UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
{ } ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
OR
{X} TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from March 1, 1996 to December 31, 1996
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 J(1)(a) and
(b) of Form 10-K 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, Montgomery, Alabama 36116-1602
- ---------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (334) 244-4000
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act: None
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained, 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.
-------
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
------- -------
Page 1
<PAGE>
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
Aggregate market value of voting stock held by nonaffiliates as of January 31,
- ------------------------------------------------------------------------------
1997: $ None
- --------------------------
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, 1997: 1,000 shares
------------
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.
None.
Page 2
<PAGE>
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 manufacturing
operations date largely to the acquisition of Omark Industries, 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. In November, 1995, through a merger
agreement 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") and Dixon Industries, Inc. ("Dixon"). 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.
Sales derived from operations outside the United States accounted for 42%, and
export sales accounted for an additional 25%, of Oregon's sales during the ten
months ended December 31, 1996. Oregon manufactures saw chain and related
products in Milwaukie, Oregon; Guelph, Ontario, Canada; and Curitiba, Parana,
Brazil.
Dixon, acquired in early fiscal 1991, has manufactured ZTR (zero turning radius)
riding lawn mowers and related attachments since 1973. 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 latest addition to
the line is Dixon's first ever walk-behind mower. Sales by Dixon accounted for
14% of Outdoor Products sales in the ten months ended December 31, 1996.
INDUSTRIAL AND POWER EQUIPMENT
The Company's Industrial and Power Equipment segment manufactures equipment for
timber harvesting and log loading, industrial tractors and loaders, rotation
bearings and mechanical power transmission components. The Company believes
that it is a world leader in the manufacture of hydraulic timber harvesting
equipment, which includes a line of self-propelled and truck-mounted loaders and
feller bunchers (tractors with hydraulic attachments for felling timber) under
the Prentice brand name; a line of tractors, 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. Major users of these products
include timber harvesters, land reclamation companies, contractors and scrap
Page 3
<PAGE>
yard operators.
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.
Segment results during the ten months ended December 31, 1996, include sales of
$36 million from Gear Products, Inc. ("Gear"), acquired by the Company early in
fiscal 1992, and CTR Manufacturing, Inc. ("CTR"), acquired by the Company in
early fiscal 1995. Gear designs, manufactures and distributes rotation bearings
and mechanical power transmission components for manufacturers of equipment that
serve the utility, man-lift, construction, forestry and marine industries. CTR
designs, manufactures and distributes a line of slashers, delimbers, firewood
processors and self-propelled carriers that serve the forest products industry.
SPORTING EQUIPMENT
The Company's Sporting Equipment segment manufactures small arms ammunition,
reloading equipment, primers, gun care products and accessories, and is a
distributor of 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 synthetic
stocks, Polar Cap scope covers and other shooting sports accessories; Weaver
shooting mounts and scopes; and Simmons binoculars, scopes and telescopes and
other optical and hunting accessories. As a result of its acquisition of
Simmons Outdoor Corporation in December 1995, the Company added over 250 models
of binoculars, scopes, telescopes and other optical accessories to its product
line. Sales by Simmons accounted for 32% of Sporting Equipment sales in the ten
months ended December 31, 1996. 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 Sporting Equipment segment also
produces industrial powerloads which are used in the construction industry to
drive fastening pins into metal or concrete.
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 7 through 9 and Note
10 of Notes to Consolidated Financial Statements on pages 25 through 27.
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 and Japan. Lawn mowers and related
attachments are manufactured at a plant in Coffeyville, Kansas. Log loaders,
feller-bunchers and accessories for automated forestry equipment are
manufactured at plants in Prentice and Spencer, Wisconsin; Zebulon and Union
Page 4
<PAGE>
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 Lewiston, Idaho; Oroville, California; and Onalaska,
Wisconsin. The Company's sporting optics and hunting accessory distributor
maintains executive offices in Tallahassee, Florida and a warehouse facility in
Thomasville, Georgia.
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.
ITEM 3. LEGAL PROCEEDINGS
For information regarding legal proceedings see Note 8 of Notes to Consolidated
Financial Statements on pages 23 and 24.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Page 5
<PAGE>
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.
For information regarding restrictions on the Company's ability to pay cash
dividends, see Note 3 of Notes to Consolidated Financial Statements on pages 18
and 19.
For information regarding restrictions on the net assets of foreign
subsidiaries, see Note 11 of Notes to Consolidated Financial Statements on pages
28 and 29.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
Page 6
<PAGE>
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. As a result of the change in fiscal year,
the audited financial statements include the results for the ten-month
transition period ended December 31, 1996 ("transition period"). This
discussion and analysis includes a discussion of the ten months ended December
31, 1996 compared to the similar period for the prior calendar year, and the
fiscal year ended February 29, 1996 compared to the fiscal year ended February
28, 1995.
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 last year. Net income of $46.2 million in the transition period includes
income of $1.4 million from discontinued operations, principally due to
favorable claim settlements and improved international job profits. These
operating results reflect continuing 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 same period of the prior year. Total selling, general
and administrative expenses were higher during the transition period,
principally due to the inclusion of Simmons Outdoor Corporation ("Simmons"),
acquired in December 1995, in the consolidated financial statements for the
entire ten-month period of the current year. Total backlog was $74.2 million at
December 31, 1996 compared to $112.8 million at February 29, 1996 as depressed
pulp prices and excessively high mill inventories contributed to a significant
reduction in order backlog for forestry harvesting equipment, and sporting
equipment backlog declined as the market slowdown which began last year
continued to affect this segment.
The Outdoor Products segment consists of the Company's Oregon Cutting Systems
Division ("Oregon") and Dixon Industries, Inc. ("Dixon"). 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 in 1995. The operating results for this segment
reflect 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 prices. Lower
foreign exchange expenses and improved manufacturing costs contributed to higher
margins during the current year. A significant part of Oregon's operations are
conducted in foreign countries and, as a result, fluctuations in foreign
exchange rates impact the amount of reported sales, operating margins and the
amount of foreign exchange adjustments reflected in income. Oregon has
manufacturing facilities in Brazil whose operations have historically been
significantly affected by high inflation, currency devaluation and resulting
Page 7
<PAGE>
governmental policies. 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 the prior year. 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. In 1997, management expects another good year for both Oregon and Dixon,
assuming normal market and weather conditions.
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 the prior year. 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 Company expects the trend of lower than normal sales to continue
into 1997 until pulp prices and mill inventories return to more normal levels.
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 current ten-month 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. The Company is
currently experiencing, in select product areas of the Sporting Equipment
segment, a slow return to normal market levels.
TWELVE MONTHS ENDED FEBRUARY 29, 1996 (AUDITED) COMPARED TO TWELVE MONTHS ENDED
FEBRUARY 28, 1995 (AUDITED)
On November 3, 1995, a merger agreement ("the merger") was approved in which the
Company became a wholly-owned subsidiary of Blount International, Inc. The
Company reported record sales and income from continuing operations for fiscal
1996. The Outdoor Products and Industrial and Power Equipment segments
continued their excellent performance during fiscal 1996, while the results from
the Sporting Equipment segment were adversely affected by a general industry
slowdown. Overall, operating income from segments increased by 11% during
fiscal 1996. Sales for fiscal 1996 were $644.3 million compared to $588.4
million for fiscal 1995. Net income was $54.8 million for fiscal 1996 compared
to $40.1 million for the prior year.
Selling, general and administrative expenses were 19% of sales in fiscal 1996
compared to 21% in fiscal 1995. Total selling, general and administrative
expenses increased during fiscal 1996, reflecting the increased sales activity
partially offset by lower corporate overhead expenses. Corporate overhead
Page 8
<PAGE>
expenses for the prior year included litigation and settlement costs of $7.1
million related to the sale of a former subsidiary. Total backlog at February
29, 1996, was approximately $112.8 million compared to $134.4 million at
February 28, 1995.
The Company's Outdoor Products segment established record levels of sales and
operating income again in fiscal 1996. Sales for the Outdoor Products segment
were $291.6 million in fiscal 1996 compared to $268.1 million during fiscal
1995. Operating income increased to $57.4 million during fiscal 1996 from $49.6
million in fiscal 1995. The improved results for this segment were primarily
due to an increase in sales and operating income of $20.2 million and $5.2
million, respectively, at Oregon. This reflects a 9% increase in the sales
volume of saw chain and a 19% increase in the sales volume of saw bars, Oregon's
two principal products, principally to foreign markets. Due to a deteriorating
financial climate and the discontinuance of a local product line, operations in
Brazil incurred an operating loss of $0.6 million in fiscal 1996 compared to
operating income of $2.4 million in fiscal 1995. Sales and operating income at
other units of the Outdoor Products segment, principally Dixon, were up by 8% to
$45.3 million and 38% to $9.7 million, respectively, in fiscal 1996, principally
as a result of a 17% increase in the sales volume of riding lawn mowers.
During fiscal 1996, the Industrial and Power Equipment segment continued its
impressive performance. Sales and operating income were $240.6 million and
$42.2 million, respectively, during fiscal 1996 compared to $207.5 million and
$33.0 million during the prior year. The improved operating results reflect
higher average selling prices and a better sales mix for timber harvesting
equipment, and improved sales and operating income at the Company's CTR
Manufacturing, Inc. and Gear Products, Inc. subsidiaries, primarily due to
higher volume.
The Sporting Equipment segment experienced a downturn during fiscal 1996. In
the aftermath of the prior year's booming domestic market, an industry slowdown
occurred. Sales for the Sporting Equipment segment were $112.1 million for
fiscal 1996, including $6.5 million from the late year acquisition of Simmons,
compared to $112.8 million during the prior year. Operating income was down to
$13.2 million for fiscal 1996 as compared to $19.3 million during fiscal 1995.
These results reflect the reduced demand, higher raw material costs, costs
associated with temporary plant shutdowns during the second quarter and a loss
from the Ram-Line operation acquired late in fiscal 1995.
Page 9
<PAGE>
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, 1996 and February 29, 1996, and the consolidated
results of their operations and their cash flows for the ten-month period ended
December 31, 1996, and each of the two years in the period 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 28, 1997
Page 10
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Blount, Inc. and Subsidiaries
Twelve months
Ten months ended ended the last
(Amounts in millions, December 31, day of February,
except per share data) 1996 1995 1996 1995
- --------------------------------------- ------ ------ ------ ------
(Unaudited)
Sales $526.7 $521.6 $644.3 $588.4
Cost of sales 346.5 346.0 427.3 390.8
- --------------------------------------- ------ ------ ------ ------
Gross profit 180.2 175.6 217.0 197.6
Selling, general and administrative
expenses 104.0 99.2 122.9 120.7
- --------------------------------------- ------ ------ ------ ------
Income from operations 76.2 76.4 94.1 76.9
Interest expense (7.9) (8.9) (10.9) (11.1)
Interest income 2.3 3.1 3.2 2.3
Other income (expense), net 0.2 0.3 0.5 (2.2)
- --------------------------------------- ------ ------ ------ ------
Income before income taxes 70.8 70.9 86.9 65.9
Provision for income taxes 26.0 27.0 32.1 25.8
- --------------------------------------- ------ ------ ------ ------
Income from continuing operations 44.8 43.9 54.8 40.1
Discontinued operations -
Income on disposal, net 1.4
- --------------------------------------- ------ ------ ------ ------
Net income $ 46.2 $ 43.9 $ 54.8 $ 40.1
- --------------------------------------- ------ ------ ------ ------
The accompanying notes are an integral part of the audited financial statements.
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. Unaudited financial information for the ten
months ended December 31, 1995 is also presented above.
Page 11
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
Blount, Inc. and Subsidiaries
<CAPTION>
December 31, February 29,
(Dollar amounts in millions, except share data) 1996 1996
- ------------------------------------------------- ------------ ------------
Assets
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents, including short-term
investments of $55.3 and $11.4 $ 58.7 $ 14.6
Accounts receivable, net of allowance for
doubtful accounts of $3.0 and $3.9 121.9 147.2
Inventories 82.0 94.1
Deferred income taxes 20.9 23.5
Other current assets 3.5 3.5
- ------------------------------------------------- ------------ ------------
Total current assets 287.0 282.9
Property, plant and equipment, net of accumulated
depreciation of $170.2 and $160.0 131.7 135.5
Cost in excess of net assets of acquired businesses, net 85.4 88.1
Other assets 35.7 37.4
- ------------------------------------------------- ------------ ------------
Total Assets $539.8 $543.9
- ------------------------------------------------- ------------ ------------
Liabilities and Stockholder's Equity
- ------------------------------------------------- ------------ ------------
Current liabilities:
Notes payable and current maturities of long-term debt $ 1.2 $ 11.7
Accounts payable 36.2 51.4
Accrued expenses 75.0 86.2
- ------------------------------------------------- ------------ ------------
Total current liabilities 112.4 149.3
Long-term debt, exclusive of current maturities 84.6 95.9
Deferred income taxes, exclusive of current portion 15.8 20.6
Other liabilities 27.8 25.7
- ------------------------------------------------- ------------ ------------
Total liabilities 240.6 291.5
- ------------------------------------------------- ------------ ------------
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 26.8 25.9
Retained earnings 264.5 218.3
Accumulated translation adjustment 7.9 8.2
- ------------------------------------------------- ------------ ------------
Total stockholder's equity 299.2 252.4
- ------------------------------------------------- ------------ ------------
Total Liabilities and Stockholder's Equity $539.8 $543.9
- ------------------------------------------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of the audited financial statements.
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.
Page 12
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Blount, Inc. and Subsidiaries
<CAPTION>
Twelve months
Ten months ended ended the last
December 31, day of February,
(Dollar amounts in millions) 1996 1995 1996 1995
- --------------------------------------------- ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 46.2 $ 43.9 $ 54.8 $ 40.1
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other
noncash charges 19.6 18.3 22.3 23.5
Deferred income taxes (2.1) (0.6) 3.7 (1.2)
Loss (gain) on disposals of property, plant
and equipment (0.9) 0.3 1.0 0.4
Changes in assets and liabilities, net
of effects of businesses acquired and sold:
(Increase) decrease in accounts receivable 25.3 13.9 (16.7) 5.5
(Increase) decrease in inventories 11.4 (2.1) (0.3) (13.0)
Increase in other assets (1.8) (8.5) (4.8) (2.6)
Decrease in accounts payable (15.5) (15.9) (6.9) (9.9)
Increase (decrease) in accrued expenses (9.2) (9.4) (9.3) 1.9
Decrease in other liabilities (0.1) (6.0) (2.8) (13.1)
- --------------------------------------------- ------ ------ ------ ------
Net cash provided by operating activities 72.9 33.9 41.0 31.6
- --------------------------------------------- ------ ------ ------ ------
Cash flows from investing activities:
Proceeds from sales of businesses and property,
plant and equipment 1.8 5.0 5.1 3.0
Purchases of property, plant and equipment (18.7) (16.0) (18.5) (9.8)
Acquisitions of businesses (37.4) (37.4) (10.2)
- --------------------------------------------- ------ ------ ------ ------
Net cash used in investing activities (16.9) (48.4) (50.8) (17.0)
- --------------------------------------------- ------ ------ ------ ------
Cash flows from financing activities:
Net increase (reduction) in short-term borrowings (1.6) 1.9 0.8 (0.5)
Issuance of long-term debt 11.8
Reduction of long-term debt (13.9) (15.6) (15.7) (20.5)
(Increase) decrease in restricted funds 2.7 1.5 2.6 (10.1)
Dividends paid (5.3) (7.8) (6.2)
Other 0.9 1.9 1.9 1.3
- --------------------------------------------- ------ ------ ------ ------
Net cash used in financing activities (11.9) (15.6) (18.2) (24.2)
- --------------------------------------------- ------ ------ ------ ------
Net increase (decrease) in cash and cash equivalents 44.1 (30.1) (28.0) (9.6)
- --------------------------------------------- ------ ------ ------ ------
Cash and cash equivalents at beginning of period 14.6 42.6 42.6 52.2
- --------------------------------------------- ------ ------ ------ ------
Cash and cash equivalents at end of period $ 58.7 $ 12.5 $ 14.6 $ 42.6
- --------------------------------------------- ------ ------ ------ ------
</TABLE>
The accompanying notes are an integral part of the audited financial statements.
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. Unaudited financial information for the ten
months ended December 31, 1995 is also presented above.
Page 13
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
Blount, Inc. and Subsidiaries
Capital Accumulated
Common In Excess Retained Translation
(Dollar amounts in millions) Stock of Par Earnings Adjustment
- --------------------------- -------- --------- -------- -----------
Balance, February 28, 1994 $ - $22.0 $137.4 $ 7.4
Exercise of employee stock
options 1.2
Issuance of shares under
dividend reinvestment plan 0.1
Aggregate adjustment resulting
from translation of foreign
currency statements 0.9
Other shares issued 0.2
Net income 40.1
Dividends (6.2)
- --------------------------- -------- --------- -------- -----------
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
- --------------------------- -------- --------- -------- -----------
The accompanying notes are an integral part of the audited financial statements.
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.
Page 14
<PAGE>
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. The Company is a wholly-owned
subsidiary of Blount International, Inc.
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 ten-month period ended December
31, 1996 ("transition period"), and the prior two fiscal years ended February
29, 1996 ("fiscal 1996"), and February 28, 1995 ("fiscal 1995"). In addition to
the basic audited financial statements and related notes, unaudited financial
information for the ten-month period ended December 31, 1995, has been presented
to enhance comparability.
Reclassifications:
Certain amounts in the fiscal 1996 and fiscal 1995 financial statements and
notes to consolidated financial statements have been reclassified to conform
with the transition period 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 $2.8 million and $7.0 million as of December
31, 1996, and February 29, 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. 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
Page 15
<PAGE>
payments. Depreciation charged to costs and expenses was $16.4 million, $19.3
million and $19.8 million in the transition period, fiscal 1996 and fiscal 1995.
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, 1996.
Cost in excess of net assets of acquired businesses:
The excess cost is being amortized by the straight-line method over periods
ranging from 30 to 40 years. Accumulated amortization was $21.7 million and
$19.5 million as of December 31, 1996, and February 29, 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 or conduct operations in a highly inflationary economy, 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 stockholder's equity. The
amount of income taxes allocated to this translation adjustment is not
significant. Foreign exchange adjustments reduced pretax income by $0.1
million, $1.9 million and $0.7 million in the transition period, fiscal 1996 and
fiscal 1995.
Revenue recognition:
The Company's policy is to record sales as orders are shipped.
Research and development:
Expenditures for research and development are expensed as incurred. These costs
were $6.0 million, $8.8 million and $7.7 million for the transition period,
fiscal 1996 and fiscal 1995.
Page 16
<PAGE>
NOTE 2:
INCOME TAXES
The provision for income taxes attributable to continuing operations is as
follows:
Twelve months
Ten months ended ended the last
December 31, day of February,
(Dollar amounts in millions) 1996 1996 1995
- --------------------------------------- ---------------- ------ ------
Current provision:
Federal $ 24.9 $ 22.2 $ 18.7
State 0.8 2.1 3.5
Foreign 2.4 4.0 5.2
Deferred provision (benefit):
Federal (3.6) 4.4 (1.0)
State 0.4 0.5
Foreign 1.1 (1.1) (0.6)
- --------------------------------------- ------ ------ ------
$ 26.0 $ 32.1 $ 25.8
- --------------------------------------- ------ ------ ------
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 ended ended the last
December 31, day of February,
(Dollar amounts in millions) 1996 1996 1995
- --------------------------------------- ---------------- ------ ------
Income before income taxes:
Domestic $ 62.3 $ 80.8 $ 56.0
Foreign 8.5 6.1 9.9
- --------------------------------------- ------ ------ ------
$ 70.8 $ 86.9 $ 65.9
- --------------------------------------- ------ ------ ------
% % %
Statutory tax rate 35.0 35.0 35.0
Impact of earnings of foreign operations 0.7 0.2 (1.0)
State income taxes, net of federal
tax benefit 1.5 2.3 3.5
Permanent differences between book
bases and tax bases 1.5 1.0 1.7
Other items, net (2.0) (1.6)
- --------------------------------------- ------ ------ ------
Effective income tax rate 36.7 36.9 39.2
- --------------------------------------- ------ ------ ------
All years reflect the allocation of substantially all corporate office expenses
and interest expense to domestic operations.
Page 17
<PAGE>
As of December 31, 1996, and February 29, 1996, deferred income tax assets were
$34.7 million and $37.6 million and deferred income tax liabilities were $29.6
million and $34.6 million. Deferred income taxes applicable to principal
temporary differences are as follows:
December 31, February 29,
(Dollar amounts in millions) 1996 1996
- -------------------------------------------------- ------------ ------------
Property, plant and equipment basis differences $ 19.7 $ 20.2
Employee benefits (13.0) (12.4)
Other accrued expenses (18.6) (19.2)
Other - net 6.8 8.5
- -------------------------------------------------- --------- ---------
$ (5.1) $ (2.9)
- -------------------------------------------------- --------- ---------
Deferred income taxes of approximately $2.8 million have not been provided on
undistributed earnings of foreign subsidiaries in the amount of $34.7 million as
the earnings are considered to be permanently reinvested.
The Company has settled its issues with the Internal Revenue Service through the
1990 fiscal year with no material adverse effect. The periods from fiscal 1991
through the transition period are still open for review.
NOTE 3:
DEBT AND FINANCING AGREEMENTS
Long-term debt consists of the following:
December 31, February 29,
(Dollar amounts in millions) 1996 1996
- -------------------------------------------------- ------------ ------------
9% subordinated notes $ 68.8 $ 79.4
Industrial development revenue bonds payable,
maturing between 1997 and 2013, interest at varying
rates (principally 4.5% at December 31, 1996) 16.1 16.4
Other long-term debt, interest at 8% 2.5
Lease purchase obligations, interest at varying
rates, payable in installments to 2001 0.6 0.8
- -------------------------------------------------- --------- ---------
85.5 99.1
Less current maturities (0.9) (3.2)
- -------------------------------------------------- --------- ---------
$ 84.6 $ 95.9
- -------------------------------------------------- --------- ---------
Page 18
<PAGE>
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
- ------------------------------- --------- --------- --------- ---------
1997 $ 0.4 $ 0.5 $ 0.1 $ 1.0
1998 0.4 0.1 0.5
1999 0.3 0.3
2000 0.3 0.3
2001 0.3 0.3
2002 and beyond 83.2 83.2
- ------------------------------- --------- --------- --------- ---------
$ 84.9 $ 0.6 $ 0.1 $85.6
- ------------------------------- --------- --------- --------- ---------
At December 31, 1996, no amounts were outstanding under the Company's $100
million revolving credit agreement with a group of five banks. The $100 million
agreement expires December 1999 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 may vary based on cash flow and leverage ratios.
In addition, a commitment fee which varies to a maximum of 1/2% is charged on
the total commitment. The agreement contains covenants relating to liens,
subsidiary debt, transactions with affiliates, acquisitions, consolidations,
mergers and sales of assets, and requires the Company to maintain certain
specified debt-to-equity and fixed charge coverage ratios.
The proceeds from industrial development revenue bonds of $11.8 million issued
in fiscal 1995 are held in trust and released as qualified capital expenditures
are made. As of December 31, 1996, and February 29, 1996, $4.9 million and $7.6
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. In July 1996, the
Company repurchased approximately $10.6 million of the 9% notes with no material
gain or loss. During fiscal 1995, approximately $20 million of the 9% notes
were repurchased with no material gain or loss. 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.
In August 1995, the Company entered into an agreement expiring August 31, 1998
with certain financial organizations under which it may sell up to $25 million
of undivided interests in a pool of eligible accounts receivable in which the
purchasers retain a security interest. The purchasers' level of investment may
fluctuate based on the level of the eligible receivables in the pool. No
receivables have ever been sold under this agreement.
Under the most restrictive debt requirement, retained earnings of approximately
$78.9 million were available for the payment of dividends at December 31, 1996.
As of December 31, 1996 and February 29, 1996, the weighted average interest
rate on short-term borrowings was 9.2% and 8.4%, respectively.
Page 19
<PAGE>
NOTE 4:
ACQUISITIONS AND DISPOSALS
In January 1997, the Company acquired the outstanding capital stock of the
Frederick Manufacturing Corporation and Orbex, Inc. for approximately $19
million, subject to post-closing adjustments. 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 was $19.8 million and $2.5 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.
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. The acquisition has been accounted for by
the purchase method, and the net assets and results of operations of Simmons
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. Sales and pretax income for Simmons for 1995 were $40.9 million and $1.6
million, respectively.
During fiscal 1996, Pozzo Construction Co., Inc. was sold with no material
effect on the Company's financial condition.
In April 1994, the Company acquired all the outstanding capital stock of CTR
Manufacturing, Inc. ("CTR"). CTR manufactures automated forestry harvesting
equipment. In November 1994, the Company acquired the operating assets of Ram-
Line, Inc. ("Ram-Line"), a manufacturer of stocks, magazines, lens caps and
other products for the shooting sports market. The purchase price paid for the
two businesses was approximately $18.2 million, including notes issued of $7.2
million. Both transactions have been accounted for by the purchase method. The
combined sales and pretax income of CTR and Ram-Line for their most recent
fiscal years prior to acquisition were approximately $17.1 million and $1.6
million, respectively.
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
Page 20
<PAGE>
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 ended ended the last
December 31, day of February,
(Dollar amounts in millions) 1996 1996 1995
- --------------------------------------- ---------------- ------ ------
Service cost - benefits earned $ 3.7 $ 3.4 $ 3.8
Interest cost 5.5 5.8 5.1
Actual return on plan assets (7.3) (11.1) (0.7)
Net amortization and deferral 2.4 6.8 (2.4)
- ----------------------------------------- ------ ------ ------
$ 4.3 $ 4.9 $ 5.8
- ----------------------------------------- ------ ------ ------
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 was as follows:
<TABLE>
<CAPTION>
December 31, 1996 February 29, 1996
--------------------------- ---------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(Dollar amounts in millions) Benefits Exceed Assets Benefits Exceed Assets
- ------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of projected
benefit obligation:
Vested $ 50.8 $ 4.2 $ 50.9 $ 3.8
Nonvested 3.1 0.1 2.7 0.4
- ------------------------------------------- -------- -------- -------- --------
Accumulated benefit obligation 53.9 4.3 53.6 4.2
Effect of projected compensation increases 22.5 1.1 23.6 1.0
- ------------------------------------------- -------- -------- -------- --------
Projected benefit obligation 76.4 5.4 77.2 5.2
Plan assets at fair value 82.0 79.9
- ------------------------------------------- -------- -------- -------- --------
Plan assets greater (less) than
projected benefit obligation 5.6 (5.4) 2.7 (5.2)
Unrecognized transition (asset) obligation (1.0) 0.3 (1.3) 0.4
Unrecognized prior service liability 1.0 0.3 2.1 0.4
Unrecognized net loss 5.2 0.7 8.0 0.8
- ------------------------------------------- -------- -------- -------- --------
Net prepaid (accrued) pension cost $ 10.8 $ (4.1) $ 11.5 $ (3.6)
- ------------------------------------------- -------- -------- -------- --------
</TABLE>
Page 21
<PAGE>
During the transition period, the domestic funded defined benefit plan settled
the pension obligation to certain retirees of discontinued operations for
approximately $8.4 million. The weighted average rate assumptions used in the
transition period, fiscal 1996 and fiscal 1995 to determine pension expense and
related pension obligations for domestic and foreign defined benefit plans were
as follows:
Twelve months
Ten months ended ended the last
December 31, day of February,
1996 1996 1995
- --------------------------------------- ---------------- ------ ------
Discount rate 7.6% 7.6% 8.5%
Rate of increase in compensation levels 4.2% 4.1% 4.3%
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 $2.4 million, $2.8 million and $2.1 million in the transition period, fiscal
1996 and fiscal 1995.
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 ended ended the last
December 31, day of February,
(Dollar amounts in millions) 1996 1996 1995
- --------------------------------------- ---------------- ------ ------
Service cost - benefits earned $ 0.3 $ 0.3 $ 0.3
Interest cost 0.9 1.3 1.3
Actual return on plan assets (0.2) (0.3) (0.1)
Net amortization and deferral 0.1 0.1 (0.1)
- ---------------------------------------- ------ ------ ------
$ 1.1 $ 1.4 $ 1.4
- ---------------------------------------- ------ ------ ------
Page 22
<PAGE>
The accumulated postretirement benefit obligation for the funded plan was $2.2
million and $2.3 million as of December 31, 1996 and February 29, 1996. A
reconciliation of the accumulated postretirement benefit obligation to the
accrued liability included in the Company's balance sheets follows:
December 31, February 29,
(Dollar amounts in millions) 1996 1996
- -------------------------------------------------- ------------ ------------
Accumulated postretirement benefit obligation:
Retirees $ 10.6 $ 10.5
Fully eligible active plan participants 2.5 2.2
Other active plan participants 2.6 2.0
- -------------------------------------------------- --------- ---------
15.7 14.7
Plan assets at fair value 2.1 2.1
- -------------------------------------------------- --------- ---------
Postretirement benefits in excess of assets (13.6) (12.6)
Unrecognized net loss 1.3 0.8
- -------------------------------------------------- --------- ---------
Accrued postretirement benefit cost $ (12.3) $ (11.8)
- -------------------------------------------------- --------- ---------
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7 1/2% in the transition period and fiscal
1996, and 8 1/2% in fiscal 1995. The expected long-term rate of return on plan
assets was 8 3/4% in the transition period, fiscal 1996 and fiscal 1995. A 9%
annual rate of increase in the cost of health care benefits was assumed for the
transition period; 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, 1996, by 10.0% and the aggregate of the service
and interest cost components of net periodic expense for the transition period
by 11.5%.
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, 1996, are as follows (in
millions): 1997--$3.7; 1998--$2.3; 1999--$1.2; 2000--$0.8; 2001--$0.8 and 2002
and beyond--$1.3. Rentals charged to costs and expenses under cancelable and
noncancelable lease arrangements were $5.0 million, $6.3 million and $5.2
million for the transition period, fiscal 1996 and fiscal 1995, 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
Page 23
<PAGE>
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 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 December 31, 1996, there were outstanding bank letters of credit in the
approximate amount of $7.4 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.
Page 24
<PAGE>
NOTE 9:
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
At December 31, 1996, substantially all of the Company's trade and other
accounts receivable of $116.0 million (see Note 11) arose from manufacturing
operations. The Company has manufacturing or distribution operations in Brazil,
Canada, Europe, Japan 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, 1996, approximately 66% of
manufacturing receivables were from customers within the United States.
Accounts receivable from manufacturing customers are principally from service
and dealer groups, distributors, and chain saw and other original equipment
manufacturers, and are generally not collateralized.
The estimated fair values of certain financial instruments are as follows:
December 31, 1996 February 29, 1996
-------------------- --------------------
Carrying Fair Carrying Fair
(Dollar amounts in millions) Amount Value Amount Value
- ---------------------------------- --------- --------- --------- ---------
Cash and short-term investments $ 58.7 $ 58.7 $ 14.6 $ 14.6
Other assets (restricted trust
funds and notes receivable) 14.8 15.8 17.1 18.1
Notes payable and long-term debt
(see Note 3) (85.8) (88.9) (107.6) (111.6)
- ---------------------------------- --------- --------- --------- ---------
The carrying amount of cash and short-term investments approximates fair value
because of the short maturity of those instruments. 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 fair value 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.
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 power trimmers and lawn mowers. 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 small arms ammunition,
reloading equipment and components, gun care accessories, 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.
Page 25
<PAGE>
In the transition period, fiscal 1996 and 1995, no customer accounted for more
than 10% of consolidated sales. In the transition period, approximately 15.5%
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
Ten months ended ended the last
December 31, day of February,
(Dollar amounts in millions) 1996 1995 1996 1995
- --------------------------------------- ------ ------ ------ ------
(Unaudited)
Sales:
United States $439.7 $434.6 $536.0 $493.3
Outside United States 87.0 87.0 108.3 95.1
- --------------------------------------- ------ ------ ------ ------
$526.7 $521.6 $644.3 $588.4
- --------------------------------------- ------ ------ ------ ------
Operating income:
United States $ 83.4 $ 86.9 $106.2 $ 92.0
Outside United States 7.8 4.0 6.6 9.9
- --------------------------------------- ------ ------ ------ ------
Operating income from segments $ 91.2 $ 90.9 $112.8 $101.9
- --------------------------------------- ------ ------ ------ ------
Identifiable assets:
United States $464.2 $436.9 $458.6 $422.0
Outside United States 75.6 87.2 85.3 95.8
- --------------------------------------- ------ ------ ------ ------
$539.8 $524.1 $543.9 $517.8
- --------------------------------------- ------ ------ ------ ------
Included in United States sales were export sales of $89.7 million, $106.2
million and $94.3 million in the transition period, fiscal 1996 and fiscal 1995.
Total sales from international activities, including those in the above table
and export sales, provided 33.6% of consolidated sales in the transition period,
33.3% in fiscal 1996 and 32.2% in fiscal 1995. In the transition period, fiscal
1996 and fiscal 1995, approximately 57.5%, 56.4% and 54.3%, respectively, of
sales by the Outdoor Products segment were from international sources.
Page 26
<PAGE>
Information on Segments:
Twelve months
Ten months ended ended the last
December 31, day of February,
(Dollar amounts in millions) 1996 1995 1996 1995
- --------------------------------------- ------ ------ ------ ------
(Unaudited)
Sales:
Outdoor products $239.3 $238.2 $291.6 $268.1
Industrial and power equipment 165.7 196.8 240.6 207.5
Sporting Equipment 121.7 86.6 112.1 112.8
- --------------------------------------- ------ ------ ------ ------
$526.7 $521.6 $644.3 $588.4
- --------------------------------------- ------ ------ ------ ------
Operating income:
Outdoor products $ 50.7 $ 46.8 $ 57.4 $ 49.6
Industrial and power equipment 24.0 34.2 42.2 33.0
Sporting equipment 16.5 9.9 13.2 19.3
- --------------------------------------- ------ ------ ------ ------
Operating income from segments 91.2 90.9 112.8 101.9
Corporate office expenses (15.0) (14.5) (18.7) (25.0)
- --------------------------------------- ------ ------ ------ ------
Income from operations 76.2 76.4 94.1 76.9
Interest expense (7.9) (8.9) (10.9) (11.1)
Interest income 2.3 3.1 3.2 2.3
Other income (expense), net 0.2 0.3 0.5 (2.2)
- --------------------------------------- ------ ------ ------ ------
Income before income taxes $ 70.8 $ 70.9 $ 86.9 $ 65.9
- --------------------------------------- ------ ------ ------ ------
Identifiable assets:
Outdoor products $196.2 $195.4 $202.1 $199.5
Industrial and power equipment 102.6 90.5 95.9 83.0
Sporting equipment 107.7 85.6 118.4 71.8
Corporate office 127.0 126.4 100.9 100.7
Discontinued operations 6.3 26.2 26.6 62.8
- --------------------------------------- ------ ------ ------ ------
$539.8 $524.1 $543.9 $517.8
- --------------------------------------- ------ ------ ------ ------
Depreciation and amortization:
Outdoor products $ 10.6 $ 10.6 $ 12.7 $ 13.8
Industrial and power equipment 3.2 3.0 3.6 3.8
Sporting equipment 4.0 3.5 4.3 3.8
Corporate office 1.4 1.1 1.6 1.5
- --------------------------------------- ------ ------ ------ ------
$ 19.2 $ 18.2 $ 22.2 $ 22.9
- --------------------------------------- ------ ------ ------ ------
Capital expenditures:
Outdoor products $ 10.2 $ 5.5 $ 6.8 $ 4.9
Industrial and power equipment 5.6 1.8 2.2 4.9
Sporting equipment 2.5 2.7 3.5 4.6
Corporate office 0.4 6.6 6.8 0.3
- --------------------------------------- ------ ------ ------ ------
$ 18.7 $ 16.6 $ 19.3 $ 14.7
- --------------------------------------- ------ ------ ------ ------
Page 27
<PAGE>
NOTE 11:
OTHER INFORMATION
The following balance sheet captions are comprised of the items specified below:
December 31, February 29,
(Dollar amounts in millions) 1996 1996
- ----------------------------------------------- ------------ ------------
Accounts receivable:
Trade accounts and other $ 116.0 $ 120.9
Accounts receivable - parent company 6.0
Billings on construction contracts:
Current 2.6 20.8
Retainage estimated to be collected
within one year 0.3 2.1
Income taxes receivable 7.3
Allowance for doubtful accounts (3.0) (3.9)
- ----------------------------------------------- --------- ---------
$ 121.9 $ 147.2
- ----------------------------------------------- --------- ---------
Inventories:
Finished goods $ 42.4 $ 50.8
Work in process 14.5 14.9
Raw materials and supplies 25.1 28.4
- ----------------------------------------------- --------- ---------
$ 82.0 $ 94.1
- ----------------------------------------------- --------- ---------
Property, plant and equipment:
Land $ 6.4 $ 6.4
Buildings and improvements 84.3 82.9
Machinery and equipment 161.9 154.6
Furniture, fixtures and office equipment 23.2 22.3
Transportation equipment 16.6 23.6
Construction in progress 9.5 5.7
Accumulated depreciation (170.2) (160.0)
- ----------------------------------------------- --------- ---------
$ 131.7 $ 135.5
- ----------------------------------------------- --------- ---------
Accrued expenses:
Salaries, wages and related withholdings $ 21.8 $ 24.4
Employee benefits 8.4 7.9
Casualty insurance costs 14.1 15.9
Income taxes payable 4.6 4.2
Other 26.1 33.8
- ----------------------------------------------- --------- ---------
$ 75.0 $ 86.2
- ----------------------------------------------- --------- ---------
Other liabilities:
Employee benefits $ 25.6 $ 23.9
Casualty insurance costs 0.4 0.4
Other 1.8 1.4
- ----------------------------------------------- --------- ---------
$ 27.8 $ 25.7
- ----------------------------------------------- --------- ---------
Page 28
<PAGE>
At December 31, 1996, the Company's manufacturing operation in Canada had net
assets of $15.9 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 $10.1 million, $11.9 million and $10.6 million for the
transition period, fiscal 1996 and fiscal 1995.
Supplemental cash flow information is as follows:
Twelve months
Ten months ended ended the last
December 31, day of February,
(Dollar amounts in millions) 1996 1996 1995
- --------------------------------------- ---------------- ------ ------
Interest paid $ 9.1 $ 10.5 $ 10.3
Income taxes paid 17.5 35.5 28.0
Capital lease obligations incurred
(terminated) (6.4) 7.1 0.1
Acquisitions of businesses (see Note 4):
Assets acquired 49.9 22.6
Liabilities assumed and incurred (12.5) (12.4)
Cash paid 37.4 10.2
- --------------------------------------- ------ ------ ------
Page 29
<PAGE>
SUPPLEMENTARY DATA
QUARTERLY RESULTS OF OPERATIONS
(unaudited)
The following table sets forth a summary of the quarterly results of operations
for the ten-month transition period ended December 31, 1996, and the fiscal year
ended February 29, 1996.
<TABLE>
<CAPTION>
(Dollar amounts One Month 2nd Quarter 3rd Quarter 4th Quarter
in millions, except Ended Ended Ended Ended
per share data) March 31, 1996 June 30, 1996 September 30, 1996 December 31, 1996 Total
- ----------------- -------------- ------------- ------------------ ----------------- -------
Transition Period
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
(Dollar amounts 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
in millions, except Ended Ended Ended Ended
per share data) May 31, 1995 August 31, 1995 November 30, 1995 February 29, 1996 Total
- ----------------- ------------ --------------- ----------------- ----------------- -------
Fiscal 1996
<S> <C> <C> <C> <C> <C>
Sales $164.2 $147.1 $158.0 $175.0 $644.3
Gross profit 55.1 48.8 55.0 58.1 217.0
Net income 14.3 11.8 15.2 13.5 54.8
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Page 30
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS 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 31
<PAGE>
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 10
Consolidated Statements of Income for the ten-month
period ended December 31, 1996 and the years
ended the last day of February 1996 and 1995 11
Consolidated Balance Sheets as of
December 31, 1996 and February 29, 1996 12
Consolidated Statements of Cash Flows for the ten-month
period ended December 31, 1996 and the years ended the
last day of February 1996 and 1995 13
Consolidated Statements of Changes in Stockholder's Equity
for the ten-month period ended December 31, 1996 and the
years ended the last day of February 1996 and 1995 14
Notes to Consolidated Financial Statements 15 - 29
Supplementary Data 30
(2) Schedules for the ten-month period ended
December 31, 1996 and the years ended
the last day of February 1996 and 1995 *
II. Valuation and qualifying accounts 35
* 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
None.
(c) Exhibits required to be filed by Item 601 of Regulation S-K:
*2 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).
*3(a) Restated Certificate of Incorporation of Blount, Inc. which was
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).
Page 32
<PAGE>
*3(b) The Amended 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).
*10(a) $100 Million Revolving Credit Agreement of Blount, Inc. which
was filed as Exhibit 10(w) to the Annual Report of Blount, Inc. on Form 10-K for
the fiscal year ended February 28, 1995 (Commission File No. 1-7002).
27. Financial Data Schedule.
* Incorporated by reference.
Page 33
<PAGE>
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
Senior Vice President and
Chief Financial Officer
Dated: March 3, 1997
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: March 3, 1997
/s/ Winton M. Blount /s/ Emory M. Folmar
Winton M. Blount Emory M. Folmar
Chairman of the Board Director
and Director
/s/ W. Houston Blount /s/ Mary D. Nelson
W. Houston Blount Mary D. Nelson
Director Director
/s/ R. Eugene Cartledge /s/ John M. Panettiere
R. Eugene Cartledge John M. Panettiere
Director President and Chief Executive
Officer and Director
/s/ C. Todd Conover /s/ Arthur P. Ronan
C. Todd Conover Arthur P. Ronan
Director Director
/s/ H. Corbin Day /s/ Joab L. Thomas
H. Corbin Day Joab L. Thomas
Director Director
/s/ Herbert J. Dickson /s/ Rodney W. Blankenship
Herbert J. Dickson Rodney W. Blankenship
Director Chief Accounting Officer
Page 34
<PAGE>
<TABLE>
BLOUNT, INC. & SUBSIDIARIES
SCHEDULE II
CONSOLIDATED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
(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
----------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <S> <C> <S> <C>
Twelve months ended
February 28, 1995
- -------------------
Allowance for doubtful
accounts receivable $ 2.2 $ 0.8 $ 0.1 $ 0.5 (1) $ 2.6
======= ======= ======= ======= =======
Twelve months 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
======= ======= ======= =======
</TABLE>
(1) Principally amounts written-off less recoveries of amounts previously
written-off.
(2) Allowance established for company acquired by purchase.
Page 35
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BLOUNT, INC. FOR THE PERIOD ENDED DECEMBER 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> MAR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 125
<ALLOWANCES> 3
<INVENTORY> 82
<CURRENT-ASSETS> 287
<PP&E> 302
<DEPRECIATION> 170
<TOTAL-ASSETS> 540
<CURRENT-LIABILITIES> 112
<BONDS> 85
0
0
<COMMON> 0
<OTHER-SE> 299
<TOTAL-LIABILITY-AND-EQUITY> 540
<SALES> 527
<TOTAL-REVENUES> 527
<CGS> 347
<TOTAL-COSTS> 347
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8
<INCOME-PRETAX> 71
<INCOME-TAX> 26
<INCOME-CONTINUING> 45
<DISCONTINUED> 1
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
