UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended:September 30, 20172021
or
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number:001-34767
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
(801) 278-5552 |
(Registrant’s telephone number, including area code) |
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
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 has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange ActAct. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, par value $.0001 per share | CLAR | NASDAQ Global Select Market |
As of November 1, 2017,3, 2021, there were 30,041,26536,987,552 shares of common stock, par value $0.0001, outstanding.
INDEX
CLARUS CORPORATION
39
PART I. FINANCIAL INFORMATION
CLARUS CORPORATION | |||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||
(Unaudited) | |||||
(In thousands, except per share amounts) | |||||
September 30, 2021 | December 31, 2020 | ||||
Assets | |||||
Current assets | |||||
Cash | $ | 10,170 | $ | 17,789 | |
Accounts receivable, less allowance for credit losses and | |||||
doubtful accounts of $709 and $1,433, respectively | 68,045 | 50,475 | |||
Inventories | 118,706 | 68,356 | |||
Prepaid and other current assets | 13,478 | 5,385 | |||
Income tax receivable | 285 | 117 | |||
Total current assets | 210,684 | 142,122 | |||
Property and equipment, net | 32,444 | 26,956 | |||
Other intangible assets, net | 62,672 | 19,416 | |||
Indefinite-lived intangible assets | 116,997 | 47,523 | |||
Goodwill | 108,174 | 26,715 | |||
Deferred income taxes | 17,156 | 11,113 | |||
Other long-term assets | 23,616 | 6,846 | |||
Total assets | $ | 571,743 | $ | 280,691 | |
Liabilities and Stockholders' Equity | |||||
Current liabilities | |||||
Accounts payable and accrued liabilities | $ | 54,389 | $ | 34,665 | |
Income tax payable | 4,250 | 956 | |||
Current portion of long-term debt | 8,990 | 4,000 | |||
Total current liabilities | 67,629 | 39,621 | |||
Long-term debt | 181,042 | 30,621 | |||
Deferred income taxes | 35,025 | 1,227 | |||
Other long-term liabilities | 19,450 | 4,628 | |||
Total liabilities | 303,146 | 76,097 | |||
Stockholders' Equity | |||||
Preferred stock, $0.0001 par value per share; 5,000 | |||||
shares authorized; NaN issued | - | - | |||
Common stock, $0.0001 par value per share; 100,000 shares authorized; | |||||
37,811 and 35,198 issued and 33,800 and 31,228 outstanding, respectively | 4 | 4 | |||
Additional paid in capital | 577,378 | 513,979 | |||
Accumulated deficit | (276,463) | (286,100) | |||
Treasury stock, at cost | (24,440) | (23,789) | |||
Accumulated other comprehensive (loss) income | (7,882) | 500 | |||
Total stockholders' equity | 268,597 | 204,594 | |||
Total liabilities and stockholders' equity | $ | 571,743 | $ | 280,691 | |
See accompanying notes to condensed consolidated financial statements. | |||||
CLARUS CORPORATION | |||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME | |||||
(Unaudited) | |||||
(In thousands, except per share amounts) | |||||
Three Months Ended | |||||
September 30, 2021 | September 30, 2020 | ||||
Sales | |||||
Domestic sales | $ | 61,259 | $ | 34,686 | |
International sales | 47,712 | 29,805 | |||
Total sales | 108,971 | 64,491 | |||
Cost of goods sold | 69,792 | 42,822 | |||
Gross profit | 39,179 | 21,669 | |||
Operating expenses | |||||
Selling, general and administrative | 31,314 | 18,674 | |||
Transaction costs | 8,147 | 1,440 | |||
Total operating expenses | 39,461 | 20,114 | |||
Operating (loss) income | (282) | 1,555 | |||
Other (expense) income | |||||
Interest expense, net | (1,476) | (232) | |||
Other, net | 338 | 449 | |||
Total other (expense) income, net | (1,138) | 217 | |||
(Loss) income before income tax | (1,420) | 1,772 | |||
Income tax (benefit) expense | (5,950) | 589 | |||
Net income | 4,530 | 1,183 | |||
Other comprehensive (loss) income, net of tax: | |||||
Foreign currency translation adjustment | (8,933) | 807 | |||
Unrealized gain (loss) on hedging activities | 268 | (600) | |||
Other comprehensive (loss) income | (8,665) | 207 | |||
Comprehensive (loss) income | $ | (4,135) | $ | 1,390 | |
Net income per share: | |||||
Basic | $ | 0.13 | $ | 0.04 | |
Diluted | 0.13 | 0.04 | |||
Weighted average shares outstanding: | |||||
Basic | 33,800 | 29,983 | |||
Diluted | 36,164 | 30,986 | |||
See accompanying notes to condensed consolidated financial statements. | |||||
CLARUS CORPORATION | |||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | |||||
(Unaudited) | |||||
(In thousands, except per share amounts) | |||||
Nine Months Ended | |||||
September 30, 2021 | September 30, 2020 | ||||
Sales | |||||
Domestic sales | $ | 160,708 | $ | 83,493 | |
International sales | 96,903 | 64,567 | |||
Total sales | 257,611 | 148,060 | |||
Cost of goods sold | 163,361 | 97,243 | |||
Gross profit | 94,250 | 50,817 | |||
Operating expenses | |||||
Selling, general and administrative | 72,903 | 50,537 | |||
Transaction costs | 9,272 | 1,870 | |||
Total operating expenses | 82,175 | 52,407 | |||
Operating income (loss) | 12,075 | (1,590) | |||
Other expense | |||||
Interest expense, net | (1,926) | (800) | |||
Other, net | (4,263) | 324 | |||
Total other expense, net | (6,189) | (476) | |||
Income (loss) before income tax | 5,886 | (2,066) | |||
Income tax benefit | (6,161) | (542) | |||
Net income (loss) | 12,047 | (1,524) | |||
Other comprehensive (loss) income, net of tax: | |||||
Foreign currency translation adjustment | (9,654) | 773 | |||
Unrealized gain (loss) on hedging activities | 1,272 | (336) | |||
Other comprehensive (loss) income | (8,382) | 437 | |||
Comprehensive income (loss) | $ | 3,665 | $ | (1,087) | |
Net income (loss) per share: | |||||
Basic | $ | 0.37 | $ | (0.05) | |
Diluted | 0.35 | (0.05) | |||
Weighted average shares outstanding: | |||||
Basic | 32,159 | 29,854 | |||
Diluted | 34,044 | 29,854 | |||
See accompanying notes to condensed consolidated financial statements. | |||||
CLARUS CORPORATION | ||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
(Unaudited) | ||||||
(In thousands) | ||||||
Nine Months Ended | ||||||
September 30, 2021 | September 30, 2020 | |||||
Cash Flows From Operating Activities: | ||||||
Net income (loss) | $ | 12,047 | $ | (1,524) | ||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | ||||||
Depreciation of property and equipment | 4,336 | 3,405 | ||||
Amortization of other intangible assets | 5,971 | 2,290 | ||||
Amortization of debt issuance costs | 335 | 230 | ||||
Gain on disposition of property and equipment | (2) | 32 | ||||
Noncash lease expense | 1,507 | 563 | ||||
Stock-based compensation | 6,414 | 5,433 | ||||
Deferred income taxes | (7,006) | (885) | ||||
Changes in operating assets and liabilities, net of acquisition: | ||||||
Accounts receivable | (13,079) | (541) | ||||
Inventories | (25,181) | 9,477 | ||||
Prepaid and other assets | (5,912) | (971) | ||||
Accounts payable and accrued liabilities | 3,558 | 3,530 | ||||
Income taxes | (89) | 9 | ||||
Net cash (used in) provided by operating activities | (17,101) | 21,048 | ||||
Cash Flows From Investing Activities: | ||||||
Purchase of business, net of cash received | (135,627) | - | ||||
Deposit for business acquisition | - | (30,500) | ||||
Proceeds from disposition of property and equipment | 25 | 327 | ||||
Purchases of property and equipment | (5,579) | (3,606) | ||||
Net cash used in investing activities | (141,181) | (33,779) | ||||
Cash Flows From Financing Activities: | ||||||
Proceeds from revolving credit facilities | 87,703 | 49,265 | ||||
Repayments on revolving credit facilities | (37,871) | (50,014) | ||||
Repayments on term notes | (5,814) | (1,000) | ||||
Proceeds from issuance of term notes | 109,154 | 20,000 | ||||
Payment of debt issuance costs | (722) | (44) | ||||
Purchase of treasury stock | (651) | (1,520) | ||||
Proceeds from exercise of stock options | 1,652 | 862 | ||||
Cash dividends paid | (2,410) | (744) | ||||
Proceeds from the sale of common stock | - | 11,476 | ||||
Common stock issuance costs | - | (325) | ||||
Net cash provided by financing activities | 151,041 | 27,956 | ||||
Effect of foreign exchange rates on cash | (378) | 99 | ||||
Change in cash | (7,619) | 15,324 | ||||
Cash, beginning of year | 17,789 | 1,703 | ||||
Cash, end of period | $ | 10,170 | $ | 17,027 | ||
Supplemental Disclosure of Cash Flow Information: | ||||||
Cash paid for income taxes | $ | 353 | $ | 418 | ||
Cash paid for interest | $ | 1,389 | $ | 624 | ||
Supplemental Disclosures of Non-Cash Investing and Financing Activities: | ||||||
Stock issued for business acquisition | $ | 55,333 | $ | - | ||
Contingent consideration for business acquisition | $ | 3,564 | $ | - | ||
Property and equipment purchased with accounts payable | $ | 57 | $ | 286 | ||
Lease liabilities arising from obtaining right of use assets | $ | 6,421 | $ | 499 | ||
Unpaid debt issuance costs | $ | 270 | $ | 150 | ||
Stock dividends | $ | - | $ | 1,533 | ||
See accompanying notes to condensed consolidated financial statements. | ||||||
CLARUS CORPORATION | |||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||||||||||
Accumulated | |||||||||||||||||||||||
Additional | Other | Total | |||||||||||||||||||||
Common Stock | Paid-In | Accumulated | Treasury Stock | Comprehensive | Stockholders' | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Shares | Amount | Income (Loss) | Equity | ||||||||||||||||
Balance, December 31, 2019 | 33,615 | $ | 3 | $ | 492,353 | $ | (288,592) | (3,855) | $ | (22,269) | $ | (303) | $ | 181,192 | |||||||||
Net income | - | - | - | 36 | - | - | - | 36 | |||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 412 | 412 | |||||||||||||||
Cash dividends ($0.025 per share) | - | - | - | (744) | - | - | - | (744) | |||||||||||||||
Stock-based compensation expense | - | - | 613 | - | - | - | - | 613 | |||||||||||||||
Balance, March 31, 2020 | 33,615 | $ | 3 | $ | 492,966 | $ | (289,300) | (3,855) | $ | (22,269) | $ | 109 | $ | 181,509 | |||||||||
Net loss | - | - | - | (2,743) | - | - | - | (2,743) | |||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | (182) | (182) | |||||||||||||||
Stock dividends ($0.025 per share) | 70 | - | 714 | (714) | - | - | - | - | |||||||||||||||
Purchase of treasury stock | - | - | - | - | (14) | (137) | - | (137) | |||||||||||||||
Stock-based compensation expense | - | - | 616 | - | - | - | - | 616 | |||||||||||||||
Proceeds from exercise of options | 72 | - | 497 | - | - | - | - | 497 | |||||||||||||||
Balance, June 30, 2020 | 33,757 | $ | 3 | $ | 494,793 | $ | (292,757) | (3,869) | $ | (22,406) | $ | (73) | $ | 179,560 | |||||||||
Net income | - | - | - | 1,183 | - | - | - | 1,183 | |||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 207 | 207 | |||||||||||||||
Stock dividends ($0.025 per share) | 63 | - | 819 | (819) | - | - | - | - | |||||||||||||||
Purchase of treasury stock | - | - | - | - | (101) | (1,383) | - | (1,383) | |||||||||||||||
Stock-based compensation expense | 244 | - | 4,204 | - | - | - | - | 4,204 | |||||||||||||||
Proceeds from exercise of options | 57 | - | 365 | - | - | - | - | 365 | |||||||||||||||
Issuance of common stock, net of issuance costs | 900 | 1 | 11,150 | - | - | - | - | 11,151 | |||||||||||||||
Balance, September 30, 2020 | 35,021 | $ | 4 | $ | 511,331 | $ | (292,393) | (3,970) | $ | (23,789) | $ | 134 | $ | 195,287 | |||||||||
Accumulated | |||||||||||||||||||||||
Additional | Other | Total | |||||||||||||||||||||
Common Stock | Paid-In | Accumulated | Treasury Stock | Comprehensive | Stockholders' | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Shares | Amount | Income (Loss) | Equity | ||||||||||||||||
Balance, December 31, 2020 | 35,198 | $ | 4 | $ | 513,979 | $ | (286,100) | (3,970) | $ | (23,789) | $ | 500 | $ | 204,594 | |||||||||
Net income | - | - | - | 5,677 | - | - | - | 5,677 | |||||||||||||||
Other comprehensive loss | - | - | - | - | - | - | (120) | (120) | |||||||||||||||
Cash dividends ($0.025 per share) | - | - | - | (783) | - | - | - | (783) | |||||||||||||||
Purchase of treasury stock | - | - | - | - | (41) | (651) | - | (651) | |||||||||||||||
Stock-based compensation expense | - | - | 1,524 | - | - | - | - | 1,524 | |||||||||||||||
Proceeds from exercise of options | 127 | - | 246 | - | - | - | - | 246 | |||||||||||||||
Balance, March 31, 2021 | 35,325 | $ | 4 | $ | 515,749 | $ | (281,206) | (4,011) | $ | (24,440) | $ | 380 | $ | 210,487 | |||||||||
Net income | - | - | - | 1,840 | - | - | - | 1,840 | |||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 403 | 403 | |||||||||||||||
Cash dividends ($0.025 per share) | - | - | - | (782) | - | - | - | (782) | |||||||||||||||
Stock-based compensation expense | - | - | 1,826 | - | - | - | - | 1,826 | |||||||||||||||
Proceeds from exercise of options | 171 | - | 1,406 | - | - | - | - | 1,406 | |||||||||||||||
Balance, June 30, 2021 | 35,496 | $ | 4 | $ | 518,981 | $ | (280,148) | (4,011) | $ | (24,440) | $ | 783 | $ | 215,180 | |||||||||
Net income | - | - | - | 4,530 | - | - | - | 4,530 | |||||||||||||||
Other comprehensive income | - | - | - | - | - | - | (8,665) | (8,665) | |||||||||||||||
Cash dividends ($0.025 per share) | - | - | - | (845) | - | - | - | (845) | |||||||||||||||
Stock-based compensation expense | - | - | 3,064 | - | - | - | - | 3,064 | |||||||||||||||
Shares issued in business acquisition | 2,315 | - | 55,333 | - | - | - | - | 55,333 | |||||||||||||||
Balance, September 30, 2021 | 37,811 | $ | 4 | $ | 577,378 | $ | (276,463) | (4,011) | $ | (24,440) | $ | (7,882) | $ | 268,597 | |||||||||
See accompanying notes to condensed consolidated financial statements. | |||||||||||||||||||||||
CLARUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
| September 30, 2017 | December 31, 2016 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 1,672 | $ | 94,738 | ||||
| Accounts receivable, less allowance for doubtful accounts of $411 and $399, respectively | 35,414 | 23,232 | ||||||
| Inventories | 66,982 | 45,410 | ||||||
| Prepaid and other current assets | 2,416 | 3,480 | ||||||
| Income tax receivable | - | 85 | ||||||
| Total current assets | 106,484 | 166,945 | ||||||
| Property and equipment, net | 24,319 | 11,055 | ||||||
| Other intangible assets, net | 24,690 | 9,769 | ||||||
| Indefinite lived intangible assets | 41,794 | 22,541 | ||||||
| Goodwill | 18,156 | - | ||||||
| Other long-term assets | 350 | 147 | ||||||
| Total assets | $ | 215,793 | $ | 210,457 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 23,021 | $ | 17,740 | ||||
| Income tax payable | 513 | 969 | ||||||
| Current portion of long-term debt | - | 21,898 | ||||||
| Total current liabilities | 23,534 | 40,607 | ||||||
| Long-term debt, net | 27,353 | - | ||||||
| Deferred income taxes | 9,169 | 8,966 | ||||||
| Other long-term liabilities | 222 | 76 | ||||||
| Total liabilities | 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; 32,917 and 32,888 issued and 30,041 and 30,016 outstanding, respectively | 3 | 3 | ||||||
| Additional paid in capital | 484,833 | 483,925 | ||||||
| Accumulated deficit | (316,409 | ) | (309,717 | ) | ||||
| Treasury stock, at cost | (12,415 | ) | (12,398 | ) | ||||
| Accumulated other comprehensive loss | (497 | ) | (1,005 | ) | ||||
| Total stockholders' equity | 155,515 | 160,808 | ||||||
| Total liabilities and stockholders' equity | $ | 215,793 | $ | 210,457 | ||||
See accompanying notes to condensed consolidated financial statements.
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.
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.
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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except per share amounts)
NOTENOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements of Clarus Corporation and subsidiaries (which may be referred to as the “Company,” “Clarus,” “we,” “us” or “our”) as of September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 20172021 and 2016,2020, have been prepared in accordance with U.S.accounting principles generally accepted accounting principlesin the United States of America (“U.S. GAAP”), instructions to the 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 offor the three and nine months ended September 30, 20172021 are not necessarily indicative of the results to be obtained for the year ending December 31, 2017.2021. 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, 2016,2020, filed with the Securities and Exchange Commission (the “Commission”“SEC”). on March 8, 2021.
Clarus, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (which may be referred to as “Black(“Black Diamond Equipment” or “BDEL”) and Gregory Mountain Products, LLC (which may be referred to as “Gregory Mountain Products”, “Gregory” or “GMP”) in May 2010 and changed its name 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 completed the sale of certain assets to Samsonite LLC comprising Gregory 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 sold its equity interests in POC, resulting in the conclusion of the Company’s review of strategic alternatives. On November 9, 2015, the Company announced that it was seeking to redeploy its significant cash balances to invest in high quality, durable, cash flow-producing assets in order to diversify our business and potentially monetize our substantial net operating losses as part of our asset redeployment and diversification strategy.
On August 14, 2017, the Company changed its name from Black Diamond, Inc. to 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”). On November 6, 2018, the Company acquired the assets of SKINourishment, Inc. (“SKINourishment”).
On October 2, 2020, the Company completed the acquisition of certain assets and liabilities constituting the Barnes business (“Barnes”).
On July 1, 2021, the Company completed the acquisition of Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”).
Nature of Business
Headquartered in Salt Lake City, Clarus Corporation isUtah, we are 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 aglobal leading designer, developer, manufacturer and distributor of best-in-class outdoor equipment and lifestyle products focused on the climb, ski, mountain,outdoor and technical categories. consumer enthusiast markets. Our mission is to identify, acquire and grow outdoor “super fan” brands through our unique “innovate and accelerate” strategy. We define a “super fan” brand as a brand that creates the world’s pre-eminent, performance-defining product that the best-in-class user cannot live without. Each of our brands has a long history of continuous product innovation for core and everyday users alike.The Company’s products are principally sold globally under the Black Diamond®, Sierra®, Barnes® and PIEPS®Rhino-Rack® brand names through outdoor specialty and online retailers, our own websites, distributors and original equipment manufacturers throughoutmanufacturers. Our portfolio of iconic brands is well-positioned for sustainable, long-term growth underpinned by powerful industry trends across the U.S.outdoor and internationally.adventure sport end markets.
Through our Black Diamond®Diamond, PIEPS, and PIEPS®SKINourishment brands, we offer a broad range of products including: high performancehigh-performance, activity-based apparel (such as jackets, shells, insulation, midlayers, pants and bibs)logowear); rock-climbing footwear and 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.mittens; and skincare and other sport-enhancing products. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes. Through our Sierra manufacturesand Barnes brands, we manufacture a wide range of high performancehigh-performance bullets and ammunition for both rifles and pistols. Sierra bulletspistols that are used for precision target shooting, hunting and military and law enforcement purposes.Rhino-Rack is a leading manufacturer of highly-engineered automotive roof racks, trays, mounting systems, luggage boxes, carriers and accessories with leading market share in Australia and New Zealand and a growing presence in the United States.
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 income taxesthe fair value of assets acquired in business combinations, excess or obsolete inventory, allowance for credit losses and doubtful accounts, and valuation of long-lived assets and other intangibledeferred tax 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, projected future cash flows, and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
Significant Accounting Policies
ThereAccounting Pronouncements not yet adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to existing guidance on contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as the London Inter-Bank Offered Rate (“LIBOR”) which is being phased out in 2021, to alternate reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. The provisions have been no significantimpact as contract modifications and other changes occur while LIBOR is phased out. The Company is in the process of evaluating the optional relief guidance provided within this ASU. Management will continue its assessment and monitor regulatory developments during the LIBOR transition period.
NOTE 2. ACQUISITIONS
Rhino-Rack
On May 30, 2021, Clarus, through Oscar Aluminium Pty Ltd (the “Buyer”), an indirect wholly-owned Australian subsidiary of the Company, entered into a Share Sale and Purchase Agreement (the “Purchase Agreement”) to acquire Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”). On July 1, 2021, the transactions contemplated by the Purchase Agreement were consummated. All United States dollar amounts contained herein are based on the exchange rates in effect for Australian dollars ($AUD) and the market value of the Company’s significant accounting policies as described incommon stock at the time of closing of the acquisition of Rhino-Rack (the “Rhino-Rack Acquisition”).
Under the terms of the Purchase Agreement, the Buyer acquired Rhino-Rack for an aggregate purchase price of approximately $AUD 269,097 (approximately $202,038), subject to a post-closing adjustment. The purchase price was comprised of approximately $AUD 190,650 (approximately $143,140) cash, 2,315,121 shares of the Company’s Annual Report on Form 10-Kcommon stock valued at $55,333, and additional contingent consideration described below. The shares of the Company’s common stock issued are subject to a lock-up agreement restricting sales for 180 days from the closing of the Acquisition. The Purchase Agreement also provides for the year ended December 31, 2016.payment of additional contingent consideration up to approximately $AUD 10,000 (approximately $7,508) if certain future net sales thresholds are met (the “Contingent Consideration”). The Company estimated the fair value of the Contingent Consideration to be approximately $AUD 4,747 (approximately $3,565).
DuringThe acquisition was accounted for as a business combination. Acquisition-related costs for the Rhino-Rack Acquisition, which were included in transaction costs during the three and nine months ended September 30, 2017,2021 were $7,866 and $8,643, respectively. The Company believes the acquisition of Rhino-Rack is expected to provide the Company adopted Accounting Standards Updatewith a greater combined global revenue base, increased gross margins, profitability and free cash flows, and access to increased liquidity to further acquire and grow businesses.
Barnes
On September 30, 2020, Sierra entered into an Asset Purchase Agreement (the “Barnes Asset Purchase Agreement”) to acquire certain assets and assume certain liabilities constituting the Barnes business (“ASU”Barnes”) 2015-11,Simplifying. Pursuant to the MeasurementBarnes Asset Purchase Agreement, the purchase price to be paid for Barnes is $30,500. On October 2, 2020, Sierra completed the acquisition of Inventory, which changes the measurement principleBarnes. The acquisition was accounted 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 oras 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. business combination.
The Company adopted this ASU effective on January 1, 2017, on a prospective basis which did not have a material impact onbelieves the Company’s condensed consolidated financial statements and related disclosures.
The Company also adopted ASU 2016-09,Compensation – Stock Compensation (Topic 718): Improvementsacquisition of Barnes is expected 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,provide 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 aswith a cash inflow from financing activitiesgreater combined global revenue base, increased gross margins, profitability 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 taxfree cash flows, as an operating activity which did not impact our condensed consolidated statements of cash flows.and access to increased liquidity to further acquire and grow businesses.
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 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.
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.
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:
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 fair value estimates for the purchase price allocation for Rhino-Rack are based on the Company’s best estimates and assumptions as of the reporting date and are considered preliminary. The fair value measurements of identifiable assets and liabilities, and the resulting goodwill related to the Rhino-Rack Acquisition are subject to change and the final purchase price allocation could be different from the amounts presented below. We expect to finalize the valuation as soon as practicable, but not later than one year from the date of the Rhino-Rack Acquisition. The fair value measurements for the acquisition of Barnes have been completed. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill. Goodwill for Rhino-Rack is included in the Rhino-Rack segment and goodwill for Barnes is included in the Sierra segment. The goodwill consists largely of the synergies expected from combining operations of both acquisitions.
Rhino-Rack | Barnes | |||||||
July 1, 2021 | October 2, 2020 | |||||||
Number of Shares | Estimated Fair Value | Estimated Fair Value | ||||||
Cash paid | - | $ | 143,140 | $ | 30,500 | |||
Issuance of shares of Clarus Corporation | 2,315 | 55,333 | - | |||||
Contingent consideration | - | 3,565 | - | |||||
Total purchase consideration | 2,315 | $ | 202,038 | $ | 30,500 | |||
Assets acquired and liabilities assumed | ||||||||
Assets | ||||||||
Cash | $ | 7,513 | $ | 2 | ||||
Accounts receivable, net | 10,769 | - | ||||||
Inventories | 27,046 | 4,535 | ||||||
Prepaid and other current assets | 644 | 612 | ||||||
Property and equipment | 4,619 | 4,036 | ||||||
Other intangible assets | 51,500 | 7,500 | ||||||
Indefinite-lived intangible assets | 72,800 | 5,600 | ||||||
Goodwill | 85,127 | 8,625 | ||||||
Other long-term assets | 11,796 | 4,355 | ||||||
Total assets | 271,814 | 35,265 | ||||||
Liabilities | ||||||||
Accounts payable and accrued liabilities | 16,572 | 842 | ||||||
Income tax payable | 3,413 | - | ||||||
Current portion of long-term debt | 607 | - | ||||||
Long-term debt | 2,107 | - | ||||||
Deferred income taxes | 35,781 | - | ||||||
Other long-term liabilities | 11,296 | 3,923 | ||||||
Total liabilities | 69,776 | 4,765 | ||||||
Net Book Value Acquired | $ | 202,038 | $ | 30,500 | ||||
The estimated fair value of inventory was recorded at expected sales price less cost to sell plus a reasonable profit margin for selling efforts.
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,acquisitions, the Company acquired exclusive rights to Sierra’s trade namesRhino-Rack’s and Barnes’ trademarks, customer relationships, and product technologies. The preliminary amounts assigned to each class of intangible asset, other than goodwill acquired, and the related preliminary weighted average amortization periodsuseful lives are as follows:
Rhino-Rack | Barnes | ||||||||||||||
| Weighted Average | Average | Average | |||||||||||||
| Gross | Useful Life | Gross | Useful Life | Gross | Useful Life | ||||||||||
| Intangibles subject to amortization | |||||||||||||||
| Customer relationships | $ | 12,200 | 15.0 years | $ | 36,500 | 11.5 years | $ | 5,700 | 10.0 years | ||||||
| Product technologies | 2,500 | 10.0 years | 15,000 | 10.0 years | 1,800 | 10.0 years | |||||||||
| Trade name / trademark | 1,100 | 10.0 years | |||||||||||||
| Intangibles not subject to amortization | |||||||||||||||
| Trade names and trademarks | 18,900 | N/A | |||||||||||||
Trademarks | 72,800 | N/A | 5,600 | N/A | |||||||||||
| $ | 34,700 | 13.9 years | $ | 124,300 | 11.1 years | $ | 13,100 | 10.0 years | |||||||
The fair value of Sierra’s assembled workforce and buyer-specific synergies has been included in goodwill. AccordingAlthough the Company is electing to Revenue Ruling 99-6,treat the acquisition of Rhino-Rack as a limited liability companypurchase of assets for tax purposes, from an income tax perspective, there is no tax deduction provided for intangibles in Australia. As a result, deferred tax liabilities have been set up for the finite and indefinite-lived assets. From a capital base perspective, deferred tax assets established through purchase accounting have been fully offset by a corresponding valuation allowance. Furthermore, the full amount of goodwill of $85,127 is expected to be non-deductible for tax purposes. No pre-existing relationships existed between the Company and the Rhino-Rack sellers prior to the acquisition. Rhino-Rack revenue and operating income are included in the Rhino-Rack segment. Total revenue of $19,625 and net income of $5,453 of Rhino-Rack were included in the Company’s condensed consolidated statements of comprehensive income (loss) from the date of acquisition to September 30, 2021.
The acquisition of Barnes is treated as a purchase of assets for tax purposes. As such, the basis in the assets of SierraBarnes 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$8,625 is expected to be deductible for tax purposes. No pre-existing relationshiprelationships existed between Clarusthe Company and the SellersBarnes sellers prior to the acquisition. Barnes revenue and operating income were included in the Sierra segment.
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 are based on the individual historical results of operations for the threeCompany, Rhino-Rack and nine months ended September 30, 2017 and 2016Barnes, with adjustments to give pro forma effect as if the acquisitionacquisitions and borrowings used to finance the acquisitionacquisitions had occurred on January 1, 2016,2020 for Rhino-Rack and January 1, 2019 for Barnes, 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 | ) | ||||||
Three Months Ended | Nine Months Ended | ||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||
Sales | $ | 108,971 | $ | 93,259 | $ | 308,142 | $ | 213,076 | |||
Net income | $ | 15,739 | $ | 3,938 | $ | 25,258 | $ | 832 | |||
Net income per share - basic | $ | 0.47 | $ | 0.13 | $ | 0.79 | $ | 0.03 | |||
Net income per share - diluted | $ | 0.44 | $ | 0.13 | $ | 0.74 | $ | 0.03 | |||
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 transactiontransactions been consummated as of January 1, 2016.2020 for Rhino-Rack or January 1, 2019 for Barnes. 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 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 $0 and $324, during the three and nine months ended September 30, 2016, respectively, which was recorded as a reduction ofselling, general and administrative expenses in our condensed consolidated financial statementsfor such periods.
NOTE 4. INVENTORIES
Inventories, as of September 30, 2017 and December 31, 2016, were as follows:
NOTE 3. INVENTORIES
Inventories, as of September 30, 2021 and December 31, 2020, were as follows:
September 30, 2021 | December 31, 2020 | ||||
Finished goods | $ | 78,601 | $ | 50,132 | |
Work-in-process | 9,168 | 6,429 | |||
Raw materials and supplies | 30,937 | 11,795 | |||
$ | 118,706 | $ | 68,356 | ||
NOTE 5.4. PROPERTY AND EQUIPMENT
Property and equipment, net, as of September 30, 20172021 and December 31, 2016,2020, were as follows:
| September 30, 2017 | December 31, 2016 | |||||||
| Land | $ | 3,160 | $ | 2,850 | ||||
| Building and improvements | 6,827 | 4,169 | ||||||
| Furniture and fixtures | 3,688 | 3,074 | ||||||
| Computer hardware and software | 4,758 | 4,519 | ||||||
| Machinery and equipment | 19,283 | 11,144 | ||||||
| Construction in progress | 350 | 522 | ||||||
| 38,066 | 26,278 | |||||||
| Less accumulated depreciation | (13,747 | ) | (15,223 | ) | ||||
| $ | 24,319 | $ | 11,055 | |||||
NOTE 6. OTHER INTANGIBLE ASSETS
September 30, 2021 | December 31, 2020 | ||||
Land | $ | 3,160 | $ | 3,160 | |
Building and improvements | 7,650 | 7,324 | |||
Furniture and fixtures | 6,183 | 5,715 | |||
Computer hardware and software | 7,266 | 5,707 | |||
Machinery and equipment | 31,603 | 26,848 | |||
Construction in progress | 5,495 | 3,042 | |||
61,357 | 51,796 | ||||
Less accumulated depreciation | (28,913) | (24,840) | |||
$ | 32,444 | $ | 26,956 | ||
Goodwill
ThereDepreciation expense for the three months ended September 30, 2021 and 2020 was an increase in goodwill during$1,631 and $1,140, respectively, and for the nine months ended September 30, 2017, from $0 to $18,156, due to the Company’s acquisition of Sierra on August 21, 2017. 2021 and 2020 was $4,336 and $3,405, respectively.
NOTE 5. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The following table summarizes the changesbalances 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 | ||||||
Black Diamond | Sierra | Rhino-Rack | Total | ||||||||
Balance at December 31, 2020 | $ | - | $ | 26,715 | $ | - | $ | 26,715 | |||
Increase due to acquisition of Rhino-Rack | - | - | 85,127 | 85,127 | |||||||
Impact of foreign currency exchange rates | - | - | (3,668) | (3,668) | |||||||
Balance at September 30, 2021 | $ | - | $ | 26,715 | $ | 81,459 | $ | 108,174 | |||
Indefinite Lived Intangible Assets
The Company owns certain tradenames and trademarks which provide Black Diamond Equipment, PIEPS and Sierra with the exclusive and perpetual rights to manufacture and sell their respective products. There was an increase in tradenames and trademarks during the nine months ended September 30, 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 |
Balance at December 31, 2020 | $ | 47,523 |
Increase due to acquisition of Rhino-Rack | 72,800 | |
Impact of foreign currency exchange rates | (3,326) | |
Balance at September 30, 2021 | $ | 116,997 |
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
Other Intangible Assets, net
Intangible assets are amortizable over their estimated useful lives. There was an increase in gross other intangible assets subject to amortization during the nine months ended September 30, 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 | ||
| Increase due to acquisition | 15,800 | |||
| Impact of foreign currency exchange rates | 510 | |||
| Gross balance at September 30, 2017 | $ | 33,290 |
Gross balance at December 31, 2020 | $ | 40,840 |
Increase due to acquisition of Rhino-Rack | 51,500 | |
Impact of foreign currency exchange rates | (2,492) | |
Gross balance at September 30, 2021 | $ | 89,848 |
Other intangible assets, net of amortization as of September 30, 20172021 and December 31, 2016,2020, were as follows:
| September 30, 2017 | December 31, 2016 | |||||||
| Customer lists and relationships | $ | 26,426 | $ | 13,942 | ||||
| Product technologies | 4,817 | 2,091 | ||||||
| Trade name / trademark | 1,100 | - | ||||||
| Core technologies | 947 | 947 | ||||||
| 33,290 | 16,980 | |||||||
| Less accumulated amortization | (8,600 | ) | (7,211 | ) | ||||
| $ | 24,690 | $ | 9,769 | |||||
NOTE 7. LONG-TERM DEBT
September 30, 2021 | |||||||||||
Gross | Accumulated Amortization | Net | Weighted Average Useful Life | ||||||||
Intangibles subject to amortization | |||||||||||
Customer relationships | $ | 66,705 | $ | (21,036) | $ | 45,669 | 12.8 years | ||||
Product technologies | 20,933 | (4,540) | 16,393 | 10.4 years | |||||||
Tradename / trademark | 1,263 | (653) | 610 | 9.4 years | |||||||
Core technologies | 947 | (947) | - | 10.0 years | |||||||
$ | 89,848 | $ | (27,176) | $ | 62,672 | 12.2 years | |||||
December 31, 2020 | |||||||||||
Gross | Accumulated Amortization | Net | Weighted Average Useful Life | ||||||||
Customer relationships | $ | 31,930 | $ | (16,783) | $ | 15,147 | 14.2 years | ||||
Product technologies | 6,700 | (3,151) | 3,549 | 11.5 years | |||||||
Tradename / trademark | 1,263 | (543) | 720 | 9.4 years | |||||||
Core technologies | 947 | (947) | - | 10.0 years | |||||||
$ | 40,840 | $ | (21,424) | $ | 19,416 | 13.5 years | |||||
Long-term debt, netAmortization expense for the three months ended September 30, 2021 and 2020 was $3,577 and $753, respectively, and for the nine months ended September 30, 2021 and 2020 was $5,971 and $2,290, respectively. Future amortization expense for other intangible assets as of September 30, 20172021 is as follows:
Years Ending December 31, | Amortization Expense | |
2021 (excluding the nine months ended September 30, 2021) | $ | 3,529 |
2022 | 12,729 | |
2023 | 11,148 | |
2024 | 9,731 | |
2025 | 8,035 | |
Thereafter | 17,500 | |
$ | 62,672 | |
NOTE 6. LONG-TERM DEBT
Long-term debt as of September 30, 2021 and December 31, 2016,2020, was as follows:
| 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 | $ | - | |||||
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.
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
September 30, 2021 | December 31, 2020 | ||||
Revolving credit facility (a) | $ | 65,412 | $ | 15,579 | |
Other debt (b) | 1,525 | 1,042 | |||
Term note (c) | 123,437 | 18,000 | |||
Debt issuance costs | (342) | - | |||
190,032 | 34,621 | ||||
Less current portion | (8,990) | (4,000) | |||
$ | 181,042 | $ | 30,621 | ||
All debt associated(a)As of September 30, 2021, the Company had drawn $65,412 on the $100,000 revolving commitment that was available under the credit agreement, as amended, with JPMorgan Chase Bank, N.A., with a maturity date of May 3, 2024. The Company pays interest monthly on any borrowings on the Credit Agreement. As of September 30, 2021 and December 31, 2020, the rate was 1.6250% and 2.0625%, respectively.
On July 1, 2021, the Company and certain of its direct and indirect subsidiaries (each, a “Loan Party” and, collectively, the “Loan Parties”) entered into Amendment No. 3 (“Amendment No. 3”) to that certain Credit Agreement, dated May 3, 2019, as amended by Amendment No. 1 dated May 28, 2019 and Amendment No. 2 dated November 12, 2020, with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (collectively, the “Credit Agreement”).
The Credit Agreement as amended by Amendment No. 3 increased the aggregate amount of the term loan facility thereunder to $125,000 and increased the maximum amount of the revolving loan facility thereunder to $100,000. The Credit Agreement continues to permit the Loan Parties, subject to certain requirements, to arrange with lenders for an aggregate of up to $50,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Credit Agreement of up to $275,000.
Amendment No. 3 provides for additional subsidiaries of the Company to guarantee and provide collateral for the loans under the Credit Agreement, including certain of its newly formed or newly acquired Australian subsidiaries in connection with the Third AmendedRhino-Rack Acquisition. Amendment No. 3 also removed the previously agreed upon ability of the Company to issue debt securities that may be convertible into equity interests of the Company in an aggregate principal amount of up to $125,000 and Restated Loanalso increased the maximum consolidated total leverage ratio permitted under the Credit Agreement bears interest at one-month London Interbank Offered Rate (“LIBOR”) plus an applicable marginto 4.25:1.00. Amendment No. 3 did not change the maturity date which remains May 3, 2024.
All obligations under the Credit Agreement are secured by 100% of our domestic, and 65% of our foreign, subsidiary equity interests, as determinedwell as accounts receivable, inventory, intellectual property and certain other assets owned by the Company. The Credit Agreement contains restrictions on the Company’s ability to pay dividends or make distributions or other restricted payments if certain conditions in the Credit Agreement are not fulfilled. The Credit Agreement also includes other customary affirmative and negative covenants, including financial covenants relating to the Company’s consolidated total leverage ratio of Total Net Debt (subject to adjustments asand fixed charge coverage ratio. The Company was in compliance with the debt covenants set forth in the Third AmendedCredit Agreement as of September 30, 2021.
(b)Foreign subsidiaries of the Company have a revolving credit facility and Restated Loan Agreement) to Trailing Twelve Month Earnings Before Interest, Taxes, Depreciationterm debt with financial institutions which mature between October 16, 2021 and Amortization (“EBITDA”)July 27, 2024. The foreign subsidiaries pay interest monthly on any borrowings on the credit facilities 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 2.00well as monthly payments on the term debt. As of September 30, 2021, the interest rates ranged between 1.3387% 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 1.005.1651% 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 beas of December 31, 2020 was 1.3387%. The credit facilities are secured by a general first priority Uniform Commercial Code (“UCC”) security interest in all material domesticcertain assets of the foreign subsidiaries.
(c)Under the Credit Agreement, 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. Proceedshad access to a term loan facility that was available for drawdown until May 3, 2020. On April 30, 2020, the Company borrowed $20,000 under such term loan facility. On July 1, 2021, under Amendment No. 3, the aggregate amount of the foregoingterm loan facility was increased to $125,000 and the term loan was fully borrowed at the closing of Amendment No. 3. The Company is required to repay the term loan through quarterly payments of $1,563 each beginning with September 30, 2021, increasing to $3,125 each beginning with September 30, 2022, and any remaining obligations will be secured via pledgerepaid in full on the maturity date of the Credit Agreement of May 3, 2024. The Company pays interest monthly on any borrowings on the Credit Agreement. As of September 30, 2021 and control agreements on domestic depositoryDecember 31, 2020, the rate was 1.6250% and investment accounts not held with2.0625%, respectively. As part of the Lender.
The Third Amended and Restated Loan Agreement contains certain financial covenants including restrictive debt covenants that requireRhino-Rack Acquisition, the Company assumed certain current and its subsidiaries to maintain a minimum fixed charge coverage ratio, a maximum total leverage ratio, a minimum net worth, a positive amountlong-term debt of asset coverage and limitations on capital expenditures, all as calculated approximately $2,252 which was settled during the three months ended September 30, 2021.
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in the Third Amended and Restated Loan Agreement.thousands, except per share amounts)
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.
NOTE 8.7. 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.
During the nine months ending September 30, 2021, the Company held currency forward contracts to mitigate currency fluctuations related to the estimated cash purchase price of Rhino-Rack totaling AUD 193,650 with a maturity date of July 1, 2021. These contracts were not designated as accounting hedges and the changes in fair value of the instruments are recognized in earnings. During the three and nine months ended September 30, 2021, gains (losses) of $232 and $(4,281) were recorded in other, net expense, respectively.
At September 30, 2017,2021, the Company’s derivative contracts had a remaining maturitymaturities of less than one and one-half years or less.year. The counterpartycounterparties 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 counterpartycounterparties is generally limited to the aggregate unrealized loss of all contracts with that counterparty, which is $1,353 as ofcounterparty. At September 30, 2017.2021, there was no such exposure to the counterparties. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain of $639 on all contracts. Atcontracts at September 30, 2017, there was no such exposure to the counterparty.2021. The Company’s derivative counterparty hascounterparties have strong credit ratings and as a result, the Company does not require collateral to facilitate transactions.
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
The Company held the following contracts designated as hedgedhedging instruments as of September 30, 20172021 and December 31, 2016:2020:
September 30, | ||||||
Notional | Latest | |||||
Amount | Maturity | |||||
Foreign exchange contracts - Canadian Dollars | $9,224 | August 2022 | ||||
Foreign exchange contracts - Euros | € 16,512 | August 2022 | ||||
December 31, 2020 | ||||||||
Notional | Latest | |||||||
Amount | Maturity | |||||||
Foreign exchange contracts - Canadian Dollars | $14,587 | February | ||||||
Foreign exchange contracts - Euros | € 24,481 | February | ||||||
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 lossincome and reclassified to sales in the period the underlying hedged transaction is recognized in earnings. LossesGains (losses) of $(422)$201 and $(152)$(376) were reclassified to sales during the three months ended September 30, 20172021 and 2016,2020, respectively, and $(36)$(542) and $(495)$206 were reclassified to sales during the nine months ended September 30, 20172021 and 2016,2020, respectively.
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in fair value of the instruments in earnings. There were no gains (losses) recorded to Other, net, during the three and nine months ended September 30, 2017. Gains (losses) of $34 and $(8) were recorded to Other, net, associated with ineffective hedge instruments during the three and nine months ended September 30, 2016.thousands, except per share amounts)
The following table presents the balance sheet classification and fair value of derivative instruments as of September 30, 20172021 and December 31, 2016:2020:
| 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 | $ | - | |||||
Classification | September 30, 2021 | December 31, 2020 | |||||
Derivative instruments in asset positions: | |||||||
Designated forward exchange contracts | Prepaid and other current assets | $ | 721 | $ | - | ||
Derivative instruments in liability positions: | |||||||
Designated forward exchange contracts | Accounts payable and accrued liabilities | $ | 82 | $ | 1,539 | ||
Designated forward exchange contracts | Other long-term liabilities | $ | - | $ | 90 | ||
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
NOTE 9.8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) INCOME
Accumulated other comprehensive income (loss) income (“AOCI”) primarily consists of foreign currency translation adjustments and changes in our forward foreign exchange contracts. The components offollowing table sets forth the changes in AOCI, net of tax, were as follows:for the three months ended September 30, 2021:
| Foreign Currency Translation Adjustments | Unrealized Gains (Losses) on Cash Flow Hedges | Total | ||||||||||
| Balance as of December 31, 2016 | $ | (1,729 | ) | $ | 724 | $ | (1,005 | ) | ||||
| Other comprehensive income (loss) before reclassifications | 2,454 | (2,177 | ) | 277 | ||||||||
| Amounts reclassified from other comprehensive income (loss) | (149 | ) | 380 | 231 | ||||||||
| Net current period other comprehensive income (loss) | 2,305 | (1,797 | ) | 508 | ||||||||
| Balance as of September 30, 2017 | $ | 576 | $ | (1,073 | ) | $ | (497 | ) | ||||
Foreign Currency Translation Adjustments | Unrealized Gains (Losses) on Cash Flow Hedges | Total | ||||||
Balance as of June 30, 2021 | $ | 759 | $ | 24 | $ | 783 | ||
Other comprehensive (loss) income before reclassifications | (8,933) | 422 | (8,511) | |||||
Amounts reclassified from other comprehensive income | - | (154) | (154) | |||||
Net current period other comprehensive (loss) income | (8,933) | 268 | (8,665) | |||||
Balance as of September 30, 2021 | $ | (8,174) | $ | 292 | $ | (7,882) | ||
The following table sets forth the changes in AOCI, net of tax, for the three months ended September 30, 2020:
Foreign Currency Translation Adjustments | Unrealized Gains (Losses) on Cash Flow Hedges | Total | ||||||
Balance as of June 30, 2020 | $ | (320) | $ | 247 | $ | (73) | ||
Other comprehensive income (loss) before reclassifications | 807 | (886) | (79) | |||||
Amounts reclassified from other comprehensive loss | - | 286 | 286 | |||||
Net current period other comprehensive income (loss) | 807 | (600) | 207 | |||||
Balance as of September 30, 2020 | $ | 487 | $ | (353) | $ | 134 | ||
The following table sets forth the changes in AOCI, net of tax, for the nine months ended September 30, 2021:
Foreign Currency Translation Adjustments | Unrealized Gains (Losses) on Cash Flow Hedges | Total | ||||||
Balance as of December 31, 2020 | $ | 1,480 | $ | (980) | $ | 500 | ||
Other comprehensive (loss) income before reclassifications | (9,654) | 857 | (8,797) | |||||
Amounts reclassified from other comprehensive income | - | 415 | 415 | |||||
Net current period other comprehensive (loss) income | (9,654) | 1,272 | (8,382) | |||||
Balance as of September 30, 2021 | $ | (8,174) | $ | 292 | $ | (7,882) | ||
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
The following table sets forth the changes in AOCI, net of tax, for the nine months ended September 30, 2020:
Foreign Currency Translation Adjustments | Unrealized Gains (Losses) on Cash Flow Hedges | Total | ||||||
Balance as of December 31, 2019 | $ | (286) | $ | (17) | $ | (303) | ||
Other comprehensive income (loss) before reclassifications | 773 | (180) | 593 | |||||
Amounts reclassified from other comprehensive loss | - | (156) | (156) | |||||
Net current period other comprehensive income (loss) | 773 | (336) | 437 | |||||
Balance as of September 30, 2020 | $ | 487 | $ | (353) | $ | 134 | ||
The effects on net lossincome of amounts reclassified from unrealized gains (losses) on cash flow hedges for foreign exchange contracts and foreign currency translation adjustments for the three and nine months ended September 30, 2017,2021 and 2020, were as follows:
| 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 September 30, 2017 | For the Nine Months Ended September 30, 2017 | ||||||
| Foreign exchange contracts: | ||||||||
| Sales | $ | (422 | ) | $ | (36 | ) | ||
| Less: Income tax expense | 109 | 344 | ||||||
| Amount reclassified, net of tax | $ | (531 | ) | $ | (380 | ) | ||
| Foreign currency translation adjustments: | ||||||||
| Other, net | $ | 68 | $ | 149 | ||||
| Total reclassifications from AOCI | $ | (463 | ) | $ | (231 | ) | ||
The Company’s policy is to classify reclassifications of cumulative foreign currency translation from AOCI to Other, net.
Gains (losses) reclassified from AOCI to the Consolidated Statements of Comprehensive Income (Loss) | |||||||||||
Affected line item in the Consolidated | Three Months Ended | Nine Months Ended | |||||||||
Statements of Comprehensive Income (Loss) | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||
Foreign exchange contracts: | |||||||||||
Sales | $ | 201 | $ | (376) | $ | (542) | $ | 206 | |||
Less: Income tax expense (benefit) | 47 | (90) | (127) | 50 | |||||||
Amount reclassified, net of tax | $ | 154 | $ | (286) | $ | (415) | $ | 156 | |||
Total reclassifications from AOCI | $ | 154 | $ | (286) | $ | (415) | $ | 156 | |||
NOTE 10.9. 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 whichthat prioritizes the inputs used in measuring fair value as follows:
Level 1 - inputs to the valuation methodology are quoted market prices for identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices in markets that are not active or model inputs that are
observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3 - inputs to the valuation methodology are based on prices or valuation techniques that are unobservable.
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 September 30, 20172021 and December 31, 20162020 were as follows:
| September 30, 2017 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Forward exchange contracts | - | 81 | - | 81 | ||||||||||||
| $ | - | $ | 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, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values due to the short-term nature and liquidity of these financial instruments.
September 30, 2021 | |||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||
Assets | |||||||||||
Designated forward exchange contracts | $ | - | $ | 721 | $ | - | $ | 721 | |||
$ | - | $ | 721 | $ | - | $ | 721 | ||||
Liabilities | |||||||||||
Designated forward exchange contracts | $ | - | $ | 82 | $ | - | $ | 82 | |||
Contingent consideration liability | - | - | 3,410 | 3,410 | |||||||
$ | - | $ | 82 | $ | 3,410 | $ | 3,492 | ||||
December 31, 2020 | |||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||
Assets | |||||||||||
Designated forward exchange contracts | $ | - | $ | - | $ | - | $ | - | |||
$ | - | $ | - | $ | - | $ | - | ||||
Liabilities | |||||||||||
Designated forward exchange contracts | $ | - | $ | 1,629 | $ | - | $ | 1,629 | |||
$ | - | $ | 1,629 | $ | - | $ | 1,629 | ||||
Derivative financial instruments are recorded at fair value based on current market pricing models. No nonrecurring fair value measurements existed at September 30, 20172021 and December 31, 2016.2020.
As part of the Rhino-Rack Acquisition, the Purchase Agreement provided for the payment of Contingent Consideration of approximately $7,508 if certain future net sales thresholds are met through June 30, 2022. Using a series of call options, the Company estimated the fair value of the Contingent Consideration to be approximately $3,565 as of July 1, 2021. Significant unobservable inputs used in the valuation include a discount rate of 4.8%. The Contingent Consideration liability is remeasured at the estimated fair value at the end of each reporting period with the change in fair value recognized within operating income (loss) in the accompanying condensed consolidated statements of comprehensive income (loss) for such period. We measure the initial liability and remeasure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements. There were no impacts to operating income (loss) for the three and nine months ended September 30, 2021 related to the remeasurement of the Contingent Consideration liability as there were no significant changes to the fair value. The Contingent Consideration liability changed due to the effect of foreign exchange by $155 resulting in an ending balance as of September 30, 2021 of $3,410 which is recorded in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets.
As the Contingent Consideration liability is remeasured to fair value each reporting period, significant increases or decreases in projected revenue, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement. Our determination of fair value of the Contingent Consideration liability could change in future periods based up our ongoing evaluation of these significant unobservable inputs. Any such change will be recorded to operating income (loss) in our consolidated statements of income (loss).
NOTE 10. STOCKHOLDERS’ EQUITY
On August 6, 2018, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend program of $0.025 per share of the Company’s common stock (the “Quarterly Cash Dividend”) or $0.10 per share on an annualized basis. The declaration and payment of future Quarterly Cash Dividends is subject to the discretion of and approval of the Company’s Board of Directors. On May 1, 2020, the Company announced that, in light of the operational impact of the COVID-19 pandemic, its Board of Directors temporarily replaced its Quarterly Cash Dividend with a stock dividend (the “Quarterly Stock Dividend”). On October 19, 2020, the Company announced that its Board of Directors approved the reinstatement of its Quarterly Cash Dividend. On October 29, 2021, the Company announced that its Board of Directors approved the payment on November 19, 2021 of the Quarterly Cash Dividend of $0.025 to the record holders of shares of the Company’s common stock as of the close of business on November 8, 2021.
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
NOTE 11. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing earnings (loss) by the weighted average number of common shares outstanding during each period. Diluted earnings (loss) per share is computed by dividing earnings (loss) by the total of the weighted average number of shares of common stock outstanding during each period, plus the effect of dilutive outstanding stock options and unvested restricted stock grants. Potentially dilutive securities are excluded from the computation of diluted earnings (loss) per share if their effect is anti-dilutive due to net loss.the loss from continuing operations.
The following table is a reconciliation of basic and diluted shares of common stock outstanding used in the calculation of earnings (loss) per share:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
| Weighted average shares outstanding - basic | 30,017 | 30,063 | 30,015 | 30,525 | ||||||||||||
| Effect of dilutive stock awards | - | - | - | - | ||||||||||||
| Weighted average shares outstanding - diluted | 30,017 | 30,063 | 30,015 | 30,525 | ||||||||||||
| Net loss per share: | ||||||||||||||||
| Basic | $ | (0.05 | ) | $ | (0.01 | ) | $ | (0.22 | ) | $ | (0.25 | ) | ||||
| Diluted | (0.05 | ) | (0.01 | ) | (0.22 | ) | (0.25 | ) | ||||||||
Three Months Ended | Nine Months Ended | ||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||
Weighted average shares outstanding - basic | 33,800 | 29,983 | 32,159 | 29,854 | |||||||
Effect of dilutive stock awards | 2,364 | 1,003 | 1,885 | - | |||||||
Weighted average shares outstanding - diluted | 36,164 | 30,986 | 34,044 | 29,854 | |||||||
Net income (loss) per share: | |||||||||||
Basic | $ | 0.13 | $ | 0.04 | $ | 0.37 | $ | (0.05) | |||
Diluted | 0.13 | 0.04 | 0.35 | (0.05) | |||||||
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
For the three months ended September 30, 20172021 and 2016,2020, equity awards of 2,8351,000 and 2,517,927, respectively, and for the nine months ended September 30, 20172021 and 2016,2020, equity awards of 2,7931,011 and 2,491,4,384, respectively, were outstanding and anti-dilutive and therefore not included inexcluded from the calculation of lossearnings (loss) per share for these periods.periods as they were anti-dilutive.
NOTE 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.
Options Granted:
During the nine months ended September 30, 2017,2021, the Company issued stock options for an aggregate of 463500 shares under the 2015 Plan to directors and employees of the Company. Of the 463The options issued 38 optionsduring the nine months ended September 30, 2021 generally vest in four equal consecutive quarterly tranchesand become exercisable over a period of one to three years and expire ten years from the date of the 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 Nine Months Ended September 30, 2017 | ||||
| Number of options | 363 | 100 | ||
| Option vesting period | 1-2 Years | Immediate | ||
| Grant price | $6.10 - $6.15 | $6.10 | ||
| Dividend yield | 0.00% | 0.00% | ||
| Expected volatility (a) | 41.9% - 42.2% | 46.90% | ||
| Risk-free interest rate | 1.80% | 1.41% | ||
| Expected life (years) (b) | 5.31 - 5.33 | 2.75 | ||
| Weighted average fair value | $2.45 - $2.49 | $1.20 |
Number of options | 500 | ||
Option vesting period | 1 - 3 Years | ||
Grant price (per share) | $15.15 - $24.43 | ||
Dividend yield | 0.41% - 0.66% | ||
Expected volatility | 39.1% - 43.6% | ||
Risk-free interest rate | 0.50% - 1.02% | ||
Expected life (years) (b) | 5.31 - 6.00 | ||
Weighted average fair value (per share) | $5.88 - $9.23 | ||
(a)Expected volatility is based upon the Company’s historical volatility.
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
(b)The expected term was determined based upon the underlying terms of the awards and the category and employment history of employee award recipient.
The grant date fair value of the stock options granted during the nine months ended September 30, 2021 was $3,239, which will be recognized over the vesting period of the options.
Market Condition Restricted Shares Granted:
On June 1, 2017,May 28, 2021, the Company issued and granted to an employeethe Executive Chairman a restricted stock award of 500 restricted shares under the 2015 Plan, of which (i) 250500 restricted shares will vest if, on or before June 1, 2022,May 28, 2024, 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$35.00 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 eachthe restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below.following assumptions:
May 28, 2021 | |||
Number issued | 500 | ||
Vesting period | $35.00 stock price target | ||
Grant price (per share) | $23.69 | ||
Dividend yield | 0.42% | ||
Expected volatility | 42.3% | ||
Risk-free interest rate | 0.30% | ||
Expected term (years) | 1.05 | ||
Weighted average fair value (per share) | $14.46 |
CLARUS CORPORATIONUsing these assumptions, the fair value of the market condition restricted stock awards granted on May 28, 2021 was approximately $7,230.
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 September 30, 20172021 and 20162020 was $387$3,064 and $42,$4,204, respectively, and for the nine months ended September 30, 20172021 and 20162020 was $729$6,414 and $193,$5,433, respectively. For the three and nine months ended September 30, 20172021 and 2016,2020, 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.expenses.
As of September 30, 2017,2021, there were 5332,014 unvested stock options and unrecognized compensation cost of $1,153$7,384 related to unvested stock options, as well as 8501,000 unvested restricted stock awards and unrecognized compensation costcosts of $1,679$6,359 related to unvested restricted stock awards.
NOTE 13. RESTRUCTURING
The Company initiated a restructuring plan in the fourth quarter of 2014 (“2014 Restructuring Plan”) to realign resources within the organization and completed the plan during the year ended December 31, 2016. During the three and nine months ended 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 September 30, 2017 and 2016, we incurred restructuring charges of $33 and $282, respectively, related to the 2015 Restructuring Plan. During the nine months ended September 30, 2017 and 2016, we incurred restructuring charges of $116 and $1,255, respectively, related to the 2015 Restructuring Plan. We incurred $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.
| 2015 Restructuring Plan | ||||
| Balance at December 31, 2016 | $ | 96 | ||
| Charges to expense: | ||||
| Other costs | 116 | |||
| Total restructuring charges | 116 | |||
| Cash payments and non-cash charges: | ||||
| Cash payments | (132 | ) | ||
| Balance at September 30, 2017 | $ | 80 | ||
As of September 30, 2017, termination costs and restructuring costs remained in accrued liabilities and are expected to be paid during the remainder of 2017.
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
NOTE 14. 13. COMMITMENTS AND CONTINGENCIES
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.
The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows.There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect.
During the nine months ended September 30, 2016, the Company received an arbitral award on agreed terms of $1,967, related to certain claims against the former owner of PIEPS associated with the voluntary recall of all of the PIEPS VECTOR avalanche transceivers during the year ended December 31, 2013. This 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 September 30, 2017 and 2016 was $214 and $204, respectively, and for the nine months ended September 30, 2017 and 2016 was $611 and $826, respectively.
NOTE 15.14. INCOME TAXES
The Company’s U.S. federal statutory tax rate of 21% and its foreign operations that are considered to be permanently reinvested have statutory tax rates of approximately 25%. in Austria, 28% in New Zealand, and 30% in Australia.
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
The differences between the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China. During the nine months ended September 30, 2017, the Company settledestimated effective tax rates of (419.0)% and paid the Chinese tax audit liability in the amount of $939.
There was also a discrete charge of $109 and $344 during(104.7)% for the three and nine months ended September 30, 2017, respectively, associated with2021 and the U.S. federal statutory tax rate of 21% were due to a disproportionaterelease of valuation allowance of net operating loss carryforwards (“NOLs”), which was partially offset by permanent book to tax effect released from AOCI. During the nine months ended September 30, 2016, there was a discrete charge for a Swiss withholding taxdifferences related to the transferring of Black Diamond Equipment’s European operations from Basel, Switzerland to Innsbruck, Austria.incentive stock options and officer compensation limitations.
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.
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.
As of December 31, 2016,2020, the Company’s gross deferred tax asset was $75,416.$40,538. The Company hadhas recorded a valuation allowance of $67,662,$22,348, resulting in a net deferred tax asset of $7,754,$18,190, before deferred tax liabilities of $16,720.$8,304. The Company has provided a valuation allowance against a portion of the deferred tax assets as of September 30, 2021 and December 31, 2016,2020, because the ultimate realization of those assets did not meet the more likely than notmore-likely-than-not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwardsNOLs 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. During the three months ended September 30, 2021, the Company filed a change in accounting method which increased taxable income and the ability to utilize NOLs. As a result, an additional valuation allowance of $6,003 was released increasing the income tax benefit for the three and nine months ended September 30, 2021. This method change resulted in decreasing the NOLs available to offset taxable income as of December 31, 2020 by $10,317.
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, 2016,2020, the Company had net operating loss,NOLs and 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$120,309 and $315,$1,889, respectively. The Company believes its U.S. Federal net operating loss (“NOL”)NOLs 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.until expiration. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F income and will be offset with the NOL.NOLs.
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 | Net Operating Loss Carryforward Expiration Dates | ||||||
December 31, 2020 | December 31, 2020 | ||||||
| Expiration Dates December 31, | Net Operating Loss Amount | Net Operating Loss Amount | |||||
| 2021 | $ | 32,408 | |||||
| 2022 | 115,000 | $ | 99,596 | ||||
| 2023 | 5,712 | 5,853 | |||||
| 2024 | 3,566 | 3,566 | |||||
| 2025 and beyond | 15,733 | 11,294 | |||||
| Total | 172,419 | $ | 120,309 | ||||
| Excess stock based payment tax deductions | (270 | ) | |||||
| After limitations | $ | 172,149 | |||||
NOTE 16.15. SEGMENT INFORMATION
As a result of our August 21, 2017 acquisition of Sierra, we nowWe operate our business structure within two segments which are grouped into what we refer to as the Outdoor Group.3 segments. These segments are defined based on the internal financial reporting used by management.our chief operating decision maker to allocate resources and assess performance. Certain significant selling and general and administrative expenses are not allocated to the segments.segments including non-cash stock compensation expense. Each segment is described below:
Our Black Diamond segment, which includes Black Diamond Equipment, PIEPS, and SKINourishment, is a global leader in designing, manufacturing, and marketing innovative outdoor engineered equipment and apparel for climbing, mountaineering, trail running, backpacking, skiing, and a wide range of other year-round outdoor recreation activities. Our Black Diamond segment offers a broad range of products including: high-performance, activity-based apparel (such as shells, insulation, midlayers, pants and logowear); rock-climbing footwear and equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; trekking poles; headlamps and lanterns; gloves and mittens; and skincare and other sport-enhancing products. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes.
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
Our Sierra segment, which includes Sierra and Barnes, includes two iconic American manufacturers of a wide range of high-performance bullets and ammunition for both rifles and pistols. These bullets are used for precision target shooting, hunting and military and law enforcement purposes.
Our Rhino-Rack segment, which includes Rhino-Rack, is a manufacturer of highly-engineered automotive roof racks, trays, mounting systems, luggage boxes, carriers and accessories in Australia and New Zealand and a growing presence in the United States.
As noted above, the Company has a wide variety of technical outdoor equipment and lifestyle products focused on the climb, ski, mountain, sport and adventure product categories that are sold to a variety of customers in multiple end markets. While there are multiple products sold, the terms and nature of revenue recognition policy is similar for all segments. The sport product category represents the Sierra segment revenue and the adventure product category represents the Rhino-Rack segment revenue.
We divide our product offerings into five primary categories of climb, mountain, ski, sport and adventure. Revenue by category as a percentage of total consolidated revenues is as follows:
Three Months Ended | Nine Months Ended | ||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||
Climb | 19 | % | 27 | % | 25 | % | 33 | % | |||
Mountain | 23 | % | 33 | % | 24 | % | 30 | % | |||
Ski | 12 | % | 17 | % | 11 | % | 15 | % | |||
Sport | 28 | % | 23 | % | 32 | % | 22 | % | |||
Adventure | 18 | % | - | % | 8 | % | - | % | |||
Financial information for our segments is as follows:
| Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||
| Sales to external customers: | |||||||||||||||||||||||||||
| Black Diamond | $ | 42,242 | $ | 39,441 | $ | 114,478 | $ | 106,790 | |||||||||||||||||||
Domestic sales | $ | 26,773 | $ | 21,953 | $ | 77,765 | $ | 56,381 | |||||||||||||||||||
International sales | 32,256 | 27,411 | 77,952 | 58,980 | |||||||||||||||||||||||
Total Black Diamond | 59,029 | 49,364 | 155,717 | 115,361 | |||||||||||||||||||||||
| Sierra | 3,532 | - | 3,532 | - | |||||||||||||||||||||||
| Sales to external customers | $ | 45,774 | $ | 39,441 | $ | 118,010 | $ | 106,790 | |||||||||||||||||||
| Segment operating income (expense): | |||||||||||||||||||||||||||
Domestic sales | 27,363 | 12,733 | 75,820 | 27,112 | |||||||||||||||||||||||
International sales | 2,954 | 2,394 | 6,449 | 5,587 | |||||||||||||||||||||||
Total Sierra | 30,317 | 15,127 | 82,269 | 32,699 | |||||||||||||||||||||||
Rhino-Rack | |||||||||||||||||||||||||||
Domestic sales | 7,123 | - | 7,123 | - | |||||||||||||||||||||||
International sales | 12,502 | - | 12,502 | - | |||||||||||||||||||||||
Total Rhino-Rack | 19,625 | - | 19,625 | - | |||||||||||||||||||||||
Total sales to external customers | 108,971 | 64,491 | 257,611 | 148,060 | |||||||||||||||||||||||
Segment operating income: | |||||||||||||||||||||||||||
| Black Diamond | $ | 2,085 | $ | 1,821 | $ | 1,098 | $ | (225 | ) | 5,939 | 4,035 | 10,041 | 1,709 | ||||||||||||||
| Sierra | 416 | - | 416 | - | 10,441 | 4,393 | 26,420 | 8,211 | |||||||||||||||||||
| Segment operating income (expense) | 2,501 | 1,821 | 1,514 | (225 | ) | ||||||||||||||||||||||
| Restructuring charge | (33 | ) | (282 | ) | (116 | ) | (1,275 | ) | |||||||||||||||||||
Rhino-Rack | (3,014) | - | (3,014) | - | |||||||||||||||||||||||
Total segment operating income | 13,366 | 8,428 | 33,447 | 9,920 | |||||||||||||||||||||||
| Transaction costs | (1,869 | ) | - | (1,869 | ) | (269 | ) | (8,147) | (1,440) | (9,272) | (1,870) | ||||||||||||||||
| Corporate and other expenses | (1,435 | ) | (546 | ) | (4,283 | ) | (2,658 | ) | (5,163) | (4,984) | (16,363) | (9,316) | |||||||||||||||
| Interest expense, net | (71 | ) | (719 | ) | (948 | ) | (2,142 | ) | (1,476) | (232) | (1,926) | (800) | |||||||||||||||
| (Loss) income before income tax | $ | (907 | ) | $ | 274 | $ | (5,702 | ) | $ | (6,569 | ) | $ | (1,420) | $ | 1,772 | $ | 5,886 | $ | (2,066) | ||||||||
There were no intercompany sales between the Black Diamond, Sierra and SierraRhino-Rack segments for the periods presented. Restructuring charges for the periods presented relate to the Black Diamond segment.
CLARUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
Total preliminary assets of Sierraby segment, as of August 21, 2017September 30, 2021 and December 31, 2020, were $80,566. Depreciationas follows:
September 30, 2021 | December 31, 2020 | ||||||||||
Black Diamond | $ | 157,163 | $ | 141,746 | |||||||
Sierra | 136,509 | 113,430 | |||||||||
Rhino-Rack | 254,585 | - | |||||||||
Corporate | 23,486 | 25,515 | |||||||||
$ | 571,743 | $ | 280,691 | ||||||||
Capital expenditures, 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 | ||||||||
Three Months Ended | Nine Months Ended | ||||||||||
September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||
Capital expenditures: | |||||||||||
Black Diamond | $ | 819 | $ | 583 | $ | 2,091 | $ | 1,888 | |||
Sierra | 957 | 1,002 | 2,910 | 1,718 | |||||||
Rhino-Rack | 578 | - | 578 | - | |||||||
Total capital expenditures | $ | 2,354 | $ | 1,585 | $ | 5,579 | $ | 3,606 | |||
Depreciation: | |||||||||||
Black Diamond | $ | 727 | $ | 685 | $ | 2,134 | $ | 2,073 | |||
Sierra | 669 | 455 | 1,967 | 1,332 | |||||||
Rhino-Rack | 235 | - | 235 | - | |||||||
Total depreciation | $ | 1,631 | $ | 1,140 | $ | 4,336 | $ | 3,405 | |||
Amortization: | |||||||||||
Black Diamond | $ | 259 | $ | 258 | $ | 776 | $ | 803 | |||
Sierra | 938 | 495 | 2,815 | 1,487 | |||||||
Rhino-Rack | 2,380 | - | 2,380 | - | |||||||
Total amortization | $ | 3,577 | $ | 753 | $ | 5,971 | $ | 2,290 | |||
NOTE 17.16. RELATED PARTY TRANSACTIONS
5% Unsecured Subordinated Notes due May 28, 2017
As part of the consideration payable to the stockholders of Gregory whenRhino-Rack Acquisition, on July 1, 2021, the Company acquired Gregory,recorded a liability in the amount of $1,750 owed to Kanders & Company, Inc. (“Kanders & Company”) in consideration of the significant support received by the Company issued $14,517, $7,539,from Kanders & Company in sourcing, structuring, performing due diligence 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.negotiating the Rhino-Rack Acquisition. This amount was paid during the three months ended September 30, 2021. Mr. Warren B. Kanders, the Company’s Executive Chairman and a member of itsthe Board of Directors, is a majority member and a trustee of the managerBoard of Directors and sole stockholder of Kanders GMP Holdings, LLC. The sole manager& Company.
Additionally, at closing 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 payableAmendment No. 3 on May 28, 2017 and was prepayable byJuly 1, 2021, 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 underrecorded 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.
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 Noteliability in the amount of $3,769 to the Robert R. Schiller 2013 Cornerstone Trust dated June 24, 2013. During the three and nine months ended September 30, 2017, $0 and $89 in interest, respectively, was paid$250 owed to Kanders GMP Holdings, LLC, and $0 and $46& Company in interest, respectively, was paid to the Robert R. Schiller 2013 Cornerstone Trust and the Deborah Schiller 2005 Revocable Trust pursuant to the outstanding Merger Consideration Subordinated Notes.
On May 29, 2012 and August 13, 2012, five former employees of Gregory exercised certain sales rights and sold Merger Consideration Subordinated Notes in the aggregate principal amount of approximately $365 to Kanders GMP Holdings, LLC and in the aggregate principal amount of approximately $189 to Schiller Gregory Investment Company, LLC. During the three and nine months ended September 30, 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 repaymentconsideration of the Merger Consideration Subordinated Notes. On February 13, 2017,significant support received by the entire principal amountsCompany from Kanders & Company in sourcing, structuring, and all accrued interest amounts werenegotiating Amendment No. 3. This amount was 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.September 30, 2021.
During the three months ended September 30, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with three existing stockholders of the Company. Pursuant to the Purchase Agreement, the Company sold its common stock in a registered direct offering (the “Offering”). Upon the Company’s acquisitionclosing of Sierra, on August 21, 2017,the Offering, the Company paid a fee in the amount of $1,000$250 to Kanders & Company, Inc. (“which were deducted from the net proceeds, in consideration of the significant support received by the Company from Kanders & Company”),Company in sourcing, structuring, and negotiating the Offering.
As of September 30, 2020, the Company recorded a liability in the amount of $500 owed to 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 Chairmanacquisition of the Board of Directors and a member of its Board of Directors, is the sole stockholder of Kanders & Company.Barnes.
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSISNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
(in thousands, except per share amounts)
NOTE 17. SUBSEQUENT EVENTS
Public Offering of Common Stock
On October 26, 2021, the Company entered into an underwriting agreement with BofA Securities, Inc., as representative of the several underwriters named therein (the “Underwriters”), relating to the public offer and sale of 2,750 shares of the Company’s common stock at a price to the public of $27.00 per share. The Underwriters received an underwriting discount of 6%, or $1.62 per share, in connection with the sale of the shares of Common Stock in the offering. In addition, the Company granted the Underwriters a 30-day option to purchase up to 413 additional shares of common stock on the same terms and conditions. On October 29, 2021, the Underwriters exercised that option in full. The net proceeds to the Company from the offering, including the Underwriters’ exercise of their 30-day option but before expenses and after deducting the applicable underwriting discounts and commissions, were approximately $80,264.
The Company intends to use a portion of the net proceeds of the offering for the repayment in full of approximately $65,000 in aggregate principal amount under the revolving loan facility available pursuant to the Credit Agreement and the remaining portion of the net proceeds from the offering for general corporate purposes, including capital expenditures and potential acquisitions.
The closing of the offering of 2,750 shares of common stock occurred on October 29, 2021, and the closing of the Underwriters’ 30-day option to purchase 413 shares of common stock occurred on November 2, 2021.
On October 29, 2021, the Company recorded a liability in the amount of $500 owed to Kanders & Company in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, and negotiating the offering.
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 weClarus Corporation (which may be referred to as the “Company,” “Clarus,” “we,” “our” or “us”) 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 spendingdemand on our products; general economic conditions and other factors affecting consumer confidence;confidence, preferences, and behavior; disruption and volatility in the global currency, capital, and credit markets; the financial strength of the Company’s customers; the Company’s ability to implement its growth strategy, including its ability to organically grow each of its historical product lines;business strategy; the ability of the Company to identify potential acquisitionexecute and integrate acquisitions; changes in governmental regulation, legislation or investment opportunities as partpublic opinion relating to the manufacture and sale of its redeploymentbullets and diversification strategy;ammunition, and 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.;possession and use of firearms and ammunition by our customers; the Company’s exposure to product liability ofor product warranty claims and other loss contingencies; disruptions and other impacts to the Company’s business, as a result of the COVID-19 global pandemic and government actions and restrictive measures implemented in response; stability of the Company’s manufacturing facilities and foreign suppliers;suppliers, as well as consumer demand for our products, in light of disease epidemics and health-related concerns such as the Company’sCOVID-19 global pandemic; the impact that global climate change trends may have on the Company and its suppliers and customers; the Company's ability to protect patents, trademarks patents and other intellectual property rights; any breaches of, or interruptions in, our information systems; the ability of our information technology systems or information security systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes; our ability to properly maintain, protect, repair or upgrade our information technology systems or information security systems, or problems with our transitioning to upgraded or replacement systems; the impact of adverse publicity about the Company and/or its brands, including without limitation, through social media or in connection with brand damaging events and/or public perception; fluctuations in the price, availability and quality of raw materials and contracted products as well as foreign currency fluctuations; ongoing disruptions and delays in the shipping and transportation of our products due to port congestion, container ship availability and/or other logistical challenges; our ability to utilize our net operating loss carryforwards; changes in tax laws and liabilities, tariffs, legal, regulatory, political and economic risksrisks; the Company’s ability to maintain a quarterly dividend; and any material differences in international markets.the actual financial results of the Rhino-Rack acquisition as compared with expectations, including the impact of the acquisition on the Company’s future earnings per share. 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
Clarus (which may be referred to as the “Company,” “we,” “our” or “us”) isHeadquartered in Salt Lake City, Utah, we are 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 aglobal leading designer, developer, manufacturer and distributor of best-in-class outdoor equipment and lifestyle products focused on the climb, ski, mountain,outdoor and technical categories. consumer enthusiast markets. Our mission is to identify, acquire and grow outdoor “super fan” brands through our unique “innovate and accelerate” strategy. We define a “super fan” brand as a brand that creates the world’s pre-eminent, performance-defining product that the best-in-class user cannot live without. Each of our brands has a long history of continuous product innovation for core and everyday users alike.The Company’s products are principally sold globally under the Black Diamond®, Sierra®, Barnes® and PIEPS®Rhino-Rack® brand names through outdoor specialty and online retailers, our own websites, distributors and original equipment manufacturers throughoutmanufacturers. Our portfolio of iconic brands is well-positioned for sustainable, long-term growth underpinned by powerful industry trends across the U.S.outdoor and internationally.adventure sport end markets.
Through our Black Diamond®Diamond, PIEPS, and PIEPS®SKINourishment brands, we offer a broad range of products including: high performancehigh-performance, activity-based apparel (such as jackets, shells, insulation, midlayers, pants and bibs)logowear); rock-climbing footwear and 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.mittens; and skincare and other sport-enhancing products. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes. Through our Sierra manufacturesand Barnes brands, we manufacture a wide range of high performancehigh-performance bullets and ammunition for both rifles and pistols. Sierra bullets
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
pistols that are used for precision target shooting, hunting and military and law enforcement purposes.Rhino-Rack is a leading manufacturer of highly-engineered automotive roof racks, trays, mounting systems, luggage boxes, carriers and accessories with leading market share in Australia and New Zealand and a growing presence in the United States.
Clarus, Corporation, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (which may be referred to as “Black(“Black Diamond Equipment” or “BDEL”) and Gregory Mountain Products, LLC (which may be referred to as “Gregory Mountain Products”, “Gregory” or “GMP”) in May 2010 and changed its name 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 completed the sale of certain assets to Samsonite LLC comprising Gregory 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.
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
On October 7, 2015, the Company sold its equity interests in POC, resulting in the conclusion of the Company’s review of strategic alternatives. On November 9, 2015, the Company announced that it was seeking to redeploy its significant cash balances to invest in high quality, durable, cash flow-producing assets in order to diversify our business and potentially monetize our substantial net operating losses as part of our asset redeployment and diversification strategy.
On August 14, 2017, the Company changed its name from Black Diamond, Inc. to 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”). On November 6, 2018, the Company acquired the assets of SKINourishment, Inc. (“SKINourishment”).
On October 2, 2020, the Company completed the acquisition of certain assets and liabilities constituting the Barnes business (“Barnes”).
On July 1, 2021, the Company completed the acquisition of Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”).
On August 6, 2018, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend program of $0.025 per share of the Company’s common stock (the “Quarterly Cash Dividend”) or “Sierra Bullets”$0.10 per share on an annualized basis. The declaration and payment of future Quarterly Cash Dividends is subject to the discretion of and approval of the Company’s Board of Directors. On May 1, 2020, the Company announced that, in light of the operational impact of the COVID-19 pandemic, its Board of Directors temporarily replaced its Quarterly Cash Dividend with a stock dividend (the “Quarterly Stock Dividend”). On October 19, 2020, the Company announced that its Board of Directors approved the reinstatement of its Quarterly Cash Dividend. On October 29, 2021, the Company announced that its Board of Directors approved the payment on November 19, 2021 of the Quarterly Cash Dividend of $0.025 to the record holders of shares of the Company’s common stock as of the close of business on November 8, 2021.
Clarus,Impact of COVID-19
The global outbreak of COVID-19 was declared a global pandemic by the World Health Organization and a national emergency by each of the U.S., European, and Australian governments in March 2020, with governments world-wide implementing safety measures restricting travel and requiring citizen lockdowns and self-confinements for quarantining purposes. This has negatively affected the U.S., European, Australian and global economies, disrupted global supply chains, and resulted in significant transport restrictions and disruption of financial markets. The impact of this global pandemic has created significant uncertainty in the global economy and has affected our business, employees, retail and distribution partners, suppliers, and customers.
We experienced a decline in retail demand within our Black Diamond segment beginning in the second half of March 2020 through December 2020, which negatively impacted our sales and profitability during this period. This continued during the nine months ended September 30, 2021, although to a lesser extent, as certain countries began to ease restrictions. During the third quarter of 2021, the Australian government instituted a mandatory lockdown for its citizens. This caused a decline in retail demand and a disruption in operations within our Rhino-Rack segment, which negatively impacted our sales and profitability for the third quarter of 2021. We expect a continued impact on the Company’s sales and profitability in future periods. The duration of these trends and the magnitude of such impacts cannot be precisely estimated at this time, as they are affected by a number of factors (some of which are outside management’s control), including those presented in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020.
Since the beginning of the pandemic, we have mitigated some of the negative impacts to our operating results by taking significant actions to improve our current operating results and liquidity position, including drawing on the credit facility, temporarily suspending share repurchases, temporarily suspending cash dividends, postponing non-essential capital expenditures, reducing operating costs, modulating production in line with demand, and substantially reducing discretionary spending. As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess the impact on the Company and respond accordingly.
The COVID-19 pandemic has significantly impacted the global supply chain, with restrictions and limitations on related activities causing disruption and delay, along with increased raw material, storage, and shipping costs. These disruptions and delays have strained domestic and international supply chains, which have affected and could continue to negatively affect the flow or availability of certain products. Furthermore, significantly increased demand from online sales channels, including our website, has impacted our logistical operations, including our fulfillment and shipping functions, which has resulted in periodic delays in the delivery of our products. The further spread of COVID-19, and the requirements to take action to help limit the spread of the illness, could impact our ability to carry out our business as usual and may materially adversely impact global economic conditions, our business, results of operations, cash flows, and financial condition. For example, travel restrictions imposed as a holding company, is seeking opportunitiesresult of the COVID-19 pandemic negatively impacted
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
certain of our product development initiatives, as we were unable to acquirevisit certain third-party manufacturers to review processes and grow businessesprocedures for new products and product enhancements. The extent of the impact of COVID-19 on our business and financial results will depend on future developments, including the duration and severity of the outbreak (including the severity and transmission rates of new variants of the coronavirus) within the markets in which we and our manufacturers and suppliers operate, the timing, distribution, and efficacy of vaccines and other treatments, the related impact on consumer confidence and spending, and the effect of governmental regulations imposed in response to the pandemic, all of which are highly uncertain and ever-changing. While we have experienced an increase in demand for our products due to the impact that can generate attractive shareholder returns.the COVID-19 pandemic has had on consumer behaviors, including due to various stay-at-home orders and restrictions on dining options and restaurant closures, this increased demand may not be sustained following the pandemic, or if economic conditions worsen, which would negatively impact consumer spending.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The Company has substantial net operatingCARES Act established a program with provisions to allow U.S. companies to defer the employer’s portion of social security taxes between March 27, 2020 and December 31, 2020 and pay such taxes in two installments in 2021 and 2022. As permitted by the CARES Act, we have deferred payment of the employer’s portion of social security payroll tax loss carryforwards which it is seeking to redeploy to maximize shareholder value in a diverse array of businesses.payments.
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, goodwill and other intangible assets. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.
There have been no significant changes to our critical accounting policies with the exception to the policy below, as described in our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
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”“Accounting Pronouncements Not Yet Adopted” in Note 1 to the notes toof the unaudited condensed consolidated financial statements.
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Results of Operations
Condensed Consolidated Three Months Ended September 30, 20172021 Compared to Condensed Consolidated Three Months Ended September 30, 20162020
The following presents a discussion of condensed consolidated operations for the three months ended September 30, 2017,2021, compared with the condensed consolidated three months ended September 30, 2016.2020.
| 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 | ) | ||
Sales
Three Months Ended | |||||
September 30, 2021 | September 30, 2020 | ||||
Sales | |||||
Domestic sales | $ | 61,259 | $ | 34,686 | |
International sales | 47,712 | 29,805 | |||
Total sales | 108,971 | 64,491 | |||
Cost of goods sold | 69,792 | 42,822 | |||
Gross profit | 39,179 | 21,669 | |||
Operating expenses | |||||
Selling, general and administrative | 31,314 | 18,674 | |||
Transaction costs | 8,147 | 1,440 | |||
Total operating expenses | 39,461 | 20,114 | |||
Operating (loss) income | (282) | 1,555 | |||
Other (expense) income | |||||
Interest expense, net | (1,476) | (232) | |||
Other, net | 338 | 449 | |||
Total other (expense) income, net | (1,138) | 217 | |||
(Loss) income before income tax | (1,420) | 1,772 | |||
Income tax (benefit) expense | (5,950) | 589 | |||
Net income | $ | 4,530 | $ | 1,183 | |
Sales
Consolidated sales increased $6,333,$44,480, or 16.1%69.0%, to $45,774$108,971, during the three months ended September 30, 2017,2021, compared to consolidated sales of $39,441$64,491 during the three months ended September 30, 2016. 2020. The increase in sales was partially attributable to the 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 andof $8,665. Additionally, there was an increase in sales of $690 due to the strengthening of foreign currencies against the U.S. dollar during the three months ended September 30, 2017 compared to the prior period.
Consolidated domestic sales increased $3,202, or 17.8%, to $21,141 during the three months ended September 30, 2017, compared to consolidated domestic sales of $17,939 during the three 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 three months ended September 30, 2017. The remaining increase in domestic sales was attributable to the increase in the quantity of new and existing climb and skisport products sold duringby Sierra of $2,028 and the period.
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(inclusion of Barnes, which contributed $13,162. The increase was also driven by the inclusion of adventure products sold by Rhino-Rack of $19,625. We experienced an increase in thousands, except per share amounts)
Consolidated international sales increased $3,131, or 14.6%,of $1,000 due to $24,633the weakening of the U.S. dollar against foreign currencies during the three months ended September 30, 2017,2021, compared to consolidated internationalthe prior period.
Consolidated domestic sales of $21,502increased $26,573, or 76.6%, to $61,259 during the three months ended September 30, 2016. The increase in2021, compared to consolidated domestic sales was partially attributable to the inclusion of Sierra, which contributed $1,231 in sales$34,686 during the three months ended September 30, 2017.2020. The remaining increase in international sales was attributable to the increase in the quantity of new and existing climb, mountain, and ski products sold during the period andof $4,820. Additionally, there was an increase in the quantity of new and existing sport products sold by Sierra of $2,496 and the inclusion of Barnes, which contributed $12,134. The remaining increase was driven by the inclusion of adventure products sold by Rhino-Rack of $7,123.
Consolidated international sales of $690 dueincreased $17,907, or 60.1%, to the strengthening of foreign currencies against the U.S. dollar$47,712 during the three months ended September 30, 20172021, compared to the prior period.
Costconsolidated international sales of Goods Sold
Consolidated cost of goods sold increased $3,385, or 12.5%, to $30,490$29,805 during the three months ended September 30, 2017,2020. The increase in sales was primarily attributable to the increase in the quantity of new and existing climb, mountain, and ski products of $3,845 and the inclusion of Barnes,
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
which contributed $1,028. The increase was also driven by the inclusion of adventure products sold by Rhino-Rack of $12,502. We experienced an increase in sales of $1,000 due to the weakening of the U.S. dollar against foreign currencies during the three months ended September 30, 2021 compared to the prior period. The increase was partially offset by a decrease in the quantity of new and existing sport products sold by Sierra of $468.
Cost of Goods Sold
Consolidated cost of goods sold increased $26,970 or 63.0%, to $69,792 during the three months ended September 30, 2021, compared to consolidated cost of goods sold of $27,105$42,822 during the three months ended September 30, 2016.2020. 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 wasprimarily attributable to an increase in the number of units sold and the mix of higher cost products sold.
Gross Profit
Consolidated gross profit increased $2,948,$17,510 or 23.9%80.8%, to $15,284$39,179 during the three months ended September 30, 2017,2021, compared to consolidated gross profit of $12,336$21,669 during the three months ended September 30, 2016.2020. Consolidated gross margin was 33.4%36.0% during the three months ended September 30, 2017,2021, compared to a consolidated gross margin of 31.3%33.6% during the three months ended September 30, 2016.2020. Consolidated gross margin during the three months ended September 30, 2017,2021, increased compared to the prior year due to a favorable product mix in higher margin products and channel distribution, as well as lower coststhe favorable impacts related to the Company’s manufacturing activities that were transferred from China to the United States.foreign currency. Gross margin also benefited from the inclusion of Sierra; however, thisBarnes and Rhino-Rack. However, the benefit from Rhino-Rack was offset by a decrease in gross margin of 0.9%2.8% due to the sale of Rhino-Rack inventory that was recorded at its preliminary fair value in purchase accounting.accounting during the three months ended September 30, 2021.
Selling, General and Administrative
Consolidated selling, general, and administrative expenses increased $2,948,$12,640, or 25.7%67.7%, to $14,431$31,314 during the three months ended September 30, 2017,2021, compared to consolidated selling, general and administrative expenses of $11,483$18,674 during the three months ended September 30, 2016.2020. The increase in selling, general and administrative expenses was partially attributableis due to the inclusion of Sierra of $632, with theBarnes and Rhino-Rack, which contributed $1,678 and $7,722, respectively. The remaining increase beingwas attributable to the Company’s investmentinvestments in the brand related activities of sales, direct-to-consumer, marketing, and researchwarehousing and development inlogistics, focused on supporting its strategic initiatives around new product introductionexpanding distribution, elevating brand awareness and increasing brand equity. Stockbeing easier to do business with. The increase was partially offset by a decrease of stock compensation also increased $345of $1,140 during the three months ended September 30, 20172021 compared to the prior year.
Restructuring ChargesTransaction Costs
Consolidated restructuringtransaction expense decreased $249, or 88.3%,increased to $33$8,147 during the three months ended September 30, 2017,2021, compared to consolidated restructuring expensetransaction costs of $282$1,440 during the three months ended September 30, 2016. Restructuring expenses incurred during the three 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.
Transaction Costs
Consolidated transaction expense increased to $1,869 during the three months ended September 30, 2017, compared to consolidated transaction costs of $0 during the three months ended September 30, 2016,2020, which consisted of expenses related to the Company’s various acquisition of Sierra.efforts.
Interest Expense, net
Consolidated interest expense, net decreased $648, or 90.1%,increased to $71$1,476 during the three months ended September 30, 2017,2021, compared to consolidated interest expense, net of $719$232 during the three months ended September 30, 2016. Interest2020. The increase in interest expense recognized during the three months ended September 30, 20162021 was primarily attributableassociated with the increase in average outstanding debt amounts during the period compared to the Company’s 5% Senior Subordinated Notes which were repaid duringprior year and the three months ended March 31, 2017.recording of certain debt issuance costs.
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Other, net
Consolidated other, net decreased $209,income changed by $111, or 49.5%24.7%, to income of $213$338 during the three months ended September 30, 2017,2021, compared to consolidated other, net income of $422$449 during the three months ended September 30, 2016.2020. 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 increasea decrease in remeasurement gains recognized on the Company’s foreign denominated accounts receivable and accounts payable and gains related to recognition of cumulative translationpayable. The decrease was partially offset by changes on mark-to-market adjustments due to the substantial liquidation of aon non-hedged foreign entity.currency contracts.
Income Taxes
Consolidated income tax expense decreased $3,changed by $6,539, or 0.4%1,110.2%, to $676a benefit of $5,950 during the three months ended September 30, 2017,2021, compared to a consolidated income tax expense of $679$589 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.
2020. Our effective income tax rate was 74.5%a benefit of 419.0% for the three months ended September 30, 2017,2021, and differed compared to 247.8% for the same period in 2016. The primary reasons for the effective incomestatutory tax rate changes arerates due to differing levelsa release of income (loss) before incomea partial valuation allowance of the deferred tax and discrete charges recorded during the respective periods. Factors that could cause our annual effective tax rateassets. This release is primarily due to differ materially from our quarterly effective tax rates include changesa change in the geographic mix ofaccounting method which increased taxable income and discrete events that may occur. There were three discrete events the ability
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in the amount of $421 recorded in the Company’s income tax provision calculation forthousands, except per share amounts)
to utilize NOLs (defined below). For the three months ended September 30, 2017. There was one discrete event in the amount of $520 recorded in the Company’s2020, our effective income tax provision calculation forrate was an expense of 33.2% and was higher compared to the three months ended September 30, 2016.statutory tax rates due to permanent book to tax differences primarily related to incentive stock options.
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Results of Operations
Condensed Consolidated Nine Months Ended September 30, 20172021 Compared to Condensed Consolidated Nine Months Ended September 30, 20162020
The following presents a discussion of condensed consolidated operations for the nine months ended September 30, 2017,2021, compared with the condensed consolidated nine months ended September 30, 2016.2020.
| 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
Nine Months Ended | |||||
September 30, 2021 | September 30, 2020 | ||||
Sales | |||||
Domestic sales | $ | 160,708 | $ | 83,493 | |
International sales | 96,903 | 64,567 | |||
Total sales | 257,611 | 148,060 | |||
Cost of goods sold | 163,361 | 97,243 | |||
Gross profit | 94,250 | 50,817 | |||
Operating expenses | |||||
Selling, general and administrative | 72,903 | 50,537 | |||
Transaction costs | 9,272 | 1,870 | |||
Total operating expenses | 82,175 | 52,407 | |||
Operating income (loss) | 12,075 | (1,590) | |||
Other expense | |||||
Interest expense, net | (1,926) | (800) | |||
Other, net | (4,263) | 324 | |||
Total other expense, net | (6,189) | (476) | |||
Income (loss) before income tax | 5,886 | (2,066) | |||
Income tax benefit | (6,161) | (542) | |||
Net income (loss) | $ | 12,047 | $ | (1,524) | |
Sales
Consolidated sales increased $11,220,$109,551, or 10.5%74.0%, to $118,010$257,611, during the nine months ended September 30, 2017,2021, compared to consolidated sales of $106,790$148,060 during the nine months ended September 30, 2016.2020. 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 anthe 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$37,083. Additionally, there 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 skisport products sold duringby Sierra of $16,254 and the period.
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(inclusion of Barnes, which contributed $33,316. The increase was also driven by the inclusion of adventure products sold by Rhino-Rack of $19,625. We experienced an increase in thousands, except per share amounts)
Consolidated international sales increased $5,936, or 11.3%,of $3,273 due to $58,536the weakening of the U.S. dollar against foreign currencies during the nine months ended September 30, 2017,2021, compared to consolidated internationalthe prior period.
Consolidated domestic sales of $52,600increased $77,215, or 92.5%, to $160,708 during the nine months ended September 30, 2016. The increase in2021, compared to consolidated domestic sales was partially attributable to the inclusion of Sierra, which contributed $1,231 in sales$83,493 during the nine months ended September 30, 2017.2020. The remaining increase in international sales was attributable to anthe increase in the quantity of new and existing climb, mountain, and ski products sold during the period andof $21,384. Additionally, there was an increase in the quantity of new and existing sport products sold by Sierra of $17,861 and the inclusion of Barnes, which contributed $30,847. The remaining increase was driven by the inclusion of adventure products sold by Rhino-Rack of $7,123.
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Consolidated international sales of $700 dueincreased $32,336, or 50.1%, to the strengthening of foreign currencies against the U.S. dollar$96,903 during the nine months ended September 30, 20172021, compared to the prior period.
Costconsolidated international sales of Goods Sold
Consolidated cost of goods sold increased $6,233, or 8.3%, to $81,388$64,567 during the nine months ended September 30, 2017,2020. The increase in sales was primarily attributable to the increase in the quantity of new and existing climb, mountain, and ski products of $15,699 and the inclusion of Barnes, which contributed $2,469. The increase was also driven by the inclusion of adventure products sold by Rhino-Rack of $12,502. We experienced an increase in sales of $3,273 due to the weakening of the U.S. dollar against foreign currencies during the nine months ended September 30, 2021 compared to the prior period. The increase was partially offset by a decrease in the quantity of new and existing sport products sold by Sierra of $1,607.
Cost of Goods Sold
Consolidated cost of goods sold increased $66,118 or 68.0%, to $163,361 during the nine months ended September 30, 2021, compared to consolidated cost of goods sold of $75,155$97,243 during the nine months ended September 30, 2016.2020. 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 wasprimarily 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,$43,433 or 15.8%85.5%, to $36,622$94,250 during the nine months ended September 30, 2017,2021, compared to consolidated gross profit of $31,635$50,817 during the nine months ended September 30, 2016.2020. Consolidated gross margin was 31.0%36.6% during the nine months ended September 30, 2017,2021, compared to a consolidated gross margin of 29.6%34.3% during the nine months ended September 30, 2016.2020. Consolidated gross margin during the nine months ended September 30, 2017,2021, increased compared to the prior year due to a favorable product mix in higher margin products and channel distribution, as well as lower coststhe favorable impacts related to the Company’s manufacturing activities that were transferred from China to the United States.foreign currency. Gross margin also benefited from the inclusion of Sierra;Barnes and Rhino-Rack; however, this benefit was offset by a decrease in gross margin of 0.4%1.3% due to the sale of Barnes and Rhino-Rack inventory that was recorded at its preliminary fair value in purchase accounting.accounting during the year ended December 31, 2020 and three months ended September 30, 2021, respectively.
Selling, General and Administrative
Consolidated selling, general, and administrative expenses increased $2,515,$22,366, or 6.7%44.3%, to $39,826$72,903 during the nine months ended September 30, 2017,2021, compared to consolidated selling, general and administrative expenses of $37,311$50,537 during the nine months ended September 30, 2016.2020. The increase in selling, general and administrative expenses was partially attributableis due to the inclusion of SierraBarnes and Rhino-Rack, which contributed $5,008 and $7,722, respectively, and an increase of $632, withstock compensation of $981 during the nine months ended September 30, 2021 compared to the prior year. The remaining increase beingwas attributable to the Company’s investmentinvestments in the brand related activities of sales, direct-to-consumer, marketing, and researchwarehousing and development inlogistics, focused on supporting its strategic initiatives around new product introductionexpanding distribution, elevating brand awareness and increasing brand equity. Stock compensation alsobeing easier to do business with.
Transaction Costs
Consolidated transaction expense increased $536to $9,272 during the nine months ended September 30, 20172021, compared to the prior year.
Restructuring Charges
Consolidated restructuring expense decreased $1,159, or 90.9%, to $116consolidated transaction costs of $1,870 during the nine months ended September 30, 2017, compared2020, which consisted of expenses related to consolidated restructuringthe Company’s various acquisition efforts.
Interest Expense, net
Consolidated interest expense, of $1,275net increased to $1,926 during the nine months ended September 30, 2016. Restructuring expenses incurred2021, compared to consolidated interest expense, net of $800 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 operations2020. The increase in Zhuhai, China. Restructuring expenses incurredinterest expense recognized during the nine months ended September 30, 2016,2021 was 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 moveincrease in average outstanding debt amounts during the period compared to the prior year and the recording 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.certain debt issuance costs.
Transaction CostsOther, net
Consolidated transactionother, net expense increased $1,600,changed $4,587, or 594.8%1,415.7%, to $1,869$4,263 during the nine months ended September 30, 2017,2021, compared to consolidated transaction costsother, net income of $269$324 during the nine months ended September 30, 2016.2020. 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 nine months ended September 30, 2016, the Company received an arbitral award on agreed terms of $1,967, related to certain claims against the former owner of PIEPS associated with the voluntary recall of all the PIEPS VECTOR avalanche transceivers during the year ended December 31, 2013.
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Interest Expense, net
Consolidated interest expense, net, decreased $1,194, or 55.7%, to $948 during the nine months ended September 30, 2017, compared to consolidated interest expense, net, of $2,142 during the nine months ended September 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 $391, or 47.3%, to income of $435 during the nine months ended September 30, 2017, compared to consolidated other, net income of $826 during the nine months ended September 30, 2016. The decreasechange in other, net, was primarily attributable to an increasechanges on mark-to-market adjustments on non-hedged foreign currency contracts, including contracts associated with the purchase price of Rhino-Rack, as well as a decrease in remeasurement 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.payable.
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
Income Taxes
Consolidated income tax expense decreased $30,benefit increased $5,619, or 2.9%1,036.7%, to $990a benefit of $6,161 during the nine months ended September 30, 2017,2021, compared to a consolidated income tax expensebenefit of $1,020$542 during the same period in 2016. The tax expense recorded during the nine months ended September 30, 2017 includes discrete charges associated with a disproportionate tax effect released from accumulated other comprehensive 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 nine months ended September 30, 2016 includes a discrete charge for a Swiss withholding tax related to the transferring of Black Diamond Equipment’s European operations from Basel, Switzerland to Innsbruck, Austria, and a discrete charge 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.
2020. Our effective income tax rate was 17.4%a benefit of 104.7% for the nine months ended September 30, 2017,2021, differed compared to 15.5% for the same period in 2016. The primary reasons for the effective incomestatutory tax rate changes arerates due to differing levelsa release of income (loss) before incomea partial valuation allowance of the deferred tax and discrete charges recorded during the respective periods. Factors that could cause our annual effective tax rateassets. This release is primarily due to differ materially from our quarterly effective tax rates include changesa change in the geographic mix ofaccounting method which increased taxable income and discrete events that may occur. There were four discrete events in the amount of $676 recorded in the Company’s income tax provision calculation forability to utilize NOLs (defined below). For the nine months ended September 30, 2017. There were two discrete events in the amount of $1,117 recorded in the Company’s2020, our effective income tax provision calculation forrate was a benefit of 26.2% and was higher compared to the nine months ended September 30, 2016.statutory tax rates due to permanent book to tax differences primarily related to incentive stock options.
Liquidity and Capital Resources
Condensed Consolidated Nine Months Ended September 30, 20172021 Compared to Condensed Consolidated Nine Months Ended September 30, 20162020
The following presents a discussion of cash flows for the condensed consolidated nine months ended September 30, 2017 compared with the condensed consolidated nine months ended September 30, 2016. Our primary ongoing funding requirements are for working capital, expansion of our operations (both organically and through acquisitions) 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 investingthese activities through a combination of our future operating cash flows and revolving credit facility.facility which had approximately $34,600 available to borrow at September 30, 2021. We believe that our liquidity requirements for at least the next 12 months will be adequately covered by cash provided by operations and our existing revolving credit facility. However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. The COVID-19 pandemic has negatively affected the U.S., European, Australian and global economies, disrupted global supply chains, and resulted in significant travel and transport restrictions and disruption of financial markets. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition. Given the economic uncertainty as a result of the pandemic, we have taken actions to improve our current liquidity position, including drawing on the credit facility, suspending share repurchases and cash dividends, postponing nonessential capital expenditures, reducing operating costs, modulating production in line with demand, initiating workforce reductions and furloughs, and substantially reducing discretionary spending.
Further, the Company and certain of its direct and indirect subsidiaries (each, a “Loan Party” and, collectively, the “Loan Parties”) entered into Amendment No. 3 (“Amendment No. 3”) to that certain Credit Agreement, dated May 3, 2019, as amended by Amendment No. 1 dated May 28, 2019 and Amendment No. 2 dated November 12, 2020, with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (collectively, the “Credit Agreement”). The Credit Agreement increased the aggregate amount of the term loan facility thereunder to $125,000 and increased the maximum amount of the revolving loan facility thereunder to $100,000. The term loan facility was fully borrowed at the closing of Amendment No. 3 on July 1, 2021. The Company is required to repay the term loan through quarterly payments of $1,563 each beginning with September 30, 2021, increasing to $3,125 beginning September 30, 2022, and any remaining obligations will be repaid in full on the maturity date of the Credit Agreement of May 3, 2024. Amendment No. 3 also removed the previously agreed upon ability of the Company to issue debt securities that may be convertible into equity interests of the Company in an aggregate principal amount of up to $125,000 and also increased the maximum consolidated total leverage ratio permitted under the Credit Agreement to 4.25:1.00.
Subsequent to the balance sheet date, the Company entered into an underwriting agreement relating to the public offer and sale of 2,750 shares of the Company’s common stock as well as a 30-day option to purchase up to 413 additional shares of common stock. The closing of the offering of 2,750 shares of common stock as well as the 413 additional shares of common stock occurred on October 29, 2021 and November 2, 2021, respectively. The net proceeds to the Company from the offering were approximately $80,264 before expenses and after deducting the applicable underwriting discounts and commissions. The Company intends to use a portion of the net proceeds of the offering for the repayment in full of approximately $65,000 in aggregate principal amount under the revolving loan facility available pursuant to the Credit Agreement and the remaining portion of the net proceeds from the offering for general corporate purposes, including capital expenditures and potential acquisitions.
At September 30, 2017,2021, we had total cash of $1,672$10,170, compared to a cash balance of $94,738$17,789 at December 31, 2016,2020, which was substantially controlled by the Company’s U.S. entities. At September 30, 2017,2021, the Company had $332$4,888 of the $1,672$10,170 in cash held by foreign entities, of which $332$2,995 is considered permanently reinvested.
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 | ||||
The following presents a discussion of cash flows for the condensed consolidated nine months ended September 30, 2021 compared with the condensed consolidated nine months ended September 30, 2020.
Nine Months Ended | |||||
September 30, 2021 | September 30, 2020 | ||||
Net cash (used in) provided by operating activities | $ | (17,101) | $ | 21,048 | |
Net cash used in investing activities | (141,181) | (33,779) | |||
Net cash provided by financing activities | 151,041 | 27,956 | |||
Effect of foreign exchange rates on cash | (378) | 99 | |||
Change in cash | (7,619) | 15,324 | |||
Cash, beginning of year | 17,789 | 1,703 | |||
Cash, end of period | $ | 10,170 | $ | 17,027 | |
Net Cash From Operating Activities
Consolidated net cash used in operating activities was $16,578$17,101 during the nine months ended September 30, 2017,2021, compared to consolidated net cash provided by operating activities of $5,405$21,048 during the nine months ended September 30, 2016.2020. The increasechange in net cash used in operating activities during 20172021 is primarily due to an increase in net operating assets, net of assets acquired or non-cash working capital, of $24,039$52,207, partially offset by a decreasean increase in net lossincome during the nine months ended September 30, 2017,2021, compared to the same period in 2016.2020.
Free cash flow, defined as net cash (used in) provided by operating activities less capital expenditures, of ($22,680) was free cash flows used of $18,497 during the nine months ended September 30, 20172021 compared to free cash flows provided of $3,369$17,442 generated during the same period in 2016.2020. 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 | |||
Nine Months Ended | |||||
September 30, 2021 | September 30, 2020 | ||||
Net cash (used in) provided by operating activities | $ | (17,101) | $ | 21,048 | |
Purchase of property and equipment | (5,579) | (3,606) | |||
Free cash flow | $ | (22,680) | $ | 17,442 | |
Net Cash From Investing Activities
Consolidated net cash used in investing activities was $81,104$141,181 during the nine months ended September 30, 2017,2021, compared to consolidated net cash provided by investing activities of $7,301$33,779 during the nine months ended September 30, 2016.2020. The increase in cash used during the nine months ended September 30, 20172021 is primarily due to the $79,238 used foracquisition of Rhino-Rack and an increase in purchases of property and equipment, compared to the purchase of Sierra, net of cash acquired. The cash provided during the nine months ended September 30, 2016 was primarily from the sale of marketable securities of $10,235.same period in 2020.
Net Cash From Financing Activities
Consolidated net cash provided by financing activities was $4,491$151,041 during the nine months ended September 30, 2017,2021, compared to consolidatednet cash used in financing activitiesprovided of $5,222$27,956 during the nine months ended September 30, 2016.2020. The cash provided during the nine months ended September 30, 2017 relates primarily to proceeds from the revolving credit facility offset by repayments of. Theincrease in cash used during the nine months ended September 30, 2016 relates2021 compared to the repurchasesame period in 2020 was primarily due to the net proceeds to the revolving line of itscredit and draws of the term loan under Amendment No.3 described below. Cash provided by financing activities during the nine months ended September 30, 2020 was primarily due to the proceeds of $20,000 borrowed under the term loan and net proceeds from the sale of common stock.stock, offset by net repayment to the revolving line of credit.
Net Operating Loss
As of December 31, 2016,2020, the Company had net operating loss carryforwards (“NOLs”) and 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$120,309 and $315,$1,889, respectively. The Company believes its U.S. Federal net operating loss (“NOL”)NOLs 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.until expiration. 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. $172,149NOLs. $120,309 of net operating
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
losses available to offset taxable income does not expire until 20212022 or later, subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.
CLARUS CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
(in thousands, except per share amounts)
As of December 31, 2016,2020, the Company’s gross deferred tax asset was $75,416.$40,538. The Company has recorded a valuation allowance of $67,662,$22,348, resulting in a net deferred tax asset of $7,754,$18,190, before deferred tax liabilities of $16,720.$8,304. The Company has provided a valuation allowance against a portion of the net deferred tax assets as of December 31, 2016,2020, because the ultimate realization of those assets does not meet the more likely than notmore-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 FacilityAgreement
In conjunction with the acquisition of Sierra, on August 21, 2017,On May 3, 2019, the Company, together with its directBorrowers and indirect domestic subsidiariesthe other loan parties party thereto entered into a third amended and restated loan agreement (the “Third Amended and Restated Loan Agreement”) with ZB, N.A. dba Zions First National Bank (the “Lender”), which matures on August 21, 2022. Under the Third Amended and Restated LoanCredit 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 increasefor borrowings of up to $20,000 as an accordion option (the “Accordion”) to increase the Revolving Line of Credit$60,000 under a revolving credit facility (including up to $5,000 for letters of credit), and borrowings of up to $40,000 under a term loan facility that is available to be drawn until May 3, 2020. The Credit Agreement also permits the Maximum BorrowingBorrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $50,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Credit Agreement of up to $150,000. The Credit Agreement matures on a seasonal or permanent basis for funding general corporate needs including working capital, capital expenditures,May 3, 2024.
On November 12, 2020, the Borrowers entered into Amendment No. 2 of the Credit Agreement. Amendment No. 2 increased the maximum consolidated total leverage ratio permitted under the Credit Agreement to 4.00:1.00 from 3.00:1.00. In addition, Amendment No. 2 permits, among other things, the issuance by the Company of debt securities, that may be convertible into equity interests of the Company, in an aggregate principal amount of up to $125,000, and eliminates the requirement that the proceeds therefrom be used to prepay any revolving loans or investments in subsidiaries, and the issuance of letters of credit. Availabilityterm loans under the Revolving LineCredit Agreement.
On July 1, 2021, the Borrowers entered into Amendment No. 3 of the Credit may not exceed $30,000 unlessAgreement. Amendment No. 3 increased the aggregate amount of the term loan facility thereunder to $125,000 and increased the maximum amount of the revolving loan facility thereunder to $100,000. The term loan facility was fully borrowed at the closing of Amendment No. 3 on July 1, 2021 in connection with the Rhino-Rack Acquisition. The Credit Agreement continues to permit the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $50,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Credit Agreement of up to $275,000.
Amendment No. 3 provides for additional subsidiaries of the Company has sufficient eligibleto guarantee and provide collateral for the loans under the Credit Agreement, including certain of its newly formed or newly acquired Australian subsidiaries in connection with the Rhino-Rack Acquisition. Amendment No. 3 also removed the previously agreed upon ability of the Company to issue debt securities that may be convertible into equity interests of the Company in an aggregate principal amount of up to $125,000 and also increased the maximum consolidated total leverage ratio permitted under the Credit Agreement to 4.25:1.00. Amendment No. 3 did not change the maturity date which remains May 3, 2024.
The Borrowers may elect to have the revolving and term loans under the Credit Agreement bear interest at an alternate base rate or a Term Benchmark rate plus an applicable rate. The applicable rate for these borrowings will range from 0.50% to 1.625% per annum, in the case of alternate base rate borrowings, and 1.50% to 2.625% per annum, in the case of Term Benchmark borrowings. The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of Term Benchmark borrowings; however, it may be adjusted from time to time based upon the level of the Company’s consolidated total leverage ratio. The Credit Agreement also requires the Borrowers to pay a commitment fee on the unused portion of the revolving and term loan commitments. Such commitment fee will range between 0.15% and 0.30% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio.
All obligations under the Credit Agreement are secured by 100% of our domestic, and 65% of our foreign, subsidiary equity interests, as well as accounts receivable, inventory, intellectual property and equipmentcertain other assets at such time pursuantowned by the Company. The Credit Agreement contains restrictions on the Company’s ability to formulaspay dividends or make distributions or other restricted payments if certain conditions in the Credit Agreement are not fulfilled. The Credit Agreement includes customary affirmative and negative covenants, including financial covenants relating to the Company’s consolidated total leverage ratio and fixed charge coverage ratio. The Company was in compliance with the debt covenants set forth in the Third Amended and Restated Loan Agreement.Credit Agreement as of September 30, 2021.
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. As of September 30, 2017,2021, the Company had drawn $27,353 onapproximately $65,412of the $40,000$100,000 revolving credit facility.loan commitment that was available for borrowing under the Credit Agreement, and $123,437 outstanding under the term loan commitment. As of September 30, 2021, the interest rate for each loan was 1.6250%. On April 30, 2020, the Company borrowed $20,000 under the term loan facility and
As partused the proceeds to pay down amounts outstanding under the revolving portion of the consideration payableCredit Agreement. On July 1, 2021, the term loan facility was fully borrowed at the closing of Amendment No. 3. The Company is required to repay the stockholdersterm loan through quarterly payments of Gregory when$1,563 each beginning with September 30, 2021, increasing to $3,125 beginning September 30, 2022, and any remaining obligations will be repaid in full on 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 trusteematurity date of the managerCredit Agreement 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.3, 2024.
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 nine months ended 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 nine months ended 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.
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, 2016.2020.
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/Executive Vice President/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)13a-15I and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of September 30, 2017,2021, 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/Executive Vice President/Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of September 30, 2017,2021, were effective.
The Company acquired certain assets and liabilities constituting the Barnes business (“Barnes”) on October 2, 2020. On July 1, 2021, the Company completed the acquisition of Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”). Management excluded Barnes and Rhino-Rack from its assessment of the effectiveness of the Company’s internal control over financial reporting Sierra’s internal control overas of September 30, 2021. Barnes’ financial reporting associated withstatements constitute 9% of total assets and 13% of $79,918 and total revenuessales of $3,532 included in the condensed consolidated financial statement amounts as of and for the nine months ended September 30, 2021. Rhino-Rack’s financial statements constitute 45% of total assets and 8% of total sales of the Companycondensed consolidated financial statement amounts as of and for the nine months ended September 30, 2017.2021.
On August 21, 2017,October 2, 2020, the Company acquired Sierra.Barnes. On July 1, 2021, the Company acquired Rhino-Rack. Because Sierra utilizesBarnes and Rhino-Rack utilize 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 asfor 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 acquisitionBarnes and Rhino-Rack acquisitions and evaluating when it will complete an evaluation and review of Sierra’sBarnes’ and Rhino-Rack’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 quarterthe nine months ended September 30, 2017,2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
CLARUS CORPORATION
CLARUS CORPORATION
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.
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, 2016.2020.
On November 7, 2017, the Company delivered a letter (the “Letter”) to 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.
CLARUS CORPORATION
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 before seeking to again increase its beneficial ownership to in excess of 4.9% of the Company’s outstanding shares of common stock.
A copy of the Letter is attached to this Quarterly Report on Form 10-Q as Exhibit 99.1 and is incorporated herein by reference as if fully set forth herein. The foregoing summary description of the Letter is not intended to be complete and is qualified in its entirety by the complete text of the Letter.
CLARUS CORPORATION
Management contract or compensation plan or arrangement
CLARUS CORPORATION
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.
CLARUS CORPORATION | ||||
Date: November | By: | /s/ Warren B. Kanders | ||
Name: | Warren B. Kanders | |||
Title: | Executive Chairman | |||
(Principal Executive Officer) | ||||
Date: November 8, 2021 | By: | /s/ Aaron J. Kuehne | ||
Name: | Aaron J. Kuehne | |||
Title: | Executive Vice President and | |||
Chief Financial Officer | ||||
CLARUS CORPORATION
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