UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended February 29, 1996
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OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-7002
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BLOUNT, INC.
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(Exact name of registrant as specified in its charter)
The registrant meets the conditions set forth in General Instruction J(1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.
Delaware 63-0593908
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4520 Executive Park Drive, Montgomery, Alabama 36116-1602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (334) 244-4000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained, and will not be contained, to the best of
registrant's knowledge, in the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Page 1
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
Aggregate market value of voting stock held by nonaffiliates as of April 1,
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1996: $ None
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $.01 par value, as of April 1, 1996: 1,000 shares
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DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
None.
Page 2
PART I
ITEM 1. BUSINESS
Blount, Inc. ("the Company") is an international manufacturing company with
operations in three business segments: Outdoor Products, Industrial and Power
Equipment and Sporting Equipment. The Company's current manufacturing
operations date largely to the acquisition of Omark Industries, Inc. in 1985.
The Company was founded in 1946 as a general construction company and, over the
succeeding years, grew into one of the largest construction companies in the
United States. In February, 1994, the construction business was discontinued.
See Note 4 of Notes to Consolidated Financial Statements on pages 19 and 20.
Through a merger agreement approved by its stockholders in November, 1995, (see
Note 1 of Notes to Consolidated Financial Statements on page 14), the Company
became a wholly-owned subsidiary of Blount International, Inc.
The following text contains various trademarks of Blount, Inc. and its
subsidiaries.
OUTDOOR PRODUCTS
The Company's Outdoor Products segment is comprised of the Oregon Cutting
Systems Division ("Oregon") and Dixon Industries, Inc. ("Dixon"). Oregon
produces a wide variety of saw chain, chain saw guide bars, saw chain drive
sprockets and maintenance tools for use primarily on portable gasoline and
electric chainsaws, and mechanical timber harvesting equipment. The Oregon
trademark is well known to end-users and the Company believes that it is the
world leader in the production of saw chain. Oregon's saw chain and related
products are used primarily by professional loggers, construction workers,
farmers, arborists and homeowners. Oregon now markets a new Industrial Cutting
System ("ICS"). ICS, a diamond-segmented chain cutting system for concrete
(including steel-reinforced concrete), is a faster and more flexible concrete
cutting method than others currently employed in the construction and demolition
industries.
Sales derived from operations outside the United States accounted for 44%, and
export sales accounted for an additional 23%, of Oregon's sales during fiscal
1996. Oregon manufactures saw chain and related products in Milwaukie, Oregon;
Guelph, Ontario, Canada; and Curitiba, Parana, Brazil.
Dixon, acquired in early fiscal 1991, has manufactured ZTR (zero turning radius)
riding lawn mowers and related attachments since 1973. Dixon pioneered the
development of ZTR and is the only manufacturer to offer a full line of ZTR
riding lawn mowers for both homeowner and commercial applications. Sales by
Dixon accounted for 16% of Outdoor Products sales in fiscal 1996.
INDUSTRIAL AND POWER EQUIPMENT
The Company's Industrial and Power Equipment segment manufactures equipment for
timber harvesting and log loading, industrial tractors and loaders, rotation
bearings and mechanical power transmission components. The Company believes
that it is a world leader in the manufacture of hydraulic timber harvesting
equipment, which includes a line of self-propelled and truck-mounted loaders and
feller bunchers (tractors with hydraulic attachments for felling timber) under
the Prentice brand name; a line of tractors, feller bunchers and related
attachments under the Hydro-Ax brand name; and a line of delimbers, slashers and
firewood processors under the CTR brand name. Major customers of the Industrial
and Power Equipment segment include timber harvesters, land reclamation
companies, contractors and scrap yard operators.
Page 3
The Company's Industrial and Power Equipment segment has manufacturing facili-
ties in Owatonna, Minnesota; Prentice and Spencer, Wisconsin; Tulsa, Okl
and Zebulon and Union Grove, North Carolina.
Segment results include sales of $43 million from Gear Products, Inc. ("Gear"),
acquired by the Company early in fiscal 1992, and CTR Manufacturing, Inc.
("CTR"), acquired by the Company in early fiscal 1995. Gear designs,
manufactures and distributes rotation bearings and mechanical power transmission
components for manufacturers of equipment that serve the utility, man-lift,
construction, forestry and marine industries. CTR designs, manufactures and
distributes a line of slashers, delimbers, firewood processors and self-
propelled carriers that serve the forest products industry.
SPORTING EQUIPMENT
The Company's Sporting Equipment segment manufactures small arms ammunition,
reloading equipment, primers, gun care products and accessories, and is a
merchandiser of imported sports optical products under the Simmons and Weaver
brand names. Principal products include CCI and Speer ammunition sold for use by
hunters, sportsmen and law enforcement and military personnel; RCBS reloading
equipment for use by hunters and sportsmen who prefer to reload their own
ammunition; Outers gun care and trap-shooting products; Ram-Line synthetic
stocks, Polar Cap scope covers and other shooting sports accessories; Weaver
shooting mounts and scopes; and Simmons binoculars, scopes and telescopes and
other optical and hunting accessories. As a result of its acquisition of
Simmons Outdoor Corporation in December 1995, the Company added over 300 models
of binoculars, scopes, telescopes and other optical accessories to its product
line. The Company believes that it is a market leader in the domestic gun care
and reloading markets with high levels of brand name recognition in each of
these areas. The Sporting Equipment segment also produces industrial powerloads
which are used in the construction industry to drive fastening pins into metal
or concrete.
The Company manufactures ammunition in Lewiston, Idaho; reloading equipment in
Oroville, California; mounts, shooting accessories and gun care equipment in
Onalaska, Wisconsin. The Company imports substantially all its optical products
from foreign suppliers.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND FOREIGN AND DOMESTIC
OPERATIONS
For information about industry segments and foreign and domestic operations, see
"Management's Analysis of Results of Operations" on pages 7 and 8 and Note 10 of
Notes to Consolidated Financial Statements on pages 25 through 27.
ITEM 2. PROPERTIES
The corporate headquarters of the Company occupies executive offices at 4520
Executive Park Drive, Montgomery, Alabama.
The other principal properties of the Company and its subsidiaries are as
follows:
Cutting chain and accessories manufacturing plants are located in Milwaukie,
Oregon; Guelph, Ontario, Canada; and Curitiba, Parana, Brazil and sales and
distribution offices are located in Europe and Japan. Lawn mowers and related
attachments are manufactured at a plant in Coffeyville, Kansas. Log loaders,
feller-bunchers and accessories for automated forestry equipment are
Page 4
manufactured at plants in Prentice and Spencer, Wisconsin; Zebulon and Union
Grove, North Carolina; and Owatonna, Minnesota. Rotation bearings and
mechanical power transmission components are manufactured at a plant in Tulsa,
Oklahoma. Sporting ammunition, reloading equipment products, gun care
equipment, industrial powerloads and shooting sports accessories are
manufactured at plants in Lewiston, Idaho; Oroville, California; and Onalaska,
Wisconsin. The Company's sporting optics and hunting accessory merchandiser
maintains executive offices in Tallahassee, Florida and a warehouse facility in
Thomasville, Georgia.
All of these facilities are in good condition, are currently in normal operation
and are generally suitable and adequate for the business activity conducted
therein.
ITEM 3. LEGAL PROCEEDINGS
For information regarding legal proceedings see Note 8 of Notes to Consolidated
Financial Statements on pages 23 and 24.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Page 5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is a wholly-owned subsidiary of Blount International, Inc.
For information regarding restrictions on the Company's ability to pay cash
dividends, see Note 3 of Notes to Consolidated Financial Statements on pages 17
and 18.
For information regarding restrictions on the net assets of foreign
subsidiaries, see Note 11 of Notes to Consolidated Financial Statements on pages
28 and 29.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
Page 6
ITEM 7. MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
This analysis should be read in conjunction with the consolidated financial
statements and related notes.
OPERATING RESULTS
TOTAL COMPANY
On November 3, 1995, a merger agreement was approved in which the Company became
a wholly-owned subsidiary of Blount International, Inc. See Note 1 of Notes to
Consolidated Financial Statements for a description of the merger.
The Company reported record sales and income from continuing operations for
fiscal 1996. The Company's Outdoor Products and Industrial and Power Equipment
segments continued their excellent performance during fiscal 1996, while the
results from the Sporting Equipment segment were adversely affected by a general
industry slowdown. Overall, operating income from segments increased by 11%
during fiscal 1996. Sales for fiscal 1996 were $644.3 million compared to
$588.4 million for fiscal 1995. Net income was $54.8 million for fiscal 1996
compared to $40.1 million for the prior year.
Selling, general and administrative expenses were 19% of sales in fiscal 1996
compared to 21% in fiscal 1995. Total selling, general and administrative
expenses increased during fiscal 1996, reflecting the increased sales activity
partially offset by lower corporate overhead expenses. Corporate overhead
expenses for the prior year included litigation and settlement costs of $7.1
million related to the sale of a former subsidiary. Total backlog at February
29, 1996, was approximately $112.8 million compared to $134.4 million at
February 28, 1995.
Beginning with results for the January-March 1996 calendar quarter, the Company
will begin reporting on a calendar year basis ending December 31, instead of the
previous fiscal year end of February 29.
SEGMENTS
The Company's Outdoor Products segment established record levels of sales and
operating income again in fiscal 1996. Sales for the Outdoor Products segment
were $291.6 million in fiscal 1996 compared to $268.1 million during fiscal
1995. Operating income increased to $57.4 million during fiscal 1996 from $49.6
million in fiscal 1995. The improved results for this segment were primarily
due to an increase in sales and operating income of $20.2 million and $5.2
million, respectively, at the Company's Oregon Cutting Systems Division
("Oregon"). This reflects a 9% increase in the sales volume of saw chain and a
19% increase in the sales volume of saw bars, Oregon's two principal products,
principally to foreign markets. A significant part of Oregon's operations are
conducted in foreign countries and, as a result, fluctuations in foreign
exchange rates impact the amount of reported sales, operating margins and the
amount of foreign exchange adjustments reflected in income. During fiscal 1996,
the net effect of changes in exchange rates as compared to fiscal 1995 was not
material to Oregon's operating results. Oregon has manufacturing facilities in
Brazil whose operations have historically been significantly affected by high
inflation, currency devaluation and resulting governmental policies. Due to a
deteriorating financial climate and the discontinuance of a local product line,
operations in Brazil incurred an operating loss of $.6 million in fiscal 1996
compared to operating income of $2.4 million in fiscal 1995. Sales and
operating income at other units of the Outdoor Products segment, principally
Dixon Industries, Inc., were up by 8% to $45.3 million and 38% to $9.7 million,
respectively, in fiscal 1996, principally as a result of a 17% increase in the
Page 7
sales volume of riding lawn mowers. The current demand for Oregon's products
continues at high levels; therefore, the Company expects another good sales year
in the next fiscal year. The Company also expects continued strong sales growth
for its riding lawn mower business.
During fiscal 1996, the Industrial and Power Equipment segment continued its
impressive performance. Sales and operating income were $240.6 million and
$42.2 million, respectively, during fiscal 1996 compared to $207.6 million and
$33.0 million during the prior year. The improved operating results reflect
higher average selling prices and a better sales mix for timber harvesting
equipment, and improved sales and operating income at the Company's CTR
Manufacturing, Inc. and Gear Products, Inc. subsidiaries, primarily due to
higher volume. The Company expects the next fiscal year to be a reasonable year
for this segment, which is currently experiencing a reduction in order backlog.
The Sporting Equipment segment experienced a downturn during fiscal 1996. In
the aftermath of last year's booming domestic market, an industry slowdown
occurred. Sales for the Sporting Equipment segment were $112.1 million for
fiscal 1996, including $6.5 million from a late year acquisition (see below),
compared to $112.8 million during the prior year. Operating income was down to
$13.2 million for fiscal 1996 as compared to $19.3 million during fiscal 1995.
These results reflect the reduced demand, higher raw material costs, costs
associated with temporary plant shutdowns during the second quarter and a loss
from the Ram-Line operation acquired late in fiscal 1995. In December 1995, the
Company acquired Simmons Outdoor Corporation ("Simmons") (see Note 4 of Notes to
Consolidated Financial Statements), a major sports optics merchandiser, to
complement its existing sporting equipment product line. The Company expects
this acquisition plus improved demand to lead to improved results for this
segment during the next fiscal year.
ACCOUNTING PRINCIPLES
In its next fiscal year, the Company will adopt Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and SFAS No. 123,
"Accounting for Stock-Based Compensation." No material effect on consolidated
financial condition or operating results is expected as the accounting methods
to be adopted will not differ materially from existing methods.
Page 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
We have audited the consolidated financial statements and the financial
statement schedules of Blount, Inc. and subsidiaries listed in Item 14(a) of
this Form 10-K. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Blount, Inc. and
subsidiaries as of the last day of February 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended February 29, 1996 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
April 11, 1996
Page 9
CONSOLIDATED STATEMENTS OF INCOME
Blount, Inc. and Subsidiaries
For the years ended the last day of February 1996 1995 1994
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In thousands
Sales $ 644,301 $ 588,419 $ 488,045
Cost of sales 427,322 390,818 330,059
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Gross profit 216,979 197,601 157,986
Selling, general and administrative expenses 122,896 120,681 107,401
- ------------------------------------------------------------ ----------- ----------- -----------
Income from operations 94,083 76,920 50,585
Interest expense (10,886) (11,186) (11,052)
Interest income 3,177 2,340 1,501
Other income (expense), net 527 (2,179) (4,619)
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Income before income taxes 86,901 65,895 36,415
Provision for income taxes 32,108 25,805 12,019
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Income from continuing operations 54,793 40,090 24,396
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Discontinued operations:
Loss from operations, net (9,666)
Loss on disposal, net (650)
- ------------------------------------------------------------ ----------- ----------- -----------
Total loss from discontinued operations (10,316)
- ------------------------------------------------------------ ----------- ----------- -----------
Net income $ 54,793 $ 40,090 $ 14,080
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The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Blount, Inc. and Subsidiaries
For the years ended the last day of February 1996 1995 1994
- ------------------------------------------------------------ ----------- ----------- -----------
In thousands
Balance at beginning of period $ 171,260 $ 137,440 $ 128,833
Net income 54,793 40,090 14,080
- ------------------------------------------------------------ ----------- ----------- -----------
226,053 177,530 142,913
Less cash dividends declared 7,753 6,270 5,473
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Balance at end of period $ 218,300 $ 171,260 $ 137,440
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The accompanying notes are an integral part of these statements.
Page 10
CONSOLIDATED BALANCE SHEETS
Blount, Inc. and Subsidiaries
As of the last day of February 1996 1995
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In thousands, except share data
Assets
- ------------------------------------------------------------------------- ----------- -----------
Current assets:
Cash and cash equivalents, including short-term
investments of $11,386 and $39,458 $ 14,590 $ 42,576
Accounts receivable, net of allowances for
doubtful accounts of $3,853 and $2,611 147,206 130,665
Inventories 94,113 77,075
Deferred income taxes 23,491 25,068
Other current assets 3,502 16,153
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Total current assets 282,902 291,537
Property, plant and equipment, net of accumulated
depreciation of $160,026 and $145,519 135,522 134,289
Cost in excess of net assets of acquired businesses, net 88,111 68,762
Other assets 37,354 23,200
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Total Assets $ 543,889 $ 517,788
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Liabilities and Shareholder's Equity
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Current liabilities:
Notes payable and current maturities of long-term debt $ 11,692 $ 7,791
Accounts payable 51,454 64,793
Accrued expenses 84,229 92,190
Other current liabilities 1,963 4,658
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Total current liabilities 149,338 169,432
Long-term debt, exclusive of current maturities 95,920 99,754
Deferred income taxes, exclusive of current portion 20,533 19,214
Other liabilities 25,697 26,321
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Total liabilities 291,488 314,721
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Commitments and Contingent Liabilities
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Shareholder's equity:
Common stock: par value $.01 per share; 1,000 shares issued -- --
Capital in excess of par value of stock 25,922 23,557
Retained earnings 218,300 171,260
Accumulated translation adjustment 8,179 8,250
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Total shareholder's equity 252,401 203,067
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Total Liabilities and Shareholder's Equity $ 543,889 $ 517,788
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The accompanying notes are an integral part of these statements.
Page 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
Blount, Inc. and Subsidiaries
For the years ended the last day of February 1996 1995 1994
- ------------------------------------------------------------ ----------- ----------- -----------
In thousands
Cash flows from operating activities:
Net income $ 54,793 $ 40,090 $ 14,080
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other noncash charges 22,264 23,539 23,435
Deferred income taxes 3,697 (1,251) (15,031)
Loss on disposals of property, plant and equipment 975 441 3,349
Changes in assets and liabilities, net of effects
of businesses acquired and sold:
Decrease in aggregate balance
of accounts receivable sold (17,637)
(Increase) decrease in accounts receivable (16,654) 5,517 1,135
Increase in inventories (251) (12,991) (4,280)
(Increase) decrease in other assets (4,807) (2,599) 12,337
Increase (decrease) in accounts payable (6,888) (9,906) 7,975
Increase (decrease) in accrued expenses (9,297) 1,829 12,750
Decrease in other liabilities (2,797) (13,100) (8,946)
- ------------------------------------------------------------ ----------- ----------- -----------
Net cash provided by operating activities 41,035 31,569 29,167
- ------------------------------------------------------------ ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sales of businesses and property, plant
and equipment 5,059 2,930 3,916
Purchases of property, plant and equipment (18,545) (9,769) (14,605)
Acquisitions of businesses (37,396) (10,150)
- ------------------------------------------------------------ ----------- ----------- -----------
Net cash used in investing activities (50,882) (16,989) (10,689)
- ------------------------------------------------------------ ----------- ----------- -----------
Cash flows from financing activities:
Net increase (reduction) in short-term borrowings 818 (478) (2,246)
Issuance of long-term debt 11,800 97,327
Reduction of long-term debt (15,652) (20,508) (75,325)
(Increase) decrease in restricted funds 2,524 (10,095)
Dividends paid (7,753) (6,270) (5,473)
Other 1,924 1,334 1,729
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Net cash provided by (used in) financing activities (18,139) (24,217) 16,012
- ------------------------------------------------------------ ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (27,986) (9,637) 34,490
- ------------------------------------------------------------ ----------- ----------- -----------
Cash and cash equivalents at beginning of period 42,576 52,213 17,723
- ------------------------------------------------------------ ----------- ----------- -----------
Cash and cash equivalents at end of period $ 14,590 $ 42,576 $ 52,213
- ------------------------------------------------------------ ----------- ----------- -----------
The accompanying notes are an integral part of these statements.
Page 12
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL STOCK ACCOUNTS
Blount, Inc. and Subsidiaries
Capital Accumulated
In Excess Translation
In thousands Common Stock of Par Adjustment
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Balance, February 28, 1993 $ -- $19,003 $ 7,235
Exercise of employee stock options 1,653
Issuance of shares under dividend
reinvestment plan 76
Aggregate adjustment resulting
from translation of foreign
currency statements 212
Other shares issued 1,234
- -------------------------------------------------------------------------------
Balance, February 28, 1994 -- 21,966 7,447
Exercise of employee stock options 1,243
Issuance of shares under dividend
reinvestment plan 91
Aggregate adjustment resulting
from translation of foreign
currency statements 803
Other shares issued 257
- -------------------------------------------------------------------------------
Balance, February 28, 1995 -- 23,557 8,250
Exercise of employee stock options 2,277
Issuance of shares under dividend
reinvestment plan 88
Aggregate adjustment resulting
from translation of foreign
currency statements (71)
- -------------------------------------------------------------------------------
Balance, February 29, 1996 $ -- $25,922 $ 8,179
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
Page 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Blount, Inc. and Subsidiaries
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation:
The consolidated financial statements include the accounts of Blount, Inc. ("the
Company") and its subsidiaries. All significant intercompany balances and
transactions are eliminated in consolidation.
On November 3, 1995, the stockholders of the Company approved a merger agreement
dated August 17, 1995, among the Company, Blount International, Inc. ("BII"),
and a wholly-owned subsidiary of BII ("the subsidiary"). As a result, i) the
subsidiary was merged with and into the Company, ii) the Company was the
surviving corporation in the merger and became a wholly-owned subsidiary of BII,
iii) Company stockholders received three shares of BII Class A Common Stock in
exchange for each two shares held of Company Class A Common Stock and three
shares of BII Class B Common Stock in exchange for each two shares held of
Company Class B Common Stock, and iv) BII assumed all Company stock option
plans. BII filed a Form S-4 registration statement with the Securities and
Exchange Commission on October 3, 1995, for the shares to be issued as a result
of the merger. Immediately following the merger, the equity ownership of BII
was the same as that which previously existed for the Company. The Company was
delisted from the American Stock Exchange effective November 3, 1995, and BII
began trading on the New York Stock Exchange on November 6, 1995.
Prior to the merger, BII was owned 100% by the Company's Chairman of the Board,
Winton M. Blount, and members of his family, and BII owned an approximate 62%
voting interest and approximately 38% of the shares of Company Common Stock
outstanding. Except for the equity interest in the Company, BII has had no
other operations or business since February 1993.
On January 5, 1996, the Company's amended and restated certificate of
incorporation, which authorizes 1,000 shares of common stock, $.01 par value,
became effective. All 1,000 shares are outstanding and held by BII. The share
data in the accompanying consolidated financial statements has been restated to
reflect this reduction in outstanding common stock.
Reclassifications:
Certain amounts in the 1995 and 1994 financial statements and notes to
consolidated financial statements have been reclassified to conform with the
1996 presentation.
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Estimates are used when accounting for the allowance for doubtful accounts,
inventory obsolescence, long-lived assets, product warranty expenses, casualty
insurance costs, employee benefit plans, income taxes, discontinued operations
and contingencies. It is reasonably possible that actual results could differ
significantly from those estimates and significant changes to estimates could
occur in the near term.
Cash and cash equivalents:
The Company considers all highly liquid temporary cash investments that are
readily convertible to known amounts of cash and present minimal risk of changes
Page 14
in value because of changes in interest rates to be cash equivalents.
Checks in transit are classified as accounts payable to the extent the aggregate
of such checks exceeds available cash balances not temporarily invested. Checks
classified as accounts payable were $7.0 million and $6.2 million as of the last
day of February 1996 and 1995. All other checks in transit are recorded as
reductions of cash.
Inventories:
Inventories are stated at the lower of first-in, first-out cost or market.
Property, plant and equipment:
These assets are stated at cost and are depreciated principally on the straight-
line method over the estimated useful lives of the individual assets. Gains or
losses on disposal are reflected in income. Property, plant and equipment held
under leases which are essentially installment purchases are capitalized with
the related obligations stated at the principal portion of future lease
payments. Depreciation charged to costs and expenses was $19.3 million, $19.8
million and $19.9 million in 1996, 1995 and 1994.
Interest cost incurred during the period of construction of plant and equipment
is capitalized. No material amounts of interest were capitalized on plant and
equipment during the three years ended February 29, 1996.
Cost in excess of net assets of acquired businesses:
The excess cost is being amortized by the straight-line method over periods
ranging from 30 to 40 years. Accumulated amortization was $19.5 million and
$17.4 million as of the last day of February 1996 and 1995. The excess cost is
evaluated for impairment based on the historic and estimated future
profitability of the business units to which it relates. Adjustments to
carrying value are made if required.
Insurance accruals:
It is the Company's policy to retain a portion of expected losses related to
workers' compensation and general, product and vehicle liability through large
deductibles under its insurance programs. Provisions for losses expected under
these programs are recorded based on estimates of the undiscounted aggregate
liabilities for claims incurred.
Foreign currency:
For foreign subsidiaries which have a majority of transactions denominated in
U.S. dollars or conduct operations in a highly inflationary economy, monetary
assets and liabilities are translated into U.S. dollars at the current exchange
rate, while other assets (principally property, plant and equipment and
inventories) and related costs and expenses are generally translated at historic
exchange rates. Sales and other costs and expenses are translated at the average
exchange rate for the period and the resulting foreign exchange adjustments are
recognized in income. Assets and liabilities of the remaining foreign operations
are translated into U.S. dollars at the current exchange rate and their
statements of income are translated at the average exchange rate for the period.
Gains and losses resulting from translation of the financial statements of these
operations are accumulated in a separate component of shareholder's equity. The
amount of income taxes allocated to this translation adjustment is not
significant. Foreign exchange adjustments reduced pretax income by $1.9
million, $.7 million and $.5 million in 1996, 1995 and 1994.
At February 29, 1996, there were no significant foreign exchange forward
contracts outstanding. Previously, foreign exchange forward contracts were
recorded in the Company's balance sheet at fair value and changes in fair values
were recognized as other expense or income in the period in which the changes
Page 15
occurred (see Note 9 of Notes to Consolidated Financial Statements).
Revenue recognition:
The Company's policy is to record sales as orders are shipped.
Research and development:
Expenditures for research and development are expensed as incurred. These costs
were $8.8 million, $7.7 million and $7.0 million for 1996, 1995 and 1994.
NOTE 2:
INCOME TAXES
The provision for income taxes attributable to continuing operations is as
follows:
For the years ended the last day of February 1996 1995 1994
- -----------------------------------------------------------------------------
In thousands
Current provision:
Federal $ 22,229 $ 18,739 $ 17,657
State 2,140 3,518 400
Foreign 3,953 5,159 8,993
Deferred provision (benefit):
Federal 4,441 (1,048) (13,234)
State 465
Foreign (1,120) (563) (1,797)
- -----------------------------------------------------------------------------
$ 32,108 $ 25,805 $ 12,019
- -----------------------------------------------------------------------------
A reconciliation of the provision for income taxes attributable to continuing
operations to the amount computed by applying the statutory federal income tax
rate to income from continuing operations before income taxes is as follows:
For the years ended the last day of February 1996 1995 1994
- -----------------------------------------------------------------------------
In thousands
Income before income taxes:
Domestic $ 80,835 $ 55,973 $ 16,518
Foreign 6,066 9,922 19,897
- -----------------------------------------------------------------------------
$ 86,901 $ 65,895 $ 36,415
- -----------------------------------------------------------------------------
% % %
Statutory tax rate 35.0 35.0 35.0
Impact of earnings of foreign operations .2 (1.0) (.1)
State income taxes, net of federal
tax benefit 2.3 3.5 1.1
Adjustments to prior year estimates (4.3)
Permanent differences between book
bases and tax bases 1.0 1.7 1.3
Other items, net (1.6)
- -----------------------------------------------------------------------------
Effective income tax rate 36.9 39.2 33.0
- -----------------------------------------------------------------------------
All years reflect the allocation of substantially all corporate office expenses
and interest expense to domestic operations.
Page 16
As of the last day of February 1996 and 1995, deferred income tax assets were
$37.6 million and $37.7 million and deferred income tax liabilities were $34.6
million and $31.8 million. Deferred income taxes applicable to principal
temporary differences are as follows:
As of the last day of February 1996 1995
- -----------------------------------------------------------------------------
In thousands
Property, plant and equipment basis differences $ 20,229 $ 18,584
Employee benefits (12,461) (11,999)
Other accrued expenses (19,192) (19,716)
Other - net 8,466 7,277
- -----------------------------------------------------------------------------
$ (2,958) $ (5,854)
- -----------------------------------------------------------------------------
Deferred income taxes of approximately $2.1 million have not been provided on
undistributed earnings of foreign subsidiaries in the amount of $24.9 million as
the earnings are considered to be permanently reinvested.
The Company has settled its issues with the Internal Revenue Service through the
1990 fiscal year with no material adverse effect. The years 1991 through 1996
are still open for review.
NOTE 3:
DEBT AND FINANCING AGREEMENTS
Long-term debt consists of the following:
As of the last day of February 1996 1995
- -----------------------------------------------------------------------------
In thousands
9% subordinated notes $ 79,350 $ 80,050
Industrial Development Revenue Bonds payable,
maturing between 1997 and 2014, interest at varying
rates (principally 3.6% at February 29, 1996) 16,393 16,741
Other long-term debt, interest at 8%, payable in 1997 2,500 8,953
Lease purchase obligations, interest at varying
rates, payable in installments to 2000 892 1,143
- -----------------------------------------------------------------------------
99,135 106,887
Less current maturities (3,215) (7,133)
- -----------------------------------------------------------------------------
$ 95,920 $ 99,754
- -----------------------------------------------------------------------------
Page 17
Maturities of long-term debt and the principal and interest payments on long-
term capital leases are as follows:
Fiscal Year Capital Leases
--------------------- Total
In thousands Debt Principal Interest Payments
- -----------------------------------------------------------------------------
1997 $ 2,848 $ 367 $ 71 $ 3,286
1998 347 466 22 835
1999 348 38 2 388
2000 337 21 358
2001 338 338
2002 and beyond 94,025 94,025
- -----------------------------------------------------------------------------
$ 98,243 $ 892 $ 95 $ 99,230
- -----------------------------------------------------------------------------
At February 29, 1996, no amounts were outstanding under the Company's $100
million revolving credit agreement with a group of five banks. The $100 million
agreement expires December 1999 and 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 may vary based on cash flow and leverage ratios
or, at the Company's irrevocable option, the debt rating for senior unsecured
long-term debt of the Company. In addition, a commitment fee which varies to a
maximum of 1/2% is charged on the total commitment. The agreement contains
covenants relating to liens, subsidiary debt, transactions with affiliates,
acquisitions, consolidations, mergers and sales of assets, and requires the
Company to maintain certain specified debt-to-equity and fixed charge coverage
ratios.
The proceeds from industrial development revenue bonds of $11.8 million issued
in fiscal 1995 are held in trust and released as qualified capital expenditures
are made. As of the last day of February 1996 and 1995, $7.6 million and $10.1
million were held in trust and are included in "Other assets" in the Company's
consolidated balance sheets.
The Company has 9% senior subordinated notes ("the 9% notes") outstanding in the
principal amount of $79.4 million maturing on June 15, 2003. During fiscal
1995, approximately $20 million of the 9% subordinated notes were repurchased
with no material gain or loss. The 9% notes are redeemable at the election of
the Company, in whole or in part, at any time on or after June 15, 1998,
initially at 103 3/8% of the principal amount and thereafter at prices declining
to par on June 15, 2001. The 9% notes were issued under an indenture ("the
indenture") between the Company and a major bank as trustee. The indenture
restricts the Company's ability to incur additional debt, pay dividends, make
certain investments, dispose of assets, create liens on assets and merge or
consolidate with another entity.
In August 1995, the Company entered into an agreement expiring August 31, 1998
with certain financial organizations under which it may sell up to $25 million
of undivided interests in a pool of eligible accounts receivable in which the
purchasers retain a security interest. The purchasers' level of investment may
fluctuate based on the level of the eligible receivables in the pool. As of
February 29, 1996, no receivables have been sold under this agreement.
Under the most restrictive debt requirement, retained earnings of approximately
$61.8 million were available for the payment of dividends at February 29, 1996.
As of the last day of February 1996 and 1995, the weighted average interest rate
on short-term borrowings was 8.4% and 10.3%, respectively.
Page 18
NOTE 4:
ACQUISITIONS AND DISPOSALS
In December 1995, the Company acquired the outstanding capital stock of Simmons
Outdoor Corporation ("Simmons"), a sports optics merchandiser. The purchase
price was approximately $38 million. The acquisition has been accounted for by
the purchase method, and the net assets and results of operations of Simmons
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 40
years. Sales and pretax income for Simmons for calendar 1995 were $40.9 million
and $1.6 million, respectively.
In April 1994, the Company acquired all the outstanding capital stock of CTR
Manufacturing, Inc. ("CTR"). CTR manufactures automated forestry harvesting
equipment. In November 1994, the Company acquired the operating assets of Ram-
Line, Inc. ("Ram-Line"), a manufacturer of stocks, magazines, lens caps and
other products for the shooting sports market. The purchase price paid for the
two businesses was approximately $18.2 million, including notes issued of $7.2
million. Both transactions have been accounted for by the purchase method. The
combined sales and pretax income of CTR and Ram-Line for their most recent
fiscal years prior to acquisition were approximately $17.1 million and $1.6
million, respectively.
In February 1994, the Company adopted a plan to discontinue its construction
business through the orderly completion and close-out of the Company's principal
domestic and foreign construction projects ("the projects") and the sale of
Pozzo Construction Co. ("Pozzo"), a subsidiary headquartered in Los Angeles,
California. In March 1994, the Company entered into an agreement with Caddell
Construction Co., Inc. ("Caddell") to provide the consulting and construction
management services necessary to complete the projects. As of February 29,
1996, the projects encompassed by the agreement with Caddell were complete.
During the first quarter of fiscal 1996, Pozzo was sold with no material effect
on the Company's financial condition.
In fiscal 1994, a provision for loss of $650 thousand (after tax benefits of
$350 thousand) was recorded for disposal of the construction segment, which is
reflected as discontinued operations in the accompanying consolidated statements
of income. Results of the discontinued operations are summarized as follows (in
thousands):
For the years ended the last day of February 1996 1995 1994
- ------------------------------------------------------------------------------
Revenues $ 31,158 $ 125,208 $ 210,090
Cost of revenues 28,941 117,898 216,935
- ------------------------------------------------------------------------------
Gross profit (loss) 2,217 7,310 (6,845)
Selling, general and administrative
expenses (748) (4,070) (8,093)
Other income - net 415 320 67
- ------------------------------------------------------------------------------
Income (loss) before income taxes 1,884 3,560 (14,871)
Provision (benefit) for income taxes 659 1,246 (5,205)
- ------------------------------------------------------------------------------
Net income (loss) $ 1,225 $ 2,314 $ (9,666)
- ------------------------------------------------------------------------------
As the provision for loss on disposal of the construction segment recorded in
fiscal 1994 includes estimates of that segment's operating results until its
final termination, the above net income for 1996 and 1995 has no impact on the
Page 19
Company's fiscal 1996 and 1995 statements of income. The 1994 loss before taxes
of $14.9 million is net of income of approximately $7.3 million from a less than
majority-owned foreign joint venture. Distributions to the Company from this
joint venture were approximately $21.2 million in fiscal 1994 and $4.9 million
in fiscal 1996.
The principal assets and liabilities of the discontinued operations included in
the Company's consolidated balance sheets are as follows (in thousands):
As of the last day of February 1996 1995
- -----------------------------------------------------------------------------
Accounts receivable $ 24,736 $ 45,706
Other current assets 1,263 11,911
Other assets 639 5,203
Accounts payable (10,885) (24,588)
Accrued expenses (7,453) (12,578)
Other current liabilities (1,963) (4,659)
Other liabilities (2,849)
NOTE 5:
CAPITAL STRUCTURE
The Company has authorized 1,000 shares of Common Stock, $.01 par value.
NOTE 6:
PENSION PLANS
The Company maintains funded, non-contributory, trusteed, defined benefit
pension plans covering the majority of the domestic employees of the Company and
certain subsidiaries. In addition, the Company sponsors certain supplemental
defined benefit plans and employees of certain foreign operations participate in
local plans.
The formulas of defined benefit plans generally base pension benefits paid to
retired employees upon their length of service and a percentage of average
compensation during certain years of employment. The plans' assets are invested
principally in equity funds, bond funds and temporary cash investments. The
actuarial method used for financial reporting purposes is the projected unit
credit method. The components of pension expense for Company-sponsored defined
benefit plans for each of the last three years were (in thousands):
1996 1995 1994
- ----------------------------------------------------------------------------
Service cost-benefits earned $ 3,426 $ 3,830 $ 3,814
Interest cost 5,780 5,086 4,649
Actual return on plan assets (11,042) (691) (2,462)
Net amortization and deferral 6,783 (2,418) 345
- ----------------------------------------------------------------------------
$ 4,947 $ 5,807 $ 6,346
- ----------------------------------------------------------------------------
Page 20
The Company's general funding policy for qualified plans is to fund amounts
deductible for income tax purposes. A Rabbi Trust has been established for the
purpose of funding certain non-qualified benefits. The funded status of
qualified and non-qualified defined benefit plans as of the last day of February
1996 and 1995 was as follows (in thousands):
1996 1995
--------------------------- ---------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
- ------------------------------------------- ------------- ------------- ------------- -------------
Actuarial present value of projected
benefit obligation:
Vested $ 50,895 $ 3,749 $ 41,824 $ 3,014
Nonvested 2,665 431 1,737 138
- ----------------------------------------------- -------- -------- -------- --------
Accumulated benefit obligation 53,560 4,180 43,561 3,152
Effect of projected compensation increases 23,615 996 19,987 762
- ----------------------------------------------- -------- -------- -------- --------
Projected benefit obligation 77,175 5,176 63,548 3,914
Plan assets at fair value 79,856 57,499 85
- ----------------------------------------------- -------- -------- -------- --------
Plan assets greater (less) than
projected benefit obligation 2,681 (5,176) (6,049) (3,829)
Unrecognized transition (asset) obligation (1,241) 403 (838) 575
Unrecognized prior service liability 2,082 382 3,335 376
Unrecognized net (gain) loss 7,990 832 6,568 (399)
- ----------------------------------------------- -------- -------- -------- --------
Net prepaid (accrued) pension cost $ 11,512 $ (3,559) $ 3,016 $ (3,277)
- ----------------------------------------------- -------- -------- -------- --------
The weighted average rate assumptions used in 1996, 1995 and 1994 to determine
pension expense and related pension obligations for domestic and foreign defined
benefit plans were as follows:
1996 1995 1994
- -----------------------------------------------------------------------------
Discount rate 7.6% 8.5% 7.6%
Rate of increase in compensation levels 4.1% 4.3% 4.4%
Expected long-term rate of return on
plan assets 8.7% 8.7% 8.6%
- -----------------------------------------------------------------------------
The Company's share of unfunded liability, if any, related to multi-employer
pension plans is not determinable.
The Company provides a defined contribution 401(k) plan to the majority of
domestic employees and matches a portion of employee contributions. The expense
was $2.8 million, $2.1 million and $1.9 million in 1996, 1995 and 1994.
NOTE 7:
POSTRETIREMENT INSURANCE BENEFITS
The Company sponsors plans which provide postretirement health care and life
insurance benefits ("postretirement benefits") to eligible domestic retirees.
The Company has funded the estimated liability for retirees of certain
Page 21
operations sold in a prior year. Other postretirement benefit plans are not
funded and benefit payments are made as they become due.
Net periodic postretirement benefit expense for 1996, 1995 and 1994 consisted of
the following components (in thousands):
1996 1995 1994
- ----------------------------------------------------------------------------
Service cost-benefits earned $ 301 $ 299 $ 284
Interest cost 1,266 1,223 1,406
Actual return on plan assets (330) (33) (125)
Net amortization and deferral 142 (49) 47
- ----------------------------------------------------------------------------
$ 1,379 $ 1,440 $ 1,612
- ----------------------------------------------------------------------------
The accumulated postretirement benefit obligation for the funded plan was $2.3
million and $2.5 million as of the last day of February 1996 and 1995. A
reconciliation of the accumulated postretirement benefit obligation to the
accrued liability included in the Company's balance sheets as of the last day of
February 1996 and 1995 follows (in thousands):
1996 1995
- ----------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 10,466 $ 11,234
Fully eligible active plan participants 2,172 1,788
Other active plan participants 2,044 2,369
- ----------------------------------------------------------------------------
14,682 15,391
Plan assets at fair value 2,143 2,171
- ----------------------------------------------------------------------------
Postretirement benefits in excess of assets (12,539) (13,220)
Unrecognized net (gain) loss 781 1,263
- ----------------------------------------------------------------------------
Accrued postretirement benefit cost $(11,758) $(11,957)
- ----------------------------------------------------------------------------
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7 1/2% in 1996, 8 1/2% in 1995 and 7 1/2%
in 1994. The expected long-term rate of return on plan assets was 8 3/4% in
1996, 1995 and 1994. A 9% annual rate of increase in the cost of health care
benefits was assumed for 1996; the rate was assumed to decrease 1% per year
until 4% is reached, remain at that level for ten years and then decrease to the
ultimate trend rate of 3%. The health care cost trend rate assumption has a
significant effect on the amounts reported. Increasing the assumed health care
cost trend rate by 1% in each year would increase the accumulated postretirement
benefit obligation as of February 29, 1996, by 10% and the aggregate of the
service and interest cost components of net periodic expense for 1996 by 11
1/2%.
Page 22
NOTE 8:
COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases office space and equipment under operating leases expiring in
one to ten years. Most leases include renewal options and some contain purchase
options and escalation clauses. Future minimum rental commitments required
under operating leases having initial or remaining noncancelable lease terms in
excess of one year as of February 29, 1996, are as follows (in millions): 1997--
$4.7; 1998--$2.7; 1999--$1.6; 2000--$.8; 2001--$.7 and 2002 and beyond--$1.3.
Rentals charged to costs and expenses under cancelable and noncancelable lease
arrangements were $6.3 million, $5.2 million and $5.7 million for 1996, 1995 and
1994.
The United States Environmental Protection Agency ("EPA") has designated a
predecessor of the Company as a potentially responsible party ("PRP") 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 purchased in 1981 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 does not have
successor liability and is not properly a PRP. However, the EPA has indicated
it does not accept this position. Management believes the EPA is wrong on the
successor liability issue. However, with other PRP's, the Company made a good
faith offer to the EPA to pay a portion of the clean-up costs. The offer was
rejected and the EPA proceeded with the clean-up. The estimated past and future
clean-up costs are approximately $12 million. In 1989 the EPA named four PRP's.
One of the PRP's, the Town of Onalaska (the "Town") and the EPA and State of
Wisconsin negotiated a consent decree under which the Town would have been
released from future liability in return for paying $110 thousand, granting
access to the Site and adjacent properties and performing some future
maintenance work. The United States District Court for the District of
Wisconsin found, on December 21, 1994, that the settlement was not fair,
reasonable or in the public interest, and refused to approve and confirm it as
the order of the Court. The Company denies that it is a PRP and is unable to
determine any other party's share of total remediation costs. The Company does
not know the financial status of the other PRP's and other parties that, while
not named by the EPA as PRP's, 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.
The Company is closing a Resource Conservation and Recovery Act ("RCRA") Part B
Storage Permit at its Sporting Equipment Division's CCI operations facility in
Lewiston, Idaho. As part of the closure process, the Company is required by the
State of Idaho to undertake RCRA corrective action at the facility. This
requires the Company to investigate all areas at the facility where solid waste
and hazardous waste have historically been managed. The facility has been
operating since the 1950s. In order to effect the investigation, in March 1994,
the Company and the State of Idaho Division of Environmental Quality ("IDEQ")
entered into an Administrative Consent Order which governs the completion of the
corrective action activities. The RCRA Facility Investigation has commenced and
the soils investigation is complete. Environmental sampling indicates the
presence of lead contamination in a limited number of shallow surface soils.
The IDEQ has approved the Company's proposal to excavate this limited lead
contamination and dispose of it at a RCRA permitted landfill. There is also
some trichloroethylene and perchloroethylene contamination of the uppermost
groundwater beneath the facility. This uppermost groundwater is not the
drinking water supply source and does not appear to be connected to the deeper
drinking water aquifer. Further groundwater investigation is ongoing. It is
expected that the range of remediation costs is from $2.8 million to $6.2
million. Management does not expect the situation to have a material adverse
Page 23
effect on consolidated financial condition or operating results beyond amounts
accrued.
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 cleanup
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 after the first quarter of 1997. 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 the
Company's 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 deductible amounts under 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 February 29, 1996, there were outstanding bank letters of credit in the
approximate amount of $16.1 million issued principally in connection with
various foreign construction contracts for which there is contingent liability
to the issuing banks in the event payment is demanded by the holder.
NOTE 9:
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
At February 29, 1996, substantially all of the Company's trade and other
accounts receivable of $120.9 million (see Note 11) arose from manufacturing
operations. The Company has manufacturing or distribution operations in Brazil,
Canada, Europe, Japan and the United States. The Company sells to customers in
these locations, primarily in the United States, and other countries throughout
the world (see Note 10). At February 29, 1996, approximately 70% of
manufacturing receivables were from customers within the United States.
Accounts receivable from manufacturing customers are principally from service
and dealer groups, distributors and chainsaw manufacturers, and are generally
not collateralized. The Company's remaining construction receivables are
primarily from governmental units in the United States and Kuwait.
From February 1994 until March 1995, the Company entered into foreign exchange
forward contracts to reduce the effect of exchange rate fluctuations on
anticipated future foreign currency cash flows. As these contracts did not
qualify for hedge accounting treatment, gains or losses on the contracts were
recorded in income as exchange rates fluctuated. In March 1995, contracts were
executed to offset exposure under all outstanding foreign exchange forward
Page 24
contracts and, as of February 29, 1996, no remaining contracts were outstanding.
At February 28, 1995, foreign exchange forward contracts of $51.0 million were
outstanding. Foreign exchange forward contracts reduced income by approximately
$.3 million, $1.3 million and $.1 million in fiscal 1996, 1995 and 1994,
respectively.
The estimated fair values of certain financial instruments are as follows (in
thousands):
As of the last day of February 1996 1995
- -------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
Cash and short-term investments $ 14,590 $ 14,590 $ 42,576 $ 42,576
Other current assets (foreign
exchange forward contracts 119 119
Other assets (principally restricted
trust funds and notes receivable) 17,112 18,095 11,770 11,770
Notes payable and long-term debt
(see Note 3) (107,612) (111,580) (107,545) (106,957)
Accrued expenses (foreign exchange
forward contracts) (932) (932)
The carrying amount of cash and short-term investments approximates fair value
because of the short maturity of those instruments. The fair value of notes
receivable is estimated based on the discounted value of estimated future cash
flows. The fair value of restricted trust funds approximates fair value for
short-term instruments and is estimated by obtaining market quotes for longer
term instruments. The fair value of long-term debt is estimated based on recent
market transaction prices or on current rates available for debt with similar
terms and maturities. The fair value of foreign exchange forward contracts is
estimated by obtaining market quotes.
NOTE 10:
SEGMENT INFORMATION
The Company's business consists of three segments: Outdoor Products, Industrial
and Power Equipment and Sporting Equipment. The Outdoor Products segment
manufactures and markets saw chain, bars, and sprockets for chain saws,
maintenance accessories, industrial cutting products and home and garden
products such as power trimmers and riding lawn mowers. The Outdoor Products
segment sells to original equipment manufacturers and to end users through a
diverse distribution and dealer network. The Industrial and Power Equipment
segment manufactures and markets large mechanical timber harvesting equipment as
well as power transmission and hydraulic and gear components. Customers include
timber harvesting, materials handling, construction and utility businesses. The
Sporting Equipment segment manufactures and markets small arms ammunition,
reloading equipment and components, gun care accessories, shooting sports
accessories and industrial powerloads, and markets and distributes sports
optical products. Major markets include two-step distributors, cooperative
buying groups, mass merchants and government agencies. Identifiable assets
consist of those assets used by the segments; corporate assets consist
principally of cash and temporary investments, deferred income taxes and
property, plant and equipment used by the corporate office.
Page 25
In 1996, 1995 and 1994, no customer accounted for more than 10% of consolidated
sales. In 1996, approximately 16.5% of sales by the Outdoor Products segment
were to one customer. While the Company expects this business relationship to
continue, the loss of this customer could affect the operations of the Outdoor
Products segment. Each of the Company's segments purchase certain important
materials from a limited number of suppliers that meet quality criteria.
Although alternative sources of supply are available, the sudden elimination of
certain suppliers could result in manufacturing delays, a reduction in product
quality and a possible loss of sales in the near term.
Information on Geographic Areas
For the years ended the last day of February 1996 1995 1994
- -----------------------------------------------------------------------------
In thousands
Sales:
United States $ 536,047 $ 493,293 $ 383,329
Outside United States 108,254 95,126 104,716
- -----------------------------------------------------------------------------
$ 644,301 $ 588,419 $ 488,045
- -----------------------------------------------------------------------------
Operating income:
United States $ 106,192 $ 91,950 $ 52,750
Outside United States 6,612 9,937 20,881
- -----------------------------------------------------------------------------
Operating income from segments $ 112,804 $ 101,887 $ 73,631
- -----------------------------------------------------------------------------
Identifiable assets:
United States $ 458,603 $ 422,017 $ 391,260
Outside United States 85,286 95,771 101,641
- -----------------------------------------------------------------------------
$ 543,889 $ 517,788 $ 492,901
- -----------------------------------------------------------------------------
Included in United States sales were export sales of $106.2 million, $94.3
million and $54.5 million in 1996, 1995 and 1994. As a result of a contract
manufacturing agreement with a subsidiary, sales of approximately $39 million
and $35 million in fiscal 1996 and 1995, respectively, and the related operating
income, which were classified as foreign sales and operating income in 1994 and
prior years, are classified as United States export sales and operating income
in fiscal 1996 and 1995. Total sales from international activities, including
those in the above table and export sales, provided 33.3% of consolidated sales
in fiscal 1996, 32.2% in fiscal 1995 and 32.7% in fiscal 1994. In fiscal 1996,
1995 and 1994, approximately 56.4%, 54.3% and 54.2%, respectively, of sales by
the Outdoor Products segment were from international sources.
Page 26
Information on Segments
For the years ended the last day of February 1996 1995 1994
- -----------------------------------------------------------------------------
In thousands
Sales:
Outdoor products $ 291,621 $ 268,110 $ 234,502
Industrial and power equipment 240,605 207,556 162,026
Sporting equipment 112,075 112,753 91,517
- -----------------------------------------------------------------------------
$ 644,301 $ 588,419 $ 488,045
- -----------------------------------------------------------------------------
Operating income:
Outdoor products $ 57,410 $ 49,583 $ 33,974
Industrial and power equipment 42,182 32,987 24,503
Sporting equipment 13,212 19,317 15,154
- -----------------------------------------------------------------------------
Operating income from segments 112,804 101,887 73,631
Corporate office expenses (18,721) (24,967) (23,046)
- -----------------------------------------------------------------------------
Income from operations 94,083 76,920 50,585
Interest expense (10,886) (11,186) (11,052)
Interest income 3,177 2,340 1,501
Other income (expense), net 527 (2,179) (4,619)
- -----------------------------------------------------------------------------
Income before income taxes $ 86,901 $ 65,895 $ 36,415
- -----------------------------------------------------------------------------
Identifiable assets:
Outdoor products $ 202,112 $ 199,489 $ 202,671
Industrial and power equipment 95,842 82,959 69,230
Sporting equipment 118,422 71,777 59,152
Corporate office 100,875 100,743 88,648
Discontinued operations 26,638 62,820 73,200
- -----------------------------------------------------------------------------
$ 543,889 $ 517,788 $ 492,901
- -----------------------------------------------------------------------------
Depreciation and amortization:
Outdoor products $ 12,720 $ 13,771 $ 14,511
Industrial and power equipment 3,625 3,820 3,616
Sporting equipment 4,302 3,774 3,594
Corporate office 1,527 1,580 1,080
- -----------------------------------------------------------------------------
$ 22,174 $ 22,945 $ 22,801
- -----------------------------------------------------------------------------
Capital expenditures:
Outdoor products $ 6,753 $ 4,939 $ 5,335
Industrial and power equipment 2,195 4,917 698
Sporting equipment 3,504 4,578 1,377
Corporate office 6,829 254 7,029
- -----------------------------------------------------------------------------
$ 19,281 $ 14,688 $ 14,439
- -----------------------------------------------------------------------------
Page 27
NOTE 11:
SUPPLEMENTAL INFORMATION
The following balance sheet captions are comprised of the items specified below:
As of the last day of February 1996 1995
- -------------------------------------------------------------------------------
In thousands
Accounts receivable:
Trade accounts and other $ 120,852 $ 89,790
Billings on construction contracts:
Current 20,813 32,029
Retainage estimated to be collected
within one year 2,117 11,457
Income taxes receivable 7,277
Allowance for doubtful accounts (3,853) (2,611)
- -------------------------------------------------------------------------------
$ 147,206 $ 130,665
- -------------------------------------------------------------------------------
Inventories:
Finished goods $ 50,752 $ 35,769
Work in process 14,879 14,075
Raw materials and supplies 28,482 27,231
- -------------------------------------------------------------------------------
$ 94,113 $ 77,075
- -------------------------------------------------------------------------------
Property, plant and equipment:
Land $ 6,400 $ 6,575
Buildings and improvements 82,901 82,948
Machinery and equipment 154,626 153,617
Furniture, fixtures and office equipment 22,311 21,892
Transportation equipment 23,571 11,083
Construction in progress 5,739 3,693
Accumulated depreciation (160,026) (145,519)
- -------------------------------------------------------------------------------
$ 135,522 $ 134,289
- -------------------------------------------------------------------------------
Accounts payable:
Trade accounts and other $ 51,393 $ 58,301
Retainage estimated to be paid within one year 61 6,492
- -------------------------------------------------------------------------------
$ 51,454 $ 64,793
- -------------------------------------------------------------------------------
Accrued expenses:
Salaries, wages and related withholdings $ 24,437 $ 25,033
Employee benefits 7,885 5,707
Casualty insurance costs 15,849 15,240
Income taxes payable 4,229 6,327
Other 31,829 39,883
- -------------------------------------------------------------------------------
$ 84,229 $ 92,190
- -------------------------------------------------------------------------------
Other liabilities:
Employee benefits $ 23,898 $ 21,215
Casualty insurance costs 396 3,749
Other 1,403 1,357
- -------------------------------------------------------------------------------
$ 25,697 $ 26,321
- -------------------------------------------------------------------------------
Page 28
At February 29, 1996, the Company's manufacturing operation in Canada had net
assets of $14.3 million which were subject to withdrawal restrictions resulting
from a financing agreement. The majority of this amount was invested in
property, plant and equipment.
Advertising costs were $11.9 million, $10.6 million and $8.9 million for 1996,
1995 and 1994.
Supplemental cash flow information is as follows (in thousands):
1996 1995 1994
- -------------------------------------------------------------------------------
Interest paid $ 10,543 $ 10,328 $ 12,121
Income taxes paid 35,501 27,968 18,572
Capital lease obligations incurred 7,124 34 106
Issuance of Company stock to employee
benefits plan 257 1,234
Acquisitions of businesses (see Note 4):
Assets acquired 49,930 22,556
Liabilities assumed and incurred (12,534) (12,406)
Cash paid 37,396 10,150
- -------------------------------------------------------------------------------
Page 29
SUPPLEMENTARY DATA
QUARTERLY RESULTS OF OPERATIONS
(unaudited)
The following table sets forth a summary of the quarterly results of operations
for the two years ended the last day of February 1996.
First Second Third Fourth Fiscal
In thousands Quarter Quarter Quarter Quarter Year Total
- --------------------------------------------------------------------------------
1996
Sales $ 164,189 $ 147,166 $ 157,964 $ 174,982 $ 644,301
Gross profit 55,052 48,752 55,041 58,134 216,979
Net income 14,279 11,822 15,187 13,505 54,793
First Second Third Fourth Fiscal
In thousands Quarter Quarter Quarter Quarter Year Total
- --------------------------------------------------------------------------------
1995
Sales $ 145,684 $ 138,781 $ 157,459 $ 146,495 $ 588,419
Gross profit 48,519 47,094 52,963 49,025 197,601
Net income 9,008 9,699 12,336 9,047 40,090
The first and third quarters include after-tax charges of $2.4 million and $2.3
million, respectively, for anticipated litigation and settlement costs related
to the sale of a former subsidiary. The third and fourth quarters include
after-tax charges of $1.3 million each for an environmental matter at the
Company's Sporting Equipment segment's Lewiston, Idaho facility.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Page 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
Page 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
Reference
---------
(a) Certain documents filed as part of Form 10-K
(1) Financial Statements and Supplementary Data
Report of Independent Accountants 9
Consolidated Statements of Income for the years
ended the last day of February 1996, 1995 and 1994 10
Consolidated Statements of Retained Earnings for the
years ended the last day of February 1996, 1995 and 1994 10
Consolidated Balance Sheets as of the last day of
February 1996 and 1995 11
Consolidated Statements of Cash Flows
for the years ended the last day of
February 1996, 1995 and 1994 12
Consolidated Statements of Changes in Capital Stock
Accounts for the years ended the last day of
February 1996, 1995 and 1994 13
Notes to Consolidated Financial Statements 14 - 29
Supplementary Data 30
(2) Schedules for the years ended the last day of
February 1996, 1995 and 1994 *
II. Valuation and qualifying accounts 35
* All other schedules have been omitted because they are not required or
because the information is presented in the Notes to Consolidated Financial
Statements.
(b) Reports on Form 8-K in the Fourth Quarter
None.
(c) Exhibits required to be filed by Item 601 of Regulation S-K:
*2 Plan and Agreement of Merger among Blount International, Inc., HBC
Transaction Subsidiary, Inc. and Blount, Inc., dated August 17, 1995 filed as
part of Registration Statement on Form S-4 (Reg. No. 33-63141) of Blount
International, Inc., including amendments and exhibits, which became effective
on October 4, 1995 (Commission File No. 33-63141).
**3(a) Restated Certificate of Incorporation of Blount, Inc.
Page 32
*3(b) The Amended By-Laws of Blount, Inc. which were filed as Exhibit
3(b) to the Annual Report of Blount, Inc. on Form 10-K for the fiscal year ended
February 29, 1992 (Commission File No. 1-7002).
*4(a) Registration Statement on Form S-2 (Reg. No. 33-62728) of Blount,
Inc. with respect to the 9% subordinated notes due June 2003 of Blount, Inc.,
including amendments and exhibits, which became effective on June 30, 1993
(Commission File No. 1-7002).
*10(a) $100 Million Revolving Credit Agreement of Blount, Inc. which was
filed as Exhibit 10(w) to the Annual Report of Blount, Inc. on Form 10-K for the
fiscal year ended February 28, 1995 (Commission File No. 1-7002).
27. Financial Data Schedule.
* Incorporated by reference.
** Filed electronically herewith. Copies of such exhibits may be obtained
upon written request from:
Corporate Communications
Blount, Inc.
P.O. Box 949
Montgomery, AL 36101-0949
Page 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Harold E. Layman
Harold E. Layman
Senior Vice President and
Chief Financial Officer
Dated: May 13, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
is signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Dated: May 13, 1996
/s/ Winton M. Blount /s/ Alfred M. Gleason
Winton M. Blount Alfred M. Gleason
Chairman of the Board Director
and Director
/s/ W. Houston Blount /s/ Mary D. Nelson
W. Houston Blount Mary D. Nelson
Director Director
/s/ R. Eugene Cartledge /s/ John M. Panettiere
R. Eugene Cartledge John M. Panettiere
Director President and Chief Executive
Officer and Director
/s/ C. Todd Conover /s/ Arthur P. Ronan
C. Todd Conover Arthur P. Ronan
Director Director
/s/ H. Corbin Day /s/ Joab L. Thomas
H. Corbin Day Joab L. Thomas
Director Director
/s/ Herbert J. Dickson /s/ Rodney W. Blankenship
Herbert J. Dickson Rodney W. Blankenship
Director Chief Accounting Officer
/s/ Emory M. Folmar
Emory M. Folmar
Director
Page 34