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Article by DailyStocks_admin    (02-27-12 02:15 AM)

Description

Black Diamond. Director Philip N Duff bought 200000 shares on 2-22-2012 at $ 7.5

BUSINESS OVERVIEW

Overview

Black Diamond, Inc. (“Black Diamond” or the “Company,” which may be referred to as “we,” “us,” or “our”) is a leading provider of outdoor recreation equipment and active lifestyle products. The Company’s principal brands are Black Diamond® and Gregory®. The Company develops, manufactures and globally distributes a broad range of products including: rock-climbing equipment (such as carabiners, protection devices, harnesses, belay and devices, helmets, and ice-climbing gear), technical backpacks and high-end day packs, tents, trekking poles, headlamps and lanterns, gloves and mittens, skis, ski bindings, ski boots, ski skins and avalanche safety equipment. Headquartered in Salt Lake City, Utah, the Company has more than 475 employees worldwide, with ISO 9001 manufacturing facilities both in Salt Lake City and Southeast China, as well as a sewing plant in Calexico, California, distribution centers in Utah and Southeast China, a marketing office in Yokohama, Japan, and a fully-owned sales, marketing and distribution operation for Europe, located near Basel, Switzerland.

On January 21, 2011, we changed our name from Clarus Corporation to Black Diamond, Inc., which we believe more accurately reflects our current business.

Operating History

Since the 2002 sale of our e-commerce solutions business, we have engaged in a strategy of seeking to enhance stockholder value by pursuing opportunities to redeploy our assets through an acquisition of, or merger with, an operating business or businesses that would serve as a platform company. 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, LLC (which may be referred to as “Gregory” or “GMP”). Because the Company had no operations at the time of our acquisition of Black Diamond Equipment, Black Diamond Equipment is considered to be our predecessor company (the “Predecessor” or “Predecessor Company”) for financial reporting purposes (see Note 2 of our consolidated financial statements for a more detailed explanation of the acquisition). The Predecessor does not include Gregory.

Market Overview

Our primary target customers are outdoor-oriented consumers and adventurers who understand the importance of quality equipment for those involved in active and adventurous lifestyles. The users of our products are made up of a wide range of outdoor athletes and enthusiasts, including rock, ice and mountain climbers, skiers, backpackers, river runners, campers, cyclists, and endurance trail runners, among others. We believe that our brand is iconic among the devoted outdoor adventurers with a strong reputation for innovation, style, quality, design, and durability in each of our core product lines that facilitate the needs of rock and ice climbers, alpinists, backcountry and freeride skiers, day hikers, backpackers, and campers.

As the variety of outdoor sports activities continues to grow and proliferate and existing outdoor sports evolve and become ever more specialized, we believe other outdoor sports and athletic equipment companies are failing to address the unique aesthetics, fit and technical and performance needs of athletes and enthusiasts involved in such specialized activities. We believe we have been able to help address this void in the marketplace by leveraging our user intimacy and improving on our existing product lines, by expanding our product offerings into new niche categories, and by incorporating innovative industrial design and engineering, along with comfort and functionality into our products. Although we were founded to address the needs of core rock and ice climbers, backcountry skiers, and alpinists, we are also successfully designing products for more casual outdoor enthusiasts who also appreciate the technical rigor and premium quality of our products. We believe the credibility and authenticity of our brands expand our potential market beyond committed outdoor athletes to those outdoor generalist consumers who desire to lead active, healthy and balanced lives.

Growth Strategies

Our growth strategies are to achieve sustainable, profitable growth organically and to expand the business through targeted, strategic acquisitions. We intend to create innovative new products, increase consumer and retailer awareness and demand for our products, and build stronger brand connections with consumers over time across a growing number of geographic markets, including Asia and South America.

New Product Development

To drive organic growth within our existing businesses, we intend to leverage our strong brand names, customer relationships and proven capacity for innovation to develop new products and product extensions in each of our existing product categories, and to expand into new product groups. Since 1989, our brands have introduced over 200 new products. We have also invested resources to develop processes for developing internally hot-forged carabiners and closed loop anodizing and to manufacture other products in our managed facility in Asia, which we expect to increase our competitiveness. We have also recently developed a new line of harnesses based on our Kinetic Core and Dual Core construction technologies and a new line of freeride ski boots featuring unprecedented FIT, FLEX, and ACCESS technologies including revolutionary ski/walk performance, as well as a new line of freeride Power series skis featuring 3D Metal Sandwich construction and unparalleled torsion stiffness. In 2009, we introduced two via ferrata protection kits with safety technologies previously unavailable to climbers. In addition, we have introduced a number of new packs featuring our BioSync™, ErgoACTIV™, ReACTIV™, Fusion™, JetStream™, and Response™ suspension systems, which provide backpackers with superior comfort, movement and load transfer characteristics.

We intend to expand our business into both adjacent and complementary product categories, such as outdoor technical apparel and footwear.

Innovation and New Technology

We have a long history of technical innovation, and in recent years have introduced innovations such as the first plastic telemark boot, the AvaLung® backpack, which helps adventurers survive an avalanche, and FlickLock® and Control Shock Technology for our adjustable trekking poles. Our products have introduced many firsts in the backpack market, including being the first to build backpacks in different frame, harness and waist belt sizes; the first (and still only) pack manufacturer to develop a waistbelt system that adjusts to fit different hip angles, automatically improving load transfer; and the first to develop the center-locking bar tack, a stitch that ends and locks off on the center of a seam instead of the side for increased strength at major stress points. Our new technologies are generally inspired by our continuing commitment to maximize the enjoyment and safety of the outdoor sports for which we design our products.

Acquisition of Complementary Businesses

We expect to target acquisitions as a viable opportunity to gain access to new product groups and customer channels and increase penetration of existing markets, while taking advantage of our existing operational platform that we expect will enable us to leverage global resources of our business in North America, Europe and Asia, including product commercialization, supply chain, distribution, inventory management, manufacturing, IT, quality and global compliance.

To the extent we pursue future acquisitions, we intend to focus on businesses with product offerings that provide geographic or product diversification, or that expand our business into related categories that can be marketed through our existing distribution channels or that provide us access to new distribution channels for our existing products, thereby increasing marketing and distribution efficiencies. We are particularly interested in companies with category-leading brands, recurring revenue, sustainable margins and strong cash flow. We anticipate financing future acquisitions prudently through a combination of cash on hand, operating cash flow, bank financings and new capital markets offerings.

Competitive Strengths

Experienced Management

Our management team has been involved in the successful operation, acquisition and integration of a substantial number of companies. Throughout his 30 year business career, our Executive Chairman, Warren B. Kanders, has established a track record of building public companies through strategic acquisitions to enhance organic growth. Peter Metcalf, the co-founder of Black Diamond Equipment and our President and Chief Executive Officer, boasts a lifetime of active participation in outdoor sports and a compelling track record in the outdoor/ski products industry. During the last 22 years, Mr. Metcalf has led Black Diamond Equipment through a period of consistent growth and steady diversification, and Black Diamond Equipment has emerged as a global brand. We are equally reliant upon the skills and experience of our Executive Vice Chairman, Robert R. Schiller, who previously served as the President, Chief Operating Officer and Chief Financial Officer of Armor Holdings, Inc., and has a proven record of managing operations as well as identifying, executing and integrating strategic acquisitions.

Strong Base of Business

Our outdoor products business benefits from a strong reputation for paradigm changing, high quality, and innovative products that make us a leader in the outdoor industry with particular strength in product categories such as backpacking, hiking, rock climbing, ice climbing, skiing, and mountaineering. Underlying our innovative product lines is a strong stable of intellectual property, with multiple patents and patent applications, as well as valuable brands and trademarks. In addition, our user intimacy, strong retailer partnerships, operations and execution acumen and leadership as a champion in the access, education, and stewardship issues that affect our customers contribute to the robustness of our business.

Incentivized Management

The members of our Board of Directors and our executive officers, including Messrs. Kanders, Metcalf and Schiller, are substantial stockholders of the Company and beneficially own approximately 39% of our outstanding common stock, which we believe aligns the interests of our Board of Directors and our executive officers with that of our stockholders.

Growth-Oriented Capital Structure

Our capital structure provides us with the capacity to fund future growth. Our net operating loss and tax credit carryforwards are expected to substantially offset our future U.S. Federal income taxes, excluding the amount subject to U.S. Federal Alternative Minimum Tax (“AMT”), which is expected to allow us to retain cash flow for future growth. 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.

We recently filed a shelf registration statement with the Securities and Exchange Commission whereby we may offer, issue and sell from time to time, in one or more offerings and series, together or separately, shares of common stock, shares of preferred stock, debt securities or guarantees of debt securities up to an aggregate amount of $250,000,000. The proceeds of any offering are anticipated to be used in the strategic development and growth of our business, both organically and through acquisitions.

Distribution

Our products are primarily distributed through a strong, global network of independent specialty retailers, specialty chains and consumer catalogs. We enjoy strong relationships with customers in a number of these sales channels that can provide for additional diversification and the ability to pursue growth opportunities in a number of different markets across a variety of product types and price points.

Products

We have developed a reputation for designing, manufacturing and distributing products considered to be both innovative and dependable in their respective market niches. Our commitment to designing innovative, durable and reliable products that enhance our customers’ capabilities, comfort and safety in their outdoor endeavors will remain our hallmark and mission. In addition to function, we believe our products’ unique aesthetic appearance is another hallmark that distinguishes us in the outdoor marketplace. Our products have won numerous awards from industry magazines including Alpinist, Backpacker, Climbing, Consumers Digest, National Geographic Adventure, Men’s Journal, Outside, Popular Science, Powder, Rock & Ice, Ski and Skiing.

Our products include a wide variety of technical outdoor equipment and lifestyle products for rock and ice climbers, alpinists, hikers, freeride skiers, outdoor enthusiasts and travelers. Many of our products are designed for extreme applications, such as high altitude mountaineering, ice and rock climbing, as well as backcountry, freeride, and alpine skiing. Generally, our product offerings are divided into the following three primary categories:





Climbing: Our climb line consists of technical equipment such as belay/rappel devices, bouldering products, carabiners and quickdraws, chalk, chalk bags, climbing packs, crampons, crash pads, dogbones and runners, harnesses, ice axes and piolets, ice protection and rock protection devices and various other climbing accessories.





Skiing: Our skiing line consists of AvaLung backpacks, winter packs for skiing and snowboarding, bindings, boots, poles, skis, skins, snow gloves, snow packs, and snow safety devices.





Mountaineering: Our mountaineering line consists of mountaineering backpacks for alpine expeditions, backpacks for backcountry excursions, overnight trips, and day hikes, bivy sacks, rain sacks, gaiters, gloves, headlamps, lights, tents, trekking poles and various other hiking and mountaineering accessories.

We also offer hydration packs for trail running and cycling, and travel and lifestyle products such as duffle bags, messenger bags, and small bags and pouches designed to carry electronics and other accessories, and a variety of Black Diamond Equipment and Gregory branded apparel and accessories.

Customers

We market and distribute our products in over 40 countries, primarily through independent specialty stores and specialty chains, including premium sporting goods and outdoor recreation stores and consumer catalogs, in the United States, Canada, New Zealand, Europe, Asia and Africa. In addition, our Gregory branded products are sold through Gregory-supplied retail stores in Tokyo, Japan, Seoul, South Korea and Taiwan. We also sell our products directly to customers through our wholly-owned retail store in Salt Lake City, Utah and online at www.blackdiamondequipment.com.

We have highly diversified account bases and sell products in over 1,500 retail locations through over 1,000 individual accounts, with the bulk of our business being done through independent retailers. Despite the benefits of this diversification, we remain highly dependent on consumer discretionary spending patterns and the purchasing patterns of our wholesale and other customers as they attempt to match their seasonal purchase volumes to volatile consumer demand.

Our end users constitute a broad range of consumers including mountain climbers, winter outdoor enthusiasts, backpackers and campers, cyclists, top endurance trail runners and outdoor-inspired consumers. Such consumers demand high-quality, reliable and well-designed products to enhance their performance and safety in a multitude of outdoor activities in virtually any climate. We expect to leverage our user intimacy, engineering prowess and design ability to expand into related technical product categories that target the same demographic group and distribution channels while leveraging our user intimacy, engineering prowess and design ability.

During 2010, Recreational Equipment, Inc. (“REI”) accounted for approximately 14% of our sales, while Kabushiki Kaisha A&F (“A&F (Japan)”) accounted for approximately 8% of our sales. The loss of either of these customers could have a material adverse effect on the Company.

Sales and Marketing

Our sales force is generally deployed by geographic region. Our focus is on providing our products to a broad spectrum of outdoor enthusiasts, from expert rock climbers to beginner skiers. Within each of our brands, we strive to create a unique look for our products and are beginning to utilize new and enhanced in-store merchandising displays and techniques to communicate those differences to the consumer. In addition, we are exploring uses for brand and market research. We also regularly utilize various promotions and public relations campaigns.

We have consistently established relationships with professional athletes to help evaluate, promote and establish product performance and authenticity with customers. Such endorsers are one of many elements in our array of marketing materials, including in-store displays, brochures and on our website.

Research and Development

We commit significant resources to new product research and development. We conduct our product research and design activities at our locations in Salt Lake City, Utah and Zhuhai, China, and conduct product evaluations at our offices located outside of Basel, Switzerland.

We expense research and development costs as incurred. We have 36 employees dedicated to research and development and have spent approximately $6.3 million in connection with research and development activities over the last three calendar years.

Manufacturing, Distribution, and Sourcing

Manufacturing and Global Distribution

Several of our products are manufactured in our facilities in the United States and Asia. Certain of our products are also manufactured to our specifications by independently owned facilities in China and the Philippines. While we do not maintain a long-term manufacturing contract with such facilities, we believe that our long-term relationship with our manufacturing facilities in Asia will help to ensure that a sufficient supply of goods built to our specification are available in a timely manner and on satisfactory economic terms in the future.

In 2006, Black Diamond Equipment Asia Ltd. (“Black Diamond Asia”), a wholly-owned subsidiary of Black Diamond, was established in southeast China. The facility in southeast China is a Black Diamond Equipment-managed 100,000 sq. ft. facility that is operated and staffed by our employees. Each piece of equipment is tested to the same degree at the Black Diamond Asia facility as they are at our Salt Lake City facility. Each of those facilities rely on identical, thoroughly documented systems and procedures to ensure consistent quality and safety for every piece of gear we put our name on. Our manufacturing operations in Salt Lake City and southeast China are each ISO 9001 certified.

In addition to manufacturing, we run our own global distribution and quality control operation at our Zhuhai, China facility, allowing us to aggregate for global shipping the goods that we and our Asian-based facilities manufacture.

Sourcing

We source raw materials and components from a variety of suppliers. Our primary raw materials include aluminum, steel, nylon, corrugated cardboard for packaging, electrical components, plastic resin, urethane and various textiles, foams and fabrics. The raw materials used in the manufacture of our products are generally available from numerous suppliers in quantities sufficient to meet normal requirements.

We source packaging materials both domestically as well as from sources in Asia and Europe. We believe that all of our purchased products and materials could be readily obtained from alternative sources at comparable costs.

Competition

Because of the diversity of our product offerings, we compete by niche with a variety of companies. Our products must stand up to the high standards set by the world’s elite mountain climbers, alpine skiers and adventurers. In the outdoor industry, quality and durability are paramount among such athletes who rely on our products to withstand some of the world’s most extreme conditions. In addition to extreme adventurers, we believe all outdoor enthusiasts benefit from the high-quality standards of our products. We also believe our products compete favorably on the basis of product innovation, product performance, marketing support and price.

The popularity of outdoor activities and changing design trends affect the desirability of our products. Therefore, we seek to anticipate and respond to trends and shifts in consumer preferences by adjusting the mix of available product offerings, developing new products with innovative performance features and designs, and by marketing our products in a persuasive and memorable fashion to drive consumer awareness and demand. Failure to anticipate or respond to consumer needs and preferences in a timely and adequate manner could have a material adverse effect on our sales and profitability.

We compete with niche, privately-owned companies as well as a number of brands owned by large multinational companies, such as those set forth below.




Climbing: Our climbing products and accessories, including but not limited to, belay devices, carabiners, and harnesses, compete with products from companies such as Arc’Teryx, Petzl and Mammut.




Skiing: Our skiing equipment and accessories, including but not limited to, skis, ski bindings, poles and boots, compete with products from competitors such as Atomic, Dynafit (Salewa), Dynastar (Lange), Garmont, K2, Volkl, Marker, Nordica, Rossignol, Salomon, Scarpa and Scott.




Mountaineering: Our mountaineering products, including but not limited to, backpacks, trekking poles, headlamps and tents, compete with products from companies such as Petzl, Mammut, Deuter, Kelty, Leki, Komperdell, Marmot, Mountain Hardwear, Mountainsmith, Osprey, Dakine, Sierra Designs and The North Face.

In addition, we compete with certain of our large wholesale customers who focus on the outdoor market, such as REI, Eastern Mountain Sports, Mountain Equipment Co-op (“MEC”) and Decathlon, which manufacture, market and distribute their own climbing, skiing and mountaineering products under their own private labels.

Patents and Trademarks

We believe our primary and pending word and icon trademarks worldwide, including the Black Diamond and Gregory logos, Black Diamond®, ATC®, Camalot®, Gregory®, AvaLung®, FlickLock®, Ascension™, Time is Life®, Hexentric®, Stopper® and Bibler® create international brand recognition for our products.

We believe our brands have an established reputation for high quality, reliability and value and, accordingly, we actively monitor and police our brands against infringement to ensure their viability and enforceability.

In addition to trademarks, we hold over 70 patents worldwide for a wide variety of technologies across our product lines.

Our success with our proprietary products is generally derived from our “first mover” advantage in the market as well as our commitment to protecting our current and future proprietary technologies and products, which acts as a deterrent to infringement of our intellectual property rights. While we believe our patent and trademark protection policies are robust and effective, if we fail to adequately protect our intellectual property rights, competitors may manufacture and market products similar to ours. Our principal intellectual property rights include our patents and trademarks but also include products containing proprietary trade secrets.

CEO BACKGROUND

Warren B. Kanders , 53, our Executive Chairman, has served as one of our directors since June 2002 and as Executive Chairman of our Board of Directors since December 2002. Since 1990, Mr. Kanders has served as the President of Kanders & Company, Inc. (“Kanders & Co.”), a private investment firm principally owned and controlled by Mr. Kanders, that makes investments in and provides consulting services to public and private entities. From January 1996 until its sale to BAE Systems plc (“BAE Systems”) on July 31, 2007, Mr. Kanders served as the Chairman of the Board of Directors, and as the Chief Executive Officer from April 2003, of Armor Holdings, Inc. (“Armor Holdings”), formerly a New York Stock Exchange-listed company and a manufacturer and supplier of military vehicles, armored vehicles and safety and survivability products and systems to the aerospace and defense, public safety, homeland security and commercial markets. Mr. Kanders served as a director of Highlands Acquisition Corp. (“Highlands”), a publicly-held blank check company from May 2007 until September 2009. From April 2004 until October 2006, he served as the Executive Chairman, and from October 2006 until September 2009, served as the Non-Executive Chairman of the Board of Directors of Stamford Industrial Group, Inc., which was an independent manufacturer of steel counterweights. Since November 2004, Mr. Kanders has served as the Chairman of the Board of Directors of PC Group, Inc., a manufacturer of personal care products. From October 1992 to May 1996, Mr. Kanders served as Vice Chairman of the Board of Directors of Benson Eyecare Corporation, a formerly publicly-listed manufacturer and distributor of eye care products and services. Mr. Kanders received an A.B. degree in Economics from Brown University. Mr. Kanders also serves on the board of trustees of the Whitney Museum of American Art, the Choate Rosemary Hall School and the Winston Churchill Foundation. Based upon Mr. Kanders’ role as Executive Chairman of the Company, service as a chairman and a director of a wide-range of other public companies, financial background and education, as well as his extensive investment, capital raising, acquisition and operating expertise, the Company believes that Mr. Kanders has the requisite set of skills to serve as a Board member of the Company.

Robert R. Schiller , 48, has served as our Executive Vice Chairman since May 2010. Mr. Schiller served as Vice Chairman of the Board of Directors of Gregory Mountain Products (“Gregory”) from March 2008 until May 2010. From July 1996 until its sale to BAE Systems on July 31, 2007, Mr. Schiller served in a variety of capacities at Armor Holdings, including as a Director from June 2005, President from January 2004, Chief Operating Officer from April 2003, and Chief Financial Officer and Secretary from November 2000 to March 2004. Mr. Schiller graduated with a B.A. in Economics from Emory University in 1985 and received an M.B.A. from Harvard Business School in 1991. Based upon Mr. Schiller’s role as Executive Vice Chairman of the Company as well as his extensive experience as an executive officer and director, together with his educational experience and his extensive operational, acquisition, corporate governance, financial and transactional expertise, the Company believes that Mr. Schiller has the requisite set of skills to serve as a Board member of the Company.

Peter R. Metcalf , 55, has served as our President and Chief Executive Officer since May 2010. Mr. Metcalf served as the Chief Executive Officer and Chairman of the Board of Directors of Black Diamond Equipment, Inc. (“Black Diamond Equipment”) since co-founding Black Diamond Equipment in 1989 until the completion of the Company’s acquisition of Black Diamond Equipment in May 2010. He is a graduate of the University of Colorado, with a major in Political Science. He also earned a Certificate in Management from the Peter Drucker Center of Management. Based upon Mr. Metcalf’s role as Chief Executive Officer and President of the Company as well as being the co-founder of Black Diamond Equipment which provides Mr. Metcalf with an extensive knowledge of Black Diamond Equipment’s history, products, strategies, and culture, the Company believes that Mr. Metcalf has the requisite set of skills to serve as a Board member of the Company.

Donald L. House , 69, has served as one of our directors since January 1993. Mr. House served as Chairman of our Board of Directors from January 1994 until December 1997 and as our President from January 1993 until December 1993. Mr. House also served as a member of the Board of Directors of Carreker Corporation from May 1998 until March 2007. Mr. House is a private investor and he serves on the board of directors as well as the Chairman and Co-Chairman of several privately-held companies. Mr. House received Bachelor and Masters of Science degrees from the Georgia Institute of Technology. Based upon Mr. House’s role as the Chairman of the Company’s Board of Directors’ Compensation Committee, prior experience as a chairman and an executive officer of companies in a variety of industries, financial expertise and extensive experience serving as a member of the boards of directors and committees of other public companies, the Company believes that Mr. House has the requisite set of skills to serve as a Board or Board committee member of the Company.

Nicholas Sokolow , 61, has served as one of our directors since June 2002. From January 1996 until its sale to BAE Systems on July 31, 2007, Mr. Sokolow served as a member of the Board of Directors of Armor Holdings. Mr. Sokolow served as a member of the Board of Directors of Stamford Industrial Group, Inc. from October 2006 until September 2009. Since 2007, Mr. Sokolow has been practicing law at the firm of Lebow & Sokolow LLP. From 1994 to 2007, Mr. Sokolow was a partner at the law firm of Sokolow, Carreras & Partners. From June 1973 until October 1994, Mr. Sokolow was an associate and partner at the law firm of Coudert Brothers. Based upon Mr. Sokolow’s role as the Chairman of the Company’s Board of Directors’ Nominating/Corporate Governance Committee, education, legal background involving mergers and acquisitions, corporate governance expertise and extensive experience serving as a member of the boards of directors and committees of other public companies, the Company believes that Mr. Sokolow has the requisite set of skills to serve as a Board or Board committee member of the Company.

Michael A. Henning , 70, has served as one of our directors since May 2010. Mr. Henning served as a director and the Chairman of the Audit Committee of the Board of Directors of Highlands from May 2007 until September 2009. Since 2000, Mr. Henning has been the Chairman of the Audit Committee and member of the Compensation Committee, and has previously served as the Vice Chairman of the Finance Committee, of the Board of Directors of CTS Corporation, a NYSE-listed company that provides electronic components to auto, wireless and PC businesses. In December 2002, he joined the Board of Directors of Omnicom Group Inc., a global communications company, where he also serves on the Audit Committee and the Compensation Committee. Mr. Henning is also a member of the Board of Directors, and serves on the Audit Committee and Compensation Committee, of Landstar System, Inc., a NASDAQ-listed transportation and logistics services company. Mr. Henning retired as Deputy Chairman from Ernst & Young in 2000 after forty years with the firm. Mr. Henning was the inaugural CEO of Ernst & Young International, serving from 1993 to 1999. From 1991 to 1993, he served as Vice Chairman of Tax Services at Ernst & Young. Mr. Henning was also the Managing Partner of the firm’s New York office, from 1985 to 1991, and the Partner in charge of International Tax Services, from 1978 to 1985. From 1994 to 2000, Mr. Henning served as a Co-Chairman of the Foreign Investment Advisory Board of Russia, where he co-chaired a panel of 25 CEOs from the G-7 countries who advised the Russian government in adopting international accounting and tax standards. Mr. Henning received a B.B.A. from St. Francis College and a Certificate from the Harvard University Advanced Management Program. Mr. Henning is a Certified Public Accountant. Based upon Mr. Henning’s role as the Chairman of the Company’s Board of Directors’ Audit Committee, his accounting and financial expertise and extensive experience serving as a member of the boards of directors and committees of other public companies, the Company believes that Mr. Henning has the requisite set of skills to serve as a Board or Board committee member of the Company.

Philip N. Duff , 54, has served as one of our directors since May 2010. Mr. Duff has served as the Chief Executive Officer and General Partner of Massif Partners LLP (formerly Duff Capital Advisors) since founding it in 2007. Until December 2006, Mr. Duff served as the Chief Executive Officer and Chairman of FrontPoint Partners, LLC, which he co-founded in 2000. From 1998 until 2000, he was the Chief Operating Officer, Senior Managing Director, member of the Management Committee, and member of the Advisory Board of Tiger Management LLC. From 1984 to 1998, Mr. Duff was also employed at Morgan Stanley, where his prior positions included serving as Chief Financial Officer at Morgan Stanley Group Inc., as President and Chief Executive Officer at Van Kampen America Capital (acquired by Morgan Stanley), and as the head of Financial Institutions Group in Investment Banking at Morgan Stanley. From 1979 to 1982, Mr. Duff traded grain at Louis Dreyfus, Inc. Mr. Duff currently serves as a member of the Board of Directors of Ambac Financial Group since 2007, Photovoltaic Power Corporation since 2009, and TraDove, Inc. since 2009. Mr. Duff has also been a member of the Advisory Board of Westbury Partners since 2001. From 1994 to 2000, he previously served on the Board of Trustees of the Financial Accounting Foundation, and from 2003 to 2007, he served on the Board of Trustees of the Managed Funds Association. Mr. Duff graduated from Massachusetts Institute of Technology with an M.B.A. and from Harvard College with an A.B. in Mathematics. Based upon Mr. Duff’s prior experience as a chairman and an executive officer of companies in a variety of financial industries, financial expertise and extensive experience serving as a member of the boards of directors and committees of other public companies, the Company believes that Mr. Duff has the requisite set of skills to serve as a Board or Board committee member of the Company.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

Black Diamond, Inc. (“Black Diamond” or the “Company,” which may be referred to as “we,” “us,” or “our”) is a leading provider of outdoor recreation equipment and active lifestyle products. The Company’s principal brands are Black Diamond® and Gregory®. The Company develops, manufactures and globally distributes a broad range of products including: rock-climbing equipment (such as carabiners, protection devices, harnesses, belay and devices, helmets, and ice-climbing gear), technical backpacks and high-end day packs, tents, trekking poles, headlamps and lanterns, gloves and mittens, skis, ski bindings, ski boots, ski skins and avalanche safety equipment. Headquartered in Salt Lake City, Utah, the Company has more than 475 employees worldwide, with ISO 9001 manufacturing facilities both in Salt Lake City and Southeast China, as well as a sewing plant in Calexico, California, distribution centers in Utah and Southeast China, a marketing office in Yokohama, Japan, and a fully-owned sales, marketing and distribution operation for Europe, located near Basel, Switzerland.

On January 21, 2011, we changed our name from Clarus Corporation to Black Diamond, Inc., which we believe more accurately reflects our current business.

Operating History

Since the 2002 sale of our e-commerce solutions business, we have engaged in a strategy of seeking to enhance stockholder value by pursuing opportunities to redeploy our assets through an acquisition of, or merger with, an operating business or businesses that would serve as a platform company. 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, LLC (which may be referred to as “Gregory” or “GMP”) (the “Mergers”). Because the Company had no operations at the time of our acquisition of Black Diamond Equipment, Black Diamond Equipment is considered to be our predecessor company (the “Predecessor”) for financial reporting purposes (see Note 2 of our consolidated financial statements for a more detailed explanation of the acquisition). The Predecessor does not include Gregory.

Critical Accounting Policies and Use of Estimates

Management’s discussion of financial condition and results of operations is based on the consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates and assumptions including those related to derivatives, revenue recognition, income taxes, stock-based compensation, 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.

We believe the following critical accounting policies include the more significant estimates and assumptions used in the preparation of our consolidated financial statements. Our accounting policies are more fully described in Note 1 of our consolidated financial statements.





We use derivative instruments to hedge currency rate movements on foreign currency denominated sales. We enter into forward contracts, option contracts and non-deliverable forwards to manage the impact of foreign currency fluctuations on a portion of our forecasted sales denominated in foreign currencies. These derivatives are carried at fair value on our consolidated balance sheets in other assets and accrued 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 earnings in the period the underlying hedged item is recognized in earnings.

We use operating budgets and cash flow forecasts to estimate future sales and to determine the level and timing of derivative transactions intended to mitigate such sales in accordance with our risk management policies. If the forecasted sales levels are not reached, our derivative instruments may be deemed to be not effective which may result in foreign currency gains and losses being recorded in our statement of income, which could materially affect our financial position and results of operations.





We sell our products pursuant to customer orders or sales contracts entered into with our 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 are included in net sales and the corresponding shipping and handling expenses are included in cost of sales in the accompanying consolidated statements of operations.

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 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.





We account for income taxes using the asset and liability method. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. We make assumptions, judgments and estimates to determine our current provision for income taxes, our deferred tax assets and liabilities, and our uncertain tax positions. Our judgments, assumptions and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conductions by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly affect the amounts provided for income taxes in our consolidated financial statements. Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of taxable income. Actual operating results and the underlying amount and category of income in future years could cause our current assumptions, judgments and estimates of recoverable net deferred taxes to be inaccurate. Changes in any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, which could materially affect our financial position and results of operations.





Compensation expense is recorded for all share-based awards granted based on the fair value of the award at the time of the grant and is recognized on a straight-line basis over the requisite service period of the award. We estimate stock-based compensation for stock-options granted using the Black-Scholes option pricing model, which requires various highly subjective assumptions, including volatility and expected option life. Further, we estimate forfeitures for stock-based awards granted, which are not expected to vest. If any of these inputs or assumptions changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.





Our depreciation policies for property and equipment reflect judgments on their estimated economic lives and residual value, if any. Our amortization policies for intangible assets reflect judgments on the estimated amounts and duration of future cash flows expected to be generated by those assets. We review property and definite-lived intangible assets for possible impairment whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of an asset may not be fully recoverable. We test for possible impairment at the asset or asset group level, which is the lowest level for which there are identifiable cash flows. We measure recoverability of the carrying value of an asset or asset group by comparison with estimated undiscounted cash flows expected to be generated by the asset. If the total of undiscounted cash flows exceeds the carrying value of the asset, there is no impairment charge. If the undiscounted cash flows are less than the carrying value of the asset, we estimate the fair value of the asset based on the present value of its future cash flows and recognize an impairment charge for the excess of the asset’s carrying value over its fair value.




Indefinite−lived intangible assets, consisting of trademarks, and goodwill are not subject to amortization. Rather, we evaluate those assets for possible impairment on an annual basis or more frequently if events or changes in circumstances indicate that it is more likely than not that the carrying value of an asset may exceed its fair value. Fair value of an indefinite−lived trademark intangible asset is based on an income approach using the relief−from−royalty method. Under this method, forecasted revenues for a trademark are assigned a royalty rate that would be charged to license the trademark (in lieu of ownership) from an independent party, and fair value is the present value of those forecasted royalties avoided by owning the trademark. If the fair value of the trademark intangible asset exceeds its carrying value, there is no impairment charge. If the fair value of the asset is less than its carrying value, an impairment charge would be recognized for the difference.





We assess the recoverability of the carrying value of goodwill using a required two−step approach. In the first step of the goodwill impairment test, we compare the carrying value the Company, including its recorded goodwill, to the estimated fair value. We estimate the fair value using an equity-value based and enterprise-value based methodology. The principal method used is an equity-value based method in which the Company’s market-cap is compared to the net book value. In the enterprise-value based method, the fair value of the Company is estimated by taking its market-cap plus interest bearing debt, which equals the enterprise value. This value is then compared to total assets, less non-interest bearing debt. If the fair value of the Company exceeds its carrying value, the goodwill is not impaired and no further review is required. However, if the fair value of the business unit is less than its carrying value, we perform the second step of the goodwill impairment test to determine the amount of the impairment charge, if any. The second step involves a hypothetical allocation of the fair value of the Company to its net tangible and intangible assets (excluding goodwill) as if the business unit were newly acquired, which results in an implied fair value of goodwill. The amount of the impairment charge is the excess of the recorded goodwill over the implied fair value of goodwill.

Recent Accounting Pronouncements

There were no new accounting pronouncements for the year ended December 31, 2010 that materially impact the financial results or disclosures of the Company.

New accounting guidance issued by the FASB, but not effective until after December 31, 2010, is not expected to have a material effect on the Company’s consolidated financial position, results of operations or disclosures.

Results of Operations (In Thousands)

Combined Year Ended December 31, 2010 Compared to Combined Year Ended December 31, 2009

The following presents a discussion of operations for the combined year ended December 31, 2010, compared with the combined year ended December 31, 2009. The combined year ended December 31, 2010, represent the combined results of the Company for the year ended December 31, 2010, and the Predecessor for the period from January 1, 2010 through May 28, 2010, the closing date of the Mergers. The combined year ended December 31, 2009, represent the combined results of the Company and the Predecessor for the year ended December 31, 2009. The Predecessor does not include GMP.

The Mergers were accounted for in accordance with ASC 805, Business Combinations , resulting in a new basis of accounting from those previously reported by the Predecessor. However, sales and most operating cost items are substantially consistent with those reflected by the Predecessor. Inventories were revalued in accordance with the purchase accounting rules. Depreciation and amortization changed as a result of adjustments to the fair values of property and equipment and amortizable intangible assets due to fair value purchase allocation.

Cost of Goods Sold

Combined cost of goods sold increased $18,218 or 33.0%, to $73,345 during 2010 compared to $55,127 during 2009. The increase in cost of goods sold was primarily attributable to an increase in sales both organically and from the inclusion of GMP for the seven months ended December 31, 2010, and $4,997 related to the sale of inventory that was recorded at fair value in purchase accounting.

Gross Profit

Combined gross profit increased $4,492 or 13.6%, to $37,510 during 2010 compared to $33,018 during 2009. Gross margin was 33.8% during 2010 compared to 37.5% during 2009. The decrease in gross profit percentage was primarily attributable to the increase in cost of goods sold due to the sale of inventory that was recorded at fair value in purchase accounting. Excluding the $4,997 step-up in fair value of inventory in purchase accounting, gross margin percentage for 2010 would have been 38.3%. The increase in gross margin compared to that of 2009 is due to lower outbound costs as a result of shipping full containers from BDEL’s China facility, lower costs on manufacturing product at BDEL’s China facility, and product mix.

Selling, General and Administrative

Combined selling, general and administrative expenses increased $12,883 or 42.3%, to $43,346 during 2010 compared to $30,463 during 2009. The increase in selling, general and administrative expenses was primarily attributable to an increase in non-cash equity compensation expense of $4,925, the inclusion of GMP expenses of $4,314 for the seven months ended December 31, 2010, an increase in depreciation and amortization of $980, and an overall increase in operations. For more details on the non-cash equity compensation, please refer to Note 11 of our consolidated financial statements.

Restructuring Charge

Combined restructuring expense increased 100.0%, to $2,842 during the 2010 compared to $0 during 2009. The increase in restructuring expense was attributable to the acquisitions of BDEL and GMP. Such restructuring expenses comprised of (i) a total of $1,295 relating to the release of the Company from its lease obligations and indemnifications by Kanders & Company in connection with the relocation of our corporate office from Stamford, Connecticut to Salt Lake City, Utah, (ii) a total of $596 relating to the write-off of fixed assets partially offset by $462 write-off of a deferred rent liability for the relocation of our corporate office from Stamford, Connecticut to Salt Lake City, Utah, (iii) $352 related to severance and relocation benefits provided to GMP employees, and (iv) the complete amortization of the $1,061 paid for severance and a transition services agreement between the Company and Kanders & Company.

Merger and Integration

Combined merger and integration expense increased 100.0%, to $974 during 2010 compared to $0 during 2009. The increase in merger and integration expense was attributable to transaction bonuses paid and consulting fees related to the acquisitions of BDEL and GMP.

Transaction Costs

Combined transaction expense increased $3,462 or 214.6%, to $5,075 during 2010 compared to $1,613 during 2009. The increase in transaction expense was attributable to the acquisitions of BDEL and GMP. Transaction expense consists primarily of professional fees and expenses related to due diligence, negotiation and documentation of the acquisitions of BDEL and GMP, financing and related matters. The transaction expenses incurred during 2009 related to a transaction that terminated without consummation.

Interest Expense

Combined interest expense increased $894 or 89.9%, to $1,888 during 2010 compared to $994 during 2009. The increase in interest expense was primarily attributable to seven months of new debt outstanding including $13,582 of discounted 5% Subordinated Notes due in 2017 and a $35,000 line of credit related to financing of the acquisitions of BDEL and GMP, of which $14,735 was outstanding as of December 31, 2010, compared to twelve months of line of credit debt outstanding in the year ended December 31, 2009.

Other Income/Expense, Net


Combined other income, net increased $497 or 159.8%, to income of $808 during 2010 compared to income of $311 during 2009. The increase in other income, net was primarily attributable to the change in the mark-to-market value of foreign currency contracts.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Overview

Black Diamond is a leader in designing, manufacturing and bringing to market innovative active outdoor performance products for climbing, mountaineering, backpacking, skiing and other active outdoor recreation activities for a wide range of year-round use. Our principal brands include Black Diamond® and Gregory TM , through which we target the demanding requirements of core climbers and skiers, more general outdoor performance enthusiasts and consumers interested in outdoor-inspired gear for their urban activities. Our Black Diamond® and Gregory TM brands are iconic in the active outdoor industry and are linked intrinsically with the modern history of the sports we serve. We believe our brands are synonymous with performance, innovation, durability and safety that the climbing, mountaineering, skiing and backpacking 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, Inc. (which may be referred to as “Gregory” or “GMP”) (the “Mergers”). Because the Company had no operations at the time of our acquisition of Black Diamond Equipment, Black Diamond Equipment is considered to be our predecessor company (the “Predecessor”) for financial reporting purposes (see Note 2 of our unaudited condensed consolidated financial statements for a more detailed explanation of the acquisition). The Predecessor does not include Gregory.

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.

Critical Accounting Policies and Use of Estimates

Management’s discussion of financial condition and results of operations is based on the consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed consolidated financial statements require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates and assumptions including those related to derivatives, revenue recognition, income taxes, stock-based compensation, 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.

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, 2010.

Recent Accounting Pronouncements

On May 12, 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS . ASU No. 2011-04 was issued concurrently with International Financial Reporting Standards (“IFRS”) 13 Fair Value Measurements , to provide largely identical guidance about fair value measurement and disclosure requirements. The new standards do not extend the use of fair value but, rather, provide guidance about how fair value should be applied where it already is required or permitted under IFRS or U.S. GAAP. This standard is effective prospectively for interim and annual periods beginning after December 15, 2011. The Company does not expect the adoption of this standard to have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

On June 16, 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income . ASU No. 2011-05 amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and it is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (for us this will be our 2012 first quarter), with early adoption permitted. The Company believes the adoption of this update will change the order in which certain financial statements are presented and provide additional detail on those financial statements when applicable, but will not have any other impact on our financial statements.

On September 15, 2011, the FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment . ASU No. 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity can support the conclusion that it is not more than likely than not that the fair value of a reporting unit is less than its carrying amount, it would not need to perform the two-step impairment test for that reporting unit. Goodwill must be tested for impairment at least annually, and prior to the ASU, a two-step test was required to assess goodwill for impairment. ASU No. 2011-08 is effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011 (for us this will be our 2012 first quarter), with early adoption permitted. The Company believes the adoption of this update will change the process in how it performs its annual goodwill impairment test, but will not have any other impact on our financial statements.

Sales

Consolidated sales increased $8,094, or 23.8%, to $42,040 during the three months ended September 30, 2011 compared to consolidated sales of $33,946 during the three months ended September 30, 2010. The increase in sales was primarily attributable to an increase in the quantity of new and existing products sold during the period of $6,696, as well as an increase in sales of $1,398 due to the strengthening of foreign currencies against the US dollar.

Consolidated domestic sales increased $1,812, or 12.9%, to $15,868 during the three months ended September 30, 2011 compared to consolidated domestic sales of $14,056 during the three months ended September 30, 2010. The increase in domestic sales was primarily attributable to an increase in the quantity of new and existing climbing protection and general mountain products sold during the period.

Consolidated international sales increased $6,282, or 31.6%, to $26,172 during the three months ended September 30, 2011 compared to consolidated international sales of $19,890 during the three months ended September 30, 2010. The increase in international sales was primarily attributable to an increase in the quantity of new and existing climbing protection and general mountain products sold during the period of $4,884, as well as increase in international sales of $1,398 due to the strengthening of foreign currencies against the US dollar.

Cost of Goods Sold

Consolidated cost of goods sold increased $1,632, or 6.7%, to $26,043 during the three months ended September 30, 2011 compared to consolidated cost of goods sold of $24,411 during the three months ended September 30, 2010. The amount recorded during the three months ended September 30, 2010 included an increase in inventory value sold of $3,158 due to the step-up in fair value in purchase accounting; which all inventory acquired, and related step-up in fair value in purchase accounting, was sold in 2010. The increase in cost of goods sold was also attributable to an increase in sales.

Gross Profit

Consolidated gross profit increased $6,462, or 67.8%, to $15,997 during the three months ended September 30, 2011 compared to consolidated gross profit of $9,535 during the three months ended September 30, 2010. Consolidated gross margin was 38.1% during the three months ended September 30, 2011 compared to a consolidated gross margin of 28.1% during the three months ended September 30, 2010. Excluding the $3,158 impact of the acquisition-related fair value adjustment on sold inventory, gross margin for the three month period ending September 30, 2010 would have been 37.4%. The dollar increase in gross profit was primarily attributable to an increase in sales. The increase in gross margin percentage is primarily driven by not being impacted by any acquisition-related fair value adjustments during the three months ended September 30, 2011. When compared to the adjusted gross margin of 37.4%, the current period gross margin percentage increased due to the mix of product sold during 2011 compared to 2010.

Selling, General and Administrative

Consolidated selling, general and administrative expenses increased $2,060, or 19.1%, to $12,824 during the three months ended September 30, 2011 compared to consolidated selling, general and administrative expenses of $10,764 during the three months ended September 30, 2010. The increase in selling, general and administrative expenses was primarily attributable to the Company’s investments in its strategic initiatives and infrastructure to support both current and anticipated future growth.

Restructuring Charge

Consolidated restructuring expenses decreased $553, or 71.6%, to $219 during the three months ended September 30, 2011 compared to consolidated restructuring expense of $772 during the same period in 2010. The restructuring expenses incurred during the three months ended September 30, 2011 relate to termination costs of GMP’s office lease in Sacramento, CA. The restructuring expenses incurred during the three months ended September 30, 2010 comprised of: (i) $107 related to severance and relocation benefits provided to GMP employees, (ii) $218 related to the release of the Company from its lease obligations and indemnifications by Kanders & Company, Inc. (“Kanders & Company”) in connection with the relocation of our corporate office from Stamford, Connecticut to Salt Lake City, Utah, and (iii) $447 relating to the amortization of the $1,061 paid for severance and transition service expenses pursuant to a transition services agreement between the Company and Kanders & Company.

Merger and Integration

Consolidated merger and integration expenses decreased 100.0% to $0 during the three months ended September 30, 2011 compared to consolidated merger and integration expense of $88 during the same period in 2010, which was attributable to consulting fees related to the acquisitions of BDEL and GMP.

Transaction Costs

Consolidated transaction expense decreased 100.0% to $0 during the three months ended September 30, 2011 compared to consolidated transaction expense of $313 during the same period in 2010, which consisted primarily of professional fees related to the acquisitions of BDEL and GMP.

Interest Expense

Consolidated interest expense increased $76, or 11.8%, to $720 during the three months ended September 30, 2011 compared to consolidated interest expense of $644 during the three months ended September 30, 2010. The increase in interest expense was primarily attributable to higher average balances outstanding on the line of credit during the three months ended September 30, 2011 compared to the same period in 2010.

Income Taxes

Consolidated income tax expense increased $1,862, or 139.8%, to $530 during the three months ended September 30, 2011 compared to a consolidated income tax benefit of $1,332 during the same period in 2010. The increase in tax expense is due primarily to the increase in pre-tax income recorded during the three months ended September 31, 2011.

Our effective income tax rate was 34.5% for the three months ended September 30, 2011 compared to 28.8% for the same period in 2010. Many factors could cause our annual effective tax rate to differ materially from our quarterly effective tax rates, including changes in the geographic mix of taxable income and discrete events that may occur in various quarters. Sales

Consolidated sales increased $32,803, or 42.8%, to $109,436 during the nine months ended September 30, 2011 compared to combined sales of $76,633 during the nine months ended September 30, 2010. The increase in sales was primarily attributable to the inclusion of $15,501 in additional sales from GMP during the nine months ended September 30, 2011, an increase in sales of $14,487 by BDEL which was driven by an increase in the quantity of new and existing products sold during the period, as well as an increase in sales of $2,815 due to the strengthening of foreign currencies against the US dollar.

Consolidated domestic sales increased $10,827, or 32.0%, to $44,670 during the nine months ended September 30, 2011 compared to combined domestic sales of $33,843 during the nine months ended September 30, 2010. The increase in domestic sales was primarily attributable to the inclusion of $5,996 additional domestic sales from GMP during the nine months ended September 30, 2011, as well as an increase in domestic sales of $4,831 by BDEL which increase was driven by an increase in the quantity of new and existing climbing protection, general mountain, and ski products sold during the period.

Consolidated international sales increased $21,976, or 51.4%, to $64,766 during the nine months ended September 30, 2011 compared to combined international sales of $42,790 during the nine months ended September 30, 2010. The increase in international sales was primarily attributable to the inclusion of $9,505 additional international sales from GMP for the nine months ended September 30, 2011, an increase in international sales of $9,656 by BDEL which increase was driven by an increase in the quantity of new and existing climbing protection and general mountain products sold during the period, as well as an increase in international sales of $2,815 due to the strengthening of foreign currencies against the US dollar.

Cost of Goods Sold

Consolidated cost of goods sold increased $15,821, or 30.7%, to $67,333 during the nine months ended September 30, 2011 compared to combined cost of goods sold of $51,512 during the nine months ended September 30, 2010. The amount recorded during the nine months ended September 30, 2010 included an increase in inventory value sold of $4,321 due to the step-up in fair value in purchase accounting; which all inventory acquired, and related step-up in fair value in purchase accounting, was sold in 2010. The increase in cost of goods sold was also attributable to an increase in sales by BDEL and from the inclusion of GMP.

Gross Profit

Consolidated gross profit increased $16,982, or 67.6%, to $42,103 during the nine months ended September 30, 2011 compared to combined gross profit of $25,121 during the nine months ended September 30, 2010. Consolidated gross margin was 38.5% during the nine months ended September 30, 2011 compared to a combined gross margin of 32.8% during the nine months ended September 30, 2010. Excluding the $4,321 impact of the acquisition-related fair value adjustment on sold inventory, gross margin for the nine month period ending September 30, 2010 would have been 38.4%. The dollar increase in gross profit was primarily attributable to an increase in sales by BDEL and from the inclusion of GMP. The increase in gross margin percentage is primarily driven by not being impacted by any acquisition-related fair value adjustments during the nine months ended September 30, 2011. When compared to the adjusted gross margin of 38.4%, the current period gross margin is consistent with that of the same period in 2010.

Selling, General and Administrative

Consolidated selling, general and administrative expenses increased $5,983, or 19.2%, to $37,084 during the nine months ended September 30, 2011 compared to combined selling, general and administrative expenses of $31,101 during the nine months ended September 30, 2010. The increase in selling, general and administrative expenses was primarily attributable to the increase in operations with the inclusion of GMP and the Company’s investments in its strategic initiatives and infrastructure to support both current and anticipated future growth of $7,403, an increase in depreciation and amortization of $875, off-set by a decrease in non-cash equity compensation expense of $2,295.

Restructuring Charge

Consolidated restructuring expenses decreased $1,156, or 53.8%, to $993 during the nine months ended September 30, 2011 compared to combined restructuring expenses of $2,149 during the same period in 2010. All of the restructuring expense incurred in 2011 and 2010 were attributable to the acquisitions of BDEL and GMP. During 2011, such restructuring expenses comprised of: (i) $781 related to the relocation of GMP to the Company’s headquarters, and (ii) $212 related to the disposal of long-lived assets in conjunction with the relocation of the Company’s U.S. distribution facilities in Salt Lake City, UT to a new location in Salt Lake City, UT as part of integrating GMP. During 2010, such restructuring expenses comprised of: (i) a total of $1,295 relating to the release of the Company from its lease obligations and indemnifications by Kanders & Company in connection with the relocation of our corporate office from Stamford, Connecticut to Salt Lake City, Utah, (ii) a total of $596 relating to the write-off of fixed assets partially offset by $462 gain from the write-off of a deferred rent liability for the relocation of our corporate office from Stamford, Connecticut to Salt Lake City, Utah, (iii) $107 related to severance and relocation benefits provided to GMP employees, and (iv) $613 relating to the amortization of the $1,061 paid for severance and transition service expenses pursuant to a transition services agreement between the Company and Kanders & Company.

CONF CALL

Gary Blackie

Thank you very much. Welcome to Bois d’Arc Energy’s 2008 first quarter conference call. Today marks our third year anniversary of being a publicly traded New York Stock Exchange company. We will discuss our first quarter 2008 financial and operating results on this call and you can view a slide presentation during or after this call by going to our website at www.bolsdarcenergy.com and clicking on presentations and there you will find the presentation entitled first quarter 2008 results.

I am Gary Blackie, President Chief Executive Officer of Bois d’Arc and with me today are Roland Burns our Chief Financial Officer and Mr. Jay Allison our Chairman. Our discussion today will include forward-looking statements within the meaning of security lows. While we believe the expectations in such statements to be reasonable, there can be no assurance that such expectations will prove to be correct.

We recorded record high financial results in the first quarter of 2008 driven mostly by strong oil and gas prices. Our production increased 6% in the quarter and was held back by two short ends at two platforms which if producing would have added another 6 million cubic for gas equivalent per day to the 115 million cubic foot equivalent per day reproduce in the first quarter. With the strong oil and gas prices our revenue soared to a $113 million and it regenerated EBITDA of $96 million and operating cash flow of $79 million.

We had the most profitable quarter in our history with net income of $38 million or $0.56 per share. In addition to the first quarter results we will also discuss on this call the proposed merger of the company with Stone Energy that was announced on April 30. In the Merger our stockholders will receive $13.65 in cash and 0.165 shares of Stone Energy for each share of Bois d’Arc that they own.

The combination of these two outstanding companies will create the premier Gulf of Mexico Shelf Company; the new company being well positioned for future growth with its long cash flow, large inventory of expiration projects both on the shelf and in deep water and a strong balance sheet.

I will now let our CFO Roland Burns go over to financial results in more detail.

Roland Burns

Thanks Gary. Our production averaged to 115 million cubic feet of natural gas equivalent per day in the first quarter as shown on slide three in the presentation. Production increased 6% of our production in the first quarter of 2007 and was down slightly from production in the fourth quarter of 116 million per day.

During the quarter we had production shut in on two of our platforms with a bar on the ship show, 118R platform on January 1 and then we had a ship explosion near our pavilion blocks 12 and 51 that caused the TGPO pipeline to be shut in while the accident is investigated, any repairs are made. As a result of these two properties being down during the quarter our production was $6.1 million per day lower than it would have been otherwise.

The ship shelf platform returned to service in late February and the remaining platforms are expected to be back on in late May. Despite the flush start we still expect production increase to 46 to 49 BCSC this year as compared to the 42.2 BCSC we produced in 2007. On slide four we cover our oil prices, our average oil price soared 73% in the first quarter of 2008 to $101.01 per barrel as compare to the $58.33 we realized in the first quarter of 2007.

We continued to have high price realizations as our oil price was a 103% of the average NYMEX WTR price in the quarter. Our average gas price was also strong this quarter as shown on slide five, our average natural gas price increase 25% in the first quarter to $8.85 per mcf as compare to $7.10 in the first quarter of 2007. Our realized gas price was 110% of the average and we have nymax price in the quarter reflecting the strong Gulf Coast Market for natural gas.

Our production growth combined with the strong oil and gas prices increased our oil and gas sales which are represented on slide six. Our oil and gas sales increase to 49% in the first quarter to $113 million as compare to $76 million in 2007’s first quarter. As shown on slide seven our earnings for interest taxes, depreciation, amortization and expiration expense and other non-cash expenses or EBITDAX increased 56% in the first quarter to $96 million as compare to $62 million in 2007’s first quarter.

Slide eight covers our operating cash flow; our cash flow increased 43% this quarter to $79 million as compared to cash flow of $55 million in 2007’s first quarter. As shown on slide nine we reported net income of $38.1 million or $0.56 per share for this quarter as compare to $11.9 million or $0.18 per share in the first quarter of 2007. The record net income was probably attributable to the improved oil and gas prices.

There are gear operating costs on slide 10; our net-in cost this quarter averaged to $1.47 per mcfe as compare to $1.31 in the first quarter of 2007. The higher rate was partially attributable to the shut in production that we had during the quarter. Our depreciation, depletion and amortization per mcfe produced decrease to $2.69 per mcfe in the first quarter as compared to $2.86 in 2007’s first quarter. The lower rate reflects the improved finding cost that we had toward the end of last year.

On slide eleven you can see our capital structure as of March 31. We had $56 million in debt outstanding under our bank revolving credit facility as we were able to pay down $24 million of our debt in the first quarter. Our volume base end of this facility is $350 million given that the additional availability of $294 million at the end of the quarter.

We ended the quarter with $697 million in book equity and our debt to book acquisition ratio is now to the very low 8%. We did repurchase a 142,300 of our common stock in the first quarter under our stock repurchase plan.

I‘ll now turn it back over to Gary.

Gary Blackie

Okay thank you Roland. We spent $58 million on capital expenditures in the first quarter as compared to the $63 million we spent in 2007’s first quarter. We have drilled three successful wells so far this year. We spent $17 million on exploratory drilling and $19 million on development drilling. We also spent $13 million on production facilities re-completions and abandonment work.

In order to support our exploration efforts we spent $9 million on acquiring new leases. On slide 13 as it shows we drilled three successful wells a 2.6 net so far in 2008. The first was the well at Ship Shoal block 97 which was drilled to a depth of 12,983 feet and encountered 71 net feet of pay in two high quality gas sands. This well was put on production in February at a rate of 10.3 million equivalents per day and in this well we have a 78% working interest.

The second well was drilled to test the “Perch” prospect at Ship Shoal block 120. This well was drilled to a depth of 5,000 feet and encountered 94 feet of pay in eight commercial sands and first production for the wells is expected to be in the second quarter. We have a 100% working interest in the Perch well.

We also drilled an exploratory well at South Pelto block 21 to test the "Chinook" prospect and this exploratory well was drilled to a depth of 18,250 feet and encountered 38 feet of pay in the objective sand. First production for this well is expected July 1, 2008 and we have a 79% working interest in this well. We are currently drilling a 16,500 foot exploratory well to test our "Kelsie" prospect at Ship Shoal block 95.

Next slide please. We have an extensive inventory prospect which is showing on this slide 14, all of which were developed by our team of explorationists. We have 76 defined prospects both conventional and deep shelf prospects and we estimate that these prospects have un-risk reserved potential of about 2.8 trillion cubic foot equivalent.

To add to the 139000 undeveloped acres we have in inventory we participated in the central Gulf of Mexico lease sale held on March 19, 2008. We are apparent high bidder on 11 for the 15 blocks that we bid on. If all of the blocks are approved by the mineral management service we will be awarded leases on 55,250 acres of bids totaling $10.8 million. 10 of the leases are in the shelf and water depths of less than 70 feet and one lease covers a block with a water depth of 1,362 feet.

We have identified 15 prospects on leases with reserve potential of $150 billion cubic foot equivalent. Next slide please.

We recorded on April 30 that our board of directors approved a merger of the company with Stone Energy Corporation and that we plan to submit to our stockholders for consideration at a special meeting. The merger combines complimentary exploitation and expiration properties in the Gulf of Mexico and creates larger better positioned faster billing Gulf of Mexico independence.

This transaction valued our company at $1.8 billion which equates to $24.85 per share. 55% of this amount will be paid in cash and 45% will be in shares with the combined company, in other words our shareholders will receive $13.65 in cash and 0.165 shares of Stone Energy for each share of Bois d’Arc that they own. The stock portion of the consideration will be tax free for shareholders. Our shareholders will own 28% of the combined company and we expect the transaction to close in the third quarter.

On slide 16, we cover some highlights of the combined company. The merger combines exploitation strengths of Stone Energy with expiration strengths and opportunity of Bois d’Arc. The combined prospect inventory provides five to six years of identified exploitation and expiration opportunities. The larger company is also more suited to pursue a high impact deep water expiration program. The combined company will also continue to focus on building a meaningful on-flow position primarily in the Marcella Shale in the appellation basing.

In addition to the operational highlights the transaction is accretive to Stone’s earnings and cash flow per share. A combined company will have the manageable balance sheet and will be generating significant free cash flow. The free cash flow will be available for paying down the acquisition debt accelerating the drilling program or for future share repurchases.

On slide 17, we have a map of how Stones and Bois d’Arc’s properties relate to each other. Bois d’Arc has 37 producing blocks and Stone Energy has 57 producing blocks on the shelf giving the combined company 94 producing blocks. Bois d’Arc has 49 undeveloped blocks and Stone has 42 undeveloped blocks on the shelf for a total of 91 blocks. In deep water Stone has 47 blocks and Bols d’Arc has three.

In the aggregate, the combined company will have 185 blocks on the shelf and 50 deep water blocks and will be one of the largest Gulf of Mexico companies. This concludes our first quarter conference call and we will now open the lines for questions.

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