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**UNITED STATES**

**SECURITIESAND 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 endedMarch 31, 2010.**

 

**OR**

 
| **o** | **Transition report  pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-------|----------------------------------------------------------------------------------------------------|

 

**Commission file number 001-11549**

 

**BLOUNTINTERNATIONAL, INC.**

(Exact name of registrant asspecified 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 telephonenumber, including area code)

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x  No  o

 

Indicate by check mark whetherthe registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and postedpursuant to Rule 405 of Regulation S-T (Section 232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files). Yes  o  No  o

 

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filer o                     |   | Accelerated filer x         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-accelerated filer o                       |   | Smaller reporting company o |
| (Do not check if a smaller reporting company) |   |                             |

 

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes  o  No  x

 

As of May 4, 2010 therewere 47,834,981 shares outstanding of $0.01 par value common stock.

 

 

 

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**BLOUNTINTERNATIONAL, INC. AND SUBSIDIARIES**

 

**Index**

 
| ** **                                                                                                                  | **Page**                                                                                    |
|-----------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|
|                                                                                                                        |                                                                                        |
| Part I    Financial  Information                                                                   |                                                                                        |
|                                                                                                                        |                                                                                        |
| Item 1.                                                                                                                     | Consolidated Financial  Statements                                                          |   |
|                                                                                                                        |                                                                                        |
| Unaudited  Consolidated Statements of Income  Three months ended March 31, 2010 and 2009                               | 3                                                                                           |
|                                                                                                                        |                                                                                        |
| Unaudited  Consolidated Balance Sheets  March 31, 2010 and December 31, 2009                                      | 4                                                                                           |
|                                                                                                                        |                                                                                        |
| Unaudited  Consolidated Statements of Cash Flows  Three months ended March 31, 2010 and 2009                           | 5                                                                                           |
|                                                                                                                        |                                                                                        |
| Unaudited  Consolidated Statement of Changes in Stockholders’ Equity (Deficit)  Three months ended March 31, 2010 | 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                                 | 26 |
|                                                                                                                        |                                                                                        |   |
| Item 4.                                                                                                                     | Controls and  Procedures                                                                    | 26 |
|                                                                                                                        |                                                                                        |
| Part II    Other  Information                                                                      |                                                                                        |
|                                                                                                                        |                                                                                        |
| Item 6. Exhibits                                                                                                            | 27                                                                                          |
|                                                                                                                        |                                                                                        |
| Signatures                                                                                                                  | 28                                                                                          |

 

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**PART I       FINANCIAL INFORMATION**

 

**ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS**

 

**UNAUDITED CONSOLIDATED STATEMENTS OF INCOME**

**BlountInternational, Inc. and Subsidiaries**

** **
| ** **                                               | ** ** | **Three Months********Ended March 31,** | ** ** |
|----------------------------------------------------------|------------|----------------------------------------------|------------|
| **(Amounts in  thousands, except per share data)**       | ** ** | **2010**                                     | ** ** | **2009** | ** ** |
|                                                     |       |                                         |       |   |   |
| Sales                                                    |       | $                                            | 136,684    |   | $ | 116,524 |   |
| Cost of sales                                            |       | 86,668                                       |       | 78,734 |   |
| Gross profit                                             | ** ** | 50,016                                       |       | 37,790 |   |
| Selling,  general, and administrative expenses           | ** ** | 28,256                                       |       | 25,171 |   |
| Plant closure  and severance costs                       |       | —                                       |       | 5,039 |   |
| Operating income                                         |       | 21,760                                       |       | 7,580 |   |
| Interest income                                          |       | 25                                           |       | 104 |   |
| Interest expense                                         |       | (6,520                                       | )          | (5,933 | ) |
| Other expense,  net                                      |       | (13                                          | )          | (13 | ) |
| Income before  income taxes                              |       | 15,252                                       |       | 1,738 |   |
| Provision for  income taxes                              | ** ** | 6,469                                        |       | 781 |   |
| Net income                                               | ** ** | $                                            | 8,783      |   | $ | 957 |   |
|                                                     | ** ** | ** **                                   |       |   |   |
| Basic income per  share                                  |       | $                                            | 0.18       |   | $ | 0.02 |   |
|                                                     |       |                                         |       |   |   |
| Diluted income  per share                                |       | $                                            | 0.18       |   | $ | 0.02 |   |
|                                                     |       |                                         |       |   |   |
| Weighted average  shares used in per share calculations: |       |                                         |       |   |   |
| Basic                                                    |       | 47,789                                       |       | 47,739 |   |
| Diluted                                                  |       | 48,379                                       |       | 48,180 |   |

 

The accompanying notes are anintegral part of these Consolidated Financial Statements.

 

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**UNAUDITED CONSOLIDATED BALANCE SHEETS**

**BlountInternational, Inc. and Subsidiaries**

** **
| ** **                                                                                                                   | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(Amounts  in thousands, except share and per share data)**                                                                 | ** ** | **2010**           | ** ** | **2009**              | ** ** |
|                                                                                                                         |       |               |       |                  |       |
| **Assets**                                                                                                                   | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current assets:                                                                                                              |       |               |       |                  |       |
| Cash and cash  equivalents                                                                                                   |       | $                  | 54,484     |                  | $          | 55,070 |   |
| Accounts  receivable, net of allowance for doubtful accounts of$3,625 and $3,339 respectively                                |       | 73,465             |       | 74,475                |       |
| Inventories, net                                                                                                             |       | 80,728             |       | 78,179                |       |
| Deferred income  taxes                                                                                                       |       | 6,802              |       | 5,528                 |       |
| Other current  assets                                                                                                        |       | 19,803             |       | 23,962                |       |
| Total current  assets                                                                                                        |       | 235,282            |       | 237,214               |       |
| Property, plant,  and equipment, net                                                                                         |       | 112,583            |       | 114,470               |       |
| Deferred income  taxes                                                                                                       |       | 12,856             |       | 16,006                |       |
| Intangible  assets                                                                                                           |       | 11,990             |       | 12,371                |       |
| Assets held for  sale                                                                                                        |       | 900                |       | 900                   |       |
| Goodwill                                                                                                                     |       | 66,071             |       | 66,071                |       |
| Other assets                                                                                                                 |       | 36,153             |       | 36,534                |       |
| Total Assets                                                                                                                 |       | $                  | 475,835    |                  | $          | 483,566 |   |
|                                                                                                                         |       |               |       |                  |       |
| **Liabilities  and Stockholders’ Equity (Deficit)**                                                                     | ** ** | ** **         | ** ** | ** **            | ** ** |
| Current  liabilities:                                                                                                        |       |               |       |                  |       |
| Current  maturities of long-term debt                                                                                        |       | $                  | 5,003      |                  | $          | 5,013 |   |
| Accounts payable                                                                                                             |       | 28,369             |       | 31,539                |       |
| Accrued expenses                                                                                                             |       | 43,337             |       | 50,614                |       |
| Deferred income  taxes                                                                                                       |       | 496                |       | 501                   |       |
| Total current  liabilities                                                                                                   |       | 77,205             |       | 87,667                |       |
| Long-term debt,  excluding current maturities                                                                                |       | 277,183            |       | 280,852               |       |
| Deferred income  taxes                                                                                                       |       | 4,834              |       | 4,695                 |       |
| Employee benefit  obligations                                                                                                |       | 76,387             |       | 75,780                |       |
| Other  liabilities                                                                                                           |       | 39,030             |       | 41,312                |       |
| Total  liabilities                                                                                                           |       | 474,639            |       | 490,306               |       |
| Commitments and  contingent liabilities                                                                                      |       |               |       |                  |       |
| Stockholders’  equity (deficit):                                                                                        |       |               |       |                  |       |
| Common stock:  par value $0.01 per share, 100,000,000 shares authorized,47,826,981 and 47,759,331 outstanding,  respectively |       | 478                |       | 478                   |       |
| Capital in  excess of par value of stock                                                                                     |       | 581,861            |       | 581,211               |       |
| Accumulated  deficit                                                                                                         |       | (547,772           | )          | (556,555              | )          |
| Accumulated  other comprehensive loss                                                                                        |       | (33,371            | )          | (31,874               | )          |
| Total  stockholders’ equity (deficit)                                                                                   |       | 1,196              |       | (6,740                | )          |
| Total  Liabilities and Stockholders’ Equity (Deficit)                                                                   |       | $                  | 475,835    |                  | $          | 483,566 |   |

 

The accompanying notes are anintegral part of these Consolidated Financial Statements.

 

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**UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**BlountInternational, Inc. and Subsidiaries**

 
| ** **                                                                                                          | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| **(Amounts  in thousands)**                                                                                         | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| ** **                                                                                                          | ** ** | ** **                            | ** ** | ** ** | ** ** |
| **Cash  flows from operating activities:**                                                                          |       |                                  |       |   |   |
| Income from  continuing operations                                                                                  |       | $                                     | 8,783      |   | $ | 957 |   |
| Adjustments to  reconcile income from continuing operations to net cashProvided by (used in) operating  activities: |       |                                  |       |   |   |
| Depreciation of  property, plant, and equipment                                                                     |       | 5,482                                 |       | 4,862 |   |
| Amortization                                                                                                        |       | 1,166                                 |       | 1,377 |   |
| Stock  compensation and other non-cash charges                                                                      |       | 679                                   |       | 1,448 |   |
| Asset impairment  charges                                                                                           |       | —                                |       | 1,978 |   |
| Excess tax  expense (benefit) from share-based compensation                                                         |       | (86                                   | )          | 97 |   |
| Deferred income  tax (benefit) expense                                                                              |       | 265                                   |       | (674 | ) |
| Loss on disposal  of assets                                                                                         |       | 85                                    |       | 15 |   |
| Changes in  assets and liabilities:                                                                                 |       |                                  |       |   |   |
| (Increase)  decrease in accounts receivable                                                                         |       | 199                                   |       | 7,282 |   |
| (Increase)  decrease in inventories                                                                                 |       | (3,358                                | )          | (4,833 | ) |
| (Increase)  decrease in other assets                                                                                |       | 3,945                                 |       | 413 |   |
| Increase  (decrease) in accounts payable                                                                            |       | (3,017                                | )          | (7,151 | ) |
| Increase  (decrease) in accrued expenses                                                                            |       | (5,328                                | )          | (12,850 | ) |
| Increase  (decrease) in other liabilities                                                                           |       | (2,494                                | )          | 338 |   |
| Discontinued  operations                                                                                            |       | (153                                  | )          | (470 | ) |
| Net cash  provided by (used in) operating activities                                                                |       | 6,168                                 |       | (7,211 | ) |
| ** **                                                                                                          |       |                                  |       |   |   |
| **Cash  flows from investing activities:**                                                                          |       |                                  |       |   |   |
| Purchases of  property, plant, and equipment, net of proceeds from sales                                            |       | (3,690                                | )          | (4,923 | ) |
| Net cash used in  investing activities                                                                              |       | (3,690                                | )          | (4,923 | ) |
| ** **                                                                                                          |       |                                  |       |   |   |
| **Cash  flows from financing activities:**                                                                          |       |                                  |       |   |   |
| Net (repayments)  borrowings under revolving credit facility                                                        |       | (3,400                                | )          | 14,750 |   |
| Repayment of  term loan principal                                                                                   |       | (279                                  | )          | (308 | ) |
| Excess tax  benefit (expense) from share-based compensation                                                         |       | 86                                    |       | (97 | ) |
| Proceeds from  share-based compensation activity                                                                    |       | 235                                   |       | 91 |   |
| Taxes paid on  restricted stock units                                                                               |       | (325                                  | )          | — |   |
| Net cash (used  in) provided by financing activities                                                                |       | (3,683                                | )          | 14,436 |   |
|                                                                                                                |       |                                  |       |   |   |
| Effect of  exchange rate changes                                                                                    |       | 619                                   |       | (1,173 | ) |
|                                                                                                                |       |                                  |       |   |   |
| Net (decrease)  increase in cash and cash equivalents                                                               |       | (586                                  | )          | 1,129 |   |
| Cash and cash  equivalents at beginning of period                                                                   |       | 55,070                                |       | 58,275 |   |
| Cash and cash  equivalents at end of period                                                                         |       | $                                     | 54,484     |   | $ | 59,404 |   |

 

The accompanying notes are anintegral part of these Consolidated Financial Statements.

 

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**UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’EQUITY (DEFICIT)**

**BlountInternational, Inc. and Subsidiaries**

 
| **(Amounts in  thousands)**                                     | ** ** | **Shares** | ** ** | **Common   Stock** | ** ** | **Capital in   Excess********of Par** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated  Other********Comprehensive  Loss** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------|------------|------------|------------|--------------------|------------|---------------------------------------|------------|--------------------------|------------|---------------------------------------------------|------------|-----------|------------|
|                                                            |       |       |       |               |       |                                  |       |                     |       |                                              |       |      |       |
| Balance  December 31, 2009                                 |       | 47,759     |       | $                  | 478        |                                  | $          | 581,211                  |       | $                                                 | (556,555   | )         | $          | (31,874 | ) | $ | (6,740 | ) |
|                                                            |       |       |       |               |       |                                  |       |                     |       |                                              |       |      |       |
| Net income                                                      |       |       |       |               |       |                                  |       | 8,783                    |       |                                              |       | 8,783     |       |
| Other  comprehensive income:                                    |       |       |       |               |       |                                  |       |                     |       |                                              |       |      |       |
| Foreign currency  translation adjustment                        |       |       |       |               |       |                                  |       |                     |       | (976                                              | )          | (976      | )          |
| Unrealized  losses                                              |       |       |       |               |       |                                  |       |                     |       | (521                                              | )          | (521      | )          |
| Comprehensive  income, net                                      |       |       |       |               |       |                                  |       |                     |       |                                              |       | 7,286     |       |
| Stock options,  stock appreciation rights, and restricted stock |       | 68         |       |               |       | (4                                    | )          |                     |       |                                              |       | (4        | )          |
| Stock  compensation expense                                     |       |       |       |               |       | 654                                   |       |                     |       |                                              |       | 654       |       |
|                                                            |       |       |       |               |       |                                  |       |                     |       |                                              |       |      |       |
| Balance  March 31, 2010                                    |       | 47,827     |       | $                  | 478        |                                  | $          | 581,861                  |       | $                                                 | (547,772   | )         | $          | (33,371 | ) | $ | 1,196 |   |

 

Other comprehensive loss, netof a deferred tax benefit of $0.3 million, was $1.5 million for the threemonths ended March 31, 2010. Other comprehensive loss, net of a deferredtax benefit $0.2 million, was $1.7 million for the three months ended March 31,2009.

 

The accompanying notes are anintegral part of these Consolidated Financial Statements.

 

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**BLOUNTINTERNATIONAL, INC. AND SUBSIDIARIES**

**UNAUDITED 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 (collectively, “Blount” or the “Company”) and are prepared inconformity with accounting principles generally accepted in the United Statesof America (“U.S.”).  All significantintercompany balances and transactions have been eliminated.  In the opinion of management, theConsolidated Financial Statements contain all adjustments (consisting of onlynormal recurring adjustments) necessary for a fair statement of the financialposition, results of operations, cash flows, and changes in stockholders’equity (deficit) for the periods presented.

 

The accompanying financialdata as of March 31, 2010 and for the three months ended March 31,2010 and 2009 has been prepared by the Company, without audit, pursuant to the rules andregulations of the U.S. Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the U.S. have been condensed oromitted pursuant to such rules and regulations. The December 31, 2009Consolidated Balance Sheet was derived from audited financial statements, butdoes not include all disclosures required by accounting principles generallyaccepted in the U.S.  These ConsolidatedFinancial Statements should be read in conjunction with the ConsolidatedFinancial Statements and notes thereto included in the Company’s Annual Reporton Form 10-K for the year ended December 31, 2009.

 

***Use of Estimates.******* The preparation of financial statements inconformity with accounting principles generally accepted in the U.S. requiresthat management make certain estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities as of the dates of the financial statements, as well as thereported amounts of revenues and expenses during the reporting periods.  We base our estimates on various assumptionsthat are believed to be reasonable under the circumstances.  Management is continually evaluating andupdating these estimates and it is reasonably possible that these estimateswill change in the near term.

 

***Reclassifications.***  Certain amounts in the prior period financialstatements have been reclassified to conform to the current periodpresentation.  Such reclassificationshave no effect on previously reported net income, cash flows, or netstockholders’ equity (deficit).

 

**NOTE 2:  RESTRUCTURING ACTIVITIES**

 

***Plant ClosureCosts.***  In January 2009, we announced our intentto close our manufacturing facility in Milan, Tennessee during the secondquarter of 2009.  Products previouslymanufactured in that facility are now produced in our other manufacturingfacilities.  During the first quarter of2009, we recognized a total of $3.3 million in charges related to this plantclosure, consisting of $2.0 million in asset impairment charges, $1.1 millionin employee severance and benefit costs, and $0.2 million in otherexpenses.  Of these charges, $0.2 millionis recognized in cost of goods sold on the Consolidated Statements of Incomefor the three months ended March 31, 2009. The land and building are currently being marketed for sale and areincluded in assets held for sale on the Consolidated Balance Sheets.

 

***Severance Costs.***  We took actions during 2009 to reduce thenumber of employees at certain of our other locations.  During the three months ended March 31,2009, we recognized $1.9 million in severance charges related to this reductionin force.  From December 31, 2008 toMarch 31, 2009, the Company eliminated approximately 390 positions, or11%, of its previous work force.

 

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**NOTE 3:  INVENTORIES, NET**

 

Inventories consisted of thefollowing:

 
| ** **                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------|------------|--------------------|------------|-----------------------|------------|
| **(Amounts  in thousands)** | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| Raw materials  and supplies |       | $                  | 11,057     |                  | $          | 11,510 |   |
| Work in progress            |       | 12,884             |       | 13,095                |       |
| Finished goods              |       | 56,787             |       | 53,574                |       |
| Total  inventories, net     |       | $                  | 80,728     |                  | $          | 78,179 |   |

 

**NOTE 4:  LONG-TERM DEBT**

 

Long-term debt consisted ofthe following:

 
| ** **                        | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(Amounts  in thousands)**       | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| Revolving credit  facility        |       | $                  | —     |                  | $          | 3,400 |   |
| Term loans                        |       | 107,186            |       | 107,465               |       |
| 8 7/8% senior  subordinated notes |       | 175,000            |       | 175,000               |       |
| Total debt                        |       | 282,186            |       | 285,865               |       |
| Less current  maturities          |       | (5,003             | )          | (5,013                | )          |
| Long-term debt                    |       | $                  | 277,183    |                  | $          | 280,852 |   |

 

The weighted average interestrate on outstanding debt as of March 31, 2010 was 7.56%.

 

***8 7/8% Senior Subordinated Notes.***  The Company has one registered debt security,the 8 7/8% senior subordinated notes. The interest rate on these notes is fixed until their maturity on August 1,2012.  These notes are subject toredemption at the option of the Company, in whole or in part, at redemptionprices of 102.219% through July 31, 2010; and at 100% on August 1,2010 and thereafter.  These notes areissued by the Company’s wholly-owned subsidiary, Blount, Inc., and arefully and unconditionally, jointly and severally, guaranteed by the Company andall of its domestic subsidiaries (“guarantor subsidiaries”) other than Blount, Inc.  All guarantor subsidiaries of these8 7/8% seniorsubordinated notes are 100% owned, directly or indirectly, by the Company.  While the Company and all of its domesticsubsidiaries guarantee these 8 7/8% senior subordinated notes, none of Blount’sexisting foreign subsidiaries (“non-guarantor subsidiaries”) guarantee thesenotes.  See also Note 14.

 

***Senior Credit Facilities.******* The Company, through its wholly-ownedsubsidiary, Blount, Inc., first entered into a credit agreement withGeneral Electric Capital Corporation as Agent on May 15, 2003.  The agreement was amended and restated on August 9,2004, underwent several subsequent amendments, and was amended and restatedagain on December 4, 2009.  Thesenior credit facilities consist of a revolving credit facility and a term loanfacility.

 

***April 2009Amendment to Revolving Credit Facility***.  On April 30,2009, we entered into an amendment to the revolving credit facility as follows:

 

·                  The maturity date was extended to August 9, 2010.

 

·                  We reduced total availability under the revolvingcredit facility from $150.0 million to $90.0 million.

 

·                  The interest rate was increased from the LIBOR rateplus 1.75% or the U.S. prime interest rate, with no minimum, to the LIBOR rateas defined in the credit agreement (the “LIBOR Rate”) plus 5.00% or the U.S.index rate as defined in the credit agreement (the “U.S. Index Rate”) plus3.25%, with a minimum rate of 7.50%, on all outstanding principal.

 

·                  The commitment fee on unused borrowing capacity wasincreased from 0.375% to 1.0%.

 

·                  The Company incurred fees and third party costs of$2.0 million related to the amendment.

 

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**December 2009 Amendment andRestatement of Credit Facilities.**  On December 4,2009, the senior credit facility was amended and restated as follows:

 

·                  The maturity date for both the revolving creditfacility and the term loan facility was extended to February 9, 2012.

 

·                  We reduced total availability under the revolvingcredit facility from $90.0 million to $60.0 million.

 

·                  The interest rate on the term loan facility wasincreased from LIBOR plus 1.75% or the U.S. prime rate to the LIBOR Rate plus3.50%, or the index rate as defined in the credit agreement (the “Index Rate”)plus 2.50%, with a minimum rate of 5.50%.

 

·                  The maximum allowed leverage ratio, as defined in thecredit agreement, was increased from 4.25 to 4.50.

 

·                  Existing term loans representing $3.9 million of thetotal of $107.5 million term loan principal outstanding were not affected bythis amendment and restatement, and the terms for this portion of the termloans remain unchanged, including interest at the prime rate and a maturitydate of August 9, 2010.  Theprincipal amount of these unchanged term loans is included in currentmaturities of long-term debt on the Consolidated Balance Sheet.

 

·                  The Company incurred fees and third party costs of$3.3 million related to the amendment and restatement.

 

The revolving credit facility provides for totalavailable borrowings up to $60.0 million, reduced by outstanding letters ofcredit and further restricted by a specific leverage ratio and credit facilityleverage ratio. As of March 31,2010, the Company had the ability to borrow an additional $56.7 million underthe terms of the revolving credit agreement. The revolving credit facility bears interest at the LIBOR Rate plus5.00%, or the U.S. Index Rate plus 3.25%, with a minimum interest rate of7.50%, and matures on February 9, 2012. Interest is payable on the individual maturity dates for eachLIBOR-based borrowing.  Any outstandingprincipal is due in its entirety on the maturity date.

 

The term loan facility bearsinterest at the LIBOR Rate plus 3.50%, or the Index Rate plus 2.50%, with aminimum interest rate of 5.50%, and matures on February 9, 2012.  The term loan facility requires quarterly principalpayments of $0.3 million and an additional principal payment of $3.9 million onAugust 9, 2010, with a final payment of $101.1 million due on the maturitydate.  Once repaid, principal under theterm loan facility may not be re-borrowed by the Company.

 

The amended and restatedsenior credit facilities contain financial covenants relating to:

 

·                  Maximum capital expenditures.

 

·                  Minimum fixed charge coverageratio, defined as earnings from continuing operations before interest, taxes,depreciation, amortization, and certain other items (“EBITDA”) divided by cashpayments for interest, taxes, capital expenditures, scheduled debt principalpayments, and certain other items.

 

·                  Maximum leverage ratio,defined as total debt divided by EBITDA.

 

·                  Maximum credit facilityleverage ratio, defined as principal outstanding under the senior creditfacilities divided by EBITDA.

 

In addition, there arecovenants or restrictions relating to, among other categories, acquisitions,investments, loans and advances, indebtedness, dividends on our stock, and thesale of stock or assets.  We were in compliancewith all debt covenants as of March 31, 2010.  Non-compliance with these covenants, if itwere to become an event of default under the terms of the credit agreement,could result in severe limitations to our overall liquidity, and the term loanlenders could require actions for immediate repayment of outstanding amounts,potentially requiring sale of our assets. Such non-compliance, if any, could also result in an event of defaultunder the indenture agreement related to the 8 7/8% senior subordinatednotes.  Our debt is not subject to anytriggers that would require early payment of debt due to any adverse change inour credit rating.

 

The amended and restated senior credit facilities maybe prepaid at any time.  There can alsobe additional mandatory repayment requirements related to the sale of Companyassets, the issuance of stock under certain circumstances or upon the Company’sannual generation of excess cash flow, as determined under the creditagreement.

 

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Blount International, Inc.and all of its domestic subsidiaries other than Blount, Inc. guaranteeBlount, Inc.’s obligations under the senior credit facilities.  The obligations under the senior creditfacilities are collateralized by a first priority security interest insubstantially all of the assets of Blount, Inc. and its domesticsubsidiaries, as well as a pledge of all of Blount, Inc.’s capital stockheld by Blount International, Inc. and all of the stock of domesticsubsidiaries held by Blount, Inc. Blount, Inc. has also pledged 65% of the stock of its non-domesticsubsidiaries as additional collateral.

 

**NOTE 5:  PENSION AND OTHER POST-EMPLOYMENT BENEFIT PLANS**

 

The Company sponsors definedbenefit pension plans covering employees in the U.S., Canada, and Belgium.  The Company also sponsors various otherpost-employment medical and benefit plans covering many of its current andformer employees.  The U.S. defined benefit pension plan andthe associated nonqualified plan have been frozen since December 31,2006.  Employees who currently participate in these U.S. plans no longeraccrue benefits and new employees hired since December 31, 2006, are noteligible to participate.  All retirement benefits accrued up to the timeof the freeze were preserved.

 

The components of net periodicbenefit cost for these plans are as follows:

 
| ** **                            | ** ** | **Pension Benefits**             | ** ** | **Other Benefits** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|--------------------|------------|
| ** **                            | ** ** | **Three Months Ended March 31,** | ** ** |
| **(Amounts  in thousands)**           | ** ** | **2010**                         | ** ** | **2009**           | ** ** | **2010** | ** ** | **2009** | ** ** |
| Service cost                          |       | $                                | 624        |               | $          | 548 |   | $ | 71 |   | $ | 71 |   |
| Interest cost                         |       | 2,743                            |       | 2,638              |       | 526 |   | 522 |   |
| Expected return  on plan assets       |       | (2,988                           | )          | (2,448             | )          | — |   | — |   |
| Amortization of  prior service cost   |       | (1                               | )          | (2                 | )          | — |   | — |   |
| Amortization of  net actuarial losses |       | 972                              |       | 1,239              |       | 228 |   | 248 |   |
| Total net  periodic benefit cost      |       | $                                | 1,350      |               | $          | 1,975 |   | $ | 825 |   | $ | 841 |   |

 

The Company expects to contribute a total ofapproximately $14 million to $16 million to its funded pension plans during2010.

 

The Company receives a Medicare Part D subsidyfor a portion of the cost of providing prescription drug benefits under itsretiree medical benefit plan.  In March of2010, new legislation was signed into law in the U.S. that makes this subsidyfully subject to federal income tax beginning in 2013.  Previously, this subsidy was essentiallyexempt from federal income tax. Accordingly, the Company recognized a charge of $1.7 million to incometax expense in the three months ended March 31, 2010, reflecting thewrite-off of the deferred tax asset related to this subsidy.

 

**NOTE 6:  FINANCIAL GUARANTEES AND COMMITMENTS**

 

Significant financialguarantees and commitments are summarized in the following table:

 
| ** **                                  | ** ** | **March 31,** | ** ** |
|---------------------------------------------|------------|--------------------|------------|
| **(Amounts  in thousands)**                 | ** ** | **2010**           | ** ** |
| Letters of  credit outstanding              |       | $                  | 3,385      |   |
| Other financial  guarantees                 |       | 1,073              |       |
| Total financial  guarantees and commitments |       | $                  | 4,458      |   |

 

See also Note 4 above.

 

**NOTE 7:  CONTINGENT LIABILITIES**

 

The Company is a defendant ina number of product liability lawsuits, some of which seek significant orunspecified damages, involving serious personal injuries for which there areretentions or deductible amounts under the Company’s insurance policies. Someof these lawsuits arise out of the Company’s duty to indemnify certain 

 

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purchasers of the Company’sdiscontinued operations for lawsuits involving products manufactured prior tothe sale of these businesses.  In addition,the Company is a party to a number of other lawsuits arising out of the normalcourse of its business, including suits concerning commercial contracts,employee matters, intellectual property rights and other matters.  In some instances the Company is theplaintiff and is seeking recovery of damages. In other instances, the Companyis a defendant against whom damages are being sought.  While there can be no assurance as to theultimate outcome of these lawsuits, management does not believe these lawsuitswill have a material adverse effect on the Company’s consolidated financialposition, operating results, or cash flows.

 

In March 2010, theCompany received an offer from Region IV of the Environmental Protection Agencyof the U.S. to resolve its potential liability regarding the OperatingIndustries, Inc. Superfund Site in Monterey Park, California, involving asubsidiary of the former Omark Industries, Inc., which merged with the Companyin 1985. The Company submitted its consent to enter into an administrativesettlement agreement for the Company’s pro rata share of the site’s clean-upcosts, as a de minimis participant. Accordingly, the Company recognized a charge of $0.1 million in thethree months ended March 31, 2010 in settlement of this matter.  However, the settlement agreement is subjectto a public comment period of 30 days and other procedures pursuant to theComprehensive Environmental Response, Compensation, and Liability Act.

 

The Company accrues, by acharge to income, an amount representing management’s best estimate of theundiscounted probable loss related to any matter deemed by management and itscounsel as a reasonably probable loss contingency in light of all of the thenknown circumstances.

 

**NOTE 8:  EARNINGS PER SHARE DATA**

 

Shares used in the denominators of the basic anddiluted earnings per share computations were as follows:

 
| ** **                                                                                                                              | ** ** | **Three Months********Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| **(Shares in  thousands)**                                                                                                              | ** ** | **2010**                                     | ** ** | **2009** | ** ** |
| Shares for basic  per share computation – weighted average common shares outstanding                                               |       | 47,789                                       |       | 47,739 |   |
| Dilutive effect  of common stock equivalents                                                                                            |       | 590                                          |       | 441 |   |
| Shares for  diluted per share computation                                                                                               |       | 48,379                                       |       | 48,180 |   |
| Options and  stock appreciation rights (“SARs”) excluded from computation as anti-dilutive  because they are out-of-the-money |       | 1,654                                        |       | 2,216 |   |
| Unvested  restricted stock and restricted stock units (“RSUs”) considered to be  participating securities                     |       | 162                                          |       | 190 |   |

 

The allocation ofundistributed earnings (net income) to the participating securities under thetwo class method had no effect on the calculation of earnings per share.

 

**NOTE 9:  STOCK-BASED COMPENSATION**

 

The Company did not grant any stock-based compensationawards during the three months ended March 31, 2009 but did grant thefollowing awards during the three months ended March 31, 2010:

 
| **(Amounts  in thousands)**           | ** ** | **2010** | ** **  |
|---------------------------------------|------------|----------|-------------|
| SARs granted                          |       | 549      |        |
| RSUs granted                          |       | 118      |        |
|                                  |       |     |        |
| Aggregate fair  value of SARs granted |       | $        |  2,737 |   |
| Aggregate fair  value of RSUs granted |       | $        |  1,322 |   |

 

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The SARs and RSUs granted inthe three months ended March 31, 2010 vest quarterly over a three-yearperiod and are restricted from exercise, sale, or other transfer until March 31,2013.  The SARs granted have a ten-yearterm.

 

The following assumptions wereused to estimate the fair value of SARs in the three months ended March 31,2010:

 
| ** **                              | ** ** | **2010** | ** ** |
|-----------------------------------------|------------|----------|------------|
| Estimated  average life                 |       | 6 years  |       |
| Risk-free  interest rate                |       | 2.8      | %          |
| Expected volatility                     |       | 49.7     | %          |
| Weighted average  volatility            |       | 49.7     | %          |
| Dividend yield                          |       | 0.0      | %          |
| Weighted average  grant date fair value |       | $        |  5.28 |   |
|                                         |            |          |            |  |

 

As of March 31, 2010, thetotal unrecognized stock-based compensation expense related to previouslygranted awards was $7.6 million. The weighted average period over which thisexpense is expected to be recognized is 17 months.  The Company’s policy upon the exercise ofoptions, restricted stock awards, RSUs, or SARs has been to issue new sharesinto the public market from the stockholder-approved 2006 Equity IncentivePlan.

 

**NOTE 10:  SEGMENT INFORMATION**

 

The Company identifiesoperating segments primarily based on organizational structure and theevaluation of the Chief Operating Decision Maker (Chief ExecutiveOfficer).  The Company has one reportablesegment: Outdoor Products.  The Othercategory includes centralized administrative functions, a gear componentmanufacturing business, and plant closure and other severance costs.  Outdoor Products manufactures and marketscutting chain, bars, sprockets and accessories for chainsaw use,concrete-cutting equipment, and lawnmower blades and accessories for yard careequipment.  The accounting policies ofthe segment are the same as those described in the summary of significantaccounting policies.

 

Certain financial informationby segment is presented in the table below:

 
| ** **                  | ** ** | **Three Months Ended********March 31,** | ** **    |
|-----------------------------|------------|----------------------------------------------|---------------|
| **(Amounts  in thousands)** | ** ** | **2010**                                     | ** **    | **2009** | ** ** |
| **Sales:**                  |       |                                         |          |   |   |
| Outdoor Products            |       | $                                            |  133,129 |   | $ |  111,419 |   |
| Other                       |       | 3,555                                        |          | 5,105 |   |
| Total sales                 |       | $                                            |  136,684 |   | $ |  116,524 |   |
|                        |       |                                         |          |   |   |
| **Operating  income:**      |       |                                         |          |   |   |
| Outdoor Products            |       | $                                            |   27,779 |   | $ |   16,490 |   |
| Other                       |       | (6,019                                       | )             | (8,910 | ) |
| Operating income            |       | $                                            |   21,760 |   | $ |     7,580 |   |

 

**NOTE 11:  SUPPLEMENTAL CASH FLOW INFORMATION**

 
| ** **                  | ** ** | **Three Months Ended********March 31,** | ** **  |
|-----------------------------|------------|----------------------------------------------|-------------|
| **(Amounts  in thousands)** | ** ** | **2010**                                     | ** **  | **2009** | ** ** |
| Interest paid               |       | $                                            |  9,149 |   | $ |  8,810 |   |
| Income taxes  paid, net     |       | 2,903                                        |        | 3,684 |   |
|                             |            |                                              |             |  |  |  |  |

 

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**NOTE 12:  FAIR VALUE OF FINANCIAL INSTRUMENTS ANDCREDIT RISK CONCENTRATION**

 

The Company has manufacturingor distribution operations in Brazil, Canada, China, Europe, Japan, Russia, andthe U.S. The Company sells to customers in these locations and other countriesthroughout the world.  At March 31,2010, approximately 70% of accounts receivable were from customers outside theU.S.  If the U.S. Dollar strengthensagainst foreign currencies, it becomes more costly for these foreign customersto pay their U.S. Dollar balances owed. They may have difficulty in repaying these amounts, and in turn, theCompany’s bad debt expense may increase. Accounts receivable are principally from distributors, dealers, massmerchants, chainsaw manufacturers, and other original equipment manufacturers (“OEMs”),and are normally not collateralized.

 

The carrying amount of cashand cash equivalents approximates fair value because of the short-term maturityof those instruments. The carrying amount of accounts receivable approximatesfair value because the maturity period is short and the Company has reduced thecarrying amount to the estimated net realizable value with an allowance fordoubtful accounts.  The carrying amountof any principal outstanding on the revolving credit facility approximates fairvalue because the applicable interest rates are variable and the maturityperiod is relatively short.  The fairvalue of the term loans is determined by reference to prices of recenttransactions whereby buyers and sellers exchange their interests in portions ofthese loans.  The fair value of the fixedrate 8 7/8% senior subordinated notes is determined by reference to quotedmarket prices.  Derivative financial instrumentsare carried on the Consolidated Balance Sheets at fair value.  The carrying amount of other financialinstruments approximates fair value because of the short-term maturity periodsand variable interest rates associated with the instruments.

 

The estimated fair values ofthe term loans and 8 7/8% senior subordinated notes at March 31, 2010 and December 31,2009 are presented below.

 
| ** **                        | ** ** | **March 31, 2010** | ** **    | **December 31, 2009** | ** ** |
|-----------------------------------|------------|-------------------------|---------------|----------------------------|------------|
| **(Amounts  in thousands)**       | ** ** | **Carrying   Amount**   | ** **    | **Fair Value**             | ** ** | **Carrying   Amount** | ** ** | **Fair Value** | ** ** |
| Term loans                        |       | $                       |  107,186 |                       | $          |  107,454 |   | $ |  107,465 |   | $ |  107,734 |   |
| 8 7/8% senior  subordinated notes |       | 175,000                 |          | 177,734                    |       | 175,000 |   | 178,500 |   |
|                                   |            |                         |               |                            |            |  |  |  |  |  |  |  |  |

 

***Derivative Financial Instruments and Foreign Currency Hedging.***  The Company makes regular payments to itswholly-owned subsidiary in Canada, Blount Canada Ltd. (“Blount Canada”), forcontract manufacturing services performed by Blount Canada for conversion ofraw materials into finished goods. We are exposed to changes in Canadian Dollarto U.S. Dollar exchange rates from these transactions since most conversioncosts are incurred in Canadian Dollars. Changes in the Canadian Dollar to U.S. Dollar exchange rates mayadversely affect our results of operations and financial position.

 

Since October, 2008, we have managed a portion ofCanadian Dollar exchange rate exposures with derivative financial instruments.  These derivative financial instruments arezero-cost collar option combinations, consisting of a purchased call option tobuy Canadian Dollars and a written put option to sell Canadian Dollars. Weapply cash flow hedge accounting to our Canadian Dollar-related derivativefinancial instruments, and therefore defer the gains or losses on thoseinstruments in accumulated other comprehensive loss on the Consolidated BalanceSheets until maturity, at which time the gain or loss is recognized on the ConsolidatedStatements of Income.

 

As of March 31, 2010, the cumulative unrealizedpre-tax gain on these contracts included in other comprehensive loss on theConsolidated Balance Sheet was $1.3 million. During the three months ended March 31, 2010 and 2009, a gain of$1.4 million and a loss of $0.8 million were recognized in cost of goods soldon the Consolidated Statements of Income at the maturity of the relatedCanadian Dollar derivative financial instruments.  Gains and losses on these Canadian Dollarderivative financial instruments are offset in cost of goods sold by theeffects of currency exchange rate changes on the underlying transactions.  Through March 31, 2010, the Company hasnot recognized any amount from these contracts in earnings due to ineffectiveness.  The aggregate notional amount of theseCanadian Dollar contracts outstanding was $27.8 million at March 31, 2010and $30.3 million at December 31, 2009.

 

We hedge the interest rate and foreign currencyexposure on a portion of our cash and cash equivalents invested in Brazil withinterest rate swap agreements.  Thechange in fair value of these instruments is recognized in interest 

 

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income on the Consolidated Statements of Income.  Any change in fair value of these derivativecontracts is fully offset by the change in fair value of the underlyinginvestments.  The Consolidated Statementsof Income include income of $0.1 million and expense of $0.3 million,respectively, for the three months ended March 31, 2010 and 2009 from thechange in fair value of these interest rate swap contracts. The aggregatenotional amount of these interest rate swap agreements outstanding was zero at March 31,2010 and $13.0 million at December 31, 2009.

 

Under accounting principles generally accepted in theU.S., the framework for measuring fair value is based on independent observableinputs of market data and is based on the following hierarchy:

 

Level 1 — Quoted pricesin active markets for identical assets and liabilities.

 

Level 2 — Significantobservable inputs based on quoted prices for similar instruments in activemarkets, quoted prices for identical or similar instruments in markets that arenot active and model-based valuations for which all significant assumptions areobservable.

 

Level 3 — Significantunobservable inputs that are supported by little or no market activity that aresignificant to the fair value of the assets or liabilities.

 

The fair values of derivatives held by the Companywere:

 
| **(Amounts  in thousands)** | ** ** | **Carrying   Value of   Assets on   Balance   Sheets** | ** ** | **Assets********Measured at  Fair Value** | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
|-----------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| March 31,  2010        |       | $                                                      | 1,332      |                                      | $          | 1,332       |       | $           | —     |        | $          | 1,332 |   | $ | — |   |
|                        |       |                                                   |       |                                      |       |        |       |        |       |        |       |
| December 31,  2009     |       | 2,052                                                  |       | 2,052                                     |       | —      |       | 2,052       |       | —      |       |
|                             |            |                                                        |            |                                           |            |             |            |             |            |             |            |  |  |  |  |  |

 

The fair value of these Level 2 derivatives wasdetermined using a market approach based on daily market prices of similarinstruments issued by financial institutions in an active market.

 

The amounts included in accumulated othercomprehensive loss on the Consolidated Balance Sheets are expected to berecognized on the Consolidated Statements of Income within the next twelvemonths.

 

**NOTE 13:  RECENT ACCOUNTING PRONOUNCEMENTS**

 

In December 2008, the FASB revised authoritativeguidance regarding employers’ disclosures about post-retirement benefit planassets to require expanded disclosures about plan assets of a defined benefitpension or other post-retirement plan. In September 2009, the FASB further revised the authoritativeguidance for fair value measurements and disclosures to permit a reportingentity to measure the fair value of an investment on the basis of the net assetvalue per share of the investment.  This revised authoritative guidancewas effective for us in our 2009 Form 10-K, and resulted in expandeddisclosures in the notes to our Consolidated Financial Statements.

 

In April 2009, the FASB revised authoritativeguidance regarding interim disclosures about fair value of financialinstruments.  This revised authoritative guidance requires expandeddisclosures about fair value of financial instruments for interim periods andalso requires those disclosures in summarized financial information at interimreporting periods.  We adopted this revised authoritative guidance in thefirst quarter of 2009. With this adoption, we also adopted new authoritativeguidance regarding determining fair value when the volume and level of activityfor the asset or liability have significantly decreased, identifyingtransactions that are not orderly, and recognition and presentation ofother-than-temporary impairments.  The impact of adopting thisauthoritative guidance resulted in expanded disclosures in the notes to ourConsolidated Financial Statements.

 

In January 2010, the FASB issued new guidancerequiring enhanced disclosures about an entity’s fair value measurements. This new guidance was effective for us on January 1, 2010 and resulted inexpanded footnote disclosures about the fair value of our assets.

 

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**NOTE 14:  CONSOLIDATING FINANCIAL INFORMATION**

 

See Note 4 for a discussion ofthe Company’s guarantor subsidiaries. The following consolidating financial information sets forth condensedConsolidating Statements of Income, Balance Sheets and Statements of Cash Flowsof Blount International, Inc., Blount, Inc., the guarantorsubsidiaries and the non-guarantor subsidiaries:

 

**CondensedConsolidating Statements of Income Information**

 
| **(Amounts in  thousands)**                | ** ** | **Blount International,   Inc.** | ** ** | **Blount,********Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non-  Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|---------------------------------------|------------|-------------------------|------------|------------------------------|------------|------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                 |       |                                  |       |                    |       |                         |       |                               |       |             |       |             |       |
| **Three Months Ended March 31, 2010** |       |                                  |       |                    |       |                         |       |                               |       |             |       |             |       |
| Sales                                      |       | $                                     | —     |                    | $          | 103,522                      |       | $                                  | 3,555      |             | $          | 85,356           |       | $ | (55,749 | ) | $ | 136,684 |   |
| Cost of sales                              |       | —                                |       | 70,654                  |       | 2,733                        |       | 68,930                             |       | (55,649          | )          | 86,668           |       |
| Gross profit                               |       | —                                |       | 32,868                  |       | 822                          |       | 16,426                             |       | (100             | )          | 50,016           |       |
| Operating expenses, net                    |       | —                                |       | 19,323                  |       | 562                          |       | 8,371                              |       | —           |       | 28,256           |       |
| Operating income                           |       | —                                |       | 13,545                  |       | 260                          |       | 8,055                              |       | (100             | )          | 21,760           |       |
| Other income (expense), net                |       | (2,808                                | )          | (3,339                  | )          | 166                          |       | (527                               | )          | —           |       | (6,508           | )          |
| Income (loss) before income taxes          |       | (2,808                                | )          | 10,206                  |       | 426                          |       | 7,528                              |       | (100             | )          | 15,252           |       |
| Provision (benefit) for income taxes       |       | (1,390                                | )          | 5,050                   |       | 211                          |       | 2,598                              |       | —           |       | 6,469            |       |
| Income (loss) before equity in affiliates  |       | (1,418                                | )          | 5,156                   |       | 215                          |       | 4,930                              |       | (100             | )          | 8,783            |       |
| Equity in earnings of affiliated companies |       | 10,201                                |       | 5,045                   |       | —                       |       | —                             |       | (15,246          | )          | —           |       |
| Net income                                 |       | $                                     | 8,783      |                    | $          | 10,201                       |       | $                                  | 215        |             | $          | 4,930            |       | $ | (15,346 | ) | $ | 8,783 |   |

 
| **(Amounts in  thousands)**                | ** ** | **Blount   International,  Inc.** | ** ** | **Blount,********Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non-  Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------|------------|-----------------------------------|------------|-------------------------|------------|------------------------------|------------|------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                 |       |                              |       |                    |       |                         |       |                               |       |             |       |             |       |
| **Three Months Ended March 31, 2009** |       |                              |       |                    |       |                         |       |                               |       |             |       |             |       |
| Sales                                      |       | $                                 | —     |                    | $          | 84,154                       |       | $                                  | 8,783      |             | $          | 67,142           |       | $ | (43,555 | ) | $ | 116,524 |   |
| Cost of sales                              |       | —                            |       | 58,429                  |       | 7,542                        |       | 55,879                             |       | (43,116          | )          | 78,734           |       |
| Gross profit                               |       | —                            |       | 25,725                  |       | 1,241                        |       | 11,263                             |       | (439             | )          | 37,790           |       |
| Operating expenses                         |       | —                            |       | 18,231                  |       | 4,262                        |       | 7,717                              |       | —           |       | 30,210           |       |
| Operating income (loss)                    |       | —                            |       | 7,494                   |       | (3,021                       | )          | 3,546                              |       | (439             | )          | 7,580            |       |
| Other income (expense), net                |       | (2,867                            | )          | (3,004                  | )          | 145                          |       | (116                               | )          | —           |       | (5,842           | )          |
| Income (loss) before income taxes          |       | (2,867                            | )          | 4,490                   |       | (2,876                       | )          | 3,430                              |       | (439             | )          | 1,738            |       |
| Provision (benefit) for income taxes       |       | (1,458                            | )          | 2,283                   |       | (1,462                       | )          | 1,418                              |       | —           |       | 781              |       |
| Income (loss) before equity in affiliates  |       | (1,409                            | )          | 2,207                   |       | (1,414                       | )          | 2,012                              |       | (439             | )          | 957              |       |
| Equity in earnings of affiliated companies |       | 2,366                             |       | 159                     |       | —                       |       | —                             |       | (2,525           | )          | —           |       |
| Net income (loss)                          |       | $                                 | 957        |                    | $          | 2,366                        |       | $                                  | (1,414     | )                | $          | 2,012            |       | $ | (2,964 | ) | $ | 957 |   |

 

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**CondensedConsolidating Balance Sheet Information**

 
| **(Amounts in  thousands)**                    | ** ** | **Blount  International,  Inc.** | ** ** | **Blount,********Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non-Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|------------------------------|------------|----------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                     | ** ** | ** **                       | ** ** | ** **              | ** ** | ** **                   | ** ** | ** **                       | ** ** | ** **       | ** ** | ** **       | ** ** |
| **March 31, 2010**                        | ** ** | ** **                       | ** ** | ** **              | ** ** | ** **                   | ** ** | ** **                       | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                     |       |                             |       |                    |       |                         |       |                             |       |             |       |             |       |
| **Assets**                                     |       |                             |       |                    |       |                         |       |                             |       |             |       |             |       |
|                                           |       |                             |       |                    |       |                         |       |                             |       |             |       |             |       |
| Cash and cash equivalents                      |       | $                                | —     |                    | $          | 13,468                       |       | $                                | —     |             | $          | 41,107           |       | $ | (91 | ) | $ | 54,484 |   |
| Accounts receivable, net                       |       | —                           |       | 39,328                  |       | 1,770                        |       | 32,367                           |       | —           |       | 73,465           |       |
| Intercompany receivables                       |       | —                           |       | 201,261                 |       | 90,158                       |       | 60,295                           |       | (351,714         | )          | —           |       |
| Inventories, net                               |       | —                           |       | 56,187                  |       | 2,414                        |       | 27,676                           |       | (5,549           | )          | 80,728           |       |
| Other current assets                           |       | —                           |       | 18,713                  |       | 69                           |       | 7,823                            |       | —           |       | 26,605           |       |
| Total current assets                           |       | —                           |       | 328,957                 |       | 94,411                       |       | 169,268                          |       | (357,354         | )          | 235,282          |       |
| Investments in affiliated companies            |       | 270,846                          |       | 288,310                 |       | —                       |       | —                           |       | (559,156         | )          | —           |       |
| Property, plant, and equipment, net            |       | —                           |       | 56,857                  |       | 6,356                        |       | 49,370                           |       | —           |       | 112,583          |       |
| Goodwill and other assets                      |       | —                           |       | 98,938                  |       | 12,784                       |       | 16,248                           |       | —           |       | 127,970          |       |
| Total Assets                                   |       | $                                | 270,846    |                    | $          | 773,062                      |       | $                                | 113,551    |             | $          | 234,886          |       | $ | (916,510 | ) | $ | 475,835 |   |
|                                           |       |                             |       |                    |       |                         |       |                             |       |             |       |             |       |
| **Liabilities and Stockholders’ Equity**  |       |                             |       |                    |       |                         |       |                             |       |             |       |             |       |
|                                           |       |                             |       |                    |       |                         |       |                             |       |             |       |             |       |
| Current maturities of long-term debt           |       | $                                | —     |                    | $          | 5,003                        |       | $                                | —     |             | $          | —           |       | $ | — |   | $ | 5,003 |   |
| Accounts payable                               |       | —                           |       | 18,641                  |       | 1,191                        |       | 8,628                            |       | (91              | )          | 28,369           |       |
| Intercompany payables                          |       | 268,795                          |       | 60,693                  |       | 1,668                        |       | 20,557                           |       | (351,713         | )          | —           |       |
| Other current liabilities                      |       | —                           |       | 28,619                  |       | 1,569                        |       | 13,645                           |       | —           |       | 43,833           |       |
| Total current liabilities                      |       | 268,795                          |       | 112,956                 |       | 4,428                        |       | 42,830                           |       | (351,804         | )          | 77,205           |       |
| Long-term debt, excluding current maturities   |       | —                           |       | 277,183                 |       | —                       |       | —                           |       | —           |       | 277,183          |       |
| Other liabilities                              |       | 855                              |       | 112,077                 |       | 245                          |       | 7,074                            |       | —           |       | 120,251          |       |
| Total liabilities                              |       | 269,650                          |       | 502,216                 |       | 4,673                        |       | 49,904                           |       | (351,804         | )          | 474,639          |       |
| Stockholders’ equity                      |       | 1,196                            |       | 270,846                 |       | 108,878                      |       | 184,982                          |       | (564,706         | )          | 1,196            |       |
| Total Liabilities and Stockholders’Equity |       | $                                | 270,846    |                    | $          | 773,062                      |       | $                                | 113,551    |             | $          | 234,886          |       | $ | (916,510 | ) | $ | 475,835 |   |

 

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**CondensedConsolidating Balance Sheet Information**

 
| **(Amounts in  thousands)**                               | ** ** | **Blount   International,  Inc.** | ** ** | **Blount,********Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------|------------|-------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                | ** ** | ** **                        | ** ** | ** **              | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| **December 31, 2009**                                | ** ** | ** **                        | ** ** | ** **              | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| ** **                                                |       |                              |       |                    |       |                        |       |                            |       |             |       |             |       |
| **Assets**                                                |       |                              |       |                    |       |                        |       |                            |       |             |       |             |       |
|                                                      |       |                              |       |                    |       |                        |       |                            |       |             |       |             |       |
| Cash and cash equivalents                                 |       | $                                 | —     |                    | $          | —                      |       | $                               | —     |             | $          | 55,314           |       | $ | (244 | ) | $ | 55,070 |   |
| Accounts receivable, net                                  |       | —                            |       | 46,172                  |       | 1,212                       |       | 27,091                          |       | —           |       | 74,475           |       |
| Intercompany receivables                                  |       | —                            |       | 203,935                 |       | 87,710                      |       | 45,712                          |       | (337,357         | )          | —           |       |
| Inventories                                               |       | —                            |       | 53,475                  |       | 2,539                       |       | 22,409                          |       | (244             | )          | 78,179           |       |
| Deferred income taxes                                     |       | —                            |       | 4,274                   |       | —                      |       | 1,254                           |       | —           |       | 5,528            |       |
| Other current assets                                      |       | —                            |       | 15,787                  |       | 5,754                       |       | 8,077                           |       | (5,656           | )          | 23,962           |       |
| Total current assets                                      |       | —                            |       | 323,643                 |       | 97,215                      |       | 159,857                         |       | (343,501         | )          | 237,214          |       |
| Investments in affiliated companies                       |       | 262,141                           |       | 291,517                 |       | —                      |       | —                          |       | (553,658         | )          | —           |       |
| Property, plant, and equipment, net                       |       | —                            |       | 56,807                  |       | 6,633                       |       | 51,030                          |       | —           |       | 114,470          |       |
| Goodwill and other assets                                 |       | —                            |       | 103,501                 |       | 12,784                      |       | 15,597                          |       | —           |       | 131,882          |       |
| Total Assets                                              |       | $                                 | 262,141    |                    | $          | 775,468                     |       | $                               | 116,632    |             | $          | 226,484          |       | $ | (897,159 | ) | $ | 483,566 |   |
|                                                      |       |                              |       |                    |       |                        |       |                            |       |             |       |             |       |
| **Liabilities and Stockholders’ Equity (Deficit)**   |       |                              |       |                    |       |                        |       |                            |       |             |       |             |       |
|                                                      |       |                              |       |                    |       |                        |       |                            |       |             |       |             |       |
| Current maturities of long-term debt                      |       | $                                 | —     |                    | $          | 5,013                       |       | $                               | —     |             | $          | —           |       | $ | — |   | $ | 5,013 |   |
| Accounts payable                                          |       | —                            |       | 28,797                  |       | 629                         |       | 8,013                           |       | (5,900           | )          | 31,539           |       |
| Intercompany payables                                     |       | 267,989                           |       | 49,940                  |       | (544                        | )          | 19,972                          |       | (337,357         | )          | —           |       |
| Other current liabilities                                 |       | —                            |       | 35,129                  |       | 2,001                       |       | 13,985                          |       | —           |       | 51,115           |       |
| Total current liabilities                                 |       | 267,989                           |       | 118,879                 |       | 2,086                       |       | 41,970                          |       | (343,257         | )          | 87,667           |       |
| Long-term debt, excluding current maturities              |       | —                            |       | 280,852                 |       | —                      |       | —                          |       | —           |       | 280,852          |       |
| Other liabilities                                         |       | 892                               |       | 113,596                 |       | 324                         |       | 6,975                           |       | —           |       | 121,787          |       |
| Total liabilities                                         |       | 268,881                           |       | 513,327                 |       | 2,410                       |       | 48,945                          |       | (343,257         | )          | 490,306          |       |
| Stockholders’ equity (deficit)                       |       | (6,740                            | )          | 262,141                 |       | 114,222                     |       | 177,539                         |       | (553,902         | )          | (6,740           | )          |
| Total Liabilities and Stockholders’ Equity (Deficit) |       | $                                 | 262,141    |                    | $          | 775,468                     |       | $                               | 116,632    |             | $          | 226,484          |       | $ | (897,159 | ) | $ | 483,566 |   |

 

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**CondensedConsolidating Cash Flows Information**

 
| **(Amounts in  thousands)**                                              | ** ** | **Blount  International,  Inc.** | ** ** | **Blount,********Inc.** | ** ** | **Guarantor   Subsidiaries** | ** ** | **Non-  Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|------------------------------|------------|------------------------------------|------------|------------------|------------|------------------|------------|
|                                                                     |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
| **Three Months Ended March 31, 2010**                               |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
|                                                                     |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
| Net cash provided by operating activities                                |       | $                                | (65        | )                       | $          | 2,913                        |       | $                                  | 345        |             | $          | 2,822            |       | $ | 153 |   | $ | 6,168 |   |
| ** **                                                               |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
| Purchases of property, plant, and equipment, net of proceeds from  sales |       | —                           |       | (2,909                  | )          | —                       |       | (781                               | )          | —           |       | (3,690           | )          |
| Net cash used in investing activities                                    |       | —                           |       | (2,909                  | )          | —                       |       | (781                               | )          | —           |       | (3,690           | )          |
|                                                                     |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
| Net repayments under revolving credit facility                           |       | —                           |       | (3,400                  | )          | —                       |       | —                             |       | —           |       | (3,400           | )          |
| Repayment of term loan principal                                         |       | —                           |       | (279                    | )          | —                       |       | —                             |       | —           |       | (279             | )          |
| Advances from (to) affiliates                                            |       | 69                               |       | 17,143                  |       | (345                         | )          | (16,867                            | )          | —           |       | —           |       |
| Other                                                                    |       | (4                               | )          | —                  |       | —                       |       | —                             |       | —           |       | (4               | )          |
| Net cash provided by (used in) financing activities                      |       | 65                               |       | 13,464                  |       | (345                         | )          | (16,867                            | )          | —           |       | (3,683           | )          |
|                                                                     |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
| Effect of exchange rate changes                                          |       | —                           |       | —                  |       | —                       |       | 619                                |       | —           |       | 619              |       |
| Net increase (decrease) in cash and cash equivalents                     |       | —                           |       | 13,468                  |       | —                       |       | (14,207                            | )          | 153              |       | (586             | )          |
| Cash and cash equivalents at beginning of period                         |       | —                           |       | —                  |       | —                       |       | 55,314                             |       | (244             | )          | 55,070           |       |
| Cash and cash equivalents at end of period                               |       | $                                | —     |                    | $          | 13,468                       |       | $                                  | —     |             | $          | 41,107           |       | $ | (91 | ) | $ | 54,484 |   |
|                                                                     |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
| **Three Months Ended March 31, 2009**                               |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
|                                                                     |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
| Net cash provided by (used in) operating activities                      |       | $                                | 1,192      |                    | $          | (12,841                      | )          | $                                  | (5,270     | )                | $          | 8,743            |       | $ | 965 |   | $ | (7,211 | ) |
| ** **                                                               |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
| Purchase of property, plant, and equipment,net                           |       | —                           |       | (2,274                  | )          | (326                         | )          | (2,323                             | )          | —           |       | (4,923           | )          |
| Net cash used in investing activities                                    |       | —                           |       | (2,274                  | )          | (326                         | )          | (2,323                             | )          | —           |       | (4,923           | )          |
|                                                                     |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
| Net borrowings under revolving credit facility                           |       | —                           |       | 14,750                  |       | —                       |       | —                             |       | —           |       | 14,750           |       |
| Repayment of term loan principal                                         |       | —                           |       | (308                    | )          | —                       |       | —                             |       | —           |       | (308             | )          |
| Advances from (to) affiliates                                            |       | (1,186                           | )          | 2,005                   |       | 5,596                        |       | (6,415                             | )          | —           |       | —           |       |
| Other                                                                    |       | (6                               | )          | —                  |       | —                       |       | —                             |       | —           |       | (6               | )          |
| Net cash provided by (used in) financing activities                      |       | (1,192                           | )          | 16,447                  |       | 5,596                        |       | (6,415                             | )          | —           |       | 14,436           |       |
|                                                                     |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
| Effect of exchange rate changes                                          |       | —                           |       | —                  |       | —                       |       | (1,173                             | )          | —           |       | (1,173           | )          |
|                                                                     |       |                             |       |                    |       |                         |       |                               |       |             |       |             |       |
| Net increase (decrease) in cash and cash equivalents                     |       | —                           |       | 1,332                   |       | —                       |       | (1,168                             | )          | 965              |       | 1,129            |       |
| Cash and cash equivalents at beginning of period                         |       | —                           |       | 185                     |       | —                       |       | 59,158                             |       | (1,068           | )          | 58,275           |       |
| Cash and cash equivalents at end of period                               |       | $                                | —     |                    | $          | 1,517                        |       | $                                  | —     |             | $          | 57,990           |       | $ | (103 | ) | $ | 59,404 |   |

 

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**ITEM 2.**  **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

The following discussion andanalysis should be read in conjunction with our unaudited ConsolidatedFinancial Statements included elsewhere in this report.

 

**OperatingResults**

 

**Three monthsended March 31, 2010 (unaudited) compared to three months ended March 31,2009 (unaudited).**

 

The table below provides asummary of results and the primary contributing factors to the year-over-yearchange.

 
| ** **                                                           | ** ** | **Three Months Ended  March 31,** | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------|------------|------------|------------|------------|------------|
| **(Amounts in millions)**                                            | ** ** | **2010**                               | ** ** | **2009**   | ** ** | **Change** | ** ** | ** ** | ** ** | **Contributing Factor** | ** ** |
| ***(Amounts may not sum due to rounding)***                          |       |                                   |       |       |       |       |       |   |   |   |   |
|                                                                 |       |                                   |       |       |       |       |       |   |   |   |   |
| Sales                                                                |       | $                                      | 136.7      |       | $          | 116.5      |       | $ | 20.2 |   |   |   |   |   |
|                                                                 |       |                                   |       |       |       |       |       | $ | 23.5 |   | Sales volume |   |
|                                                                 |       |                                   |       |       |       |       |       | (4.9 | ) | Selling price and mix |   |
|                                                                 |       |                                   |       |       |       |       |       | 1.6 |   | Foreign currency translation |   |
|                                                                 |       |                                   |       |       |       |       |       |   |   |   |   |
| Gross profit                                                         |       | 50.0                                   |       | 37.8       |       | 12.2       |       |   |   |   |   |
| *Gross margin*                                                       | * *   | *36.6*                                 | *%*        | *32.4*     | *%*        |       |       | 11.4 |   | Sales volume |   |
|                                                                 |       |                                   |       |       |       |       |       | (4.9 | ) | Selling price and mix |   |
|                                                                 |       |                                   |       |       |       |       |       | 6.5 |   | Product cost and mix |   |
|                                                                 |       |                                   |       |       |       |       |       | (0.8 | ) | Foreign currency translation |   |
|                                                                 |       |                                   |       |       |       |       |       |   |   |   |   |
| Selling, General, and AdministrativeExpenses  (“SG&A”) |       | 28.3                                   |       | 25.2       |       | 3.1        |       |   |   |   |   |
|                                                                 |       |                                   |       |       |       |       |       | 1.5 |   | Compensation expense |   |
|                                                                 |       |                                   |       |       |       |       |       | 0.4 |   | Advertising |   |
|                                                                 |       |                                   |       |       |       |       |       | 0.8 |   | Foreign currency translation |   |
|                                                                 |       |                                   |       |       |       |       |       | 0.4 |   | Other |   |
|                                                                 |       |                                   |       |       |       |       |       |   |   |   |   |
| Plant closure and severance costs                                    |       | —                                 |       | 5.0        |       | (5.0       | )          |   |   |   |   |
|                                                                 |       |                                   |       |       |       |       |       |   |   |   |   |
| Operating income                                                     |       | 21.8                                   |       | 7.6        |       | 14.2       |       |   |   |   |   |
| *Operating margin*                                                   | * *   | *15.9*                                 | *%*        | *6.5*      | *%*        |       |       | 12.2 |   | Increase in gross profit |   |
|                                                                 |       |                                   |       |       |       |       |       | (3.1 | ) | Increase in SG&A |   |
|                                                                 |       |                                   |       |       |       |       |       | 5.0 |   | Plant closure and severance  costs |   |
|                                                                 |       |                                   |       |       |       |       |       |   |   |   |   |
| Net Income                                                           |       | $                                      | 8.8        |       | $          | 1.0        |       | $ | 7.8 |   |   |   |   |   |
|                                                                 |       |                                   |       |       |       |       |       | 14.2 |   | Increase in operating income |   |
|                                                                 |       |                                   |       |       |       |       |       | (0.7 | ) | Increase in net interest  expense |   |
|                                                                 |       |                                   |       |       |       |       |       | (5.7 | ) | Increase in income tax  provision |   |
|                                                                      |            |                                        |            |            |            |            |            |  |  |  |  |  |  |  |  |

 

Sales in the three monthsended March 31, 2010 increased by $20.2 million (17.3%) from the sameperiod in 2009, primarily due to increased unit volume of $23.5 million.  Changes in average selling price and mix lowered sales revenue by $4.9 million on a quarter toquarter comparative basis.  Lower averageselling prices were attributable to increased sales to large volume customers,as well as a higher proportion of OEM sales versus the comparable prior yearquarter.  The translation of foreigncurrency-denominated sales transactions, given the weaker U.S. Dollar incomparison to the first quarter of 2009, increased consolidated sales by $1.6million in the current quarter. International sales increased by $24.6 million (33.1%), while domesticsales decreased by $4.4 million (10.4%). The increase in international sales reflected improving world-widemarket conditions and demand for our products following the severe globalrecession experienced in 2009, as well as favorable effects from movement inforeign currency exchange rates compared to 2009.  During the first quarter of 2009, we werecautious about extending credit to certain higher risk geographical areasduring the then current global recession, which we believe 

 

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contributed to a slowdown insales and orders from portions of our international customer base.  As international market conditions and creditconcerns have improved, our international sales have increased.  The decrease in domestic sales isattributable to the timing of our seasonal programs in the U.S., which aredesigned to assist distributors in stocking for the spring end-user sellingcycle.  Customer buying patterns in themost recent seasonal selling cycle tended to create some softness in the firstquarter of 2010 compared to the first quarter of 2009.

 

Consolidatedorder backlog at March 31, 2010 was $105.7 million compared to $79.7million at December 31, 2009. Backlog in the Outdoor Products segment increased $25.2 million, whilethe backlog for gear components increased by $0.8 million during the firstquarter of 2010.

 

Gross profit increased $12.2million (32.4%) from the first quarter of 2009 to the first quarter of2010.  Higher unit sales volume andimproved product cost and mix drove the increase in gross profit.  These positive factors were partially offsetby negative movements in average selling prices and mix and movements in foreigncurrency exchange rates.  Year-over-yearsteel costs are estimated to be $4.2 million lower for the comparable firstquarter periods, although we expect steel costs to increase later in 2010.  Our manufacturing costs were also favorablyaffected during the first quarter of 2010 by higher production volumes,including the elimination of idle manufacturing days.  The higher production volumes drove improvedabsorption rates when compared to the first quarter of 2009.  Gross margin in the first quarter of 2010 was36.6% of sales compared to 32.4% in the first quarter of 2009.

 

Fluctuations in currencyexchange rates decreased our gross profit in the first quarter of 2010 comparedto 2009 by $0.8 million on a consolidated basis.  The translation of stronger foreigncurrencies into a weaker U.S. Dollar resulted in higher reported sales revenuefrom our sales outside the U.S. (primarily in Europe).  However, higher reported manufacturing costsin Brazil and Canada, as a result of stronger currencies in those countries,more than offset the favorable impact that translation of stronger foreigncurrencies had on sales.

 

SG&A was $28.3 million inthe first quarter of 2010, compared to $25.2 million in the first quarter of2009, representing an increase of $3.1 million (12.3%).  As a percentage of sales, SG&A decreasedfrom 21.6% in the first quarter of 2009 to 20.7% in the first quarter of 2010,primarily due to the increase in sales revenue, which outpaced the increase inSG&A spending.  Compensation and benefitsexpense for the quarter increased by $1.9 million on a year-over-year basis,reflecting annual merit increases, increased incentive compensationattributable to improved operating results, higher stock-based compensationexpense, and increased employee benefit costs. Advertising expense increased by $0.4 million in the first quarter of2010 compared to the first quarter of 2009. International operating expenses increased $0.8 million from the prioryear due to the weaker U.S. Dollar and its effect on the translation of foreignexpenses.

 

We took actions during 2009 toconsolidate manufacturing operations and reduce the number of employees atcertain of our locations.  During thethree months ended March 31, 2009, we recognized a total of $5.0 millionin plant closure and severance charges related to these actions.

 

Operating income increased by$14.2 million from the first quarter of 2009 to the first quarter of 2010,resulting in an operating margin for 2010 of 15.9% of sales compared to 6.5%for the first quarter of 2009.  Theincrease was due to higher sales volume and gross profit, as well as therestructuring charges recognized in 2009, partially offset by increasedSG&A expenses.

 

Interest expense was $6.5million in the first quarter of 2010 compared to $5.9 million in the firstquarter of 2009.  The increase was due tohigher average interest rates on our variable rate debt, partially offset bylower average outstanding debt balances in the comparable periods.  The variable interest rates on our term loansincreased significantly when we amended and restated our senior creditfacilities in December 2009, although the impact of increased rates waspartially offset by lower average borrowings.

 

We sponsor various pension and other post-retirementbenefit plans for many of our employees. The Company receives a Medicare Part D subsidy for a portion of thecost of providing prescription drug benefits under its retiree medical benefitplan.  In March of 2010, newlegislation was signed into law in the U.S. that makes this subsidy fullysubject to federal income tax beginning in 2013.  Previously, this subsidy was essentiallyexempt from federal income tax. Accordingly, the Company recognized a charge of $1.7 million to incometax expense in the three months ended March 31, 2010, reflecting the write-offof the deferred tax asset related to this subsidy.

 

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The following table summarizesour income tax provision for continuing operations in 2010 and 2009:

 
| ** **                  | ** ** | **Three Months Ended March 31,** | ** **   |
|-----------------------------|------------|---------------------------------------|--------------|
| **(Amounts  in thousands)** | ** ** | **2010**                              | ** **   | **2009** | ** ** |
| Income before  income taxes |       | $                                     |  15,252 |   | $ |  1,738 |   |
| Provision for  income taxes |       | 6,469                                 |         | 781 |   |
| Effective tax  rate         |       | 42.4                                  | %            | 44.9 | % |
|                             |            |                                       |              |  |  |  |  |

 

The effective tax rate for thefirst quarter of 2010 was higher than the federal statutory rate of 35% due tostate income taxes and the $1.7 million impact of the change in taxdeductibility related to the Medicare Part D prescription drug benefit weprovide to certain of our U.S. retirees. These increases to the effective tax rate were partially offset by thepositive effects from settlement of our IRS audit and the related release ofreserves for some of our uncertain tax positions.  The effective tax rate in 2009 is affected bythe magnified impact of permanent items, given the relatively low level ofincome before income taxes.

 

Net income in the firstquarter of 2010 was $8.8 million, or $0.18 per diluted share, compared to $1.0million, or $0.02 per diluted share, in the first quarter of 2009.

 

***Segment Results. ***The followingtable reflects segment sales and operating results for 2010 and 2009:

 
| ** **                  | ** ** | **Three Months Ended March 31,** | ** **    |
|-----------------------------|------------|---------------------------------------|---------------|
| **(Amounts  in thousands)** | ** ** | **2010**                              | ** **    | **2009** | ** ** | **Percent   Change** | ** ** |
| Sales:                      |       |                                  |          |   |   |   |   |
| Outdoor Products            |       | $                                     |  133,129 |   | $ |  111,419 |   | 19.5 | % |
| Other                       |       | 3,555                                 |          | 5,105 |   | (30.4 | ) |
| Total sales                 |       | $                                     |  136,684 |   | $ |  116,524 |   | 17.3 | % |
| Operating  income:          |       |                                  |          |   |   |   |   |
| Outdoor Products            |       | $                                     | 27,779        |   | $ |    16,490 |   | 68.5 | % |
| Other                       |       | (6,019                                | )             | (8,910 | ) | 32.4 |   |
| Operating income            |       | $                                     | 21,760        |   | $ | 7,580 |   | 187.1 | % |

 

***Outdoor Products Segment.***** **Sales for the Outdoor Productssegment increased by $21.7 million (19.5%) in the first quarter of 2010compared to the first quarter of 2009, primarily due to an increase in unitvolume of $24.8 million, reflecting improved international market conditionsand strong customer demand for our products. Fluctuations in foreign currency exchange rates further increasedreported segment sales revenue by $1.6 million compared to the first quarter of2009.  Segment sales were reduced by $4.7million from the effect of lower average selling prices driven by product mixand a higher relative proportion of sales to OEM and large volumecustomers.  Sales of wood-cuttingchainsaw components were up 23.7%, sales of concrete-cutting products were up13.5%, and sales of outdoor care products were essentially flatyear-over-year.  Sales of our outdoorcare products were positively affected in the first quarter of 2009 by weatherconditions in the Midwest and East Coast areas of the U.S., which stimulateddemand for such products, and by the positive market reception of promotionalactivities that we implemented at that time. Sales to OEM customers increased by 21.1%, while replacement marketsales increased by 19.0%.  Internationalsales increased 33.4% for the three month comparable period, while domesticsales declined by 8.0%.

 

Segment contribution tooperating income increased $11.3 million (68.5%) in the first quarter of 2010compared to the first quarter of 2009. The favorable effects of increased sales unit volume ($11.9 million) andlower product cost and mix ($6.1 million) were partially offset by the effectsof lower average selling prices and mix ($4.7 million), fluctuations in foreigncurrency translation rates ($1.6 million), and slightly higher SG&Aexpenses ($0.5 million).  Our productcosts were positively affected during the first quarter of 2010 compared to thefirst quarter of 2009 by higher production volumes, including the eliminationof idle manufacturing days. The higher production volumes drove improvedabsorption rates when compared to the first quarter of 2009.  In addition, steel costs on a year-over-yearcomparative basis were lower by an estimated $4.2 million.

 

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***Other.***  The othercategory includes centralized administrative functions, the results of our gearcomponents manufacturing business, certain post-retirement benefit plan costs,and building and plant closure and severance costs.  Sales of gear-related products decreased by30.4% from the first quarter of 2009 to the first quarter of 2010 primarily dueto reduced unit volume.  The salesdecrease included lower volume of $1.3 million and a $0.2 million unfavorableeffect of mix changes.  The contributionto operating income from our gear components business was flat on ayear-over-year basis, as cost cutting measures offset the lower sales unitvolume.  Central administrative expenseswere down $2.9 million for the comparable period, due to the plant closure andseverance costs recognized in the first quarter of 2009, partially offset byhigher costs for compensation and benefits due to annual merit increases,increased incentive compensation from improved operating results, higherstock-based compensation costs, and increased employee benefit costs.

 

**FinancialCondition, Liquidity and Capital Resources**

 

Total debt at March 31,2010 was $282.2 million compared to $285.9 million at December 31, 2009:

 
| ** **                        | ** ** | **March 31,** | ** **    | **December 31,** | ** ** |
|-----------------------------------|------------|--------------------|---------------|-----------------------|------------|
| **(Amounts  in thousands)**       | ** ** | **2010**           | ** **    | **2009**              | ** ** |
| Revolving credit  facility        |       | $                  | —        |                  | $          | 3,400 |   |
| Term loans                        |       | 107,186            |          | 107,465               |       |
| 8 7/8% senior  subordinated notes |       | 175,000            |          | 175,000               |       |
| Total debt                        |       | 282,186            |          | 285,865               |       |
| Less current  maturities          |       | (5,003             | )             | (5,013                | )          |
| Long-term debt                    |       | $                  |  277,183 |                  | $          |  280,852 |   |

 

***8 7/8% Senior Subordinated Notes.***  The Company has one registered debt security,the 8 7/8% senior subordinated notes. The interest rate on these notes is fixed until their maturity on August 1,2012.  These notes are subject toredemption at the option of the Company, in whole or in part, at redemptionprices of 102.219% through July 31, 2010; and at 100% on August 1,2010 and thereafter.  These notes areissued by the Company’s wholly-owned subsidiary, Blount, Inc., and arefully and unconditionally, jointly and severally, guaranteed by the Company andall of its domestic subsidiaries (“guarantor subsidiaries”) other than Blount, Inc.  All guarantor subsidiaries of these 8 7/8%senior subordinated notes are 100% owned, directly or indirectly, by theCompany.  While the Company and all ofits domestic subsidiaries guarantee these 8 7/8% senior subordinated notes,none of Blount’s existing foreign subsidiaries (“non-guarantor subsidiaries”)guarantee these notes.  See also Note 14.

 

***Senior Credit Facilities.******* The Company, through its wholly-ownedsubsidiary, Blount, Inc., first entered into a credit agreement withGeneral Electric Capital Corporation as Agent on May 15, 2003.  The agreement was amended and restated on August 9,2004, underwent several subsequent amendments, and was amended and restatedagain on December 4, 2009.  Thesenior credit facilities consist of a revolving credit facility and a term loanfacility.

 

***April 2009Amendment to Revolving Credit Facility***.  On April 30,2009, we entered into an amendment to the revolving credit facility as follows:

 

·                  The maturity date was extended to August 9, 2010.

 

·                  We reduced total availability under the revolvingcredit facility from $150.0 million to $90.0 million.

 

·                  The interest rate was increased from the LIBOR rateplus 1.75% or the U.S. prime interest rate, with no minimum, to the LIBOR rateas defined in the credit agreement (the “LIBOR Rate”) plus 5.00% or the U.S. indexrate as defined in the credit agreement (the “U.S. Index Rate”) plus 3.25%,with a minimum rate of 7.50%, on all outstanding principal.

 

·                  The commitment fee on unused borrowing capacity wasincreased from 0.375% to 1.0%.

 

·                  The Company incurred fees and third party costs of$2.0 million related to the amendment.

 

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**December 2009 Amendment andRestatement of Credit Facilities.**  On December 4,2009, the senior credit facility was amended and restated as follows:

 

·                  The maturity date for both the revolving creditfacility and the term loan facility was extended to February 9, 2012.

 

·                  We reduced total availability under the revolvingcredit facility from $90.0 million to $60.0 million.

 

·                  The interest rate on the term loan facility wasincreased from LIBOR plus 1.75% or the U.S. prime rate to the LIBOR Rate plus3.50%, or the index rate as defined in the credit agreement (the “Index Rate”)plus 2.50%, with a minimum rate of 5.50%.

 

·                  The maximum allowed leverage ratio, as defined in thecredit agreement, was increased from 4.25 to 4.50.

 

·                  Existing term loans representing $3.9 million of thetotal of $107.5 million term loan principal outstanding were not affected bythis amendment and restatement, and the terms for this portion of the termloans remain unchanged, including interest at the prime rate and a maturitydate of August 9, 2010.  Theprincipal amount of these unchanged term loans is included in currentmaturities of long-term debt on the Consolidated Balance Sheet.

 

·                  The Company incurred fees and third party costs of$3.3 million related to the amendment and restatement.

 

The revolving credit facility provides for totalavailable borrowings up to $60.0 million, reduced by outstanding letters ofcredit and further restricted by a specific leverage ratio and credit facilityleverage ratio. As of March 31,2010, the Company had the ability to borrow an additional $56.7 million underthe terms of the revolving credit agreement. The revolving credit facility bears interest at the LIBOR Rate plus5.00%, or the U.S. Index Rate plus 3.25%, with a minimum interest rate of7.50%, and matures on February 9, 2012. Interest is payable on the individual maturity dates for eachLIBOR-based borrowing.  Any outstandingprincipal is due in its entirety on the maturity date.

 

The term loan facility bearsinterest at the LIBOR Rate plus 3.50%, or the Index Rate plus 2.50%, with aminimum interest rate of 5.50%, and matures on February 9, 2012.  The term loan facility requires quarterly principalpayments of $0.3 million and an additional principal payment of $3.9 milliondue August 9, 2010, with a final payment of $101.1 million due on thematurity date.  Once repaid, principalunder the term loan facility may not be re-borrowed by the Company.

 

The amended and restatedsenior credit facilities contain financial covenants relating to:

 

·                  Maximum capital expenditures.

 

·                  Minimum fixed charge coverageratio, defined as EBITDA divided by cash payments for interest, taxes, capitalexpenditures, scheduled debt principal payments, and certain other items.

 

·                  Maximum leverage ratio,defined as total debt divided by EBITDA.

 

·                  Maximum credit facilityleverage ratio, defined as principal outstanding under the senior creditfacilities divided by EBITDA.

 
| ****                                                   | ** ** | **As of March 31, 2010** | ** **   |
|--------------------------------------------------------|------------|-------------------------------|--------------|
| **Financial  Covenants**                               | ** ** | **Requirement**               | ** **   | **Actual** | ** ** |
| Maximum capital  expenditures per year                 |       | $                             |  32,500 |   | $ |   3,719 |   |
| Minimum fixed  charge coverage ratio last 12 months    |       | 1.15                          |         | 2.00 |   |
| Maximum leverage  ratio last 12 months                 |       | 4.50                          |         | 2.93 |   |
| Maximum credit  facility leverage ratio last 12 months |       | 2.50                          |         | 1.13 |   |
|                                                        |            |                               |              |  |  |  |  |

 

In addition, there arecovenants or restrictions relating to, among other categories, acquisitions,investments, loans and advances, indebtedness, dividends on our stock, and thesale of stock or assets.  We were incompliance with all debt covenants as of March 31, 2010.  Non-compliance with these covenants, if itwere to become an event of default under the terms of the credit agreement,could result in severe limitations to our overall liquidity, and the term loanlenders could require actions for immediate repayment of outstanding amounts,potentially requiring the sale 

 

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of our assets.  Such non-compliance, if any, could alsoresult in an event of default under the indenture agreement related to the 87/8% senior subordinated notes.  Our debtis not subject to any triggers that would require early payment of debt due toany adverse change in our credit rating.

 

The amended and restated senior credit facilities maybe prepaid at any time.  There can alsobe additional mandatory repayment requirements related to the sale of Companyassets, the issuance of stock under certain circumstances, or upon the Company’sannual generation of excess cash flow, as determined under the creditagreement.

 

Blount International, Inc.and all of its domestic subsidiaries other than Blount, Inc. guaranteeBlount, Inc.’s obligations under the senior credit facilities.  The obligations under the senior creditfacilities are collateralized by a first priority security interest insubstantially all of the assets of Blount, Inc. and its domesticsubsidiaries, as well as a pledge of all of Blount, Inc.’s capital stockheld by Blount International, Inc. and all of the stock of domesticsubsidiaries held by Blount, Inc. Blount, Inc. has also pledged 65% of the stock of its non-domesticsubsidiaries as additional collateral.

 

Our debt instruments and general credit are rated byboth Standard & Poor’s and Moody’s. There were no changes to these ratings during the three months March 31,2010.  As of March 31, 2010, thecredit ratings for the Company were as follows:

 
| ** **                 | ** ** | **Standard &  Poor’s** | ** ** | **Moody’s** | ** ** |
|----------------------------|------------|--------------------------------------|------------|------------------|------------|
| Senior credit  facility    |       | BB+                                  |       | Ba1              |       |
| Senior  subordinated notes |       | B                                    |       | B2               |       |
| General credit  rating     |       | BB- /Stable                          |       | Ba3              |       |

 

We intend to fund workingcapital, capital expenditures, debt service requirements, and obligations underour post-employment benefit plans for the next twelve months through cash flowsgenerated from operations and the amounts available under our revolving creditfacility.  We expect our financialresources will be sufficient to cover any additional increases in workingcapital and capital expenditures.  Therecan be no assurance, however, that these resources will be sufficient to meetour needs.  We may also consider otheroptions available to us in connection with future liquidity needs, including,but not limited to, the postponement of discretionary contributions topost-employment benefit plans, the postponement of capital expenditures,restructuring of our credit facilities, and issuance of new debt or equitysecurities.

 

Our interest expense may varyin the future because the revolving credit facility and term loan interestrates are variable.  The interest rate isfixed on the senior subordinated notes. Our weighted average interest rate on all debt was 7.56% as of March 31,2010, compared to 7.54% as of December 31, 2009.

 

Cash and cash equivalents at March 31,2010 were $54.5 million, compared to $55.1 million at December 31,2009.  As of March 31, 2010, themajority of our cash was held at our foreign operations.

 

Cash provided by (used in)operating activities is summarized in the following table:

 
| ** **                                       | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------|------------|---------------------------------------|------------|
| **(Amounts  in thousands)**                      | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| Net income                                       |       | $                                     | 8,783      |   | $ | 957 |   |
| Non-cash items                                   |       | 7,591                                 |       | 9,103 |   |
| Subtotal                                         |       | 16,374                                |       | 10,060 |   |
| Changes in  assets and liabilities, net          |       | (10,053                               | )          | (16,801 | ) |
| Discontinued  operations, net                    |       | (153                                  | )          | (470 | ) |
| Cash provided by  (used in) operating activities |       | $                                     | 6,168      |   | $ | (7,211 | ) |

 

Non-cash items consist ofexpenses for depreciation of property, plant, and equipment; amortization;stock compensation and other non-cash charges; asset impairment charges; thetax benefit or expense from share-based compensation; deferred income taxes;and gains or losses on disposal of property, plant, and equipment.

 

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During the first three months of 2010, operatingactivities provided $6.2 million of cash. Income from continuing operations plus non-cash items totaled $16.4million in the first quarter of 2010, reflecting increased income compared withthe first quarter of 2009, but lower non-cash items. The reduced amount ofnon-cash items in 2010 is primarily due to the inclusion in 2009 of the $2.0million asset impairment charge related to the closure of our manufacturingplant in Milan, Tennessee.  The netchange in working capital components and other assets and liabilities duringthe 2010 period used $10.1 million in cash. An increase in inventories of $3.4 million in anticipation of highersales during the remainder of 2010, and decreases in accounts payable ($3.0million), accrued expenses ($5.3 million), and other liabilities ($2.5 million)from timing of payments including payment of year end incentive compensationand retirement plan contributions, used cash during the period.  These uses were partially offset by adecrease in other assets of $3.9 million, including the collection of incometaxes receivable in certain jurisdictions. Cash payments during the first three months of 2010 also included $9.1million for interest and $2.9 million for income taxes. The Company expects tocontribute a total of $14 million to $16 million to its defined benefit pensionplans during 2010.

 

During the first three monthsof 2009, operating activities used $7.2 million of cash.  Historically, our cash flows from operatingactivities have been negative in the first quarter, when first quarter incomeis offset by the pay-down of year-end accrued liabilities and an increase inworking capital components.  Income fromcontinuing operations plus non-cash items totaled $10.1 million in the firstquarter of 2009, reflecting reduced income partially offset by increasedamortization expense related to Carlton, as well as an asset impairment chargerelated to the closure of our Milan facility. The positive operating cash flowfrom these items was more than offset by the net increase in working capitaland other assets and liabilities during the period.  An increase in inventories of $4.8 millionresulting from the severe downturn in sales activity, together with thereduction in accounts payable and accrued expenses of $20.0 million from timingof payments including year end incentive compensation and retirement plancontributions, used cash during the period. Partially offsetting these uses was a reduction in accounts receivableof $7.3 million from lower sales in the first quarter of 2009.  Discontinued operations used $0.5 million incash during the first quarter of 2009, as certain accrued obligations andliabilities related to these former operations were paid in early 2009.  Cash payments during the quarter alsoincluded $8.8 million for interest and $3.7 million for income taxes.

 

Cash used in investingactivities is summarized as follows:

 
| ** **                                        | ** ** | **Three Months Ended March 31,** | ** **   |
|---------------------------------------------------|------------|---------------------------------------|--------------|
| **(Amounts  in thousands)**                       | ** ** | **2010**                              | ** **   | **2009** | ** ** |
| Purchases of  property, plant, and equipment, net |       | $                                     |  (3,690 | ) | $ |  (4,923 | ) |
|                                                   |            |                                       |              |  |  |  |  |

 

Purchases of property, plant,and equipment are primarily for productivity improvements, expandedmanufacturing capacity, and replacement of consumable tooling and equipment.Generally, about one-third of our capital spending represents replacement ofconsumable tooling, dies and existing equipment, with the remainder devoted tocapacity and productivity improvements. During 2010, we expect to invest $22 million to $27 million in availablecash for capital expenditures, compared to $17.3 million for the full year in2009.

 

Cash provided by (used in)financing activities is summarized as follows:

 
| ** **                                              | ** ** | **Three Months Ended March 31,** | ** **   |
|---------------------------------------------------------|------------|---------------------------------------|--------------|
| **(Amounts  in thousands)**                             | ** ** | **2010**                              | ** **   | **2009** | ** ** |
| Net increase  (decrease) in debt principal outstanding  |       | $                                     |  (3,679 | ) | $ |  14,442 |   |
| Proceeds and tax  effects from stock-based compensation |       | (4                                    | )            | (6 | ) |
| Cash provided by  (used in) financing activities        |       | $                                     |  (3,683 | ) | $ |  14,436 |   |

 

Cash used in financingactivities in the first three months of 2010 consisted of net repayments ofprincipal on our revolving credit and term debt facilities of $3.7million.  Cash provided by financingactivities in the first three months of 2009 consisted of net borrowing underour revolving credit facility, primarily to fund increases in working capitalcomponents, partially offset by a scheduled quarterly principal payment on ourterm debt facility.

 

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**CriticalAccounting Policies**

 

There have been no material changes to our criticalaccounting policies and estimates from the information provided in Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,”included in our Form 10-K for the fiscal year ended December 31,2009.

 

**Recent Accounting Pronouncements**

 

In the opinion of management, there are currently norecent accounting pronouncements to be adopted that are expected to have asignificant effect on our financial reporting.

 

**ForwardLooking Statements**

 

“Forward looking statements,”as defined by the Private Securities Litigation Reform Act of 1995, used inthis report, including without 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 availability and estimated costs of financing,the global economic climate, foreign currency exchange rates, the cost to theCompany of commodities in general, and of steel in particular, the anticipatedlevel of applicable interest rates, and the anticipated effects of discontinuedoperations involve certain estimates and assumptions. To the extent that these,or any other such assumptions, are not realized going forward, or otherunforeseen factors arise, actual results for the periods subsequent to the dateof this report may differ materially.

 

**ITEM 3.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We are exposed to market risksfrom changes in interest rates, foreign currency exchange rates, and commodityprices, including raw materials such as steel. We manage our exposure to thesemarket risks through our regular operating and financing activities, and, whendeemed appropriate, through the use of derivatives. When utilized, derivativesare used as risk management tools and not for trading or speculative purposes.

 

We manage our ratio of fixed to variable rate debtwith the objective of achieving a mix that management believes is appropriate.Our 8 7/8% senior subordinated notes carry a fixed interest rate.  The interest rates are variable on our termand revolver loans and we are subject to market risk from movement in benchmarkrates.  When we amended the revolvingcredit facility in April 2009, the interest rate on our revolving creditfacility was increased significantly. When we amended and restated our senior credit facilities in December 2009,the interest rate on most of the principal balance of our term loans wasincreased significantly.

 

See also, the Market Risksection of Management’s Discussion and Analysis of Financial Condition andResults of Operations in our most recent Form 10-K, filed with the SEC on March 9,2010, for further discussion of market risk.

 

**ITEM 4.  CONTROLS ANDPROCEDURES**

 

The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in the Company’s Securities Exchange Act of 1934reports is recorded, processed, summarized, and reported within the timeperiods specified in the Securities and Exchange Commission’s rules andregulations, and that such information is accumulated and communicated to theCompany’s management, including its Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow for timely decisions regarding requireddisclosure. In designing and evaluating the disclosure controls and procedures,management recognizes that any controls and procedures, no matter how welldesigned and operated, can only provide reasonable assurance of achieving thedesired control objectives.  Managementis required to apply its judgment in evaluating the cost-benefit relationshipof possible controls and procedures.

 

The Company, under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer and Chief Financial Officer, evaluatedthe effectiveness of the design and 

 

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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 (as defined in Rules 13a-15(e) and Rule 15d-15(e) underthe Securities Exchange Act of 1934) were effective at the reasonable assurancelevel.

 

There have been nochanges in the Company’s internal control over financial reporting during theCompany’s last fiscal quarter that have materially affected, or are reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

**PART II     OTHERINFORMATION**

 

**ITEM 6. EXHIBITS**

 

**(a) Exhibits:**

 

**10.1 Employment Agreement dated December 14, 2009 by and betweenBlount International, Inc. and David A. Willmott.

 

**31.1 Certification pursuant to section 302 of the Sarbanes-Oxley Actof 2002 by Joshua L. Collins, President and Chief Executive Officer.

 

**31.2 Certification pursuant to section 302 of the Sarbanes-Oxley Actof 2002 by Calvin E. Jenness, Senior Vice President and Chief FinancialOfficer.

 

**32.1 Certification pursuant to section 906 of the Sarbanes-Oxley Actof 2002 by Joshua L. Collins, President and Chief Executive Officer.

 

**32.2 Certification pursuant to section 906 of the Sarbanes-Oxley Actof 2002 by Calvin E. Jenness, Senior Vice President and Chief FinancialOfficer.

 

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**   Filed electronicallyherewith.  Copies of such exhibits may beobtained upon written request from:

 
|   | Blount  International, Inc.  |
|--------|-----------------------------------|
|   | P.O. Box 22127               |
|   | Portland, Oregon  97269-2127 |

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by 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 Corporate  Controller |
| Chief Financial Officer   |   | (Principal Accounting  Officer)          |

 

Dated:  May 6, 2010

 

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