<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended April 1, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from _____ to _____.
Commission file number: N/A
Simonds Industries Inc.
(Exact name of registrant as specified in its charter)
- -------------------------------------- --------------------------------------
Delaware 05-0484518
- -------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer
- -------------------------------------- --------------------------------------
Incorporation or organization) Identification No.)
- -------------------------------------- --------------------------------------
135 Intervale Road
Fitchburg, MA 01420
(Address of principal executive offices)
(978) 343-3731
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [x] No [ ]
Number of shares outstanding of the registrant's voting and non-voting common
stock, as of April 30, 2000: 66,298.39 and 7,897.45, respectively.
1
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Simonds Industries Inc.
Form 10-Q Index
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - January 1,
2000 and April 1, 2000 3
Consolidated Statements of Operations - 4
three months ended April 3, 1999 and
April 1, 2000
Consolidated Statements of Cash Flows - 5
three months ended April 3, 1999 and
April 1, 2000
Consolidated Statements of Shareholders' 6
Equity (Deficit)- for the three months
ended April 3, 1999 and April 1, 2000
Notes to Consolidated Financial Statements - 7
April 1, 2000
Item 2. Management's Discussion and Analysis of 13
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit No. 27 - Financial Data Schedule 18
2
<PAGE> 3
Part 1. Financial Information
Item 1. Financial Statements (Unaudited)
SIMONDS INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS January 1, April 1,
------
2000 2000
------------------ ------------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 8,383 $ 3,942
Accounts receivable, net of reserves of $993 and $1,019 17,400 17,952
Inventories (Note 3) 26,650 27,071
Other current assets 3,162 3,295
Refundable income taxes 1,037 754
------------------ ------------------
Total current assets 56,632 53,014
PROPERTY, PLANT AND EQUIPMENT:
Land 2,300 2,288
Buildings and improvements 10,684 10,578
Machinery and equipment 32,126 32,221
Construction-in-progress 314 821
------------------ ------------------
45,424 45,908
Less- Accumulated depreciation 11,585 12,449
------------------ ------------------
Net property, plant and equipment 33,839 33,459
OTHER ASSETS:
Goodwill, net of accumulated amortization of $2,223 and $2,377 22,308 22,129
Deferred financing costs, net of accumulated amortization 3,900 3,770
of $764 and $891
Other, including buildings held for resale 1,608 1,539
------------------ ------------------
Total other assets 27,816 27,438
------------------ ------------------
Total assets $118,287 $113,911
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Overdraft facilities $ 190 $ 149
Revolving credit loans and notes payable 321 186
Current portion of long-term debt 14 9
Accounts payable 6,871 6,269
Accrued payroll and employee benefits 4,034 3,552
Accrued interest 5,153 2,509
Other accrued liabilities 2,739 2,582
Currently deferred income taxes 2,028 2,028
------------------ ------------------
Total current liabilities 21,350 17,284
LONG-TERM DEBT, net of current portion (Note 4) 102,523 102,200
DEFERRED INCOME TAXES 4,808 4,823
OTHER NONCURRENT LIABILITIES 1,851 1,781
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value-
Authorized - 200,000 shares
Issued and outstanding - 76,289 1 1
Capital in excess of par value (24,405) (24,387)
Retained earnings 14,130 14,644
Additional minimum pension liability, net of $58 tax effect (135) (135)
Cumulative translation adjustment (1,715) (2,179)
Treasury stock, at cost (121) (121)
------------------ ------------------
Total shareholders' equity (deficit) (12,245) (12,177)
------------------ ------------------
Total liabilities and shareholders' equity $118,287 $113,911
================== ==================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
---------------------------------------
Three Months Ended
April 3, April 1,
1999 2000
----------------- --------------------
<S> <C> <C>
Net sales $31,419 $32,792
Cost of goods sold 21,677 22,427
----------------- --------------------
Gross profit 9,742 10,365
Selling, general and administrative expense 6,409 6,489
----------------- --------------------
Operating income 3,333 3,876
Other expenses (income):
Interest expense 2,770 2,736
Other, net (53) 191
----------------- --------------------
Income before income taxes 616 949
Provision for income taxes 299 435
----------------- --------------------
Net income $ 317 $ 514
================= ====================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
-----------------------------------
THREE MONTHS ENDED
APRIL 3, APRIL 1,
1999 2000
-----------------------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 317 $ 514
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,207 1,306
Gain on asset sales (9) (2)
(Benefit) Provision from deferred income taxes (8) 15
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (677) (552)
Inventories (1,995) (421)
Income tax refunds receivable - 283
Other current and noncurrent assets 289 (113)
Accounts payable 1,225 (623)
Accrued expenses (3,128) (3,283)
Other non-current liabilities (99) (70)
-----------------------------------
Net cash (used in) operating activities (2,878) (2,946)
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 23 14
Purchases of equipment (1,035) (726)
-----------------------------------
Net cash (used in) investing activities (1,012) (712)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in overdrafts 14 (41)
Net (uses) proceeds under revolving credit 110 (135)
Proceeds from issuance of long-
term debt-net of issuance costs 336 -
Principal payments of long-term debt (6) (328)
Issuance of common stock - 18
Other (1) -
-----------------------------------
Net cash provided by (used in) financing activities 453 (486)
-----------------------------------
EFFECT OF EXCHANGE RATE ON CASH (141) (297)
-----------------------------------
NET (DECREASE) IN CASH (3,578) (4,441)
CASH AT BEGINNING OF PERIOD 9,298 8,383
-----------------------------------
CASH AT END OF PERIOD $ 5,720 $ 3,942
===================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
SIMONDS INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the three months ended April 3, 1999 and April 1, 2000
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
CAPITAL OTHER SHAREHOLDERS' COMPREHENSIVE
COMMON COMMON IN EXCESS RETAINED COMPREHENSIVE TREASURY EQUITY INCOME
SHARES STOCK OF PAR EARNINGS LOSS STOCK (DEFICIT) (LOSS)
---------- ------- --------- -------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 2, 1999 76,333 $1 $(24,405) $12,696 $( 907) $( 65) $(12,680) -
Net Income - - - 317 - - 317 $ 317
Foreign Currency
Translation Adjustment - - - - (589) - (589) (589)
---------- ------- --------- -------- ------------- --------- ------------- -------------
Balance at April 3, 1999 76,333 $1 $(24,405) $13,013 $(1,496) $( 65) $(12,952) $(272)
========== ======= ========= ======== ============= ========= ============= =============
Balance at January 1, 2000 76,289 $1 $(24,405) $14,130 $(1,850) $(121) $(12,245) -
Net Income - - - 514 - - 514 $514
Foreign Currency
Translation Adjustment - - - - (464) - (464) (464)
Amortization of Stock
Option Compensation - - 18 - - - 18 -
---------- ------- --------- -------- ------------- --------- ------------- -------------
Balance at April 1, 2000 76,289 $1 $(24,387) $14,644 $(2,314) $(121) $(12,177) $ 50
========== ======= ========= ======== ============= ========= ============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
Notes to Consolidated Financial Statements
(In thousands except share and per share amounts)
(Unaudited)
1. Basis of Presentation
The unaudited interim consolidated financial statements presented herein have
been prepared by Simonds Industries Inc. ("Simonds" or the "Company") and, in
the opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair presentation. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of January 1, 2000 has been derived
from the consolidated financial statements that have been audited by the
Company's independent public accountants. The unaudited consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the annual financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to those
rules and regulations, but the Company believes that the disclosures are
adequate to make the information presented not misleading. Operating results for
the three months ended April 1, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 30, 2000. For further
information, refer to the financial statements and footnotes included in the
Company's annual report on Form 10-K for the year ended January 1, 2000.
2. Acquisitions
On May 8, 1998, the Company acquired 100% of the outstanding stock of W. Notting
Limited ("Notting") for approximately $6,718, of which $5,471 was paid in cash
with additional financing from the Company's revolving credit facility; the
balance was in the form of a term Promissory Note to the sellers bearing
interest at 8.5% and was repaid April 30, 1999. The acquisition was accounted
for as a purchase and the purchase price has been allocated based on the fair
market value of the underlying assets and liabilities. In accordance with EITF
95-3, the purchase price allocation reflects accruals of approximately $500 for
lease contracts on facilities that are being closed; $300 for severance pay
accruals for 24 employees to be terminated; and $300 for other reorganization
expenses. At April 1, 2000, the remaining accruals were $7 for lease contracts
on facilities and $100 for other reorganization expenses. As of April 1, 2000,
all 24 employees had been terminated. Goodwill totaled $2,857 on this
acquisition and is being amortized on a straight-line basis over 40 years. The
consolidated financial statements include the results of operations of Notting
subsequent to the date of acquisition.
7
<PAGE> 8
3. Inventories at January 1, 2000 and April 1, 2000 were as follows (in
thousands).
January 1, April 1,
2000 2000
------------------ -----------------
Raw Materials $ 4,967 $ 5,777
Work in progress 6,429 6,968
Finished goods 15,254 14,326
------------------ -----------------
Total $ 26,650 $ 27,071
================== =================
4. Debt
Debt consists of the following at January 1, 2000 and April 1, 2000 (in
thousands):
<TABLE>
<CAPTION>
January 1, April 1,
2000 2000
---------------- -----------------
<S> <C> <C>
Line of credit facility for German Subsidiary with $ 2,523 $ 2,200
First Union National Bank up to approximately $2,689,
interest payable quarterly at EURIBOR (3.68% at
April 1, 2000) plus 1.25% terminating on October 1,
2003, payable in Deutschmarks.
Line of credit facilities for Notting with Banco 135 59
Sabadell and Banco Popular of Spain, bearing interest
at 6.25% and 6.50% and terminating on April 1, 2001
and May 17, 2000, respectively, payable in Spanish
Pesetas.
Two term loans payable by Notting to National 200 136
Westminster Bank on June 30, 2000 and September 30,
2000, bearing interest at 8.75% and 9.5%, payable in
British Pounds.
Senior Subordinated Notes issued July 8, 1998, and 100,000 100,000
maturing July 1, 2008, interest payable semi-annually at
10.25%. ---------------- -----------------
102,858 102,395
Less-current maturities 335 195
---------------- -----------------
$102,523 $102,200
================ =================
</TABLE>
5. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
8
<PAGE> 9
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133, as amended by SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities Deferral of the Effective Date of FASB Statement No. 133"
shall be effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company has not yet quantified the impact of adopting SFAS
No. 133 on its consolidated financial statements and has not determined the
timing nor method of its adoption of the statement.
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. This
SAB was amended by SAB 101A which defers the effective date of SAB 101 for
registrants with fiscal years that begin between December 16, 1999 and March 15,
2000. The guidance is now effective for the second 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.
6. Selected consolidating financial statements of parent, guarantors, and
non-guarantors
The Company's wholly owned domestic subsidiaries fully and unconditionally
guarantee, on a senior subordinated basis, the 10.25% Senior Subordinated Notes,
jointly and severally. The guarantor subsidiary data below includes financial
statements of Armstrong Manufacturing Company. The non-guarantor subsidiaries
data below includes combining financial statements of Wespa, Simonds UK, UK
Holding Co., and Simonds Canada. Separate financial statements of the guarantor
subsidiary have not been presented because management believes that such
financial statements are not material to investors. In addition, the Senior
Credit Facility is guaranteed on a full and unconditional basis by the guarantor
subsidiary. The following data summarizes the consolidating results of the
Company on the equity method of accounting for the following periods presented:
9
<PAGE> 10
SIMONDS INDUSTRIES INC.
CONSOLIDATING BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
AS OF JANUARY 1, 2000
--------------------------------------------------------------------------
PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ------------ --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 7,159 $ 340 $ 884 - $ 8,383
Accounts receivable 8,245 1,228 7,927 - 17,400
Intercompany accounts receivable 1,563 1,271 1,215 (4,049) -
Inventories:
Raw materials 2,999 183 1,785 - 4,967
Work in progress 5,300 259 870 - 6,429
Finished goods 5,926 629 8,984 (285) 15,254
Other current assets 3,524 79 596 - 4,199
---------- ------------ --------------- -------------- -------------
Total current assets 34,716 3,989 22,261 (4,334) 56,632
---------- ------------ --------------- -------------- -------------
Net property, plant and equipment 24,515 3,035 6,289 - 33,839
OTHER ASSETS:
Investment in subsidiaries 43,638 5,939 - (49,577) -
Intercompany loan receivable - 25,420 - (25,420) -
Other assets 19,288 3,843 4,685 - 27,816
---------- ------------ --------------- -------------- -------------
Total assets $122,157 $42,226 $33,235 $(79,331) $118,287
========== ============ =============== ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES $ 15,275 $ 1,075 $ 8,922 $ (3,922) $ 21,350
LONG-TERM DEBT, net of current
portion 100,000 - 2,523 - 102,523
INTERDIVISION LONG-TERM DEBT 15,145 - 10,275 (25,420) -
OTHER NONCURRENT LIABILITIES 3,982 638 2,039 - 6,659
SHAREHOLDERS' EQUITY (DEFICIT) (12,245) 40,513 9,476 (49,989) (12,245)
---------- ------------ --------------- -------------- -------------
Total liabilities and
shareholders' equity $122,157 $42,226 $33,235 $(79,331) $118,287
========== ============ =============== ============== =============
</TABLE>
SIMONDS INDUSTRIES INC.
CONSOLIDATING BALANCE SHEET
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
AS OF APRIL 1, 2000
--------------------------------------------------------------------------
PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ------------ --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 3,287 $ 209 $ 446 - $ 3,942
Accounts receivable 8,139 1,327 8,486 - 17,952
Intercompany accounts receivable 3,365 1,446 1,390 (6,201) -
Inventories:
Raw materials 3,157 42 2,578 - 5,777
Work in progress 5,370 470 1,128 - 6,968
Finished goods 5,740 598 8,273 (285) 14,326
Other current assets 3,431 63 555 - 4,049
---------- ------------ --------------- -------------- -------------
Total current assets 32,489 4,155 22,856 (6,486) 53,014
---------- ------------ --------------- -------------- -------------
Net property, plant and equipment 24,408 2,998 6,053 - 33,459
OTHER ASSETS:
Investment in subsidiaries 43,736 5,541 - (49,277) -
Intercompany loan receivable - 25,546 - (25,546) -
Other assets 19,050 3,776 4,612 - 27,438
---------- ------------ --------------- -------------- -------------
Total assets $119,683 $42,016 $33,521 $(81,309) $113,911
========== ============ =============== ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES $ 12,733 $ 1,147 $ 9,607 $ (6,203) $ 17,284
LONG-TERM DEBT, net of current
portion 100,000 - 2,200 - 102,200
INTERDIVISION LONG-TERM DEBT 15,145 - 10,401 (25,546) -
OTHER NONCURRENT LIABILITIES 3,982 638 1,984 - 6,604
SHAREHOLDERS' EQUITY (DEFICIT) (12,177) 40,231 9,329 (49,560) (12,177)
---------- ------------ --------------- -------------- -------------
Total liabilities and
shareholders' equity $119,683 $42,016 $33,521 $(81,309) $113,911
========== ============ =============== ============== =============
</TABLE>
10
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SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended April 3, 1999
-------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net sales $20,370 $2,413 $12,035 $(3,399) $31,419
Cost of goods sold 14,299 1,541 9,236 (3,399) 21,677
---------- ----------- --------------- ------------ -------------
Gross profit 6,071 872 2,799 0 9,742
Selling, general and administrative
expense 3,735 669 2,005 0 6,409
---------- ----------- --------------- ------------ -------------
Operating income 2,336 203 794 0 3,333
Other expenses (income):
Interest expense 3,066 110 330 (697) 2,809
Interest income (35) (636) (65) 697 (39)
Other, net (49) 12 (16) 0 (53)
Equity in earnings of subsidiaries (738) (309) 0 1,047 0
---------- ----------- --------------- ------------ -------------
Income before income taxes 92 1,026 545 (1,047) 616
Provision (benefit) for income taxes (225) 288 236 0 299
---------- ----------- --------------- ------------ -------------
Net income $ 317 $ 738 $ 309 $(1,047) $ 317
========== =========== =============== ============ =============
</TABLE>
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENT OF OPERATIONS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended April 1, 2000
-------------------------------------------------------------------
Parent Guarantors Non-Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Net sales $22,013 $2,800 $12,293 $(4,314) $32,792
Cost of goods sold 15,671 1,736 9,334 (4,314) 22,427
---------- ----------- --------------- ------------ -------------
Gross profit 6,342 1,064 2,959 0 10,365
Selling, general and administrative
expense 3,875 677 1,937 0 6,489
---------- ----------- --------------- ------------ -------------
Operating income 2,467 387 1,022 0 3,876
Other expenses (income):
Interest expense 3,095 101 369 (798) 2,767
Interest income (27) (729) (73) 798 (31)
Other, net 87 136 (32) 0 191
Equity in earnings of subsidiaries (984) (446) 0 1,430 0
---------- ----------- --------------- ------------ -------------
Income before income taxes 296 1,325 758 (1,430) 949
Provision (benefit) for income taxes (218) 341 312 0 435
---------- ----------- --------------- ------------ -------------
Net income $ 514 $ 984 $ 446 $(1,430) $ 514
========== =========== =============== ============ =============
</TABLE>
11
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SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 3, 1999
--------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash (used in)/provided by operating
activities: $(3,405) $490 $(743) $780 $(2,878)
Cash flows from investing activities:
Proceeds from asset sales 8 - 15 - 23
Purchase of equipment (311) (614) (110) - (1,035)
Acquisitions - - - - -
----------- ---------- --------------- ----------- -------------
Net cash (used in) investing
activities (303) (614) (95) (1,012)
Cash flows from financing activities:
Change in overdraft - - 14 - 14
Net proceeds from revolving credit facility - - 110 - 110
Proceeds from issuance of long-term debt-
net of issuance cost - - 336 - 336
Principal payments of long-term debt - - (6) - (6)
Intercompany loans - (751) 591 160 -
Issuance of common stock - 750 - (750) -
Other (1) - - (1)
----------- ---------- --------------- ----------- -------------
Net cash provided by financing
activities (1) (1) 1,045 (590) 453
Effect of Foreign Exchange - - 49 (190) (141)
----------- ---------- --------------- ----------- -------------
Increase (decrease) in cash (3,709) (125) 256 (3,578)
Cash at beginning of the period 8,602 209 487 - 9,298
----------- ---------- --------------- ----------- -------------
Cash at end of the period $ 4,893 $ 84 $ 743 - $ 5,720
=========== ========== =============== =========== =============
</TABLE>
SIMONDS INDUSTRIES INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 1, 2000
--------------------------------------------------------------------
PARENT GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities: $(3,721) $449 $458 $(132) $(2,946)
Cash flows from investing activities:
Proceeds from asset sales 7 - 7 - 14
Purchase of equipment (598) (32) (96) - (726)
Acquisitions - - - - -
----------- ---------- --------------- ----------- -------------
Net cash (used in) investing
activities (591) (32) (89) 0 (712)
Cash flows from financing activities:
Change in overdraft - - (41) - (41)
Net (uses) from revolving credit facility - - (135) - (135)
Proceeds from issuance of long-term debt-
net of issuance cost - - - - -
Principal payments of long-term debt - - (328) - (328)
Intercompany loans - (126) 127 (1) -
Issuance of common stock 18 - (1) 1 18
Dividends (paid) received 422 (422) - - -
Other - - - - -
----------- ---------- --------------- ----------- -------------
Net cash (used in)/provided by
financing activities 440 (548) (378) 0 (486)
Effect of Foreign Exchange - - (429) 132 (297)
----------- ---------- --------------- ----------- -------------
(Decrease) in cash (3,872) (131) (438) - (4,441)
Cash at beginning of the period 7,159 340 884 - 8,383
----------- ---------- --------------- ----------- -------------
Cash at end of the period $ 3,287 $209 $446 - $ 3,942
=========== ========== =============== =========== =============
</TABLE>
12
<PAGE> 13
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Company's consolidated
financial statements and notes thereto.
Results of Operations
Comparison of First Quarter 2000 and First Quarter 1999
Net Sales: Net Sales for the first quarter of 2000 were $32.8 million or 4.4%
higher than first quarter 1999 net sales of $31.4 million. The higher 2000
quarterly results were realized primarily in our North American operations.
Sales from our European operations were better than last year in their own
currencies, but were impacted unfavorably by the comparably strong U.S. dollar.
Sales would have been higher in 2000 by $472 and $28 in our German and UK
operations, respectively, if exchange rates were unchanged from last year's
first quarter.
Gross Profit Margin: Gross Profit was $10,365 for the first quarter of 2000,
an increase of $623 from $9,742 for the corresponding period in 1999. Gross
Profit as a percentage of net sales was 31.6% and 31.0% for the three months
ended April 1, 2000 and April 3, 1999, respectively. Favorable product mix
helped contribute to a 0.5% improvement in gross profit. Strong demand for
machinery and equipment in the first quarter of 2000 is the primary component of
the favorable product mix.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses as a percent of net sales were 19.8% or $6,489 and 20.4%
or $6,409 for the first quarter of 2000 and 1999, respectively. Expenses were
over last year's level primarily due to higher accrual levels pertaining to
performance based compensation plans, as a result of the above plan performance
year-to-date.
Operating Income: As a result of the foregoing, operating income increased
$543 in the first quarter of 2000 when compared to the comparable period in
1999.
Interest Expense: Interest expense was lower by $34 in the first quarter of
2000 compared to the corresponding period in 1999. This is primarily due to
lower debt outstanding in the Company's European operations. The vast majority
of the Company's interest expense is for $100,000 of Senior Subordinated Notes
at 10 1/4% per annum.
Income Taxes: The provision for income taxes before extraordinary items was
approximately $435 or a 45.8% effective tax rate for the first quarter of 2000,
as compared to approximately $299 or a 48.5% effective tax rate for the first
quarter of
13
<PAGE> 14
1999. The effective tax rates differ primarily as a result of goodwill
amortization and certain expenses that are not deductible for tax purposes.
Net Income: As a result of the foregoing, net income increased $197 in the
first quarter of 2000 when compared to the comparable period of 1999.
Liquidity and Capital Resources
Simonds principal capital requirements are to fund working capital needs, meet
required debt payments, and to complete planned maintenance and manufacturing
improvements.
The Company's Senior Credit Facility provides a $30,000 line of credit to meet
acquisition and expansion needs as well as seasonal working capital and general
corporate requirements. This credit line was undrawn as of April 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.
Net Cash Flow: During the first quarters of 1999 and 2000 net cash used in
operating activities was $2,878 and $2,946, respectively. The most significant
component of cash used in operating activities is interest expense. In both
years the first quarter payment of interest on the Senior Subordinated Notes,
which is payable on January 1 and July 1, had a significant impact on cash flow.
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
14
<PAGE> 15
efficiencies, there can be no assurance that the Company will be able to offset
any future inflationary cost increases through similar efficiencies.
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
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words "believes,"
"expects," "anticipates" and similar expressions are used to identify forward
looking statements. The Company cautions that a number of important factors
could cause actual results for fiscal 2000 and beyond to differ materially from
those expressed in any forward looking statements made by or on behalf of the
Company. All of these forward looking statements are based on estimates and
assumptions made by management of the Company, which although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed on such estimates and statements. No assurance can be given that any of
such estimates or statements will be realized and it is likely that actual
results will differ materially from those contemplated by such forward looking
statements. Factors that may cause such differences include: (1) increased
competition; (2) increased costs; (3) loss or disruption of supply sources of
specialty steels; (4) loss or retirement of key members of management; (5)
increases in the Company's cost of borrowings or unavailability of additional
debt or equity capital on terms considered reasonable by management; (6) adverse
state, federal or foreign legislation or regulation or adverse determinations by
regulators; and (7) changes in general economic conditions in the markets in
which the Company may compete and fluctuations in demand in the metal processing
and primary wood industries. Many of such factors are beyond the control of the
Company and its management.
15
<PAGE> 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
EXHIBITS
Exhibit No. 27 - Financial Data Schedule
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended April 1, 2000.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIMONDS INDUSTRIES INC.
By: /s/ Henry J. Botticello
---------------------------------
Henry J. Botticello
CFO
May 5, 2000
17
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