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Blount International, Inc. (BLT) Prelim. Q4, FY15 Results Flat with Views

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Blount International, Inc. (NYSE: BLT) announced preliminary results for the fourth quarter and full year ended December 31, 2015.

Preliminary Results for the Quarter and Full Year Ended December 31, 2015 Sales in the fourth quarter were $200.7 million, a decrease of $31.5 million or 13.6 percent compared to the fourth quarter of 2014. Operating loss for the fourth quarter of 2015 was $24.4 million compared to $2.5 million in the same quarter last year. Consolidated Adjusted EBITDA for the fourth quarter of 2015 was $21.3 million compared to $30.5 million in the fourth quarter of 2014.

Sales for the full year were $828.6 million, a decrease of 12.3 percent compared to full year 2014. Operating loss for 2015 was $46.8 million compared to operating income of $64.2 million for full year 2014. Adjusted EBITDA for full year 2015 was $100.8 million, a decrease $37.2 million compared to full year 2014.

*** Consensus estimates called for Q4 revenue of $201.2 million and FY15 revenue of $82

Blount operates primarily in two business segments - the Forestry, Lawn, and Garden (“FLAG”) segment and the Farm, Ranch, and Agriculture (“FRAG”) segment. The Company reports separate results for the FLAG and FRAG segments. Blount’s Concrete Cutting and Finishing (“CCF”) business is included in “Corporate and Other.”

Forestry, Lawn, and GardenThe FLAG segment had fourth quarter 2015 sales of $138.2 million, which was $22.2 million, or 13.8 percent, lower than the fourth quarter of 2014, primarily as the result of reduced unit volume and the effects of foreign currency exchange rate changes. Segment sales volumes were unfavorably impacted by pressure from continued U.S. Dollar strength. The change in segment sales for the comparable fourth quarter periods is illustrated below.

Change in FLAG Segment Sales
(In millions; amounts may not sum due to rounding)			Sales				Change
	Fourth quarter 2014			$	160.4
		Increase / (Decrease)
		Foreign Exchange Translation	(8.7			)	(5.4	)%
			151.8				(5.4	)%
		Unit Volume	(14.1			)	(8.8	)%
		Selling Price / Mix	0.6				0.4	%
	Fourth quarter 2015			$	138.2		(13.8	)%

Segment backlog was $114.5 million at December 31, 2015, a decrease of 18 percent from $140.1 million on December 31, 2014.

Segment Earnings Before Interest, Taxes, Depreciation, Amortization, and certain charges (“Adjusted EBITDA”) were $24.1 million for the fourth quarter of 2015, including $7.3 million of allocated shared services expenses. Adjusted EBITDA declined 22.6 percent for the fourth quarter of 2015 versus the fourth quarter of 2014. The change in FLAG contribution to operating income (loss) and Adjusted EBITDA for the comparable fourth quarter periods is presented below.

Change in FLAG Segment Contribution to Operating Income (Loss) and Adjusted EBITDA
(In millions; amounts may not sum due to rounding)

	Contribution to Operating Income (Loss)				As a Percent of Segment Sales			Depreciation, Amortization, and Other			Adjusted EBITDA			As a Percent of Segment Sales
Fourth quarter 2014		$	23.9			14.9	%		$	7.3		$	31.2		19.4	%
Increase / (Decrease)
Steel Costs	1.2
Foreign Exchange Translation	1.7
	26.7					17.6	%
Unit Volume	(5.4			)
Selling Price / Mix	0.6
Costs / Mix	(3.8			)
	18.1					13.1	%
Acquisition accounting(1)	0.2
Fourth quarter 2015		$	18.4			13.3	%		$	5.8		$	24.1		17.5	%

(1) Represents change in non-cash acquisition accounting impact for all FLAG business units

Segment contribution to operating income and Adjusted EBITDA declined mostly due to lower sales volumes, as illustrated above, and higher overall operating costs and mix. Operating costs, including mix, were approximately $3.8 million higher, primarily due to higher manufacturing costs on lower production volumes, partially offset by lower SG&A spending in the segment. FLAG factory utilization was 70 percent in the fourth quarter of 2015 compared to 88 percent in the fourth quarter of 2014. Lower SG&A in the segment was mostly related to lower incentive compensation rates resulting from lower than targeted operating results along with lower discretionary spending in the quarter in response to lower sales volumes.

Farm, Ranch, and AgricultureThe FRAG segment reported fourth quarter 2015 sales of $54.4 million, a decrease of $8.9 million, or 14.0 percent, from the fourth quarter of 2014. The reduction in sales was the result of lower volumes of log splitters and agriculture parts and attachments. Log splitter volumes are down compared to the strong fourth quarter of 2014, while the agriculture attachments have been negatively impacted by the continued weak overall agriculture machinery market conditions. The change in segment sales for the comparable fourth quarter periods is illustrated below.

Change in FRAG Segment Sales
(In millions; amounts may not sum due to rounding)			Sales				Change
	Fourth quarter 2014			$	63.3
		Increase / (Decrease)
		Foreign Exchange Translation	(0.3			)	(0.4	)%
			63.0				(0.4	)%
		Unit Volume	(9.3			)	(14.6	)%
		Selling Price / Mix	0.7				1.0	%
	Fourth quarter 2015			$	54.4		(14.0	)%

Segment backlog was $19.5 million at December 31, 2015 compared to $28.8 million at December 31, 2014.

The FRAG segment had $0.7 million of Adjusted EBITDA in the fourth quarter of 2015, including $2.3 million of allocated shared services expenses. The change in FRAG contribution to operating income and Adjusted EBITDA for the comparable fourth quarter periods is presented below.

Change in FRAG Segment Contribution to Operating Income (Loss) and Adjusted EBITDA
(In millions; amounts may not sum due to rounding)

	Contribution to Operating Income (Loss)				As a Percent of Segment Sales			Depreciation, Amortization, and Other			Adjusted EBITDA			As a Percent of Segment Sales
Fourth quarter 2014		$	(21.4	)		(33.8	)%		$	23.7		$	2.3		3.6	%
Increase / (Decrease)
Steel Costs	0.4
Foreign Exchange Translation	—
	(21.0			)		(33.3	)%
Unit Volume	(2.0			)
Selling Price / Mix	0.7
Costs / Mix	(1.1			)
	(23.4			)		(43.0	)%
Acquisition accounting(1)	0.3
Acquired intangible asset impairment(2)	4.2
Fourth quarter 2015		$	(18.9	)		(34.6	)%		$	19.5		$	0.7		1.2	%

(1) Represents change in non-cash acquisition accounting impact for all FRAG business units (2) Acquired intangible asset impairment impact of $4.2 million represents the change in FRAG-related intangible asset impairment charges from $19.7 million to $15.5 million in the fourth quarters of 2014 and 2015, respectively.

The lower sales volumes increased costs on lower fixed cost absorption but were partially offset by increases in average pricing.

Corporate and OtherCorporate and Other net operating expense was $23.9 million, an increase of $19.0 million compared to the fourth quarter of 2014. Corporate and Other net expense in the fourth quarter of 2015 includes $10.2 million non-cash related to pension restructuring, $7.7 million of costs related to the previously announced transaction with American Securities LLC (“American Securities”) and P2 Capital Partners, LLC (“P2 Capital Partners”), and $0.4 million of other restructure charges. The pension, transaction-related expenses (see “Other Developments” section), and restructuring charges have been added back to Operating Income (Loss) for purposes of the calculation of Adjusted EBITDA in this news release.

Cash Flow and DebtAs of December 31, 2015, the Company had net debt of $353.1 million, a decrease of $3.9 million from December 31, 2014. The Company generated positive free cash flow of $16.2 million in the fourth quarter of 2015 and $33.7 million for full year 2015, which includes the impact of paying $3.0 million of transaction-related costs (see “Other Developments” section). Free cash flow in the fourth quarter of 2015 significantly increased compared to the fourth quarter of 2014, driven mostly by increased cash flow generated from changes in working capital components. The full year 2015 free cash flow of $33.7 million compares to $44.9 million for full year 2014. The year-over-year decrease in free cash flow was driven by lower cash earnings and the payment of transaction-related costs, partially offset by lower capital expenditures and less use of cash for working capital. The Company defines free cash flow as cash flows from operating activities less net capital spending. The ratio of net debt to last-twelve-months ("LTM") Adjusted EBITDA was 3.5x as of December 31, 2015, which is higher compared to December 31, 2014 and reflects reduced Adjusted EBITDA.

Other DevelopmentsAs previously announced on December 9, 2015, the Company entered into a definitive agreement to be acquired by affiliates of American Securities and P2 Capital Partners in an all-cash transaction valued at approximately $855 million, including the assumption of debt. Blount expects to maintain its corporate headquarters in Portland, Oregon and its existing global distribution and sales footprints. Blount, American Securities, and P2 Capital Partners have also secured committed debt financing from Barclays Bank and KeyBanc Capital Markets. The proposed transaction is expected to close in the first half of 2016, subject to the approval by Blount’s shareholders and regulatory authorities, the satisfaction or waiver of customary closing conditions and Blount’s ability to terminate the merger agreement to accept a superior proposal.

Blount International, Inc. Financial Data (Unaudited)

Condensed Consolidated Statements of Income (Loss)	Three Months Ended December 31,								Twelve Months Ended December 31,
(Amounts in thousands, except per share data)	2014				2015				2014				2015
Sales		$	232,212			$	200,693			$	944,819			$	828,569
Cost of goods sold	164,730				147,104				669,703				603,137
Gross profit	67,482				53,589				275,116				225,432
Selling, general, and administrative expenses	49,768				44,260				187,054				173,039
Facility closure and restructuring charges	510				390				2,763				2,514
Acquisition costs	—				7,732				—				7,732
Pension settlement	—				10,152				—				10,152
Impairment of acquired intangible assets	19,655				15,462				21,074				78,761
Operating income (loss)	(2,451			)	(24,407			)	64,225				(46,766			)


Free Cash Flow	Three Months Ended December 31,								Twelve Months Ended December 31,
(Amounts in thousands)	2014				2015				2014				2015
Net cash provided by operating activities		$	3,430			$	13,845			$	81,959			$	61,246
Net purchases of property, plant, and equipment	(10,428			)	2,380				(37,092			)	(27,554			)
Free cash flow		$	(6,998	)		$	16,225			$	44,867			$	33,692

Segment Information	Three Months Ended December 31,								Twelve Months Ended December 31,
(Amounts in thousands)	2014				2015				2014				2015
Sales:
FLAG		$	160,412			$	138,234			$	644,848			$	556,666
FRAG	63,288				54,421				269,158				238,992
Corporate and Other	8,512				8,038				30,813				32,911
Total sales		$	232,212			$	200,693			$	944,819			$	828,569
Contribution to operating income (loss):
FLAG		$	23,884			$	18,363			$	102,314			$	73,292
FRAG	(21,402			)	(18,856			)	(17,457			)	(80,556			)
Corporate and Other	(4,933			)	(23,914			)	(20,632			)	(39,502			)
Total operating income (loss)		$	(2,451	)		$	(24,407	)		$	64,225			$	(46,766	)

Condensed Consolidated Balance Sheets	December 31,			December 31,
(Amounts in thousands)	2014			2015
Assets:
Cash and cash equivalents		$	27,254		$	25,949
Accounts receivable, net	123,099			105,159
Inventories	164,979			169,559
Assets held for sale	7,200			—
Other current assets	41,733			39,078
Property, plant, and equipment, net	176,409			179,192
Other non-current assets	261,419			174,563
Total Assets		$	802,093		$	693,500
Liabilities:
Current maturities of long-term debt		$	15,131		$	15,731
Other current liabilities	129,928			113,401
Long-term debt, excluding current maturities	369,072			363,306
Other long-term liabilities	121,879			90,215
Total liabilities	636,010			582,653
Total stockholders’ equity	166,083			110,847
Total Liabilities and Stockholders’ Equity		$	802,093		$	693,500

Net debt (Current maturities of long-term debt plus
Long-term debt less Cash and cash equivalents)		$	356,949		$	353,088

Sales and Adjusted EBITDA(Amounts may not sum due to rounding)

Three Months Ended December 31,	Forestry, Lawn and Garden					Farm, Ranch, and Agriculture							Corporate and Other						Total Company
(Amounts in thousands)	2014 Actual			2015 Actual		2014 Actual				2015 Actual			2014 Actual			2015 Actual			2014 Actual					2015 Actual
Total sales	$		160,412	$	138,234	$		63,288		$	54,421		$	8,512		$	8,038		$			232,212			$	200,693

Operating income (loss)	23,884			18,363		(21,402			)	(18,856		)	(4,933		)	(23,914		)			$	(2,451	)		$	(24,407	)
Depreciation	6,870			5,551		1,168				1,529			125			323			8,163					7,403
Acquisition costs	—			—		—				—			—			7,732			—					7,732
Pension settlement	—			—		—				—			—			10,152			—					10,152
Non-cash acquisition accounting charges	438			223		2,880				2,545			185			185			3,503					2,953
Impairment of acquired intangible assets	—			—		19,655				15,462			—			—			19,655					15,462
Stock compensation	—			—		—				—			1,116			1,658			1,116					1,658
Facility closure and restructuring charges	—			—		—				—			510			390			510					390
Adjusted EBITDA		$	31,192	$	24,137	$	2,301			$	680		$	(2,997	)	$	(3,474	)	$	30,496					$	21,343

Twelve Months Ended December 31,	Forestry, Lawn and Garden				Farm, Ranch, and Agriculture						Corporate and Other						Total Company
(Amounts in thousands)	2014 Actual		2015 Actual		2014 Actual			2015 Actual			2014 Actual			2015 Actual			2014 Actual		2015 Actual
Total sales	$	644,848	$	556,666	$	269,158		$	238,992		$	30,813		$	32,911		$	944,819	$	828,569

Operating income (loss)	102,314		73,292		(17,457		)	(80,556		)	(20,632		)	(39,502		)	$	64,225	$	(46,766	)
Depreciation	25,986		24,523		4,928			5,217			511			840			31,425		30,580
Acquisition costs	—		—		—			—			—			7,732			—		7,732
Pension settlement	—		—		—			—			—			10,152			—		10,152
Non-cash acquisition accounting charges	1,523		895		11,400			10,181			677			738			13,600		11,814
Impairment of acquired intangible assets	—		—		21,074			78,761			—			—			21,074		78,761
Stock compensation	—				—			—			4,924			6,028			4,924		6,028
Facility closure and restructuring charges	—				—			—			2,763			2,514			2,763		2,514
Adjusted EBITDA	$	129,823	$	98,710	$	19,945		$	13,603		$	(11,757	)	$	(11,498	)	$	138,011	$	100,815

Sales by Region ($ in Millions)
(Amounts may not sum due to rounding)
	LTM 12/31/2015
	FLAG			% of Total			FRAG			% of Total			CCF			% of Total			Blount			% of Total
North America		$	182.7		32.8	%		$	227.7		95.3	%		$	26.4		80.1	%		$	436.8		52.7	%
Europe & Russia	197.8				35.5	%	8.7				3.6	%	5.6				16.9	%	212.1				25.6	%
Asia Pacific	105.9				19.0	%	1.9				0.8	%	0.9				2.6	%	108.7				13.1	%
Rest of World	70.3				12.6	%	0.6				0.3	%	0.1				0.4	%	71.0				8.6	%
Total		$	556.7		100	%		$	239.0		100	%		$	32.9		100	%		$	828.6		100	%

Sales by Product and End Market ($ in Millions)
(Amounts may not sum due to rounding)

	LTM 12/31/15			% of Total
Chain	$	301.1		36.3	%
Guide Bars		88.1		10.6	%
Other Forestry		56.7		6.8	%
Forestry		445.9		53.8	%
Lawn & Garden		110.7		13.4	%
FLAG Total	$	556.7		67.2	%

Tractor Attachments	$	131.6		15.9	%
Log Splitters		43.9		5.3	%
Other FRAG		63.5		7.7	%
FRAG Total	$	239.0		28.8	%

CCF	$	32.9		4.0	%

Total	$		828.6	100	%

David Dugan

Director, Corporate

Communications and

Investor Relations

503-653-4692

Source: Blount International, Inc.

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