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, 1997
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 June 30, 1997
--------------------- -----------------
Class A Common Stock $.01 Par Value 12,875,025 shares
Class B Common Stock $.01 Par Value 5,820,963 shares
Page 1
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page No.
------------
Part I. Financial Information
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income -
three months and six months ended
June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
six months ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis 10
Exhibit 11 - Computation of Net Income
Per Common Share 13
Page 2
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, December 31,
1997 1996
-------- ------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents, including short-term
investments of $20,074 and $55,258 $ 22,307 $ 58,708
Accounts receivable, net of allowance for
doubtful accounts of $2,271 and $3,007 118,840 115,875
Inventories 93,603 82,026
Deferred income taxes 20,915 20,910
Other current assets 3,451 3,509
-------- --------
Total current assets 259,116 281,028
Property, plant and equipment, net of accumulated
depreciation of $179,627 and $170,221 132,389 131,678
Cost in excess of net assets of acquired businesses, net 97,352 85,442
Other assets 32,548 35,691
-------- --------
Total Assets $521,405 $533,839
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of
long-term debt $ 963 $ 1,250
Accounts payable 37,867 36,163
Accrued expenses 65,427 77,401
-------- --------
Total current liabilities 104,257 114,814
Long-term debt, exclusive of current maturities 85,107 84,592
Deferred income taxes, exclusive of current portion 15,819 15,829
Other liabilities 30,094 27,838
-------- --------
Total liabilities 235,277 243,073
-------- --------
Commitments and Contingent Liabilities
Stockholders' equity:
Common Stock: par value $.01 per share
Class A: 13,626,283 and 13,409,092 shares issued 136 134
Class B, convertible: 5,820,963 and 5,877,078
shares issued 58 59
Capital in excess of par value of stock 37,241 34,813
Retained earnings 271,549 252,164
Accumulated translation adjustment 7,403 7,878
Less Class A treasury stock at cost,
751,258 and 118,180 shares (30,259) (4,282)
-------- --------
Total stockholders' equity 286,128 290,766
-------- --------
Total Liabilities and Stockholders' Equity $521,405 $533,839
======== ========
The accompanying notes are an integral part of these statements.
Page 3
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
Three months Six months
ended June 30, ended June 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Sales $ 160,527 $ 142,018 $ 330,590 $ 315,299
Cost of sales 108,762 93,211 222,556 207,946
---------- ---------- ---------- ----------
Gross profit 51,765 48,807 108,034 107,353
Selling, general and
administrative expenses 32,213 29,491 65,376 64,356
---------- ---------- ---------- ----------
Income from operations 19,552 19,316 42,658 42,997
Interest expense (2,255) (2,574) (4,460) (5,417)
Interest income 523 356 1,099 546
Other income (expense), net 293 (63) 268 639
---------- ---------- ---------- ----------
Income before income taxes 18,113 17,035 39,565 38,765
Provision for income taxes 6,659 6,414 14,519 14,731
---------- ---------- ---------- ----------
Net income $ 11,454 $ 10,621 $ 25,046 $ 24,034
========== ========== ========== ==========
Net income per common share $ .60 $ .54 $ 1.30 $ 1.23
========== ========== ========== ==========
Weighted average number of
common and common
equivalent shares
outstanding 19,137,983 19,557,522 19,335,997 19,510,102
========== ========== ========== ==========
Cash dividends declared
per share:
Class A Common Stock $ .1265 $ .1100 $ .2530 $ .2200
========== ========== ========== ==========
Class B Common Stock $ .1182 $ .1017 $ .2364 $ .2034
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
Page 4
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended June 30,
-------------------------
1997 1996
---------- ----------
(Unaudited)
Cash Flows From Operating Activities:
Net Income $ 25,046 $ 24,034
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
noncash charges 12,197 11,810
Deferred income taxes (15) 4,356
Loss (gain) on disposals of property, plant
and equipment (613) 134
Changes in assets and liabilities, net of
effects of businesses acquired and sold:
(Increase) decrease in accounts receivable 345 (4,982)
(Increase) decrease in inventories (6,423) 4,693
Decrease in other assets 2,580 3,091
Increase (decrease) in accounts payable 1,376 (11,155)
Decrease in accrued expenses (12,517) (11,545)
Increase in other liabilities 1,834 3,428
---------- ----------
Net cash provided by operating activities 23,810 23,864
---------- ----------
Cash Flows From Investing Activities:
Proceeds from sales of businesses and property,
plant and equipment 812 860
Purchases of property, plant and equipment (7,207) (7,934)
Acquisitions of businesses (18,675)
---------- ----------
Net cash used in investing activities (25,070) (7,074)
---------- ----------
Cash Flows From Financing Activities:
Net reduction in short-term borrowings (254) (2,151)
Reduction of long-term debt (5,999) (2,679)
Decrease in restricted funds 438 2,300
Dividends paid (4,735) (4,120)
Purchase of treasury stock (27,484)
Other 2,893 2,077
---------- ----------
Net cash used in financing activities (35,141) (4,573)
---------- ----------
Net increase (decrease) in cash and cash equivalents (36,401) 12,217
Cash and cash equivalents at beginning of period 58,708 12,537
---------- ----------
Cash and cash equivalents at end of period $ 22,307 $ 24,754
========== ==========
The accompanying notes are an integral part of these statements.
Page 5
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 In the opinion of management, the accompanying unaudited 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 June 30, 1997 and the
results of operations and cash flows for the periods ended June 30, 1997 and
1996. These financial statements should be read in conjunction with the notes
to the financial statements included in the Company's Transition Report on Form
10-K for the ten months ended December 31, 1996. The results of operations for
the periods ended June 30, 1997 and 1996 are not necessarily indicative of the
results to be expected for the twelve months ended December 31, 1997, 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.
The Company's Internet home page is http://www.blount.com.
NOTE 2 Inventories consist of the following (in thousands):
June 30, December 31,
1997 1996
------------ ------------
Finished goods $ 54,101 $ 42,383
Work in process 14,861 14,505
Raw materials and supplies 24,641 25,138
-------- --------
$ 93,603 $ 82,026
======== ========
NOTE 3 In June 1997, the Company announced that it had signed a letter of
intent to acquire Federal Cartridge Company. It is anticipated that the
acquisition will be completed in the third quarter of 1997. Federal Cartridge
manufactures shotshell, rimfire, centerfire rifle and pistol ammunition, as well
as clay skeet and trap targets. In 1996, Federal Cartridge had net sales of
approximately $130 million.
In January 1997, the Company acquired the outstanding capital stock of the
Frederick Manufacturing Corporation ("Frederick") and Orbex, Inc. ("Orbex") for
approximately $19 million, subject to post-closing adjustments, plus payment of
existing debt of the acquired companies in the amount of $5.8 million. The
principal products of the acquired companies are accessories for lawn mowers and
sporting goods. The acquisition has been accounted for by the purchase method,
and the net assets and results of operations of Frederick and Orbex have been
included in the Company's consolidated financial statements since the date of
acquisition. The excess of the purchase price over the fair value of the net
assets acquired is being amortized on a straight-line basis over a period of 40
years. The combined sales and pre-tax income of the acquired companies for
their most recent year prior to the acquisition were approximately $19.8 million
and $2.5 million, respectively.
Page 6
NOTE 4 In April 1997, the Company replaced its $100 million revolving credit
agreement expiring December 1999 with a new $150 revolving credit agreement
expiring April 2002 with a group of five banks. At June 30, 1997, no amounts
were outstanding under the new $150 million revolving credit agreement. The
$150 million agreement provides for interest rates to be determined at the time
of borrowings based on a choice of formulas as specified in the agreement. The
interest rates and commitment fees may vary based on the ratio of cash flow to
debt as defined in the agreement. The new agreement contains covenants relating
to liens, subsidiary debt, transactions with affiliates, consolidations, mergers
and sales of assets, and requires the Company to maintain certain leverage and
fixed charge coverage ratios.
In April 1997, the Company terminated its $25 million receivable sale agreement.
No receivables had been sold under this agreement.
NOTE 5 Segment information is as follows (in thousands):
Three months Six months
ended June 30, ended June 30,
-------------------- --------- ---------
1997 1996 1997 1996
--------- --------- --------- ---------
Sales:
Outdoor Products $ 76,900 $ 68,131 $ 159,112 $ 146,134
Industrial and Power Equipment 52,268 41,138 106,524 99,682
Sporting Equipment 31,359 32,749 64,954 69,483
--------- --------- --------- ---------
$ 160,527 $ 142,018 $ 330,590 $ 315,299
========= ========= ========= =========
Operating income:
Outdoor Products $ 15,384 $ 14,302 $ 32,757 $ 30,015
Industrial and Power Equipment 5,918 6,415 12,737 16,171
Sporting Equipment 2,914 3,136 6,429 7,266
--------- --------- --------- ---------
Operating income from segments 24,216 23,853 51,923 53,452
Corporate office expenses (4,664) (4,537) (9,265) (10,455)
--------- --------- --------- ---------
Income from operations 19,552 19,316 42,658 42,997
Interest expense (2,255) (2,574) (4,460) (5,417)
Interest income 523 356 1,099 546
Other income (expense), net 293 (63) 268 639
--------- --------- --------- ---------
Income before income taxes $ 18,113 $ 17,035 $ 39,565 $ 38,765
========= ========= ========= =========
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
Page 7
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
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 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 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 large 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.
At June 30, 1997, the Company had outstanding bank letters of credit in the
approximate amount of $6.4 million issued principally in connection with various
foreign construction contracts of the discontinued construction segment for
which there is contingent liability to the issuing banks in the event payment
is demanded by the holder.
See Note 8 to the Consolidated Financial Statements included in the Company's
Transition Report on Form 10-K for the ten months ended December 31, 1996 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, 1997 and 1996
were $20.3 million and $8.4 million. Interest paid during the six months ended
June 30, 1997 and 1996 was $4.0 million and $5.3 million.
Page 8
NOTE 8 Net income per common share for the three months and six months ended
June 30, 1997 and 1996 is based on the weighted average number of common and
common equivalent shares (stock options) outstanding in each period and is
computed in accordance with APB Opinion No. 15.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share." Statement No. 128 will replace APB Opinion No. 15
and is effective for periods ending after December 15, 1997. Earlier
application is not permitted. When effective, Statement No. 128 requires
restatement of all prior period earnings per share ("EPS") data presented.
Statement No. 128 replaces the current EPS presentation with a dual presentation
of basic and diluted EPS for entities with complex capital structures, such as
the Company. Basic EPS includes no dilution and is computed by dividing income
by the weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution of securities, such as stock
options, that could share in the earnings of an entity. If Statement No. 128
had been applied for the three months and six months ended June 30, 1997 and
1996, EPS and shares used in the computation would have been the following pro
forma amounts:
Three months Six months
ended June 30, ended June 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Pro forma EPS:
Basic EPS $ .61 $ .55 $ 1.32 $ 1.26
========== ========== ========== ==========
Diluted EPS $ .60 $ .54 $ 1.30 $ 1.23
========== ========== ========== ==========
Pro forma shares:
Basic EPS - weighted average
common shares outstanding 18,733,720 19,199,326 18,917,254 19,142,844
Dilutive effect of stock
options 404,263 358,196 418,743 367,258
---------- ---------- ---------- ----------
Diluted EPS 19,137,983 19,557,522 19,335,997 19,510,102
========== ========== ========== ==========
Net income required no adjustment for the pro forma computation.
Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Results
Sales for the second quarter and first half of 1997 were $160.5 million and
$330.6 million, respectively, compared to $142.0 million and $315.3 million for
the comparable periods of the prior year. Net income for the second quarter and
first half of 1997 was $11.5 million ($.60 per share) and $25.0 million ($1.30
per share) compared to net income of $10.6 million ($.54 per share) and $24.0
million ($1.23 per share) for the comparable periods of the prior year. These
operating results reflect improved operating income from the Outdoor Products
segment, and lower income from the Industrial and Power Equipment and the
Sporting Equipment segments. Selling, general and administrative expenses were
20% of sales in the second quarter of 1997 compared to 21% in the second quarter
of 1996. Corporate expenses (included in selling, general and administrative
expenses) were lower during the current year's first six months, reflecting
lower accruals during the first quarter of 1997 for employee incentive plans.
Lower interest expense during the three months and six months ended June 30,
1997, principally reflects lower debt levels during the current year. 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 Transition Report on Form 10-K for the ten months ended December 31,
1996.
Sales for the Outdoor Products segment for the second quarter and first half of
1997 were $76.9 million and $159.1 million compared to $68.1 million and $146.1
million during the same periods of 1996. Operating income was $15.4 million and
$32.8 million during the second quarter and first half of 1997 compared to $14.3
million and $30.0 million in the comparable periods of the prior year. The
higher sales and operating income resulted principally from the acquisition of
Frederick and Orbex (see Note 3 of Notes to Consolidated Financial Statements),
a higher volume of saw chain and bar sales, and higher income from operations in
Brazil, partially offset by the effect of a lower volume of lawn mower sales.
Sales for the Industrial and Power Equipment segment were $52.3 million and
$106.5 million during the three months and six months ended June 30, 1997,
compared to $41.1 million and $99.7 million during the same periods last year.
Operating income was $5.9 million and $12.7 million for the second quarter and
first half of 1997 compared to $6.4 million and $16.2 million for the comparable
periods of the prior year. The higher sales during the current year reflect a
higher volume of timber harvesting equipment sold as a result of improving
market conditions. Operating income was lower, reflecting pricing decisions to
maintain and increase market share positions. Additionally, the prior year
reflects reduced product liability expenses.
Sales for the Sporting Equipment segment were $31.4 million and $65.0 million in
the second quarter and first half of 1997 compared to $32.7 million and $69.5
million in the comparable periods of 1996. Operating income was $2.9 million
and $6.4 million during the three months and six months ended June 30, 1997,
compared to $3.1 million and $7.3 million during the same periods of last year.
These results reflect lower sales and operating income from Simmons Outdoor
Corporation, primarily due to a lower volume of riflescope and binocular sales.
Sales and operating income from ammunition product lines were higher than the
prior year as the shooting sports industry returns to more normal market levels.
The Company's total backlog at June 30, 1997 was $88.8 million compared to $74.2
million at December 31, 1996.
Page 10
Financial Condition, Liquidity and Capital Resources
At June 30, 1997, the Company had no amounts outstanding under its $150 million
revolving credit agreement. See Note 4 of Notes to Consolidated Financial
Statements for terms and conditions of the new $150 million agreement. The
long-term debt to equity ratio was .3 to 1 at June 30, 1997, and December 31,
1996. At June 30, 1997, 9% subordinated notes of $68.8 million were outstanding
which mature in 2003. See Note 3 of Notes to the Consolidated Financial
Statements included in the Company's Transition Report on Form 10-K for the ten
months ended December 31, 1996, for the terms and conditions of the 9%
subordinated notes.
Cash balances at June 30, 1997, were $22.3 million compared to $58.7 million at
December 31, 1996. Working capital was $154.9 million at June 30, 1997 compared
to $166.2 million at December 31, 1996. The reduction in cash and working
capital primarily results from cash expenditures to acquire Frederick and Orbex
and to purchase treasury stock under the Company's previously announced $50
million Class A Common Stock buyback program. The increase in inventories
reflects the acquisition of Frederick and Orbex and some increase due to
anticipated orders. Accrued expenses were lower, primarily due to higher
estimated income tax payments.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share." See Note 8 of Notes to Consolidated Financial
Statements for a description of Statement No. 128 and its pro forma effects on
the Company for the three months and six months ended June 30, 1997 and 1996.
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income," and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Both statements are
effective for fiscal years beginning after December 15, 1997. The Company has
not yet determined the effect, if any, of these statements on its financial
statements.
Page 11
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: August 5, 1997 /s/ Harold E. Layman
--------------------------------------
Harold E. Layman
Executive Vice President - Finance
Operations and Chief Financial Officer
Page 12
PART I - EXHIBIT 11
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(In thousands, except share data)
(Unaudited)
Three months Six months
ended June 30, ended June 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Primary:
Net income $ 11,454 $ 10,621 $ 25,046 $ 24,034
========== ========== ========== ==========
Shares:
Weighted average common
shares outstanding 18,733,720 19,199,326 18,917,254 19,142,844
Dilutive effect of
stock options 404,263 358,196 418,743 367,258
---------- ---------- ---------- ----------
Average common shares
outstanding as adjusted 19,137,983 19,557,522 19,335,997 19,510,102
========== ========== ========== ==========
Primary net income per
common share $ .60 $ .54 $ 1.30 $ 1.23
========== ========== ========== ==========
Assuming Full Dilution:
Net income $ 11,454 $ 10,621 $ 25,046 $ 24,034
========== ========== ========== ==========
Shares:
Average common shares as
adjusted for primary
computation 19,137,983 19,557,522 19,335,997 19,510,102
Additional dilutive effect
of stock options 21,699 19,072 36,840 52,292
---------- ---------- ---------- ----------
Average common shares
outstanding as adjusted 19,159,682 19,576,594 19,372,837 19,562,394
========== ========== ========== ==========
Net income per common share
assuming full dilution $ .60 $ .54 $ 1.29 $ 1.23
========== ========== ========== ==========
Page 13