Blount Announces 4th Quarter 2012 Results and Provides Full Year 2013 Guidance

• Fourth quarter 2012 sales of $230 million
• Fourth quarter 2012 FLAG sales increased two percent, excluding currency impacts, compared to fourth quarter 2011
• 2013 full year sales growth of zero to five percent expected        

PORTLAND, Ore. -- March 7, 2013 -- Blount International, Inc. today announced results for the fourth quarter ended December 31, 2012, and provided its 2013 full year sales and operating income outlook.

Results for the Quarter Ended December 31, 2012

Sales in the fourth quarter were $229.6 million, a three percent decrease from the fourth quarter of 2011. Operating income for the fourth quarter of 2012 was $19.4 million compared to $21.4 million in the prior year. Fourth quarter net income was $9.0 million, or $0.18 per diluted share, compared to $9.5 million, or $0.19 per diluted share, in the fourth quarter of 2011.

Full year 2012 sales were $927.7 million, a 12 percent increase from 2011. Full year 2012 sales declined five percent when excluding sales generated from acquired businesses. Operating income for 2012 was $79.3 million compared to $98.0 million in 2011, and 2012 net income was $39.6 million ($0.79 per diluted share) compared to $49.7 million ($1.01 per diluted share) in 2011.

"As we have discussed over the past few quarters, the integration of the businesses we acquired over the previous two years was a significant focus last year," stated Josh Collins, Blount's Chairman and Chief Executive Officer. "During 2012, our European and North American markets experienced slowing demand, driven by economic uncertainty and weather-induced, slower buying patterns by our customers. We anticipate a modest overall increase in customer demand in 2013."

Mr. Collins continued, "Over the last year, we had many achievements that our overall profitability does not reflect. For example, we invested in our infrastructure to position the Company for future growth through the expansion of our Fuzhou, China, facility and consolidation of our North American assembly and distribution operations. Although these moves came at a substantial cost, we believe the heavy lifting is behind us. Our focus in 2013 will include additional work in expanding the Fuzhou capacity and other efforts to satisfy customer demand, as well as methodically completing the integration of Woods, TISCO, PBL, and KOX."

Segment Results

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 Garden

The FLAG segment reported fourth quarter 2012 sales of $165.9 million, a slight increase from the fourth quarter of 2011. When excluding the impact of foreign exchange rate changes, sales increased approximately two percent compared to the fourth quarter of 2011. Sales volumes more than offset the impact of currency rates and a slight reduction in average prices. Average pricing declined slightly due to an unfavorable product and customer mix of sales in the fourth quarter. Volumes improved, particularly in Europe, which accounted for the largest component of the sales volume increase compared to the fourth quarter of 2011.

Segment backlog was $167.9 million at December 31, 2012, a decrease of eight percent from the $182.4 million on December 31, 2011. The reduction in backlog relates primarily to softer demand due to the uncertain economic climate in Europe.

Segment contribution to operating income and Earnings Before Interest, Taxes, Depreciation, Amortization and certain charges ("Adjusted EBITDA") was $26.2 million and $32.9 million, respectively, for the fourth quarter of 2012. Segment contribution to operating income and Adjusted EBITDA declined by $0.1 million and $0.5 million, respectively, for the fourth quarter of 2012 versus 2011.

Improved sales volumes, lower SGandA spending, and lower steel costs all increased segment operating income; however, production volume declines and related costs and currency exchange rate changes more than offset the benefit from those factors.

While steel costs have declined consistent with the broader market and the timing of our sell through of inventory, the benefit was more than offset by cost/mix, average pricing, and currency impacts. Cost/mix spending was higher as a result of slowing production in most of the FLAG product lines in response to soft market conditions and higher inventory levels in the last half of 2012. FLAG production volumes for the fourth quarter of 2012 were at approximately 82 percent of capacity, compared to 93 percent in the fourth quarter of 2011, resulting in unfavorable plant efficiency and related cost absorption.

Partially offsetting the increase in product costs was a reduction in SGandA expense, mainly in the areas of travel, professional fees, and advertising. Foreign currency exchange rates contributed to the decline in contribution to operating income mostly as a result of the stronger U.S. Dollar versus the Euro, which resulted in lower U.S. Dollar equivalent sales and profit. The U.S. Dollar-Euro impact was partially offset by a weaker Brazilian Real driving lower manufacturing and overhead costs in the Brazilian operations.

Farm, Ranch, and Agriculture

The FRAG segment reported fourth quarter 2012 sales of $57.2 million. Fourth quarter 2012 sales decreased $8.5 million from the fourth quarter of 2011 mainly on softer sales in the Woods business, along with lower average selling prices in the SpeeCo business unit. Tractor attachment and log splitter sales were the primary driver of the decline as seasonally higher temperatures and drought conditions in the U.S. in the last half of 2012 depressed sales of both product lines.

Segment backlog was $31.5 million at December 31, 2012, compared to the $30.8 million at December 31, 2011.

Segment contribution to operating income and Adjusted EBITDA was a $3.9 million loss and income of $0.2 million, respectively, for the fourth quarter of 2012.

The decline in sales volume generated a reduction to operating income contribution, and cost/mix increased compared to the fourth quarter of 2011. Average prices declined, primarily in the log splitter product line, as a result of the mix of products sold in that category. The increase in cost/mix was driven primarily by a $2.0 million inventory charge in the fourth quarter of 2012 related to the discontinuance of a line of log splitters. Additionally, FRAG support costs increased by approximately $1.0 million compared to the fourth quarter of 2011, primarily in the area of supply chain as well as information systems costs associated with planned investments in infrastructure.

Corporate and Other

Corporate and other generated net expense of $2.9 million in the fourth quarter of 2012 compared to net expense of $4.3 million in the fourth quarter of 2011. The smaller net expense was primarily attributable to improved sales of CCF products and lower SGandA spending, driven mostly by reduced acquisition-related activity compared to the prior year.

Net Income

Fourth quarter 2012 net income decreased due to lower overall operating income in the fourth quarter of 2012 compared to 2011. The impact of lower operating income, discussed above, was partially offset by lower interest expense and lower income taxes in the comparable fourth quarter periods. Net interest expense was $4.3 million in the fourth quarter of 2012 versus $4.5 million in the fourth quarter of 2011.

Cash Flow and Debt

As of December 31, 2012, the Company had net debt of $466.5 million, a decrease of $1.4 million from September 30, 2012, and a decrease of $1.8 million compared to December 31, 2011. The decrease in net debt since the end of the third quarter of 2012 was the result of free cash use of $0.7 million, which was more than offset by the impact of exchange rate changes on cash balances of $1.6 million and cash generated from equity compensation plans.

Free cash use was $0.7 million in the fourth quarter of 2012 resulting from cash generated by operations of $12.4 million offset by net capital expenditures of $13.1 million. Free cash generated in the fourth quarter of 2012 declined by $2.2 million compared to the fourth quarter of 2011 mostly as a result of reduced cash from operating activities of $4.4 million, partially offset by $2.1 million of decreased capital equipment spending. Cash from operating activities declined primarily as a result of a decline in net income in the fourth quarter of 2012 compared to the fourth quarter of 2011, and net capital expenditures were smaller in the fourth quarter of 2012 than the fourth quarter of 2011 as spending related to the Fuzhou, China expansion slowed somewhat between phases of that project.

The Company defines free cash flow as cash flows from operating activities less net capital spending. The ratio of net debt to pro forma last-twelve-months ("LTM") Adjusted EBITDA was 3.4x as of December 31, 2012, which increased from 2.8x at December 31, 2011. The increase in leverage from the end of 2011 is primarily the result of reduced 2012 profitability.

2013 Financial Outlook

The Company's fiscal year 2013 outlook for sales is estimated to range between $930 million and $980 million, and operating income to range between $88 million and $98 million. Our expectation for sales assumes growth in FLAG segment sales of zero to four percent, and growth in FRAG segment sales of one to six percent, both compared to 2012 levels.

In 2013, operating income is expected to experience headwind from foreign currency exchange rates of between $1 million and $2 million and steel prices are expected to remain approximately stable compared to 2012 with no significant impact on a full year basis compared to 2012. The 2013 operating income outlook includes non-cash charges of approximately $14 million related to acquisition accounting.

Free cash flow in 2013 is expected to range between $40 million and $50 million, after approximately $45 million to $50 million of capital expenditures. Net interest expense is expected to be between $17 million and $18 million in 2013, and the effective income tax rate for continuing operations is expected to be between 35 percent and 38 percent in 2013.

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.

Blount Announces 1st Quarter Results, Updates Outlook for 2012

• First quarter 2012 operating income and operating margin negatively affected by the Farm, Ranch, and Agriculture ("FRAG") business segment transition and integration costs   

• First quarter 2012 sales increased 25% compared to the prior year and declined 4% when excluding sales associated with acquired businesses.

•  Overall demand for products remains strong; order backlog remains at record levels for continuing operations

PORTLAND, Ore., May 7 -- Blount International, Inc. today announced results for the first quarter ended March 31, 2012, and updated its outlook for 2012. 

Results for the Quarter Ended March 31, 2012

Sales in the first quarter were $226.3 million, a 25% increase from the first quarter of 2011. Excluding the impact of businesses acquired since January 1, 2011, sales declined 4%.

Operating income for the first quarter of 2012 was $13.6 million compared to $27.8 million in the prior year. Businesses acquired since January 1, 2011 increased sales by $52.2 million and increased operating income by $0.6 million in the first quarter of 2012 compared to the prior year.

First quarter net income was $5.9 million, or $0.12 per diluted share, compared to $15.6 million, or $0.31 per diluted share, in the first quarter of 2011. First quarter 2012 operating income includes non-cash charges of $4.4 million related to accounting for acquisitions, an increase of $2.2 million, or $0.03 per diluted share, from the first quarter of 2011.

Additionally, consolidation of existing operations into Blount's new Kansas City, Missouri ("Kansas City") distribution and assembly facility resulted in charges of $4.9 million, or $0.07 per diluted share.

"While overall demand and backlog remain strong, we experienced a challenging first quarter with reduced profit due to lower than expected sales in certain markets and the ongoing consolidation of our Forestry, Lawn, and Garden ("FLAG") product distribution center and SpeeCo assembly and distribution operations into our new Kansas City facility. While the time and financial investment to consolidate these operations has been significant, we believe it is warranted given the long-term benefit to our customers and our business," stated Josh Collins, Blount's Chairman and Chief Executive Officer.

"In addition, we incurred other costs to work through supply issues related to our SpeeCo operations. We expect the impact of those items are largely behind us; however, higher costs to expedite products and complete the Kansas City facility transition will be felt in the second quarter and possibly in the third quarter as we work to meet the forecasted demand through those periods."

Mr. Collins continued, "Integration of the companies we acquired over the last two years is our top priority for 2012. We continue to anticipate significant opportunities for growth, increased scale, and cross-selling in the FLAG and FRAG businesses as we integrate the companies into our global sales, supply chain, and distribution network.

The work we are doing to integrate all the FRAG businesses into Blount, including the move into the Kansas City facility, is necessary in order to realize fully the benefits of these acquisitions to the company. The issues we experienced in the first quarter are significant, but they are temporary. The benefits to the company will be lasting."

The consolidation of the SpeeCo distribution and assembly operations and FLAG distribution center into Blount's new Kansas City distribution and assembly facility began in late 2011 and is expected to be completed by mid-way through the third quarter of 2012. The consolidation will provide synergies and scalability in the FLAG and FRAG businesses and result in approximately $1.0 million of run-rate cost savings on an annual basis by the end of 2012. The new, 350,000-square-feet facility will replace Blount's existing distribution center in Kansas City and will provide the capacity to meet Blount's projected needs for the next decade.

Segment Results

Blount operates 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 Garden

The FLAG segment reported first quarter 2012 sales of $161.6 million. First quarter 2012 sales increased 4% from the first quarter of 2011, but declined 3% when excluding businesses acquired since January 1, 2011.

For comparability, all sales statistics are quoted excluding the impact of acquired businesses for the period during which Blount did not own the acquired business. A decline in first quarter 2012 sales in Asia (16%) and North America (6%) accounted for most of the overall sales decline compared to the prior year, partially offset by increases in the South and Latin American markets (30%). Sales in our Europe region were flat compared to the first quarter of 2011, but improved by 12% when compared to the fourth quarter of 2011.

Average pricing improved as price increases in place since mid-2011 improved first quarter 2012 prices on a comparative basis. The change in segment sales for the comparable first quarter period is illustrated below, with sales of $11.5 million from businesses acquired since January 1, 2011, presented entirely as acquired volume increase.

Segment backlog was $206.3 million at March 31, 2012, an increase of 13% from the $182.4 million on December 31, 2011. A portion of the increase in backlog relates to shipping interruptions due to the distribution center consolidation; the remainder reflects strong demand for our products.

Segment contribution to operating income and Earnings Before Interest, Taxes, Depreciation, Amortization and certain charges ("Adjusted EBITDA") was $27.8 million and $34.4 million, respectively, for the first quarter of 2012.

Segment contribution to operating income and Adjusted EBITDA decreased by 12.3% and 7.8%, respectively, for the first quarter of 2012 versus 2011.

While increased average selling prices had the largest positive impact on segment operating income, volume decline and additional costs (as outlined below) more than offset the average pricing benefit. A reconciliation of the first quarter 2012 FLAG contribution to operating income compared to the first quarter of 2011 is presented below.

Sales volumes, steel costs, and cost/mix combined to more than offset the improvement in average prices. Cost/mix spending was higher in several areas as the Company integrated the FLAG and FRAG product lines into the new distribution center in Kansas City, continued promotion of the recently introduced OREGON® PowerNow™ cordless chain saw, and executed strategic programs in the areas of supply chain and marketing.

By category, the primary drivers of cost/mix increases were personnel-related costs, mainly in the areas of supply chain, marketing and information systems, which increased $1.6 million (including training and travel), advertising spending that increased $0.7 million, information systems and supply chain infrastructure spending, and logistics costs, including distribution center expenses and costs of freight to customers, that account for the majority of the remaining cost increase.

Farm, Ranch, and Agriculture

The FRAG segment reported first quarter 2012 sales of $57.6 million. First quarter 2012 sales increased $38.4 million from the first quarter of 2011, driven by sales generated by acquired businesses and partially offset by a sales volume decline in the SpeeCo business unit. Excluding the impact of acquired businesses, sales declined 12%. The change in segment sales for the comparable first quarter periods is illustrated below, with sales from businesses acquired since January 1, 2011 of $40.7 million presented entirely as acquired volume increase.

Segment backlog was $24.7 million at March 31, 2012, compared to $28.3 million at December 31, 2011. March 31, 2012, backlog includes $13.8 million related to businesses acquired in 2011.

Segment contribution to operating income and Adjusted EBITDA was negative $3.7 million and positive $0.8 million, respectively, for the first quarter of 2012. A reconciliation of the first quarter 2012 contribution to operating income compared to the first quarter of 2011 is presented below.

Year-over-year sales volumes were down, mostly driven by shipping constraints during the consolidation of SpeeCo distribution and assembly operations to the new Kansas City distribution center during the quarter. 

The largest driver of the $4.6 million in unfavorable cost/mix was increased freight charges of $1.9 million, which were incurred to expedite shipments from vendors as well as finished goods to customers.

Additionally, support costs, primarily in the areas of supply chain and information systems, increased $1.5 million with planned investments in the infrastructure necessary to achieve long term strategic targets.

Elevated product costs and incremental warranty expense to address an issue identified in the fourth quarter of 2011 represent the majority of the remaining cost/mix increase.

Acquired businesses had a net positive impact on segment contribution to operating income, partially offset by changes in acquisition accounting.

Corporate and Other

Corporate and other generated net expense of $10.4 million in the first quarter of 2012 compared to net expense of $4.9 million in the first quarter of 2011. The year-over-year increase was almost entirely attributed to the $4.9 million expense associated with consolidation of the SpeeCo distribution and assembly and FLAG distribution operations into the new Kansas City distribution and assembly facility. Of the $4.9 million, approximately $2.4 million relates to plant and equipment, inventory, and other assets that will no longer be utilized by the SpeeCo business; the remainder relates to wind down and startup expenses incurred to move the SpeeCo operation and existing FLAG distribution to the new Kansas City distribution facility.

Net Income

First quarter 2012 net income declined primarily due to lower operating income, discussed above including the impact of non-cash purchase accounting charges and the facility closure and restructuring charges.

Partially offsetting the impact of operating income changes and purchase accounting charges were lower interest and other expenses. Net interest expense was $4.4 million in the first quarter of 2012 versus $4.8 million in the first quarter of 2011.

The impact of lower interest rates more than offset the higher average borrowing levels driven by acquisitions in 2011. The change in net income for the first quarter of 2012 compared to the first quarter of 2011 is illustrated in the table below.

Cash Flow and Debt

As of March 31, 2012, the Company had net debt of $478.8 million, an increase of $10.6 million from December 31, 2011. The increase in net debt since the fourth quarter of 2011 resulted primarily from the use of $1.4 million of cash by operations and net capital expenditures of $10.1 million in the first quarter of 2012.

Net capital expenditures were $4.5 million larger in the first quarter of 2012 than the first quarter of 2011 driven primarily by $2.2 million spent on the Company's China manufacturing plant expansion and increased spending of $0.5 million related to recently acquired businesses. Additionally, capital spending rates increased as a result of maintenance capital spending for FLAG manufacturing equipment.

The Company used $11.6 million of free cash in the first quarter of 2012. Free cash use increased by $23.0 million from the first quarter of 2011 as a result of lower profit levels, increased capital spending, and an increase in use of cash on inventory of $11.7 million. The Company defines free cash flow as cash flows from operating activities less net capital spending.

The ratio of net debt to pro forma last-twelve-months ("LTM") Adjusted EBITDA was 3.1x as of March 31, 2012, which is up from 2.8x at December 31, 2011. The increase in leverage from the end of 2011 is primarily the result of increased inventory and reduced profitability in the first quarter of 2012 and the resulting increase in net debt.

2012 Financial Outlook

The Company expects 2012 sales to be between $1,015 million and $1,045 million.

Full year 2012 operating income is expected to be between $112 million and $120 million. The expectation for 2012 assumes that unfavorable foreign currency exchange rates will reduce operating income on a year-over-year basis by between zero and $1.0 million and increased steel prices will further reduce year-over-year operating income between $2.0 million and $3.0 million.

The outlook for 2012 operating income also includes estimated non-cash charges as a result of acquisition accounting of approximately $16 million. Free cash flow for 2012 is expected to range between $40 million and $50 million, after approximately $45 million to $50 million of capital expenditures. Net interest expense is expected to be between $17 million and $18 million in 2012, and the effective income tax rate for continuing operations is expected to be between 34% and 37% in 20

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®, OREGON® PowerNow™, Carlton®, Woods®, TISCO, SpeeCo®, and ICS® brands. For more information about Blount, please visit our website at http://www.blount.com/.

Blount Announces 2011 4th Quarter and Full Year Results, Outlook for 2012

-- Full year sales increased 36% to $832 million

-- Full year operating income increased 14% to $98 million

-- Fourth quarter 2011 sales increased 38% from the prior year, 4% when excluding sales associated with

    acquired businesses

-- Fourth quarter 2011 operating income and operating margin consistent with fourth quarter 2010 results,

    excluding the impact of businesses acquired in 2011

PORTLAND, Ore. -- March 6 -- today announced results for the fourth quarter and full year ended December 31, 2011. Blount also provided an outlook for 2012.

Results for the Quarter and Full Year Ended December 31, 2011

Sales in the fourth quarter were $236.5 million, a 38% increase from the fourth quarter of 2010 and a 4% increase when excluding the impact of acquired businesses. Operating income for the fourth quarter of 2011 was $21.4 million compared to $21.5 million in the prior year. The year-over-year impact of acquired businesses increased sales by $59.0 million and decreased operating income by $0.4 million in the fourth quarter of 2011.

Fourth quarter 2011 operating income includes non-cash charges of $6.7 million related to accounting for acquisitions. Fourth quarter income from continuing operations was $9.5 million ($0.19 per diluted share) compared to $12.4 million ($0.25 per diluted share) in the fourth quarter of 2010. Both non-cash purchase accounting charges and a higher income tax rate contributed significantly to the lower income from continuing operations. The year-over-year increase in non-cash purchase accounting charges in the fourth quarter of 2011 reduced income from continuing operations by $3.4 million, or $0.07 per diluted share. 

Full year 2011 sales were $831.6 million, a 36% increase from 2010. Full year 2011 sales rose 14% when excluding sales generated from acquired businesses. Operating income for 2011 was $98.0 million compared to $85.6 million in 2010, and income from continuing operations was $49.7 million ($1.01 per diluted share) compared to $41.4 million ($0.85 per diluted share) in 2010. The year-over-year increase in non-cash purchase accounting charges in 2011 reduced income from continuing operations by $8.5 million, or $0.17 per diluted share. 

"The past year was extremely productive, including the acquisitions of KOX, PBL, and Woods/TISCO; the refinancing of our lending facility, which lowered our borrowing costs and provided us low cost acquisition financing; the introduction of an OREGON® branded log splitter and OREGON® PowerNow™ cordless chain saw; the ground breaking for the expansion of our saw chain and guide bar manufacturing facility in China, which will allow us to meet future customer demand; and the opening of our new Kansas City distribution center," commented Josh Collins, Blount's Chairman and Chief Executive Officer.

"Our fourth quarter 2011 results reflect increased spending and investment in connection with executing our strategic programs as well as some slowing in sales growth compared to rates we saw earlier in the year. We expect a busy 2012 as we work to integrate the recently acquired businesses and increase capacity."

Segment Results

As a result of the acquisitions we made in 2011, we now operate in two business segments – the Forestry, Lawn, and Garden ("FLAG") segment and the Farm, Ranch, and Agriculture ("FRAG") segment.  Beginning with the fourth quarter of 2011, the Company is reporting separate results for the FLAG and FRAG segments. Blount's Concrete Cutting and Finishing ("CCF") business is included in "Corporate and Other." All financial information for our business segments is presented on a comparable basis.

Forestry, Lawn, and Garden

The FLAG segment reported fourth quarter and full year 2011 sales of $165.6 and $659.8 million, respectively. Fourth quarter 2011 sales increased 14% from the fourth quarter of 2010; 4% when excluding acquired businesses. For comparability, all sales statistics are quoted excluding the impact of acquired businesses for the period during which Blount did not own the acquired business.

Fourth quarter 2011 sales were strongest in the South Asia and South American markets, growing a combined 10% compared to the fourth quarter of 2010, followed by the U.S. which grew 6% in the fourth quarter of 2011. Europe and Russia combined for an 8% sales decline as market conditions softened with sovereign debt concerns and economic conditions in that region. The change in segment sales for the comparable fourth quarter periods is illustrated below, with sales from businesses acquired within the past year of $14.0 million presented entirely as acquired volume increase.

Segment backlog was $182.4 million at December 31, 2011 compared to $126.0 million at December 31, 2010. Backlog at December 31, 2011 includes $9.7 million related to businesses acquired in 2011.

Segment contribution to operating income and Earnings Before Interest, Taxes, Depreciation, Amortization and certain charges ("Adjusted EBITDA") was $26.3 million and $33.3 million, respectively, for the fourth quarter of 2011. Segment contribution to operating income and Adjusted EBITDA increased by 0.4% and 5.3%, respectively, for the fourth quarter of 2011 versus 2010.  Increased selling prices had the largest impact on segment operating income.

The impact of steel costs reduced segment contribution to operating income, partially offset by favorable changes in currency exchange rates, which combined for a reduction to segment contribution margin by approximately 110 basis points.

The positive impact of currency on the segment's cost structure was related to the relatively weaker Brazilian currency as well as more favorable currency exchange rates underlying material purchases on a year-over-year basis. Increased unit volume and segment average selling prices improved segment contribution to operating income, but were partially offset by increased costs/mix spending, combining for an increase in segment contribution margin of 90 basis points.

The increase in segment cost/mix spending was driven by higher advertising expense in support of the recently introduced OREGON® PowerNow™ cordless chain saw. Compensation and relocation costs also increased in connection with positioning personnel in the supply chain and marketing areas to execute the Company's strategic programs.

Farm, Ranch, and Agriculture

The FRAG segment reported fourth quarter and full year 2011 sales of $65.8 and $147.5 million, respectively. Fourth quarter 2011 sales increased $45.3 million from the fourth quarter of 2010, driven nearly entirely by sales generated by acquired businesses. Excluding the impact of acquired businesses, sales increased just over 1%. The change in segment sales for the comparable fourth quarter periods is illustrated below, with sales from business acquired within the past year of $45.1 million presented entirely as acquired volume increase.

Segment backlog was $28.3 million at December 31, 2011 compared to $6.7 million at December 31, 2010. December 31, 2011 backlog includes $21.5 million related to businesses acquired in 2011.

Segment contribution to operating income and Adjusted EBITDA was a net expense of $0.6 million and earnings of $6.3 million, respectively, for the fourth quarter of 2011. Acquired businesses had a significant impact on segment contribution to operating income.

The unfavorable cost/mix impact on segment contribution to operating income was driven primarily by approximately $2.0 million of costs associated with consolidating the SpeeCo assembly and distribution center from Golden, Colorado, into our Kansas City, Missouri facility and supplier driven warranty expenses. Those costs include overlapping personnel expense, operating and logistics costs, and severance expense associated with closing the Golden, Colorado operation and product rework and refund expense associated with the warranty issues. The consolidation is expected to be completed by the end of the second quarter of 2012 and provide approximately $1.0 million of cost savings on an annual basis by the end of 2012.

Corporate and Other

Corporate and other generated net expense of $4.3 million in the fourth quarter of 2011, down from $5.4 million in the fourth quarter of 2010. Lower spending on strategic programs, primarily business acquisition expenses, drove the improvement.

Income from Continuing Operations

Fourth quarter 2011 income from continuing operations declined primarily due to the impact of non-cash purchase accounting charges and a larger income tax expense in the fourth quarter of 2011 compared to the fourth quarter of 2010. A reduction in net interest expense partially offset the impacts of purchase accounting and income taxes. Net interest expense was $4.5 million in the fourth quarter of 2011 versus $5.0 million in the fourth quarter of 2010. The impact of lower interest rates in 2011 more than offset the higher average borrowing levels driven by acquisitions in 2011.

The Company recorded tax expense of $7.0 million in the fourth quarter of 2011 versus $4.0 million in the fourth quarter of 2010. The fourth quarter 2011 effective tax rate was adversely impacted by certain book expense items that are not deductible for income tax purposes.

Cash Flow and Debt

As of December 31, 2011, the Company had net debt of $468.2 million, a decrease of $2.2 million from September 30, 2011. The decrease in net debt in the fourth quarter of 2011 resulted primarily from the generation of $16.7 million of cash from operations, offset by net capital expenditures of $15.2 million.

Net capital expenditures were $9.3 million larger in the fourth quarter of 2011 than the fourth quarter of 2010 as the Company executed on its planned investment in China manufacturing capacity and incurred capital spending at acquired businesses. The Company generated $1.5 million in free cash flow in the fourth quarter of 2011. The Company defines free cash flow as cash flows from operating activities less net capital spending.

The ratio of net debt to pro forma last-twelve-months ("LTM") Adjusted EBITDA was 2.8x as of December 31, 2011, which is consistent with September 30, 2011 and an increase from 2.1x of net leverage at the end of December 2010. The increase in leverage from the end of 2010 is the result of acquisitions made in 2011, offset by free cash flow generation in 2011.

2012 Financial Outlook

The Company's fiscal year 2012 outlook is for sales to range between $1,020 million and $1,060 million, and operating income to range between $120 million and $133 million. Our expectation for 2012 sales levels assumes growth in FLAG sales of 4% to 7% and growth in FRAG sales of 8% to 11%, both compared to 2011 pro forma full-year levels and including sales price increases of between 1% and 3%.

The expectation for 2012 assumes that unfavorable foreign currency exchange rates will reduce operating income on a year-over-year basis by between $1.0 million and $2.0 million and rising steel prices will further reduce year-over-year operating income between $2.0 million and $3.0 million.

The outlook for 2012 operating income also includes estimated non-cash charges as a result of acquisition accounting of approximately $17 million. Free cash flow for 2012 is expected to range between $50 million and $60 million, after approximately $45 million to $50 million of capital expenditures. Net interest expense is expected to be approximately $17 million in 2012, and the effective income tax rate for continuing operations is expected to be between 34% and 37% in 2012.

Adjusted EBITDA and Free Cash Flow are non-GAAP measures and are reconciled to Operating Income and Cash Flow from Operations in the attached financial data table.

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 chainsaws.  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®, OREGON® PowerNow™, Carlton®, Woods®, TISCO, SpeeCo®, and ICS® brands.