BLOUNT INTERNATIONAL INC - FORM 10-Q

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EX-32.1 - SECTION 906 CEO CERTIFICATION - BLOUNT INTERNATIONAL INC	dex321.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - BLOUNT INTERNATIONAL INC	dex311.htm
EX-10.1 - FOURTH AMENDED AND RESTATED CREDIT AGREEMENT - BLOUNT INTERNATIONAL INC	dex101.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - BLOUNT INTERNATIONAL INC	dex312.htm
EX-32.2 - SECTION 906 CFO CERTIFICATION - BLOUNT INTERNATIONAL INC	dex322.htm
EXCEL - IDEA: XBRL DOCUMENT - BLOUNT INTERNATIONAL INC	Financial_Report.xls

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

June 30, 2011 for the quarterly period ended June 30, 2011.

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

Commission file number 001-11549

BLOUNT INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


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

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

(503) 653-8881

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has 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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of July 28, 2011 there were 48,764,287 shares outstanding of $0.01 par value common stock.

BLOUNT INTERNATIONAL, INC. AND SUBSIDIARIES

Index


	Page
Part I Financial Information

Item 1. Consolidated Financial Statements

Unaudited Consolidated Statements of Income Three months and six months ended June 30, 2011 and 2010		3

Unaudited Consolidated Balance Sheets June 30, 2011 and December 31, 2010		4

Unaudited Consolidated Statements of Cash Flows Six months ended June 30, 2011 and 2010		5

Unaudited Consolidated Statement of Changes in Stockholders’ Equity Six months ended June 30, 2011		6

Unaudited Notes to Unaudited Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3. Quantitative and Qualitative Disclosures about Market Risk		30

Item 4. Controls and Procedures		30

Part II Other Information

Item 6. Exhibits		32

Signatures		33

PART I FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

Blount International, Inc. and Subsidiaries


	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands, except per share data)	2011			2010			2011			2010
Sales	$	201,337		$	144,788		$	382,211		$	277,917
Cost of sales		137,149			93,686			257,975			177,726

Gross profit		64,188			51,102			124,236			100,191
Selling, general, and administrative expenses		39,370			29,135			71,576			56,858

Operating income		24,818			21,967			52,660			43,333
Interest income		109			50			131			75
Interest expense		(4,923	)		(6,407	)		(9,782	)		(12,926	)
Other expense, net		(96	)		(19	)		(295	)		(32	)

Income from continuing operations before income taxes		19,908			15,591			42,714			30,450
Provision for income taxes		6,156			5,644			13,340			11,964

Income from continuing operations		13,752			9,947			29,374			18,486

Discontinued operations:
Income from discontinued operations before income taxes		—			775			—			1,168
Provision for income taxes		—			279			—			428

Income from discontinued operations		—			496			—			740

Net income	$	13,752		$	10,443		$	29,374		$	19,226

Basic income per share:
Continuing operations	$	0.28		$	0.21		$	0.61		$	0.39
Discontinued operations		—			0.01			—			0.01

Net income	$	0.28		$	0.22		$	0.61		$	0.40

Diluted income per share:
Continuing operations	$	0.28		$	0.21		$	0.60		$	0.38
Discontinued operations		—			0.01			—			0.02

Net income	$	0.28		$	0.22		$	0.60		$	0.40

Weighted average shares used in per share calculations:
Basic		48,694			47,840			48,533			47,815
Diluted		49,524			48,349			49,324			48,339

The accompanying notes are an integral part of these Consolidated Financial Statements.

UNAUDITED CONSOLIDATED BALANCE SHEETS

Blount International, Inc. and Subsidiaries


	June 30,			December 31,
(Amounts in thousands, except share and per share data)	2011			2010
Assets
Current assets:
Cash and cash equivalents	$	80,527		$	80,708
Accounts receivable, net of allowance for doubtful accounts of $1,957 and $1,490, respectively		100,511			79,223
Inventories		102,980			100,445
Deferred income taxes		10,579			9,462
Other current assets		18,703			19,064

Total current assets		313,300			288,902
Property, plant, and equipment, net		111,602			108,348
Deferred income taxes		1,558			1,439
Intangible assets		63,416			57,573
Assets held for sale		900			900
Goodwill		107,422			103,700
Other assets		25,045			20,025

Total Assets	$	623,243		$	580,887

Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	10,250		$	10,250
Accounts payable		39,184			35,032
Accrued expenses		54,348			55,626
Deferred income taxes		1,061			447

Total current liabilities		104,843			101,355
Long-term debt, excluding current maturities		334,625			339,750
Deferred income taxes		16,162			11,404
Employee benefit obligations		65,428			64,556
Other liabilities		20,991			21,424

Total liabilities		542,049			538,489

Commitments and contingent liabilities
Stockholders’ equity:
Common stock: par value $0.01 per share, 100,000,000 shares authorized, 48,685,408 and 48,236,247 outstanding, respectively		487			482
Capital in excess of par value of stock		595,339			587,894
Accumulated deficit		(479,981	)		(509,355	)
Accumulated other comprehensive loss		(34,651	)		(36,623	)

Total stockholders’ equity		81,194			42,398

Total Liabilities and Stockholders’ Equity	$	623,243		$	580,887

The accompanying notes are an integral part of these Consolidated Financial Statements.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Blount International, Inc. and Subsidiaries


	Six Months Ended June 30,
(Amounts in thousands)	2011			2010
Cash flows from operating activities:
Net income	$	29,374		$	19,226
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations		—			(740	)
Depreciation of property, plant, and equipment		10,444			10,583
Amortization of intangible assets and deferred financing costs		4,428			2,354
Loss on disposal or impairment of assets		223			366
Stock compensation and other non-cash charges		3,388			315
Excess tax benefit from share-based compensation		(456	)		(112	)
Deferred income tax expense		511			67
Changes in assets and liabilities, excluding acquisitions:
(Increase) decrease in accounts receivable		(15,681	)		(4,768	)
(Increase) decrease in inventories		7,245			(6,094	)
(Increase) decrease in other assets		2,974			2,809
Increase (decrease) in accounts payable		990			(256	)
Increase (decrease) in accrued expenses		(1,807	)		8,088
Increase (decrease) in other liabilities		(922	)		(964	)
Discontinued operations		5			517

Net cash provided by operating activities		40,716			31,391

Cash flows from investing activities:
Purchases of property, plant, and equipment		(13,658	)		(8,603	)
Proceeds from sale of assets		136			19
Acquisitions, net of cash acquired		(14,121	)		—
Discontinued operations		—			(35	)

Net cash used in investing activities		(27,643	)		(8,619	)


Cash flows from financing activities:
Net repayments under revolving credit facility		—			(3,400	)
Repayment of term loan principal		(5,125	)		(2,043	)
Debt issuance costs		(6,509	)		—
Excess tax benefit from share-based compensation		456			112
Proceeds from share-based compensation activity		538			295
Taxes paid under share-based compensation activity		(254	)		(333	)

Net cash used in financing activities		(10,894	)		(5,369	)

Effect of exchange rate changes		(2,360	)		339

Net increase (decrease) in cash and cash equivalents		(181	)		17,742
Cash and cash equivalents at beginning of period		80,708			55,070

Cash and cash equivalents at end of period	$	80,527		$	72,812

The accompanying notes are an integral part of these Consolidated Financial Statements.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Blount International, Inc. and Subsidiaries


(Amounts in thousands)	Shares		Common Stock		Capital in Excess of Par		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance December 31, 2010		48,236	$	482	$	587,894	$	(509,355	)	$	(36,623	)	$	42,398
Net income								29,374						29,374
Other comprehensive income:
Foreign currency translation adjustment											2,030			2,030
Unrealized losses											(58	)		(58	)

Comprehensive income, net														31,346

Acquisition of KOX		310		3		4,706								4,709
Stock options, stock appreciation rights, and restricted stock		139		2		740								742
Stock compensation expense						1,999								1,999

Balance June 30, 2011		48,685	$	487	$	595,339	$	(479,981	)	$	(34,651	)	$	81,194

Other comprehensive income (loss):
Three months ended June 30, 2011													$	344
Six months ended June 30, 2011														1,972
Three months ended June 30, 2010														(2,302	)
Six months ended June 30, 2010														(3,799	)

The Company holds 382,380 shares of its common stock in treasury. These shares have been accounted for as constructively retired in the Consolidated Financial Statements, and are not included in the number of shares outstanding.

The accompanying notes are an integral part of these Consolidated Financial Statements.

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 (collectively, “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 for the periods presented.

The accompanying financial data as of June 30, 2011 and for the three and six months ended June 30, 2011 and 2010 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, 2010 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, 2010.

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 may have been reclassified to conform to the current period presentation. Such reclassifications, if any, have no effect on previously reported net income, total cash flows, or net stockholders’ equity.

NOTE 2: ACQUISITIONS

Accounting Policy for Acquisitions

The Company accounts for acquisitions in accordance with Accounting Standards Codification section 805 (“ASC 805”). Accordingly, an acquisition’s assets and liabilities are recorded at their estimated fair values on the date of acquisition. The Company estimates the fair value of assets using various methods and considering, among other factors, projected discounted cash flows, replacement cost less an allowance for depreciation, recent comparable transactions, and historical book values. The Company estimates the fair value of inventory by considering the estimated costs to complete the manufacturing, assembly, and selling process, and the normal gross profit margin typically associated with its sale. The Company estimates the fair value of identifiable intangible assets based on discounted projected cash flows or estimated royalty avoidance costs. The Company estimates the fair value of liabilities assumed considering the historical book values and projected future cash outflows. The fair value of goodwill represents the residual enterprise value which does not qualify for separate recognition, including the value of the assembled workforce.

The Company has conducted a preliminary assessment of liabilities arising from tax matters related to its acquisitions, and has recognized provisional amounts in its initial accounting for the acquisition for the identified tax liabilities. However, the Company continues its review of these matters during the measurement period for up to one year following the date of acquisition, and if new information obtained about facts and circumstances that existed at the acquisition date identifies adjustments to the tax liabilities initially recognized, as well as any additional tax liabilities that existed as of the acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to the provisional tax amounts initially recognized.

Establishment of Blount B.V. on January 19, 2011

On January 19, 2011, we acquired a dormant shelf company registered in the Netherlands and changed the name to Blount Netherlands B.V. (“Blount B.V.”). The acquisition price was $21 thousand, net of cash acquired, plus the assumption of certain liabilities. This acquisition, along with the formation of an additional holding entity named BI Holdings C.V., a Dutch limited partnership based in Bermuda and parent of Blount B.V., is expected to increase our flexibility to make international acquisitions. Direct ownership of certain of our foreign subsidiaries was transferred from our wholly-owned subsidiary, Blount, Inc., to Blount B.V. through a series of transactions executed in February 2011. We recognized $13 thousand of goodwill on the acquisition of the shelf company in the Netherlands, none of which is deductible for income tax purposes.

Acquisition of KOX on March 1, 2011

On March 1, 2011, through our indirect wholly-owned subsidiary Blount B.V., we acquired KOX GmbH and related companies (“KOX”), a Germany-based direct-to-customer distributor of forestry-related replacement parts and accessories, primarily serving professional loggers and consumers in Europe. The acquisition of KOX is expected to increase our distribution capabilities and to expand our geographic presence in Europe. KOX sales and operating income for calendar year 2010 were approximately $34.9 million and $3.3 million, respectively. Depreciation for 2010 was approximately $0.1 million, with no amortization expense. KOX has been a customer of Blount for over 30 years and purchased approximately $9.2 million of replacement parts from Blount in 2010.

The total purchase price was $23.9 million. The purchase price consisted of $19.2 million in cash and 309,834 shares of our common stock valued at $4.7 million based on the closing price of our stock on the acquisition date. KOX had $5.1 million of cash on the acquisition date, resulting in a net cash outflow of $14.1 million. As part of the acquisition, we assumed liabilities of $7.3 million. We assumed none of KOX’s debt in the transaction. In addition, we incurred legal and other third party fees totaling $1.2 million in conjunction with the acquisition that were expensed to SG&A in the Consolidated Statements of Income during the fourth quarter of 2010 and the first quarter of 2011. The cash portion of the acquisition was funded from available cash on hand at Blount B.V. The common stock shares issued in the purchase are subject to certain restrictions under terms of the related stock purchase agreement.

A summary of the KOX purchase price allocation is presented below.


(Amounts in thousands)	March 1, 2011
Cash	$	5,126
Accounts receivable		3,365
Inventories		8,879
Other current assets		268
Property, plant, and equipment		383
Non-current intangible assets subject to amortization		4,594
Non-current intangible assets not subject to amortization		5,241
Goodwill		3,709

Total assets acquired		31,565

Current liabilities		4,793
Non-current liabilities		2,836

Total liabilities assumed		7,629

Purchase price, before consideration of cash acquired	$	23,936

The operating results of KOX are included in the Consolidated Statement of Income from the acquisition date forward, including incremental net sales of $5.1 million and $8.2 million and loss from continuing operations before income taxes of $0.7 million and $0.5 million in the three and six months ended June 30, 2011, respectively. Included in cost of sales for the three and six months ended June 30, 2011 are non-cash charges totaling $0.9 million and $1.3 million, respectively, for amortization of intangible assets and expense for the step-up to fair value of inventories related to KOX. Acquisition-related charges to cost of sales for KOX are expected to total $2.1 million in 2011. See also Note 4. None of the KOX goodwill is amortizable and deductible for income tax purposes.

The following unaudited pro forma results present the estimated effect as if the acquisition of KOX had occurred on January 1, 2010. The unaudited pro forma results include the historical results of KOX, pro forma elimination of sales from Blount to KOX, pro forma purchase accounting effects, pro forma interest effects from reduced cash and cash equivalents following use of cash to fund the transaction, and the related pro forma income tax effects. In addition to the pro forma amortization of intangible asset adjustments to fair value, the unaudited pro forma results for 2010 include a charge of $0.7 million to expense the adjustment of inventory to estimated fair value on the date of acquisition.


	Three Months Ended June 30, 2011				Three Months Ended June 30, 2010
(Amounts in thousands)	As Reported		Pro Forma		As Reported		Pro Forma
Sales	$	201,337	$	201,337	$	144,788	$	149,211
Net income		13,752		14,198		10,443		10,307

Basic income per share	$	0.28	$	0.29	$	0.22	$	0.21
Diluted income per share	$	0.28	$	0.29	$	0.22	$	0.21


	Six Months Ended June 30, 2011				Six Months Ended June 30, 2010
(Amounts in thousands)	As Reported		Pro Forma		As Reported		Pro Forma
Sales	$	382,211	$	387,566	$	277,917	$	289,899
Net income		29,374		30,975		19,226		19,334

Basic income per share	$	0.61	$	0.64	$	0.40	$	0.40
Diluted income per share	$	0.60	$	0.63	$	0.40	$	0.40

Acquisition of SpeeCo on August 10, 2010

On August 10, 2010, we acquired all of the outstanding stock of SP Companies, Inc. and SpeeCo Incorporated (collectively, “SpeeCo”). SpeeCo, located in Golden, Colorado, is a supplier of log splitters, post-hole diggers, tractor three-point linkage parts and equipment, and farm and ranch accessories. The acquisition of SpeeCo expands our product offerings to our current markets and customers, as well as offering opportunities for synergies in the areas of marketing, sales, and distribution, including marketing SpeeCo’s products to our international customers, and for back office consolidation of support functions. We also expect to benefit from the acquisition of SpeeCo by leveraging its experience in low-cost sourcing of materials and components.

We paid $90.9 million in cash for SpeeCo, net of cash acquired, and assumed liabilities totaling $31.0 million. Pursuant to the terms of the stock purchase agreement, none of SpeeCo’s debt was assumed by Blount. In addition, we incurred legal and other third party fees totaling $1.0 million in conjunction with the acquisition that were expensed to SG&A in the Consolidated Statement of Income in 2010. The acquisition was financed with a combination of cash on hand and borrowing under the Company’s revolving credit facility.

A summary of the SpeeCo purchase price allocation is presented below.


(Amounts in thousands)	August 10, 2010
Cash	$	816
Accounts receivable		7,525
Inventories		18,868
Current intangible assets subject to amortization		401
Other current assets		1,282
Property, plant, and equipment		1,812
Non-current intangible assets subject to amortization		43,214
Non-current intangible assets not subject to amortization		5,968
Goodwill		42,794

Total assets acquired	$	122,680

Current liabilities	$	13,762
Non-current liabilities		106
Deferred income tax liability		17,142

Total liabilities assumed		31,010

Purchase price, before consideration of cash acquired	$	91,670

Approximately $7.0 million of the SpeeCo goodwill is amortizable and deductible for U.S. income tax purposes. The operating results of SpeeCo are included in the Company’s Consolidated Financial Statements from the acquisition date forward, including sales of $16.0 million and $35.2 million and income from continuing operations before income taxes of $0.5 million and $1.9 million, respectively, for the three and six months ended June 30, 2011. Included in cost of sales for the three and six months ended June 30, 2011 are non-cash charges totaling $1.4 million and $2.8 million, respectively, for amortization of intangible assets related to SpeeCo. Acquisition-related charges to cost of sales are expected to total $5.6 million for 2011. See also Note 4.

The following unaudited pro forma results present the estimated effect as if the acquisition of SpeeCo had occurred on January 1, 2009. The unaudited pro forma results include the historical results of SpeeCo, pro forma purchase accounting effects, pro forma interest expense effects of additional borrowings to fund the transaction, and the related pro forma income tax effects.


	Three Months Ended June 30, 2010				Six Months Ended June 30, 2010
(Amounts in thousands)	As Reported		Pro Forma		As Reported		Pro Forma
Sales	$	144,788	$	163,609	$	277,917	$	313,492
Net income		10,443		10,860		19,226		19,874

Basic income per share	$	0.22	$	0.23	$	0.40	$	0.42
Diluted income per share	$	0.22	$	0.22	$	0.40	$	0.41

NOTE 3: INVENTORIES

Inventories consisted of the following:


(Amounts in thousands)	June 30, 2011		December 31, 2010
Raw materials and supplies	$	16,726	$	16,529
Work in progress		20,110		14,986
Finished goods		66,144		68,930

Total inventories	$	102,980	$	100,445

NOTE 4: INTANGIBLE ASSETS

The following table summarizes intangible assets:


			June 30, 2011				December 31, 2010
(Amounts in thousands)	Life In Years		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Goodwill, Blount B.V.		Indefinite	$	13	$	—	$	—	$	—
Goodwill, KOX		Indefinite		3,709		—		—		—
Goodwill, SpeeCo		Indefinite		42,794		—		42,794		—
Goodwill, previous acquisitions		Indefinite		60,906		—		60,906		—

Total goodwill				107,422		—		103,700		—
Trademarks and trade names		Indefinite		16,711		—		11,469		—

Total with indefinite lives				124,133		—		115,169		—

Backlog		Less than 1		1,641		1,641		1,641		1,641
Covenants not to compete		2 - 4		1,112		752		1,112		595
Patents		11 - 13		5,320		904		5,320		687
Customer relationships		10 - 19		50,684		8,755		46,090		5,136

Total with finite lives				58,757		12,052		54,163		8,059

Total intangible assets			$	182,890	$	12,052	$	169,332	$	8,059

Amortization expense for intangible assets was $2.1 million and $4.0 million for the three and six months ended June 30, 2011, respectively. Amortization expense for intangible assets was $0.4 million and $0.8 million for the three and six months ended June 30, 2010, respectively, and related solely to the acquisition accounting for Carlton through the first half of 2010. Amortization expense for these intangible assets is expected to total $8.2 million in 2011, $6.8 million in 2012, $5.8 million in 2013, $5.2 million in 2014, $4.6 million in 2015, and $4.0 million in 2016.

NOTE 5: DEBT

Long-term debt consisted of the following:


(Amounts in thousands)	June 30, 2011			December 31, 2010
Revolving credit facility borrowings	$	—		$	—
Term loans		344,875			350,000

Total debt		344,875			350,000
Less current maturities		(10,250	)		(10,250	)

Long-term debt, net of current maturities	$	334,625		$	339,750

Weighted average interest rate on outstanding debt		5.14	%		5.14	%

Senior Credit Facilities. The Company, through its wholly-owned subsidiary, Blount, Inc., maintains a senior credit facility with General Electric Capital Corporation as agent and a lender that was amended and restated on August 9, 2010, amended on January 28, 2011, and amended and restated on June 13, 2011. The key terms of the Fourth Amendment and Restatement dated June 13, 2011 do not take effect until the initial funding date, which is expected to occur on or about August 9, 2011. As of June 30, 2011, the senior credit facilities consisted of a revolving credit facility, a term loan A, and a term loan B.

August 2010 Third Amendment and Restatement of Senior Credit Facilities. On August 9, 2010, the Company entered into the Third Amendment and Restatement of its senior credit facilities that included the following key terms:

•

Maximum borrowings under the revolving credit facility were increased from $60.0 million to $75.0 million and the maturity date was extended to August 2015.

•

The term loan B facility was increased to $275.0 million and the maturity date was extended to August 2016.

•

The interest rates on the revolving credit facility and the term loan B were changed, as described below.

•

A term loan A facility was established at $75.0 million with a maturity date of August 2015.

•

Certain financial and other covenants were amended and revised, as described below.

•

The Company paid $6.3 million in fees and transaction costs in connection with these transactions.

The Company used the $350.0 million combined proceeds of the term loans to repay the principal outstanding under its previous term loan B facility and its 8 7/8% senior subordinated notes originally due August 1, 2012. These 8 7/8% senior subordinated notes were redeemed in full on September 16, 2010, following the expiration of the required redemption notification period. In conjunction with the redemption of the 8 7/8% senior subordinated notes and the repayment of principal on the previous term loan B, the Company expensed $3.5 million in unamortized deferred financing costs.

January 2011 Amendment of Senior Credit Facilities. On January 28, 2011, the senior credit facility was amended to facilitate a foreign subsidiary reorganization and to allow additional flexibility for making foreign acquisitions.

Current Terms of Senior Credit Facilities. The revolving credit facility provides for total available borrowings of up to $75.0 million, reduced by outstanding letters of credit, and further restricted by a specific leverage ratio. As of June 30, 2011, the Company had the ability to borrow an additional $72.1 million under the terms of the revolving credit agreement. The revolving credit facility bears interest at the LIBOR rate plus 3.50% or at an index rate, as defined in the credit agreement, plus 2.50%, and matures on August 9, 2015. Interest is payable on the individual maturity dates for each LIBOR-based borrowing and monthly on index rate-based borrowings. Any outstanding principal is due in its entirety on the maturity date.

The term loan A bears interest at LIBOR plus 3.50% or at the index rate plus 2.50% and matures on August 9, 2015. The term loan A facility requires quarterly principal payments of $1.9 million commencing on January 1, 2011, with a final payment of $39.4 million due on the maturity date. Once repaid, principal under the term loan A facility may not be re-borrowed.

The term loan B bears interest at LIBOR plus 4.00%, or the index rate plus 3.00%, with a minimum rate of 5.50%, and matures on August 9, 2016. The term loan B facility requires quarterly principal payments of $0.7 million commencing on January 1, 2011, with a final payment of $259.2 million due on the maturity date. Once repaid, principal under the term loan B facility may not be re-borrowed.

The amended and restated senior credit facilities contain financial covenants relating to:

•

Maximum capital expenditures of $42.5 million per calendar year.

•

Minimum fixed charge coverage ratio of 1.15, defined as Adjusted EBITDA divided by cash payments for interest, taxes, capital expenditures, scheduled debt principal payments, and certain other items, calculated on a trailing twelve-month basis.

•

Maximum leverage ratio, defined as total debt divided by Adjusted EBITDA, calculated on a trailing twelve-month basis. The maximum leverage ratio is set at 4.00 through June 30, 2011, 3.75 through December 31, 2011, 3.50 through September 30, 2012, 3.25 through March 31, 2013, and 3.00 thereafter.

In addition, there are covenants or restrictions relating to acquisitions, investments, loans and advances, indebtedness, dividends on our stock, the sale of stock or assets, and other categories. We were in compliance with all debt covenants as of June 30, 2011. Non-compliance with these covenants, if it were to become an event of default under the terms of the credit agreement, could result in severe limitations to our overall liquidity, and the term loan lenders could require immediate repayment of outstanding amounts, potentially requiring sale of a sufficient amount of our assets to repay the outstanding loans.

The amended and restated senior credit facilities may be prepaid at any time. Prior to August 9, 2011, a 1% prepayment premium applies to any term loan B principal prepaid. 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. Our debt is not subject to any triggers that would require early payment due to any adverse change in our credit rating.

Our debt is incurred by our wholly-owned subsidiary, Blount, Inc. 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. The Company has also directly or indirectly pledged 65% of the stock of its non-domestic subsidiaries as additional collateral.

June 2011 Fourth Amendment and Restatement of Senior Credit Facilities. On June 13, 2011, the Company entered into the Fourth Amendment and Restatement of its senior credit facilities that included the following key terms, effective upon the initial funding date which is expected to occur on August 9, 2011:

•

Maximum borrowings under the revolving credit facility were increased from $75.0 million to $400.0 million and the maturity date was extended to August 31, 2016.

•

A term loan A facility was increased from $75.0 million to $300.0 million and the maturity date was extended to August 31, 2016.

•

The interest rates on the revolving credit facility and the term loan A were reduced to LIBOR rate plus 2.50%, or an index rate, as defined in the credit agreement, plus 1.50%.

•

The existing term loan B facility will be paid in full upon the initial funding date of the Fourth Amendment and Restatement.

•

Certain financial and other covenants were amended and revised. The covenant limiting maximum capital expenditures to $42.5 million within a calendar year was eliminated. The maximum leverage ratio was changed to 4.25 through December 31, 2011, 4.00 through June 30, 2012, 3.75 through December 31, 2012, 3.50 through September 30, 2013, 3.25 through March 31, 2014, and 3.00 thereafter. Other covenant modifications were made to increase maximum amounts allowed for acquisition transactions and indebtedness, including intercompany indebtedness.

•

The Company paid $6.5 million in fees and transaction costs in connection with the Fourth Amendment and Restatement, which are carried on the Consolidated Balance Sheet at June 30, 2011 in prepaid expenses and deferred financing fees.

NOTE 6: PENSION AND OTHER POST-EMPLOYMENT BENEFIT PLANS

The Company sponsors defined benefit pension plans covering 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 have been frozen since December 31, 2006. Employees who currently participate in these U.S. plans no longer accrue benefits and new employees hired since December 31, 2006, 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 are as follows:


	Three Months Ended June 30,
	2011			2010			2011		2010
(Amounts in thousands)	Pension Benefits						Other Benefits
Service cost	$	667		$	624		$	65	$	67
Interest cost		2,755			2,734			493		524
Expected return on plan assets		(3,372	)		(2,991	)		—		—
Amortization of prior service cost		(2	)		(2	)		—		—
Amortization of net actuarial losses		941			924			218		212

Total net periodic benefit cost	$	989		$	1,289		$	776	$	803


	Six Months Ended June 30,
	2011			2010			2011		2010
(Amounts in thousands)	Pension Benefits						Other Benefits
Service cost	$	1,334		$	1,248		$	130	$	134
Interest cost		5,510			5,468			986		1,048
Expected return on plan assets		(6,744	)		(5,982	)		—		—
Amortization of prior service cost		(4	)		(4	)		—		—
Amortization of net actuarial losses		1,882			1,848			436		424

Total net periodic benefit cost	$	1,978		$	2,578		$	1,552	$	1,606

The Company expects to contribute approximately $15 million to $17 million to its funded defined benefit pension plans in 2011, including a $10 million voluntary contribution to the U.S. defined benefit pension plan made in July 2011.

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

NOTE 7: FINANCIAL GUARANTEES AND COMMITMENTS

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


	June 30,
(Amounts in thousands)	2011
Letters of credit outstanding	$	3,589
Other financial guarantees		1,283

Total financial guarantees and commitments	$	4,872

See also Note 5 regarding guarantees of debt.

NOTE 8: 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 these businesses. In addition, from time to time, the Company is a party to a number of other lawsuits arising out of the normal course of its business, including suits concerning commercial contracts, employee matters, intellectual property rights, and other matters. In some instances the Company is the plaintiff and is seeking recovery of damages. In other instances, the Company is a defendant against whom damages are being sought. While there can be no assurance as to the ultimate outcome of these lawsuits, 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 was named a potentially liable person (“PLP”) by the Washington State Department of Ecology (“WDOE”) in connection with the Pasco Sanitary Landfill Site (“Site”). This Site has been monitored by WDOE since 1988. From available records, the Company believes that it sent 26 drums of chromic hydroxide sludge in a non-toxic, trivalent state to the Site. The Company further believes that the Site contains more than 50,000 drums in total and millions of gallons of additional wastes, some potentially highly toxic in nature. Accordingly, based both on volume and on the nature of the waste, the Company believes that it is a de minimis contributor.

The current on-site monitoring program is being conducted and funded by certain PLPs (the “PLP Group”), excluding the Company and several other PLPs, under the supervision of WDOE. In a recent development, WDOE required the PLP Group to undertake a “Focused Feasibility Study” to see if new cleanup technologies would work better than those currently being used with only limited success. The method chosen and the cost incurred is not expected to be known until late 2011 or early 2012.

In addition, the PLP Group has hired common counsel to pursue other potentially liable parties, including the federal government. The Company may or may not be pursued to contribute to the cost of this new or any subsequent studies or remediation, if any. The Company is unable to estimate such costs, or the likelihood of being assessed any portion thereof. The Company incurred no costs during the six months ended June 30, 2011 or 2010 in connection with the remediation efforts at the Site.

On June 10, 2011, the Company received a notice from the U.S. Environmental Protection Agency (“EPA”) that it was deemed to be a de minimis potentially responsible party (“PRP”) to the Casmalia Superfund Site in Santa Barbara County, California. This PRP assertion arose out of the alleged disposal of wastes by the Solar Energy Generating operations of a subsidiary of the Company that is now known as 4520 Corp., Inc. Since the volume of wastes disposed of was low, the Company was offered a tentative settlement of $5 thousand, an immaterial amount that the Company has accepted and paid. This offer and acceptance, however, may be subject to the actions of other PRPs, and will remain open during the statutory period for receiving public comments. Unless and until these events have been finalized, there is no assurance that the Company’s settlement will be final and binding; however, the Company believes that, due to the amounts and nature of the materials disposed of, any final accounting will not be significantly different from the tentative settlement amount.

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.

NOTE 9: EARNINGS PER SHARE DATA

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


	Three Months Ended June 30,				Six Months Ended June 30,
(Shares in thousands)	2011		2010		2011		2010
Shares for basic per share computation – weighted average common shares outstanding		48,694		47,840		48,533		47,815
Dilutive effect of common stock equivalents		830		509		791		524

Shares for diluted per share computation		49,524		48,349		49,324		48,339

Options and stock appreciation rights (“SARs”) excluded from computation as anti-dilutive because they are out-of-the-money		93		2,073		146		1,864

Unvested restricted stock and restricted stock units (“RSUs”) considered to be participating securities		153		150		153		150

The allocation of undistributed earnings (net income) to the participating securities under the two class method had the effect of decreasing basic and diluted earnings per share for the six months ended June 30, 2011 by $0.01.

NOTE 10: STOCK-BASED COMPENSATION

The Company made the following stock-based compensation awards:


	Six Months Ended June 30,
(Amounts in thousands)	2011		2010
SARs granted (number of shares)		469		549
RSUs granted (number of shares)		98		118

Aggregate fair value; SARs granted	$	3,256	$	3,091
Aggregate fair value; RSUs granted	$	1,395	$	1,322

The SARs and RSUs granted in 2010 and 2011 vest quarterly over a three-year period and are restricted from exercise, sale, or other transfer until three years from the grant date. The SARs granted have a ten-year term.

The following assumptions were used to estimate the fair value of SARs issued in the periods indicated:


	2011			2010
Estimated average life		6 years			6 years
Risk-free interest rate		2.4	%		2.8	%
Expected volatility		48.4	%		49.8	%
Weighted average volatility		48.4	%		49.8	%
Dividend yield		0.0	%		0.0	%
Weighted average exercise price	$	15.09		$	11.85
Weighted average grant date fair value	$	7.35		$	5.96

As of June 30, 2011, the total unrecognized stock-based compensation expense related to previously granted awards was $8.4 million. The weighted average period over which this expense is expected to be recognized is 26 months. The Company’s policy upon the exercise of options, restricted stock awards, RSUs, or SARs has been to issue new shares into the public market from the stockholder-approved 2006 Equity Incentive Plan.

NOTE 11: SEGMENT INFORMATION

The Company identifies operating segments primarily based on organizational structure and the evaluation of the Chief Operating Decision Maker (Chief Executive Officer). The Company has one operating and reportable segment: Outdoor Products. The central administration and other category includes centralized administrative functions. The Outdoor Products segment manufactures and markets cutting chain, guide bars, sprockets, and accessories for chain saw use, lawnmower and edger blades, log splitters, and concrete-cutting equipment and accessories. The Outdoor Products segment also markets branded parts and accessories for the lawn and garden equipment market, such as cutting line for line trimmers, lubricants, and small engine replacement parts, and parts and other accessories for farm, ranch, and agriculture applications, including tractor linkage parts and post-hole diggers.

The accounting policies of the segment are the same as those described in the summary of significant accounting policies.


	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands)	2011			2010			2011			2010
Operating income (expense):
Outdoor Products	$	32,343		$	28,189		$	66,446		$	55,967
Central administration and other		(7,525	)		(6,222	)		(13,786	)		(12,634	)

Operating income	$	24,818		$	21,967		$	52,660		$	43,333

NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION


	Six Months Ended June 30,
(Amounts in thousands)	2011		2010
Interest paid	$	9,452	$	10,369
Income taxes paid, net		10,331		3,841

On March 1, 2011, we issued 309,834 shares of common stock valued at $4.7 million as part of the purchase price of KOX.

NOTE 13: FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

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 any principal outstanding on the revolving credit facility approximates fair value because the applicable interest rates are 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. Derivative financial instruments are carried on the Consolidated Balance Sheets at fair value, as determined by reference to quoted terms for similar instruments. 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. The estimated fair values of the term loans at June 30, 2011 and December 31, 2010 are presented below.


	June 30, 2011				December 31, 2010
(Amounts in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Term loans	$	344,875	$	344,875	$	350,000	$	352,188

The Company has manufacturing or distribution operations in 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 June 30, 2011, approximately 63% of accounts receivable were from customers outside the U.S. Accounts receivable are principally from distributors, dealers, mass merchants, chain saw manufacturers, and other original equipment manufacturers (“OEMs”), and are normally not collateralized.

Foreign currency exchange rate movements create a degree of risk by affecting the U.S. Dollar value of certain balance sheet positions denominated in foreign currencies. Additionally, the interest rates available in certain jurisdictions in which the Company holds cash may vary, thereby affecting the return on cash equivalent investments. The Company’s practice is to use foreign currency and interest rate swap agreements to manage a portion of the exposure to foreign currency and interest rate changes on certain cash held in foreign locations. The objective is to minimize earnings volatility resulting from conversion and the re-measurement of foreign currency cash balances to U.S. Dollars.

Derivative Financial Instruments and Foreign Currency Hedging. The Company makes regular payments to its wholly-owned subsidiary Blount Canada, for contract manufacturing services performed by Blount Canada on behalf of the Company. The Company is exposed to changes in Canadian Dollar to U.S. Dollar exchange rates from these transactions, which may adversely affect its results of operations and financial position.

The Company manages 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. Each pair of contracts constituting a collar has the same maturity date in a monthly ladder extending out 12 months. Each month, the Company intends to extend the ladder one more month, on a rolling basis, so that a 12 month rolling hedge is maintained. These instruments are designated as cash flow hedges and are recorded on the Consolidated Balance Sheets at fair value. The effective portion of the gains or losses on these contracts due to changes in fair value is initially recorded as a component of accumulated other comprehensive loss and is subsequently reclassified into cost of goods sold when the contracts mature and the Company settles the hedged payment to Blount Canada. These contracts are highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates.

As of June 30, 2011, the cumulative unrealized pre-tax gain on these contracts included in other comprehensive loss on the Consolidated Balance Sheet was $0.7 million. During the three and six months ended June 30, 2011, gains of $0.4 million and $0.7 million, respectively, were recognized in cost of goods sold in the Consolidated Statements of Income at the maturity of the related Canadian Dollar derivative financial instruments. During the three and six months ended June 30, 2010, gains of $0.7 million and $2.1 million, respectively, were recognized in cost of goods sold in the Consolidated Statements of Income at the maturity of the related Canadian Dollar derivative financial instruments. Gains and losses on these Canadian Dollar derivative financial instruments are offset in cost of goods sold by the effects of currency exchange rate changes on the underlying transactions. Through June 30, 2011, the Company has not recognized any amount from these contracts in earnings due to ineffectiveness. The aggregate notional amount of these Canadian Dollar contracts outstanding was $39.5 million at June 30, 2011 and $34.5 million at December 31, 2010.

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. The change in fair value of these instruments is recognized in interest income in the Consolidated Statements of Income. Any change in fair value of these derivative contracts is fully offset by the change in fair value of the underlying investments. There was no impact from these interest rate swap contracts in the three and six months ended June 30, 2011. The Consolidated Statements of Income include no impact for the three months ended June 30, 2010 and income of $0.1 million for the six months ended June 30, 2010 from the change in fair value of these interest rate swap contracts. There were no such instruments outstanding at June 30, 2011 or December 31, 2010.

In the first quarter of 2011, we entered into interest rate cap agreements covering 35% of the outstanding principal on our term loans A and B, that cap the maximum LIBOR used to determine the interest rate we pay at 5.00% through February 28, 2013. These agreements are carried on the Consolidated Balance Sheet at fair value. As of June 30, 2011, the unrealized pre-tax loss on these agreements included in other comprehensive loss on the Consolidated Balance Sheet was $0.2 million.

Under accounting principles generally accepted in the U.S., 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.

Derivatives held by the Company are summarized as follows:


(Amounts in thousands)	Carrying Value on Balance Sheets		Assets Measured at Fair Value		Level 1		Level 2		Level 3
June 30, 2011	$	715	$	715	$	—	$	715	$	—
December 31, 2010		636		636		—		636		—

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

The amounts included in accumulated other comprehensive loss on the Consolidated Balance Sheet at June 30, 2011 is expected to be recognized in the Consolidated Statements of Income within the next twelve months.

NOTE 14: RECENT ACCOUNTING PRONOUNCEMENTS

In December 2010, the FASB issued new guidance on business combinations, effective for acquisitions made after December 31, 2010. The new guidance changes the requirements for the presentation of comparative pro forma financial statements for a business combination. We elected to adopt this new guidance early and implemented it for the reporting period ended December 31, 2010, including the pro forma disclosures for the acquisition of SpeeCo. Pro forma disclosures for KOX are also presented under the new guidance.

In May 2011, the FASB issued new guidance on fair value measurements and disclosures which will result in common fair value measurement and disclosure requirements between U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. The new guidance will be effective for us on January 1, 2012 and will result in enhanced footnote disclosures including those related to equity interests issued as consideration for business combinations.

In June 2011, the FASB issued new guidance on the financial statement presentation of comprehensive income which eliminates the option of presenting other comprehensive income as a component of the Statement of Changes in Stockholders’ Equity. The new guidance will be effective for us on January 1, 2012 and will require that all non-owner changes to comprehensive income be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements.

NOTE 15: SUBSEQUENT EVENT

Acquisition of PBL on August 5, 2011

On August 5, 2011, through our indirect wholly-owned subsidiary Blount Holdings France SAS (“Blount France”), we acquired all of the outstanding stock of Finalame SA, which includes PBL SAS and related companies (together “PBL”). PBL is a leading manufacturer of lawnmower blades and agricultural cutting parts based in Civray, France and Queretaro, Mexico. The acquisition of PBL is expected to increase our manufacturing capacity for lawnmower blades and establish our entrance into the agricultural parts market in Europe. We also expect to benefit from PBL’s low-cost manufacturing methods and technology utilized at its facilities in France and Mexico. PBL’s sales for the twelve months ended July 31, 2011 were approximately $33.2 million.

At closing we paid $14.2 million in cash for the outstanding stock of PBL. At the acquisition date, PBL had $1.9 million of cash on hand and outstanding debt of approximately $16.0 million. The Company intends to retire PBL’s debt at a future date.

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 June 30, 2011 (unaudited) compared to three months ended June 30, 2010 (unaudited).

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


	Three Months Ended June 30,
(Amounts in millions)	2011			2010			Change						Contributing Factor
*(Amounts may not sum due to rounding)*

Sales	$	201.3		$	144.8		$	56.5
										$	50.5		Sales volume, including acquisitions
											3.2		Selling price and mix
											2.9		Foreign currency translation

Gross profit		64.2			51.1			13.1
Gross margin		31.9	%		35.3	%					16.9		Sales volume
											3.2		Selling price and mix
											(2.2	)	Acquisition accounting effects
											(3.1	)	Product cost and mix
											(1.7	)	Foreign currency translation

Selling, general, and administrative expenses (“SG&A”)		39.4			29.1			10.2
As a percent of sales		19.6	%		20.1	%					3.7		Acquisitions
											1.3		Compensation expense
											2.0		Advertising
											1.3		Professional services
											1.0		Foreign currency translation
											0.9		Other, net

Operating income		24.8			22.0			2.9
Operating margin		12.3	%		15.2	%					13.1		Increase in gross profit
											(10.2	)	Increase in SG&A

Income from continuing operations		13.8			9.9			3.8
											2.9		Increase in operating income
											1.5		Decrease in net interest expense
											(0.1	)	Change in other income (expense)
											(0.5	)	Increase in income tax provision

Income from discontinued operations		—			0.5			(0.5	)
											(0.8	)	Decrease in operating results
											0.3		Decrease in income taxes

Net income	$	13.8		$	10.4		$	3.3

Sales in the three months ended June 30, 2011 increased by $56.5 million (39.1%) from the same period in 2010, primarily due to increased unit volume of $50.5 million. We report all incremental sales attributable to our recent acquisitions, SpeeCo and KOX, as unit volume increase. SpeeCo and KOX contributed $16.0 million and $5.1 million of incremental sales, respectively, in the three months ended June 30, 2011. Excluding the effect of these acquisitions, unit sales volume increased by $29.4 million or 20.3%. Changes in average selling price and product mix increased sales revenue by $3.2 million on a quarter-over-quarter basis. Higher average selling prices were attributable to pricing actions we implemented late in 2010 and the first half of 2011, and to a lower relative proportion of OEM to replacement market sales. Historically, sales to our OEM customers are at lower average prices than sales to the replacement market. Excluding SpeeCo and KOX, OEM sales were up 6.2% while replacement channel sales were up 30.1%. The translation of foreign currency-denominated sales transactions increased consolidated sales by $2.9 million in the current quarter compared to the second quarter of 2010, given the relatively weaker U.S. Dollar in comparison to most foreign currencies. International sales increased by $35.6 million (35.0%), while domestic sales were flat, both exclusive of sales from recent acquisitions. The increase in international sales reflected strong global market conditions and demand for our products, with the largest percentage growth occurring in Europe and Russia (up 42.2% in aggregate), followed by South America (up 32.5%), and the Asia-Pacific region (up 29.4%), all exclusive of sales from recent acquisitions. Excluding the effects of recent acquisitions, sales of forestry products were up 31.4%, while sales of lawn and garden and construction products were both flat.

Consolidated order backlog at June 30, 2011 was $175.0 million compared to $181.9 million at March 31, 2011 and $121.2 million at June 30, 2010.

Gross profit increased by $13.1 million (25.6%) from the second quarter of 2010 to the second quarter of 2011. Higher unit sales volume, including incremental volume from SpeeCo and KOX, along with the effect of higher average selling prices and product mix, accounted for the increase. Partially offsetting the volume increases were increased non-cash charges for acquisition purchase accounting and higher product cost and mix. Purchase accounting effects related to SpeeCo and KOX totaled $2.3 million in the three months ended June 30, 2011. Coupled with a slight decrease in amortization expense of purchased intangibles related to earlier acquisitions, the overall impact was an increase of $2.2 million from the second quarter of 2010 to the second quarter of 2011. Amortization of purchase intangible assets is expected to total $8.2 million for 2011. Product cost and mix increased by $3.1 million quarter-over-quarter. The increase in product cost was driven by annual merit pay increases, incremental headcount brought on after the second quarter of 2010 to service increasing product demand, and costs related to the Company’s continuing effort to streamline product offerings and improve efficiency. The comparable gross margin in the second quarter of 2010 benefited significantly from the relatively quick upturn in volumes and related manufacturing leverage we achieved in that quarter. Changes in steel costs reduced gross profit by $0.5 million on a year-over-year basis. Gross margin in the second quarter of 2011 was 31.9% of sales compared to 35.3% in the second quarter of 2010. The decline in gross margin from last year’s second quarter is primarily the result of the lower average gross margins of acquired business and the related acquisition accounting. Additionally, changes in foreign currencies from the same period last year caused gross margins to decline.

Fluctuations in currency exchange rates decreased our gross profit in the second quarter of 2011 compared to 2010 by $1.7 million on a consolidated basis. The translation of stronger foreign currencies in Canada and Brazil into a weaker U.S. Dollar resulted in higher reported manufacturing costs. This foreign currency effect at our international manufacturing locations more than offset the positive effect on translation of international sales revenue.

SG&A was $39.4 million in the second quarter of 2011, compared to $29.1 million in the second quarter of 2010, representing an increase of $10.2 million (35.1%). As a percentage of sales, SG&A decreased from 20.1% in the second quarter of 2010 to 19.6% in the second quarter of 2011, primarily due to the increase in sales revenue, which outpaced the increase in SG&A spending. Incremental SG&A expense incurred at SpeeCo and KOX added $3.7 million in the second quarter of 2011. Compensation expense for the quarter increased by $1.3 million on a comparative basis, reflecting annual merit increases and increased headcount. Advertising expense increased by $2.0 million, as we launched advertising programs for new product introductions in the second quarter of 2011. Costs for professional services were $1.3 million higher in the second quarter of 2011 compared with the second quarter of 2010, primarily related to our strategic initiatives, including our acquisition program. International operating expenses increased by $1.0 million from the prior year comparable period due to the movement in foreign currency exchange rates.

Operating income increased by $2.9 million from the second quarter of 2010 to the second quarter of 2011, resulting in an operating margin for 2011 of 12.3% of sales compared to 15.2% for the second quarter of 2010. The increase was due to higher sales volume and gross profit, partially offset by increased SG&A expenses.

Interest expense was $4.9 million in the second quarter of 2011 compared to $6.4 million in the second quarter of 2010. The decrease was due to lower average interest rates on our debt, partially offset by higher average outstanding debt balances in the comparable periods. The variable interest rates on our term loans decreased significantly when we amended and restated our senior credit facilities in August 2010, and our average interest costs were further reduced when we redeemed our 8 7/8% senior subordinated notes in September 2010.

The following table summarizes our income tax provision for continuing operations in 2011 and 2010:


	Three Months Ended June 30,
(Amounts in thousands)	2011			2010
Income before income taxes	$	19,908		$	15,591
Provision for income taxes		6,156			5,644

Effective tax rate		30.9	%		36.2	%

The effective tax rate for the second quarter of 2011 was lower than the federal statutory rate of 35% primarily due to favorable effects from foreign income taxes, partially offset by state income tax expense. Taxes on our foreign operations are lower than in the U.S. because of lower statutory tax rates and increased deductions for tax purposes in foreign jurisdictions that are not recognized as expenses for book purposes.

The effective tax rate for the second quarter of 2010 was higher than the federal statutory rate of 35% due to state income taxes and taxes recognized on interest and dividends from certain of our foreign locations.

Net income in the second quarter of 2011 was $13.8 million, or $0.28 per diluted share, compared to $10.4 million, or $0.22 per diluted share, in the second quarter of 2010.

Segment Results. The following table reflects segment sales and operating results for 2011 and 2010:


	Three Months Ended June 30,
(Amounts in thousands)	2011			2010			Percent Change
Operating income (expense):
Outdoor Products	$	32,343		$	28,189			14.7	%
Central administration and other		(7,525	)		(6,222	)		20.9

Operating income	$	24,818		$	21,967			13.0	%

Outdoor Products Segment. The discussion above concerning sales, gross profit, and SG&A expenses is applicable to the Company’s Outdoor Products segment.

Central Administration and Other. The central administration and other category increased by $1.3 million from 2010 to 2011, primarily due to increased expenses for professional services for the most part related to our strategic initiatives, including our acquisition program.

Six months ended June 30, 2011 (unaudited) compared to six months ended June 30, 2010 (unaudited).

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


	Six Months Ended June 30,
(Amounts in millions)	2011			2010			Change						Contributing Factor
*(Amounts may not sum due to rounding)*
Sales	$	382.2		$	277.9		$	104.3
										$	96.0		Sales volume, including acquisitions
											5.0		Selling price and mix
											3.3		Foreign currency translation

Gross profit		124.2			100.2			24.0
Gross margin		32.5	%		36.1	%					31.3		Sales volume
											5.0		Selling price and mix
											(4.0	)	Acquisition accounting effects
											(5.4	)	Product cost and mix
											(2.8	)	Foreign currency translation

SG&A		71.6			56.9			14.7
As a percent of sales		18.7	%		20.5	%					6.0		Acquisitions
											2.3		Compensation expense
											1.8		Advertising
											1.9		Professional services
											0.8		Travel
											1.1		Foreign currency translation
											0.8		Other, net

Operating income		52.7			43.3			9.3
Operating margin		13.8	%		15.6	%					24.0		Increase in gross profit
											(14.7	)	Increase in SG&A

Income from continuing operations		29.4			18.5			10.9
											9.3		Increase in operating income
											3.2		Decrease in net interest expense
											(0.3	)	Change in other income (expense)
											(1.4	)	Increase in income tax provision

Income from discontinued operations		—			0.7			(0.7	)
											(1.2	)	Decrease in operating results
											0.5		Decrease in income taxes

Net income	$	29.4		$	19.2		$	10.1

Sales in the six months ended June 30, 2011 increased by $104.3 million (37.5%) from the same period in 2010, primarily due to increased unit volume of $96.0 million. We report all incremental sales attributable to our recent acquisitions, SpeeCo and KOX, as unit volume increase. SpeeCo and KOX contributed $35.2 million and $8.2 million of incremental sales, respectively, in the six months ended June 30, 2011. Excluding the effect of these acquisitions, unit sales volume increased by $52.7 million or 18.9%. Changes in average selling price and product mix increased sales revenue by $5.0 million on a year-over-year basis. Higher average selling prices were attributable to pricing actions we implemented late in 2010 and the first quarter of 2011, and to a lower relative proportion of OEM to replacement market sales. Historically, sales to our OEM customers are at slightly lower average prices than sales to the replacement market. Excluding SpeeCo and KOX, OEM sales were up 8.5%, while replacement channel sales were up 25.9%. The translation of foreign currency-denominated sales transactions increased consolidated sales by $3.3 million in the first six months of 2011 compared to the first six months of 2010, given the relatively weaker U.S. Dollar in comparison to most foreign currencies. International sales increased by $53.8 million (26.9%), while domestic sales increased by $7.1 million (9.1%), both exclusive of sales from recent acquisitions. The increase in international sales reflected strong global market conditions and demand for our products, with the largest percentage growth occurring in Europe and Russia (up 29.0% in aggregate), followed by the Asia-Pacific region (up 27.1%) and South America (up 22.3%), all exclusive of sales from recent acquisitions. Excluding the effects of recent acquisitions, sales of forestry products were up 24.2%, lawn and garden products were up 14.3%, and construction products were up 7.6%.

Consolidated order backlog at June 30, 2011 was $175.0 million compared to $133.7 million at December 31, 2010. None of the incremental backlog is attributable to KOX.

Gross profit increased by $24.0 million (24.0%) from the first six months of 2010 to the first six months of 2011. Higher unit sales volume, including incremental volume from SpeeCo and KOX, along with the effect of higher average selling prices and product mix, accounted for the increase. Partially offsetting the volume increases were increased non-cash charges for purchase accounting and higher product cost and mix. Purchase accounting effects related to SpeeCo and KOX totaled $4.1 million in the six months ended June 30, 2011. Coupled with a slight decrease in amortization expense of purchased intangibles related to earlier acquisitions, the overall impact was an increase of $4.0 million from the first six months of 2010 to the first six months of 2011. Amortization of purchased intangible assets is expected to total $8.2 million for 2011. Product cost and mix increased by $5.4 million year-over-year. The increase in product cost was driven by annual merit pay increases, incremental headcount brought on in the first half of 2010 to service increasing product demand, and costs related to the Company’s continuing effort to streamline product offerings and improve efficiency. The comparable gross margin in the first six months of 2010 benefited significantly from the relatively quick upturn in volumes and related manufacturing leverage we achieved in the first half of that year. Changes in steel costs reduced gross profit by $0.5 million on a year-over-year basis. Gross margin in the first six months of 2011 was 32.5% of sales compared to 36.1% in the first six months of 2010. The decline in gross margin from the first six months of 2010 is primarily the result of the lower average gross margins of acquired business and the related acquisition accounting. Additionally, changes in foreign currencies from the same period last year caused gross margins to decline.

Fluctuations in currency exchange rates decreased our gross profit in the first six months of 2011 compared to 2010 by $2.8 million on a consolidated basis. The translation of stronger foreign currencies in Canada and Brazil into a weaker U.S. Dollar resulted in higher reported manufacturing costs. This foreign currency effect at our international manufacturing locations more than offset the positive effect on translation of international sales revenue.

SG&A was $71.6 million in the first six months of 2011, compared to $56.9 million in the first six months of 2010, representing an increase of $14.7 million (25.9%). As a percentage of sales, SG&A decreased from 20.5% in the first six months of 2010 to 18.7% in the first six months of 2011, primarily due to the increase in sales revenue, which outpaced the increase in SG&A spending. Incremental SG&A expense incurred at SpeeCo and KOX, added $6.0 million in the first six months of 2011. Compensation expense for the six month period increased by $2.3 million on a comparative basis, reflecting annual merit increases and increased headcount, partially offset by reduced incentive compensation expense. Advertising expense increased by $1.8 million, primarily due to advertising programs for new product introductions. Costs for professional services were $1.9 million higher in the first half of 2011 compared with the first half of 2010, primarily related to our strategic initiatives, including our acquisition program. Travel expenses increased by $0.8 million, also primarily related to our strategic initiatives. International operating expenses increased by $1.1 million from the prior year comparative period due to the movement in foreign currency exchange rates.

Operating income increased by $9.3 million from the first six months of 2010 to the first six months of 2011, resulting in an operating margin for 2011 of 13.8% of sales compared to 15.6% for the first six months of 2010. The increase was due to higher sales volume and gross profit, partially offset by increased SG&A expenses.

Interest expense was $9.8 million in the first six months of 2011 compared to $12.9 million in the first six months of 2010. The decrease was due to lower average interest rates on our debt, partially offset by higher average outstanding debt balances in the comparable periods. The variable interest rates on our term loans decreased significantly when we amended and restated our senior credit facilities in August 2010, and our average interest costs were further reduced when we redeemed our 8 7/8% senior subordinated notes in September 2010.

The following table summarizes our income tax provision for continuing operations in 2011 and 2010:


	Six Months Ended June 30,
(Amounts in thousands)	2011			2010
Income before income taxes	$	42,714		$	30,450
Provision for income taxes		13,340			11,964

Effective tax rate		31.2	%		39.3	%

The effective tax rate for the first six months of 2011 was lower than the federal statutory rate of 35% primarily due to favorable effects from foreign income taxes, partially offset by state income tax expense. Taxes on our foreign operations are lower than in the U.S. because of lower statutory tax rates and increased deductions for tax purposes in foreign jurisdictions that are not recognized as expenses for book purposes.

The effective tax rate for the first half of 2010 was higher than the federal statutory rate of 35% due to state income taxes and the $1.7 million impact of the change in tax deductibility related to the Medicare Part D prescription drug benefit we provide to certain of our U.S. retirees. The effective tax rate was also increased by additional tax expenses recognized on interest and dividends from certain of our foreign locations. These increases to the effective tax rate were partially offset by the positive effects from settlement of our IRS audit and the related release of reserves for some of our previously recorded uncertain tax positions.

Net income in the first six months of 2011 was $29.4 million, or $0.60 per diluted share, compared to $19.2 million, or $0.40 per diluted share, in the first six months of 2010.

Segment Results. The following table reflects segment sales and operating results for 2011 and 2010:


	Six Months Ended June 30,
(Amounts in thousands)	2011			2010			Percent Change
Operating income (expense):
Outdoor Products	$	66,446		$	55,967			18.7	%
Central administration and other		(13,786	)		(12,634	)		9.1

Operating income	$	52,660		$	43,333			21.5	%

Outdoor Products Segment. The discussion above concerning sales, gross profit, and SG&A expenses is applicable to the Company’s Outdoor Products segment.

Central Administration and Other. The central administration and other category increased by $1.2 million from 2010 to 2011, primarily due to increased expenses for professional services for the most part related to our strategic initiatives, including our acquisition program.

Financial Condition, Liquidity and Capital Resources

Long-term debt consisted of the following:


(Amounts in thousands)	June 30, 2011			December 31, 2010
Revolving credit facility borrowings	$	—		$	—
Term loans		344,875			350,000

Total debt		344,875			350,000
Less current maturities		(10,250	)		(10,250	)

Long-term debt, net of current maturities	$	334,625		$	339,750

Weighted average interest rate on outstanding debt		5.14	%		5.14	%

•

Maximum borrowings under the revolving credit facility were increased from $60.0 million to $75.0 million and the maturity date was extended to August 2015.

•

The term loan B facility was increased to $275.0 million and the maturity date was extended to August 2016.

•

The interest rates on the revolving credit facility and the term loan B were changed, as described below.

•

A term loan A facility was established at $75.0 million with a maturity date of August 2015.

•

Certain financial and other covenants were amended and revised, as described below.

•

The Company paid $6.3 million in fees and transaction costs in connection with these transactions.

The amended and restated senior credit facilities contain financial covenants relating to:

•

Maximum capital expenditures of $42.5 million per calendar year.

•

The status of financial covenants was as follows:


	As of June 30, 2011
Financial Covenants	Requirement	Actual
Maximum capital expenditures per calendar year	$ 42.5 million	$ 13.7 million
Minimum fixed charge coverage ratio trailing 12 months	1.15	1.65
Maximum leverage ratio trailing 12 months	4.00	2.57

•

Maximum borrowings under the revolving credit facility were increased from $75.0 million to $400.0 million and the maturity date was extended to August 31, 2016.

•

A term loan A facility was increased from $75.0 million to $300.0 million and the maturity date was extended to August 31, 2016.

•

The interest rates on the revolving credit facility and the term loan A were reduced to LIBOR rate plus 2.50%, or an index rate, as defined in the credit agreement, plus 1.50%.

•

The existing term loan B facility will be paid in full upon the initial funding date of the Fourth Amendment and Restatement.

•

Our debt instruments and general credit are rated by both Standard & Poor’s and Moody’s. There were no changes to these ratings during the six months June 30, 2011. As of June 30, 2011, the credit ratings for the Company were as follows:


	Standard & Poor’s		Moody’s
Senior credit facility		BB-/Stable		Ba3/Stable
General credit rating		BB-/Stable		Ba3/Stable

We intend to fund working capital, capital expenditures, debt service requirements, acquisitions, and obligations under our post-employment 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 post-employment benefit plans, the postponement of capital expenditures, restructuring of our credit facilities, and issuance of new debt or equity securities.

Our interest expense may vary in the future because the revolving credit facility and term loan interest rates are variable. Our senior credit facility requires us to fix or cap the interest rate on 35% of the principal outstanding under our term loans for a period of two years. In the first quarter of 2011, we entered into interest rate cap agreements covering 35% of the outstanding principal on our term loans A and B that cap the maximum LIBOR used to determine the interest rate we pay at 5.00% through February 28, 2013. Effectively, these agreements cap the maximum interest rate at 8.50% on 35% of the principal outstanding under term loan A, and at 9.00% on 35% of the principal outstanding under term loan B. The Fourth Amendment and Restatement of our senior credit facility also requires that we fix or cap 35% of the principal under our term loan within 180 days of the initial funding date, and maintain such fix or cap for a period of two years. Our weighted average interest rate on all debt was 5.14% as of June 30, 2011 and as of December 31, 2010.

Cash and cash equivalents at June 30, 2011 were $80.5 million, compared to $80.7 million at December 31, 2010. As of June 30, 2011, $72.8 million of our cash and cash equivalents was held at our foreign locations. Cash provided by operating activities is summarized in the following table:


	Six Months Ended June 30,
(Amounts in thousands)	2011			2010
Net income	$	29,374		$	19,226
Non-cash items		18,538			12,833

Subtotal		47,912			32,059
Changes in assets and liabilities, net		(7,201	)		(1,185	)
Discontinued operations, net		5			517

Net cash provided by operating activities	$	40,716		$	31,391

Non-cash items consist of expenses for depreciation of property, plant, and equipment; amortization; stock compensation and other non-cash charges; the tax benefit or expense from share-based compensation; deferred income taxes; and gains or losses on disposal of property, plant, and equipment. During the first six months of 2011, operating activities provided $40.7 million of cash. Income from continuing operations plus non-cash items totaled $47.9 million in the first half of 2011, reflecting increased income compared with the first half of 2010, and higher non-cash items. The increased amount of non-cash items in 2011 is primarily due to increased amortization expense on intangible assets related to our recent acquisitions and higher stock compensation expense. The net change in working capital components and other assets and liabilities during the 2011 period used $7.2 million in cash. An increase in accounts receivable of $15.7 million, reflecting higher sales levels, partially offset by a reduction in inventories of $7.2 million, excluding inventory acquired with KOX, and in other assets of $3.0 million accounted for the net use of cash. Cash payments during the first six months of 2011 also included $9.5 million for interest and $10.3 million for income taxes. The Company expects to contribute a total of $15 million to $17 million to its funded defined benefit pension plans in 2011, including a voluntary contribution of $10 million to the U.S. defined benefit pension plan made in July 2011.

During the first six months of 2010, operating activities provided $31.4 million of cash. Income from continuing operations plus non-cash items totaled $32.1 million in the first half of 2010. The net change in working capital components and other assets and liabilities during the 2010 period used $1.2 million in cash. Increases in accounts receivable of $4.8 million and inventories of $6.1 million, both related to sales growth during the period, and a decrease in other liabilities of $1.0 million used cash during the period. These uses were partially offset by a decrease in other assets of $2.8 million, including the collection of income taxes receivable in certain jurisdictions, and an increase in accrued expenses of $8.1 million, largely due to increases in accrued income taxes and interest. Cash payments during the first six months of 2010 also included $10.4 million for interest and $3.8 million for income taxes.

Cash used in investing activities is summarized as follows:


	Six Months Ended June 30,
(Amounts in thousands)	2011			2010
Purchases of property, plant, and equipment, net of proceeds from sales	$	(13,522	)	$	(8,584	)
Acquisitions, net of cash acquired		(14,121	)		—
Discontinued operations		—			(35	)

Net cash used in investing activities	$	(27,643	)	$	(8,619	)

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 2011, we expect to invest approximately $35 million in available cash for capital expenditures, compared to $20.0 million for the full year in 2010. We expect this higher level of capital expenditures to continue over the near term as we expand our manufacturing facility in China and seek to build a new manufacturing facility in Central or Eastern Europe. During the six months ended June 30, 2011, we acquired KOX (see Note 2) using cash on hand and issuing shares of our common stock. We expect to make additional acquisitions in the near term.

Cash used in financing activities is summarized as follows:


	Six Months Ended June 30,
(Amounts in thousands)	2011			2010
Net decrease in debt principal outstanding	$	(5,125	)	$	(5,443	)
Debt issuance costs		(6,509	)		—
Proceeds and tax effects related to stock-based compensation		740			74

Net cash used in financing activities	$	(10,894	)	$	(5,369	)

Cash used in financing activities in the first six months of 2011 consisted primarily of scheduled repayments of principal on our term loans and fees and transaction expenses incurred in conjunction with the amendment and restatement of our senior credit facilities completed on June 13, 2011. Cash used in financing activities in the first six months of 2010 consisted primarily of net repayments of principal under our revolving credit facility and scheduled repayments of principal on our term loan.

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, 2010.

Recent Accounting Pronouncements

In the opinion of management, there are currently no recent accounting pronouncements to be adopted in the future that are expected to have a significant effect on our financial reporting. See also Note 14 to the Consolidated Financial Statements included in Item 1.

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 uncertainties and should not be considered indicative of actual results that the Company may achieve in the future. Specifically, issues concerning 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, tax rates, discount rates, rates of return, and the anticipated effects of discontinued operations involve 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.

We manage our ratio of fixed to variable rate debt with the objective of achieving a mix that management believes is appropriate. The interest rates are variable on our term and revolver loans and we are subject to market risk from movement in benchmark rates. During 2010, we redeemed our fixed rate 8 7/8% subordinated notes, and all of our debt is now subject to variable interest rates. In February 2011, we entered into a series of interest rate cap agreements that establish maximum fixed interest rates on 35% of the principal amount outstanding under our term loans, as required by our current senior credit facility agreement.

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, filed with the SEC on March 9, 2011, 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 only provide reasonable assurance of achieving the desired control objectives. 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 and internal controls over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e), and Rules 13a-15(f) and 15d-15(f), respectively, under the Securities Exchange Act of 1934) were effective at the reasonable assurance level.

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:

**10.1 Fourth Amended and Restated Credit Agreement, dated as of June 13, 2011, by and among Blount Inc., a Delaware corporation, Omark Properties, Inc., an Oregon corporation, Windsor Forestry Tools LLC, the other Credit Parties signatory thereto; General Electric Capital Corporation, in its capacity as Agent for the Lenders; and the other Lenders party thereto.

**31.1 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 by Joshua L. Collins, Chairman 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 Joshua L. Collins, Chairman 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.

*101.INS XBRL Instance Document

*101.SCH XBRL Taxonomy Extension Schema Document

*101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

*101.DEF XBRL Taxonomy Extension Definition Linkbase Document

*101.LAB XBRL Taxonomy Extension Label Linkbase Document

*101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities and Exchange Act of 1934, as amended and otherwise are not subject to liability under those sections.

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

Blount International, Inc.

P.O. Box 22127

Portland, Oregon 97269-2127

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. Allred
Calvin E. Jenness						Mark V. Allred
Senior Vice President and						Vice President and Corporate Controller
Chief Financial Officer						(Principal Accounting Officer)
(Principal Financial Officer)

Dated: August 9, 2011

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