FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 September 30, 2000
--------------------- ------------------
$.01 Par Value 30,795,882 shares
Page 1
<PAGE>
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page No.
------------
Part I. Financial Information
Condensed Consolidated Statements of Operations -
three months and nine months ended
September 30, 2000 and 1999 3
Condensed Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 4
Condensed Consolidated Statements of Cash Flows -
nine months ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of
Changes in Stockholders' Deficit
three months and nine months ended
September 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis 17
Page 2
<PAGE>
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share data)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---------------------------------- -------- -------- -------- --------
(Unaudited) (Unaudited)
Sales $219.2 $219.6 $629.8 $587.9
Cost of sales 155.4 156.1 440.9 419.4
---------------------------------- ------ ------ ------ ------
Gross profit 63.8 63.5 188.9 168.5
Selling, general and
administrative expenses 33.5 35.8 103.4 105.0
Merger expenses 72.4 74.6
---------------------------------- ------ ------ ------ ------
Income (loss) from operations 30.3 (44.7) 85.5 (11.1)
Interest expense (25.3) (13.4) (74.3) (20.5)
Interest income 0.3 2.0 1.1 3.0
Other income, net 0.5 0.4 6.4 0.3
---------------------------------- ------ ------ ------ ------
Income (loss) before income taxes 5.8 (55.7) 18.7 (28.3)
Provision (benefit) for income taxes 2.5 (13.1) 7.1 (3.4)
---------------------------------- ------ ------ ------ ------
Net income (loss) $ 3.3 $(42.6) $ 11.6 $(24.9)
---------------------------------- ====== ====== ====== ======
Basic earnings per share $ 0.11 $(0.79) $ 0.38 $(0.37)
---------------------------------- ====== ====== ====== ======
Diluted earnings per share $ 0.11 $(0.79) $ 0.38 $(0.37)
---------------------------------- ====== ====== ====== ======
The accompanying notes are an integral part of these statements.
Page 3
<PAGE>
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
ASSETS
------------------------------------------------
Current assets:
Cash and cash equivalents $ 2.5 $ 10.5
Accounts receivable, net of allowance for
doubtful accounts of $5.0 and $4.2 183.2 171.9
Inventories 154.9 117.0
Deferred income taxes 21.1 21.1
Other current assets 12.0 15.5
------------------------------------------------ -------- --------
Total current assets 373.7 336.0
Property, plant and equipment, net of accumulated
depreciation of $239.3 and $230.4 170.1 172.3
Cost in excess of net assets of acquired businesses, net 116.3 111.5
Other assets 66.2 68.9
------------------------------------------------ -------- --------
Total Assets $ 726.3 $ 688.7
------------------------------------------------ ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
------------------------------------------------
Current liabilities:
Notes payable and current maturities of long-term debt $ 9.4 $ 6.5
Accounts payable 45.1 51.0
Accrued expenses 85.9 91.0
------------------------------------------------ -------- --------
Total current liabilities 140.4 148.5
Long-term debt, exclusive of current maturities 843.9 809.7
Deferred income taxes 8.8 8.8
Other liabilities 44.3 43.4
------------------------------------------------ -------- --------
Total liabilities 1,037.4 1,010.4
------------------------------------------------ -------- --------
Commitments and Contingent Liabilities
Stockholders' equity (deficit):
Common stock (par value $.01 per share, 100,000,000
shares authorized, 30,795,882 outstanding) 0.3 0.3
Capital in excess of par value of stock 417.3 417.3
Retained earnings (deficit) (736.2) (747.9)
Accumulated other comprehensive income 7.5 8.6
------------------------------------------------ -------- --------
Total stockholders' deficit (311.1) (321.7)
------------------------------------------------ -------- --------
Total Liabilities and Stockholders' Deficit $ 726.3 $ 688.7
------------------------------------------------ ======== ========
The accompanying notes are an integral part of these statements.
Page 4
<PAGE>
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Nine Months
Ended September 30,
----------------------
2000 1999
------------------------------------------------------ ---------- ----------
(Unaudited)
Cash Flows From Operating Activities:
Net income (loss) $ 11.6 $ (24.9)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation, amortization and other
noncash charges 24.4 24.8
Gain on disposals of property, plant
and equipment (5.5) (0.4)
Changes in assets and liabilities:
Increase in accounts receivable (9.1) (49.4)
Increase in inventories (32.5) (3.3)
(Increase) decrease in other assets 2.8 (7.2)
Increase (decrease) in accounts payable (7.0) 7.0
Increase (decrease) in accrued expenses (5.6) 22.4
Increase in other liabilities 0.1 2.1
------------------------------------------------------ -------- ---------
Net cash used in operating activities (20.8) (28.9)
------------------------------------------------------ -------- ---------
Cash Flows From Investing Activities:
Proceeds from sales of property, plant and equipment 16.6 0.7
Purchases of property, plant and equipment (22.4) (11.9)
Acquisitions of businesses and product lines (17.8) (0.6)
Other (3.3)
------------------------------------------------------ -------- ---------
Net cash used in investing activities (23.6) (15.1)
------------------------------------------------------ -------- ---------
Cash Flows From Financing Activities:
Net increase in short-term borrowings 3.0
Issuance of long-term debt 36.6 697.4
Reduction of long-term debt (2.6) (7.7)
Decrease in restricted funds 0.2
Dividends paid (7.8)
Redemption of common stock (1,068.8)
Capital contribution 417.5
Other (0.6) (1.6)
------------------------------------------------------ -------- ---------
Net cash provided by financing activities 36.4 29.2
------------------------------------------------------ -------- ---------
Net decrease in cash and cash equivalents (8.0) (14.8)
Cash and cash equivalents at beginning of period 10.5 45.1
------------------------------------------------------ -------- ---------
Cash and cash equivalents at end of period $ 2.5 $ 30.3
------------------------------------------------------ ======== =========
The accompanying notes are an integral part of these statements.
Page 5
<PAGE>
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' DEFICIT (Unaudited)
(In millions)
<TABLE>
<CAPTION>
Accumulated
Common Stock Capital Retained Other
Common ---------------- In Excess Earnings Comprehensive Treasury
Stock Class A Class B of Par (Deficit) Income Stock Total
------ ------- ------- --------- --------- ------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 2000:
Balance, June 30, 2000 $ 0.3 $417.3 $ (739.5) $ 7.8 $ (314.1)
Net income 3.3 3.3
Other comprehensive income (loss), net (0.3) (0.3)
---------
Comprehensive income 3.0
----- ------ --------- ------ ---------
Balance, September 30, 2000 $ 0.3 $417.3 $ (736.2) $ 7.5 $ (311.1)
===== ====== ========= ====== =========
Balance, December 31, 1999 $ 0.3 $417.3 $ (747.9) $ 8.6 $ (321.7)
Net income 11.6 11.6
Other comprehensive income (loss) net (1.1) (1.1)
---------
Comprehensive income 10.6
----- ------ --------- ------ ---------
Balance September 30, 2000 $ 0.3 $417.3 $ (736.2) $ 7.5 $ (311.1)
===== ====== ========= ====== =========
THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1999:
Balance, June 30, 1999 $ 0.3 $ 0.1 $ 38.8 $ 361.2 $ 7.2 $(40.1) $ 367.5
Net loss (42.6) (42.6)
Other comprehensive income (loss), net 0.0
---------
Comprehensive income (42.6)
Other (0.2) 0.2
Merger related activity (see Note 1):
Retirement of treasury stock (38.8) (1.1) 39.9 0.0
Redemption of common stock (0.3) (0.1) (1,068.4) (1,068.8)
Capital contribution $ 0.3 417.2 417.5
----- ----- ----- ------ --------- ------ ------ ---------
Balance, September 30, 1999 $ 0.3 $ 0.0 $ 0.0 $417.2 $ (751.1) $ 7.2 $ 0.0 $ (326.4)
===== ===== ===== ====== ========= ====== ====== =========
Balance, December 31, 1998 $ 0.3 $ 0.1 $ 38.7 $ 348.9 $ 7.6 $(41.0) $ 354.6
Net income (24.9) (24.9)
Other comprehensive income (loss) net (0.4) (0.4)
---------
Comprehensive income (25.3)
Dividends (5.2) (5.2)
Other 0.1 (0.4) 1.1 0.8
Merger related activity (see Note 1):
Retirement of treasury stock (38.8) (1.1) 39.9 0.0
Redemption of common stock (0.3) (0.1) (1,068.4) (1,068.8)
Capital contribution $ 0.3 417.2 417.5
----- ----- ----- ------ --------- ------ ------ ---------
Balance September 30, 1999 $ 0.3 $ 0.0 $ 0.0 $417.2 $ (751.1) $ 7.2 $ 0.0 $ (326.4)
===== ===== ===== ====== ========= ====== ====== =========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 6
<PAGE>
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of Blount International, Inc. and Subsidiaries
("the Company") contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at September 30,
2000, and the results of operations and cash flows for the periods ended
September 30, 2000 and 1999. These financial statements should be read in
conjunction with the notes to the financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999. The results of
operations for the periods ended September 30, 2000 and 1999 are not necessarily
indicative of the results to be expected for the twelve months ending December
31, 2000, due to the seasonal nature of certain of the Company's operations.
On August 19, 1999, Blount International, Inc., a Delaware corporation, merged
with Red Dog Acquisition, Corp., a Delaware corporation and a wholly-owned
subsidiary of Lehman Brothers Merchant Banking Partners II L.P. The merger was
completed pursuant to an Agreement and Plan of Merger and Recapitalization dated
as of April 18, 1999. This transaction was accounted for as a recapitalization
under generally accepted accounting principles. Accordingly, the historical
basis of the Company's assets and liabilities has not been impacted by the
transaction. See Note 1 to the Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1999,
for additional information related to the merger.
Certain amounts in the prior year's financial statements have been reclassified
to conform with the current year's presentation.
The Company's Internet home page is http://www.blount.com.
NOTE 2 During the first quarter of 1999, the Company donated art with a book
value of $1.5 million and an appraised value of $4.7 million to a charitable
foundation. On an after-tax basis, this donation had no significant effect on
net income.
NOTE 3 Inventories consist of the following (in millions):
September 30, December 31,
2000 1999
--------------------------------- ------------- ------------
Finished goods $ 83.6 $ 67.1
Work in process 28.5 21.3
Raw materials and supplies 42.8 28.6
--------------------------------- ------ ------
$154.9 $117.0
--------------------------------- ====== ======
Page 7
<PAGE>
NOTE 4 Segment information is as follows (in millions):
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---------------------------------- -------- -------- -------- --------
Sales:
Outdoor Products $ 88.4 $ 82.7 $272.3 $243.2
Sporting Equipment 90.5 98.5 235.7 240.0
Industrial and Power Equipment 40.3 38.4 121.8 104.7
---------------------------------- ------ ------ ------ ------
$219.2 $219.6 $629.8 $587.9
---------------------------------- ====== ====== ====== ======
Operating income (loss):
Outdoor Products $ 19.9 $ 17.9 $ 62.3 $ 53.6
Sporting Equipment 10.3 13.6 26.5 28.7
Industrial and Power Equipment 2.4 (0.7) 5.4 (5.7)
---------------------------------- ------ ------ ------ ------
Operating income from segments 32.6 30.8 94.2 76.6
Corporate office expenses (2.3) (3.1) (8.7) (13.1)
Merger expenses (72.4) (74.6)
---------------------------------- ------ ------ ------ ------
Income from operations 30.3 (44.7) 85.5 (11.1)
Interest expense (25.3) (13.4) (74.3) (20.5)
Interest income 0.3 2.0 1.1 3.0
Other income, net 0.5 0.4 6.4 0.3
---------------------------------- ------ ------ ------ ------
Income (loss) before income taxes $ 5.8 $(55.7) $ 18.7 $(28.3)
---------------------------------- ====== ====== ====== ======
NOTE 5 Under the provisions of Washington State environmental laws, the
Washington State Department of Ecology ("WDOE") has notified the Company that it
is one of many companies named as a Potentially Liable Party ("PLP") for the
Pasco Sanitary Landfill site, Pasco, Washington ("the Site"). Although the
clean-up costs are believed to be substantial, accurate estimates will not be
available until the environmental studies have been completed at the Site.
However, based upon the total documented volume of waste sent to the Site, the
Company's waste volume compared to that total waste volume should result in the
Company to be classified as a "de minimis" PLP. In July 1992, the Company and
thirty-eight other PLPs entered into an Administrative Agreed Order with WDOE to
perform a Phase I Remedial Investigation at the Site. In October 1994, WDOE
issued an administrative Unilateral Enforcement Order to all PLPs to complete a
Phase II Remedial Investigation and Feasibility Study ("RI/FS") under the Scope
of Work established by WDOE. Based on results of the RI/FS, WDOE has issued a
new administrative Unilateral Enforcement Order to all PLPs to perform several
years of cleanup action at the Site. The Company is unable to determine, at
this time, the level of cleanup demands that may be ultimately placed on it.
Management believes that, given the number of PLPs named with respect to the
Site and their financial condition, the Company's potential response costs
associated with the Site will not have a material adverse effect on consolidated
financial condition or operating results.
In connection with his resignation effective October 20, 1999, a former
executive officer ("executive") cited "good reason" (in the nature of
constructive discharge) under his employment contract and claimed he was due
severance benefits in excess of $2.5 million. As of September 12, 2000, the
matter has been settled by mutual agreement without any material adverse effect
to the Company.
Page 8
<PAGE>
The Company is a defendant in a number of product liability lawsuits, some of
which seek significant or unspecified damages, involving serious personal
injuries for which there are retentions or deductible amounts under the
Company's insurance policies. In addition, the Company is a party to a number
of other suits arising out of the conduct of its business. While there can be
no assurance as to their ultimate outcome, management does not believe these
lawsuits will have a material adverse effect on consolidated financial condition
or operating results.
See Note 7 to the Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999, for other
commitments and contingencies of the Company which have not changed
significantly since that date.
NOTE 6 During the nine months ended September 30, 2000, tax payments of $4.3
million were made, while in the nine months ended September 30, 1999, tax
payments of $11.7 million were made. Interest paid during the nine months ended
September 30, 2000 and 1999, was $76.3 million and $39.5 million.
During the second quarter of 2000, the Company disposed of some non-core assets,
an airplane and a manufacturing facility in North Carolina that was part of the
1999 plant rationalization and production realignment efforts of the Industrial
and Power Equipment segment. The resulting pre-tax gain on the sales of $4.7
million is included in "Other Income (Expense)." The remaining other income
results from realized gains on securities held in two rabbi trusts (see Note 6
to the Consolidated Financial Statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999, for information regarding
these two trusts).
NOTE 7 For the three months and nine months ended September 30, 2000 and 1999,
net income and shares used in the earnings per share ("EPS") computations were
the following amounts:
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
2000 1999 2000 1999
------------------------------ ---------- ---------- ---------- ----------
Net income (in millions) $ 3.3 $ (42.6) $ 11.6 $ (24.9)
------------------------------ ========== ========== ========== ==========
Shares:
Basic EPS - weighted average
common shares outstanding 30,795,882 53,667,708 30,795,882 67,315,172
Dilutive effect of stock
options 30,796,040 30,795,935
------------------------------ ---------- ---------- ---------- ----------
Diluted EPS $ 0.11 $ (0.79) $ 0.38 (0.37)
------------------------------ ========== ========== ========== ==========
Options to purchase 120,000 shares were granted during the first nine months of
2000 under the 1999 Blount International, Inc. Stock Incentive Plan.
Page 9
<PAGE>
NOTE 8 The following consolidating financial information sets forth condensed
consolidating statements of operations, and the balance sheets and cash flows of
Blount International, Inc., Blount, Inc., the Guarantor Subsidiaries and the
Non-Guarantor Subsidiaries (in millions).
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For The Nine Months
Ended September 30, 2000
<TABLE>
<CAPTION>
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 347.8 $246.7 $144.3 $ (109.0) $629.8
Cost of sales 263.0 187.4 98.6 (108.1) 440.9
-------- ------ ------ --------- ------
Gross profit 84.8 59.3 45.7 (0.9) 188.9
Selling, general and administrative expenses $ 0.7 42.9 29.9 29.9 103.4
------ -------- ------ ------ --------- ------
Income (loss) from operations (0.7) 41.9 29.4 15.8 (0.9) 85.5
Interest expense (74.0) (8.3) (0.3) 8.3 (74.3)
Interest income 0.2 8.7 0.3 0.2 (8.3) 1.1
Other income (expense), net 6.5 0.1 (0.2) 6.4
------ -------- ------ ------ --------- ------
Income (loss) before income taxes (0.5) (16.9) 21.5 15.5 (0.9) 18.7
Provision (benefit) for income taxes 0.3 (7.1) 8.2 5.7 7.1
------ -------- ------ ------ --------- ------
Income (loss) before earnings of
affiliated companies (0.8) (9.8) 13.3 9.8 (0.9) 11.6
Equity in earnings of affiliated companies, net 12.4 22.2 (0.1) (34.5) 0.0
------ -------- ------ ------ --------- ------
Net income (loss) $ 11.6 $ 12.4 $ 13.2 $ 9.8 $ (35.4) $ 11.6
====== ======== ====== ====== ========= ======
</TABLE>
Page 10
<PAGE>
For The Three Months
Ended September 30, 2000
<TABLE>
<CAPTION>
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 120.6 $ 85.8 $ 47.2 $ (34.4) $219.2
Cost of sales 91.6 66.8 31.8 (34.8) 155.4
-------- ------ ------ --------- ------
Gross profit 29.0 19.0 15.4 0.4 63.8
Selling, general and administrative expenses $ 0.2 13.9 9.4 10.0 33.5
------ -------- ------ ------ --------- ------
Income (loss) from operations (0.2) 15.1 9.6 5.4 0.4 30.3
Interest expense (25.2) (2.0) (0.1) 2.0 (25.3)
Interest income 0.1 2.0 0.1 0.1 (2.0) 0.3
Other income (expense), net 0.7 (0.2) 0.5
------ -------- ------ ------ --------- ------
Income (loss) before income taxes (0.1) (7.4) 7.5 5.4 0.4 5.8
Provision (benefit) for income taxes 0.4 (2.4) 2.8 1.7 2.5
------ -------- ------ ------ --------- ------
Income (loss) before earnings of
affiliated companies (0.5) (5.0) 4.7 3.7 0.4 3.3
Equity in earnings of affiliated companies, net 3.8 8.8 (12.6) 0.0
------ -------- ------ ------ --------- ------
Net income (loss) $ 3.3 $ 3.8 $ 4.7 $ 3.7 $ (12.2) $ 3.3
====== ======== ====== ====== ========= ======
</TABLE>
Page 11
<PAGE>
September 30, 2000
<TABLE>
<CAPTION>
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
BALANCE SHEET
-------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 0.9 $ (1.0) $ 2.6 $ 2.5
Accounts receivable, net 67.7 98.9 16.6 183.2
Intercompany receivables 252.8 72.0 7.1 $ (331.9) 0.0
Inventories 73.4 65.5 16.0 154.9
Deferred income taxes 21.1 21.1
Other current assets 10.0 0.6 1.4 12.0
-------- ------ ------ --------- ---------
Total current assets 425.9 236.0 43.7 (331.9) 373.7
Investments in affiliated companies $ 20.9 391.0 0.3 (412.2) 0.0
Property, plant and equipment, net 73.4 71.2 25.5 170.1
Cost in excess of net assets of acquired
businesses, net 46.0 63.4 6.9 116.3
Intercompany notes receivable 6.1 (6.1) 0.0
Other assets 61.5 1.2 3.5 66.2
------ -------- ------ ------ --------- ---------
Total Assets $ 20.9 $ 997.8 $371.8 $ 86.0 $ (750.2) $ 726.3
====== ======== ====== ====== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current maturities
of long-term debt $ 3.4 $ 6.0 $ 9.4
Accounts payable $ 0.1 22.2 $ 18.0 4.8 45.1
Intercompany payables 331.9 $ (331.9) 0.0
Accrued expenses 55.8 21.0 9.1 85.9
------ -------- ------ ------ --------- ---------
Total current liabilities 332.0 81.4 39.0 19.9 (331.9) 140.4
Long-term debt, exclusive of current maturities 843.8 0.1 843.9
Intercompany notes payable 6.1 (6.1) 0.0
Deferred income taxes, exclusive of
current portion 7.3 1.5 8.8
Other liabilities 38.3 5.2 0.8 44.3
------ -------- ------ ------ --------- ---------
Total liabilities 332.0 976.9 44.2 22.3 (338.0) 1,037.4
Stockholders' equity (deficit) (311.1) 20.9 327.6 63.7 (412.2) (311.1)
------ -------- ------ ------ --------- ---------
Total Liabilities and
Stockholders' Equity (Deficit) $ 20.9 $ 997.8 $371.8 $ 86.0 $ (750.2) $ 726.3
====== ======== ====== ====== ========= =========
</TABLE>
Page 12
<PAGE>
For The Nine Months
Ended September 30, 2000
<TABLE>
<CAPTION>
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
STATEMENT OF CASH FLOWS
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities $ 374.8 $ (33.5) $ 14.2 $ 1.8 $ (378.1) $ (20.8)
--------- -------- ------ ------ --------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment 15.1 1.5 16.6
Purchases of property, plant and equipment (14.1) (4.3) (4.0) (22.4)
Acquisitions of product lines (17.2) (0.6) (17.8)
--------- -------- ------ ------ --------- ---------
Net cash used in investing activities (16.2) (3.4) (4.0) (23.6)
--------- -------- ------ ------ --------- ---------
Cash flows from financing activities:
Net increase in short-term borrowings 3.0 3.0
Issuance of long-term debt 36.6 36.6
Reduction of long-term debt (2.6) (2.6)
Dividends paid (375.0) (3.1) 378.1 0.0
Advances from (to) affiliated companies (374.8) 386.9 (12.1) 0.0
Other (0.6) (0.6)
--------- -------- ------ ------ --------- ---------
Net cash provided by (used in) financing
activities (374.8) 45.3 (12.1) (0.1) 378.1 36.4
--------- -------- ------ ------ --------- ---------
Net decrease in cash and cash equivalents (4.4) (1.3) (2.3) (8.0)
Cash and cash equivalents at beginning of period 5.3 0.3 4.9 10.5
--------- -------- ------ ------ --------- ---------
Cash and cash equivalents at end of period $ 0.0 $ 0.9 $ (1.0) $ 2.6 $ 0.0 $ 2.5
========= ======== ====== ====== ========= =========
</TABLE>
Page 13
<PAGE>
December 31, 1999
<TABLE>
<CAPTION>
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
BALANCE SHEET
-------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5.3 $ 0.3 $ 4.9 $ 10.5
Accounts receivable, net 77.6 79.3 15.0 171.9
Intercompany receivables 613.7 86.9 6.0 $ (706.6) 0.0
Inventories 47.5 55.2 14.3 117.0
Deferred income taxes 21.2 (0.1) 21.1
Other current assets 13.1 1.6 0.8 15.5
-------- ------ ------ --------- ---------
Total current assets 778.4 223.3 41.0 (706.7) 336.0
Investments in affiliated companies $385.0 386.4 0.2 (771.6) 0.0
Property, plant and equipment, net 71.6 75.9 24.8 172.3
Cost in excess of net assets of acquired
businesses, net 32.7 71.7 7.1 111.5
Intercompany notes receivable 3.0 (3.0) 0.0
Other assets 64.9 1.9 2.1 68.9
------ -------- ------ ------ --------- ---------
Total Assets $385.0 $1,334.0 $372.8 $ 78.2 $(1,481.3) $ 688.7
====== ======== ====== ====== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current maturities
of long-term debt $ 3.4 $ 3.1 $ 6.5
Accounts payable 24.9 $ 21.0 5.1 51.0
Intercompany payables $706.7 $ (706.7) 0.0
Accrued expenses 63.5 20.4 7.1 91.0
------ -------- ------ ------ --------- ---------
Total current liabilities 706.7 91.8 41.4 15.3 (706.7) 148.5
Long-term debt, exclusive of current maturities 809.5 0.2 809.7
Intercompany notes payable 3.0 (3.0) 0.0
Deferred income taxes, exclusive of
current portion 7.3 1.5 8.8
Other liabilities 37.4 5.2 0.8 43.4
------ -------- ------ ------ --------- ---------
Total liabilities 706.7 949.0 46.6 17.8 (709.7) 1,010.4
Stockholders' equity (deficit) (321.7) 385.0 326.2 60.4 (771.6) (321.7)
------ -------- ------ ------ --------- ---------
Total Liabilities and
Stockholders' Equity (Deficit) $385.0 $1,334.0 $372.8 $ 78.2 $(1,481.3) $ 688.7
====== ======== ====== ====== ========= =========
</TABLE>
Page 14
<PAGE>
For The Nine Months
Ended September 30, 1999
<TABLE>
<CAPTION>
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 310.2 $250.1 $121.8 $ (94.2) $587.9
Cost of sales 241.7 187.1 83.4 (92.8) 419.4
-------- ------ ------ --------- ------
Gross profit 68.5 63.0 38.4 (1.4) 168.5
Selling, general and administrative expenses $ 0.8 46.8 29.3 28.1 105.0
Merger expenses 69.5 5.1 74.6
------ -------- ------ ------ --------- ------
Income (loss) from operations (70.3) 16.6 33.7 10.3 (1.4) (11.1)
Interest expense (30.9) (0.1) 10.5 (20.5)
Interest income 1.2 1.2 10.9 0.2 (10.5) 3.0
Other income (expense), net 0.5 0.3 (0.5) 0.3
------ -------- ------ ------ --------- ------
Income (loss) before income taxes (69.1) (12.6) 44.8 10.0 (1.4) (28.3)
Provision (benefit) for income taxes (18.5) (6.8) 17.0 4.9 (3.4)
------ -------- ------ ------ --------- ------
Income (loss) before earnings of
affiliated companies (50.6) (5.8) 27.8 5.1 (1.4) (24.9)
Equity in earnings of affiliated companies, net 25.7 31.5 3.4 (60.6) 0.0
------ -------- ------ ------ --------- ------
Net income $(24.9) $ 25.7 $ 31.2 $ 5.1 $ (62.0) $(24.9)
====== ======== ====== ====== ========= ======
For The Three Months
Ended September 30, 1999
STATEMENT OF OPERATIONS
-----------------------
Sales $ 109.9 $ 99.1 $ 43.1 $ (32.5) $219.6
Cost of sales 84.9 73.6 29.9 (32.3) 156.1
-------- ------ ------ --------- ------
Gross profit 25.0 25.5 13.2 (0.2) 63.5
Selling, general and administrative expenses $ 0.2 14.0 11.9 9.7 35.8
Merger expenses 69.5 2.9 72.4
------ -------- ------ ------ --------- ------
Income (loss) from operations (69.7) 8.1 13.6 3.5 (0.2) (44.7)
Interest expense (16.9) 3.5 (13.4)
Interest income 1.2 0.4 3.8 0.1 (3.5) 2.0
Other income (expense), net 0.6 0.1 (0.3) 0.4
------ -------- ------ ------ --------- ------
Income (loss) before income taxes (68.5) (7.8) 17.5 3.3 (0.2) (55.7)
Provision (benefit) for income taxes (18.3) (2.9) 6.6 1.5 (13.1)
------ -------- ------ ------ --------- ------
Income (loss) before earnings of
affiliated companies (50.2) (4.9) 10.9 1.8 (0.2) (42.6)
Equity in earnings of affiliated
companies, net 7.6 12.5 1.2 (21.3) 0.0
------ -------- ------ ------ --------- ------
Net income $(42.6) $ 7.6 $ 12.1 $ 1.8 $ (21.5) $(42.6)
====== ======== ====== ====== ========= ======
</TABLE>
Page 15
<PAGE>
For The Nine Months
Ended September 30, 1999
<TABLE>
<CAPTION>
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
STATEMENT OF CASH FLOWS
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities $ (26.9) $ 31.9 $(11.2) $ 4.9 $ (27.6) $ (28.9)
--------- -------- ------ ------ --------- ---------
Cash flows from investing activities:
Proceeds from sales of property, plant
and equipment 0.6 0.1 0.7
Purchases of property, plant and equipment (4.1) (5.1) (2.7) (11.9)
Acquisitions of product lines (0.6) (0.6)
Other (3.3) (3.3)
--------- -------- ------ ------ --------- ---------
Net cash used in investing activities (6.8) (5.7) (2.6) (15.1)
--------- -------- ------ ------ --------- ---------
Cash flows from financing activities:
Issuance of long-term debt 697.4 697.4
Reduction of long-term debt (7.5) (0.2) (7.7)
Decrease in restricted funds 0.2 0.2
Redemption of common stock (1,068.8) (1,068.8)
Capital contribution 417.5 417.5
Dividends paid (7.8) (25.0) (2.6) 27.6 (7.8)
Advances from (to) affiliated companies 685.0 (703.0) 18.0 0.0
Other 1.0 (2.6) (1.6)
--------- -------- ------ ------ --------- ---------
Net cash provided by (used in) financing
activities 26.9 (40.5) 18.0 (2.8) 27.6 29.2
--------- -------- ------ ------ --------- ---------
Net increase (decrease) in cash and cash
equivalents (15.4) 1.1 (0.5) (14.8)
Cash and cash equivalents at beginning of period 39.7 (1.5) 6.9 45.1
--------- -------- ------ ------ --------- ---------
Cash and cash equivalents at end of period $ 0.0 $ 24.3 $ (0.4) $ 6.4 $ 0.0 $ 30.3
========= ======== ====== ====== ========= =========
</TABLE>
NOTE 9 On September 26, 2000, the Company purchased the assets of Fabtek, Inc.,
a manufacturer of timber harvesting equipment. On October 16, 2000, the Company
purchased the assets of Windsor Forestry Tools Inc., a manufacturer of cutting
chain and guide bars for chain saws and timber harvesting equipment from Snap-on
Incorporated. On October 20, 2000, the Company purchased all the outstanding
stock of Estate Cartridge, Inc., a manufacturer of sporting shotshell
ammunition. The estimated aggregate purchase price of these acquisitions was
$39.7 million and the combined sales and operating loss for the last twelve
months prior to acquisition were $48.9 million and $0.6 million, respectively.
The acquisitions will be accounted for by the purchase method and the net assets
and results of operations for Fabtek have been included in the Company's
consolidated financial statements for the period ended September 30, 2000. The
excess of the purchase price over the fair value of the net assets acquired will
be amortized on a straight-line basis over a period consistent with Company
policy of between 5 and 40 years.
Page 16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Results
Sales for the three months and nine months ended September 30, 2000 were $219.2
million and $629.8 million compared to $219.6 million and $587.9 million for the
comparable periods of the prior year. Net income for the third quarter and
first nine months of 2000 was $3.3 million and $11.6 million compared to net
losses of $42.6 million and $24.9 million for the comparable periods of the
prior year. Last year's third quarter and first nine months included expenses
related to the recapitalization and merger of August 19, 1999 of $72.4 million
and $74.6 million, respectively. The 2000 results reflect increases in sales
and operating income from both the Outdoor Products segment and the Industrial
and Power Equipment segment and a decline in sales and operating income from the
Sporting Equipment segment. The Outdoor Products segment reflects good market
conditions including the effect of storm damage in Europe, partially offset by
the negative impact of the U.S. dollar's strength. The Industrial and Power
Equipment segment reflects a somewhat improved market, the effects of plant
rationalization actions taken in 1999, and new product introductions. The
Sporting Equipment segment was impacted in the third quarter by lower shipments
in comparison to the third quarter of 1999, which was somewhat impacted by
increased purchasing in anticipation of potential Y2K conditions. Corporate
expenses for the first nine months of 1999 include $1.5 million for a donation
of art (see Note 2 of Notes to the Condensed Consolidated Financial Statements).
Excluding the expenses associated with the recapitalization and merger and
donation of art, selling, general and administrative expenses decreased by $2.3
million and $0.1 million during the third quarter and first nine months of 2000
as compared to the same periods in the prior year. The decrease in the third
quarter reflects lower selling and administrative expense in the Sporting
Equipment segment related to the decrease in volume. Higher interest expense
during the three months and nine months ended September 30, 2000, reflects
higher long-term debt levels during the current year resulting from the
transaction described in Note 1 of Notes to the Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. The Company's effective income tax rate was higher in the
third quarter and first nine months of 2000 in comparison to comparable periods
of 1999 as a result of the donation of art and non-deductible portions of the
merger expenses. 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, 1999.
Sales for the Outdoor Products segment for the third quarter and first nine
months of 2000 were $88.4 million and $272.3 million compared to $82.7 million
and $243.2 million during the corresponding periods of 1999. Operating income
was $19.9 million for the third quarter and $62.3 million for the first nine
months of 2000 compared to $17.9 million and $53.6 million in the comparable
periods of the prior year. Sales reflect a significantly higher volume of sales
of chain saw components, particularly in Europe and the United States. Sales by
the segment's principal product groups were as follows (in millions):
Page 17
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
% Increase % Increase
(Decrease) (Decrease)
2000 1999 in 2000 2000 1999 in 2000
--------------------------- ------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Chain saw components $ 58.1 $ 53.2 9.2% $173.7 $148.1 17.3%
Lawn mowers and accessories 20.7 20.0 3.5 67.6 65.3 3.5
Other 9.6 9.5 1.1 31.0 29.8 4.0
--------------------------- ------ ------ ------ ------
Total segment sales $ 88.4 $ 82.7 6.9% $272.3 $243.2 12.0%
--------------------------- ====== ====== ====== ======
</TABLE>
The improvement in operating income is primarily due to the higher sales of
chain saw components. Operating income for the first nine months of 2000
compared to 1999 was negatively affected by an additional $2.2 million from
unfavorable foreign currency.
Sales for the Sporting Equipment segment declined to $90.5 million for the third
quarter and $235.7 million for the first nine months of 2000 as compared to
$98.5 million and $240.0 million during the same periods last year. This
performance reflects lower sales of ammunition which was somewhat impacted by
Y2K buying in 1999 and lower competitive selling prices on optical products in
2000 but were offset partially by increased sales to law enforcement and
international markets. Operating income decreased to $10.3 million and $26.5
million in the current year's third quarter and first nine months from $13.6
million and $28.7 million for the same periods during the prior year. Operating
profit was impacted by lower ammunition volume and lower optics selling prices
and reduced other sales which are predominantly accessories products, partially
offset by lower selling and administrative expenses. Sales by the segment's
principal product groups were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
% Increase % Increase
(Decrease) (Decrease)
2000 1999 in 2000 2000 1999 in 2000
--------------------------- ------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Ammunition and related products $ 66.2 $ 71.6 (7.5)% $174.7 $176.6 (1.1)%
Sports optical products 11.9 13.3 (10.5) 28.5 30.0 (5.0)
Other 12.4 13.6 (8.8) 32.5 33.4 (2.7)
--------------------------- ------ ------ ------ ------
Total segment sales $ 90.5 $ 98.5 (8.1)% $235.7 $240.0 (1.8)%
--------------------------- ====== ====== ====== ======
</TABLE>
The Company's Industrial and Power Equipment segment is a cyclical, capital
goods business whose results are closely linked to the strength of the forestry
industry in general, particularly in the Company's most important market (the
Southeastern United States), as well as the need to offer discounts in response
to extremely aggressive competitive pricing for available sales. Operating
results for the Industrial and Power Equipment segment in the third quarter and
first nine months of 2000, while improved over the prior year, were still
affected by soft market conditions. Dry weather conditions in the Southeastern
United States, coupled with an overhang of used equipment in certain dealers'
inventories, continue to negatively impact sales of new equipment. Sales of
Gear components and rotation bearings were essentially flat for the third
quarter and first nine months as increased sales to the utility market were
Page 18
<PAGE>
offset by decreases to the construction equipment market. Sales by the
segment's principal product groups were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
% Increase % Increase
(Decrease) (Decrease)
2000 1999 in 2000 2000 1999 in 2000
--------------------------- ------ ------ ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Timber harvesting and loading
equipment $ 33.6 $ 31.6 6.3% $102.1 $ 85.1 20.0%
Gear components and rotation
bearings 6.7 6.8 (1.5) 19.7 19.6 0.5
--------------------------- ------ ------ ------ ------
Total segment sales $ 40.3 $ 38.4 4.9% $121.8 $104.7 16.3%
--------------------------- ====== ====== ====== ======
</TABLE>
The segment had operating income of $2.4 million for the third quarter and $5.4
million for the first nine months of 2000 as compared to operating losses of
$0.7 million and $5.7 million for the comparable periods last year, reflecting
somewhat improved market conditions and the associated demand for timber
harvesting equipment. During the first half of 2000, in response to weak market
conditions, the Company implemented a program of production realignments,
temporary plant shutdowns and layoffs, and reduced working hours in this segment
to lower costs and match production with demand. During the first nine months
of 1999, two manufacturing facilities were closed with production shifted to
other Company plants. Costs of approximately $1.0 million and $3.0 million for
these closures were incurred in the third quarter and first nine months of 1999.
The Company's total backlog increased to $90.7 million at September 30, 2000,
from $85.6 million at December 31, 1999, and declined from $100.8 million at
September 30, 1999, as follows (in millions):
Backlog
------------------------------------------
September 30, December 31, September 30,
2000 1999 1999
------------------------------------ ------------- ------------ -------------
Outdoor Products $ 55.3 $ 41.9 $ 41.4
Sporting Equipment 17.0 17.9 24.9
Industrial and Power Equipment 18.4 25.8 34.5
------------------------------------ ------ ------ ------
$ 90.7 $ 85.6 $100.8
------------------------------------ ====== ====== ======
Financial Condition, Liquidity and Capital Resources
At September 30, 2000, the Company had significant amounts of debt, with
interest payments on notes and interest and principal payments under credit
facilities representing significant obligations for the Company. The notes
require semi-annual interest payments and the term loan facilities under credit
facilities entered into in conjunction with the recapitalization and merger
required payments of principal that commenced on December 31, 1999. Interest on
the term loan facilities and amounts outstanding under the revolving credit
facility are payable in arrears according to varying interest periods. The
Company's remaining liquidity needs relate to working capital, capital
expenditures and potential acquisitions.
Page 19
<PAGE>
The Company intends to fund working capital, capital expenditures and debt
service requirements through cash flows generated from operations and from the
revolving credit facility. At September 30, 2000, the Company had $36.6 million
outstanding borrowings under its $100.0 million revolving credit facility.
Letters of credit issued under the revolving credit facility that reduce the
amount available under the facility totaled $7.6 million at September 30, 2000.
The revolving credit facility matures August 19, 2004.
Management believes that cash generated from operations, together with amounts
available under the revolving credit facility, will be sufficient to meet the
Company's working capital, capital expenditure and other cash needs, including
financing for acquisitions, in the foreseeable future. There can be no
assurance, however, that this will be the case. The Company may also consider
other options available to it in connection with future liquidity needs.
The Company has senior notes outstanding in the principal amount of $150 million
which mature in 2005. The Company also has senior subordinated notes
outstanding in the principal amount of $325 million which mature in 2009 and
senior term loans outstanding in the principal amount of $336.6 million which
mature at various dates through 2006. 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, 1999, for the terms and conditions of the senior
notes, senior subordinated notes, and senior term loans.
Cash balances at September 30, 2000, were $2.5 million compared to $10.5 million
on December 31, 1999. Cash used in operating activities was $20.8 million in
the first nine months of 2000 compared to a use of $28.9 million for the same
period last year The reduction in cash used is due to increased net income of
$36.5 million and lower cash usage of $40.3 million for accounts receivables,
reflecting new programs for customer equipment purchases and a reduced seasonal
buildup in the Sporting Equipment segment due to a decline in third quarter
sales from the same period of last year, offset by higher cash usage of $29.2
million for inventories, $14.0 million for accounts payable, and $28.0 million
for accrued expenses principally due to the payment of merger expenses. Working
capital at September 30, 2000, increased to $233.3 million from $187.5 million
at December 31, 1999. Inventories increased by $37.9 million, accounts
receivable by $11.3 million, accounts payable decreased by $5.9 million, and
accrued expenses decreased by $5.1 million, offset partially by a reduction in
cash of $8.0 million. The increases in inventory reflect an increase in the
Industrial and Power Equipment segment of $18.6 million related to somewhat
improved sales, the effect of long lead times on certain products, and the
acquisition of Fabtek and a $15.0 million increase in the Sporting Equipment
segment resulting from the normal seasonal buildup in anticipation of fourth
quarter sales. The decrease in accounts payable reflects timing of raw material
payments relative to seasonal production. The accrued expenses decrease relates
to reduction in accrued merger expenses from the fourth quarter of 1999 and the
timing of interest payments. The higher accounts receivable principally
reflects longer payment terms used as a marketing tool by the Sporting Equipment
segment, partially offset by lower receivables in the Outdoor Products segment
caused by third-party dealer financing programs offered by Dixon and a decrease
for receivables at the Industrial and Power Equipment segment where third
quarter sales are historically lower than fourth quarter sales.
Accounts receivable at September 30, 2000, and December 31, 1999, and sales by
segment for the third quarter of 2000 compared to the fourth quarter of 1999
were as follows (in millions):
Page 20
<PAGE>
September 30, December 31, Increase
2000 1999 (Decrease)
------------------------------------ ------------- ------------ ------------
Accounts Receivable:
Outdoor Products $ 56.0 $ 65.6 $ (9.6)
Sporting Equipment 101.2 64.8 36.4
Industrial and Power Equipment 26.1 40.9 (14.8)
------------------------------------ ------ ------ ------
Total segment receivables $183.3 $171.3 $ 12.0
------------------------------------ ====== ====== ======
Three Months Ended
September 30, December 31, Increase
2000 1999 (Decrease)
------------------------------------ ------------- ------------ ------------
Sales:
Outdoor Products $ 88.4 $ 84.3 $ 4.1
Sporting Equipment 90.5 83.8 6.7
Industrial and Power Equipment 40.3 53.9 (13.6)
------------------------------------ ------ ------ ------
Total segment sales $219.2 $222.0 $ (2.8)
------------------------------------ ====== ====== ======
The Company's Outdoor Product's segment includes Oregon Cutting Systems,
Frederick Manufacturing, and Dixon Industries. The higher sales by the Outdoor
Products segment and an increased mix of sales to original equipment
manufacturers who generally require shorter payment terms, coupled with third-
party dealer financing offered by Dixon, resulted in a decrease in that
segment's receivables as compared to year end. Because of the seasonal nature
of the Sporting equipment business, the need to produce and ship efficiently in
order to ensure an adequate supply during peak sales periods and market response
to competitor programs, the Company offers extended payment terms within its
Sporting Equipment segment in advance of the fall hunting season. As a result,
receivables tend to peak in September and reach their low point in January. At
September 30, 2000, extended term receivables were $24.0 million greater than at
December 31, 1999. The decrease in receivables within the Industrial and Power
Equipment segment are reflective of lower sales in the third quarter of 2000 in
comparison to the fourth quarter of 1999.
Cash used for investing activities for the first nine months is $23.6 million.
Included in this amount is the acquisition of the assets of Fabtek, a producer
of equipment for the timber harvesting industry. Fabtek will expand the product
line of the company and enhance the competitive position of the Industrial and
Power Equipment segment. Purchases for property, plant and equipment in the
current year are $22.4 million and the sale of certain property, plant and
equipment, principally the Company's aircraft, is $16.6 million.
The Company has absorbed the increase in working capital and the acquisition of
Fabtek through operating cash flows and short-term borrowings under its
revolving credit agreement. Cash provided by financing activities for the first
nine months of 2000 was $36.4 million, substantially all from the utilization of
the revolving credit facility. Given the historically stronger fourth quarter
cash flows (in 1999, the fourth quarter operating cash flow was $54.6 million in
comparison to $34.3 million in the first nine months, excluding merger
expenses), the Company expects the cash flows from operations and amounts
borrowed under its revolving credit agreements will be sufficient to cover
acquisitions and any additional increases in working capital until market
conditions improve in the Industrial and Power Equipment segment and payment
terms return to those normally extended. No material adverse effect on the
operations, liquidity or capital resources of the Company is expected as a
Page 21
<PAGE>
result of the extended terms. The purchase of Windsor Tools occurred on October
16 and Estate Cartridge on October 20 and will be funded through operating cash
flow and amounts under revolving credit agreements.
The Company is substantially leveraged which may adversely affect its
operations.
This substantial leverage could have important consequences for the Company,
including the following:
1. the ability to obtain additional financing for working capital, capital
expenditures or other purposes may be impaired or any such financing may not be
available on favorable terms;
2. a substantial portion of cash flows available from operations are required
to be dedicated to the payment of principal and interest expense, which will
reduce the funds that would otherwise be available for operations and future
business opportunities;
3. a substantial decrease in net income and cash flows or an increase in
expenses may make it difficult to meet debt service requirements or force the
Company to modify operations; and
4. substantial leverage may make the Company more vulnerable to economic
downturns and competitive pressure.
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, 2001. 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' deficit.
On December 3, 1999, the staff of the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes some of the staff's interpretations
of the application of generally accepted accounting principles to revenue
recognition. SAB 101 was originally required to be adopted no later than the
first quarter of the fiscal year beginning after December 15, 1999. However,
SAB 101A extended the implementation date for certain registrants with fiscal
years that begin between December 16, 1999, and March 15, 2000 (including the
Company), to report a change in accounting principle no later than their second
quarter of the fiscal year beginning after December 15, 1999. SAB 101B further
extended the implementation date until the fourth quarter of the fiscal year
beginning after December 15, 1999. Management does not expect this accounting
bulletin to have a material impact on the Company's financial statements.
In October 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." It addressed
certain issues not previously addressed in SFAS No. 125 and is effective for
transfers and servicing after March 31, 2001. It is effective for disclosures
about securitizations and collateral for the recognition and classification of
collateral for fiscal years ending after December 15, 2000. Management is
currently reviewing this pronouncement and application to the Company.
Page 22
<PAGE>
Forward Looking Statements
Forward looking statements in this report, as defined by the Private Securities
Litigation Reform Law of 1995, including expectations based upon historic
patterns or other listed factors involve certain risks and uncertainties that
may cause actual results to differ materially from those anticipated as of the
date of this report.
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.
----------------------------------
Registrant
Date: November 14, 2000 /s/ Rodney W. Blankenship
---------------------------------------
Rodney W. Blankenship
Senior Vice President and
Chief Financial Officer
