What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-10 · 122 added, 112 removed, 187 unchanged (56% of the section changed)

16 unchanged sentences

the Company’s ability to protect patents, trademarks and other intellectual property rights;

any breaches of, or interruptions in, our information systems;

the ability of our information technology systems or information security systems to operate effectively, including as a result of security breaches, viruses, hackers, malware, natural disasters, vendor business interruptions or other causes;

our ability to properly maintain, protect, repair or upgrade our information technology systems or information security systems, or problems with our transitioning to upgraded or replacement systems;

the impact of adverse publicity about the Company and/or its brands, including without limitation, through social media or in connection with brand damaging events and/or public perception;

fluctuations in the price, availability and quality of raw materials and contracted products as well as foreign currency fluctuations;

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Through our Sierra brand, we manufacture a wide range of high-performance bullets and ammunition for both rifles and pistols that are used for precision target shooting, hunting and military and law enforcement purposes.

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Clarus, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd.

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In October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”).

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

On August 14, 2017, the Company changed its name from Black Diamond, Inc.

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(“SKINourishment”).

On October 2, 2020, the Company completed the acquisition of certain assets and liabilities relating to the Barnes brand of bullets (“Barnes”) for a purchase price of $30,500.

See Note 15 of the unaudited condensed consolidated financial statements for a more detailed explanation of the acquisition.

On August 6, 2018, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend program of $0.025 per share of the Company’s common stock (the “Quarterly Cash Dividend”) or $0.10 per share on an annualized basis.

The declaration and payment of future Quarterly Cash Dividends is subject to the discretion of and approval of the Company’s Board of Directors.

On May 1, 2020, the Company announced that, in light of the COVID-19 pandemic, its Board of Directors had temporarily replaced its Quarterly Cash Dividend with a stock dividend and on July 31, 2020, the Company announced that the stock dividend will continue for the quarter ending September 30, 2020.

Each record holder of shares of the Company’s common stock as of the close of business on August 10, 2020 (the “Record Date”) will be entitled to receive 0.0021 of a share of the Company’s common stock for each share of common stock held on the Record Date.

The Company will distribute the stock dividend on August 21, 2020, the distribution date.

No fractional shares will be issued, and stockholders will receive cash for such fractional interests based on the closing market price of the Company’s common stock on the Record Date.

The quarterly stock dividend will have a value of $0.025 per share, based on the closing market price on July 30, 2020.

The dividend reflects an aggregate distribution of approximately 63 shares with a market value of approximately $747.

On May 1, 2020, the Company announced that, in light of the operational impact of the COVID-19 pandemic, its Board of Directors temporarily replaced its Quarterly Cash Dividend with a stock dividend (the “Quarterly Stock Dividend”).

On October 19, 2020, the Company announced that its Board of Directors approved the reinstatement of its Quarterly Cash Dividend.

The reinstated Quarterly Cash Dividend will be paid on November 20, 2020 to the shareholders of record of the Company’s common stock as of the close of business on November 9, 2020.

Impact of COVID-19

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The impact of this pandemic has created significant uncertainty in the global economy and has affected our business, employees, retail and distribution partners, suppliers, and customers.

The decline in retail demand within our Black Diamond segment over the second half of March 2020 and during the three months ended June 30, 2020, negatively impacted our sales and profitability for the first and second quarters of 2020.

We also expect an adverse impact on the Company’s sales and profitability in future periods.

The decline in retail demand within our Black Diamond segment over the second half of March 2020 and during the three months ended June 30, 2020 and September 30, 2020, negatively impacted our sales and profitability for the first, second and third quarters of 2020.

We also expect an impact on the Company’s sales and profitability in future periods.

The duration of these trends and the magnitude of such impacts cannot be precisely estimated at this time, as they are affected by a number of factors (some of which are outside management’s control), including those presented in Item 1A.

1 unchanged sentence

We generally expect the second quarter of 2020 to be the most significantly impacted with sequential improvement throughout the remainder of the fiscal year.

We are mitigating some of the negative impacts to our operating results by taking significant actions to improve our current operating results and liquidity position, including drawing on the credit facility, suspending share repurchases and cash dividends, postponing non-essential capital expenditures, reducing operating costs, modulating production in line with demand, initiating workforce reductions and furloughs, and substantially reducing discretionary spending.

We are mitigating some of the negative impacts to our operating results by taking significant actions to improve our current operating results and liquidity position, including drawing on the credit facility, suspending share repurchases and temporarily suspending cash dividends, postponing non-essential capital expenditures, reducing operating costs, modulating production in line with demand, initiating workforce reductions and furloughs, and substantially reducing discretionary spending.

We will continue to adjust mitigation measures as needed related to health and safety.

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As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess the impact on the Company and respond accordingly.

Sustained adverse impacts to the Company, certain suppliers, dealers or customers may also affect the Company’s future cash flows, liquidity, and valuation of certain assets and therefore may increase the likelihood of an impairment charge, write-off, or reserve associated with such assets, including goodwill, indefinite and finite-lived intangible assets, property and equipment, inventories, accounts receivable, tax assets, and other assets.

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

Sustained adverse impacts to the Company, certain of its suppliers, dealers or customers may also affect the Company’s future cash flows, liquidity, and valuation of certain assets and therefore may increase the likelihood of an impairment charge, write-off, or reserve associated with such assets, including goodwill, indefinite and finite-lived intangible assets, property and equipment, inventories, accounts receivable, net deferred tax assets, and other assets.

CLARUS CORPORATION

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(in thousands, except per share amounts)

and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements.

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.

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Accounting Pronouncements Issued Not Yet Adopted

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

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

CLARUS CORPORATION

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Results of Operations

Condensed Consolidated Three Months Ended June 30, 2020 Compared to Condensed Consolidated Three Months Ended June 30, 2019

The following presents a discussion of condensed consolidated operations for the three months ended June 30, 2020, compared with the condensed consolidated three months ended June 30, 2019.

Condensed Consolidated Three Months Ended September 30, 2020 Compared to Condensed Consolidated Three Months Ended September 30, 2019

The following presents a discussion of condensed consolidated operations for the three months ended September 30, 2020, compared with the condensed consolidated three months ended September 30, 2019.

Three Months Ended

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

Domestic sales

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Total operating expenses

Operating loss

Operating income

Other income (expense)

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Total other income (expense), net

Loss before income tax

Income tax benefit

Consolidated sales decreased $16,980, or 36.1%, to $30,014 during the three months ended June 30, 2020, compared to consolidated sales of $46,994 during the three months ended June 30, 2019.

We believe lower consumer demand related to the COVID-19 pandemic drove a decrease in the quantity of new and existing climb, mountain, and ski products sold during the period.

We also experienced a decrease in sales of $139 due to the strengthening of the U.S.

dollar against foreign currencies during the three months ended June 30, 2020 compared to the prior period.

These decreases were partially offset by an increase in the quantity of new and existing sport products sold of $663.

Consolidated domestic sales decreased $8,163, or 28.7%, to $20,259 during the three months ended June 30, 2020, compared to consolidated domestic sales of $28,422 during the three months ended June 30, 2019.

We believe the decrease in domestic sales was attributable to lower consumer demand related to the COVID-19 pandemic, which drove a decrease in the quantity of new and existing climb, mountain, and ski products sold during the period.

This decrease was partially offset by an increase in the quantity of new and existing sport products sold of $2,246.

Consolidated international sales decreased $8,817, or 47.5%, to $9,755 during the three months ended June 30, 2020, compared to consolidated international sales of $18,572 during the three months ended June 30, 2019.

We believe the decrease in international sales was attributable to lower consumer demand related to the COVID-19 pandemic, which drove a decrease in the quantity of new and existing climb, mountain, and ski products sold during the period.

We also experienced a decrease in the quantity of new and existing

Income before income tax

Income tax expense (benefit)

Consolidated sales increased $4,288, or 7.1%, to $64,491 during the three months ended September 30, 2020, compared to consolidated sales of $60,203 during the three months ended September 30, 2019.

The increase in sales was attributable to the increase in the quantity of new and existing sport products sold of $8,676.

We also experienced an increase in sales of $279 due to the weakening of the U.S.

dollar against foreign currencies during the three months ended September 30, 2020 compared to the prior period.

We believe these increases were partially offset by lower consumer demand related to the COVID-19 pandemic, which drove a decrease in the quantity of new and existing climb, mountain, and ski products sold during the period.

Consolidated domestic sales increased $5,892, or 20.5%, to $34,686 during the three months ended September 30, 2020, compared to consolidated domestic sales of $28,794 during the three months ended September 30, 2019.

The increase in sales was attributable to the increase in the quantity of new and existing sport products sold of $7,573.

We believe the increase in domestic sales was partially offset by lower consumer demand related to the COVID-19 pandemic, which drove a decrease in the quantity of new and existing climb, mountain, and ski products sold during the period.

Consolidated international sales decreased $1,604, or 5.1%, to $29,805 during the three months ended September 30, 2020, compared to consolidated international sales of $31,409 during the three months ended September 30, 2019.

We believe the decrease in international sales was attributable to lower consumer demand related to the COVID-19 pandemic, which drove a decrease in the

CLARUS CORPORATION

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(in thousands, except per share amounts)

sport products sold of $1,583 and a decrease in sales of $139 due to the strengthening of the U.S.

dollar against foreign currencies during the three months ended June 30, 2020 compared to the prior period.

quantity of new and existing climb, mountain, and ski products sold during the period.

The decrease was partially offset by an increase in the quantity of new and existing sport products sold of $1,103 and an increase in sales of $279 due to the weakening of the U.S.

dollar against foreign currencies during the three months ended September 30, 2020 compared to the prior period.

Cost of Goods Sold

Consolidated cost of goods sold decreased $11,624, or 37.5%, to $19,378 during the three months ended June 30, 2020, compared to consolidated cost of goods sold of $31,002 during the three months ended June 30, 2019.

The decrease in cost of goods sold was primarily attributable to a decrease in the number of units sold due to lower consumer demand related to the COVID-19 pandemic.

Consolidated gross profit decreased $5,356 or 33.5%, to $10,636 during the three months ended June 30, 2020, compared to consolidated gross profit of $15,992 during the three months ended June 30, 2019.

Consolidated gross margin was 35.4% during the three months ended June 30, 2020, compared to a consolidated gross margin of 34.0% during the three months ended June 30, 2019.

Consolidated gross margin during the three months ended June 30, 2020, increased compared to the prior year due to a favorable product mix in higher margin products all the while experiencing unfavorable impacts on our supply chain and logistic activities due to the COVID-19 pandemic, along with negative impacts from foreign currency and tariffs.

Consolidated cost of goods sold increased $3,176, or 8.0%, to $42,822 during the three months ended September 30, 2020, compared to consolidated cost of goods sold of $39,646 during the three months ended September 30, 2019.

The increase in cost of goods sold was primarily attributable to an increase in the number of units sold.

Consolidated gross profit increased $1,112 or 5.4%, to $21,669 during the three months ended September 30, 2020, compared to consolidated gross profit of $20,557 during the three months ended September 30, 2019.

Consolidated gross margin was 33.6% during the three months ended September 30, 2020, compared to a consolidated gross margin of 34.1% during the three months ended September 30, 2019.

Consolidated gross margin during the three months ended September 30, 2020, decreased compared to the prior year due to unfavorable impacts on our supply chain and logistic activities due to the COVID-19 pandemic.

Selling, General and Administrative

Consolidated selling, general, and administrative expenses decreased $2,699, or 15.7%, to $14,493 during the three months ended June 30, 2020, compared to consolidated selling, general and administrative expenses of $17,192 during the three months ended June 30, 2019.

The decrease in selling, general and administrative expenses reflect the cost-saving initiatives implemented in response to the COVID-19 pandemic, primarily related to reductions within sales, marketing, and logistics.

Consolidated selling, general, and administrative expenses increased $2,231, or 13.6%, to $18,674 during the three months ended September 30, 2020, compared to consolidated selling, general and administrative expenses of $16,443 during the three months ended September 30, 2019.

The increase in selling, general and administrative expenses reflect an increase of stock compensation of $3,526 during the three months ended September 30, 2020 compared to the prior year.

The increase was partially offset by the cost-saving initiatives implemented in response to the COVID-19 pandemic, primarily related to reductions within sales, marketing, research and development, and brand supporting activities.

Transaction Costs

Consolidated transaction expense increased to $180 during the three months ended June 30, 2020, compared to consolidated transaction costs of $41 during the three months ended June 30, 2019, which consisted of expenses related to the Company’s efforts to acquire S.K.B.

Consolidated transaction expense increased to $1,440 during the three months ended September 30, 2020, compared to consolidated transaction costs of $37 during the three months ended September 30, 2019, which consisted of expenses related to the Company’s various acquisition efforts, including acquiring the Barnes Purchased Assets.

Interest Expense, net

Consolidated interest expense, net during the three months ended June 30, 2020 remained consistent with consolidated interest expense, net, during the three months ended June 30, 2019.

Consolidated other, net, income increased $223, or 121.9%, to $406 during the three months ended June 30, 2020, compared to consolidated other, net income of $183 during the three months ended June 30, 2019.

Consolidated interest expense, net during the three months ended September 30, 2020 remained relatively consistent with consolidated interest expense, net, during the three months ended September 30, 2019.

Consolidated other, net, income increased $869, or 206.9%, to $449 during the three months ended September 30, 2020, compared to consolidated other, net expense of $420 during the three months ended September 30, 2019.

The increase in other, net, was primarily attributable to an increase in remeasurement gains recognized on the Company’s foreign denominated accounts receivable and accounts payable.

This decrease was partially offset by losses on mark-to-market adjustments on non-hedged foreign currency contracts.

Consolidated income tax benefit increased $466, or 68.6%, to $1,145 during the three months ended June 30, 2020, compared to a consolidated income tax benefit of $679 during the same period in 2019.

Our effective income tax rate was 29.4% for the three months ended June 30, 2020, and was higher compared to the statutory tax rates due to permanent book to tax differences primarily related to incentive stock options.

For the three months ended June 30, 2019, our effective income tax rate was 49.5% and was higher compared to the statutory tax rates due to a stock compensation windfall.

Consolidated income tax expense increased $777, or 413.3%, to $589 during the three months ended September 30, 2020, compared to a consolidated income tax benefit of $188 during the same period in 2019.

Our effective income tax rate was 33.2% for the three months ended September 30, 2020, and was higher compared to the statutory tax rates due to permanent book to tax differences primarily related to incentive stock options.

For the three months ended September 30, 2019, our effective income tax rate was 5.7% and was lower compared to the statutory tax rates due to a stock compensation windfall.

CLARUS CORPORATION

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Results of Operations

Condensed Consolidated Six Months Ended June 30, 2020 Compared to Condensed Consolidated Six Months Ended June 30, 2019

The following presents a discussion of condensed consolidated operations for the six months ended June 30, 2020, compared with the condensed consolidated six months ended June 30, 2019.

Six Months Ended

June 30, 2020

June 30, 2019

Condensed Consolidated Nine Months Ended September 30, 2020 Compared to Condensed Consolidated Nine Months Ended September 30, 2019

The following presents a discussion of condensed consolidated operations for the nine months ended September 30, 2020, compared with the condensed consolidated nine months ended September 30, 2019.

Nine Months Ended

September 30, 2020

September 30, 2019

Domestic sales

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Net (loss) income

Consolidated sales decreased $24,643, or 22.8%, to $83,569 during the six months ended June 30, 2020, compared to consolidated sales of $108,212 during the six months ended June 30, 2019.

Consolidated sales decreased $20,355, or 12.1%, to $148,060 during the nine months ended September 30, 2020, compared to consolidated sales of $168,415 during the nine months ended September 30, 2019.

We believe lower consumer demand related to the COVID-19 pandemic drove a decrease in the quantity of new and existing climb, mountain, and ski products sold during the period.

We also experienced a decrease in the quantity of new and existing sport products sold of $394 and a decrease in sales of $577 due to the strengthening of the U.S.

dollar against foreign currencies during the six months ended June 30, 2020 compared to the prior period.

Consolidated domestic sales decreased $10,204, or 17.3%, to $48,807 during the six months ended June 30, 2020, compared to consolidated domestic sales of $59,011 during the six months ended June 30, 2019.

We also experienced a decrease in sales of $297 due to the strengthening of the U.S.

dollar against foreign currencies during the nine months ended September 30, 2020 compared to the prior period.

These decreases were partially offset by an increase in the quantity of new and existing sport products sold of $8,282.

Consolidated domestic sales decreased $4,312, or 4.9%, to $83,493 during the nine months ended September 30, 2020, compared to consolidated domestic sales of $87,805 during the nine months ended September 30, 2019.

This decrease was partially offset by an increase in the quantity of new and existing sport products sold of $9,622.

Consolidated international sales decreased $14,439, or 29.3%, to $34,762 during the six months ended June 30, 2020, compared to consolidated international sales of $49,201 during the six months ended June 30, 2019.

We also experienced a decrease in the quantity of new and existing sport products sold of $2,443 and a decrease in sales of $577 due to the strengthening of the U.S.

dollar against foreign currencies during

Consolidated international sales decreased $16,043, or 19.9%, to $64,567 during the nine months ended September 30, 2020, compared to consolidated international sales of $80,610 during the nine months ended September 30, 2019.

We believe the decrease in

CLARUS CORPORATION

1 unchanged sentence

(in thousands, except per share amounts)

the six months ended June 30, 2020 compared to the prior period.

international sales was attributable to lower consumer demand related to the COVID-19 pandemic, which drove a decrease in the quantity of new and existing climb, mountain, and ski products sold during the period.

We also experienced a decrease in the quantity of new and existing sport products sold of $1,340 and a decrease in sales of $297 due to the strengthening of the U.S.

dollar against foreign currencies during the nine months ended September 30, 2020 compared to the prior period.

Cost of Goods Sold

Consolidated cost of goods sold decreased $15,743, or 22.4%, to $54,421 during the six months ended June 30, 2020, compared to consolidated cost of goods sold of $70,164 during the six months ended June 30, 2019.

Consolidated cost of goods sold decreased $12,567, or 11.4%, to $97,243 during the nine months ended September 30, 2020, compared to consolidated cost of goods sold of $109,810 during the nine months ended September 30, 2019.

The decrease in cost of goods sold was primarily attributable to a decrease in the number of units sold due to lower consumer demand related to the COVID-19 pandemic.

Consolidated gross profit decreased $8,900 or 23.4%, to $29,148 during the six months ended June 30, 2020, compared to consolidated gross profit of $38,048 during the six months ended June 30, 2019.

Consolidated gross margin was 34.9% during the six months ended June 30, 2020, compared to a consolidated gross margin of 35.2% during the six months ended June 30, 2019.

Consolidated gross margin during the six months ended June 30, 2020, decreased compared to the prior year due to unfavorable impacts on our supply chain and logistic activities due to the COVID-19 pandemic, along with negative impacts from foreign currency and tariffs.

Consolidated gross profit decreased $7,788 or 13.3%, to $50,817 during the nine months ended September 30, 2020, compared to consolidated gross profit of $58,605 during the nine months ended September 30, 2019.

Consolidated gross margin was 34.3% during the nine months ended September 30, 2020, compared to a consolidated gross margin of 34.8% during the nine months ended September 30, 2019.

Consolidated gross margin during the nine months ended September 30, 2020, decreased compared to the prior year due to unfavorable impacts on our supply chain and logistic activities due to the COVID-19 pandemic, along with negative impacts from foreign currency and tariffs.

Selling, General and Administrative

Consolidated selling, general, and administrative expenses decreased $2,909, or 8.4%, to $31,863 during the six months ended June 30, 2020, compared to consolidated selling, general and administrative expenses of $34,772 during the six months ended June 30, 2019.

Consolidated selling, general, and administrative expenses decreased $678, or 1.3%, to $50,537 during the nine months ended September 30, 2020, compared to consolidated selling, general and administrative expenses of $51,215 during the nine months ended September 30, 2019.

The decrease was partially offset by an increase of stock compensation of $3,187 during the nine months ended September 30, 2020 compared to the prior year.

Restructuring Charges

Consolidated restructuring expense decreased to $0 during the six months ended June 30, 2020, compared to consolidated restructuring expense of $13 during the six months ended June 30, 2019.

Restructuring expenses incurred during the six months ended June 30, 2019, related to costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China.

Consolidated restructuring expense decreased to $0 during the nine months ended September 30, 2020, compared to consolidated restructuring expense of $13 during the nine months ended September 30, 2019.

Restructuring expenses incurred during the nine months ended September 30, 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 increased to $430 during the six months ended June 30, 2020, compared to consolidated transaction costs of $87 during the six months ended June 30, 2019, which consisted of expenses related to the Company’s efforts to acquire S.K.B.

Consolidated transaction expense increased to $1,870 during the nine months ended September 30, 2020, compared to consolidated transaction costs of $124 during the nine months ended September 30, 2019, which consisted of expenses related to the Company’s various acquisition efforts, including acquiring the Barnes Purchased Assets.

Interest Expense, net

Consolidated interest expense, net during the six months ended June 30, 2020 remained consistent with consolidated interest expense, net, during the six months ended June 30, 2019.

Consolidated other, net, decreased $285, or 178.1%, to expense of $125 during the six months ended June 30, 2020, compared to consolidated other, net income of $160 during the six months ended June 30, 2019.

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.

This decrease was partially offset by gains on mark-to-market adjustments on non-hedged foreign currency contracts.

Consolidated income tax benefit increased $749, or 196.1%, to $1,131 during the six months ended June 30, 2020, compared to a consolidated income tax benefit of $382 during the same period in 2019.

Our effective income tax rate was 29.5% for the six months ended June 30, 2020, and was higher compared to the statutory tax rates due to permanent book to tax differences primarily related to incentive stock options.

For the six months ended June 30, 2019, our effective income tax rate was 14.1% and is lower compared to the statutory tax rates due to a discrete benefit associated with a release of a tax reserve.

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.

Consolidated interest expense, net during the nine months ended September 30, 2020 remained relatively consistent with consolidated interest expense, net, during the nine months ended September 30, 2019.

Consolidated other, net, increased $584, or 224.6%, to income of $324 during the nine months ended September 30, 2020, compared to consolidated other, net expense of $260 during the nine months ended September 30, 2019.

The increase in other, net, was primarily attributable to an increase in remeasurement gains recognized on the Company’s foreign denominated accounts receivable and accounts payable.

This increase was partially offset by losses on mark-to-market adjustments on non-hedged foreign currency contracts.

Consolidated income tax benefit decreased $28, or 4.9%, to $542 during the nine months ended September 30, 2020, compared to a consolidated income tax benefit of $570 during the same period in 2019.

Our effective income tax rate was 26.2% for the nine months

CLARUS CORPORATION

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(in thousands, except per share amounts)

ended September 30, 2020, and was higher compared to the statutory tax rates due to permanent book to tax differences primarily related to incentive stock options.

For the nine months ended September 30, 2019, our effective income tax rate was 9.5% and is lower compared to the statutory tax rates due to a discrete benefit associated with a release of a tax reserve.

Liquidity and Capital Resources

Condensed Consolidated Six Months Ended June 30, 2020 Compared to Condensed Consolidated Six Months Ended June 30, 2019

Condensed Consolidated Nine Months Ended September 30, 2020 Compared to Condensed Consolidated Nine Months Ended September 30, 2019

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 these activities through a combination of our future operating cash flows and revolving credit facility which had approximately $50,400 available to borrow at June 30, 2020.

We plan to fund these activities through a combination of our future operating cash flows and revolving credit facility which had approximately $38,900 available to borrow at September 30, 2020.

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.

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Further, we borrowed $20,000 under the term loan portion of the Credit Agreement to increase our overall liquidity.

The proceeds borrowed on the term loan were used to pay down amounts outstanding on our revolving loan commitment.

The Company is required to repay the term loan through quarterly payments of $1,000 each beginning with September 30, 2020, and any remaining obligations will be repaid in full on the maturity date of the Credit Agreement of May 3, 2024.

At June 30, 2020, we had total cash of $21,538, compared to a cash balance of $1,703 at December 31, 2019, which was substantially controlled by the Company’s U.S.

At June 30, 2020, the Company had $5,793 of the $21,538 in cash held by foreign entities, of which $1,281 is considered permanently reinvested.

The following presents a discussion of cash flows for the condensed consolidated six months ended June 30, 2020 compared with the condensed consolidated six months ended June 30, 2019.

Six Months Ended

June 30, 2020

June 30, 2019

Additionally, during the three months ended September 30, 2020, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with three existing stockholders of the Company.

Pursuant to the Securities Purchase Agreement, the Company sold its common stock in a registered direct offering (the “Offering”).

The net proceeds to the Company from the Offering were $11,151, after deducting estimated Offering expenses payable by the Company, and were used to pay down amounts outstanding on our revolving loan commitment.

The Offering was made pursuant to the Company’s effective registration statement on Form S-3 (File No.

333-218751), previously filed with and declared effective by the Securities and Exchange Commission

At September 30, 2020, we had total cash of $17,027, compared to a cash balance of $1,703 at December 31, 2019, which was substantially controlled by the Company’s U.S.

At September 30, 2020, the Company had $6,093 of the $17,027 in cash held by foreign entities, of which $762 is considered permanently reinvested.

The following presents a discussion of cash flows for the condensed consolidated nine months ended September 30, 2020 compared with the condensed consolidated nine months ended September 30, 2019.

Nine Months Ended

September 30, 2020

September 30, 2019

Net cash provided by operating activities

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Cash, end of period

Net Cash From Operating Activities

Consolidated net cash provided by operating activities was $14,442 during the six months ended June 30, 2020, compared to $9,672 during the six months ended June 30, 2019.

The increase in net cash provided by operating activities during 2020 is primarily due to an increase in net operating assets, or non-cash working capital, of $12,254, partially offset by a decrease in net income and change in deferred taxes during the six months ended June 30, 2020, compared to the same period in 2019.

CLARUS CORPORATION

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(in thousands, except per share amounts)

Free cash flow, defined as net cash provided by operating activities less capital expenditures, of $12,421 was generated during the six months ended June 30, 2020 compared to $7,678 generated during the same period in 2019.

Net Cash From Operating Activities

Consolidated net cash provided by operating activities was $21,048 during the nine months ended September 30, 2020, compared to $5,635 during the nine months ended September 30, 2019.

The increase in net cash provided by operating activities during 2020 is primarily due to an increase in net operating assets, or non-cash working capital, of $20,915, and stock compensation of $3,187, partially offset by a decrease in net income during the nine months ended September 30, 2020, compared to the same period in 2019.

Free cash flow, defined as net cash provided by operating activities less capital expenditures, of $17,442 was generated during the nine months ended September 30, 2020 compared to $2,797 generated during the same period in 2019.

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:

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

Net cash provided by operating activities

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Net Cash From Investing Activities

Consolidated net cash used in investing activities was $2,018 during the six months ended June 30, 2020, compared to $1,993 during the six months ended June 30, 2019.

The increase in cash used during the six months ended June 30, 2020 is due to an increase in purchases of property and equipment, compared to the same period in 2019.

Consolidated net cash used in investing activities was $33,779 during the nine months ended September 30, 2020, compared to $2,818 during the nine months ended September 30, 2019.

The increase in cash used during the nine months ended September 30, 2020 is due to a deposit the Company paid to be applied to the purchase of the assets of the Barnes brand as well as an increase in purchases of property and equipment, compared to the same period in 2019.

Net Cash From Financing Activities

Consolidated net cash provided by financing activities was $7,397 during the six months ended June 30, 2020, compared to consolidated net cash used of $8,195 during the six months ended June 30, 2019.

The increase in cash provided during the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to the proceeds of $20,000 borrowed under the term loan partially offset by net repayments to the revolving line of credit.

Consolidated net cash provided by financing activities was $27,956 during the nine months ended September 30, 2020, compared to consolidated net cash used of $3,379 during the nine months ended September 30, 2019.

The increase in cash provided during the nine months ended September 30, 2020 compared to the same period in 2019 was primarily due to the proceeds of $20,000 borrowed under the term loan and the net proceeds from the Offering of $11,151.

These increases were partially offset by net repayments to the revolving line of credit and repayments of the term loan.

Net Operating Loss

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The Company has recorded a valuation allowance of $28,632, resulting in a net deferred tax asset of $15,313, before deferred tax liabilities of $8,633.

The Company has provided a valuation allowance against a portion of the net deferred tax assets as of June 30, 2020 and December 31, 2019, because the ultimate realization of those assets does not meet the more likely than not criteria.

The Company has provided a valuation allowance against a portion of the net deferred tax assets as of September 30, 2020 and December 31, 2019, 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.

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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 also

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

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.

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The Credit Agreement also requires the Borrowers to pay a commitment fee on the unused portion of the revolving and term loan commitments.

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

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.

As of June 30, 2020, the Company had drawn approximately $ 9,566 of the $60,000 revolving loan commitment, and $20,000 of the $40,000 term loan commitment, that was available for borrowing under the Credit Agreement.

As of June 30, 2020, the interest rate for such loans was 1.7500% and 1.6875 %, respectively.

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.

As of September 30, 2020, the Company had drawn approximately $ 21,066 of the $60,000 revolving loan commitment that was available for borrowing under the Credit Agreement, and $19,000 outstanding under the term loan commitment.

As of September 30, 2020, the interest rate for each loan was 1.6875% .

On April 30, 2020, the Company borrowed $20,000 under the term loan facility and used the proceeds to pay down amounts outstanding under the revolving portion of the Credit Agreement.

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The Credit Agreement also includes other customary affirmative and negative covenants, including financial covenants relating to the Company’s consolidated total leverage ratio and fixed charge coverage ratio.

The Company was in compliance with the debt covenants set forth in the Credit Agreement as of June 30, 2020.

The Company was in compliance with the debt covenants set forth in the Credit Agreement as of September 30, 2020.

Off-Balance Sheet Arrangements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis