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 June 30, 1998
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 1-7002
BLOUNT, INC.
(Exact name of registrant as specified in its charter)
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
Delaware 63-0593908
(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 June 30, 1998
--------------------- ------------------
Common Stock $.01 Par Value 1,000 shares
Page 1
<PAGE>
BLOUNT, INC. AND SUBSIDIARIES
INDEX
Page No.
------------
Part I. Financial Information
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income -
three months and six months ended
June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
six months ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of Changes
in Stockholder's Equity - three months and
six months ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Management's Analysis of Results of Operations 10
Page 2
<PAGE>
BLOUNT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
1998 1997
-------- ------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents, including short-term
investments of $72,626 and $2,965 $ 74,689 $ 4,848
Accounts receivable, net of allowance for
doubtful accounts of $4,647 and $3,652 150,536 135,641
Inventories 141,746 132,852
Deferred income taxes 21,913 21,988
Other current assets 5,769 5,859
-------- --------
Total current assets 394,653 301,188
Property, plant and equipment, net of accumulated
depreciation of $198,315 and $188,274 186,185 188,506
Cost in excess of net assets of acquired businesses, net 116,542 116,371
Other assets 38,499 31,719
-------- --------
Total Assets $735,879 $637,784
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of
long-term debt $ 69,821 $ 1,464
Accounts payable 41,655 57,392
Accrued expenses 64,216 69,432
-------- --------
Total current liabilities 175,692 128,288
Long-term debt, exclusive of current maturities 162,023 138,837
Deferred income taxes, exclusive of current portion 15,283 15,177
Other liabilities 36,456 37,575
-------- --------
Total liabilities 389,454 319,877
-------- --------
Commitments and Contingent Liabilities
Stockholder's equity:
Common Stock: par value $.01 per share,
1,000 shares issued and outstanding - -
Capital in excess of par value of stock 27,365 27,365
Retained earnings 311,658 283,492
Accumulated other comprehensive income 7,402 7,050
-------- --------
Total stockholder's equity 346,425 317,907
-------- --------
Total Liabilities and Stockholder's Equity $735,879 $637,784
======== ========
The accompanying notes are an integral part of these statements.
Page 3
<PAGE>
BLOUNT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
(Unaudited) (Unaudited)
Sales $205,120 $160,527 $404,854 $330,590
Cost of sales 142,047 108,762 281,276 222,556
-------- -------- -------- --------
Gross profit 63,073 51,765 123,578 108,034
Selling, general and
administrative expenses 36,971 31,842 72,094 64,688
-------- -------- -------- --------
Income from operations 26,102 19,923 51,484 43,346
Interest expense (3,693) (2,255) (6,724) (4,460)
Interest income 458 523 836 1,099
Other income, net 202 293 202 255
-------- -------- -------- --------
Income before income taxes 23,069 18,484 45,798 40,240
Provision for income taxes 8,881 6,798 17,632 14,769
-------- -------- -------- --------
Net income $ 14,188 $ 11,686 $ 28,166 $ 25,471
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
Page 4
<PAGE>
BLOUNT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended June 30,
-------------------------
1998 1997
---------- ----------
(Unaudited)
Cash Flows From Operating Activities:
Net Income $ 28,166 $ 25,471
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
noncash charges 15,035 12,197
Deferred income taxes (104) (15)
Gain on disposals of property, plant
and equipment (31) (613)
Changes in assets and liabilities, net of
effects of businesses acquired and sold:
(Increase) decrease in accounts receivable (10,628) 327
Increase in inventories (9,525) (6,423)
Decrease in other assets 854 2,580
Increase (decrease) in accounts payable (2,083) 1,376
Decrease in accrued expenses (5,453) (12,506)
Increase (decrease) in other liabilities (1,233) 1,834
---------- ----------
Net cash provided by operating activities 14,998 24,228
---------- ----------
Cash Flows From Investing Activities:
Proceeds from sales of property, plant
and equipment 87 812
Purchases of property, plant and equipment (10,662) (7,207)
Acquisitions of businesses (13,625) (18,675)
---------- ----------
Net cash used in investing activities (24,200) (25,070)
---------- ----------
Cash Flows From Financing Activities:
Net increase in short-term borrowings (195) (254)
Issuance of long-term debt 149,665
Reduction of long-term debt (65,705) (5,999)
Decrease in restricted funds 346 438
Dividends paid (22,000)
Advances to parent - net (5,068) (7,744)
---------- ----------
Net cash provided by (used in)
financing activities 79,043 (35,559)
---------- ----------
Net increase (decrease) in cash and cash equivalents 69,841 (36,401)
Cash and cash equivalents at beginning of period 4,848 58,708
---------- ----------
Cash and cash equivalents at end of period $ 74,689 $ 22,307
========== ==========
The accompanying notes are an integral part of these statements.
Page 5
<PAGE>
<TABLE>
BLOUNT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDER'S EQUITY (Unaudited)
(In thousands)
<CAPTION>
Capital Accumulated Other
Common In Excess Retained Comprehensive
Stock of Par Earnings Income Total
------ --------- -------- ----------------- --------
<S> <C> <C> <C> <C> <C>
THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 1998:
Balance, March 31, 1998 $ - $27,365 $297,470 $ 7,033 $331,868
Net income 14,188 14,188
Other comprehensive income (loss), net 369 369
--------
Comprehensive income 14,557
----- ------- -------- ------- --------
Balance, June 30, 1998 $ - $27,365 $311,658 $ 7,402 $346,425
===== ======= ======== ======= ========
Balance, December 31, 1997 $ - $27,365 $283,492 $ 7,050 $317,907
Net income 28,166 28,166
Other comprehensive income (loss), net 352 352
--------
Comprehensive income 28,518
----- ------- -------- ------- --------
Balance June 30, 1998 $ - $27,365 $311,658 $ 7,402 $346,425
===== ======= ======== ======= ========
THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 1997:
Balance, March 31, 1997 $ - $26,843 $278,327 $ 7,314 $312,484
Net income 11,686 11,686
Other comprehensive income (loss), net 89 89
--------
Comprehensive income 11,775
Dividends (22,000) (22,000)
----- ------- -------- ------- --------
Balance, June 30, 1997 $ - $26,843 $268,013 $ 7,403 $302,259
===== ======= ======== ======= ========
Balance, December 31, 1996 $ - $26,843 $264,542 $ 7,878 $299,263
Net income 25,471 25,471
Other comprehensive income (loss), net (475) (475)
--------
Comprehensive income 24,996
Dividends (22,000) (22,000)
----- ------- -------- ------- --------
Balance June 30, 1997 $ - $26,843 $268,013 $ 7,403 $302,259
===== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 6
<PAGE>
BLOUNT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 Blount, Inc. is a wholly-owned subsidiary of Blount International, Inc.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements of Blount, Inc. and Subsidiaries ("the Company") contain
all adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position at June 30, 1998 and the results of
operations and cash flows for the periods ended June 30, 1998 and 1997. 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, 1997. The results of operations for the periods
ended June 30, 1998 and 1997 are not necessarily indicative of the results to be
expected for the twelve months ended December 31, 1998, due to the seasonal
nature of certain of the Company's operations.
Certain amounts in the prior year's financial statements and notes to
consolidated financial statements have been reclassified to conform with the
current year's presentation.
NOTE 2 Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. Prior periods have been
reclassified to reflect the adoption of this standard. The adoption of SFAS No.
130 has no material impact on the Company's consolidated results of operations,
financial position or cash flows. Comprehensive income equals net income plus
other comprehensive income. Other comprehensive income refers to revenue,
expenses, gains and losses which are reflected in stockholder's equity but
excluded from net income. For the Company, the components of other
comprehensive income are principally foreign currency translation adjustments
and unrealized gains or losses on investments.
NOTE 3 Inventories consist of the following (in thousands):
June 30, December 31,
1998 1997
------------ ------------
Finished goods $ 89,962 $ 78,984
Work in process 20,308 20,837
Raw materials and supplies 31,476 33,031
-------- --------
$141,746 $132,852
======== ========
NOTE 4 In June 1998, the Company issued senior notes ("the senior notes") with
a stated interest rate of 7% in the principal amount of $150 million maturing on
June 15, 2005. The senior notes are fully and unconditionally guaranteed by
Blount International, Inc. Approximately $8.3 million reflecting the price
discount and the cost to extinguish an interest rate contract accounted for as a
hedge of future interest on the debt will be amortized to expense over the life
of the senior notes. The senior notes are redeemable, in whole or in part, at
the option of the Company at any time. The debt indenture contains restrictions
on secured debt, sale and lease-back transactions, and the consolidation, merger
and sale of assets.
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In addition, the Company has exercised its option to redeem all its $68.8
million outstanding 9% subordinated notes ("the 9% notes") on July 30, 1998, and
the net extraordinary loss expected on redemption is approximately $2.0 million.
The 9% notes have been reflected as a current liability at June 30, 1998 in the
Company's consolidated balance sheet.
NOTE 5 Segment information is as follows (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
Sales:
Outdoor Products $ 80,852 $ 76,900 $158,386 $159,112
Industrial and Power Equipment 62,383 52,268 123,272 106,524
Outdoor Sports
(formerly Sporting Equipment) 61,885 31,359 123,196 64,954
-------- -------- -------- --------
$205,120 $160,527 $404,854 $330,590
======== ======== ======== ========
Operating income:
Outdoor Products $ 17,211 $ 15,384 $ 33,164 $ 32,757
Industrial and Power Equipment 8,548 5,918 18,500 12,737
Outdoor Sports
(formerly Sporting Equipment) 5,296 2,914 9,357 6,429
-------- -------- -------- --------
Operating income from segments 31,055 24,216 61,021 51,923
Corporate office expenses (4,953) (4,293) (9,537) (8,577)
-------- -------- -------- --------
Income from operations 26,102 19,923 51,484 43,346
Interest expense (3,693) (2,255) (6,724) (4,460)
Interest income 458 523 836 1,099
Other income, net 202 293 202 255
-------- -------- -------- --------
Income before income taxes $ 23,069 $ 18,484 $ 45,798 $ 40,240
======== ======== ======== ========
NOTE 6 In 1989, the United States Environmental Protection Agency ("EPA")
designated a predecessor of the Company as one of four potentially responsible
parties ("PRPs") with respect to the Onalaska Municipal Landfill in Onalaska,
Wisconsin ("the Site"). The waste complained of was placed in the landfill
prior to 1981 by a corporation, some of whose assets were later purchased by a
predecessor of the Company. It is the view of management that because the
Company's predecessor corporation purchased assets rather than stock, the
Company is not liable and is not properly a PRP. Although management believes
the EPA is wrong on the successor liability issue, with other PRPs, the Company
made a good faith offer to the EPA to pay a portion of the Site clean-up costs.
The offer was rejected and the EPA and State of Wisconsin ("the State")
proceeded with the clean-up at a cost of approximately $12 million. The EPA and
the State brought suit in 1996 against the Town of Onalaska ("the Town") and a
second PRP, Metallics, Inc., to recover response costs. On December 18, 1996,
the United States District Court for the Western District of Wisconsin approved
and entered Consent Decrees pursuant to which the Town and Metallics, Inc.
settled the suit and will pay a total of $1.8 million to the EPA and the State.
The Company continues to maintain that it is not a liable party. The EPA has
not taken action against the Company, nor has the EPA accepted the Company's
position. The Company does not know the financial status of the other named and
unnamed PRPs who may have liability with respect to the Site. Management does
not expect the situation to have a material adverse effect on consolidated
Page 8
<PAGE>
financial condition or operating results.
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 cause 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. The results of the RI/FS investigation are not expected
until later in 1998. The Company is unable to determine, at this time, the
level of clean-up 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.
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 8 to the Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997 for other
commitments and contingencies of the Company which have not changed
significantly since that date.
NOTE 7 Income taxes paid during the six months ended June 30, 1998 and 1997
were $21.8 million and $20.3 million. Interest paid during the six months ended
June 30, 1998 and 1997 was $12.4 million and $3.6 million.
Page 9
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MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
Sales for the three months and six months ended June 30, 1998, were $205.1
million and $404.9 million compared to $160.5 million and $330.6 million for the
comparable periods of the prior year. Net income for the second quarter and
first half of 1998 was $14.2 million and $28.2 million compared to net income of
$11.7 million and $25.5 million for the comparable periods of the prior year.
These operating results reflect improved operating income from all segments
during both the second quarter and first half of 1998. Selling, general and
administrative expenses were higher during the current year, reflecting the
addition of Federal Cartridge Company ("Federal"), acquired during the fourth
quarter of the prior year. Higher interest expense during the three months and
six months ended June 30, 1998, reflects higher debt levels during the current
year, principally due to the Federal acquisition. The principal reasons for
these results 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, 1997.
Sales for the Outdoor Products segment for the second quarter and first half of
1998 were $80.9 million and $158.4 million compared to $76.9 million and $159.1
million during the comparable periods of 1997. Operating income was $17.2
million and $33.2 million during the second quarter and first half of 1998
compared to $15.4 million and $32.8 million in the same periods of the prior
year. This segment's higher operating income results from higher sales by Dixon
Industries, Inc. as the number of lawnmower units sold during the second quarter
was approximately 33% higher than the prior year's second quarter. Operating
income of the Oregon Cutting Systems Division ("Oregon") was slightly higher for
both the three months and six months ended June 30, 1998 on flat sales during
the second quarter and a sales decrease of $4.1 million for the first half of
1998. Oregon's sales have been negatively affected by the continuing economic
problems in Asia and the effect of the strong U.S. dollar.
Sales for the Industrial and Power Equipment segment were $62.4 million and
$123.3 million during the second quarter and first six months of 1998 compared
to $52.3 million and $106.5 million during the same periods last year.
Operating income was $8.5 million and $18.5 million for the second quarter and
first six months of 1998 compared to $5.9 million and $12.7 million for the
comparable periods of the prior year. The improved sales and operating income
resulted primarily from a higher volume of shipments of forestry harvesting
equipment.
Sales for the Outdoor Sports (formerly Sporting Equipment) segment were $61.9
million and $123.2 million in the second quarter and first half of 1998 compared
to $31.4 million and $65.0 million in the comparable periods of 1997. Operating
income was $5.3 million and $9.4 million during the second quarter and first
half of the current year compared to $2.9 million and $6.4 million during the
same periods of last year. The improved results are primarily due to the
additional sales and income from Federal whose principal selling season and
income normally occurs later during the year.
The Company's total backlog at June 30, 1998 was $83.4 million compared to
$117.9 million at December 31, 1997 and $88.8 million at June 30, 1997.
In June 1998, the Company issued senior notes in the principal amount of $150
million maturing on June 15, 2005 (see Note 4 of Notes to Condensed Consolidated
Financial Statements), paid all outstanding borrowings of $63.0 million under
its $150 million revolving credit agreement and exercised its option to redeem
all its outstanding 9% subordinated notes in the amount of $68.8 million. The
redemption date is July 30, 1998 and the net extraordinary loss expected to be
recorded on redemption is approximately $2.0 million.
Page 10
<PAGE>
Cash balances at June 30, 1998, were $74.7 million compared to $4.8 million at
December 31, 1997 as June 30, 1998 balances reflect the unused proceeds from the
new $150 million senior notes which will be used to redeem the 9% subordinated
notes. The 9% subordinated notes of $68.8 million are classified as a current
liability at June 30 1998. In May 1998, the Company paid an approximate $13.6
million post-closing adjustment for the purchase of Federal.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual and interim financial statements. It also establishes standards for
related disclosures about products and services and geographic areas. SFAS No.
131 is required to be applied beginning with the Company's 1998 annual financial
statements. Financial statement disclosures for prior periods are required to
be restated. The Company expects that the adoption of SFAS No. 131 will have no
material impact on the Company's consolidated results of operations, financial
position or cash flows.
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 derivative financial instruments and for hedging
activities. This statement is required for all fiscal quarters of fiscal years
beginning after June 15, 1999, and is not to be applied retroactively to
financial statements of prior periods. The Company has historically entered
into futures contracts, interest rate contracts and foreign exchange contracts
which are addressed by SFAS No. 133. The impact of adoption on the Company's
operating results and financial position has not been determined.
Page 11
<PAGE>
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, INC.
- --------------------------------
Registrant
Date: August 7, 1998 /s/ Harold E. Layman
--------------------------------------
Harold E. Layman
Executive Vice President - Finance
Operations and Chief Financial Officer
Page 12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BLOUNT, INC. FOR THE PERIOD ENDED
JUNE 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 74689
<SECURITIES> 0
<RECEIVABLES> 155183
<ALLOWANCES> 4647
<INVENTORY> 141746
<CURRENT-ASSETS> 394653
<PP&E> 384500
<DEPRECIATION> 198315
<TOTAL-ASSETS> 735879
<CURRENT-LIABILITIES> 175692
<BONDS> 162023
0
0
<COMMON> 0
<OTHER-SE> 346425
<TOTAL-LIABILITY-AND-EQUITY> 735879
<SALES> 404854
<TOTAL-REVENUES> 404854
<CGS> 281276
<TOTAL-COSTS> 281276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6724
<INCOME-PRETAX> 45798
<INCOME-TAX> 17632
<INCOME-CONTINUING> 28166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28166
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
