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, 20172018

 

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)

 

Delaware58-1972600

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

2084 East 3900 South

Salt Lake City, Utah

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

 

(801) 278-5552

(Registrant’s telephone number, including area code)

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

 

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

Yesx No¨

 

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

Yesx No¨

 

Indicate by check mark whether the registrant 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 filerx Smaller reporting companyx
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¨ Nox

 

As of November 1, 2017,October 31, 2018, there were 30,041,26529,850,189 shares of common stock, par value $0.0001, outstanding.

 

 

 

 

INDEX

 

CLARUS CORPORATION

 

Page
PART IFINANCIAL INFORMATION 
   
Item 1.Financial Statements (Unaudited) 
   
 Condensed Consolidated Balance Sheets – September 30, 20172018 and December 31, 201620173
   
 Condensed Consolidated Statements of Comprehensive LossIncome (Loss) – Three months ended September 30, 20172018 and 201620174
   
 Condensed Consolidated Statements of Comprehensive LossIncome (Loss) – Nine months ended September 30, 20172018 and 201620175
   
 Condensed Consolidated Statements of Cash Flows – Nine months ended September 30, 20172018 and 201620176
   
 Notes to Condensed Consolidated Financial Statements – September 30, 201720187
   
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations2521
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk3531
   
Item 4.Controls and Procedures3631
   
PART IIOTHER INFORMATION 
   
Item 1.Legal Proceedings3732
   
Item 1A.Risk Factors3732
   
Item 5.2.Other InformationUnregistered Sales of Equity Securities and Use of Proceeds3732
   
Item 6.Exhibits3934
   
Signature Page40
Exhibit Index4135

 

 2 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CLARUS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

 September 30, 2017 December 31, 2016  September 30, 2018  December 31, 2017 
Assets                
Current assets                
Cash $1,672  $94,738  $3,005  $1,856 
Accounts receivable, less allowance for doubtful accounts of $411 and $399, respectively  35,414   23,232 
Accounts receivable, less allowance for doubtful accounts of $495 and $382, respectively  39,295   35,817 
Inventories  66,982   45,410   60,840   58,138 
Prepaid and other current assets  2,416   3,480   4,362   3,633 
Income tax receivable  -   85   43   - 
Total current assets  106,484   166,945   107,545   99,444 
                
Property and equipment, net  24,319   11,055   22,971   24,345 
Other intangible assets, net  24,690   9,769   20,259   23,238 
Indefinite lived intangible assets  41,794   22,541   41,742   41,843 
Goodwill  18,156   -   18,090   17,745 
Other long-term assets  350   147   1,489   834 
Total assets $215,793  $210,457  $212,096  $207,449 
                
Liabilities and Stockholders' Equity                
Current liabilities                
Accounts payable and accrued liabilities $23,021  $17,740  $21,504  $19,456 
Income tax payable  513   969   248   328 
Current portion of long-term debt  -   21,898   41   - 
Total current liabilities  23,534   40,607   21,793   19,784 
                
Long-term debt, net  27,353   - 
Long-term debt  22,655   20,842 
Deferred income taxes  9,169   8,966   3,553   3,666 
Other long-term liabilities  222   76   101   175 
Total liabilities  60,278   49,649   48,102   44,467 
                
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 
Common stock, $.0001 par value; 100,000 shares authorized; 33,244 and 32,917 issued and 29,850 and 30,041 outstanding, respectively  3   3 
Additional paid in capital  484,833   483,925   487,819   485,285 
Accumulated deficit  (316,409)  (309,717)  (307,378)  (310,390)
Treasury stock, at cost  (12,415)  (12,398)  (17,124)  (12,415)
Accumulated other comprehensive loss  (497)  (1,005)
Accumulated other comprehensive income  674   499 
Total stockholders' equity  155,515   160,808   163,994   162,982 
Total liabilities and stockholders' equity $215,793  $210,457  $212,096  $207,449 

 

See accompanying notes to condensed consolidated financial statements.

 

 3 

 

 

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)

(Unaudited)

(In thousands, except per share amounts)

 

 Three Months Ended 
 September 30, 2017  September 30, 2016  Three Months Ended 
      September 30, 2018  September 30, 2017 
Sales                
Domestic sales $21,141  $17,939  $26,168  $21,141 
International sales  24,633   21,502   29,518   24,633 
Total sales  45,774   39,441   55,686   45,774 
                
Cost of goods sold  30,490   27,105   35,829   30,490 
Gross profit  15,284   12,336   19,857   15,284 
                
Operating expenses                
Selling, general and administrative  14,431   11,483   15,773   14,431 
Restructuring charge  33   282   22   33 
Transaction costs  1,869   -   50   1,869 
        
Total operating expenses  16,333   11,765   15,845   16,333 
Operating (loss) income  (1,049)  571 
                
Other income (expense)        
Operating income (loss)  4,012   (1,049)
        
Other (expense) income        
Interest expense, net  (71)  (719)  (303)  (71)
Other, net  213   422   102   213 
Total other income (expense), net  142   (297)
                
(Loss) income before income tax  (907)  274 
Income tax expense  676   679 
Net loss  (1,583)  (405)
Total other (expense) income, net  (201)  142 
        
Income (loss) before income tax  3,811   (907)
Income tax (benefit) expense  (316)  676 
Net income (loss)  4,127   (1,583)
                
Other comprehensive income (loss), net of tax:                
Unrealized loss on marketable securities  -   (68)
Foreign currency translation adjustment  684   176   (54)  684 
Unrealized (loss) income on hedging activities  (419)  147 
Other comprehensive income  265   255 
Comprehensive loss $(1,318) $(150)
Unrealized loss on hedging activities  (193)  (419)
Other comprehensive (loss) income  (247)  265 
Comprehensive income (loss) $3,880  $(1,318)
                
Net loss per share:        
Net income (loss) per share:        
Basic $(0.05) $(0.01) $0.14  $(0.05)
Diluted  (0.05)  (0.01)  0.14   (0.05)
                
Weighted average shares outstanding:                
Basic  30,017   30,063   29,739   30,017 
Diluted  30,017   30,063   30,166   30,017 
        
Dividends declared per common share $0.03  $- 

 

See accompanying notes to condensed consolidated financial statements.

 

 4 

 

 

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)

(Unaudited)

(In thousands, except per share amounts)

 

 Nine Months Ended 
 September 30, 2017  September 30, 2016  Nine Months Ended 
      September 30, 2018  September 30, 2017 
Sales                
Domestic sales $59,474  $54,190  $79,667  $59,474 
International sales  58,536   52,600   75,167   58,536 
Total sales  118,010   106,790   154,834   118,010 
                
Cost of goods sold  81,388   75,155   101,290   81,388 
Gross profit  36,622   31,635   53,544   36,622 
                
Operating expenses                
Selling, general and administrative  39,826   37,311   48,692   39,826 
Restructuring charge  116   1,275   86   116 
Transaction costs  1,869   269   383   1,869 
Arbitration award  -   (1,967)
        
Total operating expenses  41,811   36,888   49,161   41,811 
Operating loss  (5,189)  (5,253)
        
Operating income (loss)  4,383   (5,189)
                
Other (expense) income                
Interest expense, net  (948)  (2,142)  (1,020)  (948)
Other, net  435   826   31   435 
        
Total other expense, net  (513)  (1,316)  (989)  (513)
                
Loss before income tax  (5,702)  (6,569)
Income tax expense  990   1,020 
Net loss  (6,692)  (7,589)
Income (loss) before income tax  3,394   (5,702)
Income tax (benefit) expense  (359)  990 
Net income (loss)  3,753   (6,692)
                
Other comprehensive income (loss), net of tax:                
Unrealized income on marketable securities  -   107 
Foreign currency translation adjustment  2,305   522   (546)  2,305 
Unrealized (loss) income on hedging activities  (1,797)  70 
Unrealized income (loss) on hedging activities  721   (1,797)
Other comprehensive income  508   699   175   508 
Comprehensive loss $(6,184) $(6,890)
Comprehensive income (loss) $3,928  $(6,184)
                
Net loss per share:        
Net income (loss) per share:        
Basic $(0.22) $(0.25) $0.13  $(0.22)
Diluted  (0.22)  (0.25)  0.12   (0.22)
                
Weighted average shares outstanding:                
Basic  30,015   30,525   29,939   30,015 
Diluted  30,015   30,525   30,162   30,015 
        
Dividends declared per common share $0.03  $- 

 

See accompanying notes to condensed consolidated financial statements.

 

 5 

 

 

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 Nine Months Ended  Nine Months Ended 
 September 30, 2017  September 30, 2016  September 30, 2018  September 30, 2017 
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:        
Net income (loss) $3,753  $(6,692)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:        
Depreciation of property and equipment  1,830   1,705   3,314   1,830 
Amortization of intangible assets  1,183   808   2,902   1,183 
Accretion of notes payable  833   1,358   -   833 
Amortization of debt issuance costs  11   -   371   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 
Loss on disposition of assets  11   109 
Loss (gain) from removal of accumulated translation adjustment  172   (149)
Stock-based compensation  729   193   2,067   729 
Deferred income taxes  446   (230)  (539)  446 
Changes in operating assets and liabilities, net of acquisition:                
Accounts receivable  (8,524)  (294)  (4,007)  (8,524)
Inventories  (8,274)  6,516   (3,182)  (8,274)
Prepaid and other assets  (808)  3,307   443   (808)
Accounts payable and accrued liabilities  3,489   (1,121)  2,421   3,489 
Income taxes  (387)  1,127   (114)  (387)
Other  (374)  (255)  -   (374)
Net cash (used in) provided by operating activities  (16,578)  5,405 
Net cash provided by (used in) operating activities  7,612   (16,578)
                
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)  -   (345)  (79,238)
Proceeds from disposition of property and equipment  53   23   5   53 
Purchase of property and equipment  (1,919)  (2,036)  (1,854)  (1,919)
Net cash (used in) provided by investing activities  (81,104)  7,301 
Net cash used in investing activities  (2,194)  (81,104)
                
Cash Flows From Financing Activities:                
Net proceeds from revolving credit facilities  27,353   - 
Repayments of long-term debt  (22,690)  - 
Proceeds from revolving credit facilities  101,331   36,232 
Repayments on revolving credit facilities  (99,572)  (8,879)
Repayments of long-term debt and capital leases  (29)  (22,690)
Payment of debt issuance costs  (334)  -   (1,032)  (334)
Purchase of treasury stock  (17)  (5,222)  (4,709)  (17)
Proceeds from exercise of stock options  179   -   467   179 
Net cash provided by (used in) financing activities  4,491   (5,222)
Cash dividends paid  (741)  - 
Net cash (used in) provided by financing activities  (4,285)  4,491 
                
Effect of foreign exchange rates on cash  125   70   16   125 
        
Change in cash  (93,066)  7,554   1,149   (93,066)
Cash, beginning of period  94,738   88,401   1,856   94,738 
Cash, end of period $1,672  $95,955  $3,005  $1,672 
                
Supplemental Disclosure of Cash Flow Information:                
Cash paid for income taxes $946  $124  $296  $946 
Cash paid for interest $284  $934  $700  $284 
Supplemental Disclosures of Non-Cash Investing and Financing Activities:                
Property and equipment purchased with accounts payable $27  $99  $155  $27 
Property and equipment acquired through a capital lease $123  $- 

 

See accompanying notes to condensed consolidated financial statements.

 

 6 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except per share amounts)

 

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

 

The accompanying unaudited condensed consolidated financial statements of Clarus Corporation and subsidiaries (which may be referred to as the “Company,” “Clarus,” “we,” “us” or “our”) as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 20172018 and 2016,2017, have been prepared in accordance with U.S. generally accepted accounting principles (“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 of the three and nine months ended September 30, 20172018 are not necessarily indicative of the results to be obtained for the year ending December 31, 2017.2018. 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, 2016,2017, filed with the Securities and Exchange Commission (the “Commission”“SEC”).

 

Clarus, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (which may be referred to as “Black Diamond Equipment” or “BDEL”) and Gregory Mountain Products, LLC (which may be referred to as “Gregory Mountain Products”, or “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’sProducts’ 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.POC.

 

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 May 7, 2018, the Company announced a “modified Dutch auction” tender offer for Clarus’ common stock, as well as the preferred share purchase rights associated with such shares (collectively, the “Shares”). On July 11, 2018, the tender offer expired, following which the Company announced it would accept 417,237 Shares for purchase at a price of $8.00 per Share, for an aggregate cost of approximately $3,338, excluding fees and expenses.

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 October 26, 2018, the Company announced that its Board of Directors approved the payment on November 16, 2018 of the Quarterly Cash Dividend to the record holders of shares of the Company’s common stock as of the close of business on November 2, 2018.

 

Nature of Business

 

Headquartered in Salt Lake City, Utah, Clarus, Corporationa company focused on the outdoor and consumer industries, is a holding company which seeksseeking opportunities to acquire and grow businesses that can generate attractive shareholder returns. Presently, through its Outdoor Group,The Company has substantial net operating tax loss carryforwards that it is seeking to redeploy to maximize shareholder value in outdoor and consumer businesses. Clarus’ primary business is as a leading developer, manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb, ski, mountain, and technicalsport categories. The Company’s products are principally sold under the Black Diamond®, Sierra® and PIEPS® brand names through specialty and online retailers, distributors and original equipment manufacturers throughout the U.S. and internationally.

 

Through our Black Diamond®Diamond and PIEPS®PIEPS brands, we offer a broad range of products including: high performance apparel (such as jackets, shells, pants and bibs); rock-climbing equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; tents; trekking poles; headlamps and lanterns; and gloves and mittens. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes. Through our Sierra manufacturesbrand, we manufacture a wide range of high performance bullets for both rifles and pistols. Sierra bulletspistols that are used for precision target shooting, hunting and military and law enforcement purposes.

 

7

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

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 taxespurchase price allocation, excess or obsolete inventory, 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 and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

 

7

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Significant Accounting Policies

 

Revenue Recognition

On January 1, 2018, the Company adopted new guidance on revenue from customers using the modified retrospective method applied to revenues that were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with Accounting Standards Codification (“ASC”) Topic 605,Revenue Recognition.

There have beenwas no significant changescumulative effect adjustment recorded to opening retained earnings as of January 1, 2018, upon adoption of ASC Topic 606,Revenue from Contracts with Customers. However, the Company’s significantnew revenue standard provides new guidance that resulted in immaterial reclassifications between Prepaid and other current assets, Sales, Cost of goods sold, and Accounts payable and accrued liabilities associated with accounting policies as described infor revenue with a right of return. The impact of the Company’s Annual Report on Form 10-Kreclassifications to revenues and expenses for the year ended December 31, 2016.

During thethree and nine months ended September 30, 2017, the Company adopted Accounting Standards Update (“ASU”) 2015-11,Simplifying the Measurement2018, was also immaterial as a result of Inventory, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value for entities thatapplying ASC Topic 606. We do not measure inventory using the last-in, first-out or a retail inventory method. The ASU eliminates the requirement to consider replacement cost or net realizable value lessexpect an approximately normal profit margin when measuring inventory. The Company adopted this ASU effective on January 1, 2017, on a prospective basis which did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

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

Accounting Pronouncements Issued Not Yet Adopted

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

The Company recognizes revenue when a contract exists with a customer that specifies the goods and services to be provided at an agreed upon sales price and when the performance obligation is satisfied by transferring the goods or service to the customer. The performance obligation is considered complete when products are shipped or delivered to the customer depending on the terms of the contract. Sales are made on normal and customary short- term credit terms or upon delivery of point of sale transactions.

The Company enters into contractual arrangement with customers in the form of individual customer orders which specify the goods, quantity, pricing, and associated order terms. The Company does not have long-term contracts that are satisfied over time. Due to the nature of the contracts, no significant judgment exists in relation to the identification of the customer contract, satisfaction of the performance obligation, or transaction price. The Company expenses incremental costs of obtaining a contract due to the short term nature of the contracts.

The Company’s contract terms or historical business practices can give rise to variable consideration such as term discounts and customer cooperative payments. We estimate the expected term discounts based on an analysis of historical experience and record cash discounts as a reduction to revenue. Through cooperative advertising programs, the Company reimburses its wholesale customers for some of their costs of advertising the Company’s products. The Company records such costs as a reduction of revenue, where the fair value cannot be reasonably estimated or where costs exceed the fair value of the services.

At the time of revenue recognition, we also provide for estimated sales returns and miscellaneous claims from customers as reductions to revenues. The estimates are based on historical rates of product returns and claims. The Company accrues for such estimated returns and claims with an estimated accrual and associated reduction of revenue. Additionally, the Company records inventory that it expects to be returned as an other current asset, with a corresponding reduction of cost of goods sold. Such balances as of September 30, 2018 and January 1, 2018 are immaterial. The Company also offers assurance-type warranties relating to its products sold to end customers that are accounted for under ASC Topic 460,Guarantees.

Charges for shipping and handling fees billed to customers are included in net sales and the corresponding shipping and handling expenses are included in Cost of goods sold in the accompanying consolidated statements of comprehensive income (loss).

Sales commissions are expensed as incurred. These costs are recorded in Selling, general and administrative. Taxes collected from customers and remitted to government authorities are reported on the net basis and are excluded from sales.

 

 8 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

The Company has a wide variety of technical outdoor equipment and lifestyle products focused on the climb, ski, mountain, and sport categories that are sold to a variety of customers in multiple end markets. While there are multiple products sold, the nature of products are similar in terms of the nature of the revenue recognition policies. See Note 14 -Segment Information, for disaggregated revenue by segment.

Contract liabilities are recorded as a component of accounts payable and accrued liabilities when customers remit contractual cash payments in advance of us satisfying performance obligations which are satisfied at a future point of time. Contract liabilities totaled $125 and $360 at September 30, 2018 and January 1, 2018, respectively. Contract liabilities are derecognized when the performance obligation is satisfied. Revenue recognized from satisfaction of performance obligations relating to the advanced payments during the three and nine months ended September 30, 2018 totaled $56 and $433, respectively.

The accounts receivable trade balance related to customers totaled $39,790, less allowance of $495, and $35,940, less allowance of $382, as of September 30, 2018 and January 1, 2018, respectively.

Accounting Pronouncements adopted during 2018

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The amendments in this update are required to be applied using a retrospective transition method to each period presented. Accordingly, the Company adopted this ASU on January 1, 2018 and determined that the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures.

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. This ASU is effective for annual and interim reporting periods beginning after December 15, 2017 with early adoption permitted. Accordingly, the Company adopted this ASU on January 1, 2018 and determined that the adoption of this guidance did not impact the Company’s consolidated financial statements and related disclosures.

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. The amendments in this update are applied using a prospective transition method. Accordingly, the Company adopted this ASU on January 1, 2018 and determined that the adoption of this guidance did not impact the Company’s consolidated financial statements and related disclosures.

In March 2018, the FASB issued ASU 2018-5Income Tax (Topic 740) Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118which adds various paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118 (“SAB 118”). This guidance provides for the application of ASC Topic 740, Income Taxes, in the reporting period in which the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law and establishes a measurement period that should not extend beyond one year from the Tax Act enactment date (December 22, 2017) to obtain the appropriate documentation and complete the accounting under ASC Topic 740 for certain income tax effects of the Tax Act which were incomplete at December 31, 2017. This ASU became effective when issued in March 2018. The Company believes that all material adjustments have been identified and recorded relating to the Tax Act in 2017. Accordingly, the Company believes that adoption of this guidance will not have a material impact on the Company’s consolidated financial statements and related disclosures.

9

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02,Leases, which revises the accounting related to lessor and lessee accounting. In July 2018, the FASB also issued ASU 2018-10Codification Improvements to Topic 842, Leasesand ASU 2018-11Leases (Topic 842) Targeted Improvements.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 shouldmay 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. An entity may apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. 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, themethodology. The Company does not havecurrently maintains two capital leases. The Company is performing an assessment of its leases and has begun preparations for implementation and restrospective applicationrecognition of a cumulative-effective adjustment to the earliest reporting period.Janaury 1, 2019 balances on a prospective basis. 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.(i.e. 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 willhave been negotiated to expire prior toafter the adoption date. The Company anticipates renegotiating these operating leases; however,Consequently, for 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.approximate $1,318.

 

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.

9

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.permitted, and we intend to adopt the new guidance in the first quarter of 2019. The Company is still evaluating the impact of the adoption and implementation of this standard on its consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02,Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Incomewhich allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. This ASU is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. We intend to adopt the new guidance in the first quarter of 2019. The primary impact ofCompany does not believe the 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 impactand implementation of this pronouncement at this time.standard will have a significant impact on its consolidation financial statements.

 

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”).Sellers. 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 During the acquisition of Sierra is expected to providethree months ended June 30, 2018, the Company with the following benefits:

·greater combined global revenue base;
·increased diversification and seasonal balance;
·increased gross margins, profitability and free cash flows;
·advance the development, marketing and distribution of products; and
·access to increased liquidity to further acquire and grow businesses.

The Company’s fair value estimates for the purchase price allocation are preliminary and may change during the allowable allocation period, which is up to one year from the date of the acquisition of Sierra, as we finalizefinalized the working capital adjustment and continue to obtain information that existed as ofadjusted 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 therecorded purchase consideration and how the purchase consideration is preliminarily allocated to assets acquired and liabilities assumed which have been estimated at their preliminary fair values. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill.goodwill by $345.

 

 10

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

  Estimated Fair Value 
    
Total Purchase Consideration $79,239 
     
Assets Acquired and Liabilities Assumed    
Assets    
Cash $1 
Accounts receivable  2,686 
Inventories  11,674 
Prepaid and other current assets  128 
Property and equipment  13,206 
Amortizable definite lived intangible assets  15,800 
Identifiable indefinite lived intangible assets  18,900 
Goodwill  18,156 
Other long-term assets  15 
Total Assets  80,566 
     
Liabilities    
Accounts payable and accrued liabilities  1,327 
Total Liabilities  1,327 
     
Net Book Value Acquired $79,239 

The gross amount of accounts receivable is $2,732 of which $46 is deemed to be not collectible.

In connection with the acquisition, the Company acquired exclusive rights to Sierra’s trade names and trademarks, customer relationships, and product technologies. The preliminary amounts assigned to each class of intangible asset and the related preliminary weighted average amortization periods are as follows:

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

The fair value of Sierra’s assembled workforce and buyer-specific synergies has been included in goodwill. According to Revenue Ruling 99-6, the acquisition of a limited liability company is treated as a purchase of assets for tax purposes. As such, the basis in the assets of Sierra is equal for both book and tax, which results in no initial recognition of deferred tax assets or liabilities. Furthermore, the full amount of goodwill recorded of $18,156 is expected to be deductible for tax purposes. No pre-existing relationship existed between Clarus and the Sellers prior to the acquisition.

11 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Pro Forma Results

 

The following unaudited pro forma results of operations for the three and nine months ended September 30, 2017 and 2016 give pro forma effect as if the acquisition and borrowings used to finance the acquisition had occurred on January 1, 2016, after giving effect to certain adjustments including the amortization of intangible assets, depreciation of fixed assets, the Sellers’ management fees, interest expense and taxes and assumes the purchase price was allocated to the assets purchased and liabilities assumed based on their fair market values at the date of purchase.

 

 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
 September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2017 
              
Sales $48,496  $47,477  $138,510  $133,840  $48,496  $138,510 
Net income (loss) $32  $1,217  $(1,379) $(1,317)
Net loss $32  $(1,379)
Net loss per share - basic $-  $(0.05)
Net loss per share - diluted $-  $(0.05)

 

The unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transaction been consummated as of January 1, 2016. Furthermore, such unaudited pro forma information is not necessarily indicative of future operating results of the combined companies, and should not be construed as representative of the operating results of the combined companies for any future dates or periods.

 

Material nonrecurring adjustments excluded from the pro forma financial information above consists of $1,869 transaction costs and the $2,522 step up of Sierra inventory to its preliminary fair value, which is expected to be recorded as an unfavorable adjustment to cost of goods sold during the six months following the acquisition date.

NOTE 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, 20172018 and December 31, 2016,2017, were as follows:

 

  September 30, 2017  December 31, 2016 
       
Finished goods $53,711  $36,968 
Work-in-process  5,748   1,677 
Raw materials and supplies  7,523   6,765 
  $66,982  $45,410 

12

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

  September 30, 2018  December 31, 2017 
       
Finished goods $46,254  $46,729 
Work-in-process  6,624   5,194 
Raw materials and supplies  7,962   6,215 
  $60,840  $58,138 

 

NOTE 5.4. PROPERTY AND EQUIPMENT

 

Property and equipment, net as of September 30, 20172018 and December 31, 2016,2017, were as follows:

 

 September 30, 2017  December 31, 2016  September 30, 2018  December 31, 2017 
          
Land $3,160  $2,850  $3,160  $3,160 
Building and improvements  6,827   4,169   6,793   6,800 
Furniture and fixtures  3,688   3,074   4,273   3,822 
Computer hardware and software  4,758   4,519   4,788   4,897 
Machinery and equipment  19,283   11,144   20,927   19,764 
Construction in progress  350   522   593   721 
  38,066   26,278   40,534   39,164 
Less accumulated depreciation  (13,747)  (15,223)  (17,563)  (14,819)
 $24,319  $11,055  $22,971  $24,345 

11

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 6.5. OTHER INTANGIBLE ASSETS

 

Goodwill

 

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

 

  Black Diamond  Sierra  Total 
          
Balance at December 31, 2016 $-  $-  $- 
             
Increase due to acquisition  -   18,156   18,156 
             
Balance at September 30, 2017 $-  $18,156  $18,156 
  Black Diamond  Sierra  Total 
          
Balance at December 31, 2017 $-  $17,745  $17,745 
             
Increase due to working capital adjustment  -   345   345 
             
Balance at September 30, 2018 $-  $18,090  $18,090 

 

Indefinite Lived Intangible Assets

 

The Company ownsCompany’s indefinite lived intangible assets consist of certain tradenames and trademarks whichthat provide Black Diamond Equipment, PIEPS and Sierra with the exclusive and perpetual rights to manufacture and sell their respective products. Tradenames and trademarks are not amortized, but reviewed annually for impairment or upon the existence of a triggering event. There was an increasea decrease in tradenames and trademarks during the nine months ended September 30, 2017,2018 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, 2017 $41,843 
     
Impact of foreign currency exchange rates  (101)
     
Balance at September 30, 2018 $41,742 

Other Intangible Assets, net

The Company’s other intangible assets, such as certain customer lists and relationships, product technologies, tradenames, trademarks and core technologies, are amortizable over their estimated useful lives. There was a decrease in gross other intangible assets during the nine months ended September 30, 2018 due to the impact of foreign currency exchange rates. The following table summarizes the changes in gross other intangible assets:

Gross balance at December 31, 2017 $33,062 
     
Impact of foreign currency exchange rates  (147)
     
Gross balance at September 30, 2018 $32,915 
     

Other intangible assets, net of amortization as of September 30, 2018 and December 31, 2017, were as follows:

  September 30, 2018  December 31, 2017 
       
Customer lists and relationships $26,084  $26,166 
Product technologies  4,784   4,849 
Tradename / trademark  1,100   1,100 
Core technologies  947   947 
   32,915   33,062 
Less accumulated amortization  (12,656)  (9,824)
  $20,259  $23,238 

 

 1312 

 

 

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 

Other intangible assets, net of amortization as of September 30, 2017 and December 31, 2016, 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 7.6. LONG-TERM DEBT

 

Long-term debt net as of September 30, 20172018 and December 31, 2016,2017, 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  $- 
  September 30, 2018  December 31, 2017 
       
Revolving credit facility (a) $22,601  $20,842 
Capital lease  95   - 
   22,696   20,842 
Less current portion  (41)  - 
  $22,655  $20,842 

 

(a)As of September 30, 2017,2018, the Company had drawn $27,353$22,601 on a $40,000 revolvingamounts available under the credit facilityagreement with Zions First NationalJPMorgan Chase Bank, N.A., with a maturity date of August 21,June 27, 2022.

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

14

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

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

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

The Third Amended and Restated Loan Agreement contains certain financial covenants including restrictive debt covenants that require the Company and its subsidiaries to maintain a minimum fixed charge coverage ratio, a maximum total leverage ratio, a minimum net worth, a positive amount of asset coverage and limitations on capital expenditures, all as calculated in the Third Amended and Restated Loan Agreement.

In addition, the Third Amended and Restated Loan Agreement contains covenants restricting the Company and its subsidiaries from pledging or encumbering their assets, with certain exceptions, and from engaging in acquisitions other than acquisitions permitted by the Third Amended and Restated Loan Agreement. The Third Amended and Restated Loan Agreement contains customary events of default (with grace periods where customary) including, among other things, failure to pay any principal or interest when due; any materially false or misleading representation, warranty, or financial statement; failure to comply with or to perform any provision of the Third and Restated Loan Agreement; and default on any debt or agreement in excess of certain amounts.

(b)The term note was payable to a government entity with an interest rate of 0.75% and no monthly installments. During the nine months ended September 30, 2017, the entire principal amount and all accrued interest were paid in full.

 

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.

 

At September 30, 2017,2018, the Company’s derivative contracts had a remaining maturitymaturities of approximately one and one-half yearsyear or less. The counterparty to these transactions had both long-term and short-term investment grade credit ratings. The maximum net exposure of the Company’s credit risk to the counterparty is generally limited to the aggregate unrealized loss of all contracts with that counterparty, which is $1,353 as ofcounterparty. At September 30, 2017.2018, there was no such exposure to the counterparty. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain of $614 on all contracts. Atcontracts at September 30, 2017, there was no such exposure to the counterparty.2018. The Company’s derivative counterparty has strong credit ratings and as a result, the Company does not require collateral to facilitate transactions.

 

15

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

The Company held the following contracts designated as hedged instruments as of September 30, 20172018 and December 31, 2016:2017:

 

  September 30, 20172018
  Notional  Latest
  Amount  Maturity
Foreign exchange contracts - Canadian Dollars$9,129August 2019
Foreign exchange contracts - Euros€10,244August 2019

December 31, 2017
NotionalLatest
AmountMaturity
      
Foreign exchange contracts - Norwegian Kroner  7,449NOK 2,629  February 2018
Foreign exchange contracts - Canadian Dollars13,345February 2019
Foreign exchange contracts - British Pounds2,343February 2019
Foreign exchange contracts - Euros22,200February 2019
December 31, 2016
NotionalLatest
AmountMaturity
 
Foreign exchange contracts - Canadian Dollars 11,001$9,538  February 20182019
Foreign exchange contracts - British Pounds 1,842£1,737  February 20182019
Foreign exchange contracts - Euros 14,366€15,928  February 20182019

 

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)$255 and $(152)$(422) were reclassified to sales during the three months ended September 30, 20172018 and 2016,2017, respectively, and $(36)$(75) and $(495)$(36) were reclassified to sales during the nine months ended September 30, 2018 and 2017, and 2016, respectively.

The Company records ineffectiveness of hedged instruments resulting from changes in fair value of the instruments in earnings. There were no gains (losses) recorded to Other, net, during the three and 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.

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

  Classification September 30, 2017  December 31, 2016 
         
Derivative instruments in asset positions:          
Forward exchange contracts Prepaid and other current assets $69  $1,165 
Forward exchange contracts Other long-term assets $12  $116 
           
Derivative instruments in liability positions:          
Forward exchange contracts Accounts payable and accrued liabilities $1,284  $- 
Forward exchange contracts Other long-term liabilities $150  $- 

 

 1613 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

The following table presents the balance sheet classification and fair value of derivative instruments as of September 30, 2018 and December 31, 2017:

  Classification September 30, 2018  December 31, 2017 
         
Derivative instruments in asset positions:          
Forward exchange contracts Prepaid and other current assets $614  $40 
Forward exchange contracts Other long-term assets $-  $6 
           
Derivative instruments in liability positions:          
Forward exchange contracts Accounts payable and accrued liabilities $-  $919 
Forward exchange contracts Other long-term liabilities $-  $74 

NOTE 9.8. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

 

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

 

 Foreign Currency
Translation Adjustments		  Unrealized Gains
(Losses) on Cash Flow
Hedges		  Total  Foreign Currency
Translation Adjustments		  Unrealized Gains
(Losses) on Cash Flow
Hedges		  Total 
              
Balance as of December 31, 2016 $(1,729) $724  $(1,005)
Balance as of December 31, 2017 $905  $(406) $499 
Other comprehensive income (loss) before reclassifications  2,454   (2,177)  277   (718)  936   218 
Amounts reclassified from other comprehensive income (loss)  (149)  380   231   172   (215)  (43)
Net current period other comprehensive income (loss)  2,305   (1,797)  508   (546)  721   175 
Balance as of September 30, 2017 $576  $(1,073) $(497)
Balance as of September 30, 2018 $359  $315  $674 

 

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, 2017,2018, 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)

 

  Gains (losses) reclassified from AOCI to the Condensed
Consolidated Statements of Comprehensive Income (Loss)		 
Affected line item in the Condensed Consolidated Statements
of Comprehensive Income (Loss)		 For the Three Months Ended
September 30, 2018		  For the Nine Months Ended
September 30, 2018		 
Foreign exchange contracts:        
Sales $255  $(75)
Less: Income tax expense  19   (290)
Amount reclassified, net of tax $236  $215 
Foreign currency translation adjustments:        
Other, net  (131)  (172)
Total reclassifications from AOCI $105  $43 

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

14

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

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

 

Level 2-2- 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 3-3- inputs to the valuation methodology are based on prices or valuation techniques that are unobservable.

 

17

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Assets and liabilities measured at fair value on a recurring basis at September 30, 20172018 and December 31, 20162017 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 $-  $-  $-  $- 
  $-  $-  $-  $- 

  September 30, 2018 
  Level 1  Level 2  Level 3  Total 
             
Assets                
Forward exchange contracts $-  $614  $-  $614 
  $-  $614  $-  $614 

 

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.

  December 31, 2017 
  Level 1  Level 2  Level 3  Total 
             
Assets                
Forward exchange contracts $-  $46  $-  $46 
  $-  $46  $-  $46 
                 
Liabilities                
Forward exchange contracts $-  $993  $-  $993 
  $-  $993  $-  $993 

Derivative financial instruments are recorded at fair value based on current market pricing models. No nonrecurring fair value measurements existed at September 30, 20172018 and December 31, 2016.2017.

 

NOTE 11.10. EARNINGS (LOSS) PER SHARE

 

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

 1815 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

  Three Months Ended  Nine Months Ended 
  September 30, 2018  September 30, 2017  September 30, 2018  September 30, 2017 
             
Weighted average shares outstanding - basic  29,739   30,017   29,939   30,015 
Effect of dilutive stock awards  427   -   223   - 
Weighted average shares outstanding - diluted  30,166   30,017   30,162   30,015 
                 
Net income (loss) per share:                
Basic $0.14  $(0.05) $0.13  $(0.22)
Diluted  0.14   (0.05)  0.12   (0.22)

For the three months ended September 30, 20172018 and 2016,2017, equity awards of 2,835986 and 2,517,2,835, respectively, and for the nine months ended September 30, 20172018 and 2016,2017, equity awards of 2,7931,408 and 2,491,2,793, respectively, were outstanding and anti-dilutive and therefore not included in the calculation of lossearnings (loss) per share for these periods.

 

NOTE 12.11. STOCK-BASED COMPENSATION PLAN

 

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

 

During the nine months ended September 30, 2017,2018, the Company issued stock options for an aggregate of 4631,913 shares under the 2015 Plan to directors and employees of the Company. Of the 463The 1,875 options issued 38vest in five equal tranches on December 31, 2018, 2019, 2020, 2021 and 2022. The remaining options vest in four equal consecutive quarterly tranches from the date of grant. 325 vest in three equal tranches on December 31, 2017, December 31, 2018 and December 31, 2019. The remaining 100 options vested immediately.

 

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

 

Options Granted During the 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

Options Granted During the Nine Months Ended September 30, 2018

Number of options1,913
Option vesting period1 - 5 Years
Grant price$6.80 - $9.18
Dividend yield0.00% - 1.09%
Expected volatility (a)40.7% - 42.5%
Risk-free interest rate2.65% - 2.88%
Expected life (years) (b)5.00 - 6.50
Weighted average fair value$2.77 - $3.63

 

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

 

(b)Because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate theThe expected term for these grants,was determined based upon the Company utilized the simplified method in developing an estimateunderlying terms of the expected termawards and the category and employment history of these options.employee award recipient.

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

 

 1916 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Market Condition Restricted Shares Granted on June 1, 2017Using these assumptions, the fair value of the stock options granted during the nine months ended September 30, 2018 was $5,956, which will be recognized over the vesting period of the options.

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, 2018 and 2017 was $912 and 2016 was $387, and $42, respectively, and for the nine months ended September 30, 2018 and 2017 was $2,067 and 2016 was $729, and $193, respectively. For the three and nine months ended September 30, 20172018 and 2016,2017, 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, 2017,2018, there were 5332,184 unvested stock options and unrecognized compensation cost of $1,153$5,834 related to unvested stock options, as well as 850350 unvested restricted stock awards and unrecognized compensation costcosts of $1,679$350 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.

20

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 14.12. COMMITMENTS AND CONTINGENCIES

 

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

During the nine months ended September 30, 2016, the Company received an arbitral award on agreed terms of $1,967, related to certain claims against the former owner of PIEPS associated with the voluntary recall of all of the PIEPS VECTOR avalanche transceivers during the year ended December 31, 2013. This 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, 2018 and 2017 was $193 and 2016 was $214, and $204, respectively, and for the nine months ended September 30, 2018 and 2017 was $614 and 2016 was $611, and $826, respectively.

 

NOTE 15.13. INCOME TAXES

 

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act made broad and complex changes to existing U.S. tax laws that impact the Company.  Most notably, the Tax Act reduced the U.S. federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. The provisions of the Tax Act and related guidance provided by Staff Accounting Bulletin No. 118 allow for adjustments throughout 2018 to account for the impacts of the 2017 tax law changes. As of September 31, 2018, no additional adjustments related to the impacts of the 2017 tax law changes have been made; however, final adjustments may be necessary in the fourth quarter due to the significant complexity of the Tax Act and anticipated additional regulatory guidance or technical corrections that may be forthcoming as well as actions the Company may take as a result of tax reform.

In several states in which the Company operates, the states’ position is to conform to Federal tax legislation. However, in practice no formal declaration is made by the states upon tax legislation changes. It is unclear at this time whether states have conformed to the Tax Act or adopted their own laws to address the federal changes. On a provisional basis, the Company released federal valuation allowance of $4,512 during the year ended December 31, 2017. If the Company had released the state valuation allowance, it would have resulted in an incremental tax benefit of approximately $400. The Company is also continuing to gather additional information and expects to complete its accounting within one year of enactment.

The Company takes into consideration the various changes of the Tax Act when calculating the estimated annual effective tax rate.

The difference between the Company’s foreign operations that are considered to be permanently reinvested haveestimated effective tax rate and the U.S. federal statutory tax ratesrate of 25%.

Tax expense includes a discrete charge21 percent for the three months ended September 30, 2017 and 2016 of $0 and $520, respectively, and for the nine months ended September 30, 2017 and 2016 of $20 and $953, respectively, of additional interest for an uncertain tax position and potential tax audit liability associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China. During the nine months ended September 30, 2017, the Company settled and paid the Chinese tax audit liability in the amount of $939.

There was also a discrete charge of $109 and $344 during the three and nine months ended September 30, 2017, respectively,2018, was primarily attributed to a discrete benefit associated with a disproportionate tax effect releasedwindfall deduction from AOCI. During the nine months ended September 30, 2016, there was a discrete chargevesting of restricted stock units and exercise of stock options and the release of an additional portion of the Company’s valuation allowance based on the Company’s forecasted pre-tax earnings for a Swiss withholding tax related to the transferring of Black Diamond Equipment’s European operations from Basel, Switzerland to Innsbruck, Austria.year.

 

17

During the three months ended September 30, 2017, the Company repatriated approximately $10,800 from its Swedish subsidiary, Ember Scandinavia AB to help fund the acquisition of Sierra. Income taxes were previously accrued and a deferred tax liability recorded in fiscal year 2015. With the dividend, the Company will have taxable income which is subject to the Federal Alternative Minimum Tax (“AMT”), therefore the Company recorded a discrete expense of $211.

 

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.CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

As of December 31, 2016,2017, the Company’s gross deferred tax asset was $75,416.$50,732. The Company had recorded a valuation allowance of $67,662,$45,811, resulting in a net deferred tax asset of $7,754,$4,921, before deferred tax liabilities of $16,720.$8,587. The Company has provided a valuation allowance against a portion of the deferred tax assets as of December 31, 2016,2017, because the ultimate realization of those assets did not meet the more likely than not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.

21

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

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

 

As of December 31, 2016,2017, the Company had net operating loss, research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of $172,419 ($270 relates to excess tax benefits related to share based payment compensation), $3,407$156,598, $3,452 and $315,$0, respectively. The Company believes its U.S. Federalfederal net operating loss (“NOL”) will substantially offset its future U.S. Federalfederal 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.taxes. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F income and will be offset with the NOL.

 

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

 

Net Operating Loss Carryforward Expiration Dates
December 31, 2016

Net Operating Loss Carryforward Expiration DatesNet Operating Loss Carryforward Expiration Dates 
December 31, 2017December 31, 2017 
   
Expiration Dates December 31, Net Operating Loss Amount  Net Operating Loss Amount 
2021 $32,408   $21,026 
2022  115,000    115,000 
2023  5,712    5,712 
2024  3,566    3,566 
2025 and beyond  15,733    11,294 
Total  172,419   $156,598 
Excess stock based payment tax deductions  (270)
After limitations $172,149 

 

NOTE 16.14. SEGMENT INFORMATION

 

As a result of our August 21, 2017 acquisition of Sierra, we now operate our business structure within two segments which are grouped into what we refer to as the Outdoor Group.segments. These segments are defined based on the internal financial reporting used by management. Certain significant selling and general and administrative expenses are not allocated to the segments.segments including non-cash stock compensation expense. Each segment is described below:

 

·The Black Diamond segment, which includes Black Diamond Equipment and PIEPS, is a global leader in designing, manufacturing, and marketing innovative outdoor engineered equipment and apparel for climbing, mountaineering, backpacking, skiing, and a wide range of other year-round outdoor recreation activities. The Black Diamond segment offers a broad range of products including: high performance apparel (such as jackets, shells, pants and bibs); rock-climbing equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; tents; trekking poles; headlamps and lanterns; and gloves and mittens. It also offers advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes.

 

·The Sierra segment, which includesconsists of Sierra, is an iconic American manufacturer of bullets intended for firearms. Sierra segment manufactures a wide range of high performance bullets for both rifles and pistols. These bullets are used for precision target shooting, hunting and military and law enforcement purposes.

 

 2218 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Financial information for our segments is as follows:

 

 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
 September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2016  September 30, 2018  September 30, 2017  September 30, 2018  September 30, 2017 
Sales to external customers:                                
Black Diamond $42,242  $39,441  $114,478  $106,790                 
Domestic sales $19,840  $18,840  $59,434  $57,173 
International sales  27,410   23,402   67,796   57,305 
Total Black Diamond  47,250   42,242   127,230   114,478 
Sierra  3,532   -   3,532   -                 
Sales to external customers $45,774  $39,441  $118,010  $106,790 
Segment operating income (expense):                
Domestic sales  6,328   2,301   20,233   2,301 
International sales  2,108   1,231   7,371   1,231 
Total Sierra  8,436   3,532   27,604   3,532 
Total sales to external customers  55,686   45,774   154,834   118,010 
Segment operating income:                
Black Diamond $2,085  $1,821  $1,098  $(225)  4,639   2,085   6,254   1,098 
Sierra  416   -   416   -   1,532   416   4,703   416 
Segment operating income (expense)  2,501   1,821   1,514   (225)
Total segment operating income  6,171   2,501   10,957   1,514 
Restructuring charge  (33)  (282)  (116)  (1,275)  (22)  (33)  (86)  (116)
Transaction costs  (1,869)  -   (1,869)  (269)  (50)  (1,869)  (383)  (1,869)
Corporate and other expenses  (1,435)  (546)  (4,283)  (2,658)  (1,985)  (1,435)  (6,074)  (4,283)
Interest expense, net  (71)  (719)  (948)  (2,142)  (303)  (71)  (1,020)  (948)
(Loss) income before income tax $(907) $274  $(5,702) $(6,569)
Income (loss) before income tax $3,811  $(907) $3,394  $(5,702)

 

There were no intercompany sales between the Black Diamond and Sierra segments for the periods presented. Restructuring charges for the periods presented relate to the Black Diamond segment.

 

On August 21, 2017, the Company purchased Sierra. Total preliminary assets of Sierraby segment, as of August 21,September 30, 2018 and December 31, 2017, were $80,566. Depreciationas follows:

  September 30, 2018  December 31, 2017 
       
Black Diamond $134,828  $127,202 
Sierra  74,612   77,270 
Corporate  2,656   2,977 
  $212,096  $207,449 

Capital expenditures, depreciation and amortization by segment 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, 2018  September 30, 2017  September 30, 2018  September 30, 2017 
Outdoor group depreciation:                
Capital expenditures:                
Black Diamond $569  $529  $1,674  $1,705  $279  $770  $1,495  $1,918 
Sierra  156   -   156   -   57   1   359   1 
Total outdoor group depreciation $725  $529  $1,830  $1,705 
Outdoor group amortization:                
Total capital expenditures $336  $771  $1,854  $1,919 
Depreciation:                
Black Diamond $273  $269  $808  $808  $617  $569  $1,837  $1,674 
Sierra  375   -   375   -   489   156   1,477   156 
Total outdoor group amortization $648  $269  $1,183  $808 
Total depreciation $1,106  $725  $3,314  $1,830 
Amortization:                
Black Diamond $272  $273  $822  $808 
Sierra  693   375   2,080   375 
Total amortization $965  $648  $2,902  $1,183 
                

19

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 17.15. RELATED PARTY TRANSACTIONS

 

5% Unsecured Subordinated Notes due May 28, 2017

 

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

23

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

employees. 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. Thefull, at which time, the note discount as of December 31, 2016 of $814 was expensed and recognized as interest expense during the three months ended March 31, 2017.

 

Upon the Company’s acquisition of Sierra, on August 21, 2017, the Company paid a fee in the amount of $1,000 to Kanders & Company, Inc. (“Kanders & Company”), which is included in transaction costs, in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, performing due diligence and negotiating the acquisition. Mr. Warren B. Kanders, the Company’s Executive Chairman of the Board of Directors and a member of its Board of Directors, is the sole stockholder of Kanders & Company.

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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 by our Sierra segment, and diversification strategy; the Company’s ability to successfully redeploy its capital into diversifying assets or that any such redeployment will result in the Company’s future profitability; the Company’s ability to successfully integrate Sierra Bullets L.L.C.;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; stability of the Company’s manufacturing facilities and foreign suppliers; the Company’s ability to protect patents, trademarks patents and other intellectual property rights; any breaches of, or interruptions in, our information systems; fluctuations in the price, availability and quality of raw materials and contracted products as well as foreign currency fluctuations; our ability to utilize our net operating loss carryforwards; changes in tax laws and liabilities, tariffs, legal, regulatory, political and economic risks in international markets.risks; and the company’s ability to declare a dividend. 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

 

Headquartered in Salt Lake City, Utah, Clarus, (which may be referred to asa company focused on the “Company,” “we,” “our” or “us”)outdoor and consumer industries, is a holding company which seeksseeking opportunities to acquire and grow businesses that can generate attractive shareholder returns. Presently, through its Outdoor Group,The Company has substantial net operating tax loss carryforwards that it is seeking to redeploy to maximize shareholder value in outdoor and consumer businesses. Clarus’ primary business is as a leading developer, manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb, ski, mountain, and technicalsport categories. The Company’s products are principally sold under the Black Diamond®, Sierra® and PIEPS® brand names through specialty and online retailers, distributors and original equipment manufacturers throughout the U.S. and internationally.

 

Through our Black Diamond®Diamond and PIEPS®PIEPS brands, we offer a broad range of products including: high performance apparel (such as jackets, shells, pants and bibs); rock-climbing equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; tents; trekking poles; headlamps and lanterns; and gloves and mittens. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes. Through our Sierra manufacturesbrand, we manufacture a wide range of high performance bullets for both rifles and pistols. Sierra bulletspistols that are used for precision target shooting, hunting and military and law enforcement purposes.

 

Clarus Corporation, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (which may be referred to as “Black Diamond Equipment” or “BDEL”) and Gregory Mountain Products, LLC (which may be referred to as “Gregory Mountain Products”, or “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,October 7, 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 brandssold its equity interests in two separate transactions.POC.

 

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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” or “Sierra Bullets”).

 

Clarus,On May 7, 2018, the Company announced a “modified Dutch auction” tender offer for Clarus’ common stock, as well as the preferred share purchase rights associated with such shares (collectively, the “Shares”). On July 11, 2018, the tender offer expired, following which the Company announced it would accept 417,237 Shares for purchase at a holding company,price of $8.00 per Share, for an aggregate cost of approximately $3,338, excluding fees and expenses.

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 seeking opportunitiessubject to acquirethe discretion of and grow businessesapproval of the Company’s Board of Directors. On October 26, 2018, the Company announced that can generate attractive shareholder returns. The Company has substantial net operating tax loss carryforwards which it is seekingits Board of Directors approved the payment on November 16, 2018 of the Quarterly Cash Dividend to redeploy to maximize shareholder value in a diverse arraythe record holders of businesses.shares of the Company’s common stock as of the close of business on November 2, 2018.

 

Critical Accounting Policies and Use of Estimates

 

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

 

See “Significant Accounting Policies” in Note 1 to the notes to the unaudited condensed consolidated financial statements for discussion related to changes to our critical accounting policies including revenue recognition from the adoption of Accounting Standards Codification Topic 606. There have been no other significant changes to our critical accounting policies with the exception to the policy below, as described in our Annual Report on Form 10-K for the year ended December 31, 2016.

Business Combinations

We allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over these fair values is recorded as goodwill.2017.

 

Accounting Pronouncements Issued Not Yet Adopted

 

See “Recent Accounting Pronouncements”“Accounting Pronouncements Not Yet Adopted” in Note 1 to the notes to the unaudited condensed consolidated financial statements.

 

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CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Results of Operations

 

Condensed Consolidated Three Months Ended September 30, 20172018 Compared to Condensed Consolidated Three Months Ended September 30, 20162017

 

The following presents a discussion of condensed consolidated operations for the three months ended September 30, 2017,2018, compared with the condensed consolidated three months ended September 30, 2016.2017.

 

 Three Months Ended  Three Months Ended 
 September 30, 2017  September 30, 2016  September 30, 2018  September 30, 2017 
          
Sales                
Domestic sales $21,141  $17,939  $26,168  $21,141 
International sales  24,633   21,502   29,518   24,633 
Total sales  45,774   39,441   55,686   45,774 
                
Cost of goods sold  30,490   27,105   35,829   30,490 
Gross profit  15,284   12,336   19,857   15,284 
                
Operating expenses                
Selling, general and administrative  14,431   11,483   15,773   14,431 
Restructuring charge  33   282   22   33 
Transaction costs  1,869   -   50   1,869 
                
Total operating expenses  16,333   11,765   15,845   16,333 
                
Operating (loss) income  (1,049)  571 
Operating income (loss)  4,012   (1,049)
                
Other income (expense)        
Other (expense) income        
Interest expense, net  (71)  (719)  (303)  (71)
Other, net  213   422   102   213 
                
Total other income (expense), net  142   (297)
Total other (expense) income, net  (201)  142 
                
(Loss) income before income tax  (907)  274 
Income tax expense  676   679 
Net loss $(1,583) $(405)
Income (loss) before income tax  3,811   (907)
Income tax (benefit) expense  (316)  676 
Net income (loss) $4,127  $(1,583)

 

Sales

 

Consolidated sales increased $6,333,$9,912, or 16.1%21.7%, to $55,686 during the three months ended September 30, 2018, compared to consolidated sales of $45,774 during the three months ended September 30, 2017, compared to consolidated sales of $39,441 during the three months ended September 30, 2016.2017. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $3,532$8,436 in total sales and $4,904 in incremental sales during the three months ended September 30, 2017.2018. The remaining increase was attributable to the increase in the quantity of new and existing climb mountain, and skimountain products sold during the period and an increase in sales of $690$257 due to the strengthening of foreign currencies against the U.S. dollar during the three months ended September 30, 20172018 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 These increases were 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 increaseoffset by a decrease in the quantity of new and existing climb and ski products sold during the period.

 

 2723 

 

 

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Consolidated domestic sales increased $5,027, or 23.8%, to $26,168 during the three months ended September 30, 2018, compared to consolidated domestic sales of $21,141 during the three months ended September 30, 2017. The increase in sales was attributable to the inclusion of Sierra, which contributed $6,328 in total sales and $4,027 in incremental sales during the three months ended September 30, 2018. The remaining increase was attributable to the increase in the quantity of new and existing climb and mountain products sold during the three months ended September 30, 2018. These increases were partially offset by a decrease in the quantity of new and existing ski products sold during the period.

Consolidated international sales increased $3,131,$4,885, or 14.6%19.8%, to $29,518 during the three months ended September 30, 2018, compared to consolidated international sales of $24,633 during the three months ended September 30, 2017, compared to consolidated international sales of $21,502 during the three months ended September 30, 2016.2017. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $1,231$2,108 in total sales and $877 in incremental sales during the three months ended September 30, 2017.2018. The remaining increase in international sales was attributable to the increase in the quantity of new and existing climb mountain, and skimountain products sold during the period and an increase in sales of $690$257 due to the strengthening of foreign currencies against the U.S. dollar during the three months ended September 30, 20172018 compared to the prior period. These increases were partially offset by a decrease in the quantity of new and existing ski products sold during the period.

 

Cost of Goods Sold

 

Consolidated cost of goods sold increased $3,385,$5,339, or 12.5%17.5%, to $35,829 during the three months ended September 30, 2018, compared to consolidated cost of goods sold of $30,490 during the three months ended September 30, 2017, compared to consolidated cost of goods sold of $27,105 during the three months ended September 30, 2016.2017. The increase in cost of goods sold was partially attributable to the inclusion of Sierra, which contributed $2,775 in incremental cost 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.goods sold. The remaining increase was attributable to an increase in the number of units sold and the mix of higher cost products sold.

 

Gross Profit

 

Consolidated gross profit increased $2,948,$4,573 or 23.9%29.9%, to $19,857 during the three months ended September 30, 2018, compared to consolidated gross profit of $15,284 during the three months ended September 30, 2017, compared to consolidated2017. Consolidated gross profit of $12,336margin was 35.7% during the three months ended September 30, 2016. Consolidated2018, compared to a consolidated gross margin wasof 33.4% during the three months ended September 30, 2017, compared to a consolidated gross margin of 31.3% during the three months ended September 30, 2016.2017. Consolidated gross margin during the three months ended September 30, 2017,2018, increased compared to the prior year due to a favorable product mix in higher margin products and channel distribution, as well as lower costs related to the Company’s manufacturing activities that were transferred from China to the United States.distribution. Gross margin also benefited from the inclusion of Sierra; however, this benefit was offset by a decrease inSierra. Consolidated gross margin ofduring the three months ended September 30, 2017 was also negatively impacted by 0.9% due to the sale of inventory that was recorded at its preliminary fair value in purchase accounting.

 

Selling, General and Administrative

 

Consolidated selling, general, and administrative expenses increased $2,948,$1,342, or 25.7%9.3%, to $14,431$15,773 during the three months ended September 30, 2017,2018, compared to consolidated selling, general and administrative expenses of $11,483$14,431 during the three months ended September 30, 2016.2017. The increase in selling, general and administrative expenses was partially attributable to the inclusion of Sierra of $632, with the$1,013 in incremental selling, general, and administrative expenses. The remaining increase beingwas attributable to the Company’s investment in the brand related activities of sales, marketingfulfillment, and research and development in supporting its strategic initiatives around new product introduction and increasing brand equity. Stock compensation also increased $345$525 during the three months ended September 30, 20172018 compared to the prior year.

 

Restructuring Charges

 

Consolidated restructuring expense decreased $249,$11, or 88.3%33.3%, to $22 during the three months ended September 30, 2018, compared to consolidated restructuring expense of $33 during the three months ended September 30, 2017, compared to consolidated restructuring expense of $282 during the three months ended September 30, 2016.2017. Restructuring expenses incurred during the three months ended September 30, 2017,2018, 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 increaseddecreased to $50 during the three months ended September 30, 2018, compared to consolidated transaction costs of $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, which consisted of expenses related to the Company’s acquisition of Sierra.

Interest Expense, net

Consolidated interest expense, net decreased $648, or 90.1%, to $71 during the three months ended September 30, 2017, compared to consolidated interest expense, net, of $719 during the three months ended September 30, 2016. Interest expense recognized during the three months ended September 30, 2016 was primarily attributable to the Company’s 5% Senior Subordinated Notes which were repaid during the three months ended March 31, 2017.

 

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MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Interest Expense, net

Consolidated interest expense, net increased $232, or 326.8%, to expense of $303 during the three months ended September 30, 2018, compared to consolidated interest expense, net, of $71 during the three months ended September 30, 2017. The increase in interest expense was primarily attributable to higher average outstanding debt amounts during the three months ended September 30, 2018 compared to the same period in 2017.

 

Other, net

 

Consolidated other, net, decreased $209,$111, or 49.5%52.1%, to income of $102 during the three months ended September 30, 2018, compared to consolidated other, net income of $213 during the three months ended September 30, 2017, compared to consolidated other, net income of $422 during the three months ended September 30, 2016.2017. 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 gainslosses related to recognition of cumulative translation adjustments due to the substantial liquidation of a foreign entity. This decrease was partially offset by gains on mark-to-market adjustments on non-hedged foreign currency contracts.

 

Income Taxes

 

Consolidated income tax (benefit) expense decreased $3,increased $992, or 0.4%146.7%, to $676a benefit of $316 during the three months ended September 30, 2017,2018, compared to a consolidated income tax expense of $679$676 during the same period in 2016.2017. The tax benefit recorded during the three months ended September 30, 2018 includes discrete benefits associated with a disproportionate tax effect released from accumulated other comprehensive income of $11 and $434 associated with a tax windfall deduction from the vesting of restricted stock units and exercises of stock options. 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.$109.

 

Our effective income tax rate was 74.5%8.3% for the three months ended September 30, 2017,2018, compared to 247.8%74.5% for the same period in 2016.2017. The primary reasons for the effective income tax rate changes are due to differing levels of income (loss) before income tax and discrete charges recorded during the respective periods. Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur. There were three discrete events in the amount of $421 recorded in the Company’s income tax provision calculation for the three months ended September 30, 2017. There was one discrete event in the amount of $520 recorded in the Company’s income tax provision calculation for the three months ended September 30, 2016.

 

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CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Results of Operations

 

Condensed Consolidated Nine Months Ended September 30, 20172018 Compared to Condensed Consolidated Nine Months Ended September 30, 20162017

 

The following presents a discussion of condensed consolidated operations for the nine months ended September 30, 2017,2018, compared with the condensed consolidated nine months ended September 30, 2016.2017.

 

 Nine Months Ended  Nine Months Ended 
 September 30, 2017  September 30, 2016  September 30, 2018  September 30, 2017 
          
Sales                
Domestic sales $59,474  $54,190  $79,667  $59,474 
International sales  58,536   52,600   75,167   58,536 
Total sales  118,010   106,790   154,834   118,010 
                
Cost of goods sold  81,388   75,155   101,290   81,388 
Gross profit  36,622   31,635   53,544   36,622 
                
Operating expenses                
Selling, general and administrative  39,826   37,311   48,692   39,826 
Restructuring charge  116   1,275   86   116 
Transaction costs  1,869   269   383   1,869 
Arbitration award  -   (1,967)
                
Total operating expenses  41,811   36,888   49,161   41,811 
                
Operating loss  (5,189)  (5,253)
Operating income (loss)  4,383   (5,189)
                
Other (expense) income                
Interest expense, net  (948)  (2,142)  (1,020)  (948)
Other, net  435   826   31   435 
                
Total other expense, net  (513)  (1,316)  (989)  (513)
                
Loss before income tax  (5,702)  (6,569)
Income tax expense  990   1,020 
Net loss $(6,692) $(7,589)
Income (loss) before income tax  3,394   (5,702)
Income tax (benefit) expense  (359)  990 
Net income (loss) $3,753  $(6,692)

 

Sales

 

Consolidated sales increased $11,220,$36,824, or 10.5%31.2%, to $154,834 during the nine months ended September 30, 2018, compared to consolidated sales of $118,010 during the nine months ended September 30, 2017, compared to consolidated sales of $106,790 during the nine months ended September 30, 2016.2017. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $3,532$27,604 in total sales and $24,072 in incremental sales during the nine months ended September 30, 2017.2018. The remaining increase in sales was attributable to anthe increase in the quantity of new and existing climb mountain and skimountain products sold during the period and an increase in sales of $700$2,678 due to the strengthening of foreign currencies against the U.S. dollar during the nine months ended September 30, 20172018 compared to the prior period.

Consolidated domestic sales increased $5,284, or 9.8%, to $59,474 during the nine months ended September 30, 2017, compared to consolidated domestic sales of $54,190 during the nine months ended September 30, 2016. The increase in sales was These increases were 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 increaseoffset by a decrease in the quantity of new and existing climb and ski products sold during the period.

 

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MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Consolidated domestic sales increased $20,193, or 34.0%, to $79,667 during the nine months ended September 30, 2018, compared to consolidated domestic sales of $59,474 during the nine months ended September 30, 2017. The increase in sales was attributable to the inclusion of Sierra, which contributed $20,233 in total sales and $17,932 in incremental sales during the nine months ended September 30, 2018. The remaining increase was attributable to the increase in the quantity of new and existing climb and mountain products sold during the nine months ended September 30, 2018. These increases were partially offset by a decrease in the quantity of new and existing ski products sold during the period.

Consolidated international sales increased $5,936,$16,631, or 11.3%28.4%, to $75,167 during the nine months ended September 30, 2018, compared to consolidated international sales of $58,536 during the nine months ended September 30, 2017, compared to consolidated international sales of $52,600 during the nine months ended September 30, 2016.2017. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $1,231$7,371 in total sales and $6,140 in incremental sales during the nine months ended September 30, 2017.2018. The remaining increase in international sales was attributable to anthe increase in the quantity of new and existing climb mountain and skimountain products sold during the period and an increase in sales of $700$2,678 due to the strengthening of foreign currencies against the U.S. dollar during the nine months ended September 30, 20172018 compared to the prior period. These increases were partially offset by a decrease in the quantity of new and existing ski products sold during the period.

 

Cost of Goods Sold

 

Consolidated cost of goods sold increased $6,233,$19,902, or 8.3%24.5%, to $101,290 during the nine months ended September 30, 2018, compared to consolidated cost of goods sold of $81,388 during the nine months ended September 30, 2017, compared to consolidated cost of goods sold of $75,155 during the nine months ended September 30, 2016.2017. The increase in cost of goods sold was partially attributable to the inclusion of Sierra, which contributed $15,316 in incremental cost of $2,484,goods sold, which included $420$1,049 related to the sale of inventory that was recorded at fair value in purchase accounting. The remaining amount of inventory that was recorded at fair value in purchase accounting, which totals $2,102, is expected to be sold during the fourth quarter of 2017 and first quarter of 2018. The remaining increase in cost of goods sold was attributable to an increase in the number of units sold and the mix of higher cost products sold.

 

Gross Profit

 

Consolidated gross profit increased $4,987,$16,922 or 15.8%46.2%, to $53,544 during the nine months ended September 30, 2018, compared to consolidated gross profit of $36,622 during the nine months ended September 30, 2017, compared to consolidated2017. Consolidated gross profit of $31,635margin was 34.6% during the nine months ended September 30, 2016. Consolidated2018, compared to a consolidated gross margin wasof 31.0% during the nine months ended September 30, 2017, compared to a consolidated gross margin of 29.6% during the nine months ended September 30, 2016.2017. Consolidated gross margin during the nine months ended September 30, 2017,2018, increased compared to the prior year due to a favorable product mix in higher margin products and channel distribution, as well as lower costs related to the Company’s manufacturing activities that were transferred from China to the United States.distribution. Gross margin also benefited from the inclusion of Sierra; however, this benefit was partially offset by a decrease in gross margin of 0.7% due to the sale of inventory that was recorded at its fair value in purchase accounting. Consolidated gross margin during the nine months ended September 30, 2017 was also negatively impacted by 0.4% due to the sale of inventory that was recorded at its preliminary fair value in purchase accounting.

 

Selling, General and Administrative

 

Consolidated selling, general, and administrative expenses increased $2,515,$8,866, or 6.7%22.3%, to $39,826$48,692 during the nine months ended September 30, 2017,2018, compared to consolidated selling, general and administrative expenses of $37,311$39,826 during the nine months ended September 30, 2016.2017. The increase in selling, general and administrative expenses was partially attributable to the inclusion of Sierra of $632, with the$4,469 in incremental selling, general, and administrative expenses. The remaining increase being attributable to the Company’s investment in the brand related activities of sales, marketing, and research and development, and fulfillment in supporting its strategic initiatives around new product introduction and increasing brand equity. Stock compensation also increased $536$1,338 during the nine months ended September 30, 20172018 compared to the prior year.

 

Restructuring Charges

 

Consolidated restructuring expense decreased $1,159,$30, or 90.9%25.9%, to $86 during the nine months ended September 30, 2018, compared to consolidated restructuring expense of $116 during the nine months ended September 30, 2017, compared to consolidated restructuring expense of $1,275 during the nine months ended September 30, 2016.2017. Restructuring expenses incurred during the nine months ended September 30, 2017,2018, related to costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China. Restructuring expenses incurred during the nine months ended September 30, 2016, primarily related to benefits provided to employees who were terminated due to the Company’s reduction-in-force as part of its continued realignment of resources within the organization, costs associated with the move of the Company’s Black Diamond Equipment European office from Basel, Switzerland to Innsbruck, Austria, and costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China.

 

Transaction Costs

 

Consolidated transaction expense increased $1,600, or 594.8%,decreased to $383 during the nine months ended September 30, 2018, compared to consolidated transaction costs of $1,869 during the nine months ended September 30, 2017, compared to consolidated transaction costs of $269 during the nine months ended September 30, 2016. The expenses during the nine months ended September 30, 2017which 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.

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MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Interest Expense, net

 

Consolidated interest expense, net decreased $1,194,increased $72, or 55.7%7.6%, to $1,020 during the nine months ended September 30, 2018, compared to consolidated interest expense, net, of $948 during the nine months ended September 30, 2017, compared to consolidated interest2017. Interest expense net, of $2,142recognized during the nine months ended September 30, 2016. The decrease in interest expense, net,2018 was primarily attributable to the repaymentwrite-off of previously capitalized origination costs associated with the Terminated Credit Agreement, which was replaced with the new Credit Agreement with JPMorgan Chase Bank, N.A., and interest expense associated with the average outstanding debt amounts during the nine months ended September 30, 2018. Interest expense recognized during the nine months ended September 30, 2017 was primarily attributable to the Company’s 5% Senior Subordinated Notes which were repaid during the threenine months ended March 31,September 30, 2017.

 

Other, net

 

Consolidated other, net, decreased $391,$404, or 47.3%92.9%, to income of $31 during the nine months ended September 30, 2018, compared to consolidated other, net 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, 2016.2017. The decrease in other, net, was primarily attributable to an increasea decrease in remeasurement lossesgains 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. This decrease was partially offset by gains on mark-to-market adjustments on non-hedged foreign currency contracts.

 

Income Taxes

 

Consolidated income tax (benefit) expense decreased $30,increased $1,349, or 2.9%136.3%, to $990a benefit of $359 during the nine months ended September 30, 2017,2018, compared to a consolidated income tax expense of $1,020$990 during the same period in 2016.2017. The tax benefit recorded during the nine months ended September 30, 2018 includes discrete benefits associated with a disproportionate tax effect released from accumulated other comprehensive income of $63 and $434 associated with a tax windfall deduction from the vesting of restricted stock units and exercises of stock options. 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.$344.

 

Our effective income tax rate was 17.4%10.6% for the nine months ended September 30, 2017,2018, compared to 15.5%17.4% for the same period in 2016.2017. The primary reasons for the effective income tax rate changes are due to differing levels of income (loss) before income tax and discrete charges recorded during the respective periods. Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur. There were four discrete events in the amount of $676 recorded in the Company’s income tax provision calculation for the nine months ended September 30, 2017. There were two discrete events in the amount of $1,117 recorded in the Company’s income tax provision calculation for the nine months ended September 30, 2016.

 

Liquidity and Capital Resources

 

Condensed Consolidated Nine Months Ended September 30, 20172018 Compared to Condensed Consolidated Nine Months Ended September 30, 20162017

 

The following presents a discussion of cash flows for the condensed consolidated nine months ended September 30, 20172018 compared with the condensed consolidated nine months ended September 30, 2016.2017. 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. 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. At September 30, 2017,2018, we had total cash of $1,672$3,005, compared to a cash balance of $94,738$1,856 at December 31, 2016,2017, which was substantially controlled by the Company’s U.S. entities. At September 30, 2017,2018, the Company had $332$1,038 of the $1,672$3,005 in cash held by foreign entities, of which $332$203 is considered permanently reinvested.

 

  Nine Months Ended 
  September 30, 2018  September 30, 2017 
       
Net cash provided by (used in) operating activities $7,612  $(16,578)
Net cash used in investing activities  (2,194)  (81,104)
Net cash (used in) provided by financing activities  (4,285)  4,491 
Effect of foreign exchange rates on cash  16   125 
Change in cash  1,149   (93,066)
Cash, beginning of period  1,856   94,738 
Cash, end of period $3,005  $1,672 

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CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

  Nine Months Ended 
  September 30, 2017  September 30, 2016 
       
Net cash (used in) provided by operating activities $(16,578) $5,405 
Net cash (used in) provided by investing activities  (81,104)  7,301 
Net cash provided by (used in) financing activities  4,491   (5,222)
Effect of foreign exchange rates on cash  125   70 
Change in cash  (93,066)  7,554 
Cash, beginning of period  94,738   88,401 
Cash, end of period $1,672  $95,955 

 

Net Cash From Operating Activities

 

Consolidated net cash provided by operating activities was $7,612 during the nine months ended September 30, 2018, compared to consolidated net cash used in operating activities wasof $16,578 during the nine months ended September 30, 2017, compared to consolidated2017. The increase in net cash provided by operating activities of $5,405 during the nine months ended September 30, 2016. The increase in net cash used in operating activities during 20172018 is primarily due to an increasea decrease in net operating assets, net of assets acquired or non-cash working capital of $24,039 partially offset by a decrease in$10,065 and an increase to net lossincome during the nine months ended September 30, 2017,2018, compared to the same period in 2016.2017.

 

Free cash flow, defined as net cash provided by operating activities less capital expenditures, was free cash flows usedgenerated of $18,497$5,758 during the nine months ended September 30, 20172018 compared to free cash flows providedused of $3,369$18,497 during the same period in 2016.2017. 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  Nine Months Ended 
 September 30, 2017  September 30, 2016  September 30, 2018  September 30, 2017 
          
Net cash (used in) provided by operating activities $(16,578) $5,405 
Net cash provided by (used in) operating activities $7,612  $(16,578)
Purchase of property and equipment  (1,919)  (2,036)  (1,854)  (1,919)
Free cash flow $(18,497) $3,369  $5,758  $(18,497)

Net Cash From Investing Activities

 

Consolidated net cash used in investing activities was $2,194 during the nine months ended September 30, 2018, compared to consolidated net cash used in investing activities of $81,104 during the nine months ended September 30, 2017, compared to consolidated net cash provided by investing activities of $7,301 during the nine months ended September 30, 2016.2017. The increasedecrease in cash used during the nine months ended September 30, 20172018 is primarily due to the $79,238 used for the purchase of Sierra, net of cash acquired. The cash providedacquired during the nine months ended September 30, 2016 was primarily from the sale of marketable securities of $10,235.2017.

 

Net Cash From Financing Activities

 

Consolidated net cash used in financing activities was $4,285 during the nine months ended September 30, 2018, compared to consolidated cash provided by financing activities wasof $4,491 during the nine months ended September 30, 2017, compared to consolidated2017. The cash used in financing activities of $5,222 during the nine months ended September 30, 2016.2018 relates primarily to the purchase of treasury stock and payment of debt issuance costs. The cash provided during the nine months ended September 30, 2017 relates primarily to net proceeds from the revolving line of credit facilitypartially offset by repayments of. The cash used during the nine months ended September 30, 2016 relates to the repurchase of its common stock.debt.

 

Net Operating Loss

 

As of December 31, 2016,2017, the Company had net operating loss, research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of $172,419 ($270, relates to excess tax benefits related to share based payment compensation), $3,407$156,598, $3,452 and $315,$0, respectively. The Company believes its U.S. Federalfederal net operating loss (“NOL”) will substantially offset its future U.S. Federalfederal 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.taxes. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F income and will be offset with the NOL. $172,149$156,598 of net operating lossesNOLs available to offset taxable income does not expire until 2021 or later, subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.

33

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)amended (the “Code”).

 

As of December 31, 2016,2017, the Company’s gross deferred tax asset was $75,416.$50,732. The Company has recorded a valuation allowance of $67,662,$45,811, resulting in a net deferred tax asset of $7,754,$4,921, before deferred tax liabilities of $16,720.$8,587. The Company has provided a valuation allowance against a portion of the net deferred tax assets as of December 31, 2016,2017, because the ultimate realization of those assets does not meet the more likely than not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.

Revolving Credit Facility

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 ZB, N.A. dba Zions First National Bank (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.

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, the Company had drawn $27,353 on the $40,000 revolving credit facility.Code.

 

 3429 

 

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Revolving Credit Facility

On June 27, 2018, the Company, Black Diamond Equipment, Ltd., Black Diamond Retail, Inc., Sierra Bullets, L.L.C. (collectively with the Company, the “Borrowers”) and the other loan parties party thereto (together with the Borrowers, the “Loan Parties”) entered into an asset based revolving Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto. Each of the Loan Parties, other than the Company, is a direct or indirect subsidiary of the Company.

The Credit Agreement provides for a revolving commitment of $75,000 (including up to $5,000 for letters of credit) and matures on June 27, 2022. The Credit Agreement also permits the Borrowers, subject to certain requirements, to arrange with lenders for up to $75,000 of additional revolving commitments (which are currently uncommitted), for a potential aggregate revolving commitment of up to $150,000. The amount of the revolving commitment available for borrowing at any given time is subject to a borrowing base formula that is based upon the Company’s accounts receivable, inventory and intellectual property.

The obligations of each Loan Party under the Credit Agreement are unconditionally guaranteed by each other Loan Party. All obligations under the Credit Agreement, and the guarantees of those obligations (as well as banking services obligations and certain swap agreements), are secured by the accounts receivable, inventory, intellectual property and certain other assets of the Loan Parties pursuant to the Pledge and Security Agreement, dated June 27, 2018, by and among the Loan Parties and JPMorgan Chase Bank, N.A., as administrative agent.

The Borrowers may elect to have the revolving loans under the Credit Agreement bear interest at either (a) in the case of “CBFR” borrowings, a rate generally equal to the London Interbank Offered Rate (“LIBOR”) for an interest period of one month, subject to a 0.00% floor, or (b) in the case of “Eurodollar” borrowings, a rate generally equal to an adjusted LIBOR for the interest period relevant to such borrowing, subject to a 0.00% floor, plus, in each such case, an applicable rate generally ranging from 1.50% to 2.20% per annum. The applicable rate was initially 1.50% per annum, however, it may be adjusted from time to time primarily based upon the achievement of a specified fixed charge coverage ratio, and also based upon the type of assets that generate availability under the borrowing base formula. The Credit Agreement also requires the Borrowers to pay a commitment fee on the unused portion of the revolving commitment. Such commitment fee will range between 0.25% and 0.375% per annum, based upon the average percentage of the revolving commitment that is used in each month of the fiscal year.

The Credit Agreement contains customary affirmative and negative covenants, including limitations on the ability of the Company and its subsidiaries to perform the following, subject to certain customary exceptions, qualifications and “baskets”: (i) incur additional debt; (ii) create liens; (iii) engage in mergers, consolidations, liquidations or dissolutions other than in certain permitted instances as described in the Credit Agreement; (iv) substantially change the business conducted by the Company and its subsidiaries (v) make certain investments, loans, advances, guarantees and acquisitions other than in certain permitted instances as described in the Credit Agreement; (vi) sell assets; (vii) pay dividends or make distributions or other restricted payments if certain conditions in the Credit Agreement are not fulfilled; (viii) prepay other indebtedness; (ix) engage in certain transactions with affiliates; (x) enter into agreements that restrict dividends from subsidiaries or the ability of subsidiaries to grant liens upon their assets; (xi) amend certain charter documents and material agreements governing subordinated indebtedness; and (xii) sell, assign, transfer, encumber or license certain intellectual property without the prior written consent of the administrative agent. As of September 30, 2018, the Company had drawn $22,601 on the approximately $49,000 of the revolving commitment that was available for borrowing.

5% Senior Subordinated Notes due May 28, 2017

 

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

employees. 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. Thefull, at which time, 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.

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MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

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, 2016.2017.

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MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Executive Chairman and Chief Administrative Officer/Chief Financial Officer, its principal executive officer and principal financial officer, respectively, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of September 30, 2017,2018, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company’s Executive Chairman and Chief Administrative Officer/Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of September 30, 2017,2018, were effective. Management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting Sierra’s internal control over financial reporting associated with total assets of $79,918 and total revenues of $3,532 included in the condensed consolidated financial statements of the Company as of September 30, 2017.

 

Changes in Internal Control over Financial Reporting

 

On August 21, 2017, the Company acquired Sierra. Because Sierra utilizes separate information and accounting systems, theThe Company has implemented changes to its internal controls over financial reporting to include the consolidation of Sierra, as well as acquisition-related accounting and disclosures. The acquisition of Sierra represents a material change in internal control over financial reporting since management’s last assessment of the Company’s internal control over financial reporting, which was completed as of December 31, 2016.  

The Company’s management isbeen reviewing and evaluating its internal control procedures and the design of those control procedures related to the Sierra acquisition and evaluating when it will complete an evaluation and review of Sierra’s internal controls overin accordance with applicable rules, and during the quarter ended September 30, 2018, the Company integrated Sierra’s financial reporting.activity into the Company’s existing internal control structure.

 

Except as described above, there has beenEffective January 1, 2018, we adopted Accounting Standards Codification 606,Revenue from Contracts with Customers (“ASC Topic 606”). Although the adoption of ASC Topic 606 had an immaterial impact on our financial statements, we implemented certain changes to our related revenue recognition control activities, including the development of new policies and periodic reviews of revenue transactions, based on the five-step model provided in the new revenue standard. There were no changeother changes in our internal control over financial reporting that occurred during our fiscal quarterthe nine months ended September 30, 2017,2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Legal Proceedings

 

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

 

Litigation

 

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

 

Product Liability

 

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

 

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

 

ITEM 1A. RISK FACTORS

 

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2017 and Part II, Item 1A. of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.

 

ITEM 5. OTHER INFORMATION2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On November 7, 2017,Unregistered Sales of Equity Securities

The Company did not sell any securities during the Company delivered a letter (the “Letter”) to Greenhouse Funds LLLP and its affiliates (collectively, “Greenhouse”) approving Greenhouse’s request to be permittedquarter ended September 30, 2018 that were not registered under the Company’s Rights Agreement datedSecurities Act of 1933, 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.amended.

 

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Furthermore, inIssuer Repurchases of Equity Securities

On November 9, 2015, the eventCompany announced that Greenhouse increases its beneficial ownershipBoard of Directors authorized a stock repurchase program that allows the repurchase of up to in excess of 4.9%$30,000,000 of the Company’s outstanding sharescommon stock. During the third quarter of common stock and then subsequently reduces its beneficial ownership to below 4.9%,2018, 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%Company purchased 417,237 shares of the Company’s outstanding shares of common stock.stock for $3,337,896 under the Company’s authorized stock repurchase program.

 

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.

        Total Number of Shares  Maximum Dollar Value 
        Purchased as Part of  of Shares that May Yet 
  Total Number of  Average Price Paid  Publicly Announced  Be Purchased Under 
  Shares Purchased  per Share  Plans or Programs  the Plans or Programs 
Period                
July 1 to 31, 2018  417,237  $8.00   417,237  $14,433,572 
August 1 to 31, 2018  -  $-   -  $14,433,572 
September 1 to 30, 2018  -  $-   -  $14,433,572 
Total  417,237             

 

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ITEM 6. EXHIBITS

 

Exhibit Description
   
10.1Purchase and Sale Agreement dated as of August 21, 2017, by and among Everest/Sapphire Acquisition, LLC, Sierra Bullets, L.L.C., BHH Management, Inc., and Lumber Management, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 25, 2017 and incorporated herein by reference).
10.2Third Amended and Restated Loan Agreement, effective as of August 21, 2017, by and among ZB, N.A. dba Zions First National Bank, a national banking association, as Lender, and Clarus Corporation; Black Diamond Equipment, Ltd.; Black Diamond Retail, Inc.; Everest/Sapphire Acquisition, LLC; BD North American Holdings, LLC; PIEPS Service, LLC; BD European Holdings, LLC, and Sierra Bullets, L.L.C. as Borrowers (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 25, 2017 and incorporated herein by reference).
10.3Fourth Amended and Restated Promissory Note (Revolving Loan) dated effective as of August 21, 2017, by and among Clarus Corporation; Black Diamond Equipment, Ltd.; Black Diamond Retail, Inc.; Everest/Sapphire Acquisition, LLC; BD North American Holdings, LLC; PIEPS Service, LLC; BD European Holdings, LLC, and Sierra Bullets, L.L.C. (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 25, 2017 and incorporated herein by reference).
31.1Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
  
31.2Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
  
32.1Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
  
32.2Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
  
99.1Letter to Greenhouse Funds LLLP dated November 7, 2017 *
101.INSXBRL Instance Document *
  
101.SCHXBRL Taxonomy Extension Schema Document *
  
101.CALXBRL Taxonomy Extension Calculation Linkbase Document*
  
101.DEFXBRL Taxonomy Extension Definition Linkbase Document *
  
101.LABXBRL Taxonomy Extension Label Linkbase Document *
  
101.PREXBRL Taxonomy Extension Presentation Linkbase Document *
  
*Filed herewith
  
**Furnished herewith

 

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SIGNATURES

 

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

 

 CLARUS CORPORATION
   
   
Date: November 7, 20175, 2018By: /s/ Warren B. Kanders
  Name: Warren B. Kanders
  Title: Executive Chairman
           (Principal Executive Officer)

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

 

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CLARUS CORPORATION

EXHIBIT INDEX

ExhibitDescription
31.1Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
32.2Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
99.1Letter to Greenhouse Funds LLLP dated November 7, 2017 *
101.INSXBRL Instance Document *
101.SCHXBRL Taxonomy Extension Schema Document *
101.CALXBRL Taxonomy Extension Calculation Linkbase Document *
101.DEFXBRL Taxonomy Extension Definition Linkbase Document *
101.LABXBRL Taxonomy Extension Label Linkbase Document *
101.PREXBRL Taxonomy Extension Presentation Linkbase Document *
*Filed herewith
**Furnished herewith

4135