FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 001-11549
BLOUNT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0780521
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4520 Executive Park Drive 36116-1602
Montgomery, Alabama (Zip Code)
(Address of principal executive offices)
(334) 244-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock March 31, 1999
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Class A Common Stock $.01 Par Value 25,587,625 shares
Class B Common Stock $.01 Par Value 11,474,671 shares
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Results
Sales for the three months ended March 31, 1999, were $185.1 million compared to
$199.7 million for the comparable period of the prior year. Net income for the
first quarter of 1999 was $8.8 million ($.23 per diluted share) compared to net
income of $13.7 million ($.36 per diluted share) for the comparable period of
the prior year. These results reflect a significant reduction in sales and
operating income from the Industrial and Power Equipment segment due to adverse
market conditions, record results from the Sporting Equipment segment, and near
flat results from the Outdoor Products segment. The increase in selling,
general and administrative expenses during the current year's first quarter
reflects higher corporate expenses resulting principally from a donation of art
and expenses associated with the possible sale of the Company (see Notes 2 and 3
of Notes to Condensed Consolidated Financial Statements). Higher interest
expense during the three months ended March 31, 1999, reflects higher average
long-term debt levels during the current year. The Company's effective income
tax rate was lower in the first quarter of 1999 as a result of the donation of
art. The principal reasons for these results and the status of the Company's
financial condition are set forth below and should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Sales for the Outdoor Products segment for the first quarter of 1999 were $76.2
million compared to $77.5 million during the first three months of 1998.
Operating income was $16.1 million during the first quarter of 1999 compared to
$16.0 million in the first quarter of the prior year. Sales reflect a lower
volume of sales of cutting chain and lawn mowers, partially offset by higher
sales of mower blades and accessories. Sales in Europe and South America were
down during the first quarter of 1999. Much of this decrease was offset by
improved sales to Asia/Pacific markets which have been adversely affected in
recent periods by poor economic conditions. Sales in North America were almost
flat in the first quarter of 1999. The improvement in operating income is
primarily due to lower costs and favorable exchange rates offsetting the impact
of the reduction in sales.
Sales for the Sporting Equipment segment were up approximately 15% to $70.3
million in the first quarter of 1999 from $61.3 million in the prior year.
Operating income increased to $5.5 million in the current year's first quarter
from $4.1 million for the prior year. These improved results reflect a higher
demand resulting in higher volume, particularly for ammunition and related
components.
Operating results for the Industrial and Power Equipment segment continued to be
adversely affected by poor market conditions in the first quarter of 1999.
Sales were down to $38.6 million in the first quarter of the current year from
$60.9 million during the first quarter of 1998. Operating income declined to
$0.9 million during the first three months of 1999 from $10.0 million during the
comparable period of 1998. These results primarily reflect sharply reduced
demand for forestry equipment due to low pulp prices and by the drop in exports
of pulp from North America. In response to these conditions, the Company has
implemented a program of production consolidation and realignments in this
segment to lower costs and improve productivity. With recent announcements of
pulp price increases and signs of recovery in Asia/Pacific economies, management
is cautiously optimistic of a second half improvement in this segment.
The Company's total backlog at March 31, 1999 was $80.4 million compared to
$61.3 million at December 31, 1998.
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Financial Condition, Liquidity and Capital Resources
At March 31, 1999, the Company had no amounts outstanding under its $150 million
revolving credit agreement. The Company had senior notes outstanding in the
principal amount of $150 million which mature in 2005. The long-term debt to
equity ratio was.45 to 1 at March 31, 1999 and.46 to 1 at December 31, 1998.See
Note 3 of Notes to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, for
the terms and conditions of the revolving credit agreement and the senior notes.
Cash balances at March 31, 1999, were $13.6 million compared to $45.1 million at
December 31, 1998. Cash used in operating activities was $26.1 million in the
first quarter of 1999 compared to $1.1 million during the prior year's first
quarter, principally due to higher accounts receivable balances. The accounts
receivable increase reflects seasonal selling patterns, higher sales by the
Sporting Equipment segment, and special promotions and longer terms used as a
marketing tool by certain operations. Cash used in investing and financing
activities in the first quarter of 1999 was $2.9 million and $2.5 million,
respectively, reflecting principally purchases of property, plant and equipment
and the payment of dividends. Working capital increased to $245.9 million at
March 31, 1999 compared to $232.1 million at December 31, 1998.
Impact of Year 2000 Issue
The Company has been evaluating its internal date-sensitive systems and
equipment for Year 2000 compliance. The assessment phase of the Year 2000
project is substantially complete and included both information technology
equipment and non-information technology equipment. Based on its assessment,
the Company determined that it was necessary to modify or replace a portion of
its information systems and other equipment. As of March 31, 1999, the Company
is approximately 90% complete in the modification or replacement and testing of
the critical software, hardware and equipment requiring remediation. The
Company expects to be substantially completed by June 1999.
The Company believes that the above modifications and replacements should
mitigate the effect of the Year 2000 issue. However, if such modifications and
replacements are not made, or fail to correct date-sensitive problems, the Year
2000 issue could have a material impact on the Company's operations by
disrupting its ability to manufacture and ship products, process financial
transactions or engage in similar normal business activities. The Company does
not believe that the effect of the Year 2000 issue on non-information technology
systems is likely to have a material adverse impact. Finally, the Company has
reviewed its own products and believes that it has no significant Year 2000
issues for those products.
The total estimated cost of the Year 2000 project, including system upgrades, is
approximately $5.7 million and is being funded by operating cash flows. As of
March 31, 1999, costs of $4.4 million had been incurred. Of the total cost of
the project, approximately $2.9 million is attributable to new software and
equipment, which will be capitalized. The remaining costs will be expensed as
incurred.
With respect to third parties, the Company has identified and communicated with
third parties with which its systems interface or on which it relies to
determine the extent to which those companies are addressing their Year 2000
compliance. The Company has developed a program for evaluating their readiness
and assessing the impact on the Company if they are not compliant on a timely
basis, including identification of alternate sources of materials and supplies
where appropriate. The Company initiated third party surveys in mid-1998 and of
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the 50 key third parties identified, all have responded that they expect to be
compliant on a timely basis. Of the approximately 2,500 non-key third parties
surveyed, 33% have not yet responded adequately. Of those that have responded,
the majority have indicated that they are now or will be compliant by September
30, 1999. The Company expects to complete its evaluation and assessment of
third party readiness by September 30, 1999. To date, the Company is not aware
of any problems that would materially impact results of operations, liquidity or
capital resources.
Although the Company has not finalized its contingency plans for possible Year
2000 issues, it has completed initial communication with key third parties and
non-key third parties as noted above and is presently evaluating and assessing
risks including identification of alternate sources of materials and supplies
where appropriate. The Company has completed testing on all critical systems.
Where needed, the Company will establish contingency plans based on results of
its testing, its evaluation and assessment of third party responses and other
outside risks. The Company anticipates the majority of its contingency plans
to be in place by September 30, 1999.
The costs of the Year 2000 issue and completion dates are based on management's
best estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially
from those plans.
The above statement in its entirety is designated a Year 2000 readiness
disclosure under the Year 2000 Information and Readiness Disclosure Act.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivatives and hedging. It requires that all
derivatives be recognized as either assets or liabilities at fair value and
establishes specific criteria for the use of hedge accounting. The Company's
required adoption date is January 1, 2000. SFAS No. 133 is not to be applied
retroactively to financial statements of prior periods. The Company expects no
material adverse effect on consolidated results of operations, financial
position or cash flows upon adoption of SFAS No. 133, but does expect a small
reduction in stockholders' equity.
Forward Looking Statements
Forward looking statements in this report, as defined by the Private Securities
Litigation Reform Law of 1995, involve certain risks and uncertainties that may
cause actual results to differ materially from expectations as of the date of
this report.
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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.
BLOUNT INTERNATIONAL, INC.
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Registrant
Date: July 15, 1999 /s/Harold E. Layman
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Harold E. Layman
Executive Vice President - Finance
Operations and Chief Financial Officer
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