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BDE > SEC Filings for BDE > Form 10-Q on 5-Nov-2013All Recent SEC Filings

Show all filings for BLACK DIAMOND, INC.

Form 10-Q for BLACK DIAMOND, INC.


5-Nov-2013

Quarterly Report


MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Please note that in this Quarterly Report on Form 10-Q we may use words such as "appears," "anticipates," "believes," "plans," "expects," "intends," "future," and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, the overall level of consumer spending on our products; general economic conditions and other factors affecting consumer confidence; disruption and volatility in the global capital and credit markets; the financial strength of the Company's customers; the Company's ability to implement its growth strategy; the Company's ability to successfully integrate and grow acquisitions; the Company's exposure to product liability of product warranty claims and other loss contingencies; stability of the Company's manufacturing facilities and foreign suppliers; the Company's ability to protect trademarks and other intellectual property rights; fluctuations in the price, availability and quality of raw materials and contracted products; foreign currency fluctuations; our ability to utilize our net operating loss carryforwards; and legal, regulatory, political and economic risks in international markets. More information on potential factors that could affect the Company's financial results is included from time to time in the Company's public reports filed with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to the Company as of the date of this Quarterly Report on Form 10-Q, and speak only as the date hereof. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

Overview

Black Diamond, Inc. (which may be referred to as "Black Diamond," "Company," "we," "our," or "us,") is a global leader in designing, manufacturing, and marketing innovative active outdoor performance products for climbing, mountaineering, backpacking, skiing, cycling, and a wide range of other year round outdoor recreation activities. Our principal brands include Black Diamond®, Gregory™, POC™, and PIEPS™ and are targeted not only to the demanding requirements of core climbers, skiers and cyclists, but also to the more general outdoor performance enthusiasts, and consumers interested in outdoor-inspired gear for their urban activities. Our Black Diamond®, Gregory™, POC™ and PIEPS™ brands are iconic in the active outdoor industry and linked intrinsically with the modern history of the sports we serve. We believe our brands are synonymous with the performance, innovation, durability, and safety that the outdoor and action sports communities rely on and embrace in their active lifestyle.

We offer a broad range of products including: high performance apparel (such as jackets, shells, pants and bibs) rock-climbing equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; travel luggage; lifestyle packs; tents; trekking poles; headlamps and lanterns; and gloves and mittens. We also offer advanced design helmets, body armor, and goggles for skiing, mountain and road cycling, eyewear, skis, ski poles, ski bindings, ski boots, ski skins, and ski safety products, including avalanche transceivers, shovels, and probes.

In July 2012, we acquired POC Sweden AB and its subsidiaries (collectively, "POC") and, in October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, "PIEPS").

Critical Accounting Policies and Use of Estimates

Management's discussion of financial condition and results of operations is based on the consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates and assumptions including those related to derivatives, revenue recognition, income taxes, and valuation of long-lived assets, goodwill, and other intangible assets. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

There have been no significant changes to our critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2012.

Recent Accounting Pronouncements

See "Recent Accounting Pronouncements" in Note 1 to the notes to the unaudited condensed consolidated financial statements.

Results of Operations



Consolidated Three Months Ended September 30, 2013 Compared to Consolidated
Three Months Ended September 30, 2012



The following presents a discussion of consolidated operations for the three
months ended September 30, 2013, compared with the consolidated three months
ended September 30, 2012.



                                                   Three Months Ended
                                      September 30, 2013       September 30, 2012

Sales
Domestic sales                        $            19,811     $             19,128
International sales                                32,965                   29,614
Total sales                                        52,776                   48,742

Cost of goods sold                                 33,106                   30,283
Gross profit                                       19,670                   18,459

Operating expenses
Selling, general and administrative                20,970                   16,347
Restructuring charge                                    -                       86
Merger and integration                                190                       76
Transaction costs                                       -                      415

Total operating expenses                           21,160                   16,924

Operating (loss) income                            (1,490 )                  1,535

Other (expense) income
Interest expense, net                                (939 )                   (713 )
Other, net                                            309                      521

Total other expense, net                             (630 )                   (192 )

(Loss) income before income tax                    (2,120 )                  1,343
Income tax (benefit) expense                         (814 )                    617
Net (loss) income                     $            (1,306 )   $                726

Sales

Consolidated sales increased $4,034, or 8.3%, to $52,776 during the three months ended September 30, 2013 compared to consolidated sales of $48,742 during the three months ended September 30, 2012. The increase in sales was primarily attributable to the addition of apparel sold by Black Diamond Equipment and an increase in Gregory's sales in Japan as a result of the transition of the Japanese distribution of Gregory's products from Kabushiki Kaisha A&F ("A&F"), the prior distributor of Gregory's products in Japan, to Gregory. Sales also increased due to the inclusion of PIEPS and an increase in the quantity of POC products sold, partially offset by a shift in fall/winter orders resulting from evolving industry purchasing trends. We also experienced an increase in sales of $125 due to the strengthening of foreign currencies against the U.S. dollar during the three months ended September 30, 2013.

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Consolidated domestic sales increased $683, or 3.6%, to $19,811 during the three months ended September 30, 2013 compared to consolidated domestic sales of $19,128 during the three months ended September 30, 2012. The increase in domestic sales was primarily attributable to the addition of apparel sales by Black Diamond Equipment and an increase in the quantity of POC products sold, partially offset by a shift in fall/winter orders resulting from evolving purchasing trends.

Consolidated international sales increased $3,351, or 11.3%, to $32,965 during the three months ended September 30, 2013 compared to consolidated international sales of $29,614 during the three months ended September 30, 2012. The increase in sales was primarily attributable to the addition of apparel sales by Black Diamond Equipment, and an increase in Gregory's sales in Japan as a result of the transition of the Japanese distribution of Gregory's products from A&F, the prior distributor of Gregory's products in Japan, to Gregory. Sales also increased due to the inclusion of PIEPS and an increase in the quantity of POC products sold. We also experienced an increase in sales of $125 due to the strengthening of foreign currencies against the U.S. dollar during the three months ended September 30, 2013.

Cost of Goods Sold

Consolidated cost of goods sold increased $2,823, or 9.3%, to $33,106 during the three months ended September 30, 2013 compared to consolidated cost of goods sold of $30,283 during the three months ended September 30, 2012. The increase in cost of goods sold was primarily attributable to the impact of the voluntary recall of all of the PIEPS VECTOR avalanche transceivers of $1,541 as well as an increase in sales.

Gross Profit

Consolidated gross profit increased $1,211, or 6.6%, to $19,670 during the three months ended September 30, 2013 compared to consolidated gross profit of $18,459 during the three months ended September 30, 2012. Consolidated gross margin was 37.3% during the three months ended September 30, 2013 compared to a consolidated gross margin of 37.9% during the three months ended September 30, 2012. Consolidated gross margin during the three months ended September 30, 2013 decreased by 2.9% compared to the prior year due to the impact of the voluntary recall of all of the PIEPS VECTOR avalanche transceivers of $1,541, a higher level of close-out and promotional activity and the strengthening of the U.S. dollar compared to the Japanese yen. These decreases were partially offset by increased gross margins due to favorable product and geographical mix.

Selling, General and Administrative

Consolidated selling, general, and administrative expenses increased $4,623, or 28.3%, to $20,970 during the three months ended September 30, 2013 compared to consolidated selling, general, and administrative expenses of $16,347 during the three months ended September 30, 2012. The increase in selling, general, and administrative expenses was primarily attributable to the inclusion of Black Diamond Japan GK, an increase in stock based compensation expense of $1,357 as a result of the Company issuing fully vested stock option awards, and the Company's investments in its strategic initiatives, such as apparel sold by Black Diamond Equipment, and infrastructure to support both current and anticipated future growth.

Merger and Integration Costs

Consolidated merger and integration expense increased $114, or 150.0%, to $190 during the three months ended September 30, 2013 compared to consolidated merger and integration expense of $76 during the same period in 2012, which consisted of expenses related to the integration of POC and PIEPS. We expect to incur additional merger and integration expenses through the remainder of 2013 related to our ongoing integration of POC and PIEPS.

Transaction Costs

Consolidated transaction expense decreased 100% to $0 during the three months ended September 30, 2013 compared to consolidated transaction expense of $415 during the three months ended September 30, 2012, which consisted primarily of professional fees and expenses related to due diligence and the negotiation and documentation of acquisition related agreements in connection with the Company's acquisition of PIEPS on October 1, 2012.

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Interest Expense, net

Consolidated interest expense increased $226, or 31.7%, to $939 during the three months ended September 30, 2013 compared to consolidated interest expense of $713 during the three months ended September 30, 2012. The increase in interest expense was primarily attributable to higher average outstanding debt amounts during the three months ended September 30, 2013 compared to the same period in 2012 due to the inclusion of PIEPS and Black Diamond Japan, GK.

Other, net

Consolidated other, net, decreased to income of $309 during the three months ended September 30, 2013 compared to a consolidated other, net income of $521 during the three months ended September 30, 2012. The decrease in other, net, was primarily attributable to the losses on mark-to-market adjustments on non-hedged foreign currency contracts offset by remeasurement gains recognized on the Company's foreign denominated accounts receivable and accounts payable.

Income Taxes

Consolidated income tax expense decreased $1,431, or 231.9%, to a benefit of $814 during the three months ended September 30, 2013 compared to consolidated income tax expense of $617 during the same period in 2012. The decrease in tax benefit is primarily due to the decrease in the effective income tax rate recorded during the three months ended September 30, 2012.

Our effective income tax rate was 38.4% for the three months ended September 30, 2013 compared to 45.9% for the same period in 2012. Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur in various quarters. There were no meaningful discrete events recorded in the Company's effective income tax rate calculation for the three months ended September 30, 2013.

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Consolidated Nine Months Ended September 30, 2013 Compared to Consolidated Nine
Months Ended September 30, 2012



The following presents a discussion of consolidated operations for the nine
months ended September 30, 2013, compared with the consolidated nine months
ended September 30, 2012.



                                                    Nine Months Ended
                                       September 30, 2013       September 30, 2012

Sales
Domestic sales                        $             55,406     $             53,569
International sales                                 87,225                   73,507
Total sales                                        142,631                  127,076

Cost of goods sold                                  88,091                   77,535
Gross profit                                        54,540                   49,541

Operating expenses
Selling, general and administrative                 59,901                   43,441
Restructuring charge                                   175                       86
Merger and integration                                 416                       76
Transaction costs                                       54                    1,665

Total operating expenses                            60,546                   45,268

Operating (loss) income                             (6,006 )                  4,273

Other (expense) income
Interest expense, net                               (2,599 )                 (2,025 )
Other, net                                             217                      616

Total other expense, net                            (2,382 )                 (1,409 )

(Loss) income before income tax                     (8,388 )                  2,864
Income tax (benefit) expense                        (1,782 )                  1,456
Net (loss) income                     $             (6,606 )   $              1,408

Sales

Consolidated sales increased $15,555, or 12.2%, to $142,631 during the nine months ended September 30, 2013 compared to consolidated sales of $127,076 during the nine months ended September 30, 2012. The increase in sales was primarily attributable to the inclusion of POC and PIEPS, the addition of apparel sales by Black Diamond Equipment and an increase in Gregory's sales in Japan as a result of the transition of the Japanese distribution of Gregory's products from A&F, the prior distributor of Gregory's products in Japan, to Gregory. Sales also increased due to an increase in the quantity and average sales price of new and existing mountain and climb products sold during the period, partially offset by reduced orders resulting from an extended late winter season, a cool wet spring, as well as evolving industry purchasing trends. We also experienced a decrease in sales of $203 due to the weakening of foreign currencies against the U.S. dollar during the nine months ended September 30, 2013.

Consolidated domestic sales increased $1,837, or 3.4%, to $55,406 during the nine months ended September 30, 2013 compared to consolidated domestic sales of $53,569 during the nine months ended September 30, 2012. The increase in domestic sales was primarily attributable to the inclusion of POC and the addition of apparel sales by Black Diamond Equipment, partially offset by reduced orders resulting from an extended late winter season, a cool wet spring, as well as evolving industry purchasing trends.

Consolidated international sales increased $13,718, or 18.7%, to $87,225 during the nine months ended September 30, 2013 compared to consolidated international sales of $73,507 during the nine months ended September 30, 2012. The increase in international sales was primarily attributable to the inclusion of POC and PIEPS, the addition of apparel sales by Black Diamond Equipment, and an increase in Gregory's sales in Japan as a result of the transition of the Japanese distribution of Gregory's products from A&F, the prior distributor of Gregory's products in Japan, to Gregory. We also experienced a decrease in sales of $203 due to the weakening of foreign currencies against the U.S. dollar during the nine months ended September 30, 2013.

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Cost of Goods Sold

Consolidated cost of goods sold increased $10,556, or 13.6%, to $88,091 during the nine months ended September 30, 2013 compared to consolidated cost of goods sold of $77,535 during the nine months ended September 30, 2012. The increase in cost of goods sold was primarily attributable to an increase in sales both organically and from the inclusion of POC and PIEPS as well as the impact of the voluntary recall of all of the PIEPS VECTOR avalanche transceivers of $1,541.

Gross Profit

Consolidated gross profit increased $4,999 or 10.1%, to $54,540 during the nine months ended September 30, 2013 compared to consolidated gross profit of $49,541 during the nine months ended September 30, 2012. Consolidated gross margin was 38.2% during the nine months ended September 30, 2013 compared to a consolidated gross margin of 39.0% during the nine months ended September 30, 2012. Consolidated gross margin during the nine months ended September 30, 2013 decreased by 1.1% compared to the prior year due to the impact of the voluntary recall of all of the PIEPS VECTOR avalanche transceivers of $1,541. An unfavorable product mix in lower margin products and a higher level of close-out and promotional activity also contributed to the decrease in consolidated gross margin for the nine months ended September 30, 3013 compared to the nine months ended September 30, 2012. The strengthening of the US dollar compared to the Japanese yen also had a negative impact on both sales and gross margin.

Selling, General and Administrative

Consolidated selling, general, and administrative expenses increased $16,460, or 37.9%, to $59,901 during the nine months ended September 30, 2013 compared to consolidated selling, general, and administrative expenses of $43,441 during the nine months ended September 30, 2012. The increase in selling, general, and administrative expenses was primarily attributable to the inclusion of POC, PIEPS, Black Diamond Japan GK, an increase in stock based compensation expense of $1,357 as a result of the Company issuing fully vested stock option awards and the Company's investments in its strategic initiatives, such as apparel sold by Black Diamond Equipment, and infrastructure to support both current and anticipated future growth.

Restructuring Charges

Consolidated restructuring expense increased $89, or 103.5%, to $175 during the nine months ended September 30, 2013 compared to consolidated restructuring expense of $86 during the nine months ended September 30, 2012. The restructuring expenses incurred during the nine months ended September 30, 2013 relate to the relocation of POC's Portsmouth, NH facility to the Company's U.S. distribution facilities in Salt Lake City, UT.

Merger and Integration Costs

Consolidated merger and integration expense increased $340, or 447.4%, to $416 during the nine months ended September 30, 2013 compared to consolidated merger and integration expense of $76 during the nine months ended September 30, 2012, which consisted of expenses related to the integration of POC and PIEPS. We expect to incur additional merger and integration expenses through the remainder of 2013 related to our ongoing integration of POC and PIEPS.

Transaction Costs

Consolidated transaction expense decreased $1,611, or 96.8%, to $54 during the nine months ended September 30, 2013 compared to consolidated transaction expense of $1,665 during the nine months ended September 30, 2012, which consisted primarily of professional fees and expenses related to due diligence and the negotiation and documentation of acquisition related agreements in connection with the Company's acquisition of POC and PIEPS.

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Interest Expense, net

Consolidated interest expense increased $574, or 28.3%, to $2,599 during the nine months ended September 30, 2013 compared to consolidated interest expense of $2,025 during the nine months ended September 30, 2012. The increase in interest expense was primarily attributable to higher average outstanding debt amounts during the nine months ended September 30, 2013 compared to the same period in 2012.

Other, net

Consolidated other, net, decreased to income of $217 during the nine months ended September 30, 2013 compared to a consolidated other, net income of $616 during the nine months ended September 30, 2012. The decrease in other, net, was primarily attributable to a decrease in remeasurement gains recognized on the Company's foreign denominated accounts receivable and accounts payable and an increase in losses on mark-to-market adjustments on non-hedged foreign currency contracts.

Income Taxes

Consolidated income tax (benefit) expense decreased $3,238, or 222.4%, to a benefit of $1,782 during the nine months ended September 30, 2013 compared to consolidated income tax expense of $1,456 during the same period in 2012. The change from tax expense to a tax benefit is due to a pre-tax loss compared to pre-tax income for the nine months ended September 30, 2012.

Our effective income tax rate was 21.2% for the nine months ended September 30, 2013 compared to 50.8% for the same period in 2012. Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur in various quarters. During the nine months ended September 30, 2013, a benefit of $230 was recorded as a discrete event for the 2012 federal research credit that was retroactively reinstated in 2013.

Liquidity and Capital Resources

Consolidated Nine Months Ended September 30, 2013 Compared to Consolidated Nine Months Ended September 30, 2012

The following presents a discussion of cash flows for the consolidated nine months ended September 30, 2013 compared with the consolidated nine months ended September 30, 2012. Our primary ongoing funding requirements are for working capital, expansion of our operations, and general corporate needs, as well as investing activities associated with targeted, strategic acquisitions and expansion into new product categories. We plan to fund our future expansion of operations and investing activities through a combination of our future operating cash flows, revolving credit facility, and equity offerings. We believe that our liquidity requirements for at least the next 12 months will be adequately covered by existing cash, cash provided by operations, and our existing revolving credit facility. At September 30, 2013, we had total cash of $4,394 compared with a cash balance of $5,111 at December 31, 2012, which was substantially all controlled by the Company's U.S. entities. At September 30, 2013, the Company had $1,385 of the $4,394 in cash held by foreign entities; however, this cash is available for repatriation without significant tax consequence.

                                                                           Nine Months Ended
                                                              September 30, 2013       September 30, 2012

Net cash used in operating activities                        $             (1,898 )   $             (8,492 )
Net cash used in investing activities                                      (3,864 )                (43,732 )
Net cash provided by financing activities                                   5,474                   64,149
Effect of foreign exchange rates on cash                                     (429 )                    (38 )
Change in cash                                                               (717 )                 11,887
Cash, beginning of period                                                   5,111                    2,400
Cash, end of period                                          $              4,394     $             14,287

Net Cash From Operating Activities

Consolidated net cash used in operating activities was $1,898 during the nine months ended September 30, 2013 compared to consolidated net cash used in . . .

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