FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-7002
BLOUNT, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0593908
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4520 Executive Park Drive 36116-1602
Montgomery, Alabama (Zip Code)
(Address of principal executive offices)
(334) 244-4000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock June 30, 1996
--------------------- -----------------
Common Stock $.01 Par Value 1,000 shares
Page 1
BLOUNT, INC. AND SUBSIDIARIES
INDEX
Page No.
------------
Part I. Financial Information
Consolidated Balance Sheets -
June 30, 1996 and February 29, 1996 3
Consolidated Statements of Income -
three months and six months ended
June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -
six months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis 10
Page 2
BLOUNT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, February 29,
1996 1996
---------- ----------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents, including short-term
investments of $21,226 and $11,386 $ 24,754 $ 14,590
Accounts receivable, net of allowances for
doubtful accounts of $3,740 and $3,853 119,231 147,206
Inventories 90,915 94,113
Deferred income taxes 23,426 23,491
Other current assets 3,327 3,502
-------- --------
Total current assets 261,653 282,902
Property, plant and equipment, net of accumulated
depreciation of $164,542 and $160,026 128,320 135,522
Cost in excess of net assets of acquired
businesses, net 87,482 88,111
Other assets 36,573 37,354
-------- --------
Total Assets $514,028 $543,889
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of
long-term debt $ 1,677 $ 11,692
Accounts payable 31,537 51,454
Accrued expenses 70,088 84,229
Other current liabilities 1,700 1,963
-------- --------
Total current liabilities 105,002 149,338
Long-term debt, exclusive of current maturities 95,791 95,920
Deferred income taxes, exclusive of current portion 20,559 20,533
Other liabilities 26,210 25,697
-------- --------
Total liabilities 247,562 291,488
-------- --------
Commitments and Contingent Liabilities
Shareholder's equity:
Common Stock: par value $.01 per share -
1,000 shares issued and outstanding -- --
Capital in excess of par value of stock 25,922 25,922
Retained earnings 232,551 218,300
Accumulated translation adjustment 7,993 8,179
-------- --------
Total shareholder's equity 266,466 252,401
-------- --------
Total Liabilities and Shareholder's Equity $514,028 $543,889
======== ========
The accompanying notes are an integral part of these statements.
Page 3
BLOUNT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
Three months Six months
ended June 30, ended June 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Sales $ 142,018 $ 154,394 $ 315,299 $ 309,649
Cost of sales 93,211 105,494 207,946 207,600
---------- ---------- ---------- ----------
Gross profit 48,807 48,900 107,353 102,049
Selling, general and
administrative expenses 29,483 29,687 64,113 60,131
---------- ---------- ---------- ----------
Income from operations 19,324 19,213 43,240 41,918
Interest expense (2,574) (2,667) (5,417) (5,306)
Interest income 356 696 546 1,311
Other income (expense), net (63) (163) 639 (1,269)
---------- ---------- ---------- ----------
Income before income taxes 17,043 17,079 39,008 36,654
Provision for income taxes 6,417 6,832 13,908 14,583
---------- ---------- ---------- ----------
Net income $ 10,626 $ 10,247 $ 25,100 $ 22,071
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
Page 4
BLOUNT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six months ended June 30,
-------------------------
1996 1995
-------- --------
(Unaudited)
Cash Flows From Operating Activities:
Net Income $ 25,100 $ 22,071
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
noncash charges 11,810 11,555
Deferred income taxes 4,356 (991)
Loss (gain) on disposals of property, plant
and equipment 135 (49)
Changes in assets and liabilities, net of
effects of businesses acquired and sold:
(Increase) decrease in accounts receivable (3,264) 6,803
(Increase) decrease in inventories 4,693 (6,617)
Decrease in other assets 3,091 5,554
Decrease in accounts payable (10,877) (13,263)
Decrease in accrued expenses (14,017) (15,185)
Increase in other liabilities 3,295 1,891
-------- --------
Net cash provided by operating activities 24,322 11,769
-------- --------
Cash Flows From Investing Activities:
Proceeds from sales of businesses and property,
plant and equipment 859 4,984
Purchases of property, plant and equipment (7,934) (5,812)
Acquisitions of businesses (17)
-------- --------
Net cash used in investing activities (7,075) (845)
-------- --------
Cash Flows From Financing Activities:
Net increase (reduction) in short-term borrowings (2,151) 282
Issuance of long-term debt 2,300
Reduction of long-term debt (2,679) (4,937)
(Increase) decrease in restricted funds 2,300 (842)
Dividends paid (2,500) (3,483)
Other 793
-------- --------
Net cash used in financing activities (5,030) (5,887)
-------- --------
Net increase in cash and cash equivalents 12,217 5,037
Cash and cash equivalents at beginning of period 12,537 49,355
-------- --------
Cash and cash equivalents at end of period $ 24,754 $ 54,392
======== ========
The accompanying notes are an integral part of these statements.
Page 5
BLOUNT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 Effective April 15, 1996, the Board of Directors of Blount, Inc. ("BI")
approved the change of BI's fiscal year from a year ending on the last day of
February, which was the fiscal year end used in its most recent report on Form
10-K filed with the Securities and Exchange Commission, to the new fiscal year
end of December 31. The report on Form 10-K for the ten-month period ending
December 31, 1996, will be the form on which the report covering the transition
period will be filed by BI. During the transition period, BI is filing
quarterly reports on Form 10-Q on the basis of the quarter-ends of the newly
adopted fiscal year, March 31, June 30 and September 30.
Blount, Inc. is a wholly-owned subsidiary of Blount International, Inc. In the
opinion of management, the accompanying unaudited consolidated financial
statements of Blount, Inc. and Subsidiaries ("the Company") contain all
adjustments (consisting of only normal recurring accruals) necessary to present
fairly the financial position at June 30, 1996 and the results of operations and
cash flows for the periods ended June 30, 1996 and 1995. 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 fiscal
year ended February 29, 1996. The results of operations for the periods ended
June 30, 1996 and 1995 are not necessarily indicative of the results to be
expected for the twelve months ended December 31, 1996, due to the seasonal
nature of certain of the Company's operations.
NOTE 2 Inventories consist of the following (in thousands):
June 30, February 29,
1996 1996
------------ ------------
Finished goods $ 52,761 $ 50,752
Work in process 14,954 14,879
Raw materials and supplies 23,200 28,482
-------- --------
$ 90,915 $ 94,113
======== ========
NOTE 3 In July 1996, the Company purchased and retired approximately $10.6
million of its 9% subordinated notes. There was no material gain or loss on the
transaction.
Page 6
NOTE 4 Segment information is as follows (in thousands):
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Sales:
Outdoor Products $ 68,131 $ 70,347 $146,134 $141,302
Industrial and Power Equipment 41,138 56,805 99,682 111,103
Sporting Equipment 32,749 27,242 69,483 57,244
-------- -------- -------- --------
$142,018 $154,394 $315,299 $309,649
======== ======== ======== ========
Operating income:
Outdoor Products $ 14,302 $ 12,386 $ 30,015 $ 25,875
Industrial and Power Equipment 6,415 8,969 16,171 17,905
Sporting Equipment 3,136 2,312 7,266 6,551
-------- -------- -------- --------
Operating income from segments 23,853 23,667 53,452 50,331
Corporate office expenses (4,529) (4,454) (10,212) (8,413)
-------- -------- -------- --------
Income from operations 19,324 19,213 43,240 41,918
Interest expense (2,574) (2,667) (5,417) (5,306)
Interest income 356 696 546 1,311
Other income (expense), net (63) (163) 639 (1,269)
-------- -------- -------- --------
Income before income taxes $ 17,043 $ 17,079 $ 39,008 $ 36,654
======== ======== ======== ========
NOTE 5 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 and the Company may have other defenses as well.
However, with other PRPs, 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 PRPs. One of the PRPs,
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
PRPs and other parties that, while not named by the EPA as PRPs, 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.
Page 7
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 is complete, as
are the RCRA corrective measures for the lead contamination in the surface
soils. Closure Certification Reports for each of the solid waste management
units and areas of concern containing lead contaminated soil have been submitted
to IDEQ. However, 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 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 clean-up
costs are believed to be substantial, accurate estimates will not be available
until the environmental studies have been completed at the Site. However, based
upon the total documented volume of waste sent to the Site, the Company's waste
volume compared to that total waste volume should cause the Company to be
classified as a "de minimis" PLP. In July 1992, the Company and thirty-eight
other PLPs entered into an Administrative Agreed Order with WDOE to perform a
Phase I Remedial Investigation at the Site. In October 1994, WDOE issued an
administrative Unilateral Enforcement Order to all PLPs to complete a Phase II
Remedial Investigation and Feasibility Study ("RI/FS") under the Scope of Work
established by WDOE. The results of the RI/FS investigation are not expected
until 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 consolidated
financial condition or operating results.
The Company is a defendant in a number of product liability lawsuits, some of
which seek significant or unspecified damages, involving serious personal
injuries for which there are large retentions or deductible amounts under the
Company's insurance policies. In addition, the Company is a party to a number
of other suits arising out of the conduct of its business. While there can be
no assurance as to their ultimate outcome, management does not believe these
lawsuits will have a material adverse effect on consolidated financial condition
or operating results.
At June 30, 1996, the Company had outstanding bank letters of credit in the
approximate amount of $7.9 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.
Page 8
See Note 8 to the Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended February 29, 1996 for other
commitments and contingencies of the Company which have not changed
significantly since year-end.
NOTE 6 Income taxes paid during the six months ended June 30, 1996 and 1995
were $8.9 million and $19.8 million. Interest paid during the six months ended
June 30, 1996 and 1995 was $5.4 million and $5.1 million.
Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
Sales for the three months and six months ended June 30, 1996, were $142.0
million and $315.3 million compared to $154.4 million and $309.6 million for the
comparable periods of the prior year. Net income for the second quarter and
first half of calendar 1996 was $10.6 million and $25.1 million compared to net
income of $10.2 million and $22.1 million for the comparable periods of the
prior year. These operating results reflect improved operating income from the
Outdoor Products and the Sporting Equipment segments, and lower income from the
Industrial and Power Equipment segment. Corporate expenses were higher for the
six months ended June 30, 1996, as a result of increased accruals for employee
incentive plans during the first quarter of calendar 1996. Other income
(expense), net for the six months ended June 30, 1995 includes foreign exchange
losses of $1.0 million incurred during the first quarter of that year. The
principal reasons for these results and the status of the Company's financial
condition are set forth below and should be read in conjunction with the
Company's fiscal 1996 Form 10-K. During April 1996, the Company changed its
fiscal year from a twelve-month period ended the last day of February to a
calendar year. See Note 1 of Notes to Consolidated Financial Statements.
Sales for the Outdoor Products segment for the second quarter and first six
months of calendar 1996 were $68.1 million and $146.1 million compared to $70.3
million and $141.3 million during the second quarter and first six months of the
prior year. Operating income was $14.3 million and $30.0 million during the
second quarter and first half of calendar 1996 compared to $12.4 million and
$25.9 million in the prior year. Sales for the Company's Oregon Cutting Systems
Division ("Oregon") were basically flat for the current year's second quarter
but up by 6.3% for the six months ended June 30, 1996, reflecting a higher
volume of saw chain and saw bar sales. Oregon's higher margins during the
second quarter, principally due to lower manufacturing costs and revised
estimates of the net realizable value of certain inventory, and higher sales
volume for the first half of calendar 1996 resulted in improved operating income
for the total segment, more than offsetting the effect of reduced sales at the
Company's riding lawn mower business ("Dixon"). Dixon's sales were down by
21.5% and 7.6% for the second quarter and first half of calendar 1996,
respectively, as a result of a late spring outdoor care season due to
unfavorable weather conditions. Management expects Dixon's sales to return to
normal seasonal levels during the remainder of 1996.
Sales for the Industrial and Power Equipment segment were $41.1 million and
$99.7 million during the second quarter and first half of calendar 1996 compared
to $56.8 million and $111.1 million during the same periods last year. The
sales reduction resulted principally from lower sales of forestry harvesting
equipment as a result of the adverse effect of depressed pulp prices and high
mill inventories. The Company has recently seen some improvement in order
intake for forestry equipment in conjunction with reduced mill inventories and
firming pulp prices and expects a gradual return to normalcy during the second
half of the year. Operating income was $6.4 million and $16.2 million for the
second quarter and first six months of calendar 1996 compared to $9.0 million
and $17.9 million for comparable periods of the prior year. The reduction in
operating income reflects the effect of the sales decline, partially offset by
reduced accruals for product liability costs and improved income from the
Company's Gear Products, Inc. subsidiary resulting primarily from a higher sales
volume of rotation bearings and mechanical power and transmission components.
Sales for the Sporting Equipment segment increased to $32.7 million and $69.5
million in the second quarter and first half of calendar 1996 from $27.2 million
and $57.2 million in the comparable periods of the prior year. Operating income
was up to $3.1 million and $7.3 million during the second quarter and first half
Page 10
of the current year from $2.3 million and $6.6 million during the comparable
periods of the prior year. Simmons Outdoor Corporation, acquired in December
1995, added sales of $10.5 million and $20.2 million and operating income of $.9
million and $1.5 million for the second quarter and first half of calendar 1996,
respectively. The remaining Sporting Equipment operations experienced lower
sales and operating income, primarily due to lower volume resulting from reduced
demand following a slowdown during the second half of 1995.
The Company's total backlog at June 30, 1996 was $89.4 million compared to
$112.8 million at February 29, 1996. The reduction is principally due to
reduced forestry equipment sales orders.
Page 11
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLOUNT, INC.
- ----------------------------------
Registrant
Date: August 12, 1996 /s/ Harold E. Layman
---------------------------------
Harold E. Layman
Senior Vice President &
Chief Financial Officer
Page 12