UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D. C. 20549




FORM
10-Q




x
            Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the quarterly period ended March 31,
  2009.


OR


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




Commission
file number 001-11549




BLOUNT
INTERNATIONAL, INC.


(Exact
name of registrant as specified in its charter)




Delaware
                      63
      0780521(State or other
      jurisdiction of incorporation
      or organization)
                      (I.R.S. Employer
      Identification
      No.)




4909
      SE International Way, Portland, Oregon
                  97222-4679(Address
      of principal executive offices)
                  (Zip
      Code)




(503)
653-8881


(Registrant's
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.




Yes T          
No £





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




Large
      accelerated filer £
                Accelerated
      filer T
                Non-accelerated
      filer £
                Smaller
      reporting company £




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




Yes £          
No T




The
number of shares outstanding of $0.01 par value common stock as of April 30,
2009 was 47,680,324 shares.







1


BLOUNT
INTERNATIONAL, INC. AND SUBSIDIARIES




Index




PagePart
      I
                                                                                                              Financial
      InformationItem
      1. Consolidated Financial StatementsUnaudited Consolidated Statements of IncomeThree months ended
      March 31, 2009 and 2008
                                                                                                              3Unaudited Consolidated Balance Sheets
                                                                                                                March 31, 2009 and December 31, 2008
                                                                                                              4Unaudited Consolidated Statements of Cash
      Flows
                                                                                                                Three months ended March 31, 2009 and 2008
                                                                                                              5Unaudited Consolidated Statement of Changes in Stockholders’
      Deficit
                                                                                                                Three months ended March 31, 2009
                                                                                                              6Notes to Unaudited Consolidated Financial
      Statements
                                                                                                              7Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                                                                                                              21Item 3. Quantitative and Qualitative Disclosures about Market
      Risk
                                                                                                              29Item 4. Controls and Procedures
                                                                                                              29Part
      II
                                                                                                              Other
      InformationItem 6. Exhibits
                                                                                                              30Signatures
                                                                                                              
                                                                                                              31





2
 Index


PART
I           FINANCIAL
INFORMATION




ITEM
1.          CONSOLIDATED FINANCIAL
STATEMENTS




UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME


Blount
International, Inc. and Subsidiaries


Three
      MonthsEnded
      March 31,(Amounts
      in thousands, except per share data)
                                                  
                                                  2009
                                                  
                                                  
                                                  2008Sales
                                                  
                                                  $
                                                  116,524
                                                  
                                                  
                                                  $
                                                  133,207Cost
      of sales
                                                  
                                                  
                                                  78,734
                                                  
                                                  
                                                  
                                                  90,729Gross
      profit
                                                  
                                                  
                                                  37,790
                                                  
                                                  
                                                  
                                                  42,478Selling,
      general and administrative expenses
                                                  
                                                  
                                                  25,171
                                                  
                                                  
                                                  
                                                  24,856Plant
      closure and severance costs
                                                  
                                                  
                                                  5,039
                                                  
                                                  
                                                  
                                                  953Operating
      income
                                                  
                                                  
                                                  7,580
                                                  
                                                  
                                                  
                                                  16,669Interest
      income
                                                  
                                                  
                                                  104
                                                  
                                                  
                                                  
                                                  342Interest
      expense
                                                  
                                                  
                                                  (5,933
                                                  )
                                                  
                                                  
                                                  (6,812
                                                  )Other
      income (expense), net
                                                  
                                                  
                                                  (13
                                                  )
                                                  
                                                  
                                                  87Income
      from continuing operations before income taxes
                                                  
                                                  
                                                  1,738
                                                  
                                                  
                                                  
                                                  10,286Provision
      for income taxes
                                                  
                                                  
                                                  781
                                                  
                                                  
                                                  
                                                  3,397Income
      from continuing operations
                                                  
                                                  
                                                  957
                                                  
                                                  
                                                  
                                                  6,889Discontinued
      operations:Loss
      before taxes
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (85
                                                  )Income
      tax benefit
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (32
                                                  )Loss
      from discontinued operations
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (53
                                                  )Net
      income
                                                  
                                                  $
                                                  957
                                                  
                                                  
                                                  $
                                                  6,836Basic
      income per share:Continuing
      operations
                                                  
                                                  $
                                                  0.02
                                                  
                                                  
                                                  $
                                                  0.14Discontinued
      operations
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Net
      income
                                                  
                                                  $
                                                  0.02
                                                  
                                                  
                                                  $
                                                  0.14Diluted
      income per share:Continuing
      operations
                                                  
                                                  $
                                                  0.02
                                                  
                                                  
                                                  $
                                                  0.14Discontinued
      operations
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Net
      income
                                                  
                                                  $
                                                  0.02
                                                  
                                                  
                                                  $
                                                  0.14Weighted
      average shares used in per share calculations:Basic
                                                  
                                                  
                                                  47,739
                                                  
                                                  
                                                  
                                                  47,303Diluted
                                                  
                                                  
                                                  48,180
                                                  
                                                  
                                                  
                                                  48,096




The
accompanying notes are an integral part of these consolidated financial
statements.


3
 Index


UNAUDITED CONSOLIDATED BALANCE SHEETS


Blount
International, Inc. and Subsidiaries




March
      31,
                                      
                                      
                                      December
      31,(Amounts
      in thousands, except share and per share data)
                                      
                                      2009
                                      
                                      
                                      2008AssetsCurrent
      assets:Cash
      and cash equivalents
                                      
                                      $
                                      59,404
                                      
                                      
                                      $
                                      58,275Accounts
      receivable, net of allowance for doubtful accounts of $3,895 and $3,800
      respectively
                                      
                                      
                                      68,283
                                      
                                      
                                      
                                      75,555Inventories,
      net
                                      
                                      
                                      95,136
                                      
                                      
                                      
                                      90,302Deferred
      income taxes
                                      
                                      
                                      7,434
                                      
                                      
                                      
                                      5,492Other
      current assets
                                      
                                      
                                      14,550
                                      
                                      
                                      
                                      14,940Total
      current assets
                                      
                                      
                                      244,807
                                      
                                      
                                      
                                      244,564Property,
      plant and equipment, net
                                      
                                      
                                      116,857
                                      
                                      
                                      
                                      119,749Deferred
      financing costs
                                      
                                      
                                      5,675
                                      
                                      
                                      
                                      6,679Deferred
      income taxes
                                      
                                      
                                      24,803
                                      
                                      
                                      
                                      21,679Intangible
      assets
                                      
                                      
                                      13,491
                                      
                                      
                                      
                                      13,864Assets
      held for sale
                                      
                                      
                                      2,324
                                      
                                      
                                      
                                      1,429Goodwill
                                      
                                      
                                      66,071
                                      
                                      
                                      
                                      66,071Other
      assets
                                      
                                      
                                      25,638
                                      
                                      
                                      
                                      25,649Total
      Assets
                                      
                                      $
                                      499,666
                                      
                                      
                                      $
                                      499,684Liabilities
      and Stockholders’ DeficitCurrent
      liabilities:Current
      maturities of long-term debt
                                      
                                      $
                                      1,231
                                      
                                      
                                      $
                                      31,981Accounts
      payable
                                      
                                      
                                      21,669
                                      
                                      
                                      
                                      28,864Accrued
      expenses
                                      
                                      
                                      46,423
                                      
                                      
                                      
                                      55,235Deferred
      income taxes
                                      
                                      
                                      452
                                      
                                      
                                      
                                      498Total
      current liabilities
                                      
                                      
                                      69,775
                                      
                                      
                                      
                                      116,578Long-term
      debt, excluding current maturities
                                      
                                      
                                      338,731
                                      
                                      
                                      
                                      293,539Deferred
      income taxes
                                      
                                      
                                      2,175
                                      
                                      
                                      
                                      2,223Employee
      benefit obligations
                                      
                                      
                                      96,236
                                      
                                      
                                      
                                      93,898Other
      liabilities
                                      
                                      
                                      36,630
                                      
                                      
                                      
                                      36,966Total
      liabilities
                                      
                                      
                                      543,547
                                      
                                      
                                      
                                      543,204Commitments
      and contingent liabilitiesStockholders’
      equity (deficit):Common
      stock: par value $0.01 per share, 100,000,000 shares authorized,
      47,680,324 and 47,614,236 outstanding, respectively
                                      
                                      
                                      477
                                      
                                      
                                      
                                      476Capital
      in excess of par value of stock
                                      
                                      
                                      580,273
                                      
                                      
                                      
                                      579,930Accumulated
      deficit
                                      
                                      
                                      (578,591
                                      )
                                      
                                      
                                      (579,548
                                      )Accumulated
      other comprehensive loss
                                      
                                      
                                      (46,040
                                      )
                                      
                                      
                                      (44,378
                                      )Total
      stockholders’ deficit
                                      
                                      
                                      (43,881
                                      )
                                      
                                      
                                      (43,520
                                      )Total
      Liabilities and Stockholders’ Deficit
                                      
                                      $
                                      499,666
                                      
                                      
                                      $
                                      499,684




The
accompanying notes are an integral part of these consolidated financial
statements.


4
 Index


UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


Blount
International, Inc. and Subsidiaries




(Amounts
      in thousands)
                                    
                                    Three
      Months Ended March 31,2009
                                    
                                    
                                    2008Cash
      flows from operating activities:Income
      from continuing operations
                                    
                                    $
                                    957
                                    
                                    
                                    $
                                    6,889Adjustments
      to reconcile income from continuing operations to net cash used in
      operating activities:Depreciation
      of property, plant and equipment
                                    
                                    
                                    4,862
                                    
                                    
                                    
                                    4,964Amortization
                                    
                                    
                                    1,377
                                    
                                    
                                    
                                    1,005Stock
      compensation and other non-cash charges
                                    
                                    
                                    1,463
                                    
                                    
                                    
                                    697Asset
      impairment charges
                                    
                                    
                                    1,978
                                    
                                    
                                    
                                    -Excess
      tax (benefit) expense from share-based compensation
                                    
                                    
                                    97
                                    
                                    
                                    
                                    (76
                                    )Deferred
      income tax (benefit) expense
                                    
                                    
                                    (674
                                    )
                                    
                                    
                                    15Changes
      in assets and liabilities:(Increase)
      decrease in accounts receivable
                                    
                                    
                                    7,282
                                    
                                    
                                    
                                    (8,664
                                    )(Increase)
      decrease in inventories
                                    
                                    
                                    (4,833
                                    )
                                    
                                    
                                    (5,097
                                    )(Increase)
      decrease in other assets
                                    
                                    
                                    413
                                    
                                    
                                    
                                    757Increase
      (decrease) in accounts payable
                                    
                                    
                                    (7,151
                                    )
                                    
                                    
                                    (3,341
                                    )Increase
      (decrease) in accrued expenses
                                    
                                    
                                    (12,850
                                    )
                                    
                                    
                                    (9,675
                                    )Increase
      (decrease) in other liabilities
                                    
                                    
                                    338
                                    
                                    
                                    
                                    1,494Discontinued
      operations
                                    
                                    
                                    (470
                                    )
                                    
                                    
                                    (907
                                    )Net
      cash used in operating activities
                                    
                                    
                                    (7,211
                                    )
                                    
                                    
                                    (11,939
                                    )Cash
      flows from investing activities:Purchases
      of property, plant and equipment, net of proceeds from
    sales
                                    
                                    
                                    (4,923
                                    )
                                    
                                    
                                    (5,886
                                    )Discontinued
      operations
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,725Net
      cash used in investing activities
                                    
                                    
                                    (4,923
                                    )
                                    
                                    
                                    (4,161
                                    )Cash
      flows from financing activities:Net
      borrowings under revolving credit facility
                                    
                                    
                                    14,750
                                    
                                    
                                    
                                    -Repayment
      of term loan principal
                                    
                                    
                                    (308
                                    )
                                    
                                    
                                    (310
                                    )Excess
      tax benefit (expense) from share-based compensation
                                    
                                    
                                    (97
                                    )
                                    
                                    
                                    76Proceeds
      from exercise of stock options
                                    
                                    
                                    91
                                    
                                    
                                    
                                    114Net
      cash provided by (used in) financing activities
                                    
                                    
                                    14,436
                                    
                                    
                                    
                                    (120
                                    )Effect
      of exchange rate changes
                                    
                                    
                                    (1,173
                                    )
                                    
                                    
                                    1,086Net
      increase (decrease) in cash and cash equivalents
                                    
                                    
                                    1,129
                                    
                                    
                                    
                                    (15,134
                                    )Cash
      and cash equivalents at beginning of period
                                    
                                    
                                    58,275
                                    
                                    
                                    
                                    57,589Cash
      and cash equivalents at end of period
                                    
                                    $
                                    59,404
                                    
                                    
                                    $
                                    42,455




The
accompanying notes are an integral part of these consolidated financial
statements.


5
 Index


UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’
DEFICIT


Blount
International, Inc. and Subsidiaries




(Amounts
      in thousands)
                                                                                  
                                                                                  Shares
                                                                                  
                                                                                  
                                                                                  Common
      Stock
                                                                                  
                                                                                  
                                                                                  Capital
      in Excessof
      Par
                                                                                  
                                                                                  
                                                                                  Accumulated
      Deficit
                                                                                  
                                                                                  
                                                                                  Accumulated
      OtherComprehensiveLoss
                                                                                  
                                                                                  
                                                                                  TotalBalance
      December 31, 2008
                                                                                  
                                                                                  
                                                                                  47,614
                                                                                  
                                                                                  
                                                                                  $
                                                                                  476
                                                                                  
                                                                                  
                                                                                  $
                                                                                  579,930
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (579,548
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (44,378
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (43,520
                                                                                  )Net
      income
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  957
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  957Other
      comprehensive loss:Foreign
      currency translation adjustment
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (1,386
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (1,386
                                                                                  )Unrealized
      losses
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (276
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (276
                                                                                  )Comprehensive
      loss, net
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (705
                                                                                  )Stock
      options, stock appreciation rights and restricted stock
                                                                                  
                                                                                  
                                                                                  66
                                                                                  
                                                                                  
                                                                                  
                                                                                  1
                                                                                  
                                                                                  
                                                                                  
                                                                                  (7
                                                                                  )
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (6
                                                                                  )Stock
      compensation expense
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  350
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  350Balance
      March 31, 2009
                                                                                  
                                                                                  
                                                                                  47,680
                                                                                  
                                                                                  
                                                                                  $
                                                                                  477
                                                                                  
                                                                                  
                                                                                  $
                                                                                  580,273
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (578,591
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (46,040
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (43,881
                                                                                  )




Other
comprehensive loss was $1.7 million for the three months ended March 31, 2009.
Other comprehensive income was $1.5 million for the three months ended March 31,
2008.




The
accompanying notes are an integral part of these consolidated financial
statements.


6
 Index


BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES


UNAUDITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1:        BASIS OF PRESENTATION




Basis of
Presentation.The unaudited consolidated financial statements include the
accounts of Blount International, Inc. and its subsidiaries (“Blount” or the
“Company”) and are prepared in conformity with accounting principles generally
accepted in the United States of America (“U.S.”). All significant intercompany
balances and transactions have been eliminated. In the opinion of management,
the consolidated financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary for a fair statement of the
financial position, results of operations, cash flows and changes in
stockholders’ equity (deficit) for the periods presented.




The
accompanying financial data as of March 31, 2009 and for the three months ended
March 31, 2009 and 2008 has been prepared by the Company, without audit,
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission (“SEC”). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the U.S. have been condensed or omitted
pursuant to such rules and regulations. The December 31, 2008 consolidated
balance sheet was derived from audited financial statements, but does not
include all disclosures required by accounting principles generally accepted in
the U.S. These consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2008.




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




Reclassifications.Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation. Such
reclassifications have no effect on previously reported net income or net
stockholders' deficit.





NOTE
2:        ACQUISITION OF CARLTON HOLDINGS,
INC.




On May 2,
2008, we acquired all of the outstanding stock of Carlton Holdings, Inc. and its
subsidiaries (“Carlton”), a manufacturer of cutting chain for chainsaws located
near Portland, Oregon. The Company paid a total of $66.2 million in cash for
Carlton, including related acquisition costs of $1.5 million, and also assumed
liabilities totaling $21.3 million. Carlton had $1.8 million in cash on the date
of acquisition, resulting in a net cash outflow of $64.4 million for the
acquisition. The acquisition was financed with a combination of cash on hand and
$58.5 million borrowed under our revolving credit facility. The operating
results of Carlton are included in the consolidated financial statements from
May 2, 2008 forward. We accounted for the acquisition in accordance with
Financial Accounting Standards (“FAS”) No. 141, “Business Combinations” (“FAS
No. 141”). Accordingly, Carlton’s assets and liabilities were recorded at their
estimated fair values on the date of acquisition.




The
following unaudited pro forma results present the estimated effect as if the
acquisition had occurred on the first day of the period presented. The unaudited
pro forma results include the historical results of Carlton, pro forma purchase
accounting effects, the pro forma interest expense effects of additional
borrowings to fund the transaction and the related pro forma income tax effects.
In addition to the pro forma amortization of tangible and intangible asset
adjustments to fair value, the unaudited pro forma results for the period
presented include a charge of $1.7 million to expense the adjustment of
inventory to estimated fair value.


7
 Index




Three
      Months Ended March 31, 2008(Amounts
      in thousands)
                                
                                As
      Reported
                                
                                
                                Pro
      FormaSales
                                
                                $
                                133,207
                                
                                
                                $
                                147,940Net
      income
                                
                                
                                6,836
                                
                                
                                
                                5,606Basic
      income per share
                                
                                $
                                0.14
                                
                                
                                $
                                0.12Diluted
      income per share
                                
                                $
                                0.14
                                
                                
                                $
                                0.12





NOTE
3:        DISCONTINUED
OPERATIONS




Discontinued
Forestry Division.On November 5, 2007, we sold our Forestry Division,
which constituted the majority of our Industrial and Power Equipment segment, to
Caterpillar Forest Products Inc., a subsidiary of Caterpillar Inc., for gross
proceeds of $79.1 million. Under the terms of the related asset purchase
agreement, $8.8 million of the gross proceeds was initially held in escrow for
up to three years from the transaction date. We recognized a pretax gain of
$26.0 million, net of related transaction expenses, on the sale in 2007. The
Forestry Division is reported as discontinued operations for all periods
presented.




Discontinued
operations are summarized as follows:




Three
      months ended March 31,(Amounts
      in thousands)
                          
                          2009
                          
                          
                          2008Sales
                          
                          $
                          -
                          
                          
                          $
                          -Operating
      loss before taxes from discontinued operations
                          
                          
                          -
                          
                          
                          
                          (85
                          )Income
      tax benefit
                          
                          
                          -
                          
                          
                          
                          (32
                          )Loss
      from discontinued operations
                          
                          $
                          -
                          
                          
                          $
                          (53
                          )






NOTE
4:        PLANT CLOSURE AND SEVERANCE
COSTS




In
January 2009, we announced our intent to close our manufacturing facility in
Milan, Tennessee, during the second quarter of 2009. Products previously
manufactured in that facility will be produced in our other manufacturing
facilities after the closure. During the first quarter of 2009, we recognized a
total of $3.3 million in charges related to this plant closure, consisting of
$2.0 million in asset impairment charges, $1.1 million in employee severance and
benefit costs and $0.2 million in other expenses. Of these charges, $0.2 million
are recognized in cost of goods sold on the Consolidated Statements of Income.
The land and building are currently being marketed for sale, and are included in
assets held for sale on the Consolidated Balance Sheets.




We also
took actions in early 2009 to reduce the number of employees at certain of our
other locations. We recognized $1.9 million in severance charges related to this
reduction in force during the first quarter of 2009. Since December 31, 2008, we
have reduced our number of employees by approximately 400 positions, or 11% of
our total workforce. Completion of the Milan plant closure in the second quarter
of 2009 will eliminate approximately 80 additional positions. We recognized
severance charges of $1.0 million during the first quarter of 2008 for similar
actions involving a fewer number of employees.




8
 Index


NOTE
5:        INVENTORIES, NET




Inventories
consisted of the following:




March
      31,
                            
                            
                            December
      31,(Amounts
      in thousands)
                            
                            2009
                            
                            
                            2008Raw
      materials and supplies
                            
                            $
                            13,676
                            
                            
                            $
                            14,260Work
      in progress
                            
                            
                            15,744
                            
                            
                            
                            14,169Finished
      goods
                            
                            
                            65,716
                            
                            
                            
                            61,873Total
      inventories, net
                            
                            $
                            95,136
                            
                            
                            $
                            90,302





NOTE
6:        LONG-TERM DEBT




Long-term
debt consisted of the following:


March
      31,
                      
                      
                      December
      31,(Amounts
      in thousands)
                      
                      2009
                      
                      
                      2008Revolving
      credit facility
                      
                      $
                      45,500
                      
                      
                      $
                      30,750Term
      loans
                      
                      
                      119,462
                      
                      
                      
                      119,7708
      7/8% senior subordinated notes
                      
                      
                      175,000
                      
                      
                      
                      175,000Total
      debt
                      
                      
                      339,962
                      
                      
                      
                      325,520Less
      current maturities
                      
                      
                      (1,231
                      )
                      
                      
                      (31,981
                      )Long-term
      debt
                      
                      $
                      338,731
                      
                      
                      $
                      293,539




The
weighted average interest rate on outstanding debt as of March 31, 2009 was 5.69%.




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 to redemption at any time
after August 1, 2008 at the option of the Company, in whole or in part, at
redemption prices of 104.438% through July 31, 2009; 102.219% from August 1,
2009 through July 31, 2010; and at 100% on August 1, 2010 and thereafter. These
notes are issued by the Company’s wholly-owned subsidiary, Blount, Inc., and are
fully and unconditionally, jointly and severally, guaranteed by the Company and
all 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 the Company. While the Company and all of
its 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 16.




Senior Credit Facilities.The
Company, through its wholly-owned subsidiary, Blount, Inc., first entered into a
credit agreement with General Electric Capital Corporation (“GECC”) as Agent on
May 15, 2003. The agreement was amended and restated on August 9, 2004, and has
had several subsequent amendments. The senior credit facilities consist of a
revolving credit facility and a term loan facility.




As of
March 31, 2009, the revolving credit facility provided for total available
borrowings up to $150.0 million, reduced by outstanding letters of credit and
further restricted by a specific leverage ratio and first lien credit facilities
leverage ratio. As of March 31, 2009, the Company had the ability to borrow an
additional $100.4 million under the terms of the revolving credit agreement. The
revolving credit facility bore interest at the LIBOR rate plus 1.75%, or at the
prime rate, depending on the type of loan, and was scheduled to mature on August
9, 2009.




9
 Index


April 2009
Amendment 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 revolver from $150.0 million to $90.0
      million;


●
            The
      interest rate was increased to the LIBOR rate plus 5.0%, or U.S. prime
      interest rate plus 3.25%, with a minimum rate of 7.5%, on all outstanding
      principal; and


●
            The
      commitment fee on unused borrowing capacity was increased to
      1.0%.




We paid
fees and expenses of $1.9 million to amend the revolving credit facility. The
revolving credit facility principal balance outstanding is classified as
long-term on the March 31, 2009 consolidated balance sheet because the new
maturity date is more than 12 months from the balance sheet date. There were no
changes to financial covenants, nor did this amendment affect the term loan
facility.




Under the
reduced borrowing capacity from the April Amendment, and considering additional
borrowings we made in April 2009, including $11.1 million borrowed to make a
pre-payment on the term loan principal, as of April 30, 2009, the Company had
the ability to borrow an additional $31.5 million under the terms of the
agreement. Interest is payable monthly in arrears on any prime rate borrowing
and at the individual maturity dates for any LIBOR-based borrowing. Any
outstanding principal is due in its entirety on the maturity date of August 9,
2010.




The term
loan facility bears interest at the LIBOR rate plus 1.75%, or at the prime rate,
depending on the type of loan, and matures on August 9, 2010. The term loan
facility requires quarterly payments of $0.3 million, with a final payment of
$117.6 million due on the maturity date. Once repaid, principal under the term
loan facility may not be re-borrowed by the Company.




The
amended and restated senior credit facilities contain financial covenant
calculations relating to maximum capital expenditures, minimum fixed charge
coverage ratio, maximum leverage ratio and maximum first lien credit facilities
leverage ratio. In addition, there are covenants relating, among other
categories, to investments, acquisitions, loans and advances, indebtedness, and
the sale of stock or assets. The Company was in compliance with all debt
covenants as of March 31, 2009.




The
amended and restated senior credit facilities may be prepaid at any time. There
can also be additional mandatory repayment requirements related to the sale of
Company assets, the issuance of stock under certain circumstances, or upon the
Company's annual generation of excess cash flow, as determined under the credit
agreement.




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




The
revolving credit facility and the term loan facility mature on August 9, 2010.
Before these facilities mature, we will need to obtain replacement financing.
Our liquidity, capital structure and credit profile have changed significantly
during the terms of these agreements. In the current global financial markets,
credit facilities are generally more difficult to obtain and terms are generally
less favorable to borrowers than in comparable market conditions existing at the
time these facilities were established. We are continuing our discussions with
various financial institutions regarding the potential replacement of our credit
facilities prior to the August 2010 maturity date. However, given the conditions
in global credit markets, any replacement financing will likely be more
expensive and may contain more restrictive terms than our existing credit
facilities.


10
 Index


NOTE
7:        PENSION AND OTHER POST-EMPLOYMENT
BENEFIT PLANS




The
Company sponsors defined benefit pension plans covering substantially all of its
employees in the U.S., Canada and Belgium. The Company also sponsors various
other post-employment medical and benefit plans covering many of its current and
former employees. The U.S. defined benefit pension plan and the associated
nonqualified plan are frozen. Employees who currently participate in these U.S.
plans no longer accrue benefits and new employees are not eligible to
participate. All retirement benefits accrued up to the time of the freeze were
preserved. The components of net periodic benefit cost for these plans,
including amounts recognized both in continuing and discontinued operations are
as follows:




Three
      Months Ended March 31,Pension
      Benefits
                        
                        
                        Other
      Post-Employment Benefits(Amounts
      in thousands)
                        
                        2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Service
      cost
                        
                        $
                        548
                        
                        
                        $
                        996
                        
                        
                        $
                        71
                        
                        
                        $
                        72Interest
      cost
                        
                        
                        2,638
                        
                        
                        
                        2,740
                        
                        
                        
                        522
                        
                        
                        
                        539Expected
      return on plan assets
                        
                        
                        (2,448
                        )
                        
                        
                        (3,565
                        )
                        
                        
                        -
                        
                        
                        
                        -Amortization
      of prior service cost
                        
                        
                        (2
                        )
                        
                        
                        (2
                        )
                        
                        
                        -
                        
                        
                        
                        2Amortization
      of net actuarial losses
                        
                        
                        1,239
                        
                        
                        
                        255
                        
                        
                        
                        248
                        
                        
                        
                        222Total
      net periodic benefit cost
                        
                        $
                        1,975
                        
                        
                        $
                        424
                        
                        
                        $
                        841
                        
                        
                        $
                        835




The
Company expects to contribute a total of approximately $12 million to $14
million to its funded pension plans during 2009.




The
Company also sponsors a defined contribution 401(k) plan covering most employees
in the U.S.





NOTE
8:        COMMITMENTS




Significant
financial guarantees and commitments are summarized in the following
table:


March
      31,(Amounts
      in thousands)
                        
                        2009Letters
      of credit outstanding
                        
                        $
                        4,117Other
      financial guarantees
                        
                        
                        1,117Total
      financial guarantees and commitments
                        
                        $
                        5,234





NOTE
9:        CONTINGENT LIABILITIES




The
Company is a defendant in a number of product liability lawsuits, some of which
seek significant or unspecified damages, involving serious personal injuries for
which there are retentions or deductible amounts under the Company’s insurance
policies. Some of these lawsuits arise out of the Company’s duty to indemnify
certain purchasers of the Company’s discontinued operations for lawsuits
involving products manufactured prior to the sale of certain of these
businesses. In addition, the Company is a party to a number of other suits
arising out of the normal course of its business, including suits concerning
commercial contracts, employee matters and intellectual property rights. In some
instances the Company is the plaintiff, and is seeking recovery of damages. In
others, the Company is a defendant against whom damages are being sought. While
there can be no assurance as to their ultimate outcome, management does not
believe these lawsuits will have a material adverse effect on the Company’s
consolidated financial position, operating results or cash flows.




The
Company accrues, by a charge to income, an amount representing management’s best
estimate of the undiscounted probable loss related to any matter deemed by
management and its counsel as a reasonably probable loss contingency in light of
all of the then known circumstances.




11
 Index


NOTE
10:      EARNINGS PER SHARE DATA




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




Three
      Months
                          Ended
      March 31,(Shares
      in thousands)
                        
                        2009
                        
                        
                        2008Shares
      for basic per share computation – weighted average common shares
      outstanding
                        
                        
                        47,739
                        
                        
                        
                        47,303Dilutive
      effect of common stock equivalents
                        
                        
                        441
                        
                        
                        
                        793Shares
      for diluted per share computation
                        
                        
                        48,180
                        
                        
                        
                        48,096Options
      and stock appreciation rights (“SARs”) excluded from computation as
      anti-dilutive because they are out-of-the-money
                        
                        
                        2,216
                        
                        
                        
                        2,101Unvested
      restricted stock and restricted stock units (“RSUs”) considered to be
      participating securities
                        
                        
                        190
                        
                        
                        
                        328




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





NOTE
11:      STOCK-BASED COMPENSATION




The
Company did not make any stock-based compensation awards during the three months
ended March 31, 2009, but did make the following awards during the three months
ended March 31, 2008:




(Amounts
      in thousands)
                      
                      2008Stock
      appreciation rights granted
                      
                      
                      305Shares
      of restricted stock granted
                      
                      
                      54RSUs
                      
                      
                      118Aggregate
      fair value of SARs granted
                      
                      $
                      1,259Aggregate
      fair value of restricted stock and RSUs granted
                      
                      $
                      2,052Effect
      of accelerated expense recognition due to grantee retirement-eligible
      status
                      
                      $
                      1,114




Under
terms of the Company’s stock compensation plans, employee grantees that are
retirement eligible receive continued vesting after retirement. In such
circumstances, stock-based compensation expense is recognized on an accelerated
basis. The effect of such accelerated expense recognition for 2009 is to reduce
the expense by $0.3 million that otherwise would have been recognized in 2009 on
stock compensation grants made in earlier years because the expense was already
recognized on an accelerated basis in those earlier years.




The
following assumptions were used to estimate the fair value of SARs in the three
months ended March 31, 2008:




2008Estimated
      average life
                      
                      6
      yearsRisk-free
      interest rate
                      
                      
                      2.7
                      %Expected
      volatility
                      
                      
                      32.4
                      %Weighted
      average volatility
                      
                      
                      32.4
                      %Dividend
      yield
                      
                      
                      0.0
                      %Weighted
      average grant date fair value
                      
                      $
                      4.37




12
 Index




As of
March 31, 2009, the total unrecognized stock-based compensation expense related
to previously granted awards was $1.6 million. The weighted average period over
which this expense is expected to be recognized is one year. The Company’s
policy upon the exercise of options, restricted stock awards, RSUs or SARs has
been to issue new shares into the market place.





NOTE
12:      SEGMENT INFORMATION




The
Company identifies operating segments primarily based on management
responsibility and the evaluation of the Chief Operating Decision Maker (Chief
Executive Officer). The Company has one operating and reportable segment:
Outdoor Products. The other category includes centralized administrative
functions, a gear components manufacturing business, and plant closure and other
severance costs that were not allocated to the Outdoor Products segment. See
also Note 2 regarding the disposition of the primary operating unit making up
the Company’s former Industrial and Power Equipment segment. Outdoor Products
manufactures and markets cutting chain, bars, sprockets and accessories for
chainsaw use, concrete-cutting equipment, lawnmower blades and accessories for
yard care equipment. The accounting policies of the segment are the same as
those described in the summary of significant accounting policies.




Certain
financial information by segment is presented in the table below:




Three
      months endedMarch 31,(Amounts
      in thousands)
                            
                            2009
                            
                            
                            2008Sales:Outdoor
      Products
                            
                            $
                            111,419
                            
                            
                            $
                            126,227Other
                            
                            
                            5,105
                            
                            
                            
                            6,980Total
      sales
                            
                            $
                            116,524
                            
                            
                            $
                            133,207Operating
      income:Outdoor
      Products
                            
                            $
                            16,490
                            
                            
                            $
                            22,051Other
                            
                            
                            (8,910
                            )
                            
                            
                            (5,382
                            )Operating
      income
                            
                            $
                            7,580
                            
                            
                            $
                            16,669





NOTE
13:      SUPPLEMENTAL CASH FLOWS
INFORMATION




Three
      Months Ended March 31,(Amounts
      in thousands)
                      
                      2009
                      
                      
                      2008Interest
      paid
                      
                      $
                      8,810
                      
                      
                      $
                      9,752Income
      taxes paid, net
                      
                      
                      3,684
                      
                      
                      
                      2,835





NOTE
14:      FAIR VALUE OF FINANCIAL INSTRUMENTS AND CREDIT
RISK CONCENTRATION




The
Company has manufacturing or distribution operations in Australia, Brazil,
Canada, China, Europe, Japan, Russia and the U.S. The Company sells to customers
in these locations and other countries throughout the world. At March 31, 2009,
approximately 73% of accounts receivable were from customers outside the U.S. If
the U.S. Dollar strengthens against foreign currencies, as it did during the
latter half of 2008, it becomes more costly for these foreign customers to pay
their U.S. Dollar balances owed. They may have difficulty in repaying these
amounts, and in turn, the Company’s bad debt expense may increase. Accounts
receivable are principally from distributors, dealers, mass merchants, chainsaw
manufacturers and other OEMs, and are normally not collateralized.




The
carrying amount of cash and cash equivalents approximates fair value because of
the short term maturity of those instruments. The carrying amount of accounts
receivable approximates fair value because the maturity period is short and the
Company has reduced the carrying amount to the estimated net realizable value
with an allowance for doubtful accounts. The carrying amount of the revolving
credit facility approximates fair value because the interest rate is variable
and the maturity period is relatively short. The fair value of the term loans is
determined by reference to prices of recent transactions whereby buyers and
sellers exchange their interests in portions of these loans. The fair value of
the fixed rate 8 7/8% senior subordinated notes is determined by reference to
quoted market prices. The carrying amount of other financial instruments
approximates fair value because of the short term maturity periods and variable
interest rates associated with the instruments.


13
 Index


The
estimated fair values of the term loans and 8 7/8% senior subordinated notes at
March 31, 2009 and December 31, 2008 are presented below. See also Note
6.




March
      31, 2009
                      
                      
                      December
      31, 2008(Amounts
      in thousands)
                      
                      Carrying
      Amount
                      
                      
                      Fair
      Value
                      
                      
                      Carrying
      Amount
                      
                      
                      Fair
      ValueTerm
      loans
                      
                      $
                      119,462
                      
                      
                      $
                      111,100
                      
                      
                      $
                      119,770
                      
                      
                      $
                      107,1948
      7/8% senior subordinated notes
                      
                      
                      175,000
                      
                      
                      
                      168,219
                      
                      
                      
                      175,000
                      
                      
                      
                      159,478




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




Beginning
in October, 2008, we have managed a portion of Canadian Dollar exchange rate
exposures with derivative financial instruments. These derivatives are zero cost
collar option combinations consisting of a purchased call option to buy Canadian
Dollars and a written put option to sell Canadian Dollars.




As of
March 31, 2009, the fair value of these open Canadian Dollar contracts was an
unrealized pre-tax loss of $2.3 million, included in other comprehensive loss
and accrued expenses on the Consolidated Balance Sheets. During the three months
ended March 31, 2009, a loss of $0.8 million was recognized in cost of goods
sold on the Consolidated Statement of Income for the maturity of such contracts.
During 2008, none of these contracts matured and no amounts were recognized in
the Consolidated Statements of Income. To date, the Company has not recognized
any amount from these contracts in earnings due to their ineffectiveness. As of
March 31, 2009, the aggregate notional amount of these Canadian Dollar contracts
outstanding was $61.5 million.




We hedge
the interest rate and foreign currency exposure on a portion of our cash and
cash equivalents invested in Brazil with interest rate swap agreements. As of
March 31, 2009, the fair value of these open interest rate swaps was an
unrealized pre-tax loss of $0.3 million. The change in fair value of these
instruments is recognized in interest income on the consolidated statements of
income. The consolidated statements of income include expense of $0.3 million in
the three months ended March 31, 2009 and $37 thousand in the three months ended
March 31, 2008 related to these interest rate swap contracts.




As of
December 31, 2008, the fair values of derivatives held by the Company
were:




(Amounts
      in thousands)
                        
                        Carrying
      Value of Assets (Liabilities) on Balance Sheet
                        
                        
                        Assets
      (Liabilities) Measured at Fair Value
                        
                        
                        Quoted
      Prices in Active Markets Inputs
                          Level
      1
                        
                        
                        Significant
      Other Observable Inputs
                          Level
      2
                        
                        
                        Significant
      Unobservable Inputs
                          Level
      3Interest
      rate swaps; included in current assets on the Consolidated Balance
      Sheets
                        
                        $
                        446
                        
                        
                        $
                        446
                        
                        
                        
                        -
                        
                        
                        $
                        446
                        
                        
                        
                        -Foreign
      currency zero cost collar forward contracts; included in current
      liabilities on the Consolidated Balance Sheets
                        
                        
                        (1,837
                        )
                        
                        
                        (1,837
                        )
                        
                        
                        -
                        
                        
                        
                        (1,837
                        )
                        
                        
                        -




14
 Index




As of
March 31, 2009, the fair values of derivatives held by the Company
were:




(Amounts
      in thousands)
                      
                      Carrying
      Value of Liabilities on Balance Sheet
                      
                      
                      Liabilities
      Measured at Fair Value
                      
                      
                      Quoted
      Prices in Active Markets Inputs
                        Level
      1
                      
                      
                      Significant
      Other Observable Inputs
                        Level
      2
                      
                      
                      Significant
      Unobservable Inputs
                        Level
      3Interest
      rate swaps; included in current liabilities on the Consolidated Balance
      Sheets
                      
                      $
                      (283
                      )
                      
                      $
                      (283
                      )
                      
                      
                      -
                      
                      
                      $
                      (283
                      )
                      
                      
                      -Foreign
      currency zero cost collar forward contracts; included in current
      liabilities on the Consolidated Balance Sheets
                      
                      
                      (2,277
                      )
                      
                      
                      (2,277
                      )
                      
                      
                      -
                      
                      
                      
                      (2,277
                      )
                      
                      
                      -




As
specified in FAS No. 157, "Fair Value Measurements" ("FAS No. 157"), the
framework for measuring fair value is based on independent observable inputs of
market data and is based on the following hierarchy:




Level 1 –
Quoted prices in active markets for identical assets and
liabilities.




Level 2 –
Significant observable inputs based on quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in markets
that are not active and model-based valuations for which all significant
assumptions are observable.




Level 3 –
Significant unobservable inputs that are supported by little or no market
activity that are significant to the fair value of the assets or
liabilities.





NOTE
15:      RECENT ACCOUNTING PRONOUNCEMENTS




In
December 2007, the FASB issued FAS No. 141(R), “Business Combinations” (“FAS No.
141(R)”). FAS No. 141(R) replaces FAS No. 141. The provisions of FAS No. 141(R)
were effective for us on January 1, 2009. The impact of adopting FAS No. 141(R)
will depend on the nature, terms and size of any business combinations completed
after the effective date. In addition, certain transaction-related expenses that
would have been capitalized as part of a transaction under FAS No. 141 are
expensed as incurred under FAS No. 141(R) beginning January 1,
2009.




In
December 2007, the FASB issued FAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements” (“FAS No. 160”). FAS No. 160 amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements. The
provisions of FAS No. 160 were effective for us on January 1, 2009. The adoption
of FAS No. 160 did not have a material impact on our financial position or
results of operations.




In March
2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133” (“FAS No. 161”). FAS
No. 161 requires enhanced disclosures about an entity’s derivative and hedging
activities. The provisions of FAS No. 161 were effective for us on January 1,
2009, and have resulted in expanded disclosures about our derivative instruments
and hedging activities.




In April
2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, “Determination
of the Useful Life of Intangible Assets” (“FSP No. 142-3”). FSP No. 142-3 amends
the factors that should be considered in developing assumptions used to
determine useful lives of recognized intangible assets under FAS No. 142,
“Goodwill and Other Intangible Assets”. The provisions of FSP No. 142-3 were
effective for us on January 1, 2009. The impact of adopting FSP No. 142-3
depends on the nature, terms and size of any business combinations completed
after the effective date.




In June
2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities”. This FSP addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting
and, therefore, need to be included in the earnings allocation in computing
earnings per share under the two-class method described in paragraphs 60 and 61
of FASB Statement No. 128, “Earnings per Share”. The provisions of this FSP were
effective for us on January 1, 2009. There was no impact on the calculation of
earnings per share as a result of the adoption of this FSP.


15
 Index


In
December 2008, the FASB issued FASB Staff Position No. FAS 132(R)-1, “Employers’
Disclosures about Postretirement Benefit Plan Assets” (“FSP No. 132(R)-1”). FSP
No. 132(R)-1 amends FASB Statement No. 132, “Employers’ Disclosures about
Pensions and Other Postretirement Benefits”, to provide guidance on an
employer’s disclosures about plan assets of a defined benefit pension or other
postretirement plan. The provisions of FSP No. 132(R)-1 will be effective for us
in our 2009 Form 10-K, and will result in expanded disclosures in the notes to
our consolidated financial statements.




In April
2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments”. This FSP amends FASB Statement No. 107,
“Disclosures about Fair Value of Financial Instruments”, to require disclosures
about fair value of financial instruments for interim periods. This FSP also
amends APB Opinion No. 28, “Interim Financial Reporting”, to require those
disclosures in summarized financial information at interim reporting periods.
This FSP is effective for interim reporting periods ending after June 15, 2009,
with early adoption permitted. We have elected to adopt this FSP effective for
the reporting period ending March 31, 2009. With this early adoption, we have
also elected to adopt FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That are Not Orderly” and FSP FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments”. The impact
of adopting these various FSPs resulted in expanded disclosures in the notes to
our consolidated financial statements.






NOTE
16:      CONSOLIDATING FINANCIAL
INFORMATION




See Note
6 for a discussion of the Company’s guarantor subsidiaries. The following
consolidating financial information sets forth condensed consolidating
statements of operations, balance sheets and statements of cash flows of Blount
International, Inc., Blount, Inc., the guarantor subsidiaries and the
non-guarantor subsidiaries:




16
 Index


Condensed
Consolidating Statement of Operations Information




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






(Amounts
      in thousands)
                
                Blount
      International, Inc.
                
                
                Blount,
      Inc.
                
                
                Guarantor
      Subsidiaries
                
                
                Non-Guarantor
      Subsidiaries
                
                
                Eliminations
                
                
                ConsolidatedThree
      Months Ended March 31, 2008Sales
                
                $
                -
                
                
                $
                94,683
                
                
                $
                10,444
                
                
                $
                61,941
                
                
                $
                (33,861
                )
                
                $
                133,207Cost
      of sales
                
                
                -
                
                
                
                68,490
                
                
                
                8,880
                
                
                
                46,387
                
                
                
                (33,028
                )
                
                
                90,729Gross
      profit
                
                
                -
                
                
                
                26,193
                
                
                
                1,564
                
                
                
                15,554
                
                
                
                (833
                )
                
                
                42,478Operating
      expenses
                
                
                -
                
                
                
                15,976
                
                
                
                1,013
                
                
                
                8,820
                
                
                
                -
                
                
                
                25,809Operating
      income
                
                
                -
                
                
                
                10,217
                
                
                
                551
                
                
                
                6,734
                
                
                
                (833
                )
                
                
                16,669Other
      income (expense), net
                
                
                (4,550
                )
                
                
                (1,788
                )
                
                
                136
                
                
                
                (181
                )
                
                
                -
                
                
                
                (6,383
                )Income
      (loss) from continuing operations before income taxes
                
                
                (4,550
                )
                
                
                8,429
                
                
                
                687
                
                
                
                6,553
                
                
                
                (833
                )
                
                
                10,286Provision
      (benefit) for income taxes
                
                
                (2,162
                )
                
                
                3,754
                
                
                
                326
                
                
                
                1,479
                
                
                
                -
                
                
                
                3,397Income
      (loss) from continuing operations
                
                
                (2,388
                )
                
                
                4,675
                
                
                
                361
                
                
                
                5,074
                
                
                
                (833
                )
                
                
                6,889Loss
      from discontinued operations
                
                
                -
                
                
                
                (53
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (53
                )Equity
      in earnings of affiliated companies
                
                
                9,224
                
                
                
                4,602
                
                
                
                25
                
                
                
                -
                
                
                
                (13,851
                )
                
                
                -Net
      income
                
                $
                6,836
                
                
                $
                9,224
                
                
                $
                386
                
                
                $
                5,074
                
                
                $
                (14,684
                )
                
                $
                6,836




17
 Index


Condensed
Consolidating Balance Sheet Information




(Amounts in
      thousands)
                                      
                                      Blount
      International,Inc.
                                      
                                      
                                      Blount,Inc.
                                      
                                      
                                      Guarantor
      Subsidiaries
                                      
                                      
                                      Non-Guarantor
      Subsidiaries
                                      
                                      
                                      Eliminations
                                      
                                      
                                      ConsolidatedMarch
      31, 2009AssetsCash
      and cash equivalents
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      1,517
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      57,990
                                      
                                      
                                      $
                                      (103
                                      )
                                      
                                      $
                                      59,404Accounts
      receivable, net
                                      
                                      
                                      -
                                      
                                      
                                      
                                      36,397
                                      
                                      
                                      
                                      3,633
                                      
                                      
                                      
                                      28,253
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      68,283Intercompany
      receivables
                                      
                                      
                                      -
                                      
                                      
                                      
                                      232,540
                                      
                                      
                                      
                                      76,854
                                      
                                      
                                      
                                      18,703
                                      
                                      
                                      
                                      (328,097
                                      )
                                      
                                      
                                      -Inventories,
      net
                                      
                                      
                                      -
                                      
                                      
                                      
                                      64,860
                                      
                                      
                                      
                                      4,659
                                      
                                      
                                      
                                      26,155
                                      
                                      
                                      
                                      (538
                                      )
                                      
                                      
                                      95,136Other
      current assets
                                      
                                      
                                      -
                                      
                                      
                                      
                                      15,564
                                      
                                      
                                      
                                      123
                                      
                                      
                                      
                                      6,297
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      21,984Total
      current assets
                                      
                                      
                                      -
                                      
                                      
                                      
                                      350,878
                                      
                                      
                                      
                                      85,269
                                      
                                      
                                      
                                      137,398
                                      
                                      
                                      
                                      (328,738
                                      )
                                      
                                      
                                      244,807Investments
      in affiliated companies
                                      
                                      
                                      230,093
                                      
                                      
                                      
                                      251,103
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (481,196
                                      )
                                      
                                      
                                      -Property,
      plant and equipment, net
                                      
                                      
                                      -
                                      
                                      
                                      
                                      58,336
                                      
                                      
                                      
                                      7,827
                                      
                                      
                                      
                                      50,694
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      116,857Goodwill
      and other assets
                                      
                                      
                                      -
                                      
                                      
                                      
                                      113,118
                                      
                                      
                                      
                                      12,784
                                      
                                      
                                      
                                      14,134
                                      
                                      
                                      
                                      (2,034
                                      )
                                      
                                      
                                      138,002Total
      Assets
                                      
                                      $
                                      230,093
                                      
                                      
                                      $
                                      773,435
                                      
                                      
                                      $
                                      105,880
                                      
                                      
                                      $
                                      202,226
                                      
                                      
                                      $
                                      (811,968
                                      )
                                      
                                      $
                                      499,666Liabilities
      and Stockholders’ Equity (Deficit)Current
      maturities of long-term debt
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      1,231
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      1,231Accounts
      payable
                                      
                                      
                                      -
                                      
                                      
                                      
                                      42,422
                                      
                                      
                                      
                                      3,640
                                      
                                      
                                      
                                      30,754
                                      
                                      
                                      
                                      (55,147
                                      )
                                      
                                      
                                      21,669Intercompany
      payables
                                      
                                      
                                      273,053
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (273,053
                                      )
                                      
                                      
                                      -Other
      current liabilities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      30,659
                                      
                                      
                                      
                                      4,053
                                      
                                      
                                      
                                      12,163
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      46,875Total
      current liabilities
                                      
                                      
                                      273,053
                                      
                                      
                                      
                                      74,312
                                      
                                      
                                      
                                      7,693
                                      
                                      
                                      
                                      42,917
                                      
                                      
                                      
                                      (328,200
                                      )
                                      
                                      
                                      69,775Long-term
      debt, excluding current maturities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      338,731
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      338,731Other
      liabilities
                                      
                                      
                                      921
                                      
                                      
                                      
                                      130,299
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      5,855
                                      
                                      
                                      
                                      (2,034
                                      )
                                      
                                      
                                      135,041Total
      liabilities
                                      
                                      
                                      273,974
                                      
                                      
                                      
                                      543,342
                                      
                                      
                                      
                                      7,693
                                      
                                      
                                      
                                      48,772
                                      
                                      
                                      
                                      (330,234
                                      )
                                      
                                      
                                      543,547Stockholders’
      equity (deficit)
                                      
                                      
                                      (43,881
                                      )
                                      
                                      
                                      230,093
                                      
                                      
                                      
                                      98,187
                                      
                                      
                                      
                                      153,454
                                      
                                      
                                      
                                      (481,734
                                      )
                                      
                                      
                                      (43,881
                                      )Total
      Liabilities and Stockholders’ Equity (Deficit)
                                      
                                      $
                                      230,093
                                      
                                      
                                      $
                                      773,435
                                      
                                      
                                      $
                                      105,880
                                      
                                      
                                      $
                                      202,226
                                      
                                      
                                      $
                                      (811,968
                                      )
                                      
                                      $
                                      499,666


18
 Index


Condensed
Consolidating Balance Sheet Information




(Amounts
      in thousands)
                                    
                                    Blount
      International, Inc.
                                    
                                    
                                    Blount,
      Inc.
                                    
                                    
                                    Guarantor
      Subsidiaries
                                    
                                    
                                    Non-Guarantor
      Subsidiaries
                                    
                                    
                                    Eliminations
                                    
                                    
                                    ConsolidatedDecember
      31, 2008AssetsCash
      and cash equivalents
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    185
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    59,158
                                    
                                    
                                    $
                                    (1,068
                                    )
                                    
                                    $
                                    58,275Accounts
      receivable, net
                                    
                                    
                                    -
                                    
                                    
                                    
                                    47,155
                                    
                                    
                                    
                                    4,367
                                    
                                    
                                    
                                    24,033
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    75,555Intercompany
      receivables
                                    
                                    
                                    -
                                    
                                    
                                    
                                    189,459
                                    
                                    
                                    
                                    77,478
                                    
                                    
                                    
                                    5,022
                                    
                                    
                                    
                                    (271,959
                                    )
                                    
                                    
                                    -Inventories,
      net
                                    
                                    
                                    -
                                    
                                    
                                    
                                    58,143
                                    
                                    
                                    
                                    5,568
                                    
                                    
                                    
                                    26,736
                                    
                                    
                                    
                                    (145
                                    )
                                    
                                    
                                    90,302Deferred
      income taxes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    4,729
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    763
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    5,492Other
      current assets
                                    
                                    
                                    -
                                    
                                    
                                    
                                    9,461
                                    
                                    
                                    
                                    162
                                    
                                    
                                    
                                    5,317
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    14,940Total
      current assets
                                    
                                    
                                    -
                                    
                                    
                                    
                                    309,132
                                    
                                    
                                    
                                    87,575
                                    
                                    
                                    
                                    121,029
                                    
                                    
                                    
                                    (273,172
                                    )
                                    
                                    
                                    244,564Investments
      in affiliated companies
                                    
                                    
                                    229,389
                                    
                                    
                                    
                                    256,374
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (485,763
                                    )
                                    
                                    
                                    -Property,
      plant and equipment, net
                                    
                                    
                                    -
                                    
                                    
                                    
                                    58,093
                                    
                                    
                                    
                                    11,646
                                    
                                    
                                    
                                    50,010
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    119,749Goodwill
      and other assets
                                    
                                    
                                    -
                                    
                                    
                                    
                                    111,983
                                    
                                    
                                    
                                    11,883
                                    
                                    
                                    
                                    13,509
                                    
                                    
                                    
                                    (2,004
                                    )
                                    
                                    
                                    135,371Total
      Assets
                                    
                                    $
                                    229,389
                                    
                                    
                                    $
                                    735,582
                                    
                                    
                                    $
                                    111,104
                                    
                                    
                                    $
                                    184,548
                                    
                                    
                                    $
                                    (760,939
                                    )
                                    
                                    $
                                    499,684Liabilities
      and Stockholders’ Equity (Deficit)Current
      maturities of long-term debt
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    31,981
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    31,981Accounts
      payable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    16,358
                                    
                                    
                                    
                                    3,656
                                    
                                    
                                    
                                    9,918
                                    
                                    
                                    
                                    (1,068
                                    )
                                    
                                    
                                    28,864Intercompany
      payables
                                    
                                    
                                    271,959
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (271,959
                                    )
                                    
                                    
                                    -Other
      current liabilities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    35,714
                                    
                                    
                                    
                                    3,052
                                    
                                    
                                    
                                    16,967
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    55,733Total
      current liabilities
                                    
                                    
                                    271,959
                                    
                                    
                                    
                                    84,053
                                    
                                    
                                    
                                    6,708
                                    
                                    
                                    
                                    26,885
                                    
                                    
                                    
                                    (273,027
                                    )
                                    
                                    
                                    116,578Long-term
      debt, excluding current maturities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    293,539
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    293,539Other
      liabilities
                                    
                                    
                                    950
                                    
                                    
                                    
                                    128,601
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    5,540
                                    
                                    
                                    
                                    (2,004
                                    )
                                    
                                    
                                    133,087Total
      liabilities
                                    
                                    
                                    272,909
                                    
                                    
                                    
                                    506,193
                                    
                                    
                                    
                                    6,708
                                    
                                    
                                    
                                    32,425
                                    
                                    
                                    
                                    (275,031
                                    )
                                    
                                    
                                    543,204Stockholders’
      equity (deficit)
                                    
                                    
                                    (43,520
                                    )
                                    
                                    
                                    229,389
                                    
                                    
                                    
                                    104,396
                                    
                                    
                                    
                                    152,123
                                    
                                    
                                    
                                    (485,908
                                    )
                                    
                                    
                                    (43,520
                                    )Total
      Liabilities and Stockholders’ Equity (Deficit)
                                    
                                    $
                                    229,389
                                    
                                    
                                    $
                                    735,582
                                    
                                    
                                    $
                                    111,104
                                    
                                    
                                    $
                                    184,548
                                    
                                    
                                    $
                                    (760,939
                                    )
                                    
                                    $
                                    499,684


19
 Index


Condensed
Consolidating Cash Flows Information




(Amounts
      in thousands)
                      
                      Blount
      International, Inc.
                      
                      
                      Blount,Inc.
                      
                      
                      Guarantor
      Subsidiaries
                      
                      
                      Non-Guarantor
      Subsidiaries
                      
                      
                      Eliminations
                      
                      
                      ConsolidatedThree
      Months Ended March 31, 2009Net
      cash provided by (used in) operating activities
                      
                      $
                      1,192
                      
                      
                      $
                      (12,841
                      )
                      
                      $
                      (5,270
                      )
                      
                      $
                      8,743
                      
                      
                      $
                      965
                      
                      
                      $
                      (7,211
                      )Purchase
      of property, plant & 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
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      14,750Repayment
      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
                      )
                      
                      
                      -
                      
                      
                      
                      14,436Effect
      of exchange rate changes
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,173
                      )
                      
                      
                      -
                      
                      
                      
                      (1,173
                      )Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      -
                      
                      
                      
                      1,332
                      
                      
                      
                      -
                      
                      
                      
                      (1,168
                      )
                      
                      
                      965
                      
                      
                      
                      1,129Cash
      and cash equivalents at beginning of period
                      
                      
                      -
                      
                      
                      
                      185
                      
                      
                      
                      -
                      
                      
                      
                      59,158
                      
                      
                      
                      (1,068
                      )
                      
                      
                      58,275Cash
      and cash equivalents at end of period
                      
                      $
                      -
                      
                      
                      $
                      1,517
                      
                      
                      $
                      -
                      
                      
                      $
                      57,990
                      
                      
                      $
                      (103
                      )
                      
                      $
                      59,404Three
      Months Ended March 31, 2008Net
      cash provided by (used in) operating activities
                      
                      $
                      2,151
                      
                      
                      $
                      (7,506
                      )
                      
                      $
                      (91
                      )
                      
                      $
                      (6,493
                      )
                      
                      $
                      -
                      
                      
                      $
                      (11,939
                      )Purchase
      of property, plant and equipment
                      
                      
                      -
                      
                      
                      
                      (3,676
                      )
                      
                      
                      (660
                      )
                      
                      
                      (1,550
                      )
                      
                      
                      -
                      
                      
                      
                      (5,886
                      )Discontinued
      operations
                      
                      
                      -
                      
                      
                      
                      1,725
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,725Net
      cash used in investing activities
                      
                      
                      -
                      
                      
                      
                      (1,951
                      )
                      
                      
                      (660
                      )
                      
                      
                      (1,550
                      )
                      
                      
                      -
                      
                      
                      
                      (4,161
                      )Repayment
      of term loan principal
                      
                      
                      -
                      
                      
                      
                      (310
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (310
                      )Advances
      from (to) affiliates
                      
                      
                      (2,341
                      )
                      
                      
                      840
                      
                      
                      
                      630
                      
                      
                      
                      871
                      
                      
                      
                      -
                      
                      
                      
                      -Other
                      
                      
                      190
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      190Net
      cash provided by (used in) financing activities
                      
                      
                      (2,151
                      )
                      
                      
                      530
                      
                      
                      
                      630
                      
                      
                      
                      871
                      
                      
                      
                      -
                      
                      
                      
                      (120
                      )Effect
      of exchange rate changes
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,086
                      
                      
                      
                      -
                      
                      
                      
                      1,086Net
      decrease in cash and cash equivalents
                      
                      
                      -
                      
                      
                      
                      (8,927
                      )
                      
                      
                      (121
                      )
                      
                      
                      (6,086
                      )
                      
                      
                      -
                      
                      
                      
                      (15,134
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      -
                      
                      
                      
                      10,512
                      
                      
                      
                      121
                      
                      
                      
                      46,956
                      
                      
                      
                      -
                      
                      
                      
                      57,589Cash
      and cash equivalents at end of period
                      
                      $
                      -
                      
                      
                      $
                      1,585
                      
                      
                      $
                      -
                      
                      
                      $
                      40,870
                      
                      
                      $
                      -
                      
                      
                      $
                      42,455




20
 Index




ITEM 2.         
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




The
following discussion and analysis should be read in conjunction with our
unaudited consolidated financial statements included elsewhere in this
report.




Operating
Results




Three
months ended March 31, 2009 (unaudited) compared to three months ended March 31,
2008 (unaudited).




The table
below provides a summary of results and the primary contributing factors to the
year-over-year change.




Three
      months endedMarch
      31,(Amounts
      in millions)
                                                                                  
                                                                                  2009
                                                                                  
                                                                                  
                                                                                  2008
                                                                                  
                                                                                  
                                                                                  Change
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  Contributing
      Factor(Amounts
      may not foot due to rounding)Sales
                                                                                  
                                                                                  $
                                                                                  116.5
                                                                                  
                                                                                  
                                                                                  $
                                                                                  133.2
                                                                                  
                                                                                  
                                                                                  $
                                                                                  (16.7
                                                                                  )(21.7
                                                                                  )
                                                                                  Sales
      volume7.9
                                                                                  
                                                                                  Selling
      price and mix(2.9
                                                                                  )
                                                                                  Foreign
      currency translationGross
      profit
                                                                                  
                                                                                  
                                                                                  37.8
                                                                                  
                                                                                  
                                                                                  
                                                                                  42.5
                                                                                  
                                                                                  
                                                                                  
                                                                                  (4.7
                                                                                  )Gross
      margin
                                                                                  
                                                                                  
                                                                                  32.4
                                                                                  %
                                                                                  
                                                                                  
                                                                                  31.9
                                                                                  %
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (11.0
                                                                                  )
                                                                                  Sales
      volume7.9
                                                                                  
                                                                                  Selling
      price and mix(2.2
                                                                                  )
                                                                                  Product
      cost and mix0.6
                                                                                  
                                                                                  Foreign
      currency translationOperating
      expenses
                                                                                  
                                                                                  
                                                                                  30.2
                                                                                  
                                                                                  
                                                                                  
                                                                                  25.8
                                                                                  
                                                                                  
                                                                                  
                                                                                  4.43.2
                                                                                  
                                                                                  Plant
      closure costs0.9
                                                                                  
                                                                                  Other
      severance costs1.8
                                                                                  
                                                                                  Professional
      services1.0
                                                                                  
                                                                                  Employee
      benefit plans(1.8
                                                                                  )
                                                                                  Compensation
      expense(1.2
                                                                                  )
                                                                                  Foreign
      currency translation0.5
                                                                                  
                                                                                  OtherOperating
      income
                                                                                  
                                                                                  
                                                                                  7.6
                                                                                  
                                                                                  
                                                                                  
                                                                                  16.7
                                                                                  
                                                                                  
                                                                                  
                                                                                  (9.1
                                                                                  )Operating
      margin
                                                                                  
                                                                                  
                                                                                  6.5
                                                                                  %
                                                                                  
                                                                                  
                                                                                  12.5
                                                                                  %
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (4.7
                                                                                  )
                                                                                  Decrease
      in gross profit(4.1
                                                                                  )
                                                                                  Plant
      closure and severance costs(0.3
                                                                                  )
                                                                                  Increase in Selling,
      General &
      Administration (“SG&A”)Income
      from continuing operations
                                                                                  
                                                                                  
                                                                                  1.0
                                                                                  
                                                                                  
                                                                                  
                                                                                  6.9
                                                                                  
                                                                                  
                                                                                  
                                                                                  (5.9
                                                                                  )(9.1
                                                                                  )
                                                                                  Decrease
      in operating income0.6
                                                                                  
                                                                                  Decrease
      in net interest expense2.6
                                                                                  
                                                                                  Decrease
      in income tax provisionLoss
      from discontinued operations
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  (0.1
                                                                                  )
                                                                                  
                                                                                  
                                                                                  0.10.1
                                                                                  
                                                                                  Decrease
      in operating lossNet
      income
                                                                                  
                                                                                  $
                                                                                  1.0
                                                                                  
                                                                                  
                                                                                  $
                                                                                  6.8
                                                                                  
                                                                                  
                                                                                  
                                                                                  (5.8
                                                                                  )




On May 2,
2008, we acquired all of the outstanding stock of Carlton, a manufacturer of
cutting chain for chainsaws located near Portland, Oregon. We paid a total of
$66.2 million in cash for Carlton, including related acquisition costs of $1.5
million, and also assumed liabilities totaling $21.3 million. Carlton had $1.8
million in cash on the date of acquisition, resulting in a net cash outflow of
$64.4 million for the acquisition. The acquisition was financed with a
combination of cash on hand and $58.5 million borrowed under the Company’s
revolving credit facility. The operating results of Carlton are included in the
Company’s consolidated financial statements from May 2, 2008 forward. The
Company accounted for the acquisition in accordance with FAS No. 141.
Accordingly, Carlton’s assets and liabilities were recorded at their estimated
fair values on the date of acquisition.


21
 Index


Sales in
the three months ended March 31, 2009 decreased by $16.7 million (12.5%) from
the same period in 2008. This sales decrease was primarily due to decreased unit
volume of $21.7 million, notwithstanding the inclusion of $10.4 million in sales
from Carlton in the first quarter of 2009 compared to no Carlton sales in the
first quarter of 2008 which was prior to the acquisition. Partially offsetting
this volume-related decrease in sales was $7.9 million of selling price and mix
improvements. The translation of foreign currency-denominated sales
transactions, given the stronger U.S. Dollar in comparison to the first quarter
of 2008, reduced sales by $2.9 million in the comparative period. The Outdoor
Products segment, including Carlton in the first quarter of 2009, experienced a
$14.8 million (11.7%) decrease in sales during the first quarter of 2009
compared to 2008, while sales of gear components decreased $1.9 million (26.9%)
during the same period. International sales decreased by $14.1 million (16.0%)
and domestic sales decreased by $2.6 million (5.8%). The decrease in
international sales reflected worldwide weakness in demand and poor market
conditions, as well as the $2.9 million unfavorable impact to reported sales
compared to 2008. The stronger U.S. Dollar has also contributed to a slowdown in
orders from our international customers. The decrease in U.S. sales is
attributed to poor economic conditions and weakness in demand for our products.
We believe that most of our customers have reduced or delayed orders for our
products, and reduced their existing inventories of our products, over their
concerns about the state of the economy and lower order rates from their
customers.




Consolidated
order backlog at March 31, 2009 was $84.1 million compared to $103.5 million at
December 31, 2008. Backlog in the Outdoor Products segment decreased $17.5
million, while the backlog for gear components decreased by $1.9 million during
the first quarter of 2009.




Gross
profit decreased $4.7 million (11%) from the first quarter of 2008 to the first
quarter of 2009. Much lower sales volumes and increases in product costs were
partially offset by improved pricing and the net favorable effects of movement
in foreign currency exchange rates. The higher product costs were attributable
to higher steel costs, estimated at $4.1 million, partially offset by other cost
reductions. Gross margin in 2009 was 32.4% of sales compared to 31.9% in 2008.
Gross margin was favorably affected by improved pricing and mix, as well as the
net favorable foreign exchange effects, which more than offset the negative
gross margin impact of lower volumes and higher steel costs.




Fluctuations
in currency exchange rates increased our gross profit in the first quarter of
2009 compared to 2008 by $0.6 million on a consolidated basis. The translation
of weaker foreign currencies into a stronger U.S. Dollar resulted in lower
reported sales revenue from our sales in Europe, offset by lower manufacturing
costs in Brazil and Canada.




SG&A
was $25.2 million in the first quarter of 2009, compared to $24.9 million in the
first quarter of 2008, representing an increase of $0.3 million (1%). As a
percentage of sales, SG&A increased from 18.7% in 2008 to 21.6% in 2009,
largely due to the sharp decrease in sales revenue. Professional services
expense increased by $1.6 million due primarily to higher legal costs. Employee
benefit expenses increased by $1.0 million, primarily due to higher costs for
our U.S. and Canadian defined benefit pension plans. Expense for these plans is
higher in 2009 than it was in 2008 due to increased amortization of actuarial
losses and reduced return on plan assets following the significant
market-related decrease in the value of the related pension assets. We expect
2009 pension expense to be from $6.5 million to $7.5 million higher in 2009 than
it was in 2008. Compensation expense decreased by $1.8 million year-over-year,
reflecting reductions in staffing levels implemented in the first quarter of
2009 and a $1.4 million decrease in stock compensation expense because no awards
were granted in the first quarter of 2009. Additionally, annual merit increases
traditionally implemented in the first quarter of the fiscal year were deferred
for most of our salaried employees. International operating expenses decreased
$1.2 million from the prior year due to the stronger U.S. Dollar and its effect
on the translation of foreign expenses.


22
 Index


In
January 2009, we announced our intent to close our manufacturing facility in
Milan, Tennessee, during the second quarter of 2009. Products previously
manufactured in that facility will be produced in our other manufacturing
facilities after the closure. During the first quarter of 2009, we recognized a
total of $3.3 million in charges related to this plant closure, consisting of
$2.0 million in asset impairment charges, $1.1 million in employee severance and
benefit costs and $0.2 million in other expenses. Of these charges, $0.2 million
are recognized in cost of goods sold on the Consolidated Statements of Income.
The land and building are currently being marketed for sale, and are included in
assets held for sale on the Consolidated Balance Sheets. The plant closure is
expected to be consummated early in the second quarter of 2009, and we
anticipate incurring additional charges of $0.5 million to $1.0 million related
to the closure of our Milan facility.




We also
took actions in early 2009 to reduce the number of employees at certain of our
other locations. We recognized $1.9 million in severance charges related to this
reduction in force during the first quarter of 2009. Since December 31, 2008,
the Company’s number of employees has been reduced by approximately 400
positions, or 11% of our total workforce. Completion of the Milan plant closure
in the second quarter of 2009 will eliminate approximately 80 additional
positions. We recognized severance charges of $1.0 million during the first
quarter of 2008 for similar actions involving a fewer number of
employees.




Operating
income decreased by $9.1 million from the first quarter of 2008 to the first
quarter of 2009, resulting in an operating margin for 2009 of 6.5% of sales
compared to 12.5% for 2008. The decrease was due to lower sales and gross profit
as well as plant closure and severance costs incurred in 2009.




Interest
expense was $5.9 million in the first quarter of 2009 compared to $6.8 million
in the first quarter of 2008. The decrease was due to lower average interest
rates on our variable rate debt, partially offset by higher average outstanding
debt balances.




The
following table summarizes our income tax provision for continuing operations in
2009 and 2008:




Three
      months ended March 31,(Amounts
      in thousands)
                          
                          2009
                          
                          
                          2008Income
      from continuing operations before income taxes
                          
                          $
                          1,738
                          
                          
                          $
                          10,286Provision
      for income taxes
                          
                          
                          781
                          
                          
                          
                          3,397Income
      from continuing operations
                          
                          $
                          957
                          
                          
                          $
                          6,889Effective
      tax rate
                          
                          
                          44.9
                          %
                          
                          
                          33.0
                          %




The
increase in our effective tax rate from 2008 to 2009 is largely due to the
relatively low amount of pre-tax income in the three months ended March 31,
2009, and the impact that small tax adjustments have on this relatively small
amount. Additionally, income earned at our manufacturing facility in China is
subject to a tax rate of 12.5% in 2009, following a zero percent tax rate during
2008 under our tax holiday in that country. Under this tax holiday for our
facility in China, the rate was zero through 2008, 12.5% for the three years
2009 through 2011, and then will increase to 25% thereafter. We expect our
consolidated effective tax rate to increase in the future, due to the impact of
this increased tax rate in China.




Income
from continuing operations in the first quarter of 2008 was $1.0 million, or
$0.02 per diluted share, compared to $6.9 million, or $0.14 per diluted share,
in the first quarter of 2008.




Discontinued
operations are summarized as follows:




Three
      months ended March 31,(Amounts
      in thousands)
                          
                          2009
                          
                          
                          2008Sales
                          
                          $
                          -
                          
                          
                          $
                          -Operating
      loss before taxes from discontinued operations
                          
                          
                          -
                          
                          
                          
                          (85
                          )Income
      tax benefit
                          
                          
                          -
                          
                          
                          
                          (32
                          )Loss
      from discontinued operations
                          
                          $
                          -
                          
                          
                          $
                          (53
                          )




The 2008
results consisted of wind-down and exit activities related to our discontinued
Forestry Division, which was sold on November 5, 2007.


23
 Index


Segment Results.The following table reflects segment sales and operating results for 2009
and 2008:




Three
      Months Ended March 31,(Amounts
      in thousands)
                            
                            2009
                            
                            
                            2008
                            
                            
                            2009
      as a% of 2008Sales:Outdoor
      Products
                            
                            $
                            111,419
                            
                            
                            $
                            126,227
                            
                            
                            
                            88.3
                            %Other
                            
                            
                            5,105
                            
                            
                            
                            6,980
                            
                            
                            
                            73.1
                            %Total
      sales
                            
                            $
                            116,524
                            
                            
                            $
                            133,207
                            
                            
                            
                            87.5
                            %Operating
      income:Outdoor
      Products
                            
                            $
                            16,490
                            
                            
                            $
                            22,051
                            
                            
                            
                            74.8
                            %Other
                            
                            
                            (8,910
                            )
                            
                            
                            (5,382
                            )
                            
                            
                            165.6
                            %Operating
      income
                            
                            $
                            7,580
                            
                            
                            $
                            16,669
                            
                            
                            
                            45.5
                            %




Outdoor Products
Segment.Sales for the Outdoor Products segment decreased $14.8 million
(11.7%) in the first quarter of 2009 compared to the first quarter of 2008. Of
the decrease, $25.2 million was due to lower sales volume, excluding Carlton,
reflecting weak market conditions and lower shipments for all product lines,
geographic regions and sales channels. Improved price and product mix of $7.1
million and $10.4 million in sales from Carlton, acquired in May of 2008,
partially offset the volume decline. Fluctuations in foreign currency exchange
rates further reduced reported segment sales revenue by $2.9 million compared to
the first quarter of 2008. Excluding Carlton, sales of wood-cutting chainsaw
components were down 20.0% and sales of outdoor care products were down 14.1%.
Sales of concrete-cutting products were down 35.8% due to continued weak market
conditions in the construction equipment industry. Excluding the effects of
Carlton, sales to OEM customers decreased by 14.9%, while replacement market
sales decreased by 21.4%. Excluding Carlton, international sales declined 25.9%
for the three month comparable periods, while domestic sales decreased 6.3%.
Order backlog decreased from year-end by $17.5 million, to $81.4 million, as of
March 31, 2009.




Segment
contribution to operating income decreased $5.6 million (25.2%) in the first
quarter of 2009 compared to the first quarter of 2008. The favorable effects of
improved price and mix ($7.1 million) and the positive effects of fluctuations
in foreign currency translation rates ($1.7 million) were offset by lower sales
volume ($10.0 million), higher product cost and mix ($2.3 million) and higher
SG&A expenses ($2.0 million). The higher product cost and mix, excluding the
foreign currency exchange effect, includes $4.1 million in higher steel costs on
a year-over-year basis. The increase in SG&A expense is largely attributable
to the addition of Carlton and increased costs for our defined benefit pension
plans.




Other.The
other category includes centralized administrative functions, the activity of
our gear components manufacturing business, and plant closure and severance
costs not allocated to the Outdoor Products segment. Sales of gear-related
products decreased 26.9% from the first quarter of 2008 to the first quarter of
2009. Lower volume of $2.7 million was partially offset by a $0.8 million
favorable effect of price increases. The contribution to operating income from
our gear components business decreased $0.1 million (15.4%) year-over-year due
to the lower sales volume and revenue. Central administrative expenses were down
$0.6 million for the comparable periods, largely due to lower compensation
expense, partially offset by higher legal expenses. Plant closure and severance
costs were $5.0 million in the first quarter of 2009 compared to $1.0 in the
first quarter of 2008.




24
 Index


Financial
Condition, Liquidity and Capital Resources




Total
debt at March 31, 2009 was $340.0 million, compared to $325.5 million at
December 31, 2008:




March
      31,
                          
                          
                          December
      31,(Amounts
      in thousands)
                          
                          2009
                          
                          
                          2008Revolving
      credit facility
                          
                          $
                          45,500
                          
                          
                          $
                          30,750Term
      loans
                          
                          
                          119,462
                          
                          
                          
                          119,7708
      7/8% senior subordinated notes
                          
                          
                          175,000
                          
                          
                          
                          175,000Total
      debt
                          
                          
                          339,962
                          
                          
                          
                          325,520Less
      current maturities
                          
                          
                          (1,231
                          )
                          
                          
                          (31,981
                          )Long-term
      debt
                          
                          $
                          338,731
                          
                          
                          $
                          293,539




8 7/8% Senior Subordinated Notes.We have 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 to redemption at any time at our option, in
whole or in part, at redemption prices of 104.438% through July 31, 2009;
102.219% from August 1, 2009 through July 31, 2010; and at 100% on August 1,
2010 and thereafter. These notes are issued by our wholly-owned subsidiary,
Blount, Inc., and are fully and unconditionally, jointly and severally,
guaranteed by the Company and all 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 the
Company. While the Company and all of its domestic subsidiaries guarantee these
8 7/8% senior subordinated notes, none of our existing foreign subsidiaries
(“non-guarantor subsidiaries”) guarantee these notes.




Senior Credit Facilities.The
Company, through its wholly-owned subsidiary, Blount, Inc., first entered into a
credit agreement with GECC as Agent on May 15, 2003. The agreement was amended
and restated on August 9, 2004, and has had several subsequent amendments. The
senior credit facilities consist of a revolving credit facility and a term loan
facility.




As of
March 31, 2009, the revolving credit facility provided for total available
borrowings up to $150.0 million, reduced by outstanding letters of credit and
further restricted by a specific leverage ratio and first lien credit facilities
leverage ratio. As of March 31, 2009, the Company had the ability to borrow an
additional $100.4 million under the terms of the revolving credit agreement. The
revolving credit facility bore interest at the LIBOR rate plus 1.75%, or at the
prime rate, depending on the type of loan, and was scheduled to mature on August
9, 2009.




April 2009
Amendment 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 revolver from $150.0 million to $90.0
      million;


—
            The
      interest rate was increased to the LIBOR rate plus 5.0%, or U.S. prime
      interest rate plus 3.25%, with a minimum rate of 7.5%, on all outstanding
      principal; and


—
            The
      commitment fee on unused borrowing capacity was increased to
      1.0%.




We paid
fees and expenses of $1.9 million to amend the revolving credit facility. There
were no changes to financial covenants, nor does this amendment affect the term
loan facility.




Under the
reduced borrowing capacity from the April Amendment, and considering additional
borrowings we made in April 2009, including $11.1 million borrowed to make a
prepayment on the term loan principal, as of April 30, 2009, the Company had the
ability to borrow an additional $31.5 million under the terms of the agreement.
Interest is payable monthly in arrears on any prime rate borrowing and at the
individual maturity dates for any LIBOR-based borrowing. Any outstanding
principal is due in its entirety on the maturity date of August 9,
2010.




The term
loan facility bears interest at the LIBOR rate plus 1.75%, or at the prime rate,
depending on the type of loan, and matures on August 9, 2010. The term loan
facility requires quarterly payments of $0.3 million, with a final payment of
$117.6 million due on the maturity date. Once repaid, principal under the term
loan facility may not be re-borrowed by the Company.


25
 Index


The
amended and restated senior credit facilities contain financial covenant
calculations relating to maximum capital expenditures, minimum fixed charge
coverage ratio, maximum leverage ratio and maximum first lien credit facilities
leverage ratio. In addition, there are covenants relating, among other
categories, to investments, acquisitions, loans and advances, indebtedness, and
the sale of stock or assets. The Company was in compliance with all debt
covenants as of March 31, 2009.




The
amended and restated senior credit facilities may be prepaid at any time. There
can also be additional mandatory repayment requirements related to the sale of
Company assets, the issuance of stock under certain circumstances, or upon the
Company's annual generation of excess cash flow, as determined under the credit
agreement.




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




The
revolving credit facility and the term loan facility mature on August 9, 2010.
Before these facilities mature, we will need to obtain replacement financing.
Our liquidity, capital structure and credit profile have changed significantly
during the terms of these agreements. In the current global financial markets,
credit facilities are generally more difficult to obtain and terms are generally
less favorable to borrowers than in comparable market conditions existing at the
time these facilities were established. We are continuing our discussions with
various financial institutions regarding the potential replacement of our credit
facilities prior to the August 2010 maturity date. However, given the conditions
in the global credit markets, any replacement financing will likely be more
expensive and may contain more restrictive terms than our existing credit
facilities.




Our debt
instruments and general credit are rated by both Standard & Poor’s and
Moody’s. There was no change to these ratings during the three months ended
March 31, 2009. As of March 31, 2009, the credit ratings for the Company were as
follows:




Standard
      & Poor’s
                    
                    Moody’sSenior
      credit facility
                    
                    BB
                    
                    Ba1Senior
      subordinated notes
                    
                    B
                    
                    B2General
      credit rating
                    
                    BB-
      /Stable
                    
                    Ba3




We intend
to fund working capital, capital expenditures, debt service requirements and
obligations under our postretirement benefit plans for the next twelve months
through cash flows generated from operations and the amounts available under our
revolving credit facility. We expect our financial resources will be sufficient
to cover any additional increases in working capital and capital expenditures.
There can be no assurance, however, that these resources will be sufficient to
meet our needs. We may also consider other options available to us in connection
with future liquidity needs, including, but not limited to, the postponement of
discretionary contributions to postretirement benefit plans, the postponement of
capital expenditures, restructuring of our credit facilities and issuance of new
debt or equity securities.




Interest
expense was $5.9 million in the first quarter of 2009, a decrease from $6.8
million in the first quarter of 2008. The decrease reflects reduced interest
rates on our variable rate debt, partially offset by increased average
borrowings during the comparable periods. Our interest expense may vary in the
future because the revolving credit facility and term loan interest rates are
variable. In addition, given the current condition of credit markets, any
replacement financing will likely involve a higher interest rate premium over
benchmark interest rates than we currently pay. The interest rate is fixed on
the senior subordinated notes. Our weighted average interest rate on all debt
was 5.69% as of March 31, 2009, compared to 6.42% as of December 31,
2008.


26
 Index


Cash and
cash equivalents at March 31, 2009 were $59.4 million compared to $58.3 million
at December 31, 2008. As of March 31, 2009, $58.0 million of the cash balance
was held at our foreign operations.




Cash used
in operating activities is summarized in the following table:




Three
      Months Ended March 31,(Amounts
      in thousands)
                  
                  2009
                  
                  
                  2008Income
      from continuing operations
                  
                  $
                  957
                  
                  
                  $
                  6,889Non-cash
      items
                  
                  
                  9,103
                  
                  
                  
                  6,605Subtotal
                  
                  
                  10,060
                  
                  
                  
                  13,494Changes
      in assets and liabilities, net
                  
                  
                  (16,801
                  )
                  
                  
                  (24,526
                  )Discontinued
      operations, net
                  
                  
                  (470
                  )
                  
                  
                  (907
                  )Cash
      used in operating activities
                  
                  $
                  (7,211
                  )
                  
                  $
                  (11,939
                  )




Non-cash
items consist of expenses for depreciation of property, plant and equipment;
amortization; stock compensation and other non-cash charges; asset impairment
charges; the tax benefit or expense from share-based compensation; deferred
income taxes; and gain or loss on disposal of property, plant and
equipment.




During
the first three months of 2009, operating activities used $7.2 million of cash.
Historically, our cash flows from operating activities have been negative in the
first quarter when first quarter income is offset by the pay-down of year-end
accrued liabilities and an increase in working capital components. Income from
continuing operations plus non-cash items totaled $10.1 million in the first
quarter of 2009, reflecting reduced income partially offset by increased
amortization expense related to Carlton when compared with the first quarter of
2008, as well as an asset impairment charge related to the closure of our Milan
facility. The positive operating cash flow from these items was more than offset
by the net increase in working capital and other assets and liabilities during
the period. An increase in inventories of $4.8 million, together with the
reduction in accounts payable and accrued expenses of $20.0 million, partially
offset by a reduction in accounts receivable of $7.3 million, negatively
impacted cash flow from operations for the first quarter of 2009. Discontinued
operations used $0.5 million in cash during the first quarter of 2009 as certain
accrued obligations and liabilities related to these former operations were paid
in early 2009. Cash payments during the quarter also included $8.8 million for
interest and $3.7 million for income taxes.




During
the first three months of 2008, operating activities used $11.9 million of cash.
Income from continuing operations plus non-cash items totaled $13.5 million in
the first quarter of 2008, reflecting higher operating results and lower
non-cash charges compared to the first quarter of 2009. The positive operating
cash flow from these items was more than offset by the net increase in working
capital and other assets and liabilities during the period. An increase in
accounts receivable of $8.7 million and an increase in inventories of $5.1
million, together with the reduction in accounts payable and accrued expenses of
$13.0 million, negatively impacted cash flow from operations for the first
quarter of 2008. Discontinued operations used $0.9 million in cash during the
first quarter of 2008 as certain accrued obligations and liabilities related to
the sale were paid in early 2008. Cash payments during the quarter also included
$9.8 million for interest and $2.8 million for income taxes.




Cash used
in investing activities is summarized as follows:


Three
      Months Ended March 31,(Amounts
      in thousands)
                            
                            2009
                            
                            
                            2008Purchases
      of property, plant and equipment, net
                            
                            $
                            (4,923
                            )
                            
                            $
                            (5,886
                            )Discontinued
      operations
                            
                            
                            -
                            
                            
                            
                            1,725Cash
      used in investing activities
                            
                            $
                            (4,923
                            )
                            
                            $
                            (4,161
                            )




Purchases
of property plant and equipment are primarily for productivity improvements,
expanded manufacturing capacity and replacement of consumable tooling and
equipment. Generally, about one third of our capital spending represents
replacement of consumable tooling, dies and existing equipment, with the
remainder devoted to capacity and productivity improvements. During 2009, we
expect to invest $18 million to $21 million in available cash for capital
expenditures, compared to $26.1 million for the full year in
2008.


27
 Index




Discontinued
operations provided net cash from investing activities of $1.7 million in the
first quarter of 2008, as we collected the final purchase price adjustment from
the sale of our Forestry Division.




Cash
provided by financing activities is summarized as follows:




Three
      Months Ended March 31,(Amounts
      in thousands)
                        
                        2009
                        
                        
                        2008Net
      increase (decrease) in debt principal outstanding
                        
                        $
                        14,442
                        
                        
                        $
                        (310
                        )Proceeds
      and tax effects from the exercise of stock options
                        
                        
                        (6
                        )
                        
                        
                        190Cash
      provided by (used in) financing activities
                        
                        $
                        14,436
                        
                        
                        $
                        (120
                        )




Cash
provided by financing activities in the first quarter of 2009 consisted of $14.8
million in net borrowings under our revolving credit facility, partially offset
by $0.3 million in regularly scheduled quarterly principal payments under our
term loan facility. Cash used in financing activities in the first quarter of
2008 consisted of the scheduled quarterly principal payment on our term debt
facility, partially offset by the net proceeds and tax benefits from the
exercise of stock options.




Critical
Accounting Policies




There
have been no material changes to our critical accounting policies and estimates
from the information provided in Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”, included in our Form 10-K for
the fiscal year ended December 31, 2008.




Recent
Accounting Pronouncements




In
December 2007, the FASB issued FAS No. 141(R). FAS No. 141(R) replaces FAS No.
141. The provisions of FAS No. 141(R) were effective for us on January 1, 2009.
The impact of adopting FAS No. 141(R) will depend on the nature, terms and size
of any business combinations completed after the effective date. In addition,
certain transaction-related expenses that would have been capitalized as part of
a transaction under FAS No. 141 are expensed as incurred under FAS No. 141(R)
beginning January 1, 2009.




In
December 2007, the FASB issued FAS No. 160. FAS No. 160 amends Accounting
Research Bulletin No. 51, Consolidated Financial Statements. The provisions of
FAS No. 160 were effective for us on January 1, 2009. The adoption of FAS No.
160 did not have a material impact on our financial position and results of
operations.




In March
2008, the FASB issued FAS No. 161. FAS No. 161 requires enhanced disclosures
about an entity’s derivative and hedging activities. The provisions of FAS No.
161 were effective for us on January 1, 2009, and have resulted in expanded
disclosures about our derivative instruments and hedging
activities.




In April
2008, the FASB issued FSP No. 142-3. FSP No. 142-3 amends the factors that
should be considered in developing assumptions used to determine useful lives of
recognized intangible assets under FAS No. 142, “Goodwill and Other Intangible
Assets”. The provisions of FSP No. 142-3 were effective for us on January 1,
2009. The impact of adopting FSP No. 142-3 will depend on the nature, terms and
size of any business combinations completed after the effective
date.




In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating Securities”. This FSP
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share under the two-class
method described in paragraphs 60 and 61 of FASB Statement No. 128, “Earnings
per Share”. The provisions of this FSP were effective for us on January 1, 2009.
There was no impact on the calculation of earnings per share as a result of the
adoption of this FSP.




In
December 2008 the FASB issued FSP No. 132(R)-1. FSP No. 132(R)-1 amends FASB
Statement No. 132, “Employers’ Disclosures about Pensions and Other
Postretirement Benefits”, to provide guidance on an employer’s disclosures about
plan assets of a defined benefit pension or other postretirement plan. The
provisions of FSP No. 132(R)-1 will be effective for us in our 2009 Form 10-K,
and will result in expanded disclosures in our financial
statements.


28
 Index


In April
2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, “Interim Disclosures about
Fair Value of Financial Instruments”. This FSP amends FASB Statement No. 107,
“Disclosures about Fair Value of Financial Instruments”, to require disclosures
about fair value of financial instruments for interim periods. This FSP also
amends APB Opinion No. 28, “Interim Financial Reporting”, to require those
disclosures in summarized financial information at interim reporting periods.
This FSP is effective for interim reporting periods ending after June 15, 2009,
with early adoption permitted. We have elected to adopt this FSP effective for
the reporting period ending March 31, 2009. With this early adoption, we have
also elected to adopt FSP FAS 157-4, “Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That are Not Orderly” and FSP FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments”. The impact
of adopting these various FSPs resulted in expanded disclosures in the notes to
our consolidated financial statements.




Forward
Looking Statements




“Forward
looking statements,” as defined by the Private Securities Litigation Reform Act
of 1995, used in this report, including without limitation our “outlook,”
“guidance,” “expectations,” “beliefs,” “plans,” “indications,” “estimates,”
“anticipations,” and their variants, are based upon available information and
upon assumptions that the Company believes are reasonable; however, these
forward looking statements involve certain risks and should not be considered
indicative 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 the
Company of commodities in general, and of steel in particular, the anticipated
level of applicable interest rates and the anticipated effects of discontinued
operations involve certain estimates and assumptions. To the extent that these,
or any other such assumptions, are not realized going forward, or other
unforeseen factors arise, actual results for the periods subsequent to the date
of this report may differ materially.





ITEM 3.         
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




We are
exposed to market risks from changes in interest rates, foreign currency
exchange rates and commodity prices, including raw materials such as steel. We
manage our exposure to these market risks through our regular operating and
financing activities, and, when deemed appropriate, through the use of
derivatives. When utilized, derivatives are used as risk management tools and
not for trading or speculative purposes. See also the Market Risk section of
Management’s Discussion and Analysis of Financial Condition and Results of
Operations in our most recent Form 10-K for further discussion of market
risk.





ITEM 4.          CONTROLS
AND PROCEDURES




The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company’s Securities Exchange
Act of 1934 reports is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission’s rules and
regulations, and that such information is accumulated and communicated to the
Company’s management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow for timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.





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


29
 Index


There
have been no changes in the Company’s internal control over financial reporting
during the Company’s last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





PART
II         OTHER
INFORMATION




ITEM 6.        
 EXHIBITS




(a)
Exhibits:




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




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




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




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




** Filed
electronically herewith. Copies of such exhibits may be obtained upon written
request from:




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


30
 Index


SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the duly authorized
undersigned.




BLOUNT INTERNATIONAL, INC.Registrant






/s/ Calvin E. Jenness
                  /s/ Mark V. AllredCalvin
      E. Jenness
                  Mark
      V. AllredSenior
      Vice President and
                  Vice
      President - Corporate ControllerChief
      Financial Officer
                  (Principal
      Accounting Officer)Dated:
      May 7, 2009


31