Clarus Corporation, today reported results for the second quarter, ended June 30, 2010.
The Company closed its acquisitions of Black Diamond Equipment (“BDE”) and Gregory Mountain Products (“Gregory”) on May 28, 2010 (the “Acquisitions”), and therefore its second quarter financial results reflect only one month of operating contribution from those businesses. Additionally, a number of transaction expenses, merger and integration costs, restructuring charges, non-cash stock-based equity charges, and other non-cash charges and gains significantly affected results for the period. Because the Company had no operations at the time of the acquisitions, Black Diamond Equipment is considered to be our predecessor company (the “Predecessor”) for financial accounting purposes. The Predecessor does not include the results of Gregory.
Three Month Results
Combined revenues in the second quarter were $19.0 million compared to $15.2 million during the three months ended June 30, 2009. Combined results represent the results of the Company for the three months ended June 30, 2010, and the results of the Predecessor for the period from April 1, 2010 through May 28, 2010, the closing date of the Acquisitions, but does not include Gregory for April or May 2010. Combined revenues for the three months ended June 30, 2009 represent the results of the Company for three months ended June 30, 2009 and the results of the Predecessor for the period from April 1, 2009 through June 30, 2009, but does not include Gregory for the three month period from April 1 through June 30, 2009.
Pro forma revenues for the second quarter, which include the combined results plus the results of Gregory for April and May 2010, were $23.7 million, an increase of 4% versus pro forma revenues of $22.8 million in the same period last year. Following this press release is a reconciliation of revenue as reported to combined, pro forma revenue and gross profit as reported to combined, and combined adjusted and pro forma adjusted gross profit for the three and six month periods ended June 30, 2010 and 2009.
Combined gross profit and gross profit margins for the second quarter were $6.5 million and 34.0%, respectively. Gross profit includes a $1.2 million increase in cost of goods sold due to the increase in inventory value as a result of the allocation of fair value in purchase accounting. Excluding the $1.2 million fair value adjustment, combined adjusted gross margin for the three-month period ending June 30, 2010, would have been 40.1%.
Pro forma adjusted gross profit and adjusted gross margins for the second quarter, excluding the $1.2 million increase in cost of goods sold due to the increase in inventory value as a result of the allocation of fair value in purchase accounting for the three month period ending June 2010, would have been $9.4 million and 39.8% compared to $8.5 million and 37.1 % in the same period in 2009. The stronger gross margin is mainly due to economies of scale in our manufacturing operations.
Net income, as reported in the second quarter was $57.3 million, or $3.03 per diluted share. A variety of factors affected this performance, including a non-cash gain associated with the recognition of a $65 million deferred tax asset, offset by a variety of acquisition related items and charges, as described above.
Peter Metcalf, Chief Executive Officer, commented, “We are very pleased to have experienced growth across nearly all of our businesses and product categories, despite what remains a very challenging economic environment. We believe that our consumers regard our products and brands as transcendent discretionary purchases which enable them to advance their health and wellness through their participation in and affinity for the outdoor lifestyle.”
Warren B. Kanders, Executive Chairman, said, “We are very excited to have forged a combination of iconic brand leaders to serve as a global platform for growth and future cash-flow generation. Our balance sheet is strong and we are prepared to build on our leadership position to create value for a wide range of consumers, customers, partners, and shareholders. We believe that through a combination of organic growth and targeted acquisitions we have an opportunity to become a highly diversified provider of a wide range of outdoor and lifestyle products.”
Six Month Results
Combined revenues for the six months ended June 30, 2010 were $42.7 million compared to $36.0 million during the six months ended June 30, 2009. Combined results represent the results of the Company for the six months ended June 30, 2010 and the results of the Predecessor for the period from January 1, 2010 through May 28, 2010, the closing date of the Acquisitions. The Predecessor does not include the results of Gregory.
Pro forma revenues for the six months ended June 30, 2010, which include Gregory results for January through May, 2010, were approximately $56.8 million, an increase of 8.4% versus pro forma revenue of $52.4 million in the same period last year.
Combined gross profit and gross profit margins for the six months ending June 30, 2010 were $15.6 million and 36.5%, respectively. Gross profit includes a $1.2 million increase in cost of goods sold due to the increase in inventory value as a result of the allocation of fair value in purchase accounting. Excluding the $1.2 million fair value adjustment, combined gross margin for the six -month period ending June 30, 2010, would have been 39.2%.
Pro forma adjusted gross profit and adjusted gross margins for the six months ending June 30, 2010, excluding the $1.2 million increase in cost of goods sold due to the increase in inventory value as a result of the allocation of fair value in purchase accounting, would have been $22.5 million and 39.7% compared to $20.0 million and 38.2% in the same period in 2009. The stronger gross margin is mainly due to economies of scale in our manufacturing operations.
Net income, as reported for the six months ended June 30, 2010 was $54.9 million, or $3.05 per diluted share. A variety of factors affected this performance, including a non-cash gain associated with the recognition of a $65 million deferred tax asset, offset by a variety of acquisition related items and charges, as described above.
Balance Sheet
Cash and cash equivalents at June 30, 2010, totaled $3.3 million.
Total long-term debt including the current portion of long term debt was $23.6 million at June 30, 2010, which included $9.9 million outstanding on our $35 million line of credit, and a discounted value of $13.2 million on our 5% subordinated notes, as well as $0.5 million in capital leases and other debt. The face value of the 5% subordinated notes is $22.0 million. In the second half of 2010, we expect to build our inventories and increase our borrowings on our line of credit for seasonal working capital increases.
Our net deferred tax asset totaled $48.9 million, at June 30, 2010, which includes a $65 million long-term deferred tax asset related to prior year operating losses, a $3 million long-term deferred tax asset related to the discount on the 5% subordinated notes, partially offset by $18.3 million in deferred tax liabilities related to the step up in fair value of our assets from purchase accounting in excess of the assets tax basis and $0.8 million in other deferred tax liabilities.
Our Stockholders’ equity was $163.7 million or approximately $7.56 per share based on 21.7 million shares outstanding as of June 30, 2010.
Forward-Looking Guidance
For the full fiscal year, ending December 31, 2010, the Company expects pro forma revenues to range between $120 million and $125 million and, excluding acquisition related restructuring and integration costs, to be both profitable and cash flow positive.
Net Operating Loss
Clarus estimates that it has available net operating loss carryforwards for U.S. federal income tax purposes of approximately $237.5 million, after application of the limitation under Section 382 of the Internal Revenue Code. Clarus’ common stock is subject to a Rights Agreement dated February 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 Clarus 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.
| CLARUS CORPORATION | ||||||||||||||||||
| CONDENSED CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS | ||||||||||||||||||
| (UNAUDITED) | ||||||||||||||||||
| (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) | ||||||||||||||||||
THREE MONTHS | TWO MONTHS | THREE MONTHS | THREE MONTHS | |||||||||||||||
| Predecessor | Predecessor | |||||||||||||||||
| Company (1) | Combined | Company (1) | Combined | |||||||||||||||
| June 30, 2010 | May 28, 2010 | June 30, 2010 | June 30, 2009 | June 30, 2009 | June 30, 2009 | |||||||||||||
| Revenue | ||||||||||||||||||
| Domestic sales | $ | 4,036 | $ | 5,932 | $ | 9,968 | $ | – | $ | 7,815 | $ | 7,815 | ||||||
| International sales | 3,708 | 5,354 | 9,062 | – | 7,404 | 7,404 | ||||||||||||
| Total revenue | 7,744 | 11,286 | 19,030 | – | 15,219 | 15,219 | ||||||||||||
| Cost of goods sold | 5,936 | 6,628 | 12,564 | – | 9,996 | 9,996 | ||||||||||||
| Gross profit | 1,808 | 4,658 | 6,466 | – | 5,223 | 5,223 | ||||||||||||
| Operating expenses | ||||||||||||||||||
| Selling, general and administrative | 7,331 | 4,823 | 12,154 | 1,118 | 5,825 | 6,943 | ||||||||||||
| Restructuring charge | 1,377 | – | 1,377 | – | – | – | ||||||||||||
| Merger and integration | 780 | – | 780 | – | – | – | ||||||||||||
| Transaction costs | 3,253 | – | 3,253 | – | – | – | ||||||||||||
| Total operating expenses | 12,741 | 4,823 | 17,564 | 1,118 | 5,825 | 6,943 | ||||||||||||
| Operating income (loss) | (10,933 | ) | (165 | ) | (11,098 | ) | (1,118 | ) | (602 | ) | (1,720 | ) | ||||||
| Other income (expense) | ||||||||||||||||||
| Interest expense | (336 | ) | (59 | ) | (395 | ) | – | (164 | ||||||||||
