Clarus Corp., parent of Black Diamond Equipment and Gregory Mountain Products, reported consolidated sales for the third quarter of 2010 grew 9.7% versus pro forma sales of $30.9 million. Pro-forma sales include the combined results plus the results of Gregory from July 1, 2009 to Sept. 30, 2009. The company posted a loss in the latest period.
Consolidated sales in the third quarter of 2010 were $33.9 million compared to combined sales of $25.6 million and pro forma sales of $30.9 million during the three months ended Sept. 30, 2009. Combined sales for the three months ended Sept. 30, 2009 represent the results of the company and the predecessor for the three months ended Sept. 30, 2009 but do not include the operating results of Gregory. Pro forma sales include Gregory for the prior period.
Consolidated gross profit and gross profit margins for the third quarter of 2010 were $9.5 million and 28.1%, respectively. Consolidated gross profit includes a $3.2 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 $3.2 million fair value adjustment, consolidated adjusted gross margin for the three month period ending Sept. 30, 2010, would have been 37.4%.
Consolidated adjusted gross profit and adjusted gross margin for the third quarter of 2010, excluding the $3.2 million increase in cost of goods sold due to the increase in inventory value would have been $12.7 million and 37.4% compared to pro forma adjusted gross profit and adjusted gross margins, which include the results of Gregory, of $11.8 million and 38.3% in the same period in 2009.
Consolidated net loss, as reported in the third quarter of 2010 was a loss of $(3.3) million, or $(0.15) per share. Excluding non-cash items of $4.3 million, consolidated net income before non-cash items was income of $1.0 million, or $0.05 per diluted share. Excluding transaction, restructuring, and merger and integration costs relating to the Acquisitions of $1.1 million, net of related taxes, consolidated adjusted net income before non-cash items was income of $2.1 million, or $0.10 per diluted share. Included in this press release is a reconciliation of net income to net income before non-cash items, adjusted net income before non-cash items and related earnings per share for the consolidated three month period ended Sept. 30, 2010 and for the combined three month period ended Sept. 30, 2009.
Peter Metcalf, chief executive officer, commented, “It is particularly gratifying to see revenue growth and solid gross margins in our first three months of consolidated operations. Keep in mind that management from each of Black Diamond, Clarus and Gregory invested more than six months of material effort evaluating, planning and consummating this unique combination of assets and people. The integration and reorganization is proceeding according to plan and we anticipate that most of the transaction, restructuring and transition costs are now behind us.”
Nine Month Results
Combined sales for the nine months ended Sept. 30, 2010 were $76.6 million compared to $61.6 million during the nine months ended Sept. 30, 2009. Combined results include the results of the company and the Predecessor for the nine months ended Sept. 30, 2010 and Sept. 30, 2009, but do not include the results of Gregory, prior to the closing date of the Acquisition on May 28, 2010.
Pro forma sales for the nine months ended Sept. 30, 2010, which include Gregory were $90.8 million, an increase of 8.9% versus pro forma sales of $83.4 million in the same period in 2009.
Combined gross profit and gross profit margins for the nine months ended Sept. 30, 2010 were $25.1 million and 32.8%, respectively. Gross profit includes a $4.3 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 $4.3 million fair value adjustment, combined gross margin for the nine month period ending Sept. 30, 2010, would have been 38.4%.
Pro forma adjusted gross profit and adjusted gross margins for the nine months ending Sept. 30, 2010, which include Gregory and exclude the $4.3 million increase in cost of goods sold due to the increase in inventory value, would have been $35.2 million and 38.8% compared to $31.9 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 nine months ended Sept. 30, 2010 was $51.6 million, or $2.67 per diluted share. Excluding non-cash items of $(59.9) million, combined net income before non-cash items was a loss of $(5.9) million, or $(0.31) per share. Excluding transaction, restructuring, and merger and integration costs relating to the acquisitions of $7.5 million, net of related taxes, combined adjusted net income before non-cash items was income of $1.6 million, or $0.08 per diluted share.
Balance Sheet
Cash at Sept. 30, 2010, totaled $1.6 million.
Total long-term debt including the current portion of long term debt was $32.9 million at Sept. 30, 2010, which included $19.2 million outstanding on our $35.0 million line of credit, and a discounted value of $13.4 million on our 5% subordinated notes, as well as $0.3 million in capital leases and other debt. The face value of the 5% subordinated notes is $22.1 million. The increase in our line of credit is due to our seasonal working capital increases. The company historically experiences increases in accounts receivable and inventory during the third quarter, as it enters into the fall and winter seasons.
As of Sept. 30, 2010, the company recorded net deferred tax assets of approximately $71.0 million – not including deferred tax liabilities. After considering deferred tax liabilities of $20.7 million related to the step up in fair value of our assets from purchase accounting in excess of the asset tax basis, our net deferred tax assets totaled $50.3 million at Sept. 30, 2010.
Stockholders' equity was $162.3 million or approximately $7.48 per share based on 21.7 million shares of common stock outstanding as of Sept. 30, 2010.
Free Cash Flows
Combined results include the results of the company and the Predecessor for the nine months ended Sept. 30, 2010 and Sept. 30, 2009, but do not include the results of Gregory prior to the closing date of the Acquisition on May 28, 2010. Combined net cash (used in) provided by operating activities was $(13.2) million during the nine months ended Sept. 30, 2010, compared to combined net cash (used in) provided by operating activities of $(4.0) million during the nine months ended Sept. 30, 2009. The increase in cash used is largely due to $5.1 million of transaction costs, the increase in inventory sold of $4.3 million due to the step up in fair value in purchase accounting, $1.0 million in transition costs, $1.1 million in lease indemnity payments and $0.9 million in merger and integration charges related to the Acquisitions. Excluding these items, the net cash (used in) provided by operating activities would have been $(0.8) million for the nine month period ending Sept. 30, 2010. Historically in the fourth quarter of each year, the company experiences a decrease in account receivable and inventory levels and generates positive cash flows provided by its operating activities.
Combined capital expenditures were $1.6 million during the nine months ended Sept. 30, 2010, compared to $2.6 during the nine months ended Sept. 30, 2009. The decrease in capital expenditures of $1.0 million 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 $(14.8) million during the nine months ended Sept. 30, 2010, compared to $(6.6) million during the nine months ended Sept. 30, 2009. Excluding $5.1 million of transaction costs, $4.3 million in step up value of inventory sold, $1.0 million in transition costs, $1.1 million in lease indemnity payments, and $0.9 million in merger and integration charges related to the Acquisitions, free cash flows used would have been $(2.4) million during the nine months ended Sept. 30, 2010, compared to $(6.6) million during the nine month period ended Sept. 30, 2009. Included in this press release is a reconciliation of combined net cash (used in) provided by operating activities, adjusted net cash (used in) provided by operating activities, and adjusted free cash flows used during the nine months ended Sept. 30, 2010 and Sept. 30, 2009.
Forward-Looking Guidance
For the full fiscal year, ending December 31, 2010, the company expects pro forma sales to range between $120 million and $125 million. The company also expects the costs associated with the Acquisitions to decrease substantially and to be complete early in the first quarter of 2011.
Net Operating Loss
The company estimates that it has available net operating loss carryforwards for U.S. federal income tax purposes of approximately $242.0 million, after application of the limitation under Section 382 of the Internal Revenue Code. The company's 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 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.
| CLARUS CORPORATION | ||||||||||||||||
| CONDENSED CONSOLIDATED COMBINED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (UNAUDITED) | ||||||||||||||||
| (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) | ||||||||||||||||
| THREE MONTHS | THREE MONTHS | |||||||||||||||
| ENDED | ENDED | |||||||||||||||
| Predecessor | ||||||||||||||||
| Consolidated | Company (Note 1) | Combined | ||||||||||||||
| September 30, 2010 | September 30, 2009 | September 30, 2009 | September 30, 2009 | |||||||||||||
| Sales | ||||||||||||||||
| Domestic sales | $ | 14,056 | $ | – | $ | 10,956 | $ | 10,956 | ||||||||
| International sales | 19,890 | – | 14,599 | 14,599 | ||||||||||||
| Total sales | 33,946 | – | 25,555 | 25,555 | ||||||||||||
| Cost of goods sold | 24,411 | – | 15,597 | 15,597 | ||||||||||||
| Gross profit | 9,535 | – | 9,958 | 9,958 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative | 10,764 | 874 | 6,539 | 7,413 | ||||||||||||
| Restructuring charge | 772 | – | – | – | ||||||||||||
| Merger and integration | 88 | – | – | – | ||||||||||||
| Transaction costs | 313 | 32 | – | 32 | ||||||||||||
| Total operating expenses | 11,937 | 906 | 6,539 | 7,445 | ||||||||||||
| Operating income (loss) | (2,402) | (906) | 3,419 | 2,513 | ||||||||||||
