UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended:~~June~~September 30, 2017

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

For the transition period from _________ to _________

Commission File Number:001-34767

~~BLACK DIAMOND, INC.~~CLARUS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

58-1972600

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

2084 East 3900 South

Salt Lake City, Utah

84124

(Address of principal executive offices)

(Zip code)

~~(801) 278-5552~~

~~(Registrant’s telephone number, including area code)~~

(801) 278-5552

(Registrant’s telephone number, including area code)

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

Yesx No¨

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

Yesx No¨

Indicate by check mark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting ~~company, or an emerging growth~~ company. See the definitions of “large accelerated filer,” “accelerated filer”, and “smaller reporting ~~company” and “emerging growth~~ company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer	¨	Non-accelerated filer	¨

Accelerated filer	x	Smaller reporting company	¨

		~~Emerging growth company~~	¨

If an emerging growth company, indicate by check mark if the ~~Registrant~~registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section ~~17(a)(2)(B)~~13(a) of the ~~Securities Act.~~Exchange Act¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox

As of ~~August 2,~~November 1, 2017, there were ~~30,012,765~~30,041,265 shares of common stock, par value $0.0001, outstanding.

INDEX

~~BLACK DIAMOND, INC.~~

CLARUS CORPORATION

~~PART I~~	~~FINANCIAL INFORMATION~~	Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets – ~~June~~September 30, 2017 and December 31, 2016	3

	Condensed Consolidated Statements of Comprehensive Loss – Three months ended ~~June~~September 30, 2017 and 2016	4

	Condensed Consolidated Statements of Comprehensive Loss – ~~Six~~Nine months ended ~~June~~September 30, 2017 and 2016	5

	Condensed Consolidated Statements of Cash Flows – ~~Six~~Nine months ended ~~June~~September 30, 2017 and 2016	6

	Notes to Condensed Consolidated Financial Statements – ~~June~~September 30, 2017	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2125

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
~~Item 4.~~	~~Controls and Procedures~~35	31

~~PART II~~ Item 4.	~~OTHER INFORMATION~~Controls and Procedures	36

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	3237

Item 1A.	Risk Factors	3237
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	32
Item 5.	Other Information	3337

Item 6.	Exhibits	3439

Signature Page		3540

Exhibit Index		3641

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~BLACK DIAMOND, INC.~~CLARUS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

	June 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016
Assets
Current assets
Cash and cash equivalents	$	63,433		$	94,738
Accounts receivable, less allowance for doubtful
accounts of $399 and $399, respectively		22,780			23,232
Cash							$	1,672		$	94,738
Accounts receivable, less allowance for doubtful accounts of $411 and $399, respectively								35,414			23,232
Inventories		54,812			45,410			66,982			45,410
Prepaid and other current assets		2,021			3,480			2,416			3,480
Income tax receivable		34			85			-			85
Total current assets		143,080			166,945			106,484			166,945

Property and equipment, net		11,081			11,055			24,319			11,055
Other intangible assets, net		9,449			9,769			24,690			9,769
Indefinite lived intangible assets		22,788			22,541			41,794			22,541
Goodwill								18,156			-
Other long-term assets		32			147			350			147
Total assets	$	186,430		$	210,457		$	215,793		$	210,457

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities	$	20,862		$	17,740		$	23,021		$	17,740
Income tax payable		186			969			513			969
Current portion of long-term debt		-			21,898			-			21,898
Total current liabilities		21,048			40,607			23,534			40,607

Long-term debt, net								27,353			-
Deferred income taxes		8,978			8,966			9,169			8,966
Other long-term liabilities		137			76			222			76
Total liabilities		30,163			49,649			60,278			49,649

Stockholders' Equity
Preferred stock, $.0001 par value; 5,000
shares authorized; none issued		-			-
Common stock, $.0001 par value; 100,000 shares authorized;
32,888 and 32,888 issued and 30,013 and 30,016 outstanding, respectively		3			3
Preferred stock, $.0001 par value; 5,000 shares authorized; none issued								-			-
Common stock, $.0001 par value; 100,000 shares authorized; 32,917 and 32,888 issued and 30,041 and 30,016 outstanding, respectively								3			3
Additional paid in capital		484,267			483,925			484,833			483,925
Accumulated deficit		(314,826	)		(309,717	)		(316,409	)		(309,717	)
Treasury stock, at cost		(12,415	)		(12,398	)		(12,415	)		(12,398	)
Accumulated other comprehensive loss		(762	)		(1,005	)		(497	)		(1,005	)
Total stockholders' equity		156,267			160,808			155,515			160,808
Total liabilities and stockholders' equity	$	186,430		$	210,457		$	215,793		$	210,457

~~See accompanying notes to condensed consolidated financial statements.~~

~~BLACK DIAMOND, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS~~

~~(Unaudited)~~

~~(In thousands, except per share amounts)~~

Three Months Ended
June 30, 2017 June 30, 2016

Sales
Domestic sales $ 16,996 $ 16,634
International sales 13,684 12,508
Total sales 30,680 29,142

Cost of goods sold 21,642 20,797
Gross profit 9,038 8,345

Operating expenses
Selling, general and administrative 12,860 11,599
Restructuring charge 42 531
Transaction costs - 133
Arbitration award - (1,967 )

Total operating expenses 12,902 10,296

Operating loss (3,864 ) (1,951 )

Other income (expense)
Interest income (expense), net 106 (709 )
Other, net 208 (32 )

Total other income (expense), net 314 (741 )

Loss before income tax (3,550 ) (2,692 )
Income tax expense 104 479
Net loss (3,654 ) (3,171 )

Other comprehensive income (loss), net of tax:
Unrealized income on marketable securities - 89
Foreign currency translation adjustment 1,357 (340 )
Unrealized (loss) income on hedging activities (1,051 ) 635
Other comprehensive income 306 384
Comprehensive loss $ (3,348 ) $ (2,787 )

Net loss per share:
Basic $ (0.12 ) $ (0.10 )
Diluted (0.12 ) (0.10 )

Weighted average shares outstanding:
Basic 30,013 30,617
Diluted 30,013 30,617
~~See accompanying notes to condensed consolidated financial statements.~~

~~BLACK DIAMOND, INC.~~
~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS~~
~~(Unaudited)~~
~~(In thousands, except per share amounts)~~
Six Months Ended
June 30, 2017 June 30, 2016

Sales
Domestic sales $ 38,333 $ 36,251
International sales 33,903 31,098
Total sales 72,236 67,349

Cost of goods sold 50,898 48,050
Gross profit 21,338 19,299

Operating expenses
Selling, general and administrative 25,395 25,828
Restructuring charge 83 993
Transaction costs - 269
Arbitration award - (1,967 )

Total operating expenses 25,478 25,123

Operating loss (4,140 ) (5,824 )

Other (expense) income
Interest expense, net (877 ) (1,423 )
Other, net 222 404

Total other expense, net (655 ) (1,019 )

Loss before income tax (4,795 ) (6,843 )
Income tax expense 314 341
Net loss (5,109 ) (7,184 )

Other comprehensive income (loss), net of tax:
Unrealized income on marketable securities - 175
Foreign currency translation adjustment 1,621 346
Unrealized loss on hedging activities (1,378 ) (77 )
Other comprehensive income 243 444
Comprehensive loss $ (4,866 ) $ (6,740 )

Net loss per share:
Basic $ (0.17 ) $ (0.23 )
Diluted (0.17 ) (0.23 )

Weighted average shares outstanding:
Basic 30,014 30,758
Diluted 30,014 30,758
~~See accompanying notes to condensed consolidated financial statements.~~

~~BLACK DIAMOND, INC.~~
~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~
~~(Unaudited)~~
~~(In thousands)~~
Six Months Ended
June 30, 2017 June 30, 2016
Cash Flows From Operating Activities:
Net loss $ (5,109 ) $ (7,184 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation of property and equipment 1,105 1,176
Amortization of intangible assets 535 539
Accretion of notes payable 833 889
Loss (gain) on disposition of assets 70 (6 )
Gain (loss) from removal of accumulated translation adjustment (81 ) 95
Stock-based compensation 342 151
Deferred income taxes 178 (259 )
Changes in operating assets and liabilities:
Accounts receivable 1,058 6,124
Inventories (8,143 ) 4,819
Prepaid and other assets (30 ) 2,132
Accounts payable and accrued liabilities 2,754 (3,184 )
Income taxes (758 ) 641
Other (373 ) (190 )
Net cash (used in) provided by operating activities (7,619 ) 5,743

Cash Flows From Investing Activities:
Payments related to the sale of POC - (921 )
Proceeds from disposition of property and equipment 52 23
Purchase of property and equipment (1,148 ) (1,059 )
Net cash used in investing activities (1,096 ) (1,957 )

Cash Flows From Financing Activities:
Repayments of long-term debt (22,716 ) -
Purchase of treasury stock (17 ) (3,967 )
Net cash used in financing activities (22,733 ) (3,967 )

Effect of foreign exchange rates on cash and cash equivalents 143 48

Change in cash and cash equivalents (31,305 ) (133 )
Cash and cash equivalents, beginning of period 94,738 88,401
Cash and cash equivalents, end of period $ 63,433 $ 88,268

Supplemental Disclosure of Cash Flow Information:
Cash paid (received) for income taxes $ 890 $ (43 )
Cash paid for interest $ 229 $ 631
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Property and equipment purchased with accounts payable $ 84 $ 406
See accompanying notes to condensed consolidated financial statements.

3
6
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
September 30, 2017 September 30, 2016

Sales
Domestic sales $ 21,141 $ 17,939
International sales 24,633 21,502
Total sales 45,774 39,441

Cost of goods sold 30,490 27,105
Gross profit 15,284 12,336

Operating expenses
Selling, general and administrative 14,431 11,483
Restructuring charge 33 282
Transaction costs 1,869 -
Total operating expenses 16,333 11,765
Operating (loss) income (1,049 ) 571

Other income (expense)
Interest expense, net (71 ) (719 )
Other, net 213 422
Total other income (expense), net 142 (297 )

(Loss) income before income tax (907 ) 274
Income tax expense 676 679
Net loss (1,583 ) (405 )

Other comprehensive income (loss), net of tax:
Unrealized loss on marketable securities - (68 )
Foreign currency translation adjustment 684 176
Unrealized (loss) income on hedging activities (419 ) 147
Other comprehensive income 265 255
Comprehensive loss $ (1,318 ) $ (150 )

Net loss per share:
Basic $ (0.05 ) $ (0.01 )
Diluted (0.05 ) (0.01 )

Weighted average shares outstanding:
Basic 30,017 30,063
Diluted 30,017 30,063
See accompanying notes to condensed consolidated financial statements.
4
~~BLACK DIAMOND, INC.~~CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands, except per share amounts)
Nine Months Ended
September 30, 2017 September 30, 2016

Sales
Domestic sales $ 59,474 $ 54,190
International sales 58,536 52,600
Total sales 118,010 106,790

Cost of goods sold 81,388 75,155
Gross profit 36,622 31,635

Operating expenses
Selling, general and administrative 39,826 37,311
Restructuring charge 116 1,275
Transaction costs 1,869 269
Arbitration award - (1,967 )
Total operating expenses 41,811 36,888
Operating loss (5,189 ) (5,253 )

Other (expense) income
Interest expense, net (948 ) (2,142 )
Other, net 435 826
Total other expense, net (513 ) (1,316 )

Loss before income tax (5,702 ) (6,569 )
Income tax expense 990 1,020
Net loss (6,692 ) (7,589 )

Other comprehensive income (loss), net of tax:
Unrealized income on marketable securities - 107
Foreign currency translation adjustment 2,305 522
Unrealized (loss) income on hedging activities (1,797 ) 70
Other comprehensive income 508 699
Comprehensive loss $ (6,184 ) $ (6,890 )

Net loss per share:
Basic $ (0.22 ) $ (0.25 )
Diluted (0.22 ) (0.25 )

Weighted average shares outstanding:
Basic 30,015 30,525
Diluted 30,015 30,525
See accompanying notes to condensed consolidated financial statements.
5
CLARUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
September 30, 2017 September 30, 2016
Cash Flows From Operating Activities:
Net loss $ (6,692 ) $ (7,589 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation of property and equipment 1,830 1,705
Amortization of intangible assets 1,183 808
Accretion of notes payable 833 1,358
Amortization of debt issuance costs 11 -
Gain on sale of marketable securities - (241 )
Loss (gain) on disposition of assets 109 (5 )
(Gain) loss from removal of accumulated translation adjustment (149 ) 126
Stock-based compensation 729 193
Deferred income taxes 446 (230 )
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (8,524 ) (294 )
Inventories (8,274 ) 6,516
Prepaid and other assets (808 ) 3,307
Accounts payable and accrued liabilities 3,489 (1,121 )
Income taxes (387 ) 1,127
Other (374 ) (255 )
Net cash (used in) provided by operating activities (16,578 ) 5,405

Cash Flows From Investing Activities:
Proceeds from the sales of marketable securities - 10,235
Payments related to the sale of POC - (921 )
Purchase of business, net of cash received (79,238 ) -
Proceeds from disposition of property and equipment 53 23
Purchase of property and equipment (1,919 ) (2,036 )
Net cash (used in) provided by investing activities (81,104 ) 7,301

Cash Flows From Financing Activities:
Net proceeds from revolving credit facilities 27,353 -
Repayments of long-term debt (22,690 ) -
Payment of debt issuance costs (334 ) -
Purchase of treasury stock (17 ) (5,222 )
Proceeds from exercise of stock options 179 -
Net cash provided by (used in) financing activities 4,491 (5,222 )

Effect of foreign exchange rates on cash 125 70
Change in cash (93,066 ) 7,554
Cash, beginning of period 94,738 88,401
Cash, end of period $ 1,672 $ 95,955

Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $ 946 $ 124
Cash paid for interest $ 284 $ 934
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Property and equipment purchased with accounts payable $ 27 $ 99
See accompanying notes to condensed consolidated financial statements.
6
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)

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

The accompanying unaudited condensed consolidated financial statements of ~~Black Diamond, Inc.~~Clarus Corporation and subsidiaries (which may be referred to as the “Company,” “we,” “us” or “our”) as of and for the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016, have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments, except otherwise disclosed) necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. The results of the three and ~~six~~nine months ended ~~June~~September 30, 2017 are not necessarily indicative of the results to be obtained for the year ending December 31, 2017. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the Securities and Exchange Commission (the “Commission”).

~~On May 28, 2010, we~~Clarus, incorporated in Delaware in 1991, 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 Mountain Products”, “Gregory” or “GMP”)~~. On January 20, 2011, the Company~~ in May 2010 and changed its name ~~from Clarus Corporation~~ to Black Diamond, Inc., in January 2011. In July 2012, we acquired POC Sweden AB and its subsidiaries (collectively, “POC”) and in October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”).

On July 23, 2014, the Company ~~and Gregory Mountain Products, its wholly-owned subsidiary,~~ completed the sale of certain assets to Samsonite LLC ~~(“Samsonite”)~~ comprising Gregory’s business of designing, manufacturing, marketing, distributing and selling technical, alpine, backpacking, hiking, mountaineering and active trail products and accessories as well as outdoor-inspired lifestyle bags (the “Gregory Business”) pursuant to the terms of that Asset Purchase Agreement (the “GMP Purchase Agreement”), dated as of June 18, 2014, by and among the Company, Gregory and Samsonite. Under the terms of the GMP Purchase Agreement, Samsonite paid $84,135 in cash for Gregory’s assets comprising the Gregory Business and assumed certain specified liabilities (the “GMP Sale”).
Mountain Product’s business. On March 16, 2015, the Company announced that it was exploring a full range of strategic alternatives, including a sale of the entire Company and the potential sales of the Company’s Black Diamond Equipment (including PIEPS) and POC brands in two separate transactions.

On October 7, 2015, the Company ~~and the Company’s wholly owned subsidiary, Ember Scandinavia AB (“Ember”),~~ sold ~~their respective~~its equity interests in POC, comprising POC’s business of designing, manufacturing, marketing, distributing and selling advanced-design helmets, body armor, goggles, eyewear, gloves, and apparel for action or “gravity sports,” such as skiing, snowboarding, and cycling pursuant to a Purchase Agreement (the “POC Purchase Agreement”), dated as of October 7, 2015, by and among the Company and Ember, as sellers, and Dainese S.p.A. and Dainese U.S.A., Inc. (collectively “Dainese”), as purchasers. Under the terms of the POC Purchase Agreement, Dainese paid $63,639 in cash for POC (the “POC Disposition”). See Note 2, below.
~~On October 8, 2015, the Company announced the completion of the POC Disposition~~ resulting in the conclusion of the Company’s review of strategic alternatives.
On November 9, 2015, the Company announced that it iswas seeking to redeploy ~~our~~its significant cash balances to invest in ~~high-quality,~~high quality, durable, cash flow-producing assets ~~potentially unrelated to the outdoor industry~~ in order to diversify our business and potentially monetize our substantial net operating losses as part of our asset redeployment and diversification strategy. ~~We intend~~
On August 14, 2017, the Company changed its name from Black Diamond, Inc. to ~~focus our search primarily in~~Clarus Corporation and its stock ticker symbol from “BDE” to “CLAR” on the ~~United States, although we will also evaluate international investment opportunities should we find such opportunities attractive.~~NASDAQ stock exchange. On August 21, 2017, the Company acquired Sierra Bullets, L.L.C. (“Sierra” or “Sierra Bullets”).

Nature of Business

Black Diamond, Inc., through its ownership of Black Diamond Equipment, Ltd., is a global leader in designing, manufacturing, and marketing innovative outdoor engineered equipment and apparel for climbing, mountaineering, backpacking, skiing, and a wide range of other year-round outdoor recreation activities. Black Diamond Equipment and PIEPS™, are synonymous with performance, innovation, durability and safety in the outdoor consumer community. We are targeted not only to the demanding requirements of core climbers, skiers and alpinists, but also to the more general outdoor performance enthusiasts and consumers interested in outdoor-inspired gear for their backcountry and urban activities. Our Black Diamond® and PIEPS™ brands are iconic in the active outdoor and ski industries, and linked intrinsically with the modern history of these sports. Headquartered in Salt Lake City, atClarus Corporation is a holding company which seeks opportunities to acquire and grow businesses that can generate attractive shareholder returns. Presently, through its Outdoor Group, Clarus’ primary business is as a leading developer, manufacturer and distributor of outdoor equipment and lifestyle products focused on the ~~base of the Wasatch Mountains, our~~climb, ski, mountain, and technical categories. The Company’s products are ~~designed~~principally sold under the Black Diamond®, Sierra® and ~~exhaustively tested by an engaged team of discerning entrepreneurs~~PIEPS® brand names through specialty and ~~engineers.~~online retailers, distributors and original equipment manufacturers throughout the U.S. and internationally.

7
~~BLACK DIAMOND, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~
~~(in thousands, except per share amounts)~~
WeThrough our Black Diamond® and PIEPS® brands, we offer a broad range of products including: high performance apparel (such as jackets, shells, pants and bibs); rock-climbing equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; tents; trekking poles; headlamps and lanterns; and gloves and mittens. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes. Sierra manufactures a wide range of high performance bullets for both rifles and pistols. Sierra bullets are used for precision target shooting, hunting and military and law enforcement purposes.

Use of Estimates

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

7
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
Significant Accounting Policies

There have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

During the ~~six~~nine months ended ~~June~~September 30, 2017, the Company adopted Accounting Standards Update (“ASU”) 2015-11,Simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value for entities that do not measure inventory using the last-in, first-out or a retail inventory method. The ASU eliminates the requirement to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The Company adopted this ASU effective on January 1, 2017, on a prospective basis which did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

The Company also adopted ASU 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, effective January 1, 2017. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income tax consequences, forfeitures, and classification on the statement of cash flows. Prior to adopting this ASU, all excess tax benefits resulting from exercise or settlement of share-based payment transactions were recognized in Additional paid-in capital (“APIC”) and accumulated in an APIC pool. Any tax deficiencies were either offset against the APIC pool, or were recognized in the income statement if no APIC pool was available. Under ASU 2016-09, all excess tax benefits and tax deficiencies are recognized as an income tax benefit or expense in the income statement prospectively. A cumulative-effect adjustment to retained earnings was recorded for tax benefits that were not previously recognized because the related tax deduction had not reduced taxes payable; however, the cumulative-effect adjustment was fully offset by an increase to the valuation allowance. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. Excess tax benefits will be recognized regardless of whether the benefit reduces taxes payable in the current period. In addition, previous guidance required entities to estimate forfeitures when computing share based compensation. Pursuant to ASU 2016-09, the Company elected to recognize forfeitures as they occur, which did not materially impact our financial statements. Prior guidance also required that excess tax benefits be presented as a cash inflow from financing activities and a cash outflow from operating activities. This ASU simplifies the presentation of excess tax benefits on the statements of cash flow requiring that excess tax benefits be classified along with other income tax cash flows as an operating activity which did not impact our condensed consolidated statements of cash flows.

Accounting Pronouncements Issued Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09,Revenue from Contracts with Customers that replaces the existing accounting standards for revenue recognition with a single comprehensive five-step model. The core principle is to recognize revenue upon the transfer of goods or services to customers at an amount that reflects the consideration expected to be received. The FASB also issued ASU 2015-14,Deferral of Effective Datethat deferred the effective date for the new guidance until the annual reporting period beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted, but not before the original effective date (periods beginning after December 15, 2016). The standard permits the use of either the retrospective (restating all years presented in the Company’s financial statements) or cumulative effect (recording the impact of adoption as an adjustment to retained earnings at the beginning of the year of adoption) transition method. Since its issuance, the FASB has also amended several aspects of the new guidance, including; ASU 2016-08Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)which clarifies the Topic 606 guidance on principal versus agent considerations, ASU 2016-10Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensingthat clarifies identification of a performance obligation and address revenue recognition associated with the licensing of intellectual property, ASU 2016-12Revenue from Contracts with Customers (Topic 606), Narrow Scope Improvements and Practical Expedients clarifying assessment of collectability criterion, non-cash consideration and other technical corrections and ASU 2016-20Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customersis the result of the FASB Board decision to issue a separate Update for technical corrections and improvements. The Company intends to adopt this guidance effective January 1, 2018 using the cumulative effect method. The Company has reviewed its current customer agreements and believes that all current open agreements as of ~~June~~September 30, 2017 will be settled prior to adoption of this guidance on January 1, 2018. The Company does not anticipate significant changes to our current revenue recognition policy resulting from adoption of the new guidance; however, we anticipate significant changes related to footnote disclosures to the consolidated financial statements as a result of the adoption of the new guidance.

8
8
~~BLACK DIAMOND, INC.~~CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)

In February 2016, the FASB issued ASU 2016-02,Leases, which revises the accounting related to lessor and lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset (“ROU”) for all leases with terms greater than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The provisions of ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with certain practical expedients available. Early adoption is permitted. Since the effective date will not be until January 1, 2019, there is no immediate impact on the financial statements. Leases previously defined as capital leases will continue to be defined as a capital lease with no material changes to the accounting methodology; however, the Company does not have capital leases. The Company is performing an assessment of its leases and has begun preparations for implementation and restrospective application to the earliest reporting period. Under the new guidance, leases previously defined as operating leases will be defined as financing leases and capitalized if the term is greater than one year. As a result, financing leases will be recorded as an asset and a corresponding liability at the present value of the total lease payments. The asset will be decremented over the life of the lease on a pro-rata basis resulting in lease expense while the liability will be decremented using the interest method (ie. principal and interest). As such, the Company expects the new guidance will materially impact the asset and liability balances of the Company’s consolidated financial statements and related disclosures at the time of adoption. The majority of our current operating leases will expire prior to the adoption date. The Company anticipates renegotiating these operating leases; however, the terms which may exist at the adoption date are currently unknown. Consequently, the Company is unable to estimate the impact that these leases will have on the financial statements on the date of adoption. For the remaining leases with terms that go beyond the adoption date, the amounts we expect to recognize as additional liabilities and corresponding ROU assets based upon the present value of the remaining rental payments, are considered immaterial.

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

In November 2016, the FASB issued ASU 2016-18,Statement of Cash Flows (Topic 230) Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This ASU is effective for fiscal years beginning January 1, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04,Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard simplifies the accounting for goodwill impairment by requiring a goodwill impairment to be measured using a single step impairment model, whereby the impairment equals the difference between the carrying amount and the fair value of the specified reporting units in their entirety. This eliminates the second step of the current impairment model that requires companies to first estimate the fair value of all assets in a reporting unit and measure impairments based on those fair values and a residual measurement approach. It also specifies that any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. We will adopt this standard no later than the effective date of January 1, 2020 on a prospective basis. The impact of the new standard will be dependent on the specific facts and circumstances of future individual impairments, if any.
In May 2017, the FASB issued ASU 2017-09,Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting, which clarifies that an entity should account for the effects of a modification unless the fair value, vesting terms and classification as liability or equity of the modified and original awards do not change on the modification date. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments in this update should be applied using a prospective transition method. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated statements and related ~~disclosures~~.disclosures.

9
9
~~BLACK DIAMOND, INC.~~CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
In August 2017, the FASB issued ASU 2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This standard enables entities to better portray the economics of their risk management activities in the financial statements and enhances the transparency and understandability of hedge results through improved disclosures. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted. We intend to adopt the new guidance in the first quarter of 2019. The primary impact of adoption is the required disclosure changes. We believe that other comprehensive income could be materially impacted; however, since the majority of our current contracts will expire prior to the effective date, we cannot fully assess the financial impact of this pronouncement at this time.
NOTE 2. ACQUISITION
On August 21, 2017, the Company, through Everest/Sapphire Acquisition, LLC (“Everest/Sapphire”), a Delaware limited liability company and wholly owned subsidiary of Clarus, acquired 100% of the outstanding membership interests of Sierra Bullets, L.L.C., a manufacturer of a wide range of bullets primarily for both rifles and pistols, pursuant to the terms of the purchase and sale agreement dated August 21, 2017 (the “Purchase Agreement”), by and among Everest/Sapphire, Sierra Bullets, BHH Management, Inc., a California corporation (“BHH”), Lumber Management, Inc., a Delaware corporation (“LMI” and, together with BHH, each a “Seller” and, collectively, the “Sellers”), and BHH, in its capacity as the representative of Sellers (the “Sellers’ Representative”). Under the terms of the Purchase Agreement, Everest/Sapphire acquired Sierra for an aggregate purchase price of $79,000, plus or minus a preliminary working capital adjustment, in accordance with and subject to the terms and conditions set forth in the Purchase Agreement.
The Company believes the acquisition of Sierra is expected to provide the Company with the following benefits:
· greater combined global revenue base;
· increased diversification and seasonal balance;
· increased gross margins, profitability and free cash flows;
· advance the development, marketing and distribution of products; and
· access to increased liquidity to further acquire and grow businesses.
The Company’s fair value estimates for the purchase price allocation are preliminary and may change during the allowable allocation period, which is up to one year from the date of the acquisition of Sierra, as we finalize the working capital adjustment and continue to obtain information that existed as of the date of acquisition so that we may finalize the allocation of the purchase price for the assets acquired and liabilities assumed and determine the associated fair values. We are currently waiting for a final valuation report as well as other information needed to finalize our purchase price allocation. The following table is a reconciliation to the fair value of the purchase consideration and how the purchase consideration is preliminarily allocated to assets acquired and liabilities assumed which have been estimated at their preliminary fair values. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill.
10
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
Estimated Fair Value

Total Purchase Consideration $ 79,239

Assets Acquired and Liabilities Assumed
Assets
Cash $ 1
Accounts receivable 2,686
Inventories 11,674
Prepaid and other current assets 128
Property and equipment 13,206
Amortizable definite lived intangible assets 15,800
Identifiable indefinite lived intangible assets 18,900
Goodwill 18,156
Other long-term assets 15
Total Assets 80,566

Liabilities
Accounts payable and accrued liabilities 1,327
Total Liabilities 1,327

Net Book Value Acquired $ 79,239
The gross amount of accounts receivable is $2,732 of which $46 is deemed to be not collectible.
In connection with the acquisition, the Company acquired exclusive rights to Sierra’s trade names and trademarks, customer relationships, and product technologies. The preliminary amounts assigned to each class of intangible asset and the related preliminary weighted average amortization periods are as follows:
Weighted Average
Gross Useful Life

Intangibles subject to amortization
Customer relationships $ 12,200 15.0 years
Product technologies 2,500 10.0 years
Trade name / trademark 1,100 10.0 years
Intangibles not subject to amortization
Trade names and trademarks 18,900 N/A
$ 34,700 13.9 years
The fair value of Sierra’s assembled workforce and buyer-specific synergies has been included in goodwill. According to Revenue Ruling 99-6, the acquisition of a limited liability company is treated as a purchase of assets for tax purposes. As such, the basis in the assets of Sierra is equal for both book and tax, which results in no initial recognition of deferred tax assets or liabilities. Furthermore, the full amount of goodwill recorded of $18,156 is expected to be deductible for tax purposes. No pre-existing relationship existed between Clarus and the Sellers prior to the acquisition.
11
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
Pro Forma Results
The following unaudited pro forma results of operations for the three and nine months ended September 30, 2017 and 2016 give pro forma effect as if the acquisition and borrowings used to finance the acquisition had occurred on January 1, 2016, after giving effect to certain adjustments including the amortization of intangible assets, depreciation of fixed assets, the Sellers’ management fees, interest expense and taxes and assumes the purchase price was allocated to the assets purchased and liabilities assumed based on their fair market values at the date of purchase.
Three Months Ended Nine Months Ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016

Sales $ 48,496 $ 47,477 $ 138,510 $ 133,840
Net income (loss) $ 32 $ 1,217 $ (1,379 ) $ (1,317 )
The unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transaction been consummated as of January 1, 2016. Furthermore, such unaudited pro forma information is not necessarily indicative of future operating results of the combined companies, and should not be construed as representative of the operating results of the combined companies for any future dates or periods.
Material nonrecurring adjustments excluded from the pro forma financial information above consists of $1,869 transaction costs and the $2,522 step up of Sierra inventory to its preliminary fair value, which is expected to be recorded as an unfavorable adjustment to cost of goods sold during the six months following the acquisition date.

NOTE 2.3. DISCONTINUED OPERATIONS

As discussed above in Note 1, on October 7, 2015, the Company sold POC to Dainese. The Company received$63,639 in cash for the POC Disposition and paid $2,946 in transaction fees for net proceeds of $60,693. $739 of cash was sold as part of the transaction. Also, as of December 31, 2015, there was an unsettled working capital adjustment of $921 owed to Dainese which was paid during the three months ended March 31, 2016. The Company recognized a pre-tax gain on such sale of $8,436.The Company performed certain transition services related to the POC Disposition and received ~~$79~~$0 and $324, during the three and ~~six~~nine months ended ~~June~~September 30, 2016, respectively, which was recorded as a reduction ofselling, general and administrative expenses in our condensed consolidated financial statementsfor such periods.

NOTE 3.4. INVENTORIES

Inventories, as of ~~June~~September 30, 2017 and December 31, 2016, were as follows:

June 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016

Finished goods $ 46,157 $ 36,968 $ 53,711 $ 36,968
Work-in-process 1,108 1,677 5,748 1,677
Raw materials and supplies 7,547 6,765 7,523 6,765
$ 54,812 $ 45,410 $ 66,982 $ 45,410
12
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)

NOTE 4.5. PROPERTY AND EQUIPMENT

Property and equipment, net as of ~~June~~September 30, 2017 and December 31, 2016, were as follows:

June 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016

Land $ 2,850 $ 2,850 $ 3,160 $ 2,850
Building and improvements 4,137 4,169 6,827 4,169
Furniture and fixtures 3,239 3,074 3,688 3,074
Computer hardware and software 4,661 4,519 4,758 4,519
Machinery and equipment 8,447 11,144 19,283 11,144
Construction in progress 759 522 350 522
24,093 26,278 38,066 26,278
Less accumulated depreciation (13,012 ) (15,223 ) (13,747 ) (15,223 )
$ 11,081 $ 11,055 $ 24,319 $ 11,055

NOTE 5.6. OTHER INTANGIBLE ASSETS
Goodwill
There was an increase in goodwill during the nine months ended September 30, 2017, from $0 to $18,156, due to the Company’s acquisition of Sierra on August 21, 2017. The following table summarizes the changes in goodwill by segment:
Black Diamond Sierra Total

Balance at December 31, 2016 $ - $ - $ -

Increase due to acquisition - 18,156 18,156

Balance at September 30, 2017 $ - $ 18,156 $ 18,156

Indefinite Lived Intangible Assets

The Company owns certain tradenames and trademarks which provide Black Diamond Equipment, PIEPS and ~~PIEPS~~Sierra with the exclusive and perpetual rights to manufacture and sell their respective products. There was an increase in tradenames and trademarks during the ~~six~~nine months ended ~~June~~September 30, 2017, due to the Company’s acquisition of Sierra and the impact of foreign currency exchange rates. The following table summarizes the changes in indefinite lived intangible assets:

Balance at December 31, 2016 $ 22,541

Increase due to acquisition 18,900
Impact of foreign currency exchange rates 353

Balance at September 30, 2017 $ 41,794
10
13
~~BLACK DIAMOND, INC.~~CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
Balance at December 31, 2016 $ 22,541

Impact of foreign currency exchange rates 247

Balance at June 30, 2017 $ 22,788

Other Intangible Assets, net

Intangible assets ~~such as certain customer relationships, core technologies and product technologies~~ are amortizable over their estimated useful lives. There was an increase in gross other intangible assets subject to amortization during the ~~six~~nine months ended ~~June~~September 30, 2017 due to the Company’s acquisition of Sierra and the impact of foreign currency exchange rates. The following table summarizes the changes in gross other intangible assets:

Gross balance at December 31, 2016 $ 16,980 $ 16,980

Increase due to acquisition 15,800
Impact of foreign currency exchange rates 358 510

Gross balance at June 30, 2017 $ 17,338
Gross balance at September 30, 2017 $ 33,290

Other intangible assets, net of amortization as of ~~June~~September 30, 2017 and December 31, 2016, were as follows:

June 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016

Customer lists and relationships $ 14,142 $ 13,942 $ 26,426 $ 13,942
Product technologies 2,249 2,091 4,817 2,091
Trade name / trademark 1,100 -
Core technologies 947 947 947 947
17,338 16,980 33,290 16,980
Less accumulated amortization (7,889 ) (7,211 ) (8,600 ) (7,211 )
$ 9,449 $ 9,769 $ 24,690 $ 9,769

NOTE 6.7. LONG-TERM DEBT

Long-term debt, net as of ~~June~~September 30, 2017 and December 31, 2016, was as follows:

~~June 30, 2017~~ ~~December 31, 2016~~
~~Revolving credit facilities (a)~~ $ - $ -
~~5% Senior Subordinated Notes due 2017 (refer to Note 15)~~ - ~~22,610~~
~~Term note (b)~~ - ~~102~~
~~Unamortized discount~~ - ~~(814~~ )
- ~~21,898~~
~~Less current portion~~ - ~~(21,898~~ )
$ - $ -
September 30, 2017 December 31, 2016

Revolving credit facilities (a) $ 27,353 $ -
5% Senior Subordinated Notes due 2017 (refer to Note 17) - 22,610
Term note (b) - 102
Unamortized discount - (814 )
27,353 21,898
Less current portion - (21,898 )
$ 27,353 $ -

(a) As of ~~June~~September 30, 2017, the Company had drawn $0$27,353 on a ~~$20,000~~$40,000 revolving credit facility with Zions First National Bank with a maturity date of ~~April 1, 2020.~~August 21, 2022.
In conjunction with the acquisition of Sierra, on August 21, 2017, the Company together with its direct and indirect domestic subsidiaries entered into a third amended and restated loan agreement (the “Third Amended and Restated Loan Agreement”) with Zions First National Bank, a national banking association, (the “Lender”), which matures on August 21, 2022. Under the Third Amended and Restated Loan Agreement, the Company has up to a $40,000 revolving line of credit (the “Revolving Line of Credit”) pursuant to a fourth amended and restated promissory note (revolving loan) (the “Revolving Line of Credit Promissory Note”). The maximum borrowing of $40,000 (the “Maximum Borrowing”) under the Revolving Line of Credit reduces by $1,250 per quarter until such time as the maximum borrowing amount is $20,000, provided, that the Company may request an increase of up to $20,000 as an accordion option (the “Accordion”) to increase the Revolving Line of Credit up to the Maximum Borrowing on a seasonal or permanent basis for funding general corporate needs including working capital, capital expenditures, permitted loans or investments in subsidiaries, and the issuance of letters of credit. Availability under the Revolving Line of Credit may not exceed $30,000 unless the Company has sufficient eligible receivable, inventory and equipment assets at such time pursuant to formulas set forth in the Third Amended and Restated Loan Agreement.
14
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
All debt associated with the Third Amended and Restated Loan Agreement bears interest at one-month London Interbank Offered Rate (“LIBOR”) plus an applicable margin as determined by the ratio of Total Net Debt (subject to adjustments as set forth in the Third Amended and Restated Loan Agreement) to Trailing Twelve Month Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) as follows: (i) one month LIBOR plus 4.00% per annum at all times that Total Net Debt to Trailing Twelve Month EBITDA ratio is greater than or equal to 2.75; (ii) one month LIBOR plus 3.00% per annum at all times that Total Net Debt to Trailing Twelve Month EBITDA ratio is greater than or equal to 2.00 and less than 2.75; (iii) one month LIBOR plus 2.00% per annum at all times that Total Net Debt to Trailing Twelve Month EBITDA ratio is greater than or equal to 1.00 and less than 2.00; and (iv) one month LIBOR plus 1.5% per annum at all times that Total Net Debt to Trailing Twelve Month EBITDA ratio is less than 1.00.
Any amount outstanding under the Third Amended and Restated Loan Agreement will be secured by a general first priority Uniform Commercial Code (“UCC”) security interest in all material domestic assets of the Company and its domestic subsidiaries, including, but not limited to: accounts, accounts receivable, inventories, equipment, real property, ownership in subsidiaries, and intangibles including patents, trademarks and copyrights. Proceeds of the foregoing will be secured via pledge and control agreements on domestic depository and investment accounts not held with the Lender.
The Third Amended and Restated Loan Agreement contains certain financial covenants including restrictive debt covenants that require the Company and its subsidiaries to maintain a minimum fixed charge coverage ratio, a maximum total leverage ratio, a minimum net worth, a positive amount of asset coverage and limitations on capital expenditures, all as calculated in the Third Amended and Restated Loan Agreement.
In addition, the Third Amended and Restated Loan Agreement contains covenants restricting the Company and its subsidiaries from pledging or encumbering their assets, with certain exceptions, and from engaging in acquisitions other than acquisitions permitted by the Third Amended and Restated Loan Agreement. The Third Amended and Restated Loan Agreement contains customary events of default (with grace periods where customary) including, among other things, failure to pay any principal or interest when due; any materially false or misleading representation, warranty, or financial statement; failure to comply with or to perform any provision of the Third and Restated Loan Agreement; and default on any debt or agreement in excess of certain amounts.

(b) The term note was payable to a government entity with an interest rate of 0.75% and no monthly installments. During the ~~six~~nine months ended ~~June~~September 30, 2017, the entire principal amount and all accrued interest were paid in full.
11
~~BLACK DIAMOND, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~
~~(in thousands, except per share amounts)~~

NOTE 7.8. DERIVATIVE FINANCIAL INSTRUMENTS

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

At ~~June~~September 30, 2017, the Company’s derivative contracts had a remaining maturity of one and one-half years or less. The counterparty to these transactions had both long-term and short-term investment grade credit ratings. The maximum net exposure of the Company’s credit risk to the counterparty is generally limited to the aggregate unrealized loss of all contracts with that counterparty, which is ~~$494~~$1,353 as of ~~June~~September 30, 2017. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain on all contracts. At ~~June~~September 30, 2017, there was no such exposure to the counterparty. The Company’s derivative counterparty has strong credit ratings and as a result, the Company does not require collateral to facilitate transactions.

15
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
The Company held the following contracts designated as hedged instruments as of ~~June~~September 30, 2017 and December 31, 2016:

~~June~~September 30, 2017
Notional Latest
Amount Maturity

Foreign exchange contracts - Norwegian Kroner ~~9,995~~7,449 February 2018
Foreign exchange contracts - Canadian Dollars ~~10,053~~13,345 ~~August 2018~~February 2019
Foreign exchange contracts - British Pounds ~~1,593~~2,343 ~~August 2018~~February 2019
Foreign exchange contracts - Euros ~~19,711~~22,200 February 2019
December 31, 2016
Notional Latest
Amount Maturity

Foreign exchange contracts - Canadian Dollars 11,001 February 2018
Foreign exchange contracts - British Pounds 1,842 February 2018
Foreign exchange contracts - Euros 14,366 February 2018

For contracts that qualify as effective hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive loss and reclassified to sales in the period the underlying hedged transaction is recognized in earnings. ~~Gains (losses)~~Losses of ~~$90~~$(422) and ~~$(202)~~$(152) were reclassified to sales during the three months ended ~~June~~September 30, 2017 and 2016, respectively, and ~~$386~~$(36) and ~~$(343)~~$(495) were reclassified to sales during the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016, respectively.

The Company records ineffectiveness of hedged instruments resulting from changes in fair value of the instruments in earnings. There were no gains (losses) recorded to Other, net, during the three and ~~six~~nine months ended ~~June~~September 30, 2017. ~~Losses~~Gains (losses) of ~~$(42)~~$34 and $(8) were recorded to Other, net, associated with ineffective hedge instruments during the three and ~~six~~nine months ended ~~June~~September 30, 2016.

The following table presents the balance sheet classification and fair value of derivative instruments as of ~~June~~September 30, 2017 and December 31, 2016:

Classification September 30, 2017 December 31, 2016

Derivative instruments in asset positions:
Forward exchange contracts Prepaid and other current assets $ 69 $ 1,165
Forward exchange contracts Other long-term assets $ 12 $ 116

Derivative instruments in liability positions:
Forward exchange contracts Accounts payable and accrued liabilities $ 1,284 $ -
Forward exchange contracts Other long-term liabilities $ 150 $ -
12
16
~~BLACK DIAMOND, INC.~~CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
Classification June 30, 2017 December 31, 2016

Derivative instruments in asset positions:
Forward exchange contracts Prepaid and other current assets $ 118 $ 1,165
Forward exchange contracts Other long-term assets $ 1 $ 116

Derivative instruments in liability positions:
Forward exchange contracts Accounts payable and accrued liabilities $ 551 $ -
Forward exchange contracts Other long-term liabilities $ 62 $ -

NOTE 8.9. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

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

Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Foreign Currency
Translation Adjustments Unrealized Gains
(Losses) on Cash Flow
Hedges Total

Balance as of December 31, 2016 $ (1,729 ) $ 724 $ (1,005 ) $ (1,729 ) $ 724 $ (1,005 )
Other comprehensive income (loss) before reclassifications 1,702 (1,227 ) 475 2,454 (2,177 ) 277
Amounts reclassified from other comprehensive income (loss) (81 ) (151 ) (232 ) (149 ) 380 231
Net current period other comprehensive income (loss) 1,621 (1,378 ) 243 2,305 (1,797 ) 508
Balance as of June 30, 2017 $ (108 ) $ (654 ) $ (762 )
Balance as of September 30, 2017 $ 576 $ (1,073 ) $ (497 )

The effects on net loss of amounts reclassified from unrealized gains (losses) on cash flow hedges for foreign exchange contracts and foreign currency translation adjustments for the three and ~~six~~nine months ended ~~June~~September 30, 2017, were as follows:

Gains (losses) reclassified from AOCI to the Condensed
Consolidated Statement of Comprehensive Loss
Gains (losses) reclassified from AOCI to the Condensed Consolidated Statement of Comprehensive Loss
Affected line item in the Condensed Consolidated Statement of Comprehensive Loss For the Three Months Ended June 30, 2017 For the Six Months Ended June 30, 2017 For the Three Months Ended
September 30, 2017 For the Nine Months Ended
September 30, 2017
Foreign exchange contracts:
Sales $ 90 $ 386 $ (422 ) $ (36 )
Less: Income tax expense 102 235 109 344
Amount reclassified, net of tax $ (12 ) $ 151 $ (531 ) $ (380 )

Foreign currency translation adjustments:
Other, net $ 61 $ 81 $ 68 $ 149

Total reclassifications from AOCI $ 49 $ 232 $ (463 ) $ (231 )

The Company’s policy is to classify reclassifications of cumulative foreign currency translation from AOCI to Other, net.
13
~~BLACK DIAMOND, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~
~~(in thousands, except per share amounts)~~

NOTE 9.10. FAIR VALUE MEASUREMENTS

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

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

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

~~Level 3-~~
Level 3- inputs to the valuation methodology are based on prices or valuation techniques that are unobservable.
17
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)

Assets and liabilities measured at fair value on a recurring basis at ~~June~~September 30, 2017 and December 31, 2016 were as follows:

June 30, 2017
Level 1 Level 2 Level 3 Total

Assets
  Cash equivalents $ 42,771 $ - $ - $ 42,771
  Forward exchange contracts - 119 - 119
$ 42,771 $ 119 $ - $ 42,890

Liabilities
  Forward exchange contracts $ - $ 613 $ - $ 613
$ - $ 613 $ - $ 613
December 31, 2016 September 30, 2017
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Assets
Forward exchange contracts $ - $ 1,281 $ - $ 1,281 - 81 - 81
$ - $ 1,281 $ - $ 1,281 $ - $ 81 $ - $ 81

Liabilities
Forward exchange contracts $ - $ - $ - $ - $ - $ 1,434 $ - $ 1,434
$ - $ - $ - $ - $ - $ 1,434 $ - $ 1,434

December 31, 2016
Level 1 Level 2 Level 3 Total

Assets
Forward exchange contracts $ - $ 1,281 $ - $ 1,281
$ - $ 1,281 $ - $ 1,281

Liabilities
Forward exchange contracts $ - $ - $ - $ -
$ - $ - $ - $ -

The carrying value of cash, ~~and cash equivalents,~~ 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. No nonrecurring fair value measurements existed at ~~June~~September 30, 2017 and December 31, 2016.

NOTE ~~10.~~11. EARNINGS (LOSS) PER SHARE

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

14
~~BLACK DIAMOND, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~
~~(in thousands, except per share amounts)~~
The following table is a reconciliation of basic and diluted shares of common stock outstanding used in the calculation of earnings (loss) per share:

Three Months Ended Six Months Ended Three Months Ended Nine Months Ended
June 30, 2017 June 30, 2016 June 30, 2017 June 30, 2016 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016

Weighted average shares outstanding - basic 30,013 30,617 30,014 30,758 30,017 30,063 30,015 30,525
Effect of dilutive stock awards - - - - - - - -
Weighted average shares outstanding - diluted 30,013 30,617 30,014 30,758 30,017 30,063 30,015 30,525

Net loss per share:
Basic $ (0.12 ) $ (0.10 ) $ (0.17 ) $ (0.23 ) $ (0.05 ) $ (0.01 ) $ (0.22 ) $ (0.25 )
Diluted (0.12 ) (0.10 ) (0.17 ) (0.23 ) (0.05 ) (0.01 ) (0.22 ) (0.25 )
18
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)

For the three months ended ~~June~~September 30, 2017 and 2016, equity awards of ~~2,730~~2,835 and ~~2,364,~~2,517, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016, equity awards of ~~2,772~~2,793 and ~~2,378,~~2,491, respectively, were outstanding and anti-dilutive and therefore not included in the calculation of loss per share for these periods.

NOTE ~~11.~~12. STOCK-BASED COMPENSATION PLAN

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

During the ~~six~~nine months ended ~~June~~September 30, 2017, the Company issued stock options for an aggregate of ~~138~~463 shares under the 2015 Plan to directors and employees of the Company. Of the ~~138~~463 options issued, 38 options vest in four equal consecutive quarterly tranches from the date of grant. 325 vest in three equal tranches on December 31, 2017, December 31, 2018 and December 31, 2019. The remaining 100 options vested immediately.

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

Options Granted During the Six Months Ended June 30, 2017
Options Granted During the Nine Months Ended September 30, 2017

Number of options 38 100 363 100
Option vesting period 1 Year Immediate 1-2 Years Immediate
Grant price $6.10 $6.10 $6.10 - $6.15 $6.10
Dividend yield 0.00% 0.00% 0.00% 0.00%
Expected volatility (a) 41.90% 46.90% 41.9% - 42.2% 46.90%
Risk-free interest rate 1.80% 1.41% 1.80% 1.41%
Expected life (years) (b) 5.31 2.75 5.31 - 5.33 2.75
Weighted average fair value $2.45 $1.20 $2.45 - $2.49 $1.20

(a) Expected volatility is based upon the Company’s historical volatility.

(b) Because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for these grants, the Company utilized the simplified method in developing an estimate of the expected term of these options.
15
~~BLACK DIAMOND, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~
~~(in thousands, except per share amounts)~~

On June 1, 2017, the Company issued and granted to an employee a restricted stock award of 500 restricted shares under the 2015 Plan, of which (i) 250 restricted shares will vest if, on or before June 1, 2022, the Fair Market Value (as defined in the Plan) of the Company’s common stock shall have equaled or exceeded $10.00 per share for twenty consecutive trading days; and (ii) 250 restricted shares will vest if, on or before June 1, 2022, the Fair Market Value (as defined in the Plan) of the Company’s common stock shall have equaled or exceeded $12.00 per share for twenty consecutive trading days. For computing the fair value of the 500 restricted shares with a market condition, the fair value of each restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below.

19
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
Market Condition Restricted Shares Granted on June 1, 2017

Number issued 250 250
Vesting period $10.00 stock price target $12.00 stock price target
Grant price $6.10 $6.10
Dividend yield 0.0% 0.0%
Expected volatility 42.4% 42.4%
Risk-free interest rate 1.76% 1.76%
Weighted average fair value $4.30 $3.68

The total non-cash stock compensation expense related to restricted stock, stock options and stock awards recorded by the Company for the three months ended ~~June~~September 30, 2017 and 2016 was ~~$309~~$387 and ~~$115,~~$42, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 was ~~$342~~$729 and ~~$151,~~$193, respectively. For the three and ~~six~~nine months ended ~~June~~September 30, 2017 and 2016, the majority of stock-based compensation costs were classified as selling, general and administrative expense. The fair value of unvested restricted stock awards is determined based on the market price of our shares of common stock on the grant date or using the Monte-Carlo pricing model.

As of ~~June~~September 30, 2017, there were ~~220~~533 unvested stock options and unrecognized compensation cost of ~~$464~~$1,153 related to unvested stock options, as well as 850 unvested restricted stock awards and unrecognized compensation cost of ~~$1,957~~$1,679 related to unvested restricted stock awards.

NOTE ~~12.~~13. RESTRUCTURING

The Company initiated a restructuring plan in the fourth quarter of 2014 (“2014 Restructuring Plan”) to realign resources within the organization and completed the plan during the year ended December 31, 2016. During the three and ~~six~~nine months ended ~~June~~September 30, 2016, we incurred restructuring charges of $0 and $20 related to the 2014 Restructuring Plan. We incurred $5,959 of cumulative restructuring charges in connection with the 2014 Restructuring Plan.

As part of the conclusion of the Company’s review of strategic alternatives, the Company initiated restructuring activities in efforts to further realign resources within the organization (“2015 Restructuring Plan”) and anticipates completing the plan in 2017. During the three months ended ~~June~~September 30, 2017 and 2016, we incurred restructuring charges of ~~$42~~$33 and ~~$511,~~$282, respectively, related to the 2015 Restructuring Plan. During the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016, we incurred restructuring charges of ~~$83~~$116 and ~~$973,~~$1,255, respectively, related to the 2015 Restructuring Plan. We incurred ~~$2,467~~$2,500 of cumulative restructuring charges in connection with the 2015 Restructuring Plan. We estimate that we will incur an immaterial amount of restructuring charges related to the 2015 Restructuring Plan during the remainder of 2017.

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

16
~~BLACK DIAMOND, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~
~~(in thousands, except per share amounts)~~
2015 Restructuring Plan 2015 Restructuring Plan
Balance at December 31, 2016 $ 96 $ 96
Charges to expense:
Other costs 83 116
Total restructuring charges 83 116
Cash payments and non-cash charges:
Cash payments (89 ) (132 )
Balance at June 30, 2017 $ 90
Balance at September 30, 2017 $ 80

As of ~~June~~September 30, 2017, termination costs and restructuring costs remained in accrued liabilities and are expected to be paid during the remainder of 2017.
20
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)

NOTE ~~13.~~14. COMMITMENTS AND CONTINGENCIES

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

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

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

Total rent expense of the Company for the three months ended ~~June~~September 30, 2017 and 2016 was ~~$194~~$214 and ~~$257,~~$204, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 was ~~$397~~$611 and ~~$622,~~$826, respectively.

NOTE ~~14.~~15. INCOME TAXES

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

Tax expense includes a discrete charge for the three months ended ~~June~~September 30, 2017 and 2016 of $8$0 and ~~$433,~~$520, respectively, and for the ~~six~~nine months ended ~~June~~September 30, 2017 and 2016 of $20 and ~~$433,~~$953, respectively, of additional interest for an uncertain tax position and potential tax audit liability associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China. During the ~~three~~nine months ended ~~June~~September 30, 2017, the Company settled and paid the Chinese tax audit liability in the amount of $939.

There was also a discrete charge of ~~$102~~$109 and ~~$235~~$344 during the three and ~~six~~nine months ended ~~June~~September 30, 2017, respectively, associated with a disproportionate tax effect released from AOCI. During the ~~three and six~~nine months ended ~~June~~September 30, 2016, there was a discrete charge for a Swiss withholding tax related to the transferring of Black Diamond Equipment’s European operations from Basel, Switzerland to Innsbruck, Austria.

17
During the three months ended September 30, 2017, the Company repatriated approximately $10,800 from its Swedish subsidiary, Ember Scandinavia AB to help fund the acquisition of Sierra. Income taxes were previously accrued and a deferred tax liability recorded in fiscal year 2015. With the dividend, the Company will have taxable income which is subject to the Federal Alternative Minimum Tax (“AMT”), therefore the Company recorded a discrete expense of $211.
~~BLACK DIAMOND, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~With the acquisition of Sierra during the three months ended September 30, 2017, the company recognized a discrete expense of $101 for the tax amortization of indefinite lived intangibles and goodwill, and an increase to the deferred tax liabilities which are not a source of future taxable income of $101.
~~(Unaudited)~~
~~(in thousands, except per share amounts)~~

As of December 31, 2016, the Company’s gross deferred tax asset was $75,416. The Company had recorded a valuation allowance of $67,662, resulting in a net deferred tax asset of $7,754, before deferred tax liabilities of $16,720. The Company has provided a valuation allowance against a portion of the deferred tax assets as of December 31, 2016, because the ultimate realization of those assets did not meet the more likely than not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.
21
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)

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

As of December 31, 2016, the Company had net operating loss, research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of $172,419 ($270 relates to excess tax benefits related to share based payment compensation), $3,407 and $315, respectively. The Company believes its U.S. Federal net operating loss (“NOL”) will substantially offset its future U.S. Federal income taxes, excluding the amount subject to U.S. Federal Alternative Minimum Tax (“AMT”). AMT is calculated as 20% of AMT income. For purposes of AMT, a maximum of 90% of income is offset by available NOLs. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F.F income and will be offset with the NOL.

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

Net Operating Loss Carryforward Expiration Dates
December 31, 2016

Expiration Dates December 31, Net Operating Loss Amount
2021 $ 32,408
2022 115,000
2023 5,712
2024 3,566
2025 and beyond 15,733
Total 172,419
Excess stock based payment tax deductions (270 )
After limitations $ 172,149
Net Operating Loss Carryforward Expiration Dates
December 31, 2016
Expiration Dates December 31, Net Operating Loss Amount
2021 $ 32,408
2022 115,000
2023 5,712
2024 3,566
2025 and beyond 15,733
Total 172,419
Excess stock based payment tax deductions (270 )
After limitations $ 172,149
NOTE 16. SEGMENT INFORMATION
As a result of our August 21, 2017 acquisition of Sierra, we now operate our business structure within two segments which are grouped into what we refer to as the Outdoor Group. These segments are defined based on the internal financial reporting used by management. Certain significant selling and general and administrative expenses are not allocated to the segments. Each segment is described below:
· Black Diamond segment, which includes Black Diamond Equipment and PIEPS, is a global leader in designing, manufacturing, and marketing innovative outdoor engineered equipment and apparel for climbing, mountaineering, backpacking, skiing, and a wide range of other year-round outdoor recreation activities. Black Diamond segment offers a broad range of products including: high performance apparel (such as jackets, shells, pants and bibs); rock-climbing equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; tents; trekking poles; headlamps and lanterns; and gloves and mittens. It also offers advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes.
· Sierra segment, which includes Sierra, is an American manufacturer of bullets intended for firearms. Sierra segment manufactures a wide range of high performance bullets for both rifles and pistols. These bullets are used for precision target shooting, hunting and military and law enforcement purposes.
22
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
Financial information for our segments is as follows:
Three Months Ended Nine Months Ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Sales to external customers:
Black Diamond $ 42,242 $ 39,441 $ 114,478 $ 106,790
Sierra 3,532 - 3,532 -
Sales to external customers $ 45,774 $ 39,441 $ 118,010 $ 106,790
Segment operating income (expense):
Black Diamond $ 2,085 $ 1,821 $ 1,098 $ (225 )
Sierra 416 - 416 -
Segment operating income (expense) 2,501 1,821 1,514 (225 )
Restructuring charge (33 ) (282 ) (116 ) (1,275 )
Transaction costs (1,869 ) - (1,869 ) (269 )
Corporate and other expenses (1,435 ) (546 ) (4,283 ) (2,658 )
Interest expense, net (71 ) (719 ) (948 ) (2,142 )
(Loss) income before income tax $ (907 ) $ 274 $ (5,702 ) $ (6,569 )
There were no intercompany sales between the Black Diamond and Sierra segments for the periods presented. Restructuring charges for the periods presented relate to the Black Diamond segment.
On August 21, 2017, the Company purchased Sierra. Total preliminary assets of Sierra as of August 21, 2017 were $80,566. Depreciation and amortization by segment is as follows.
Three Months Ended Nine Months Ended
September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Outdoor group depreciation:
Black Diamond $ 569 $ 529 $ 1,674 $ 1,705
Sierra 156 - 156 -
Total outdoor group depreciation $ 725 $ 529 $ 1,830 $ 1,705
Outdoor group amortization:
Black Diamond $ 273 $ 269 $ 808 $ 808
Sierra 375 - 375 -
Total outdoor group amortization $ 648 $ 269 $ 1,183 $ 808

NOTE ~~15.~~17. RELATED PARTY TRANSACTIONS

5% Unsecured Subordinated Notes due May 28, 2017

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

18
23
~~BLACK DIAMOND, INC.~~CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)

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

On April 7, 2011, Schiller Gregory Investment Company, LLC transferred its Merger Consideration Subordinated Note in equal amounts to the Robert R. Schiller Cornerstone Trust and the Deborah Schiller 2005 Revocable Trust. On June 24, 2013, the Robert R. Schiller Cornerstone Trust dated September 9, 2010 transferred its Merger Consideration Subordinated Note in the amount of $3,769 to the Robert R. Schiller 2013 Cornerstone Trust dated June 24, 2013. During the three and ~~six~~nine months ended ~~June~~September 30, 2017, $0 and $89 in interest, respectively, was paid to Kanders GMP Holdings, LLC, and $0 and $46 in interest, respectively, was paid to the Robert R. Schiller 2013 Cornerstone Trust and the Deborah Schiller 2005 Revocable Trust pursuant to the outstanding Merger Consideration Subordinated Notes.

On May 29, 2012 and August 13, 2012, five former employees of Gregory exercised certain sales rights and sold Merger Consideration Subordinated Notes in the aggregate principal amount of approximately $365 to Kanders GMP Holdings, LLC and in the aggregate principal amount of approximately $189 to Schiller Gregory Investment Company, LLC. During the three and ~~six~~nine months ended ~~June~~September 30, 2017, $0 and $2 in interest, respectively, was paid to Kanders GMP Holdings, LLC, and $0 and $1 in interest, respectively, was paid to Schiller Gregory Investment Company, LLC, pursuant to these outstanding Merger Consideration Subordinated Notes.

In February 2017, the Board of Directors approved the repayment of the Merger Consideration Subordinated Notes. On February 13, 2017, the entire principal amounts and all accrued interest amounts were paid in full. The note discount as of December 31, 2016 of $814 was expensed and recognized as interest expense during the three months ended March 31, 2017.

Upon the Company’s acquisition of Sierra, on August 21, 2017, the Company paid a fee in the amount of $1,000 to Kanders & Company, Inc. (“Kanders & Company”), which is included in transaction costs, in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, performing due diligence and negotiating the acquisition. Mr. Warren B. Kanders, the Company’s Executive Chairman of the Board of Directors and a member of its Board of Directors, is the sole stockholder of Kanders & Company.
20
24
~~BLACK DIAMOND, INC.~~CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)

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

Forward-Looking Statements

Please note that in this Quarterly Report on Form 10-Q we may use words such as “appears,” “anticipates,” “believes,” “plans,” “expects,” “intends,” “future” and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.

Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, the overall level of consumer spending on our products; general economic conditions and other factors affecting consumer confidence; disruption and volatility in the global capital and credit markets; the financial strength of the Company’s customers; the Company’s ability to implement its ~~reformation and~~ growth strategy, including its ability to organically grow each of its historical product lines; the ability of the Company to identify potential acquisition or investment opportunities as part of its redeployment and diversification strategy; the Company’s ability to successfully redeploy its capital into diversifying assets or that any such redeployment will result in the Company’s future profitability; the Company’s ability to successfully integrate Sierra Bullets L.L.C.; the Company’s exposure to product liability of product warranty claims and other loss contingencies; stability of the Company’s manufacturing facilities and foreign suppliers; the Company’s ability to protect trademarks, patents and other intellectual property rights; fluctuations in the price, availability and quality of raw materials and contracted products as well as foreign currency fluctuations; our ability to utilize our net operating loss carryforwards; and legal, regulatory, political and economic risks in international markets. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to the Company as of the date of this Quarterly Report on Form 10-Q, and speak only as of the date hereof. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

Overview

~~Black Diamond, Inc.~~Clarus (which may be referred to as the “Company,” “we,” “our” or “us”), is a holding company which seeks opportunities to acquire and grow businesses that can generate attractive shareholder returns. Presently, through its ~~ownership~~Outdoor Group, Clarus’ primary business is as a leading developer, manufacturer and distributor of ~~Black Diamond Equipment, Ltd. (which may be referred to as “Black Diamond Equipment” or “BDEL”), is a global leader in designing, manufacturing, and marketing innovative~~ outdoor ~~engineered~~ equipment and ~~apparel for climbing, mountaineering, backpacking, skiing,~~lifestyle products focused on the climb, ski, mountain, and ~~a wide range of other year-round outdoor recreation activities.~~technical categories. The Company’s products are principally sold under the Black ~~Diamond Equipment~~Diamond®, Sierra® and ~~PIEPS™, are synonymous with performance, innovation, durability~~PIEPS® brand names through specialty and ~~safety in~~online retailers, distributors and original equipment manufacturers throughout the ~~outdoor consumer community. We are targeted not only to the demanding requirements of core climbers, skiers~~U.S. and ~~alpinists, but also to the more general outdoor performance enthusiasts and consumers interested in outdoor-inspired gear for their backcountry and urban activities. Our~~internationally.
Through our Black Diamond® and ~~PIEPS™~~PIEPS® brands, are iconic in the active outdoor and ski industries, and linked intrinsically with the modern history of these sports. Headquartered in Salt Lake City at the base of the Wasatch Mountains, our products are designed and exhaustively tested by an engaged team of discerning entrepreneurs and engineers.
Wewe offer a broad range of products including: high performance apparel (such as jackets, shells, pants and bibs); rock-climbing equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; tents; trekking poles; headlamps and lanterns; and gloves and mittens. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes. Sierra manufactures a wide range of high performance bullets for both rifles and pistols. Sierra bullets are used for precision target shooting, hunting and military and law enforcement purposes.

~~On May 28, 2010, we~~Clarus Corporation, incorporated in Delaware in 1991, 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 Mountain Products”, “Gregory” or “GMP”)~~. On January 20, 2011, the Company~~ in May 2010 and changed its name ~~from Clarus Corporation~~ to Black Diamond, Inc., in January 2011. In July 2012, we acquired POC Sweden AB and its subsidiaries (collectively, “POC”) and in October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”).

On July 23, 2014, the Company ~~and Gregory Mountain Products, its wholly-owned subsidiary,~~ completed the sale of certain assets to Samsonite LLC ~~(“Samsonite”)~~ comprising Gregory’s business of designing, manufacturing, marketing, distributing and selling technical, alpine, backpacking, hiking, mountaineering and active trail products and accessories as well as outdoor-inspired lifestyle bags (the “Gregory Business”) pursuant to the terms of that Asset Purchase Agreement (the “GMP Purchase Agreement”), dated as of June 18, 2014, by and among the Company, Gregory and Samsonite. Under the terms of the GMP Purchase Agreement, Samsonite paid $84,135 in cash for Gregory’s assets comprising the Gregory Business and assumed certain specified liabilities (the “GMP Sale”).
21
~~BLACK DIAMOND, INC.~~
~~MANAGEMENT DISCUSSION AND ANALYSIS~~
~~(in thousands, except per share amounts)~~
Mountain Product’s business. On March 16, 2015, the Company announced that it was exploring a full range of strategic alternatives, including a sale of the entire Company and the potential sales of the Company’s Black Diamond Equipment (including PIEPS) and POC brands in two separate transactions.

25
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
On October 7, 2015, the Company ~~and the Company’s wholly owned subsidiary, Ember Scandinavia AB (“Ember”),~~ sold ~~their respective~~its equity interests in POC, comprising POC’s business of designing, manufacturing, marketing, distributing and selling advanced-design helmets, body armor, goggles, eyewear, gloves, and apparel for action or “gravity sports,” such as skiing, snowboarding, and cycling pursuant to a Purchase Agreement (the “POC Purchase Agreement”), dated as of October 7, 2015, by and among the Company and Ember, as sellers, and Dainese S.p.A. and Dainese U.S.A., Inc. (collectively “Dainese”), as purchasers. Under the terms of the POC Purchase Agreement, Dainese paid $63,639 in cash for POC (the “POC Disposition”).
~~On October 8, 2015, the Company announced the completion of the POC Disposition~~ resulting in the conclusion of the Company’s review of strategic alternatives.
On November 9, 2015, the Company announced that it iswas seeking to redeploy ~~our~~its significant cash balances to invest in ~~high-quality,~~high quality, durable, cash flow-producing assets ~~potentially unrelated to the outdoor industry~~ in order to diversify our business and potentially monetize our substantial net operating losses as part of our asset redeployment and diversification strategy. ~~We intend~~
On August 14, 2017, the Company changed its name from Black Diamond, Inc. to ~~focus our search primarily~~Clarus Corporation and its stock ticker symbol from “BDE” to “CLAR” on the NASDAQ stock exchange. On August 21, 2017, the Company acquired Sierra Bullets, L.L.C. (“Sierra” or “Sierra Bullets”).
Clarus, as a holding company, is seeking opportunities to acquire and grow businesses that can generate attractive shareholder returns. The Company has substantial net operating tax loss carryforwards which it is seeking to redeploy to maximize shareholder value in ~~the United States, although we will also evaluate international investment opportunities should we find such opportunities attractive.~~a diverse array of businesses.

Critical Accounting Policies and Use of Estimates

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

There have been no significant changes to our critical accounting policies, with the exception to the policy below, as described in our Annual Report on Form 10-K for the year ended December 31, 2016.
Business Combinations
We allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over these fair values is recorded as goodwill.

Accounting Pronouncements Issued Not Yet Adopted

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

26
22
~~BLACK DIAMOND, INC.~~CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)

Results of Operations

Condensed Consolidated Three Months Ended ~~June~~September 30, 2017 Compared to Condensed Consolidated Three Months Ended ~~June~~September 30, 2016

The following presents a discussion of condensed consolidated operations for the three months ended ~~June~~September 30, 2017, compared with the condensed consolidated three months ended ~~June~~September 30, 2016.

Three Months Ended Three Months Ended
June 30, 2017 June 30, 2016 September 30, 2017 September 30, 2016

Sales
Domestic sales $ 16,996 $ 16,634 $ 21,141 $ 17,939
International sales 13,684 12,508 24,633 21,502
Total sales 30,680 29,142 45,774 39,441

Cost of goods sold 21,642 20,797 30,490 27,105
Gross profit 9,038 8,345 15,284 12,336

Operating expenses
Selling, general and administrative 12,860 11,599 14,431 11,483
Restructuring charge 42 531 33 282
Transaction costs - 133 1,869 -
Arbitration award - (1,967 )

Total operating expenses 12,902 10,296 16,333 11,765

Operating loss (3,864 ) (1,951 )
Operating (loss) income (1,049 ) 571

Other income (expense)
Interest income (expense), net 106 (709 )
Interest expense, net (71 ) (719 )
Other, net 208 (32 ) 213 422

Total other income (expense), net 314 (741 ) 142 (297 )

Loss before income tax (3,550 ) (2,692 )
(Loss) income before income tax (907 ) 274
Income tax expense 104 479 676 679
Net loss $ (3,654 ) $ (3,171 ) $ (1,583 ) $ (405 )

Sales

Consolidated sales increased ~~$1,538,~~$6,333, or ~~5.3%~~16.1%, to ~~$30,680~~$45,774 during the three months ended ~~June~~September 30, 2017, compared to consolidated sales of ~~$29,142~~$39,441 during the three months ended ~~June~~September 30, 2016. The increase in sales was ~~primarily~~partially attributable to anthe inclusion of Sierra, which contributed $3,532 in sales during the three months ended September 30, 2017. The remaining increase was attributable to the increase in the quantity of new and existing climb, mountain, and ski products sold during the ~~period. This was partially offset by a decrease~~period and an increase in sales of ~~$83~~$690 due to the ~~weakening~~strengthening of foreign currencies against the U.S. dollar during the three months ended ~~June~~September 30, 2017 compared to the prior period.

Consolidated domestic sales increased ~~$362,~~$3,202, or ~~2.2%~~17.8%, to ~~$16,996~~$21,141 during the three months ended ~~June~~September 30, 2017, compared to consolidated domestic sales of ~~$16,634~~$17,939 during the three months ended ~~June~~September 30, 2016. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $2,301 in sales during the three months ended September 30, 2017. The remaining increase in domestic sales was ~~primarily~~ attributable to anthe increase in the quantity of new and existing climb and ski products sold during the period.

27
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Consolidated international sales increased ~~$1,176,~~$3,131, or ~~9.4%~~14.6%, to ~~$13,684~~$24,633 during the three months ended ~~June~~September 30, 2017, compared to consolidated international sales of ~~$12,508~~$21,502 during the three months ended ~~June~~September 30, 2016. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $1,231 in sales during the three months ended September 30, 2017. The remaining increase in international sales was ~~primarily~~ attributable to anthe increase in the quantity of new and existing climb, mountain, and ski products sold during the ~~period. This was partially offset by a decrease~~period and an increase in sales of ~~$83~~$690 due to the ~~weakening~~strengthening of foreign currencies against the U.S. dollar during the three months ended ~~June~~September 30, 2017 compared to the prior period.
23
~~BLACK DIAMOND, INC.~~
~~MANAGEMENT DISCUSSION AND ANALYSIS~~
~~(in thousands, except per share amounts)~~

Cost of Goods Sold

Consolidated cost of goods sold increased ~~$845,~~$3,385, or ~~4.1%~~12.5%, to ~~$21,642~~$30,490 during the three months ended ~~June~~September 30, 2017, compared to consolidated cost of goods sold of ~~$20,797~~$27,105 during the three months ended ~~June~~September 30, 2016. The increase in cost of goods sold was ~~primarily~~partially attributable to the inclusion of Sierra of $2,484, which included $420 related to the sale of inventory that was recorded at fair value in purchase accounting. The remaining amount of inventory that was recorded at fair value in purchase accounting, which totals $2,102, is expected to be sold during the fourth quarter of 2017 and first quarter of 2018. The remaining increase was attributable to an increase in the number of units sold and the mix of higher cost products sold.

Gross Profit

Consolidated gross profit increased ~~$693,~~$2,948, or ~~8.3%~~23.9%, to ~~$9,038~~$15,284 during the three months ended ~~June~~September 30, 2017, compared to consolidated gross profit of ~~$8,345~~$12,336 during the three months ended ~~June~~September 30, 2016. Consolidated gross margin was ~~29.5%~~33.4% during the three months ended ~~June~~September 30, 2017, compared to a consolidated gross margin of ~~28.6%~~31.3% during the three months ended ~~June~~September 30, 2016. Consolidated gross margin during the three months ended ~~June~~September 30, 2017, increased compared to the prior year due to a favorable product mix in higher margin products ~~which includes ski products,~~ and channel ~~distribution. This~~distribution, as well as lower costs related to the Company’s manufacturing activities that were transferred from China to the United States. Gross margin also benefited from the inclusion of Sierra; however, this benefit was ~~partially~~ offset by ~~the weakening~~a decrease in gross margin of ~~foreign currencies against the U.S. dollar during the three months ended June 30, 2017 compared~~0.9% due to the ~~prior period.~~sale of inventory that was recorded at its preliminary fair value in purchase accounting.

Selling, General and Administrative

Consolidated selling, general, and administrative expenses increased ~~$1,261,~~$2,948, or ~~10.9%~~25.7%, to ~~$12,860~~$14,431 during the three months ended ~~June~~September 30, 2017, compared to consolidated selling, general and administrative expenses of ~~$11,599~~$11,483 during the three months ended ~~June~~September 30, 2016. The increase in selling, general and administrative expenses was ~~primarily~~partially attributable to the inclusion of Sierra of $632, with the remaining increase being attributable to the Company’s investment in the brand related activities of sales, marketing and research and development in supporting its strategic initiatives around new product introduction and increasing brand equity. Stock compensation also increased ~~$194~~$345 during the three months ended ~~June~~September 30, 2017 compared to the prior year.

Restructuring Charges

Consolidated restructuring expense decreased ~~$489,~~$249, or ~~92.1%~~88.3%, to ~~$42~~$33 during the three months ended ~~June~~September 30, 2017, compared to consolidated restructuring expense of ~~$531~~$282 during the three months ended ~~June~~September 30, 2016. Restructuring expenses incurred during the three months ended ~~June~~September 30, 2017, related to costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China.

Transaction Costs

Consolidated transaction expense ~~decreased~~increased to $0$1,869 during the three months ended ~~June~~September 30, 2017, compared to consolidated transaction costs of ~~$133~~$0 during the three months ended ~~June~~September 30, 2016, which consisted of expenses related to the Company’s acquisition of Sierra.
Interest Expense, net
Consolidated interest expense, net decreased $648, or 90.1%, to $71 during the three months ended September 30, 2017, compared to consolidated interest expense, net, of $719 during the three months ended September 30, 2016. Interest expense recognized during the three months ended September 30, 2016 was primarily attributable to the Company’s 5% Senior Subordinated Notes which were repaid during the three months ended March 31, 2017.
28
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Other, net
Consolidated other, net, decreased $209, or 49.5%, to income of $213 during the three months ended September 30, 2017, compared to consolidated other, net income of $422 during the three months ended September 30, 2016. The decrease in other, net, was primarily attributable to losses on mark-to-market adjustments on non-hedged foreign currency contracts and the absence of gains related to the sale of marketable securities during the three months ended September 30, 2017. These decreases were partially offset by an increase in remeasurement gains recognized on the Company’s foreign denominated accounts receivable and accounts payable and gains related to recognition of cumulative translation adjustments due to the substantial liquidation of a foreign entity.
Income Taxes
Consolidated income tax expense decreased $3, or 0.4%, to $676 during the three months ended September 30, 2017, compared to a consolidated income tax expense of $679 during the same period in 2016. The tax expense recorded during the three months ended September 30, 2017 includes discrete charges associated with a disproportionate tax effect released from accumulated other comprehensive loss of $109, an Alternative Minimum Tax related to the Ember dividend of $211, and Sierra amortization of indefinite lived intangibles and goodwill of $101. The tax expense recorded during the three months ended September 30, 2016 includes a discrete charge for a potential tax liability related to a tax audit associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China. The audit was formally closed during the three months ended September 30, 2017.
Our effective income tax rate was 74.5% for the three months ended September 30, 2017, compared to 247.8% for the same period in 2016. The primary reasons for the effective income tax rate changes are due to differing levels of income (loss) before income tax and discrete charges recorded during the respective periods. Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur. There were three discrete events in the amount of $421 recorded in the Company’s income tax provision calculation for the three months ended September 30, 2017. There was one discrete event in the amount of $520 recorded in the Company’s income tax provision calculation for the three months ended September 30, 2016.
29
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Results of Operations
Condensed Consolidated Nine Months Ended September 30, 2017 Compared to Condensed Consolidated Nine Months Ended September 30, 2016
The following presents a discussion of condensed consolidated operations for the nine months ended September 30, 2017, compared with the condensed consolidated nine months ended September 30, 2016.
Nine Months Ended
September 30, 2017 September 30, 2016

Sales
Domestic sales $ 59,474 $ 54,190
International sales 58,536 52,600
Total sales 118,010 106,790

Cost of goods sold 81,388 75,155
Gross profit 36,622 31,635

Operating expenses
Selling, general and administrative 39,826 37,311
Restructuring charge 116 1,275
Transaction costs 1,869 269
Arbitration award - (1,967 )

Total operating expenses 41,811 36,888

Operating loss (5,189 ) (5,253 )

Other (expense) income
Interest expense, net (948 ) (2,142 )
Other, net 435 826

Total other expense, net (513 ) (1,316 )

Loss before income tax (5,702 ) (6,569 )
Income tax expense 990 1,020
Net loss $ (6,692 ) $ (7,589 )
Sales
Consolidated sales increased $11,220, or 10.5%, to $118,010 during the nine months ended September 30, 2017, compared to consolidated sales of $106,790 during the nine months ended September 30, 2016. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $3,532 in sales during the nine months ended September 30, 2017. The remaining increase in sales was attributable to an increase in the quantity of new and existing climb, mountain and ski products sold during the period and an increase in sales of $700 due to the strengthening of foreign currencies against the U.S. dollar during the nine months ended September 30, 2017 compared to the prior period.
Consolidated domestic sales increased $5,284, or 9.8%, to $59,474 during the nine months ended September 30, 2017, compared to consolidated domestic sales of $54,190 during the nine months ended September 30, 2016. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $2,301 in sales during the nine months ended September 30, 2017. The remaining increase in domestic sales was attributable to an increase in the quantity of new and existing climb and ski products sold during the period.
30
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Consolidated international sales increased $5,936, or 11.3%, to $58,536 during the nine months ended September 30, 2017, compared to consolidated international sales of $52,600 during the nine months ended September 30, 2016. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $1,231 in sales during the nine months ended September 30, 2017. The remaining increase in international sales was attributable to an increase in the quantity of new and existing climb, mountain and ski products sold during the period and an increase in sales of $700 due to the strengthening of foreign currencies against the U.S. dollar during the nine months ended September 30, 2017 compared to the prior period.
Cost of Goods Sold
Consolidated cost of goods sold increased $6,233, or 8.3%, to $81,388 during the nine months ended September 30, 2017, compared to consolidated cost of goods sold of $75,155 during the nine months ended September 30, 2016. The increase in cost of goods sold was partially attributable to the inclusion of Sierra of $2,484, which included $420 related to the sale of inventory that was recorded at fair value in purchase accounting. The remaining amount of inventory that was recorded at fair value in purchase accounting, which totals $2,102, is expected to be sold during the fourth quarter of 2017 and first quarter of 2018. The remaining increase in cost of goods sold was attributable to an increase in the number of units sold and the mix of higher cost products sold.
Gross Profit
Consolidated gross profit increased $4,987, or 15.8%, to $36,622 during the nine months ended September 30, 2017, compared to consolidated gross profit of $31,635 during the nine months ended September 30, 2016. Consolidated gross margin was 31.0% during the nine months ended September 30, 2017, compared to a consolidated gross margin of 29.6% during the nine months ended September 30, 2016. Consolidated gross margin during the nine months ended September 30, 2017, increased compared to the prior year due to a favorable product mix in higher margin products and channel distribution, as well as lower costs related to the Company’s manufacturing activities that were transferred from China to the United States. Gross margin also benefited from the inclusion of Sierra; however, this benefit was offset by a decrease in gross margin of 0.4% due to the sale of inventory that was recorded at its preliminary fair value in purchase accounting.
Selling, General and Administrative
Consolidated selling, general and administrative expenses increased $2,515, or 6.7%, to $39,826 during the nine months ended September 30, 2017, compared to consolidated selling, general and administrative expenses of $37,311 during the nine months ended September 30, 2016. The increase in selling, general and administrative expenses was partially attributable to the inclusion of Sierra of $632, with the remaining increase being attributable to the Company’s investment in the brand related activities of sales, marketing and research and development in supporting its strategic initiatives around new product introduction and increasing brand equity. Stock compensation also increased $536 during the nine months ended September 30, 2017 compared to the prior year.
Restructuring Charges
Consolidated restructuring expense decreased $1,159, or 90.9%, to $116 during the nine months ended September 30, 2017, compared to consolidated restructuring expense of $1,275 during the nine months ended September 30, 2016. Restructuring expenses incurred during the nine months ended September 30, 2017, related to costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China. Restructuring expenses incurred during the nine months ended September 30, 2016, primarily related to benefits provided to employees who were terminated due to the Company’s reduction-in-force as part of its continued realignment of resources within the organization, costs associated with the move of the Company’s Black Diamond Equipment European office from Basel, Switzerland to Innsbruck, Austria, and costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China.
Transaction Costs
Consolidated transaction expense increased $1,600, or 594.8%, to $1,869 during the nine months ended September 30, 2017, compared to consolidated transaction costs of $269 during the nine months ended September 30, 2016. The expenses during the nine months ended September 30, 2017 consisted of expenses related to the Company’s acquisition of Sierra. The expenses during the nine months ended September 30, 2017 consisted of expenses related to the Company’s redeployment and diversification strategy.

Arbitration Award

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

31
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Interest ~~Income (Expense),~~Expense, net

Consolidated interest ~~income (expense),~~expense, net, ~~increased $815,~~decreased $1,194, or ~~115.0%~~55.7%, to ~~income of $106~~$948 during the ~~three~~nine months ended ~~June~~September 30, 2017, compared to consolidated interest expense, net, ~~expense~~ of ~~$709~~$2,142 during the ~~three~~nine months ended ~~June~~September 30, 2016. ~~Interest~~The decrease in interest expense, ~~recognized during the three months ended June 30, 2016~~net, was primarily attributable to the repayment of the Company’s 5% Senior Subordinated Notes ~~which were repaid~~ during the three months ended March 31, 2017.

Other, net

Consolidated other, net, ~~increased $240,~~decreased $391, or ~~750%~~47.3%, to income of ~~$208~~$435 during the ~~three~~nine months ended ~~June~~September 30, 2017, compared to consolidated other, net ~~expense~~income of ~~$32~~$826 during the ~~three~~nine months ended ~~June~~September 30, 2016. The ~~increase~~decrease in other, net, ~~to income~~ was primarily attributable to an increase in remeasurement ~~gains~~losses recognized on the Company’s foreign denominated accounts receivable and accounts payable, losses on mark-to-market adjustments on non-hedged foreign currency contracts and the absence of gains related to the sale of marketable securities during the three months ended September 30, 2017. These losses were partially offset by gains related to recognition of cumulative translation adjustments due to the substantial liquidation of a foreign ~~entity partially offset by losses on mark-to-market adjustments on non-hedged foreign currency contracts.~~entity.
24
~~BLACK DIAMOND, INC.~~
~~MANAGEMENT DISCUSSION AND ANALYSIS~~
~~(in thousands, except per share amounts)~~

Income Taxes

Consolidated income tax expense decreased ~~$375,~~$30, or ~~78.3%~~2.9%, to ~~$104~~$990 during the ~~three~~nine months ended ~~June~~September 30, 2017, compared to a consolidated income tax expense of ~~$479~~$1,020 during the same period in 2016. The ~~decrease in~~ tax expense ~~is due to a decrease in tax expense associated with a decrease in foreign earnings partially offset by a discrete charge of $102~~recorded during the ~~three~~nine months ended ~~June~~September 30, 2017 includes discrete charges associated with a disproportionate tax effect released from accumulated other comprehensive ~~loss.~~loss of $344, an Alternative Minimum Tax related to the Ember dividend of $211, and Sierra amortization of indefinite lived intangibles and goodwill of $101. The tax expense recorded during the ~~three~~nine months ended ~~June~~September 30, 2016 includes a discrete charge for a Swiss withholding tax related to the transferring of Black Diamond Equipment’s European operations from Basel, Switzerland to Innsbruck, Austria, and a discrete charge for a potential tax liability related to a tax audit associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China. The audit was formally closed during the three months ended June 30, 2017.

Our effective income tax rate was ~~2.9%~~17.4% for the ~~three~~nine months ended ~~June~~September 30, 2017, compared to ~~17.8%~~15.5% for the same period in 2016. The primary reasons for the effective income tax rate changes are due to differing levels of income (loss) before income tax and discrete charges recorded during the respective periods. Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur. There were ~~two~~four discrete events in the amount of ~~$110~~$676 recorded in the Company’s ~~effective~~ income tax ~~rate~~provision calculation for the ~~three~~nine months ended ~~June~~September 30, 2017. There were two discrete events in the amount of ~~$597~~$1,117 recorded in the Company’s ~~effective~~ income tax ~~rate~~provision calculation for the ~~three~~nine months ended ~~June 30, 2016.~~
25
~~BLACK DIAMOND, INC.~~
~~MANAGEMENT DISCUSSION AND ANALYSIS~~
~~(in thousands, except per share amounts)~~
~~Results of Operations~~
~~Condensed Consolidated Six Months Ended June 30, 2017 Compared to Condensed Consolidated Six Months Ended June 30, 2016~~
~~The following presents a discussion of condensed consolidated operations for the six months ended June 30, 2017, compared with the condensed consolidated six months ended June 30, 2016.~~
Six Months Ended
June 30, 2017 June 30, 2016

Sales
Domestic sales $ 38,333 $ 36,251
International sales 33,903 31,098
Total sales 72,236 67,349

Cost of goods sold 50,898 48,050
Gross profit 21,338 19,299

Operating expenses
Selling, general and administrative 25,395 25,828
Restructuring charge 83 993
Transaction costs - 269
Arbitration award - (1,967 )

Total operating expenses 25,478 25,123

Operating loss (4,140 ) (5,824 )

Other (expense) income
Interest expense, net (877 ) (1,423 )
Other, net 222 404

Total other expense, net (655 ) (1,019 )

Loss before income tax (4,795 ) (6,843 )
Income tax expense 314 341
Net loss $ (5,109 ) $ (7,184 )
~~Sales~~
Consolidated sales increased $4,887, or 7.3%, to $72,236 during the six months ended June 30, 2017, compared to consolidated sales of $67,349 during the six months ended June 30, 2016. The increase in sales was primarily attributable to an increase in the quantity of new and existing climb, mountain and ski products sold during the period and an increase in sales of $9 due to the strengthening of foreign currencies against the U.S. dollar during the six months ended June 30, 2017 compared to the prior period.
Consolidated domestic sales increased $2,082, or 5.7%, to $38,333 during the six months ended June 30, 2017, compared to consolidated domestic sales of $36,251 during the six months ended June 30, 2016. The increase in domestic sales was primarily attributable to an increase in the quantity of new and existing climb and ski products sold during the period.
Consolidated international sales increased $2,805, or 9.0%, to $33,903 during the six months ended June 30, 2017, compared to consolidated international sales of $31,098 during the six months ended June 30, 2016. The increase in international sales was primarily attributable to an increase in the quantity of new and existing climb, mountain and ski products sold during the period and an increase in sales of $9 due to the strengthening of foreign currencies against the U.S. dollar during the six months ended June 30, 2017 compared to the prior period.
26
~~BLACK DIAMOND, INC.~~
~~MANAGEMENT DISCUSSION AND ANALYSIS~~
~~(in thousands, except per share amounts)~~
~~Cost of Goods Sold~~
Consolidated cost of goods sold increased $2,848, or 5.9%, to $50,898 during the six months ended June 30, 2017, compared to consolidated cost of goods sold of $48,050 during the six months ended June 30, 2016. The increase in cost of goods sold was primarily attributable to an increase in the number of units sold and the mix of higher cost products sold.
~~Gross Profit~~
Consolidated gross profit increased $2,039, or 10.6%, to $21,338 during the six months ended June 30, 2017, compared to consolidated gross profit of $19,299 during the six months ended June 30, 2016. Consolidated gross margin was 29.5% during the six months ended June 30, 2017, compared to a consolidated gross margin of 28.7% during the six months ended June 30, 2016. Consolidated gross margin during the six months ended June 30, 2017, increased compared to the prior year due to a favorable product mix in higher margin products, which includes ski products, channel distribution, and lower costs related to the Company’s manufacturing activities that were transferred from China to the United States.
~~Selling, General and Administrative~~
Consolidated selling, general and administrative expenses decreased $433, or 1.7%, to $25,395 during the six months ended June 30, 2017, compared to consolidated selling, general and administrative expenses of $25,828 during the six months ended June 30, 2016. The decrease in selling, general and administrative expenses was attributable to the Company’s realization of savings from its 2015 restructuring plan implemented during 2016 to further realign resources within the organization. This decrease was partially offset by increases in the Company’s investment in the brand related activities of sales, marketing and research and development in supporting its strategic initiatives around new product introduction and increasing brand equity. Stock compensation also increased $191 during the six months ended June 30, 2017 compared to the prior year.
~~Restructuring Charges~~
Consolidated restructuring expense decreased $910, or 91.6%, to $83 during the six months ended June 30, 2017, compared to consolidated restructuring expense of $993 during the six months ended June 30, 2016. Restructuring expenses incurred during the six months ended June 30, 2017, related to costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China.
~~Transaction Costs~~
Consolidated transaction expense decreased to $0 during the six months ended June 30, 2017, compared to consolidated transaction costs of $269 during the six months ended June 30, 2016, which consisted of expenses related to the Company’s redeployment and diversification strategy.
~~Arbitration Award~~
During the six months ended June 30, 2017, the Company received an arbitral award on agreed terms of $1,967, related to certain claims against the former owner of PIEPS associated with the voluntary recall of all the PIEPS VECTOR avalanche transceivers during the year ended December 31, 2013.
~~Interest Expense, net~~
Consolidated interest expense, net, decreased $546, or 38.4%, to $877 during the six months ended June 30, 2017, compared to consolidated interest expense, net, of $1,423 during the six months ended June 30, 2016. The decrease in interest expense, net, was primarily attributable to the repayment of the Company’s 5% Senior Subordinated Notes during the three months ended March 31, 2017.
~~Other, net~~
Consolidated other, net, decreased $182, or 45.0%, to $222 during the six months ended June 30, 2017, compared to consolidated other, net income of $404 during the six months ended June 30, 2016. The decrease in other, net, was primarily attributable to an increase in remeasurement losses recognized on the Company’s foreign denominated accounts receivable and accounts payable partially offset by gains on mark-to-market adjustments on non-hedged foreign currency contracts and gains related to recognition of cumulative translation adjustments due to the substantial liquidation of a foreign entity.
27
~~BLACK DIAMOND, INC.~~
~~MANAGEMENT DISCUSSION AND ANALYSIS~~
~~(in thousands, except per share amounts)~~
~~Income Taxes~~
Consolidated income tax expense decreased $27, or 7.9%, to $314 during the six months ended June 30, 2017, compared to a consolidated income tax expense of $341 during the same period in 2016. The decrease in tax expense is due to a decrease in tax expense associated with a decrease in foreign earnings partially offset by a discrete charge of $235 during the six months ended June 30, 2017, associated with a disproportionate tax effect released from accumulated other comprehensive loss. The tax expense recorded during the six months ended June 30, 2016 includes a discrete charge for a Swiss withholding tax related to the transferring of Black Diamond Equipment’s European operations from Basel, Switzerland to Innsbruck, Austria, and a discrete charge for a potential tax liability related to a tax audit associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China. The audit was formally closed during the three months ended June 30, 2017.
Our effective income tax rate was 6.5% for the six months ended June 30, 2017, compared to 5.0% for the same period in 2016. Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur. There were two discrete events in the amount of $255 recorded in the Company’s effective income tax rate calculation for the six months ended June 30, 2017. There were two discrete events in the amount of $597 recorded in the Company’s effective income tax rate calculation for the six months ended JuneSeptember 30, 2016.

Liquidity and Capital Resources

Condensed Consolidated ~~Six~~Nine Months Ended ~~June~~September 30, 2017 Compared to Condensed Consolidated ~~Six~~Nine Months Ended ~~June~~September 30, 2016

The following presents a discussion of cash flows for the condensed consolidated ~~six~~nine months ended ~~June~~September 30, 2017 compared with the condensed consolidated ~~six~~nine months ended ~~June~~September 30, 2016. Our primary ongoing funding requirements are for working capital, expansion of our operations and general corporate needs, as well as investing activities associated with the expansion into new product categories. We plan to fund our future expansion of operations and investing activities through a combination of our future operating cash flows and revolving credit ~~facility, and cash on hand.~~facility. We believe that our liquidity requirements for at least the next 12 months will be adequately covered by ~~existing cash and cash equivalents,~~ cash provided by operations and our existing revolving credit facility. At ~~June~~September 30, 2017, we had total cash ~~and cash equivalents~~ of ~~$63,433~~$1,672 compared to a cash balance of $94,738 at December 31, 2016, which was substantially controlled by the Company’s U.S. entities. At ~~June~~September 30, 2017, the Company had ~~$10,917~~$332 of the ~~$63,433~~$1,672 in cash held by foreign entities, of which ~~$113~~$332 is considered permanently reinvested. The cash held by foreign entities which are not permanently reinvested is available for repatriation and would result in an estimated tax liability of $3,608. This tax liability could be offset by the Company’s net operating loss carryforwards.

Six Months Ended
June 30, 2017 June 30, 2016

Net cash (used in) provided by operating activities $ (7,619 ) $ 5,743
Net cash used in investing activities (1,096 ) (1,957 )
Net cash used in financing activities (22,733 ) (3,967 )
Effect of foreign exchange rates on cash and cash equivalents 143 48
Change in cash and cash equivalents (31,305 ) (133 )
Cash and cash equivalents, beginning of period 94,738 88,401
Cash and cash equivalents, end of period $ 63,433 $ 88,268
32

CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Nine Months Ended
September 30, 2017 September 30, 2016

Net cash (used in) provided by operating activities $ (16,578 ) $ 5,405
Net cash (used in) provided by investing activities (81,104 ) 7,301
Net cash provided by (used in) financing activities 4,491 (5,222 )
Effect of foreign exchange rates on cash 125 70
Change in cash (93,066 ) 7,554
Cash, beginning of period 94,738 88,401
Cash, end of period $ 1,672 $ 95,955
Net Cash From Operating Activities

Consolidated net cash used in operating activities was ~~$7,619~~$16,578 during the ~~six~~nine months ended ~~June~~September 30, 2017, compared to consolidated net cash provided by operating activities of ~~$5,743~~$5,405 during the ~~six~~nine months ended ~~June~~September 30, 2016. The increase in net cash used in operating activities during 2017 is primarily due to an increase in net operating assets, net of assets acquired or non-cash working capital of ~~$15,651~~$24,039 partially offset by a decrease in net loss during the ~~six~~nine months ended ~~June~~September 30, 2017, compared to the same period in 2016.

Free cash flow, defined as net cash provided by operating activities less capital expenditures, was free cash flows used of ~~$8,767~~$18,497 during the ~~six~~nine months ended ~~June~~September 30, 2017 compared to free cash flows provided of ~~$4,684~~$3,369 during the same period in 2016. The Company believes that the non-GAAP measure, free cash flow, provides an understanding of the capital required by the Company to expand its asset base. A reconciliation of free cash flows to comparable GAAP financial measures is set forth below:

Nine Months Ended
September 30, 2017 September 30, 2016

Net cash (used in) provided by operating activities $ (16,578 ) $ 5,405
Purchase of property and equipment (1,919 ) (2,036 )
Free cash flow $ (18,497 ) $ 3,369
28
~~BLACK DIAMOND, INC.~~
~~MANAGEMENT DISCUSSION AND ANALYSIS~~
~~(in thousands, except per share amounts)~~
Six Months Ended
June 30, 2017 June 30, 2016

Net cash (used in) provided by operating activities $ (7,619 ) $ 5,743
Purchase of property and equipment (1,148 ) (1,059 )
Free cash flow $ (8,767 ) $ 4,684
Net Cash From Investing Activities

Consolidated net cash used in investing activities was ~~$1,096~~$81,104 during the ~~six~~nine months ended ~~June~~September 30, 2017, compared to consolidated net cash ~~used in~~provided by investing activities of ~~$1,957~~$7,301 during the ~~six~~nine months ended ~~June~~September 30, 2016. The ~~decrease~~increase in cash used during the ~~six~~nine months ended ~~June~~September 30, 2017 is primarily due to athe $79,238 used for the purchase ~~price adjustment related to~~of Sierra, net of cash acquired. The cash provided during the ~~POC~~nine months ended September 30, 2016 was primarily from the sale of ~~$921 that was paid during the six months ended June 30, 2016.~~marketable securities of $10,235.

Net Cash From Financing Activities

Consolidated net cash ~~used in~~provided by financing activities was ~~$22,733~~$4,491 during the ~~six~~nine months ended ~~June~~September 30, 2017, compared to consolidated cash used in financing activities of ~~$3,967~~$5,222 during the ~~six~~nine months ended ~~June~~September 30, 2016. The cash provided during the nine months ended September 30, 2017 relates primarily to proceeds from the revolving credit facility offset by repayments of. The cash used during the ~~six~~nine months ended ~~June 30, 2017 relates to repayments of debt and the repurchase of the Company’s common stock. The cash used during the six months ended June~~September 30, 2016 relates to the repurchase of its common stock.

Net Operating Loss

As of December 31, 2016, the Company had net operating loss, research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of $172,419 ($270, relates to excess tax benefits related to share based payment compensation), $3,407 and $315, respectively. The Company believes its U.S. Federal net operating loss (“NOL”) will substantially offset its future U.S. Federal income taxes, excluding the amount subject to U.S. Federal Alternative Minimum Tax (“AMT”). AMT is calculated as 20% of AMT income. For purposes of AMT, a maximum of 90% of income is offset by available NOLs. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F income and will be offset with the NOL. $172,149 of net operating losses available to offset taxable income does not expire until 2021 or later, subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.

33
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
As of December 31, 2016, the Company’s gross deferred tax asset was $75,416. The Company has recorded a valuation allowance of $67,662, resulting in a net deferred tax asset of $7,754, before deferred tax liabilities of $16,720. The Company has provided a valuation allowance against a portion of the net deferred tax assets as of December 31, 2016, because the ultimate realization of those assets does not meet the more likely than not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.

Revolving Credit Facility

~~On March 3,~~In conjunction with the acquisition of Sierra, on August 21, 2017, the Company together with its direct and indirect domestic subsidiaries entered into a third ~~amendment (the “Third Amendment”) to the second~~ amended and restated loan agreement (the ~~“Second~~“Third Amended and Restated Loan Agreement”) ~~as amended by the first amendment (the “First Amendment”) and the second amendment (the “Second Amendment”) to the Second Amended and Restated Loan Agreement~~ with ZB, N.A. dba Zions First National Bank (the “Lender”), which matures on ~~April 1, 2020.~~August 21, 2022. Under the Third ~~Amendment,~~Amended and Restated Loan Agreement, the Company has up to a ~~$20,000~~$40,000 revolving line of credit (the “Revolving Line of Credit”) pursuant to a ~~third~~fourth amended and restated promissory note (revolving loan) (the “Revolving Line of Credit Promissory Note”). The maximum borrowing of $40,000 (the “Maximum Borrowing”) under the Revolving Line of Credit reduces by $1,250 per quarter until such time as the maximum borrowing amount is $20,000, provided, that the Company may request an increase of up to $20,000 as an accordion option (the “Accordion”) to increase the Revolving Line of Credit up to the Maximum Borrowing on a seasonal or permanent basis for funding general corporate needs including working capital, capital expenditures, permitted loans or investments in subsidiaries, and the issuance of letters of credit. Availability under the Revolving Line of Credit may not exceed $30,000 unless the Company has sufficient eligible receivable, inventory and equipment assets at such time pursuant to formulas set forth in the Third Amended and Restated Loan Agreement.

All debt associated with the Third ~~Amendment to the Second~~ Amended and Restated Loan Agreement bears interest at one-month London Interbank Offered Rate (“LIBOR”) plus an applicable margin as determined by the ratio of Total ~~Senior~~Net Debt (subject to adjustments as set forth in the Third Amended and Restated Loan Agreement) to Trailing Twelve Month ~~EBITDA~~Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) as follows: (i) one month LIBOR plus 4.00% per annum at all times that Total ~~Senior~~Net Debt to Trailing Twelve Month EBITDA ratio is greater than or equal to ~~2.00;~~2.75; (ii) one month LIBOR plus 3.00% per annum at all times that Total ~~Senior~~Net Debt to Trailing Twelve Month EBITDA ratio is greater than ~~1.00~~or equal to 2.00 and less than ~~2.00; and~~2.75; (iii) one month LIBOR plus 2.00% per annum at all times that Total Senior Debt to Trailing Twelve Month EBITDA ratio is less than 1.00. The Second Amended and Restated Loan Agreement requires the payment of any unused commitment fee of (i) .6% per annum at all times that Total SeniorNet Debt to Trailing Twelve Month EBITDA ratio is greater than or equal to 1.00 and less than 2.00; ~~(ii) .5%~~and (iv) one month LIBOR plus 1.5% per annum at all times that Total ~~Senior~~Net Debt to Trailing Twelve Month EBITDA ratio is ~~greater than 1.00 and less than 2.00; and (iii) .4% per annum at all times that Total Senior Debt to Trailing Twelve Month EBITDA ration is~~ less than 1.00.

29
~~BLACK DIAMOND, INC.~~
~~MANAGEMENT DISCUSSION AND ANALYSIS~~
(Any amount outstanding under the Third Amended and Restated Loan Agreement will be secured by a general first priority Uniform Commercial Code (“UCC”) security interest in ~~thousands, except per share amounts)~~all material domestic assets of the Company and its domestic subsidiaries, including, but not limited to: accounts, accounts receivable, inventories, equipment, real property, ownership in subsidiaries, and intangibles including patents, trademarks and copyrights. Proceeds of the foregoing will be secured via pledge and control agreements on domestic depository and investment accounts not held with the Lender.

The Third ~~Amendment to the Second~~ Amended and Restated Loan Agreement contains certain financial covenants including restrictive debt covenants that require the Company and its subsidiaries to maintain ~~an EBITDA based~~a minimum ~~Trailing Twelve Month EBITDA,~~fixed charge coverage ratio, a maximum total leverage ratio, a minimum net worth, a positive amount of asset coverage and limitations on capital expenditures, all as calculated in the Third ~~Amendment to the Second~~ Amended and Restated Loan Agreement.
In addition, the Third ~~Amendment to the Second~~ Amended and Restated Loan Agreement contains covenants restricting the Company and its subsidiaries from pledging or encumbering their assets, with certain exceptions, and from engaging in acquisitions other than acquisitions permitted by the Third ~~Amendment to the Second~~ Amended and Restated Loan Agreement. The Third ~~Amendment to the Second~~ Amended and Restated Loan Agreement contains customary events of default (with grace periods where customary) including, among other things, failure to pay any principal or interest when due; any materially false or misleading representation, warranty, or financial statement; failure to comply with or to perform any provision of the Third ~~Amendment to the Second Amended~~ and Restated Loan Agreement; and default on any debt or agreement in excess of certain amounts. As of ~~June~~September 30, 2017, the Company had drawn $0$27,353 on the ~~$20,000~~$40,000 revolving credit facility.

34
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
5% Senior Subordinated Notes due May 28, 2017

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

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

On April 7, 2011, Schiller Gregory Investment Company, LLC transferred its Merger Consideration Subordinated Note in equal amounts to the Robert R. Schiller Cornerstone Trust and the Deborah Schiller 2005 Revocable Trust. On June 24, 2013, the Robert R. Schiller Cornerstone Trust dated September 9, 2010 transferred its Merger Consideration Subordinated Note in the amount of $3,769 to the Robert R. Schiller 2013 Cornerstone Trust dated June 24, 2013. During the three and ~~six~~nine months ended ~~June~~September 30, 2017, $0 and $89 in interest, respectively, was paid to Kanders GMP Holdings, LLC, and $0 and $46 in interest, respectively, was paid to the Robert R. Schiller 2013 Cornerstone Trust and the Deborah Schiller 2005 Revocable Trust pursuant to the outstanding Merger Consideration Subordinated Notes.

On May 29, 2012 and August 13, 2012, five former employees of Gregory exercised certain sales rights and sold Merger Consideration Subordinated Notes in the aggregate principal amount of approximately $365 to Kanders GMP Holdings, LLC and in the aggregate principal amount of approximately $189 to Schiller Gregory Investment Company, LLC. During the three and ~~six~~nine months ended ~~June~~September 30, 2017, $0 and $2 in interest, respectively, was paid to Kanders GMP Holdings, LLC, and $0 and $1 in interest, respectively, was paid to Schiller Gregory Investment Company, LLC, pursuant to these outstanding Merger Consideration Subordinated Notes.

In February 2017, the Board of Directors approved the repayment of the Merger Consideration Subordinated Notes. On February 13, 2017, the entire principal amounts and all accrued interest amounts were paid in full. The note discount as of December 31, 2016 of $814 was expensed and recognized as interest expense during the three months ended March 31, 2017.

30
~~BLACK DIAMOND, INC.~~
~~MANAGEMENT DISCUSSION AND ANALYSIS~~
~~(in thousands, except per share amounts)~~
Off-Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has not been any material change in the market risk disclosure contained in our Annual Report on Form 10-K for the year ended December 31, 2016.
35
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Executive Chairman and Chief Administrative Officer/Chief Financial Officer, its principal executive officer and principal financial officer, respectively, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of ~~June~~September 30, 2017, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company’s Executive Chairman and Chief Administrative Officer/Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of ~~June~~September 30, 2017, were effective. Management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting Sierra’s internal control over financial reporting associated with total assets of $79,918 and total revenues of $3,532 included in the condensed consolidated financial statements of the Company as of September 30, 2017.

Changes in Internal Control over Financial Reporting

~~There~~On August 21, 2017, the Company acquired Sierra. Because Sierra utilizes separate information and accounting systems, the Company has implemented changes to its internal controls over financial reporting to include the consolidation of Sierra, as well as acquisition-related accounting and disclosures. The acquisition of Sierra represents a material change in internal control over financial reporting since management’s last assessment of the Company’s internal control over financial reporting, which was completed as of December 31, 2016.
The Company’s management is reviewing and evaluating its internal control procedures and the design of those control procedures related to the Sierra acquisition and evaluating when it will complete an evaluation and review of Sierra’s internal controls over financial reporting.
Except as described above, there has been no change in our internal control over financial reporting that occurred during our fiscal quarter ended ~~June~~September 30, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

31
36
~~BLACK DIAMOND, INC.~~

CLARUS CORPORATION
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Legal Proceedings

The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Based on currently available information, the Company does not believe that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. It is possible that, as additional information becomes available, the impact on the Company of an adverse determination could have a different effect.

Litigation

The Company is involved in various lawsuits arising from time to time that the Company considers ordinary routine litigation incidental to its business. Amounts accrued for litigation matters represent the anticipated costs (damages and/or settlement amounts) in connection with pending litigation and claims and related anticipated legal fees for defending such actions, which legal fees are expensed as incurred. The costs are accrued when it is both probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are based upon the Company’s assessment, after consultation with counsel (if deemed appropriate), of probable loss based on the facts and circumstances of each case, the legal issues involved, the nature of the claim made, the nature of the damages sought and any relevant information about the plaintiffs and other significant factors that vary by case. When it is not possible to estimate a specific expected cost to be incurred, the Company evaluates the range of probable loss and records the minimum end of the range. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows.There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect.

Product Liability

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

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

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~
~~Unregistered Sales of Equity Securities~~
~~The Company did not sell any securities during the quarter ended June 30, 2017 that were not registered under the Securities Act of 1933, as amended.~~
~~Issuer Repurchases of Equity Securities~~
On November 9, 2015, the Company announced that its Board of Directors authorized a stock repurchase program that allows the repurchase of up to $30,000,000 of the Company’s outstanding common stock. During the second quarter of 2017, the Company purchased 504 shares of the Company’s common stock for $2,663 under the Company’s authorized stock repurchase program.
32
~~BLACK DIAMOND, INC.~~
Total Number of Shares Maximum Dollar Value
Purchased as Part of of Shares that May Yet
Total Number of Average Price Paid Publicly Announced Be Purchased Under
Shares Purchased per Share Plans or Programs the Plans or Programs
Period
April 1 to 30, 2017 504 $ 5.28 2,778,906 17,771,468
May 1 to 31, 2017 - $ - 2,778,906 17,771,468
June 1 to 30, 2017 - $ - 2,778,906 17,771,468
Total 504

ITEM 5. OTHER INFORMATION

~~Amendment~~On November 7, 2017, the Company delivered a letter (the “Letter”) to ~~Bylaws~~Greenhouse Funds LLLP and its affiliates (collectively, “Greenhouse”) approving Greenhouse’s request to be permitted under the Company’s Rights Agreement dated as of February 12, 2008 to acquire beneficial ownership in excess of 4.9% of the Company’s outstanding shares of common stock. Such approval is conditioned upon, and subject to Greenhouse: (i) not increasing such beneficial ownership to in excess of 7.5% of the Company’s outstanding shares of common stock; (ii) remaining continuously eligible to report its ownership of the Company’s common stock on Schedule 13G; and (iii) increasing such beneficial ownership to in excess of 4.9% of the Company’s outstanding shares of common stock on or before the twelve month anniversary of the date of the Letter.
37
CLARUS CORPORATION

~~On August 4, 2017,~~Furthermore, in the event that Greenhouse increases its beneficial ownership to in excess of 4.9% of the Company’s outstanding shares of common stock and then subsequently reduces its beneficial ownership to below 4.9%, the approval granted pursuant to the Letter shall immediately terminate and the applicable party would need to obtain a new approval from the Company’s Board of Directors ~~(the “Board”)~~before seeking to again increase its beneficial ownership to in excess of 4.9% of the ~~Company adopted an amendment (the “Bylaw Amendment”) to the~~ Company’s ~~Amended and Restated Bylaws (the “Bylaws”). The Bylaw Amendment, which was effective upon adoption by the Board, deleted Article III, Section 3~~outstanding shares of common stock.
A copy of the ~~Bylaws in its entirety~~Letter is attached to this Quarterly Report on Form 10-Q as Exhibit 99.1 and ~~inserted the following Article III, Section 3 of the Bylaws in lieu thereof:~~
~~“Section 3. Removal. Except~~is incorporated herein by reference as provided in the Certificate of Incorporation or under applicable law, directors may be removed from office with or without cause by a vote of the holders of a majority of the shares of capital stock of the Corporation then entitled to vote at an election of directors.”
if fully set forth herein. The foregoing summary description of the ~~Bylaw Amendment does~~Letter is not ~~purport~~intended to be complete and is qualified in its entirety by ~~reference to~~ the ~~full~~complete text of the ~~Bylaw Amendment, which is filed as Exhibit 3.1 hereto and is incorporated herein by reference.~~Letter.

38
33
~~BLACK DIAMOND, INC.~~CLARUS CORPORATION

ITEM 6. EXHIBITS

Exhibit Description
~~3.1~~ ~~Amendment No. 5~~
10.1 Purchase and Sale Agreement dated as of August 21, 2017, by and among Everest/Sapphire Acquisition, LLC, Sierra Bullets, L.L.C., BHH Management, Inc., and Lumber Management, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 25, 2017 and incorporated herein by reference).
10.2 Third Amended and Restated ~~By-Laws~~Loan Agreement, effective as of August 21, 2017, by and among ZB, N.A. dba Zions First National Bank, a national banking association, as Lender, and Clarus Corporation; Black Diamond Equipment, Ltd.; Black Diamond Retail, Inc. *; Everest/Sapphire Acquisition, LLC; BD North American Holdings, LLC; PIEPS Service, LLC; BD European Holdings, LLC, and Sierra Bullets, L.L.C. as Borrowers (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 25, 2017 and incorporated herein by reference).
~~31.1~~
10.3 Fourth Amended and Restated Promissory Note (Revolving Loan) dated effective as of August 21, 2017, by and among Clarus Corporation; Black Diamond Equipment, Ltd.; Black Diamond Retail, Inc.; Everest/Sapphire Acquisition, LLC; BD North American Holdings, LLC; PIEPS Service, LLC; BD European Holdings, LLC, and Sierra Bullets, L.L.C. (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 25, 2017 and incorporated herein by reference).
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
~~31.2~~
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
~~32.1~~
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
~~32.2~~
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
99.1 Letter to Greenhouse Funds LLLP dated November 7, 2017 *
101.INS XBRL Instance Document *
101.SCH XBRL Taxonomy Extension Schema Document *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB XBRL Taxonomy Extension Label Linkbase Document *
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *
* Filed herewith
** Furnished herewith

39
34
~~BLACK DIAMOND, INC.~~CLARUS CORPORATION

SIGNATURES

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

~~BLACK DIAMOND, INC.~~CLARUS CORPORATION

Date: ~~August~~November 7, 2017 By: /s/ Warren B. Kanders
Name: Warren B. Kanders

Title: Executive Chairman
(Principal Executive Officer)

By: /s/ Aaron J. Kuehne
Name: Aaron J. Kuehne

Title: Chief Administrative Officer and
  Chief Financial Officer
  (Principal Financial Officer)
  (Principal Accounting Officer)

35
40
~~BLACK DIAMOND, INC.~~CLARUS CORPORATION

EXHIBIT INDEX

Exhibit Description
~~3.1~~ Amendment No. 5 to the Amended and Restated By-Laws of Black Diamond, Inc. *
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
~~31.2~~
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
~~32.1~~
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
~~32.2~~
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
99.1 Letter to Greenhouse Funds LLLP dated November 7, 2017 *
101.INS XBRL Instance Document *
101.SCH XBRL Taxonomy Extension Schema Document *
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB XBRL Taxonomy Extension Label Linkbase Document *
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *
* Filed herewith
** Furnished herewith

41

	Three Months Ended
	June 30, 2017			June 30, 2016

Sales
Domestic sales	$	16,996		$	16,634
International sales		13,684			12,508
Total sales		30,680			29,142

Cost of goods sold		21,642			20,797
Gross profit		9,038			8,345

Operating expenses
Selling, general and administrative		12,860			11,599
Restructuring charge		42			531
Transaction costs		-			133
Arbitration award		-			(1,967	)

Total operating expenses		12,902			10,296

Operating loss		(3,864	)		(1,951	)

Other income (expense)
Interest income (expense), net		106			(709	)
Other, net		208			(32	)

Total other income (expense), net		314			(741	)

Loss before income tax		(3,550	)		(2,692	)
Income tax expense		104			479
Net loss		(3,654	)		(3,171	)

Other comprehensive income (loss), net of tax:
Unrealized income on marketable securities		-			89
Foreign currency translation adjustment		1,357			(340	)
Unrealized (loss) income on hedging activities		(1,051	)		635
Other comprehensive income		306			384
Comprehensive loss	$	(3,348	)	$	(2,787	)

Net loss per share:
Basic	$	(0.12	)	$	(0.10	)
Diluted		(0.12	)		(0.10	)

Weighted average shares outstanding:
Basic		30,013			30,617
Diluted		30,013			30,617

	Six Months Ended
	June 30, 2017			June 30, 2016

Sales
Domestic sales	$	38,333		$	36,251
International sales		33,903			31,098
Total sales		72,236			67,349

Cost of goods sold		50,898			48,050
Gross profit		21,338			19,299

Operating expenses
Selling, general and administrative		25,395			25,828
Restructuring charge		83			993
Transaction costs		-			269
Arbitration award		-			(1,967	)

Total operating expenses		25,478			25,123

Operating loss		(4,140	)		(5,824	)

Other (expense) income
Interest expense, net		(877	)		(1,423	)
Other, net		222			404

Total other expense, net		(655	)		(1,019	)

Loss before income tax		(4,795	)		(6,843	)
Income tax expense		314			341
Net loss		(5,109	)		(7,184	)

Other comprehensive income (loss), net of tax:
Unrealized income on marketable securities		-			175
Foreign currency translation adjustment		1,621			346
Unrealized loss on hedging activities		(1,378	)		(77	)
Other comprehensive income		243			444
Comprehensive loss	$	(4,866	)	$	(6,740	)

Net loss per share:
Basic	$	(0.17	)	$	(0.23	)
Diluted		(0.17	)		(0.23	)

Weighted average shares outstanding:
Basic		30,014			30,758
Diluted		30,014			30,758

	Three Months Ended
	September 30, 2017			September 30, 2016

Sales
Domestic sales	$	21,141		$	17,939
International sales		24,633			21,502
Total sales		45,774			39,441

Cost of goods sold		30,490			27,105
Gross profit		15,284			12,336

Operating expenses
Selling, general and administrative		14,431			11,483
Restructuring charge		33			282
Transaction costs		1,869			-
Total operating expenses		16,333			11,765
Operating (loss) income		(1,049	)		571

Other income (expense)
Interest expense, net		(71	)		(719	)
Other, net		213			422
Total other income (expense), net		142			(297	)

(Loss) income before income tax		(907	)		274
Income tax expense		676			679
Net loss		(1,583	)		(405	)

Other comprehensive income (loss), net of tax:
Unrealized loss on marketable securities		-			(68	)
Foreign currency translation adjustment		684			176
Unrealized (loss) income on hedging activities		(419	)		147
Other comprehensive income		265			255
Comprehensive loss	$	(1,318	)	$	(150	)

Net loss per share:
Basic	$	(0.05	)	$	(0.01	)
Diluted		(0.05	)		(0.01	)

Weighted average shares outstanding:
Basic		30,017			30,063
Diluted		30,017			30,063

	Nine Months Ended
	September 30, 2017			September 30, 2016

Sales
Domestic sales	$	59,474		$	54,190
International sales		58,536			52,600
Total sales		118,010			106,790

Cost of goods sold		81,388			75,155
Gross profit		36,622			31,635

Operating expenses
Selling, general and administrative		39,826			37,311
Restructuring charge		116			1,275
Transaction costs		1,869			269
Arbitration award		-			(1,967	)
Total operating expenses		41,811			36,888
Operating loss		(5,189	)		(5,253	)

Other (expense) income
Interest expense, net		(948	)		(2,142	)
Other, net		435			826
Total other expense, net		(513	)		(1,316	)

Loss before income tax		(5,702	)		(6,569	)
Income tax expense		990			1,020
Net loss		(6,692	)		(7,589	)

Other comprehensive income (loss), net of tax:
Unrealized income on marketable securities		-			107
Foreign currency translation adjustment		2,305			522
Unrealized (loss) income on hedging activities		(1,797	)		70
Other comprehensive income		508			699
Comprehensive loss	$	(6,184	)	$	(6,890	)

Net loss per share:
Basic	$	(0.22	)	$	(0.25	)
Diluted		(0.22	)		(0.25	)

Weighted average shares outstanding:
Basic		30,015			30,525
Diluted		30,015			30,525

	Estimated Fair Value

Total Purchase Consideration	$	79,239

Assets Acquired and Liabilities Assumed
Assets
Cash	$	1
Accounts receivable		2,686
Inventories		11,674
Prepaid and other current assets		128
Property and equipment		13,206
Amortizable definite lived intangible assets		15,800
Identifiable indefinite lived intangible assets		18,900
Goodwill		18,156
Other long-term assets		15
Total Assets		80,566

Liabilities
Accounts payable and accrued liabilities		1,327
Total Liabilities		1,327

Net Book Value Acquired	$	79,239

			Weighted Average
	Gross		Useful Life

Intangibles subject to amortization
Customer relationships	$	12,200	15.0 years
Product technologies		2,500	10.0 years
Trade name / trademark		1,100	10.0 years
Intangibles not subject to amortization
Trade names and trademarks		18,900	N/A
	$	34,700	13.9 years

	Black Diamond		Sierra		Total

Balance at December 31, 2016	$	-	$	-	$	-

Increase due to acquisition		-		18,156		18,156

Balance at September 30, 2017	$	-	$	18,156	$	18,156

Balance at December 31, 2016	$	22,541

Impact of foreign currency exchange rates		247

Balance at June 30, 2017	$	22,788

Gross balance at December 31, 2016	$	16,980	$	16,980

Increase due to acquisition				15,800
Impact of foreign currency exchange rates		358		510

Gross balance at June 30, 2017	$	17,338
Gross balance at September 30, 2017			$	33,290

	~~June 30, 2017~~		~~December 31, 2016~~

~~Revolving credit facilities (a)~~	$	-	$	-
~~5% Senior Subordinated Notes due 2017 (refer to Note 15)~~		-		~~22,610~~
~~Term note (b)~~		-		~~102~~
~~Unamortized discount~~		-		~~(814~~	)
		-		~~21,898~~
~~Less current portion~~		-		~~(21,898~~	)
	$	-	$	-

	September 30, 2017		December 31, 2016

Revolving credit facilities (a)	$	27,353	$	-
5% Senior Subordinated Notes due 2017 (refer to Note 17)		-		22,610
Term note (b)		-		102
Unamortized discount		-		(814	)
		27,353		21,898
Less current portion		-		(21,898	)
	$	27,353	$	-

	~~June~~September 30, 2017
	Notional		Latest
	Amount		Maturity

Foreign exchange contracts - Norwegian Kroner		~~9,995~~7,449	February 2018
Foreign exchange contracts - Canadian Dollars		~~10,053~~13,345	~~August 2018~~February 2019
Foreign exchange contracts - British Pounds		~~1,593~~2,343	~~August 2018~~February 2019
Foreign exchange contracts - Euros		~~19,711~~22,200	February 2019

	Classification	September 30, 2017		December 31, 2016

Derivative instruments in asset positions:
Forward exchange contracts	Prepaid and other current assets	$	69	$	1,165
Forward exchange contracts	Other long-term assets	$	12	$	116

Derivative instruments in liability positions:
Forward exchange contracts	Accounts payable and accrued liabilities	$	1,284	$	-
Forward exchange contracts	Other long-term liabilities	$	150	$	-

	Foreign Currency Translation Adjustments			Unrealized Gains (Losses) on Cash Flow Hedges			Total			Foreign Currency Translation Adjustments			Unrealized Gains (Losses) on Cash Flow Hedges			Total

Balance as of December 31, 2016	$	(1,729	)	$	724		$	(1,005	)	$	(1,729	)	$	724		$	(1,005	)
Other comprehensive income (loss) before reclassifications		1,702			(1,227	)		475			2,454			(2,177	)		277
Amounts reclassified from other comprehensive income (loss)		(81	)		(151	)		(232	)		(149	)		380			231
Net current period other comprehensive income (loss)		1,621			(1,378	)		243			2,305			(1,797	)		508
Balance as of June 30, 2017	$	(108	)	$	(654	)	$	(762	)
Balance as of September 30, 2017										$	576		$	(1,073	)	$	(497	)

						Gains (losses) reclassified from AOCI to the Condensed Consolidated Statement of Comprehensive Loss
	Gains (losses) reclassified from AOCI to the Condensed Consolidated Statement of Comprehensive Loss
Affected line item in the Condensed Consolidated Statement of Comprehensive Loss	For the Three Months Ended June 30, 2017			For the Six Months Ended June 30, 2017		For the Three Months Ended September 30, 2017			For the Nine Months Ended September 30, 2017
Foreign exchange contracts:
Sales	$	90		$	386	$	(422	)	$	(36	)
Less: Income tax expense		102			235		109			344
Amount reclassified, net of tax	$	(12	)	$	151	$	(531	)	$	(380	)

Foreign currency translation adjustments:
Other, net	$	61		$	81	$	68		$	149

Total reclassifications from AOCI	$	49		$	232	$	(463	)	$	(231	)

	June 30, 2017
	Level 1		Level 2		Level 3		Total

Assets
Cash equivalents	$	42,771	$	-	$	-	$	42,771
Forward exchange contracts		-		119		-		119
	$	42,771	$	119	$	-	$	42,890

Liabilities
Forward exchange contracts	$	-	$	613	$	-	$	613
	$	-	$	613	$	-	$	613

Options Granted During the Six Months Ended June 30, 2017
Options Granted During the Nine Months Ended September 30, 2017

Number of options	38	100	363	100
Option vesting period	1 Year	Immediate	1-2 Years	Immediate
Grant price	$6.10	$6.10	$6.10 - $6.15	$6.10
Dividend yield	0.00%	0.00%	0.00%	0.00%
Expected volatility (a)	41.90%	46.90%	41.9% - 42.2%	46.90%
Risk-free interest rate	1.80%	1.41%	1.80%	1.41%
Expected life (years) (b)	5.31	2.75	5.31 - 5.33	2.75
Weighted average fair value	$2.45	$1.20	$2.45 - $2.49	$1.20

Number issued	250	250
Vesting period	$10.00 stock price target	$12.00 stock price target
Grant price	$6.10	$6.10
Dividend yield	0.0%	0.0%
Expected volatility	42.4%	42.4%
Risk-free interest rate	1.76%	1.76%
Weighted average fair value	$4.30	$3.68

	2015 Restructuring Plan			2015 Restructuring Plan
Balance at December 31, 2016	$	96		$	96
Charges to expense:
Other costs		83			116
Total restructuring charges		83			116
Cash payments and non-cash charges:
Cash payments		(89	)		(132	)
Balance at June 30, 2017	$	90
Balance at September 30, 2017				$	80

Net Operating Loss Carryforward Expiration Dates
December 31, 2016

Expiration Dates December 31,	Net Operating Loss Amount
2021	$	32,408
2022		115,000
2023		5,712
2024		3,566
2025 and beyond		15,733
Total		172,419
Excess stock based payment tax deductions		(270	)
After limitations	$	172,149

					Total Number of Shares		Maximum Dollar Value
					Purchased as Part of		of Shares that May Yet
	Total Number of		Average Price Paid		Publicly Announced		Be Purchased Under
	Shares Purchased		per Share		Plans or Programs		the Plans or Programs
Period
April 1 to 30, 2017		504	$	5.28		2,778,906		17,771,468
May 1 to 31, 2017		-	$	-		2,778,906		17,771,468
June 1 to 30, 2017		-	$	-		2,778,906		17,771,468
Total		504

Exhibit		Description
~~3.1~~	~~Amendment No. 5~~
10.1		Purchase and Sale Agreement dated as of August 21, 2017, by and among Everest/Sapphire Acquisition, LLC, Sierra Bullets, L.L.C., BHH Management, Inc., and Lumber Management, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 25, 2017 and incorporated herein by reference).

10.2		Third Amended and Restated ~~By-Laws~~Loan Agreement, effective as of August 21, 2017, by and among ZB, N.A. dba Zions First National Bank, a national banking association, as Lender, and Clarus Corporation; Black Diamond Equipment, Ltd.; Black Diamond Retail, Inc. *; Everest/Sapphire Acquisition, LLC; BD North American Holdings, LLC; PIEPS Service, LLC; BD European Holdings, LLC, and Sierra Bullets, L.L.C. as Borrowers (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 25, 2017 and incorporated herein by reference).
~~31.1~~
10.3		Fourth Amended and Restated Promissory Note (Revolving Loan) dated effective as of August 21, 2017, by and among Clarus Corporation; Black Diamond Equipment, Ltd.; Black Diamond Retail, Inc.; Everest/Sapphire Acquisition, LLC; BD North American Holdings, LLC; PIEPS Service, LLC; BD European Holdings, LLC, and Sierra Bullets, L.L.C. (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 25, 2017 and incorporated herein by reference).

31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
~~31.2~~
31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
~~32.1~~
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
~~32.2~~
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **

99.1		Letter to Greenhouse Funds LLLP dated November 7, 2017 *

101.INS		XBRL Instance Document *

101.SCH		XBRL Taxonomy Extension Schema Document *

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document *

101.LAB		XBRL Taxonomy Extension Label Linkbase Document *

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document *

*		Filed herewith

**		Furnished herewith

	~~BLACK DIAMOND, INC.~~CLARUS CORPORATION


Date: ~~August~~November 7, 2017	By:	/s/ Warren B. Kanders
		Name: Warren B. Kanders
		Title: Executive Chairman
		(Principal Executive Officer)


	By:	/s/ Aaron J. Kuehne
		Name: Aaron J. Kuehne
		Title: Chief Administrative Officer and
		Chief Financial Officer
		(Principal Financial Officer)
		(Principal Accounting Officer)