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 September 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)
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
Delaware 63-0593908
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4520 Executive Park Drive 36116-1602
Montgomery, Alabama (Zip Code)
(Address of principal executive offices)
(334) 244-4000
(Registrant's telephone number, including area code)
(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 September 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 -
September 30, 1996 and February 29, 1996 3
Consolidated Statements of Income -
three months and nine months ended
September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -
nine months ended September 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)
September 30, February 29,
1996 1996
------------- ------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents, including short-term
investments of $40,780 and $11,386 $ 43,174 $ 14,590
Accounts receivable, net of allowances for
doubtful accounts of $3,896 and $3,853 128,501 147,206
Inventories 83,487 94,113
Deferred income taxes 23,427 23,491
Other current assets 4,694 3,502
-------- --------
Total current assets 283,283 282,902
Property, plant and equipment, net of accumulated
depreciation of $167,973 and $160,026 128,702 135,522
Cost in excess of net assets of acquired
businesses, net 86,161 88,111
Other assets 34,948 37,354
-------- --------
Total Assets $533,094 $543,889
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of
long-term debt $ 1,527 $ 11,692
Accounts payable 35,061 51,454
Accrued expenses 81,863 84,229
Other current liabilities 1,700 1,963
-------- --------
Total current liabilities 120,151 149,338
Long-term debt, exclusive of current maturities 84,828 95,920
Deferred income taxes, exclusive of current portion 20,597 20,533
Other liabilities 27,033 25,697
-------- --------
Total liabilities 252,609 291,488
-------- --------
Commitments and Contingent Liabilities
Shareholder's equity:
Common Stock, par value $.01 per share,
1,000 shares issued -- --
Capital in excess of par value of stock 25,922 25,922
Retained earnings 246,560 218,300
Accumulated translation adjustment 8,003 8,179
-------- --------
Total shareholder's equity 280,485 252,401
-------- --------
Total Liabilities and Shareholder's Equity $533,094 $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 Nine months
ended September 30, ended September 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Sales $ 159,957 $ 153,054 $ 475,256 $ 462,703
Cost of sales 104,038 100,343 311,984 307,943
---------- ---------- ---------- ----------
Gross profit 55,919 52,711 163,272 154,760
Selling, general and
administrative expenses 31,380 28,970 95,493 89,101
---------- ---------- ---------- ----------
Income from operations 24,539 23,741 67,779 65,659
Interest expense (2,256) (2,649) (7,673) (7,955)
Interest income 652 918 1,198 2,229
Other income (expense), net (339) 808 300 (461)
---------- ---------- ---------- ----------
Income before income taxes 22,596 22,818 61,604 59,472
Provision for income taxes 8,587 8,751 22,495 23,334
---------- ---------- ---------- ----------
Net income $ 14,009 $ 14,067 $ 39,109 $ 36,138
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
Page 4
BLOUNT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine months ended September 30,
------------------------------
1996 1995
-------- --------
(Unaudited)
Cash Flows From Operating Activities:
Net Income $ 39,109 $ 36,138
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
noncash charges 17,818 16,985
Deferred income taxes 4,393 (934)
Loss on disposals of property, plant
and equipment 37 165
Changes in assets and liabilities, net of
effects of businesses acquired and sold:
(Increase) decrease in accounts receivable (11,836) 7,932
(Increase) decrease in inventories 11,738 (1,616)
Decrease in other assets 2,202 4,859
Decrease in accounts payable (7,522) (12,799)
Decrease in accrued expenses (2,262) (18,899)
Increase (decrease) in other liabilities 4,143 (3,120)
-------- --------
Net cash provided by operating activities 57,820 28,711
-------- --------
Cash Flows From Investing Activities:
Proceeds from sales of businesses and property,
plant and equipment 1,617 4,785
Purchases of property, plant and equipment (13,290) (8,076)
-------- --------
Net cash used in investing activities (11,673) (3,291)
-------- --------
Cash Flows From Financing Activities:
Net increase (reduction) in short-term borrowings (2,283) 169
Issuance of long-term debt 2,300
Reduction of long-term debt (13,805) (5,371)
(Increase) decrease in restricted funds 3,078 (447)
Dividends paid (2,500) (5,233)
Other 2,259
-------- --------
Net cash used in financing activities (15,510) (6,323)
-------- --------
Net increase in cash and cash equivalents 30,637 19,097
Cash and cash equivalents at beginning of period 12,537 49,355
-------- --------
Cash and cash equivalents at end of period $ 43,174 $ 68,452
======== ========
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 September 30, 1996 and the results of
operations and cash flows for the periods ended September 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 September 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):
September 30, February 29,
1996 1996
------------- ------------
Finished goods $ 46,411 $ 50,752
Work in process 14,500 14,879
Raw materials and supplies 22,576 28,482
-------- --------
$ 83,487 $ 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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Sales:
Outdoor Products $ 74,398 $ 71,335 $220,532 $212,637
Industrial and Power Equipment 49,349 56,500 149,031 167,603
Sporting Equipment 36,210 25,219 105,693 82,463
-------- -------- -------- --------
$159,957 $153,054 $475,256 $462,703
======== ======== ======== ========
Operating income:
Outdoor Products $ 15,642 $ 14,723 $ 45,657 $ 40,598
Industrial and Power Equipment 6,744 10,139 22,915 28,044
Sporting Equipment 6,633 3,028 13,899 9,579
-------- -------- -------- --------
Operating income from segments 29,019 27,890 82,471 78,221
Corporate office expenses (4,480) (4,149) (14,692) (12,562)
-------- -------- -------- --------
Income from operations 24,539 23,741 67,779 65,659
Interest expense (2,256) (2,649) (7,673) (7,955)
Interest income 652 918 1,198 2,229
Other income (expense), net (339) 808 300 (461)
-------- -------- -------- --------
Income before income taxes $ 22,596 $ 22,818 $ 61,604 $ 59,472
======== ======== ======== ========
NOTE 5 In 1989, the United States Environmental Protection Agency ("EPA")
designated a predecessor of the Company as one of four potentially responsible
parties ("PRPs") with respect to the Onalaska Municipal Landfill in Onalaska,
Wisconsin ("the Site"). The waste complained of was placed in the landfill
prior to 1981 by a corporation, some assets of which were later purchased by a
predecessor of the Company. It is the view of management that because the
Company's predecessor corporation purchased assets rather than stock, the
Company is not liable and is not properly a PRP. Although management believes
EPA is wrong on the successor liability issue, with other PRPs, the Company made
a good faith offer to the EPA to pay a portion of Site clean-up costs. The
offer was rejected and the EPA proceeded with clean-up at a cost of
approximately $12 million. One PRP, the Town of Onalaska ("the Town") and the
EPA and State of Wisconsin ("the State") negotiated a consent decree in 1984
under which the Town would have been released from future liability. 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
declined to approve or enter it as the order of the Court. The EPA and State
have negotiated a new consent with the Town, which was lodged with the Court on
August 26, 1996, in a new action brought against a second PRP, Metallics, Inc.,
and the Town. The Company continues to maintain that it is not a liable party.
The EPA has not taken action against the Company, nor has the EPA accepted the
Company's position. The Company does not know the financial status of the other
named and unnamed PRPs who may have liability with respect to the Site.
Management does not expect the situation to have a material adverse effect on
consolidated financial condition or operating results.
Page 7
The Company has closed its 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 was required by
the State of Idaho Division of Environmental Quality ("IDEQ") to undertake RCRA
corrective action at the facility. This required the Company to investigate all
areas at the facility where solid waste and hazardous wastes had historically
been managed. The facility has operated since the 1950s. In March 1994, the
Company and the IDEQ entered into an Administrative Consent Order which governed
the investigation and the completion of the corrective action activities. The
RCRA Facility Investigation is complete, as are the RCRA corrective measures for
the contaminated soil areas identified during the investigation. RCRA Closure
Certification Reports for each of the solid waste management units and areas of
concern have been submitted to and, in the third quarter of 1996, approved by
the IDEQ. However, trichloroethylene ("TCE") and perchloroethylene ("PCE")
contamination of the uppermost groundwater was detected beneath the facility.
This groundwater is not a drinking water supply source and does not appear to be
connected to the deeper drinking water supply source. The groundwater
investigation established that the contamination was not from an active
manufacturing area but rather the result of incidental historical releases. The
IDEQ has accepted the Company's Corrective Measures Report which requires
ongoing groundwater monitoring. It is expected that the TCE and PCE
concentrations will decrease over time and that the ongoing monitoring costs
will not be material.
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 September 30, 1996, the Company had outstanding bank letters of credit in the
approximate amount of $6.7 million issued principally in connection with various
foreign construction contracts of the discontinued construction segment for
which there is contingent liability to the issuing banks in the event payment
is demanded by the holder.
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 nine months ended September 30, 1996 and
1995 were $10.0 million and $34.0 million. Interest paid during the nine months
ended September 30, 1996 and 1995 was $6.2 million and $5.8 million.
Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Results
Sales for the three months and nine months ended September 30, 1996, were $160.0
million and $475.3 million compared to $153.1 million and $462.7 million for the
comparable periods of the prior year. Net income for the third quarter and
first nine months of calendar 1996 was $14.0 million and $39.1 million compared
to net income of $14.1 million and $36.1 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 (included in
selling, general and administrative expenses) were higher for the nine months
ended September 30, 1996, reflecting increased accruals for employee incentive
plans during the first quarter of calendar 1996. In addition, total selling,
general and administrative expenses were higher during the third quarter and
first nine months of the current year due to the inclusion of Simmons Outdoor
Corporation ("Simmons"), acquired in December 1995, in the consolidated
financial statements for the current year. Lower interest income during the
three months and nine months ended September 30, 1996, reflects lower average
cash balances available for investment during the current year, primarily due to
the acquisition of Simmons. Other income (expense), net, for the prior year's
third quarter includes income recognized for the disposition of certain small
operations. 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 third quarter and first nine
months of calendar 1996 were $74.4 million and $220.5 million compared to $71.3
million and $212.6 million during the third quarter and first nine months of the
prior year. Operating income was $15.6 million and $45.7 million during the
third quarter and first nine months of calendar 1996 compared to $14.7 million
and $40.6 million in the prior year. Sales for the Company's Oregon Cutting
Systems Division ("Oregon") were up by 3.8% and 5.5% for the three months and
nine months ended September 30, 1996, reflecting a higher volume of saw chain
and saw bar sales, partially offset by lower average selling prices. Oregon's
higher sales resulted in improved operating income for the total segment. Sales
by the Company's riding lawn mower business ("Dixon") returned to more normal
seasonal levels during the current year's third quarter after a late spring
outdoor care season due to unfavorable weather conditions. As a result of this
improvement, Dixon's year-to-date sales and operating income are only slightly
below last year's levels.
Sales for the Industrial and Power Equipment segment were $49.3 million and
$149.0 million during the third quarter and first nine months of calendar 1996
compared to $56.5 million and $167.6 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 at the pulp users. 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. Order backlog at September 30, 1996, was 9% higher than backlog at
June 30, 1996. Operating income was $6.7 million and $22.9 million for the
third quarter and first nine months of calendar 1996 compared to $10.1 million
and $28.0 million for comparable periods of the prior year. The reduction in
operating income reflects primarily the effect of the sales decline, partially
offset by improved income from the Company's Gear Products, Inc. subsidiary
Page 10
resulting primarily from a higher sales volume of rotation bearings.
Sales for the Sporting Equipment segment increased to $36.2 million and $105.7
million in the third quarter and first nine months of calendar 1996 from $25.2
million and $82.5 million in the comparable periods of the prior year.
Operating income was up to $6.6 million and $13.9 million during the third
quarter and first nine months of the current year from $3.0 million and $9.6
million during the comparable periods of the prior year. Simmons added sales of
$10.0 million and $30.3 million and operating income of $1.1 million and $2.6
million for the third quarter and first nine months of calendar 1996,
respectively. Sales by remaining Sporting Equipment operations were
approximately 3.9% higher during the current year's third quarter while year-to-
date sales were lower due to reduced demand following a slowdown during the
second half of 1995. Operating income was positively affected by reduced
environmental cost estimates resulting from the resolution of an environmental
matter during the third quarter of the current year at the Company's Lewiston,
Idaho facility. See Note 5 of Notes to Consolidated Financial Statements.
The Company's total backlog at September 30, 1996 was $95.5 million compared to
$89.4 million at June 30, 1996 and $112.8 million at February 29, 1996.
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: November 8, 1996 /s/ Harold E. Layman
---------------------------------
Harold E. Layman
Senior Vice President &
Chief Financial Officer
Page 12