Business context and reporting period
The filing is a Form 10-Q for the quarter ended June 30, 2012, filed by Black Diamond, Inc., an outdoor-products company whose brands included Black Diamond and Gregory. The request identifies Clarus Corp, but the filing itself names Black Diamond, Inc. as the registrant. Amounts below are in thousands of dollars except per-share data.
Financial performance and position
| Metric | Three months ended June 30, 2012 | Six months ended June 30, 2012 |
|---|---|---|
| Sales | $31,915; +12.6% year over year | $78,334; +16.2% |
| Gross profit / margin | $12,466 / 39.1% | $31,082 / 39.7% |
| Operating income (loss) | $(1,991) | $2,738 |
| Net income (loss) | $(1,908), or $(0.06) per diluted share | $682, or $0.02 per diluted share |
| Operating cash flow | Not separately reported for the quarter | $1,669, versus $8 in 2011 |
For the six-month period, investing cash flow was $(2,755), including $2,755 of capital expenditures; financing cash flow was $42,152. Free cash flow, defined by the company as operating cash flow less capital expenditures, was $(1,086), compared with $(2,117) in 2011.
At June 30, cash was $43,423, versus $2,400 at year-end 2011; current assets were $121,033 and current liabilities $16,338. Total debt was $17,713, including $2,153 outstanding on the revolver and $15,468 of 5% subordinated notes; total liabilities were $35,112. The company reported compliance with debt covenants. The $35,000 revolver matures July 2, 2013; the filing reports $32,847 of capacity before $324 of letters of credit.
Changes versus the prior comparable period
- Second-quarter sales increased $3,577, with domestic sales up 20.5% and international sales up 6.0%. Management attributed growth primarily to higher volumes of new and existing climbing and mountain products; currency weakness reduced sales by $1,144.
- Second-quarter gross margin was broadly stable, up to 39.1% from 38.9%. Despite higher gross profit, the operating loss widened to $1,991 from $896, principally with higher SG&A and $1,138 of transaction costs.
- First-half gross margin improved to 39.7% from 38.7%, which management attributed to product and distribution-channel mix. First-half operating income rose to $2,738 from $1,072 and net income to $682 from $357.
- The company completed a public offering of 8,913 shares in February at $7.50 per share, generating approximately $63,400 before expenses. It used proceeds in part to repay the revolver; financing cash flows also included $20,857 of net debt repayments. Cash and equity increased substantially, while weighted-average shares rose.
Outlook, risks, and unusual items
Management said existing cash, operating cash flow, and the revolver should cover liquidity needs for at least the next 12 months. No specific revenue or earnings guidance was provided. Management cited investment in strategic initiatives and infrastructure to support current and anticipated growth.
On July 2, 2012, after quarter-end, the company acquired POC Sweden AB for consideration valued at approximately $44,900: about $40,600 in cash and approximately 460 shares. It also committed an estimated $12,500 in long-term, performance-based management incentives. These amounts were not reflected in the June 30 balance sheet. First-half transaction costs of $1,250 were primarily related to the POC acquisition.
Disclosed risks include consumer demand and economic conditions, acquisition integration and growth, foreign exchange exposure, suppliers and manufacturing stability, raw-material availability and costs, intellectual-property protection, and use of tax-loss carryforwards. The company uses currency derivatives to hedge forecast foreign-currency sales. It reported no material change in previously disclosed market risks or risk factors. It said ordinary-course legal matters were not expected, based on information then available, to materially affect results; no material product-liability claims were pending.
Important facts for investors to verify
- Confirm the registrant identity: this filing is for Black Diamond, Inc., notwithstanding the request’s Clarus Corp label.
- Review the POC acquisition’s final purchase accounting, cash impact, stock dilution, and performance-incentive obligations.
- Assess whether operating cash generation can support growth, capital spending, and debt obligations after the acquisition.
- Monitor inventory, which rose to $53,039 from $47,137, and the effect of currency changes on international sales and margins.
- Evaluate tax expense and the realizability and limitations of the company’s substantial tax-loss carryforwards.
- Consider related-party subordinated notes: the filing describes 5% notes payable to entities associated with directors and reports interest paid to those entities.