**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D. C. 20549**

**FORM 10-Q**

| **x**      | ** ** | **Quarterly report pursuant to Section 13 or 15(d)  of the Securities Exchange Act of 1934**  |
|------------|------------|-----------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                    |
| ** ** | ** ** | **For the quarterly period ended June 30, 2007.**                                             |
| ** ** | ** ** | ** **                                                                                    |
| ** ** | ** ** | **OR**                                                                                        |
| ** ** | ** ** | ** **                                                                                    |
| **o**      | ** ** | **Transition report pursuant to section 13 or  15(d) of the Securities Exchange Act of 1934** |

 

**Commission file number 001-11549**

**BLOUNT INTERNATIONAL, INC.**

(Exact name of registrant as specified in its charter)

| **Delaware**                                     |   | **63  0780521**      |
|--------------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of                 |   | (I.R.S. Employer     |
| incorporation or  organization)                  |   | Identification  No.) |
|                                             |   |                 |
| **4909 SE  International Way, Portland, Oregon** |   | **97222-4679**       |
| (Address of  principal executive offices)        |   | (Zip Code)           |

 

**(503)653-8881**

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes  x                                     No  o

Indicate by check mark whether the registrant is a largeaccelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  o                                         Acceleratedfiler  x                                           Non-acceleratedfiler  o

Indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the Exchange Act).

Yes  o                                      No  x

The number of shares outstanding of $0.01 par value commonstock as of August 3, 2007 was 47,287,047 shares.

 

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**BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES**

**Index**
|            | ** **                                                                                                          | ** ** | **Page**   |
|------------|---------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** ** | ** **                                                                                                          | ** ** | ** ** |
| Part I     | Financial Information                                                                                               |       | 3          |
|       |                                                                                                                |       |       |
| Item 1.    | Consolidated  Financial Statements                                                                                  |       | 3          |
|       |                                                                                                                |       |
|       | Unaudited  Consolidated Statements of Income  Three and six months ended June 30, 2007 and 2006                     |       | 3          |
|       |                                                                                                                |       |       |
|       | Unaudited  Consolidated Balance Sheets  June 30, 2007 and December 31, 2006                                         |       | 4          |
|       |                                                                                                                |       |       |
|       | Unaudited Consolidated  Statements of Cash Flows  Six months ended June 30, 2007 and 2006                           |       | 5          |
|       |                                                                                                                |       |       |
|       | Unaudited  Consolidated Statement of Changes in Stockholders’ Equity (Deficit)  Six months ended June 30, 2007 |       | 6          |
|       |                                                                                                                |       |       |
|       | Notes to  Unaudited Consolidated Financial Statements                                                               |       | 7          |
|       |                                                                                                                |       |
| Item 2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         |       | 19         |
|       |                                                                                                                |       |       |
| Item 3.    |  Quantitative and Qualitative Disclosures  about Market Risk                                                   |       | 27         |
|       |                                                                                                                |       |       |
| Item 4.    |  Controls and Procedures                                                                                       |       | 27         |
|       |                                                                                                                |       |       |
| Part II    | Other Information                                                                                                   |       | 27         |
|       |                                                                                                                |       |       |
| Item 4.    | Submission of Matters  to a Vote of Security Holders                                                                |       | 27         |
|       |                                                                                                                |       |       |
| Item 6.    | Exhibits                                                                                                            |       | 28         |
|       |                                                                                                                |       |       |
| Signatures |                                                                                                                | 29         |
|            |                                                                                                                     |            |            |  |

 

2

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**PART I       FINANCIAL INFORMATION**

**ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS**

**UNAUDITEDCONSOLIDATED STATEMENTS OF INCOME**

**Blount International, Inc. and Subsidiaries**
| ** **                                                                      | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| **(Amounts in thousands, except per share data)** | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                            |       |                                            |       |                                          |       |   |   |   |   |
| Sales                                                                           |       | $                                               | 170,443    |                                          | $          | 165,094 |   | $ | 314,439 |   | $ | 328,896 |   |
| Cost of sales                                                                   |       | 116,834                                         |       | 113,864                                       |       | 215,920 |   | 225,072 |   |
| Gross profit                                                                    |       | 53,609                                          |       | 51,230                                        |       | 98,519 |   | 103,824 |   |
| Selling, general and  administrative expenses                                   |       | 28,828                                          |       | 27,215                                        |       | 58,297 |   | 57,525 |   |
| Operating income                                                                |       | 24,781                                          |       | 24,015                                        |       | 40,222 |   | 46,299 |   |
| Interest income                                                                 |       | 275                                             |       | 93                                            |       | 497 |   | 164 |   |
| Interest expense                                                                |       | (8,529                                          | )          | (9,220                                        | )          | (16,805 | ) | (18,288 | ) |
| Other income (expense),  net                                                    |       | (9                                              | )          | 946                                           |       | 60 |   | 1,099 |   |
| Income from  continuing operations before income taxes                          |       | 16,518                                          |       | 15,834                                        |       | 23,974 |   | 29,274 |   |
| Provision for income  taxes                                                     |       | 5,317                                           |       | 5,487                                         |       | 8,073 |   | 10,541 |   |
| Income from  continuing operations                                              |       | 11,201                                          |       | 10,347                                        |       | 15,901 |   | 18,733 |   |
| Discontinued  operations:                                                       |       |                                            |       |                                          |       |   |   |   |   |
| Loss from discontinued  operations before income taxes                          |       | (31                                             | )          | (1,477                                        | )          | (83 | ) | (561 | ) |
| Income tax benefit                                                              |       | (12                                             | )          | (557                                          | )          | (30 | ) | (212 | ) |
| Loss from  discontinued operations                                              |       | (19                                             | )          | (920                                          | )          | (53 | ) | (349 | ) |
| Net income                                                                      |       | $                                               | 11,182     |                                          | $          | 9,427 |   | $ | 15,848 |   | $ | 18,384 |   |
|                                                                            |       |                                            |       |                                          |       |   |   |   |   |
| Basic income (loss) per  share:                                                 |       |                                            |       |                                          |       |   |   |   |   |
| Continuing  operations                                                          |       | $                                               | 0.24       |                                          | $          | 0.22 |   | $ | 0.34 |   | $ | 0.40 |   |
| Discontinued  operations                                                        |       | 0.00                                            |       | (0.02                                         | )          | 0.00 |   | (0.01 | ) |
| Net income                                                                      |       | $                                               | 0.24       |                                          | $          | 0.20 |   | $ | 0.34 |   | $ | 0.39 |   |
|                                                                            |       |                                            |       |                                          |       |   |   |   |   |
| Diluted income (loss)  per share:                                               |       |                                            |       |                                          |       |   |   |   |   |
| Continuing  operations                                                          |       | $                                               | 0.23       |                                          | $          | 0.22 |   | $ | 0.33 |   | $ | 0.39 |   |
| Discontinued  operations                                                        |       | 0.00                                            |       | (0.02                                         | )          | 0.00 |   | (0.01 | ) |
| Net income                                                                      |       | $                                               | 0.23       |                                          | $          | 0.20 |   | $ | 0.33 |   | $ | 0.38 |   |
|                                                                            |       |                                            |       |                                          |       |   |   |   |   |
| Weighted average shares  used in per share calculations:                        |       |                                            |       |                                          |       |   |   |   |   |
| Basic                                                                           |       | 47,288                                          |       | 47,139                                        |       | 47,280 |   | 47,102 |   |
| Diluted                                                                         |       | 48,124                                          |       | 47,904                                        |       | 48,062 |   | 48,031 |   |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

3

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**UNAUDITEDCONSOLIDATED BALANCE SHEETS**

**Blount International, Inc. and Subsidiaries**
| ** **                                                                                                                   | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(Amounts in thousands, except share data)**                                                       | ** ** | **2007**          | ** ** | **2006**              | ** ** |
|                                                                                                                         |       |              |       |                  |       |
| **Assets**                                                                                                                   | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current assets:                                                                                                              |       |              |       |                  |       |
| Cash and cash equivalents                                                                                                    |       | $                 | 34,140     |                  | $          | 27,636 |   |
| Accounts receivable, net of allowance for doubtful  accounts of $2,380 and $2,545, respectively                              |       | 89,570            |       | 82,748                |       |
| Inventories, net                                                                                                             |       | 90,282            |       | 77,833                |       |
| Deferred income taxes                                                                                                        |       | 14,886            |       | 20,122                |       |
| Other current assets                                                                                                         |       | 12,482            |       | 8,342                 |       |
| Total current assets                                                                                                         |       | 241,360           |       | 216,681               |       |
| Property, plant  and equipment, net                                                                                          |       | 100,664           |       | 99,665                |       |
| Goodwill                                                                                                                     |       | 71,892            |       | 71,892                |       |
| Deferred  financing costs                                                                                                    |       | 12,613            |       | 14,574                |       |
| Deferred income  taxes                                                                                                       |       | 18,332            |       | 17,318                |       |
| Assets held for  sale                                                                                                        |       | 2,700             |       | 2,700                 |       |
| Other assets                                                                                                                 |       | 23,920            |       | 7,636                 |       |
| Total Assets                                                                                                                 |       | $                 | 471,481    |                  | $          | 430,466 |   |
|                                                                                                                         |       |              |       |                  |       |
| **Liabilities  and Stockholders’ Deficit**                                                                              | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current  liabilities:                                                                                                        |       |              |       |                  |       |
| Current maturities of long-term debt                                                                                         |       | $                 | 1,500      |                  | $          | 1,500 |   |
| Accounts payable                                                                                                             |       | 37,435            |       | 34,982                |       |
| Accrued expenses                                                                                                             |       | 60,983            |       | 62,140                |       |
| Deferred income taxes                                                                                                        |       | 92                |       | 197                   |       |
| Total current liabilities                                                                                                    |       | 100,010           |       | 98,819                |       |
| Long-term debt,  excluding current maturities                                                                                |       | 358,625           |       | 349,375               |       |
| Deferred income  taxes                                                                                                       |       | 880               |       | 791                   |       |
| Employee benefit  obligations                                                                                                |       | 69,564            |       | 71,724                |       |
| Other  liabilities                                                                                                           |       | 31,682            |       | 15,048                |       |
| Total  liabilities                                                                                                           |       | 560,761           |       | 535,757               |       |
| Commitments and  contingent liabilities                                                                                      |       |              |       |                  |       |
| Stockholders’  equity (deficit):                                                                                        |       |              |       |                  |       |
| Common stock: par value $0.01 per share, 100,000,000  shares authorized, 47,281,224 and 47,242,925 outstanding, respectively |       | 473               |       | 472                   |       |
| Capital in excess of par value of stock                                                                                      |       | 574,642           |       | 571,683               |       |
| Accumulated deficit                                                                                                          |       | (645,156          | )          | (661,004              | )          |
| Accumulated other comprehensive loss                                                                                         |       | (19,239           | )          | (16,442               | )          |
| Total stockholders’ deficit                                                                                             |       | (89,280           | )          | (105,291              | )          |
| Total Liabilities and  Stockholders’ Deficit                                                                            |       | $                 | 471,481    |                  | $          | 430,466 |   |

 

The accompanying notes are an integral part of theseconsolidated financial statements.

4

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**UNAUDITEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**Blount International, Inc. and Subsidiaries**
| **(Amounts in thousands)**                                                                       | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                 | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| **Cash  flows from operating activities:**                                                                 |       |                                              |       |   |   |
| Income from  continuing operations                                                                         |       | $                                                 | 15,901     |   | $ | 18,733 |   |
| Adjustments to  reconcile income from continuing operations to net cash provided by operating  activities: |       |                                              |       |   |   |
| Depreciation of property, plant and equipment                                                              |       | 9,192                                             |       | 8,292 |   |
| Amortization, stock compensation and other non-cash  charges                                               |       | 4,680                                             |       | 3,938 |   |
| Excess tax benefit from share-based compensation                                                           |       | (68                                               | )          | (488 | ) |
| Deferred income taxes                                                                                      |       | 4,795                                             |       | 5,599 |   |
| (Gain) loss on disposal of property, plant, and  equipment                                                 |       | 19                                                |       | (900 | ) |
| Changes in assets and liabilities:                                                                         |       |                                              |       |   |   |
| (Increase) decrease in accounts receivable                                                                 |       | (7,123                                            | )          | (3,977 | ) |
| (Increase) decrease in inventories                                                                         |       | (12,449                                           | )          | (8,127 | ) |
| (Increase) decrease in other assets                                                                        |       | (3,141                                            | )          | (176 | ) |
| Increase (decrease) in accounts payable                                                                    |       | 2,453                                             |       | (10,163 | ) |
| Increase (decrease) in accrued expenses                                                                    |       | 291                                               |       | 4,282 |   |
| Increase (decrease) in other liabilities                                                                   |       | (6,178                                            | )          | (13,007 | ) |
| Discontinued operations, net                                                                               |       | (1,150                                            | )          | (379 | ) |
| Net cash  provided by operating activities                                                                 |       | 7,222                                             |       | 3,627 |   |
| ** **                                                                                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Cash  flows from investing activities:**                                                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Proceeds from  sale of property, plant and equipment                                                       |       | 4                                                 |       | 89 |   |
| Acquisition of  business                                                                                   |       | —                                            |       | (503 | ) |
| Purchases of  property, plant and equipment                                                                |       | (10,213                                           | )          | (9,714 | ) |
| Discontinued  operations, net                                                                              |       | —                                            |       | (109 | ) |
| Net cash used in investing activities                                                                      |       | (10,209                                           | )          | (10,237 | ) |
| ** **                                                                                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| **Cash  flows from financing activities:**                                                                 | ** ** | ** **                                        | ** ** | ** ** | ** ** |
| Net borrowings  under revolving credit facility                                                            |       | 10,000                                            |       | 87,000 |   |
| Repayment of  term loan principal                                                                          |       | (750                                              | )          | (83,098 | ) |
| Debt issuance  costs                                                                                       |       | —                                            |       | (700 | ) |
| Excess tax  benefit from share-based compensation                                                          |       | 68                                                |       | 488 |   |
| Proceeds from  exercise of stock options                                                                   |       | 173                                               |       | 592 |   |
| Net cash provided by financing activities                                                                  |       | 9,491                                             |       | 4,282 |   |
|                                                                                                       |       |                                              |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                                      |       | 6,504                                             |       | (2,328 | ) |
| Cash and cash  equivalents at beginning of period                                                          |       | 27,636                                            |       | 12,937 |   |
| Cash and cash  equivalents at end of period                                                                |       | $                                                 | 34,140     |   | $ | 10,609 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

5

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**UNAUDITEDCONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)**

**BlountInternational, Inc. and Subsidiaries**
| **(Amounts in thousands)**     | ** ** | **Shares  (in 000’s)** | ** ** | **Common  Stock** | ** ** | **Capital in  Excess  of Par** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Income   (Loss)** | ** ** | **Total** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|-------------------|------------|------------------------------------------|------------|--------------------------|------------|-------------------------------------------------------------|------------|-----------|------------|
|                                     |       |                             |       |              |       |                                     |       |                     |       |                                                        |       |      |       |
| Balance December  31, 2006               |       | 47,243                           |       | $                 | 472        |                                     | $          | 571,683                  |       | $                                                           | (661,004   | )         | $          | (16,442 | ) | $ | (105,291 | ) |
|                                     |       |                             |       |              |       |                                     |       |                     |       |                                                        |       |      |       |
| Net income                               |       |                             |       |              |       |                                     |       | 15,848                   |       |                                                        |       | 15,848    |       |
| Other comprehensive income (loss):       |       |                             |       |              |       |                                     |       |                     |       |                                                        |       |      |       |
| Foreign currency translation Adjustment  |       |                             |       |              |       |                                     |       |                     |       | 45                                                          |       | 45        |       |
| Unrealized losses                        |       |                             |       |              |       |                                     |       |                     |       | (33                                                         | )          | (33       | )          |
| Pension liability adjustment, net of tax |       |                             |       |              |       |                                     |       |                     |       | (2,809                                                      | )          | (2,809    | )          |
| Comprehensive income, net                |       |                             |       |              |       |                                     |       |                     |       |                                                        |       | 13,051    |       |
| Exercise of stock options                |       | 38                               |       | 1                 |       | 240                                      |       |                     |       |                                                        |       | 241       |       |
| Stock compensation expense               |       |                             |       |              |       | 2,719                                    |       |                     |       |                                                        |       | 2,719     |       |
| Balance June 30, 2007                    |       | 47,281                           |       | $                 | 473        |                                     | $          | 574,642                  |       | $                                                           | (645,156   | )         | $          | (19,239 | ) | $ | (89,280 | ) |

 

Other comprehensive loss for the three and six months endedJune 30, 2007 was $2.8 million.  Othercomprehensive income for the three and six months ended June 30, 2006 was $0.5million and $0.7 million, respectively.

The accompanying notes are an integral part of theseconsolidated financial statements.

6

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**BLOUNTINTERNATIONAL, INC. AND SUBSIDIARIES**

**NOTES TO UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

**NOTE 1: BASIS OF PRESENTATION**

***Basis of Presentation.***  The unaudited consolidated financialstatements include the accounts of Blount International, Inc. and itssubsidiaries (“Blount” or the “Company”) and are prepared in conformity withaccounting principles generally accepted in the United States of America.  All significant intercompany balances andtransactions have been eliminated.  Inthe opinion of management, the consolidated financial statements contain alladjustments (consisting of only normal recurring adjustments) necessary for afair statement of the financial position, results of operations, cash flows andchanges in stockholders’ deficit for the periods presented.

The accompanying financial data as of June 30, 2007 and forthe three and six months ended June 30, 2007 and 2006 has been prepared by theCompany, without audit, pursuant to the rules and regulations of the UnitedStates Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America havebeen condensed or omitted pursuant to such rules and regulations. The December31, 2006 consolidated balance sheet was derived from audited financialstatements, but does not include all disclosures required by accountingprinciples generally accepted in the United States of America. Theseconsolidated financial statements should be read in conjunction with theconsolidated financial statements and notes thereto included in the Company’sAnnual Report on Form 10-K for the year ended December 31, 2006.

***Use of Estimates.******* The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires that management make certain estimates and assumptions thataffect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities as of the dates of the financial statements,as well as the reported amounts of revenues and expenses during the reportingperiods.  The Company bases its estimateson various assumptions that are believed to be reasonable under thecircumstances.  Management is continuallyevaluating and updating these estimates and it is reasonably possible thatthese estimates will change in the near term.

***Reclassifications.***  Certain amounts in the prior period financialstatements have been reclassified to conform to the current periodpresentation.  Such reclassifications hadno effect on previously reported net income or net stockholders’ deficit.

**NOTE 2: DISCONTINUED OPERATIONS**

***Discontinued Lawnmower Segment.***  On July 27, 2006, the Company sold certain ofthe assets and liabilities of Dixon Industries, Inc. (“Dixon”) to HusqvarnaProfessional Outdoor Products, Inc. (“Husqvarna”), a wholly-owned subsidiary ofHusqvarna AB (Sweden).  Dixon hadpreviously been reported as the Company’s Lawnmower Segment.  In the fourth quarter of 2006, the finalselling price was settled at $33.1 million after adjustment as specified in therelated asset purchase agreement. The Company used the proceeds from this saleto reduce the outstanding principal balance of the Company’s revolving creditfacility.  The sale included thedisposition of Dixon’s recorded goodwill in the amount of $5.0 million.  Certain liabilities of Dixon, as well as theland, building, building improvements, certain machinery and equipment andvarious other assets related to its Coffeyville, Kansas facility, were retainedby the Company by merger of Dixon with and into 4520 Corp. Inc., an indirectwholly-owned subsidiary of the Company.  The net property, plant and equipment associated with the discontinuedoperations of Dixon are carried at their estimated fair value and are includedin assets held for sale in the consolidated balance sheet.  The land and building are currently beingmarketed for sale by the Company.

7

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**NOTE 3: INVENTORIES, NET**

Inventories consisted of the following:
| ** **                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(Amounts in thousands)** | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Raw materials  and supplies          |       | $                 | 24,802     |                  | $          | 24,213 |   |
| Work in progress                     |       | 15,471            |       | 14,034                |       |
| Finished goods                       |       | 50,009            |       | 39,586                |       |
| Total inventories, net               |       | $                 | 90,282     |                  | $          | 77,833 |   |

 

**NOTE 4: LONG TERM DEBT**

Long-term debt consisted of the following:
| ** **                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(Amounts in thousands)** | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Revolving credit  facility           |       | $                 | 37,000     |                  | $          | 27,000 |   |
| Term loans                           |       | 148,125           |       | 148,875               |       |
| 8 7/8% senior  subordinated notes    |       | 175,000           |       | 175,000               |       |
| Total debt                           |       | 360,125           |       | 350,875               |       |
| Less current  maturities             |       | (1,500            | )          | (1,500                | )          |
| Long-term debt                       |       | $                 | 358,625    |                  | $          | 349,375 |   |

 

Theweighted average interest rate on outstanding debt as of June 30, 2007 was 7.95%.

The revolving credit facilityprovides for total available borrowings up to $150.0 million, reduced byoutstanding letters of credit and further restricted by a specific leverageratio and a first lien credit facilities leverage ratio. As of June 30, 2007, the Company had the abilityto borrow an additional $96.8 million under the terms of the revolving creditagreement. The revolving credit facility bears interest at the LIBOR rate plus1.75%, or at the prime rate, depending on the type of loan, and matures onAugust 9, 2009.  Interest is payablemonthly in arrears on any prime rate borrowing and at the individual maturitydates for any LIBOR-based borrowing.  Anyoutstanding principal is due in its entirety on the maturity date.

The term loan facility bears interest at the LIBOR rate plus1.75%, or at the prime rate, depending on the type of loan, and matures onAugust 9, 2010.  The term loan facilityrequires quarterly payments of $0.4 million, with a final payment of $143.3million due on the maturity date.  Oncerepaid, principal under the term loan facility may not be re-borrowed by theCompany.

The revolving creditfacility and term loans may be prepaid at any time.  There can also be additional mandatoryrepayment requirements related to the sale of Company assets, the issuance ofstock under certain circumstances or upon the Company’s annual generation ofexcess cash flow, as determined under the credit agreement.

The revolving credit facility and term loans are governed bythe terms of amended and restated senior credit facilities.  Blount International, Inc. and all of itsdomestic subsidiaries other than Blount, Inc. guarantee Blount, Inc.’sobligations under the senior credit facilities. The obligations under the senior credit facilities are collateralized bya first priority security interest in substantially all of the assets ofBlount, Inc. and its domestic subsidiaries, as well as a pledge of all ofBlount, Inc.’s capital stock held by Blount International, Inc. and all of thestock of domestic subsidiaries held by Blount, Inc.  Blount, Inc. has also pledged 65% of thestock of each of its wholly-owned non-domestic subsidiaries as additionalcollateral.

The senior credit facilities contain financial covenantsrelating to maximum capital expenditures, minimum fixed charge coverage ratio,maximum leverage ratio and maximum first lien credit facilities leverageratio.  In addition, there are covenantsrelating, among other categories, to investments, loans and advances,indebtedness and the sale of stock or assets. The Company was in compliance with all debt covenants as of June 30,2007.

8

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The Company has one registered debt security, the 8 7/8%senior subordinated notes.  The interestrate on these notes is fixed until their maturity on August 1, 2012.  These notes are issued by Blount, Inc. andare fully and unconditionally, jointly and severally, guaranteed by the Companyand all of its domestic subsidiaries (“guarantor subsidiaries”) other thanBlount, Inc.

**NOTE 5: INCOME TAXES**

The Company is using itsvarious federal and state net operating loss and tax credit carryforwards toreduce the amount of cash tax payments required in 2007.  During the six months ended June 30, 2007,the federal net operating loss carryforward was fully used to offset U.S.taxable income.  Accordingly, as of June30, 2007, the Company has no remaining U.S. federal net operating losscarryforward.

In June 2006, the Financial Accounting Standards Board (“FASB”)issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”(“FIN No. 48”). This interpretation clarified the accounting for uncertainty inincome taxes recognized in an enterprise’s financial statements in accordancewith FASB Statement No. 109, “Accounting for Income Taxes.”  FIN No. 48 prescribes a recognition thresholdand measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a taxreturn.  It also provides guidance onde-recognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition.  TheCompany adopted FIN No. 48 effective January 1, 2007.

There was no material adjustment to the net liability foruncertain tax positions as a result of the adoption of FIN No. 48 on January 1,2007.  However, uncertain tax positionsthat were previously netted on the balance sheet are reported separately atJune 30, 2007.  At the adoption of FINNo. 48, the Company had $27.3 million of unrecognized tax benefits of which$12.4 million, if recognized, would affect the effective tax rate.  Also, as of the adoption date, the Companyhad accrued interest and penalties of $2.8 million related to uncertain taxpositions.  The Company recognizes interestand penalties related to uncertain tax positions as income tax expense.  As of June 30, 2007, there have been nomaterial changes to the Company’s uncertain tax position balances.  The tax years 2001 to 2006 remain open toexamination by the major taxing jurisdictions applicable to the Company.

**NOTE 6: PENSION AND OTHER POST-EMPLOYMENT BENEFIT PLANS**

TheCompany sponsors defined benefit pension plans covering substantially all ofits employees in the U.S., Canada and Belgium. The Company also sponsors various other post-employment medical andbenefit plans covering many of its current and former employees.  The components of net periodic benefit costfor these plans are as follows: 
| ** **                           | ** ** | **Three Months Ended June 30,** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                           | ** ** | **Pension Benefits**                           | ** ** | **Other Post-Employment   Benefits** | ** ** |
| **(Amounts in thousands)** | ** ** | **2007**                                            | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                         |       | $                                                   | 907        |   | $ | 1,699 |   | $ | 95 |   | $ | 86 |   |
| Interest cost                        |       | 2,572                                               |       | 2,586 |   | 526 |   | 428 |   |
| Expected return  on plan assets      |       | (3,223                                              | )          | (2,896 | ) | — |   | (4 | ) |
| Amortization of  prior service cost  |       | (2                                                  | )          | 89 |   | 2 |   | 2 |   |
| Amortization of  net actuarial loss  |       | 371                                                 |       | 840 |   | 243 |   | 143 |   |
| Total net periodic  benefit cost     |       | $                                                   | 625        |   | $ | 2,318 |   | $ | 866 |   | $ | 655 |   |

 

9

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| ** **                           | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------|------------|---------------------------------------------------|------------|
| ** **                           | ** ** | **Pension Benefits**                         | ** ** | **Other Post-Employment  Benefits** | ** ** |
| **(Amounts in thousands)** | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                         |       | $                                                 | 1,814      |   | $ | 3,397 |   | $ | 189 |   | $ | 172 |   |
| Interest cost                        |       | 5,144                                             |       | 5,172 |   | 1,051 |   | 856 |   |
| Expected return  on plan assets      |       | (6,446                                            | )          | (5,792 | ) | — |   | (8 | ) |
| Amortization of  prior service cost  |       | (5                                                | )          | 178 |   | 4 |   | 4 |   |
| Amortization of  net actuarial loss  |       | 743                                               |       | 1,680 |   | 487 |   | 287 |   |
| Total net periodic  benefit cost     |       | $                                                 | 1,250      |   | $ | 4,635 |   | $ | 1,731 |   | $ | 1,311 |   |

 

EffectiveJanuary 1, 2007, the Company implemented a redesign of its domestic retirementplans, including a freeze of its defined benefit pension plan and anassociated nonqualified plan.  As ofJanuary 1, 2007, employees who had been participating in the plans ceasedaccruing benefits and new employees are not eligible to participate.  All retirement benefits accrued up to thetime of the freeze were preserved.  Accordingly, the Company recorded a pensioncurtailment charge of $3.2 million in the three months ended September 30,2006, which represented the immediate recognition of the unamortized priorservice cost for U.S. employees.  TheCompany expects to contribute a total of approximately $10 million to $20million to its funded pension plans during 2007.

The Company also sponsors adefined contribution 401(k) plan covering most employees in the U.S.  Under the plan, the Company currently matchesemployee contributions to 401(k) accounts up to 4.5% of base compensation.  In conjunction with the redesign of itsdomestic retirement plans, the defined contribution 401(k) plan was amended topermit an additional discretionary annual Company contribution of 3%, 4% or 5%of base compensation, depending upon the participant’s years of service.  The new contribution will be made whether ornot the employee contributes to the plan.

In September 2006, the FASB issued Statement of FinancialAccounting Standards (“SFAS”) No. 158, “Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans” (“SFAS No. 158”).  SFAS No. 158 requires an employer torecognize the over-funded or under-funded status of a defined benefitpost-retirement plan (other than a multiemployer plan) as an asset or liabilityin its statement of financial position and to recognize changes in that fundedstatus in the year in which the changes occur through comprehensiveincome.  The Company adopted SFAS No. 158effective December 31, 2006, and recognized an increase in liabilities of $16.2million and a charge to accumulated other comprehensive loss, net of deferredincome taxes, of $12.3 million, based on preliminary actuarially estimatedvaluations of the Company’s various plans. In the three months ended June 30, 2007, the Company recognized anadditional $4.5 million in liabilities and a charge to other comprehensiveloss, net of deferred income taxes, of $2.8 million, reflecting the updatedestimates of the 2006 actuarially determined valuations of the various plans.

**NOTE 7: COMMITMENTS AND CONTINGENT LIABILITIES**

Guarantees and other commercial commitments are summarized inthe following table: 
| ** **                                                                       | ** ** | **June 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------|------------|
| **(Amounts in thousands)**                                             | ** ** | **2007**          | ** ** |
| Warranty reserve                                                                 |       | $                 | 2,894      |   |
| Letters of  credit outstanding                                                   |       | 5,505             |       |
| Guarantees of third  party financing agreements for customer equipment purchases |       | 2,594             |       |
|                                                                                  |            |                   |            |  |

 

Changes in the warranty reserve are as follows:
| **(Amounts in thousands)** | ** ** | **2007** | ** ** |
|--------------------------------------|------------|----------|------------|
| Balance at  December 31, 2006        |       | $        | 3,269      |   |
| Accrued warranty  expense            |       | 787      |       |
| Payments made  (in cash or in-kind)  |       | (1,162   | )          |
| Balance at June 30,  2007            |       | $        | 2,894      |   |

 

10

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The warrantyreserve is included in accrued expenses on the consolidated balance sheet.  In addition to these amounts, the Companyalso guarantees certain debt of its subsidiaries (see Note 4).

The Company is a defendant in a number of product liabilitylawsuits, some of which seek significant or unspecified damages, involvingserious personal injuries for which there are retentions or deductible amountsunder the Company’s insurance policies. In addition, the Company is a party toa number of other suits arising out of the normal course of its business,including suits concerning commercial contracts, employee matters andintellectual property rights.  In someinstances, the Company is the plaintiff and is seeking recovery of damages. Inothers, the Company is a defendant against whom damages are being sought.  While there can be no assurance as to theirultimate outcome, management does not believe these lawsuits will have amaterial adverse effect on the Company’s consolidated financial position,operating results or cash flows.

The Company accrues, by a charge to income, an amountrepresenting management’s best estimate of the undiscounted probable lossrelated to any matter deemed by management and its counsel as a probable losscontingency in light of all of the then known circumstances. The Company doesnot accrue a charge to income for a matter deemed by management and its counselto be a reasonably possible loss contingency in light of all of the currentcircumstances.

**NOTE 8: EARNINGS PER SHARE DATA**

Sharesused in the denominators of the basic and diluted earnings per sharecomputations were as follows:
| ** **                                                                                                           | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| **(Shares in thousands)**                                                                                  | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Shares for basic  income per share computation – weighted average common shares outstanding                     |       | 47,288                                          |       | 47,139                                        |       | 47,280 |   | 47,102 |   |
| Dilutive effect  of common stock equivalents                                                                         |       | 836                                             |       | 765                                           |       | 782 |   | 929 |   |
| Shares for  diluted income per share computation                                                                     |       | 48,124                                          |       | 47,904                                        |       | 48,062 |   | 48,031 |   |
| Options and stock  appreciation rights excluded from computation as anti-dilutive because they  are out-of-the-money |       | 1,765                                           |       | 1,945                                         |       | 1,765 |   | 955 |   |

 

**NOTE 9: STOCK-BASED COMPENSATION**

Effective January 1, 2006, the Company adopted SFAS No.123(R), ‘‘Share-Based Payment’’ (“SFAS No. 123(R)”).  SFAS No. 123(R) requires all share-basedcompensation to employees, directors and others who perform services for theCompany, including grants of stock options and stock appreciation rights (“SARs”),to be valued at fair value on the date of grant and to be expensed over theapplicable service period. Under SFAS No. 123(R), pro forma disclosure of theincome statement effects of share-based compensation is no longer analternative to expense recognition.  TheCompany followed the modified prospective application method permitted underSFAS No. 123(R) and, accordingly, the results for prior periods were notrestated.

The fair value of options and SARs was estimated on therespective grant dates using the Black-Scholes option valuation model. Theestimated average life of SARs was derived from the “simplified” methoddescribed in SEC Staff Accounting Bulletin No. 107 (“SAB 107”).  The risk-free interest rate is based on theimplied yield available on U.S. Treasury zero-coupon issues with the remainingterm equal to the average life.  Theexpected volatility factors used are based on the historical volatility of theCompany’s stock.  The expected dividendyield is based on historical information and management estimate.

11

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Undercertain conditions, stock options, SARs, restricted stock units (“RSUs”) andrestricted stock granted by the Company are eligible for continued vesting uponthe retirement of the employee. SFAS No. 123(R) clarifies that the fair value of such stock-basedcompensation should be expensed based on an accelerated service period, orimmediately, rather than ratably over the vesting period stated in the grant,for employees who are retirement eligible prior to the completion of thevesting period.

TheCompany made the following awards during the periods indicated:
| ** **                                                 | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| **In 000’s**                                     | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Stock  appreciation rights granted                         |       | 3                                                   |       | n/a                                               |       | 380 |   | 612 |   |
| Aggregate fair  value of SARs granted                      |       | $                                                   | 12         |                                              | n/a        |   | $ | 1,617 |   | $ | 3,518 |   |
| Restricted stock  and RSUs granted                         |       | n/a                                                 |       | n/a                                               |       | 181 |   | n/a |   |
| Aggregate fair value of  restricted stock and RSUs granted |       | n/a                                                 |       | n/a                                               |       | $ | 2,138 |   | n/a |   |
|                                                            |            |                                                     |            |                                                   |            |  |  |  |  |  |  |  |

 

Therestricted stock and RSUs generally vest over a three year period.  Theeffect of applying accelerated amortization of expense recognized for thoseemployees that were retirement eligible or become retirement eligible prior tothe completion of the vesting period, compared to straight-line amortizationover the vesting period, was a decrease in stock-based compensation expense of$0.4 million and $0.2 million for the three months ended June 30, 2007 and2006, respectively.  The effect ofapplying accelerated amortization of expense recognized for those employeesthat were retirement eligible or become retirement eligible prior to the completionof the vesting period, compared to straight-line amortization over the vestingperiod, was an increase in stock-based compensation expense of $1.0 million and$1.0 million for the six months ended June 30, 2007 and 2006, respectively.

The following assumptions were used to estimate the fairvalue of SARs:
| ** **                              | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                              | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Estimated  average life                 |       | 6  years                                            |       | n/a                                               |       | 6  years |   | 6  years |   |
| Risk-free  interest rate                |       | 4.5%                                                |       | n/a                                               |       | 4.5% |   |   4.6% |   |
| Expected  volatility                    |       | 29.1%  - 29.5%                                      |       | n/a                                               |       | 29.1%  - 29.5% |   | 26.7% |   |
| Weighted average  volatility            |       | 29.3%                                               |       | n/a                                               |       | 29.3% |   | 26.7% |   |
| Dividend yield                          |       |   0.0%                                         |       | n/a                                               |       |   0.0% |   |   0.0% |   |
| Weighted average grant  date fair value |       | $ 4.96                                         |       | n/a                                               |       | $  4.50 |   | $  6.09 |   |

 

As of June 30, 2007, the total unrecognized stock-basedcompensation expense related to previously granted awards was $3.0 million. Theweighted-average period over which this expense is expected to be recognized is1.1 years.  The Company’s policy upon theexercise of options, RSUs or SARs has been to issue new shares into the marketplace.

**NOTE 10: SEGMENT INFORMATION**

The Company identifies operating segments primarily based onmanagement responsibility. The Company has two operating segments, each ofwhich is a reportable segment: Outdoor Products and Industrial and PowerEquipment.  See also Note 2 regarding thediscontinuation of the former Lawnmower segment business. Outdoor Productsmanufactures and markets cutting chain, bars, sprockets and accessories forchainsaw use; concrete-cutting equipment; and lawnmower blades and accessoriesfor yard care equipment. Industrial and Power Equipment manufactures andmarkets timber harvesting equipment, timber harvesting heads, industrialtractors and loaders, rotational bearings, worm gear reducers, hydraulic pumpdrives, swing drives and winches.

12

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The accounting policies of the segments are the same as thosedescribed in the summary of significant accounting policies.

Certain financial information by segment is presented in thetable below:
| ** **                           | ** ** | **Three months ended  June 30,** | ** ** | **Six months ended   June 30,** | ** ** |
|--------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(Amounts in thousands)** | ** ** | **2007**                                        | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Sales:**                           | ** ** | ** **                                      | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Outdoor Products                     |       | $                                               | 128,106    |                                                | $          | 114,723 |   | $ | 238,973 |   | $ | 228,919 |   |
| Industrial and Power Equipment       |       | 42,600                                          |       | 50,637                                              |       | 75,805 |   | 100,479 |   |
| Inter-segment elimination            |       | (263                                            | )          | (266                                                | )          | (339 | ) | (502 | ) |
| Total sales                          |       | $                                               | 170,443    |                                                | $          | 165,094 |   | $ | 314,439 |   | $ | 328,896 |   |
|                                 |       |                                            |       |                                                |       |   |   |   |   |
| **Operating  income:**               | ** ** | ** **                                      | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Outdoor Products                     |       | $                                               | 26,664     |                                                | $          | 23,098 |   | $ | 47,734 |   | $ | 47,905 |   |
| Industrial and Power Equipment       |       | 2,599                                           |       | 4,708                                               |       | 2,786 |   | 8,031 |   |
| Inter-segment elimination            |       | —                                          |       | 16                                                  |       | — |   | (27 | ) |
| Contribution  from segments          |       | 29,263                                          |       | 27,822                                              |       | 50,520 |   | 55,909 |   |
| Corporate  expenses                  |       | (4,482                                          | )          | (3,807                                              | )          | (10,298 | ) | (9,610 | ) |
| Operating income                     |       | $                                               | 24,781     |                                                | $          | 24,015 |   | $ | 40,222 |   | $ | 46,299 |   |

 

**NOTE 11: SUPPLEMENTAL CASH FLOWS INFORMATION**
| ** **                           | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------|------------|---------------------------------------------------|------------|
| **(Amounts in thousands)** | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| Interest paid                        |       | $                                                 | 14,586     |   | $ | 17,071 |   |
| Income taxes paid, net               |       | 8,938                                             |       | 5,698 |   |
|                                      |            |                                                   |            |  |  |  |  |

 

**NOTE 12: RECENT ACCOUNTING PRONOUNCEMENTS**

In September 2006, theFASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”).  SFAS No. 157 defines fair value, establishesa framework for measuring fair value in accordance with accounting principlesgenerally accepted in the U.S., and expands disclosures about fair valuemeasurements.  The provisions of SFAS No. 157 are effective for theCompany on January 1, 2008.  The Company is currently evaluating theimpact of the provisions of SFAS No. 157.

In February 2007, the FASB issued SFAS No. 159, “Fair ValueOption for Financial Assets and Financial Liabilities-Including an Amendment ofFASB Statement No. 115” (“SFAS No. 159”).  SFAS No. 159 permits entitiesto choose to measure many financial instruments and certain other items at fairvalue.  The provisions of SFAS No. 159 are effective for the Company onJanuary 1, 2008.  The Company is currently evaluating the impact of theprovisions of SFAS No. 159.

**NOTE 13: CONSOLIDATING FINANCIAL INFORMATION**

SeeNote 4 for a discussion of the Company’s guarantor subsidiaries.  The following consolidating financialinformation sets forth condensed consolidating statements of operations,balance sheets and statements of cash flows of Blount International, Inc.,Blount, Inc., the guarantor subsidiaries and the non-guarantor subsidiaries.

13

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**Condensed Consolidating Statement of OperationsInformation**
| **(Amounts in thousands)**                          | ** ** | **Blount   International,  Inc.** | ** ** | **Blount,  Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------|------------|-------------------|------------|-----------------------------|------------|-----------------------------------------|------------|------------------|------------|------------------|------------|
| **For the  Three Months Ended  June 30, 2007**                | ** ** | ** **                             | ** ** | ** **        | ** ** | ** **                  | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
| Sales                                                         |       |                                   |       | $                 | 134,131    |                        | $          | 11,847                                  |       | $                | 80,240     |             | $          | (55,775 | ) | $ | 170,443 |   |
| Cost of sales                                                 |       |                                   |       | 97,575            |       | 9,811                       |       | 64,384                                  |       | (54,936          | )          | 116,834          |       |
| Gross profit                                                  |       |                                   |       | 36,556            |       | 2,036                       |       | 15,856                                  |       | (839             | )          | 53,609           |       |
| Operating  expenses                                           |       |                                   |       | 19,877            |       | 1,062                       |       | 7,975                                   |       | (86              | )          | 28,828           |       |
| Operating income                                              |       |                                   |       | 16,679            |       | 974                         |       | 7,881                                   |       | (753             | )          | 24,781           |       |
| Other, net                                                    |       | $                                      | (5,925     | )                 | (1,155     | )                           | 132        |                                    | (1,315     | )                |       |             | (8,263     | ) |
| Income (loss)  from continuing operations before income taxes |       | (5,925                                 | )          | 15,524            |       | 1,106                       |       | 6,566                                   |       | (753             | )          | 16,518           |       |
| Provision  (benefit) for income taxes                         |       | (1,800                                 | )          | 6,772             |       | 416                         |       | (71                                     | )          |             |       | 5,317            |       |
| Income (loss)  from continuing operations                     |       | (4,125                                 | )          | 8,752             |       | 690                         |       | 6,637                                   |       | (753             | )          | 11,201           |       |
| Loss from  discontinued operations                            |       |                                   |       |              |       | (19                         | )          |                                    |       |             |       | (19              | )          |
| Equity in  earnings of affiliated companies                   |       | 15,307                                 |       | 6,555             |       | 172                         |       |                                    |       | (22,034          | )          |             |       |
| Net income                                                    |       | $                                      | 11,182     |              | $          | 15,307                      |       | $                                       | 843        |             | $          | 6,637            |       | $ | (22,787 | ) | $ | 11,182 |   |

 
| **(Amounts in thousands)**                          | ** ** | **Blount  International,  Inc.** | ** ** | **Blount,  Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non-  Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|-------------------|------------|-----------------------------------|------------|-----------------------------------------|------------|------------------|------------|------------------|------------|
| **For the  Six Months Ended  June 30, 2007**                  | ** ** | ** **                       | ** ** | ** **        | ** ** | ** **                        | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
| Sales                                                         |       |                             |       | $                 | 244,838    |                              | $          | 23,621                                  |       | $                | 155,378    |             | $          | (109,398 | ) | $ | 314,439 |   |
| Cost of sales                                                 |       |                             |       | 180,018           |       | 19,539                            |       | 124,060                                 |       | (107,697         | )          | 215,920          |       |
| Gross profit                                                  |       |                             |       | 64,820            |       | 4,082                             |       | 31,318                                  |       | (1,701           | )          | 98,519           |       |
| Operating  expenses                                           |       |                             |       | 41,010            |       | 2,191                             |       | 15,182                                  |       | (86              | )          | 58,297           |       |
| Operating income                                              |       |                             |       | 23,810            |       | 1,891                             |       | 16,136                                  |       | (1,615           | )          | 40,222           |       |
| Other, net                                                    |       | $                                | (11,784    | )                 | (3,661     | )                                 | 276        |                                    | (1,079     | )                |       |             | (16,248    | ) |
| Income (loss)  from continuing operations before income taxes |       | (11,784                          | )          | 20,149            |       | 2,167                             |       | 15,057                                  |       | (1,615           | )          | 23,974           |       |
| Provision  (benefit) for income taxes                         |       | (3,968                           | )          | 9,223             |       | 815                               |       | 2,003                                   |       |             |       | 8,073            |       |
| Income (loss)  from continuing operations                     |       | (7,816                           | )          | 10,926            |       | 1,352                             |       | 13,054                                  |       | (1,615           | )          | 15,901           |       |
| Loss from  discontinued operations                            |       |                             |       |              |       | (53                               | )          |                                    |       |             |       | (53              | )          |
| Equity in  earnings of affiliated companies                   |       | 23,664                           |       | 12,738            |       | 240                               |       |                                    |       | (36,642          | )          |             |       |
| Net income                                                    |       | $                                | 15,848     |              | $          | 23,664                            |       | $                                       | 1,539      |             | $          | 13,054           |       | $ | (38,257 | ) | $ | 15,848 |   |

 

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**Condensed Consolidating Statement of OperationsInformation**
| **(Amounts in thousands)**                          | ** ** | **Blount   International,   Inc.** | ** ** | **Blount,  Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non-  Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------|------------|-------------------|------------|-----------------------------------|------------|-----------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **                        | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
| **For the  Three Months Ended June 30, 2006**                 | ** ** | ** **                                   | ** ** | ** **        | ** ** | ** **                        | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
| Sales                                                         |       |                                         |       | $                 | 115,262    |                              | $          | 26,898                                  |       | $                | 70,461     |             | $          | (47,527 | ) | $ | 165,094 |   |
| Cost of sales                                                 |       |                                         |       | 85,222            |       | 21,644                            |       | 54,419                                  |       | (47,421          | )          | 113,864          |       |
| Gross profit                                                  |       |                                         |       | 30,040            |       | 5,254                             |       | 16,042                                  |       | (106             | )          | 51,230           |       |
| Selling, general  and administrative expenses                 |       |                                         |       | 18,483            |       | 1,287                             |       | 7,445                                   |       |             |       | 27,215           |       |
| Operating income                                              |       |                                         |       | 11,557            |       | 3,967                             |       | 8,597                                   |       | (106             | )          | 24,015           |       |
| Other, net                                                    |       | $                                            | (5,674     | )                 | (2,195     | )                                 | (170       | )                                       | (142       | )                |       |             | (8,181     | ) |
| Income (loss)  from continuing operations before income taxes |       | (5,674                                       | )          | 9,362             |       | 3,797                             |       | 8,455                                   |       | (106             | )          | 15,834           |       |
| Provision  (benefit) for income taxes                         |       | (1,957                                       | )          | 4,271             |       | 489                               |       | 2,684                                   |       |             |       | 5,487            |       |
| Income (loss)  from continuing operations                     |       | (3,717                                       | )          | 5,091             |       | 3,308                             |       | 5,771                                   |       | (106             | )          | 10,347           |       |
| Loss from  discontinued operations                            |       |                                         |       |              |       | (920                              | )          |                                    |       |             |       | (920             | )          |
| Equity in  earnings of affiliated companies                   |       | 13,144                                       |       | 8,053             |       | 142                               |       |                                    |       | (21,339          | )          |             |       |
| Net income                                                    |       | $                                            | 9,427      |              | $          | 13,144                            |       | $                                       | 2,530      |             | $          | 5,771            |       | $ | (21,445 | ) | $ | 9,427 |   |

 
| **(Amounts in thousands)**                          | ** ** | **Blount  International,   Inc.** | ** ** | **Blount,  Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non-  Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------|------------|-------------------|------------|-----------------------------------|------------|-----------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | ** **                             | ** ** | ** **        | ** ** | ** **                        | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
| **For the  Six Months Ended June 30, 2006**                   | ** ** | ** **                             | ** ** | ** **        | ** ** | ** **                        | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
| Sales                                                         |       |                                   |       | $                 | 234,886    |                              | $          | 55,547                                  |       | $                | 139,612    |             | $          | (101,149 | ) | $ | 328,896 |   |
| Cost of sales                                                 |       |                                   |       | 176,111           |       | 43,643                            |       | 107,831                                 |       | (102,513         | )          | 225,072          |       |
| Gross profit                                                  |       |                                   |       | 58,775            |       | 11,904                            |       | 31,781                                  |       | 1,364            |       | 103,824          |       |
| Selling, general  and administrative expenses                 |       |                                   |       | 38,807            |       | 4,041                             |       | 14,677                                  |       |             |       | 57,525           |       |
| Operating income                                              |       |                                   |       | 19,968            |       | 7,863                             |       | 17,104                                  |       | 1,364            |       | 46,299           |       |
| Other, net                                                    |       | $                                      | (11,027    | )                 | (5,120     | )                                 | (331       | )                                       | (547       | )                |       |             | (17,025    | ) |
| Income (loss)  from continuing operations before income taxes |       | (11,027                                | )          | 14,848            |       | 7,532                             |       | 16,557                                  |       | 1,364            |       | 29,274           |       |
| Provision  (benefit) for income taxes                         |       | (3,970                                 | )          | 9,113             |       | 377                               |       | 5,021                                   |       |             |       | 10,541           |       |
| Income (loss)  from continuing operations                     |       | (7,057                                 | )          | 5,735             |       | 7,155                             |       | 11,536                                  |       | 1,364            |       | 18,733           |       |
| Loss from  discontinued operations                            |       |                                   |       |              |       | (349                              | )          |                                    |       |             |       | (349             | )          |
| Equity in  earnings of affiliated companies                   |       | 25,441                                 |       | 19,706            |       | 206                               |       |                                    |       | (45,353          | )          |             |       |
| Net income                                                    |       | $                                      | 18,384     |              | $          | 25,441                            |       | $                                       | 7,012      |             | $          | 11,536           |       | $ | (43,989 | ) | $ | 18,384 |   |

 

15

----

**Condensed Consolidating Balance Sheet Information**

| (Amounts in thousands)                           | ** ** | **Blount   International,  Inc.** | ** ** | **Blount,  Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------|------------|-------------------|------------|-----------------------------|------------|-----------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                 | ** ** | ** **                             | ** ** | ** **        | ** ** | ** **                  | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
| **June  30, 2007**                                         | ** ** | ** **                             | ** ** | ** **        | ** ** | ** **                  | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                 | ** ** | ** **                             | ** ** | ** **        | ** ** | ** **                  | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Assets**                                                 | ** ** | ** **                             | ** ** | ** **        | ** ** | ** **                  | ** ** | ** **                              | ** ** | ** **       | ** ** | ** **       | ** ** |
|                                                       |       |                                   |       |              |       |                        |       |                                    |       |             |       |             |       |
| Cash and cash equivalents                                  |       |                                   |       | $                 | 469        |                        |       |                                    | $          | 33,748           |       | $                | (77        | ) | $ | 34,140 |   |
| Accounts receivable, net                                   |       |                                   |       | 56,932            |       | $                           | 5,983      |                                    | 26,655     |             |       |             | 89,570     |   |
| Intercompany receivables                                   |       |                                   |       | 162,885           |       | 83,543                      |       | 14,855                                  |       | (261,283         | )          |             |       |
| Inventories                                                |       |                                   |       | 63,141            |       | 6,304                       |       | 22,372                                  |       | (1,535           | )          | 90,282           |       |
| Deferred income taxes                                      |       |                                   |       | 14,719            |       |                        |       | 167                                     |       |             |       | 14,886           |       |
| Other current assets                                       |       |                                   |       | 5,887             |       | 176                         |       | 6,419                                   |       |             |       | 12,482           |       |
| Total current assets                                       |       |                                   |       | 304,033           |       | 96,006                      |       | 104,216                                 |       | (262,895         | )          | 241,360          |       |
| Investments in  affiliated companies                       |       | $                                      | 173,322    |              | 244,349    |                        | 772        |                                    | 248        |             | (418,691   | )                |       |   |
| Property, plant  and equipment, net                        |       |                                   |       | 41,538            |       | 10,480                      |       | 48,646                                  |       |             |       | 100,664          |       |
| Assets held for  sale                                      |       |                                   |       | 1,500             |       | 1,200                       |       |                                    |       |             |       | 2,700            |       |
| Goodwill and  other assets                                 |       |                                   |       | 103,782           |       | 11,888                      |       | 12,919                                  |       | (1,832           | )          | 126,757          |       |
| Total Assets                                               |       | $                                      | 173,322    |              | $          | 695,202                     |       | $                                       | 120,346    |             | $          | 166,029          |       | $ | (683,418 | ) | $ | 471,481 |   |
|                                                       |       |                                   |       |              |       |                        |       |                                    |       |             |       |             |       |
| **Liabilities  and Stockholders’ Equity (Deficit)**   |       |                                   |       |              |       |                        |       |                                    |       |             |       |             |       |
|                                                       |       |                                   |       |              |       |                        |       |                                    |       |             |       |             |       |
| Current maturities of long-term debt                       |       |                                   |       | $                 | 1,500      |                        |       |                                    |       |             |       |             | $          | 1,500 |   |
| Accounts payable                                           |       |                                   |       | 24,273            |       | $                           | 3,420      |                                    | $          | 9,819            |       | $                | (77        | ) | 37,435 |   |
| Intercompany payables                                      |       | $                                      | 261,283    |              |       |                        |       |                                    |       |             | (261,283   | )                |       |   |
| Other current liabilities                                  |       |                                   |       | 42,973            |       | 3,721                       |       | 14,381                                  |       |             |       | 61,075           |       |
| Total current liabilities                                  |       | 261,283                                |       | 68,746            |       | 7,141                       |       | 24,200                                  |       | (261,360         | )          | 100,010          |       |
| Long-term debt,  excluding current maturities              |       |                                   |       | 358,625           |       |                        |       |                                    |       |             |       | 358,625          |       |
| Other  liabilities                                         |       | 1,319                                  |       | 94,509            |       | 89                          |       | 8,041                                   |       | (1,832           | )          | 102,126          |       |
| Total  liabilities                                         |       | 262,602                                |       | 521,880           |       | 7,230                       |       | 32,241                                  |       | (263,192         | )          | 560,761          |       |
| Stockholders’  equity (deficit)                       |       | (89,280                                | )          | 173,322           |       | 113,116                     |       | 133,788                                 |       | (420,226         | )          | (89,280          | )          |
| Total Liabilities and  Stockholders’ Equity (Deficit) |       | $                                      | 173,322    |              | $          | 695,202                     |       | $                                       | 120,346    |             | $          | 166,029          |       | $ | (683,418 | ) | $ | 471,481 |   |

 

16

----

**Condensed Consolidating Balance Sheet Information**
| **(Amounts in thousands)**                      | ** ** | **Blount  International,  Inc.** | ** ** | **Blount,  Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------|------------|-------------------|------------|-----------------------------|------------|-----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                | ** ** | ** **                       | ** ** | ** **        | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| **December 31, 2006**                                     | ** ** | ** **                       | ** ** | ** **        | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                | ** ** | ** **                       | ** ** | ** **        | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Assets**                                                | ** ** | ** **                       | ** ** | ** **        | ** ** | ** **                  | ** ** | ** **                        | ** ** | ** **       | ** ** | ** **       | ** ** |
|                                                      |       |                             |       |              |       |                        |       |                              |       |             |       |             |       |
| Cash and cash  equivalents                                |       |                             |       |              |       | $                           | 90         |                              | $          | 29,398           |       | $                | (1,852     | ) | $ | 27,636 |   |
| Accounts receivable,  net                                 |       | ** **                       |       | $                 | 51,660     |                        | 5,817      |                              | 25,271     |             |       |             | 82,748     |   |
| Intercompany  receivables                                 |       | ** **                       |       | 153,923           |       | 83,240                      |       | 17,415                            |       | (254,578         | )          |             |       |
| Inventories                                               |       | ** **                       |       | 56,823            |       | 5,519                       |       | 17,754                            |       | (2,263           | )          | 77,833           |       |
| Deferred income taxes                                     |       | ** **                       |       | 20,035            |       |                        |       | 87                                |       |             |       | 20,122           |       |
| Other current assets                                      |       | ** **                       |       | 2,926             |       | 297                         |       | 5,119                             |       |             |       | 8,342            |       |
| Total current  assets                                     |       | ** **                       |       | 285,367           |       | 94,963                      |       | 95,044                            |       | (258,693         | )          | 216,681          |       |
| Investments in  affiliated companies                      |       | $                                | 150,652    |              | 229,533    |                        | 532        |                              | 248        |             | (380,965   | )                |       |   |
| Property, plant and  equipment, net                       |       |                             |       | 41,370            |       | 10,421                      |       | 47,874                            |       |             |       | 99,665           |       |
| Goodwill and other  assets                                |       |                             |       | 89,986            |       | 13,089                      |       | 12,823                            |       | (1,778           | )          | 114,120          |       |
| Total Assets                                              |       | $                                | 150,652    |              | $          | 646,256                     |       | $                                 | 119,005    |             | $          | 155,989          |       | $ | (641,436 | ) | $ | 430,466 |   |
|                                                      |       |                             |       |              |       |                        |       |                              |       |             |       |             |       |
| **Liabilities and Stockholders’  Equity (Deficit)**  |       |                             |       |              |       |                        |       |                              |       |             |       |             |       |
|                                                      |       |                             |       |              |       |                        |       |                              |       |             |       |             |       |
| Current maturities of  long-term debt                     |       |                             |       | $                 | 1,500      |                        |       |                              |       |             |       |             | $          | 1,500 |   |
| Accounts payable                                          |       |                             |       | 23,319            |       | $                           | 4,312      |                              | $          | 9,203            |       | $                | (1,852     | ) | 34,982 |   |
| Intercompany payables                                     |       | $                                | 254,578    |              |       |                        |       |                              |       |             | (254,578   | )                |       |   |
| Other current  liabilities                                |       |                             |       | 41,815            |       | 4,820                       |       | 15,702                            |       |             |       | 62,337           |       |
| Total current  liabilities                                |       | 254,578                          |       | 66,634            |       | 9,132                       |       | 24,905                            |       | (256,430         | )          | 98,819           |       |
| Long-term debt,  excluding current maturities             |       |                             |       | 349,375           |       |                        |       |                              |       |             |       | 349,375          |       |
| Other liabilities                                         |       | 1,365                            |       | 79,595            |       |                        |       | 8,381                             |       | (1,778           | )          | 87,563           |       |
| Total liabilities                                         |       | 255,943                          |       | 495,604           |       | 9,132                       |       | 33,286                            |       | (258,208         | )          | 535,757          |       |
| Stockholders equity  (deficit)                            |       | (105,291                         | )          | 150,652           |       | 109,873                     |       | 122,703                           |       | (383,228         | )          | (105,291         | )          |
| Total Liabilities and Stockholders’ Equity (Deficit) |       | $                                | 150,652    |              | $          | 646,256                     |       | $                                 | 119,005    |             | $          | 155,989          |       | $ | (641,436 | ) | $ | 430,466 |   |

 

17

----

**Condensed Consolidating Cash Flows Information**
| **(Amounts in thousands)**                  | ** ** | **Blount  International,  Inc.** | ** ** | **Blount,  Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|-------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                            |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
| ** For the Six Months Ended June 30, 2007**      |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
|                                                  |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
| Net cash  provided by (used in) operating activities  |       | $                                | 3,922      |              | $          | (6,180                      | )          | $                               | 519        |             | $          | 7,186            |       | $ | 1,775 |   | $ | 7,222 |   |
| ** **                                            |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
| Purchase of  property, plant and equipment            |       |                             |       | (6,579            | )          | (798                        | )          | (2,836                          | )          |             |       | (10,213          | )          |
| Other                                                 |       |                             |       | 4                 |       |                        |       |                            |       |             |       | 4                |       |
| Net cash used in  investing activities                |       | —                           |       | (6,575            | )          | (798                        | )          | (2,836                          | )          | —           |       | (10,209          | )          |
|                                                  |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
| Net borrowings  under revolving credit facility       |       |                             |       | 10,000            |       |                        |       |                            |       |             |       | 10,000           |       |
| Repayment of  term loan principal                     |       |                             |       | (750              | )          |                        |       |                            |       |             |       | (750             | )          |
| Advances from  (to) affiliates                        |       | (4,163                           | )          | 3,974             |       | 189                         |       |                            |       |             |       |             |       |
| Other                                                 |       | 241                              |       |              |       |                        |       |                            |       |             |       | 241              |       |
| Net cash  provided by (used in) financing activities  |       | (3,922                           | )          | 13,224            |       | 189                         |       | —                          |       | —           |       | 9,491            |       |
|                                                  |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
| Net increase (decrease)  in cash and cash equivalents |       |                             |       | 469               |       | (90                         | )          | 4,350                           |       | 1,775            |       | 6,504            |       |
| Cash and cash  equivalents at beginning of period     |       |                             |       |              |       | 90                          |       | 29,398                          |       | (1,852           | )          | 27,636           |       |
| Cash and cash  equivalents at end of period           |       | $                                | —     |              | $          | 469                         |       | $                               | —     |             | $          | 33,748           |       | $ | (77 | ) | $ | 34,140 |   |
|                                                  |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
| ** For the Six Months Ended June 30, 2006**      |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
|                                                  |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
| Net cash  provided by (used in) operating activities  |       | $                                | 3,957      |              | $          | (8,493                      | )          | $                               | 1,605      |             | $          | 9,185            |       | $ | (2,627 | ) | $ | 3,627 |   |
|                                                  |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
| Purchase of  property, plant and equipment            |       |                             |       | (4,231            | )          | (994                        | )          | (4,489                          | )          |             |       | (9,714           | )          |
| Other                                                 |       |                             |       | 37                |       | (611                        | )          | 51                              |       |             |       | (523             | )          |
| Net cash used in  investing activities                |       | —                           |       | (4 194)           |       | (1,605                      | )          | (4,438                          | )          | —           |       | (10,237          | )          |
|                                                  |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
| Net borrowings  under revolving credit facility       |       |                             |       | 87,000            |       |                        |       |                            |       |             |       | 87,000           |       |
| Repayment of  term loan principal                     |       |                             |       | (78,445           | )          |                        |       | (4,653                          | )          |             |       | (83,098          | )          |
| Advances from  (to) affiliates                        |       | (5,037                           | )          | 4,789             |       |                        |       | 248                             |       |             |       |             |       |
| Other                                                 |       | 1,080                            |       | (700              | )          |                        |       |                            |       |             |       | (380             | )          |
| Net cash  provided by (used in) financing activities  |       | (3,957                           | )          | 12,644            |       | —                      |       | (4,405                          | )          | —           |       | 4,282            |       |
|                                                  |       |                             |       |              |       |                        |       |                            |       |             |       |             |       |
| Net increase  (decrease) in cash and cash equivalents |       |                             |       | (43               | )          |                        |       | 342                             |       | (2,627           | )          | (2,328           | )          |
| Cash and cash  equivalents at beginning of period     |       |                             |       | 43                |       |                        |       | 13,731                          |       | (837             | )          | 12,937           |       |
| Cash and cash  equivalents at end of period           |       | $                                | —     |              | $          | —                      |       | $                               | —     |             | $          | 14,073           |       | $ | (3,464 | ) | $ | 10,609 |   |

 

18

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**ITEM 2.**  **MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The following discussion and analysis should be read inconjunction with our unaudited consolidated financial statements includedelsewhere in this report.

**Results of Operations**

**Three months and six months ended June 30, 2007(unaudited) compared to three months and six months ended June 30, 2006(unaudited).**

Results for the three months ended June 30, 2007 exceededlast year’s second quarter due primarily to growth of sales outside NorthAmerica.  For the six month period,stronger international sales were offset by weaker sales in North Americanmarkets that led to a reduction in profitability.
| ** **                                                                      | ** ** | **Three Months  Ended June 30,** | ** ** | **Six Months  Ended June 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| **(Amounts in thousands, except per share data)** | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                            | ** ** | ** **                                      | ** ** | ** **                                    |       |   |   |   |   |
| Sales                                                                           |       | $                                               | 170,443    |                                          | $          | 165,094 |   | $ | 314,439 |   | $ | 328,896 |   |
| Gross profit                                                                    |       | 53,609                                          |       | 51,230                                        |       | 98,519 |   | 103,824 |   |
| Operating income                                                                |       | 24,781                                          |       | 24,015                                        |       | 40,222 |   | 46,299 |   |
| Income from continuing operations                                               |       | 11,201                                          |       | 10,347                                        |       | 15,901 |   | 18,733 |   |
| Loss from discontinued operations                                               |       | (19                                             | )          | (920                                          | )          | (53 | ) | (349 | ) |
| Net income                                                                      |       | 11,182                                          |       | 9,427                                         |       | 15,848 |   | 18,384 |   |
|                                                                            |       |                                            |       |                                          |       |   |   |   |   |
| Income from continuing operations per diluted share                             |       | 0.23                                            |       | 0.22                                          |       | 0.33 |   | 0.39 |   |
| Income from discontinued operations per diluted  share                          |       | —                                          |       | (0.02                                         | )          | — |   | (0.01 | ) |
| Net income per  diluted share                                                   |       | 0.23                                            |       | 0.20                                          |       | 0.33 |   | 0.38 |   |
|                                                                                 |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |

 

Sales in the three months ended June 30, 2007 increased $5.3million, or 3%, from the same period in 2006, but for the six month perioddecreased year over year by $14.5 million, or 4%.  During 2007, sales of the Company’s productsto international markets have increased from the comparable periods in2006.  In the three month period, salesoutside North America increased by 20% and in the six month period, salesoutside North America increased by 16%. These stronger international sales have been offset by declines in NorthAmerican markets, primarily due to lower sales of timber harvesting equipment.  Demand for timber products and timberharvesting equipment continues to be weak in North America, due in part to thedecline in housing starts.  Sales for thethree month and six month periods in North America declined by 9% and 19%,respectively, from the comparable periods in 2006.

Consolidated order backlog at June 30, 2007 was $93.9million, and compares to $99.6 million at March 31, 2007, $73.3 million atDecember 31, 2006 and $112.6 million at June 30, 2006.

Gross profit increased by $2.4 million, or 5%, for the threemonth period, but decreased by $5.3 million, or 5% for the six monthperiod.  As a percent of sales, grossmargin increased to 31.5% for the three months compared to 31.0% for the sameperiod in 2006.  Gross margin was 31.3%for the first six months of 2007, compared to 31.6% for the first six months of2006.

19

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The year over year change in consolidated gross profit ispresented in the following table: 
| **(Amounts in millions)** | ** ** | **Three months  Ended June 30** | ** ** | **Six months  Ended June 30** | ** ** |
|-------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------|------------|
| 2006 gross  profit                  |       | $                                              | 51.2       |                                         | $          | 103.8 |   |
| Increase (decrease)                 |       |                                           |       |                                         |       |
| Sales volume                        |       | 2.4                                            |       | (3.8                                         | )          |
| Price, mix and cost                 |       | 0.5                                            |       | (2.5                                         | )          |
| Foreign currency translation        |       | (0.5                                           | )          | 1.0                                          |       |
| 2007 gross profit                   |       | $                                              | 53.6       |                                         | $          | 98.5 |   |

Thechanges attributed to sales volume reflected increases in unit sales outside ofNorth America, offset by decreases in the U.S. and Canadian markets.  The combined effect of product price, costand mix was favorable for the three month period, but was unfavorable for thesix months compared to last year, as cost increases outpaced productivitygains.  Increases in steel prices had aneffect on product costs estimated at $0.7 million for the three month periodand $0.8 million for the six months to date this year compared to last year.

Selling, general and administrative (“SG&A”) expense was$28.8 million and $58.3 million for the three and six month periods,respectively.  As a percent of sales, in2007 SG&A increased to 16.9% for the three month period and 18.5% for thesix month period compared to 16.5% and 17.5% for the respective periods lastyear.  The year over year increases of$1.6 million, or 6%, for the three months, and $0.8 million, or 1%, for the sixmonth period include $0.4 million and $0.9 million of additional expense in ourforeign offices (primarily in Europe) as a result of movement in currency exchangerates.  Other year over year increasesinclude wages estimated at $0.4 million and $0.5 million, increases inperformance-based compensation of $0.9 million and $0.7 million, and increasesof $0.2 million and $0.5 million for stock-based compensation, respectively,for the three month and six month periods compared to the same periods lastyear.  Professional expenses havedecreased $0.6 million and $0.3 million during the three month and six monthperiods, as the Company achieved reductions in compliance-related fees.

Operating income increased $0.8 million for the three monthperiod.  Operating margin of 14.5% wasequal to the three month period last year. For the six month period, operating income decreased by $6.1 millioncompared to the same period in 2006, with an operating margin of 12.8% comparedto 14.1% last year.

Interest expense was $8.5 million and $16.8 million duringthe three months and six months ended June 30, 2007, respectively, compared to$9.2 million and $18.3 million during the same periods in the prior year.  The decreases in interest expense are dueprimarily to lower average outstanding debt balances.  Interest income of $0.3 million and $0.5million for the three and six month periods, respectively, were approximatelydouble last year’s levels due to the increase in cash balances at our foreignsubsidiaries.

Other income of $0.1 million for the first six months of 2007compares to $1.1 million during the same period of 2006, primarily due to $0.9million reported in the second quarter last year related to proceeds from aninsurance settlement.

The provision for income taxes on continuing operations was$5.3 million, with an effective rate of 32.2% on pre-tax book income, and $8.1million, with an effective rate of 33.7%, respectively, in the three and sixmonth periods ended June 30, 2007.  Thiscompares to a provision of $5.5 million and $10.5 million, and effective ratesof 34.7% and 36.0%, respectively, for the corresponding periods of 2006.  During all of these periods, we utilizedavailable net operating loss and tax credit carryforwards to offset cash taxespayable in the U.S.  We estimate that atJune 30, 2007 all of our federal net operating loss carryforward has been fullyutilized by applying it to U.S. taxable income.

For all periods presented, discontinued operations consistedentirely of our former Lawnmower segment, which operated through July 26,2006.  The loss from discontinuedoperations was less than $0.1 million for the three months ended June 30, 2007and $0.1 million for the six month period ended June 30, 2007.  Net losses of $0.9 million ($0.02 per dilutedshare) and $0.3 million ($0.01 per diluted share) were recognized for the sameperiods in 2006.  The 2006 periodsincluded sales of $12.6 million and $26.5 million for the three and six monthperiods, since we operated this business prior to the sale on July 27,2006.  Included in the 2006 losses wereseverance and pension curtailment costs related to the impending plant closureassociated with the sale of the business announced on June 30, 2006.

20

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The losses in 2007 reflect costs of continuing to own theidle manufacturing facility for this segment, which is currently being marketedfor sale.

***Segment Results.*******
| ** **                           | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| **(Amounts in thousands)** | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Sales:**                           |       |                                            |       |                                          |       |   |   |   |   |
| Outdoor Products                     |       | $                                               | 128,106    |                                          | $          | 114,723 |   | $ | 238,973 |   | $ | 228,919 |   |
| Industrial and  Power Equipment      |       | 42,600                                          |       | 50,637                                        |       | 75,805 |   | 100,479 |   |
| Inter-Segment  elimination           |       | (263                                            | )          | (266                                          | )          | (339 | ) | (502 | ) |
| Total sales                          |       | $                                               | 170,443    |                                          | $          | 165,094 |   | $ | 314,439 |   | $ | 328,896 |   |
|                                 |       |                                            |       |                                          |       |   |   |   |   |
| **Operating  income:**               |       |                                            |       |                                          |       |   |   |   |   |
| Outdoor Products                     |       | $                                               | 26,664     |                                          | $          | 23,098 |   | $ | 47,734 |   | $ | 47,905 |   |
| Industrial and  Power Equipment      |       | 2,599                                           |       | 4,708                                         |       | 2,786 |   | 8,031 |   |
| Inter-Segment  elimination           |       | —                                          |       | 16                                            |       | — |   | (27 | ) |
| Contribution  from segments          |       | 29,263                                          |       | 27,822                                        |       | 50,520 |   | 55,909 |   |
| Corporate  expenses                  |       | (4,482                                          | )          | (3,807                                        | )          | (10,298 | ) | (9,610 | ) |
| Operating income                     |       | $                                               | 24,781     |                                          | $          | 24,015 |   | $ | 40,222 |   | $ | 46,299 |   |

 

***Outdoor Products Segment.***** **Sales for the Outdoor Products segment in the three monthsended June 30, 2007 increased $13.4 million, or 12%, compared to the sameperiod of 2006.  Sales for the segment inthe six months ended June 30, 2007 increased $10.1 million, or 4%, compared tothe same period of 2006.

Strong international market conditions led to year over yearincreases in unit volume across most product categories, resulting in anincrease in sales of $10.8 million for the three month period and $4.3 millionfor the six month period compared to the same periods last year.  Compared to last year, improvements inaverage selling prices generated additional sales revenue of $1.2 million forthe quarter and $2.2 million for the six months year to date.  Additionally, the year over year effect fromforeign currency translation on sales, due primarily to exchange ratesinvolving the Euro and other European currencies, was $1.4 million favorablefor the three month period and $3.6 million favorable for six months.  Geographically, sales grew outside the U.S.by 17% and 11% for the three and six months ended June 30, 2007, respectively,compared to the same periods of 2006. Sales within the U.S. increased 3% for the quarter on a year over yearbasis, but were 7% lower for the six month period due to lower volume in thefirst quarter.  Sales of outdoor careparts and accessories increased 20% in the second quarter compared to last yearand were 6% higher on a year to date basis. Sales of chainsaw components and accessories increased by 9% compared tolast year during the second quarter and were 4% higher compared to the firstsix months of 2006.  Sales of concretecutting products increased by 14% for the comparable three month period andwere 5% higher than the six month period last year.  Order backlog increased to $71.8 millioncompared to $54.8 million at December 31, 2006. Order backlog was $75.7 million at June 30, 2006.

Segment contribution to operating income for the three monthperiod increased $3.6 million for the quarter and was 20.8% of sales, comparedto 20.1% of sales last year.  For the sixmonth period, segment contribution to operating income decreased $0.2 millionand was 20.0% of sales compared to last year’s 20.9%.  The increase in sales volume generated anadditional $5.1 million of income for the three month period and an increase of$2.6 million for the six months compared to last year.  In the three month period, the higher salesvolume was partially offset by higher SG&A of $0.9 million and unfavorableforeign exchange effects of $0.8 million. For the six month period, changes in price, mix and cost had anunfavorable effect of $3.0 million on contribution.  These results included a non-recurringexpense of $0.1 million and $1.0 million, respectively, for the three month andsix month periods, related to consolidation of logistics operations in theU.S., which is expected to improve customer service and reduce futurelogistical expenses.  There was minimalchange in steel prices during the three and six month periods compared to thesame periods last year.  Foreign currencyexchange rates had an unfavorable net effect of $0.8 million for the secondquarter, offsetting most of the favorable effects reported in the firstquarter.  During both periods of 2007,the U.S. dollar was weaker compared to European currencies during the sameperiods of 2006.  While providing apositive effect on sales, the weaker U.S. dollar resulted in higher productcosts and operating expenses in our European sales offices and in our Brazilianand Canadian manufacturing plants.

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***Industrial and Power Equipment Segment.***** **Sales for the Industrial and Power Equipment segmentdecreased $8.0 million, or 16%, and $24.7 million, or 25%, respectively, in thethree and six month periods ended June 30, 2007 compared to the same periods of2006.

The year over year sales decline was caused primarily bylower unit sales volume of our timber harvesting equipment, with negativeimpacts of $8.0 million and $25.7 million for the three and six monthperiods.  The volume decrease occurredacross brands and in most product lines, particularly among loaders,attachments and tracked feller bunchers. Geographically, the decline was in North America, where weaker timbermarkets, caused in part by a decline in U.S. housing starts, were the primaryreason for the market decline in these products. Shipments in the first quarterof 2007 were further impacted by an inventory reduction at the dealerlevel.  These decreases were partiallyoffset by an increase in sales volume outside North America and by improvementsin price and mix.  Sales of timberharvesting equipment outside North America for the three month period increased$0.5 million, or 13%, compared to last year, and for the six month periodincreased $3.1 million, or 55%.  Salesgrowth was strongest in Latin America. Sales outside North America represented12% of our total timber harvesting equipment sales in the three months endedJune 30, 2007 and 14% for the six month period. Sales of our rotational bearings and swing drive products were alsolower compared to last year, with lower unit volumes of $1.5 million and $2.9million, respectively, for the three and six month periods of 2007 compared to2006.  Order backlog for the segment was$22.2 million at June 30, 2007 compared to $18.5 million at December 31, 2006.

Three month segment contribution to operating incomedecreased $2.1 million to 6.1% of sales compared to 9.3% of sales lastyear.  For the six month period, segmentcontribution to operating income decreased $5.2 million to 3.7% of salescompared to 8.0% last year.  For both thethree and six month periods, lower sales volume was partially offset byimprovements in selling prices, product mix and the reduction of plantoverhead, partially resulting from the closure of one of the segment’smanufacturing plants in 2006.  Inaddition, year over year product development expenses for materials andcontract engineers have been reduced. Steel prices were unfavorable against comparable periods last year, withan estimated effect of $0.5 million for both the three and six month periods.

***Corporate Expense.***  Corporate expense for the three and six monthperiods ended June 30, 2007 was $4.5 million and $10.3 million, respectively,representing an increase of $0.7 million compared to both periods last year.  Stock-based compensation expense was $0.6million and $2.7 million, respectively, for the three and six month periods,$0.2 million and $0.5 million higher than the same periods last year.  The year over year increase in stock-basedcompensation expense is largely the result of adding expense for new 2007grants to the ongoing period expense of awards granted in 2006.  Awards typically vest over three years andthe expense is weighted more heavily in the period of grant because of thenumber of grantees who are retirement-eligible at the grant date.  Under SFAS No. 123(R), the fair value ofstock awards must be expensed immediately at the grant date forretirement-eligible grantees.  Annualstock-based compensation expense for 2007 is expected to be approximately $3.8million compared to $3.3 million for the year 2006.  Salaries and performance-based compensationincreased $0.3 million and $0.4 million year over year for the three and sixmonth periods, reflecting annual wage increases and additional staff.  Benefit expenses increased $0.4 millionduring the quarter, but have decreased $0.2 million for the six months.   Expenses for professional services decreased$0.5 million and $0.2 million, respectively, for the three and six monthperiods due to a decrease in compliance-related services.

**Financial Condition, Liquidity and CapitalResources**

Total debt at June 30, 2007 was $360.1 million compared to$350.9 million at December 31, 2006.  Asof June 30, 2007, outstanding debt consisted of a revolving credit facilitybalance of $37.0 million, a term loan of $148.1 million and 8 7/8% seniorsubordinated notes of $175.0 million. The net funds borrowed during the first six months of 2007 were used tosupport capital spending, increases in working capital and to make contributionsto our domestic pension plan.

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Interest expense was $16.8 million in the six months endedJune 30, 2007, a decrease of $1.5 million compared to the same period of2006.  The decrease reflects thefavorable effect from a reduction in the average principal amount of debtoutstanding.  Our interest expense mayvary in the future because the revolving credit facility and term loan interestrates are variable. The interest rate is fixed on the senior subordinatednotes.  Our weighted average interestrate on all debt was 7.95% as of June 30, 2007 compared to 7.99% as of December31, 2006.  Cash paid for interest in thefirst six months of 2007 was $14.6 million compared to $17.1 million in thesame period of 2006.

***2006 Amendment to Credit Facilities.***  On March 23, 2006, we amended certain termsof our senior credit facilities.  Thisamendment included the following changes to the term notes and revolving creditfacility:

·                  Maximum availability under the revolvingcredit facility was increased from $100.0 million to $150.0 million.

·                  Variable interest rates were reduced by0.75% for the term loan and by 1.00% for the revolving credit facility.

·                  Certain financial covenants were modified,including increases to the amounts that may be expended for acquisitions,dividends and purchase of Company stock, as well as modifications to certainfinancial ratio requirements.

·                  The Company incurred fees and third partycosts of $0.7 million related to the amendment.

Immediatelyfollowing the amendment, we completed the following transactions:

·                  $82.1 million was borrowed under therevolving credit facility.

·                  The total principal balance of $4.6 millionwas paid off on the Canadian term loan, and that loan was cancelled.

·                  $77.5 million in principal was paid againstthe term loan, leaving a balance of $150.0 million outstanding.

The revolvingcredit facility provides total available borrowings up to $150.0 million,reduced by outstanding letters of credit, and further restricted by a specificleverage ratio and first lien credit facilities leverage ratio.  As ofJune 30, 2007, we had the ability to borrow an additional $96.8 million underthe terms of the revolving credit agreement. The revolving credit facility bears interest at the LIBOR rate plus1.75%, or at the prime rate, depending on the type of loan, and matures onAugust 9, 2009.  Interest is payablemonthly in arrears on any prime rate borrowings and at the individual maturitydates for any LIBOR-based term borrowings. Any outstanding principal is due in its entirety on the maturity date.

The term loan facility bears interest at the LIBOR rate plus1.75%, or at the prime rate, depending on the type of loan, and matures onAugust 9, 2010.  The term loan facilityrequires quarterly payments of $0.4 million, with a final payment of $143.3million due on the maturity date.  Oncerepaid, principal under the term loan facility may not be re-borrowed by theCompany.

The senior credit facilities may be prepaid at any time.  There can also be additional mandatory repaymentrequirements related to the sale of our assets or the issuance of stock undercertain circumstances, and upon the Company’s annual generation of excess cashflow as determined under the credit agreement. These credit facilities contain financial covenant calculations relatingto maximum capital expenditures, minimum fixed charge coverage ratio, maximumleverage ratio and maximum first lien credit facilities leverage ratio.  In addition, there are covenants relating,among other categories, to investments, loans and advances, indebtedness andthe sale of stock or assets.  The Companywas in compliance with all debt covenants as of June 30, 2007.

The Company has one registered debt security, the 8 7/8%senior subordinated notes.  The interestrate on these notes is fixed until their maturity on August 1, 2012.  These notes are issued by Blount, Inc. andare fully and unconditionally, jointly and severally, guaranteed by the Companyand all of its domestic subsidiaries (“guarantor subsidiaries”) other thanBlount, Inc.

Our debt continues to be significant, and future debt servicepayments continue to represent substantial obligations.  This degree of leverage may adversely affectour operations and could have important adverse consequences.

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We intend to fund working capital, capital expenditures anddebt service requirements for the next twelve months with expected cash flowsgenerated from operations.  We expect ourremaining resources will be sufficient to cover any additional increases inworking capital and capital expenditures for at least the next twelvemonths.  There can be no assurance,however, that these resources will be sufficient to meet our needs.  We may also consider other options availableto us in connection with future liquidity needs.

Cash and cash equivalents at June 30, 2007 were $34.1 millioncompared to $27.6 million at December 31, 2006. The $6.5 million increase in our cash balance during the first sixmonths of 2007 compares to a decrease of $2.3 million during the same period of2006.

Cash flows from operating activities is summarized in thefollowing table:  
| ** **                              | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------|------------|---------------------------------------------------|------------|
| **(Amounts in thousands)**    | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| Income from  continuing operations      |       | $                                                 | 15,901     |   | $ | 18,733 |   |
| Non-cash items                          |       | 18,618                                            |       | 16,441 |   |
| Subtotal                                |       | 34,519                                            |       | 35,174 |   |
| Changes in  assets and liabilities, net |       | (26,147                                           | )          | (31,168 | ) |
| Discontinued  operations, net           |       | (1,150                                            | )          | (379 | ) |
| Cash provided by  operating activities  |       | $                                                 | 7,222      |   | $ | 3,627 |   |

 

Non-cash items consist of expenses for depreciation ofproperty, plant and equipment; amortization and other non-cash charges; stockcompensation expense; deferred income taxes; and the tax benefit from exerciseof stock options.

Cash provided by operating activities during the six monthsended June 30, 2007 of $7.2 million included the following:

·                  Income from continuing operations decreased$2.8 million from the prior year, resulting primarily from a decrease in sales.

·                  Non-cash items increased $2.2 million andincluded:

·                  Depreciation expense of $9.2 million.

·                  Amortization of deferred financing costs of$2.0 million.

·                  Stock-based compensation expense of $2.7million.

·                  Deferred income taxes of $4.8 million.

·                  Changes in assets and liabilities, net,included the following items:

·                  A $7.1 million increase in receivables.

·                  A $12.4 million increase in inventories.

·                  A combined increase in accounts payable andaccrued expenses of $2.7 million.

·                  A $6.2 million decrease in otherliabilities, including contributions of $7.3 million to our funded pensionplans.

·                  A $3.1 million increase in other assets.

·                  Discontinued operations used $1.2 millionin cash.

Cash provided by operating activities during the six monthsended June 30, 2006 of $3.6 million included the following:

·                  Income from continuing operations of $18.7million.

·                  Non-cash items were $16.4 million andincluded the following:

24

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·                  Depreciation expense of $8.3 million.

·                  Amortization of deferred financing costs of$1.8 million.

·                  Stock-based compensation expense of $2.2million.

·                  Deferred income taxes of $5.6 million.

·                  Changes in assets and liabilities, net,included the following items:

·                  A $4.0 million increase in receivables.

·                  An $8.1 million increase in inventories.

·                  A combined decrease in accounts payable andaccrued expenses of $5.9 million, reflecting a decrease in the purchase of rawmaterials and other inventory, offset partially by an increase in the currentportion of our obligations for pension contributions.

·                  A decrease in other liabilities of $13.0million, primarily due to contributions made to our funded pension plans.

·                  Discontinued operations used $0.4 millionin net cash.

Cash taxes paid during the first six months of 2007 were $8.9million compared to $5.7 million for the same period in 2006.  We expect cash tax payments to increase inthe future now that we have fully utilized our U.S. federal net operating losscarryforwards.

Cash flows from investing activities is summarized asfollows:
| ** **                                           | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------------------|------------|
| **(Amounts in thousands)**                 | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| Proceeds from  sale of property, plant and equipment |       | $                                                 | 4          |   | $ | 89 |   |
| Acquisition of  business                             |       | —                                            |       | (503 | ) |
| Purchases of  property, plant and equipment          |       | (10,213                                           | )          | (9,714 | ) |
| Discontinued  operations                             |       | —                                            |       | (109 | ) |
| Cash used in investing  activities                   |       | $                                                 | (10,209    | ) | $ | (10,237 | ) |

 

Purchases of property, plant and equipment are primarily forproductivity improvements and expanded manufacturing capacity, but also includeroutine replacement of equipment. During the second quarter of 2006, wepurchased Votec Engineering AB, a European manufacturer of harvester heads, for$0.5 million.   During 2007, we expect toinvest $20.0 million to $23.0 million in available cash for capitalexpenditures, primarily for ongoing productivity and cost improvements in ourmanufacturing processes, routine replacement of machinery and equipment, replacementof tooling used in production processes and capacity expansion.  For the six months ended June 30, 2007, wealso spent $2.2 million related to consolidation of North American logistics inour Outdoor Products segment.

Cash flows from financing activities is summarized asfollows:
| ** **                                                    | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------------|------------|
| **(Amounts in thousands)**                          | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| Net increase in  debt                                         |       | $                                                 | 9,250      |   | $ | 3,902 |   |
| Issuance costs  related to debt                               |       | —                                            |       | (700 | ) |
| Proceeds and tax  benefits from the exercise of stock options |       | 241                                               |       | 1,080 |   |
| Cash provided by  financing activities                        |       | $                                                 | 9,491      |   | $ | 4,282 |   |

 

Cash provided by financing activities in the first six monthsof 2007 was $9.5 million compared to $4.3 million in the comparable period of2006.  The 2007 activity included thefollowing transactions:

·                  Net borrowing of $10.0 million on ourrevolving credit facility to support operations.

·                  Required repayments of $0.8 million on ourterm loan.

·                  Exercise of stock options that generated$0.2 million.

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The 2006 activity included the following transactions:

·                  A net draw down of $87.0 million on ourrevolving credit facility to fund the reduction of term loan debt as part ofthe amendment to our senior credit facilities that occurred in March 2006 andto support operations.

·                  Payments of $83.1 million of principal onour term loan debt, which included $1.0 million of scheduled payments and $82.1million related to the March 2006 amendment of our senior credit facilities.

·                  Expenditures of $0.7 million incurred inconnection with the March 2006 amendment to our senior credit facilities.

·                  Exercise of stock options that generated$1.1 million, consisting of $0.6 million of proceeds from the exercise of stockoptions and a related $0.5 million of tax benefit from these exercises.

**Critical Accounting Policies**

There have been nomaterial changes to our critical accounting policies and estimates from theinformation provided in Item 7, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” included in our Form 10-K forthe fiscal year ended December 31, 2006, except as follows:

Effective January1, 2007, we account for uncertain tax positions in accordance with FIN No. 48,which clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with FASB Statement No. 109, “Accountingfor Income Taxes.”  The application ofincome tax law is inherently complex. Laws and regulations in this area are voluminous and are oftenambiguous.  As such, we are required tomake many assumptions and judgments regarding our income tax exposures.  Interpretations of income tax laws andregulations and guidance surrounding them change over time.  Changes in our assumptions and judgments canmaterially affect amounts recognized in the consolidated financialstatements.  See Note 5 to theconsolidated financial statements for additional detail on our uncertain taxpositions and the impact of adopting FIN No. 48.

**Recent Accounting Pronouncements**

In September 2006,the FASB issued SFAS No. 157.  SFAS No.157 defines fair value, establishes a framework for measuring fair value inaccordance with accounting principles generally accepted in the U.S., andexpands disclosures about fair value measurements.  The provisions of SFASNo. 157 are effective for the Company on January 1, 2008.  We arecurrently evaluating the impact of the provisions of SFAS No. 157.

In February 2007, the FASB issued SFAS No. 159.  SFASNo. 159 permits entities to choose to measure many financial instruments andcertain other items at fair value.  The provisions of SFAS No. 159 areeffective for the Company on January 1, 2008.  We are currently evaluatingthe impact of the provisions of SFAS No. 159.

**Forward Looking Statements**

“Forward looking statements,” as defined by the PrivateSecurities Litigation Reform Act of 1995, used in this report, includingwithout limitation our “outlook,” “guidance,” “expectations,”  “beliefs,” “plans,” “indications,” “estimates,”“anticipations,” and their variants, are based upon available information andupon assumptions that the Company believes are reasonable; however, theseforward looking statements involve certain risks and should not be consideredindicative of actual results that the Company may achieve in the future.Specifically, issues concerning foreign currency exchange rates, the cost tothe Company of commodities in general, and of steel in particular, theanticipated level of applicable interest rates and the anticipated effects ofdiscontinued operations involve certain estimates and assumptions. To theextent that these, or any other such assumptions, are not realized goingforward, or other unforeseen factors arise, actual results for the periodssubsequent to the date of this report may differ materially.

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**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We are exposed to market risks from changes in interestrates, foreign currency exchange rates and commodity prices, including rawmaterials such as steel. We manage our exposure to these market risks through ourregular operating and financing activities, and, when deemed appropriate,through the use of derivatives. When utilized, derivatives are used as riskmanagement tools and not for trading or speculative purposes. See also, the “MarketRisk” section of Management’s Discussion and Analysis of Financial Conditionand Results of Operations in our most recent Form 10-K for further discussionof market risk.

**ITEM 4. CONTROLS AND PROCEDURES**

TheCompany maintains disclosure controls and procedures that are designed toensure that information required to be disclosed in the Company’s SecuritiesExchange Act of 1934 reports is recorded, processed, summarized and reportedwithin the time periods specified in the Securities and Exchange Commission’srules and regulations, and that such information is accumulated andcommunicated to the Company’s management, including its Chief Executive Officerand Chief Financial Officer, as appropriate, to allow for timely decisionsregarding required disclosure. In designing and evaluating the disclosurecontrols and procedures, management recognizes that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement is required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

TheCompany, under the supervision and with the participation of the Company’smanagement, including the Company’s Chief Executive Officer and Chief FinancialOfficer, evaluated the effectiveness of the design and operation of the Company’sdisclosure controls and procedures as of the end of the period covered by thisreport. Based on this evaluation, the Company’s Chief Executive Officer andChief Financial Officer concluded that the Company’s disclosure controls andprocedures were effective at the reasonable assurance level.

Therehave been no changes in the Company’s internal control over financial reportingduring the Company’s last fiscal quarter that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

**PART II     OTHER INFORMATION**

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

The following actions were taken at our annual meeting ofstockholders, which was held on May 24, 2007:

1.  The stockholderselected the eight nominees for director to our Board of Directors.  The eight directors elected, along with thevoting results, are as follows:
| Name                 | ** ** | **No. of Shares  Voting For** | ** ** | **No. of Shares  Withheld Voting** | ** ** |
|----------------------|------------|----------------------------------------------|------------|---------------------------------------------------|------------|
| R. Eugene  Cartledge |       | 42,946,970                                   |       | 2,564,615                                         |       |
| Joshua L.  Collins   |       | 39,534,474                                   |       | 5,977,111                                         |       |
| Eliot M. Fried       |       | 42,948,385                                   |       | 2,563,200                                         |       |
| Thomas J.  Fruechtel |       | 42,948,672                                   |       | 2,562,913                                         |       |
| E. Daniel James      |       | 39,599,802                                   |       | 5,911,783                                         |       |
| Robert D.  Kennedy   |       | 45,073,191                                   |       | 438,394                                           |       |
| Harold E. Layman     |       | 39,906,931                                   |       | 5,604,654                                         |       |
| James S. Osterman    |       | 39,755,841                                   |       | 5,755,744                                         |       |

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2.  The stockholders ratified the appointment byour Audit Committee of PricewaterhouseCoopers LLP as the Corporation’sindependent auditors.  The vote was asfollows:
| For     |   | 42,485,130 |   |   |
|---------|--------|------------|--------|--------|
| Against |   | 3,019,180  |   |   |
| Abstain |   | 7,275      |   |   |

 

**ITEM 6.  EXHIBITS**

**(a)Exhibits:**

**31.1 Certification pursuant to section 302 of theSarbanes-Oxley Act of 2002 by James S. Osterman, Chairman of the Board andChief Executive Officer.

**31.2 Certification pursuant to section 302 of theSarbanes-Oxley Act of 2002 by Calvin E. Jenness, Senior Vice President andChief Financial Officer.

**32.1 Certification pursuant to section 906 of theSarbanes-Oxley Act of 2002 by James S. Osterman, Chairman of the Board andChief Executive Officer.

**32.2 Certification pursuant to section 906 of theSarbanes-Oxley Act of 2002 by Calvin E. Jenness, Senior Vice President andChief Financial Officer.

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**   Filedelectronically herewith.  Copies of suchexhibits may be obtained upon written request from:
|   | Blount International, Inc.   |
|--------|------------------------------|
|   | P.O. Box 22127               |
|   | Portland, Oregon  97269-2127 |

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**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Actof 1934, the registrant has duly caused this report to be signed on its behalfby the duly authorized undersigned.
| BLOUNT INTERNATIONAL,  INC. |   |                           |
|-----------------------------|--------|--------------------------------|
| Registrant                  |   |                           |
|                        |   |                           |
|                        |   |                           |
| /s/ Calvin E.  Jenness      |   |                           | /s/ Mark V. Allred |   |
| Calvin E.  Jenness          |   | Mark V. Allred                 |
| Senior Vice  President and  |   | Vice President and Controller  |
| Chief Financial  Officer    |   | (Principal Accounting Officer) |
|                        |   |                           |
| Dated: August 8,  2007      |   |                           |
|                             |        |                                |  |  |

 

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