost 95,420 -- 2,643 -- 98,063
Principal payments of long-term debt (56,684) -- (1,067) -- (57,751)
Intercompany loans -- (641) 6,112 (5,471) --
Issuance of common stock 18,833 6,722 -- (6,722) 18,833
Purchase of treasury stock (65) -- -- -- (65)
Stock Redemption (53,791) -- -- -- (53,791)
Dividends (paid) received 3,685 (1,990) (1,695) -- --
-------- ------- ------- -------- --------
Net cash provided by financing activities 14,217 4,091 2,863 (12,193) 8,978
Effect of Foreign Exchange -- -- (356) 55 (301)
-------- ------- ------- -------- --------
Increase (decrease) in cash 8,577 21 (555) -- 8,043
Cash at beginning of the period 25 188 1,042 -- 1,255
-------- ------- ------- -------- --------
Cash at end of the period $ 8,602 $ 209 $ 487 -- $ 9,298
======== ======= ======= ======== ========
</TABLE>
-52-
<PAGE> 53
<TABLE>
<CAPTION>
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
TWELVE MONTHS ENDED JANUARY 1, 2000
---------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities: $ 1,317 $ 2,381 $ 246 $ 2,564 $ 6,508
Cash flows from investing activities:
Proceeds from asset sales 30 -- 23 -- 53
Purchase of equipment (2,724) (777) (863) -- (4,364)
Acquisitions (1,573) -- -- -- (1,573)
------- ------- ------- ------- -------
Net cash (used in) investing activities (4,267) (777) (840) -- (5,884)
Cash flows from financing activities:
Change in overdraft -- -- 41 -- 41
Net (uses) from revolving credit facility -- -- (1,292) -- (1,292)
Proceeds from issuance of long-term debt-
net of issuance cost -- -- 161 -- 161
Principal payments of long-term debt -- -- (21) -- (21)
Intercompany loans -- (2,257) 2,257 -- --
Issuance of common stock -- 2,385 2 (2,387) --
Purchase of treasury stock (56) -- -- -- (56)
Stock Redemption -- -- -- --
Dividends (paid) received 1,601 (1,601) -- --
Other (38) -- -- -- (38)
------- ------- ------- ------- -------
Net cash (used in) provided by financing
activities 1,507 (1,473) 1,148 (2,387) (1,205)
Effect of Foreign Exchange -- -- (157) (177) (334)
------- ------- ------- ------- -------
Increase (decrease) in cash (1,443) 131 397 -- (915)
Cash at beginning of the period 8,602 209 487 -- 9,298
------- ------- ------- ------- -------
Cash at end of the period $ 7,159 $ 340 $ 884 -- $ 8,383
======= ======= ======= ======= =======
</TABLE>
(12) FOREIGN EXCHANGE CONTRACTS
In order to reduce the impact of changes in foreign exchange rates on
consolidated results of operations and future cash flows, the Company enters
into foreign currency forward contracts with a major bank from time to time. The
majority of these contracts relate to intercompany accounts receivable, with
specified minimum amounts of foreign currency to be sold on a monthly basis
during the calendar year. These contracts qualify for hedge accounting. However,
a portion of the contracts entered into in 1999 did not qualify for hedge
accounting and were marked to market at the end of each accounting period. These
financial instruments were not held for trading purposes. They were entered into
to manage and reduce the impact of change in foreign currency rates. At January
1, 2000 there were no contracts in place.
-53-
<PAGE> 54
(13) SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following summarizes unaudited quarterly financial data for the years
ended January 2, 1999, and January 1, 2000 (in thousands):
1998
For the Quarters Ended
------------------------------------------------
March 28 June 27 Oct. 3 Jan. 2, 1999
-------- ------- ------ ------------
Net Sales $30,546 $32,095 $33,170 $30,485
Gross Profit 9,794 10,533 10,604 8,615
Net Income (loss) 1,660 1,654 (2,527) 50
1999
For the Quarters Ended
------------------------------------------------
April 3 July 3 Oct. 2 Jan. 1, 2000
------- ------ ------ ------------
Net Sales $31,419 $31,585 $32,072 $32,420
Gross Profit 9,742 9,930 10,001 9,431
Net Income (loss) 317 410 780 (73)
(14) COMMON STOCK
The company has two classes of common stock outstanding: 68,391.48 shares
of voting and 7,897.45 of nonvoting. Other than voting rights, all other
terms of the common stock are the same.
-54-
<PAGE> 55
SCHEDULE II
SIMONDS INDUSTRIES INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
DECEMBER 27, 1997, JANUARY 2, 1999, AND JANUARY 1, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS CURRENCY
BEGINNING WRITE- FROM TRANSLATION ENDING
BALANCE PROVISIONS OFFS ACQUISITIONS ADJUSTMENTS BALANCE
---------------------------------------------------------------------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS,
CASH DISCOUNTS AND CREDIT MEMOS
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 27, 1997 (1) $ 798 $1,156 $(1,160) $ 25 $(13) $ 806
Year Ended January 2, 1999 (1) $ 806 $1,155 $(1,089) $ 126 $ (6) $ 992
Year Ended January 1, 2000 (1) $ 992 $1,113 $(1,093) $ 0 $(19) $ 993
ACCRUED RESTRUCTURING OF ACQUISITIONS
Year Ended January 2, 1999 $ 0 $ 0 $ 0 $1,100 $ 0 $1,100
Year Ended January 1, 2000 $1,100 $ 0 $ (370) $ 0 $ 0 $ 730
</TABLE>
(1) Write-Offs includes credit memos, cash discounts and write-offs.
-55-
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders and Board of Directors of Simonds Industries Inc.:
We have audited the accompanying consolidated balance sheets of Simonds
Industries Inc. (a Delaware corporation) and subsidiaries listed in Item 14 (a)
of this Form 10-K as of January 1, 2000 and January 2, 1999, and the related
statements of operations, shareholders' equity (deficit) and cash flows for each
of the three years in the period ended January 1, 2000. These consolidated
financial statements and the schedule referred to below 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
audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Simonds Industries Inc. and
subsidiaries as of January 1, 2000 and January 2, 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 1, 2000 in conformity with accounting principles generally accepted in
the United States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14 (a) is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 21, 2000
-56-
<PAGE> 57
(b) Reports on Form 8-K.
None
(c) Exhibits
Exhibit
Number Description
2.1 Stockholder Agreement dated as of July 7, 1998 among the Company and
its stockholders*
2.2 Stock Purchase Agreement dated August 1, 1997 among Simonds Holding
Company, Inc., Armstrong Manufacturing Company and Frederic B.
Andrianoff*
2.3 Share Purchase Agreement dated May 7, 1998 among Time Eclipse Limited,
SI Holding Corporation and the shareholders of W. Notting Limited*
3.1 Amended and Restated Certificate of Incorporation of Simonds*
3.2 By-laws of Simonds*
3.3 Certificate of Incorporation of Armstrong Manufacturing Company*
4.1 Indenture dated as of July 7, 1998 among the Company, the Guarantors
and the Trustee*
4.3 Credit Agreement dated as of July 2, 1998 among the Company, certain of
its Subsidiaries and First Union National Bank*
4.4 Pursuant to Item 601 (b) (4) (iii) of Regulation S-K, the registrant
has not filed herewith any instrument with respect to long-term debt
which does not exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis. The registrant hereby agrees to
furnish a copy of any such instrument to the Securities and Exchange
Commission upon request.
4.5 Promissory Notes of Simonds UK Holdings Ltd.*
10.1 Employment and Non-Competition Agreement between the Company and Ross
George dated May 26, 1995, as amended July 1998* and September 30,
1999.
10.2 Employment and Non-Competition Agreement between the Company and Joseph
Sylvia dated May 26, 1995, as amended July 7, 1998*
10.3 Employment agreement between the Company and Robert Deedrick dated June
1, 1993*
10.4 Employment agreement between the Company and James Palmer dated March
31, 1995*
10.5 Employment agreement between the Company and Roland Richard dated May
7, 1992*
10.6 Employment agreement dated November 14, 1995 between the Company and
F.A. DeVilling, III*
10.7 Employment Agreement dated March 31, 1998 between the Company and
Ronald Owens*
10.8 Simonds Industries Inc. Amended and Restated 1998 Stock Incentive Plan*
10.9 Escrow Agreement dated May 26 1995 among SI Holding Corporation, the
Company, Charles W. Doulton, the Massachusetts Capital Resource
Company, the shareholders of Simonds Industries Inc., the option
holders of the Company and Fleet Bank of Massachusetts, N.A.*
-57-
<PAGE> 58
10.10 Labor Agreement dated May 5, 1997 between the Company and Local No.
7896 of the United Steel Workers of America*
10.11 Agreement dated April 6, 1998 between the Company and Local 2737-16 of
the United Steelworkers of America, AFL-CIO*
10.12 Agreement dated April 6, 1998 between the Company and Local 2737-17 of
the United Steelworkers of America, AFL-CIO*
10.13 Employment Agreement between the Company and Harry Rogers dated
February 23, 1994*
10.14 Employment and Non-Competition Agreement between the Company and
Raymond Martino dated August 12, 1999
12.1 Statement regarding computation of ratios
21.1 Subsidiaries
27.1 Financial Data Schedule
- --------------
* The exhibits of the Company's Registration Statement on Form S-4, File
No. 333-62795, are hereby incorporated by reference.
-58-
<PAGE> 59
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, on the 29th day of
March, 2000.
Simonds Industries Inc.
By: /s/ Raymond Martino
-------------------------------
Raymond Martino
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 29th day of March, 2000.
SIGNATURES TITLE
---------- -----
/s/ Raymond Martino President, Chief Executive Officer and Director
- ------------------------------- (principal executive officer)
Raymond Martino
/s/ Ross George Chairman of the Board, Director
- -------------------------------
Ross George
/s/ Habib Gorgi Director
- -------------------------------
Habib Gorgi
/s/ Gregory M. Barr Director
- -------------------------------
Gregory M. Barr
-59-
<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AND NON-COMPETITION AGREEMENT
EMPLOYMENT AND NON-COMPETITION AGREEMENT, dated as of August 12,
1999, by and between SIMONDS INDUSTRIES INC., a Delaware corporation (the
"Company"), and Raymond J. Martino of Roxbury, Connecticut ("Employee").
W I T N E S S E T H:
WHEREAS, Employee has agreed to enter into this Agreement in order to
assure Company of Employee's expertise and involvement in the conduct of the
Company's business, subject to the terms and conditions as hereinafter provided;
and
WHEREAS, the Company desires to employ Employee as Chief Executive
Officer of the Company and Employee desires to be employed by the Company in
such capacity, upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"CAUSE". Cause shall mean (a) act of fraud, embezzlement,
misappropriation or breach of fiduciary duty against the Company by Employee as
determined by the Company's Board of Directors in its reasonable discretion, (b)
conviction of Employee by a court of competent jurisdiction of or a plea of
guilty or nolo contendere by Employee to any felony or crime involving moral
turpitude, (c) the habitual drug addiction or intoxication of Employee, (c) the
willful failure or refusal of Employee to perform his duties under the terms of
his employment with the Company, including the willful failure or refusal of
Employee to follow the instructions of the Company's Board of Directors, (e) the
breach by Employee of any material terms of this Agreement (including, without
limitation, the breach of any non-competition, non-disclosure, or other
restrictive covenant) after being giving notice thereof and a reasonable
opportunity to cure such breach, or (f) the material breach by Employee of any
of the covenants, terms, and provisions of the Stockholder Agreement or the
Option Documents after being given notice thereof and a reasonable opportunity
to cure such breach.
-60-
<PAGE> 2
"DIRECTORS" shall mean the Board of Directors of the Company.
"DISABILITY". Employee shall be deemed to have a disability if an
independent medical doctor (selected by the Company's health or disability
insurer) certifies that such Employee has for six (6) months, consecutive or
non-consecutive, in any twelve (12) month period been disabled in such a manner
that he is unable to perform the essential functions of his then current
position. Any refusal by Employee to submit to a medical examination for the
purpose of certifying disability shall be deemed to constitute conclusive
evidence of such Employee's disability.
"EBITDA" means earnings before interest and taxes without adjustment
for depreciation and amortization.
"EFFECTIVE DATE" shall mean the date of this Agreement.
"GOOD REASON" shall mean a material breach by the Company of any of
the terms of this Agreement, after being given notice thereof and a reasonable
opportunity to cure such breach.
"MARTINO OPTIONS" shall mean options to be granted to Employee to
purchase a total of 4,450 Shares for an exercise price of $458.52 per Share,
pursuant to the Option Documents. The Martino Options shall vest as follows:
a. 1,450 Shares on February 29, 2000;
b. 1,000 Shares on February 28, 2001;
c. 1,000 Shares on February 28, 2002;
d. 1,000 Shares on February 28, 2003.
The Martino Options shall vest immediately upon the occurrence of an Approved
Sale, as defined in the Stockholder Agreement, so long as Employee is actively
employed under this Agreement.
"OPTION DOCUMENTS" shall mean the Option Plan and related option
grant agreements in respect thereof.
"OPTION PLAN" shall mean the Company's 1998 Amended and Restated
Stock Incentive Plan.
"REGISTRATION RIGHTS AGREEMENT" means that Registration Rights
Agreement by and among the Company and the shareholders of the Company dated as
of July 7, 1998.
"SHARES" means shares of Class A Common Stock of the Company.
"STOCKHOLDER AGREEMENT" means that certain Stockholder Agreement by
and among the Company and the shareholders of the Company dated as of July 7,
1998.
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<PAGE> 3
ARTICLE II
EMPLOYMENT AND SERVICES
2.01 CAPACITY AND SERVICES; TERM.
(a) The Company hereby employs Employee to serve in the capacity of
President and Chief Executive Officer of the Company, and Employee hereby
accepts such employment, upon the terms and conditions set forth in this
Agreement. During the period the Employee is employed by the Company, Employee
shall devote substantially all of his attention and energies on a full-time
basis to the business and affairs of the Company and use his best efforts to
promote its interests; provided, however, that Employee may devote reasonable
periods of time for personal purposes, trade associations and charitable
activities so long as such purposes or activities do not (i) cause or result in
a breach of Article III hereof or (ii) adversely affect the interests of the
Company or materially detract from or interfere with the performance of the
services otherwise required to be performed by Employee as set forth herein.
While the Employee is employed by the Company, Employee shall neither accept nor
hold any other employment without approval of the Directors. In his capacity as
Chief Executive Officer of the Company, Employee shall be responsible for the
supervision and control over, and responsibility for, the financial affairs and
operations of the Company, and shall have such other powers and duties as
determined by the Directors from time to time. Such services to be provided by
Employee hereunder shall be provided for the benefit of the Company without
regard to whether any of the Company's operations are conducted directly by the
Company or through any subsidiaries, joint ventures or unincorporated division
of the Company. While the Employee is employed by the Company, the Company shall
provide Employee with an office and support staff reasonably necessary for the
proper performance of his duties hereunder and consistent with the past
practices of the Company. During the term of his employment hereunder as the CEO
of the Company, the Employee shall be a Director.
(b) This Agreement shall commence on the date hereof and terminate as
set forth herein. This Agreement shall terminate on the earliest to occur of the
following: (i) Employee's voluntary resignation, (ii) termination by the Company
of Employee's employment for Cause, (iii) Employee's death or Disability, or
(iv) termination by the Company of Employee's employment without Cause under
Section 2.09.
2.02 LIMITATION OF AUTHORITY OF EMPLOYEE. The authority of Employee
as Chief Executive Officer of the Company shall have such limitations as shall
be prescribed by the Directors.
2.03 BASE SALARY. The Company shall pay Employee a salary, determined
on an annual basis by the Directors, for the services rendered by Employee to
the Company while the Employee is employed by the Company (the "Base Salary").
Employee's Base Salary shall initially be $350,000 per annum, payable monthly in
equal installments of $29,166.67 in accordance with the customary payroll
practices of the Company for its employees. The Base Salary shall be modified
only upon the prior agreement of the Company and the Employee.
-62-
<PAGE> 4
2.04 BONUS. The Company shall pay an annual bonus to Employee as
follows. For the period ending December 31, 1999, the Company shall pay Employee
a bonus in the amount of $200,000, payable on or prior to March 15, 2000.
Thereafter, the Company shall pay Employee a bonus for succeeding years based
upon the achievement by the Company of targeted increases in the EBITDA of the
Company, which targeted increases shall have been mutually agreed to by the
Company and the Employee. It is intended that such bonus will be equal to 75% of
Employee's Base Salary if target increase in EBITDA of the Company is achieved
and up to a maximum of 150% of Employee's Base Salary upon the achievement of
substantially greater increases in EBITDA.
2.05 FRINGE BENEFITS. While the Employee is employed by the Company,
Employee shall be entitled to such employee fringe benefits as are set forth in
the Company's Standard Executive Benefits Program, with present provisions as
set forth generally in Exhibit A attached hereto, and to the following
additional benefits: (a) relocation expenses for the move from his existing
domicile to a domicile in the vicinity of the Company headquarters in Fitchburg,
Massachusetts, (b) reasonable tax preparation expenses, (c) country club and
luncheon club dues and Company vehicle expenses consistent with Company policy
for its current CEO and (d) life insurance in an amount equal to 3 times
Employee's Base salary. If Employee recognizes taxable income as a result of the
benefits provided for in subparagraphs (a) - (c), Company shall pay Employee
such additional amount as shall be necessary to cover such additional tax on a
grossed up basis. Except as specifically provided herein, Employee's
participation in any benefit program shall be at the same level of
employee/employer contribution as has been set for all participants in such
plan.
2.06 BUSINESS EXPENSES. While the Employee is employed by the
Company, the Company will reimburse Employee for all reasonable travel and
out-of-pocket expenses actually incurred by him, consistent with existing
practices of the Company, or as otherwise directed by the Directors for the
purpose of and in connection with performing his services to the Company
hereunder. Such reimbursement shall be made upon presentation by Employee to the
Company of vouchers or other statements itemizing such expenses in reasonable
detail.
2.07 DEATH OR DISABILITY. In the event of the death or Disability of
Employee while the Employee is employed by the Company, the Company shall have
no further obligations or liability to Employee hereunder, except to pay to
Employee or Employee's estate (i) the amount of Employee's Base Salary in effect
as of the date of death or Disability earned but unpaid to the date of
Employee's death or Disability (including Base Salary for a period of ninety
(90) days between the day of Disability and the commencement of disability
insurance benefits under the Company's policy), plus (ii) any unpaid bonus
declared or to be declared by the Directors for prior periods and for the period
in which his death or Disability shall occur (prorated to the date of such death
or Disability), plus (iii) any unreimbursed business expenses incurred by
Employee prior to his death or Disability and presented for payment pursuant to
Section 2.06 hereof. If the unpaid bonus to be declared under subparagraph (ii)
is not subsequently declared to the mutual agreement of the Company and
Employee, such unpaid bonus shall be calculated by reference to the prior year's
bonus.
-63-
<PAGE> 5
2.08 VOLUNTARY TERMINATION BY EMPLOYEE OR TERMINATION FOR CAUSE. The
Company may terminate Employee's employment hereunder at any time for Cause. In
the event the Employee voluntarily terminates his employment with the Company,
other than for Good Reason, or the Employee's employment with the Company is
terminated for Cause, the Company shall have no further obligations or liability
to Employee hereunder, except to pay to Employee (in addition to and without
regard for benefits, if any, due or to become due under any insurance,
retirement or other similar plan of the Company or any other person or entity)
(i) the amount of Employee's Base Salary in effect as of the date of termination
earned but unpaid to the date of such termination, plus (ii) any unreimbursed
business expenses incurred by Employee prior to such termination and presented
for payment pursuant to Section 2.06 hereof.
2.09 TERMINATION NOT FOR CAUSE OR BY EMPLOYEE FOR GOOD REASON. The
Company may terminate Employee's employment at any time for any reason without
Cause. In the event the Company terminates the Employee's employment with the
Company for any reason other than as set forth in Sections 2.07 or 2.08 above or
Employee terminates his employment for Good Reason, the Company shall have no
further obligations or liability to Employee hereunder, except to pay to
Employee (in addition to benefits, if any, due or to become due under any
insurance, retirement or other similar plan of the Company or any other person
or entity) (i) the amount of Employee's Base Salary in effect as of the date of
termination earned but unpaid to the date of such termination, plus (ii) any
unpaid bonus declared or to be declared by the Directors for prior periods and
for the period in which such termination shall occur (pro-rated to the date of
such termination), plus (iii) any unreimbursed business expenses incurred by
Employee prior to his termination and presented for payment pursuant to Section
2.06 hereof, plus (iv) the amount of Employee's Base Salary and benefits
provided in Section 2.05 in effect as of the date of termination, payable for a
period of 12 months from the date of such termination in monthly installments in
accordance with customary payroll practices of the Company for its employees.
Employee's right to receive the payments set forth in subparagraph (iv) of this
Section 2.09 shall be conditioned upon the Employee's full and continued
performance of Employee's obligations under ARTICLE III hereof. If the unpaid
bonus to be declared under subparagraph (ii) is not subsequently declared to the
mutual agreement of the Company and Employee, such unpaid bonus shall be
calculated by reference to the prior year's bonus.
2.10 NOTICE AND POST-TERMINATION ARRANGEMENTS.
(a) Employee may terminate Employee's employment under this Agreement
only upon at least thirty (30) days' prior written notice.
(b) Upon Company's termination of this Agreement under Section 2.08
or 2.09 hereof, Company may require that Employee remain actively on the job for
a period ending thirty (30) days from the date of termination, with full Base
Salary and fringe benefits, but Employee shall have no right to remain on the
job upon receipt of such notice.
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<PAGE> 6
2.11 OPTIONS. The Company hereby agrees to grant to Employee the
Martino Options. The terms of the Martino Options shall be governed by the
Option Documents, previously furnished to the Employee. Any of the Shares
purchased by Employee pursuant to the Martino Options shall be held by Employee
subject to the terms and conditions of the Stockholder Agreement, and upon the
first purchase of Shares, Employee agrees to become a party to the Stockholder
Agreement and Registration Rights Agreement .
2.12 OTHER PLAN MATTERS. To the extent permitted by applicable law,
the Company will waive the eligibility and waiting periods of its Pension Plan
401(k), Profit Sharing Plan, Life Insurance, Supplemental Life Insurance,
Accidental Death and Dismemberment, Long-Term Disability, Health Insurance and
Dental Care Benefit Plans, or if not permitted by applicable law, the Company
will use reasonable efforts to provide comparable arrangements to Employee. The
Company also agrees to make a contribution, on behalf of Employee, of 3% of
Employee's Base Salary and bonus payable under Section 2.04 to both (i) its
Pension Plan 401(k) (provided Employee makes a required 3% contribution) and
(ii) the Profit Sharing Plan. If necessary with respect to subparagraphs (i) and
(ii), the Company will adopt a supplemental benefit plan to effect such
contributions provided that any such supplemental benefit plan does not
jeopardize the qualified status of the Pension Plan 401(k) and the Profit
Sharing Plan.
ARTICLE III
CONFIDENTIALITY AND NONCOMPETITION
The parties acknowledge that the Company presently conducts business
throughout the United States, Canada and Europe. Further, the parties
acknowledge that Employee is extremely knowledgeable about Company's services,
pricing, operations and customers. In addition, Employee is receiving
consideration and other benefits under this Agreement, including without
limitation those set forth in Sections 2.11 and 2.12 hereof, that the Employee
would not otherwise receive except for his agreement to perform and abide by the
covenants under this ARTICLE III.
3.01 CONFIDENTIALITY. Under no circumstances and at no time, during
or after the Employee's employment with the Company, shall Employee in any
manner whether directly or indirectly, use for his own benefit or the benefit of
any other person, firm, entity or corporation or disclose, divulge, render or
offer, any knowledge or information with respect to the confidential affairs or
plans, trade secrets or know-how of the Company and its subsidiaries and
affiliates, including, without limitation, any work product prepared by Employee
in the course of his employment with the Company ("Confidential Information"),
except on behalf of the Company in the course of the proper performance of his
duties hereunder. Employee acknowledges and agrees that any and all such
Confidential Information will be received and held by him in a confidential
capacity, and that disclosure of such Confidential Information would pose a
direct threat to the Company in the hands of its competitors. For purposes of
this Section 3.01, the term "Confidential Information" shall not include any
information which is generally available to the public other than as a result of
a disclosure by Employee.
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<PAGE> 7
3.02 COVENANT NOT TO COMPETE.
(a) During such time as Employee is employed by the Company and for a
period of two (2) years after the termination of his employment, however such
termination may arise, Employee hereby agrees that Employee will not, singly,
jointly, or as an employee, agent or partner of any partnership or as an
officer, agent, employee, director, stockholder (except for not more than one
percent (1%) of the outstanding stock of any company listed on a national
securities exchange or actively traded in the over-the-counter market) or
investor in any other corporation or entity, or as a consultant, advisor, or
independent contractor to any such partnership, corporation or entity, or in any
other capacity, directly, indirectly or beneficially;
(i) own, manage, operate, join, control or participate in
the ownership, management, operation, or control of, or work for (as an
employee, agent, consultant, advisor or independent contractor), or permit the
use of his name by, or provide financial or other assistance to, any person,
partnership, corporation, or entity which is in direct or indirect competition
within the United States or Canada (the "Protected Territory") with the business
as conducted by the Company on the date hereof or at any time during Employee's
employment with the Company;
(ii) induce or attempt to induce any person who, on the date
hereof or at any time during Employee's employment with the Company, is an
employee of the Company, to terminate his or her employment with the Company,
except in the proper performance of his duties hereunder; or
(iii) induce or attempt to induce any person, business or
entity which is a contracting party with the Company or any of its affiliates,
as of the date hereof or at any time during Employee's employment with the
Company (a "Customer"), to terminate or modify in any way adverse to the
interests of the Company, any written or oral agreement with the Company, except
in the proper performance of his duties hereunder.
(b) The Company and Employee agree that the covenants set forth in
this Section 3.02 have been negotiated with advice of counsel in the course of
the negotiation and execution of this Agreement and the provision of the
consideration set forth above, which endeavor shall result in the receipt by
Employee of greater tangible and intangible benefits than would otherwise accrue
to him, and therefore the Company and Employee agree that these covenants should
and shall be enforced to the fullest extent permitted by law. Accordingly, if in
any judicial or similar proceeding a court or any similar judicial body shall
determine that such covenant is unenforceable because it covers too extensive a
geographical area or survives too long a period of time, or for any other
reason, then the parties intend that such covenant shall be deemed to cover only
such maximum geographical area and maximum period of time and shall otherwise be
deemed to be limited in such manner as will permit enforceability by such court
or similar body.
3.03 SPECIFIC PERFORMANCE. Employee agrees that his breach of the
provisions of Sections 3.01 or 3.02 above will cause irreparable damage to the
Company and that the recovery by the Company of money damages will not
constitute an adequate remedy for such breach. Accordingly, Employee agrees that
the provisions of Sections 3.01 and 3.02 above may be
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<PAGE> 8
specifically enforced against him in addition to any other rights or remedies
available to the Company on account of any such breach, and Employee expressly
waives the defense in any equitable proceeding that there is an adequate remedy
at law for any such breach.
ARTICLE IV
MISCELLANEOUS
4.01 ASSIGNMENT. This Agreement is personal to Employee and shall not
be assigned, transferred, hypothecated, pledged or in any way encumbered by him;
provided, that the rights and obligations of Employee hereunder shall be binding
upon, and inure to the benefit of, Employee's estate. This Agreement shall be
binding upon, and inure to the benefit of, the Company's successors and assigns.
4.02 AMENDMENT. This Agreement may not be amended, modified or
supplemented in any respect except by written agreement entered into by the
parties hereto.
4.03 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts without resort to its conflict of laws rules.
4.04 COUNTERPART; HEADINGS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings of the
Articles and Sections of this Agreement are inserted for convenience only and
shall not constitute a part hereof.
4.05 ENTIRE AGREEMENT. This Agreement contains the entire agreement
of the parties pertaining to the subject matter contained in it.
4.06 NOTICES. All notices given hereunder shall be in writing and
shall be delivered personally or sent by prepaid registered or certified mail,
return receipt requested, or by nationally recognized overnight courier service,
and addressed as follows:
If to the Company:
Simonds Industries Inc.
135 Intervale Road
Fitchburg, MA 01420
with a copy to each of:
Fleet Venture Resources, Inc.
50 Kennedy Plaza, Suite 1200
Providence, RI 02903
Attention: Habib Y. Gorgi, President
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<PAGE> 9
Edwards & Angell, LLP
2800 BankBoston Plaza
Providence, RI 02903
Attention: Richard G. Small, Esq.
If to Employee:
Raymond J. Martino
Chief Executive Officer
Simonds Industries Inc.
135 Intervale Road
Fitchburg, MA 01420
All notices shall be deemed to be given on the date received at the
address of the addressee, or, if delivered personally, on the date delivered.
4.07 SEVERABILITY. Any provision of this Agreement which is held by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
IN WITNESS WHEREOF, Employee has executed this Agreement and the
Company has caused this Agreement to be executed as an instrument under seal as
of the day and year first above written.
SIMONDS INDUSTRIES INC.
By:
-----------------------------------
Title:
--------------------------------------
Raymond J. Martino
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<PAGE> 1
EXHIBIT 12.1
SIMONDS INDUSTRIES INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amount in thousands, except ratios)
<TABLE>
<CAPTION>
----------- -------------------------------------------------------
Predecessor Company
----------- -------------------------------------------------------
5 Months 7 Months Year Ended
Ended Ended ------------------------------------------
5/26/95 12/30/95 1996 1997 1998 1999
----------- ---------- ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pre-tax income from continuing
operations (3,602) 4,731 7,054 8,752 2,321 2,652
Add fixed charges:
Interest on indebtedness 650 2,880 4,399 4,963 7,900 10,948
Portion of rents representative
of the interest factor 92 113 203 213 275 305
------ ----- ------ ------ ------ ------
Income as adjusted (2,860) 7,724 11,656 13,928 10,496 13,905
Fixed charges:
Interest on indebtedness 650 2,880 4,399 4,963 7,900 10,948
Capitalized interest
Portion of rents representative
of the interest factor 92 113 203 213 275 305
------ ----- ------ ------ ------ ------
Total Fixed Charges 742 2,993 4,602 5,176 8,175 11,253
Ratio of earnings to fixed charges N/A 2.6 2.5 2.7 1.3 1.2
====== ===== ====== ====== ====== ======
</TABLE>
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<PAGE> 1
EXHIBIT 21.1
Simonds Industries Inc. [the "Company]
DE Corporation: DOI 05/16/95; FYE: 12/31
Address: 135 Intervale Road, P.O. Box 500, Fitchburg,
Worcester County, Massachusetts 01420
SUBSIDIARIES
1. Simonds Industries FSC, Inc.
US Virgin Islands Corporation: DOI 10/3/88; FYE: 12/31
Address: c/o Chase Trade, Inc.
Chase Financial Center
11A & 11B Curacao Gade
P.O. Box 6220, St. Thomas, VI 00804
2. Simonds Industries Limited
UK Corporation: DOI 3/18/89; FYE: 12/31; Reg. No.: 2232753
Address: Unit 3 Motorway Industrial Estate
Sheffield ENG S9 1DH
3. Simonds Industries Inc.
Ontario Corporation: DOI 3/22/88; FYE: 12/31
Reg. No.: 765648 (Ontario); A-27480 (BC, 5/24/88)
Address: 106 East Drive
Brampton, ONT L6T 1C1
4. Wespa Metallsagenfabrik Simonds Industries GmbH
German Corporation: DOI 11/00/92; FYE 12/31
Address: Postfach 1165
34282 Spangenberg, Germany
5. Strongridge Limited
Ontario Corporation: DOI 01/01/95; FYE 12/31
Reg. No.: 1111309
Address: 106 East Drive
Brampton, Ontario L6T 1C1
6. Armstrong Manufacturing Company
Oregon Corporation: DOI 09/23/08; FYE 12/31
Address: 2135 NW 21st Avenue
Portland, OR 97208
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<PAGE> 2
7. Simonds UK Holding Limited
UK Corporation: DOI 1/18/98; FYE: 12/31; Reg. No. 3484408
Address: Unit 3 Motorway Industrial Estate
Sheffield ENG S9 1DH
8. W. Notting Limited
UK Corporation: DOI 5/23/21; FYE: 12/31 Reg. No. 174839
Address: 67-75 Garman Road, Tottenham
London ENG N17 OUE
W. Notting Limited ("Parent") - Subsidiaries
A. Notting Sales Limited (England, doi 6/4/68)
Registration No. 933186
67-75 Garman Road, Tottenham, London N17 OUE
B. Notting Canada Inc. (Ontario, doi 3/9/77)
Registration No. 354068
C. Notting America, Inc. (New York, doi 3/26/81)
D. Servitroquel S.A. (Spain)
E. Notting de Mexico S.A. (Mexico)
F. ComputerCarton Limited (Guernsey)
This is a revised subsidiary list effective as of March 6, 2000.
-71-
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JAN-01-2000
<EXCHANGE-RATE> 1
<CASH> 8,383
<SECURITIES> 0
<RECEIVABLES> 17,400
<ALLOWANCES> 993
<INVENTORY> 26,650
<CURRENT-ASSETS> 56,632
<PP&E> 45,424
<DEPRECIATION> 11,585
<TOTAL-ASSETS> 118,287
<CURRENT-LIABILITIES> 21,350
<BONDS> 102,523
0
0
<COMMON> 1
<OTHER-SE> (12,246)
<TOTAL-LIABILITY-AND-EQUITY> 118,287
<SALES> 127,496
<TOTAL-REVENUES> 127,496
<CGS> 88,392
<TOTAL-COSTS> 88,392
<OTHER-EXPENSES> 25,753
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,948
<INCOME-PRETAX> 2,652
<INCOME-TAX> 1,218
<INCOME-CONTINUING> 1,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,434
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
