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
For the fiscal year ended December 31, 1997
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 I(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 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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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, 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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Page 1
State the aggregate market value of the voting common stock held by
nonaffiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the common stock was sold, or the average bid
and asked prices of such common stock, as of a specified date within 60 days
prior to the date of filing.
Aggregate market value of voting common stock held by nonaffiliates as of
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January 31, 1998: $ 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 January 31, 1998: 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.
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 operations date largely
to the acquisition of Omark Industries, Inc. by Blount, Inc. in 1985. The
predecessor to 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. On November 3, 1995, through a merger approved by its
stockholders, the Company became a wholly-owned subsidiary of Blount
International, Inc. Blount, Inc. and its subsidiaries are hereinafter referred
to as the "Company."
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"), Dixon Industries, Inc. ("Dixon"), Frederick
Manufacturing Corporation ("Frederick") and Orbex, Inc. ("Orbex"). 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 chain saws, 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 markets an 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.
Oregon sells to distributors, dealers and mass merchandisers serving the retail
replacement market. In 1997, approximately 16.8% of the sales by the Outdoor
Products segment were to one customer. In addition, Oregon currently sells its
products to more than 50 original equipment manufacturers ("OEMs"). Due to the
high level of technical expertise and capital investment required to manufacture
saw chain and guide bars, the Company believes that it is able to produce
durable, high-quality saw chain and guide bars more efficiently than most of its
competitors. The use of Oregon cutting chain as original equipment on chain
saws is also promoted through cooperation with OEMs in improving the design and
specifications of chain and saws. Sales of saw chain for replacement use, which
accounted for approximately three-quarters of the Company's saw chain sales in
1997, are generally more profitable than sales of saw chain to OEMs.
The Company has Oregon marketing personnel throughout the United States and in a
number of foreign countries. Sales derived from operations outside the United
States accounted for 37%, and export sales accounted for an additional 22%, of
Oregon's sales during 1997. Oregon manufactures saw chain and related products
in Milwaukie, Oregon; Guelph, Ontario, Canada; and Curitiba, Parana, Brazil.
Oregon's products compete with other saw chain manufacturers as well as a small
number of international chain saw manufacturers, some of whom are also
customers. This segment's principal raw material, strip steel, is generally
purchased from two vendors, and can be obtained from other sources.
Page 3
Dixon, located in Coffeyville, Kansas, was acquired in 1990 and has manufactured
ZTR (zero turning radius) lawn mowers and related attachments since 1974. Dixon
pioneered the development of ZTR and is the only manufacturer to offer a full
line of ZTR lawn mowers for both homeowner and commercial applications.
The key element which differentiates Dixon from its competitors is its unique
mechanical transaxle. The transaxle transmits power independently to the rear
drive wheels and enables the operator to move the back wheels at different
speeds and turn the mower in a circle no larger than the machine, a "zero radius
turn". This unique transmission enables the Dixon mower to out-maneuver
conventional ride-on products available in the market today and provides a cost
advantage over the more expensive hydrostatic drives used by competitors in the
market. The latest product additions are in the hydrostatic portion of the
product line. In late 1997, Dixon introduced the "Estate Line" featuring mowers
which are designed for large, homeowner lawns and are lower priced than
commercial hydrostatic units. Models are available in 42-inch, 50-inch and 60-
inch sizes.
Dixon sells its products through distribution channels comprised of full-service
dealers, North American distributors and export distributors. Sales by Dixon
accounted for 14% of Outdoor Products sales in 1997.
Frederick and Orbex, located in Kansas City, Missouri, were acquired in January
1997 (see Note 4 of Notes to Consolidated Financial Statements) and fully
integrated into the Outdoor Products segment in 1997. Frederick is a well-known
and highly respected manufacturer that supplies quality Silver Streak brand
accessories for lawn mowers and other outdoor products. Orbex markets high-end
lawn mower blades. They fit well into the company's niche product markets and
provide new international sales opportunities through the worldwide distribution
system of the Oregon Cutting Systems Division. Frederick and Orbex sales are 7%
of Outdoor Products segment sales in 1997.
INDUSTRIAL AND POWER EQUIPMENT
The Company's Industrial and Power Equipment segment manufactures equipment for
the timber harvesting industry, industrial tractors for land and utility right-
of-way clearing, and components for the gear industry. Major users of these
products include logging contractors, harvesters, land reclamation companies,
utility contractors, building materials distributors, scrap yard operators and
original equipment manufacturers of hydraulic equipment.
The Company believes that it is a world leader in the manufacture of hydraulic
timber harvesting equipment, which includes a line of truck-mounted, trailer-
mounted, stationary-mounted and self-propelled loaders and crawler feller
bunchers (tractors with hydraulic attachments for felling timber) under the
Prentice brand name; a line of rubber-tired 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.
The Company is a competitive force in the gear industry, selling power
transmissions and gear components under the Gear Products brand name.
Total sales by Gear Products and CTR accounted for approximately 20% of this
segment's sales in 1997.
The Company sells its timber harvesting products through a network of
approximately 250 dealers in over 400 locations in the United States and
currently has an additional 20 offshore dealers, primarily in the timber
harvesting regions of South America and Southeast Asia. Gear Products, Inc.
sells its products to over 350 original equipment manufacturers servicing the
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utility, construction, forestry and marine industries. Over 85% of this
segment's sales in 1997 were in the United States, primarily in the southeastern
and south central states.
The Company places a strong emphasis on the quality, safety, comfort, durability
and productivity of its products and on the after-market service provided by its
distribution and support network. The Company's Industrial and Power Equipment
segment competes primarily on the basis of quality with a number of domestic and
foreign manufacturers.
The Company attempts to capitalize on its technological and manufacturing
expertise as a means of increasing its participation in the market for
replacement parts for products which it manufactures, as well as of developing
new product applications both within and beyond the timber, material handling,
scrap, land clearing and gear industries. The Company is committed to
continuing research and development in this segment to respond quickly to
increasing mechanization and environmental awareness in the timber harvesting
industry.
The Company's Industrial and Power Equipment segment has manufacturing
facilities in Owatonna, Minnesota; Prentice and Spencer, Wisconsin; Tulsa,
Oklahoma; and Zebulon and Union Grove, North Carolina. A majority of the
components used in the Company's products are obtained from a number of domestic
manufacturers.
SPORTING EQUIPMENT
On November 4, 1997, the Company acquired the Federal Cartridge Company
("Federal"). See Note 4 of Notes to Consolidated Financial Statements. Federal
manufactures and markets shotshell, centerfire, and rimfire cartridges,
ammunition components, and clay targets. These products are distributed
throughout the United States through a network of distributors and directly to
large retail chains, the U.S. government and federal, state, local and
international law enforcement agencies. The Federal acquisition both
complements and significantly expands the Sporting Equipment segment's product
offerings. Shotgun shells, a product not previously manufactured or sold by the
Company, represented approximately 42% of Federal's sales for 1997. Federal is
also a significant producer and marketer of centerfire rifle ammunition,
products as to which the Company's market share has been much smaller. Federal
markets its products under the brand names of "Premium," "Gold Medal," "American
Eagle," "Classic," "BallistiClean" and "Tactical." On the basis of Federal's
1997 sales of approximately $140 million, the acquisition places the Company
among the leading United States producers of ammunition products.
The Company's other Sporting Equipment segment operations manufacture small arms
ammunition, reloading equipment, primers, gun care products and accessories, and
distribute 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 accessories;
Weaver mounting systems; and Simmons and Weaver optics. 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 Company
believes that the Sporting Equipment segment is also a world leader in the
production of industrial powerloads which are used in the construction industry
to drive fastening pins into metal or concrete.
The market for Sporting Equipment products is characterized by a high degree of
customer loyalty to brand names and historically has not been affected by
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adverse economic conditions. A continuing focus on new and better technologies
has enabled the Company to introduce a number of new and improved products in
recent years. These products include Speer Gold Dot high performance pistol
ammunition which is rapidly gaining favor with law enforcement agencies around
the world, as well as Clean-Fire and non-toxic ammunition used extensively for
indoor training. The Company's exclusive aluminum case technology continues to
provide low cost Blazer ammunition to consumers and for law enforcement training
applications. New for 1998 is a series of fully automatic electric traps
specifically designed for commercial trap, skeet, and sporting clays
applications.
Principal raw materials include brass, lead, aluminum and powder, which are
purchased from several suppliers. The Company manufactures ammunition in
Lewiston, Idaho; shotshell, ammunition and ammunition components in Anoka,
Minnesota; reloading equipment in Oroville, California; mounts, shooting
accessories and gun care equipment in Onalaska, Wisconsin; and clay targets in
Richmond, Indiana. The Company imports substantially all its optical products
from foreign suppliers and does not rely on long-term agreements, although it
does have long-term relationships with some of its suppliers. Optical products
are distributed from a warehouse in Thomasville, Georgia.
In the market for small arms ammunition and primers, the Company competes with
several other manufacturers with well established brand names and market share
positions. In the segment's other product lines, the Company competes with a
number of smaller competitors, none of whom has a dominant market share.
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 8 through 11 and Note
10 of Notes to Consolidated Financial Statements on pages 28 through 30.
SEASONALITY
The Company's Sporting Equipment segment experiences higher sales in the second
half of the year than the first half of the year.
ITEM 2. PROPERTIES
The corporate headquarters of the Company occupy 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, Japan and Russia. Lawn mowers and
related accessories are manufactured at plants in Coffeyville, Kansas and Kansas
City, Missouri. Log loaders, feller bunchers and accessories for automated
forestry equipment are 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 Anoka, Minnesota; Lewiston, Idaho;
Oroville, California; Onalaska, Wisconsin; and Richmond, Indiana. The Company
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maintains a warehouse facility in Thomasville, Georgia for distribution of
sports optics and hunting accessories.
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. Approximate square footage of principal properties is as follows:
Area in Square Feet
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Owned Leased
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Outdoor Products 996,000 236,000
Industrial and Power Equipment 768,000 0
Sporting Equipment 1,583,000 122,000
Corporate Office 192,000 13,000
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Total 3,539,000 371,000
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ITEM 3. LEGAL PROCEEDINGS
For information regarding legal proceedings see Note 8 of Notes to Consolidated
Financial Statements on pages 26 and 27.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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. There is
no established public trading market for the Company's common stock.
The Company paid $41.0 million in dividends in 1997 and no dividends were paid
during the transition period ended December 31, 1996. The timing of dividend
payments is determined by the Board of Directors. For information regarding
restrictions on the Company's ability to pay cash dividends, see Note 3 of Notes
to Consolidated Financial Statements on pages 21 and 22.
For information regarding restrictions on the net assets of foreign
subsidiaries, see Note 11 of Notes to Consolidated Financial Statements on pages
31 and 32.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
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ITEM 7. MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the consolidated
financial statements and related notes.
OPERATING RESULTS
In April 1996, the Company changed its fiscal year from one ending on the last
day of February to one ending on December 31. See Note 1 of Notes to
Consolidated Financial Statements. The audited financial statements in this
annual report include the results for the year ended December 31, 1997 ("1997"),
the ten-month transition period ended December 31, 1996 ("transition period")
and the year ended February 29, 1996 ("fiscal 1996"). This discussion and
analysis includes a discussion of 1997 compared to the twelve months ended
December 31, 1996, and both the twelve months and ten months ended December 31,
1996 compared to similar periods during calendar year 1995.
TWELVE MONTHS ENDED DECEMBER 31, 1997 (AUDITED) COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1996 (UNAUDITED)
Sales in 1997 were $716.9 million compared to $649.3 million in 1996. Income
from continuing operations improved to $60.0 million in 1997 from $55.7 million
during the prior year. Net income for 1996 included income of $1.4 million from
discontinued operations. The sales increase reflected higher sales in 1997 by
each operating segment, while the income increase resulted primarily from
improved performance by the Outdoor Products segment.
Selling, general and administrative expenses were 19% of sales in 1997 compared
to 20% in 1996. Total selling, general and administrative expenses increased by
$4.8 million in 1997 principally due to the acquisitions of Federal Cartridge
Company ("Federal") and Frederick Manufacturing Company and Orbex, Inc.
("Frederick-Orbex"). See Note 4 of Notes to Consolidated Financial Statements.
Other income was higher in 1997 as a result of gains on sales of securities.
Total backlog was $117.9 million at December 31, 1997 compared to $74.2 million
at the prior year-end reflecting improved backlogs at each operating segment,
particularly at the Industrial and Power Equipment segment due to improved
market conditions. In 1998, the Company believes that difficult economic
conditions in certain international markets and the adverse impact of a strong
U.S. dollar will likely continue to affect the Company's operations. However,
the Company expects continued sales and income growth in 1998, aided by the
recent acquisition of Federal.
Sales and operating income for the Outdoor Products segment for 1997 were $319.3
million and $67.1 million, respectively, compared to $292.7 million and $61.4
million during 1996. The operating results for this segment reflect an increase
in sales and operating income of $25.7 million and $7.2 million, respectively,
at the Company's Oregon Cutting Systems Division ("Oregon") and flat sales and
lower operating income at Dixon Industries, Inc. ("Dixon"). Oregon's results
reflect a 7% increase in the sales volume of saw chain and a 15% increase in the
sales volume of saw bars, Oregon's two principal products, partially offset by
lower average selling prices, due to a higher percentage of lower priced sales
to original equipment manufacturers and unfavorable exchange rates.
Additionally, the acquisition of Frederick-Orbex increased sales by 7.5% in
1997. Oregon has foreign manufacturing or distribution operations in Canada,
Europe, Brazil, Japan and Russia and, as a result, fluctuations in foreign
exchange rates impact the amount of reported sales and operating margins.
Approximately 24% and 36% of Oregon's sales and operating costs and expenses,
respectively, were transacted in foreign currencies in 1997. The Company
estimates that unfavorable exchange rates in 1997, as compared to 1996, reduced
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operating income by approximately $2.0 million. Operations in Brazil have
historically been significantly affected by high inflation, currency devaluation
and resulting governmental policies. During 1997, operating income from Brazil
was $2.6 million compared to $0.3 million during 1996, principally as a result
of improved economic conditions. Dixon's sales and operating income were $45.4
million and $7.1 million, respectively, in 1997 compared to $44.9 million and
$8.4 million during the prior year as the effects of reduced volume and higher
costs were partially offset by higher average selling prices.
Sales and operating income for the Industrial and Power Equipment segment were
$239.1 million and $32.7 million, respectively, in 1997 compared to $209.5
million and $31.9 million in 1996. The higher sales during the current year are
principally due to a higher volume of forestry equipment sold as a result of
improving market conditions and higher average selling prices. The improved
demand is reflected in this segment's backlog which has increased by 92% since
the prior year-end. Operating income increased by $0.8 million during 1997 as
higher forestry equipment product and warranty costs offset much of the effect
of the sales increase. The operating results of this segment's Gear Products,
Inc. subsidiary continued to improve in 1997 as its sales and operating income
increased by 8% and 15%, respectively, primarily due to higher volume.
Sales for the Sporting Equipment segment were $158.5 million in 1997 compared to
$147.1 million in 1996. Operating income was $18.1 million during 1997,
compared to $19.8 million during 1996. Sales reflect a higher volume of
ammunition products sales and the contribution by Federal since acquisition in
November 1997, partially offset by a lower volume of sales of sports optics.
Operating income was lower in 1997 as lower sports optics sales offset the
effect of higher ammunition products sales. Additionally, operating income for
the prior year included the positive effect of reduced environmental cost
estimates of $1.9 million resulting from the resolution of an environmental
matter.
TWELVE MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED) COMPARED TO TWELVE MONTHS
ENDED DECEMBER 31, 1995 (UNAUDITED)
Sales for the twelve months ended December 31, 1996 ("calendar 1996") were
$649.3 million compared to $621.4 million for the twelve months ended December
31, 1995 ("calendar 1995"). Income from continuing operations was $55.7 million
compared to $49.7 million in calendar 1995. Net income of $57.1 million in
calendar 1996 included income of $1.4 million from discontinued operations,
principally due to favorable claim settlements and improved international job
profits. These operating results reflected continued strong performance by the
Outdoor Products segment and improved performance by the Sporting Equipment
segment, offset by lower sales and earnings from the Industrial and Power
Equipment segment, primarily due to unfavorable market conditions.
Selling, general and administrative expenses were 20% of sales in calendar 1996
compared to 19% in calendar 1995. Total selling, general and administrative
expenses were higher during calendar 1996, principally due to the inclusion of
Simmons Outdoor Corporation ("Simmons"), acquired in December 1995, in the
consolidated financial statements for the entire twelve-month period.
Sales and operating income for the Outdoor Products segment for calendar 1996
were $292.7 million and $61.4 million, respectively, compared to $282.0 million
and $53.5 million during calendar 1995. The improved results for this segment
were due to an increase in sales and operating income at Oregon. This reflected
a 7% increase in the sales volume of saw chain and a 12% increase in the sales
volume of saw bars, Oregon's two principal products, principally to foreign
markets, partially offset by lower average selling prices. During calendar
1996, operating income from Oregon's operations in Brazil was $0.3 million
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compared to an operating loss of $0.8 million during calendar 1995. As a result
of unfavorable weather conditions in the spring, Dixon's operating results were
flat in calendar 1996 with sales and operating income of $44.9 million and $8.4
million, respectively, compared to $44.8 million and $8.4 million during
calendar 1995.
Market conditions adversely affected the Industrial and Power Equipment segment
during calendar 1996. Sales and operating income were $209.5 million and $31.9
million, respectively, in calendar 1996 compared to $232.2 million and $39.6
million during calendar 1995. 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 volume of loaders and
tractors sold by this segment during calendar 1996 was approximately 20% lower
than calendar 1995. The reduction in operating income was due to the effect of
the sales decline, partially offset by an increase in sales and operating income
at the Company's Gear Products, Inc. subsidiary, resulting primarily from a
higher sales volume of rotation bearings.
The operating results for the Sporting Equipment segment improved significantly
during calendar 1996, reflecting the favorable impact of including Simmons,
acquired in December 1995, for the entire twelve-month period in 1996. Total
segment sales and operating income were $147.1 million and $19.8 million,
respectively, in calendar 1996 compared to $107.2 million and $11.8 million
during calendar 1995. Simmons added sales of $45.6 million and operating income
of $5.0 million in 1996. Sales at the remaining Sporting Equipment operations
were approximately 5.2% lower during calendar 1996 due to a continued market
slowdown. Operating income increased by $2.9 million at these Sporting
Equipment operations in calendar 1996 principally due to reduced selling,
general and administrative expenses and income of $1.9 million resulting from
the resolution of an environmental matter during calendar 1996 at the Company's
Lewiston, Idaho facility.
TEN MONTHS ENDED DECEMBER 31, 1996 (AUDITED) COMPARED TO TEN MONTHS ENDED
DECEMBER 31, 1995 (UNAUDITED)
Sales during the transition period were $526.7 million compared to $521.6
million in the comparable period of the prior year. Income from continuing
operations was flat at $44.8 million compared to $43.9 million for the same
period during 1995. Net income of $46.2 million in the transition period
included income of $1.4 million from discontinued operations, principally due to
favorable claim settlements and improved international job profits. These
operating results reflected continued strong performance by the Outdoor Products
segment and improved performance by the Sporting Equipment segment, offset by
lower sales and earnings from the Industrial and Power Equipment segment,
primarily due to unfavorable market conditions.
Selling, general and administrative expenses were 20% of sales in the transition
period compared to 19% in the same period of 1995. Total selling, general and
administrative expenses were higher during the transition period, principally
due to the inclusion of Simmons, acquired in December 1995, in the consolidated
financial statements for the entire ten-month period.
Sales and operating income for the Outdoor Products segment for the transition
period were $239.3 million and $50.7 million, respectively, compared to $238.2
million and $46.8 million during the same period of 1995. The operating results
for this segment reflected an increase in sales and operating income of $3.5
million and $5.3 million, respectively, at Oregon, partially offset by lower
sales and operating income from Dixon. Oregon's results reflect a 4% increase
in the sales volume of saw chain and an 8% increase in the sales volume of saw
bars, Oregon's two principal products, partially offset by lower average selling
Page 10
prices. Lower foreign exchange expenses and improved manufacturing costs
contributed to higher margins during the current year. During the transition
period, operating income from Brazil was $0.7 million compared to an operating
loss of $0.7 million during the comparable period of 1995. Unfavorable weather
conditions in the spring adversely affected the lawncare market. As a result,
the volume of mowers sold by Dixon was approximately 9% less during the
transition period as compared to the same period last year. Dixon's sales and
operating income were $34.4 million and $5.4 million, respectively, in the
transition period compared to $36.8 million and $6.7 million during the
comparable period of the prior year.
Market conditions adversely affected the Industrial and Power Equipment segment
during the transition period. Sales and operating income were $165.7 million
and $24.0 million, respectively, compared to $196.8 million and $34.2 million
during the comparable period of 1995. 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 number of units
of loaders and tractors sold by this segment during the ten months ended
December 31, 1996, was approximately 24% lower than the comparable period in
1995. The reduction in operating income is due to the effect of the sales
decline, partially offset by an increase in sales and operating income at the
Company's Gear Products, Inc. subsidiary, resulting primarily from a higher
sales volume of rotation bearings.
The operating results for the Sporting Equipment segment improved significantly
during the ten months ended December 31, 1996, reflecting the favorable impact
of including Simmons, acquired in December 1995, for the entire ten-month period
in 1996. Total segment sales and operating income were $121.7 million and $16.5
million, respectively, during the transition period compared to $86.6 million
and $9.9 million during the same period in 1995. Simmons added sales of $39.1
million and operating income of $4.6 million in the transition period. Sales at
the remaining Sporting Equipment operations were approximately 4.6% lower during
the transition period due to a continued market slowdown. Operating income
increased by $1.9 million at these Sporting Equipment operations in the
transition period principally due to reduced selling, general and administrative
expenses and income of $1.9 million resulting from the resolution of an
environmental matter at the Company's Lewiston, Idaho facility.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements. SFAS No. 130 is
effective for the Company's fiscal year beginning January 1, 1998.
Reclassification of financial statements for earlier periods presented for
comparative purposes is required. The adoption of SFAS No. 130 will have no
material impact on the Company's consolidated results of operations, financial
position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual and interim financial statements. It also establishes standards for
related disclosures about products and services and geographic areas. SFAS No.
131 is required to be applied beginning with the Company's 1998 annual financial
statements. Financial statement disclosures for prior periods are required to
be restated. The Company is in the process of evaluating the disclosure
requirements. The adoption of SFAS No. 131 will have no material impact on the
Company's consolidated results of operations, financial position or cash flows.
Page 11
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder, Blount, Inc.:
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 December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for the year ended December 31, 1997, the
ten-month period ended December 31, 1996, and the year 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
January 26, 1998
Page 12
CONSOLIDATED STATEMENTS OF INCOME
Blount, Inc. and Subsidiaries
Twelve Months Ended Ten Months Ended Twelve Months
December 31, December 31, Ended
-------------------------- ---------------- February 29,
(Dollar amounts in millions) 1997 1996 1995 1996 1995 1996
- ----------------------------------- ------ ------ ------ ------ ------ ------------
(Unaudited) (Unaudited)
---------------- ------
Sales $716.9 $649.3 $621.4 $526.7 $521.6 $644.3
Cost of sales 482.9 426.9 412.8 346.5 346.0 427.3
- ----------------------------------- ------ ------ ------ ------ ------ ------
Gross profit 234.0 222.4 208.6 180.2 175.6 217.0
Selling, general and administrative
expenses 133.3 128.5 120.7 104.0 99.2 122.9
- ----------------------------------- ------ ------ ------ ------ ------ ------
Income from operations 100.7 93.9 87.9 76.2 76.4 94.1
Interest expense (9.5) (9.9) (10.7) (7.9) (8.9) (10.9)
Interest income 2.5 2.4 3.5 2.3 3.1 3.2
Other income (expense), net 1.3 0.5 (0.4) 0.2 0.3 0.5
- ----------------------------------- ------ ------ ------ ------ ------ ------
Income before income taxes 95.0 86.9 80.3 70.8 70.9 86.9
Provision for income taxes 35.0 31.2 30.6 26.0 27.0 32.1
- ----------------------------------- ------ ------ ------ ------ ------ ------
Income from continuing operations 60.0 55.7 49.7 44.8 43.9 54.8
Discontinued operations -
Income on disposal, net 1.4 1.4
- ----------------------------------- ------ ------ ------ ------ ------ ------
Net income $ 60.0 $ 57.1 $ 49.7 $ 46.2 $ 43.9 $ 54.8
- ----------------------------------- ------ ------ ------ ------ ------ ------
The accompanying notes are an integral part of the audited financial statements.
Page 13
CONSOLIDATED BALANCE SHEETS
Blount, Inc. and Subsidiaries
December 31,
(Dollar amounts in millions, except share data) 1997 1996
- -------------------------------------------------------- ------ ------
Assets
- -------------------------------------------------------- ------ ------
Current assets:
Cash and cash equivalents, including short-term
investments of $3.0 and $55.3 $ 4.8 $ 58.7
Accounts receivable, net of allowance for
doubtful accounts of $3.7 and $3.0 135.7 121.9
Inventories 132.9 82.0
Deferred income taxes 22.0 20.9
Other current assets 5.8 3.5
- -------------------------------------------------------- ------ ------
Total current assets 301.2 287.0
Property, plant and equipment, net of accumulated
depreciation of $188.3 and $170.2 188.5 131.7
Cost in excess of net assets of acquired businesses, net 116.4 85.4
Other assets 31.7 35.7
- -------------------------------------------------------- ------ ------
Total Assets $637.8 $539.8
- -------------------------------------------------------- ------ ------
Liabilities and Stockholder's Equity
- -------------------------------------------------------- ------ ------
Current liabilities:
Notes payable and current maturities of long-term debt $ 1.5 $ 1.2
Accounts payable 57.4 36.2
Accrued expenses 69.4 75.0
- -------------------------------------------------------- ------ ------
Total current liabilities 128.3 112.4
Long-term debt, exclusive of current maturities 138.8 84.6
Deferred income taxes, exclusive of current portion 15.2 15.8
Other liabilities 37.6 27.8
- -------------------------------------------------------- ------ ------
Total liabilities 319.9 240.6
- -------------------------------------------------------- ------ ------
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 27.4 26.8
Retained earnings 283.5 264.5
Accumulated translation adjustment 7.0 7.9
- -------------------------------------------------------- ------ ------
Total stockholder's equity 317.9 299.2
- -------------------------------------------------------- ------ ------
Total Liabilities and Stockholder's Equity $637.8 $539.8
- -------------------------------------------------------- ------ ------
The accompanying notes are an integral part of the audited financial statements.
Page 14
CONSOLIDATED STATEMENTS OF CASH FLOWS
Blount, Inc. and Subsidiaries
Twelve Months Ended Ten Months Ended Twelve Months
December 31, December 31, Ended
---------------------- -------------- February 29,
(Dollar amounts in millions) 1997 1996 1995 1996 1995 1996
- --------------------------------------------------- ------ ------ ------ ------ ------ -------------
(Unaudited) (Unaudited)
-------------- ------
Cash flows from operating activities:
Net income $ 60.0 $ 57.1 $ 49.7 $ 46.2 $ 43.9 $ 54.8
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
noncash charges 25.0 23.6 22.4 19.6 18.3 22.3
Deferred income taxes (1.7) 2.1 (1.4) (2.1) (0.6) 3.7
Loss (gain) on disposals of property, plant
and equipment (0.6) (0.2) 0.2 (0.9) 0.3 1.0
Changes in assets and liabilities, net
of effects of businesses acquired and sold:
(Increase) decrease in accounts receivable 20.4 (1.3) 17.9 31.6 16.1 (16.7)
(Increase) decrease in inventories (10.4) 13.2 (10.5) 11.4 (2.1) (0.3)
(Increase) decrease in other assets 0.8 1.9 (10.3) (1.8) (8.5) (4.8)
Increase (decrease) in accounts payable 0.8 (6.5) (11.6) (15.5) (15.9) (6.9)
Decrease in accrued expenses (15.5) (9.1) (17.0) (9.2) (9.4) (9.3)
Increase (decrease) in other liabilities 2.4 3.1 (6.0) (0.1) (6.0) (2.8)
- --------------------------------------------------- ------ ------ ------ ------ ------ ------
Net cash provided by operating activities 81.2 83.9 33.4 79.2 36.1 41.0
- --------------------------------------------------- ------ ------ ------ ------ ------ ------
Cash flows from investing activities:
Proceeds from sales of businesses and property,
plant and equipment 0.9 1.9 5.0 1.8 5.0 5.1
Purchases of property, plant and equipment (17.8) (21.2) (19.2) (18.7) (16.0) (18.5)
Acquisitions of businesses (132.5) (37.4) (37.4) (37.4)
- --------------------------------------------------- ------ ------ ------ ------ ------ ------
Net cash used in investing activities (149.4) (19.3) (51.6) (16.9) (48.4) (50.8)
- --------------------------------------------------- ------ ------ ------ ------ ------ ------
Cash flows from financing activities:
Net increase (reduction) in short-term borrowings (2.7) 1.8 (1.6) 1.9 0.8
Issuance of long-term debt 62.0 2.3
Reduction of long-term debt (14.9) (13.9) (15.7) (13.9) (15.6) (15.7)
(Increase) decrease in restricted funds 1.0 3.7 (0.2) 2.7 1.5 2.6
Dividends paid (41.0) (2.5) (7.0) (5.3) (7.8)
Advances from (to) parent - net 6.7 (3.9) (2.2) (6.3) (2.2)
Other 0.5 0.9 2.4 0.9 1.9 1.9
- --------------------------------------------------- ------ ------ ------ ------ ------ ------
Net cash provided by (used in) financing activities 14.3 (18.4) (18.6) (18.2) (17.8) (18.2)
- --------------------------------------------------- ------ ------ ------ ------ ------ ------
Net increase (decrease) in cash and cash equivalents (53.9) 46.2 (36.8) 44.1 (30.1) (28.0)
- --------------------------------------------------- ------ ------ ------ ------ ------ ------
Cash and cash equivalents at beginning of period 58.7 12.5 49.3 14.6 42.6 42.6
- --------------------------------------------------- ------ ------ ------ ------ ------ ------
Cash and cash equivalents at end of period $ 4.8 $ 58.7 $ 12.5 $ 58.7 $ 12.5 $ 14.6
- --------------------------------------------------- ------ ------ ------ ------ ------ ------
The accompanying notes are an integral part of the audited financial statements.
Page 15
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Blount, Inc. and Subsidiaries
Capital Accumulated
In Excess Retained Translation
(Dollar amounts in millions) Common Stock of Par Earnings Adjustment
- --------------------------- ------------ --------- -------- -----------
Balance, February 28, 1995 $ - $23.5 $171.3 $ 8.3
Exercise of employee stock
options 2.3
Issuance of shares under
dividend reinvestment plan 0.1
Aggregate adjustment resulting
from translation of foreign
currency statements (0.1)
Net income 54.8
Dividends (7.8)
- --------------------------- ------------ --------- -------- -----------
Balance, February 29, 1996 - 25.9 218.3 8.2
Aggregate adjustment resulting
from translation of foreign
currency statements (0.3)
Other 0.9
Net income 46.2
- --------------------------- ------------ --------- -------- -----------
Balance, December 31, 1996 - 26.8 264.5 7.9
Aggregate adjustment resulting
from translation of foreign
currency statements (0.9)
Other 0.6
Net income 60.0
Dividends (41.0)
- --------------------------- ------------ --------- -------- -----------
Balance, December 31, 1997 $ - $27.4 $283.5 $ 7.0
- --------------------------- ------------ --------- -------- -----------
The accompanying notes are an integral part of the audited financial statements.
Page 16
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. and
its subsidiaries ("the Company"). All significant intercompany balances and
transactions are eliminated in consolidation.
Change in fiscal year:
In April 1996, the Company changed its fiscal year from one ending on the last
day of February to one ending on December 31. Accordingly, the audited
financial statements include the results for the twelve-month period ended
December 31, 1997 ("1997"), the ten-month period ended December 31, 1996
("transition period") and the fiscal year ended February 29, 1996 ("fiscal
1996"). In addition to the basic audited financial statements and related
notes, unaudited financial information for the twelve-month periods ended
December 31, 1996 and 1995, and the ten-month period ended December 31, 1995,
has been presented to enhance comparability.
Reclassifications:
Certain amounts in the transition period and fiscal 1996 financial statements
and notes to consolidated financial statements have been reclassified to conform
with the 1997 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
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 $4.0 million and $2.8 million as of December
31, 1997 and 1996. 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. The
principal ranges of estimated useful lives for depreciation purposes are as
follows: buildings and improvements - 5 years to 45 years; machinery and
equipment - 3 years to 15 years; furniture, fixtures and office equipment - 3
Page 17
years to 10 years; and transportation equipment - 3 years to 15 years. 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 $21.1 million, $16.4
million and $19.3 million in 1997, the transition period and fiscal 1996.
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 reporting periods ended December 31, 1997.
Cost in excess of net assets of acquired businesses:
The excess cost is being amortized by the straight-line method over periods
ranging from 10 to 40 years. Accumulated amortization was $25.0 million and
$21.7 million as of December 31, 1997 and 1996. The excess cost is evaluated
for impairment based on the historic and estimated future profitability and cash
flows 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
retentions or 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, 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 stockholders' equity. The amount of income taxes allocated to this
translation adjustment is not significant. Foreign exchange adjustments reduced
pretax income by $0.3 million, $0.1 million and $1.9 million in 1997, the
transition period and fiscal 1996.
Derivative financial instruments:
The Company has entered into a forward interest rate lock contract which
effectively locks in the treasury rate component of the interest rate on an
expected issue of long-term debt of approximately $150 million in early 1998
(see Note 3). This contract is accounted for as a hedge and any gains or losses
on the contract will be deferred and reflected as an adjustment of interest
expense over the term of the long-term debt.
The Company accounts for copper and zinc futures contracts in accordance with
SFAS No. 80, Accounting for Futures Contracts. These contracts (approximately
8.4 million pounds at December 31, 1997) hedge anticipated brass purchases the
Company expects to carry out in the normal course of business. Any gain or loss
on futures contracts accounted for as a hedge which are closed before the date
of the anticipated transaction is deferred until completion of the transaction.
Deferred gains or losses are amortized over the transaction period.
Page 18
Deferred gains and losses on derivative financial instruments are generally
classified as other assets or other liabilities in the consolidated balance
sheets.
Revenue recognition:
The Company's policy is to record sales as orders are shipped.
Advertising:
Advertising costs are generally expensed as incurred.
Research and development:
Expenditures for research and development are expensed as incurred. These costs
were $8.0 million, $6.0 million and $8.8 million for 1997, the transition period
and fiscal 1996.
NOTE 2:
INCOME TAXES
The provision for income taxes attributable to continuing operations is as
follows:
Twelve Months Ten Months Twelve Months
Ended Ended Ended
December 31, December 31, February 29,
(Dollar amounts in millions) 1997 1996 1996
- ------------------------------ ------------- ------------ -------------
Current provision:
Federal $ 29.0 $ 24.9 $ 22.2
State 3.8 0.8 2.1
Foreign 3.9 2.4 4.0
Deferred provision (benefit):
Federal (1.5) (3.6) 4.4
State 0.1 0.4 0.5
Foreign (0.3) 1.1 (1.1)
- ------------------------------ ------ ------ ------
$ 35.0 $ 26.0 $ 32.1
- ------------------------------ ------ ------ ------
Page 19
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:
Twelve Months Ten Months Twelve Months
Ended Ended Ended
December 31, December 31, February 29,
(Dollar amounts in millions) 1997 1996 1996
- ------------------------------ ------------- ------------ -------------
Income before income taxes:
Domestic $ 85.1 $ 62.3 $ 80.8
Foreign 9.9 8.5 6.1
- ------------------------------ ------ ------ ------
$ 95.0 $ 70.8 $ 86.9
- ------------------------------ ------ ------ ------
% % %
Statutory tax rate 35.0 35.0 35.0
Impact of earnings of foreign
operations (0.7) 0.7 0.2
State income taxes, net of federal
tax benefit 2.6 1.5 2.3
Permanent differences between book
bases and tax bases 1.6 1.5 1.0
Other items, net (1.7) (2.0) (1.6)
- ------------------------------ ------ ------ ------
Effective income tax rate 36.8 36.7 36.9
- ------------------------------ ------ ------ ------
All years reflect the allocation of substantially all corporate office expenses
and interest expense to domestic operations.
As of December 31, 1997 and 1996, deferred income tax assets were $35.6 million
and $34.7 million and deferred income tax liabilities were $28.8 million and
$29.6 million. Deferred income taxes applicable to temporary differences at
December 31, 1997 and 1996 are as follows:
(Dollar amounts in millions) 1997 1996
- -------------------------------------------------- ------ ------
Property, plant and equipment basis differences $ 18.3 $ 19.7
Employee benefits (16.8) (13.0)
Other accrued expenses (16.1) (18.6)
Other - net 7.8 6.8
- -------------------------------------------------- ------ ------
$ (6.8) $ (5.1)
- -------------------------------------------------- ------ ------
Deferred income taxes of approximately $4.0 million have not been provided on
undistributed earnings of foreign subsidiaries in the amount of $40.8 million as
the earnings are considered to be permanently reinvested.
The Company has settled its issues with the Internal Revenue Service through the
1993 fiscal year with no material adverse effect. The periods from fiscal 1994
through 1997 are still open for review.
Page 20
NOTE 3:
DEBT AND FINANCING AGREEMENTS
Long-term debt at December 31, 1997 and 1996 consists of the following:
(Dollar amounts in millions) 1997 1996
- -------------------------------------------------- ------ ------
9% subordinated notes $ 68.8 $ 68.8
Revolving credit agreement 54.0
Industrial development revenue bonds payable,
maturing between 1998 and 2013, interest at varying
rates (principally 4.4% at December 31, 1997) 15.7 16.1
Other long-term debt, interest at 9.5% 0.5
Lease purchase obligations, interest at varying
rates, payable in installments to 2000 0.9 0.6
- -------------------------------------------------- ------ ------
139.9 85.5
Less current maturities (1.1) (0.9)
- -------------------------------------------------- ------ ------
$138.8 $ 84.6
- -------------------------------------------------- ------ ------
Maturities of long-term debt and the principal and interest payments on long-
term capital leases are as follows:
Capital Leases
--------------------- Total
(Dollar amounts in millions) Debt Principal Interest Payments
- ------------------------------- ------ --------- -------- --------
1998 $ 0.5 $ 0.6 $ 0.1 $ 1.2
1999 0.4 0.3 0.7
2000 0.4 0.4
2001 0.4 0.4
2002 54.5 54.5
2003 and beyond 82.8 82.8
- ------------------------------- ------ ----- ----- ------
$139.0 $ 0.9 $ 0.1 $140.0
- ------------------------------- ------ ----- ----- ------
On December 17, 1997, the Company and Blount International, Inc., its parent,
filed a Form S-3 Registration Statement with the Securities and Exchange
Commission for an issue in early 1998 of $150 million Senior Notes due 2008.
The Company plans to use the proceeds of the Senior Notes to repay outstanding
indebtedness under its revolving credit agreement and to redeem all of its
outstanding 9% senior subordinated notes. The balance of the proceeds will be
used for general corporate purposes, including the post-closing adjustment to
the purchase price of Federal Cartridge Company (see Note 4).
At December 31, 1997, the Company had $54.0 million outstanding under its $150
million revolving credit agreement with a group of five banks. The $150 million
agreement expires April 2002 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 and commitment fees may vary based on the ratio
of cash flow to debt as defined in the agreement. The 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.
Page 21
The remaining proceeds from industrial development revenue bonds issued in
fiscal 1995 are held in trust and released as qualified capital expenditures are
made. As of December 31, 1997 and 1996, $3.9 million and $4.9 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 $68.8 million maturing on June 15, 2003. 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.
Under the most restrictive debt requirement, retained earnings of approximately
$73.9 million were available for the payment of dividends at December 31, 1997.
As of December 31, 1997 and 1996, the weighted average interest rate on short-
term borrowings was 9.7% and 9.2%, respectively.
NOTE 4:
ACQUISITIONS AND DISPOSALS
The following acquisitions have been accounted for by the purchase method, and
the net assets and results of operations of the acquired companies have been
included in the Company's consolidated financial statements since the dates 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.
On November 4, 1997, the Company acquired Federal Cartridge Company ("Federal"),
formerly Federal-Hoffman, Inc. The estimated purchase price is approximately
$128 million consisting of $112 million paid at closing plus a post-closing
adjustment to be determined by an audit and acquisition expenses. Federal
manufactures shotshell, centerfire and rimfire cartridges, ammunition components
and clay targets. The following summarized unaudited pro forma financial
information for the twelve months ended December 31, 1997 and 1996 assumes the
acquisition had occurred on January 1 of each year:
Pro forma information
(Dollar amounts in millions) 1997 1996
- --------------------------------------------------- ------ ------
Sales $842.2 $779.2
Income from continuing operations 66.0 52.6
The pro forma results do not necessarily represent the results which would have
occurred if the acquisition had taken place on the basis assumed nor are they
indicative of the results of future operations.
In January 1997, the Company acquired the outstanding capital stock of the
Frederick Manufacturing Corporation and Orbex, Inc. for approximately $19
million and paid 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 combined sales and pretax income of the
acquired companies for their most recent year prior to the acquisition was $19.8
million and $2.5 million, respectively.
Page 22
In December 1995, the Company acquired the outstanding capital stock of Simmons
Outdoor Corporation ("Simmons"), a sports optics distributor. The purchase
price was approximately $38 million. Sales and pretax income for Simmons for
1995 were $40.9 million and $1.6 million, respectively.
In the transition period, income of $1.4 million, net of income taxes of $0.9
million, was recognized for disposal of the discontinued construction segment,
primarily due to favorable claim settlements and improved international job
profits.
NOTE 5:
CAPITAL STOCK
The Company has authorized 1,000 shares of Common Stock, $.01 par value.
NOTE 6:
PENSION PLANS
The Company maintains a funded, non-contributory, trusteed, defined benefit
pension plan covering the majority of domestic employees. 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 were:
Twelve Months Ten Months Twelve Months
Ended Ended Ended
December 31, December 31, February 29,
(Dollar amounts in millions) 1997 1996 1996
- ------------------------------ ------------- ------------ -------------
Service cost - benefits earned $ 4.9 $ 3.7 $ 3.4
Interest cost 6.7 5.5 5.8
Actual return on plan assets (12.8) (7.3) (11.1)
Net amortization and deferral 6.3 2.4 6.8
- ------------------------------ ------ ------ ------
$ 5.1 $ 4.3 $ 4.9
- ------------------------------ ------ ------ ------
Page 23
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 at December 31, 1997 and 1996
was as follows:
1997 1996
--------------------------- ---------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(Dollar amounts in millions) Benefits Exceed Assets Benefits Exceed Assets
- ------------------------------------------- ------------- ------------- ------------- -------------
Actuarial present value of projected
benefit obligation:
Vested $ 64.8 $ 4.7 $ 50.8 $ 4.2
Nonvested 4.4 0.2 3.1 0.1
- ------------------------------------------- -------- -------- -------- --------
Accumulated benefit obligation 69.2 4.9 53.9 4.3
Effect of projected compensation increases 32.1 1.4 22.5 1.1
- ------------------------------------------- -------- -------- -------- --------
Projected benefit obligation 101.3 6.3 76.4 5.4
Plan assets at fair value 107.2 82.0
- ------------------------------------------- -------- -------- -------- --------
Plan assets greater (less) than
projected benefit obligation 5.9 (6.3) 5.6 (5.4)
Unrecognized transition (asset) obligation (0.8) 0.2 (1.0) 0.3
Unrecognized prior service liability 0.3 0.3 1.0 0.3
Unrecognized net loss 1.2 1.0 5.2 0.7
- ------------------------------------------- -------- -------- -------- --------
Net prepaid (accrued) pension cost $ 6.6 $ (4.8) $ 10.8 $ (4.1)
- ------------------------------------------- -------- -------- -------- --------
The weighted average rate assumptions used to determine pension expense and
related pension obligations for domestic and foreign defined benefit plans were
as follows:
Twelve Months Ten Months Twelve Months
Ended Ended Ended
December 31, December 31, February 29,
1997 1996 1996
- ------------------------------ ------------- ------------ -------------
Discount rate 7.4% 7.6% 7.6%
Rate of increase in compensation
levels 4.0% 4.2% 4.1%
Expected long-term rate of return
on plan assets 8.7% 8.7% 8.7%
- ------------------------------ ------ ------ ------
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 $3.6 million, $2.4 million and $2.8 million in 1997, the transition period
and fiscal 1996.
Page 24
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 a certain
operation 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 consisted of the following
components:
Twelve Months Ten Months Twelve Months
Ended Ended Ended
December 31, December 31, February 29,
(Dollar amounts in millions) 1997 1996 1996
- ------------------------------ ------------- ------------ -------------
Service cost - benefits earned $ 0.3 $ 0.3 $ 0.3
Interest cost 1.2 0.9 1.3
Actual return on plan assets (0.3) (0.2) (0.3)
Net amortization and deferral 0.2 0.1 0.1
- ------------------------------ ------ ------ ------
$ 1.4 $ 1.1 $ 1.4
- ------------------------------ ------ ------ ------
The accumulated postretirement benefit obligation for the funded plan was $2.1
million and $2.2 million as of December 31, 1997 and 1996. A reconciliation of
the accumulated postretirement benefit obligation to the accrued liability
included in the Company's balance sheets at December 31, 1997 and 1996 follows:
(Dollar amounts in millions) 1997 1996
- -------------------------------------------------- ------ ------
Accumulated postretirement benefit obligation:
Retirees $ 10.6 $ 10.6
Fully eligible active plan participants 4.5 2.5
Other active plan participants 3.8 2.6
- -------------------------------------------------- ------ ------
18.9 15.7
Plan assets at fair value 2.1 2.1
- -------------------------------------------------- ------ ------
Postretirement benefits in excess of assets (16.8) (13.6)
Unrecognized net (gain) loss (0.5) 1.3
- -------------------------------------------------- ------ ------
Accrued postretirement benefit cost $(17.3) $(12.3)
- -------------------------------------------------- ------ ------
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was approximately 7 1/2% in 1997, the
transition period and fiscal 1996. The expected long-term rate of return on
plan assets was 8 3/4% in each period. A 9% annual rate of increase in the cost
of health care benefits was assumed for 1997; 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 December 31, 1997, by 10.0%
and the aggregate of the service and interest cost components of net periodic
expense for 1997 by 11.5%.
Page 25
NOTE 8:
COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases office space and equipment under operating leases expiring in
one to nine 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 December 31, 1997, are as follows (in
millions): 1998--$3.8; 1999--$2.2; 2000--$1.4; 2001--$1.0; 2002--$0.6 and 2003
and beyond--$0.8. Rentals charged to costs and expenses under cancelable and
noncancelable lease arrangements were $4.9 million, $5.0 million and $6.3
million for 1997, the transition period and fiscal 1996, respectively.
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 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 over $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 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 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, their financial
condition, and the nature of the material the Company sent to the Site, the
Company's potential response costs associated with the Site will not have a
material adverse effect on consolidated financial condition or operating
results.
Page 26
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.
NOTE 9:
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
At December 31, 1997, substantially all of the Company's trade accounts
receivable of $131.5 million arose from manufacturing operations. The Company
has manufacturing or distribution operations in Brazil, Canada, Europe, Japan,
Russia 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 December 31, 1997, approximately 72% of trade accounts
receivable were from customers within the United States. Trade accounts
receivable are principally from service and dealer groups, distributors, mass
merchants, and chain saw and other original equipment manufacturers, and are
generally not collateralized.
The estimated fair values of certain financial instruments at December 31, 1997
and 1996 are as follows:
1997 1996
-------------------- --------------------
Carrying Fair Carrying Fair
(Dollar amounts in millions) Amount Value Amount Value
- ---------------------------------- --------- --------- --------- ---------
Cash and short-term investments $ 4.8 $ 4.8 $ 58.7 $ 58.7
Futures contracts (see Note 1) 1.4 0.2
Other assets (restricted trust
funds and notes receivable) 14.7 16.1 14.8 15.8
Notes payable and long-term debt
(see Note 3) (140.3) (143.2) (85.8) (88.9)
Interest rate lock contract
(see Note 1) (1.4)
- ---------------------------------- ------- ------- ------- -------
The carrying amount of cash and short-term investments approximates fair value
because of the short maturity of those instruments. The fair value of
derivative financial instruments (futures contracts and interest rate lock
contract) is estimated by obtaining market quotes. 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 the carrying amount
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.
Page 27
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 pruning tools, lawn mowers and lawn mower accessories. The
Outdoor Products segment sells to original equipment manufacturers and to a
diverse distribution and dealer network. The Industrial and Power Equipment
segment manufactures and markets large mechanical timber harvesting and
processing equipment as well as power transmission, hydraulic and gear
components for use in the timber harvesting, materials handling, construction
and utility businesses. The Sporting Equipment segment manufactures and markets
shotshell, small arms ammunition, reloading equipment and components, gun care
accessories, clay targets, 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.
In 1997, the transition period and fiscal 1996, no customer accounted for more
than 10% of consolidated sales. In 1997, approximately 16.8% 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:
Twelve Months Ended Ten Months Ended Twelve Months
December 31, December 31, Ended
-------------------------- ---------------- February 29,
(Dollar amounts in millions) 1997 1996 1995 1996 1995 1996
- ------------------------------------ ------ ------ ------ ------ ------ ------------
(Unaudited) (Unaudited)
---------------- ------
Sales:
United States $614.4 $541.0 $518.1 $439.7 $434.6 $536.0
Outside United States 102.5 108.3 103.3 87.0 87.0 108.3
- ------------------------------------ ------ ------ ------ ------ ------ ------
$716.9 $649.3 $621.4 $526.7 $521.6 $644.3
- ------------------------------------ ------ ------ ------ ------ ------ ------
Operating income:
United States $108.9 $104.0 $ 99.7 $ 83.4 $ 86.9 $106.2
Outside United States 9.0 9.1 5.2 7.8 4.0 6.6
- ------------------------------------ ------ ------ ------ ------ ------ ------
Operating income from segments $117.9 $113.1 $104.9 $ 91.2 $ 90.9 $112.8
- ------------------------------------ ------ ------ ------ ------ ------ ------
Identifiable assets:
United States $557.9 $464.2 $436.9 $464.2 $436.9 $458.6
Outside United States 79.9 75.6 87.2 75.6 87.2 85.3
- ------------------------------------ ------ ------ ------ ------ ------ ------
$637.8 $539.8 $524.1 $539.8 $524.1 $543.9
- ------------------------------------ ------ ------ ------ ------ ------ ------
Page 28
Included in United States sales were export sales of $116.2 million, $89.7
million and $106.2 million in 1997, the transition period and fiscal 1996.
Total sales from international activities, including those in the above table
and export sales, provided 30.5% of consolidated sales in 1997, 33.6% in the
transition period and 33.3% in fiscal 1996. In 1997, the transition period and
fiscal 1996, approximately 51.4%, 57.5% and 56.4%, respectively, of sales by the
Outdoor Products segment were from international sources.
Page 29
Information on Segments:
Twelve Months Ended Ten Months Ended Twelve Months
December 31, December 31, Ended
-------------------------- ---------------- February 29,
(Dollar amounts in millions) 1997 1996 1995 1996 1995 1996
- --------------------------------- ------ ------ ------ ------ ------ ------------
(Unaudited) (Unaudited)
---------------- ------
Sales:
Outdoor products $319.3 $292.7 $282.0 $239.3 $238.2 $291.6
Industrial and power equipment 239.1 209.5 232.2 165.7 196.8 240.6
Sporting equipment 158.5 147.1 107.2 121.7 86.6 112.1
- --------------------------------- ------ ------ ------ ------ ------ ------
$716.9 $649.3 $621.4 $526.7 $521.6 $644.3
- --------------------------------- ------ ------ ------ ------ ------ ------
Operating income:
Outdoor products $ 67.1 $ 61.4 $ 53.5 $ 50.7 $ 46.8 $ 57.4
Industrial and power equipment 32.7 31.9 39.6 24.0 34.2 42.2
Sporting equipment 18.1 19.8 11.8 16.5 9.9 13.2
- --------------------------------- ------ ------ ------ ------ ------ ------
Operating income from segments 117.9 113.1 104.9 91.2 90.9 112.8
Corporate office expenses (17.2) (19.2) (17.0) (15.0) (14.5) (18.7)
- --------------------------------- ------ ------ ------ ------ ------ ------
Income from operations 100.7 93.9 87.9 76.2 76.4 94.1
Interest expense (9.5) (9.9) (10.7) (7.9) (8.9) (10.9)
Interest income 2.5 2.4 3.5 2.3 3.1 3.2
Other income (expense), net 1.3 0.5 (0.4) 0.2 0.3 0.5
- --------------------------------- ------ ------ ------ ------ ------ ------
Income before income taxes $ 95.0 $ 86.9 $ 80.3 $ 70.8 $ 70.9 $ 86.9
- --------------------------------- ------ ------ ------ ------ ------ ------
Identifiable assets:
Outdoor products $221.9 $196.2 $195.4 $196.2 $195.4 $202.1
Industrial and power equipment 102.7 102.6 90.5 102.6 90.5 95.9
Sporting equipment 236.6 107.7 85.6 107.7 85.6 118.4
Corporate office 72.8 127.0 126.4 127.0 126.4 100.9
Discontinued operations 3.8 6.3 26.2 6.3 26.2 26.6
- --------------------------------- ------ ------ ------ ------ ------ ------
$637.8 $539.8 $524.1 $539.8 $524.1 $543.9
- --------------------------------- ------ ------ ------ ------ ------ ------
Depreciation and amortization:
Outdoor products $ 13.4 $ 12.8 $ 12.9 $ 10.6 $ 10.6 $ 12.7
Industrial and power equipment 4.1 3.9 3.7 3.2 3.0 3.6
Sporting equipment 5.7 4.8 4.3 4.0 3.5 4.3
Corporate office 1.8 1.8 1.4 1.4 1.1 1.6
- --------------------------------- ------ ------ ------ ------ ------ ------
$ 25.0 $ 23.3 $ 22.3 $ 19.2 $ 18.2 $ 22.2
- --------------------------------- ------ ------ ------ ------ ------ ------
Capital expenditures:
Outdoor products $ 13.5 $ 11.4 $ 7.8 $ 10.2 $ 5.5 $ 6.8
Industrial and power equipment 4.2 6.0 2.4 5.6 1.8 2.2
Sporting equipment 60.5 3.3 2.9 2.5 2.7 3.5
Corporate office 0.3 0.6 6.7 0.4 6.6 6.8
- --------------------------------- ------ ------ ------ ------ ------ ------
$ 78.5 $ 21.3 $ 19.8 $ 18.7 $ 16.6 $ 19.3
- --------------------------------- ------ ------ ------ ------ ------ ------
Page 30
NOTE 11:
OTHER INFORMATION
At December 31, 1997 and 1996, the following balance sheet captions are
comprised of the items specified below:
(Dollar amounts in millions) 1997 1996
- ----------------------------------------------- ------------ ------------
Accounts receivable:
Trade accounts $ 131.5 $ 111.9
Parent 6.0
Other 7.9 7.0
Allowance for doubtful accounts (3.7) (3.0)
- ----------------------------------------------- --------- ---------
$ 135.7 $ 121.9
- ----------------------------------------------- --------- ---------
Inventories:
Finished goods $ 79.0 $ 42.4
Work in process 20.9 14.5
Raw materials and supplies 33.0 25.1
- ----------------------------------------------- --------- ---------
$ 132.9 $ 82.0
- ----------------------------------------------- --------- ---------
Property, plant and equipment:
Land $ 13.1 $ 6.4
Buildings and improvements 106.1 84.3
Machinery and equipment 204.8 161.9
Furniture, fixtures and office equipment 25.6 23.2
Transportation equipment 16.6 16.6
Construction in progress 10.6 9.5
Accumulated depreciation (188.3) (170.2)
- ----------------------------------------------- --------- ---------
$ 188.5 $ 131.7
- ----------------------------------------------- --------- ---------
Accrued expenses:
Salaries, wages and related withholdings $ 25.8 $ 21.8
Employee benefits 7.5 8.4
Casualty insurance costs 9.5 14.1
Income taxes payable 1.3 4.6
Other 25.3 26.1
- ----------------------------------------------- --------- ---------
$ 69.4 $ 75.0
- ----------------------------------------------- --------- ---------
Other liabilities:
Employee benefits $ 31.9 $ 25.6
Casualty insurance costs 1.7 0.4
Other 4.0 1.8
- ----------------------------------------------- --------- ---------
$ 37.6 $ 27.8
- ----------------------------------------------- --------- ---------
At December 31, 1997, the Company's manufacturing operation in Canada had net
assets of $17.7 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 $14.6 million, $10.1 million and $11.9 million for 1997,
the transition period and fiscal 1996.
Page 31
Supplemental cash flow information is as follows:
Twelve Months Ten Months Twelve Months
Ended Ended Ended
December 31, December 31, February 29,
(Dollar amounts in millions) 1997 1996 1996
- ------------------------------ ------------- ------------ -------------
Interest paid $ 10.4 $ 9.1 $ 10.5
Income taxes paid 38.4 17.5 35.5
Capital lease obligations
incurred (terminated) 0.8 (6.4) 7.1
Acquisitions of businesses
(see Note 4):
Assets acquired 175.3 49.9
Liabilities assumed and incurred (42.8) (12.5)
Cash paid 132.5 37.4
- ------------------------------ ------ ------ ------
Page 32
SUPPLEMENTARY DATA
QUARTERLY RESULTS OF OPERATIONS
(unaudited)
The following table sets forth a summary of the unaudited quarterly results of
operations for the twelve-month periods ended December 31, 1997 and 1996.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
(Dollar amounts Ended Ended Ended Ended
in millions) March 31, 1997 June 30, 1997 September 30, 1997 December 31, 1997 Total
- ----------------- -------------- ------------- ------------------ ----------------- -------
Twelve months ended
December 31, 1997
Sales $170.1 $160.5 $182.1 $204.2 $716.9
Gross profit 56.3 51.8 58.9 67.0 234.0
Net income 13.8 11.7 16.0 18.5 60.0
The fourth quarter includes the results of Federal, acquired on November 4, 1997
(see Note 4 of Notes to Consolidated Financial Statements). Federal's sales
were $14.5 million in the fourth quarter since acquisition.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
(Dollar amounts Ended Ended Ended Ended
in millions) March 31, 1996 June 30, 1996 September 30, 1996 December 31, 1996 Total
- ----------------- -------------- ------------- ------------------ ----------------- -------
Twelve months ended
December 31, 1996
Sales $173.2 $142.0 $160.0 $174.1 $649.3
Gross profit 58.5 48.8 55.9 59.2 222.4
Net income 14.5 10.6 14.0 18.0 57.1
The second quarter includes net income of $1.2 million resulting from revised
product liability estimates for the Industrial and Power Equipment segment. The
third quarter includes net income of $1.2 million from resolution of an
environmental matter at the Company's Lewiston, Idaho facility. The fourth
quarter includes net income of $1.4 million recognized for disposal of
construction operations which were discontinued in a prior year.
The following table sets forth a summary of the unaudited quarterly results of
operations for the ten-month transition period ended December 31, 1996.
One Month 2nd Quarter 3rd Quarter 4th Quarter
(Dollar amounts Ended Ended Ended Ended
in millions) March 31, 1996 June 30, 1996 September 30, 1996 December 31, 1996 Total
- ----------------- -------------- ------------- ------------------ ----------------- -------
Transition Period
Sales $ 50.6 $142.0 $160.0 $174.1 $526.7
Gross profit 16.3 48.8 55.9 59.2 180.2
Net income 3.6 10.6 14.0 18.0 46.2
The second quarter includes net income of $1.2 million resulting from revised
product liability estimates for the Industrial and Power Equipment segment. The
third quarter includes net income of $1.2 million from resolution of an
environmental matter at the Company's Lewiston, Idaho facility. The fourth
quarter includes net income of $1.4 million recognized for disposal of
construction operations which were discontinued in a prior year.
Page 33
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 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 34
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 12
Consolidated Statements of Income for the year ended
December 31, 1997, the ten-month period ended
December 31, 1996 and the year ended February 29, 1996 13
Consolidated Balance Sheets as of
December 31, 1997 and 1996 14
Consolidated Statements of Cash Flows for the year
ended December 31, 1997, the ten-month period ended
December 31, 1996 and the year ended February 29, 1996 15
Consolidated Statements of Changes in Stockholder's Equity
for the year ended December 31, 1997, the ten-month period
ended December 31, 1996 and the year ended February 29, 1996 16
Notes to Consolidated Financial Statements 17 - 32
Supplementary Data 33
(2) Financial Statement Schedules
Schedule II - Valuation and qualifying accounts for the
year ended December 31, 1997, the ten-month period ended
December 31, 1996 and the year ended February 29, 1996 38
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
The Registrant filed reports on Form 8-K during the fourth quarter of 1997
as follows:
(1) A report on Form 8-K filed on November 19, 1997 reporting under Item 2
the acquisition of Federal Cartridge Company.
(c) Exhibits required by Item 601 of Regulation S-K:
* 2(a) 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).
Page 35
* 2(b) Stock Purchase Agreement, dated November 4, 1997, by and among
Blount, Inc., Hoffman Enclosures, Inc., Pentair, Inc. and Federal-Hoffman, Inc.
which was filed as Exhibit No. 2 to the Form 8-K filed by Blount, Inc. on
November 19, 1997 (Commission File No. 1-7002).
* 3(a) Restated Certificate of Incorporation of Blount, Inc. filed as
Exhibit 3(a) to the Annual Report of Blount, Inc. on Form 10-K for the fiscal
year ended February 29, 1996 (Commission File No. 1-7002).
* 3(b) 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).
* 4(b) Registration Statement Form S-3 filed on December 17, 1997,
with respect to a proposed issue of $150 million Senior Notes due 2008 of
Blount, Inc. to be guaranteed by Blount International, Inc.
** 4(c) $150,000,000 Credit Agreement dated as of April 1, 1997 among
Blount, Inc., Blount International, Inc. and certain banks.
27. Financial Data Schedule included herein on page 39.
* Incorporated by reference.
** Filed electronically herewith. Copies of such exhibits may be obtained
upon written request from:
Blount, Inc.
P.O. Box 949
Montgomery, AL 36101-0949
Page 36
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
Executive Vice President Finance Operations
and Chief Financial Officer
Dated: February 23, 1998
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: February 23, 1998
/s/ Winton M. Blount /s/ Emory M. Folmar
Winton M. Blount Emory M. Folmar
Chairman of the Board Director
and Director
/s/ Haley Barbour /s/ Mary D. Nelson
Haley Barbour Mary D. Nelson
Director Director
/s/ W. Houston Blount /s/ John M. Panettiere
W. Houston Blount John M. Panettiere
Director President and Chief Executive
Officer and Director
/s/ R. Eugene Cartledge /s/ Arthur P. Ronan
R. Eugene Cartledge Arthur P. Ronan
Director Director
/s/ C. Todd Conover /s/ Andrew A. Sorensen
C. Todd Conover Andrew A. Sorensen
Director Director
/s/ H. Corbin Day /s/ Rodney W. Blankenship
H. Corbin Day Rodney W. Blankenship
Director Vice President and Controller
(Chief Accounting Officer)
/s/ Herbert J. Dickson
Herbert J. Dickson
Director
Page 37
BLOUNT, INC. AND SUBSIDIARIES
SCHEDULE II
CONSOLIDATED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(Dollar amounts in millions)
- ----------------------------
Column A Column B Column C Column D Column E
-------- ------------ ------------------------- ----------- ----------
Additions
-------------------------
Balance at Charged to Charged to Balance at
Beginning of Cost and Other End of
Description Period Expenses Accounts Deductions Period
----------- ------------ ---------- ---------- ------------ ----------
Year ended
February 29, 1996
- -------------------
Allowance for doubtful
accounts receivable $ 2.6 $ 1.1 $ 0.6 (2) $ 0.4 (1) $ 3.9
======= ======= ======= ======= =======
Ten months ended
December 31, 1996
- -----------------
Allowance for doubtful
accounts receivable $ 3.9 $ 0.6 $ 1.5 (1) $ 3.0
======= ======= ======= =======
Year ended
December 31, 1997
- -------------------
Allowance for doubtful
accounts receivable $ 3.0 $ 1.0 $ 0.9 (2) $ 1.2 (1) $ 3.7
======= ======= ======= ======= =======
(1) Principally amounts written-off less recoveries of amounts previously
written-off.
(2) Principally allowances established for companies acquired by purchase.
Page 38