FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1994
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-7002
BLOUNT, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0593908
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4520 Executive Park Drive 36116-1602
Montgomery, Alabama (Zip Code)
(Address of principal executive offices)
(205) 244-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock May 31, 1994
--------------------- ----------------
Class A Common Stock $1.00 Par Value 8,319,226 shares
Class B Common Stock $1.00 Par Value 4,177,175 shares
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BLOUNT, INC. AND SUBSIDIARIES
INDEX
Page No.
------------
Part I. Financial Information
Consolidated Balance Sheets -
May 31, 1994 and February 28, 1994 3
Consolidated Statements of Income -
three months ended May 31, 1994 and 1993 4
Consolidated Statements of Cash Flows -
three months ended May 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis 10
Exhibit 11 - Computation of Net Income
Per Common Share 13
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BLOUNT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
May 31, February 28,
1994 1994
-------- --------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents, including short-term
investments of $38,841 and $48,810 $ 43,481 $ 52,213
Accounts receivable, net of allowances for
doubtful accounts of $2,438 and $2,238 127,266 134,458
Inventories 61,879 60,180
Deferred income taxes 17,237 17,742
Other current assets 19,522 12,812
-------- --------
Total current assets 269,385 277,405
Property, plant and equipment, net of accumulated
depreciation of $134,027 and $135,694 138,908 140,422
Cost in excess of net assets of acquired businesses, net 67,581 60,171
Other assets 14,260 14,903
-------- --------
Total Assets $490,134 $492,901
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of
long-term debt $ 6,633 $ 2,082
Accounts payable 63,851 74,267
Accrued expenses 85,106 83,757
Billings in excess of costs and recognized
profits on uncompleted contracts 7,098 12,953
-------- --------
Total current liabilities 162,688 173,059
Long-term debt, exclusive of current maturities 101,762 107,651
Deferred income taxes, exclusive of current portion 14,939 13,499
Other liabilities 35,785 31,839
-------- --------
Total liabilities 315,174 326,048
-------- --------
Commitments and Contingent Liabilities
Shareholders' equity:
Common Stock: par value $1.00 per share
Class A: 8,319,226 and 8,273,035 shares issued 8,319 8,273
Class B: 4,177,175 and 4,178,197 shares issued 4,178 4,178
Capital in excess of par value of stock 9,935 9,515
Retained earnings 144,943 137,440
Accumulated translation adjustment 7,585 7,447
-------- --------
Total shareholders' equity 174,960 166,853
-------- --------
Total Liabilities and Shareholders' Equity $490,134 $492,901
======== ========
The accompanying notes are an integral part of these statements.
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BLOUNT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
Three months ended May 31,
--------------------------
1994 1993 *
----------- -----------
(Unaudited)
Sales $ 145,684 $ 117,386
Cost of sales 97,165 81,954
----------- -----------
Gross profit 48,519 35,432
Selling, general and administrative expenses 30,266 24,582
----------- -----------
Income from operations 18,253 10,850
Interest expense, net (2,386) (2,269)
Other expense, net (853) (944)
----------- -----------
Income before income taxes 15,014 7,637
Provision for income taxes 6,006 2,773
----------- -----------
Income from continuing operations 9,008 4,864
Discontinued operations:
Loss from operations, net (3,657)
----------- -----------
Net income $ 9,008 $ 1,207
=========== ===========
Income (loss) per share of common stock:
Continuing operations $ .70 $ .39
Discontinued operations (.29)
----------- -----------
Net income $ .70 $ .10
=========== ===========
Weighted average number of
common shares outstanding 12,853,894 12,578,387
=========== ===========
Cash dividends declared per share:
Class A Common Stock $ .1250 $ .1125
=========== ===========
Class B Common Stock $ .1125 $ .1000
=========== ===========
* Certain items have been reclassified for comparative purposes.
The accompanying notes are an integral part of these statements.
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BLOUNT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three months ended May 31,
--------------------------
1994 1993
-------- --------
(Unaudited)
Cash Flows From Operating Activities:
Net Income $ 9,008 $ 1,207
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
noncash charges 5,811 5,909
Deferred income taxes 2,112 (625)
Loss on disposals of property, plant and equipment 27 591
Changes in assets and liabilities, net of effect
of business acquisition:
Increase in aggregate balance of
accounts receivable sold 685
Decrease in accounts receivable 8,690 3,189
Decrease in inventories 1,030 2,811
Increase in other assets (6,214) (9,278)
Increase (decrease) in accounts payable (10,571) 6,599
Decrease in accrued expenses (2,821) (3,932)
Decrease in other liabilities (1,786) (1,016)
-------- --------
Net cash provided by operating activities 5,286 6,140
-------- --------
Cash Flows From Investing Activities:
Proceeds from sales of property, plant and equipment 347 180
Purchases of property, plant and equipment (1,405) (1,563)
Acquisition of business (5,053)
-------- --------
Net cash used in investing activities (6,111) (1,383)
-------- --------
Cash Flows From Financing Activities:
Net increase (reduction) in short-term borrowings 26 (1,313)
Reduction of long-term debt (6,789) (1,896)
Dividends paid (1,505) (1,322)
Issuance of stock under stock option and
dividend reinvestment plans 361 188
-------- --------
Net cash used in financing activities (7,907) (4,343)
-------- --------
Net increase (decrease) in cash and cash equivalents (8,732) 414
Cash and cash equivalents at beginning of period 52,213 17,723
-------- --------
Cash and cash equivalents at end of period $ 43,481 $ 18,137
======== ========
The accompanying notes are an integral part of these statements.
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BLOUNT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position at May
31, 1994 and the results of operations and cash flows for the periods ended May
31, 1994 and 1993. These financial statements should be read in conjunction
with the notes to the financial statements included in Blount, Inc.'s Annual
Report to Shareholders for the year ended February 28, 1994. The results of
operations for the periods ended May 31, 1994 and 1993 are not necessarily
indicative of the results to be expected for the full fiscal year, due to the
seasonal nature of certain of the Company's operations.
NOTE 2 Inventories consist of the following (in thousands):
May 31, February 28,
1994 1994
------------ ------------
Finished goods $ 26,049 $ 27,169
Work in process 12,973 13,329
Raw materials and supplies 22,857 19,682
-------- --------
$ 61,879 $ 60,180
======== ========
NOTE 3 The principal assets and liabilities of the discontinued construction
operations included in the Company's consolidated balance sheets are as follows
(in thousands):
May 31, February 28,
Financial Position 1994 1994
------------ ------------
Accounts receivable $ 48,230 $ 59,265
Other current assets 16,222 7,922
Other assets 5,618 6,013
Accounts payable (35,297) (38,503)
Accrued expenses (10,818) (11,106)
Other current liabilities (7,110) (13,015)
Other liabilities (6,659) (7,312)
NOTE 4 On April 28, 1994, the Company acquired all the outstanding capital
stock of CTR Manufacturing, Inc. ("CTR") for cash and notes of approximately
$11.5 million. CTR manufactures automated forestry harvesting equipment. The
transaction has been accounted for as a purchase and, accordingly, the net
assets and results of operations of CTR have been included in the Company's
consolidated financial statements since the date of acquisition. The excess of
the purchase price over the fair value of the net assets acquired is being
amortized on a straight-line basis over 40 years. The company's consolidated
results of operations for the three months ended May 31, 1994 and 1993 would
not have been materially different from reported amounts if the purchase had
occurred at the beginning of either period. CTR's sales and net income for its
most recent fiscal year were approximately $11.8 million and $.8 million,
respectively.
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NOTE 5 During the first quarter of fiscal 1995, the Company repurchased $6.7
million of its 9% subordinated notes with no significant gain or loss.
NOTE 6 The Company announced in January 1989, that a pocket of a cleaning
solvent, trichloroethylene ("TCE"), had been detected under the concrete floor
of the Company's cutting systems division plant in Milwaukie, Oregon. TCE was
detected in the City of Milwaukie drinking water wells. The Company's deep
wells, which are surrounded by the City of Milwaukie wells, draw from the same
aquifer and show TCE amounts less than those of the City's wells. On December
6, 1989, the Company entered into a Stipulation and Consent Agreement for
facility investigation with the Department of Environmental Quality ("DEQ") of
the State of Oregon and agreed to investigate the TCE contamination beneath the
plant and take appropriate measures to remediate potential adverse effects from
such contamination. In November 1992, the Company submitted a Facility
Investigation Final Report ("Report") to the DEQ for the Milwaukie, Oregon
plant. The Report states that the contamination has affected a limited portion
of the saturated engineered fill under the building. Since monitoring began in
1988, the contaminant plume in the engineered fill has not migrated. The
concentration of the contaminants in the plume has been reduced by greater than
50% since 1989. The TCE plume has not migrated off Company property. The
Company believes the contaminants pose no risk to Company employees or the
community because the groundwater within the shallow alluvium is not used and
the contaminants are not migrating towards the drinking water supply aquifer.
There is no evidence that the Company's operations have affected the drinking
water supply aquifer. The Company does not expect the situation to have a
material adverse effect.
The United States Environmental Protection Agency ("EPA") has designated a
predecessor of the Company as a potentially responsible party ("PRP") with
respect to the Onalaska Municipal Landfill in Onalaska, Wisconsin. The waste
complained of was placed in the landfill prior to 1981 by a corporation, some
of whose assets were purchased in 1981 by the predecessor of the Company. It
is the view of the Company that because its predecessor corporation purchased
assets rather than stock, the Company does not have successor liability and is
not properly a PRP. However, the EPA has indicated it does not accept this
position. The Company believes the EPA is wrong on the successor liability
issue. However, with other PRP's, the Company made a good faith offer to the
EPA to pay a portion of the clean-up costs. The offer was rejected and the EPA
is proceeding with the clean-up. The estimated clean-up costs are
approximately $5 million to $10 million with maintenance costs of approximately
$150 thousand per year for 30 years. The Company does not expect the situation
to have a material adverse effect.
On December 20, 1989, the Company sold to Asea Brown Boveri Ltd. ("ABB") all
the stock of W+E Umwelttechnik AG, then an engineering subsidiary of the
Company in the waste-to-energy business located in Zurich, Switzerland. On
July 26, 1993, ABB filed a Request for Arbitration with the Zurich Chamber of
Commerce. The request contains statements that ABB has or anticipates having
losses on two projects which were underway at the time of sale. While it is
not clear, ABB appears to be claiming approximately 100 million Swiss francs
and rescission of the purchase agreement based on the Company's alleged wilful
failure to disclose material facts and that ABB made a fundamental mistake in
entering into the purchase agreement. The Company believes it has valid
defenses based on the terms of the purchase agreement, the facts and the law.
In March 1994, the Company filed a lawsuit against ABB and two of its
subsidiaries in the Circuit Court of Jefferson County, Alabama seeking
declaratory judgment and injunctive relief as well as money damages for (i)
intentional interference with the Company's business relationships and (ii)
abuse of process. ABB has filed a separate lawsuit against Blount in the U.S.
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District Court in Birmingham to compel arbitration and has removed the lawsuit
filed by Blount to the Federal Court. These two lawsuits have been
consolidated. The Company does not expect the situation to have a material
adverse effect on its financial condition.
The Company is a defendant in a number of product liability lawsuits involving
serious injuries for which it is self-insured, some of which seek significant
or unspecified damages. 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, the Company does not believe these
lawsuits will have a material adverse effect on its financial condition.
The Company's contingencies include normal liabilities for performance and
completion of construction contracts. At May 31, 1994, the Company had
outstanding bank letters of credit in the approximate amount of $18.5 million
issued principally in connection with various construction contracts for which
the Company is contingently liable to the issuing banks in the event payment is
demanded by the holder.
The Company is contingently liable for the remaining rental payments, net of
the value of the leased equipment, under certain leases transferred to the
buyer of a former subsidiary. The leases have rental payments remaining of
approximately $10 million which expire in 1999. The Company has received
indemnification against liabilities arising from the leases from the purchaser
of the former subsidiary.
See Notes 4 and 8 to the Consolidated Financial Statements included in Blount,
Inc.'s Annual Report to Shareholders for the year ended February 28, 1994 for
other commitments and contingencies of the Company which have not changed
significantly since year-end.
NOTE 7 Segment information is as follows (in thousands):
Three Months
Ended May 31,
-------------------
1994 1993
-------- --------
Sales:
Outdoor products $ 68,520 $ 59,732
Industrial and power equipment 52,297 37,967
Sporting equipment 24,867 19,687
-------- --------
$145,684 $117,386
======== ========
Operating income:
Outdoor products $ 10,052 $ 6,734
Industrial and power equipment 7,827 4,654
Sporting equipment 4,671 3,145
-------- --------
Operating income from segments 22,550 14,533
Corporate office expenses (4,297) (3,683)
-------- --------
Income from operations 18,253 10,850
Interest expense, net (2,386) (2,269)
Other expense, net (853) (944)
-------- --------
Income before income taxes $ 15,014 $ 7,637
======== ========
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NOTE 8 Income taxes paid during the three months ended May 31, 1994 and 1993
were $5.2 million and $3.2 million. Interest paid during the three months
ended May 31, 1994 and 1993 was $494 thousand and $367 thousand.
NOTE 9 Net income per common share is based on the weighted average number of
common and common equivalent shares (stock options) outstanding in each period.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Operating Results
Sales for the first quarter of fiscal 1995 were $145.7 million compared to
$117.4 million for the first quarter of fiscal 1994. Net income for the first
three months of fiscal 1995 was $9.0 million ($.70 per share) compared to net
income of $1.2 million ($.10 per share) for the comparable period of fiscal
1994. Last year's first quarter included a loss from discontinued operations
of $3.7 million ($.29 per share). The improved operating results reflect
continued strong performance by each of the Company's manufacturing segments.
The principal reasons for these results and the status of the Company's
financial condition are set forth below and should be read in conjunction with
the Company's 1994 Form 10-K and 1994 Annual Report to Shareholders.
Sales for the Outdoor Products segment in the first quarter of fiscal 1995 were
$68.5 million compared to $59.7 million during the first quarter of fiscal
1994. Operating income increased to $10.1 million during the first quarter of
fiscal 1995 from $6.7 million in the comparable period of the prior fiscal
year. The sales and operating income increase were principally attributable to
a higher volume of saw chain, saw bars and power pruners sold by the Company's
Oregon Cutting Systems Division, and improved margins and demand for the
Company's riding lawn mowers.
Sales for the Industrial and Power Equipment segment were $52.3 million during
the first three months of fiscal 1995 compared to $38.0 million during the same
period of fiscal 1994. Operating income increased to $7.8 million from $4.7
million during the comparable period of fiscal 1994. Demand for this segment's
products remained high as the aggregate volume of timber harvesting and
industrial tractor and loader units sold during the first quarter of fiscal
1995 increased over the comparable period of the prior year. The improvement
in operating income was principally due to this increase in volume.
Sales for the Sporting Equipment segment increased to $24.9 million in the
first quarter of fiscal 1995 from $19.7 million in the comparable period of
fiscal 1994. Operating income during the first three months of fiscal 1995
increased to $4.7 million from $3.1 million during the first three months of
fiscal 1994. The increase in operating income was principally due to increased
sales volume.
Selling, general and administrative expenses, reflecting the increased sales
level, were 20.8 percent of sales in the first quarter of fiscal 1995 compared
to 20.9 percent of sales in the comparable period of the prior year.
The Company's total backlog at May 31, 1994 was $134.0 million compared to
$147.1 million at February 28, 1994 and $71.8 million at May 31, 1993.
Financial Condition, Liquidity and Capital Resources
At May 31, 1994, the Company had no amounts outstanding under its uncommitted
short-term lines of credit, its $25 million receivable sale agreement or its
$60 million revolving credit agreement. The Company's total capitalization at
May 31, 1994 consists of $101.8 million long-term debt and equity of $175.0
million for a long-term debt to equity ratio of .6 to 1 as compared to a ratio
of .6 to 1 at February 28, 1994. At May 31, 1994, the Company had 9%
subordinated notes outstanding in the principal amount of $93.3 million
maturing in 2003. See Note 3 of Notes to the Consolidated Financial Statements
included in Blount, Inc.'s 1994 Annual Report to Shareholders for the terms and
conditions of the revolving credit agreement, the receivable sale agreement and
the 9% subordinated notes.
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Working capital was $106.7 million at May 31, 1994 compared to $104.3 million
at February 28, 1994. The Company's operating cash flows for the first three
months of fiscal 1995 were $5.3 million compared to $6.1 million in the first
three months of the prior fiscal year. Cash and cash equivalent balances
decreased to $43.5 million from $52.2 million at February 28, 1994 as the
Company's operating cash flows were offset by cash expenditures to acquire CTR
Manufacturing, Inc. and repurchase $6.7 million of the Company's 9%
subordinated notes (see Notes 4 and 5 to the attached consolidated financial
statements).
Restrictions on the Company's ability to pay cash dividends are contained in
the indenture related to the Company's 9% subordinated notes and in certain
financial covenants of the revolving credit agreement. Under the most
restrictive requirement, retained earnings of approximately $16.8 million were
available for the payment of dividends at May 31, 1994.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLOUNT, INC.
- - ----------------------
Registrant
Date: July 13, 1994 /s/ Harold E. Layman
---------------------------------
Harold E. Layman
Senior Vice President &
Chief Financial Officer
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PART I - EXHIBIT 11
BLOUNT, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(In thousands, except share data)
(Unaudited)
Three Months
Ended May 31,
--------------------------
1994 1993
----------- -----------
Primary:
Income from continuing operations $ 9,008 $ 4,864
Discontinued operations - loss from
operations, net (3,657)
----------- -----------
Net Income $ 9,008 $ 1,207
=========== ===========
Shares:
Weighted average common shares outstanding 12,494,242 12,264,545
Dilutive effect of stock options 359,652 313,842
----------- -----------
Average common shares outstanding as adjusted 12,853,894 12,578,387
=========== ===========
Per Common Share:
Continuing operations $ .70 $ .39
Discontinued operations (.29)
----------- -----------
Net Income $ .70 $ .10
=========== ===========
Assuming Full Dilution:
Income from continuing operations $ 9,008 $ 4,864
Discontinued operations - loss from (3,657)
operations, net ----------- -----------
Net Income $ 9,008 $ 1,207
=========== ===========
Shares:
Average common shares as adjusted
for primary computation 12,853,894 12,578,387
Additional dilutive effect of stock options 38,965 55,506
----------- -----------
Average common shares outstanding
as adjusted 12,892,859 12,633,893
=========== ===========
Per Common Share:
Continuing operations $ .70 $ .39
Discontinued operations (.29)
----------- -----------
Net Income $ .70 .10
=========== ===========
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