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 March 31, 1996
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-7002
BLOUNT, INC.
(Exact name of registrant as specified in its charter)
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
Delaware 63-0593908
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4520 Executive Park Drive 36116-1602
Montgomery, Alabama (Zip Code)
(Address of principal executive offices)
(334) 244-4000
(Registrant's telephone number, including area code)
Former fiscal year was the twelve months ended the last day of February.
(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 March 31, 1996
----------------------- ----------------
Common Stock $.01 Par Value 1,000 shares
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BLOUNT, INC. AND SUBSIDIARIES
INDEX
Page No.
------------
Part I. Financial Information
Consolidated Balance Sheets -
March 31, 1996 and February 29, 1996 3
Consolidated Statements of Income -
three months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows -
three months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis 9
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BLOUNT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, February 29,
1996 1996
---------- ----------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents, including short-term
investments of $9,426 and $11,386 $ 11,414 $ 14,590
Accounts receivable, net of allowances for
doubtful accounts of $3,883 and $3,853 147,427 147,206
Inventories 95,004 94,113
Deferred income taxes 23,427 23,491
Other current assets 3,719 3,502
-------- --------
Total current assets 280,991 282,902
Property, plant and equipment, net of accumulated
depreciation of $160,202 and $160,026 129,137 135,522
Cost in excess of net assets of acquired
businesses, net 87,887 88,111
Other assets 36,608 37,354
-------- --------
Total Assets $534,623 $543,889
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of
long-term debt $ 4,813 $ 11,692
Accounts payable 44,486 51,454
Accrued expenses 84,712 84,229
Other current liabilities 1,963 1,963
-------- --------
Total current liabilities 135,974 149,338
Long-term debt, exclusive of current maturities 95,887 95,920
Deferred income taxes, exclusive of current portion 21,100 20,533
Other liabilities 25,679 25,697
-------- --------
Total liabilities 278,640 291,488
-------- --------
Commitments and Contingent Liabilities
Shareholders' equity:
Common Stock: par value $.01 per share -
1,000 shares issued and outstanding - -
Capital in excess of par value of stock 25,922 25,922
Retained earnings 221,925 218,300
Accumulated translation adjustment 8,136 8,179
-------- --------
Total shareholders' equity 255,983 252,401
-------- --------
Total Liabilities and Shareholders' Equity $534,623 $543,889
======== ========
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 March 31,
----------------------------
1996 1995
----------- -----------
(Unaudited)
Sales $ 173,281 $ 155,255
Cost of sales 114,735 102,106
----------- -----------
Gross profit 58,546 53,149
Selling, general and
administrative expenses 34,630 30,444
----------- -----------
Income from operations 23,916 22,705
Interest expense (2,843) (2,639)
Interest income 190 615
Other income (expense), net 702 (1,106)
----------- -----------
Income before income taxes 21,965 19,575
Provision for income taxes 7,491 7,751
----------- -----------
Net income $ 14,474 $ 11,824
=========== ===========
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 March 31,
----------------------------
1996 1995
-------- --------
(Unaudited)
Cash Flows From Operating Activities:
Net Income $ 14,474 $ 11,824
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
noncash charges 5,912 6,032
Deferred income taxes 4,896 (987)
Loss (gain) on disposals of property, plant
and equipment 88 (26)
Changes in assets and liabilities, net of
effects of businesses acquired and sold:
Increase in accounts receivable (31,460) (7,400)
(Increase) decrease in inventories 904 (4,639)
Decrease in other assets 3,759 5,621
Increase (decrease) in accounts payable 2,072 (5,423)
Increase (decrease) in accrued expenses 580 (3,669)
Increase (decrease) in other liabilities 3,161 (276)
-------- --------
Net cash provided by operating activities 4,386 1,057
-------- --------
Cash Flows From Investing Activities:
Proceeds from sales of businesses and property,
plant and equipment 808 101
Purchases of property, plant and equipment (3,593) (3,391)
Acquisitions of businesses (17)
-------- --------
Net cash used in investing activities (2,785) (3,307)
-------- --------
Cash Flows From Financing Activities:
Net increase (reduction) in short-term borrowings (1,520) 44
Issuance of long-term debt 2,300
Reduction of long-term debt (78) (1,861)
(Increase) decrease in restricted funds 1,374 (1,373)
Dividends paid (2,500) (1,737)
Other 523
-------- --------
Net cash used in financing activities (2,724) (2,104)
-------- --------
Net decrease in cash and cash equivalents (1,123) (4,354)
Cash and cash equivalents at beginning of period 12,537 49,355
-------- --------
Cash and cash equivalents at end of period $ 11,414 $ 45,001
======== ========
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 Effective April 15, 1996, the Board of Directors of Blount, Inc. ("BI")
approved the change of BI's fiscal year from a year ending on the last day of
February, which was the fiscal year end used in its most recent filing with the
Securities and Exchange Commission, to the new fiscal year end of December 31.
The report on Form 10-K for the ten-month period ending December 31, 1996, will
be the form on which the report covering the transition period will be filed by
BI. During the transition period, BI will file quarterly reports on Form 10-Q
on the basis of the quarter-ends of the newly adopted fiscal year, March 31,
June 30 and September 30.
Blount, Inc. is a wholly-owned subsidiary of Blount International, Inc. In the
opinion of management, the accompanying unaudited consolidated financial
statements of Blount, Inc. and Subsidiaries ("the Company") contain all
adjustments (consisting of only normal recurring accruals) necessary to present
fairly the financial position at March 31, 1996 and the results of operations
and cash flows for the three-month period ended March 31, 1996. These financial
statements should be read in conjunction with the notes to the financial
statements included in the Company's Annual Report on Form 10-K for the fiscal
year ended February 29, 1996. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the twelve months ended December 31, 1996, due to the seasonal
nature of certain of the Company's operations.
NOTE 2 Inventories consist of the following (in thousands):
March 31, February 29,
1996 1996
------------ ------------
Finished goods $ 52,189 $ 50,752
Work in process 15,025 14,879
Raw materials and supplies 27,790 28,482
-------- --------
$ 95,004 $ 94,113
======== ========
NOTE 3 The United States Environmental Protection Agency ("EPA") has designated
a predecessor of the Company as a potentially responsible party ("PRP") with
respect to the Onalaska Municipal Landfill in Onalaska, Wisconsin ("the Site").
The waste complained of was placed in the landfill prior to 1981 by a
corporation, some of whose assets were purchased in 1981 by a predecessor of the
Company. It is the view of management that because the Company's predecessor
corporation purchased assets rather than stock, the Company does not have
successor liability and is not properly a PRP. However, the EPA has indicated
it does not accept this position. Management believes the EPA is wrong on the
successor liability issue. However, with other PRPs, the Company made a good
faith offer to the EPA to pay a portion of the clean-up costs. The offer was
rejected and the EPA proceeded with the clean-up. The estimated past and future
clean-up costs are approximately $12 million. In 1989 the EPA named four PRPs.
One of the PRPs, the Town of Onalaska ("the Town") and the EPA and State of
Wisconsin negotiated a consent decree under which the Town would have been
released from future liability in return for paying $110 thousand, granting
access to the Site and adjacent properties and performing some future
maintenance work. The United States District Court for the District of
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Wisconsin found, on December 21, 1994, that the settlement was not fair,
reasonable or in the public interest, and refused to approve and confirm it as
the order of the Court. The Company denies that it is a PRP and is unable to
determine any other party's share of total remediation costs. The Company does
not know the financial status of the other PRPs and other parties that, while
not named by the EPA as PRPs, may have liability with respect to the Site.
Management does not expect the situation to have a material adverse effect on
consolidated financial condition or operating results.
The Company is closing a Resource Conservation and Recovery Act ("RCRA") Part B
Storage Permit at its Sporting Equipment Division's CCI operations facility in
Lewiston, Idaho. As part of the closure process, the Company is required by the
State of Idaho to undertake RCRA corrective action at the facility. This
requires the Company to investigate all areas at the facility where solid waste
and hazardous waste have historically been managed. The facility has been
operating since the 1950s. In order to effect the investigation, in March 1994,
the Company and the State of Idaho Division of Environmental Quality ("IDEQ")
entered into an Administrative Consent Order which governs the completion of the
corrective action activities. The RCRA Facility Investigation has commenced and
the soils investigation is complete. Environmental sampling indicates the
presence of lead contamination in a limited number of shallow surface soils.
The IDEQ has approved the Company's proposal to excavate this limited lead
contamination and dispose of it at a RCRA permitted landfill. There is also
some trichloroethylene and perchloroethylene contamination of the uppermost
groundwater beneath the facility. This uppermost groundwater is not the
drinking water supply source and does not appear to be connected to the deeper
drinking water aquifer. Further groundwater investigation is ongoing. It is
expected that the range of remediation costs is from $2.8 million to $6.2
million. Management does not expect the situation to have a material adverse
effect on consolidated financial condition or operating results beyond amounts
accrued.
Under the provisions of Washington State environmental laws, the Washington
State Department of Ecology ("WDOE") has notified the Company that it is one of
many companies named as a Potentially Liable Party ("PLP"), for the Pasco
Sanitary Landfill site, Pasco, Washington ("the Site"). Although the clean-up
costs are believed to be substantial, accurate estimates will not be available
until the environmental studies have been completed at the Site. However, based
upon the total documented volume of waste sent to the Site, the Company's waste
volume compared to that total waste volume should cause the Company to be
classified as a "de minimis" PLP. In July 1992, the Company and thirty-eight
other PLPs entered into an Administrative Agreed Order with WDOE to perform a
Phase I Remedial Investigation at the Site. In October 1994, WDOE issued an
administrative Unilateral Enforcement Order to all PLPs to complete a Phase II
Remedial Investigation and Feasibility Study ("RI/FS") under the Scope of Work
established by WDOE. The results of the RI/FS investigation are not expected
until after the first quarter of 1997. The Company is unable to determine, at
this time, the level of clean-up demands that may be ultimately placed on it.
Management believes that, given the number of PLPs named with respect to the
Site and their financial condition, the Company's potential response costs
associated with the Site will not have a material adverse effect on consolidated
financial condition or operating results.
The Company is a defendant in a number of product liability lawsuits, some of
which seek significant or unspecified damages, involving serious personal
injuries for which there are large 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
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or operating results.
At March 31, 1996, the Company had outstanding bank letters of credit in the
approximate amount of $15.4 million issued principally in connection with
various foreign construction contracts for which there is contingent liability
to the issuing banks in the event payment is demanded by the holder.
See Note 8 to the Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended February 29, 1996 for other
commitments and contingencies of the Company which have not changed
significantly since year-end.
NOTE 4 Segment information is as follows (in thousands):
Three Months
Ended March 31,
-------------------
1996 1995
-------- --------
Sales:
Outdoor Products $ 78,003 $ 70,955
Industrial and Power Equipment 58,544 54,298
Sporting Equipment 36,734 30,002
-------- --------
$173,281 $155,255
======== ========
Operating income:
Outdoor Products $ 15,713 $ 13,489
Industrial and Power Equipment 9,756 8,936
Sporting Equipment 4,130 4,239
-------- --------
Operating income from segments 29,599 26,664
Corporate office expenses (5,683) (3,959)
-------- --------
Income from operations 23,916 22,705
Interest expense (2,843) (2,639)
Interest income 190 615
Other expense, net 702 (1,106)
-------- --------
Income before income taxes $ 21,965 $ 19,575
======== ========
NOTE 5 Income taxes paid during the three months ended March 31, 1996 and 1995
were $6.6 million and $11.4 million. Interest paid during the three months
ended March 31, 1996 and 1995 was $903 thousand and $751 thousand.
NOTE 6 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
The Company reported improved performance for the three months ended March 31,
1996. Sales for the three months ended March 31, 1996, were $173.3 million
compared to $155.3 million for the comparable three-month period of the prior
year. Net income for the first three months of calendar 1996 was $14.5 million
compared to net income of $11.8 million for the comparable period of the prior
year. These operating results reflect improved operating income from the
Outdoor Products and the Industrial and Power Equipment segments, and flat
results from the Sporting Equipment segment. Higher corporate expenses
(included in selling, general and administrative expenses) resulted from
increased accruals for employee incentive plans. Other income (expense), net
includes foreign exchange losses of $1.0 million during the three months ended
March 31, 1995. The principal reasons for these results and the status of the
Company's financial condition are set forth below and should be read in
conjunction with the Company's fiscal 1996 Form 10-K. During April 1996, the
Company changed its fiscal year from a twelve-month period ended the last day of
February to a calendar year. See Note 1 of Notes to Consolidated Financial
Statements.
Sales for the Outdoor Products segment for the first three months of calendar
1996 were $78.0 million compared to $71.0 million during the first three months
of the prior year. Operating income increased by 16% to $15.7 million during
the first three months of calendar 1996 from $13.5 million in the comparable
period of the prior year. The sales and operating income increases were
principally attributable to a higher volume of saw chain and saw bars sold in
foreign markets by the Company's Oregon Cutting Systems Division.
Sales for the Industrial and Power Equipment segment were $58.5 million during
the first three months of calendar 1996 compared to $54.3 million during the
same period last year. Operating income increased by 9% to $9.8 million during
the first three months of calendar 1996. The improved results were primarily
attributable to the additional profit generated by a higher volume of sales of
rotation bearings by the Company's Gear Products, Inc. subsidiary. The Company
believes that a recent drop in the price of pulp and lumber has caused some of
its customers to cancel orders of timber harvesting and log loading machinery in
the months of February and March. Incoming orders declined substantially during
late February and in March. The Company has implemented both major dealer sales
incentive programs and strong cost reduction measures to help mitigate the
effect of the reduced order level.
Sales for the Sporting Equipment segment increased to $36.7 million in the first
three months of calendar 1996 from $30.0 million in the comparable period of the
prior year, while operating income was flat at $4.1 million during the current
year. Simmons Outdoor Corporation, acquired in December 1995, added sales and
operating income of $9.7 million and $.6 million, respectively, for the first
three months of calendar 1996. The remaining Sporting Equipment operations
experienced lower sales and operating income, primarily due to lower volume
resulting from reduced demand.
The Company's total backlog at March 31, 1996 was $100.5 million compared to
$112.8 million at February 29, 1996.
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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: May 17, 1996 /s/ Harold E. Layman
---------------------------------
Harold E. Layman
Senior Vice President &
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BLOUNT, INC. FOR THE PERIOD ENDED MARCH 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,414
<SECURITIES> 0
<RECEIVABLES> 151,310
<ALLOWANCES> 3,883
<INVENTORY> 95,004
<CURRENT-ASSETS> 280,991
<PP&E> 289,339
<DEPRECIATION> 160,202
<TOTAL-ASSETS> 534,623
<CURRENT-LIABILITIES> 135,974
<BONDS> 95,887
0
0
<COMMON> 0
<OTHER-SE> 255,983
<TOTAL-LIABILITY-AND-EQUITY> 534,623
<SALES> 173,281
<TOTAL-REVENUES> 173,281
<CGS> 114,735
<TOTAL-COSTS> 114,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,843
<INCOME-PRETAX> 21,965
<INCOME-TAX> 7,491
<INCOME-CONTINUING> 14,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,474
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
