UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended:September 30, 2017March 31, 2019

 

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.

YesxNo¨

 

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).

YesxNo¨

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $.0001 per shareCLARNASDAQ Global Select Market

As of NovemberMay 1, 2017,2019, there were 30,041,26529,890,993 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, 2017March 31, 2019 and December 31, 201620183
   
 Condensed Consolidated Statements of Comprehensive LossIncome – Three months ended September 30, 2017March 31, 2019 and 201620184
Condensed Consolidated Statements of Comprehensive Loss – Nine months ended September 30, 2017 and 20165
   
 Condensed Consolidated Statements of Cash Flows – NineThree months ended September 30, 2017March 31, 2019 and 201620185
Condensed Consolidated Statements of Stockholders’ Equity – Three months ended March 31, 2019 and 20186
   
 Notes to Condensed Consolidated Financial Statements – September 30, 2017March 31, 20197
   
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations2520
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk3526
   
Item 4.Controls and Procedures3626
   
PART IIOTHER INFORMATION 
   
Item 1.Legal Proceedings3727
   
Item 1A.Risk Factors3727
   
Item 5.Other Information3727
   
Item 6.Exhibits3930
   
Signature Page40
Exhibit Index4131

 

 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  March 31, 2019  December 31, 2018 
Assets                
Current assets                
Cash $1,672  $94,738  $2,522  $2,486 
Accounts receivable, less allowance for doubtful accounts of $411 and $399, respectively  35,414   23,232 
Accounts receivable, less allowance for doubtful accounts of $569 and $392, respectively  37,634   35,943 
Inventories  66,982   45,410   62,091   64,933 
Prepaid and other current assets  2,416   3,480   5,245   5,115 
Income tax receivable  -   85   -   24 
Total current assets  106,484   166,945   107,492   108,501 
                
Property and equipment, net  24,319   11,055   23,163   23,401 
Other intangible assets, net  24,690   9,769   18,483   19,416 
Indefinite lived intangible assets  41,794   22,541   41,633   41,694 
Goodwill  18,156   -   18,090   18,090 
Other long-term assets  350   147   3,300   2,026 
Total assets $215,793  $210,457  $212,161  $213,128 
                
Liabilities and Stockholders' Equity                
Current liabilities                
Accounts payable and accrued liabilities $23,021  $17,740  $20,293  $21,489 
Income tax payable  513   969   189   210 
Current portion of long-term debt  -   21,898   -   41 
Total current liabilities  23,534   40,607   20,482   21,740 
                
Long-term debt, net  27,353   - 
Long-term debt  18,271   22,105 
Deferred income taxes  9,169   8,966   2,979   2,919 
Other long-term liabilities  222   76   860   159 
Total liabilities  60,278   49,649   42,592   46,923 
                
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 33,244 issued and 29,748 and 29,748 outstanding, respectively  3   3 
Additional paid in capital  484,833   483,925   489,189   488,404 
Accumulated deficit  (316,409)  (309,717)  (301,536)  (304,577)
Treasury stock, at cost  (12,415)  (12,398)  (18,102)  (18,102)
Accumulated other comprehensive loss  (497)  (1,005)
Accumulated other comprehensive income  15   477 
Total stockholders' equity  155,515   160,808   169,569   166,205 
Total liabilities and stockholders' equity $215,793  $210,457  $212,161  $213,128 

 

See accompanying notes to condensed consolidated financial statements.

 

 3 

 

 

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME

(Unaudited)

(In thousands, except per share amounts)

 

 Three Months Ended  Three Months Ended 
 September 30, 2017  September 30, 2016  March 31, 2019  March 31, 2018 
          
Sales                
Domestic sales $21,141  $17,939  $30,589  $25,654 
International sales  24,633   21,502   30,629   27,613 
Total sales  45,774   39,441   61,218   53,267 
                
Cost of goods sold  30,490   27,105   39,162   35,440 
Gross profit  15,284   12,336   22,056   17,827 
                
Operating expenses                
Selling, general and administrative  14,431   11,483   17,580   17,128 
Restructuring charge  33   282   13   40 
Transaction costs  1,869   -   46   165 
        
Total operating expenses  16,333   11,765   17,639   17,333 
Operating (loss) income  (1,049)  571 
                
Other income (expense)        
Interest expense, net  (71)  (719)
Operating income  4,417   494 
        
Other (expense) income        
Interest expense  (310)  (254)
Other, net  213   422   (23)  121 
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, net  (333)  (133)
                
Other comprehensive income (loss), net of tax:        
Unrealized loss on marketable securities  -   (68)
Income before income tax  4,084   361 
Income tax expense (benefit)  297   (42)
Net income  3,787   403 
        
Other comprehensive (loss) income, net of tax:        
Foreign currency translation adjustment  684   176   (373)  625 
Unrealized (loss) income on hedging activities  (419)  147   (89)  89 
Other comprehensive income  265   255 
Comprehensive loss $(1,318) $(150)
Other comprehensive (loss) income  (462)  714 
Comprehensive income $3,325  $1,117 
                
Net loss per share:        
Net income per share:        
Basic $(0.05) $(0.01) $0.13  $0.01 
Diluted  (0.05)  (0.01)  0.12   0.01 
                
Weighted average shares outstanding:                
Basic  30,017   30,063   29,748   30,041 
Diluted  30,017   30,063   30,673   30,157 

 

See accompanying notes to condensed consolidated financial statements.

 

 4 

 

 

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSCASH FLOWS

(Unaudited)

(In thousands, except per share amounts)thousands)

 

  Nine Months Ended 
  September 30, 2017  September 30, 2016 
       
Sales        
Domestic sales $59,474  $54,190 
International sales  58,536   52,600 
Total sales  118,010   106,790 
         
Cost of goods sold  81,388   75,155 
Gross profit  36,622   31,635 
         
Operating expenses        
Selling, general and administrative  39,826   37,311 
Restructuring charge  116   1,275 
Transaction costs  1,869   269 
Arbitration award  -   (1,967)
Total operating expenses  41,811   36,888 
Operating loss  (5,189)  (5,253)
         
Other (expense) income        
Interest expense, net  (948)  (2,142)
Other, net  435   826 
Total other expense, net  (513)  (1,316)
         
Loss before income tax  (5,702)  (6,569)
Income tax expense  990   1,020 
Net loss  (6,692)  (7,589)
         
Other comprehensive income (loss), net of tax:        
Unrealized income on marketable securities  -   107 
Foreign currency translation adjustment  2,305   522 
Unrealized (loss) income on hedging activities  (1,797)  70 
Other comprehensive income  508   699 
Comprehensive loss $(6,184) $(6,890)
         
Net loss per share:        
Basic $(0.22) $(0.25)
Diluted  (0.22)  (0.25)
         
Weighted average shares outstanding:        
Basic  30,015   30,525 
Diluted  30,015   30,525 
  Three Months Ended 
  March 31, 2019  March 31, 2018 
Cash Flows From Operating Activities:        
Net income $3,787  $403 
         
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation of property and equipment  1,103   1,073 
Amortization of intangible assets  889   969 
Amortization of debt issuance costs  64   17 
Loss (gain) on disposition of property and equipment  31   (2)
Noncash lease expense  159   - 
Gain from removal of accumulated translation adjustment  -   (131)
Stock-based compensation  785   499 
Deferred income taxes  162   (150)
Other  -   (41)
Changes in operating assets and liabilities:        
Accounts receivable  (1,921)  (147)
Inventories  2,589   5,430 
Prepaid and other assets  (295)  (528)
Accounts payable and accrued liabilities  (1,655)  (10)
Income taxes  7   (127)
Net cash provided by operating activities  5,705   7,255 
         
Cash Flows From Investing Activities:        
Proceeds from disposition of property and equipment  1   2 
Purchase of property and equipment  (1,046)  (853)
Net cash used in investing activities  (1,045)  (851)
         
Cash Flows From Financing Activities:        
Proceeds from revolving credit facilities  51,941   18,790 
Repayments on revolving credit facilities  (55,732)  (24,894)
Repayments of long-term debt and capital leases  (31)  (10)
Cash dividends paid  (746)  - 
Net cash used in financing activities  (4,568)  (6,114)
         
Effect of foreign exchange rates on cash  (56)  50 
         
Change in cash  36   340 
Cash, beginning of period  2,486   1,856 
Cash, end of period $2,522  $2,196 
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid for income taxes $75  $237 
Cash paid for interest $258  $264 
Supplemental Disclosures of Non-Cash Investing and Financing Activities:        
Property and equipment purchased with accounts payable $145  $247 
Property and equipment acquired through a capital lease $-  $123 
Lease liabilities arising from obtaining right of use assets $1,516  $- 

 

See accompanying notes to condensed consolidated financial statements.

 

 5 

 

 

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS' EQUITY

(Unaudited)

(In thousands)

  Nine Months Ended 
  September 30, 2017  September 30, 2016 
Cash Flows From Operating Activities:        
Net loss $(6,692) $(7,589)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:        
Depreciation of property and equipment  1,830   1,705 
Amortization of intangible assets  1,183   808 
Accretion of notes payable  833   1,358 
Amortization of debt issuance costs  11   - 
Gain on sale of marketable securities  -   (241)
Loss (gain) on disposition of assets  109   (5)
(Gain) loss from removal of accumulated translation adjustment  (149)  126 
Stock-based compensation  729   193 
Deferred income taxes  446   (230)
Changes in operating assets and liabilities, net of acquisition:        
Accounts receivable  (8,524)  (294)
Inventories  (8,274)  6,516 
Prepaid and other assets  (808)  3,307 
Accounts payable and accrued liabilities  3,489   (1,121)
Income taxes  (387)  1,127 
Other  (374)  (255)
Net cash (used in) provided by operating activities  (16,578)  5,405 
         
Cash Flows From Investing Activities:        
Proceeds from the sales of marketable securities  -   10,235 
Payments related to the sale of POC  -   (921)
Purchase of business, net of cash received  (79,238)  - 
Proceeds from disposition of property and equipment  53   23 
Purchase of property and equipment  (1,919)  (2,036)
Net cash (used in) provided by investing activities  (81,104)  7,301 
         
Cash Flows From Financing Activities:        
Net proceeds from revolving credit facilities  27,353   - 
Repayments of long-term debt  (22,690)  - 
Payment of debt issuance costs  (334)  - 
Purchase of treasury stock  (17)  (5,222)
Proceeds from exercise of stock options  179   - 
Net cash provided by (used in) financing activities  4,491   (5,222)
         
Effect of foreign exchange rates on cash  125   70 
Change in cash  (93,066)  7,554 
Cash, beginning of period  94,738   88,401 
Cash, end of period $1,672  $95,955 
         
Supplemental Disclosure of Cash Flow Information:        
Cash paid for income taxes $946  $124 
Cash paid for interest $284  $934 
Supplemental Disclosures of Non-Cash Investing and Financing Activities:        
Property and equipment purchased with accounts payable $27  $99 

                    Accumulated    
        Additional           Other  Total 
  Common Stock  Paid-In  Accumulated  Treasury Stock  Comprehensive  Stockholders' 
  Shares  Amount  Capital  Deficit  Shares  Amount  Income (Loss)  Equity 
                         
Balance, December 31, 2017  32,917  $3  $485,285  $(310,390)  (2,875) $(12,415) $499  $162,982 
Net income  -   -   -   403   -   -   -   403 
Other comprehensive loss  -   -   -   -   -   -   714   714 
Stock compensation expense  -   -   499   -   -   -   -   499 
Balance, March 31, 2018  32,917  $3  $485,784  $(309,987)  (2,875) $(12,415) $1,213  $164,598 

                    Accumulated    
        Additional           Other  Total 
  Common Stock  Paid-In  Accumulated  Treasury Stock  Comprehensive  Stockholders' 
  Shares  Amount  Capital  Deficit  Shares  Amount  Income (Loss)  Equity 
                         
Balance, December 31, 2018  33,244  $3  $488,404  $(304,577)  (3,496) $(18,102) $477  $166,205 
Net income  -   -   -   3,787   -   -   -   3,787 
Other comprehensive loss  -   -   -   -   -   -   (462)  (462)
Cash dividends ($0.025 per share)  -   -   -   (746)  -   -   -   (746)
Stock compensation expense  -   -   785   -   -   -   -   785 
Balance, March 31, 2019  33,244  $3  $489,189  $(301,536)  (3,496) $(18,102) $15  $169,569 

 

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 March 31, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, have been prepared in accordance with U.S.accounting principles generally accepted accounting principlesin the United States of America (“U.S. GAAP”), instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments, except otherwise disclosed) necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. The results of the three and nine months ended September 30, 2017March 31, 2019 are not necessarily indicative of the results to be obtained for the year ending December 31, 2017.2019. 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, 2016,2018, 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 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 April 26, 2019, the Company announced that its Board of Directors approved the payment on May 17, 2019 of the Quarterly Cash Dividend to the record holders of shares of the Company’s common stock as of the close of business on May 3, 2019.

On November 6, 2018, the Company acquired the assets of SKINourishment, Inc. (“SKINourishment”).

 

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 which it is seeking to redeploy to maximize shareholder value. Clarus’ primary business is as a leading developer, manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb, ski, mountain, sport and technical categories.skincare markets. The Company’s products are principally sold under the Black Diamond®, Sierra®, PIEPS® and PIEPS®SKINourishment® brand names through specialty and online retailers, distributors and original equipment manufacturers throughout the U.S. and internationally.

 

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

 

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, valuation of deferred tax assets, and valuation of goodwill, long-lived assets and other intangible assets. Certain costs are estimated for the full year and allocated to interim periods based on estimates of time expired, benefit received, or activity associated with the interim period. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

 

 7 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Significant Accounting Policies

 

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

 

During the nine months ended September 30, 2017,On January 1, 2019, the Company adopted Accounting Standards UpdateCodification (“ASU”ASC”) 2015-11,Topic 842,SimplifyingLeases,and elected the Measurementprospective method which was applied to all leases in effect as of Inventory, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value for entities that do not measure inventory using the last-in, first-out or a retail inventory method. The ASU eliminates the requirement to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The Company adopted this ASU effective on January 1, 2017, on a prospective basis which did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

The Company also adopted ASU 2016-09,Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, effective2019. Results for reporting periods beginning after 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 deficiencies2019 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 forunder the new guidance, until the annual reportingwhile prior period beginning after December 15, 2017,amounts are not adjusted 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 yearscontinue to be 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 Contractsaccordance with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)which clarifies theASC Topic 606 guidance on principal versus agent considerations, ASU 2016-10840,Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and LicensingLeasesthat clarifies identification of a performance obligation and address revenue recognition associated with the licensing of intellectual property, ASU 2016-12Revenue from Contracts with Customers (Topic 606), Narrow Scope Improvements and Practical Expedients clarifying assessment of collectability criterion, non-cash consideration and other technical corrections and ASU 2016-20Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customersis the result of the FASB Board decision to issue a separate Update for technical corrections and improvements. The Company intends to adopt this guidance effective January 1, 2018 using the cumulative effect method. The Company has reviewed its current customer agreements and believes that all current open agreements as of September 30, 2017 will be settled prior to adoption of this guidance on January 1, 2018. The Company does not anticipate significant changes to our current revenue recognition policy resulting from adoption of the new guidance; however, we anticipate significant changes related to footnote disclosures to the consolidated financial statements as a result of the adoption of the new guidance.

8

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts).

 

In February 2016, the FASB issued ASU 2016-02,Leases, which revises the accounting related to lessor and lessee accounting. Under the new guidance, lessees will beare required to recognize a lease liability and a right-of-use asset (“ROU”) asset for all leases with terms greater than 12 months. Leases will beare now classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The provisionsClassification is based upon the underlying asset’s existence, nature and timing of ASU 2016-02 are effective for fiscal years beginning after December 15, 2018,ownership transfer in the related lease. Leases previously defined as operating leases record lease expense based upon the related ROU asset amortization and should be applied through a modified retrospective transition approach for leases existing at, or entered into after,lease liability interest expense using the beginninginterest method over the life of the earliest comparative period presented in the financial statements with certain practical expedients available. Early adoption is permitted. Since the effective date will not be until January 1, 2019, there is no immediate impact on the financial statements.lease. Leases previously defined as capital leases will continue to be definedare now classified as a capitalfinance lease with no material changes to the accounting methodology; however, the Company does not have capital leases. The Company is performing an assessment of its leases and has begun preparations for implementation and restrospective application to the earliest reporting period. Under themethodology.

ASC 842 provides 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 atthat resulted in recording the present value of ROU assets and related lease liabilities for the total lease payments. The asset will be decrementedCompany’s outstanding operating leases over the liferemaining lease term at January 1, 2019 totaling $1,516.

Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists.  Lease assets represent the right to use an underlying asset for the lease on a pro-rata basis resulting interm, and lease expense whileliabilities represent the liability will be decremented usingobligation to make lease payments arising from the interest method (ie. principallease.  These assets and interest). As such, the Company expects the new guidance will materially impact the asset and liability balances of the Company’s consolidated financial statements and related disclosures at the time of adoption. The majority of our current operating leases will expire prior to the adoption date. The Company anticipates renegotiating these operating leases; however, the terms which may exist at the adoption dateliabilities are currently unknown. Consequently, the Company is unable to estimate the impact that these leases will haveinitially recognized based 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 lease payments over the remaining rentallease term calculated using our incremental borrowing rate.  Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.

Variable lease payments are considered immaterial.generally expensed as incurred and include certain nonlease components, such as common area maintenance and other services provided by the lessor, and other charges such as utilities, insurance and property taxes included in the lease.  Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term. Nonlease components are excluded from the ROU asset and lease liability present value computations. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

 

In August 2016,Certain of the FASB issued ASU 2016-15,Classificationleases contain extension options of Certain Cash Receipts and Cash Payments, which clarifiesone to five years. At January 1, 2019, the treatmentCompany is uncertain as to whether the extension options will be executed. Accordingly, no extension options were considered in the present value computations 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 sourceROU assets or use. The ASU is effective for annual and interim reporting periods beginning after December 15, 2017 with early adoption permitted. related lease liabilities.

The Company doeselected the package of practical expedients in transition for leases that commenced prior to January 1, 2019, whereby these contracts were not believereassessed or reclassified from their previous assessments as of December 31, 2018. We also elected certain other practical expedients in transition, including not reassessing existing land easements as lease contracts. The Company has also elected to not record the adoptionROU assets and related liabilities for outstanding leases as of this guidance will haveJanuary 1, 2019 with a materialremaining term of 12 months or less. In these cases, the Company recognizes a lease payment as an expense on a straight-line basis. See Note 14. Leases for the financial position impact on the Company’s consolidated statements and relatedadditional 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 changeAccounting Pronouncements adopted 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 beginning2019

On January 1, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments in this2019, the Company early adopted Accounting Standards Update should be applied using a retrospective transition method to each period presented. The Company does not believe the adoption of this guidance will have a material impact on the Company’s consolidated statements and related disclosures.

In January 2017, the FASB issued ASU(“ASU”) 2017-04,Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. as permitted. 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, 2020This ASU was adopted on a prospective basis. Thebasis with no 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 onto the Company’s consolidated statements and related disclosures.financial statements.

 

 98 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

In August 2017,On January 1, 2019, the FASB issuedCompany adopted ASU 2017-12,Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU was adopted on a prospective basis. 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. ThisThe adoption of this guidance did not impact the Company’s consolidated financial statements and related disclosures.

On January 1, 2019, the Company adopted ASU is effective2018-02,Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Incomewhich allows for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.  Early application is permitted.  We intend to adopt the new guidance in the first quarter of 2019. The primary impact of adoption is the required disclosure changes. We believe thata reclassification from accumulated other comprehensive income could be materially impacted; however, sinceto retained earnings for stranded tax effects resulting from the majority of our current contracts will expire priorTax Act. However, because the amendments only relate to the effective date, we cannot fully assessreclassification of the financial impactincome 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. Adoption of this pronouncement atASU did not impact the beginning retained earnings on January 1, 2019. The adoption of this time.guidance did not impact the Company’s consolidated financial statements and related disclosures.

 

NOTE 2. ACQUISITION

On August 21, 2017, the Company, through Everest/Sapphire Acquisition, LLC (“Everest/Sapphire”), a Delaware limited liability company and wholly owned subsidiary of Clarus, acquired 100% of the outstanding membership interests of Sierra Bullets, L.L.C., a manufacturer of a wide range of bullets primarily for both rifles and pistols, pursuant to the terms of the purchase and sale agreement dated August 21, 2017 (the “Purchase Agreement”), by and among Everest/Sapphire, Sierra Bullets, BHH Management, Inc., a California corporation (“BHH”), Lumber Management, Inc., a Delaware corporation (“LMI” and, together with BHH, each a “Seller” and, collectively, the “Sellers”), and BHH, in its capacity as the representative of Sellers (the “Sellers’ Representative”). Under the terms of the Purchase Agreement, Everest/Sapphire acquired Sierra for an aggregate purchase price of $79,000, plus or minus a preliminary working capital adjustment, in accordance with and subject to the terms and conditions set forth in the Purchase Agreement.

The Company believes the acquisition of Sierra is expected to provide the Company with the following benefits:

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

The Company’s fair value estimates for the purchase price allocation are preliminary and may change during the allowable allocation period, which is up to one year from the date of the acquisition of Sierra, as we finalize the working capital adjustment and continue to obtain information that existed as of the date of acquisition so that we may finalize the allocation of the purchase price for the assets acquired and liabilities assumed and determine the associated fair values. We are currently waiting for a final valuation report as well as other information needed to finalize our purchase price allocation. The following table is a reconciliation to the fair value of the purchase consideration and how the purchase consideration is preliminarily allocated to assets acquired and liabilities assumed which have been estimated at their preliminary fair values. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill.

10

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

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

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

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

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

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

11

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Pro Forma Results

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

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

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

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

NOTE 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, 2017March 31, 2019 and December 31, 2016,2018, 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)

  March 31, 2019  December 31, 2018 
       
Finished goods $47,278  $51,626 
Work-in-process  6,887   6,221 
Raw materials and supplies  7,926   7,086 
  $62,091  $64,933 

 

NOTE 5.3. PROPERTY AND EQUIPMENT

 

Property and equipment, net as of September 30, 2017March 31, 2019 and December 31, 2016,2018, were as follows:

 

 September 30, 2017  December 31, 2016  March 31, 2019  December 31, 2018 
          
Land $3,160  $2,850  $3,160  $3,160 
Building and improvements  6,827   4,169   6,889   6,870 
Furniture and fixtures  3,688   3,074   4,635   4,376 
Computer hardware and software  4,758   4,519   4,932   4,863 
Machinery and equipment  19,283   11,144   20,870   21,004 
Construction in progress  350   522   1,421   1,761 
  38,066   26,278   41,907   42,034 
Less accumulated depreciation  (13,747)  (15,223)  (18,744)  (18,633)
 $24,319  $11,055  $23,163  $23,401 

9

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 6.4. OTHER INTANGIBLE ASSETS

 

Goodwill

 

There was an increasewere no changes in the balances in goodwill duringfrom the nine months ended September 30, 2017, from $0 to $18,156, due to the Company’s acquisition of Sierra on August 21, 2017.prior period. The following table summarizes the changesbalances in goodwill by segment:

 

  Black Diamond  Sierra  Total 
          
Balance at December 31, 2016 $-  $-  $- 
             
Increase due to acquisition  -   18,156   18,156 
             
Balance at September 30, 2017 $-  $18,156  $18,156 
  Black Diamond  Sierra  Total 
          
Balance at December 31, 2018 $-  $18,090  $18,090 
             
Balance at March 31, 2019 $-  $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. There was an increase in tradenamesTradenames and trademarks duringare not amortized, but reviewed annually for impairment or upon the nine months ended September 30, 2017, due to the Company’s acquisitionexistence of Sierra and the impact of foreign currency exchange rates.a triggering event. 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 

13

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Balance at December 31, 2018 $41,694 
     
Impact of foreign currency exchange rates  (61)
     
Balance at March 31, 2019 $41,633 

 

Other Intangible Assets, net

 

IntangibleThe 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 an increase in gross other intangible assets subject to amortization during the nine months ended September 30, 2017 due to the Company’s acquisition of Sierra and the impact of foreign currency exchange rates. The following table summarizes the changes in gross other intangible assets:

 

Gross balance at December 31, 2016 $16,980 
     
Increase due to acquisition  15,800 
Impact of foreign currency exchange rates  510 
     
Gross balance at September 30, 2017 $33,290 
Gross balance at December 31, 2018 $33,010 
     
Impact of foreign currency exchange rates  (88)
     
Gross balance at March 31, 2019 $32,922 

 

Other intangible assets, net of amortization as of September 30, 2017March 31, 2019 and December 31, 2016,2018, were as follows:

 

  September 30, 2017  December 31, 2016 
       
Customer lists and relationships $26,426  $13,942 
Product technologies  4,817   2,091 
Trade name / trademark  1,100   - 
Core technologies  947   947 
   33,290   16,980 
Less accumulated amortization  (8,600)  (7,211)
  $24,690  $9,769 

NOTE 7. LONG-TERM DEBT

Long-term debt, net as of September 30, 2017 and December 31, 2016, 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  $- 

(a)As of September 30, 2017, the Company had drawn $27,353 on a $40,000 revolving credit facility with Zions First National Bank with a maturity date of August 21, 2022.

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

  March 31, 2019  December 31, 2018 
       
Customer lists and relationships $25,998  $26,047 
Product technologies  4,714   4,753 
Tradename / trademark  1,263   1,263 
Core technologies  947   947 
   32,922   33,010 
Less accumulated amortization  (14,439)  (13,594)
  $18,483  $19,416 

 

 1410 

 

 

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.NOTE 5. LONG-TERM DEBT

 

Any amount outstanding under the Third AmendedLong-term debt as of March 31, 2019 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.December 31, 2018, was as follows:

 

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.

  March 31, 2019  December 31, 2018 
       
Revolving credit facility (a) $18,271  $22,062 
Other  -   84 
   18,271   22,146 
Less current portion  -   (41)
  $18,271  $22,105 

 

(b)(a)As of March 31, 2019, the Company had drawn $18,271 on the approximately $50,000 of the revolving commitment that was available under the credit agreement with JPMorgan Chase Bank, N.A., with a maturity date of June 27, 2022. Approximately $32,000 was still available to borrow at March 31, 2019. The term note was payable to a government entity withCompany pays interest monthly on any borrowings on the Credit Agreement at London Inter-bank Offered Rate (“LIBOR”) plus 1.5% (3.9893% and 3.8493% as of March 31, 2019 and December 31, 2018, respectively), and an interest rateannual commitment fee of 0.75% and no monthly installments. During.25% on the nine months ended September 30, 2017,unused portion of the entire principal amount and all accrued interest were paid in full.commitment.

 

NOTE 8.6. 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,March 31, 2019, 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 of September 30, 2017.counterparty. At March 31, 2019, there was no such exposure to the counterparty. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain of $667 on all contracts. At September 30, 2017, there was no such exposure to the counterparty.contracts at March 31, 2019. The Company’s derivative counterparty has strong credit ratings and as a result, the Company does not require collateral to facilitate transactions.

 

15

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(Unaudited)

(in thousands, except per share amounts)

The Company held the following contracts designated as hedged instruments as of September 30, 2017March 31, 2019 and December 31, 2016:2018:

 

September 30, 2017
NotionalLatest
AmountMaturity
Foreign exchange contracts - Norwegian Kroner7,449February 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 Dollars11,001February 2018
Foreign exchange contracts - British Pounds1,842February 2018
Foreign exchange contracts - Euros14,366February 2018
  March 31, 2019
  Notional  Latest
  Amount  Maturity
      
Foreign exchange contracts - Canadian Dollars $4,157  August 2019
Foreign exchange contracts - Euros €11,149  February 2020

  December 31, 2018
  Notional  Latest
  Amount  Maturity
      
Foreign exchange contracts - Canadian Dollars $6,166  August 2019
Foreign exchange contracts - Euros €10,710  February 2020

 

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)$281 and $(152)$(325) were reclassified to sales during the three months ended September 30, 2017March 31, 2019 and 2016, respectively, and $(36) and $(495) were reclassified to sales during the nine months ended September 30, 2017 and 2016,2018, respectively.

 

11

The Company records ineffectiveness of hedged instruments resulting from changes

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in fair value of the instruments in earnings. There were no gains (losses) recorded to Other, net, during the three and nine months ended September 30, 2017. Gains (losses) of $34 and $(8) were recorded to Other, net, associated with ineffective hedge instruments during the three and nine months ended September 30, 2016.thousands, except per share amounts)

 

The following table presents the balance sheet classification and fair value of derivative instruments as of September 30, 2017March 31, 2019 and December 31, 2016:2018:

 

  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  $- 

16

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

  Classification March 31, 2019  December 31, 2018 
         
Derivative instruments in asset positions:          
Forward exchange contracts Prepaid and other current assets $667  $729 
           
Derivative instruments in liability positions:          
Forward exchange contracts Other long-term liabilities $-  $5 

 

NOTE 9.7. 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 
          
Balance as of December 31, 2016 $(1,729) $724  $(1,005)
Other comprehensive income (loss) before reclassifications  2,454   (2,177)  277 
Amounts reclassified from other comprehensive income (loss)  (149)  380   231 
Net current period other comprehensive income (loss)  2,305   (1,797)  508 
Balance as of September 30, 2017 $576  $(1,073) $(497)
  Foreign Currency
Translation Adjustments		  Unrealized Gains
(Losses) on Cash Flow
Hedges		  Total 
          
Balance as of December 31, 2018 $73  $404  $477 
Other comprehensive income (loss) before reclassifications  (373)  168   (205)
Amounts reclassified from other comprehensive income (loss)  -   (257)  (257)
Net current period other comprehensive loss  (373)  (89)  (462)
Balance as of March 31, 2019 $(300) $315  $15 

 

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,March 31, 2019, 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		 
Affected line item in the Condensed Consolidated
Statements of Comprehensive Income		 Gains reclassified from AOCI to the Consolidated Statements of
Comprehensive Income		 
Foreign exchange contracts:            
Sales $(422) $(36) $281 
Less: Income tax expense  109   344   24 
Amount reclassified, net of tax $(531) $(380) $257 
            
Foreign currency translation adjustments:        
Other, net $68  $149 
        
Total reclassifications from AOCI $(463) $(231) $257 

 

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

 

NOTE 10.8. 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.

 

12

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

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

 

17

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(Unaudited)

(in thousands, except per share amounts)

Assets and liabilities measured at fair value on a recurring basis at September 30, 2017March 31, 2019 and December 31, 20162018 were as follows:

 

 September 30, 2017  March 31, 2019 
 Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3  Total 
                  
Assets                                
Forward exchange contracts  -   81   -   81  $-  $667  $-  $667 
 $-  $81  $-  $81  $-  $667  $-  $667 
                
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 $-  $-  $-  $- 
 $-  $-  $-  $- 

  December 31, 2018 
  Level 1  Level 2  Level 3  Total 
             
Assets                
  Forward exchange contracts $-  $729  $-  $729 
  $-  $729  $-  $729 
                 
Liabilities                
  Forward exchange contracts $-  $5  $-  $5 
  $-  $5  $-  $5 

 

The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values due to the short-term nature and liquidity of these financial instruments. Derivative financial instruments are recorded at fair value based on current market pricing models. No nonrecurring fair value measurements existed at September 30, 2017March 31, 2019 and December 31, 2016.2018.

  

NOTE 11.9. 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)

18

CLARUS CORPORATION

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(Unaudited)

(in thousands, except per share amounts)

  Three Months Ended 
  March 31, 2019  March 31, 2018 
       
Weighted average shares outstanding - basic  29,748   30,041 
Effect of dilutive stock awards  925   116 
Weighted average shares outstanding - diluted  30,673   30,157 
         
Net income per share:        
Basic $0.13  $0.01 
Diluted  0.12   0.01 

 

For the three months ended September 30, 2017March 31, 2019 and 2016,2018, equity awards of 2,835860 and 2,517, respectively, and for the nine months ended September 30, 2017 and 2016, equity awards of 2,793 and 2,491,2,119, respectively, were outstanding and anti-dilutive and therefore not included in the calculation of lossearnings per share for these periods.

13

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 12.10. 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 ninethree months ended September 30, 2017,March 31, 2019, the Company issueddid not issue any stock options for an aggregate of 463 shares under the 2015 Plan to directors and employees of the Company. Of the 463 options issued, 38 options vest in four equal consecutive quarterly tranches from the date of grant. 325 vest in three equal tranches on December 31, 2017, December 31, 2018 and December 31, 2019. The remaining 100 options vested immediately.

 

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

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

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

(b)Because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for these grants, the Company utilized the simplified method in developing an estimate of the expected term of these options.

 

On June 1, 2017,January 7, 2019, the Company issued and granted to an employee a restricted stock award of 500350 restricted shares under the 2015 Plan, of which (i) 250 restricted sharesthat will vest as follows: (A) the stock award will vest and become nonforfeitable if, on or before June 1, 2022,January 7, 2024, the Fair Market Value (as defined in the Plan)closing price of the Company’s common stock shall have equaled or exceeded $10.00$15.00 per share for twenty consecutive trading days;days (such 20th day being the “Price Trigger Date”); and (ii) 250 restricted(B) once the Price Trigger Date occurs, (i) 117 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.vest on each of the first and second anniversary of the Price Trigger Date; and (ii) 116 shares of the Company’s common stock shall vest on the third anniversary of the Price Trigger Date. For computing the fair value of the 500350 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.

 

On January 7, 2019, the Company issued and granted to an employee a restricted stock award of 150 restricted shares under the 2015 Plan, that will vest as follows: (A) the stock award will vest and become nonforfeitable if, on or before January 7, 2024, the closing price of the Company’s common stock shall have equaled or exceeded $15.00 per share for twenty consecutive trading days (such 20th day being the Price Trigger Date); and (B) once the Price Trigger Date occurs, the shares shall equally vest on each of the first, second, third and fourth anniversary of the Price Trigger Date. For computing the fair value of the 150 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.

 19January 7, 2019
 
Number issued500
Vesting period$15.00 stock price target
Grant price$10.21
Expected volatility42.4%
Risk-free interest rate2.53%
Expected term (years)4.28 - 5.28
Weighted average fair value$7.92

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Market Condition Restricted Shares GrantedUsing these assumptions, the fair value of the market condition restricted stock awards granted on June 1, 2017January 7, 2019 was approximately $3,962.

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, 2017March 31, 2019 and 20162018 was $387$785 and $42, respectively, and for the nine months ended September 30, 2017 and 2016 was $729 and $193,$499, respectively. For the three and nine months ended September 30, 2017March 31, 2019 and 2016,2018, 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,March 31, 2019, there were 5331,598 unvested stock options and unrecognized compensation cost of $1,153$4,714 related to unvested stock options, as well as 850 unvested restricted stock awards and unrecognized compensation costcosts of $1,679$3,873 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 14.11. 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.

 

14

During

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

NOTE 12. INCOME TAXES

On December 22, 2017, the nine months ended September 30, 2016,U.S. government enacted comprehensive tax legislation commonly referred to as 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 allTax Cuts and Jobs Act (“Tax Act”). As a result of the PIEPS VECTOR avalanche transceivers duringTax Act, the year ended December 31, 2013. This award concludedU.S. federal corporate tax rate was reduced to 21%, effective January 1, 2018. In addition, the arbitration process in its entirety.

The Company leases office, warehousecorporate Alternative Minimum Tax (“AMT”) was repealed 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 basistaxpayers with AMT credit carryovers in excess of the cumulative payments is included in accounts payable and accrued liabilities and other long-term liabilities in the accompanying condensed consolidated balance sheets.

Total rent expense of the Company for the three months ended September 30, 2017 and 2016 was $214 and $204, respectively, and for the nine months ended September 30, 2017 and 2016 was $611 and $826, respectively.

NOTE 15. INCOME TAXEStheir regular tax liability may have credits refunded over multiple years from 2018 to 2022.

 

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

 

Tax expense includes a discrete chargeThe difference between the Company’s estimated effective tax rate and the U.S. federal statutory tax rate of 21% for the three months ended September 30, 2017 and 2016March 31, 2019, was primarily attributed to the release of $0 and $520, respectively, and for the nine months ended September 30, 2017 and 2016 of $20 and $953, respectively, ofan additional interest for an uncertain tax position and potential tax audit liability associated with the formal closure and liquidationportion of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China. Duringvaluation allowance based on 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, associated with a disproportionate tax effect released from AOCI. During the nine months ended September 30, 2016, there was a discrete charge for a Swiss withholding tax related to the transferring of Black Diamond Equipment’s European operations from Basel, Switzerland to Innsbruck, Austria.

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 $101Company’s forecasted pre-tax earnings 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.year.

 

As of December 31, 2016,2018, the Company’s gross deferred tax asset was $75,416.$47,922. The Company had recorded a valuation allowance of $67,662,$42,122, resulting in a net deferred tax asset of $7,754,$5,800, before deferred tax liabilities of $16,720.$8,719. The Company has provided a valuation allowance against a portion of the deferred tax assets as of December 31, 2016,2018, 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, 2016,2018, the Company had net operating loss (“NOL”) and research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of $172,419 ($270 relates to excess tax benefits related to share based payment compensation), $3,407$141,067 and $315,$3,791, respectively. The Company believes its U.S. Federal net operating loss (“NOL”)NOL will substantially offset some of 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, 2018

Expiration Dates December 31, Net Operating Loss Amount 
2021 $ 5,495 
2022   115,000 
2023   5,712 
2024   3,566 
2025 and beyond   11,294 
Total $ 141,067 

Net Operating Loss Carryforward Expiration Dates
December 31, 201615

 

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

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 16.13. 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:

 

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

 

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

 

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 at point of sale transactions. As noted above, the Company has a wide variety of technical outdoor equipment and lifestyle products focused on the climb, ski, mountain and sport product categories that are sold to a variety of customers in multiple end markets. While there are multiple products sold, the terms and nature of revenue recognition policy is similar for all segments. The sport product category represents the Sierra segment revenue.

We divide our product offerings into four primary categories of climb, mountain, ski and sport.  Revenue by category is as follows:

  Three Months Ended 
  March 31, 2019  March 31, 2018 
       
Climb  35%  36%
Mountain  31%  32%
Ski  20%  17%
Sport  14%  15%

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 were not material at March 31, 2019 and December 31, 2018. 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 months ended March 31, 2019 was not material. No other material remaining performance obligations exist at March 31, 2019.

 2216 

 

 

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 
 September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2016  March 31, 2019  March 31, 2018 
Sales to external customers:                        
Black Diamond $42,242  $39,441  $114,478  $106,790         
Domestic sales $24,532  $19,271 
International sales  27,869   25,756 
Total Black Diamond  52,401   45,027 
Sierra  3,532   -   3,532   -         
Sales to external customers $45,774  $39,441  $118,010  $106,790 
Segment operating income (expense):                
Domestic sales  6,057   6,383 
International sales  2,760   1,857 
Total Sierra  8,817   8,240 
Total sales to external customers  61,218   53,267 
Segment operating income:        
Black Diamond $2,085  $1,821  $1,098  $(225)  5,176   1,937 
Sierra  416   -   416   -   1,661   797 
Segment operating income (expense)  2,501   1,821   1,514   (225)
Total segment operating income  6,837   2,734 
Restructuring charge  (33)  (282)  (116)  (1,275)  (13)  (40)
Transaction costs  (1,869)  -   (1,869)  (269)  (46)  (165)
Corporate and other expenses  (1,435)  (546)  (4,283)  (2,658)  (2,384)  (1,914)
Interest expense, net  (71)  (719)  (948)  (2,142)  (310)  (254)
(Loss) income before income tax $(907) $274  $(5,702) $(6,569)
Income before income tax $4,084  $361 

 

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, 2017March 31, 2019 and December 31, 2018, were $80,566. Depreciationas follows:

  March 31, 2019  December 31, 2018 
       
Black Diamond $137,529  $138,029 
Sierra  72,473   72,796 
Corporate  2,159   2,303 
  $212,161  $213,128 

Capital expenditures, depreciation and amortization by segment is as follows.

 

  Three Months Ended  Nine Months Ended 
  September 30, 2017  September 30, 2016  September 30, 2017  September 30, 2016 
Outdoor group depreciation:                
Black Diamond $569  $529  $1,674  $1,705 
Sierra  156   -   156   - 
Total outdoor group depreciation $725  $529  $1,830  $1,705 
Outdoor group amortization:                
Black Diamond $273  $269  $808  $808 
Sierra  375   -   375   - 
Total outdoor group amortization $648  $269  $1,183  $808 

NOTE 17. RELATED PARTY TRANSACTIONS

5% Unsecured Subordinated Notes due May 28, 2017

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

  Three Months Ended 
  March 31, 2019  March 31, 2018 
Capital expenditures:        
Black Diamond $764  $658 
Sierra  282   195 
Total capital expenditures $1,046  $853 
Depreciation:        
Black Diamond $611  $587 
Sierra  492   486 
Total depreciation $1,103  $1,073 
Amortization:        
Black Diamond $279  $275 
Sierra  610   694 
Total amortization $889  $969 

 

 2317 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

GivenNOTE 14. LEASES

The Company has entered into leases for certain facilities, vehicles and other equipment. Our operating leases have remaining contractual terms of up to four years, some of which include options to extend the below market interestleases for up to five years. Our operating lease costs are primarily related to facility leases for inventory warehousing, administration offices and vehicles. The Company’s finance leases are immaterial.

Operating lease ROU assets and liabilities as of March 31, 2019 are as follows:

  Balance Sheet Classification March 31, 2019 
      
Assets      
Operating lease ROU assets Other long-term assets $1,352 
       
Liabilities      
Current operating lease liabilties Accounts payable and accrued liabilities $640 
Noncurrent operating lease liabilities Other long-term liabilities $716 

Operating lease costs are as follows:

  Affected line item in the Condensed Consolidated Three Months Ended 
  Statements of Comprehensive Income March 31, 2019 
Lease costs Cost of goods sold, Selling, general and administrative $169 
Variable lease costs Cost of goods sold, Selling, general and administrative  64 
Short-term lease costs Cost of goods sold, Selling, general and administrative  62 
    $295 

The maturity of operating lease liabilities as of March 31, 2019 are as follows:

Years Ending December 31, Future Minimum Lease
Payments		 
2019 (excluding the three months ended March 31, 2019) $515 
2020  632 
2021  242 
2022  25 
Total future minimum lease payments  1,414 
Less: amount representing interest  (58)
Present value of future minimum lease payments  1,356 
Less: current lease obligations  (640)
Long-term lease obligations $716 

As of March 31, 2019, our operating leases have a weighted-average remaining lease term of 2.2 years and a weighted-average discount rate for comparably secured notes and the relative illiquidityof 3.85%. Total rent expense of the Merger Consideration Subordinated Notes, we discounted the notes to $8,640, $4,487 and $316, respectively, at the date of acquisition. We were accreting the discount on the Merger Consideration Subordinated Notes to interest expense using the effective interest method over the term of the Merger Consideration Subordinated Notes. The effective interest rate was approximately 14%.

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

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

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

Upon2018 was $227 as determined prior to the Company’s acquisitionadoption of Sierra, on August 21, 2017,ASU 842. Future minimum lease payments required under noncancelable operating leases that have initial or remaining noncancelable lease term in excess of one year at December 31, 2018 as determined prior to the Company paid a fee in the amountadoption 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.ASU 842 are as follows:

 

 2418 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

Years Ending December 31, Future Minimum Lease
Payments		 
2019 $687 
2020  634 
2021  243 
2022  24 
2023  - 
Thereafter  - 
  $1,588 

NOTE 15. SUBSEQUENT EVENT

Credit Agreement

On May 3, 2019, the Company together with certain of its direct and indirect domestic subsidiaries (the “Borrowers”) and the other loan parties party thereto entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto, for borrowings of up to $60,000 under a revolving credit facility (including up to $5,000 for letters of credit), and borrowings of up to $40,000 under a term loan facility that is available to be drawn until May 3, 2020. The Credit Agreement also permits the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $50,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Credit Agreement of up to $150,000. The Credit Agreement matures on May 3, 2024.

The Borrowers may elect to have the revolving and term loans under the Credit Agreement bear interest at an alternate base rate or a Eurodollar rate plus an applicable rate. The applicable rate for these borrowings will range from 0.50% to 1.25% per annum, in the case of alternate base rate borrowings, and 1.50% to 2.25% per annum, in the case of Eurodollar borrowings. The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of Eurodollar borrowings, however, it may be adjusted from time to time based upon the level of the Company’s consolidated total leverage ratio. The Credit Agreement also requires the Borrowers to pay a commitment fee on the unused portion of the revolving and term loan commitments. Such commitment fee will range between 0.15% and 0.25% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio.

On May 3, 2019, concurrent with entering into the Credit Agreement, the 2018 Credit Agreement, which provided for a revolving commitment of up to $75,000, was terminated.

19

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

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

 

Forward-Looking Statements

 

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

 

Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, the overall level of consumer spendingdemand on our products; general economic conditions and other factors affecting consumer confidence;confidence, preferences, and behavior; disruption and volatility in the global currency, capital and credit markets; the financial strength of the Company’s customers; the Company’s ability to implement its growth strategy, including its ability to organically grow each of its historical product lines;business strategy; the ability of the Company to identify potential acquisitionexecute and integrate acquisitions; changes in governmental regulation, legislation or investment opportunities as partpublic opinion relating to the manufacture and sale of its redeploymentbullets and diversification strategy;ammunition by our Sierra segment, and the Company’s ability to successfully redeploy its capital into diversifying assets or that any such redeployment will result in the Company’s future profitability; the Company’s ability to successfully integrate Sierra Bullets L.L.C.;possession and use of firearms and ammunition by our customers; the Company’s exposure to product liability ofor product warranty claims and other loss contingencies; 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 maintain a quarterly 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 which it is seeking to redeploy to maximize shareholder value. Clarus’ primary business is as a leading developer, manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb, ski, mountain, sport and technical categories.skincare markets. The Company’s products are principally sold under the Black Diamond®, Sierra®, PIEPS® and PIEPS®SKINourishment® brand names through specialty and online retailers, distributors and original equipment manufacturers throughout the U.S. and internationally.

 

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

 

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.

 

 2520 

 

 

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

On October 7, 2015, the Company sold its equity interests in POC, resulting in the conclusion of the Company’s review of strategic alternatives. On November 9, 2015, the Company announced that it was seeking to redeploy its significant cash balances to invest in high quality, durable, cash flow-producing assets in order to diversify our business and potentially monetize our substantial net operating losses as part of our asset redeployment and diversification strategy.

 

On August 14, 2017, the Company changed its name from Black Diamond, Inc. to Clarus Corporation and its stock ticker symbol from “BDE” to “CLAR” on the NASDAQ stock exchange. On August 21, 2017, the Company acquired Sierra Bullets, L.L.C. (“Sierra” or “Sierra Bullets”).

 

Clarus,On August 6, 2018, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend program of $0.025 per share of the Company’s common stock (the “Quarterly Cash Dividend”) or $0.10 per share on an annualized basis.  The declaration and payment of future Quarterly Cash Dividends is subject to the discretion of and approval of the Company’s Board of Directors. On April 26, 2019, the Company announced that its Board of Directors approved the payment on May 17, 2019 of the Quarterly Cash Dividend to the record holders of shares of the Company’s common stock as a holding company, is seeking opportunities to acquire and grow businesses that can generate attractive shareholder returns. Theof the close of business on May 3, 2019.

On November 6, 2018, the Company has substantial net operating tax loss carryforwards which it is seeking to redeploy to maximize shareholder value in a diverse arrayacquired the assets of businesses.SKINourishment, Inc.

 

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 taxespurchase price allocation, excess or obsolete inventory, valuation of deferred tax assets, and valuation of goodwill, 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 leases from the adoption of Accounting Standards Codification Topic 842. 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.2018.

 

Accounting Pronouncements Issued Not Yet Adopted

 

See “Recent Accounting Pronouncements” in Note 1 to the notes to the unaudited condensed consolidated financial statements.None.

 

 2621 

 

 

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Results of Operations

 

Condensed Consolidated Three Months Ended September 30, 2017March 31, 2019 Compared to Condensed Consolidated Three Months Ended September 30, 2016March 31, 2018

 

The following presents a discussion of condensed consolidated operations for the three months ended September 30, 2017,March 31, 2019, compared with the condensed consolidated three months ended September 30, 2016.March 31, 2018.

 

 Three Months Ended  Three Months Ended 
 September 30, 2017  September 30, 2016  March 31, 2019  March 31, 2018 
          
Sales                
Domestic sales $21,141  $17,939  $30,589  $25,654 
International sales  24,633   21,502   30,629   27,613 
Total sales  45,774   39,441   61,218   53,267 
                
Cost of goods sold  30,490   27,105   39,162   35,440 
Gross profit  15,284   12,336   22,056   17,827 
                
Operating expenses                
Selling, general and administrative  14,431   11,483   17,580   17,128 
Restructuring charge  33   282   13   40 
Transaction costs  1,869   -   46   165 
                
Total operating expenses  16,333   11,765   17,639   17,333 
                
Operating (loss) income  (1,049)  571 
Operating income  4,417   494 
                
Other income (expense)        
Interest expense, net  (71)  (719)
Other (expense) income        
Interest expense  (310)  (254)
Other, net  213   422   (23)  121 
                
Total other income (expense), net  142   (297)
Total other expense, net  (333)  (133)
                
(Loss) income before income tax  (907)  274 
Income tax expense  676   679 
Net loss $(1,583) $(405)
Income before income tax  4,084   361 
Income tax expense (benefit)  297   (42)
Net income $3,787  $403 

 

Sales

 

Consolidated sales increased $6,333,$7,951, or 16.1%14.9%, to $45,774$61,218 during the three months ended September 30, 2017,March 31, 2019, compared to consolidated sales of $39,441$53,267 during the three months ended September 30, 2016.March 31, 2018. The increase in sales was partially attributable to the inclusionincrease in the quantity of Sierra, which contributed $3,532new and existing climb, mountain, ski, and sport products sold during the period partially offset by a decrease in sales of $762 due to the strengthening of the U.S. dollar against foreign currencies during the three months ended September 30, 2017.March 31, 2019 compared to the prior period.

Consolidated domestic sales increased $4,935, or 19.2%, to $30,589 during the three months ended March 31, 2019, compared to consolidated domestic sales of $25,654 during the three months ended March 31, 2018. The remaining increase in domestic sales was attributable to thean increase in the quantity of new and existing climb, mountain, and ski products sold during the period and an increase in sales of $690 due to the strengthening of foreign currencies against the U.S. dollar during the three months ended September 30, 2017 compared to the prior period.

Consolidated domestic sales increased $3,202, or 17.8%, to $21,141 during the three months ended September 30, 2017, compared to consolidated domestic sales of $17,939 during the three months ended September 30, 2016. The increase in sales wasMarch 31, 2019. 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 skisport products sold during the period.

 

27

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Consolidated international sales increased $3,131,$3,016, or 14.6%10.9%, to $24,633$30,629 during the three months ended September 30, 2017,March 31, 2019, compared to consolidated international sales of $21,502$27,613 during the three months ended September 30, 2016.March 31, 2018. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $1,231 in sales during the three months ended September 30, 2017. The remaining increase in international sales was attributable to the increase in the quantity of new and existing climb, mountain, ski, and skisport products sold during the period and an increasepartially offset by a decrease in sales of $690$762 due to the strengthening of foreign currencies against the U.S. dollar against foreign currencies during the three months ended September 30, 2017March 31, 2019 compared to the prior period.

22

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Cost of Goods Sold

 

Consolidated cost of goods sold increased $3,385,$3,722, or 12.5%10.5%, to $30,490$39,162 during the three months ended September 30, 2017,March 31, 2019, compared to consolidated cost of goods sold of $27,105$35,440 during the three months ended September 30, 2016.March 31, 2018. The increase in cost of goods sold was partially attributable to the inclusion of Sierra of $2,484, which included $420 related to the sale of inventory that was recorded at fair value in purchase accounting. The remaining amount of inventory that was recorded at fair value in purchase accounting, which totals $2,102, is expected to be sold during the fourth quarter of 2017 and first quarter of 2018. The remaining increase 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,$4,229 or 23.9%23.7%, to $15,284$22,056 during the three months ended September 30, 2017,March 31, 2019, compared to consolidated gross profit of $12,336$17,827 during the three months ended September 30, 2016.March 31, 2018. Consolidated gross margin was 33.4%36.0% during the three months ended September 30, 2017,March 31, 2019, compared to a consolidated gross margin of 31.3%33.5% during the three months ended September 30, 2016.March 31, 2018. Consolidated gross margin during the three months ended September 30, 2017,March 31, 2019, 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 fromduring the inclusion of Sierra; however, this benefit was offset bythree months ended March 31, 2018 included a decrease in gross margin of 0.9%1.9% 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,$452, or 25.7%2.6%, to $14,431$17,580 during the three months ended September 30, 2017,March 31, 2019, compared to consolidated selling, general and administrative expenses of $11,483$17,128 during the three months ended September 30, 2016.March 31, 2018. The increase in selling, general and administrative expenses was partially attributable to the inclusion of Sierra of $632, with the remaining increase being attributable to the Company’s continued investment in the brand related activities of sales, marketing and research and development in supporting its strategic initiatives around new product introduction and increasing brand equity. Stock compensation also increased $345$286 during the three months ended September 30, 2017March 31, 2019 compared to the prior year.

 

Restructuring Charges

 

Consolidated restructuring expense decreased $249,$27, or 88.3%67.5%, to $33$13 during the three months ended September 30, 2017,March 31, 2019, compared to consolidated restructuring expense of $282$40 during the three months ended September 30, 2016.March 31, 2018. Restructuring expenses incurred during the three months ended September 30, 2017,March 31, 2019, 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 $1,869$46 during the three months ended September 30, 2017,March 31, 2019, compared to consolidated transaction costs of $0$165 during the three months ended September 30, 2016,March 31, 2018, which consisted of expenses related to the Company’s acquisition of Sierra.

 

Interest Expense, net

 

Consolidated interest expense, net decreased $648,increased $56, or 90.1%22.0%, to $71$310 during the three months ended September 30, 2017,March 31, 2019, compared to consolidated interest expense, net, of $719$254 during the three months ended September 30, 2016.March 31, 2018. Interest expense recognized during the three months ended September 30, 2016March 31, 2019 was primarily attributable toassociated with the Company’s 5% Senior Subordinated Notes which were repaidaverage outstanding debt amounts during the three months ended March 31, 2017.

28

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)period.

 

Other, net

 

Consolidated other, net, decreased $209,$144, or 49.5%119.0%, to incomeexpense of $213$23 during the three months ended September 30, 2017,March 31, 2019, compared to consolidated other, net income of $422$121 during the three months ended September 30, 2016.March 31, 2018. The decrease in other, net, was primarily attributable to losses on mark-to-market adjustments on non-hedged foreign currency contracts and the absence of gains related to the sale of marketable securities during the three months ended September 30, 2017. These decreases were partially offset by an increase in remeasurement gainslosses recognized on the Company’s foreign denominated accounts receivable and accounts payable andpayable. This increase was partially offset by gains on mark-to-market adjustments on non-hedged foreign currency contracts. During the three months ended March 31, 2018, the income was primarily related to recognition of cumulative translation adjustments due to the substantial liquidation of a foreign entity.

 

23

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Income Taxes

 

Consolidated income tax expense (benefit) decreased $3,$339, or 0.4%807.1%, to $676expense of $297 expense during the three months ended September 30, 2017,March 31, 2019, compared to a consolidated income tax expensebenefit of $679$42 during the same period in 2016.2018. The tax expense recorded during the three months ended September 30, 2017March 31, 2019 includes a discrete chargesbenefit associated with a disproportionate tax effect released from accumulated other comprehensive lossrelease 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 liquidationreserve 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.$63.

 

Our effective income tax rate was 74.5%7.3% for the three months ended September 30, 2017,March 31, 2019, compared to 247.8%11.6% for the same period in 2016.2018. The primary reasons for the effective income tax rate changes are due to differing levels of income (loss) before income tax and discrete charges recorded during the respective periods. Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur. There were three discrete events in the amount of $421 recorded in the Company’s income tax provision calculation for the three months ended September 30, 2017. There was one discrete event in the amount of $520 recorded in the Company’s income tax provision calculation for the three months ended September 30, 2016.

29

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Results of Operations

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

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

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

Sales

Consolidated sales increased $11,220, or 10.5%, to $118,010 during the nine months ended September 30, 2017, compared to consolidated sales of $106,790 during the nine months ended September 30, 2016. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $3,532 in sales during the nine months ended September 30, 2017. The remaining increase in sales was attributable to an increase in the quantity of new and existing climb, mountain and ski products sold during the period and an increase in sales of $700 due to the strengthening of foreign currencies against the U.S. dollar during the nine months ended September 30, 2017 compared to the prior period.

Consolidated domestic sales increased $5,284, or 9.8%, to $59,474 during the nine months ended September 30, 2017, compared to consolidated domestic sales of $54,190 during the nine months ended September 30, 2016. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $2,301 in sales during the nine months ended September 30, 2017. The remaining increase in domestic sales was attributable to an increase in the quantity of new and existing climb and ski products sold during the period.

30

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Consolidated international sales increased $5,936, or 11.3%, to $58,536 during the nine months ended September 30, 2017, compared to consolidated international sales of $52,600 during the nine months ended September 30, 2016. The increase in sales was partially attributable to the inclusion of Sierra, which contributed $1,231 in sales during the nine months ended September 30, 2017. The remaining increase in international sales was attributable to an increase in the quantity of new and existing climb, mountain and ski products sold during the period and an increase in sales of $700 due to the strengthening of foreign currencies against the U.S. dollar during the nine months ended September 30, 2017 compared to the prior period.

Cost of Goods Sold

Consolidated cost of goods sold increased $6,233, or 8.3%, to $81,388 during the nine months ended September 30, 2017, compared to consolidated cost of goods sold of $75,155 during the nine months ended September 30, 2016. The increase in cost of goods sold was partially attributable to the inclusion of Sierra of $2,484, which included $420 related to the sale of inventory that was recorded at fair value in purchase accounting. The remaining amount of inventory that was recorded at fair value in purchase accounting, which totals $2,102, is expected to be sold during the fourth quarter of 2017 and first quarter of 2018. The remaining increase in cost of goods sold was attributable to an increase in the number of units sold and the mix of higher cost products sold.

Gross Profit

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

Selling, General and Administrative

Consolidated selling, general and administrative expenses increased $2,515, or 6.7%, to $39,826 during the nine months ended September 30, 2017, compared to consolidated selling, general and administrative expenses of $37,311 during the nine months ended September 30, 2016. The increase in selling, general and administrative expenses was partially attributable to the inclusion of Sierra of $632, with the remaining increase being attributable to the Company’s investment in the brand related activities of sales, marketing and research and development in supporting its strategic initiatives around new product introduction and increasing brand equity. Stock compensation also increased $536 during the nine months ended September 30, 2017 compared to the prior year.

Restructuring Charges

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

Transaction Costs

Consolidated transaction expense increased $1,600, or 594.8%, to $1,869 during the nine months ended September 30, 2017, compared to consolidated transaction costs of $269 during the nine months ended September 30, 2016. The expenses during the nine months ended September 30, 2017 consisted of expenses related to the Company’s acquisition of Sierra. The expenses during the nine months ended September 30, 2017 consisted of expenses related to the Company’s redeployment and diversification strategy.

Arbitration Award

During the 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.

31

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Interest Expense, net

Consolidated interest expense, net, decreased $1,194, or 55.7%, to $948 during the nine months ended September 30, 2017, compared to consolidated interest expense, net, of $2,142 during the nine months ended September 30, 2016. The decrease in interest expense, net, was primarily attributable to the repayment of the Company’s 5% Senior Subordinated Notes during the three months ended March 31, 2017.

Other, net

Consolidated other, net, decreased $391, or 47.3%, to income of $435 during the nine months ended September 30, 2017, compared to consolidated other, net income of $826 during the nine months ended September 30, 2016. The decrease in other, net, was primarily attributable to an increase in remeasurement losses recognized on the Company’s foreign denominated accounts receivable and accounts payable, 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.

Income Taxes

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

Our effective income tax rate was 17.4% for the nine months ended September 30, 2017, compared to 15.5% for the same period in 2016. The primary reasons for the effective income tax rate changes are due to differing levels of income (loss) before income tax and discrete charges recorded during the respective periods. Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur. There were 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 NineThree Months Ended September 30, 2017March 31, 2019 Compared to Condensed Consolidated NineThree Months Ended September 30, 2016March 31, 2018

 

The following presents a discussion of cash flows for the condensed consolidated ninethree months ended September 30, 2017March 31, 2019 compared with the condensed consolidated ninethree months ended September 30, 2016.March 31, 2018. 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,March 31, 2019, we had total cash of $1,672$2,522, compared to a cash balance of $94,738$2,486 at December 31, 2016,2018, which was substantially controlled by the Company’s U.S. entities. At September 30, 2017,March 31, 2019, the Company had $332$1,394 of the $1,672$2,522 in cash held by foreign entities, of which $332$622 is considered permanently reinvested.

 

  Three Months Ended 
  March 31, 2019  March 31, 2018 
       
Net cash provided by operating activities $5,705  $7,255 
Net cash used in investing activities  (1,045)  (851)
Net cash used in financing activities  (4,568)  (6,114)
Effect of foreign exchange rates on cash  (56)  50 
Change in cash  36   340 
Cash, beginning of period  2,486   1,856 
Cash, end of period $2,522  $2,196 

Net Cash From Operating Activities

Consolidated net cash provided by operating activities was $5,705 during the three months ended March 31, 2019, compared to $7,255 during the three months ended March 31, 2018. The decrease in net cash provided by operating activities during 2019 is primarily due to an increase in net operating assets, net of assets acquired or non-cash working capital of $5,893, partially offset by an increase to net income during the three months ended March 31, 2019, compared to the same period in 2018.

 3224 

 

 

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

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

Net Cash From Operating Activities

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

Free cash flow, defined as net cash provided by operating activities less capital expenditures, was free cash flows usedgenerated of $18,497$4,659 during the ninethree months ended September 30, 2017March 31, 2019 compared to free cash flows provided of $3,369$6,402 during the same period in 2016.2018. 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  Three Months Ended 
 September 30, 2017  September 30, 2016  March 31, 2019  March 31, 2018 
          
Net cash (used in) provided by operating activities $(16,578) $5,405 
Net cash provided by operating activities $5,705  $7,255 
Purchase of property and equipment  (1,919)  (2,036)  (1,046)  (853)
Free cash flow $(18,497) $3,369  $4,659  $6,402 

 

Net Cash From Investing Activities

 

Consolidated net cash used in investing activities was $81,104$1,045 during the ninethree months ended September 30, 2017,March 31, 2019, compared to consolidated net cash provided by investing activities of $7,301$851 during the ninethree months ended September 30, 2016.March 31, 2018. The increase in cash used during the ninethree months ended September 30, 2017March 31, 2019 is primarily due to an increase in purchases of property and equipment, compared to the $79,238 used for the purchase of Sierra, net of cash acquired. The cash provided during the nine months ended September 30, 2016 was primarily from the sale of marketable securities of $10,235.same period in 2018.

 

Net Cash From Financing Activities

 

Consolidated net cash provided by financing activities was $4,491 during the nine months ended September 30, 2017, compared to consolidated cash used in financing activities of $5,222was $4,568 during the ninethree months ended September 30, 2016. The cash providedMarch 31, 2019, compared to $6,114 during the ninethree months ended September 30, 2017 relates primarily to proceeds from the revolving credit facility offset by repayments of.March 31, 2018. The decrease in cash used during the ninethree months ended September 30, 2016 relatesMarch 31, 2019 was primarily due to a decrease in net repayments to the repurchaserevolving line of its common stock.credit partially offset by dividend payments, compared to the same period in 2018.

 

Net Operating Loss

 

As of December 31, 2016,2018, the Company had net operating loss (“NOL”) and research and experimentation credit and alternative minimum tax credit carryforwards for U.S. federal income tax purposes of $172,419 ($270, relates to excess tax benefits related to share based payment compensation), $3,407$141,067 and $315,$3,791, respectively. The Company believes its U.S. Federal net operating loss (“NOL”)NOL will substantially offset some of its future U.S. Federal income taxes, excluding the amount subject to U.S. Federal Alternative Minimum Tax (“AMT”). AMT is calculated as 20% of AMT income. For purposes of AMT, a maximum of 90% of income is offset by available NOLs.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. $172,149None of net operating lossesthe NOL available to offset taxable income does notwill expire until 2021 or later, subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.

 

33

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

As of December 31, 2016,2018, the Company’s gross deferred tax asset was $75,416.$47,922. The Company has recorded a valuation allowance of $67,662,$42,122, resulting in a net deferred tax asset of $7,754,$5,800, before deferred tax liabilities of $16,720.$8,719. The Company has provided a valuation allowance against a portion of the net deferred tax assets as of December 31, 2016,2018, 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 FacilityAgreement

In conjunction with the acquisition of Sierra, on August 21, 2017,On May 3, 2019, the Company together with certain of its direct and indirect domestic subsidiaries (the “Borrowers”) and the other loan parties party thereto entered into a third amendedCredit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, 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 uplenders from time 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 increaseparty thereto, for borrowings of up to $20,000 as an accordion option (the “Accordion”) to increase the Revolving Line of Credit$60,000 under a revolving credit facility (including up to the Maximum Borrowing on a seasonal or permanent basis$5,000 for funding general corporate needs including working capital, capital expenditures, permitted loans or investments in subsidiaries, and the issuance of letters of credit. Availabilitycredit), and borrowings of up to $40,000 under a term loan facility that is available to be drawn until May 3, 2020. The Credit Agreement also permits the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $50,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Revolving LineCredit Agreement of up to $150,000. The 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 agreementsmatures on domestic depository and investment accounts not held with the Lender.May 3, 2024.

 

The Third AmendedBorrowers may elect to have the revolving and Restated Loanterm loans under the Credit Agreement contains certain financial covenants including restrictive debt covenants that requirebear interest at an alternate base rate or a Eurodollar rate plus an applicable rate. The applicable rate for these borrowings will range from 0.50% to 1.25% per annum, in the Companycase of alternate base rate borrowings, and its subsidiaries1.50% to maintain a minimum fixed charge coverage ratio, a maximum2.25% per annum, in the case of Eurodollar borrowings. The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of Eurodollar borrowings, however, it may be adjusted from time to time based upon the level of the Company’s consolidated total leverage ratio,ratio. The Credit Agreement also requires the Borrowers to pay a minimum net worth, a positive amountcommitment fee on the unused portion of asset coveragethe revolving and limitations on capital expenditures, all as calculated interm loan commitments. Such commitment fee will range between 0.15% and 0.25% per annum, and is also based upon the Third Amended and Restated Loan Agreement.level of the Company’s consolidated total leverage ratio.

 

In addition,On May 3, 2019, concurrent with entering into the Third Amended and Restated LoanCredit 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 Loan2018 Credit Agreement, contains customary eventswhich provided for a revolving commitment of default (with grace periods where customary) including, among other things, failureup 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.$75,000, was terminated. As of September 30, 2017,March 31, 2019, the Company had drawn $27,353$18,271 on the $40,000approximately $50,000 of the revolving credit facility.commitment that was available for borrowing.

 

 3425 

 

 

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

5% Senior Subordinated Notes due May 28, 2017

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

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

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

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

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

 

Off-Balance Sheet Arrangements

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There has not been any material change in the market risk disclosure contained in our Annual Report on Form 10-K for the year ended December 31, 2016.2018.

35

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Executive Chairman and Chief Administrative Officer/Chief Financial Officer, its principal executive officer and principal financial officer, respectively, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e)13a-15I and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of September 30, 2017,March 31, 2019, 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,March 31, 2019, 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, the Company has implemented changes to its internal controls over financial reporting to include the consolidation of Sierra, as well as acquisition-related accounting and disclosures. The acquisition of Sierra represents a material change in internal control over financial reporting since management’s last assessment of the Company’s internal control over financial reporting, which was completed as of December 31, 2016.  

The Company’s management is reviewing and evaluating its internal control procedures and the design of those control procedures related to the Sierra acquisition and evaluating when it will complete an evaluation and review of Sierra’s internal controls over financial reporting.

Except as described above, thereThere has been no change in our internal control over financial reporting that occurred during our fiscal quarterthe three months ended September 30, 2017,March 31, 2019, 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, 2016.2018.

 

ITEM 5. OTHER INFORMATION

 

Credit Agreement

On November 7, 2017,May 3, 2019, Clarus Corporation (the “Company”), Black Diamond Retail, Inc., Black Diamond Retail – Alaska, LLC, Sierra Bullets, L.L.C., SKINourishment, LLC (collectively with the Company, deliveredthe “Borrowers”) and the other loan parties party thereto (together with the Borrowers, the “Loan Parties”) entered into a letterCredit Agreement (the “Letter”“Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”), and the lenders from time to Greenhouse Funds LLLPtime party thereto. Each of the Loan Parties, other than the Company, is a direct or indirect subsidiary of the Company.

The Credit Agreement matures on May 3, 2024 and its affiliates (collectively, “Greenhouse”) approving Greenhouse’s requestprovides for borrowings of up to be permitted$60.0 million under a revolving credit facility (including up to $5.0 million for letters of credit), and borrowings of up to $40.0 million under a term loan facility. The Credit Agreement also permits the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $50.0 million of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Company’s RightsCredit Agreement dated as of February 12, 2008up 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.$150.0 million.

 

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Furthermore,The term loan facility is available to be drawn until May 3, 2020 (the “Term Loan Funding Termination Date”). The proceeds from the term loan facility can only be used for certain permitted acquisitions, certain other acquisitions that have been previously communicated to the Administrative Agent, and for working capital and general corporate needs of the Borrowers and their subsidiaries in the eventordinary course of business. The Credit Agreement also provides for quarterly amortization payments of outstanding term loans on the last business day of each March, June, September and December, commencing with the last business day of the first full fiscal quarter to occur after the Term Loan Funding Termination Date. These quarterly amortization payments will be equal to 5% of the original principal amount of all term loans outstanding as of the Term Loan Funding Termination Date.

The Borrowers may elect to have the revolving and term loans under the Credit Agreement bear interest at an applicable rate plus either:

(i)in the case of alternate base rate borrowings, a rate per annum generally equal to the greatest of:

(a)the prime rate in effect on such day;

(b)0.50% plus the greater of the Federal Reserve Bank of New York’s effective federal funds rate or the Federal Reserve Bank of New York’s overnight bank funding rate in effect on such day; and

(c)1.00% plus an adjusted London Interbank Offered Rate (“LIBOR”) for an interest period of one month that is subject to a 0.00% floor;

provided that, Greenhouse increases its beneficial ownershipin certain circumstances where the alternate base rate is being used as an alternate rate of interest, the alternate base rate shall be determined only according to (a) and (b), and shall be subject to a 1.00% floor; or

(ii)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.

The applicable rate for these borrowings will range from 0.50% to 1.25% per annum, in excessthe case of 4.9%alternate base rate borrowings, and 1.50% to 2.25% per annum, in the case of Eurodollar borrowings. The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of Eurodollar borrowings, however, it may be adjusted from time to time based upon the level of the Company’s outstanding sharesconsolidated total leverage ratio, which is more fully discussed in the Credit Agreement. The Credit Agreement also requires the Borrowers to pay a commitment fee on the unused portion of common stockthe revolving and then subsequently reducesterm loan commitments. Such commitment fee will range between 0.15% and 0.25% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio, which is more fully discussed in the Credit Agreement.

The Credit Agreement contains customary affirmative and negative covenants, including limitations on the ability of the Company and its beneficial ownershipsubsidiaries to below 4.9%perform the following, subject to certain customary exceptions, qualifications and “baskets”: (i) incur additional debt; (ii) create liens; (iii) engage in mergers, consolidations, certain divisions, 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; (xii) permit the consolidated total leverage ratio, which is to be determined for each quarter end on a trailing twelve month basis, from exceeding a limit of 3 to 1; and (xiii) permit the consolidated fixed charge coverage ratio, which is to be determined for each quarter end on a trailing twelve month basis, to be less than 1.25 to 1.

The Credit Agreement also contains customary events of default, including, but not limited to: (i) failure to pay amounts due under the Credit Agreement; (ii) materially incorrect representations and warranties; (iii) failure to comply with covenants; (iv) change of control; and (v) default under other indebtedness aggregating at least $1.0 million.

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 pledges and liens on 100% of the approval grantedequity interests of domestic subsidiaries and 65% of the equity interests of certain foreign subsidiaries, the accounts receivable, inventory, intellectual property and certain other assets of the Loan Parties pursuant to the Letter shall immediately terminatePledge and Security Agreement (the “PSA”), dated as of May 3, 2019, by and among the applicable party would needLoan Parties and Administrative Agent. In addition, the Company has agreed to obtain a new approval fromgrant to the Company’s Board of Directors before seeking to again increase its beneficial ownership to in excess of 4.9%Administrative Agent, for the benefit of the Company’s outstanding shares of common stock.

A copylenders and within 90 days after May 3, 2019, a mortgage on the owned real property 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.Loan Parties.

 

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On May 3, 2019, concurrent with entering into the Credit Agreement, the Company terminated the Credit Agreement (the “Terminated Credit Agreement”), dated as of June 27, 2018, by and among the Company, Black Diamond Equipment, Ltd., Black Diamond Retail, Inc., Sierra Bullets, L.L.C., the other loan parties party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto. The Terminated Credit Agreement provided for a revolving commitment of up to $75.0 million.

The foregoing summaries of the Credit Agreement, PSA and Terminated Credit Agreement do not purport to be complete and are subject to, and qualified in their entirety by, the full text of the Credit Agreement, PSA and Terminated Credit Agreement. Copies of the Credit Agreement and PSA are filed as Exhibits 10.2 and 10.3, respectively, to this Quarterly Report on Form 10-Q and incorporated herein by reference. A copy of the Terminated Credit Agreement is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 3, 2018, and incorporated herein by reference.

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CLARUS CORPORATION

 

ITEM 6. EXHIBITS

 

Exhibit Description
   
10.1 Purchase and Sale AgreementLetter to ArrowMark Colorado Holdings, LLC 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.January 25, 2019 (filed as Exhibit 10.199.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 25, 2017January 31, 2019 and incorporated herein by reference).
   
10.2 Third Amended and Restated LoanCredit Agreement, effective as of August 21, 2017,May 3, 2019, by and among ZB, N.A. dba Zions First National Bank, a national banking association, as Lender, and Clarus Corporation; Black Diamond Equipment, Ltd.;the Company, Black Diamond Retail, Inc.; Everest/Sapphire Acquisition, LLC; BD North American Holdings, LLC; PIEPS Service, LLC; BD European Holdings,, Black Diamond Retail – Alaska, LLC, and Sierra Bullets, L.L.C., SKINourishment, LLC, the other loan parties party thereto, JPMorgan Chase Bank, N.A., as Borrowers (filed as Exhibit 10.2administrative agent, and the other lenders from time 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).time party thereto. *
   
10.3 Fourth AmendedPledge and Restated Promissory Note (Revolving Loan) datedSecurity Agreement, effective as of August 21, 2017,May 3, 2019, by and among Clarus Corporation;the Company, Black Diamond Equipment, Ltd.;, Black Diamond Retail, Inc.;, Sierra Bullets, L.L.C., Everest/Sapphire Acquisition, LLC; BD North American Holdings, LLC; PIEPS Service, LLC;LLC, BD European Holdings, LLC, SKINourishment, LLC, Black Diamond Retail – Alaska, LLC, the other grantors party thereto, 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).JPMorgan Chase Bank, N.A. *
   
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
   
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
   
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
   
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
   
99.1Letter to Greenhouse Funds LLLP dated November 7, 2017 *
101.INS XBRL Instance Document *
   
101.SCH XBRL Taxonomy Extension Schema Document *
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document *
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document *
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document *
   
* Filed herewith
   
** Furnished herewith

 

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CLARUS CORPORATION

 

SIGNATURES

 

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

 

 CLARUS CORPORATION
    
Date: May 6, 2019By:/s/ Warren B. Kanders
  
Date: November 7, 2017By: /s/ Warren B. Kanders
  Name: Warren B. Kanders
 
  Title: Executive Chairman
  (Principal Executive Officer)
    (Principal Executive Officer)

 By: /s//s/ Aaron J. Kuehne
 
  Name: Aaron J. Kuehne
Title: Chief Administrative Officer and
   

Title: Chief Administrative Officer and

Chief Financial Officer

  (Principal

(Principal Financial Officer)

  (Principal

(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

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