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, 1997
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 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)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock September 30, 1997
--------------------- ------------------
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, 1997 and December 31, 1996 3
Consolidated Statements of Income -
three months and nine months ended
September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
nine months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Analysis of Results of Operations 9
Page 2
BLOUNT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents, including short-term
investments of $32,906 and $55,258 $ 34,856 $ 58,708
Accounts receivable, net of allowance for
doubtful accounts of $3,423 and $3,007 130,315 121,923
Inventories 94,054 82,026
Deferred income taxes 20,913 20,910
Other current assets 4,291 3,509
-------- --------
Total current assets 284,429 287,076
Property, plant and equipment, net of accumulated
depreciation of $183,500 and $170,221 130,088 131,678
Cost in excess of net assets of acquired businesses, net 98,838 85,442
Other assets 32,175 35,691
-------- --------
Total Assets $545,530 $539,887
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of
long-term debt $ 765 $ 1,250
Accounts payable 47,120 36,104
Accrued expenses 67,528 75,011
-------- --------
Total current liabilities 115,413 112,365
Long-term debt, exclusive of current maturities 84,751 84,592
Deferred income taxes, exclusive of current portion 15,852 15,829
Other liabilities 30,456 27,838
-------- --------
Total liabilities 246,472 240,624
-------- --------
Commitments and Contingent Liabilities
Stockholder's equity:
Common Stock: par value $.01 per share,
1,000 shares issued and outstanding -- --
Capital in excess of par value of stock 26,843 26,843
Retained earnings 265,003 264,542
Accumulated translation adjustment 7,212 7,878
-------- --------
Total stockholder's equity 299,058 299,263
-------- --------
Total Liabilities and Stockholder's Equity $545,530 $539,887
======== ========
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,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
Sales $ 182,106 $ 159,957 $ 512,696 $ 475,256
Cost of sales 123,176 104,038 345,732 311,984
---------- ---------- ---------- ----------
Gross profit 58,930 55,919 166,964 163,272
Selling, general and
administrative expenses 32,196 31,380 96,884 95,493
---------- ---------- ---------- ----------
Income from operations 26,734 24,539 70,080 67,779
Interest expense (2,203) (2,256) (6,663) (7,673)
Interest income 746 652 1,845 1,198
Other income (expense), net 103 (339) 358 300
---------- ---------- ---------- ----------
Income before income taxes 25,380 22,596 65,620 61,604
Provision for income taxes 9,390 8,587 24,159 22,495
---------- ---------- ---------- ----------
Net income $ 15,990 $ 14,009 $ 41,461 $ 39,109
========== ========== ========== ==========
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,
-----------------------
1997 1996
---------- ----------
(Unaudited)
Cash Flows From Operating Activities:
Net Income $ 41,461 $ 39,109
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
noncash charges 17,894 17,818
Deferred income taxes 20 4,393
Loss (gain) on disposals of property, plant
and equipment (656) 37
Changes in assets and liabilities, net of
effects of businesses acquired and sold:
Increase in accounts receivable (11,329) (10,152)
(Increase) decrease in inventories (6,964) 11,738
Decrease in other assets 1,799 2,202
Increase (decrease) in accounts payable 7,358 (7,522)
Decrease in accrued expenses (8,434) (2,262)
Increase in other liabilities 2,019 4,143
---------- ----------
Net cash provided by operating activities 43,168 59,504
---------- ----------
Cash Flows From Investing Activities:
Proceeds from sales of businesses and property,
plant and equipment 906 1,617
Purchases of property, plant and equipment (10,906) (13,290)
Acquisitions of businesses (19,227)
---------- ----------
Net cash used in investing activities (29,227) (11,673)
---------- ----------
Cash Flows From Financing Activities:
Net reduction in short-term borrowings (389) (2,283)
Reduction of long-term debt (6,416) (13,805)
Decrease in restricted funds 716 3,078
Dividends paid (41,000) (2,500)
Advances from (to) parent - net 9,296 (1,684)
---------- ----------
Net cash used in financing activities (37,793) (17,194)
---------- ----------
Net increase (decrease) in cash and cash equivalents (23,852) 30,637
Cash and cash equivalents at beginning of period 58,708 12,537
---------- ----------
Cash and cash equivalents at end of period $ 34,856 $ 43,174
========== ==========
The accompanying notes are an integral part of these statements.
Page 5
BLOUNT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 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, 1997 and the results of
operations and cash flows for the periods ended September 30, 1997 and 1996.
These financial statements should be read in conjunction with the notes to the
financial statements included in the Company's Transition Report on Form 10-K
for the ten months ended December 31, 1996. The results of operations for the
periods ended September 30, 1997 and 1996 are not necessarily indicative of the
results to be expected for the twelve months ended December 31, 1997, due to the
seasonal nature of certain of the Company's operations.
Certain amounts in the prior year's financial statements and notes to
consolidated financial statements have been reclassified to conform with the
current year's presentation.
NOTE 2 Inventories consist of the following (in thousands):
September 30, December 31,
1997 1996
------------- ------------
Finished goods $ 51,542 $ 42,383
Work in process 16,341 14,505
Raw materials and supplies 26,171 25,138
-------- --------
$ 94,054 $ 82,026
======== ========
NOTE 3 In June 1997, the Company signed a letter of intent to acquire Federal
Cartridge Company. It is anticipated that the acquisition will be completed in
the fourth quarter of 1997. Federal Cartridge manufactures shotshell, rimfire,
centerfire rifle and pistol ammunition, as well as clay skeet and trap targets.
In 1996, Federal Cartridge had net sales of approximately $130 million.
In January 1997, the Company acquired the outstanding capital stock of the
Frederick Manufacturing Corporation ("Frederick") and Orbex, Inc. ("Orbex") for
approximately $19 million plus payment of existing debt of the acquired
companies in the amount of $5.8 million. The principal products of the acquired
companies are accessories for lawn mowers and sporting goods. The acquisition
has been accounted for by the purchase method, and the net assets and results of
operations of Frederick and Orbex have been included in the Company's
consolidated financial statements since the date of acquisition. The excess of
the purchase price over the fair value of the net assets acquired is being
amortized on a straight-line basis over a period of 40 years. The combined
sales and pre-tax income of the acquired companies for their most recent year
prior to the acquisition were approximately $19.8 million and $2.5 million,
respectively.
Page 6
NOTE 4 In April 1997, the Company replaced its $100 million revolving credit
agreement expiring December 1999 with a new $150 revolving credit agreement
expiring April 2002 with a group of five banks. At September 30, 1997, no
amounts were outstanding under the new $150 million revolving credit agreement.
The $150 million agreement provides for interest rates to be determined at the
time of borrowings based on a choice of formulas as specified in the agreement.
The interest rates and commitment fees may vary based on the ratio of cash flow
to debt as defined in the agreement. The new agreement contains covenants
relating to liens, subsidiary debt, transactions with affiliates,
consolidations, mergers and sales of assets, and requires the Company to
maintain certain leverage and fixed charge coverage ratios.
In April 1997, the Company terminated its $25 million receivable sale agreement.
No receivables had been sold under this agreement.
NOTE 5 Segment information is as follows (in thousands):
Three months Nine months
ended September 30, ended September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Sales:
Outdoor Products $ 81,291 $ 74,398 $ 240,403 $ 220,532
Industrial and Power Equipment 61,462 49,349 167,986 149,031
Sporting Equipment 39,353 36,210 104,307 105,693
--------- --------- --------- ---------
$ 182,106 $ 159,957 $ 512,696 $ 475,256
========= ========= ========= =========
Operating income:
Outdoor Products $ 17,518 $ 15,642 $ 50,275 $ 45,657
Industrial and Power Equipment 8,842 6,744 21,579 22,915
Sporting Equipment 5,060 6,633 11,489 13,899
--------- --------- --------- ---------
Operating income from segments 31,420 29,019 83,343 82,471
Corporate office expenses (4,686) (4,480) (13,263) (14,692)
--------- --------- --------- ---------
Income from operations 26,734 24,539 70,080 67,779
Interest expense (2,203) (2,256) (6,663) (7,673)
Interest income 746 652 1,845 1,198
Other income (expense), net 103 (339) 358 300
--------- --------- --------- ---------
Income before income taxes $ 25,380 $ 22,596 $ 65,620 $ 61,604
========= ========= ========= =========
NOTE 6 In 1989, the United States Environmental Protection Agency ("EPA")
designated a predecessor of the Company as one of four potentially responsible
parties ("PRPs") with respect to the Onalaska Municipal Landfill in Onalaska,
Wisconsin ("the Site"). The waste complained of was placed in the landfill
prior to 1981 by a corporation, some of whose assets were later purchased by a
predecessor of the Company. It is the view of management that because the
Company's predecessor corporation purchased assets rather than stock, the
Company is not liable and is not properly a PRP. Although management believes
the EPA is wrong on the successor liability issue, with other PRPs, the Company
made a good faith offer to the EPA to pay a portion of the Site clean-up costs.
The offer was rejected and the EPA and State of Wisconsin ("the State")
proceeded with the clean-up at a cost of approximately $12 million. The EPA and
the State brought suit in 1996 against the Town of Onalaska ("the Town") and a
Page 7
second PRP, Metallics, Inc., to recover response costs. On December 18, 1996,
the United States District Court for the Western District of Wisconsin approved
and entered Consent Decrees pursuant to which the Town and Metallics, Inc.
settled the suit and will pay a total of $1.8 million to the EPA and the State.
The Company continues to maintain that it is not a liable party. The EPA has
not taken action against the Company, nor has the EPA accepted the Company's
position. The Company does not know the financial status of the other named and
unnamed PRPs who may have liability with respect to the Site. Management does
not expect the situation to have a material adverse effect on consolidated
financial condition or operating results.
Under the provisions of Washington State environmental laws, the Washington
State Department of Ecology ("WDOE") has notified the Company that it is one of
many companies named as a Potentially Liable Party ("PLP"), for the Pasco
Sanitary Landfill site, Pasco, Washington ("the Site"). Although the clean-up
costs are believed to be substantial, accurate estimates will not be available
until the environmental studies have been completed at the Site. However, based
upon the total documented volume of waste sent to the Site, the Company's waste
volume compared to that total waste volume should cause the Company to be
classified as a "de minimis" PLP. In July 1992, the Company and thirty-eight
other PLPs entered into an Administrative Agreed Order with WDOE to perform a
Phase I Remedial Investigation at the Site. In October 1994, WDOE issued an
administrative Enforcement Order to all PLPs to complete a Phase II Remedial
Investigation and Feasibility Study ("RI/FS") under the Scope of Work
established by WDOE. The results of the RI/FS investigation are not expected
until 1998. The Company is unable to determine, at this time, the level of
clean-up demands that may be ultimately placed on it. Management believes that,
given the number of PLPs named with respect to the Site and their financial
condition, the Company's potential response costs associated with the Site will
not have a material adverse effect on consolidated financial condition or
operating results.
The Company is a defendant in a number of product liability lawsuits, some of
which seek significant or unspecified damages, involving serious personal
injuries for which there are large retentions or deductible amounts under the
Company's insurance policies. In addition, the Company is a party to a number
of other suits arising out of the conduct of its business. While there can be
no assurance as to their ultimate outcome, management does not believe these
lawsuits will have a material adverse effect on consolidated financial condition
or operating results.
At September 30, 1997, the Company had outstanding bank letters of credit in the
approximate amount of $1.8 million issued principally in connection with
purchases from foreign sources for which there is contingent liability to the
issuing banks in the event payment is demanded by the holder.
See Note 8 to the Consolidated Financial Statements included in the Company's
Transition Report on Form 10-K for the ten months ended December 31, 1996 for
other commitments and contingencies of the Company which have not changed
significantly since that date.
NOTE 7 Income taxes paid during the nine months ended September 30, 1997 and
1996 were $30.8 million and $10.0 million. Interest paid during the nine months
ended September 30, 1997 and 1996 was $6.6 million and $6.2 million.
Page 8
MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
Sales for the third quarter and first nine months of 1997 were $182.1 million
and $512.7 million, respectively, compared to $160.0 million and $475.3 million
for the comparable periods of the prior year. Net income for the third quarter
and first nine months of 1997 was $16.0 million and $41.5 million compared to
net income of $14.0 million and $39.1 million for the comparable periods of the
prior year. These operating results reflect improved operating income from the
Outdoor Products and Industrial and Power Equipment segments in the third
quarter, and lower income from the Sporting Equipment segment. Selling, general
and administrative expenses were 18% and 19% of sales in the third quarter and
first nine months of 1997 compared to 20% in both the third quarter and first
nine months of 1996. Lower interest expense during the three months and nine
months ended September 30, 1997, principally reflects lower debt levels during
the current year. The principal reasons for these results and the status of the
Company's financial condition are set forth below and should be read in
conjunction with the Company's Transition Report on Form 10-K for the ten months
ended December 31, 1996.
Sales for the Outdoor Products segment for the third quarter and first nine
months of 1997 were $81.3 million and $240.4 million compared to $74.4 million
and $220.5 million during the same periods of 1996. Operating income was $17.5
million and $50.3 million during the third quarter and first nine months of 1997
compared to $15.6 million and $45.7 million in the comparable periods of the
prior year. The higher sales and operating income resulted principally from the
acquisition of Frederick and Orbex (see Note 3 of Notes to Consolidated
Financial Statements), a higher volume of saw chain and bar sales, and higher
income from operations in Brazil, partially offset by the effect of a strong
U.S. dollar on foreign sales and income.
Sales for the Industrial and Power Equipment segment were $61.5 million and
$168.0 million during the three months and nine months ended September 30, 1997,
compared to $49.3 million and $149.0 million during the same periods last year.
Operating income was $8.8 million and $21.6 million for the third quarter and
first nine months of 1997 compared to $6.7 million and $22.9 million for the
comparable periods of the prior year. The higher sales during the current year
reflect a higher volume of forestry equipment sold as a result of improving
market conditions and new products introduced during 1997. Management believes
that industry fundamentals are improving as worldwide pulp prices have increased
and mill inventories have continued to decline. Operating income improved
during the third quarter, reflecting the higher sales as the price discounting
seen in the first half of the year has begun to decrease.
Sales for the Sporting Equipment segment were $39.4 million and $104.3 million
in the third quarter and first nine months of 1997 compared to $36.2 million and
$105.7 million in the comparable periods of 1996. Operating income was $5.1
million and $11.5 million during the three months and nine months ended
September 30, 1997, compared to $6.6 million and $13.9 million during the same
periods of last year. Sales for the third quarter of 1997 increased over the
prior year, principally due to a higher volume of ammunition products and sports
optics. Sales for the nine months ended September 30, 1997, reflect a higher
volume of ammunition products sales, offset by a lower volume of sales of sports
optics (riflescopes and binoculars) during the first half of 1997. Operating
income was lower during the third quarter and first nine months as the prior
year's third quarter included the positive effect of reduced environmental cost
estimates of $1.9 million resulting from the resolution of an environmental
matter. Management believes that the fundamentals for the shooting sports
industry are improving slowly.
Page 9
The Company's total backlog at September 30, 1997 was $107.7 million compared
to $74.2 million at December 31, 1996, principally due to a higher backlog at
the Industrial and Power Equipment and Sporting Equipment segments.
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income," and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Both statements are
effective for fiscal years beginning after December 15, 1997. The Company does
not believe that these statements will have a material effect on financial
condition or operating results.
Page 10
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: October 29, 1997 /s/ Harold E. Layman
--------------------------------------
Harold E. Layman
Executive Vice President - Finance
Operations and Chief Financial Officer
Page 11