SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 4, 1997
------------------------
Blount, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-7002 63-0593908
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
incorporation) Number)
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)
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
On November 4, 1997, Blount, Inc. ("Blount"), a wholly-owned subsidiary of
Blount International, Inc., completed the acquisition of Federal-Hoffman, Inc.,
now by change of name Federal Cartridge Company ("Federal"). The Form 8-K which
was filed on November 19, 1997 did not include Federal's financial statements or
pro forma financial information because, at that time, it was impractical to do
so. The financial statements and pro forma financial information are included
herein under Item 7(a) and Item 7(b).
(a) Financial Statements of Businesses Acquired. Page Number
-----------
Independent Auditors' Report 3
Balance Sheets, December 31, 1996 and
September 30, 1997 (Unaudited) 4
Statements of Operations and Divisional Equity,
Year Ended December 31, 1996 and Nine Months
Ended September 30, 1997 and 1996 (Unaudited) 5
Statements of Cash Flows, Year Ended December 31, 1996 and
Nine Months Ended September 30, 1997 and 1996 (Unaudited) 6
Notes to Financial Statements 7
(b) Unaudited Pro Forma Financial Information.
The acquisition of Federal by Blount has been accounted for as a purchase. The
following unaudited pro forma condensed consolidated financial statements do not
purport to be indicative of what would have occurred had the acquisition
actually been consummated on the assumed dates or of results that may occur for
any subsequent period. The unaudited pro forma condensed consolidated balance
sheet assumes the acquisition occurred on September 30, 1997, and includes a
preliminary estimate of the allocation of purchase price. The unaudited pro
forma condensed consolidated statements of income assume the acquisition
occurred at the beginning of each period presented and give effect to estimated
purchase accounting adjustments and the estimated cost to finance the
acquisition.
Page Number
-----------
Pro Forma Condensed Consolidated Balance Sheet,
September 30, 1997 13
Pro Forma Condensed Consolidated Statement of Income,
Nine Months Ended September 30, 1997 14
Pro Forma Condensed Consolidated Statement of Income,
Year Ended December 31, 1996 15
Notes to Pro Forma Condensed Consolidated Financial Statements 16
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INDEPENDENT AUDITORS' REPORT
To the Boards of Directors of Pentair, Inc.,
Blount International, Inc., and Blount, Inc.:
We have audited the accompanying balance sheet of the Federal Division, also
known as Federal Cartridge Company (the Company), a division of Federal-Hoffman,
Inc., as of December 31, 1996, and the related statements of operations and
divisional equity and of cash flows for the year ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1996 and the results of its operations and its cash flows for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
January 15, 1998
Minneapolis, Minnesota
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FEDERAL CARTRIDGE COMPANY
A Division of Federal-Hoffman, Inc.
BALANCE SHEETS
December 31, September 30,
1996 1997
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 217,915 $ 190,738
Accounts receivable, net of allowances of
$485,360 and $1,056,281 15,696,497 45,778,153
Inventories 37,252,807 35,440,739
Deferred taxes 530,000 1,289,000
Prepaid expenses and other 1,025,066 686,405
------------ ------------
Total current assets 54,722,285 83,385,035
PROPERTY, PLANT, AND EQUIPMENT, net 48,964,308 45,309,717
OTHER ASSETS:
Goodwill, net 16,080,975 15,704,073
Other 215,928 485,238
------------ ------------
$119,983,496 $144,884,063
============ ============
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,853,844 $ 10,420,019
Accrued salaries and employee benefits 5,285,061 7,255,823
Income taxes payable 5,575,874 7,315,515
Other accrued expenses 4,296,913 6,472,588
------------ ------------
Total current liabilities 23,011,692 31,463,945
POST-RETIREMENT MEDICAL BENEFIT OBLIGATIONS 9,459,127 9,571,034
DEFERRED TAXES 4,294,000 4,294,000
OTHER LONG-TERM LIABILITIES 747,526 695,564
DUE TO PENTAIR 47,795,003 58,206,532
COMMITMENTS AND CONTINGENCIES (Note 8)
DIVISIONAL EQUITY 34,676,148 40,652,988
------------ ------------
$119,983,496 $144,884,063
============ ============
See notes to financial statements.
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FEDERAL CARTRIDGE COMPANY
A Division of Federal-Hoffman, Inc.
STATEMENTS OF OPERATIONS AND DIVISIONAL EQUITY
Year Ended Nine Months Ended
December 31, September 30,
1996 1997 1996
(Unaudited)
NET SALES $129,853,343 $110,356,043 $100,296,604
COST OF GOODS SOLD 114,038,533 84,943,857 90,001,129
------------ ------------ ------------
GROSS PROFIT 15,814,810 25,412,186 10,295,475
EXPENSES:
Selling 11,292,564 9,073,216 8,528,794
General and administrative 2,875,897 2,997,553 1,571,856
Pentair allocated overhead 2,226,000 1,722,000 1,671,000
------------ ------------ ------------
16,394,461 13,792,769 11,771,650
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (579,651) 11,619,417 (1,476,175)
Pentair allocated interest expense 2,535,854 1,619,077 2,039,706
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (3,115,505) 10,000,340 (3,515,881)
Income tax provision (benefit) (1,200,000) 4,023,500 (1,311,000)
------------ ------------ ------------
NET INCOME (LOSS) (1,915,505) 5,976,840 (2,204,881)
DIVISIONAL EQUITY, BEGINNING OF PERIOD 36,591,653 34,676,148 36,591,653
------------ ------------ ------------
DIVISIONAL EQUITY, END OF PERIOD $ 34,676,148 $ 40,652,988 $ 34,386,772
============ ============ ============
See notes to financial statements.
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FEDERAL CARTRIDGE COMPANY
A Division of Federal-Hoffman, Inc.
STATEMENTS OF CASH FLOWS
Year Ended Nine Months Ended
December 31, September 30,
1996 1997 1996
(Unaudited)
OPERATING ACTIVITIES:
Net income (loss) $ (1,915,505) $ 5,976,840 $ (2,204,881)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation 6,719,893 5,388,621 5,041,540
Amortization 502,536 376,902 376,902
Deferred income taxes (3,454,000) (759,000) (1,081,000)
Changes in operating assets and
liabilities:
Accounts receivable 4,724,137 (30,081,656) (22,022,493)
Inventories 10,012,206 1,812,068 7,417,394
Current and other assets (436,312) 69,351 (21,958)
Accounts payable 1,265,943 2,566,175 565,921
Accrued salaries and employee
benefits (417,772) 2,082,669 284,754
Income taxes payable 1,343,263 1,739,641 (1,117,001)
Other accrued expenses 555,298 2,123,713 3,822,631
------------ ------------ ------------
Net cash provided by (used in)
operating activities 18,899,687 (8,704,676) (8,938,191)
INVESTING ACTIVITIES -
Purchases of property and equipment (5,055,670) (1,734,030) (4,106,968)
FINANCING ACTIVITIES -
Proceeds (payments) to Pentair, net (13,748,147) 10,411,529 13,165,823
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 95,870 (27,177) 120,664
CASH AT BEGINNING OF PERIOD 122,045 217,915 122,045
------------ ------------ ------------
CASH AT END OF PERIOD $ 217,915 $ 190,738 $ 242,709
============ ============ ============
See notes to financial statements.
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FEDERAL CARTRIDGE COMPANY
A Division of Federal-Hoffman, Inc.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND THE
NINE MONTHS ENDED SEPTEMBER 30,
1996 AND 1997 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
The Federal Division, also known as Federal Cartridge Company (the Company), is
a division of Federal-Hoffman, Inc., a wholly owned subsidiary of FC Holdings,
Inc. which has been a wholly owned subsidiary of Pentair, Inc. (Pentair) since
1988.
On November 4, 1997, Blount, Inc. (Blount), a wholly owned subsidiary of Blount
International, Inc., acquired all the outstanding stock of Federal-Hoffman, Inc.
(the Acquisition). As of the acquisition date, Federal-Hoffman, Inc., which was
effectively the Company, was renamed Federal Cartridge Company. Immediately
preceding the Acquisition, the assets and liabilities of the Hoffman Division,
which was also a division of Federal-Hoffman, Inc., were transferred to FC
Holdings, Inc.
The Company manufactures and markets shotshell, centerfire, and rimfire
cartridges; ammunition components; and clay targets. These products are
distributed throughout the United States through a network of distributors and
directly to large retail chains, the U.S. government and law enforcement
agencies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Financial Statements - The balance sheet as of September 30, 1997, and
the statements of operations and divisional equity and of cash flows for the
nine-month periods ended September 30, 1996 and 1997, have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only recurring adjustments) necessary to present fairly the financial
position at September 30, 1997, and results of operations and cash flows for the
nine months ended September 30, 1996 and 1997 have been made. Interim results
are not necessarily indicative of the results that will be achieved for the
year.
Revenue Recognition - Revenue from sales is recognized at the time the product
is shipped.
Property, Plant, and Equipment - Property, plant, and equipment are recorded at
cost and depreciated using the straight-line method over the estimated useful
lives as follows:
Years
Land improvements 10 to 15
Buildings 24 to 40
Machinery and equipment 3 to 10
Goodwill - Goodwill is being amortized on the straight-line method over forty
years. Amortization recorded for the year ended December 31, 1996 was $502,536,
and accumulated amortization was $4,020,287 at December 31, 1996. The Company
periodically reviews goodwill to assess recoverability. If events or changes in
circumstances indicated that the carrying amount of goodwill may not be
recoverable, it would be adjusted to the present value of the estimated future
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cash flows. Based on evaluations performed, no adjustments to the carrying
value of goodwill have been required.
Futures Contracts - The Company accounts for futures contracts in accordance
with Statement of Financial Accounting Standards (SFAS) No. 80, Accounting for
Futures Contracts. These contracts effectively hedge anticipated copper
purchases relating to transactions the Company expects, but is not obligated, to
carry out in the normal course of business. Any gain or loss related to
contracts accounted for as a hedge which are closed before the date of the
anticipated transaction is deferred until completion of the transaction.
Deferred gains or losses are amortized over the transaction period.
Postretirement Medical Benefits - The Company follows SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, which requires that
the cost of these benefits be accrued over the employees' period of service to
the date employees become eligible for benefits.
Postemployment Benefits - The Company follows SFAS No. 112, Employers'
Accounting for Postemployment Benefits, which requires that a liability be
accrued for benefits, such as short-term disability, equal to the estimated cost
of providing such benefits to former or inactive employees after employment but
prior to retirement.
Estimates - The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
3. RELATED PARTY TRANSACTIONS AND BALANCES
Due to Pentair and Allocations from Pentair- All transactions between the
Company and Pentair have been accounted for as related party transactions
through the Due to Pentair account. This account represents a non-interest
bearing financing facility for the Company with no maturity date or specified
repayment provisions. Net cash receipts and disbursements have been funded
daily to and from this account.
The Company receives a variety of services and support from Pentair. The
corporate overhead allocation from Pentair and other allocated charges represent
the cost of providing various corporate services such as treasury, finance,
legal and other administrative support services. These allocations represent
the Company's proportionate share of Pentair's corporate overhead which has been
allocated based upon revenues. The Pentair interest expense allocation
represents the Company's proportionate share of Pentair's domestic interest
expense based upon the Company's three-month rolling average of net operating
assets.
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Components of Pentair allocated expenses are as follows for the year ended
December 31, 1996:
Cost of sales $ 768,205
General and administrative 109,218
Selling 556
Corporate overhead allocation from Pentair 2,226,000
Interest expense 2,535,854
----------
Total allocated expenses $5,639,833
==========
Employee Stock Ownership Plan - The Company participates in an Employee Stock
Ownership Plan (ESOP) sponsored by Pentair covering non-bargaining and some
bargaining U.S. employees. The employees receive Pentair's Series 1990
Preferred Stock in lieu of cash 401(k) matching contributions and other cash
compensation. Compensation expense for the value of shares allocated to
participant accounts was $270,000 for the year ended December 31, 1996. The
stock held by the ESOP is released for allocation to the participants' accounts
as principal and interest, which is paid from dividends on unallocated shares
and Company contributions.
Stock Incentive Plans - Certain of the Company's employees are eligible for
participation in Pentair's compensatory and noncompensatory stock incentive
plans. Expense of $210,000 related to compensatory plans was recorded in the
Company's financial statements for the year ended December 31, 1996.
Insurance - The Company's general and product liability, workers' compensation,
and auto liability risks since June 1992 were insured by Pentair's wholly owned
insurance subsidiary. Expenses incurred from the insurance subsidiary for the
year ended December 31, 1996 were $760,900 and were included in cost of sales.
Employee Benefit Plans - The Company also participates in certain other Pentair
benefit plans as disclosed in Notes 9 and 10.
4. INVENTORIES
Inventories are stated at the lower of cost or market, using the last-in,
first-out (LIFO) basis. At December 31, 1996 and September 30, 1997, aggregate
inventory valued at LIFO approximated the first-in, first-out (FIFO) method
after considering excess and obsolete and lower of cost or market reserves.
Inventories, which are stated net of related allowances for excess and obsolete
inventory and lower of cost or market reserves of $6,159,000 at December 31,
1996 and $5,405,000 at September 30, 1997, consisted of the following:
December 31, September 30,
1996 1997
Raw materials $ 6,471,288 $ 6,908,308
Work-in-process 3,768,742 4,331,638
Finished goods 24,195,491 21,051,235
Tooling 2,398,111 2,733,248
Supplies 419,175 416,310
----------- -----------
Total $37,252,807 $35,440,739
=========== ===========
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5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31, 1996:
Land and improvements $ 5,769,050
Buildings 13,706,811
Machinery and equipment 60,282,631
Construction in progress 5,623,610
-----------
85,382,102
Less accumulated depreciation 36,417,794
-----------
Total $48,964,308
===========
6. INCOME TAXES
The benefit for income taxes recorded for the year ended December 31, 1996
consisted of the following:
Current:
Federal $ 1,712,000
State 542,000
-----------
Current provision 2,254,000
Deferred benefit (3,454,000)
-----------
Total $(1,200,000)
===========
A reconciliation of the statutory federal tax rate to the effective rate for the
year ended December 31, 1996 is as follows:
Statutory U.S. income tax rate (35.0)%
ESOP dividend benefit (10.6)
Goodwill 5.6
Other, net 1.5
----
Effective Rate (38.5)%
====
A summary of the Company's deferred taxes at December 31, 1996, is as follows:
Current deferred tax assets:
Employee benefit accruals $ 1,375,000
Inventory allowances (1,881,000)
Environmental liability 313,000
Accounts receivable 176,000
Advertising 78,000
Other 469,000
-----------
$ 530,000
===========
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Noncurrent deferred tax liabilities:
Accelerated depreciation $(7,590,000)
Employee benefit accruals 3,232,000
Other 64,000
-----------
$(4,294,000)
===========
7. CONCENTRATION OF SALES AND SIGNIFICANT CUSTOMERS
Substantially all of the Company's sales were made to customers in the U.S.
during the year ended December 31, 1996. As of and for the year ended December
31, 1996, one customer accounted for approximately 36% of outstanding net
accounts receivable and 30% of net sales. No other customers accounted for
greater than 10% of net sales or accounts receivable.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases - The Company leases certain office equipment under
noncancelable operating leases. Future minimum lease payments, excluding
allocable operating costs, due under these operating leases are as follows for
the years ending December 31:
1997 $ 802,000
1998 450,000
1999 260,000
2000 0
2001 0
Thereafter 0
----------
$1,512,000
==========
Rent expense under all operating leases was approximately $815,000 for the year
ended December 31, 1996.
Contingencies - The Company is a party to certain litigation and records
liabilities when loss amounts are determined to be probable and reasonably
estimable. Insurance recoveries are recorded only when claims for recovery are
settled. In the opinion of management based upon facts presently known, losses,
if any, in connection with these matters will not have a material adverse effect
on the Company's financial position or operations.
9. RETIREMENT PLANS
Substantially all of the Company's employees participate in Pentair's
noncontributory defined benefit employee pension plan (the Pentair Pension Plan)
and the Pentair Retirement Savings and Stock Incentive Plan (the Pentair RSSIP
Plan). Employees covered under the Pentair Pension Plan are eligible to
participate upon the attainment of age 21 and the completion of one year of
service; and benefits are based upon final average salary and years of service.
Employees are fully vested in the Pentair Pension Plan after 7 years of service.
The Pentair RSSIP Plan is a defined contribution profit sharing plan which
covers non-bargaining employees who have attained age 18 and one year of
service.
The Company's expense related to these plans was $1,320,000 for the year ended
December 31, 1996. As plan assets exceed the projected benefit obligation, no
amounts are included in the Company's financial statements for future
obligations.
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All active employees of the Company as of October 31, 1997, are to be covered
under a similar new defined benefit pension plan to be established by Blount.
Assets from the Pentair Pension Plan to fund the projected benefit obligation of
active employees will be transferred to the new plan as provided for under the
terms of the Acquisition. Active employees as of October 31, 1997 will also be
offered the opportunity to transfer their balances in the Pentair RSSIP Plan to
the Blount 401(k) Retirement Savings Plan.
10. POSTRETIREMENT MEDICAL BENEFITS
The Company provides certain health care benefits for retired employees through
the postretirement health care plan of Pentair. Employees become eligible for
these benefits if they meet minimum age and service requirements and are
eligible for retirement benefits.
The following table sets forth the Company's portion of the unfunded accrued
postretirement medical benefits liability at December 31, 1996 of which $659,998
has been included in accrued salaries and employee benefits:
Accumulated postretirement benefit obligations:
Retirees $ 4,747,894
Fully eligible active plan participants 2,275,322
Other active plan participants 1,901,704
-----------
Total accumulated postretirement medical benefits 8,924,920
Unrecognized prior service cost 832,708
Unrecognized net losses 361,497
-----------
Accrued postretirement medical benefits liability $10,119,125
===========
The components of the net periodic cost are as follows:
Service cost $ 130,053
Interest cost on projected benefit obligation 667,887
Amortization of plan amendment (107,827)
---------
Net periodic postretirement cost $ 690,113
=========
The discount rate used in determining the above accumulated postretirement
medical benefits liability was 7.5%.
Pursuant to the terms of the Acquisition, retired employees as of October 31,
1997, will continue to be included in the Pentair plan. Active employees as of
October 31, 1997, will be covered under a new unfunded plan to be established by
Blount.
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Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 1997
(amounts in thousands)
Historical Pro Forma
---------------------- -----------------------
Blount Federal Adjustments Combined
---------- ---------- ----------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 34,856 $ 191 (1)$ (191) $ 0
(2) (34,856)
Accounts receivable 130,315 45,778 (1) 207 176,300
Inventories 94,054 35,441 (2) 901 130,396
Deferred income taxes 20,913 1,289 (1) (1,289) 20,913
Other current assets 4,291 686 4,977
---------- ---------- ---------- ----------
Total current assets 284,429 83,385 (35,228) 332,586
Property, plant and
equipment, net 130,088 45,310 (1) (150) 187,091
(2) 11,843
Cost in excess of net assets
of acquired businesses, net 98,838 15,704 (2) 2,761 117,303
Other assets 32,175 485 (1) (10) 32,650
---------- ---------- ---------- ----------
Total assets $ 545,530 $ 144,884 $ (20,784) $ 669,630
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and
current maturities
of long-term debt $ 765 (2)$ 26,653 $ 27,418
Accounts payable 47,120 $ 10,420 (1) (5,597) 52,619
(2) 676
Accrued expenses 67,528 21,044 (1) (10,579) 78,561
(2) 568
---------- ---------- ---------- ----------
Total current liabilities 115,413 31,464 11,721 158,598
Long-term debt, exclusive of
current maturities 84,751 (2) 75,026 159,777
Deferred income taxes,
exclusive of current
portion 15,852 4,294 (1) (4,294) 15,852
Other liabilities 30,456 10,267 (1) (5,729) 36,345
(2) 1,351
Due to Pentair 58,206 (1) (58,206) 0
---------- ---------- ---------- ----------
Total liabilities 246,472 104,231 19,869 370,572
Stockholders' equity 299,058 40,653 (1) 82,972 299,058
(2) (123,625)
---------- ---------- ---------- ----------
Total liabilities and
stockholders' equity $ 545,530 $ 144,884 $ (20,784) $ 669,630
========== ========== ========== ==========
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Unaudited Pro Forma Condensed Consolidated Statement of Income
Nine Months Ended September 30, 1997
(amounts in thousands, except share data)
Historical Pro Forma
---------------------- -----------------------
Blount Federal Adjustments Combined
---------- ---------- ----------- ----------
Sales $ 512,696 $ 110,356 $ 623,052
Cost of sales 345,732 84,944 (4)$ (1,553) 429,123
---------- ---------- ---------- ----------
Gross profit 166,964 25,412 1,553 193,929
Selling, general and
administrative expenses 96,884 13,793 (3) (1,722) 108,925
(4) (30)
---------- ---------- ---------- ----------
Income from operations 70,080 11,619 3,305 85,004
Interest expense (6,663) (1,619) (3) 1,619 (11,801)
(5) (5,138)
Interest income 1,845 (5) (1,085) 760
Other income, net 358 358
---------- ---------- ---------- ----------
Income before income taxes 65,620 10,000 (1,299) 74,321
Provision for income taxes 24,159 4,023 (6) (494) 27,688
---------- ---------- ---------- ----------
Net income $ 41,461 $ 5,977 $ (805) $ 46,633
========== ========== ========== ==========
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Unaudited Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1996
(amounts in thousands, except share data)
Historical Pro Forma
---------------------- -----------------------
Blount Federal Adjustments Combined
---------- ---------- ----------- ----------
Sales $ 649,312 $ 129,853 $ $ 779,165
Cost of sales 426,890 114,038 (4) (1,609) 539,319
---------- ---------- ---------- ----------
Gross profit 222,422 15,815 1,609 239,846
Selling, general and
administrative expenses 128,524 16,395 (3) (2,226) 142,652
(4) (41)
---------- ---------- ---------- ----------
Income (loss) from operations 93,898 (580) 3,876 97,194
Interest expense (9,868) (2,536) (3) 2,536 (16,719)
(5) (6,851)
Interest income 2,388 (5) (1,539) 849
Other income, net 451 451
---------- ---------- ---------- ----------
Income (loss) before income
taxes 86,869 (3,116) (1,978) 81,775
Provision (benefit) for
income taxes 31,204 (1,200) (6) (752) 29,252
---------- ---------- ---------- ----------
Income (loss) from
continuing operations $ 55,665 $ (1,916) $ (1,226) $ 52,523
========== ========== ========== ==========
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands)
1. Adjustment to eliminate estimated assets and liabilities to be retained by
seller as follows:
Cash and outstanding checks (reflected as accounts payable) $ 5,356
Accounts receivable 207
Deferred income taxes and income tax liabilities 10,321
Postretirement medical benefit obligation for former employees 6,051
Other former employee benefit liabilities 1,756
Due to Pentair 58,206
Other - net 1,075
--------
$ 82,972
========
2. The actual purchase price consists of cash of $112,000 paid at closing on
November 4, 1997 plus a post-closing adjustment, a deferred purchase price for
certain inventory and estimated expenses associated with the acquisition. The
post-closing adjustment is to be determined by an audit and calculated by the
excess (deficiency) in the net book value of certain assets and liabilities at
closing over (under) an established threshold. At closing, the total estimated
actual purchase price is $128,353. However, the pro forma balance sheet assumes
the acquisition occurred on September 30, 1997, and as a result of the higher
net book value of the assets and liabilities (primarily accounts receivable) on
that date due to seasonality, a higher purchase price than actual is assumed in
the pro forma balance sheet.
The assumed estimated purchase price at September 30, 1997 is as follows:
Cash at closing $112,000
Estimated expenses 1,300
Estimated post-closing adjustment based on the
higher September 30, 1997, net asset values 23,235
Estimated deferred purchase price of inventory 2,027
--------
Total $138,562
========
For purposes of the pro forma condensed consolidated balance sheet, the
estimated purchase price was assumed to be financed as follows:
Cash $ 34,856
Short-term borrowings 26,653
Deferred purchase price payable to seller 2,027
Long-term debt 75,026
--------
$138,562
========
The estimated net assets acquired is as follows:
Book value of net assets acquired (after adjustment for
net assets retained by seller) $123,625
Less book value of Federal's existing goodwill (15,704)
Adjustment of net assets to fair value:
Inventories 901
Property, plant and equipment 11,843
Accrued expenses associated with sale (568)
Cost in excess of net assets acquired (goodwill) 18,465
--------
$138,562
========
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These fair value adjustments represent a preliminary allocation based on
currently available information. The final allocation may differ from the
preliminary estimate. The adjustment of inventories to estimated fair value is
expected to result in a charge to cost of sales of approximately $901 subsequent
to closing. This non-recurring charge has not been reflected in the pro forma
condensed consolidated statements of income.
3. Adjustment to eliminate general corporate overhead and interest expense
allocated from Federal's former parent.
4. Adjustments to reflect estimated pro forma depreciation of property, plant
and equipment based on estimated fair values and remaining useful lives ranging
from 2 to 30 years and the amortization of the cost in excess of net assets
acquired (goodwill) over a period of 40 years.
5. Adjustments to reflect Blount's estimated increase in interest expense and
reduction in interest income from financing the acquisition.
6. Adjustment to reflect the estimated income tax effects of the pro forma
adjustments.
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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 hereunto duly authorized.
BLOUNT, INC.
By: /s/ Harold E. Layman
--------------------------------------
Harold E. Layman
Executive Vice President - Finance
Operations and Chief Financial Officer
Date: January 20, 1998
Page 18
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