-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kpSYpY/MvJWkCPLtXg+S5Kwg1ei5XysBWwS50XPGyQsAIlcK8jBTnnrG1P94EEwW LDu9hsfcSZSqukvo/+CTRQ== 0000012707-94-000007.txt : 19940513 0000012707-94-000007.hdr.sgml : 19940513 ACCESSION NUMBER: 0000012707-94-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19940228 FILED AS OF DATE: 19940429 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLOUNT INC CENTRAL INDEX KEY: 0000012707 STANDARD INDUSTRIAL CLASSIFICATION: 1540 IRS NUMBER: 630593908 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07002 FILM NUMBER: 94525304 BUSINESS ADDRESS: STREET 1: 4520 EXECUTIVE PK DR CITY: MONTGOMERY STATE: AL ZIP: 36116 BUSINESS PHONE: 2052444000 10-K 1 FORM 10-K FOR FYE 2/28/94 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (Mark One) {X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended February 28, 1994 ----------------- OR { } TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission file number 1-7002 ------ BLOUNT, INC. - - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 63-0593908 - - ---------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4520 Executive Park Drive, Montgomery, Alabama 36116-1602 - - ---------------------------------------------- ------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (205) 244-4000 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Class A Common Stock, $1.00 par value Class B Common Stock, $1.00 par value American Stock Exchange - - ------------------------------------- ----------------------- 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. Yes No X ------- ------- 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 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 April 1, - - --------------------------------------------------------------------------- 1994: $179,922,498 - - -------------------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class A Common Stock $1.00 par value, as of April 1, 1994: 8,282,515 shares --------- Class B Common Stock $1.00 par value, as of April 1, 1994: 4,178,175 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 (e.g., annual report to security holders for fiscal year ended December 24, 1980). Portions of proxy statement for the annual meeting of stockholders to be held June 27, 1994 are incorporated by reference in Part III. Page 2 PART I ITEM 1. BUSINESS 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 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 Company adopted a plan to discontinue its construction business. See "Business - Acquisitions and Dispositions" on pages 6 and 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 12 through 15 and Note 4 of Notes to Consolidated Financial Statements on pages 29 and 30. 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, bars, sprockets and chain maintenance equipment for use primarily on portable gasoline and electric chainsaws. The Oregon trademark is well known to end-users and the Company believes that it is a world leader in the production of saw chain. Oregon's saw chain and related products are used primarily by professional loggers, construction workers, homeowners, farmers and tree surgeons. Recent new products from Oregon include the Woodzig power pruner and the Industrial Cutting System ("ICS") concrete cutter. Winner of an Industrial Design Excellence Award in 1991, the Woodzig is an electric power pruner designed primarily for use by homeowners. ICS, a diamond-tipped chain cutting system for concrete (including steel-reinforced concrete), is a faster and more flexible concrete cutting method than others currently employed in the construction and demolition industries. Oregon sells to a large number of distributors, dealers and mass merchandisers serving the retail replacement market. In addition, Oregon currently sells its products to more than 50 original equipment manufacturers ("OEMs"). Due to the high level of technical expertise and capital investment required to manufacture saw chain, the Company believes that it is able to produce durable, high-quality saw chain more efficiently than most of those OEMs. The use of Oregon cutting chain as original equipment on chainsaws is also promoted through cooperation with OEMs in improving the design and specifications of chain and saws. Sales of saw chain for replacement use, which accounted for approximately three-quarters of the Company's saw chain sales in fiscal 1994, are generally more profitable than sales of saw chain to OEMs. The Company has Outdoor Products sales personnel throughout the United States and in a number of foreign countries. Sales derived from operations outside the United States accounted for 45%, and export sales accounted for 10%, of Outdoor Products sales during fiscal 1994. Oregon manufactures saw chain and related products in Milwaukie, Oregon; Guelph, Ontario, Canada and Curitiba, Brazil. Oregon's products compete on the basis of quality and price, primarily with the products of other saw chain manufacturers as well as a small number of international chainsaw manufacturers, some of whom are also customers. Page 3 Segment operating income is subject to seasonality with over half of annual operating income generated during the last half of the fiscal year. Sales are seasonal to a much lesser extent, reflecting the effect of volume sales to several OEMs at lower margins typically than replacement sales. This segment's principal raw material, strip steel, is generally purchased from two vendors, although it is readily available from other sources. Dixon, a manufacturer of ZTR (zero turning radius) riding lawn mowers and related attachments, was acquired in early fiscal 1991. The maneuverability of ZTR mowers significantly reduces mowing time and distinguishes them from competitors' products. These mowers accounted for $29.5 million or 13% of Outdoor Product sales. 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 and a line of tractors, feller bunchers and related attachments under the Hydro-Ax brand name. Major customers of the Industrial and Power Equipment segment include timber harvesters, land reclamation companies, contractors and scrap yard operators. The Company sells its products through a network of approximately 60 dealers in over 100 locations in the United States and currently has an additional 13 dealers overseas, primarily in South America and Southeast Asia. Over 90% of this segment's sales in fiscal 1994 were in the United States, primarily in the southeast states. The Company places a strong emphasis on the quality, safety, comfort, durability and productivity of its products and on the after-market service provided by its distribution and support network. The Company's Industrial and Power Equipment segment competes primarily on the basis of quality with a number of domestic and foreign manufacturers of log loaders and feller bunchers. The Company attempts to capitalize on its technological and manufacturing expertise as a means of increasing its participation in the market for replacement parts for products which it manufactures, as well as of developing new product applications both within and beyond the timber, scrap and construction industries. The Company is committed to continuing research and development in this segment to respond quickly to increasing mechanization and environmental awareness in the timber harvesting industry. For example, the Company's products include three-wheel tractors and boom harvesters, which permit harvesters to employ selective cutting and thinning methods that may not be as destructive as traditional clear cutting. The Company's Industrial and Power Equipment segment has manufacturing facilities in Owatonna, Minnesota; Prentice and Spencer, Wisconsin; Tulsa, Oklahoma and Zebulon, North Carolina. A majority of the components used in the Company's products are obtained from a number of domestic manufacturers. Page 4 Segment results also include those of Gear Products, Inc. ("Gear"), acquired by the Company early in fiscal 1992. 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. SPORTING EQUIPMENT The Company's Sporting Equipment segment manufactures small arms ammunition, reloading equipment, primers, gun care products and accessories. 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 and Weaver shooting mounts and scopes. 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. The market for Sporting Equipment products is characterized by a high degree of customer loyalty to brand names and historically has not been affected by adverse economic conditions. A continuing focus on new and better technologies has enabled the Company to introduce a number of new and improved products in recent years. These products include Blazer aluminum-case ammunition. Up to 15% less expensive than traditional brass-case ammunition, Blazer aluminum-case ammunition is used as training ammunition by numerous law-enforcement agencies located throughout the world. The Company developed its Clean-Fire ammunition, made with lead-free primers, in response to concern in the shooting community about exposure to lead and other heavy metals, particularly in indoor ranges. Principal raw materials include brass, lead, aluminum and powder, which are purchased from several suppliers. The Company manufactures ammunition in Lewiston, Idaho, reloading equipment in Oroville, California and mounts, scopes and gun care equipment in Onalaska, Wisconsin. In the market for small arms ammunition and primers, the Company competes with several larger manufacturers with well established brand names and market share positions. In the segment's other product lines, the Company competes with a number of smaller competitors, none of whom has a dominant market share. CAPACITY UTILIZATION Based on an 80-hour work week, the Outdoor Products, Industrial and Power Equipment and Sporting Equipment segments utilized approximately 90%, 72% and 56%, respectively, of their production capacity in fiscal 1994. Page 5 BACKLOG The backlog for each of the Company's business segments as of the end of each of its last four fiscal years was as follows: Last day of February -------------------------------------------- 1994 1993 1992 1991 -------- -------- -------- -------- (In thousands) Outdoor Products $ 36,507 $ 31,369 $ 33,561 $ 19,830 Industrial and Power Equipment 93,794 32,883 20,058 9,178 Sporting Equipment 16,750 3,048 5,437 8,100 -------- -------- -------- -------- $147,051 $ 67,300 $ 59,056 $ 37,108 ======== ======== ======== ======== The total backlog as of February 28, 1994 is expected to be completed and shipped within fiscal 1995. ACQUISITIONS AND DISPOSITIONS In fiscal 1990, the Company sold certain of its remaining agri/industrial operations for cash and notes of $4.4 million and its foreign resource recovery subsidiary for cash of approximately $24 million. The Company's Board of Directors in March 1990 ratified a plan adopted by management in fiscal 1990 for the disposal of the Company's remaining resource recovery/development operations. In March 1990, the Company acquired all of the outstanding capital stock of Dixon Industries, Inc. for cash of approximately $25 million. Dixon manufactures specialty riding lawn mowers and related attachments. The transaction was accounted for as a purchase. In fiscal 1991, the Company acquired certain product line manufacturing and marketing rights for its Industrial and Power Equipment segment at a cost of $5.5 million. In fiscal 1991, the Company sold its rights to certain resource recovery technology for cash and notes of approximately $5 million. In March 1991, the Company acquired all the outstanding capital stock of Gear Products Inc. for cash and notes of $17.4 million. Gear designs and manufactures rotation bearings and mechanical power transmission components for manufacturers of equipment that serve the utility, man-lift, construction, forestry and marine industries. The transaction was accounted for as a purchase. In May 1991, the Company sold its remaining resource recovery operations consisting principally of two resource recovery facilities. The sales price was approximately $14.5 million in cash. The Company has been released from its contingent liabilities under guarantees with respect to the two facilities. In fiscal 1993, the Company sold its remaining agri/industrial plants for cash of $.9 million. Page 6 In February 1994, the Company adopted a plan to discontinue its construction business. The plan provides for the orderly completion and close-out of the Company's principal domestic and foreign construction projects ("the projects") and the sale of Pozzo Construction Company ("Pozzo"), the Company's wholly owned subsidiary headquartered in Los Angeles, California. In March 1994, the company entered into an agreement with Caddell Construction Co., Inc. ("Caddell") under which Caddell will provide the consulting and construction management services necessary to complete the projects and acquired the Company's right to use the name "Blount" in the construction business for a period of years. As of February 28, 1994, the projects encompassed by the agreement with Caddell have a remaining contract value of approximately $94 million and are expected to be completed within two years. Although Caddell will actively manage the projects, the Company will remain subject to the inherent risks associated with a general construction contractor. On most of the projects, the Company will participate in future profits and remain responsible for substantially all losses, if any, in excess of current estimates of final project profit or loss. The Company is pursuing the sale of Pozzo and expects a sale to be concluded within 12 months. During the period until sale, Pozzo will continue normal operations, including the pursuit of new contracts. An after-tax loss of $650 thousand was recorded for the disposal of this segment. EMPLOYEES At February 28, 1994, the Company employed approximately 4,700 individuals, 16% of whom were employed by its discontinued construction business. None of the Company's employees in the manufacturing operations are unionized. The Company believes its relations with its employees are satisfactory. ENVIRONMENTAL MATTERS The United States Environmental Protection Agency ("EPA") has designated a predecessor of the Company as a potentially responsible party ("PRP") with respect to the Onalaska Municipal Landfill in Onalaska, Wisconsin. The waste complained of was placed in the landfill prior to 1981 by a corporation, some of whose assets were purchased in 1981 by the predecessor of the Company. It is the view of the Company that because its predecessor corporation purchased assets rather than stock, the Company does not have successor liability and is not properly a PRP. However, the EPA has indicated it does not accept this position. The Company believes the EPA is wrong on the successor liability issue. However, with other PRP's, the Company made a good faith offer to the EPA to pay a portion of the clean-up costs. The offer was rejected and the EPA is proceeding with the clean-up. The estimated clean-up costs are approximately $5 to $10 million with maintenance costs of approximately $150,000 per year for 30 years. The Company does not expect the situation to have a material adverse effect. The Company announced in January 1989, that a pocket of a cleaning solvent, trichloroethylene ("TCE"), had been detected under the concrete floor of the Company's cutting systems division plant in Milwaukie, Oregon. TCE was also detected in the City of Milwaukie drinking water wells. The Company's deep wells, which are surrounded by the City of Milwaukie wells, draw from the same aquifer and show TCE amounts less than those of the City's wells. On December 6, 1989, the Company entered into a Stipulation and Consent Agreement for facility investigation with the Department of Environmental Quality ("DEQ") of the State of Oregon and agreed to investigate the TCE contamination beneath Page 7 the plant and take appropriate measures to remediate potential adverse effects from such contamination. In November 1992, the Company submitted a Facility Investigation Final Report ("Report") to the DEQ for the Milwaukie, Oregon plant. The Report states that the contamination has affected a limited portion of the saturated engineered fill under the building. Since monitoring began in 1988, the contaminant plume in the engineered fill has not migrated. The concentration of the contaminants in the plume has been reduced by greater than 50% since 1989. The TCE plume has not migrated off Company property. The Company believes the contaminants pose no risk to Company employees or the community because the ground water within the shallow alluvium is not used and the contaminants are not migrating towards the drinking water supply aquifer. There is no evidence that the Company's operations have affected the drinking water supply aquifer. The Company does not expect the situation to have a material adverse effect. From time to time the Company may be identified as a potentially responsible party with respect to a Superfund site. EPA (or a state) can either (a) allow such a party to conduct and pay for a remedial investigation and feasibility study and remedial action or (b) conduct the remedial investigation and action and then seek reimbursement from the parties. Each party can be held jointly, severally and strictly liable for all costs, but the parties can then bring contribution actions against each other. As a result of the Superfund Act, the Company may be required to expend amounts on remedial investigations and actions which amounts cannot be determined at the present time but may ultimately prove to be significant. During fiscal 1994, the Company spent an aggregate of approximately $1.2 million on improvements in connection with environmental quality standards. The Company expects to spend approximately $.8 million during fiscal 1995 and between $1.0 million and $1.2 million for each of the two years thereafter on compliance costs. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND FOREIGN AND DOMESTIC OPERATIONS For information about industry segments and foreign and domestic operations, see "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 12 through 15 and Note 10 of Notes to Consolidated Financial Statements on pages 37 and 38. ITEM 2. PROPERTIES The corporate headquarters of the Company occupies 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, 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 and feller-bunchers are manufactured at plants in Prentice and Spencer, Wisconsin; Zebulon, 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, Page 8 gun care equipment and industrial power loads are manufactured at plants in Lewiston, Idaho; Oroville, California; and Onalaska, Wisconsin. All of these plants are in good condition, are currently in normal operation and are generally suitable and adequate for the business activity conducted therein. Approximate square footage of principal properties is as follows: Area in Square Feet ------------------- Owned Leased ------- ------- Outdoor Products 894,000 204,000 Sporting Equipment 705,000 0 Industrial & Power Equipment 630,000 0 Corporate Office 191,000 15,000 --------- ------- Total 2,420,000 219,000 ========= ======= ITEM 3. LEGAL PROCEEDINGS On December 20, 1989, the Company sold to Asea Brown Boveri Ltd. ("ABB") all the stock of W+E Umwelttechnik AG, then an engineering subsidiary of the Company in the waste-to-energy business located in Zurich, Switzerland. On July 26, 1993, ABB filed a Request for Arbitration with the Zurich Chamber of Commerce. The request contains statements that ABB has or anticipates having losses on two projects which were underway at the time of sale. While it is not clear, ABB appears to be claiming approximately 100 Million Swiss francs and rescission of the purchase agreement based on the Company's alleged wilful failure to disclose material facts and that ABB made a fundamental mistake in entering into the purchase agreement. Executives of the two companies have discussed the matter and were not able to resolve it. The matter proceeded to mediation and the parties were not able to resolve it. The Company believes it has valid defenses based on the terms of the purchase agreement, the facts and the law. In March 1994, the Company filed a lawsuit against ABB and two of its subsidiaries in the Circuit Court of Jefferson County, Alabama seeking declaratory judgment and injunctive relief as well as money damages for (i) intentional interference with the Company's business relationships and (ii) abuse of process. The Company does not expect the situation to have a material adverse effect on its financial condition. General contractors in the ordinary course of business become involved in claims, many of which are settled in the field, some of which are settled by the parties involved prior to or upon completion of work and some of which are ultimately litigated. Such disputes have arisen routinely in the course of the Company's construction business and may arise as the final projects are completed. The Company is a defendant in a number of product liability lawsuits involving serious personal injuries for which it is self-insured, some of which seek significant or unspecified damages. In addition, the Company is a party to a number of other suits arising out of the conduct of its business. While there can be no assurance as to their ultimate outcome, the Company does not believe these lawsuits will have a material adverse effect on its financial condition. Page 9 For information regarding legal proceedings see Note 8 of Notes to Consolidated Financial Statements on pages 34 through 36. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following table presents for the two years ended the last day of February 1994 the quarterly high and low prices on the American Stock Exchange and cash dividends declared for the Company's Common Stock. The Company had approximately 8,900 shareholders as of April 15, 1994. Class A Common Stock Class B Common Stock -------------------------- ---------------------------- High Low Dividend High Low Dividend - - ------------------------------------------------------------------------------ 1994 First quarter $16 1/2 $12 1/8 $ .1125 $16 5/8 $12 7/8 $ .1000 Second quarter 16 1/2 13 1/8 .1125 16 3/8 12 3/4 .1000 Third quarter 23 3/8 14 1/2 .1125 23 3/4 14 3/8 .1000 Fourth quarter 32 1/2 22 3/4 .1250 32 1/2 23 3/8 .1125 1993 First quarter $ 8 1/2 $ 7 $ .1125 $ 8 1/4 $ 7 1/8 $ .1000 Second quarter 9 1/4 8 1/4 .1125 9 1/8 8 1/4 .1000 Third quarter 9 3/4 8 5/8 .1125 9 3/4 8 1/2 .1000 Fourth quarter 17 9 3/4 .1125 16 7/8 9 5/8 .1000 For information regarding restrictions on the Company's ability to pay cash dividends, see Note 3 of Notes to Consolidated Financial Statements on pages 27 through 29. For information regarding restrictions on the net assets of foreign subsidiaries, see Note 11 of Notes to Consolidated Financial Statements on pages 39 and 40. Page 10 ITEM 6. SELECTED FINANCIAL DATA
For the years ended the last day of February 1994 1993 1992 1991 1990 Dollar amounts in thousands, except share data - - ----------------------------------------------------------------------------------------------------------------- Operating Results: Sales $ 487,312 $ 426,237 $ 382,532 $ 355,061 $ 335,524 Operating income from segments 73,631 43,404 25,372 28,384 31,341 Income (loss) from continuing operations before extraordinary gain (loss) and cumulative effect of accounting changes 24,304 12,007 (4,295) 644 7,070 Net income(1) 14,080 7,239 683 2,242 21,800 Per share: Income (loss) from continuing operations before extraordinary gain (loss) and cumulative effect of accounting changes 1.91 .98 (.35) .06 .59 Net income(1) 1.11 .59 .06 .19 1.81 - - --------------------------------------------- ------------- ------------- ------------- ------------- ----------- Year-End Financial Position: Total assets $ 492,901 $ 447,151 $ 466,243 $ 496,319 $ 518,003 Working capital 104,346 58,340 63,671 86,911 75,286 Property, plant and equipment-gross 276,116 270,312 265,067 244,672 225,604 Property, plant and equipment-net 140,422 149,061 154,280 147,274 140,359 Long-term debt 107,651 82,046 105,654 124,052 100,277 Total debt 109,733 88,143 130,846 144,358 102,359 Net debt (total debt less cash and cash equivalents) to total capitalization 20.8% 29.0% 44.1% 40.7% 9.2% Shareholders' equity 166,853 155,071 151,129 155,409 158,406 Current ratio 1.6 to 1 1.4 to 1 1.4 to 1 1.5 to 1 1.3 to 1 - - --------------------------------------------- ------------- ------------- ------------- ------------- ----------- Other Data: Property, plant and equipment additions(2) $ 14,711 $ 20,373 $ 32,983 $ 27,145 $ 19,021 Depreciation and amortization 22,801 23,361 22,251 17,261 15,789 Interest expense, net 9,551 9,687 14,384 11,099 4,466 Stock price Class A high 32 1/2 17 12 7/8 13 3/4 13 1/4 Class A low 12 1/8 7 5 3/4 6 7/8 9 1/4 Stock price Class B high 32 1/2 16 7/8 14 3/4 14 5/8 13 1/4 Class B low 12 3/4 7 1/8 5 5/8 7 9 1/4 Per common share dividends Class A .4625 .45 .45 .45 .45 Class B .4125 .40 .40 .40 .40 Weighted average common shares outstanding 12,730,733 12,283,592 11,958,557 12,000,207 12,040,823 Employees (approximate) 4,700 4,800 4,700 4,600 5,000 - - --------------------------------------------- ------------- ------------- ------------- ------------- ----------- (1) Includes an extraordinary gain of $92 ($.01 per share) on repurchase of debt in 1994, an extraordinary loss of $119 ($.01 per share) on repurchase of debt in 1993, income of $6,014 ($.50 per share) representing the cumulative effect of adopting Statement of Financial Accounting Standards ("SFAS") No. 106 and SFAS No. 109 in 1992, an extraordinary gain of $1,205 ($.10 per share) on repurchase of debt in 1991 and a gain on disposal of discontinued operations of $7,693 ($.64 per share) in 1990. (2) Includes property, plant and equipment of acquired companies at date of purchase of $6,034 in 1992 and $4,675 in 1991 and $11,300 resulting from the adoption of SFAS No. 109 in 1992.
Page 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes. OPERATING RESULTS TOTAL COMPANY FISCAL 1994 COMPARED TO FISCAL 1993 Sales in fiscal 1994 were $487.3 million compared to $426.2 million in fiscal 1993. Income from continuing operations before extraordinary gain improved to $24.3 million in fiscal 1994, more than twice the $12.0 million in fiscal 1993. The improved sales and operating results reflect continued strong performance by each of the Company's manufacturing segments. Net income of $14.1 million in fiscal 1994 compared to net income of $7.2 million in fiscal 1993. Fiscal 1994 net income included a loss of $10.3 million from discontinued operations and an extraordinary gain of $92 thousand on repurchase of debt. Fiscal 1993 net income included a loss of $4.6 million from discontinued operations and an extraordinary loss of $119 thousand on repurchase of debt. Selling, general and administrative expenses increased by $12.0 million in fiscal 1994, principally as a result of accruals for expected legal costs related to the sale of a former subsidiary (see Note 8 of Notes to Consolidated Financial Statements) and management incentive plans resulting from the Company's improved earnings and increased stock price. Net other expense in fiscal 1994 increased by $3.0 million over fiscal 1993 primarily due to losses resulting from disposals and reductions in carrying value of certain property, plant and equipment. In February 1994, the Company adopted a plan to discontinue its construction business. The plan provides for the orderly completion and close-out of the Company's principal domestic and foreign construction projects ("the projects") and the sale of Pozzo Construction Company ("Pozzo"), the Company's wholly owned subsidiary headquartered in Los Angeles, California. In March 1994, the Company entered into an agreement with Caddell Construction Co., Inc. ("Caddell") under which Caddell will provide the consulting and construction management services necessary to complete the projects and acquired the Company's right to use the name "Blount" in the construction business for a period of years. The projects encompassed by the agreement with Caddell have a remaining contract value of approximately $94 million and are expected to be completed within two years. Although Caddell will actively manage the projects, the Company will remain subject to the inherent risks associated with a general construction contractor. On most of the projects, the Company will participate in future profits and remain responsible for substantially all losses, if any, in excess of current estimates of final project profit or loss. The Company is pursuing the sale of Pozzo and expects a sale to be concluded within 12 months. During the period until sale, Pozzo will continue normal operations, including the pursuit of new contracts. Page 12 In fiscal 1994, an after-tax loss of $650 thousand was provided for disposal of the construction segment. The results of construction operations are classified as discontinued operations in the Company's consolidated statements of income. FISCAL 1993 COMPARED TO FISCAL 1992 Sales in fiscal 1993 were $426.2 million compared to $382.5 million in fiscal 1992. Net income of $7.2 million in fiscal 1993 compared to net income of $683 thousand for fiscal 1992. Fiscal 1993 net income included a loss of $4.6 million from discontinued operations and an extraordinary loss of $119 thousand on repurchase of debt. Fiscal 1992 results included a loss of $1.0 million from discontinued operations and after tax income of $6.0 million resulting from the cumulative effect of accounting changes for income taxes and postretirement benefits other than pensions. Selling, general and administrative expenses were down $5.9 million (including a reduction of $3.1 million in corporate expenses) or 5.4% during fiscal 1993 reflecting a major emphasis on the reduction of overhead expenses. Net interest expense was $4.7 million lower than in fiscal 1992 principally due to lower average interest rates and lower average debt levels, including debt reductions resulting from the Company's improved cash flows and receivable sale agreement (see below). Net other expense increased by $1.7 million in fiscal 1993 over fiscal 1992 as gains in fiscal 1992 on a lease termination were not present in fiscal 1993. SEGMENTS FISCAL 1994 COMPARED TO FISCAL 1993 Sales for the Outdoor Products segment in fiscal 1994 were $234.5 million compared to $213.6 million during fiscal 1993. Operating income increased to $34.0 million during fiscal 1994 from $20.6 million in fiscal 1993. The improved results for this segment were primarily due to increased sales and operating income of $15.3 million and $11.6 million, respectively, at the Company's Oregon Cutting Systems Division ("Oregon"), reflecting an 11% increase in the sales volume of saw chain, Oregon's principal product, and reduced unit costs. A significant part of Oregon's operations are conducted in foreign countries, and as a result, fluctuations in exchange rates impact the amount of reported sales, operating margins and the amount of foreign exchange adjustments reflected in income. The Company enters into foreign exchange forward contracts to reduce the effects of exchange rate fluctuations on Oregon's anticipated future foreign currency cash flows. As these contracts are accounted for at market value, the effects of exchange rate fluctuations are recognized in income until the contracts are terminated (see Note 1 of Notes to Consolidated Financial Statements). Oregon has manufacturing facilities in Brazil whose operations are significantly affected by high inflation, currency devaluation and resulting government policies. Operating income from Brazil was $749 thousand in fiscal 1994 compared to $384 thousand in fiscal 1993. Sales and operating income at other units of the Outdoor Products segment were up by 20% to $33.8 million and 115% to $3.3 million, respectively, in fiscal 1994, principally as a result of higher average selling prices and a 20% increase in the sales volume of riding lawn mowers. In fiscal 1995, the Company expects the sales of the Outdoor Products segment to continue at fiscal 1994 levels with moderate gains in Europe and improved results in the former Eastern Bloc countries. Page 13 Sales for the Industrial and Power Equipment segment were $162.0 million during fiscal 1994 compared to $128.9 million during fiscal 1993. Operating income increased to $24.5 million during fiscal 1994 from $12.8 million during fiscal 1993. Demand for this segment's products remained high as the aggregate volume of timber harvesting and industrial tractor and loader units sold during fiscal 1994 increased by 20% over the prior fiscal year. The improvement in operating income was principally due to this increase in volume, improved parts sales and increased average selling prices. High backlogs combined with an expected increase in capital spending by the forest products industry and expanding international opportunities indicate continued growth for this segment. Sales for the Sporting Equipment segment were $90.8 million during fiscal 1994 compared to $83.7 million in fiscal 1993. Operating income increased to $15.2 million from $10.0 million during fiscal 1993. The increases in sales and operating income were principally due to improved margins on higher volume and income recognized in fiscal 1994 upon finalizing a license and technical assistance agreement with a foreign company. This agreement is expected to lead to future product sales as well as royalties. The Company expects fiscal 1995 to be another good year for the Sporting Equipment segment. FISCAL 1993 COMPARED TO FISCAL 1992 Sales for the Outdoor Products segment in fiscal 1993 increased by $16.9 million over fiscal 1992, while operating income was up by $7.2 million. The improved results for this segment were principally attributable to increased sales of $11.3 million and an operating income increase of $6.7 million at Oregon; approximately $2.4 million of the sales increase resulted from higher average sales prices for a core product and $7.7 million was attributable to the increased volume of products purchased for resale and new products. The improved operating income at Oregon resulted from the additional margin on increased sales and a reduction of $2.6 million in selling, general and administrative expenses. In fiscal 1993, operating income from Brazil was $384 thousand compared to $524 thousand in fiscal 1992. The aggregate sales and operating income at other Outdoor Products segment units were up by approximately 24% to $28.3 million and 47% to $1.6 million, respectively, in fiscal 1993. The results from the Industrial and Power Equipment segment reflected substantial improvement during fiscal 1993. Sales for this segment increased by $27.5 million in fiscal 1993, approximately $17.9 million from the increased volume and $7.0 million from the higher average sales prices of forestry and industrial equipment units sold. Fiscal 1992 results were adversely affected by the effects of the recession on the segment's principal market, the forest products industry. Operating income improved by $13.3 million principally as a result of the additional margin on increased sales. Sales from the Company's Sporting Equipment segment were down slightly in fiscal 1993 compared to fiscal 1992 while operating income dropped 19.8%. The reduced fiscal 1993 operating results were principally due to margin reductions of $2.8 million resulting from both reduced average selling prices and lower export volume for a major ammunition product line and higher warranty costs from prior year foreign sales. Page 14 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES At February 28, 1994, the Company had $1.1 million outstanding under its uncommitted short-term lines of credit. At February 28, 1994, the Company's long-term debt and equity were $107.7 million and $166.9 million, respectively, for a long-term debt to equity ratio of .6 to 1 as compared to a ratio of .5 to 1 at February 28, 1993. In July 1993, the Company issued 9% senior subordinated notes ("the 9% notes") due 2003 in the principal amount of $100 million. In August 1993, the majority of the proceeds from the 9% notes was used to retire $73.6 million 12% subordinated notes due 1996. In June 1993, the Company increased the amount that can be borrowed under its revolving credit agreement from $50 million to $60 million. At February 28, 1994, no amounts were outstanding under the revolving credit agreement. Since issuing the 9% notes, the Company has temporarily discontinued the sale of receivables under a receivable sale agreement with a major bank under which the Company can sell up to $25 million of eligible receivables. See Note 3 of Notes to Consolidated Financial Statements for a description of the terms and conditions of the 9% notes, the revolving credit agreement and the receivable sale agreement. Working capital was $104.3 million at February 28, 1994, compared to $58.3 million at February 28, 1993. The principal reasons for this increase were the Company's improved earnings in fiscal 1994 and the excess proceeds from the 9% notes over the amount utilized to retire the 12% subordinated notes. The Company's operating cash flows for fiscal 1994 were $29.2 million compared to $68.1 million in fiscal 1993. This reduction in operating cash flows is primarily due to the reduced sales of receivables under the Company's receivable sale agreement, higher income tax payments and an increase in inventories in the fourth quarter of fiscal 1994 to meet expected demand early in fiscal 1995. Cash and cash equivalent balances increased to $52.2 million at February 28, 1994 from $17.7 million at February 28, 1993, reflecting the Company's operating cash flows and excess proceeds from the 9% notes. The Company believes that its operating cash flows, working capital and unused credit facilities will provide both short-term and long-term liquidity. Restrictions on the Company's ability to pay cash dividends are contained in the indenture related to the 9% notes and in certain financial covenants of the revolving credit agreement. Under the most restrictive requirement, retained earnings of approximately $13.0 million were available for the payment of dividends at February 28, 1994. The Company and its operations are subject to various environmental laws and regulations. See "Business - Environmental Matters" and Note 8 of Notes to Consolidated Financial Statements for a description of certain environmental matters. Management believes that the impact of domestic inflation on the Company has not been material in recent years as inflation rates have remained low. Page 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS 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 the last day of February 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 28, 1994 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. In accordance with statements issued by the Financial Accounting Standards Board, as discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits other than pensions and income taxes in 1992. COOPERS & LYBRAND Atlanta, Georgia April 12, 1994 Page 16 MANAGEMENT RESPONSIBILITY All information contained in the consolidated financial statements of Blount, Inc., has been prepared by management, which is responsible for the accuracy and internal consistency of the information. Generally accepted accounting principles have been followed. Reasonable judgments and estimates have been made where necessary. Management is responsible for establishing and maintaining a system of internal accounting controls designed to provide reasonable assurance as to the integrity and reliability of financial reporting. The system of internal accounting controls is tested by the internal audit department as part of its normal responsibilities and by Coopers & Lybrand to the extent deemed necessary in accordance with generally accepted auditing standards. Management believes the system of internal controls has been effective during the Company's most recent fiscal year and that no matters have arisen which indicate a material weakness in the system. Management follows the policy of responding to the recommendations concerning the system of internal controls made both by Coopers & Lybrand and by the internal audit department. Management implements those recommendations that it believes would improve the system of internal controls and be cost justified. Six directors of the Company, not members of management, serve as the Audit Committee of the Board and are the principal means through which the Board discharges its financial reporting responsibility. The Audit Committee meets with management personnel, the internal auditors and the Company's independent auditors, Coopers & Lybrand, several times each year to consider the results of internal and external audits of the Company and to discuss internal accounting control, auditing and financial reporting matters. At these meetings, the Audit Committee also meets privately with Coopers & Lybrand and the General Auditor of the Company to ensure free access by the independent auditors and internal auditors to the committee. The Company's independent auditors, Coopers & Lybrand, audited the financial statements prepared by the Company. Their opinion on these statements is presented on page 16. JOHN M. PANETTIERE HAROLD E. LAYMAN President and Senior Vice President and Chief Executive Officer Chief Financial Officer Page 17 CONSOLIDATED STATEMENTS OF INCOME Blount, Inc. and Subsidiaries
For the years ended the last day of February 1994 1993 1992 - - --------------------------------------------------------------------------------------------------------------------- In thousands, except share data Sales $ 487,312 $ 426,237 $ 382,532 Cost of sales 320,455 292,411 263,964 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Gross profit 166,857 133,826 118,568 Selling, general and administrative expenses 116,272 104,277 110,194 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Income from operations 50,585 29,549 8,374 Interest expense, net (9,551) (9,687) (14,384) Other expense, net (4,760) (1,742) (62) - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Income (loss) before income taxes 36,274 18,120 (6,072) Provision (benefit) for income taxes 11,970 6,113 (1,777) - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Income (loss) from continuing operations before extraordinary gain (loss) and cumulative effect of accounting changes 24,304 12,007 (4,295) - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Discontinued operations: Loss from operations, net (9,666) (4,649) (1,036) Loss on disposal, net (650) - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Total loss from discontinued operations (10,316) (4,649) (1,036) - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Income (loss) before extraordinary gain (loss) and cumulative effect of accounting changes 13,988 7,358 (5,331) Extraordinary gain (loss) on repurchase of debt, net 92 (119) Cumulative effect of accounting changes, net 6,014 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Net income $ 14,080 $ 7,239 $ 683 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Income (loss) per share of common stock: Income (loss) from continuing operations before extraordinary gain (loss) and cumulative effect of accounting changes $ 1.91 $ .98 $ (.35) Discontinued operations (.81) (.38) (.09) - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Income (loss) before extraordinary gain (loss) and cumulative effect of accounting changes 1.10 .60 (.44) Extraordinary gain (loss) .01 (.01) Cumulative effect of accounting changes .50 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Net income $ 1.11 $ .59 $ .06 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Weighted average number of common shares outstanding 12,730,733 12,283,592 11,958,557 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- The accompanying notes are an integral part of these statements.
Page 18 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Blount, Inc. and Subsidiaries
For the years ended the last day of February 1994 1993 1992 - - --------------------------------------------------------------------------------------------------------------------- In thousands, except share data Balance at beginning of period $ 128,833 $ 126,813 $ 131,284 Net income 14,080 7,239 683 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- 142,913 134,052 131,967 Less cash dividends declared: Common stock (Class A - $.4625 per share in 1994 and $.45 per share in 1993 and 1992; Class B - $.4125 per share in 1994 and $.40 per share in 1993 and 1992) 5,473 5,219 5,154 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Balance at end of period $ 137,440 $ 128,833 $ 126,813 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- The accompanying notes are an integral part of these statements.
Page 19 CONSOLIDATED BALANCE SHEETS Blount, Inc. and Subsidiaries
As of the last day of February 1994 1993 - - --------------------------------------------------------------------------------------------------------------------- In thousands, except share data Assets - - ------------------------------------------------------------------------------------- ----------------- ------------- Current assets: Cash and cash equivalents, including short-term investments of $48,810 and $15,223 $ 52,213 $ 17,723 Accounts receivable, net of allowances for doubtful accounts of $2,238 and $2,563 134,458 117,956 Inventories 60,180 55,900 Deferred income taxes 17,742 2,178 Other current assets 12,812 24,390 - - ------------------------------------------------------------------------------------- ----------------- ------------- Total current assets 277,405 218,147 Property, plant and equipment, net of accumulated depreciation of $135,694 and $121,251 140,422 149,061 Cost in excess of net assets of acquired businesses, net 60,171 62,065 Other assets 14,903 17,878 - - ------------------------------------------------------------------------------------- ----------------- ------------- Total Assets $ 492,901 $ 447,151 - - ------------------------------------------------------------------------------------- ----------------- ------------- Liabilities and Shareholders' Equity - - ------------------------------------------------------------------------------------- ----------------- ------------- Current liabilities: Notes payable and current maturities of long-term debt $ 2,082 $ 6,097 Accounts payable 74,267 66,292 Accrued expenses 83,757 70,741 Billings in excess of costs and recognized profits on uncompleted contracts 12,953 16,677 - - ------------------------------------------------------------------------------------- ----------------- ------------- Total current liabilities 173,059 159,807 Long-term debt, exclusive of current maturities 107,651 82,046 Deferred income taxes, exclusive of current portion 13,499 12,966 Other liabilities 31,839 37,261 - - ------------------------------------------------------------------------------------- ----------------- ------------- Total liabilities 326,048 292,080 - - ------------------------------------------------------------------------------------- ----------------- ------------- Commitments and Contingent Liabilities - - ------------------------------------------------------------------------------------- ----------------- ------------- Shareholders' equity: Common stock: par value $1.00 per share; Class A: 8,273,035 and 7,883,630 shares issued 8,273 7,884 Class B: 4,178,197 and 4,345,537 shares issued 4,178 4,346 Capital in excess of par value of stock 9,515 6,773 Retained earnings 137,440 128,833 Accumulated translation adjustment 7,447 7,235 - - ------------------------------------------------------------------------------------- ----------------- ------------- Total shareholders' equity 166,853 155,071 - - ------------------------------------------------------------------------------------- ----------------- ------------- Total Liabilities and Shareholders' Equity $ 492,901 $ 447,151 - - ------------------------------------------------------------------------------------- ----------------- ------------- The accompanying notes are an integral part of these statements.
Page 20 CONSOLIDATED STATEMENTS OF CASH FLOWS Blount, Inc. and Subsidiaries
For the years ended the last day of February 1994 1993 1992 - - --------------------------------------------------------------------------------------------------------------------- In thousands Cash flows from operating activities: Net income $ 14,080 $ 7,239 $ 683 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss (gain) (92) 119 Cumulative effect of accounting changes (6,014) Depreciation, amortization and other noncash charges 23,576 24,357 23,701 Deferred income taxes (15,031) (8,558) (3,064) Loss (gain) on disposals of property, plant and equipment 3,349 1,482 (2,161) Changes in assets and liabilities, net of effects of acquisitions of businesses: Increase (decrease) in aggregate balance of accounts receivable sold (17,637) 3,637 14,000 Decrease in accounts receivable 1,135 2,684 9,451 (Increase) decrease in inventories (4,280) 9,569 19 (Increase) decrease in other assets 12,337 140 (4,916) Increase (decrease) in accounts payable 7,975 2,929 (5,027) Increase in accrued expenses 12,701 8,135 8,534 Increase (decrease) in other liabilities (8,946) 16,402 (22,038) - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Net cash provided by operating activities 29,167 68,135 13,168 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Cash flows from investing activities: Proceeds from sales of businesses and property, plant and equipment 3,916 11,129 16,496 Purchases of property, plant and equipment (14,605) (17,965) (15,546) Acquisitions of businesses (14,590) - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Net cash used in investing activities (10,689) (6,836) (13,640) - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Cash flows from financing activities: Net reduction in short-term borrowings (2,246) (15,903) (568) Issuance of long-term debt 97,327 Reduction of long-term debt (75,325) (29,615) (8,876) Dividends paid (5,473) (5,219) (5,154) Purchase of treasury stock (682) Issuance of stock under stock option and dividend reinvestment plans 1,729 529 53 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Net cash provided by (used in) financing activities 16,012 (50,208) (15,227) - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Net increase (decrease) in cash and cash equivalents 34,490 11,091 (15,699) - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Cash and cash equivalents at beginning of period 17,723 6,632 22,331 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- Cash and cash equivalents at end of period $ 52,213 $ 17,723 $ 6,632 - - ------------------------------------------------------------------- ----------------- ----------------- ------------- The accompanying notes are an integral part of these statements.
Page 21 CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL STOCK ACCOUNTS Blount, Inc. and Subsidiaries
Common Stock Capital Accumulated ------------------ In Excess Translation Treasury In thousands Class A Class B of Par Adjustment Stock - - --------------------------------------------------------------------------------------------------------------- Balance, February 28, 1991 $ 7,554 $ 4,467 $ 4,930 $ 8,100 $ (926) Conversion of Class B Common Stock into Class A Common Stock 91 (91) Issuance of shares under dividend reinvestment plan 6 47 Aggregate adjustment resulting from translation of foreign currency statements (458) Purchase of treasury stock (682) Issuance of shares to employee benefit plan 95 1,183 - - --------------------------------------------------- ---------- ------------- -------------- ----------- ------- Balance, February 29, 1992 7,651 4,376 5,072 7,642 (425) Conversion of Class B Common Stock into Class A Common Stock 35 (35) Exercise of employee stock options 51 5 416 Issuance of shares under dividend reinvestment plan 6 51 Aggregate adjustment resulting from translation of foreign currency statements (407) Issuance of shares to employee benefit plan 141 1,234 425 - - --------------------------------------------------- ---------- ------------- -------------- ----------- ------- Balance, February 28, 1993 7,884 4,346 6,773 7,235 0 Conversion of Class B Common Stock into Class A Common Stock 168 (168) Exercise of employee stock options 142 1,511 Issuance of shares under dividend reinvestment plan 5 71 Aggregate adjustment resulting from translation of foreign currency statements 212 Issuance of shares to employee benefit plan 74 1,160 - - --------------------------------------------------- ---------- ------------- -------------- ----------- ------- Balance, February 28, 1994 $ 8,273 $ 4,178 $ 9,515 $ 7,447 $ 0 - - --------------------------------------------------- ---------- ------------- -------------- ----------- ------- The accompanying notes are an integral part of these statements.
Page 22 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. All significant intercompany balances and transactions are eliminated in consolidation. Reclassifications: Certain amounts in the 1993 and 1992 financial statements and notes to consolidated financial statements have been reclassified to conform with the 1994 presentation, principally discontinuance of construction operations (see Note 4). Balance sheet classifications: Assets and liabilities arising from the Company's remaining long-term construction activities, the operating cycle of which extends over one year, are classified as current in the financial statements. A one-year time period is used as the basis for classification of all other current assets and liabilities. 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 $5.5 million and $2.2 million as of the last day of February 1994 and 1993. 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 payments. Depreciation charged to costs and expenses was $19.9 million, $20.5 million and $19.6 million in 1994, 1993 and 1992. Maintenance and repair costs were $16.0 million, $14.2 million and $14.0 million in 1994, 1993 and 1992. Capitalization of interest: Interest cost incurred during the period of construction of plant and equipment is capitalized. The interest cost capitalized on plant and equipment was minimal in 1994 and 1992 and $620 thousand in 1993. 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. Amortization expense was $1.9 million in each of the three fiscal years in the period ended February 28, 1994. Accumulated amortization was $15.3 million and $13.4 million as of the last day of February 1994 and 1993. Page 23 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. Revenues 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 shareholders' equity. The amount of income taxes allocated to this translation adjustment is not significant. The Company enters into foreign exchange forward contracts to reduce the effect of exchange rate fluctuations on anticipated future foreign currency cash flows. These contracts are accounted for at market value with the resulting gains or losses recognized in income. Foreign exchange adjustments, including gains or losses on foreign exchange forward contracts, reduced pretax income by $484 thousand and $340 thousand in 1994 and 1993 and increased pretax income by $274 thousand in 1992. Insurance accruals: It is the Company's policy to self-insure a portion of expected losses related to workers' compensation and general, product and vehicle liability. Provisions for losses expected under these programs are recorded based on estimates of the aggregate liabilities for known claims and claims incurred but not reported. Postretirement benefits other than pensions: Effective March 1, 1991, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions", which requires the accrual of medical and life insurance benefits provided to retirees over the service lives of employees. In prior years, expense was generally recognized as claims were paid. A charge of $5.9 million ($.49 per share), net of income taxes of $3.0 million, consisting of the accumulated postretirement benefit obligation for prior service, was recognized as the cumulative effect of this accounting change as of the beginning of fiscal 1992. Postemployment benefits: In fiscal 1994, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits", which requires the accrual of the cost of benefits to former or inactive employees after employment but before retirement. The Company's prior accounting practices for postemployment benefits do not differ materially from those required by SFAS No. 112. Research and development: Expenditures for research and development are expensed as incurred. These costs were $7.0 million, $6.9 million and $8.9 million for 1994, 1993 and 1992. Page 24 Income taxes: Effective March 1, 1991, the Company adopted SFAS No. 109, "Accounting for Income Taxes". This statement requires an asset and liability approach for financial accounting and reporting for income taxes and also requires certain adjustments to the balances of remaining assets and liabilities acquired in purchase business combinations consummated prior to the beginning of the year for which the statement is first applied. Net income for 1992 includes income of $11.9 million ($.99 per share) as the cumulative effect of applying the accounting change. Income taxes for 1991 were accounted for in accordance with SFAS No. 96. Net income per common share: Net income per common share is based on the weighted average number of common and common equivalent shares (stock options and performance shares) outstanding in each period. Statements of cash flows: For purposes of the statements of cash flows, 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. Page 25 NOTE 2: INCOME TAXES The provision (benefit) for income taxes attributable to continuing operations is as follows: For the years ended the last day of February 1994 1993 1992 - - ----------------------------------------------------------------------------- In thousands Current provision (benefit): Federal $ 17,608 $ 3,446 $ (5,423) State 400 114 50 Foreign 8,993 9,851 6,660 Deferred provision (benefit): Federal (13,234) (6,314) (2,868) State (1,000) Foreign (1,797) 16 (196) - - ----------------------------------------------------------------------------- $ 11,970 $ 6,113 $ (1,777) - - ----------------------------------------------------------------------------- A reconciliation of the provision (benefit) for income taxes attributable to continuing operations to the amount computed by applying the statutory federal income tax rate to income (loss) from continuing operations before income taxes is as follows: For the years ended the last day of February 1994 1993 1992 - - ----------------------------------------------------------------------------- In thousands Income (loss) before income taxes: Domestic $ 16,377 $ 853 $ (22,978) Foreign 19,897 17,267 16,906 - - ----------------------------------------------------------------------------- $ 36,274 $ 18,120 $ (6,072) - - ----------------------------------------------------------------------------- % % % Statutory tax rate 35.0 34.0 (34.0) Impact of earnings of foreign operations (.1) 10.7 (17.0) State income taxes, net of federal tax benefit 1.1 (4.9) 7.5 Adjustments to prior year estimates (4.3) (5.5) Permanent differences between book bases and tax bases of assets acquired 1.3 (1.8) 11.1 Other items, net 1.2 3.1 - - ----------------------------------------------------------------------------- Effective income tax rate 33.0 33.7 (29.3) - - ----------------------------------------------------------------------------- All years reflect the allocation of substantially all corporate office expenses and interest expense to domestic operations. Page 26 As of the last day of February 1994 and 1993, deferred income tax assets were $30.8 million and $25.4 million and deferred income tax liabilities were $26.5 million and $36.2 million. Deferred income taxes applicable to principal temporary differences are as follows: For the years ended the last day of February 1994 1993 - - ----------------------------------------------------------------------------- In thousands Property, plant and equipment basis differences $ 20,611 $ 20,829 Foreign income 3,624 5,200 Accrued expenses, principally employee benefits (28,478) (15,241) - - ----------------------------------------------------------------------------- $ (4,243) $ 10,788 - - ----------------------------------------------------------------------------- Deferred income taxes of approximately $2.1 million have not been provided on undistributed earnings of foreign subsidiaries in the amount of $22.5 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 on the Company. The years 1991 through 1994 are still open for review. NOTE 3: DEBT AND FINANCING AGREEMENTS Long-term debt consists of the following: As of the last day of February 1994 1993 - - ----------------------------------------------------------------------------- In thousands 9% subordinated notes $ 100,000 12% subordinated notes $ 73,555 Industrial Revenue Bonds payable, maturing between 1995 and 2014, interest at varying rates (approximately 2.6% at February 28, 1994) 5,238 5,575 Other long-term debt, interest from 6% to 10%, payable in installments to 1999 1,632 3,254 Lease purchase obligations, interest at varying rates, payable in installments to 2000 1,727 2,377 - - ----------------------------------------------------------------------------- 108,597 84,761 Less current maturities (946) (2,715) - - ----------------------------------------------------------------------------- $ 107,651 $ 82,046 - - ----------------------------------------------------------------------------- Page 27 Maturities of long-term debt and the principal and interest payments on capital leases are as follows: Fiscal Year Capital Leases --------------------- Total In thousands Debt Principal Interest Payments - - ----------------------------------------------------------------------------- 1995 $ 347 $ 599 $ 138 $ 1,084 1996 1,929 346 88 2,363 1997 348 337 63 748 1998 348 425 19 792 1999 348 15 1 364 2000 and beyond 103,550 5 103,555 - - ----------------------------------------------------------------------------- $ 106,870 $ 1,727 $ 309 $ 108,906 - - ----------------------------------------------------------------------------- Interest expense was $11.1 million, $10.5 million and $15.6 million in 1994, 1993 and 1992. In July 1993, the Company issued 9% senior subordinated notes ("the 9% notes") in the principal amount of $100 million maturing on June 15, 2003. The 9% notes are redeemable at the election of the Company, in whole or in part, at any time on or after June 15, 1998, initially at 103 3/8% of the principal amount and thereafter at prices declining to par on June 15, 2001. The 9% notes were issued under an indenture ("the indenture") between the Company and a major bank as trustee. The indenture restricts the Company's ability to incur additional debt, pay dividends, make certain investments, dispose of assets, create liens on assets and merge or consolidate with another entity. The majority of the net proceeds from the 9% notes was used to retire the Company's 12% subordinated notes in the principal amount of $73.6 million. In conjunction with the retirement of the 12% subordinated notes, an interest rate swap, accounted for as a hedge of part of the retired debt, was effectively terminated. The extraordinary gain on retirement of the 12% subordinated notes and termination of the interest rate swap was $92 thousand, net of taxes of $49 thousand. During fiscal 1993, the Company repurchased $4.6 million of the 12% subordinated notes. The extraordinary loss on repurchase was $119 thousand, net of income tax benefit of $61 thousand. In November 1991, the Company entered into a three year agreement expiring December 1994 with a major bank under which it has the right to sell, on a limited recourse basis, up to $25 million of undivided interests in a pool of eligible accounts receivable. The purchaser's level of investment is subject to change based on the level of eligible receivables. As of the last day of February 1994, the Company had temporarily discontinued the sale of receivables under this agreement and all receivables sold had been collected. At February 28, 1993, the uncollected balance of accounts receivable sold under this agreement was $17 million. The accounts receivable sold are reflected as a reduction of accounts receivable in the accompanying balance sheets. Other expense, net includes expenses of approximately $405 thousand, $878 thousand and $388 thousand in 1994, 1993 and 1992 related to the sale of accounts receivable under this agreement. The Company maintains a $60 million revolving credit facility with a group of five banks. Under the provisions of the agreement, the Company currently has the option to borrow at (i) the higher of the prime rate plus 3/4% or the Federal Funds rate plus 1 1/4%, (ii) an adjusted Certificate of Deposit Rate Page 28 plus 1 7/8%, or (iii) an adjusted London Interbank Offered Rate plus 1 3/4%. The rates may be increased up to a maximum increase of 1/4% depending on the Company's debt to tangible net worth ratio. In addition, a commitment fee of 1/2% is charged on the unused commitment. Under provisions of this agreement, the Company is limited as to indebtedness, guarantees, investments, acquisitions, liens and disposal of assets, as well as being required to maintain a specified fixed charge coverage ratio and tangible net worth levels. The commitment will expire on December 31, 1995. At February 28, 1994, no amounts were outstanding under the facility. Under the most restrictive debt requirement, retained earnings of approximately $13.0 million were available for the payment of dividends at February 28, 1994. At February 28, 1994, the Company had $1.1 million outstanding under uncommitted short-term foreign lines of credit. The following information relates to short-term bank borrowings of the Company: As of the last day of February 1994 1993 1992 - - ----------------------------------------------------------------------------- In thousands Borrowings as of the end of the period $ 1,136 $ 3,382 $ 19,285 - - ----------------------------------------------------------------------------- Borrowings during the period: Maximum 4,556 32,734 43,490 Average 1,713 14,686 24,448 - - ----------------------------------------------------------------------------- Weighted average interest rates: During the period 5.9% 4.8% 6.7% End of period 5.1% 9.7% 6.2% - - ----------------------------------------------------------------------------- NOTE 4: ACQUISITIONS AND DISPOSALS In February 1994, the Company adopted a plan to discontinue its construction business. The plan provides for the orderly completion and close-out of the Company's principal domestic and foreign construction projects ("the projects") and the sale of Pozzo Construction Company ("Pozzo"), the Company's wholly owned subsidiary headquartered in Los Angeles, California. In March 1994, the Company entered into an agreement with Caddell Construction Co., Inc. ("Caddell") under which Caddell will provide the consulting and construction management services necessary to complete the projects and acquired the Company's right to use the name "Blount" in the construction business for a period of years. As of February 28, 1994, the projects encompassed by the agreement with Caddell have a remaining contract value of approximately $94 million and are expected to be completed within two years. Although Caddell will actively manage the projects, the Company will remain subject to the inherent risks associated with a general construction contractor. On most of the projects, the Company will participate in future profits and remain responsible for substantially all losses, if any, in excess of current estimates of final project profit or loss. The Company is pursuing the sale of Pozzo and expects a sale to be concluded within 12 months. During the period until sale, Pozzo will continue normal operations, including the pursuit of new contracts. Page 29 A provision for loss of $650 thousand (after tax benefits of $350 thousand) was recorded for disposal of the construction segment, which is reflected as discontinued operations in the accompanying consolidated statements of income. Results of the discontinued operations are summarized as follows (in thousands): For the years ended the last day of February 1994 1993 1992 - - ----------------------------------------------------------------------------- Revenues $ 210,090 $ 265,177 $ 254,756 Loss before income taxes (14,871) (7,044) (1,569) Provision (benefit) for income taxes (5,205) (2,395) (533) Loss from discontinued operations (9,666) (4,649) (1,036) The 1994 loss before taxes of $14.9 million is net of income of approximately $7.3 million from a less than majority-owned foreign joint venture. Distributions to the Company from this joint venture were approximately $21.2 million during fiscal 1994. The principal assets and liabilities of the discontinued operations included in the Company's consolidated balance sheets are as follows (in thousands): As of the last day of February 1994 1993 - - ----------------------------------------------------------------------------- Accounts receivable $ 59,265 $ 59,878 Other current assets 7,922 20,450 Other assets 6,013 9,714 Accounts payable (38,503) (38,841) Accrued expenses (11,106) (10,516) Other current liabilities (13,015) (16,805) Other liabilities (7,312) (9,644) On March 1, 1991, the Company acquired all the outstanding capital stock of Gear Products, Inc. for cash and notes of approximately $17.4 million. Gear manufactures and sells rotation bearings and mechanical transmission components. The transaction has been accounted for as a purchase and, accordingly, the net assets and results of operations of the acquired business 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. In May 1991, the Company sold its remaining resource recovery operations consisting principally of two resource recovery facilities. The sales price was approximately $14.5 million in cash. NOTE 5: CAPITAL STRUCTURE The Company has authorized 40 million shares of Class A Common Stock, 12 million shares of Class B Common Stock and 4,456,855 shares of Preference Stock. The Class A Common Stock is entitled to elect 25% of the Company's Board of Directors, is entitled to one-tenth of one vote per share on all other matters and will receive an additional dividend of $.0125 in any quarter that a cash dividend is declared on the Class B Common Stock. The Class B Common Stock is entitled to elect 75% of the Company's Board of Directors and is entitled to one vote per share on all other matters. Each share of Class B Page 30 Common Stock is convertible at any time at the option of the shareholder into one share of Class A Common Stock. The Company has granted options to purchase its Class A Common Stock to certain officers and key employees under a non-qualified plan approved in 1994 and an Incentive Stock Option Plan ("ISOP") approved in 1992. The non- qualified plan terminates in January 2004 and provides for granting of options for up to 400,000 shares with an option price not less than fair market value at the time of grant. The ISOP terminates in January 2002 and provides for the granting of options for up to 750,000 shares with an option price not less than fair market value at the time of grant. The options granted are exercisable for a period of up to ten years under both plans. As of the last day of February 1994, there were options for 41,667 shares and 38,700 shares available for grant under the non-qualified plan and ISOP, respectively. Options for 30,476 shares remain outstanding from a prior plan which has terminated. At February 28, 1994, options for 157,330 shares were exercisable. Changes with respect to options for each of the last three years are as follows (in thousands, except per share prices):
1994 1993 1992 ---------------------- ---------------------- ---------------------- Average Total Average Total Average Total Per Option Per Option Per Option Shares Share Price Shares Share Price Shares Share Price ---------------------- ---------------------- ---------------------- Outstanding, beginning of period 729 $ 8.46 $ 6,160 649 $ 8.23 $ 5,346 110 $14.31 $ 1,580 Options granted 393 28.46 11,193 188 9.37 1,761 590 7.75 4,575 Options exercised (142) 9.14 (1,294) (54) 8.56 (469) Options cancelled (32) 7.67 (247) (54) 8.84 (478) (51) 15.86 (809) ------ ------- ------- ------ ------- ------- ------ ------- ------- Outstanding, end of period 948 $16.68 $15,812 729 $ 8.46 $ 6,160 649 $ 8.23 $ 5,346 ------ ------- ------- ------ ------- ------- ------ ------- -------
Under the Company's Long-Term Performance Share Plan approved in June 1982, certain officers and key employees were granted performance share awards, each share of which, if earned, has a value equal to the fair market value of one share of Class A Common Stock. As of February 28, 1994, no additional awards may be granted under the Plan and 78,461 performance share awards were outstanding. The awards are payable in fiscal 1995 if the Compensation and Management Development Committee of the Board of Directors determines that the conditions for payment have been satisfied. The amount charged to expense for the plan was $2.9 million in 1994 and minimal in 1993 and 1992. Page 31 NOTE 6: PENSION PLANS The Company maintains funded, non-contributory, trusteed, defined benefit pension plans covering the majority of the domestic employees of the Company and certain subsidiaries. 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 the years of employment. The plans' assets are invested principally in common stocks and equity funds, bond funds, and temporary cash investments. The actuarial method used for financial reporting purposes is the projected unit credit method. The components of pension expense for Company-sponsored defined benefit plans for each of the last three years were (in thousands): 1994 1993 1992 - - ---------------------------------------------------------------------------- Service cost-benefits earned $ 3,814 $ 3,743 $ 3,086 Interest cost 4,649 4,211 3,923 Actual return on plan assets (2,462) (2,404) (2,466) Net amortization and deferral 345 817 1,448 - - ---------------------------------------------------------------------------- $ 6,346 $ 6,367 $ 5,991 - - ---------------------------------------------------------------------------- The Company's general funding policy for qualified plans is to fund amounts deductible for income tax purposes. Supplemental non-qualified plans are not funded and benefit payments are made as they become due. The funded status of qualified and non-qualified defined benefit plans as of the last day of February 1994 and 1993 was as follows (in thousands):
1994 1993 ----------------------------- ----------------------------- Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Benefits Exceed Assets Benefits Exceed Assets - - ------------------------------------------------------------------------------------------------------------ Actuarial present value of projected benefit obligation: Vested $ 7,063 $ 37,904 $ 5,882 $ 24,932 Nonvested 211 1,891 160 1,328 - - ------------------------------------------------- ------------- ----------------- -------------- ----------- Accumulated benefit obligation 7,274 39,795 6,042 26,260 Effect of projected compensation increases 5,267 14,048 4,135 14,828 - - ------------------------------------------------- ------------- ----------------- -------------- ----------- Projected benefit obligation 12,541 53,843 10,177 41,088 Plan assets at fair value 15,838 33,671 13,081 25,213 - - ------------------------------------------------- ------------- ----------------- -------------- ----------- Projected benefit obligation greater (less) than plan assets (3,297) 20,172 (2,904) 15,875 Unrecognized transition asset (obligation) 1,065 (655) 1,316 (646) Unrecognized prior service liability (197) (4,972) (166) (7,273) Unrecognized net gain (loss) (383) (5,422) (555) 3,249 - - ------------------------------------------------- ------------- ----------------- -------------- ----------- Net accrued (prepaid) pension cost $ (2,812) $ 9,123 $ (2,309) $ 11,205 - - ------------------------------------------------- ------------- ----------------- -------------- -----------
Page 32 The weighted average rate assumptions used in 1994, 1993 and 1992 to determine pension expense and related pension obligations for domestic and foreign defined benefit plans were as follows: 1994 1993 1992 - - ----------------------------------------------------------------------------- Discount rate 7.6% 8.6% 8.6% Rate of increase in compensation levels 4.4% 5.3% 5.3% Expected long-term rate of return on plan assets 8.6% 9.0% 9.0% - - ----------------------------------------------------------------------------- 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. The expense was $1.9 million, $1.8 million and $1.7 million in 1994, 1993 and 1992. 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 certain operations 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 for 1994, 1993 and 1992 consisted of the following components (in thousands): 1994 1993 1992 - - ---------------------------------------------------------------------------- Service cost-benefits earned $ 284 $ 275 $ 271 Interest cost 1,406 1,200 1,166 Actual return on plan assets (125) (215) (323) Net amortization and deferral 47 (31) 77 - - ---------------------------------------------------------------------------- $ 1,612 $ 1,229 $ 1,191 - - ---------------------------------------------------------------------------- Page 33 The accumulated postretirement benefit obligation for the funded plan was $2.4 million as of the last day of February 1994 and 1993. A reconciliation of the accumulated postretirement benefit obligation to the accrued liability included in the Company's balance sheets as of the last day of February 1994 and 1993 follows (in thousands): 1994 1993 - - ---------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 10,640 $ 8,784 Fully eligible active plan participants 2,740 2,312 Other active plan participants 3,641 2,537 - - ---------------------------------------------------------------------------- 17,021 13,633 Plan assets at fair value 2,650 3,074 - - ---------------------------------------------------------------------------- Postretirement benefits in excess of assets 14,371 10,559 Unrecognized net gain (loss) (3,086) 264 - - ---------------------------------------------------------------------------- Accrued postretirement benefit cost $ 11,285 $ 10,823 - - ---------------------------------------------------------------------------- The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7 1/2% in 1994 and 8 1/2% in 1993 and 1992. The expected long-term rate of return on plan assets was 8 3/4% in 1994 and 9 1/4% in 1993 and 1992. A 12% annual rate of increase in the cost of health care benefits was assumed for 1994; the rate was assumed to decrease 1% per year until 5% is reached and remain at that level thereafter. 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 February 28, 1994 by $1.6 million and the aggregate of the service and interest cost components of net periodic expense for 1994 by $200 thousand. NOTE 8: COMMITMENTS AND CONTINGENT LIABILITIES The Company leases office space and equipment under operating leases expiring in 1 to 12 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 February 28, 1994 are as follows (in thousands): 1995--$4,167; 1996--$3,240; 1997--$2,505; 1998--$1,214; 1999--$932 and 2000 and beyond--$791. Rentals charged to costs and expenses under cancelable and noncancelable lease arrangements were $5.7 million, $5.1 million and $4.1 million for 1994, 1993 and 1992. The Company announced in January 1989, that a pocket of a cleaning solvent, trichloroethylene ("TCE"), had been detected under the concrete floor of the Company's cutting systems division plant in Milwaukie, Oregon. TCE was detected in the City of Milwaukie drinking water wells. The Company's deep wells, which are surrounded by the City of Milwaukie wells, draw from the same aquifer and show TCE amounts less than those of the City's wells. On December 6, 1989, the Company entered into a Stipulation and Consent Agreement for Page 34 facility investigation with the Department of Environmental Quality ("DEQ") of the State of Oregon and agreed to investigate the TCE contamination beneath the plant and take appropriate measures to remediate potential adverse effects from such contamination. In November 1992, the Company submitted a Facility Investigation Final Report ("Report") to the DEQ for the Milwaukie, Oregon plant. The Report states that the contamination has affected a limited portion of the saturated engineered fill under the building. Since monitoring began in 1988, the contaminant plume in the engineered fill has not migrated. The concentration of the contaminants in the plume has been reduced by greater than 50% since 1989. The TCE plume has not migrated off Company property. The Company believes the contaminants pose no risk to Company employees or the community because the groundwater within the shallow alluvium is not used and the contaminants are not migrating towards the drinking water supply aquifer. There is no evidence that the Company's operations have affected the drinking water supply aquifer. The Company does not expect the situation to have a material adverse effect. The United States Environmental Protection Agency ("EPA") has designated a predecessor of the Company as a potentially responsible party ("PRP") with respect to the Onalaska Municipal Landfill in Onalaska, Wisconsin. The waste complained of was placed in the landfill prior to 1981 by a corporation, some of whose assets were purchased in 1981 by the predecessor of the Company. It is the view of the Company that because its predecessor corporation purchased assets rather than stock, the Company does not have successor liability and is not properly a PRP. However, the EPA has indicated it does not accept this position. The Company believes the EPA is wrong on the successor liability issue. However, with other PRP's, the Company made a good faith offer to the EPA to pay a portion of the clean-up costs. The offer was rejected and the EPA is proceeding with the clean-up. The estimated clean-up costs are approximately $5 million to $10 million with maintenance costs of approximately $150 thousand per year for 30 years. The Company does not expect the situation to have a material adverse effect. On December 20, 1989, the Company sold to Asea Brown Boveri Ltd. ("ABB") all the stock of W+E Umwelttechnik AG, then an engineering subsidiary of the Company in the waste-to-energy business located in Zurich, Switzerland. On July 26, 1993, ABB filed a Request for Arbitration with the Zurich Chamber of Commerce. The request contains statements that ABB has or anticipates having losses on two projects which were underway at the time of sale. While it is not clear, ABB appears to be claiming approximately 100 million Swiss francs and rescission of the purchase agreement based on the Company's alleged wilful failure to disclose material facts and that ABB made a fundamental mistake in entering into the purchase agreement. Executives of the two companies have discussed the matter and were not able to resolve it. The matter proceeded to mediation and the parties were not able to resolve it. The Company believes it has valid defenses based on the terms of the purchase agreement, the facts and the law. In March 1994, the Company filed a lawsuit against ABB and two of its subsidiaries in the Circuit Court of Jefferson County, Alabama seeking declaratory judgment and injunctive relief as well as money damages for (i) intentional interference with the Company's business relationships and (ii) abuse of process. The Company does not expect the situation to have a material adverse effect on its financial condition. The Company is a defendant in a number of product liability lawsuits involving serious personal injuries for which it is self-insured, some of which seek significant or unspecified damages. In addition, the Company is a party to a number of other suits arising out of the conduct of its business. While there Page 35 can be no assurance as to their ultimate outcome, the Company does not believe these lawsuits will have a material adverse effect on its financial condition. The Company's contingencies include normal liabilities for performance and completion of construction contracts. At February 28, 1994, the Company had outstanding bank letters of credit in the approximate amount of $23.2 million issued principally in connection with various construction contracts for which the Company is contingently liable to the issuing banks in the event payment is demanded by the holder. The Company is contingently liable for the remaining rental payments, net of the value of the leased equipment, under leases transferred to the buyer of a former subsidiary. The leases have rental payments remaining of $10.6 million which expire in 1999. The Company has received indemnification against liabilities arising from the leases from the purchaser of the former subsidiary. NOTE 9: FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION The Company enters into foreign exchange forward contracts with major banks. At February 28, 1994, the Company had foreign exchange forward contracts maturing on February 28, 1995 in the aggregate amount of approximately $23.4 million. These contracts are accounted for at market value, which was minimal at February 28, 1994 and 1993. At February 28, 1994, approximately 56% of the Company's accounts receivable arose from manufacturing operations with the remainder resulting principally from the Company's discontinued construction 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. Accounts receivable from manufacturing customers are principally from service and dealer groups, distributors and chainsaw manufacturers, and are generally not collateralized. The Company's remaining construction activity is primarily with customers within the United States and Kuwait. At February 28, 1994, approximately 41% of accounts receivable from construction activities was from governmental entities with the balance principally from customers in private industry. Construction related accounts receivable are generally larger and from a smaller base of customers than those from manufacturing operations. The estimated fair values of certain of the Company's financial instruments are as follows (in thousands):
As of the last day of February 1994 1993 - - ----------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------- --------- --------- --------- Cash and short-term investments $ 52,213 $ 52,213 $ 17,723 $ 17,723 Other assets (principally notes receivable) 3,012 3,301 7,157 6,510 Notes payable and long-term debt (see Note 3) (109,733) (113,295) (88,143) (90,806) Interest rate swap 123 3,249
Page 36 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 long-term debt is estimated based on recent market transaction prices or on current rates available to the Company for debt with similar terms and maturities. The fair value of the interest rate swap (used for hedging purposes) is the estimated amount the Company would receive to terminate the swap agreement. The fair value of foreign exchange forward contracts is estimated by obtaining market quotes. NOTE 10: SEGMENT INFORMATION The Company's business consists of three segments: outdoor products, industrial and power equipment and sporting equipment. Identifiable assets consist of those assets used by the segments; corporate assets consist principally of cash and temporary investments and facilities used by the corporate office. In 1994, 1993 and 1992, no customer accounted for more than 10% of consolidated sales. Information on Geographic Areas For the years ended the last day of February 1994 1993 1992 - - ----------------------------------------------------------------------------- In thousands Sales: United States $ 382,596 $ 318,125 $ 282,990 Outside United States 104,716 108,112 99,542 - - ----------------------------------------------------------------------------- $ 487,312 $ 426,237 $ 382,532 - - ----------------------------------------------------------------------------- Operating income: United States $ 52,750 $ 24,568 $ 7,731 Outside United States 20,881 18,836 17,641 - - ----------------------------------------------------------------------------- Operating income from segments $ 73,631 $ 43,404 $ 25,372 - - ----------------------------------------------------------------------------- Identifiable assets: United States $ 391,260 $ 328,450 $ 340,558 Outside United States 101,641 118,701 125,685 - - ----------------------------------------------------------------------------- $ 492,901 $ 447,151 $ 466,243 - - ----------------------------------------------------------------------------- Included in United States sales were export sales of $54.5 million, $39.9 million and $41.8 million in 1994, 1993 and 1992. Page 37 Information on Segments For the years ended the last day of February 1994 1993 1992 - - ----------------------------------------------------------------------------- In thousands Sales: Outdoor products $ 234,502 $ 213,625 $ 196,758 Industrial and power equipment 162,026 128,912 101,437 Sporting equipment 90,784 83,700 84,337 - - ----------------------------------------------------------------------------- $ 487,312 $ 426,237 $ 382,532 - - ----------------------------------------------------------------------------- Operating income (loss): Outdoor products $ 33,974 $ 20,611 $ 13,394 Industrial and power equipment 24,503 12,843 (434) Sporting equipment 15,154 9,950 12,412 - - ----------------------------------------------------------------------------- Operating income from segments 73,631 43,404 25,372 Corporate office expenses (23,046) (13,855) (16,998) - - ----------------------------------------------------------------------------- Income from operations 50,585 29,549 8,374 Interest expense, net (9,551) (9,687) (14,384) Other expense, net (4,760) (1,742) (62) - - ----------------------------------------------------------------------------- Income (loss) before income taxes $ 36,274 $ 18,120 $ (6,072) - - ----------------------------------------------------------------------------- Identifiable assets: Outdoor products $ 202,671 $ 201,824 $ 217,335 Industrial and power equipment 69,230 67,799 75,647 Sporting equipment 59,152 48,621 58,607 Corporate office 88,648 38,865 19,874 Discontinued operations 73,200 90,042 94,780 - - ----------------------------------------------------------------------------- $ 492,901 $ 447,151 $ 466,243 - - ----------------------------------------------------------------------------- Depreciation and amortization: Outdoor products $ 14,511 $ 14,653 $ 14,560 Industrial and power equipment 3,616 3,770 3,652 Sporting equipment 3,594 3,685 3,389 Corporate office 1,080 1,253 650 - - ----------------------------------------------------------------------------- $ 22,801 $ 23,361 $ 22,251 - - ----------------------------------------------------------------------------- Capital expenditures: Outdoor products $ 5,335 $ 15,743 $ 8,207 Industrial and power equipment 698 2,123 7,617 Sporting equipment 1,377 1,425 4,483 Corporate office 7,029 420 79 - - ----------------------------------------------------------------------------- $ 14,439 $ 19,711 $ 20,386 - - ----------------------------------------------------------------------------- Page 38 NOTE 11: SUPPLEMENTAL INFORMATION The following balance sheet captions are comprised of the items specified below:
As of the last day of February 1994 1993 - - --------------------------------------------------------------------------------------------------- In thousands Accounts receivable: Trade accounts and other $ 84,635 $ 68,616 Billings on construction contracts: Current 37,527 37,966 Retainage estimated to be collected within one year 14,534 12,631 Retainage estimated to be collected after one year 1,306 Allowance for doubtful accounts (2,238) (2,563) - - ------------------------------------------------------------------- ----------------- ------------- $ 134,458 $ 117,956 - - ------------------------------------------------------------------- ----------------- ------------- Inventories: Finished goods $ 27,169 $ 25,826 Work in process 13,329 12,495 Raw materials and supplies 19,682 17,579 - - ------------------------------------------------------------------- ----------------- ------------- $ 60,180 $ 55,900 - - ------------------------------------------------------------------- ----------------- ------------- Property, plant and equipment: Land $ 6,506 $ 6,506 Buildings and improvements 80,948 80,546 Machinery and equipment 146,449 149,506 Furniture, fixtures and office equipment 28,036 20,193 Transportation equipment 11,582 5,190 Construction in progress 2,595 8,371 Accumulated depreciation (135,694) (121,251) - - ------------------------------------------------------------------- ----------------- ------------- $ 140,422 $ 149,061 - - ------------------------------------------------------------------- ----------------- ------------- Accounts payable: Trade accounts and other $ 62,196 $ 53,550 Retainage estimated to be paid within one year 12,071 11,396 Retainage estimated to be paid after one year 1,346 - - ------------------------------------------------------------------- ----------------- ------------- $ 74,267 $ 66,292 - - ------------------------------------------------------------------- ----------------- ------------- Accrued expenses: Salaries, wages and related withholdings $ 19,777 $ 20,126 Employee benefits 15,049 10,266 Casualty insurance costs 12,453 15,027 Income taxes payable 8,232 5,143 Other 28,246 20,179 - - ------------------------------------------------------------------- ----------------- ------------- $ 83,757 $ 70,741 - - ------------------------------------------------------------------- ----------------- -------------
Page 39
As of the last day of February 1994 1993 - - --------------------------------------------------------------------------------------------------- Other liabilities: Employee benefits $ 20,534 $ 22,681 Casualty insurance costs 8,276 10,837 Other 3,029 3,743 - - ------------------------------------------------------------------- ----------------- ------------- $ 31,839 $ 37,261 - - ------------------------------------------------------------------- ----------------- -------------
At February 28, 1994, the Company's manufacturing operation in Canada had net assets of $40.4 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 $8.9 million, $7.0 million and $7.1 million for 1994, 1993 and 1992. Supplemental cash flow information is as follows (in thousands):
1994 1993 1992 - - -------------------------------------------------------------------------------------- Interest paid $ 12,121 $ 11,203 $ 15,540 Income taxes paid 18,572 7,193 3,628 Capital lease obligations incurred (terminated) 106 2,408 (7,056) Issuance of Company stock to employee benefits plan 1,234 1,800 1,278 Acquisitions of businesses (see Note 4): Fair value of assets acquired 20,062 Liabilities assumed and incurred 5,477 Cash paid 14,585 - - ----------------------------------------------------- ----------- ----------- --------
Page 40 SUPPLEMENTARY DATA QUARTERLY RESULTS OF OPERATIONS (unaudited) The following table sets forth a summary of the quarterly results of operations for the two years ended the last day of February 1994.
In thousands, First Second Third Fourth Fiscal except share data Quarter Quarter Quarter Quarter Year Total - - ------------------------------------------------------------------------------------------------- 1994 Sales $ 117,369 $ 118,385 $ 127,563 $ 123,995 $ 487,312 Gross profit 37,807 39,791 45,420 43,839 166,857 Income before extraordinary gain 1,207 2,442 6,671 3,668 13,988 Net income 1,207 2,534 6,671 3,668 14,080 Income per share: Income before extraordinary gain .10 .19 .52 .29 1.10 Net income .10 .20 .52 .29 1.11
The first quarter includes net income of $.9 million ($.07 per share) resulting from finalizing a license and technical agreement for a Company product. The second quarter includes an after-tax extraordinary gain of $.1 million ($.01 per share) from the retirement of $73.6 million of the Company's 12% subordinated notes. The third and fourth quarters include after-tax charges of $1.3 million ($.10 per share) and $2.6 million ($.21 per share), respectively, resulting from accruals for expected legal costs related to the sale of a former subsidiary. The fourth quarter includes a net loss of $650 thousand ($.05 per share) for disposal of the Company's construction business, an after-tax charge of $1.1 million ($.08 per share) for accruals for a management incentive plan and net income of $1.6 million ($.12 per share) resulting from the resolution of a prior year tax issue.
In thousands, First Second Third Fourth Fiscal except share data Quarter Quarter Quarter Quarter Year Total - - -------------------------------------------------------------------------------------------------- 1993 Sales $ 93,311 $ 105,455 $ 119,468 $ 108,003 $ 426,237 Gross profit 28,515 30,573 39,635 35,103 133,826 Income before extraordinary loss 439 1,339 4,345 1,235 7,358 Net income 439 1,339 4,226 1,235 7,239 Income per share: Income before extraordinary loss .04 .11 .35 .10 .60 Net income .04 .11 .34 .10 .59
The third quarter includes an after-tax extraordinary loss of $.1 million ($.01 per share) from the repurchase of $4.6 million of the Company's 12% subordinated notes. The results for the fourth quarter include a net gain of $.5 million ($.04 per share) from the sale of the Company's interest in a Mexican company and income of $.8 million ($.07 per share) resulting from an adjustment to estimated income taxes. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Page 41 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See the "Directors", "Executive Officers" and "Filing Disclosure" sections of the proxy statement for the June 27, 1994 Annual Meeting of Stockholders of Blount, Inc., which sections are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION See the "Executive Compensation and Other Information" section of the proxy statement for the June 27, 1994 Annual Meeting of Stockholders of Blount, Inc., which section is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the "Principal Stockholders" section of the proxy statement for the June 27, 1994 Annual Meeting of Stockholders of Blount, Inc., which section is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the "Certain Transactions and Other Matters" section of the proxy statement for the June 27, 1994 Annual Meeting of Stockholders of Blount, Inc., which section is incorporated herein by reference. Page 42 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 16 Consolidated Statements of Income for the years ended the last day of February 1994, 1993 and 1992 18 Consolidated Statements of Retained Earnings for the years ended the last day of February 1994, 1993 and 1992 19 Consolidated Balance Sheets as of the last day of February 1994 and 1993 20 Consolidated Statements of Cash Flows for the years ended the last day of February 1994, 1993 and 1992 21 Consolidated Statements of Changes in Capital Stock Accounts for the years ended the last day of February 1994, 1993 and 1992 22 Notes to Consolidated Financial Statements 23 - 40 Supplementary Data 41 (2) Schedules for the years ended the last day of February 1994, 1993 and 1992 * II. Amounts receivable from related parties and underwriters, promoters, and employees other than related parties 48 V. Property, plant and equipment 49 - 51 VI. Accumulated depreciation, depletion and amortization of property, plant and equipment 52 VIII. Valuation and qualifying accounts 53 * All other schedules have been omitted because they are not required or because the information is presented in the Notes to Consolidated Financial Statements. Page 43 (b) Reports on Form 8-K in the Fourth Quarter None. (c) Exhibits required to be filed by Item 601 of Regulation S-K: 3(a) The Restated Certificate of Incorporation which was filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-28-90 is incorporated herein by reference. 3(b) The Amended Bylaws which were filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-29-92 is incorporated herein by reference. 4(a) The registration of 9% subordinated notes due June 2003 filed on Form S-2, registration number 33-62728 including amendments and exhibits which became effective June 30, 1993, is incorporated herein by reference. 10(a) The Blount Long-Term Performance Share Plan which was filed as Exhibit B to the Blount, Inc. Proxy Statement for the Annual Meeting of Stockholders held June 28, 1982, is incorporated herein by reference. 10(b) The Insurance Agreements with the following individuals which were filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-28-83, are incorporated herein by reference: (i) Winton M. Blount (ii) Oscar J. Reak (iii) Frank H. McFadden 10(c) The Supplemental Executive Retirement Plan for Oscar J. Reak which was filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-28-83, is incorporated herein by reference. 10(d) The Supplemental Retirement and Disability Plan which was filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-29-92, is incorporated herein by reference. 10(e) A written description of the Management Incentive Plan which was filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-28-83, is incorporated herein by reference. 10(f) Amendments to the Blount Long-Term Performance Share Plan which were filed as Exhibit C to the Blount, Inc. Proxy Statement for the Annual Meeting of Stockholders held June 27, 1983, are incorporated herein by reference. 10(g) The Supplemental Retirement Savings Plan which was filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-29-92, is incorporated herein by reference. 10(h) Stock Purchase Agreement between BI Holdings Corp. ("Seller") and Mercury Stainless Corp. ("Buyer"), Amendments No. 1 and No. 2 to the Stock Purchase Agreement, and Guaranty dated August 17, 1988 made by Blount, Inc., which were filed as exhibits to the Blount, Inc. Form 8-K dated November 1, 1988, are incorporated herein by reference. Page 44 10(i) The Insurance Agreements with the following individual which was filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-28-91, is incorporated herein by reference: (i) Duncan J. McInnes 10(j) The Supplemental Executive Retirement Plans with the following individuals which were filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-28-91, are incorporated herein by reference: (i) Winton M. Blount (ii) Frank H. McFadden 10(k) The 1992 Blount Incentive Stock Option Plan which was filed as Exhibit A to the Blount, Inc. Proxy Statement for the Annual Meeting of Stockholders held June 22, 1992, is incorporated herein by reference. 10(l) Employment Agreements with the following individuals which were filed as exhibits to the Blount, Inc., Form 10-K for the fiscal year ended 2-29-92, are incorporated herein by reference: (i) Duncan J. McInnes (ii) John M. Panettiere 10(m) The $25,000,000 Receivable Purchase Agreement which was filed as an exhibit to the Blount, Inc., Form 10-K for the fiscal year ended 2-29-92, is incorporated herein by reference. 10(n) Stock Purchase Agreement between Blount, Inc. ("Buyer") and Simon United States Holding, Inc. ("Seller") which was filed as an exhibit to the Blount, Inc., Form 10-K for the fiscal year ended 2-29-92, is incorporated herein by reference. 10(o) The Supplemental Executive Retirement Plan with John M. Panettiere which was filed as an exhibit to the Blount, Inc., Form 10-K for the fiscal year ended 2-28-93, is incorporated herein by reference. 10(p) The Employment Agreement with Harold E. Layman which was filed as an exhibit to the Blount, Inc., Form 10-K for the fiscal year ended 2-28-93, is incorporated herein by reference. 10(q) The Blount, Inc. $50,000,000 Revolving Credit Agreement which was filed as an exhibit to the Blount, Inc., Form 10-K for the fiscal year ended 2-28-93, is incorporated herein by reference. 10(r) The 1994 Blount Executive Stock Option Plan filed as Exhibit A to the Blount, Inc. Proxy Statement for the Annual Meeting of Stockholders to be held June 27, 1994, is incorporated herein by reference. 10(s) The Blount, Inc. Executive Management Target Incentive Plan filed as Exhibit B to the Blount, Inc. Proxy Statement for the Annual Meeting of Stockholders to be held June 27, 1994, is incorporated herein by reference. 10(t) Amendments number 1 and 2 to the $25,000,000 Receivable Credit Agreement filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2-29-92. * Page 45 10(u) Amendments number 1 (amending certain definitions and covenants) and 2 (adding an additional bank as a party to the agreement and raising the credit limit to $60,000,000) to the $50,000,000 Revolving Credit Agreement filed as an exhibit to the Blount, Inc. Form 10-K for the fiscal year ended 2- 28-93. * 10(v) The Employment Agreement with Donald B. Zorn. * 10(w) The Employment Agreement dated January 1, 1994 with Harold E. Layman. * 11. Computation of net income per common share included herein on page 54. 13. The 1994 Annual Report to Stockholders of Blount, Inc. and the Proxy Statement have not been sent to the stockholders of Blount, Inc., and are to be furnished subsequent to the filing of this Form 10-K. 21. A list of the significant subsidiaries of Blount, Inc. included herein on page 55. 23. Consent of Independent Accountants included herein on page 56. * Filed electronically herewith. Copies of such exhibits may be obtained upon written request from: Corporate Communications Blount, Inc. P.O. Box 949 Montgomery, AL 36101-0949 Page 46 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: April 29, 1994 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: April 29, 1994 /s/ Winton M. Blount /s/ Mary D. Nelson Winton M. Blount Mary D. Nelson Chairman of the Board Director and Director /s/ W. Houston Blount /s/ John M. Panettiere W. Houston Blount John M. Panettiere Director President and Chief Executive Officer and Director /s/ C. Todd Conover /s/ Oscar J. Reak C. Todd Conover Oscar J. Reak Director Director /s/ H. Corbin Day /s/ Arthur P. Ronan H. Corbin Day Arthur P. Ronan Director Director /s/ Herbert J. Dickson /s/ Joab L. Thomas Herbert J. Dickson Joab L. Thomas Director Director /s/ Alfred M. Gleason /s/ Rodney W. Blankenship Alfred M. Gleason Rodney W. Blankenship Director Chief Accounting Officer /s/ James W. Hargrove James W. Hargrove Director Page 47 BLOUNT, INC. & SUBSIDIARIES SCHEDULE II AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES For the years ended the last day of February 1993 and 1994 In thousands - - ------------
Column A Column B Column C Column D Column E -------- -------- -------- -------------------------- ------------------- Balance at End Deductions of Period -------------------------- ------------------- Balance at Beginning of Amounts Amounts Not Name of Debtor Period Additions Collected Written Off Current Current - - -------------- ------------ --------- --------- ----------- -------- ------- 1993 - - ---- H. E. Layman (A) $411 $411 M. N. Luciano (B) 263 $190 73 1994 - - ---- H. E. Layman (A) $411 411 M. N. Luciano (B) 73 73 Notes (A) Non-interest-bearing loan for purchase of home. (B) Non-interest-bearing loan for purchase of home.
Page 48 BLOUNT, INC. & SUBSIDIARIES SCHEDULE V CONSOLIDATED SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT For the year ended February 29, 1992 In thousands - - ------------
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Balance at Additions Other Changes Balance at Beginning of at --------------------------- End of Classification Period Cost Retirements Add Deduct Period -------------- ------------ --------- ----------- ------------ ------------ ---------- Land $ 6,984 $ 190 $ 50 $ 7,124 $ 1,327 (1) 46 (2) Buildings and improvements 73,565 1,979 541 3,203 (4) $ 6 (3) 79,573 5,417 (5) 7,300 (1) 10 (3) Machinery and equipment 127,942 5,204 9,692 8,097 (4) 195 (2) 144,063 387 (1) Transportation equipment 10,033 1,389 6,442 138 (2) 41 (3) 5,464 65 (3) Furniture, fixtures and office equipment 19,161 1,173 973 912 (1) 85 (2) 20,123 11 (2) Leasehold and leasehold improvements 602 731 268 (1) 6 (3) 1,606 10,194 (1) Construction in progress 6,385 11,017 36 11 (3) 69 (2) 7,114 --------- --------- --------- --------- --------- --------- $ 244,672 $ 21,683 $ 17,734 $ 27,117 $ 10,671 $ 265,067 ========= ========= ========= ========= ========= ========= (1) Construction in progress transfers (2) Reclassifications within Schedules V and VI (3) Foreign currency translation adjustments (4) Cumulative effect of accounting change (5) Other reclassifications
Page 49 BLOUNT, INC. & SUBSIDIARIES SCHEDULE V CONSOLIDATED SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT For the year ended February 28, 1993 In thousands - - ------------
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Balance at Additions Other Changes Balance at Beginning of at --------------------------- End of Classification Period Cost Retirements Add Deduct Period -------------- ------------ --------- ----------- ------------ ------------ ---------- Land $ 7,124 $ 493 $ 125 (2) $ 6,506 $ 1,744 (1) Buildings and improvements 79,573 $ 451 3,112 327 (2) 18 (3) 78,965 8,673 (1) Machinery and equipment 144,063 4,491 4,723 3 (3) 3,001 (2) 149,506 186 (1) Transportation equipment 5,464 749 1,180 16 (2) 45 (3) 5,190 31 (2) Furniture, fixtures and office equipment 20,123 1,227 1,483 439 (1) 82 (3) 20,193 90 (1) Leasehold and leasehold improvements 1,606 74 1 6 (3) 194 (2) 1,581 11,132 (1) Construction in progress 7,114 13,381 992 (2) 8,371 --------- --------- --------- --------- --------- --------- $ 265,067 $ 20,373 $ 10,992 $ 11,484 $ 15,620 $ 270,312 ========= ========= ========= ========= ========= ========= (1) Construction in progress transfers (2) Reclassifications within Schedules V and VI (3) Foreign currency translation adjustments
Page 50 BLOUNT, INC. & SUBSIDIARIES SCHEDULE V CONSOLIDATED SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT For the year ended February 28, 1994 In thousands - - ------------
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Balance at Additions Other Changes Balance at Beginning of at --------------------------- End of Classification Period Cost Retirements Add Deduct Period -------------- ------------ --------- ----------- ------------ ------------ ---------- Land $ 6,506 $ 6,506 $ 1,551 (1) Buildings and improvements 78,965 $ 158 $ 1,781 290 (2) 79,183 8,617 (1) Machinery and equipment 149,506 453 4,615 21 (3) $ 7,533 (2) 146,449 Transportation equipment 5,190 7,565 1,261 89 (1) 1 (3) 11,582 807 (1) 8,297 (2) Furniture, fixtures and office equipment 20,193 576 1,853 16 (3) 28,036 49 (1) 124 (2) Leasehold and leasehold improvements 1,581 14 9 6 (3) 1,765 11,113 (1) Construction in progress 8,371 5,945 172 436 (2) 2,595 ---------- -------- -------- -------- -------- --------- $ 270,312 $ 14,711 $ 9,691 $ 19,867 $ 19,083 $ 276,116 ========== ======== ======== ======== ======== ========= (1) Construction in progress transfers (2) Reclassifications within Schedules V and VI (3) Foreign currency translation adjustments
Page 51 BLOUNT, INC. & SUBSIDIARIES SCHEDULE VI CONSOLIDATED SCHEDULE OF ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT For the years ended the last day of February 1992, 1993 and 1994 In thousands - - ------------
Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- --------------------------- -------- Balance at Charged to Other Changes Balance at Beginning of Costs and --------------------------- End of Description Period Expenses Retirements Add Deduct Period ----------- ------------ ---------- ----------- ------------ ------------ ---------- 1992 - - ---- $ 15 (1) Buildings and improvements $ 16,816 $ 3,297 $ 201 4 (2) $ 19,931 37 (2) Machinery and equipment 65,907 13,834 8,190 3,396 (3) $ 273 (1) 74,711 Transportation equipment 3,001 1,167 1,361 132 (1) 22 (2) 2,917 39 (1) Furniture, fixtures and office equipment 11,426 2,430 843 26 (2) 12,948 Leasehold and leasehold improvement 248 20 12 (2) 280 --------- --------- --------- --------- -------- --------- $ 97,398 $ 20,748 $ 10,595 $ 3,596 $ 360 $ 110,787 ========= ========= ========= ========= ======== ========= 1993 - - ---- Buildings and improvements $ 19,931 $ 3,654 $ 1,517 $ 8 (2) $ 22,060 Machinery and equipment 74,711 14,017 2,909 $ 14 (2) 3,987 (1) 81,846 4 (1) Transportation equipment 2,917 945 854 24 (2) 2,980 9 (1) Furniture, fixtures and office equipment 12,948 2,358 1,319 73 (2) 13,905 Leasehold and leasehold improvement 280 182 1 1 (2) 460 --------- --------- --------- --------- -------- --------- $ 110,787 $ 21,156 $ 6,600 $ 14 $ 4,106 $ 121,251 ========= ========= ========= ========= ======== ========= 1994 - - ---- Buildings and improvements $ 22,060 $ 3,704 $ 1,428 $ 97 (1) $ 24,239 Machinery and equipment 81,846 13,510 2,801 $ 11 (2) 6,872 (1) 85,694 15 (1) Transportation equipment 2,980 866 814 5 (2) 3,052 7,581 (1) Furniture, fixtures and office equipment 13,905 2,236 1,776 16 (2) 21,962 Leasehold and leasehold improvement 460 180 7 115 (1) 1 (2) 747 --------- --------- --------- --------- -------- --------- $ 121,251 $ 20,496 $ 6,826 $ 7,743 $ 6,970 $ 135,694 ========= ========= ========= ========= ======== ========= (1) Reclassifications within Schedules V and VI (2) Foreign currency translation adjustments (3) Other reclassifications
Page 52 BLOUNT, INC. & SUBSIDIARIES SCHEDULE VIII CONSOLIDATED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS For the years ended the last day of February 1992, 1993 and 1994 In thousands - - ------------
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 ----------- ------------ ---------- ---------- ------------ ----------- 1992 - - ---- Allowance for doubtful accounts receivable $ 1,082 $ 1,653 $ 100 (2) $ 357 (1) $ 2,478 ======== ======== ======== ======== ======= 1993 - - ---- Allowance for doubtful accounts receivable $ 2,478 $ 992 $ 907 (1) $ 2,563 ======== ======== ======== ======= 1994 - - ---- Allowance for doubtful accounts receivable $ 2,563 $ 967 $ 1,292 (1) $ 2,238 ======== ======== ======== ======= (1) Principally amounts written off less recoveries of amounts previously written off (2) Principally from acquisitions
Page 53 EX-11 2 EXHIBIT 11 TO FORM 10-K FOR FYE 2/28/94 EXHIBIT 11 BLOUNT, INC. COMPUTATION OF NET INCOME PER COMMON SHARE (DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
1994 1993 1992 ----------------------- ----------------------- ----------------------- Primary Diluted Primary Diluted Primary Diluted ---------- ---------- ---------- ---------- ---------- ---------- Weighted average common shares outstanding 12,421,167 12,421,167 12,149,905 12,149,905 11,957,060 11,957,060 Incremental shares for stock options 309,566 413,001 125,236 291,293 1,497 1,497 Incremental shares for performance awards 8,451 8,451 ---------- ---------- ---------- ---------- ---------- ---------- Total number of shares used in per share calculations 12,730,733 12,834,168 12,283,592 12,449,649 11,958,557 11,958,557 ========== ========== ========== ========== ========== ========== Income (loss) from continuing operations before extraordinary gain (loss) and cumulative effect of accounting changes $ 24,304 $ 24,304 $ 12,007 $ 12,007 $ (4,295) $ (4,295) ---------- ---------- ---------- ---------- ---------- ---------- Discontinued operations: Loss from operations, net (9,666) (9,666) (4,649) (4,649) (1,036) (1,036) Loss on disposal, net (650) (650) ---------- ---------- ---------- ---------- ---------- ---------- Total from discontinued operations (10,316) (10,316) (4,649) (4,649) (1,036) (1,036) ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before extraordinary gain (loss) and cumulative effect of accounting changes 13,988 13,988 7,358 7,358 (5,331) (5,331) Extraordinary gain (loss) 92 92 (119) (119) Cumulative effect of accounting changes 6,014 6,014 ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 14,080 $ 14,080 $ 7,239 $ 7,239 $ 683 $ 683 ========== ========== ========== ========== ========== ========== Income (loss) per common share: Continuing operations $ 1.91 $ 1.89 $ .98 $ .96 $ (.35) $ (.35) Discontinued operations (.81) (.80) (.38) (.37) (.09) (.09) ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before extraordinary gain (loss) and cumulative effect of accounting changes 1.10 1.09 .60 .59 (.44) (.44) Extraordinary gain (loss) .01 .01 (.01) (.01) Cumulative effect of accounting changes .50 .50 ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 1.11 $ 1.10 $ .59 $ .58 $ .06 $ .06 ========== ========== ========== ========== ========== ==========
Page 54 EX-21 3 EXHIBIT 21 TO FORM 10-K FOR FYE 2/28/94 EXHIBIT 21 SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT At February 28, 1994, consolidated, directly or indirectly, significant wholly-owned subsidiaries of Blount, Inc. were as follows: NAME OF PLACE OF SUBSIDIARY INCORPORATION - - ---------- ------------- BI Holdings Corp. Delaware Blount Holdings, Ltd. Canada Blount Canada, Ltd. Canada Blount Europe, SA Belgium Blount Japan, Inc. Japan Blount Industrial de Correntes LTDA Brazil Omark Properties, Inc. Oregon Dixon Industries, Inc. Kansas Gear Products, Inc. Oklahoma The names of particular subsidiaries have been omitted because when considered in the aggregate or as a single subsidiary they would not constitute a significant subsidiary as of February 28, 1994. Page 55 EX-23 4 EXHIBIT 23 TO FORM 10-K FOR FYE 2/28/94 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Blount, Inc. on Form S-8 (File No. 2-82101), Form S-3 (File No. 33-46543), and Form S-8 (File No. 33-51580) of our report dated April 12, 1994, on our audits of the consolidated financial statements and financial statement schedules of Blount, Inc. and subsidiaries as of the last day of February 1994 and 1993, and for each of the three years in the period ended February 28, 1994, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND Atlanta, Georgia April 28, 1994 Page 56 EX-99 5 EXHIBIT 10(T) TO FORM 10-K FOR FYE 2/28/94 Exhibit 10(t) FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT This Amendment is dated as of July 19, 1993 among BLOUNT, INC., a Delaware corporation ("Parent"), DIXON INDUSTRIES, INC., a Kansas corporation ("Dixon"), GEAR PRODUCTS, INC. ("Gear"); Parent, Dixon and Gear each being called "Seller", and collectively, "Sellers", and CONTINENTAL BANK N.A., a national banking associa- tion ("Purchaser"). Background 1. Sellers and Purchaser have entered into a Receivables Purchase Agreement, dated as of November 8, 1991 (the "Existing Agreement"), pursuant to which Sellers have and continue to sell to Purchaser Undivided Interests (this and other terms not defined herein being used herein as defined in the Existing Agreement) in Pool Receivables, consisting of trade receivables under which the Obligors are United States residents. 2. Sellers and Parent desire to amend the Existing Agreement to permit Receivables which are owed by Obligors which are not United States residents to be included as Pool Receivables, provided such Receivables are subject to and covered under export credit insurance policies issued by the Export-Import Bank of the United States ("Insurer"), subject to the limits and conditions stated herein. NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I AMENDMENTS 1. Subsections (d) and (e) of the definition of "Eligible Receivable" contained in Appendix A to the Existing Agreement are amended as follows: Subsection (d) is amended by deleting the period at the end thereof and inserting ",provided subsection (d) shall not apply to Insured Receivables." Subsection (e) is amended in its entirety to read as follows: "(e) the Obligor of which (i) is not an Affili- ate of any of the parties hereto, (ii) is not a govern- ment or a governmental subdivision or agency, and (iii) is a United States resident or, if not a United States resident, such Receivable is an Insured Receivable." 2. The definition of "Collections" contained in Appendix A to the Existing Agreement is amended by inserting in line 7 of subsection (a) after "insurance payments" the following "under the Policy or otherwise." Page 57 3. The definition of "Pool Receivable" in Appendix A is amended by deleting the period at the end thereof and inserting "and any Insured Receivable." 4. A new definition of "Insured Receivable" should be inserted in Appendix A after the definition of "Initial Discount Percentage": "Insured Receivable" means any Eligible Receivable insured by the Export-Import Bank of the United States ("Insurer") pursuant to one or more Export Credit Insurance Policies (all Policies together with all endorsements, declarations and amendments thereto, and all extensions and renewals thereof or substitutions therefor, being herein called the "Policy"), substantial- ly in the form of Schedule A-1 and each such Policy is assigned to Purchaser pursuant to a notification of amounts payable form, substantially in the form of Exhibit A-2 ("Assignment") and such Policy and Assignment are otherwise in a form satisfactory to the Purchaser; provided that the aggregate Unpaid Balance of all Insured Receivables owing from such Obligors which are not United States residents shall at no time exceed the lesser of the aggregate limit of liability as defined in Item No. 4 of the Policy or $3,500,000. 5. Section 6.01(l) is hereby amended by inserting in line 12 after "with respect thereto" the following: "except each Insured Receivable (i) shall be validly assigned at the time of purchase to Purchaser pursuant to an Assign- ment, and (ii) is and shall remain at the time of each purchase until paid in full, fully insured by Insurer to the full extent of the coverage under the Policy, 6. The definition of "Related Security" contained in Appendix A to the Existing Agreement is amended by deleting the period at the end of the first sentence and inserting the following at the end of subsection (e): "including, without limitation, the Policy." 7. Section 7.01(e) is amended in its entirety to read as follows: "Performance and Compliance with Receivables, Contracts and Policy. At its expense timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Pool Receivables; all purchase orders and other agreements related to such Pool Receivables and under the Policy." 8. Section 8.04 is amended by adding at the end thereof a new subsection (d) to read as follows: (d) Each Seller, if applicable, with respect to each Insured Receivable, shall (i) pay in a timely Page 58 manner, any and all premiums and fees required to maintain the Policy in full force and effect and to the full extent of the coverage thereunder; (ii) take any and all action necessary to maintain the Assignment in full force and effect, (iii) comply with all terms and conditions of the Policy and promptly file all claims as permitted to be filed in accordance with the terms of the Policy for all losses insured thereunder. 9. Section 9.01 is hereby amended by inserting after "Pool Receivables" the following: "the Policy," 10. Section 13.01 is amended by inserting the following new subsections (x) and (xi) after subsection (ix): (x) Any Insured Receivable which is uninsured under the Policy for any reason whatsoever, whether in whole or in part, including, without limitation, due to the amount of, including, without limitation, any deductible under the Policy. (xi) The failure by the Seller, for any reason to (a) maintain the Policy or Assignment in full force and effect and to the full extent of the coverage thereunder; (b) pay in a timely manner, any and all premiums and fees required to maintain the Policy in full force and effect and to the full extent of the coverage thereunder; or (c) comply with all terms and conditions of the Policy and promptly file all claims as permitted to be filed in accor- dance with the terms of the Policy for all losses insured thereunder. Page 59 ARTICLE II MISCELLANEOUS SECTION 1. Representations and Warranties. Each Seller certifies that its representations and warranties contained in Section 6.01 of the Existing Agreement are correct on and as of the date hereof as though made on and as of this date (except in the case of the representation made in Section 6.01(d) such representa- tion shall be modified to provide that the transfer and assignment of an Insured Receivable interest shall be assigned in whole rather than as an Undivided Interest) and no event has occurred and is continuing or would result from this Amendment, or the transactions contemplated hereby, constituting a Termination Event or Unmatured Termination Event. SECTION 2. Governing Law. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE PURCHASERS IN THE RECEIVABLES IS GOVERNED BY THE LAWS OF THE JURISDICTION OTHER THAN THE STATE OF ILLINOIS. SECTION 3. Confirmation of the Existing Agreement. Except as amended hereby, the Existing Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. SECTION 4. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. Page 60 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. BLOUNT, INC., as a Seller and initial Servicer By /s/ Ronald K. Gorland Title: Treasurer DIXON INDUSTRIES, INC., as a Seller By /s/ Ronald K. Gorland Title: Treasurer GEAR PRODUCTS, INC., as a Seller By /s/ Ronald K. Gorland Title: Treasurer CONTINENTAL BANK N.A., as Purchaser By /s/ Kathleen M. Kulla Title: Vice President Page 61 EX-99 6 EXHIBIT 10(T) TO FORM 10-K FOR FYE 2/28/94 Exhibit 10(t) SECOND AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT This Second Amendment is dated as of July 20, 1993 among BLOUNT, INC., a Delaware corporation ("Parent"), DIXON INDUSTRIES, INC., a Kansas corporation ("Dixon"), GEAR PRODUCTS, INC., an Oklahoma corporation ("Gear"); Parent, Dixon and Gear each being called "Seller", and collectively, "Sellers", and CONTINENTAL BANK N.A., a national banking association ("Purchaser"). Background 1. Sellers and Purchaser have entered into a Receivables Purchase Agreement, dated as of November 8, 1991, as amended by the First Amendment to Receivables Purchase Agreement, dated as of July 19, 1993, (the "Existing Agreement" and as herein amended by this Second Amendment and further amended or otherwise modified from time to time, called the "Agreement"), pursuant to which Sellers have agreed to sell to Purchaser Undivided Interests (this and other terms not defined herein being used herein as defined in the Existing Agreement). 2. Dixon has sold to Purchaser Undivided Interests under the Existing Agreement. Purchaser's Investment in Dixon's Undivided Interests has been reduced to zero, and remains, as of the date hereof, at zero. 3. Sellers desire to amend the Existing Agreement to suspend Dixon's status as Seller under the Existing Agreement. Sellers also desire to reserve the right to reinstate Dixon as a Seller under the Agreement upon the giving of a reinstatement notice (as hereinafter described) subject to the limits and conditions stated therein and the execution of a new Lock-Box Agreement. NOW, THEREFORE, in consideration of the premises and mutual agreements herein contained, the parties hereto agree as follows: ARTICLE I AMENDMENT The term "Seller" wherever appearing in the Existing Agreement shall refer solely to Blount, Inc. and Gear Products, Inc., and shall not refer to Dixon Industries, Inc., as of the date hereof until the effectiveness of a reinstatement notice described in Section 2.1. ARTICLE II MISCELLANEOUS SECTION 2.1 Reinstatement. Upon the giving of reinstate- ment notice to the Purchaser and the remaining Sellers, substan- tially in the form of Exhibit A to this Second Amendment, and the execution of a new Lock-Box Agreement, Dixon shall be reinstated as a Seller under the Agreement. Page 62 SECTION 2.2 Termination of Lock-Box. Purchaser agrees to terminate the Lock-Box Agreement dated November 5, 1991, among Dixon, the Purchaser and Citizens & Southern National Bank. Purchaser, concurrently with the execution of this Second Amend- ment, is sending to Citizens & Southern National Bank, a termina- tion letter substantially in the form of Exhibit B to this Second Amendment. SECTION 2.3 Survival of Certain Sections. Dixon confirms that the rights and remedies set out in the last sentence of Section 14.04 of the Existing Agreement shall survive against Dixon notwithstanding its suspension as a Seller under the Existing Agreement. SECTION 2.4 Governing Law. THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS, EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE PURCHASERS IN THE RECEIVABLES IS GOVERNED BY THE LAWS OF THE JURISDICTION OTHER THAN THE STATE OF ILLINOIS. SECTION 3. Confirmation of the Existing Agreement. Except as amended hereby, the Existing Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. SECTION 4. Execution in Counterparts. This Second Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties have caused this Second Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. BLOUNT, INC., as a Seller By /s/ Ronald K. Gorland Title: Treasurer DIXON INDUSTRIES, INC., as a Seller By /s/ Ronald K. Gorland Title: Treasurer GEAR PRODUCTS, INC., as a Seller By /s/ Ronald K. Gorland Title: Treasurer Page 63 CONTINENTAL BANK N.A., as Purchaser By /s/ Kathleen M. Kulla Title: Vice President Page 64 EXHIBIT A NOTICE OF REINSTATEMENT Reference is made to the Receivables Purchase Agreement, dated as of November 8, 1991 among Blount, Inc., a Delaware corporation, Dixon Industries, Inc., a Kansas corporation, Gear Products, Inc., an Oklahoma corporation, and Continental Bank N.A., a national banking association as amended and modified from time to time (the "Agreement"). Dixon Industries, Inc. desires to be reinstated as a Seller under the Agreement effective the date hereof and agrees to be bound by all of the terms thereof applicable to a Seller. Dixon hereby makes all the representations and warranties contained in Section VI of the Agreement. Dixon certifies that no Termination Event, or unmatured Termination Event, has occurred and is continuing with respect to Dixon as of the date hereof. Dated as of the day of , 19 . DIXON INDUSTRIES, INC., By Title: Accepted and agreed as of the date first above written: BLOUNT, INC., as a Seller By Title: GEAR PRODUCTS, INC., as a Seller By Title: CONTINENTAL BANK N.A., as Purchaser By Vice President Page 65 January 25, 1994 Citizens & Southern National Bank P.O. Box 4899 Atlanta, Georgia 30302-4899 Re: Dixon Industries, Inc. Lock-Box Account No. 008-80-732 Ladies/Gentlemen: Reference is made to the letter agreement dated November 5, 1991 (the "Letter Agreement") among Dixon Industries, Inc., the undersigned and you concerning the above described lock-box account (the "Account"). We hereby notify you that, effective as of the date hereof, the Letter Agreement is terminated by the undersigned notwithstanding the fact that the Receivables Purchase Agreement described therein is still in effect; the termination of this Letter Agreement results from the fact that said Receivables Purchase Agreement is now not in effect with respect to Dixon Industries, Inc. Very truly yours, CONTINENTAL BANK N.A. By: /s/ Kathleen M. Kulla Name: Kathleen M. Kulla Title: Vice President Accepted and agreed as of the date first above written: CITIZENS & SOUTHERN NATIONAL BANK By: /s/ Lynda M. Schrage Name: Lynda M. Schrage Title: Assistant Vice President Page 66 EX-99 7 EXHIBIT 10(U) TO FORM 10-K FOR FYE 2/28/94 Exhibit 10(u) [CONFORMED COPY] AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT dated as of June 1, 1993 among BLOUNT, INC. (the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H : WHEREAS, the parties hereto have heretofore entered into a Credit Agreement dated as of December 23, 1992 (the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agreement as set forth below. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby. SECTION 2. Amendment of Section 2.07(a) of the Agreement. The definition of "Subordinated Debt" is amended to read in its entirety as follows: "Subordinated Debt" means (a) the indebtedness at any time outstanding under the Indenture dated as of August 1, 1986 between the Borrower and Continental Bank N.A. (as successor to Continental Illinois National Bank and Trust Company of Chicago), as Trustee, provided that Article Thirteen thereof, as in effect on the date hereof, shall not have been modified or amended in any material respect adverse to the Banks without the written consent of the Required Banks, (b) Page 67 the Senior Subordinated Notes due 2003 issued by the Borrower and sold pursuant to its Registration Statement on Form S-2 filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on May 14, 1993, as such Registration Statement may be amended from time to time, provided that the subordination provisions therein described shall not have been modified or amended in any material respect adverse to the Banks without the written consent of the Required Banks, and (c) such other indebtedness of the Borrower for money borrowed to the extent that such indebtedness (i) requires no payment of principal to be made prior to August 1, 1996 and (ii) is subordinated in right of payment to the Notes by subordination provisions no less favorable to the Banks than the provisions set forth in Exhibit D hereto. SECTION 3. Amendment of Section 5.07 of the Agreement. Section 5.07 of the Agreement is amended by changing the percentage set forth therein from "170%" to "195%." SECTION 4. Amendment of Section 5.08 of the Agreement. Section 5.08 of the Agreement is amended by adding the following clause at the end thereof: and minus (iv) an amount equal to the lesser of (x) $25,000,000 and (y) the amount deducted in determining Consolidated Tangible Net Worth in respect of goodwill arising from Acquisitions consummated subsequent to June 1, 1993. SECTION 5. Amendment of Section 5.10 of the Agreement. Section 5.10 of the Agreement is amended to read in its entirety as follows: SECTION 5.10. Acquisitions. Neither the Borrower nor any Subsidiary will apply proceeds of any Loans under this Agreement to finance an Acquisition. SECTION 6. Amendment of Section 5.13 of the Agreement. Section 5.13 of the Agreement is amended by the addition of the following proviso at the end thereof: ; provided that prepayments or purchases or repurchases of Subordinated Debt described in clause (i) of the definition of such term shall be excluded from calculations pursuant to clause (z) above to the extent funded with the proceeds of issuance of Subordinated Debt described in clause (ii) of the definition of such term. SECTION 7. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. Page 68 SECTION 8. Counterparts; Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective as of the date hereof when the Agent shall have received duly executed counterparts hereof signed by the Borrower and the Required Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party). IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written. BLOUNT, INC. By /s/ Ronald K. Gorland Title: Treasurer MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Steven Tulip Title: Vice President CONTINENTAL BANK N.A. By /s/ Timothy J. Pepowski Title: Vice President NATIONSBANK OF GEORGIA, N.A. By /s/ John Stakel Title: Vice President SOUTHTRUST BANK OF ALABAMA, N.A. By /s/ J. Neel Elliott Title: Vice President Page 69 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By /s/ Steven Tulip Title: Vice President Page 70 EX-99 8 EXHIBIT 10(U) TO FORM 10-K FOR FYE 2/28/94 Exhibit 10(u) [CONFORMED COPY] AMENDMENT NO. 2 TO CREDIT AGREEMENT AMENDMENT dated as of June 18, 1993 among BLOUNT, INC. (the "Borrower"), the BANKS listed on the signature pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent"). W I T N E S S E T H : WHEREAS, certain parties hereto have heretofore entered into a Credit Agreement dated as of December 23, 1992 (as heretofore amended, the "Agreement"); and WHEREAS, the parties hereto desire to amend the Agreement to increase the aggregate amount of the Commitments of the Banks from $50,000,000 to $60,000,000, to add the New Bank as a party to the Agreement as amended hereby and to provide for changes in the respective Commitments of the Banks; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; References. Unless otherwise specifically defined herein, each term used herein which is defined in the Agreement shall have the meaning assigned to such term in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the date hereof refer to the Agreement as amended hereby, and all references to "Note" or "Notes" shall include the New Note. SECTION 2. New Bank; Changes in Commitments. With effect from and including the date this Amendment becomes effective in accordance with Section 4 hereof, (i) ABN-AMRO Bank, N.V. (the "New Bank") shall become a Bank party to the Agreement, (ii) the aggregate amount of the Commitments of the Banks shall be increased from $50,000,000 to $60,000,000, and (iii) the Commitment of each Bank shall be Page 71 the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Section 2.07 of the Agreement. SECTION 3. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York. SECTION 4. Counterparts; Conditions to Effectiveness. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective when the Agent shall have received: (a) duly executed counterparts hereof signed by the Borrower and each of the Banks (or, in the case of any party as to which an executed counterpart shall not have been received, the Agent shall have received telegraphic, telex, telecopy or other written confirmation from such party of execution of a counterpart hereof by such party); (b) a duly executed Note for the New Bank (the "New Note"), dated on or before the date of effectiveness hereof and otherwise in compliance with Section 2.03 of the Agreement; (c) an opinion of counsel for the Borrower, addressed to the Banks and the Agent, in form satisfactory to the Agent, as to the corporate authorization for and the validity of this Amendment and the Agreement as amended hereby, and such other mattters as the Agent may reasonably request; and (d) all documents that the Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and validity of this Amendment and the New Note, and any other matters relevant hereto, all in form and substance satisfactory to the Agent. Page 72 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. BLOUNT, INC. By /s/ Ronald K. Gorland Title: Treasurer Commitments $12,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ Steven A. Tulip Title: Vice President $12,000,000 CONTINENTAL BANK N.A. By /s/ Timothy J. Pepowski Title: Vice President $12,000,000 NATIONSBANK OF GEORGIA, N.A. By /s/ John Stakel Title: Vice President $12,000,000 SOUTHTRUST BANK OF ALABAMA, N.A. By /s/ J. Neel Elliott Title: Vice President Page 73 Commitments $12,000,000 ABN-AMRO BANK, N.V. By /s/ Thomas Dawe Title: Vice President By /s/ W. Patrick Fischer Title: Senior Vice President - - ---------------- Total Commitments $60,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent By /s/ Steven A. Tulip Title: Vice President Page 74 EX-99 9 EXHIBIT 10(V) TO FORM 10-K FOR FYE 2/28/94 PERSONAL & CONFIDENTIAL Exhibit 10(v) December 10, 1993 Dear Don: On behalf of Red, Joe and Hal we appreciate your joining us in Montgomery for a brief visit today. Obviously, our evaluation of you and your skills in relation to our company leads us to believe that you could make significant contributions to our efforts and that you and Judy would quickly become an integral part of our team. Confirming our conversations of earlier today, I'd like to summarize the specifics of our employment offer: 1. You would be appointed President of the Forestry & Industrial Equipment Division of Blount, Inc. as outlined in the position description and subsequent conversations we have shared. Hopefully, you could assume these duties devoting your full time to the affairs of the Company as soon as convenient. 2. Your initial base salary will be $250,000 per year paid semi- monthly. You would participate in our Management Incentive Bonus Program; your target bonus would be 45% of annual salary. The target bonus is subject to increases or decreases depending upon the Company's attainment of specific objectives as well as your individual performance. For fiscal 1995 and fiscal 1996 you will be guaranteed a minimum bonus of not less than $100,000. Bonuses are normally paid in April of each year. 3. You would participate in all of the Company's standard benefit programs. These provide first-day coverage for medical, life, dental insurance and our Exec-U-Care program. The one-year waiting period for our Long-Term Disability Program will be waived in your instance. Our group term life insurance coverage is equal to 2 times base salary, thus, on your first day of employment you would have $500,000 in group term insurance plus an equal amount for accidental death. In addition, we carry a $250,000 accidental death benefit for each employee traveling on company business. You will be covered by Blount's Pension and 401(k) Plans upon the eligibility requirements under each plan. You will be granted three weeks vacation beginning with your first year of employment. A summary plan description booklet has been provided to you by Joe McInnes which further details these plans and programs. Page 75 4. You will be provided options for 30,000 shares of Blount A stock which will vest over a three year period, subject to IRS limitations. These shares will be awarded under our Incentive Stock Option Plan and will be granted upon the commencement of your employment. The option price will be the average of the high and low price of Blount A stock on the date the options are issued. A copy of Blount's Incentive Stock Option Plan will be sent to you under separate cover. In addition, Blount will make a one time payment to you for the value of the unvested shares of Hanson which you will forfeit as a result of your leaving your current employer. You will need to supply us with documentation, within 90 days of employment, for the actual calculation and payment of your forfeited value. 5. You will be offered participation in Blount's Executive Life Insurance Program which provides a $250,000 whole life policy paid up at age 65. This is in addition to our group insurance coverage and is only provided to senior management of Blount, Inc. Upon the later of age 65 or your retirement from Blount, Inc., the company will transfer the ownership of this policy to you. 6. We will design a Supplemental Executive Retirement Program for you which will provide a benefit equal to what you would have earned at Grove if you worked at Grove until age 65, but we will use your earnings from Blount as applicable. You will also earn two years credited service (one from the Blount plan and one from the SERP) for each year of service at Blount until age 65. A separate plan document will be developed for you by Joe McInnes to set out the specifics of this Supplemental Executive Retirement Plan. 7. We will provide you an automobile under our standard automobile policy. Included will be all fuel, maintenance and operating expenses. A copy of the automobile policy will be sent to you under separate cover by Joe McInnes. 8. We will provide membership in either the Owatonna Country Club or another similar club of your choice in the Owatonna area. Membership will include initiation fees and dues for you and your family. The country club membership may take time due to possible waiting lists; however, we will work to circumvent the normal waiting period in regard to your membership if applicable. Luncheon club privileges will also be provided under our executive program. 9. We will provide a furnished townhouse or apartment for your utilization for a period of 90 days or until you are permanently relocated to Owatonna, whichever occurs first. We will provide an interest-free bridge loan, if necessary, for a period of six months for the acquisition of a home in Owatonna and we will assist in disposing of your Hagerstown home. We will also provide for the packing, moving, and unpacking and/or storage of your household goods included in the move from Hagerstown to Owatonna. In anticipation of miscellaneous moving expenses not otherwise covered, we would provide a payment of one month compensation to take care of these Page 76 incidentals. This payment would be made coincident with the arrival of your household goods in Owatonna. Moving expenses we reimburse which are taxable by IRS regulations will be "grossed-up" by Blount to hold you harmless for any tax consequences of such expenses. 10. This entire agreement shall be for a 36 month period and will be extended one day for each day worked until you attain age 62. If your employment is terminated by Blount for any reason except for cause ( as defined below), Blount will continue to pay your base salary for 18 months after such termination offset by any salary earned in subsequent employment during the 18 month payment period. During any severance period you would be provided office space, secretarial assistance and related expenses if deemed necessary by Blount. Termination for cause shall include, but shall not be limited to, the following conduct: (1) Any act that is materially contrary to the best interests of the Company or its affiliated entities including fraud, conviction of a felony or gross malfeasance. (2) Willful and continued failure by you to devote your full business time and efforts to the business affairs of the Company, except that you may serve as a director of other corporations if such service involves no conflict of interest, is within reasonable time commitments, and permission to do so is obtained from the President of Blount, Inc. 11. In addition to the above, we will provide for annual physical examinations and can refer you to a consultant for personal financial planning. 12. Upon the termination or expiration of your employment under this Agreement, you shall not enter into or engage in the design, manufacture, or marketing of any products similar to those produced or offered by Blount, Inc. as an individual or as a partner or joint venturer, or as an employee, agent, or salesman for any person, or as an officer, director, shareholder of a corporation for a period of five years after the date of termination of your employment. In the event of a breach of the provisions of this paragraph, Blount, Inc. shall be entitled to an injunction restraining you from such actions. Nothing shall be construed as prohibiting Blount, Inc. from pursuing remedies for such breach or threatened breach, including the recovery of damages from you. This covenant shall be construed as an Agreement independent of any other provision in this Agreement; and the existence of any claim or cause of action of you against Blount, Inc., whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Blount, Inc. of this covenant. With respect to this paragraph, we will prepare a formal noncompete agreement for your signature at a later date. Page 77 13. During and after the term of this Agreement, you shall not, without the prior written consent of the President of Blount, Inc., disclose to any person, corporation, firm, partnership, or other entity any confidential or proprietary information of Blount, Inc., including, without limitation, customer information, trade secrets, discoveries, ideas, methods, market research, or other information relating to the business of Blount, Inc. You further agree that, should you reveal such information to any such person or entity without the express written consent of the President of Blount, Inc., Blount, Inc.'s remedy will not provide sufficient and complete redress, and Blount, Inc. shall, in addition to any other available remedies, be entitled to petition a court of competent jurisdiction to permanently enjoin you from such acts. Don, we believe that you and your family will find Owatonna and Blount to be a very fine environment in which to live and work. We all look forward to your coming on both a personal and professional basis. This letter outlines our offer which we believe is an outstanding compensation package. If you agree with the package as outlined above, please sign one of the copies and return to me. This offer is valid until the earlier of your signature and return or December 17, 1993. Sincerely, /s/ John M. Panettiere Mr. Donald B. Zorn 11205 Eastwood Drive Hagerstown, Maryland 21740 cc: Joe McInnes Date: December 11, 1993 Accepted: /s/ Donald B. Zorn Page 78 EX-99 10 EXHIBIT 10(W) TO FORM 10-K FOR FYE 2/28/94 Exhibit 10(w) EMPLOYMENT AGREEMENT between Harold E. Layman and Blount, Inc. Effective as of January 1, 1994 THIS AGREEMENT, made and entered into as of the 1st day of January, 1994, by and between Blount, Inc., a Delaware corporation ("Company"), and Harold E. Layman ("Executive"). W I T N E S S E T H: The parties, for and in consideration of the mutual and reciprocal covenants and agreements contained in this document, do contract and agree as follows: 1.0 Purpose and Employment: The purpose of this Agreement is to define the relationship between the Company, as an employer, and Executive, as an employee. By the execution of this Agreement, the Company employs Executive and Executive accepts employment by the Company. 2.0 Compensation and Benefits: Based on the Executive's performance, the compensation in effect on the effective date of this agreement and as adjusted from time to time by the President & Chief Executive Officer and approved by the Compensation and Management Development Committee of the Board of Directors of the Company, and the Executive's position with the Company, the Executive shall be entitled to and the Company agrees to provide any and all basic benefits which are generally provided by the Company to its similarly situated employees. Further, the Executive shall be entitled to and the Company agrees to provide any and all working facilities, perquisites and incentives which are in effect on the date of this agreement and as may be adjusted or eliminated from time to time at management's discretion. 3.0 Duties: Executive shall serve the Company in a full-time salaried position designated by the Company. The position is to be defined using a written job description and be subject to the Hay Compensation Position Evaluation System or other systematic evaluation systems that the Company may employ. 4.0 Extent of Services: Executive shall devote full time to the conduct of the business of Blount, Inc., its divisions or affiliates. The Executive may not engage in any other business that requires his time or services, other than those associated with Blount or its affiliates, unless prior permission has been granted from the President of Blount, Inc.; provided, that the Executive may serve as a director of unaffiliated corporations if such service involves no conflict of interest, is within reasonable time commitments and permission to so serve is obtained from the President of Blount, Inc. 5.0 Term: The term of Agreement shall be for a period beginning on the effective date of this agreement and ending two years prior to the date of the Executive's 65th birthday. This Agreement is a contract of employment at will. This means that employment will continue only so long as both Company and Executive want it to do so. Subject to the minimum notice requirement set Page 79 forth below, Executive is free to quit at any time at his discretion and Company is, subject to the severance payment provisions of Paragraph 7.0, free to terminate Executive's employment at any time at its discretion. The Agreement may be terminated by the Executive or the Company upon 30 days' written notice. If the Agreement is terminated for reasons other than normal retirement, death, total disability, Cause (Paragraph 9.0(d)), voluntary termination, the Executive shall be paid as described in Severance Payment (Paragraph 7.0). 6.0 Conflicts of Interest: In matters that present the potential for conflicts of interest, the Executive is subject to the policies set forth in the Blount, Inc. Corporate Policies & Procedures Manual and Blount Principles of Business Conduct. 7.0 Severance Payment: Except as provided in Paragraph 8.0 below, in the event that the Executive's employment is terminated by the Company for reasons other than normal retirement, death, total disability, Cause (as defined in Paragraph 9.0(d)), or voluntary termination (as set forth under Paragraph 9.0, titled "Exclusions"), the Company will pay to the Executive payments equal to two (2) times the participant's base salary during the preceding 12 months. The payments will be made in twenty-four (24) equal monthly payments following the termination date and will be forfeited if the Executive accepts employment with a competitor or its affiliated entities during the severance payment period. After the participant reaches age 55, any severance payments due under this agreement will be offset by any consulting fees paid by Blount after termination plus retirement income due from the Blount pension plan as well as any retirement benefit supplemental to the Blount pension benefit. In the event of a Change of Control as defined in Paragraph 10.0, the Executive may at his option decide to leave the Company and be paid severance pay pursuant to this paragraph as though the Executive were terminated by the Company. 8.0 Forced Separation: If the Company reduces the Executive's base salary more than 25%, without making commensurate reductions in the salaries of a majority of the officers of Blount, Inc., the Executive may at his option decide to leave the Company and be paid severance pay pursuant to Paragraph 7.0 as though the Executive were terminated by the Company. 9.0 Exclusions: In the event the Executive's termination is for any of the following reasons, the provisions of this contract will not apply: (a) Retirement. (b) Death. (c) Total disability. (d) Cause. "Cause" for termination by the Company shall include, but shall not be limited to, the following conduct of the Executive: (1) Any act that is materially contrary to the best interests of the Company or its affiliated entities including, but not limited to, fraud, conviction of a felony, gross malfeasance, insubordination, failure to perform to satisfactory levels, material breach of any of the terms contained in this Agreement or refusal to comply with the reasonable policies, standards and regulations established by the Company. Page 80 (2) Willful and continued failure by the Executive to devote his full business time and best efforts to the business affairs of the Company. (e) Voluntary termination by Executive not due to a change of control or forced separation. 10.0 Change of Control: A "Change of Control" means any of the following events: (a) the sale by the Company of substantially all of its assets to a single purchaser or a group of associated or affiliated purchasers; (b) the sale, exchange or other disposition, in one transaction to an entity or entities not affiliated with the Company, of more than fifty percent (50%) of the outstanding common stock of the Company other than a sale, exchange or disposition of the common stock of the Company resulting from a public or private offering of common stock or other security convertible into common stock of the Company which offering is sponsored or initiated by the Company and approved by the Board. Any stock purchase or acquisition under an ESOP or other employee plan whereby employees of the Company, except W. M. Blount, acquire a majority of the stock is excluded from this "change of control" provision; (c) the merger or consolidation of the Company in a transaction in which the stockholders of the Company receive less than fifty percent (50%) of the outstanding voting stock of the new or continuing entity. 11.0 Non-Solicitation: During the period beginning on the date of this Agreement's execution and ending two (2) years following termination of Executive's employmentwith the Company, Executive shall not hire or solicit any employees of the Company or any person that controls, is controlled by, or is under common control with any other person of the Company, to work for any other Person then in competition with the Company or any of its Affiliates, or, directly or indirectly, solicit or attempt in any manner to persuade or influence any present, future or prospective customer or client of the Company or any of its Affiliates to divert his or its purchases of products or services from the Company or any of its Affiliates to any person then in competition with the Company or any of its Affiliates. Executive agrees and acknowledges that he possesses valuable information with respect to customers and clients of the Company as a result of his employment and that violation of this provision would cause irreparable harm to the Company. Executive hereby specifically acknowledges the adequacy of the compensation to be paid by Company hereunder and of the other benefits provided by Company for all of the covenants undertaken by Executive under this Agreement. Executive shall be entitled to take such vacation and other leaves of absence as determined pursuant to the Company's vacation and leave policies as set forth in its employee benefits handbook, as amended from time to time. 12.0 Confidentiality: The Executive shall not disclose or furnish information about the Company's business to any third party except: (a) As specifically authorized by Blount, Inc. or as reasonably necessary to carry out the duties performed by Executive hereunder; Page 81 or (b) That demanded by a subpoena duly served. 13.0 Rights of Company Upon Breach: If Executive breaches or threatens to commit a breach of, any of the provisions of this Agreement, the Company shall have the following rights and remedies, each of which rights and remedies shall be independent of the others and severally enforceable, and each of which is an addition to, and not in lieu of, any other rights and remedies available to the Company at law or in equity (including the right to recover damages): (a) the right and remedy to have this Agreement specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of this Agreement would cause irreparable harm to the Company and that money damages would not provide an adequate remedy to the Company; (b) the right and remedy to require Executive to account for and pay over to the Company all compensation, profits or other benefits derived or received by Executive or lost to the Company as a result of any actions constituting a breach of this Agreement; (c) the right to terminate Executive's employment for cause under Paragraph 9.0(d) of this Agreement. 14.0 Applicable Law: This Agreement shall be construed under and governed by the laws of the State of Alabama, and any action to enforce this Agreement or which otherwise arises under this Agreement shall be brought in Montgomery, Alabama. 15.0 Severability: In case any one or more of the provisions of this Agreement shall be found to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 16.0 Entire Agreement: This Agreement represents the entire agreement between the parties and may be amended, modified, or superseded only by a written agreement signed by both of the parties. /s/ Harold E. Layman Harold E. Layman Senior Vice President & Chief Financial Officer Title BLOUNT, INC. By: /s/ John M. Panettiere Its: President & Chief Executive Officer Page 82 -----END PRIVACY-ENHANCED MESSAGE-----