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 March 31, 2001
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 001-11549
BLOUNT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0780521
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4520 Executive Park Drive 36116-1602
Montgomery, Alabama (Zip Code)
(Address of principal executive offices)
(334) 244-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock March 31, 2001
--------------------- ------------------
$.01 Par Value 30,795,882 shares
Page 1
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page No.
------------
Part I. Financial Information
Condensed Consolidated Statements of Operations -
three months ended March 31, 2001 and 2000 3
Condensed Consolidated Balance Sheets -
March 31, 2001 and December 31, 2000 4
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 2001 and 2000 5
Condensed Consolidated Statements of
Changes in Stockholders' Deficit -
three months ended March 31, 2001 and 2000 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis 16
Part II. Other Information 21
Page 2
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share data)
Three Months
Ended March 31,
-------------------
2001 2000
- ------------------------------------------------------ -------- --------
(Unaudited)
Sales $174.6 $209.3
Cost of sales 125.8 147.6
- ------------------------------------------------------ ------ ------
Gross profit 48.8 61.7
Selling, general and administrative expenses 32.0 35.7
Restructuring expenses 16.2
- ------------------------------------------------------ ------ ------
Income from operations 0.6 26.0
Interest expense (25.5) (24.2)
Interest income 0.3 0.4
Other income, net 0.3
- ------------------------------------------------------ ------ ------
Income (loss) before income taxes (24.6) 2.5
Provision (benefit) for income taxes (10.8) 1.1
- ------------------------------------------------------ ------ ------
Net income (loss) $(13.8) $ 1.4
- ------------------------------------------------------ ====== ======
Basic earnings per share $(0.45) $ 0.05
- ------------------------------------------------------ ====== ======
Diluted earnings per share $(0.45) $ 0.05
- ------------------------------------------------------ ====== ======
The accompanying notes are an integral part of these statements.
Page 3
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
March 31, December 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
- ------------------------------------------------
Current assets:
Cash and cash equivalents $ 3.2 $ 4.8
Accounts receivable, net of allowance for
doubtful accounts of $4.5 and $3.8 160.0 149.0
Inventories 161.7 150.7
Deferred income taxes 23.7 23.8
Other current assets 20.9 7.1
- ------------------------------------------------ -------- --------
Total current assets 369.5 335.4
Property, plant and equipment, net of accumulated
depreciation of $256.0 and $250.7 174.7 177.4
Cost in excess of net assets of acquired businesses, net 128.8 128.3
Other assets 61.7 62.8
- ------------------------------------------------ -------- --------
Total Assets $ 734.7 $ 703.9
- ------------------------------------------------ ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- ------------------------------------------------
Current liabilities:
Notes payable and current maturities of long-term debt $ 10.6 $ 8.5
Accounts payable 41.0 44.0
Accrued expenses 90.1 91.1
- ------------------------------------------------ -------- --------
Total current liabilities 141.7 143.6
Long-term debt, exclusive of current maturities 865.2 824.5
Deferred income taxes 4.2 4.7
Other liabilities 43.7 43.3
- ------------------------------------------------ -------- --------
Total liabilities 1,054.8 1,016.1
- ------------------------------------------------ -------- --------
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 424.3 417.3
Retained earnings (deficit) (750.9) (737.1)
Accumulated other comprehensive income 6.2 7.3
- ------------------------------------------------ -------- --------
Total stockholders' deficit (320.1) (312.2)
- ------------------------------------------------ -------- --------
Total Liabilities and Stockholders' Deficit $ 734.7 $ 703.9
- ------------------------------------------------ ======== ========
The accompanying notes are an integral part of these statements.
Page 4
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Three Months
Ended March 31,
----------------------
2001 2000
- ------------------------------------------------------ ---------- ----------
(Unaudited)
Cash Flows From Operating Activities:
Net income (loss) $ (13.8) $ 1.4
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation, amortization and other
noncash charges 9.0 8.2
Deferred income taxes (0.4) 0.2
Changes in assets and liabilities:
Increase in accounts receivable (12.1) (8.6)
Increase in inventories (11.0) (19.2)
(Increase) decrease in other assets (12.9) 5.9
Decrease in accounts payable (2.6) (5.0)
Decrease in accrued expenses (1.2) (11.5)
Increase in other liabilities 0.7
- ------------------------------------------------------ -------- ---------
Net cash used in operating activities (45.0) (27.9)
- ------------------------------------------------------ -------- ---------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment (3.1) (4.4)
Acquisitions of businesses and product lines (1.3) (0.1)
- ------------------------------------------------------ -------- ---------
Net cash used in investing activities (4.4) (4.5)
- ------------------------------------------------------ -------- ---------
Cash Flows From Financing Activities:
Net increase in short-term borrowings 2.2 3.0
Issuance of long-term debt 41.4 22.0
Reduction of long-term debt (0.9) (0.9)
Capital contribution 7.0
Other (1.9) (0.1)
- ------------------------------------------------------ -------- ---------
Net cash provided by financing activities 47.8 24.0
- ------------------------------------------------------ -------- ---------
Net decrease in cash and cash equivalents (1.6) (8.4)
Cash and cash equivalents at beginning of period 4.8 10.5
- ------------------------------------------------------ -------- ---------
Cash and cash equivalents at end of period $ 3.2 $ 2.1
- ------------------------------------------------------ ======== =========
The accompanying notes are an integral part of these statements.
Page 5
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' DEFICIT (Unaudited)
(In millions)
Accumulated
Capital Retained Other
Common In Excess Earnings Comprehensive
Stock of Par (Deficit) Income Total
------ --------- --------- ------------- ---------
THREE MONTHS ENDED MARCH 31, 2001:
Balance, December 31, 2000 $ 0.3 $417.3 $(737.1) $ 7.3 $(312.2)
Net income (13.8) (13.8)
Other comprehensive income (loss), net (1.1) (1.1)
-------
Comprehensive income (14.9)
Capital contribution 7.0 7.0
----- ------ ------- ------ -------
Balance, March 31, 2001 $ 0.3 $424.3 $(750.9) $ 6.2 $(320.1)
===== ====== ======= ====== =======
THREE MONTHS ENDED MARCH 31, 2000:
Balance, December 31, 1999 $ 0.3 $417.3 $(747.9) $ 8.6 $(321.7)
Net income 1.4 1.4
Other comprehensive income (loss), net (0.1) (0.1)
-------
Comprehensive income 1.3
----- ------ ------- ------ -------
Balance, March 31, 2000 $ 0.3 $417.3 $(746.5) $ 8.5 $(320.4)
===== ====== ======= ====== =======
The accompanying notes are an integral part of these statements.
Page 6
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 March 31, 2001
and the results of operations and cash flows for the periods ended March 31,
2001 and 2000. 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, 2000. The results of operations for
the periods ended March 31, 2001 and 2000 are not necessarily indicative of the
results to be expected for the twelve months ending December 31, 2001 due to the
seasonal nature of certain of the Company's operations.
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 2001, the Company incurred a restructuring
expense of $16.2 million. The expense includes $0.6 million related to the
closure of a manufacturing facility in Zebulon, North Carolina. The remaining
$15.6 million in restructuring expense relates to the modification of certain
employee benefit plans and a reduction in headcount and expenses principally at
the corporate headquarters. Estimated annual savings from the actions are
anticipated to be approximately $6 million, with $5 million generated in fiscal
year 2001, including $1.3 million in the first quarter. At the end of the first
quarter, the accrued restructuring reserve was $14.8 million.
NOTE 3 Inventories consist of the following (in millions):
March 31, December 31,
2001 2000
--------------------------------- ------------- ------------
Finished goods $ 82.2 $ 81.1
Work in process 26.9 27.3
Raw materials and supplies 52.6 42.3
--------------------------------- ------ ------
$161.7 $150.7
--------------------------------- ====== ======
Page 7
NOTE 4 Segment information is as follows (in millions):
Three Months
Ended March 31,
-------------------
2001 2000
- ------------------------------------------------------ -------- --------
Sales:
Outdoor Products $ 91.2 $ 93.6
Sporting Equipment 55.5 73.4
Industrial and Power Equipment 27.9 42.3
- ------------------------------------------------------ ------ ------
$174.6 $209.3
- ------------------------------------------------------ ====== ======
Operating income (loss):
Outdoor Products $ 19.5 $ 22.0
Sporting Equipment 0.7 6.4
Industrial and Power Equipment (1.6) 1.3
- ------------------------------------------------------ ------ ------
Operating income from segments 18.6 29.7
Corporate office expenses (1.8) (3.7)
Restructuring expenses (16.2)
- ------------------------------------------------------ ------ ------
Income from operations 0.6 26.0
Interest expense (25.5) (24.2)
Interest income 0.3 0.4
Other income, net 0.3
- ------------------------------------------------------ ------ ------
Income (loss) before income taxes $(24.6) $ 2.5
- ------------------------------------------------------ ====== ======
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.
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
Page 8
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, 2000 for other
commitments and contingencies of the Company which have not changed
significantly since that date.
NOTE 6 During the three months ended March 31, 2001, tax payments of $2.0
million were made, while in the three months ended March 31, 2000, a net tax
refund of $4.0 million was received. The Company has settled its issues with
the Internal Revenue Service through the 1996 fiscal year with no material
adverse effect. The periods from fiscal 1997 through 2000 are still open for
review. Interest paid during the three months ended March 31, 2001 and 2000 was
$35.1 million and $30.3 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 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, 2000 for information regarding
these two trusts).
NOTE 7 For the three months ended March 31, 2001 and 2000, net income and
shares used in the earnings per share ("EPS") computations were the following
amounts:
Three Months
Ended March 31,
----------------------
2001 2000
- ------------------------------------------------------ ---------- ----------
Net income (in millions) $ (13.8) $ 1.4
- ------------------------------------------------------ ========== ==========
Shares:
Basic EPS - weighted average
common shares outstanding 30,795,882 30,795,882
Dilutive effect of stock options
- ------------------------------------------------------ ---------- ----------
Diluted EPS 30,795,882 30,795,882
- ------------------------------------------------------ ========== ==========
There were no options to purchase shares granted during the first quarter of
2001 under the 1999 and 2000 Blount International, Inc. Stock Incentive Plans.
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).
Page 9
BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
For The Three Months
Ended March 31, 2001
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS
- -----------------------
Sales $ 101.1 $ 64.7 $ 47.5 $ (38.7) $174.6
Cost of sales 78.4 52.2 33.1 (37.9) 125.8
-------- ------ ------ --------- ------
Gross profit 22.7 12.5 14.4 (0.8) 48.8
Selling, general and administrative expenses $ 0.2 11.4 10.9 9.5 32.0
Restructuring Expense 16.2 16.2
------ -------- ------ ------ --------- ------
Income (loss) from operations (0.2) (4.9) 1.6 4.9 (0.8) 0.6
Interest expense (8.9) (25.1) (2.2) (0.1) 10.8 (25.5)
Interest income 10.8 0.1 0.2 (10.8) 0.3
Other income (expense), net 0.1 (0.1)
------ -------- ------ ------ --------- ------
Income (loss) before income taxes (9.1) (19.1) (0.5) 4.9 (0.8) (24.6)
Provision (benefit) for income taxes (4.0) (8.4) (0.2) 1.8 (10.8)
------ -------- ------ ------ --------- ------
Income (loss) before earnings of
affiliated companies (5.1) (10.7) (0.3) 3.1 (0.8) (13.8)
Equity in earnings of affiliated companies, net (8.7) 2.0 (0.1) 6.8
------ -------- ------ ------ --------- ------
Net income (loss) $(13.8) $ (8.7) $ (0.4) $ 3.1 $ 6.0 $(13.8)
====== ======== ====== ====== ========= ======
For The Three Months
Ended March 31, 2000
STATEMENT OF OPERATIONS
- -----------------------
Sales $ 119.9 $ 76.7 $ 51.4 $ (38.7) $209.3
Cost of sales 91.5 59.6 34.7 (38.2) 147.6
-------- ------ ------ --------- ------
Gross profit 28.4 17.1 16.7 (0.5) 61.7
Selling, general and administrative expenses $ 0.3 15.3 9.9 10.2 35.7
------ -------- ------ ------ --------- ------
Income (loss) from operations (0.3) 13.1 7.2 6.5 (0.5) 26.0
Interest expense (7.9) (24.1) (2.8) 10.6 (24.2)
Interest income 0.1 10.8 0.1 (10.6) 0.4
Other income (expense), net 0.5 (0.2) 0.3
------ -------- ------ ------ --------- ------
Income (loss) before income taxes (8.1) 0.3 4.5 6.3 (0.5) 2.5
Provision (benefit) for income taxes (3.6) 0.6 1.7 2.4 1.1
------ -------- ------ ------ --------- ------
Income (loss) before earnings of
affiliated companies (4.5) (0.3) 2.8 3.9 (0.5) 1.4
Equity in earnings of affiliated companies, net 5.9 6.2 (12.1)
------ -------- ------ ------ --------- ------
Net income (loss) $ 1.4 $ 5.9 $ 2.8 $ 3.9 $ (12.6) $ 1.4
====== ======== ====== ====== ========= ======
Note: Certain amounts in the prior year's financial statements have been reclassified to conform with the current year's
presentation.
Page 10
March 31, 2001
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
BALANCE SHEET
- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 0.6 $ 2.6 $ 3.2
Accounts receivable, net $ 64.0 78.8 17.2 160.0
Intercompany receivables 316.7 33.6 5.5 $ (355.8)
Inventories 60.8 84.3 16.6 161.7
Deferred income taxes 23.7 23.7
Other current assets 18.6 1.1 1.2 20.9
-------- ------ ------ --------- ---------
Total current assets 483.8 198.4 43.1 (355.8) 369.5
Investments in affiliated companies $ 49.1 380.7 0.2 (430.0)
Property, plant and equipment, net 69.1 79.5 26.1 174.7
Cost in excess of net assets of acquired
businesses, net 37.3 84.7 6.8 128.8
Intercompany notes receivable 6.1 (6.1)
Other assets 57.2 1.3 3.2 61.7
------ -------- ------ ------ --------- ---------
Total Assets $ 49.1 $1,028.1 $363.9 $ 85.5 $ (791.9) $ 734.7
====== ======== ====== ====== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current maturities
of long-term debt $ 3.4 $ 7.2 $ 10.6
Accounts payable $ 0.1 15.1 $ 19.6 6.2 41.0
Intercompany payables 355.8 $ (355.8)
Accrued expenses 0.3 62.6 19.9 7.3 90.1
------ -------- ------ ------ --------- ---------
Total current liabilities 356.2 81.1 39.5 20.7 (355.8) 141.7
Long-term debt, exclusive of current maturities 13.0 852.1 0.1 865.2
Intercompany notes payable 6.1 (6.1)
Deferred income taxes, exclusive of
current portion 2.3 1.9 4.2
Other liabilities 37.4 5.5 0.8 43.7
------ -------- ------ ------ --------- ---------
Total liabilities 369.2 979.0 45.0 23.5 (361.9) 1,054.8
Stockholders' equity (deficit) (320.1) 49.1 318.9 62.0 (430.0) (320.1)
------ -------- ------ ------ --------- ---------
Total Liabilities and
Stockholders' Equity (Deficit) $ 49.1 $1,028.1 $363.9 $ 85.5 $ (791.9) $ 734.7
====== ======== ====== ====== ========= =========
Page 11
For The Three Months
Ended March 31, 2001
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
STATEMENT OF CASH FLOWS
- -----------------------
Net cash provided by (used in) operating
activities $ (4.8) $ (40.9) $ 3.0 $ (0.8) $ (1.5) $ (45.0)
--------- -------- ------ ------ --------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment
Purchases of property, plant and equipment (1.2) (1.0) (0.9) (3.1)
Acquisitions of product lines (1.3) (1.3)
--------- -------- ------ ------ --------- ---------
Net cash used in investing activities (2.5) (1.0) (0.9) (4.4)
--------- -------- ------ ------ --------- ---------
Cash flows from financing activities:
Net increase in short-term borrowings 2.2 2.2
Issuance of long-term debt 13.0 28.4 41.4
Reduction of long-term debt (0.9) (0.9)
Dividends paid (1.5) 1.5
Advances from (to) affiliated companies (15.2) (4.2) (0.6) 20.0
Capital contribution 7.0 20.0 (20.0) 7.0
Other (1.9) (1.9)
--------- -------- ------ ------ --------- ---------
Net cash provided by (used in) financing
activities $ 4.8 41.4 (0.6) 0.7 $ 1.5 47.8
--------- -------- ------ ------ --------- ---------
Net decrease in cash and cash equivalents (2.0) 1.4 (1.0) (1.6)
Cash and cash equivalents at beginning of period $ 2.0 (0.8) 3.6 4.8
--------- -------- ------ ------ --------- ---------
Cash and cash equivalents at end of period $ 0.6 $ 2.6 $ 3.2
========= ======== ====== ====== ========= =========
Page 12
December 31, 2000
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
BALANCE SHEET
- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 1.9 $ (0.8) $ 3.7 $ 4.8
Accounts receivable, net 56.0 77.0 16.0 149.0
Intercompany receivables 282.8 57.8 10.4 $ (351.0)
Inventories 66.1 70.6 14.0 150.7
Deferred income taxes 23.8 23.8
Other current assets 5.7 0.5 0.9 7.1
-------- ------ ------ --------- ---------
Total current assets 436.3 205.1 45.0 (351.0) 335.4
Investments in affiliated companies $ 38.9 385.7 0.3 (424.9)
Property, plant and equipment, net 70.4 80.6 26.4 177.4
Cost in excess of net assets of acquired
businesses, net 37.8 83.7 6.8 128.3
Intercompany notes receivable 5.1 (5.1)
Other assets 58.0 1.3 3.5 62.8
------ -------- ------ ------ --------- ---------
Total Assets $ 38.9 $ 988.2 $370.7 $ 87.1 $ (781.0) $ 703.9
====== ======== ====== ====== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current maturities
of long-term debt $ 3.4 $ 5.1 $ 8.5
Accounts payable $ 0.1 18.0 $ 19.6 6.3 44.0
Intercompany payables 351.0 $ (351.0)
Accrued expenses 58.6 23.5 9.0 91.1
------ -------- ------ ------ --------- ---------
Total current liabilities 351.1 80.0 43.1 20.4 (351.0) 143.6
Long-term debt, exclusive of current maturities 824.4 0.1 824.5
Intercompany notes payable 5.1 (5.1)
Deferred income taxes, exclusive of
current portion 2.7 2.0 4.7
Other liabilities 37.1 5.4 0.8 43.3
------ -------- ------ ------ --------- ---------
Total liabilities 351.1 949.3 48.5 23.3 (356.1) 1,016.1
Stockholders' equity (deficit) (312.2) 38.9 322.2 63.8 (424.9) (312.2)
------ -------- ------ ------ --------- ---------
Total Liabilities and
Stockholders' Equity (Deficit) $ 38.9 $ 988.2 $370.7 $ 87.1 $ (781.0) $ 703.9
====== ======== ====== ====== ========= =========
Page 13
For The Three Months
Ended March 31, 2000
Blount Non-
International, Blount, Guarantor Guarantor
Inc. Inc. Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ------- ------------ ------------ ------------ ------------
STATEMENT OF CASH FLOWS
- -----------------------
Net cash provided by (used in) operating
activities $ 375.0 $ 1.5 $(25.6) $ (3.2) $ (375.6) $ (27.9)
--------- -------- ------ ------ --------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (1.4) (2.2) (0.8) (4.4)
Acquisitions of product lines (0.1) (0.1)
--------- -------- ------ ------ --------- ---------
Net cash used in investing activities (1.4) (2.3) (0.8) (4.5)
--------- -------- ------ ------ --------- ---------
Cash flows from financing activities:
Net increase (reduction) in short-term
borrowings 3.0 3.0
Issuance of long-term debt 22.0 22.0
Reduction of long-term debt (0.9) (0.9)
Dividends paid (375.0) (0.6) 375.6
Advances from (to) affiliated companies (375.0) 350.2 24.8
Other (0.1) (0.1)
--------- -------- ------ ------ --------- ---------
Net cash provided by (used in) financing
activities $ (375.0) (3.8) 24.8 2.4 $ 375.6 24.0
--------- -------- ------ ------ --------- ---------
Net decrease in cash and cash equivalents (3.7) (3.1) (1.6) (8.4)
Cash and cash equivalents at beginning of period 5.3 0.3 4.9 10.5
--------- -------- ------ ------ --------- ---------
Cash and cash equivalents at end of period $ 1.6 $ (2.8) $ 3.3 $ 2.1
========= ======== ====== ====== ========= =========
NOTE 9 In September 2000, the Company purchased the assets of Fabtek, Inc., a
manufacturer of timber harvesting equipment. In October 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. In October 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 $41.3 million and
the combined sales and operating loss for the last twelve months prior to
acquisition were $47.1 million and $0.6 million, respectively.
NOTE 10 On January 31, 2001, the Company amended the terms of its credit
facilities related to $400 million in term loans. The amendment was entered
into, in part, to avoid a possible default under the covenants for the leverage
and interest coverage ratios of the credit facilities. The amendment eased the
financial covenants through March 31, 2002, increased the interest rate on
outstanding amounts under the credit facilities until more favorable financial
ratios are achieved, and required an amendment fee. The amendment also required
an infusion of $20 million in the form of equity capital or mezzanine financing.
On March 2, 2001, an affiliate of Lehman Brothers, Inc., the Company's principal
shareholder, invested $20 million in the Company in the form of a convertible
preferred equivalent security with warrants to acquire 1,000,000 shares of
Page 14
Blount common stock (or approximately 3% of the Company) that are exercisable
immediately at a price of $0.01 a share. The security can be converted into
convertible preferred stock at the option of the holder as a result of the
Company's stockholders passing an amendment to the Certificate of Incorporation
authorizing the issuance of preferred stock. The Company has recorded the fair
value of the warrants of $7 million as a credit to additional paid-in capital
and a debt discount to the $20 million security.
Page 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Results
Sales for the three months ended March 31, 2001 were $174.6 million compared to
$209.3 million for the comparable period of the prior year. Net loss for the
first three months of 2001 was $13.8 million ($0.45 per share) compared to net
income of $1.4 million ($0.05 per share) in the comparable period of last year.
This year's results include after-tax, non-recurring restructuring costs of $9.1
million ($0.30 per share) related to a plant closure within the Industrial and
Power Equipment segment, the modification of certain employee benefit plans and
the reduction of headcount within the Company. These results reflect decreases
in sales and operating income within all three segments, principally due to
reduced demand associated with weaker market conditions, partially offset by
decreased corporate expenses. Total selling, general and administrative
expenses, excluding the non-recurring restructuring costs, were $32.0 million in
comparison to $35.7 million in last year's first quarter. The reduction in
expenses reflects reduced corporate overhead and volume-related costs within the
segments in comparison to last year. Interest expense in the first quarter of
2001 was $25.5 million in comparison to $24.2 million in 2000, due to higher
debt levels. The Company's effective income tax rate in 2001 is equal to the
tax rate in 2000. 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, 2000.
Sales for the Outdoor Products segment for the first quarter of 2001 were $91.2
million compared to $93.6 million during the first quarter of 2000. Operating
income was $19.5 million compared to $22.0 million last year. The decline in
sales is due to a decrease in lawn mower unit sales, partially offset by
increases in chain saw components as indicated in the following table:
Three Months
Ended March 31,
--------------------------------
% Increase
(Decrease)
2001 2000 in 2001
- ------------------------------------------ ------ ------ ----------
Chain saw components $ 61.3 $ 60.2 1.8 %
Lawn mowers and accessories 18.9 22.4 (15.6)
Other 11.0 11.0 --
- ------------------------------------------ ------ ------
Total segment sales $ 91.2 $ 93.6 (2.6)%
- ------------------------------------------ ====== ======
The decrease in operating income is primarily due to lower shipments of lawn
mowers, reflecting cold weather in the southern United States, coupled with
higher discounts, principally due to third-party financing arrangements that
were not offered in the first quarter of 2000. Chain saw components sales
increased in the first quarter of 2001 as compared to the same period last year
with improved results in North America, South America, and the incremental sales
from the Windsor Forestry acquisition in October of 2000 and were partially
offset by lower sales in Europe and Asia Pacific regions. The first quarter of
2000 was favorably impacted by severe windstorm damage in Europe.
Page 16
Sales for the Sporting Equipment segment declined to $55.5 million for the first
quarter of 2001 as compared to $73.4 million during the same period last year.
This performance reflects lower sales of ammunition to the retail market sector
due to high distributor inventory levels resulting in part from the carryover
effects of Y2K buying and lower competitive selling prices on optical products,
partially offset by increased sales to law enforcement and international
markets. Operating income decreased to $0.7 million in the current year's first
quarter from $6.4 million for the same period during the prior year. Operating
profit was impacted by lower ammunition volume and selling prices due to
customer and product shifts, 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):
Three Months
Ended March 31,
--------------------------------
% Decrease
2001 2000 in 2001
- ------------------------------------------ ------ ------ ----------
Ammunition and related products $ 42.3 $ 54.1 (21.8)%
Sports optical products 6.0 8.7 (31.0)
Other 7.2 10.6 (32.1)
- ------------------------------------------ ------ ------
Total segment sales $ 55.5 $ 73.4 (24.4)%
- ------------------------------------------ ====== ======
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. An overhang of
used equipment in certain dealers' inventories, although reduced from earlier
levels, continues to negatively impact sales of new equipment. Sales of Gear
components and rotation bearings declined in the first quarter as demand
declined with a slowdown in the utility and construction markets that Gear
services. Sales by the segment's principal product groups were as follows (in
millions):
Three Months
Ended March 31,
--------------------------------
% Decrease
2001 2000 in 2001
- ------------------------------------------ ------ ------ ----------
Timber harvesting and loading equipment $ 22.9 $ 35.3 (35.1)%
Gear components and rotation bearings 5.0 7.0 (28.6)
- ------------------------------------------ ------ ------
Total segment sales $ 27.9 $ 42.3 (34.0)%
- ------------------------------------------ ====== ======
The segment had an operating loss of $1.6 million for the first quarter of 2001
as compared to operating income of $1.3 million for the comparable period last
year, reflecting weaker market conditions and the associated demand for timber
harvesting equipment and gear components. During the first quarter of 2001, the
Company announced the permanent closure of a manufacturing facility to reduce
excess capacity production. The facility closure is expected to be completed in
the second quarter. Unit production from the closed facility will be
transferred by the end of the second quarter 2001 to another Company facility,
outsourced to a third party or eliminated from the product line to permanently
Page 17
reduce the segment's fixed cost base. Costs incurred in the first quarter were
$0.6 million and are included in the Company's restructuring charge of $16.2
million.
The Company's total backlog increased to $87.4 million at March 31, 2001 from
$78.7 million at December 31, 2000 and declined from $111.3 million at March 31,
2000 as follows (in millions):
Backlog
------------------------------------------
March 31, December 31, March 31,
2001 2000 2000
- ------------------------------------ ------------- ------------ -------------
Outdoor Products $ 47.7 $ 49.0 $ 56.6
Sporting Equipment 24.1 14.6 36.3
Industrial and Power Equipment 15.6 15.1 18.4
- ------------------------------------ ------ ------ ------
$ 87.4 $ 78.7 $111.3
- ------------------------------------ ====== ====== ======
Financial Condition, Liquidity and Capital Resources
On August 19, 1999, Blount International, Inc. merged with Red Dog Acquisition,
Corp., a wholly-owned subsidiary of Lehman Brothers Partners II L.P. The merger
was completed pursuant to an Agreement and Plan of Merger and Recapitalization
dated as of April 19, 1999. At March 31, 2001, as a result of the merger and
recapitalization transactions, the Company had significant amounts of debt, with
interest payments on the notes and interest and principal payments under the new
credit agreement representing significant obligations for the Company. The
notes require semi-annual interest payments and the term loan facilities under
the new credit facilities require payments of principal of $3.4 million annually
through 2004, $161.7 million in 2005, and $160.5 million in 2006. 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 needs, capital
expenditures and potential acquisitions.
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 March 31, 2001, the Company had $46.5 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 $8.8 million at March 31, 2001. The
revolving credit facility matures August 19, 2004.
The impact on earnings of the continued downturn in the forestry equipment
markets raised questions as to whether the Company would meet the covenants for
leverage and interest coverage ratios of the Credit Agreement for December 31,
2000 and for subsequent quarters. As a result, the Company sought and received
(see Note 12 of Notes to Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000) from
its lenders an amendment to its credit agreement. As a result of the agreement,
the Company is in compliance with all the terms of the credit agreement. In
connection with the amendment, the Company's principal shareholder, an affiliate
of Lehman Brothers Merchant Banking Partners II, L.P., invested $20 million in
the form of a preferred equivalent security on March 2, 2001 (see Note 10 of
Notes to Consolidated Financial Statements).
Page 18
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 $334.9 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, 2000 for the terms and conditions of the senior
notes, senior subordinated notes, and senior term loans.
Cash balances at March 31, 2001 were $3.2 million compared to $4.8 million on
December 31, 2000. Cash used in operating activities for the first three months
of 2001 was $45.0 million in comparison to $27.9 million for the same period
last year. The increase in cash used reflects a decrease in net income of $15.2
million and an increased use for working capital of $2.4 million. Working
capital at March 31, 2001 increased to $227.8 million from $191.8 million at
December 31, 2000. Accounts receivable increased by $11.0 million, inventory by
$11.0 million, and other current assets by $13.8 million. The increase in
accounts receivable is predominantly the result of a $10.7 million increase in
the Outdoor Products segment due to higher sales which were proportionally
greater in the international markets with historically longer payment terms.
The inventory increase includes $10.6 million for a seasonal increase within the
Sporting Equipment segment. The increase in other assets reflects the tax
benefit of the first quarter operating loss.
Accounts receivable at March 31, 2001 and December 31, 2000 and sales by segment
for the first quarter of 2001 compared to the fourth quarter of 2000 were as
follows (in millions):
March 31, December 31, Increase
2001 2000 (Decrease)
- ------------------------------------ ------------- ------------ ------------
Accounts Receivable:
Outdoor Products $ 67.5 $ 56.8 $ 10.7
Sporting Equipment 72.5 69.9 2.6
Industrial and Power Equipment 19.9 21.9 (2.0)
- ------------------------------------ ------ ------ ------
Total segment receivables $159.9 $148.6 $ 11.3
- ------------------------------------ ====== ====== ======
Three Months Ended
March 31, December 31, Increase
2001 2000 (Decrease)
- ------------------------------------ ------------- ------------ ------------
Sales:
Outdoor Products $ 91.2 $ 88.4 $ 2.8
Sporting Equipment 55.5 78.7 (23.2)
Industrial and Power Equipment 27.9 31.3 (3.4)
- ------------------------------------ ------ ------ ------
Total segment sales $174.6 $198.4 $(23.8)
- ------------------------------------ ====== ====== ======
Page 19
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 international markets that
generally require longer payment terms resulted in an increase in that segment's
accounts receivable from 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
of this program, the segment's accounts receivable balance increased in the
first quarter by $2.6 million, despite a decline of $23.2 million in sales from
the fourth quarter of 2000. Extended term receivables for the year ended
December 31, 2000 were $37.4 million and increased to $38.2 million for the
quarter ended March 31, 2001. The decrease in receivables within the Industrial
and Power Equipment segment are reflective of lower sales in the first quarter
of 2001 in comparison to the fourth quarter of 2000.
Cash used for investing activities for the first three months is $4.4 million.
Included in this amount is $1.3 million related to the purchase of Fabtek, Inc.
and Windsor Forestry which were both acquired in 2000. Purchases for property,
plant and equipment in the current year are $3.1 million.
The Company has absorbed the increase in working capital and the acquisitions
through operating cash flows and short-term borrowings under its revolving
credit agreement. Cash provided by financing activities for the first three
months of 2001 was $47.8 million, with $28.4 million from the utilization of the
revolving credit facility and $20.0 million from the purchase of a preferred
equivalent security by an affiliate of Lehman Brothers, the Company's principal
stockholder. Given the historically stronger fourth quarter cash flows (in
2000, the first half operating cash flow was a usage of $(21.7) million in
comparison to $51.5 million in the second half), the Company expects the cash
flows from operations and amounts borrowed under its revolving credit agreements
will be sufficient to cover any additional increases in working capital until
market conditions improve in the Industrial and Power Equipment segment. No
material adverse effect on the operations, liquidity or capital resources of the
Company is expected as a result of the extended terms offered within the
Sporting Equipment segment.
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.
Page 20
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard 133 ("SFAS 133"), as amended in June 2000 by
SFAS 138 ("SFAS 138"), "Accounting for Derivative Instruments and Hedging
Activities," which standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts. This
standard requires that an entity recognize those items as assets or liabilities
in the statement of financial position and measure them at fair value, resulting
in an offsetting adjustment to income or other comprehensive income, depending
on effectiveness of the hedge. SFAS 133, as amended by SFAS 138, was effective
for the Company beginning January 1, 2001. Certain instruments historically
utilized by the Company to hedge raw materials and interest rate risks are
required to be marked to market each period under this standard. The adoption
of SFAS 133, as amended by SFAS 138, has not had a material impact on the
results of operations.
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. The Company adopted SAB 101 in the fourth quarter of 2000 without
any material impact on the Company's financial statements or results from
operations.
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. The Company does
not expect any material impact on the Company's financial statements or results
from operations.
Forward Looking Statements
Forward looking statements in this report, as defined by the Private Securities
Litigation Reform Law of 1995, including expectations or beliefs based upon
historic patterns or other factors listed in this report involve certain risks
and uncertainties that may cause actual results to differ materially from those
anticipated as of the date of this report.
Part II. Other Information
Item 6(a) Exhibits
**10(u) Amendment to Employment Agreement between Blount
International, Inc. and James S. Osterman dated February 2, 2001.
**10(v) Amendment to Employment Agreement between Blount
International, Inc. and John M. Panettiere dated March 14, 2001.
** Filed electronically herewith. Copies of this exhibit may be obtained upon
written request from:
Blount International, Inc.
P. O. Box 949
Montgomery, Alabama 36101-0949
Page 21
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: May 14, 2001 /s/ Rodney W. Blankenship
---------------------------------------
Rodney W. Blankenship
Senior Vice President and
Chief Financial Officer
Page 22