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, 1997
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-7002
BLOUNT, INC.
(Exact name of registrant as specified in its charter)
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form with the reduced disclosure
format.
Delaware 63-0593908
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4520 Executive Park Drive 36116-1602
Montgomery, Alabama (Zip Code)
(Address of principal executive offices)
(334) 244-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock March 31, 1997
--------------------- ------------------
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, 1997 and December 31, 1996 3
Consolidated Statements of Income -
three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows -
three months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Analysis of Results of Operations 9
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BLOUNT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
1997 1996
--------- ------------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents, including short-term
investments of $14,601 and $55,258 $ 19,077 $ 58,708
Accounts receivable, net of allowance for
doubtful accounts of $3,023 and $3,007 160,591 121,923
Inventories 85,549 82,026
Deferred income taxes 20,911 20,910
Other current assets 3,484 3,509
-------- --------
Total current assets 289,612 287,076
Property, plant and equipment, net of accumulated
depreciation of $175,212 and $170,221 133,648 131,678
Cost in excess of net assets of acquired businesses, net 97,907 85,442
Other assets 33,433 35,691
-------- --------
Total Assets $554,600 $539,887
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of
long-term debt $ 1,692 $ 1,250
Accounts payable 35,914 36,104
Accrued expenses 73,601 75,011
-------- --------
Total current liabilities 111,207 112,365
Long-term debt, exclusive of current maturities 85,107 84,592
Deferred income taxes, exclusive of current portion 15,849 15,829
Other liabilities 29,953 27,838
-------- --------
Total liabilities 242,116 240,624
-------- --------
Commitments and Contingent Liabilities
Stockholder's equity:
Common Stock: par value $.01 per share,
1,000 shares issued -- --
Capital in excess of par value of stock 26,843 26,843
Retained earnings 278,327 264,542
Accumulated translation adjustment 7,314 7,878
-------- --------
Total stockholder's equity 312,484 299,263
-------- --------
Total Liabilities and Stockholder's Equity $554,600 $539,887
======== ========
The accompanying notes are an integral part of these statements.
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BLOUNT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
Three Months Ended March 31,
----------------------------
1997 1996
---------- ----------
(Unaudited)
Sales $ 170,063 $ 173,281
Cost of sales 113,794 114,735
---------- ----------
Gross profit 56,269 58,546
Selling, general and administrative expenses 32,846 34,630
---------- ----------
Income from operations 23,423 23,916
Interest expense (2,205) (2,843)
Interest income 576 190
Other income (expense), net (38) 702
---------- ----------
Income before income taxes 21,756 21,965
Provision for income taxes 7,971 7,491
---------- ----------
Net income $ 13,785 $ 14,474
========== ==========
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,
----------------------------
1997 1996
---------- ----------
(Unaudited)
Cash Flows From Operating Activities:
Net Income $ 13,785 $ 14,474
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
noncash charges 6,132 5,912
Deferred income taxes 19 4,896
Loss (gain) on disposals of property, plant
and equipment (429) 88
Changes in assets and liabilities, net of
effects of businesses acquired and sold:
Increase in accounts receivable (20,981) (32,331)
Decrease in inventories 1,631 904
Decrease in other assets 2,279 3,759
Increase (decrease) in accounts payable (577) 2,072
Increase (decrease) in accrued expenses (2,011) 580
Increase in other liabilities 1,608 3,161
---------- ----------
Net cash provided by operating activities 1,456 3,515
---------- ----------
Cash Flows From Investing Activities:
Proceeds from sales of businesses and property,
plant and equipment 585 808
Purchases of property, plant and equipment (3,509) (3,593)
Acquisitions of businesses (18,599)
---------- ----------
Net cash used in investing activities (21,523) (2,785)
---------- ----------
Cash Flows From Financing Activities:
Net increase (reduction) in short-term borrowings 422 (1,520)
Reduction of long-term debt (5,901) (78)
Decrease in restricted funds 292 1,374
Dividends paid (2,500)
Advances from (to) parent - net (14,377) 871
---------- ----------
Net cash used in financing activities (19,564) (1,853)
---------- ----------
Net decrease in cash and cash equivalents (39,631) (1,123)
Cash and cash equivalents at beginning of period 58,708 12,537
---------- ----------
Cash and cash equivalents at end of period $ 19,077 $ 11,414
========== ==========
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 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, 1997 and the results of operations
and cash flows for the periods ended March 31, 1997 and 1996. These financial
statements should be read in conjunction with the notes to the financial
statements included in the Company's Transition Report on Form 10-K for the ten
months ended December 31, 1996. The results of operations for the periods ended
March 31, 1997 and 1996 are not necessarily indicative of the results to be
expected for the twelve months ended December 31, 1997, due to the seasonal
nature of certain of the Company's operations.
Certain amounts in the prior year's financial statements and notes to
consolidated financial statements have been reclassified to conform with the
current year's presentation.
NOTE 2 Inventories consist of the following (in thousands):
March 31, December 31,
1997 1996
------------ ------------
Finished goods $ 48,030 $ 42,383
Work in process 13,779 14,505
Raw materials and supplies 23,740 25,138
-------- --------
$ 85,549 $ 82,026
======== ========
NOTE 3 In January 1997, the Company acquired the outstanding capital stock of
the Frederick Manufacturing Corporation ("Frederick") and Orbex, Inc. ("Orbex")
for approximately $19 million, subject to post-closing adjustments, plus payment
of existing debt of the acquired companies in the amount of $5.8 million. The
principal products of the acquired companies are accessories for lawn mowers and
sporting goods. The acquisition has been accounted for by the purchase method,
and the net assets and results of operations of Frederick and Orbex have been
included in the Company's consolidated financial statements since the date of
acquisition. The excess of the purchase price over the fair value of the net
assets acquired is being amortized on a straight-line basis over a period of 40
years. The combined sales and pre-tax income of the acquired companies for
their most recent year prior to the acquisition were approximately $19.8 million
and $2.5 million, respectively.
NOTE 4 In April 1997, the Company replaced its $100 million revolving credit
agreement expiring December 1999 with a new $150 revolving credit agreement
expiring April 2002 with a group of five banks. At March 31, 1997, no amounts
were outstanding under the $100 million revolving credit agreement. The new
$150 million agreement provides for interest rates to be determined at the time
of borrowings based on a choice of formulas as specified in the agreement. The
interest rates and commitment fees may vary based on the ratio of cash flow to
debt as defined in the agreement. The new agreement contains covenants relating
to liens, subsidiary debt, transactions with affiliates, consolidations, mergers
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and sales of assets, and requires the Company to maintain certain leverage and
fixed charge coverage ratios.
NOTE 5 Segment information is as follows (in thousands):
Three Months Ended March 31,
----------------------------
1997 1996
---------- ----------
Sales:
Outdoor Products $ 82,212 $ 78,003
Industrial and Power Equipment 54,256 58,544
Sporting Equipment 33,595 36,734
---------- ----------
$ 170,063 $ 173,281
========== ==========
Operating income:
Outdoor Products $ 17,373 $ 15,713
Industrial and Power Equipment 6,819 9,756
Sporting Equipment 3,515 4,130
---------- ----------
Operating income from segments 27,707 29,599
Corporate office expenses (4,284) (5,683)
---------- ----------
Income from operations 23,423 23,916
Interest expense (2,205) (2,843)
Interest income 576 190
Other income (expense), net (38) 702
---------- ----------
Income before income taxes $ 21,756 $ 21,965
========== ==========
NOTE 6 In 1989, the United States Environmental Protection Agency ("EPA")
designated a predecessor of the Company as one of four potentially responsible
parties ("PRPs") with respect to the Onalaska Municipal Landfill in Onalaska,
Wisconsin ("the Site"). The waste complained of was placed in the landfill
prior to 1981 by a corporation, some of whose assets were later purchased by a
predecessor of the Company. It is the view of management that because the
Company's predecessor corporation purchased assets rather than stock, the
Company is not liable and is not properly a PRP. Although management believes
the EPA is wrong on the successor liability issue, with other PRPs, the Company
made a good faith offer to the EPA to pay a portion of the Site clean-up costs.
The offer was rejected and the EPA and State of Wisconsin ("the State")
proceeded with the clean-up at a cost of approximately $12 million. The EPA and
the State brought suit in 1996 against the Town of Onalaska ("the Town") and a
second PRP, Metallics, Inc., to recover response costs. On December 18, 1996,
the United States District Court for the Western District of Wisconsin approved
and entered Consent Decrees pursuant to which the Town and Metallics, Inc.
settled the suit and will pay a total of $1.8 million to the EPA and the State.
The Company continues to maintain that it is not a liable party. The EPA has
not taken action against the Company, nor has the EPA accepted the Company's
position. The Company does not know the financial status of the other named and
unnamed PRPs who may have liability with respect to the Site. Management does
not expect the situation to have a material adverse effect on consolidated
financial condition or operating results.
Under the provisions of Washington State environmental laws, the Washington
State Department of Ecology ("WDOE") has notified the Company that it is one of
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many companies named as a Potentially Liable Party ("PLP"), for the Pasco
Sanitary Landfill site, Pasco, Washington ("the Site"). Although the clean-up
costs are believed to be substantial, accurate estimates will not be available
until the environmental studies have been completed at the Site. However, based
upon the total documented volume of waste sent to the Site, the Company's waste
volume compared to that total waste volume should cause the Company to be
classified as a "de minimis" PLP. In July 1992, the Company and thirty-eight
other PLPs entered into an Administrative Agreed Order with WDOE to perform a
Phase I Remedial Investigation at the Site. In October 1994, WDOE issued an
administrative Unilateral Enforcement Order to all PLPs to complete a Phase II
Remedial Investigation and Feasibility Study ("RI/FS") under the Scope of Work
established by WDOE. The results of the RI/FS investigation are not expected
until after the first quarter of 1997. The Company is unable to determine, at
this time, the level of clean-up demands that may be ultimately placed on it.
Management believes that, given the number of PLPs named with respect to the
Site and their financial condition, the Company's potential response costs
associated with the Site will not have a material adverse effect on consolidated
financial condition or operating results.
The Company is a defendant in a number of product liability lawsuits, some of
which seek significant or unspecified damages, involving serious personal
injuries for which there are large retentions or deductible amounts under the
Company's insurance policies. In addition, the Company is a party to a number
of other suits arising out of the conduct of its business. While there can be
no assurance as to their ultimate outcome, management does not believe these
lawsuits will have a material adverse effect on consolidated financial condition
or operating results.
At March 31, 1997, the Company had outstanding bank letters of credit in the
approximate amount of $6.9 million issued principally in connection with various
foreign construction contracts of the discontinued construction segment for
which there is contingent liability to the issuing banks in the event payment
is demanded by the holder.
See Note 8 to the Consolidated Financial Statements included in the Company's
Transition Report on Form 10-K for the ten months ended December 31, 1996 for
other commitments and contingencies of the Company which have not changed
significantly since that date.
NOTE 7 Income taxes paid during the three months ended March 31, 1997 and 1996
were $3.0 million and $6.1 million. Interest paid during the three months ended
March 31, 1997 and 1996 was $0.4 million and $0.8 million.
NOTE 8 Accounts receivable include receivables from the Company's parent in the
amount of $20.4 million and $6.1 million at March 31, 1997 and December 31,
1996, respectively.
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MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
Operating Results
Sales for the three months ended March 31, 1997, were $170.1 million compared to
$173.3 million for the comparable period of the prior year. Net income for the
first quarter of 1997 was $13.8 million compared to net income of $14.5 million
for the comparable period of the prior year. These operating results reflect
improved operating income from the Outdoor Products segment, and lower income
from the Industrial and Power Equipment and the Sporting Equipment segments.
Corporate expenses (included in selling, general and administrative expenses)
were lower during the current year's first quarter, reflecting lower accruals
for employee incentive plans. Lower interest expense during the three months
ended March 31, 1997, principally reflects lower debt levels during the current
year. The principal reasons for these results and the status of the Company's
financial condition are set forth below and should be read in conjunction with
the Company's Transition Report on Form 10-K for the ten months ended December
31, 1996.
Sales for the Outdoor Products segment for the first quarter of 1997 were $82.2
million compared to $78.0 million during the first three months of 1996.
Operating income was $17.4 million during the first quarter of 1997 compared to
$15.7 million in the first three months of the prior year. The higher sales and
operating income resulted principally from the acquisition of Frederick and
Orbex (see Note 3 of Notes to Consolidated Financial Statements) and higher
income from operations in Brazil, partially offset by the effect of lower volume
on lawn mower sales and income.
Sales for the Industrial and Power Equipment segment were $54.3 million during
the first quarter of 1997 compared to $58.5 million during the same period last
year. Operating income was $6.8 million for the first quarter compared to $9.8
million for the comparable period of the prior year. The sales and operating
income reduction resulted primarily from lower sales of forestry harvesting
equipment as a result of the adverse effect of continued poor market conditions,
principally depressed pulp prices and high mill inventories.
Sales for the Sporting Equipment segment were $33.6 million in the first quarter
of 1997 compared to $36.7 million in the comparable period of 1996. Operating
income was $3.5 million during the first three months of the current year
compared to $4.1 million during the same period of last year. These results
reflect lower sales and operating income from Simmons Outdoor Corporation,
primarily due to a lower volume of riflescope sales. Sales and operating income
at other Sporting Equipment operations were slightly higher than the prior year
as this business is still experiencing a slow return to more normal market
levels.
The Company's total backlog at March 31, 1997 was $75.3 million compared to
$74.2 million at December 31, 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 1, 1997 /s/ Harold E. Layman
--------------------------------------
Harold E. Layman
Executive Vice President - Finance
Operations and Chief Financial Officer
Page 10
<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, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
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<INVENTORY> 85549
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<CURRENT-LIABILITIES> 111207
<BONDS> 85107
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<OTHER-SE> 312484
<TOTAL-LIABILITY-AND-EQUITY> 554600
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