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BLOUNT InternationalDiversity That Delivers

May 7, 2000

By: The Analytical Graduates

The Analytical Graduates

TABLE OF CONTENTS

Executive Summary …………………………………………………………….………………….. 3

Current Situation ……….……………………………………………………….………………….. 4

Strategic Posture ………………….…………………………………………….………………….. 5

Blount Intl Corporate Governance ……..……………………………………….………………….. 7

External Analysis ……………………………………………………………….………………….. 9

Internal Analysis …………………….………………………………………….………………….. 20

Financial Analysis ……………………………………………………………….………………….. 24

Strategies ………………………….…………………………………………….………………….. 28

Implementation ………………………………………………………..……….………………….. 35

Evaluation & Control ……………..…………………………………………….………………….. 36

SWOT Analysis …………………..…………………………………………….………………….. 37

Appendix I ………………………..…………………………………………….………………….. 38

Appendix II ………………………..…………………………………………….………………….. 39

Appendix III …………………..…..…………………………………………….………………….. 41

Appendix IV ………………………..…………………………………………….………………….. 43

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EXECUTIVE SUMMARY

Mission & Vision Objectives Opportunities and Threats

Strengths and Weaknesses

Recommen-dations

Cor

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Mission: BlountInternational Inc.is a diverse globalcompany thatmanufacturesOutdoor Products,Industrial &Power Equipmentand SportingEquipment. Itsleading position isa result of thecompany'sattributes,distribution skillsand excellentCustomer service..

Vision: We will be a one billion dollar company via a growing portfolio of industrial manufacturing companies that control leadership positions in niche markets targeted to Outdoor Products, Sporting Equipment, and other related product needs.

Strategic: Short Term: Consolidate operating costs in the Industrial & Power Group within 3-6 months; Analyze value chain cost reductions in the Outdoor Product and Sporting Equipment Groups within 6 months; Management will complete the analysis and recommendations for a new target incentive plan; Re-evaluate its corporate civic involvement to establish guidelines that are in proportion with profits, the percentage cap will be no more than 5% of net income.Long Term: Management will restructure the Industrial & Power Group and divest the division by year end 2001; Revenues realized from the sale of the group will write down a percentage of long-term debt (short term) and will be invested in R&D, in product innovation as well as acquisition in Outdoor Products and Sporting Equipment; The new incentive plan for employees will be from 5-30%; Executive compensation levels for future hires will be re-designed to coincide with Industry average; Executive compensation levels for future hires will be redesigned; Establish a Six-Sigma initiative throughout the value chain of all operating groups by year end 2002 to increase productivity gain of 6-7%.Increase Inventory Turnover

Opportunities: Name

Recognition International

Expansion Cost

Management Quality of

Product & Service

Product Innovation

Threats: Economic

Cycles Government

Regulations Buyer

Switching Anti-Gun

Movement Mature

Markets

Strengths: Effective

Customer Service

Product Innovation

ISO 9000 Implementation

Employee Relations

Weaknesses: Percentage of

Leverage Brand Name

Recognition Inbound/

Outbound Logistics

Market Share for Industrial & Power Equipment

Divestiture Decrease

Long Term Debt

Expand Outdoor & Sporting Equipment

Promote Brand Name Recognition

Value Chain Cost Reductions

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Mission & Vision Objectives Opportunities and Threats

Strengths and Weaknesses

Recommendations

Cor

pora

te

Financial: Short Term: Increase Gross Margin by at least 11% within 6 – 12 monthsIncrease ROA, ROE, and ROI by at least 50% within 6 – 12 monthsLong Term:Decrease Long Term Debt no later than the year 2002.Increase Inventory Turnover no later than year end 2002.You want to increase the number of times that your inventory turns in a year, if the number of days decreases than your turns increase.

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CURRENT SITUATION

BLOUNT PERFORMANCE

Blount is a diversified international company operating in three segments: Outdoor Products,

Sporting Equipment, and Industrial & Power Equipment. Blount manufactures and distributes products in

more than 100 countries around the world. Total sales for 1999 were $809.9 million, a 3% decrease when

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compared to the 1998 sales figure of $831.9 million. Sales for each group are as follows, Outdoor Products

was $327.6 million an increase of 4% over the 1998 sales; Sporting Equipment was $323.7 million an

increase of 11% over the 1998 sales; and Industrial & Power Equipment was $158.6 million a decrease of

31% from the 1998 sales. Net income for 1999 was ($21.8) million compared to the net income of 1998 of

$61.3 million, this reflects a decrease of 136%. The Long Term Debt to Equity of 1999 has significantly

increased. Blount’s 1999 ratio was (2.52%) compared to the Industry average of 0.59%, resulting in a

(122%) difference. The Gross Margin is also lower than the Industry. Industry ratio is 32.51% compared to

Blount ratio of 29.09, a 10% difference.

The results of 1999 demonstrate the strength in the Outdoor Product and Sporting Equipment

Groups, and the weakness in the Industrial & Power Equipment Group. The substantial increase in the Long

Term Debt to Equity, which has initially increased the percentage of leverage for Blount, is a result of the

merger with Lehman Brothers. Long term debt increased 122% in 1999 compared to 1998 figures.

Therefore, in the short term there is not any positive cash flow out of this merger. This factor needs

immediate attention in order for Blount to survive as a diversified company. However, in the long term, this

merger is expected to give Blount strength especially, if the recommendation of divestiture is implemented.

Currently, the Market Share and Market Size respectively for each group are as follows, Outdoor

Products is 20%, $1.63 billion; Sporting Equipment is 16%, $1.98 billion, and Industrial & Power Equipment

is less than 1%, $61.1 billion. The Market Growth Rate for each is as follows; Outdoor Products 3-4% in

developed countries, 4-5% in emerging countries. Sporting Equipment 6% overall, and Industrial & Power

Equipment is no more than 2% for the medium to long run. . This demonstrates that opportunities for

Outdoor Products and Sporting Equipment are steady in developed countries and ripe for expansion in

emerging countries. Opportunities in Industrial & Power Equipment SBU lie in providing outsource

components and services to heavy equipment industry.

In order to rectify Blount's Long Term Debt and Gross Margin Problems, AG recommends the

divestiture of the Industrial & Power Equipment SBU as a strategic and financial objective.

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STRATEGIC POSTURE

Mission: Blount International Inc. is a diverse global company that manufactures Outdoor Products,

Industrial & Power Equipment and Sporting Equipment. Its leading position is a result of the

Company’s attributes, distribution skills, and excellent service.

Vision: We will be a one billion dollar company via a growing portfolio of industrial manufacturing

companies that control leadership positions in niche markets targeted to Outdoor Products, Sporting

Equipment, and other related product needs.

Short Term, Strategic Objectives:

Blount will minimize and consolidate its operating costs in the Industrial & power equipment division

through plant consolidations and work force reduction in the next 3-6 months in order to reduce their

costs.

Blount will analyze opportunities in value chain cost reductions in the Outdoor Product and Sporting

Equipment Divisions in the next 6 months.

Within six months Blount management will have completed their analysis and recommendations for a

new target incentive plan for employees. The new plan will be comparable to like industry compensation

packages and geared predominantly to the attainment of results/performance of the individual market

segments as well as the company at large.

Blount International will re-evaluate its corporate civic involvement to establish guidelines that are in

proportion with its profits. The percentage cap for this activity will be no more than 5% of net income.

Short Term, Financial Objectives:

Increase Gross Profit Margin by at least 11% within 6 – 12 months. There are several strategies to

complete this task. Our recommendation is to increase total sales by reducing the selling price. This

strategy may initially reduce the gross margin, however, anticipated sales of each group will increase

enough to raise the absolute amount of gross margin.

Increase ROA, ROE, and ROI by at least 50% within 6- 12 months. The lower than ordinary average for

Blount is an indication of high risk and low profitability.

Long Term, Strategic Objectives:

In anticipation of improving market conditions, Blount management will restructure the Industrial &

Power Equipment division, solicit potential buyers for it, and divest the division in 2001.

Revenues realized from the sale of Industrial & power equipment division will serve a dual purpose. In

the short-term to write down a percentage of the long-term debt.

Blount will use the balance of the revenue to invest in internal growth through R&D, in innovative

products in key market segments, and in additional bolt on acquisitions in similar or related markets of

Outdoor Products and Sporting Equipment.

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The new incentive plan will be based on the responsibility/contribution level of the individual.

Percentages will be from 5-30%. Executive compensation levels for future hires will be re-designed to

provide base salaries that are at or slightly above mid-range level for the industry.

Blount will establish a Six-Sigma quality initiative throughout the value chain of all its operating

segments. This integration should be completed by year-end 2002. The goal is to improve the quality of

products, internal systems, organizations etc. and realize an annual productivity gain of 6-7%.

Long Term, Financial Objectives:

Decrease Long Term Debt no later than year-end 2002. Our recommendation is to use cash flows

available from each operation and from the proceeds of the divestiture of Industrial & Power Equipment

Group.

Increase Inventory Turnover no later than year-end 2002. Our recommendation is to lower the Average

days’ inventory by 18% to at least meet Industry via the establishment of Six-sigma initiative

throughout.

BLOUNT INTERNATIONAL CORPORATE GOVERNANCE

John M. Panettiere James S. OstermanChairman of the Board and Chief Executive Officer President, Outdoor Products Group

Harold E. Layman Gerald W. BersettPresident and Chief Operating Officer President, Sporting Equipment Group

Richard H. Irving, III Donald B. ZornSenior Vice President and General Counsel President, Industrial & Power Eqpmt Gp

John D. Marshall Kenneth R. DaySenior Vice President, Administration and Treasurer President, Frederick Mftr Corporation

Rodney W. Blankenship John P. MowderVice President and Controller President, Dixon Industries, Inc.

Arlin R. PerryPresident, Gear Products, Inc.

John M. Panettiere is currently the Chairman of the Board and Chief Executive Officer of Blount

International. Panettiere has held several different positions within Blount since 1986. These positions

include; Senior Executive Vice President, Chief Operating Officer, Chairman, President and CEO of Grove

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Worldwide Company. He attended three different colleges finally receiving his degree from Rockhurst

College in Kansas City, MO. He also received a Honorary Doctorates from Westminster College,

Fulton, MO.

Harold E. Layman, President and Chief Operating Officer. . He had previously worked as a Controller

and Assistant General Manager of White Truck Division of Volvo Corp. In 1981, he held the position of

Financial and Operational Manager of Ford Motor Company.

Richard H. Irving, III is currently the Senior Vice President and General Counsel. He attended

Northwester University and Harvard Law School, cum laude, 1968. He is a member of the American Bar

Association, American Corporate Counsel Association, and the International Bar Association.

James S. Osterman President of Outdoor Products Group. He previously served as the President of the

Oregon Systems Division.

Gerald W. Bersett is President of Sporting Equipment Group. He served as President and Chief

Operating Officer of Sturm Ruger. He also served as President of Ammunition / Winchester Division of

Olin Corporation.

Donald B. Zorn is President of the Industrial & Power Equipment. He previously served as a President

of Forestry and Industrial Equipment Division. He also served as President and Chief Operating Officer of

Grove.

What are top management’s chief characteristics in terms of knowledge, skills, background, and style? If the corporation has international operations, does top management have international experience? Are executives from acquired companies considered part of top management?

Has top management been responsible for the corporation’s performance over the past few years? How many managers have been in their current position for less than 3 years? Were they internal promotions or external hires?

Has top management established a systematic approach to strategic management?

What is the level of involvement in the strategic management process?

How well does top management interact with lower level managers and with the board of directors?

Are strategic decisions made ethically in a socially responsible manner?

Is top management sufficiently skilled to cope with likely future challenges?

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EXTERNAL ANALYSIS

SOCIETAL, POLITICAL, REGULATORY, & COMMUNITY CITIZENSHIP FACTORS

Factors Impact on the Industry Impact on the company or strategic business unit Opportunities Threats

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The strong US and International economic markets will increase market size in the Outdoor Equipment/Sporting Equipment Segments.

World wide soft markets in the paper and pulp industry will continue to negatively effect the Industrial & Power Equipment segments that are involved in timber harvesting, etc.

The Outdoor Product SBU should expand its product line and improve its brand name recognition through an extensive marketing effort focused on its #1 ranking and product quality. to capitalize on the robust economy.

The Sporting equipment SBU should improve its brand name recognition through an extensive marketing campaign through gun clubs, the NRA, and associations to capitalize on the robust economy and expand its product base.

The Industrial & Power Equipment SBU needs to consolidate its operations, reduce its workforce to reduce costs to minimize the effect of the soft market Potential divestiture.

Expansion of product lines in saws and lawnmowers geared to home/individual use. Product innovation, high quality, and competitive pricing will strengthen worldwide markets.

Expanding markets in small arms and ammunition with women/children gun club members.

Acquisition of weak companies in the Industrial & Power Equipment SBU by financially stronger, more diversified companies.

Subject to economy cycles, a recession could hurt sales.

The economic boom is eliminating rural areas that supported hunting and gun club activities.

The Industrial & Power Equipment SBU experiences loss of economies of scale and low capacity utilization rates that negatively impact value chain efficiencies.

Company may be exposed to changes in interest rates, in currency exchange rates, and in commodity pricing for raw materials in economic downturns.

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The 3 industry segments are subject to costs associated with comprehensive US and foreign laws and regulations relating to the protection of the environment, the discharge of pollutants into the air or water, hazardous waste material disposal, and potential cleanup of containment sites.

US and International gun laws may negatively impact sales of the sporting equipment SBU.

Free Trade agreements and potential joint ventures with International companies will aid expansion and provide further economies of scale.

US product and safety laws need to be met.

ISO 9000 registration and compliance will be extremely important in International expansion.

Areas of compliance in environmental areas, US safety regulations, and ISO readiness that are not being met must be identified, budgeted for, and implemented.

Stringent gun laws in US and prohibitive import regulations by foreign countries mean lobbying and marketing effort needs to be built to overcome/accommodate.

Value chain functions, one or some, may be relocated to take advantage of low cost production/joint venture and improve economies of scale.

Build Company reputation as "World Class Industrial Producer" through environmental compliance and quality products with high safety standards

International expansion

Environmental laws Gun laws Ever-changing safety

requirements, tariffs, and legal ramifications in the US and other countries.

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The sporting equipment segment is effected positively by the expanding customer base in women/children gun club enthusiasts. It is effected negatively by anti-gun movement caused by current events such as the Columbine massacre, terrorist news items, and crime stories.

The Outdoor equipment SBU is supported by the robustness of the home building and home improvement industry by individuals.

Marketing and advertising Campaign to emphasize the attractive aspects of sport/hunting gun activities.

Produce easy to use quality products that are geared to the sporting use of women/children.

The Outdoor Equipment SBU would be supported by a marketing campaign and by use of demonstrations, particularly helpful in the growing home/individual markets.

Development of new products to meet the needs and preferences of emerging customers, commercial and individual users.

Anti-Gun lobby Changing safety

requirements Private environmental

organizations.

Tec

hnol

ogy

Demand for rapid product innovation that meets the ever-changing needs of the end user.

How will the increased use of technology impact the pulp and paper industry and its suppliers in the I&PE industry?

Market research needed to determine needs of changing markets

R&D investment

Innovative products that are strategically promoted will result in SCA.

Obsolete inventory

INDUSTRY COMPETITIVE ANALYSIS

Blount competes in three separate and distinct industries. You should conduct separate industry analyses. I do see where you have embedded the analysis for each industry in the matrices.

INDUSTRY'S DOMINANT ECONOMIC TRAITS

ECONOMIC TRAIT STRATEGIC IMPLICATION

Market size

Outdoor Product Sales $1.63 Billion

Sporting Equipment Sales $1.98 Billion Industrial & Power

Equipment $61.1Billion

Large customer base in all segments, attracts new entrants.

Market growth stage Late growth or mature in developed countries for

Opportunities are in global expansion in Outdoor Product and Sporting Equipment SBUs.

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Outdoor Products and Sporting Equipment. Growth stage in these 2 segments in emerging markets.

Same conditions hold true for the Industrial & Power Equipment Segment except for those specializing in timber harvest equipment, these markets are in decline worldwide.

Opportunities lie in divesting the Industrial & Power Equipment SBU, divesting the product lines associated only with the timber harvesting, acquisition, or joint venture.

Market growth rate

Outdoor products 3-4% in developed countries, 4-5% in emerging.Sporting equipment 6% overall and big game hunting 13%,Industrial & Power Equipment for the medium to long run no more than 2%

Opportunities for Outdoor products and Sporting equipment are steady in developed countries and ripe for expansion in emerging countries.Opportunities in the Industrial & Power Equipment lie primarily in providing outsource components and services to the heavy equipment industry. (This comment is for those involved in timbering equipment)

Capacity surplus or shortage

Surplus Competitive pricing extremely important. Blount is not a low cost producer, has extreme capacity utilization problem in the Industrial & Power Equipment SBU (50%) and a capacity problem in the Sporting Equipment SBU as well. (72%) This continues to drive up their costs/inefficiencies.

Industry profitabilityHigh Attracts new entrants.

This does not apply to the Industrial & Power Equipment SBU of Blount due to their focus on timber equipment.

Entry and exit barriers

High entry and exit Experience and learning curve in International manufacturing, marketing, and distribution, global economies of scale, limited access to distribution channels, brand preference/customer loyalty, and high capital requirements are entry barriers. Large capital investment is an exit barrier.

Product Cost

Low to medium in the Outdoor Product and Sporting Equipment SBUs.

High in the Industrial & Power Equipment segment.

There is a need to keep costs low to be competitive due to buyer switching possibilities and maturing markets.

In economic downturns, buyers may purchase or rent used equipment rather than invest in high cost new equipment.

Standard productYes Competitors have similar products. Must supply unique

product/service features to differentiate.

Capital requirements High Entry barriers for new companies.

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Vertical integrationHigh The larger players in this business have a high degree of

vertical integration. Important for competing with a low-cost strategy.

Economies of scale High Appropriate utilization would provide a company with a sustained competitive advantage of a low cost strategy.

Rapid productinnovation

High Innovative producer could gain a sustained competitive advantage.

FIVE FORCES MODEL

Strength Implication for the Industry

Implication for the company Opportunities Threats

Riv

als

Strong Competition is intense.

Focus on product and marketing innovations to maintain leading position in Outdoor Products and grow position ranking in Sports Equipment.Blount’s weakness in the Industrial & Power Equipment SBU combined with rival strength may hinder the ability to compete effectively.

Gain new customers through marketing innovations and product R&D and innovationDevelop quality, safety, environmental standards that exceed industry average.

Loss of sales from intense competition. Buyer switching in Industrial & Power equipment This belongs in the buyers portion of the analysis.

Buy

ers

Strong Low cost of buyer switching makes product innovation and competitive pricing a necessity.

Technological changes and improvements will maintain customer loyalty.Combination of quality products at competitive prices will be a necessity.

Six sigma will provide product quality improvements and process quality improvements which will lower production costs

Lack of brand name recognition and customer loyaltySwitching

New

Ent

rant

s

Weak High capital requirements, customer loyalty and brand preferences make new entries difficult.

All 3 SBUs are participants in an industry that is in an oligopoly.Outdoor products #1 ranking will be maintained and grown.Sporting equipment #3 ranking means that Blount will concentrate its efforts on the 2 leaders.Industrial & Power Equipment SBU has only 1%.

Increase market share in Outdoor products and Sporting equipment by making inroads on established companies.

None foreseen.

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Medium Strong economy allows for competitive pricing, weak economy will limit competitive pricing and potential pool of suppliers.

Build long term binding relationships with several suppliers for Outdoor/Sporting. Maximize in-bound logistics.

Strategic partnerships with Japanese engine producers and other Asian optical suppliers will enable Blount to compete effectively.

Purchasing power will be limited in depressed economic conditions, which will result in increased pricing.

Subs

titut

es

Weak in Outdoor Products and Sporting Equipment.

Strong in Industrial & Outdoor Products.

For Outdoor/Sporting there are no competitive substitute products.In the Industrial/Power SBU, used or rental equipment is a large factor.

Company must establish brand name recognition in order to maintain and grow customer base in Outdoor/Sport.Industrial/Power will lose customers in Pulp and Paper Market down turns.

Aggressive marketing and product innovation to attract new customers and to retain the current ones.

Industrial/Power will experience competition from used or rental products.

DRIVERS OF CHANGE IN THE INDUSTRY:

Industrial & Power Equipment:

The long-term industry growth rate for niche participants is low, currently forecast at 2%, and

subject to conditions in the paper and pulp industry. The customers in this SBU are commercial loggers,

waste disposal businesses, paper and pulp businesses, dealers, wholesalers and OEMs who historically buy

used or rental equipment in times of economic downturn. The rate of product innovation is rapid and the cost

of product development is capital intensive. Due to the high entry and exit barriers caused by resource

requirements and the strength of the top 4 manufacturers, new competition is limited and increases in market

share for the existing companies outside the top 4 will be difficult to achieve. Success in the industry is

achieved through acquisition, international expansion, and efficient utilization of manufacturing and

distribution capabilities.Good! Stringent environmental protection laws continually increase the cost of doing

business and limit growth opportunities. Risk reduction is found in broad diversity within this capital goods

sector rather than in focused niche.

Outdoor Products:

The long-term industry growth is 3-4% in developed countries and 4-5% in emerging countries. The

customers in this SBU are distributors, dealers, mass merchandisers, OEMs, and individuals who are likely

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to purchase less in economic downturns. The rate of product innovation is rapid and focused on continual

product improvement efforts to distinguish themselves in the market. Marketing is increasingly done through

a mix of television, radio, print, and direct mail programs. Entry and exit of major firms is difficult due to the

oligopoly and the resource requirements. Companies in this industry seek greater efficiencies and improved

work processes; there is a focus on total quality process to improve product quality and customer response

time, and to reduce overall product cost. Since these products are sold globally, there are different

government standards in safety, environmental protection, tariffs and trade barriers that companies must be

aware of and that they must accommodate. Companies in this sector must take preventive action to hedge

against economic downturns and currency fluctuations.

Sporting Goods:

The shooting sports sector is forecasted to grow at 6% annually and the big game sector to grow at

13%. The customers in this sector are law enforcement agencies, OEMs, national and regional retail

accounts, including sports super stores and mass merchandisers, dealers and distributors. Marketing

initiatives have targeted gun and rifle clubs, organizations such as the NRA, and a new segment of

customers, women and children. International expansion is subject to changes in political/economic

conditions, adverse tax policies, changes in government regulatory, and currency fluctuations/restrictions.

Low cost production efficiencies are key to achieving a sustained competitive advantage. These industries

are subject to various US/Foreign environmental laws, those that deal with air and water pollution, waste

disposal management, and the cleanup of contaminated sites. Firearm regulations in small arms may restrict

the manufacture and sale of ammunition or decrease demand. Recent events in terrorist activity and school

shootings have led to a strong anti-gun movement worldwide.

RIVALS NEXT MOST LIKELY STRATEGIC MOVES

Toro:

Leader in home outdoor lawn and garden market.

World leader in supplying equipment and irrigation systems.

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Their strategic approach has been to help the customer with their landscapes the way they want it, when

they want it, better than anyone else.

Growth has been through acquisitions and strategic alliances both domestically and internationally.

Toro is expected to maintain and grow its leadership position through a balanced growth in sales and

profitability in fiscal 2000 subject to changes in weather and world economies.

All Toro plants should be ISO 9000 certified by the close of fiscal 2001.

Toro has partnered with the governing bodies of golf to help create The First Tee program, an initiative

to make golf affordable and accessible to urban youth.

The company was the leading sponsor with the National Future Farmers of America (FFA) to develop a

green industry studies program in high schools across the nation.

Toro is a recent recipient of an environmental award for recycling.

Regal-Beloit:

Recent financial setbacks have caused Regal-Beloit to be sold and subsequently divested by

Harmischlager Industries.

Regal-Beloit was put in Chapter 11 and sold to a diverse Canadian company, Groupe LaPierre.

Regal-Beloit has encountered quality problems and is in litigation with a major Asian paper company.

Due to recurring quality problems Regal-Beloit has had cancellations in contract work.

Winchester/Olin:

Is among the largest manufacturers/distributors in the U.S. for ammunition.

Winchester operates the U.S. Army’s Lake City ammunition plant. Contract expires in 2000.

Winchester has a web-site called Black’s Wing and Clay: ultimate guide to shooting and hunting.

Through this web-site they collect information about their customers.

Winchester is targeting the youth and women segment, people new to the sport.

Winchester continues to invest new capital expenditures and operating costs to comply with

environmental safety laws.

Winchester is enrolled in the U.S. EPA’s Voluntary Industrial Toxics Reduction Program

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Olin uses pollution prevention programs and waste minimization at all its manufacturing sites.

WHAT COMPANIES ARE IN THE STRONGEST AND WEAKEST POSITIONS?

Outdoor Products: The strongest in the saw-blades and hand-saws sector is Blount due to its wide product

line and mix-merchandise, quality, name brand recognition. Blount commands 20% of the market share in

this sector and is the number one manufacturer.

Sporting Equipment: Blount is one of the stronger companies due to its quality, product line and

merchandise mix and the brand name recognition of Federal Cartridge. It has fierce competition from

Winchester, which is owned by Olin Industries. This company has slightly better pricing.

Industrial and Power Tool: The strongest in the construction machinery industrial sector are Caterpillar

Inc., Deere, and Company. They hold the strongest position due to their image, wide breadth of in-depth

products, quality, pricing, durability, product innovation and name brand recognition. Blount and Regal-

Beloit as niche players are in a very weak position. (See appendices for Bubble)

INDUSTRY'S KEY SUCCESS FACTORS

Industrial/Power Equipment:

Quality

Pricing

Corporate/Brand Name Recognition

Product Service

Product Innovation

Value chain cost containment

Outdoor Products

Quality

Corporate/Brand Name Recognition

Pricing

Flexibility and response to customer needs as reflected in product development, sales and service efforts.

Distribution network strength


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Sporting Equipment

Customer Service

Pricing

Corporate/Brand Name Recognition and Loyalty

Product Innovation

Strong Market Position

Quality


Short Term Long Term

Industry’s growth potential

US and developed countries have late growth/mature markets in Outdoor/Sporting. Expansion and higher growth rate potential in emerging countries.

Outdoor, 3-4% in developed, 4-5% in emerging.Sporting 6 % overall, 13% in big game hunting.Industrial /Power 2% world wide

Does current competition permit

adequate profitability?

Yes. In the Outdoor and Sporting SBUs, low costs in the value chain are important factors.No, in Industrial/Power for niche players.

Product pricing and maximization of value chain synergies will be key to increased profitability in Outdoor and Sporting.Profitability for niche Industrial/Power continues to be weak.

Will competitive forces become

stronger, weaker or the same?

Stronger in Outdoor/Sporting due to increased globalization, and innovative marketingWeaker in Industrial/Power due to current economic conditions that prevail in Pulp and Paper.

In Outdoor Products and Sporting Equipment, stronger players will attempt to gain control of their competitors and market share.In Industrial/Power niches weak companies will not survive or will be taken over.

How will the prevailing driving

forces impact profitability?

In Outdoor, Sporting, quality, value, service and product innovation will ensure customers remain loyal. Driving forces in the Industrial/Power will have a negative effect short term as well as long term.

Continual improvement in cost management will be necessary.

How does the company’s

competitive position in the industry

impact profitability?

Blount’s position as #1 in Outdoor and #3 in the Sporting, in Industry sectors that are in oligopoly, will allow them to take advantage of economies of scale.The Industrial/Power with less than 1% market share makes it a non-viable competitor.

Blount’s product innovation, customer service, and product quality will keep Blount in the leading position in Outdoor and in the top 3 or better in Sporting.The long term shows no improvement for Industrial/Power.

Can the Company capitalize on competitor’s weaknesses?

Blount’s excellent customer service, product innovation, and reputation for product quality will support their capitalization on competitors’ weaknesses.

Six Sigma and improved value chain cost management will continue the capitalization on competitors’ weaknesses.

Is the Company Due to its lack of financial strength and its Through divestiture, improved cost

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insulated from or able to defend

against driving forces that makes this

industry unattractive?

high percentage of leverage the company may experience short-term difficulties.

management, and international expansion, Blount should be better able to defend against the driving forces.

How risky and uncertain is the

future of this industry?

Outdoor/Sporting markets are currently stable and growing due to robust economy.Industrial/Power extremely risky due to downturn in Paper and Pulp markets.

Outdoor market will be as risky as the general economic cycles.Sporting goods is not as sensitive to changes in the economic cycle and should remain stable.Industrial/Power in niche markets will continue to be risky in the medium to long run.

How severe are the problems facing the

industry?

Outdoor and Sporting will be largely effected by the slow growth rate in maturing countries.Industrial/Power has severe problems.

Outdoor and Sporting will experience growth through product innovation in international and domestic markets.Industrial/Power will continue to suffer cyclical problems.

SUMMARY OF EXTERNAL FACTORSExternal Forces

and Factors Opportunity Threat

Societal, Political, Legal and

Regulatory Forces and Factors

Quality in product and service and product innovation that meet changing needs and preferences.

Government Regulations in safety/environmental protection, tariffs and trade barriers.Anti-gun movement

Industry Competitive Forces

and Factors

Value chain cost management is critical to competitiveness within the industry.

Downturn in economic cycles could result in loss of sales in Outdoor Products. Mature markets in developed countries may impact profitability.

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INTERNAL ANALYSIS

Throughout this section you could improve your analysis by specifically indicating if your analysis reveals a strength or a weakness.BLOUNT CORPORATION COMPETITIVE CAPABILITIES

1. HOW WELL IS THE CURRENT STRATEGY WORKING?

You should address these sub-questions from the case analysis outline.

3 tests of a winning strategy (competitive advantage, goodness of fit, performance)

portfolio tests This is a key factor in the case. Blount uses an unrelated diversified strategy at the corporate level. Therefore, is Blount focusing on financial performance and is that performance better than its competitors and other investment options? If so, their strategy is working. If not, then their corporate strategy is not working.

strategic and financial objectives met or exceeded

strategic approach (focused or broad// cost or differentiation)

market share

industry position

financial strength

# of stages in the value chain participating in the production-distribution chain

size and diversity of geographic market

size and diversity of the customer base Currently, Blount is an unrelated diversified firm focusing on leadership positions in a manageable number

of substantial niche markets (Excellent); on developing new products; on acquisition opportunities; on

expansion into international markets, and on reducing costs. Blount is attempting to use the company

diversification to its advantage. Being a diverse organization has its advantages and disadvantages. In the

Outdoor Products Group and the Sporting Equipment Group, sales are high, diversification is strength.

However, in the Industrial & Power Equipment Group, sales are significantly lower, diversification is a

weakness.

2. VALUE CHAIN ANALYSIS

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Assess the structural and executional cost/value drivers for each step in the value chain and for the overall

value chain for each of the SBUs. Are these drivers strengths or weaknesses? Repeat case facts only in

support of your analysis.

Purchase Supplies and Inbound Logistics: Blount Groups possess strong relationships with both suppliers

and customers worldwide. In the Outdoor Products Group, the Company primarily has two vendors by whom

they purchase raw material and strip steel. This is part of the reason the Company has been able to sustain an

annual growth of 15% since 1991. Are inbound logistics strengths or weaknesses for each of Blount's

SBUs?

Operations: Currently Blount has several manufacturers ing covering the diverse product lines. They

distribute and sell products in more than 100 countries around the world. Several of the Company’s plants

are certified under ISO 9001 or 9002. The ISO certified divisions include; The Lewiston Idaho operations of

the Sporting Equipment group and the Oregon Cutting Systems division. This maximizes efficiency and

gives an assurance to the customer that they are dealing with a reputable high quality organization.

Outbound Logistics: Due to the large geographic market coverage and customer base, the Company uses a

variety of distribution channels. The distribution channels for Outdoor Products include; distributors, dealers,

and mass merchandisers serving the retail replacement market, and more than 30 original equipment

manufacturer. The Sporting Equipment SBU's channels include two-step distributors, government agencies,

cooperative buying groups, and mass merchants. The Industrial & Power Equipment SBU's channels include

timber harvesting, material handling, construction, land reclamation, utility businesses, and pulp and lumber

mills. The Company currently has five manufacturing locations and 7 distribution, sales, and training centers

supporting the Outdoor Product Group. In Industrial & Power Equipment, there are 6 manufacturing

locations and 2 distribution, sales, and training centers. The Outdoor Sport Group has 6 manufacturing

locations and 2 distribution, sales, and training centers affiliated with them. Refer to the comments at the

beginning of this section. This is where you should have addressed the capacity utilization issues.

Sales and Marketing:

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You did not address this part of the value chain. This is where you should have addressed the brand name

recognition issue that you cite throughout the case. There isn't any part of your analysis that provides the

logic for arriving at a brand name recognition problem.

Service: Blount is committed to exceptional quality combined with unrivaled customer service and value.

Through the Company’s strong, loyal, and dedicated employees, Blount has had the ability to meet and

exceed the needs and wants of its customers.

Profit Margin: Blount has a profit margin that is 11% lower that the Industry average. In 1999, its profit

margin was 29.09% versus the Industry average of 32.51%. Our recommendation to the Company is to

meet or exceed the Industry average within the next 6 – 12 months.

Product R&D, Technology, and System Development: The Company must be highly innovative to meet

the broad customers needs. A continuing focus on new and better technologies has enabled the Company to

introduce hundreds of new products annually. As an example, Outdoor Products Group offered more than 19

different chain products in 1999. These quality innovations have allowed Blount to maintain a leadership

position over competitors.

Human Resource Management / General Administration: Blount’s employee total in 1999 was

approximately 5,600. The Company workweek consists of a five-day, three-shift structure. It appears to be

working at a deficit for Blount since the capacity utilization for the three segments is; Outdoor Products

87%; Sporting Equipment 72%; and Industrial & Power Equipment 50% as of year-end 1999. Why does/did

Blount hire their senior managers from outside the company?

3. HOW WELL ARE BLOUNT’S FUNCTIONAL AREAS PERFORMING?

The key parts of this question are how well and performing. You need to address these parts through your

analysis.

Marketing: Since the organization is so diverse, the competition is not congruent to one particular Industry,

but, rather to various Industries. This being the case, Outdoor Product Group marketing personnel is are

strategically placed throughout the United States and foreign countries. Currently the Company expenditures

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for research and design are expensed as incurred. The most recent annual investment into research and

design was $7.2 million. This is an operational issue.

Finance: See Financial Analysis.

Operations and Logistics: In the current situation, the utilization of only a few vendors may be construed as

a weakness. Each Group should be buying from all the same vendors, this would create an inbound synergy,

which would allow them to save money and time. Blount has put to use suppliers and distribution to their

competitive advantage.

Human Resource Management: As of December 31, 1999, Blount has a total 5,600 employee. The

Company has a high regard for employees and values their worth. It is due to the skills and abilities of the

employees that Blount could meet the high standards within the three Industries. The employees are trained

under Six Sigma requirements and structured via the ISO standards. This is strength for Blount in the

present as well as for the future. See my earlier question regarding management hiring.

Information System: Technological and Information Systems at Blount surpass competitors. Blount has

designers, engineers, plant manufacturing personnel, as well as other staff members who support

manufacturing and technological advancement. The Company has shown major improvements in operating

systems and e-commerce in 1999.

General and Administrative

You did not address this part of the value chain.

4. HOW STRONG IS THE COMPANY’S STRATEGIC POSITION

Industrial & Power Equipment

COMPETITIVE STRENGTH ASSESSMENT WEIGHTED SCALE

Rating scale: 1 = weak; 10 = very strongKey success Factor/

Competitive Strength Measure

Company’s Strategic Position Company’s StrategicPosition

BLT R Weight BLT R

Quality 7 4 15% 1.05 0.60Pricing 6 5 15% 0.90 0.75Brand Name Recognition

4 5 20% 0.80 1.00

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Product Service 8 5 15% 1.20 0.75Product Innovation 10 NA 15% 1.50 NAValue Chain Cost Containment

5 NA 20% 1.00 NA

Overall StrengthRating

40 19 1 6.45 2.85

BLT = Blount International, R=Regal-Beloit

Outdoor Products





BLT T D Weight BLT T D

Quality 7 8 NA 15% 1.05 1.20 NABrand Name Recognition

4 10 NA 20% 0.80 2.00 NA

Pricing 6 7 NA 15% 0.90 1.05 NACustomer Needs 8 8 NA 15% 1.20 1.20 NADistribution Network 5 7 NA 15% 0.75 1.05 NAValue Chain Cost Containment

5 7 NA 20% 1.00 1.40 NA


35 47 NA 1 5.65 7.90 NA

BLT = Blount International, T = Toro, D = Deere

Sporting Equipment





BLT O Weight BLT O

Customer 8 7 15% 1.20 1.05Pricing 6 8 10% 0.60 0.80Brand Name Recognition

4 8 20% 0.80 1.60

Product Innovation 10 8 10% 1.00 0.80Strong Market Position 4 6 10% 0.40 0.60Quality 7 8 15% 1.05 1.20Value Chain Cost Containment

5 7 20% 1.00 1.40

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44 52 1 6.05 7.55

BLT = Blount International, O = Olin

BLOUNT INTERNATIONAL FINANCIAL ANALYSIS

(Bookmark: AppendixI) The total Revenues in 1999 for Blount were 809.9 million, this reflects a

drop of 3% compared to 1998 revenue. Compared to the Industry average, Blount is considerably lower

with a sales ratio of 10.76 vs. Industry ratio of 19.90. The breakup of revenues is as follows: Outdoor

Product Group was 327.6 million; Sporting Equipment Group was 323.7 million; and Industrial & Power

Equipment was 158.6 million. This analysis shows a need for more aggressive sales, this must be

immediately remedied in order for Blount to be able to keep up with competition.

The following is a breakdown of the essential financial factors: (Bookmark: AppendixII)

This section is very good. You could further improve your financial analysis by addressing trends for each

SBU, its competitors and the industry averages. This approach tends to eliminate one-year aberrations.

Gross margin is 11% lower than Industry average and 19.6% lower than Toro. However, Blount is 45%

higher than Deere, 53% higher that Olin, and 4.5% higher than Regal Beloit. The difference between

net sales and cost of good sold is the gross margin. To be successful, the Company must sell goods for

an amount greater than cost - which is gross margin must be substantial enough to pay operating

expenses and provide an adequate income. The fact that the Gross Margin for Blount is higher than three

of the competitors shows strength, however, compared to the Industry average of gross margin, the lower

figure tells this must increase in order to stay above your competitors.

Return on Assets (ROA), Returns on Equity (ROE), and Return on Investment (ROI) are all lower than

the Industry. The ROA is 145% lower than the Industry, ROE is 262% lower than Industry, and ROI is

140% lower than the Industry. Compared to the major competitors, per Appendix, Blount is failing in

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all three aspects. On average, the Blount ROA is 250% lower, ROE is 564% lower, and ROI is 207%.

These figures demonstrate to investors that Blount is not profitable and at high risk.

Current assets for Blount are 336.0 million compared to 327.1 for 1998. That is a 3% increase, which is

a strong factor for the Company. Current liabilities for Blount are 148.5 million compared to 94.9 for

1998. This is a 36% increase, which should be a weakness for Blount. However, assets are greater than

liabilities, and for the short term, the 36% increase is not significant.

Quick ratio for Blount is 10% higher than the Industry. It also is a leader among the competitors, per

figures shown in the Appendix. The Current ratio for Blount is 12% higher than the Industry average.

This analysis shows the Company has the ability to meet short-term debt out of the current assets.

Net Income for Blount was a net loss. The figure for 1999 was (21.8) million compared to the 1998

figure of 61.3 million. The analysis shows a 64.5% drop in income.

Debt-to-assets for Blount is 146%. This indicates there is the Company is carrying a high amount of

long term debt. This issue needs to be resolved for Blount to recover its financial strength.

Inventory turnover is an area in need for Blount. The Industry has an average of 64 days inventory

turnover, Blount has an average of 78 days inventory turnover. This indicates the Company is holding

excess inventory, it means that funds could be invested elsewhere are being tied up inventory. There is a

high carrying cost for storage of goods and the risk of obsolescence. Compared to the competition, we

as split two for two. Blount is lower compared to Deere and Olin, and higher compared to Toro and

Regal-Beloit per figures in Appendix.

Debt-to-equity for Blount is (3.14) vs. the Industry average is 0.70. Compared to competitors on average

Blount in 437.5% lower, per figures in Appendix. This indicates the Company is at risk of running out

of cash under conditions of adversity. The Company will have greater difficulty obtaining additional

funds during a tight money market.

Long-term-debt to equity for Blount is (2.52) vs. the Industry average of 0.59. Figures compared to

competition on average are also lower for Blount. Blount is 449.8% lower, per figures in Appendix.

This is an indication that the Company is employing too much debt.

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Asset turnover for Blount is 6% lower than the Industry and 23.6% lower than Toro. This indicates the

Company is not generating enough business compared to the assets they possess. However, asset

turnover is higher for Blount compared to Deere, Olin, and Regal-Beloit, per Appendix figures. This

shows either the competition is very weak, or Blount is doing something right.

Accounts receivable turnover is 26% lower for Blount than the Industry. This is an indication of slow

collections. They are not employing aggressive credit collection. On the average, it takes Blount 74

days to collect vs. 55 days for the Industry to collect on debt.

Dividend yield for Blount is 25 % higher than the Industry average and 29.9% higher than Toro. This

indicates the commitment to the Company stockholders. Other competitors such as Deere, Olin, and

Regal-Beloit appear to be more committed for on average, Blount, per figures in Appendix, is 23.1%

lower.

Overall, Blount has strength in the short-term analysis but there are weaknesses in the long-term

financials analysis. This weakness for Blount must be controlled to be a viable competitor in the future. The

long-term debt is substantially higher than what is acceptable to any organization to keep competitive. Due

to this factor, the Company is going to have a difficult time borrowing funds for any additional acquisitions.

The debt-to-asset ratio verifies how high the (Somethng is missing here.) actually is. The ROA, ROE, and

ROI are a weakness for the Company. These figures, to investors, show low profitability and high risk.

On the positive side, the commitment to stockholders is shown by the dividend yield that is higher

than the industry. (How are they achieving this dividend yield? The answer is in their approach to

capitalizing the firm and new acquisitions.) The current asset compared to current liabilities is sufficient for

the educated investor. Another verification of successful short-term management is the analysis of both

quick and current ratios. These indicate to investors that the capability of the Company to meet short-term

debt is fine.

Our analysis has indicated gross margin for Blount is 11% lower than industry average. The

Company should obviously increase gross margin. There are several strategies to complete this task. Our

recommendation is to increase total sales by reducing the selling price. This strategy may initially reduce the

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gross margin but anticipated sales of each group will increase and production economies of scale will be

realized enough to raise the absolute amount of gross margin. Another recommendation would be to

implement a Portfolio Restructure Strategy (Yes! Why didn't you address this in the first question (portfolio

factor) in the internal analysis?). To substantiate this suggestion, our analysis brings us to the segmented

operating income and sales for Blount. They are as follows: Outdoor Products is 71.8 million; Sporting

Equipment is 40.4 million; and Industrial & Power Equipment is (1.1) million. The figure for Industrial &

Power Equipment may not appear to be a significant loss, but compared to prior years it is. For the past three

years, Industrial & Power Equipment has steadily dropped. The 1997 figure was 15% higher than the 1998

figure, which was 139% higher than current loss of 1999. Sales for each segment are as follows: Outdoor

Products is 327.6 million; Sporting Equipment is 323.7 million; and Industrial & Power Equipment is 158.6

million. The sales figure for Industrial & Power Equipment has declined 31% from the 1998 sales figure.

This is a sign of an underlying problem facing the group.

Our Portfolio Restructuring Strategy focuses on the Industrial & Power Equipment Group. This

SBU is not financially producing the capital needed to lower the long-term debt. If a consolidated

divestiture was cone, the identifiable assets for Industrial & Power Equipment totaling 109.2 million would

be of great value to Blount. Despite the loss the group has historically shown, there is strength in the backlog

they possess. Currently it is at 25.8 million, which has increased 38% since 1998. The backlog shows the

pending orders received by customers indicate this product could exhibit potential within a less diversified

organization.

MANAGEMENT’S PERSONAL AMBITIONS, PHILOSOPHIES AND ETHICAL PRINCIPLES

The ability to diversify your organization insures your commitment to your stockholders a

commitment to them. This trickles over to your top management as well. At the head of each SBU, you

have strategically placed those people who will continually lead your organization to the growth that you

have come to know and expect. You have invested in not only one Industry, but also three industries that are

very different in nature from each other. However, your EPS is considerably lower than that of the Industry

average. This may be looked upon as a weakness in the eyes of your stockholders. To keep your

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stockholders, you must implement a plan that will allow your organization to earn at least 20% return in

average stockholder’s equity. (How did you arrive at the 20% figure?)

BLOUNT SHARED VALUES AND CORPORATE CULTURE

Blount’s business roots can be traced to the pre-World War I era. Its corporate culture constitutes an

atmosphere where people can and will come and devote their lives to the organization. As with any effective

organization, the corporate culture must flow evenly down and through the organization. Blount does follow

this organizational flow. Blount realizes how important and crucial its employees are to its success, and its

culture reflects this respect.

SUMMARY OF INTERNAL FACTORS

Internal Factors Strengths Weaknesses

Company’s Competitive Capabilities

Effective Customer service; Product Innovation; ISO 9001 & 9002 implementation; Employee Relations ions

Percentage of Leverage; Brand Name Recognition; Inbound/Outbound Logistics (Your analysis does indicate that logistics is a weakness.) ; Market Share (Market share is an external factor.)

Management’s Personal Ambitions, Philosophies,

and Ethical Principles

Management of Blount are focused on strategic placement of top management to guide the Company where needed.

EPS is lower than Industry average, this may be construed as management not working for stockholders

Share Values and Company Culture

Corporate Culture is based on respect for your employees.

None that can be measured at this time

STRATEGIES

1. GENERIC STRATEGY

Blount International Inc.’s generic (corporate) strategy is to be a (an unrelated) diversified global

company (The SBUs) concentrating on leadership positions in profitable (differentiated) niche markets.

2. DIVERSIFICATION STRATEGIES

Acquisition of an existing business

Repeat case facts only to support your analysis.

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In order to expand internationally, to strengthen its financial position, and to better protect the

interests of its investors, Blount International, Inc. has used a strategy of diversification to acquire companies

in several unrelated industries.

The diversification process began in 1967 when Blount Brothers acquired the Benjamin F. Shaw

Company of Wilmington, Delaware. This company manufactured and installed piping systems for power and

chemical plants.

Subsequent acquisitions included a steel fabrication business in Indiana and a mobile home

operation. Although the mobile home operation appeared to be profitable initially, the mortgages assumed by

Blount under the purchase/sale conditions eventually resulted in a $15 million dollar loss.

In 1972, Blount acquired J.P. Burroughs & Sons, which was a manufacturer of agricultural products.

This company had 2000 shareholders and operated profitably in the 70s. This acquisition provided Blount the

opportunity to go public and to be listed on the American Stock Exchange.

In 1976, Blount acquired Modern Farm Systems, which was a manufacturer of grain bins, metal farm

buildings, and storage tanks. Blount made additional acquisitions in other businesses which included York

Foundry and Engine Works, a manufacturer of belt conveyors and bucket elevators, Redex Industries, a

manufacturer of dryers and grain handling equipment, and Mix-Mill Manufacturing Company whose product

lines consisted of feed grinding and mixing equipment. By 1979, these acquisitions accounted for

approximately for 50% of Blount’s operating income.

The acquisition of Washington Steel further strengthened Blount’s position in the construction and

agribusiness markets and initially pushed Blount’s annual revenues to nearly $500 million. Unfortunately,

the agribusiness had to be divested in the mid-80s due to a downturn in the agribusiness economy.

In 1985, Blount acquired Omar Industries, a prominent manufacturer of saw chains, hydraulic

loaders, feller bunchers, and log products.

In the 90s Blount acquired Gear Products, Inc. that makes a wide variety of power transmission

products and hydraulic pump drives. In 1991Blount completed the acquisition of Dixon Industries, Inc,

whose main products were zero-turning-radius-riding lawn mowers.

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In 1995 in 2 separate transactions, Blount acquired all the outstanding stock of CTR manufacturing,

a manufacturer of automated forestry harvesting equipment and the operating assets of Ram-Line, Inc, a

manufacturer of stocks, magazine, lens cap, and other products for the shooting sports market. In 1995

Blount acquired Simmons Outdoor Corporation, a sports optics distributor. This acquisition helped Blount to

expand its presence in sporting goods. In 1997 Blount acquired Frederick Manufacturing Corporation and

Orbex Inc, suppliers of lawn mower accessories and sporting goods, which gave Blount a competitive

advantage in the lawn mower replacement blade industry.

In 1997, Blount acquired Federal Cartridge Company, a leading maker of ammunition and shooting

sports equipment. This enabled Blount to double its size in the shooting sports business and to become one of

the largest providers of shooting sports equipment in the world. In 1998 Blount purchased a percentage of the

Redfield line that included primarily riflescopes, mounting systems, and related items.

DIVESTURE AND LIQUIDATION STRATEGIES

Refer to the earlier comments about case facts.In the mid-1980s, Blount spun off its agribusiness operations due to downturns in the agribusiness

economy.

In 1989 German businessman, Dietrich Gross, purchased Washington Steel for $280 million which,

was four times Blount’s purchase price. This divestiture was necessary due to financial difficulties in the

company’s domestic construction division.

In the 1990s, Blount decided to divest the construction business due to the cyclical nature of the

business and consecutive annual losses. In 1994, Blount contracted with Cadell Construction Company, Inc.

to provide it the consulting and construction management services necessary to closing out all construction

business. This agreement included a provision for Cadell to use the Blount name in the construction business

for a certain amount of years and that Blount would remain liable for any losses more than current estimates.

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Restructuring Strategies

Blount changed its strategic focus in heavy construction equipment to a more diversified international

strategy. The new focus has been on business sectors that provide profitable leadership opportunities in niche

markets.

Multinational Strategy

Blount is a diversified multinational company that has focused on limited segments of large market sectors

resulting in a collection of diverse, unrelated manufacturing endeavors. Blount has achieved its successes

from superior manufacturing technology, International market and sales experience, product development,

and outstanding customer service.

3. STRATEGIES TO GAIN AN MAINTAIN COMPETITIVE ADVANTAGES

Are these applicable for the overall corporation and/or for each industry segment?

A) Offensive Strategies:

1. Initiatives to match or exceed competitor’s strengths:

- Increase inventory turns and accounts receivable turns.

- Incorporate world-class standards in environmental, safety, and quality to reinforce Industry

leadership image.

- Decrease Blount’s long term debt position

4. Initiatives to capitalize on competitor’s weaknesses:

- Introduce innovative products that meet the customer changing needs and preference to the market in

a quicker time frame than the competition.

- Expand the Outdoor Product and Sporting Equipment product lines, breadth and depth, to retain and

add customers worldwide.

B) Defensive Strategies:

- Establish pricing structure to be slightly under targeted competitors to gain competitive advantages

over rivals and to entice more customers.

- Take advantage of gaps/vacant niches of Blount’s would be rivals by broadening its product line

through product innovation.

- Establish on line help desk in each SBU to provide on-demand customer assistance for product

information, pricing, service and use questions, and purchasing specifics.

4. MATCHING A STRATEGY TO BLOUNT’S POSITION AND SUMMARY.

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Blount has built a leading position in the Outdoor Product market and is currently ranked #3 in the

Sporting Equipment market. Blount’s superior manufacturing technology, global value chain experience,

product development and innovation, and outstanding customer service combined with the organization’s

acquisition history have been responsible for its successes.

Blount’s market share in the Industrial and Power Equipment sector, due to its narrow focus on

timbering equipment, has made the company a weak and ineffectual performer in this sector. The repetitious

nature of downturns in the Paper and Pulp Industry has resulted in the periodic draining of Blount’s

resources without an adequate offset in robust markets. Many of Blount’s competitors in this market are

larger, more diversified, and better equipped financially to soften the economic impact. Some competitors

are also involved directly in the Paper and Pulp Industry and thus able to capitalize on the extreme profit

opportunities available when tight paper markets exist.

Although Blount International, Inc. does not have the benefit of name brand recognition at the

corporate level, it has achieved brand name recognition in the Outdoor Product and Sporting Equipment

SBUs, in large part from its acquisitions. (You could have addressed this weakness in several portions of the

internal analysis.) Blount’s goal should be to achieve name brand recognition for all companies, including a

corporate identity. Since much of the long term business risk is associated with Government regulations in

safety, environmental protection, quality, tariffs and trade barriers, Blount should acquire knowledge and

expertise to promote itself as a world class manufacturer in these matters. This aggressive market campaign

would include both Corporate and product brand promotions and would provide Blount a sustained

competitive advantage in image and reputation.

For many of the same underlying reasons that Blount chose to divest itself from the agribusiness and

construction business, it would be prudent at this time to divest the Industrial and Power Tool division.

Blount would then be better positioned financially with the decrease of long term debt, to be better able to

invest in broadening the successful Outdoor Products and Sporting Equipment SBUs, geographically as well

as in products, to be better equipped to invest in R&D for product development and innovation, and to focus

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on the restructure its value chains to lower costs overall. (This is a run-on sentence. Break it down into

distinct thoughts.)

STRATEGIC RECOMMENDATIONS

1. Divestiture

Industrial & Power Equipment SBU: Blount should consolidate its manufacturing plants and reduce

its workforce to maximize its capacity utilization to reduce fixed/variable costs in the short term. Blount

management should prepare for the divestiture of this SBU either when improved market conditions

prevail or year end whichever comes first.

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Tranch B Term Loan

Divestiture Revenue Cash-Flow

December 31, 1999-June 30, 2005

Total payments due

$850,000 per quarter

$18,700,000September 30, 2005 $80,000,000

January 31, 2006 $80,000,000

March 31, 2006 $80,000,000

June 30, 2006 $80,450,000

Total Tranch B payment

$339,200,000

Divestiture 2001 $318,000,000 -$460,000,000

December 31, 2001 Long-term debt reduced $172,750,000

$145,300,000-$287,300,000 for investment, R&D, and expansion

Economic cycles in the paper and pulp market will determine the outcome of the divestiture. We

recommend that Blount divest this SBU as a single unit rather than spinning off its diverse product lines.

Due to the fact Blount is the world leader in hydraulic timber harvesting, has innovative new products, and a

strong performer in Gear products we believe that a large organization with similar product lines will be the

ultimate purchaser. The revenue expected from the sale should range from $316 million to $460 million

based on the prevailing market conditions. The divestiture recommendation was for completion in 2001,

therefore, Blount should pay down a portion of its long-term debt by December 31, 2001. This should be

done no sooner than September of 2001 due to pre-payment penalty clauses. The remaining revenues

$145,300,000 - $287,300,000 should be utilized for investment, R&D, and expansions.

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Long term debt reduction: Blount should take a percentage, as much as 50%, of the revenue realized

from the Industrial & Power Equipment SBU divestiture to reduce its long term debt.

Expand Outdoor Products and Sporting Equipment SBUs: Blount should invest a percentage of the

revenue realized from the Industrial & Power Equipment SBU divestiture to expand the Outdoor

Products and Sporting Equipment SBUs. This expansion would entail global expansion in emerging

countries and investment in R&D for product innovation.

2. Aggressive Marketing Initiative: Blount should perform worldwide research to ascertain current and

future government regulations in environmental protection, safety, and trade and tariff barriers in each of

its market segments. Once the research is complete, Blount should set benchmarks that would enable it

to meet or exceed industry standards. This aggressive marketing initiative would increase Blount’s brand

name recognition at a corporate level as well as at an individual brand level and should clearly establish

it as “the world class industry leader”.

3. Cost reductions: Blount should consolidate plants and reduce work forces to maximize capacity

utilization and to realize synergies in its value chain. The areas of opportunity in the value chain that

would provide Blount with the best return are improvements in purchased supplies and inbound logistics,

operations, and distribution and outbound logistics.

Blount should fully implement Six Sigma throughout the value chains of each of its SBUs. This

implementation would achieve “virtual” defect free products, would eliminate process redundancies, and

would aid Blount in the restructuring of its value chain.

The company should adjust its pricing structure to become more competitive. Although the company

philosophy has been that, the inherent quality of its products warrants the current higher price, our

analysis has revealed that the customer base is very price sensitive. In the long term, the adjusted pricing

would increase demand, which in turn would increase scales of economy. This pricing recommendation

is predicated on the first 2 initiatives of plant consolidation/workforce reductions and Six-Sigma

implementation being done.

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Blount should revise its executive compensation and its employee bonus program to be more in line with

the Industry.

IMPLEMENTATION

1. Divestiture: Blount should form a steering committee that will be responsible for all activities

surrounding the divestiture. This committee would be comprised of the corporate CFO, President of the

Industrial and Power Equipment SBU and key functional managers. The committee will report its

progress to the board in monthly written reports and summary quarterly meetings. The responsibilities of

this committee would be to determine, in the short run, plant closures and workforce reductions, in order

to realize to immediate savings in fixed/variable costs. The committee should make recommendations re

the most advantageous timing for the divestiture, should identify potential buyers, and initiate

negotiations with them. If market conditions fail to improve by year end, the company may be forced to

change its divestiture stance, to pursue selling separate pieces of the SBU, or to be in the position of

accepting a less than fair market value.

Once the divestiture is complete, revenue would be available to expand the Outdoor Products and

Sporting Equipment SBUs via product development and addressing new markets in emerging countries.

2. Aggressive Marketing Initiative: Blount should form a permanent committee which will include

marketing, quality, legal, R&D, design, and production personnel. This committee would be responsible

for conducting on-going data mining in worldwide regulations, standards, and laws that cover

environmental protection, safety, and tariff and trade barriers. They should also concentrate on the

competitions’ current standards and future moves in order to establish Blount benchmarks that meet or

exceed them. Due to the committees’ specific knowledge base, Blount’s benchmarks should be designed

to be attainable by all segments of the value chain. The committee will meet with senior management

monthly to report its progress. In 6 months time the committee will unveil the final details of the

benchmarking campaign and how it will materialize into labeling Blount as the Worldwide Leader in

these matters.

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3. Cost Reductions: The CFO will work with the Blount plant managers, along with their respective

Operations and Financial Managers, to assess all the possibilities of plant consolidations and workforce

reductions. The CFO will present the resulting recommendations and the financials that support it to the

CEO and the Blount board in 90 days.

As part of this process, this task force will also make recommendations on ways to improve the synergies

in purchased supplies and inbound logistics, operations, and distribution and outbound logistics.

The Six-Sigma team will be required to report its progress on a monthly basis to upper management to

ascertain that the completion of Six-Sigma quality in the Outdoor Products SBU will be reached in 6

months time and that the level of productivity and cost efficiencies are consistent with the goals. Upper

management will work hand in hand with this same team to begin implementation in other SBUs.

A team of cost accountants will be charged with analyzing bottom line costs for all products. This team

will determine pricing levels that provide the best combination of return and selling opportunity. This

committee will solicit input from marketing and sales based on the competitions’ pricing and report its

findings and recommendations to the CFO in 60 days.

The Human Resource Director and the Controller will chair a task force to investigate Industry standards

in executive compensation and employee bonus plans. Within 60 days, they will provide the parameters

of the new plan to be implemented at the beginning of the next fiscal year.

EVALUATION AND CONTROL

The Six-Sigma team should conduct monthly meetings with upper management to report their

progress and to enlist management’s aid in solving any potential problems.

Once the new pricing has been in play in the market for a month, the cost accounting group should

analyze the impact on the profitability margin and make adjustments accordingly. This process should

continue to be evaluated on a monthly basis in conjunction with the cost reductions realized by the plant

consolidations and workforce reductions to ensure that financial goals are being met.

The Human Resource Director, the Controller, and the compensation task force should finish the

recommendations for revised executive compensation and employees’ bonus programs in 6 months. Upon

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Board approval, Human Resources will devise the written policy and an action plan for it to be rolled out to

the employees. The Public Relations Office should be an instrumental part in ensuring that the rollout

communicates an accurate picture of the company’s current situation and the reasons why it is critical to

make these changes. The Human Resource Director and Public Relations Office should emphasize that the

company continues to value its employees and its culture but the current financial circumstances are dictating

that adjustments must be made.

SWOT ANALYSIS

Opportunities Threats

Stre

ngth

s

Blount should promote its excellent customer service reputation to expand its markets in Outdoor Products and Sporting Equipment.

Blount should maintain its high standards of product quality and strive to exceed industry standards.

Blount should take immediate steps to set its benchmarks in safety, environmental protection, tariffs and trade barriers, to integrate the benchmarks in all value chain activities, and to promote the company to the world as “the World Class Leader” in these endeavors. Blount should strengthen its markets in emerging countries by expanding its product lines and in the long term by acquisition of a known company, this expansion should be financed by a portion of the divestiture revenue

Wea

knes

ses

Blount International must initiate an aggressive marketing campaign to promote its name brand recognition at a corporate level as well as the product line level. Blount should reduce value chain costs through plant consolidations, workforce reductions, Six Sigma implementation, and changes in executive/employee compensation packages to improve its profit margins. This would enable the company to pursue the strategy to decrease the selling price of its products.

Blount should divest Industrial and Power Equipment Division to combat the effects of the repetitive economic downturns in the pulp and paper industries and Blount’s ineffective market share. Blount should reduce its long-term debt with a percentage (up to 50%) of the revenue realized from the divestiture.

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Appendix 1:

Corporate Financial Data (Bookmark: Financials)($Mil-Year End December) 1999 1998 1997 1996 1995

Net sales

Outdoor Product Sporting Equip. Industrial & Power Equip.

809.9

327.6 323.7

158.6

831.9

315.4286.7

229.8

716.9

319.3239.1

158.5

649.3

292.7209.5

147.1

621.4

282.0232.2

107.2Net income (21.8) 61.3 59.1 55.2 49.4Current assets 336.0 327.1 NA NA NACurrent liabilities 148.5 94.9 NA NA NATotal assets 688.7 668.8 637.8 533.8 522.4Total liabilities 1,010.4 314.2 140.3 85.8 108.7Total shareholder’s equity (321.7) 354.6 316.1 290.8 244.6Average shares outstanding 30,795,882 NA NA NA NACash Flow from Operations 19.1 88.9 80.3 NA NA

Ratios and Growth Rates Blount International IndustrySales – 5 Yr. Growth Rate 6.60 15.04Current Ratio 2.26 1.99Total debt to equity (3.14) 0.71Gross Margin – 5 Yr. Average 32.13 31.65Net Profit Margin – 5 Yr. Average 5.97 4.92Return on Equity – 5 Yr. Average 19.41 16.27Return on Assets – 5 Yr. Average 6.95 7.43Return on Investment – 5 Yr. Avg. 9.13 10.26Net Income/Employee NM 14,851Receivable Turnover 4.95 6.66Inventory Turnover 4.66 5.74

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Appendix II

Ratio Comparison for Outdoor Products (Bookmark: GrossMargin)Industry Blount Toro Deere

Valuation RatiosP/E Ratio (TTM) 18.72 NM 11.23 39.30P/E High – Last 5 years 30.59 NA 123.67 42.83P/E Low – Last 5 years 13.51 NA 7.86 7.07Beta 1.02 NA 1.08 1.01Price to Sales (TTM) 1.66 0.62 0.30 0.76Price to Book (MRQ) 3.47 NM 1.33 2.17Price to Tangible Book (MRQ) 5.25 NM 2.51 2.34Price to Cash Flow (TTM) 14.64 41.12 5.24 40.25Price to Free Cash Flow (TTM) 25.01 NM 22.96 9.69% Owned Institutions 50.08 2.44 57.67 79.53DividendsDividend Yield 1.72 2.28 1.60 2.32Dividend Yield – 5 Yr. Avg. 1.42 NA 1.30 2.20Dividend 5 Year Growth Rate 3.88 (4.37) 0.00 5.19Payout Ratio 15.64 NM 17.60 90.63Growth Rates (%)Sales (MRQ) vs. Qtr. 1 Yr. Ago 19.90 10.76 11.76 (4.85)Sales (TTM) vs. 1 Yr. Ago 11.58 (2.65) 13.32 (13.42)Sales – 5 Yr. Growth Rate 15.04 6.60 6.45 5.53EPS (MRQ) vs. Qtr. 1 Yr. Ago (11.87) (77.27) 15.00 (24.77)EPS (TTM) vs. Qtr. 1 Yr. Ago 7.57 NA 527.29 (72.87)EPS – 5 Yr. Growth Rate 15.41 NM (1.21) (15.14)Capital Spending – 5 Yr. Growth Rate

17.86 12.37 1.17 6.70

Financial StrengthQuick Ratio (MRQ) 1.10 1.23 0.79 NMCurrent Ratio (MRQ) 1.99 2.26 1.55 NMLT Debt to Equity (MRQ) 0.59 (2.52) 0.69 0.84Total Debt to Equity (MRQ) 0.71 (3.14) 1.25 2.19Interest Coverage (TTM) 15.83 0.40 3.05 1.61

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(cont’d) Outdoor Products Industry Blount Toro Deere

Profitability Ratios (%)Gross Margin (TTM) 32.51 29.09 36.15 16.08Gross Margin – 5 Yr. Avg. 31.65 32.13 36.31 21.07EBITD Margin (TTM) 13.68 6.38 8.80 7.89EBITD – 5 Yr. Avg. 12.46 15.32 7.69 16.64Operating Margin (TTM) 10.61 2.19 5.77 3.00Operating Margin – 5 Yr. Avg. 9.04 11.60 5.03 9.65Pre-Tax Margin (TTM) 10.50 (2.79) 4.42 3.00Pre-Tax – 5 Yr. Avg. 8.54 9.75 4.15 9.65Net Profit Margin (TTM) 5.35 (2.69) 2.70 1.89Net Profit Margin – 5 Yr. Avg. 4.92 5.97 2.52 6.13Effective Tax Rate (TTM) 38.88 NM 38.93 37.01Effective Tax Rate – 5 Yr. Avg. 37.93 36.94 39.40 36.53Management Effectiveness (%)Return on Assets (TTM) 7.01 (3.16) 4.13 1.18Return on Assets – 5 Yr. Avg. 7.43 6.95 3.98 4.84Return on Investment (TTM) 9.45 (3.79) 7.28 2.86Return on Investment – 5 Yr. Avg.

10.26 9.13 6.72 12.24

Return on Equity (TTM) 15.44 (25.08) 12.52 5.52Return on Equity – 5 Yr. Avg. 16.27 19.41 10.14 21.05EfficiencyRevenue/Employee (TTM) 216,694 144,625 279,152 300,561Net Income/Employee (TTM) 14,851 NM 7,527 5,674Receivable Turnover (TTM) 6.66 4.95 3.96 1.06Inventory Turnover (TTM) 5.74 4.66 3.96 5.59Asset Turnover (TTM) 1.24 1.17 1.53 0.63

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Appendix III

Ratio Comparison for Sporting GoodsIndustry Blount Olin

(Winchester)Valuation RatiosP/E Ratio (TTM) 18.72 NM 47.14P/E High – Last 5 years 30.59 NA NMP/E Low – Last 5 years 13.51 NA 7.33Beta 1.02 NA 1.21Price to Sales (TTM) 1.66 0.62 0.58Price to Book (MRQ) 3.47 NM 2.43Price to Tangible Book (MRQ) 5.25 NM 2.43Price to Cash Flow (TTM) 14.64 41.12 7.81Price to Free Cash Flow (TTM) 25.01 NM NM% Owned Institutions 50.08 2.44 77.00DividendsDividend Yield 1.72 2.28 4.79Dividend Yield – 5 Yr. Avg. 1.42 NA 3.60Dividend 5 Year Growth Rate 3.88 (4.37) (3.93)Payout Ratio 15.64 NM 254.24Growth Rates (%)Sales (MRQ) vs. Qtr. 1 Yr. Ago 19.90 10.76 1.49Sales (TTM) vs. 1 Yr. Ago 11.58 (2.65) (7.78)Sales – 5 Yr. Growth Rate 15.04 6.60 (10.33)EPS (MRQ) vs. Qtr. 1 Yr. Ago (11.87) (77.27) 5.26EPS (TTM) vs. Qtr. 1 Yr. Ago 7.57 NA (55.75)EPS – 5 Yr. Growth Rate 15.41 NM (25.28)Capital Spending – 5 Yr. Growth Rate 17.86 12.37 (11.04)Financial StrengthQuick Ratio (MRQ) 1.10 1.23 0.96Current Ratio (MRQ) 1.99 2.26 2.00LT Debt to Equity (MRQ) 0.59 (2.52) 0.74Total Debt to Equity (MRQ) 0.71 (3.14) 0.74Interest Coverage (TTM) 15.83 0.40 3.19

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(cont’d) Sporting Goods Industry Blount Olin(Winchester)

Profitability Ratios (%)Gross Margin (TTM) 32.51 29.09 13.69Gross Margin – 5 Yr. Avg. 31.65 32.13 18.65EBITD Margin (TTM) 13.68 6.38 9.96EBITD – 5 Yr. Avg. 12.46 15.32 13.76Operating Margin (TTM) 10.61 2.19 3.88Operating Margin – 5 Yr. Avg. 9.04 11.60 8.51Pre-Tax Margin (TTM) 10.50 (2.79) 2.05Pre-Tax – 5 Yr. Avg. 8.54 9.75 8.73Net Profit Margin (TTM) 5.35 (2.69) 1.29Net Profit Margin – 5 Yr. Avg. 4.92 5.97 5.67Effective Tax Rate (TTM) 38.88 NM 37.04Effective Tax Rate – 5 Yr. Avg. 37.93 36.94 35.29Management Effectiveness (%)Return on Assets (TTM) 7.01 (3.16) 1.46Return on Assets – 5 Yr. Avg. 7.43 6.95 4.96Return on Investment (TTM) 9.45 (3.79) 1.89Return on Investment – 5 Yr. Avg. 10.26 9.13 7.07Return on Equity (TTM) 15.44 (25.08) 3.81Return on Equity – 5 Yr. Avg. 16.27 19.41 12.16EfficiencyRevenue/Employee (TTM) 216,694 144,625 196,269Net Income/Employee (TTM) 14,851 NM 2,537Receivable Turnover (TTM) 6.66 4.95 6.43Inventory Turnover (TTM) 5.74 4.66 5.56Asset Turnover (TTM) 1.24 1.17 1.13

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Appendix IV

Ratio Comparison for Industrial & Power EquipmentIndustry Blount Regal-Beloit

Valuation RatiosP/E Ratio (TTM) 18.72 NM 9.97P/E High – Last 5 years 30.59 NA 19.35P/E Low – Last 5 years 13.51 NA 8.95Beta 1.02 NA 0.74Price to Sales (TTM) 1.66 0.62 0.70Price to Book (MRQ) 3.47 NM 1.49Price to Tangible Book (MRQ) 5.25 NM 3.44Price to Cash Flow (TTM) 14.64 41.12 6.21Price to Free Cash Flow (TTM) 25.01 NM 7.79% Owned Institutions 50.08 2.44 70.13DividendsDividend Yield 1.72 2.28 2.68Dividend Yield – 5 Yr. Avg. 1.42 NA 2.00Dividend 5 Year Growth Rate 3.88 (4.37) 10.23Payout Ratio 15.64 NM 26.43Growth Rates (%)Sales (MRQ) vs. Qtr. 1 Yr. Ago 19.90 10.76 7.21Sales (TTM) vs. 1 Yr. Ago 11.58 (2.65) 0.21Sales – 5 Yr. Growth Rate 15.04 6.60 17.55EPS (MRQ) vs. Qtr. 1 Yr. Ago (11.87) (77.27) (6.68)EPS (TTM) vs. Qtr. 1 Yr. Ago 7.57 NA (10.90)EPS – 5 Yr. Growth Rate 15.41 NM 9.70Capital Spending – 5 Yr. Growth Rate

17.86 12.37 8.68

Financial StrengthQuick Ratio (MRQ) 1.10 1.23 1.17Current Ratio (MRQ) 1.99 2.26 2.96LT Debt to Equity (MRQ) 0.59 (2.52) 0.59Total Debt to Equity (MRQ) 0.71 (3.14) 0.59Interest Coverage (TTM) 15.83 0.40 7.70

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(cont’d) Industrial & Power Equipment

Industry Blount Regal-Beloit

Profitability Ratios (%)Gross Margin (TTM) 32.51 29.09 27.81Gross Margin – 5 Yr. Avg. 31.65 32.13 28.90EBITD Margin (TTM) 13.68 6.38 17.53EBITD – 5 Yr. Avg. 12.46 15.32 19.83Operating Margin (TTM) 10.61 2.19 13.30Operating Margin – 5 Yr. Avg. 9.04 11.60 15.96Pre-Tax Margin (TTM) 10.50 (2.79) 11.61Pre-Tax – 5 Yr. Avg. 8.54 9.75 14.81Net Profit Margin (TTM) 5.35 (2.69) 6.99Net Profit Margin – 5 Yr. Avg. 4.92 5.97 9.09Effective Tax Rate (TTM) 38.88 NM 39.82Effective Tax Rate – 5 Yr. Avg. 37.93 36.94 38.79Management Effectiveness (%)Return on Assets (TTM) 7.01 (3.16) 7.62Return on Assets – 5 Yr. Avg. 7.43 6.95 12.89Return on Investment (TTM) 9.45 (3.79) 8.75Return on Investment – 5 Yr. Avg.

10.26 9.13 15.43

Return on Equity (TTM) 15.44 (25.08) 15.97Return on Equity – 5 Yr. Avg. 16.27 19.41 21.49EfficiencyRevenue/Employee (TTM) 216,694 144,625 117,631Net Income/Employee (TTM) 14,851 NM 8,222Receivable Turnover (TTM) 6.66 4.95 7.12Inventory Turnover (TTM) 5.74 4.66 3.95Asset Turnover (TTM) 1.24 1.17 1.09

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PRICE

Product Line andMerchandise Mix

QUALITY

Product Line and Merchandise Mix

IMAGE

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