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Estimated 2013 full year free cash flow of $67 million; 12% above expectation
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2014 sales and earnings outlook provided
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Strategic plan and long-term targets updated
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New supply agreement with Husqvarna
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Forestry plant consolidation nearly completed; blade plant consolidation
announced
Portland,
OR – February 10 -- Blount International, Inc. today announced updated guidance
for the full year ended December 31, 2013 along with preliminary expectations
for 2014 and the long-term financial targets of the Company's updated strategic
plan. Information contained within this news release is based on estimates of
financial results and is unaudited. Actual 2013 financial results will be
released near the conclusion of the annual audit process.
Estimated
2013 sales were $901 million, a three percent decrease versus 2012. Estimated
2013 Earnings Before Interest, Taxes, Depreciation, Amortization and certain
charges ("Adjusted EBITDA") for 2013 was $125 million compared to
$136 million in the prior year. Results exclude any impact of potential
non-cash impairment charges related to goodwill and other indefinite lived
intangible assets.
"Although
our Farm, Ranch, and Agriculture ("FRAG") business outperformed the
prior year, the results for our Forestry, Lawn, and Garden ("FLAG")
business continued to reflect the soft market demand we experienced throughout
2013. Overall, we expect our results to be below our latest guidance for 2013,
particularly in Europe and Asia. Despite the slow market for FLAG products,
however, we were able to generate significant free cash flow during 2013, and
we paid off debt to retain a strong balance sheet," stated Josh Collins,
Blount's Chairman and CEO. "As our preliminary guidance for 2014
indicates, we believe demand will be moderately better in 2014, and we believe
both revenue and profitability will improve versus 2013."
"In
other news, our Portland, Oregon plant consolidation is nearly complete, and we
recently reached a new supply agreement with Husqvarna, which will continue our
strong partnership that has endured for several decades," continued Mr.
Collins. "We look forward to contributing to Husqvarna's future success as
a leading supplier of outdoor power equipment, and we will continue to provide
high-quality components that complement their brands."
Estimated
Operating Results for the Year Ended December 31, 2013
Blount
operates primarily in two business segments - the Forestry, Lawn, and Garden
segment and the Farm, Ranch, and Agriculture 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."
The
estimated 2013 FLAG segment sales were about six percent lower than full year
2012, due primarily to continued market softness in Europe, Russia, and Asia.
Estimated 2013 FLAG contribution to operating income and Adjusted EBITDA were
lower than in 2012 as sales volume declines and higher product costs and mix
negatively affected FLAG operating results.
The
FRAG segment reported estimated 2013 sales of $260 million, which represents
about a four percent increase from 2012 levels primarily due to increased
market demand and related shipments of log splitters and tractor attachments.
Estimated 2013 FRAG contribution to operating income and Adjusted EBITDA was
higher year-over-year as the segment made gains in operating efficiencies and
benefited from the stronger demand.
Corporate
and Other generated estimated net expense of $26 million in 2013 compared to
net expense of approximately $21 million in 2012. The increase in net expense
was driven mostly by charges related to consolidation of saw chain
manufacturing facilities in Portland, Oregon and a significant increase in
estimated fees for our 2013 external and internal financial statement audit
services recognized in the fourth quarter. Both the restructuring and the 2013
audit developments are discussed further below.
Segment
backlog declined from December 31, 2012 mostly in the FLAG segment, which
reflects lower overall demand as customers managed field inventory levels and
deferred some orders to 2014.
Cash
Flow and Debt
As
of December 31, 2013, the Company had estimated net debt of $395 million, a
decrease of $71 million from December 31, 2012 and a decrease of $9 million
compared to September 30, 2013. Estimated free cash flow of $67 million was
generated in 2013 compared to approximately zero in the prior year. Estimated
free cash flow was generated by a combination of reduced working capital and
reduced capital spending as the Company managed the business to maximize cash
flow while addressing softer market demand in 2013.
Net working capital
decreased by an estimated $19 million for 2013 compared to a $21 million
increase in 2012. Working capital benefited from higher accounts receivable
collection along with inventory reduction in 2013. Estimated net capital
spending in 2013 was $30 million, a reduction of about $22 million from the
prior year, primarily as a result of lower capacity capital spending in the
Fuzhou, China plant. The Company defines free cash flow as cash flow from
operating activities less net capital spending.
The
ratio of estimated net debt to estimated last-twelve-months ("LTM")
Adjusted EBITDA was 3.2x as of December 31, 2013, a decrease from 3.4x at
December 31, 2012. The decrease in leverage from the end of 2012 is primarily
the result of improved estimated free cash flow and resulting estimated net
debt reduction, partially offset by lower estimated Adjusted EBITDA for the
year ended December 31, 2013 compared to the prior year.
Other
Developments
Restructuring
Update
The
Company's previously announced consolidation of saw chain manufacturing
facilities in Portland, Oregon into one location was substantially completed by
December 31, 2013. As part of the consolidation, saw chain manufacturing has
been discontinued at the former Carlton Company facility acquired in 2008, and
Carlton products are now produced at Blount's other FLAG production facilities.
With the consolidation, the Company expects to achieve more timely delivery by
manufacturing closer to its customers. The consolidation provided an overall
net reduction in global FLAG manufacturing headcount of approximately 200
positions and annual cost savings are expected to be between $6 million and $8
million.
Estimated expenses of $8 million were incurred in 2013 to accomplish
the plant consolidation and other forestry manufacturing workforce reductions,
of which nearly $4 million are cash transition costs (including severance and
moving expenses) and approximately $4 million represents non-cash charges for
accelerated depreciation on equipment to be idled and a write-down of land and
building carrying value. Additional expenses of up to $1 million may be
incurred in the first quarter of 2014 as the Company completes the transition
out of the former Carlton Company facility.
Husqvarna
Supply Agreement
Blount
recently entered into a new long-term supply agreement with The Husqvarna Group
("Husqvarna"). The Company has been a strategic supplier of
forestry-related and other products to Husqvarna for many decades. The new
supply agreement expires at the end of 2017, and it replaces the existing
supply agreement that would have expired at the end of 2015. Under the terms of
the agreement, Blount is the exclusive, third-party supplier to Husqvarna for
saw chain products as well as laminated and solid guide bars and certain other
chain saw-related parts. The supply agreement also provides a mechanism to
extend the contract further into the future, should both companies elect to do
so.
Strategic
Plan Update
The
Company completed a strategic plan review in 2013. Details of our updated
strategic plan are included in a Company overview presentation on the Company's
web site. As an outcome of our strategic planning, we are targeting 2018 sales
of more than $1.1 billion and Adjusted EBITDA of approximately $175 million.
Free cash flow generation over the strategic planning horizon will be primarily
dedicated to repayment of debt and funding strategic initiatives. At lower
leverage levels, we anticipate either paying a dividend or implementing a stock
repurchase program in order to return capital to shareholders.
Pentruder
Distribution Rights
On
January 21, 2014 the Company entered into an agreement with Tractive AB
("Tractive") of Sweden and Pentruder Inc. of Chandler Arizona
("Pentruder") to become the exclusive distributor of Pentruder
high-performance concrete cutting systems in the Americas. Blount, through its
Concrete Cutting and Finishing brand ICS, will market, sell, and support the
Pentruder line of wall saws, wire saws, core drills and all parts and
accessories in the Americas through the ICS direct sales team and its Portland,
Oregon based headquarters. The agreement offers ICS customers an expanded
selection of complementary products.
North
America Blade Plant Consolidation
In
2014, the Company will consolidate its North American lawn and garden blade
manufacturing into its Kansas City, Missouri plant. Lawn and garden blades have
historically been manufactured in Queretaro, Mexico, and Kansas City, Missouri.
The Queretaro facility was acquired with PBL in 2011 and brought important
blade manufacturing technology to the Company. Once complete, cost reductions
of approximately $2 million are expected from the consolidation on a full year
basis, including the elimination of approximately 35 manufacturing positions.
The Company expects to incur expenses of between $1 million and $2 million in
2014 to consolidate the manufacturing operations, of which approximately half
are cash transition costs for severance, dismantling, moving expenses, cleanup,
and exit activities, with non-cash charges for accelerated depreciation and
equipment impairment charges representing the other half. The Queretaro
facility ceased operation on January 23, 2014 and is currently leased through
September 2014.
2013
Financial Statement Audit
The
Company is working to remediate the internal control weaknesses indicated in
our December 31, 2012 Form 10-K/A. However, due to the timing of identification
of certain of these internal control weaknesses, we believe that full
remediation as of December 31, 2013 is unlikely and may result in disclosure of
some material internal control weaknesses in our December 31, 2013 Form 10-K.
Determination of any specific control weaknesses and related impacts will be
concluded near the filing of our December 31, 2013 Form 10-K.
The
Company expects that non-cash impairment charges will be recorded for both
goodwill and certain other indefinite-lived intangible assets, both related to
acquisitions made in recent years. Accounting principles generally accepted in
the United States ("U.S. GAAP") governing the accounting for
intangible assets are complex and multiple steps are prescribed in the
assessment and determination of related impairment charges. As a result, an
estimate of any potential impairment charge resulting from application of the
required accounting has not yet been completed.
Conclusion of the impairment
measurement process is expected near the filing of our December 31, 2013 Form
10-K. We have approximately $46 million of goodwill and $6 million of other
indefinite-lived intangible assets recorded relating to the acquisitions of
SpeeCo and PBL, both of which we believe are at risk for impairment under U.S.
GAAP. Any charge taken will be reflected as a non-cash charge to operating
income.
Our
independent registered public accounting firm has notified the Company that
completion of the 2013 audit prior to the deadline for filing the Company's
December 31, 2013 Form 10-K is unlikely to occur due primarily to the factors
described above. Additionally, estimated fees to complete the audit have
increased by approximately $3 million over the amount previously communicated
between the parties and resulted in a corresponding, and unexpected, increase
in administrative expenses in the fourth quarter of 2013.
2014
Financial Outlook
The
Company's 2014 financial targets are for sales to range from $925 million to
$950 million and Adjusted EBITDA to range from $130 million to $135 million.
Our target for sales assumes growth in FLAG segment sales of approximately four
percent and growth in FRAG segment sales of approximately eight percent, both
compared to estimated full year 2013 levels. Adjusted EBITDA levels are the
result of moderately higher expected demand in FLAG, partially offset by
investment spending on strategic initiatives to position our company for
long-term growth. Free cash flow is expected in the $35 million range after
approximately $45 million of capital spending.
Blount
is a global manufacturer and marketer of replacement parts, equipment, and
accessories for consumers and professionals operating primarily in two market
segments: Forestry, Lawn, and Garden ("FLAG"); and Farm, Ranch, and
Agriculture ("FRAG"). Blount also sells products in the construction
markets and is the market leader in manufacturing saw chain and guide bars for
chain saws. Blount has a global manufacturing and distribution footprint and
sells its products in more than 115 countries around the world. Blount markets
its products primarily under the OREGON, Carlton, Woods, TISCO, SpeeCo, and ICS
brands.
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