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Clarus Corp - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended: September 30, 2016

 

or

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _________ to _________

 

Commission File Number: 001-34767

 

BLACK DIAMOND, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 58-1972600

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

   

2084 East 3900 South

Salt Lake City, Utah

84124
(Address of principal executive offices) (Zip code)

 

(801) 278-5552
(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨   Non-accelerated filer ¨
         
Accelerated filer x   Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

As of October 26, 2016, there were 30,015,938 shares of common stock, par value $0.0001, outstanding.

 

 

 

 

INDEX

 

BLACK DIAMOND, INC.

 

    Page
PART I FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited)  
     
  Condensed Consolidated Balance Sheets – September 30, 2016 and December 31, 2015 3
     
  Condensed Consolidated Statements of Comprehensive Loss – Three months ended September 30, 2016 and 2015 4
     
  Condensed Consolidated Statements of Comprehensive Loss – Nine months ended September 30, 2016 and 2015 5
     
  Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 2016 and 2015 6
     
  Notes to Condensed Consolidated Financial Statements – September 30, 2016 7
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 22
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
     
Item 4. Controls and Procedures 33
     
PART II OTHER INFORMATION  
     
Item 1. Legal Proceedings 34
     
Item 1A. Risk Factors 34
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
     
Item 6. Exhibits 36
     
Signature Page 37
   
Exhibit Index 38

  

2 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

BLACK DIAMOND, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

   September 30, 2016   December 31, 2015 
Assets          
Current assets          
Cash  $95,955   $88,401 
Marketable securities   -    9,824 
Accounts receivable, less allowance for doubtful accounts of $390 and $184, respectively   27,298    26,774 
Inventories   45,250    51,496 
Prepaid and other current assets   1,603    3,337 
Income tax receivable   706    749 
Total current assets   170,812    180,581 
           
Property and equipment, net   11,218    10,790 
Other intangible assets, net   10,208    10,934 
Indefinite lived intangible assets   22,729    22,644 
Other long-term assets   386    1,843 
Total assets  $215,353   $226,792 
           
Liabilities and Stockholders' Equity          
Current liabilities          
Accounts payable and accrued liabilities  $20,925   $21,446 
Income tax payable   1,080    - 
Current portion of long-term debt   21,439    - 
Total current liabilities   43,444    21,446 
           
Long-term debt, net   -    20,133 
Deferred income taxes   8,864    8,969 
Other long-term liabilities   388    1,812 
Total liabilities   52,696    52,360 
           
Stockholders' Equity          
Preferred stock, $.0001 par value; 5,000 shares authorized; none issued   -    - 
Common stock, $.0001 par value; 100,000 shares authorized; 32,888 and 32,884 issued and 30,016 and 31,203 outstanding, respectively   3    3 
Additional paid in capital   483,891    483,698 
Accumulated deficit   (308,328)   (300,739)
Treasury stock, at cost   (12,398)   (7,320)
Accumulated other comprehensive loss   (511)   (1,210)
Total stockholders' equity   162,657    174,432 
Total liabilities and stockholders' equity  $215,353   $226,792 

 

See accompanying notes to condensed consolidated financial statements.

 

3 

 

 

BLACK DIAMOND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share amounts)

 

   Three Months Ended 
   September 30, 2016   September 30, 2015 
         
Sales          
Domestic sales  $17,939   $17,185 
International sales   21,502    22,071 
Total sales   39,441    39,256 
           
Cost of goods sold   27,105    25,113 
Gross profit   12,336    14,143 
           
Operating expenses          
Selling, general and administrative   11,483    14,243 
Restructuring charge   282    696 
Transaction costs   -    39 
           
Total operating expenses   11,765    14,978 
           
Operating income (loss)   571    (835)
           
Other (expense) income          
Interest expense, net   (719)   (705)
Other, net   422    696 
           
Total other expense, net   (297)   (9)
           
Income (loss) from continuing operations before income tax   274    (844)
Income tax expense   679    49,958 
Loss from continuing operations   (405)   (50,802)
           
Discontinued operations, net of tax   -    1,107 
           
Net loss   (405)   (49,695)
           
Other comprehensive income (loss), net of tax:          
Unrealized loss on marketable securities   (68)   (439)
Foreign currency translation adjustment   176    (1,063)
Unrealized income (loss) on hedging activities   147    (932)
Other comprehensive income (loss)   255    (2,434)
Comprehensive loss  $(150)  $(52,129)
           
Loss from continuing operations per share:          
Basic  $(0.01)  $(1.55)
Diluted   (0.01)   (1.55)
           
Net loss per share:          
Basic  $(0.01)  $(1.52)
Diluted   (0.01)   (1.52)
           
Weighted average shares outstanding:          
Basic   30,063    32,776 
Diluted   30,063    32,776 

 

See accompanying notes to condensed consolidated financial statements.

 

4 

 

  

BLACK DIAMOND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except per share amounts)

 

   Nine Months Ended 
   September 30, 2016   September 30, 2015 
         
Sales          
Domestic sales  $54,190   $51,992 
International sales   52,600    59,198 
Total sales   106,790    111,190 
           
Cost of goods sold   75,155    71,711 
Gross profit   31,635    39,479 
           
Operating expenses          
Selling, general and administrative   37,311    43,470 
Restructuring charge   1,275    2,572 
Transaction costs   269    446 
Arbitration award   (1,967)   - 
           
Total operating expenses   36,888    46,488 
           
Operating loss   (5,253)   (7,009)
           
Other (expense) income          
Interest expense, net   (2,142)   (2,073)
Other, net   826    346 
           
Total other expense, net   (1,316)   (1,727)
           
Loss from continuing operations before income tax   (6,569)   (8,736)
Income tax expense   1,020    47,651 
Loss from continuing operations   (7,589)   (56,387)
           
Discontinued operations, net of tax   -    (430)
           
Net loss   (7,589)   (56,817)
           
Other comprehensive income (loss), net of tax:          
Unrealized income (loss) on marketable securities   107    (424)
Foreign currency translation adjustment   522    (4,647)
Unrealized income (loss) on hedging activities   70    (821)
Other comprehensive income (loss)   699    (5,892)
Comprehensive loss  $(6,890)  $(62,709)
           
Loss from continuing operations per share:          
Basic  $(0.25)  $(1.72)
Diluted   (0.25)   (1.72)
           
Net loss per share:          
Basic  $(0.25)  $(1.74)
Diluted   (0.25)   (1.74)
           
Weighted average shares outstanding:          
Basic   30,525    32,735 
Diluted   30,525    32,735 

 

See accompanying notes to condensed consolidated financial statements.

 

5 

 

 

BLACK DIAMOND, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   Nine Months Ended 
   September 30, 2016   September 30, 2015 
Cash Flows From Operating Activities:          
Net loss  $(7,589)  $(56,817)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Depreciation of property and equipment   1,705    2,730 
Amortization of intangible assets   808    1,829 
Accretion of notes payable   1,358    1,133 
Gain on sale of marketable securities   (241)   - 
(Gain) loss on disposition of assets   (5)   55 
Loss (gain) from removal of accumulated translation adjustment   126    (606)
Stock-based compensation   193    1,229 
Deferred income taxes   (230)   49,331 
Changes in operating assets and liabilities:          
Accounts receivable   (294)   (678)
Inventories   6,516    (3,674)
Prepaid and other assets   3,307    (669)
Accounts payable and accrued liabilities   (1,121)   (1,519)
Income taxes   1,127    3,158 
Other   (255)   (397)
Net cash provided by (used in) operating activities   5,405    (4,895)
           
Cash Flows From Investing Activities:          
Proceeds from the sales of marketable securities   10,235    - 
Payments related to the sale of POC   (921)   - 
Proceeds from disposition of property and equipment   23    276 
Purchase of property and equipment   (2,036)   (2,314)
Net cash provided by (used in) investing activities   7,301    (2,038)
           
Cash Flows From Financing Activities:          
Net proceeds from (repayments of) revolving credit facilities   -    2,276 
Repayments of long-term debt   -    (21)
Proceeds from issuance of long-term debt   -    44 
Purchase of treasury stock   (5,222)   - 
Proceeds from exercise of stock options   -    264 
Net cash (used in) provided by financing activities   (5,222)   2,563 
           
Effect of foreign exchange rates on cash   70    (136)
           
Change in cash   7,554    (4,506)
Cash, beginning of period   88,401    31,034 
Cash, end of period  $95,955   $26,528 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid (received) for income taxes  $124   $(5,217)
Cash paid for interest  $934   $1,010 
Supplemental Disclosures of Non-Cash Investing and Financing Activities:          
Property and equipment purchased with accounts payable  $99   $280 

 

See accompanying notes to condensed consolidated financial statements.

  

6 

 

 

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited condensed consolidated financial statements of Black Diamond, Inc. and subsidiaries (which may be referred to as the “Company,” “we,” “us” or “our”) as of and for the three and nine months ended September 30, 2016 and 2015, have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments, except otherwise disclosed) necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. The results of the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be obtained for the year ending December 31, 2016. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the Securities and Exchange Commission (the “Commission”).

 

Our condensed consolidated financial statements for the three and nine months ended September 30, 2015 include a correction related to the carryback limitations of net operating losses and tax credits to 2014 in the third quarter of 2015. The effect of the revision was to decrease income tax receivable and reduce other long-term liabilities by $1,801 and $230, as of December 31, 2015, respectively, with an offsetting increase of $1,571 of income tax expense for the three and nine months ended September 30, 2015.  We evaluated these changes and determined that the corrections are not material to the prior periods.

 

On May 28, 2010, we acquired Black Diamond Equipment, Ltd. (which may be referred to as “Black Diamond Equipment”) and Gregory Mountain Products, LLC (which may be referred to as “Gregory Mountain Products”, “Gregory” or “GMP”). On January 20, 2011, the Company changed its name from Clarus Corporation to Black Diamond, Inc. 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”).

 

On July 23, 2014, the Company and Gregory Mountain Products, its wholly-owned subsidiary, completed the sale of certain assets to Samsonite LLC (“Samsonite”) comprising Gregory’s business of designing, manufacturing, marketing, distributing and selling technical, alpine, backpacking, hiking, mountaineering and active trail products and accessories as well as outdoor-inspired lifestyle bags (the “Gregory Business”) pursuant to the terms of that certain Asset Purchase Agreement (the “GMP Purchase Agreement”), dated as of June 18, 2014, by and among the Company, Gregory and Samsonite. Under the terms of the GMP Purchase Agreement, Samsonite paid $84,135 in cash for Gregory’s assets comprising the Gregory Business and assumed certain specified liabilities (the “GMP Sale”).

 

On March 16, 2015, the Company announced that it engaged Rothschild Inc. and Robert W. Baird & Co., Incorporated as financial advisors to lead an exploration of a full range of strategic alternatives, including a sale of the entire Company and the potential sales of the Company’s Black Diamond Equipment (including PIEPS) and POC brands in two separate transactions.

 

On October 7, 2015, the Company and the Company’s wholly owned subsidiary, Ember Scandinavia AB (“Ember”), sold their respective equity interests in POC comprising POC’s business of designing, manufacturing, marketing, distributing and selling advanced-design helmets, body armor, goggles, eyewear, gloves, and apparel for action or “gravity sports,” such as skiing, snowboarding, and cycling pursuant to a Purchase Agreement (the “POC Purchase Agreement”), dated as of October 7, 2015, by and among the Company and Ember, as sellers, and Dainese S.p.A. and Dainese U.S.A., Inc. (collectively “Dainese”), as purchasers. Under the terms of the POC Purchase Agreement, Dainese paid $63,639 in cash for POC (the “POC Disposition”). Furthermore, the activities of POC have been segregated and reported as discontinued operations for all periods presented. See Note 2, below.

 

On October 8, 2015, the Company announced the completion of the POC Disposition resulting in the conclusion of the Company’s review of strategic alternatives.

 

On November 9, 2015, the Company announced that it is seeking to redeploy our significant cash balances to invest in high-quality, durable, cash flow-producing assets potentially unrelated to the outdoor industry in order to diversify our business and potentially monetize our substantial net operating losses as part of our asset redeployment and diversification strategy. We intend to focus our search primarily in the United States, although we will also evaluate international investment opportunities should we find such opportunities attractive.

 

7 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Nature of Business

 

Black Diamond, Inc., through its ownership of Black Diamond Equipment, Ltd., is a global leader in designing, manufacturing and marketing innovative active outdoor performance equipment and apparel for climbing, mountaineering, backpacking, skiing and a wide range of other year-round outdoor recreation activities. Our principal brands include Black Diamond® and PIEPS™ and are targeted not only to the demanding requirements of core climbers, skiers and alpinists, but also to the more general outdoor performance enthusiasts and consumers interested in outdoor-inspired gear for their backcountry and urban activities. Our Black Diamond® and PIEPS™ brands are iconic in the active outdoor and ski industries, and linked intrinsically with the modern history of these sports. 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; tents; trekking poles; headlamps and lanterns; and gloves and mittens. We also offer advanced skis, ski poles, ski bindings, ski skins, and ski safety products, including avalanche airbag systems, avalanche transceivers, shovels and probes.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The more significant estimates relate to derivatives, revenue recognition, income taxes, and valuation of long-lived assets and other intangible assets. Certain costs are estimated for the full year and allocated to interim periods based on estimates of time expired, benefit received, or activity associated with the interim period. 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.

 

Significant Accounting Policies

 

There have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. During the nine months ended September 30, 2016, the Company adopted Accounting Standards Update (“ASU”) ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, ASU 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20), and ASU 2015-03, Simplifying the Presentation of Debt Issuance Cost. There was not a significant impact on the Company’s condensed consolidated statements and related disclosures due to adoption of these standards.

 

Accounting Pronouncements Issued Not Yet Adopted

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted, but not before the original effective date (periods beginning after December 15, 2016). The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its current sales contracts and how revenue will be recognized in its consolidated financial statements and related disclosures. The Company is currently evaluating which transition method it will use to implement the ASU and the effect of the standard on its ongoing financial reporting.

 

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance requires an entity to evaluate whether there are conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the financial statements are available to be issued when applicable) and to provide related footnote disclosures in certain circumstances. The guidance is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. We do not believe the adoption of this guidance will have a significant impact on the Company’s consolidated statements and related disclosures.

 

8 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value for entities that do not measure inventory using the last-in, first-out or retail inventory method. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those years. The ASU requires prospective adoption and permits early adoption. The Company is currently evaluating the impact the adoption of this ASU will have on the Company’s consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued ASU 2016-02, Leases, which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases with terms greater than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The provisions of ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact the adoption of this ASU will have on the Company’s consolidated financial statements and related disclosures.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU changes several aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. The ASU is effective for annual and interim reporting periods beginning after December 15, 2016 with early adoption permitted. The Company is currently evaluating the impact of adoption of this ASU will have on the Company’s consolidated financial statements and related disclosures.

 

In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing. ASU 2016-10 amends the guidance in ASU 2014-09, Revenue from Contracts with Customers, about identifying performance obligations and accounting for licenses of intellectual property. The provisions of ASU 2016-10 are effective on adoption of ASU 2014-09. The Company is evaluating the effect that ASU 2016-10 will have on its consolidated financial statements and related disclosures. The Company has not determined the effect of the standard on its ongoing financial reporting.

 

In May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients. ASU 2016-12 makes narrow-scope amendments to ASU 2014-09, Revenue from Contracts with Customers, and provides practical expedients to simplify the transition to the new standard and to clarify certain aspects of the standard. The provisions of ASU 2016-12 are effective on adoption of ASU 2014-09. The Company is evaluating the effect that ASU 2016-12 will have on its consolidated financial statements and related disclosures. The Company has not determined the effect of the standard on its ongoing financial reporting.

 

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, which clarifies the treatment of several cash flow categories. In addition, ASU 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. The ASU is effective for annual and interim reporting periods beginning after December 15, 2017 with early adoption permitted. We do not believe the adoption of this guidance will have a significant impact on the Company’s consolidated statements and related disclosures.

 

NOTE 2. DISCONTINUED OPERATIONS

 

As discussed above in Note 1, on October 7, 2015, the Company sold POC to Dainese. The Company received $63,639 in cash for the POC Disposition and paid $2,946 in transaction fees for net proceeds of $60,693. $739 of cash was sold as part of the transaction. Also, as of December 31, 2015, there was an unsettled working capital adjustment of $921 owed to Dainese which was paid during the three months ended March 31, 2016. The Company recognized a pre-tax gain on such sale of $8,436. The Company performed certain transition services related to the POC Disposition and received $0 and $324, during the three and nine months ended September 30, 2016, respectively, which was recorded as a reduction of selling, general and administrative expenses in our condensed consolidated financial statements for such periods.

 

9 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Summarized results of discontinued operations for POC are as follows:

 

 

   Three Months Ended   Nine Months Ended 
   September 30, 2016   September 30, 2015   September 30, 2016   September 30, 2015 
                 
Sales  $-   $10,826   $-   $24,234 
Cost of goods sold   -    (5,278)   -    (12,167)
Selling, general and administrative   -    (3,547)   -    (11,606)
Transaction costs   -    (847)   -    (1,428)
Interest expense, net   -    (33)   -    (62)
Other, net   -    29    -    220 
                     
Income (loss) from operations of discontinued operations   -    1,150    -    (809)
Gain on sale of discontinued operations   -    -    -    - 
                     
Income (loss) before taxes   -    1,150    -    (809)
Income tax expense (benefit)   -    43    -    (379)
Income (loss) from discontinued operations, net of tax  $-   $1,107   $-   $(430)

 

Summarized condensed cash flow information for POC discontinued operations are as follows: 

 

   Nine Months Ended 
   September 30, 2016   September 30, 2015 
         
Depreciation of property and equipment   -    414 
Amortization of intangible assets   -    852 
Stock-based compensation   -    201 
Purchase of property and equipment   -    (578)

  

NOTE 3. INVENTORIES

 

Inventories, as of September 30, 2016 and December 31, 2015, were as follows:

 

   September 30, 2016   December 31, 2015 
         
Finished goods  $36,360   $43,117 
Work-in-process   2,036    1,730 
Raw materials and supplies   6,854    6,649 
   $45,250   $51,496 

 

10 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 4. PROPERTY AND EQUIPMENT

 

Property and equipment, net as of September 30, 2016 and December 31, 2015, were as follows: 

 

   September 30, 2016   December 31, 2015 
         
Land  $2,850   $2,850 
Building and improvements   4,169    4,093 
Furniture and fixtures   3,090    3,320 
Computer hardware and software   4,482    4,729 
Machinery and equipment   10,648    9,790 
Construction in progress   703    477 
    25,942    25,259 
Less accumulated depreciation   (14,724)   (14,469)
   $11,218   $10,790 

 

NOTE 5. OTHER INTANGIBLE ASSETS

 

Indefinite Lived Intangible Assets

 

The Company owns certain tradenames and trademarks which provide Black Diamond Equipment and PIEPS with the exclusive and perpetual rights to manufacture and sell their respective products. There was an increase in tradenames and trademarks during the nine months ended September 30, 2016, due to the impact of foreign currency exchange rates. The following table summarizes the changes in indefinite lived intangible assets:

  

Balance at December 31, 2015  $22,644 
      
Impact of foreign currency exchange rates   85 
      
Balance at September 30, 2016  $22,729 

 

Other Intangible Assets, net

 

Intangible assets such as certain customer relationships, core technologies and product technologies are amortizable over their estimated useful lives. There was an increase in gross other intangible assets subject to amortization during the nine months ended September 30, 2016 due to the impact of foreign currency exchange rates. The following table summarizes the changes in gross other intangible assets:

 

Gross balance at December 31, 2015  $17,130 
      
Impact of foreign currency exchange rates   123 
      
Gross balance at September 30, 2016  $17,253 

 

11 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Other intangible assets, net of amortization as of September 30, 2016 and December 31, 2015, were as follows:

 

   September 30, 2016   December 31, 2015 
         
Customer lists and relationships  $14,094   $14,026 
Product technologies   2,212    2,157 
Core technologies   947    947 
    17,253    17,130 
Less accumulated amortization   (7,045)   (6,196)
   $10,208   $10,934 

   

NOTE 6. LONG-TERM DEBT

 

Long-term debt, net as of September 30, 2016 and December 31, 2015, was as follows:

 

   September 30, 2016   December 31, 2015 
         
Revolving credit facilities (a)  $-   $- 
5% Senior Subordinated Notes due 2017 (refer to Note 16)   22,610    22,610 
Term note (b)   108    105 
Unamortized discount   (1,279)   (2,582)
    21,439    20,133 
Less current portion   (21,439)   - 
   $-   $20,133 

 

(a)As of September 30, 2016, the Company had drawn $0 on a $20,000 revolving credit facility with Zions First National Bank with a maturity date of April 1, 2017.

 

(b)The term loan is payable to a government entity with an interest rate of 0.75% and no monthly installments. The note matures in March 2017.

 

NOTE 7. OTHER LONG-TERM LIABILITIES

 

Other long-term liabilities were $388 and $1,812 as of September 30, 2016 and December 31, 2015, respectively, with $273 and $1,689 of the balance as of September 30, 2016 and December 31, 2015, respectively, relating to a pension liability with respect to the benefit plan maintained for the benefit of the Company’s employees in Switzerland. The decrease is primarily due to the termination of employees in Switzerland as part of the move of the Company’s Black Diamond European office from Basel, Switzerland to Innsbruck, Austria. The Company also has an insurance policy whereby any underfunded amounts related to the pension liability are expected to be recoverable. The Company has recorded a receivable of $273 and $1,689 as other long-term assets for the underfunded amount as of September 30, 2016 and December 31, 2015, respectively. The significant assumptions used in accounting for the defined benefit pension plan were as follows:

  

   September 30, 2016   December 31, 2015 
         
Discount rate   1.0%   1.0%
Expected long-term return on plan assets   2.2%   2.2%
Rate of compensation increase   2.0%   2.0%

 

12 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company’s primary exchange rate risk management objective is to mitigate the uncertainty of anticipated cash flows attributable to changes in foreign currency exchange rates. The Company primarily focuses on mitigating changes in cash flows resulting from sales denominated in currencies other than the U.S. dollar. The Company manages this risk primarily by using currency forward and option contracts. If the anticipated transactions are deemed probable, the resulting relationships are formally designated as cash flow hedges. The Company accounts for these contracts as cash flow hedges and tests effectiveness by determining whether changes in the expected cash flow of the derivative offset, within a range, changes in the expected cash flow of the hedged item.

 

At September 30, 2016, the Company’s derivative contracts had a remaining maturity of one and one-half years or less. The counterparty to these transactions had both long-term and short-term investment grade credit ratings. The maximum net exposure of the Company’s credit risk to the counterparty is generally limited to the aggregate unrealized loss of all contracts with that counterparty, which is $115 as of September 30, 2016. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain on all contracts. At September 30, 2016, there was no such exposure to the counterparty. The Company’s derivative counterparty has strong credit ratings and as a result, the Company does not require collateral to facilitate transactions.

 

The Company held the following contracts designated as hedged instruments as of September 30, 2016 and December 31, 2015: 

 

   September 30, 2016
   Notional   Latest
   Amount   Maturity
        
Foreign exchange contracts - Canadian Dollars   14,796   February 2018
Foreign exchange contracts - British Pounds   2,333   February 2018
Foreign exchange contracts - Euros   19,104   February 2018
         
   December 31, 2015
   Notional   Latest
   Amount   Maturity
        
Foreign exchange contracts - Canadian Dollars   1,302   February 2016
Foreign exchange contracts - British Pounds   2,047   February 2017
Foreign exchange contracts - Euros   13,295   February 2017
Foreign exchange contracts - Swiss Francs   17,738   February 2017

  

For contracts that qualify as effective hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive loss and reclassified to sales in the period the underlying hedged transaction is recognized in earnings. Gains (losses) of $(152) and $1,530 were reclassified to sales during the three months ended September 30, 2016 and 2015, respectively, and $(495) and $4,126 were reclassified to sales during the nine months ended September 30, 2016 and 2015, respectively. Gains of $76 and $183 were reclassified to discontinued operations, net of tax, during the three and nine months ended September 30, 2015, respectively.

 

The Company records ineffectiveness of hedged instruments resulting from changes in fair value of the instruments in earnings. Gains (losses) of $34 and $(8) were recorded to Other, net, associated with ineffective hedge instruments during the three and nine months ended September 30, 2016. There were no gains (losses) recorded to Other, net, during the three and nine months ended September 30, 2015.

 

As of December 31, 2015, the Company reported an accumulated derivative instrument loss of $68. During the nine months ended September 30, 2016, the Company reported accumulated other comprehensive income of $70, as a result of the change in fair value of these contracts and reclassifications to sales and other income as discussed above, resulting in an accumulated derivative instrument income of $2 reported as of September 30, 2016.

 

13 

 

 

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

The following table presents the balance sheet classification and fair value of derivative instruments as of September 30, 2016 and December 31, 2015:

 

   Classification  September 30, 2016   December 31, 2015 
            
Derivative instruments in asset positions:             
Forward exchange contracts  Prepaid and other current assets  $64   $893 
Forward exchange contracts  Other long-term assets  $71   $12 
              
Derivative instruments in liability positions:             
Forward exchange contracts  Accounts payable and accrued liabilities  $234   $- 
Forward exchange contracts  Other long-term liabilities  $16   $25 

  

NOTE 9. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

 

Accumulated other comprehensive (loss) income (“AOCI”) primarily consists of unrealized losses in our marketable securities, foreign currency translation adjustments and changes in our forward foreign exchange contracts. The components of AOCI, net of tax, were as follows:

 

   Unrealized Gains
(Losses) on
Marketable Securities
   Foreign Currency
Translation
Adjustments
   Unrealized Gains
(Losses) on Cash
Flow Hedges
   Total 
                 
Balance as of December 31, 2015  $(107)  $(1,035)  $(68)  $(1,210)
Other comprehensive income (loss) before reclassifications   308    396    (467)   237 
Amounts reclassified from other comprehensive income   (201)   126    537    462 
Net current period other comprehensive income   107    522    70    699 
Balance as of September 30, 2016  $-   $(513)  $2   $(511)

 

14 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

The effects on net loss of amounts reclassified from unrealized gains (losses) on cash flow hedges for foreign exchange contracts and foreign currency translation adjustments for the three and nine months ended September 30, 2016, were as follows:

 

   Gains (losses) reclassified from AOCI to the Consolidated
Statement of Comprehensive Loss
 
Affected line item in the Condensed Consolidated
Statement of Comprehensive Loss
  For the Three Months Ended
September 30, 2016
   For the Nine Months Ended
September 30, 2016
 
Foreign exchange contracts:          
Sales  $(152)  $(495)
Other, net   -    (42)
Amount reclassified, net of tax  $(152)  $(537)
           
Foreign currency translation adjustments:          
Other, net  $(31)  $(126)
           
Marketable securities:          
Other, net  $201   $201 
           
Total reclassifications from AOCI  $18   $(462)

 

The Company’s policy is to classify reclassifications of cumulative foreign currency translation from AOCI to Other, net.

 

NOTE 10. FAIR VALUE MEASUREMENTS

 

We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

 

Level 1-inputs to the valuation methodology are quoted market prices for identical assets or liabilities in active markets.

 

Level 2-inputs to the valuation methodology include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

 

Level 3-inputs to the valuation methodology are based on prices or valuation techniques that are unobservable.

 

Assets and liabilities measured at fair value on a recurring basis at September 30, 2016 and December 31, 2015 were as follows:

 

15 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

   September 30, 2016 
   Level 1   Level 2   Level 3   Total 
                 
Assets                    
Forward exchange contracts   -    135    -    135 
   $-   $135   $-   $135 
                     
Liabilities                    
Forward exchange contracts  $-   $250   $-   $250 
   $-   $250   $-   $250 
                     
   December 31, 2015 
   Level 1   Level 2   Level 3   Total 
                 
Assets                    
Marketable securities  $9,824   $-   $-   $9,824 
Forward exchange contracts   -    905    -    905 
   $9,824   $905   $-   $10,729 
                     
Liabilities                    
Forward exchange contracts  $-   $25   $-   $25 
   $-   $25   $-   $25 

 

The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values due to the short-term nature and liquidity of these financial instruments. Marketable securities are recorded at fair value based on quoted market prices. Derivative financial instruments are recorded at fair value based on current market pricing models. The Company estimates that, based on current market conditions, the fair value of its debt obligations under its revolving credit facility and senior subordinated notes payable approximate the carrying values at September 30, 2016 and December 31, 2015.

 

Nonrecurring Fair Value Measurements

 

There were no assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2016. Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2015 were as follows:

 

   December 31, 2015 
   Level 1   Level 2   Level 3   Total   Total Losses 
                          
Goodwill  $-   $-   $-   $-   $29,507 

 

The Company has certain assets that are measured at fair value on a nonrecurring basis when impairment indicators are present.  The categorization of the framework used to estimate the fair value of the assets is considered a Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.  The assets are adjusted to fair value only when the carrying values exceed the fair values.  Based on the results of the Company’s annual impairment tests completed during the year ended December 31, 2015, the Company determined that goodwill was impaired. As a result, we recognized impairment charges during the year ended December 31, 2015.

 

16 

 

   

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 11. EARNINGS (LOSS) PER SHARE

 

Basic earnings (loss) per share is computed by dividing earnings (loss) by the weighted average number of common shares outstanding during each period. Diluted earnings (loss) per share is computed by dividing earnings (loss) by the total of the weighted average number of shares of common stock outstanding during each period, plus the effect of dilutive outstanding stock options and unvested restricted stock grants. Potentially dilutive securities are excluded from the computation of diluted earnings per share if their effect is anti-dilutive to loss from continuing operations.

 

The following table is a reconciliation of basic and diluted shares of common stock outstanding used in the calculation of earnings per share:

 

   Three Months Ended   Nine Months Ended 
   September 30, 2016   September 30, 2015   September 30, 2016   September 30, 2015 
                 
Weighted average shares outstanding - basic   30,063    32,776    30,525    32,735 
Effect of dilutive stock awards   -    -    -    - 
Weighted average shares outstanding - diluted   30,063    32,776    30,525    32,735 
                     
Loss from continuing operations per share:                    
Basic  $(0.01)  $(1.55)  $(0.25)  $(1.72)
Diluted   (0.01)   (1.55)   (0.25)   (1.72)
                     
Loss from discontinued operations per share:                    
Basic  $-   $0.03   $-   $(0.02)
Diluted   -    0.03    -    (0.02)
                     
Net loss per share:                    
Basic  $(0.01)  $(1.52)  $(0.25)  $(1.74)
Diluted   (0.01)   (1.52)   (0.25)   (1.74)

  

For the three months ended September 30, 2016 and 2015, equity awards of 2,517 and 2,995, respectively, and for the nine months ended September 30, 2016 and 2015, equity awards of 2,491 and 3,241, respectively, were outstanding and anti-dilutive and therefore not included in the calculation of loss per share for these periods.

 

NOTE 12. STOCK-BASED COMPENSATION PLAN

 

Under the Company’s current 2015 Stock Incentive Plan (the “2015 Plan”) and the previous 2005 Stock Incentive Plan (the “2005 Plan”), the Company’s Board of Directors (the “Board of Directors”) had flexibility to determine the type and amount of awards to be granted to eligible participants, who must be employees, directors, officers or consultants of the Company or its subsidiaries. The 2015 Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and restricted units. The aggregate number of shares of common stock that may be granted through awards under the 2015 Plan to any employee in any calendar year may not exceed 500 shares. The 2005 Plan continued in effect until June 2015 when it expired in accordance with its terms. The 2015 Plan will continue in effect until December 2025 unless terminated sooner. 

 

During the nine months ended September 30, 2016, the Company issued stock options for an aggregate of 163 shares under the 2015 Plan to directors and employees of the Company. Of the 163 options issued, 38 options vest in four equal consecutive quarterly tranches from the date of grant. The remaining 125 options will vest in three installments as follows: 42 options shall vest on June 30, 2017, and the remaining options shall vest equally on June 30, 2018 and June 30, 2019.

 

17 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

For computing the fair value of the stock-based awards, the fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions:

 

Options Granted During the Nine Months Ended September 30, 2016    
     
Number of options   163
Option vesting period   1-3 Years
Grant price   $4.38 - $4.39
Dividend yield   0.00%
Expected volatility (a)   43.0% - 44.6%
Risk-free interest rate   1.14% - 1.23%
Expected life (years) (b)   5.31 - 6.00
Weighted average fair value   $1.81 - $1.85
     
(a)Expected volatility is based upon the Company’s historical volatility.

 

(b)Because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for these grants, the Company utilized the simplified method in developing an estimate of the expected term of these options.

 

On July 1, 2016, the Company issued and granted to an employee a restricted stock award of 100 restricted shares under the 2015 Plan, which will vest if, on or before July 1, 2020, the Fair Market Value (as defined in the Plan) of the Company’s common stock shall have equaled or exceeded $15.00 per share for twenty consecutive trading days. For computing the fair value of the 100 restricted shares with a market condition, the fair value of each restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below.

 

Market Condition Restricted Shares Granted on July 1, 2016

 

Number issued   100
Vesting period   $15.00 stock price target
Grant price   $4.38
Dividend yield   0.0%
Expected volatility   44.1%
Risk-free interest rate   0.86%
Expected term (years)   2.43
Weighted average fair value   $1.05

 

The total non-cash stock compensation expense for continuing operations related to restricted stock, stock options and stock awards recorded by the Company for the three months ended September 30, 2016 and 2015 was $42 and $126, respectively, and for the nine months ended September 30, 2016 and 2015 was $193 and $1,028, respectively. For the three and nine months ended September 30, 2016 and 2015, the majority of stock-based compensation costs were classified as selling, general and administrative expense. The fair value of unvested restricted stock awards is determined based on the market price of our shares of common stock on the grant date or using the Monte-Carlo pricing model. As of September 30, 2016, there were 350 unvested stock options and unrecognized compensation cost of $755 related to unvested stock options, as well as 390 unvested restricted stock awards and unrecognized compensation cost of $126 related to unvested restricted stock awards. As of September 30, 2016, the Company has unvested restricted stock awards which vest based upon satisfaction of a performance condition. Achievement of the performance condition is currently not considered probable. Consequently, the Company has not recorded compensation costs associated with the performance condition awards.

 

18 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 13. RESTRUCTURING

 

The Company initiated a restructuring plan in the fourth quarter of 2014 (“2014 Restructuring Plan”) to realign resources within the organization and anticipates completing the plan in 2016. During the three months ended September 30, 2016 and 2015, we incurred restructuring charges of $0 and $427, respectively, related to the 2014 Restructuring Plan. During the nine months ended September 30, 2016 and 2015, we incurred restructuring charges of $20 and $2,303, respectively. We have incurred $5,959 of cumulative restructuring charges since the commencement of the 2014 Restructuring Plan. We estimate that we will incur restructuring costs related to other exit costs during the remainder of 2016.

 

As part of the conclusion of the Company’s review of strategic alternatives, the Company initiated restructuring activities in efforts to further realign resources within the organization (“2015 Restructuring Plan”) and anticipates completing the plan in 2016. During the three months ended September 30, 2016 and 2015, we incurred restructuring charges of $282 and $269, respectively, related to the 2015 Restructuring Plan. During the nine months ended September 30 2016 and 2015, we incurred restructuring charges of $1,255 and $269, respectively. We have incurred $2,274 of cumulative restructuring charges since the commencement of the 2015 Restructuring Plan.

 

The following table summarizes the restructuring charges, payments and the remaining accrual related to employee termination costs and facility exit costs. 

 

   2014 Restructuring
Plan
   2015 Restructuring
Plan
   Total Restructuring 
Balance at December 31, 2015  $162   $460   $622 
Charges to expense:               
Employee termination benefits   20    616    636 
Other costs   -    639    639 
Total restructuring charges   20    1,255    1,275 
Cash payments and non-cash charges:               
Cash payments   (83)   (1,625)   (1,708)
Balance at September 30, 2016  $99   $90   $189 

 

As of September 30, 2016, termination costs and restructuring costs remained in accrued liabilities and are expected to be paid during the remainder of 2016.

 

NOTE 14. COMMITMENTS AND CONTINGENCIES

 

The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect.

 

During the nine months ended September 30, 2016, the Company received an arbitral award on agreed terms of $1,967, related to certain claims against the former owner of PIEPS associated with the voluntary recall of all of the PIEPS VECTOR avalanche transceivers during the year ended December 31, 2013. This concludes the arbitration in its entirety.

 

The Company leases office, warehouse and distribution space under non-cancelable operating leases. As leases expire, it can be expected that, in the normal course of business, certain leases will be renewed or replaced. Certain lease agreements include escalating rents over the lease terms. The Company expenses rent on a straight-line basis over the lease term which commences on the date the Company has the right to control the property. The cumulative expense recognized on a straight-line basis in excess of the cumulative payments is included in accounts payable and accrued liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheets.

 

19 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Total rent expense for continuing operations of the Company for the three months ended September 30, 2016 and 2015 was $204 and $352, respectively, and for the nine months ended September 30, 2016 and 2015 was $826 and $1,195, respectively.

 

NOTE 15. INCOME TAXES

 

The Company’s foreign operations that are considered to be permanently reinvested have statutory tax rates of 25%.

 

The tax expense recorded during the three and nine months ended September 30, 2016 includes a discrete charge of $520 and $953, respectively, for an uncertain tax position associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China.

 

As of December 31, 2015, the Company’s gross deferred tax asset was $72,859. The Company had recorded a valuation allowance of $64,486, resulting in a net deferred tax asset of $8,373, before deferred tax liabilities of $17,342. The Company has provided a valuation allowance against a portion of the net deferred tax assets as of December 31, 2015, because the ultimate realization of those assets did not meet the more likely than not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.

 

In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and net operating loss and credit carryforwards expire. The estimates and judgments associated with the Company’s valuation allowance on deferred tax assets are considered critical due to the amount of deferred tax assets recorded by the Company on its consolidated balance sheet and the judgment required in determining the Company’s future taxable income. The need for a valuation allowance is reassessed at each interim reporting period. During the year ended December 31, 2015, the Company recorded an increase to its valuation allowance of $48,858.

 

As of December 31, 2015, the Company had net operating loss, research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of $166,206 ($294 relates to excess tax benefits related to share based payment compensation, which will not be recorded until an income tax payable exists), $2,949 and $316, respectively. The Company believes its U.S. Federal net operating loss (“NOL”) will substantially offset its future U.S. Federal income taxes, excluding the amount subject to U.S. Federal Alternative Minimum Tax (“AMT”). AMT is calculated as 20% of AMT income. For purposes of AMT, a maximum of 90% of income is offset by available NOLs. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F. income and will be offset with the NOL.

 

NOLs available to offset taxable income, subject to compliance with Section 382 of the Code, begin to expire based upon the following schedule:

 

Net Operating Loss Carryforward Expiration Dates
December 31, 2015
     
Expiration Dates December 31,  Net Operating Loss Amount 
2021  $32,408 
2022   115,000 
2023   5,712 
2024   3,566 
2025 and beyond   9,520 
Total   166,206 
Excess stock based payment tax deductions   (294)
After limitations  $165,912 

 

20 

 

  

BLACK DIAMOND, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 16. RELATED PARTY TRANSACTIONS

 

5% Unsecured Subordinated Notes due May 28, 2017

 

As part of the consideration payable to the stockholders of Gregory when the Company acquired Gregory, the Company issued $14,517, $7,539, and $554 in 5% Unsecured Subordinated Notes due May 28, 2017 (the “Merger Consideration Subordinated Notes”) to Kanders GMP Holdings, LLC, Schiller Gregory Investment Company, LLC, and five former employees of Gregory, respectively. Mr. Warren B. Kanders, the Company’s Executive Chairman and a member of its Board of Directors, is a majority member and a trustee of the manager of Kanders GMP Holdings, LLC. The sole manager of Schiller Gregory Investment Company, LLC is Mr. Robert R. Schiller, the Company’s Executive Vice Chairman and a member of its Board of Directors. The principal terms of the Merger Consideration Subordinated Notes are as follows: (i) the principal amount is due and payable on May 28, 2017 and is prepayable by the Company at any time; (ii) interest will accrue on the principal amount at the rate of 5% per annum and shall be payable quarterly in cash; (iii) the default interest rate shall accrue at the rate of 10% per annum during the occurrence of an event of default; and (iv) events of default, which can only be triggered with the consent of Kanders GMP Holdings, LLC, are: (a) the default by the Company on any payment due under a Merger Consideration Subordinated Note; (b) the Company’s failure to perform or observe any other material covenant or agreement contained in the Merger Consideration Subordinated Notes; or (c) the Company’s instituting or becoming subject to a proceeding under the Bankruptcy Code (as defined in the Merger Consideration Subordinated Notes). The Merger Consideration Subordinated Notes are junior to all senior indebtedness of the Company, except that payments of interest continue to be made under the Merger Consideration Subordinated Notes as long as no event of default exists under any senior indebtedness.

 

Given the below market interest rate for comparably secured notes and the relative illiquidity of the Merger Consideration Subordinated Notes, we have discounted the notes to $8,640, $4,487 and $316, respectively, at the date of acquisition. We are accreting the discount on the Merger Consideration Subordinated Notes to interest expense using the effective interest method over the term of the Merger Consideration Subordinated Notes. The effective interest rate is approximately 14%.

 

On April 7, 2011, Schiller Gregory Investment Company, LLC transferred its Merger Consideration Subordinated Note in equal amounts to the Robert R. Schiller Cornerstone Trust and the Deborah Schiller 2005 Revocable Trust. On June 24, 2013, the Robert R. Schiller Cornerstone Trust dated September 9, 2010 transferred its Merger Consideration Subordinated Note in the amount of $3,769 to the Robert R. Schiller 2013 Cornerstone Trust dated June 24, 2013. During the three and nine months ended September 30, 2016, $181 and $544 in interest, respectively, was paid to Kanders GMP Holdings, LLC, and $95 and $283 in interest, respectively, was paid to the Robert R. Schiller 2013 Cornerstone Trust and the Deborah Schiller 2005 Revocable Trust pursuant to the outstanding Merger Consideration Subordinated Notes.

 

On May 29, 2012 and August 13, 2012, five former employees of Gregory exercised certain sales rights and sold Merger Consideration Subordinated Notes in the aggregate principal amount of approximately $365 to Kanders GMP Holdings, LLC and in the aggregate principal amount of approximately $189 to Schiller Gregory Investment Company, LLC. During the three and nine months ended September 30, 2016, $5 and $14 in interest, respectively, was paid to Kanders GMP Holdings, LLC, and $2 and $7 in interest, respectively, was paid to Schiller Gregory Investment Company, LLC, pursuant to these outstanding Merger Consideration Subordinated Notes.

 

21 

 

 

BLACK DIAMOND, INC.

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 reformation and growth strategy, including its ability to organically grow each of its historical product lines; the ability of the Company to identify potential acquisition or investment opportunities as part of its redeployment and diversification strategy; the Company’s ability to successfully redeploy its capital into diversifying assets or that any such redeployment will result in the Company’s future profitability; 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, patents and other intellectual property rights; fluctuations in the price, availability and quality of raw materials and contracted products as well as 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 of 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 the “Company,” “we,” “our” or “us”), through its ownership of Black Diamond Equipment, Ltd., is a global leader in designing, manufacturing, and marketing innovative active outdoor performance equipment and apparel for climbing, mountaineering, backpacking, skiing and a wide range of other year-round outdoor recreation activities. Our principal brands include Black Diamond® and PIEPS™ and are targeted not only to the demanding requirements of core climbers, skiers and alpinists, but also to the more general outdoor performance enthusiasts and consumers interested in outdoor-inspired gear for their backcountry and urban activities. Our Black Diamond® and PIEPS™ brands are iconic in the active outdoor and ski industries, and linked intrinsically with the modern history of these sports. 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; tents; trekking poles; headlamps and lanterns; and gloves and mittens. We also offer advanced skis, ski poles, ski bindings, ski skins, and ski safety products, including avalanche airbag systems, avalanche transceivers, shovels and probes.

 

Our condensed consolidated financial statements for the three and nine months ended September 30, 2015 include a correction related to the carryback limitations of net operating losses and tax credits to 2014 in the third quarter of 2015. The effect of the revision was to decrease income tax receivable and reduce other long-term liabilities by $1,801 and $230, as of December 31, 2015, respectively, with an offsetting increase of $1,571 of income tax expense for the three and nine months ended September 30, 2015.  We evaluated these changes and determined that the corrections are not material to the prior periods.

 

On May 28, 2010, we acquired Black Diamond Equipment, Ltd. (which may be referred to as “Black Diamond Equipment”) and Gregory Mountain Products, LLC (which may be referred to as “Gregory Mountain Products”, “Gregory” or “GMP”). On January 20, 2011, the Company changed its name from Clarus Corporation to Black Diamond, Inc. 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”).

 

22 

 

   

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

On July 23, 2014, the Company and Gregory Mountain Products, its wholly-owned subsidiary, completed the sale of certain assets to Samsonite LLC (“Samsonite”) comprising Gregory’s business of designing, manufacturing, marketing, distributing and selling technical, alpine, backpacking, hiking, mountaineering and active trail products and accessories as well as outdoor-inspired lifestyle bags (the “Gregory Business”) pursuant to the terms of that certain Asset Purchase Agreement (the “GMP Purchase Agreement”), dated as of June 18, 2014, by and among the Company, Gregory and Samsonite. Under the terms of the GMP Purchase Agreement, Samsonite paid $84,135 in cash for Gregory’s assets comprising the Gregory Business and assumed certain specified liabilities (the “GMP Sale”).

 

On March 16, 2015, the Company announced that it engaged Rothschild Inc. and Robert W. Baird & Co., Incorporated as financial advisors to lead an exploration of a full range of strategic alternatives, including a sale of the entire Company and the potential sales of the Company’s Black Diamond Equipment (including PIEPS) and POC brands in two separate transactions.

 

On October 7, 2015, the Company and the Company’s wholly owned subsidiary, Ember Scandinavia AB (“Ember”), sold their respective equity interests in POC comprising POC’s business of designing, manufacturing, marketing, distributing and selling advanced-design helmets, body armor, goggles, eyewear, gloves, and apparel for action or “gravity sports,” such as skiing, snowboarding, and cycling pursuant to a Purchase Agreement (the “POC Purchase Agreement”), dated as of October 7, 2015, by and among the Company and Ember, as sellers, and Dainese S.p.A. and Dainese U.S.A., Inc. (collectively “Dainese”), as purchasers. Under the terms of the POC Purchase Agreement, Dainese paid $63,639 in cash for POC (the “POC Disposition”). Furthermore, the activities of POC have been segregated and reported as discontinued operations for all periods presented. See Note 2 to the notes to the unaudited condensed consolidated financial statements.

 

On October 8, 2015, the Company announced the completion of the POC Disposition resulting in the conclusion of the Company’s review of strategic alternatives.

 

On November 9, 2015, the Company announced that it is seeking to redeploy our significant cash balances to invest in high-quality, durable, cash flow-producing assets potentially unrelated to the outdoor industry in order to diversify our business and potentially monetize our substantial net operating losses as part of our asset redeployment and diversification strategy. We intend to focus our search primarily in the United States, although we will also evaluate international investment opportunities should we find such opportunities attractive.

 

Critical Accounting Policies and Use of Estimates

 

Management’s discussion of our financial condition and results of operations is based on the condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the condensed 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 condensed 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 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.

 

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, 2015, except elimination of the policy associated with the evaluation of the valuation of goodwill, as goodwill was fully impaired during the year ended December 31, 2015.

 

Accounting Pronouncements Issued Not Yet Adopted

 

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

 

23 

 

   

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Results of Operations

 

Condensed Consolidated Three Months Ended September 30, 2016 Compared to Condensed Consolidated Three Months Ended September 30, 2015

 

The following presents a discussion of consolidated operations for the three months ended September 30, 2016, compared with the consolidated three months ended September 30, 2015. 

 

   Three Months Ended 
   September 30, 2016   September 30, 2015 
         
Sales          
Domestic sales  $17,939   $17,185 
International sales   21,502    22,071 
Total sales   39,441    39,256 
           
Cost of goods sold   27,105    25,113 
Gross profit   12,336    14,143 
           
Operating expenses          
Selling, general and administrative   11,483    14,243 
Restructuring charge   282    696 
Transaction costs   -    39 
           
Total operating expenses   11,765    14,978 
           
Operating income (loss)   571    (835)
           
Other (expense) income          
Interest expense, net   (719)   (705)
Other, net   422    696 
           
Total other expense, net   (297)   (9)
           
Income (loss) from continuing operations before income tax   274    (844)
Income tax expense   679    49,958 
Loss from continuing operations   (405)   (50,802)
           
Discontinued operations, net of tax   -    1,107 
           
Net loss  $(405)  $(49,695)

 

Sales

 

Consolidated sales increased $185, or 0.5%, to $39,441 during the three months ended September 30, 2016, compared to consolidated sales of $39,256 during the three months ended September 30, 2015. The increase in sales was primarily attributable to an increase in the quantity of new and existing climb and mountain products sold during the period, which was partially offset by a decrease in sales of $1,131 due to the weakening of foreign currencies against the U.S. dollar during the three months ended September 30, 2016 compared to the prior period.

 

Consolidated domestic sales increased $754, or 4.4%, to $17,939 during the three months ended September 30, 2016, compared to consolidated domestic sales of $17,185 during the three months ended September 30, 2015. The increase in domestic sales was primarily attributable to an increase in the quantity of new and existing climb and mountain products sold during the period.

 

24 

 

  

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Consolidated international sales decreased $569, or 2.6%, to $21,502 during the three months ended September 30, 2016, compared to consolidated international sales of $22,071 during the three months ended September 30, 2015. The decrease in international sales was primarily attributable to a decrease in sales of $1,131 due to the weakening of foreign currencies against the U.S. dollar during the three months ended September 30, 2016 compared to the prior period and a decrease in the quantity of new and existing ski products sold during the period. These decreases were partially offset by an increase in the quantity of new and existing climb and mountain products sold during the period.

 

Cost of Goods Sold

 

Consolidated cost of goods sold increased $1,992, or 7.9%, to $27,105 during the three months ended September 30, 2016, compared to consolidated cost of goods sold of $25,113 during the three months ended September 30, 2015. The increase in cost of goods sold was primarily attributable to an increase in the sales and an increase in the cost of the products sold as a result of the continued ramping-up of the Company’s manufacturing activities that were transferred from China to the United States.

 

Gross Profit

 

Consolidated gross profit decreased $1,807, or 12.8%, to $12,336 during the three months ended September 30, 2016, compared to consolidated gross profit of $14,143 during the three months ended September 30, 2015. Consolidated gross margin was 31.3% during the three months ended September 30, 2016, compared to a consolidated gross margin of 36.0% during the three months ended September 30, 2015. Consolidated gross margin during the three months ended September 30, 2016, decreased compared to the prior year due primarily to the weakening of foreign currencies against the U.S. dollar during the three months ended September 30, 2016 compared to the prior period and due to an unfavorable mix in lower margin products and channel distribution.

 

Selling, General and Administrative

 

Consolidated selling, general and administrative expenses decreased $2,760, or 19.4%, to $11,483 during the three months ended September 30, 2016, compared to consolidated selling, general, and administrative expenses of $14,243 during the three months ended September 30, 2015. The decrease in selling, general and administrative expenses was primarily attributable to the Company’s realization of savings from its restructuring plan implemented during 2015 to further realign resources within the organization.

 

Restructuring Charges

 

Consolidated restructuring expense decreased $414, or 59.5%, to $282 during the three months ended September 30, 2016, compared to consolidated restructuring expense of $696 during the three months ended September 30, 2015. Restructuring expenses incurred during the three months ended September 30, 2016 primarily related to costs associated with the move of the Company’s Black Diamond Equipment European office from Basel, Switzerland to Innsbruck, Austria, and costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China.

 

Transaction Costs

 

Consolidated transaction expense decreased to $0 during the three months ended September 30, 2016, compared to consolidated transaction costs of $39 during the three months ended September 30, 2015.

 

Interest Expense, net

 

Consolidated interest expense, net, increased $14, or 2.0%, to $719 during the three months ended September 30, 2016, compared to consolidated interest expense, net, of $705 during the three months ended September 30, 2015. The increase in interest expense, net, was primarily attributable to the increase in accretion expense associated with the Company’s 5% Senior Subordinated Notes due 2017, which accretion is being amortized utilizing the effective interest rate method.

 

Other, net

 

Consolidated other, net, income decreased $274, or 39.4%, to $422 during the three months ended September 30, 2016 compared to consolidated other, net income of $696 during the three months ended September 30, 2015. The decrease in other, net, was primarily attributable to losses related to recognition of cumulative translation adjustments due to the substantial liquidation of a foreign entity and decreases in gains on mark-to-market adjustments on non-hedged foreign currency contracts. These decreases were partially offset by an increase in remeasurement gains recognized on the Company’s foreign denominated accounts receivable and accounts payable and gains related to the sale of marketable securities.

 

25 

 

  

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Income Taxes

 

Consolidated income tax expense decreased $49,279, or 98.6%, to $679 during the three months ended September 30, 2016, compared to a consolidated income tax expense of $49,958 during the same period in 2015. The tax expense recorded during the three months ended September 30, 2016 includes a discrete charge of $520 for an uncertain tax position associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China. The decrease in tax expense is due to the Company recording an increase in its valuation allowance of $50,770 during the three months ended September 30, 2015. The change in valuation allowance resulted in a discrete charge to income tax expense of $49,911 for the three months ended September 30, 2015. Certain events and circumstances transpired during the three months ended September 30, 2015, which caused the Company to conclude that realization of some portion of deferred tax assets does not satisfy the more-likely-than-not threshold.

 

Our effective income tax rate was 247.8% for the three months ended September 30, 2016, compared to 5,919.2% for the same period in 2015. 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. There was one discrete event in the amount of $520 recorded in the Company’s effective income tax rate calculation for the three months ended September 30, 2016. As mentioned above, the change in valuation allowance resulted in a discrete charge to income tax expense of $49,911 for the three months ended September 30, 2015.

 

Discontinued Operations

 

The Company sold POC for $63,639 effective October 7, 2015 and as a result we recognized a pre-tax gain of $8,436. Discontinued operations decreased to $0 during the three months ended September 30, 2016, compared to income from discontinued operations of $1,107 during the three months ended September 30, 2015. There was no activity for POC during the three months ended September 30, 2016.

 

26 

 

 

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Results of Operations

 

Condensed Consolidated Nine Months Ended September 30, 2016 Compared to Condensed Consolidated Nine Months Ended September 30, 2015

 

The following presents a discussion of consolidated operations for the nine months ended September 30, 2016, compared with the consolidated nine months ended September 30, 2015.

 

 

   Nine Months Ended 
   September 30, 2016   September 30, 2015 
         
Sales          
Domestic sales  $54,190   $51,992 
International sales   52,600    59,198 
Total sales   106,790    111,190 
           
Cost of goods sold   75,155    71,711 
Gross profit   31,635    39,479 
           
Operating expenses          
Selling, general and administrative   37,311    43,470 
Restructuring charge   1,275    2,572 
Transaction costs   269    446 
Arbitration award   (1,967)   - 
           
Total operating expenses   36,888    46,488 
           
Operating loss   (5,253)   (7,009)
           
Other (expense) income          
Interest expense, net   (2,142)   (2,073)
Other, net   826    346 
           
Total other expense, net   (1,316)   (1,727)
           
Loss from continuing operations before income tax   (6,569)   (8,736)
Income tax expense   1,020    47,651 
Loss from continuing operations   (7,589)   (56,387)
           
Discontinued operations, net of tax   -    (430)
           
Net loss  $(7,589)  $(56,817)

 

Sales

 

Consolidated sales decreased $4,400, or 4.0%, to $106,790 during the nine months ended September 30, 2016, compared to consolidated sales of $111,190 during the nine months ended September 30, 2015. The decrease in sales was primarily attributable to a decrease in sales of $4,307 due to the weakening of foreign currencies against the U.S. dollar during the nine months ended September 30, 2016 compared to the prior period and a decrease in the quantity of new and existing ski products sold during the period. The decrease was partially offset by an increase in the quantity of new and existing climb and mountain products sold during the period.

 

27 

 

  

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Consolidated domestic sales increased $2,198, or 4.2%, to $54,190 during the nine months ended September 30, 2016, compared to consolidated domestic sales of $51,992 during the nine months ended September 30, 2015. The increase in domestic sales was primarily attributable to an increase in the quantity of new and existing climb and mountain products sold during the period.

 

Consolidated international sales decreased $6,598, or 11.1%, to $52,600 during the nine months ended September 30, 2016, compared to consolidated international sales of $59,198 during the nine months ended September 30, 2015. The decrease in international sales was primarily attributable to a decrease in sales of $4,307 due to the weakening of foreign currencies against the U.S. dollar during the nine months ended September 30, 2016 compared to the prior period and a decrease in the quantity of new and existing ski products sold during the period.

 

Cost of Goods Sold

 

Consolidated cost of goods sold increased $3,444, or 4.8%, to $75,155 during the nine months ended September 30, 2016, compared to consolidated cost of goods sold of $71,711 during the nine months ended September 30, 2015. The increase in cost of goods sold was primarily attributable to an increase in the cost of the products sold as a result of the continued ramping-up of the Company’s manufacturing activities that were transferred from China to the United States and an increase in the number of units sold.

 

Gross Profit

 

Consolidated gross profit decreased $7,844, or 19.9%, to $31,635 during the nine months ended September 30, 2016, compared to consolidated gross profit of $39,479 during the nine months ended September 30, 2015. Consolidated gross margin was 29.6% during the nine months ended September 30, 2016, compared to a consolidated gross margin of 35.5% during the nine months ended September 30, 2015. Consolidated gross margin during the nine months ended September 30, 2016, decreased compared to the prior year primarily due to the weakening of foreign currencies against the U.S. dollar during the nine months ended September 30, 2016 compared to the prior period, additional costs associated with the continued ramping-up of the Company’s manufacturing activities that were transferred from China to the United States, and the write-off of inventory shipped to certain North American accounts during the first quarter of 2016 that filed for bankruptcy reorganization in April 2016.

 

Selling, General and Administrative

 

Consolidated selling, general and administrative expenses decreased $6,159, or 14.2%, to $37,311 during the nine months ended September 30, 2016, compared to consolidated selling, general, and administrative expenses of $43,470 during the nine months ended September 30, 2015. The decrease in selling, general and administrative expenses was primarily attributable to the Company’s realization of savings from its restructuring plan implemented during 2015 to further realign resources within the organization.

 

Restructuring Charges

 

Consolidated restructuring expense decreased $1,297, or 50.4%, to $1,275 during the nine months ended September 30, 2016, compared to consolidated restructuring expense of $2,572 during the nine months ended September 30, 2015. Restructuring expenses incurred during the nine months ended September 30, 2016, primarily related to benefits provided to employees who were or will be terminated due to the Company’s reduction-in-force as part of its continued realignment of resources within the organization, costs associated with the move of the Company’s Black Diamond Equipment European office from Basel, Switzerland to Innsbruck, Austria, and costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China.

 

Transaction Costs

 

Consolidated transaction expense decreased $177, or 39.7%, to $269 during the nine months ended September 30, 2016, compared to consolidated transaction costs of $446 during the nine months ended September 30, 2015, which consisted of expenses related to the Company’s redeployment and diversification strategy.

 

Arbitration Award

 

During the nine months ended September 30, 2016, the Company received an arbitral award on agreed terms of $1,967, related to certain claims against the former owner of PIEPS associated with the voluntary recall of all of the PIEPS VECTOR avalanche transceivers during the year ended December 31, 2013.

 

28 

 

  

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Interest Expense, net

 

Consolidated interest expense, net, increased $69, or 3.3%, to $2,142 during the nine months ended September 30, 2016, compared to consolidated interest expense, net, of $2,073 during the nine months ended September 30, 2015. The increase in interest expense, net, was primarily attributable to the increase in accretion expense associated with the Company’s 5% Senior Subordinated Notes due 2017, which accretion is being amortized utilizing the effective interest rate method.

 

Other, net

 

Consolidated other, net, increased $480, or 138.7%, to income of $826 during the nine months ended September 30, 2016 compared to consolidated other, net income of $346 during the nine months ended September 30, 2015. The increase in other, net, was primarily attributable to an increase in remeasurement gains recognized on the Company’s foreign denominated accounts receivable and accounts payable, decreases in losses on mark-to-market adjustments on non-hedged foreign currency contracts, and gains related to the sale of marketable securities. These increases were partially offset by losses related to recognition of cumulative translation adjustments due to the substantial liquidation of a foreign entity.

 

Income Taxes

 

Consolidated income tax expense decreased $46,631, or 97.9%, to $1,020 during the nine months ended September 30, 2016, compared to a consolidated income tax expense of $47,651 during the same period in 2015. The tax expense recorded during the nine months ended September 30, 2016 includes a discrete charge for a Swiss withholding tax related to the transferring of Black Diamond Equipment’s European operations from Basel, Switzerland to Innsbruck, Austria, and a discrete charge of $953 for an uncertain tax position associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China. The increase in tax expense is due the Company recording an increase in its valuation allowance of $50,770 during the nine months ended September 30, 2015. The change in valuation allowance resulted in a discrete charge to income tax expense of $49,911 for the three months ended September 30, 2015. Certain events and circumstances transpired during the three months ended September 30, 2015, which caused the Company to conclude that realization of some portion of deferred tax assets does not satisfy the more-likely-than-not threshold.

 

Our effective income tax rate was 15.5% for the nine months ended September 30, 2016, compared to 545.5% for the same period in 2015. 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. There were two discrete events in the amount of $1,117 recorded in the Company’s effective income tax rate calculation for the nine months ended September 30, 2016. 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. As mentioned above, the change in valuation allowance resulted in a discrete charge to income tax expense of $49,911 for the nine months ended September 30, 2015.

 

Discontinued Operations

 

The Company sold POC for $63,639 effective October 7, 2015 and as a result we recognized a pre-tax gain of $8,436. Discontinued operations decreased to $0 during the nine months ended September 30, 2016, compared to a loss from discontinued operations of $430 during the nine months ended September 30, 2015. There was no activity for POC during the nine months ended September 30, 2016.

 

Liquidity and Capital Resources

 

Condensed Consolidated Nine Months Ended September 30, 2016 Compared to Condensed Consolidated Nine Months Ended September 30, 2015

 

The following presents a discussion of cash flows for the consolidated nine months ended September 30, 2015, compared with the consolidated nine months ended September 30, 2015. Our primary ongoing funding requirements are for working capital, expansion of our operations and general corporate needs, as well as investing activities associated with the 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 the net proceeds from the sales of GMP and POC. 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, 2016, we had total cash of $95,955, compared with a cash balance of $88,401 and marketable securities of $9,824 at December 31, 2015, which was substantially all controlled by the Company’s U.S. entities. At September 30, 2016, the Company had $13,858 of the $95,955 in cash held by foreign entities, of which $270 is considered permanently reinvested. The cash held by foreign entities is available for repatriation and would result in an estimated tax liability of $3,696. This tax liability could be offset by the Company’s net operating loss carryforwards.

 

29 

 

  

BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

   Nine Months Ended 
   September 30, 2016   September 30, 2015 
         
Net cash provided by (used in) operating activities  $5,405   $(4,895)
Net cash provided by (used in) investing activities   7,301    (2,038)
Net cash (used in) provided by financing activities   (5,222)   2,563 
Effect of foreign exchange rates on cash   70    (136)
Change in cash   7,554    (4,506)
Cash, beginning of period   88,401    31,034 
Cash, end of period  $95,955   $26,528 

 

Net Cash From Operating Activities

 

Consolidated net cash provided by operating activities was $5,405 during the nine months ended September 30, 2016, compared to consolidated net cash used in operating activities of $4,895 during the nine months ended September 30, 2015. The increase in net cash provided by operating activities during 2016 is primarily due to a decrease in net operating assets or non-cash working capital of $12,917 during the nine months ended September 30, 2016, compared to the same period in 2015.

 

Free cash flow, defined as net cash provided by operating activities less capital expenditures, was free cash flows provided of $3,369 during the nine months ended September 30, 2016 compared to free cash flows used of $7,209 during the same period in 2015. The Company believes that the non-GAAP measure, free cash flow, provides an understanding of the capital required by the Company to expand its asset base. A reconciliation of free cash flows to comparable GAAP financial measures is set forth below: 

 

   Nine Months Ended 
   September 30, 2016   September 30, 2015 
         
Net cash provided by (used in) operating activities  $5,405   $(4,895)
Purchase of property and equipment   (2,036)   (2,314)
Free cash flow  $3,369   $(7,209)

 

Net Cash From Investing Activities

 

Consolidated net cash provided by investing activities was $7,301 during the nine months ended September 30, 2016, compared to consolidated net cash used in investing activities of $2,038 during the nine months ended September 30, 2015. The increase in cash provided during the nine months ended September 30, 2016 is primarily due to the sale of marketable securities of $10,235 and a decrease in the purchase of property and equipment, partially offset by a purchase price adjustment related to the POC sale of $921 that was paid during the nine months ended September 30, 2016.

 

Net Cash From Financing Activities

 

Consolidated net cash used in financing activities was $5,222 during the nine months ended September 30, 2016, compared to consolidated cash provided by financing activities of $2,563 during the nine months ended September 30, 2015. The cash used during the nine months ended September 30, 2016 relates to the repurchase of the Company’s common stock. The cash provided during the nine months ended September 30, 2015 was primarily a result of net borrowings on the foreign credit facilities.

 

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BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Net Operating Loss

 

As of December 31, 2015, the Company had net operating loss, research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of $166,206 ($294 relates to excess tax benefits related to share based payment compensation, which will not be realized until an income tax payable exists), $2,949 and $316, respectively. The Company believes its U.S. Federal net operating loss (“NOL”) will substantially offset its future U.S. Federal income taxes, excluding the amount subject to U.S. Federal Alternative Minimum Tax (“AMT”). AMT is calculated as 20% of AMT income. For purposes of AMT, a maximum of 90% of income is offset by available NOLs. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F income and will be offset with the NOL. $165,912 of net operating losses available to offset taxable income does not expire until 2021 or later, subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.

 

As of December 31, 2015, the Company’s gross deferred tax asset was $72,859. The Company has recorded a valuation allowance of $64,486, resulting in a net deferred tax asset of $8,373, before deferred tax liabilities of $17,342. The Company has provided a valuation allowance against a portion of the net deferred tax assets as of December 31, 2015, because the ultimate realization of those assets does not meet the more likely than not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.

 

Revolving Credit Facility

 

On October 31, 2014, the Company together with its direct and indirect domestic subsidiaries entered into a second amended and restated loan agreement (the “Second Amended and Restated Loan Agreement”) with Zions First National Bank (the “Lender”), which matures on April 1, 2017. Under the Second Amended and Restated Loan Agreement, the Company has a $30,000 revolving line of credit (the “Revolving Line of Credit”) pursuant to a second amended and restated promissory note (revolving loan) (the “Revolving Line of Credit Promissory Note”) which is inclusive of a $10,000 accordion option (the “Accordion”) available to the Company to increase the Revolving Line of Credit on a seasonal or permanent basis for funding general corporate needs including working capital, capital expenditures, permitted loans or investments in subsidiaries, and the issuance of letters of credit. Also pursuant to the Second Amended and Restated Loan Agreement, the Company terminated its outstanding term loan facility which previously allowed the Company to borrow up to $10,000 and certain additional changes were made to the original amended and restated loan agreement and the covenants contained therein.

 

All debt associated with the Second Amended and Restated Loan Agreement bears interest at one-month London Interbank Offered Rate (“LIBOR”) plus an applicable margin as determined by the ratio of Total Senior Debt to Trailing Twelve Month EBITDA as follows: (i) one month LIBOR plus 4.00% per annum at all times that Total Senior Debt to Trailing Twelve Month EBITDA ratio is greater than or equal to 2.00; (ii) one month LIBOR plus 3.00% per annum at all times that Total Senior Debt to Trailing Twelve Month EBITDA ratio is greater than 1.00 and less than 2.00; and (iii) one month LIBOR plus 2.00% per annum at all times that Total Senior Debt to Trailing Twelve Month EBITDA ratio is less than 1.00 or if the Company has cash or marketable securities equal to or greater than $30,000. The Second Amended and Restated Loan Agreement requires the payment of any unused commitment fee of (i) .6% per annum at all times that Total Senior Debt to Trailing Twelve Month EBITDA ratio is greater than or equal to 2.00; (ii) .5% per annum at all times that Total Senior Debt to Trailing Twelve Month EBITDA ratio is greater than 1.00 and less than 2.00; and (iii) .4% per annum at all times that Total Senior Debt to Trailing Twelve Month EBITDA ratio is less than 1.00.

 

The Second Amended and Restated Loan Agreement contains certain restrictive debt covenants that require the Company and its subsidiaries to maintain an EBITDA based minimum Trailing Twelve Month EBITDA, a minimum net worth, a positive amount of asset coverage, and limitations on capital expenditures all as calculated in the Second Amended and Restated Loan Agreement. In addition, the Second Amended and Restated Loan Agreement contains covenants restricting the Company and its subsidiaries from pledging or encumbering their assets, with certain exceptions, and from engaging in acquisitions other than acquisitions permitted by the Second Amended and Restated Loan Agreement. The Second Amended and Restated Loan Agreement contains customary events of default (with grace periods where customary) including, among other things, failure to pay any principal or interest when due; any materially false or misleading representation, warranty, or financial statement; failure to comply with or to perform any provision of the Second Amended and Restated Loan Agreement; and default on any debt or agreement in excess of certain amounts.

 

On November 9, 2015, the Company together with its direct and indirect domestic subsidiaries entered into a first amendment (the “First Amendment”) to the Second Amended and Restated Loan Agreement with the Lender. Pursuant to the First Amendment the minimum net worth financial covenant required to be maintained by the Company and each of its domestic wholly-owned subsidiaries was reduced and certain additional changes were also made to the Second Amended and Restated Loan Agreement.

 

On March 11, 2016, the Company together with its direct and indirect domestic subsidiaries entered into a second amendment (the “Second Amendment”) to the Second Amended and Restated Loan Agreement as amended by the First Amendment with the Lender. Pursuant to the Second Amendment the minimum net worth financial covenant required to be maintained by the Company and each of its domestic wholly-owned subsidiaries for the year ending December 31, 2015 was reduced from $170,000 to $140,000 with an annual increase of $2,000 for each fiscal year thereafter, and certain additional changes were also made to the Second Amended and Restated Loan Agreement.

 

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BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

5% Senior Subordinated Notes due May 28, 2017

 

As part of the consideration payable to the stockholders of Gregory when the Company acquired Gregory, the Company issued $14,517, $7,539, and $554 in 5% Unsecured Subordinated Notes due May 28, 2017 (the “Merger Consideration Subordinated Notes”) to Kanders GMP Holdings, LLC, Schiller Gregory Investment Company, LLC, and five former employees of Gregory, respectively. Mr. Warren B. Kanders, the Company’s Executive Chairman and a member of its Board of Directors, is a majority member and a trustee of the manager of Kanders GMP Holdings, LLC. The sole manager of Schiller Gregory Investment Company, LLC is Mr. Robert R. Schiller, the Company’s Executive Vice Chairman and a member of its Board of Directors. The principal terms of the Merger Consideration Subordinated Notes are as follows: (i) the principal amount is due and payable on May 28, 2017 and is prepayable by the Company at any time; (ii) interest will accrue on the principal amount at the rate of 5% per annum and shall be payable quarterly in cash; (iii) the default interest rate shall accrue at the rate of 10% per annum during the occurrence of an event of default; and (iv) events of default, which can only be triggered with the consent of Kanders GMP Holdings, LLC, are: (a) the default by the Company on any payment due under a Merger Consideration Subordinated Note; (b) the Company’s failure to perform or observe any other material covenant or agreement contained in the Merger Consideration Subordinated Notes; or (c) the Company’s instituting or becoming subject to a proceeding under the Bankruptcy Code (as defined in the Merger Consideration Subordinated Notes). The Merger Consideration Subordinated Notes are junior to all senior indebtedness of the Company, except that payments of interest continue to be made under the Merger Consideration Subordinated Notes as long as no event of default exists under any senior indebtedness.

 

Given the below market interest rate for comparably secured notes and the relative illiquidity of the Merger Consideration Subordinated Notes, we have discounted the notes to $8,640, $4,487 and $316, respectively, at the date of acquisition. We are accreting the discount on the Merger Consideration Subordinated Notes to interest expense using the effective interest method over the term of the Merger Consideration Subordinated Notes. The effective interest rate is approximately 14%.

 

On April 7, 2011, Schiller Gregory Investment Company, LLC transferred its Merger Consideration Subordinated Note in equal amounts to the Robert R. Schiller Cornerstone Trust and the Deborah Schiller 2005 Revocable Trust. On June 24, 2013, the Robert R. Schiller Cornerstone Trust dated September 9, 2010 transferred its Merger Consideration Subordinated Note in the amount of $3,769 to the Robert R. Schiller 2013 Cornerstone Trust dated June 24, 2013. During the three and nine months ended September 30, 2016, $181 and $544 in interest, respectively, was paid to Kanders GMP Holdings, LLC, and $95 and $283 in interest, respectively, was paid to the Robert R. Schiller 2013 Cornerstone Trust and the Deborah Schiller 2005 Revocable Trust pursuant to the outstanding Merger Consideration Subordinated Notes.

 

On May 29, 2012 and August 13, 2012, five former employees of Gregory exercised certain sales rights and sold Merger Consideration Subordinated Notes in the aggregate principal amount of approximately $365 to Kanders GMP Holdings, LLC and in the aggregate principal amount of approximately $189 to Schiller Gregory Investment Company, LLC. During the three and nine months ended September 30, 2016, $5 and $14 in interest, respectively, was paid to Kanders GMP Holdings, LLC, and $2 and $7 in interest, respectively, was paid to Schiller Gregory Investment Company, LLC, pursuant to these outstanding Merger Consideration Subordinated Notes.

 

Off-Balance Sheet Arrangements

 

We do not engage in any transactions or have relationships or other arrangements with unconsolidated entities. These include special purpose and similar entities or other off-balance sheet arrangements. We also do not engage in energy, weather or other commodity-based contracts.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There has not been any material change in the market risk disclosure contained in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

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BLACK DIAMOND, INC.

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Executive Chairman and Chief Administrative Officer/Chief Financial Officer, its principal executive officer and principal financial officer, respectively, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of September 30, 2016, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company’s Executive Chairman and Chief Administrative Officer/Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of September 30, 2016, were effective.

 

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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BLACK DIAMOND, INC.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Legal Proceedings

 

The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect.

 

Litigation

 

The Company is involved in various lawsuits arising from time to time that the Company considers ordinary routine litigation incidental to its business. Amounts accrued for litigation matters represent the anticipated costs (damages and/or settlement amounts) in connection with pending litigation and claims. The costs are accrued when it is both probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are based upon the Company’s assessment, after consultation with counsel (if deemed appropriate), of probable loss based on the facts and circumstances of each case, the legal issues involved, the nature of the claim made, the nature of the damages sought and any relevant information about the plaintiffs and other significant factors that vary by case. When it is not possible to estimate a specific expected cost to be incurred, the Company evaluates the range of probable loss and records the minimum end of the range. Based on current information, the Company believes that the ultimate conclusion of the various pending litigations of the Company, in the aggregate, will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

 

Product Liability

 

As a consumer goods manufacturer and distributor, the Company faces the risk of product liability and related lawsuits involving claims for substantial money damages, product recall actions and higher than anticipated rates of warranty returns or other returns of goods. The Company is therefore vulnerable to various personal injury and property damage lawsuits relating to its products and incidental to its business.

 

Based on current information, there are no pending product liability claims and lawsuits of the Company, which the Company believes in the aggregate will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Unregistered Sales of Equity Securities

 

The Company did not sell any securities during the quarter ended September 30, 2016 that were not registered under the Securities Act of 1933, as amended.

 

Issuer Repurchases of Equity Securities

 

On November 9, 2015, the Company announced that its Board of Directors authorized a stock repurchase program that allows the repurchase of up to $30,000,000 of the Company’s outstanding common stock. During the third quarter of 2016, the Company purchased 277,656 shares of the Company’s common stock for $1,255,500 under the Company’s authorized stock repurchase program.

 

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BLACK DIAMOND, INC.

 

           Total Number of Shares   Maximum Dollar Value 
           Purchased as Part of   of Shares that May Yet 
   Total Number of   Average Price Paid   Publicly Announced   Be Purchased Under 
   Shares Purchased   per Share   Plans or Programs   the Plans or Programs 
Period                    
July 1 to 31, 2016   229,102   $4.53    2,727,179    18,005,496 
August 1 to 31, 2016   48,554   $4.47    2,775,733    17,788,227 
September 1 to 30, 2016   -   $-    2,775,733    17,788,227 
Total   277,656                

 

35 

 

 

BLACK DIAMOND, INC.

 

ITEM 6. EXHIBITS

 

Exhibit   Description
     
10.1   Employment Agreement, dated as of July 29, 2016, between Black Diamond, Inc. and Mark Ritchie (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 1, 2016 and incorporated herein by reference).
     
31.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
     
31.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
     
32.1   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
     
32.2   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
     
101.INS   XBRL Instance Document *
     
101.SCH   XBRL Taxonomy Extension Schema Document *
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document*
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document *
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document *
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document *
     
*   Filed herewith
     
**   Furnished herewith

  

36 

 

 

BLACK DIAMOND, INC.

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  BLACK DIAMOND, INC.
       
Date: October 31, 2016 By: /s/ Warren B. Kanders  
    Name: Warren B. Kanders  
    Title: Executive Chairman  
      (Principal Executive Officer)  
         
  By: /s/ Aaron J. Kuehne  
    Name: Aaron J. Kuehne  
    Title: Chief Administrative Officer and  
      Chief Financial Officer  
      (Principal Financial Officer)  
      (Principal Accounting Officer)  

  

37 

 

 

BLACK DIAMOND, INC.

 

EXHIBIT INDEX  

 

Exhibit   Description
     
31.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
     
31.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
     
32.1   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
     
32.2   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
     
101.INS   XBRL Instance Document *
     
101.SCH   XBRL Taxonomy Extension Schema Document *
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document *
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document *
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document *
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document *
     
*   Filed herewith
     
**   Furnished herewith

 

38