Black Diamond, Inc. reported consolidated sales in the fourth quarter ended Dec. 31, 2010 grew 13.6% to $34.2 million compared to pro forma sales of $30.1 million during the year earlier quarter. The company noted that its sales growth was broad-based, with growth evident in each of the company's major geographic categories.
The company reported its consolidated gross margin for the fourth quarter of 2010 was 36.2%. Excluding the non-cash adjustment of $700,000 of inventory step-up value included in cost of goods sold due to purchase accounting, consolidated adjusted gross margin for the three month period ending Dec. 31, 2010, would have been 38.2%. This adjusted gross margin represents an improvement of approximately 40 basis points versus the year-ago quarter's pro forma gross margin of 37.8%.
The company reported a consolidated net loss of $500,000, or 2 cents per share, for the fourth quarter of fiscal 2010. The company noted that this loss included $1.7 million of non-cash items as well as restructuring and integration charges of $800,000 related to the May 28, 2010 combination of Clarus Corporation, Black Diamond Equipment, Ltd. and Gregory Mountain Products, LLC. Excluding these items, the company had adjusted cash earnings per diluted share of $2.0 million or 9 cents per share in the fourth quarter.
Consolidated net cash provided by operating activities during the fourth quarter of 2010 was $6.9 million. Capital expenditures were $1.3 million. Free cash flows, defined as net cash provided by operating activities less capital expenditures was $5.6 million during the quarter. Adjusted free cash flows, which exclude inventory step-up and integration charges, was approximately $6.3 million.
The company noted the benefits associated with combining and integrating the operations of Gregory with those of Black Diamond Equipment were not present during the fourth quarter. The cost savings associated with the combination of Black Diamond Equipment and Gregory are expected to be realized in 2011.
“We are very pleased to have achieved our short-term goals for the fourth quarter while having continued to focus on long-term, strategic growth initiatives,” said CEO Peter Metcalf. “We have nearly completed the integration of the operations of Gregory and Black Diamond Equipment with the company's public company infrastructure. The formation of this platform is a true milestone in the development of our company. We are excited to now press forward with a thoughtful, compelling strategy to build our capabilities and to supplement our expected organic growth with acquisitions. We believe that we have an excellent opportunity to continue to develop our company into one of the world's leading, and most respected outdoor lifestyle companies. As we do so, we will remain dedicated to and indistinguishable from the sports and user communities which we were founded to serve.”
Twelve Month Results
As reported, sales for the twelve months ended Dec. 31, 2010 were $75.9 million. Pro forma sales for the twelve months ended Dec. 31, 2010 were $125.0 million, an increase of 10.1% versus pro forma sales of $113.5 million for the full year of 2009. Growth in the company's full year pro forma revenues was, similar to the fourth quarter, broad based, with increases in each category and each geographic region of its business.
As reported, sales for the twelve months ended Dec. 31, 2010 were $75.9 million. Pro forma sales for the twelve months ended Dec. 31, 2010 were $125.0 million, an increase of 10.1% versus pro forma sales of $113.5 million for the full year of 2009. Growth in the company's full year pro forma revenues was, similar to the fourth quarter, broad based, with increases in each category and each geographic region of its business.
Gross margin, as reported for the twelve months ended Dec. 31, 2010 was 31.3%. Excluding the non-cash adjustment of $5.0 million of inventory step-up value included in cost of goods sold due to purchase accounting, pro forma adjusted gross margin for the full year fiscal 2010 would have been 38.6% compared to 38.1% for the full-year of 2009.
Net income, as reported for the twelve months ended Dec. 31, 2010 was $51.2 million, or $2.56 per diluted share. Net income in 2010 includes a $65 million benefit related to a partial release of the company's valuation allowance on its net operating loss carryforwards.
Net income, as reported for the twelve months ended Dec. 31, 2010 was $51.2 million, or $2.56 per diluted share. Net income in 2010 includes a $65 million benefit related to a partial release of the company's valuation allowance on its net operating loss carryforwards.
Statement Regarding Presentation of Results
The company, formerly named Clarus, closed its acquisitions of Black Diamond Equipment and Gregory on May 28, 2010. At the time of the transaction, Clarus had no business operations. As a result, Black Diamond Equipment is considered the predecessor company for financial reporting purposes. The financial results for the twelve-month period ending Dec. 31, 2010, exclude Gregory for the periods prior to May 28, 2010.
The company, formerly named Clarus, closed its acquisitions of Black Diamond Equipment and Gregory on May 28, 2010. At the time of the transaction, Clarus had no business operations. As a result, Black Diamond Equipment is considered the predecessor company for financial reporting purposes. The financial results for the twelve-month period ending Dec. 31, 2010, exclude Gregory for the periods prior to May 28, 2010.
Balance Sheet
Cash at Dec. 31, 2010, totaled $2.8 million. Total long-term debt, including the current portion of long term debt, was $29.8 million at Dec. 31, 2010, which included $14.7 million outstanding on our $35.0 million line of credit, and a discounted value of $14.0 million on our 5% subordinated notes, as well as $1.1.million in other debt. The face value of the 5% subordinated notes is $22.6 million.
Cash at Dec. 31, 2010, totaled $2.8 million. Total long-term debt, including the current portion of long term debt, was $29.8 million at Dec. 31, 2010, which included $14.7 million outstanding on our $35.0 million line of credit, and a discounted value of $14.0 million on our 5% subordinated notes, as well as $1.1.million in other debt. The face value of the 5% subordinated notes is $22.6 million.
As of Dec. 31, 2010, the company recorded net deferred tax assets of approximately $69.5 million – not including deferred tax liabilities. After considering deferred tax liabilities of $24.2 million primarily related to the step-up in fair value of our assets from purchase accounting in excess of the tax basis, our net deferred tax assets totaled $45.3 million at Dec. 31, 2010.
Our stockholders' equity was $162.9 million or approximately $7.51 per share based on 21.7 million shares of common stock outstanding as of Dec. 31, 2010.
Free Cash Flows
Combined net cash used in operating activities was -$6.3 million during 2010, compared to combined net cash provided by operating activities of $3.3 million during 2009. The increase in cash used is largely due to $5.1 million of transaction costs, the increase in inventory sold of $5.0 million due to the step up in fair value in purchase accounting, $1.0 million in transition costs, $1.3 million in lease indemnity payments and $1.0 million in merger and integration charges related to the acquisitions. Excluding these items, the net cash provided by operating activities would have been $7.1 million for 2010.
Combined net cash used in operating activities was -$6.3 million during 2010, compared to combined net cash provided by operating activities of $3.3 million during 2009. The increase in cash used is largely due to $5.1 million of transaction costs, the increase in inventory sold of $5.0 million due to the step up in fair value in purchase accounting, $1.0 million in transition costs, $1.3 million in lease indemnity payments and $1.0 million in merger and integration charges related to the acquisitions. Excluding these items, the net cash provided by operating activities would have been $7.1 million for 2010.
Combined capital expenditures were $2.9 million during 2010, compared to $3.3 million during 2009. The decrease in capital expenditures of $400,000 is due to certain renovation and tooling costs incurred during 2009, which were not incurred during 2010. Free cash flows used, defined as net cash (used in) provided by operating activities less capital expenditures was $(9.2) million during 2010, compared to $(0.0) million during 2009. Excluding $5.1 million of transaction costs related to the acquisitions, $5.0 million in step up value of inventory sold, $1.0 million in transition costs, $1.3 million in lease indemnity payments, and $1.0 million in merger and integration charges related to the acquisitions, free cash flows provided would have been $4.2 million during 2010.
Forward-Looking Guidance
The company expects its fourth quarter momentum to continue into the first and second quarters based on its order books, its well received innovative new product line and heightened activity at retail. For the three-months ending March 31, 2011, the company anticipates sales to be in the range of $37 million to $38.5 million.
The company expects its fourth quarter momentum to continue into the first and second quarters based on its order books, its well received innovative new product line and heightened activity at retail. For the three-months ending March 31, 2011, the company anticipates sales to be in the range of $37 million to $38.5 million.
For fiscal year 2011, the company expects sales to range between $135 million to $140 million, which does not give effect to new category launches or the impact from possible acquisitions. The company further noted gross margins are expected to range between 36% and 39% during fiscal year 2011. The company also expects, despite the planned near-term increase in platform capabilities, to remain profitable and cash flow positive.
Net Operating Loss
The company estimates that it has available net operating loss carryforwards for U.S. federal income tax purposes of approximately $225.8 million, after application of the limitation under Section 382 of the Internal Revenue Code, as amended. The company's common stock is subject to a Rights Agreement dated Feb. 7, 2008, designed to assist in limiting the number of 5% or more owners and thus reduce the risk of a possible “change of ownership” under Section 382 of the Internal Revenue Code of 1986, as amended. Any such “change of ownership” under these rules would limit or eliminate the ability of the company to use its existing NOLs for federal income tax purposes. There is no guaranty, however, that the Rights Agreement will achieve the objective of preserving the value of the NOLs.
The company estimates that it has available net operating loss carryforwards for U.S. federal income tax purposes of approximately $225.8 million, after application of the limitation under Section 382 of the Internal Revenue Code, as amended. The company's common stock is subject to a Rights Agreement dated Feb. 7, 2008, designed to assist in limiting the number of 5% or more owners and thus reduce the risk of a possible “change of ownership” under Section 382 of the Internal Revenue Code of 1986, as amended. Any such “change of ownership” under these rules would limit or eliminate the ability of the company to use its existing NOLs for federal income tax purposes. There is no guaranty, however, that the Rights Agreement will achieve the objective of preserving the value of the NOLs.
BLACK DIAMOND, INC. | ||||
CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS | ||||
(UNAUDITED) | ||||
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) | ||||
| THREE MONTHS | THREE MONTHS | |||
| ENDED | ENDED | |||
| Predecessor | ||||
| Consolidated | Company (Note 1) | Combined | ||
| December 31, 2010 | December 31, 2009 | December 31, 2009 | December 31, 2009 | |
| Sales | ||||
| Domestic sales | $ 14,880 | $ — | $ 13,198 | $ 13,198 |
| International sales | 19,342 | — | 13,385 | 13,385 |
| Net sales | 34,222 | — | 26,583 | 26,583 |
| Cost of goods sold | 21,833 | — | 16,399 | 16,399 |
| Gross profit | 12,389 | — | 10,184 | 10,184 |
| Operating expenses | ||||
| Selling, general and administrative | 12,245 | 935 | 7,535 | 8,470 |
| Restructuring charge | 693 | — | — | — |
| Merger and integration | 106 | — | — | — |
| Transaction costs | — | 1,581 | — | 1,581 |
| Total operating expenses | 13,044 | 2,516 | 7,535 | 10,051 |
| Operating income (loss) | (655) | (2,516) | 2,649 | 133 |
| Other (expense) income | ||||
| Interest expense | (743) | — | (178) | (178) |
| Interest income | 1 | 37 | (3) | 34 |
| Other, net | 479 | — | (58) | (58) |
| Total other (expense) income, net | (263) | 37 | (239) | (202) |
| (Loss) income before income tax | (918) | (2,479) | 2,410 | (69) |
| (Benefit) income tax provision | (464) | (6) | 1,244 | 1,238 |
| Net (loss) income | $ (454) | $ (2,473) | $ 1,166 | $ (1,307) |
