Annual report pursuant to Section 13 and 15(d)

Nature Of Operations And Summary Of Significant Accounting Policies (Policy)

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Nature Of Operations And Summary Of Significant Accounting Policies (Policy)
12 Months Ended
Dec. 31, 2013
Nature Of Operations And Summary Of Significant Accounting Policies [Abstract]  
Basis Of Presentation And Organization

The accompanying audited consolidated financial statements of Black Diamond, Inc. and subsidiaries (“Black Diamond” or the “Company,” which may be referred to as “we,” “us,” or “our”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

 

Nature Of Business

Nature of Business

 

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

 

On May 28, 2010, we acquired Black Diamond Equipment, Ltd. (which may be referred to as “Black Diamond Equipment” or “BDEL”) and Gregory Mountain Products.  On January 20, 2011, the Company changed its name from Clarus Corporation to Black Diamond, Inc., which we believe more accurately reflects our current business.  In June 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”).

 

Use Of Estimates

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.  Some of the more significant estimates relate to derivatives, revenue recognition, income taxes, and valuation of long-lived assets, goodwill, and other intangible assets.  We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances.  Actual results could differ from these estimates.

 

Principles Of Consolidation

Principles of Consolidation

 

The consolidated financial statements include the accounts of Black Diamond and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Foreign Currency Transactions And Translation

Foreign Currency Transactions and Translation

 

The accounts of the Company’s international subsidiaries’ financial statements are translated into U.S. dollars using the exchange rate at the balance sheet dates for assets and liabilities and the weighted average exchange rate for the periods for revenues, expenses, gains and losses.  Foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income.  Foreign currency transaction gains and losses are included in other (expense) income in the consolidated statements of comprehensive (loss) income.

 

Cash Equivalents

Cash Equivalents

 

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.  At December 31, 2013 and 2012, the Company did not hold any amounts that were considered to be cash equivalents.

 

Accounts Receivable And Allowance For Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts

 

The Company records its trade receivables at sales value and establishes a non-specific reserve for estimated doubtful accounts based on a percentage of outstanding trade receivables.  In addition, specific reserves are established for customer accounts as known collection problems occur due to insolvency, disputes or other collection issues.  The amounts of these specific reserves are estimated by management based on the customer’s financial position, the age of the customer’s receivables and the reasons for any disputes.  The allowance for doubtful accounts is reduced by any write-off of uncollectible customer accounts.  Interest is charged on trade receivables that are outstanding beyond the payment terms and is recognized as it is charged.  The allowance for doubtful accounts was $641 and $499 at December 31, 2013 and 2012.  There were no significant write-offs of the Company’s accounts receivable during the years ended December 31, 2013, 2012, and 2011.

 

Inventories

Inventories

 

Inventories are stated at the lower of cost (using the first-in, first-out method “FIFO”) or market value.  Elements of cost in the Company’s manufactured inventories generally include raw materials, direct labor, manufacturing overhead and freight in.  The Company periodically reviews its inventories for excess, close-out, or slow moving items and makes provisions as necessary to properly reflect inventory values.

 

Property And Equipment

Property and Equipment

 

Property and equipment is stated at historical cost, less accumulated depreciation.  Depreciation is computed using the straight-line method over the estimated useful lives or estimated units of production.  The principal estimated useful lives are: building improvements, 20 years; computer hardware and software and machinery and equipment, 3-10 years – except for certain tooling costs, which are based on units of production; furniture and fixtures, 5 years.  Leasehold improvements are amortized over the lesser of the estimated useful life of the improvement, or the life of the lease.  Equipment under capital leases are stated at the present value of minimum lease payments.  Major replacements, which extend the useful lives of equipment, are capitalized and depreciated over the remaining useful life.  Normal maintenance and repair items are expensed as incurred.

 

Goodwill And Other Intangible Assets

Goodwill and Other Intangible Assets

 

Goodwill resulted from acquisitions and represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets.  Goodwill and indefinite lived intangible assets are not amortized, but rather tested for impairment on an annual basis or more often if events or circumstances indicate a potential impairment exists.  Definite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable.

 

Derivative Financial Instruments

Derivative Financial Instruments

 

The Company uses derivative instruments to hedge currency rate movements on foreign currency denominated sales.  The Company enters into forward contracts, option contracts and non-deliverable forwards to manage the impact of foreign currency fluctuations on a portion of its forecasted foreign currency exposure.  These derivatives are carried at fair value on the Company’s consolidated balance sheets in prepaid and other current assets, other long-term assets, accounts payable and accrued liabilities, and other long-term liabilities.  Changes in fair value of the derivatives not designated as hedge instruments are included in the determination of net income.  For derivative contracts designated as hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive income and reclassified to sales in the period the underlying hedged item is recognized in earnings.  The Company uses operating budgets and cash flow forecasts to estimate future economic exposure and to determine the level and timing of derivative transactions intended to mitigate such exposures in accordance with its risk management policies.

 

Stock-Based Compensation

Stock-Based Compensation

 

The Company records compensation expense for all share-based awards granted based on the fair value of the award at the time of the grant.  The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions and estimates that the Company believes are reasonable.  Stock-based compensation costs for stock awards and restricted stock awards is measured based on the closing fair market value of the Company’s common stock on the date of the grant.  The Company recognizes the cost of the share-based awards on a straight-line basis over the requisite service period of the award.

Revenue Recognition

Revenue Recognition

 

The Company sells its products pursuant to customer orders or sales contracts entered into with its customers.  Revenue is recognized when title and risk of loss pass to the customer and when collectability is reasonably assured.  Charges for shipping and handling fees billed to customers are included in net sales and the corresponding shipping and handling expenses are included in cost of sales in the accompanying consolidated statements of comprehensive (loss) income.

 

At the time of revenue recognition, we also provide for estimated sales returns and miscellaneous claims from customers as reductions to revenues.  The estimates are based on historical rates of product returns and claims.  However, actual returns and claims in any future period are inherently uncertain and thus may differ from these estimates.  If actual or expected future returns and claims are significantly greater or lower than the reserves that we have established, we will record a reduction or increase to sales in the period in which we make such a determination.  Over the three-year period ended December 31, 2013, our actual annual sales returns have been less than 2 percent of net sales.  The allowance for outstanding sales returns from customers is insignificant to the consolidated financial statements.

 

Cost Of Sales

Cost of Sales

 

The expenses that are included in cost of sales include all direct product costs and costs related to shipping, handling, duties and importation fees.  Product warranty costs and specific provisions for excess, close-out, or slow moving inventory are also included in cost of sales.  PIEPS has implemented a voluntary recall of all of its PIEPS VECTOR avalanche transceivers due to functional issues that may not be readily apparent to a user of this product.  As a result of the voluntary recall the Company incurred a charge of $1,541 in costs of sales during the year ended December 31, 2013 and does not anticipate incurring any further charges as a result of the recall.

 

Selling, General And Administrative Expense

Selling, General and Administrative Expense

 

Selling, general and administrative expense includes personnel-related costs, product development, selling, advertising, depreciation and amortization, and other general operating expenses.  Advertising costs are expensed in the period incurred.  Total advertising expense was $3,422, $1,973, and $1,790 for the years ended December 31, 2013, 2012, and 2011, respectively.

 

Product Warranty

Product Warranty

 

Some of the Company’s products carry warranty provisions for defects in quality and workmanship.  A warranty reserve is established at the time of sale to cover estimated costs based on the Company’s history of warranty repairs and replacements and is recorded in cost of sales.  The Company has not experienced significant warranty claims on its products.

 

Reporting Of Taxes Collected

Reporting of Taxes Collected

 

Taxes collected from customers and remitted to government authorities are reported on the net basis and are excluded from sales.

 

Research And Development

Research and Development

 

Research and development costs are charged to expense as incurred, and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.  Total research and development costs were $10,069, $5,520, and $4,690 for the years ended December 31, 2013, 2012, and 2011, respectively.

 

Income Taxes

Income Taxes

 

Income Taxes are based on amounts of taxes payable or refundable in the current year and on expected future tax consequences of events that are recognized in the financial statements in different periods than they are recognized in tax returns.  As a result of timing of recognition and measurement differences between financial accounting standards and income tax laws, temporary differences arise between amounts of pretax financial statement income and taxable income and between reported amounts of assets and liabilities in the Consolidated Balance Sheets and their respective tax bases.  Deferred income tax assets and liabilities reported in the Consolidated Balance Sheets reflect estimated future tax effects attributable to these temporary differences and to net operating loss and net capital loss carryforwards, based on tax rates expected to be in effect for years in which the differences are expected to be settled or realized. Realization of deferred tax assets is dependent on future taxable income in specific jurisdictions.  Valuation allowances are used to reduce deferred tax assets to amounts considered likely to be realized.  U.S. deferred income taxes are not provided on undistributed income of foreign subsidiaries where such earnings are considered to be permanently invested.

 

 

 

Concentration Of Credit Risk And Sales

Concentration of Credit Risk and Sales

 

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and accounts receivable.  Risks associated with cash within the United States are mitigated by banking with federally insured, creditworthy institutions.  Accordingly, the Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses as considered necessary by management.

 

During the years ended December 31, 2013 and 2012, Recreational Equipment, Inc. (“REI”) accounted for approximately 12% and 14%, respectively, of the Company’s sales.

 

Fair Value Measurements

Fair Value Measurements

 

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.  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 long-term debt obligations under its revolving credit facility and senior subordinated notes payable approximate the carrying values at December 31, 2013.

 

Segment Information

Segment Information

 

The Company has determined that during 2013, 2012, and 2011, the Company operated in one principal business segment.

 

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In February 2013, the FASB issued Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  ASU 2013-02 establishes new requirements for disclosing reclassifications of items out of accumulated other comprehensive income and includes identification of the line items in net earnings affected by the reclassifications.  This standard is effective for annual and interim periods for fiscal years beginning after December 15, 2012 (for us this was our 2013 first quarter).  The Company adopted the provisions of this update during the three months ended March 31, 2013, which provides additional detail on those financial statements as applicable, but did not have any other impact on our financial statements.

 

In March 2013, the FASB issued Accounting Standards Update No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This standard defines the treatment of the release of cumulative translation adjustments upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted and prior periods should not be adjusted. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.