Clarus Corp 10-Q

ITEM 1. FINANCIAL STATEMENTS CLARUS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except per share amounts) September 30, 2020 December 31, 2019 Assets Current assets Cash $ 17,027 $ 1,703 Accounts receivable, less allowance for credit losses and doubtful accounts of $ 1,460 and $ 494 , respectively 42,582 41,628 Inventories 64,897 73,432 Prepaid and other current assets 4,544 3,787 Income tax receivable 532 322 Total current assets 129,582 120,872 Property and equipment, net 22,691 22,919 Other intangible assets, net 13,610 15,816 Indefinite lived intangible assets 41,772 41,630 Goodwill 18,090 18,090 Deferred income taxes 8,728 7,904 Other long-term assets 33,365 3,034 Total assets $ 267,838 $ 230,265 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued liabilities $ 29,157 $ 24,304 Income tax payable 489 260 Current portion of long-term debt 4,000 - Total current liabilities 33,646 24,564 Long-term debt 37,062 22,670 Deferred income taxes 1,219 1,224 Other long-term liabilities 624 615 Total liabilities 72,551 49,073 Stockholders' Equity Preferred stock, $. 0001 par value per share; 5,000 shares authorized; no ne issued - - Common stock, $.0001 par value per share; 100,000 shares authorized; 35,021 and 33,615 issued and 31,051 and 29,760 outstanding, respectively 4 3 Additional paid in capital 511,331 492,353 Accumulated deficit ( 292,393 ) ( 288,592 ) Treasury stock, at cost ( 23,789 ) ( 22,269 ) Accumulated other comprehensive income (loss) 134 ( 303 ) Total stockholders' equity 195,287 181,192 Total liabilities and stockholders' equity $ 267,838 $ 230,265 See accompanying notes to condensed consolidated financial statements. ‎ 3 CLARUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands, except per share amounts) Three Months Ended September 30, 2020 September 30, 2019 Sales Domestic sales $ 34,686 $ 28,794 International sales 29,805 31,409 Total sales 64,491 60,203 Cost of goods sold 42,822 39,646 Gross profit 21,669 20,557 Operating expenses Selling, general and administrative 18,674 16,443 Transaction costs 1,440 37 Total operating expenses 20,114 16,480 Operating income 1,555 4,077 Other income (expense) Interest expense, net ( 232 ) ( 353 ) Other, net 449 ( 420 ) Total other income (expense), net 217 ( 773 ) Income before income tax 1,772 3,304 Income tax expense (benefit) 589 ( 188 ) Net income 1,183 3,492 Other comprehensive income, net of tax: Foreign currency translation adjustment 807 ( 726 ) Unrealized (loss) gain on hedging activities ( 600 ) 759 Other comprehensive income 207 33 Comprehensive income $ 1,390 $ 3,525 Net income per share: Basic $ 0.04 $ 0.12 Diluted 0.04 0.11 Weighted average shares outstanding: Basic 29,983 29,876 Diluted 30,986 31,077 See accompanying notes to condensed consolidated financial statements. ‎ 4 CLARUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited) (In thousands, except per share amounts) Nine Months Ended September 30, 2020 September 30, 2019 Sales Domestic sales $ 83,493 $ 87,805 International sales 64,567 80,610 Total sales 148,060 168,415 Cost of goods sold 97,243 109,810 Gross profit 50,817 58,605 Operating expenses Selling, general and administrative 50,537 51,215 Restructuring charge - 13 Transaction costs 1,870 124 Total operating expenses 52,407 51,352 Operating (loss) income ( 1,590 ) 7,253 Other expense Interest expense, net ( 800 ) ( 978 ) Other, net 324 ( 260 ) Total other expense, net ( 476 ) ( 1,238 ) (Loss) income before income tax ( 2,066 ) 6,015 Income tax benefit ( 542 ) ( 570 ) Net (loss) income ( 1,524 ) 6,585 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment 773 ( 869 ) Unrealized (loss) gain on hedging activities ( 336 ) 171 Other comprehensive income (loss) 437 ( 698 ) Comprehensive (loss) income $ ( 1,087 ) $ 5,887 Net (loss) income per share: Basic $ ( 0.05 ) $ 0.22 Diluted ( 0.05 ) 0.21 Weighted average shares outstanding: Basic 29,854 29,841 Diluted 29,854 30,999 See accompanying notes to condensed consolidated financial statements. ‎ 5 CLARUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September 30, 2020 September 30, 2019 Cash Flows From Operating Activities: Net (loss) income $ ( 1,524 ) $ 6,585 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation of property and equipment 3,405 3,332 Amortization of other intangible assets 2,290 2,665 Amortization of debt issuance costs 230 206 Loss on disposition of property and equipment 32 62 Noncash lease expense 563 501 Stock-based compensation 5,433 2,246 Deferred income taxes ( 885 ) ( 551 ) Changes in operating assets and liabilities: Accounts receivable ( 541 ) ( 6,480 ) Inventories 9,477 ( 9,310 ) Prepaid and other assets ( 971 ) 3 Accounts payable and accrued liabilities 3,530 6,559 Income taxes 9 ( 183 ) Net cash provided by operating activities 21,048 5,635 Cash Flows From Investing Activities: Deposit for business acquisition ( 30,500 ) - Proceeds from disposition of property and equipment 327 20 Purchase of property and equipment ( 3,606 ) ( 2,838 ) Net cash used in investing activities ( 33,779 ) ( 2,818 ) Cash Flows From Financing Activities: Proceeds from revolving credit facilities 49,265 106,934 Repayments on revolving credit facilities ( 50,014 ) ( 104,088 ) Repayments of financing and capital leases ( 1,000 ) ( 31 ) Proceeds from issuance of long-term debt 20,000 - Payment of debt issuance costs ( 44 ) ( 680 ) Purchase of treasury stock ( 1,520 ) ( 4,167 ) Proceeds from exercise of stock options 862 896 Cash dividends paid ( 744 ) ( 2,243 ) Proceeds from the sale of common stock 11,476 - Common stock issuance costs ( 325 ) - Net cash provided by (used in) financing activities 27,956 ( 3,379 ) Effect of foreign exchange rates on cash 99 ( 73 ) Change in cash 15,324 ( 635 ) Cash, beginning of period 1,703 2,486 Cash, end of period $ 17,027 $ 1,851 Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $ 418 $ 131 Cash paid for interest $ 624 $ 781 Supplemental Disclosures of Non-Cash Investing and Financing Activities: Property and equipment purchased with accounts payable $ 286 $ 133 Lease liabilities arising from obtaining right of use assets $ 499 $ 1,855 Unpaid debt issuance costs $ 150 $ - Stock dividends $ 1,533 $ - See accompanying notes to condensed consolidated financial statements. 6 CLARUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (In thousands, except per share amounts) Accumulated Additional Other Total Common Stock Paid-In Accumulated Treasury Stock Comprehensive Stockholders' Shares Amount Capital Deficit Shares Amount Income (Loss) Equity Balance, December 31, 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-based compensation expense - - 785 - - - - 785 Balance, March 31, 2019 33,244 $ 3 $ 489,189 $ ( 301,536 ) ( 3,496 ) $ ( 18,102 ) $ 15 $ 169,569 Net loss - - - ( 694 ) - - - ( 694 ) Other comprehensive loss - - - - - - ( 269 ) ( 269 ) Cash dividends ($ 0.025 per share) - - - ( 748 ) - - - ( 748 ) Purchase of treasury stock - - - - ( 116 ) ( 1,505 ) - ( 1,505 ) Stock-based compensation expense - - 783 - - - - 783 Proceeds from exercise of options 351 - 804 - - - - 804 Balance, June 30, 2019 33,595 $ 3 $ 490,776 $ ( 302,978 ) ( 3,612 ) $ ( 19,607 ) $ ( 254 ) $ 167,940 Net income - - - 3,492 - - - 3,492 Other comprehensive income - - - - - - 33 33 Cash dividends ($ 0.025 per share) - - - ( 749 ) - - - ( 749 ) Purchase of treasury stock - - - - ( 243 ) ( 2,662 ) - ( 2,662 ) Stock-based compensation expense - - 678 - - - - 678 Proceeds from exercise of options 10 - 92 - - - - 92 Balance, September 30, 2019 33,605 $ 3 $ 491,546 $ ( 300,235 ) ( 3,855 ) $ ( 22,269 ) $ ( 221 ) $ 168,824 ‎ 7 CLARUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (In thousands, except per share amounts) Accumulated Additional Other Total Common Stock Paid-In Accumulated Treasury Stock Comprehensive Stockholders' Shares Amount Capital Deficit Shares Amount Income (Loss) Equity Balance, December 31, 2019 33,615 $ 3 $ 492,353 $ ( 288,592 ) ( 3,855 ) $ ( 22,269 ) $ ( 303 ) $ 181,192 Net income - - - 36 - - - 36 Other comprehensive income - - - - - - 412 412 Cash dividends ($ 0.025 per share) - - - ( 744 ) - - - ( 744 ) Stock-based compensation expense - - 613 - - - - 613 Balance, March 31, 2020 33,615 $ 3 $ 492,966 $ ( 289,300 ) ( 3,855 ) $ ( 22,269 ) $ 109 $ 181,509 Net loss - - - ( 2,743 ) - - - ( 2,743 ) Other comprehensive loss - - - - - - ( 182 ) ( 182 ) Stock dividends ($ 0.025 per share) 70 - 714 ( 714 ) - - - - Purchase of treasury stock - - - - ( 14 ) ( 137 ) - ( 137 ) Stock-based compensation expense - - 616 - - - - 616 Proceeds from exercise of options 72 - 497 - - - - 497 Balance, June 30, 2020 33,757 $ 3 $ 494,793 $ ( 292,757 ) ( 3,869 ) $ ( 22,406 ) $ ( 73 ) $ 179,560 Net income - - - 1,183 - - - 1,183 Other comprehensive income - - - - - - 207 207 Stock dividends ($ 0.025 per share) 63 - 819 ( 819 ) - - - - Purchase of treasury stock - - - - ( 101 ) ( 1,383 ) - ( 1,383 ) Stock-based compensation expense 244 - 4,204 - - - - 4,204 Proceeds from exercise of options 57 - 365 - - - - 365 Issuance of common stock, net of issuance costs 900 1 11,150 - - - - 11,151 Balance, September 30, 2020 35,021 $ 4 $ 511,331 $ ( 292,393 ) ( 3,970 ) $ ( 23,789 ) $ 134 $ 195,287 See accompanying notes to condensed consolidated financial statements. 8 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share amounts) NOT E 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements of Clarus Corporation and subsidiaries (which may be referred to as the “Company,” “Clarus,” “we,” “us” or “our”) as of September 30, 2020 and December 31, 2019 and for the three and nine months ended September 30, 2020 and 2019, have been prepared in accordance with accounting principles generally accepted in the United States of America (“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 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 for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be obtained for the year ending December 31, 2020. 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, 2019, filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2020. Clarus, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (“Black Diamond Equipment”) in May 2010 and changed its name to Black Diamond, Inc. in January 2011. In October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”). On August 14, 2017, the Company changed its name from Black Diamond, Inc. to Clarus Corporation and its stock ticker symbol from “BDE” to “CLAR” on the NASDAQ stock exchange. On August 21, 2017, the Company acquired Sierra Bullets, L.L.C. (“Sierra”). On November 6, 2018, the Company acquired the assets of SKINourishment, Inc. (“SKINourishment”). On October 2, 2020, the Company completed the acquisition of certain assets and liabilities relating to the Barnes brand of bullets (“Barnes”) for a purchase price of $ 30,500 . See Note 15 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 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. Nature of Business Headquartered in Salt Lake City, Utah, Clarus, a company focused on the outdoor and consumer industries, is seeking opportunities to acquire and grow businesses that can generate attractive shareholder returns. The Company has net operating tax loss carryforwards which it is seeking to redeploy to maximize shareholder value. Clarus’ primary business is as a leading designer, developer, manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb, ski, mountain, sport and skincare markets. The Company’s products are principally sold under the Black Diamond®, Sierra®, PIEPS® and SKINourishment® brand names through outdoor specialty and online retailers, distributors and original equipment manufacturers throughout the U.S. and internationally. Through our Black Diamond, PIEPS, and SKINourishment brands, we offer a broad range of products including: high-performance, activity-based apparel (such as shells, insulation, midlayers, pants and logowear); rock-climbing footwear and equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; trekking poles; headlamps and lanterns; gloves and mittens; and skincare and other sport-enhancing products. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes. 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. Impact of COVID-19 The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020, with governments world-wide implementing safety measures restricting travel and requiring citizen lockdowns and self-confinements for quarantining purposes. This has negatively affected the U.S. and global economy, disrupted global 9 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) supply chains, and resulted in significant transport restrictions and disruption of financial markets. 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 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. Risk Factors of our Quarterly Report for the quarterly period ended March 31, 2020. 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. Those measures have and might continue to include temporarily suspending manufacturing or retail operations, modifying workspaces, continuing social distancing policies, implementing new personal protective equipment or health screening policies at our facilities, or such other industry best practices needed to continue maintain a healthy and safe environment for our employees amidst the pandemic. These countermeasures are expected to partially mitigate the impacts of COVID-19 on our full year 2020 financial results. 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 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. Use of Estimates The preparation of financial statements in conformity with 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. Estimates are used to record the allowance for credit losses and doubtful accounts, liabilities for product warranties, excess or obsolete inventory, valuation of deferred tax assets, and valuation of long-lived assets, goodwill and other intangible assets. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates. Significant Accounting Policies Accounting Pronouncements not yet adopted In March 2020, the Financial Accounting Standards Board ( “ FASB ” ) issued Accounting Standards Update ( “ ASU ” ) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This ASU provides temporary optional expedients and exceptions to existing guidance on contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as the London Inter-Bank Offered Rate ( “ LIBOR ” ) which is being phased out in 2021, to alternate reference rates, such as the Secured Overnight Financing Rate ( “ SOFR ” ). The standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. The provisions have impact as contract modifications and other changes occur while LIBOR is phased out. The Company is in the process of evaluating the optional relief guidance provided within this ASU. Management will continue its assessment and monitor regulatory developments during the LIBOR transition period. 10 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) NOTE 2. INVENTORIES Inventories, as of September 30, 2020 and December 31, 2019, were as follows: September 30, 2020 December 31, 2019 Finished goods $ 51,685 $ 59,452 Work-in-process 4,984 7,474 Raw materials and supplies 8,228 6,506 $ 64,897 $ 73,432 NOTE 3. PROPERTY AND EQUIPMENT Property and equipment, net, as of September 30, 2020 and December 31, 2019, were as follows: September 30, 2020 December 31, 2019 Land $ 3,160 $ 3,160 Building and improvements 6,958 6,964 Furniture and fixtures 5,654 5,255 Computer hardware and software 5,522 5,298 Machinery and equipment 22,265 21,578 Construction in progress 2,508 1,690 46,067 43,945 Less accumulated depreciation ( 23,376 ) ( 21,026 ) $ 22,691 $ 22,919 NOTE 4. GOODWILL AND INTANGIBLE ASSETS Goodwill The following table summarizes the balances in goodwill by segment: Black Diamond Sierra Total Balance at December 31, 2019 $ - $ 18,090 $ 18,090 Balance at September 30, 2020 $ - $ 18,090 $ 18,090 Indefinite Lived Intangible Assets The following table summarizes the changes in indefinite lived intangible assets: Balance at December 31, 2019 $ 41,630 Impact of foreign currency exchange rates 142 Balance at September 30, 2020 $ 41,772 11 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) Other Intangible Assets, net The following table summarizes the changes in gross other intangible assets: Gross balance at December 31, 2019 $ 32,917 Impact of foreign currency exchange rates 205 Gross balance at September 30, 2020 $ 33,122 Other intangible assets, net of amortization as of September 30, 2020 and December 31, 2019, were as follows: September 30, 2020 December 31, 2019 Customer lists and relationships $ 26,109 $ 25,995 Product technologies 4,803 4,712 Tradename / trademark 1,263 1,263 Core technologies 947 947 33,122 32,917 Less accumulated amortization ( 19,512 ) ( 17,101 ) $ 13,610 $ 15,816 NOTE 5. LONG-TERM DEBT Long-term debt as of September 30, 2020 and December 31, 2019, was as follows: September 30, 2020 December 31, 2019 Revolving credit facility (a) $ 21,066 $ 22,670 Foreign credit facilities (b) 996 - Term note (c) 19,000 - 41,062 22,670 Less current portion ( 4,000 ) - $ 37,062 $ 22,670 (a) As of September 30, 2020, the Company had drawn $ 21,066 on the $ 60,000 revolving commitment that was available under the credit agreement with JPMorgan Chase Bank, N.A., with a maturity date of May 3, 2024. The Company pays interest monthly on any borrowings on the Credit Agreement. As of September 30, 2020 and December 31, 2019, the rate was 1.6875 % and 3.3125 %, respectively. The Credit Agreement contains restrictions on the Company’s ability to pay dividends or make distributions or other restricted payments if certain conditions in the Credit Agreement are not fulfilled . The Credit Agreement also includes other customary affirmative and negative covenants, including financial covenants relating to the Company’s consolidated total leverage ratio and fixed charge coverage ratio. The Company was in compliance with the debt covenants set forth in the Credit Agreement as of September 30, 2020. (b) A foreign subsidiary of the Company has a revolving credit facility with a financial institution which matures on March 31, 2022. The foreign subsidiary pays interest monthly on any borrowings on the credit facility. As of September 30, 2020, the rate was 1.3387 %. (c) Under the Credit Agreement, the Company had access to a term loan facility that was available for drawdown until May 3, 12 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) 2020. On April 30, 2020, the Company borrowed $ 20,000 under such term loan facility. 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. The Company pays interest monthly on any borrowings on the Credit Agreement. As of September 30, 2020, the rate was 1.6875 %. NOTE 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, 2020, the Company’s derivative contracts had remaining maturities of less than one and one-half years. The counterparties 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 counterparties is generally limited to the aggregate unrealized loss of all contracts with that counterparty, which is $ 688 as of September 30, 2020. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain on all contracts. At September 30, 2020, there was no such exposure to the counterparties. The Company’s derivative counterparties have strong credit ratings and as a result, the Company does not require collateral to facilitate transactions. The Company held the following contracts designated as hedging instruments as of September 30, 2020 and December 31, 2019: September 30, 2020 Notional Latest Amount Maturity Foreign exchange contracts - Canadian Dollars $ 8,279 August 2021 Foreign exchange contracts - Euros € 25,962 February 2022 December 31, 2019 Notional Latest Amount Maturity Foreign exchange contracts - Canadian Dollars $ 15,932 February 2021 Foreign exchange contracts - Euros € 18,168 February 2021 Foreign exchange contracts - Swiss Francs CHF 661 August 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 income (loss) and reclassified to sales in the period the underlying hedged transaction is recognized in earnings. Gains (losses) of $( 376 ) and $ 261 were reclassified to sales during the three months ended September 30, 2020 and 2019, respectively, and $ 206 and $ 844 were reclassified to sales during the nine months ended September 30, 2020 and 2019, respectively. 13 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) The following table presents the balance sheet classification and fair value of derivative instruments as of September 30, 2020 and December 31, 2019: Classification September 30, 2020 December 31, 2019 Derivative instruments in asset positions: Forward exchange contracts Prepaid and other current assets $ 89 $ 226 Forward exchange contracts Other long-term assets $ 36 $ - Derivative instruments in liability positions: Forward exchange contracts Accounts payable and accrued liabilities $ 813 $ 152 Forward exchange contracts Other long-term liabilities $ - $ 29 NOTE 7. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss) (“AOCI”) primarily consists of foreign currency translation adjustments and changes in our forward foreign exchange contracts. The following table sets forth the changes in AOCI, net of tax, for the three months ended September 30, 2020: Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of June 30, 2020 $ ( 320 ) $ 247 $ ( 73 ) Other comprehensive income (loss) before reclassifications 807 ( 886 ) ( 79 ) Amounts reclassified from other comprehensive income (loss) - 286 286 Net current period other comprehensive income (loss) 807 ( 600 ) 207 Balance as of September 30, 2020 $ 487 $ ( 353 ) $ 134 The following table sets forth the changes in AOCI, net of tax, for the three months ended September 30, 2019: Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of June 30, 2019 $ ( 70 ) $ ( 184 ) $ ( 254 ) Other comprehensive (loss) income before reclassifications ( 726 ) 1,115 389 Amounts reclassified from other comprehensive (loss) income - ( 356 ) ( 356 ) Net current period other comprehensive (loss) income ( 726 ) 759 33 Balance as of September 30, 2019 $ ( 796 ) $ 575 $ ( 221 ) 14 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) The following table sets forth the changes in AOCI, net of tax, for the nine months ended September 30, 2020: Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of December 31, 2019 $ ( 286 ) $ ( 17 ) $ ( 303 ) Other comprehensive income (loss) before reclassifications 773 ( 180 ) 593 Amounts reclassified from other comprehensive income (loss) - ( 156 ) ( 156 ) Net current period other comprehensive income (loss) 773 ( 336 ) 437 Balance as of September 30, 2020 $ 487 $ ( 353 ) $ 134 The following table sets forth the changes in AOCI, net of tax, for the nine months ended September 30, 2019: Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of December 31, 2018 $ 73 $ 404 $ 477 Other comprehensive (loss) income before reclassifications ( 869 ) 954 85 Amounts reclassified from other comprehensive (loss) income - ( 783 ) ( 783 ) Net current period other comprehensive (loss) income ( 869 ) 171 ( 698 ) Balance as of September 30, 2019 $ ( 796 ) $ 575 $ ( 221 ) The effects on net income of amounts reclassified from unrealized gains on cash flow hedges for foreign exchange contracts for the three and nine months ended September 30, 2020 and 2019, were as follows: Gains reclassified from AOCI to the Consolidated Statements of Comprehensive Income (Loss) Affected line item in the Consolidated Three Months Ended Nine Months Ended Statements of Comprehensive Income (Loss) September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Foreign exchange contracts: Sales $ ( 376 ) $ 261 $ 206 $ 844 Less: Income tax (benefit) expense ( 90 ) ( 95 ) 50 61 Amount reclassified, net of tax $ ( 286 ) $ 356 $ 156 $ 783 Total reclassifications from AOCI $ ( 286 ) $ 356 $ 156 $ 783 NOTE 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 that prioritizes the inputs used in measuring fair value as follows: Level 1 - inputs to the valuation methodology are quoted market prices for identical assets or liabilities in active markets. Level 2 - inputs to the valuation methodology include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 - inputs to the valuation methodology are based on prices or valuation techniques that are unobservable. 15 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) Assets and liabilities measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019 were as follows: September 30, 2020 Level 1 Level 2 Level 3 Total Assets Forward exchange contracts $ - $ 125 $ - $ 125 $ - $ 125 $ - $ 125 Liabilities Forward exchange contracts $ - $ 813 $ - $ 813 $ - $ 813 $ - $ 813 December 31, 2019 Level 1 Level 2 Level 3 Total Assets Forward exchange contracts $ - $ 226 $ - $ 226 $ - $ 226 $ - $ 226 Liabilities Forward exchange contracts $ - $ 181 $ - $ 181 $ - $ 181 $ - $ 181 Derivative financial instruments are recorded at fair value based on current market pricing models. No nonrecurring fair value measurements existed at September 30, 2020 and December 31, 2019. NOTE 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 (loss) per share if their effect is anti-dilutive to 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, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Weighted average shares outstanding - basic 29,983 29,876 29,854 29,841 Effect of dilutive stock awards 1,003 1,201 - 1,158 Weighted average shares outstanding - diluted 30,986 31,077 29,854 30,999 Net income (loss) per share: Basic $ 0.04 $ 0.12 $ ( 0.05 ) $ 0.22 Diluted 0.04 0.11 ( 0.05 ) 0.21 For the three months ended September 30, 2020 and 2019, equity awards of 927 and 798 , respectively, and for the nine months ended September 30, 2020 and 2019, equity awards of 4,384 and 669 , respectively, were anti-dilutive and therefore not included in the calculation of earnings (loss) per share for these periods. 16 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) NOTE 10. STOCK-BASED COMPENSATION PLAN Under the Company’s current 2015 Stock Incentive Plan (the “2015 Plan”), the Company’s Board of Directors has flexibility to determine the type and amount of awards to be granted to eligible participants, who must be employees, directors, officers or consultants of the Company or its subsidiaries. The 2015 Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and restricted units. The aggregate number of shares of common stock that may be granted through awards under the 2015 Plan to any employee in any calendar year may not exceed 500 shares. The 2015 Plan will continue in effect until December 2025 unless terminated sooner. Options Granted: During the nine months ended September 30, 2020, the Company issued stock options for an aggregate of 613 shares under the 2015 Plan to directors and employees of the Company. Of the 613 options issued, 38 options vest in four equal consecutive quarterly tranches from the date of grant. 145 options issued vest in four equal annual tranches beginning December 31, 2020. 50 options issued vest in five equal annual tranches beginning December 31, 2020. 30 options issued vest in three equal annual tranches beginning December 31, 2020. The remaining 350 options issued vest in three equal annual tranches beginning August 27, 2021. 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: Number of options 613 Option vesting period 1 - 5 Years Grant price (per share) $ 9.99 - $ 15.00 Dividend yield 0.79 % - 1.00 % Expected volatility (a) 40.9 % - 44.2 % Risk-free interest rate 0.41 % - 0.65 % Expected life (years) (b) 5.31 - 6.38 Weighted average fair value (per share) $ 3.72 - $ 4.35 (a) Expected volatility is based upon the Company’s historical volatility. (b) The expected term was determined based upon the underlying terms of the awards and the category and employment history of employee award recipient. The grant date fair value of the stock options granted during the nine months ended September 30, 2020 was $ 2,581 , which will be recognized over the vesting period of the options. Stock Award Granted: On September 14, 2020, the Company issued and granted to the Executive Chairman a stock award of 244 shares under the 2015 Plan which vested immediately. The fair value of the stock award was calculated as of the date of grant using the closing market price. The grant date fair value of the stock award granted during the nine months ended September 30, 2020 was $ 3,314 , which was recognized immediately. Market Condition Restricted Shares Granted: On August 27, 2020, the Company issued and granted to an employee a restricted stock award of 100 restricted shares under the 2015 Plan, of which 100 restricted shares will vest if, on or before August 27, 2023, the Fair Market Value (as defined in the Plan) of the Company’s common stock shall have equaled or exceeded $ 15.00 per share for twenty consecutive trading days. For computing the fair value of the 100 restricted shares with a market condition, the fair value of the restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below. 17 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) August 27, 2020 Number issued 100 Vesting period $ 15.00 stock price target Grant price (per share) $ 12.72 Dividend yield 0.79 % Expected volatility 41.1 % Risk-free interest rate 0.19 % Expected term (years) 0.52 Weighted average fair value (per share) $ 9.91 Using these assumptions, the fair value of the market condition restricted stock award granted on August 27, 2020 was $ 991 . 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, 2020 and 2019 was $ 4,204 and $ 678 , respectively, and for the nine months ended September 30, 2020 and 2019 was $ 5,433 and $ 2,246 , respectively. For the three and nine months ended September 30, 2020 and 2019, the majority of stock-based compensation costs were classified as selling, general and administrative expenses. As of September 30, 2020, there were 1,744 unvested stock options and unrecognized compensation cost of $ 5,354 related to unvested stock options, as well as 600 unvested restricted stock awards and unrecognized compensation costs of $ 3,119 related to unvested restricted stock awards. NOTE 11. COMMITMENTS AND CONTINGENCIES As a consumer goods manufacturer and distributor, the Company faces the risk of product liability and related lawsuits involving claims for substantial money damages, product recall actions and higher than anticipated rates of warranty returns or other returns of goods. The Company is therefore vulnerable to various personal injury and property damage lawsuits relating to its products and incidental to its business. The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect. NOTE 12. INCOME TAXES The Company’s U.S. federal statutory tax rate of 21 % and its foreign operations that are considered to be permanently reinvested have statutory tax rates of approximately 25 %. The difference between the Company’s estimated effective tax rate and the U.S. federal statutory tax rate of 21 % for the three and nine months ended September 30, 2020, was due to permanent book to tax differences primarily related to incentive stock options. As of December 31, 2019, the Company’s gross deferred tax asset was $ 43,945 . The Company had 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 deferred tax assets as of September 30, 2020 and December 31, 2019, 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 (“NOL”) 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. 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 18 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) 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, 2019, the Company had NOL and research and experimentation credit for U.S. federal income tax purposes of $ 131,621 and $ 4,250 , respectively. The Company believes its NOL will offset some of its future U.S. federal income 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, 2019 Expiration Dates December 31, Net Operating Loss Amount 2022 $ 111,049 2023 5,712 2024 3,566 2025 and beyond 11,294 Total $ 131,621 NOTE 13. SEGMENT INFORMATION We operate our business structure within two 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 including non-cash stock compensation expense. Each segment is described below:  Our Black Diamond segment, which includes Black Diamond Equipment, PIEPS, and SKINourishment, is a global leader in designing, manufacturing, and marketing innovative outdoor engineered equipment and apparel for climbing, mountaineering, trail running, backpacking, skiing, and a wide range of other year-round outdoor recreation activities. Our Black Diamond segment offers a broad range of products including: high-performance, activity-based apparel (such as shells, insulation, midlayers, pants and logowear); rock-climbing footwear and equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; trekking poles; headlamps and lanterns; gloves and mittens; and skincare and other sport-enhancing products. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes.  Our Sierra segment, which includes Sierra, is an iconic American manufacturer of a wide range of high-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. 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 as a percentage of total consolidated revenues is as follows: 19 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Climb 27 % 30 % 33 % 34 % Mountain 33 % 37 % 30 % 35 % Ski 17 % 22 % 15 % 17 % Sport 23 % 11 % 22 % 14 % 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 September 30, 2020 and December 31, 2019. Contract liabilities are derecognized when the performance obligation is satisfied. Revenue recognized from satisfaction of performance obligations relating to the advanced payments during the three and nine months ended September 30, 2020 and 2019 were not material. No other material remaining performance obligations exist at September 30, 2020. Financial information for our segments is as follows: Three Months Ended Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Sales to external customers: Black Diamond Domestic sales $ 21,953 $ 23,634 $ 56,381 $ 70,315 International sales 27,411 30,118 58,980 73,683 Total Black Diamond 49,364 53,752 115,361 143,998 Sierra Domestic sales 12,733 5,160 27,112 17,490 International sales 2,394 1,291 5,587 6,927 Total Sierra 15,127 6,451 32,699 24,417 Total sales to external customers 64,491 60,203 148,060 168,415 Segment operating income: Black Diamond 4,035 5,388 1,709 10,096 Sierra 4,393 735 8,211 3,814 Total segment operating income 8,428 6,123 9,920 13,910 Restructuring charge - - - ( 13 ) Transaction costs ( 1,440 ) ( 37 ) ( 1,870 ) ( 124 ) Corporate and other expenses ( 4,984 ) ( 2,429 ) ( 9,316 ) ( 6,780 ) Interest expense, net ( 232 ) ( 353 ) ( 800 ) ( 978 ) Income (loss) before income tax $ 1,772 $ 3,304 $ ( 2,066 ) $ 6,015 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. 20 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) Total assets by segment, as of September 30, 2020 and December 31, 2019, were as follows: September 30, 2020 December 31, 2019 Black Diamond $ 140,751 $ 147,261 Sierra 74,707 72,104 Corporate 52,380 10,900 $ 267,838 $ 230,265 Capital expenditures, depreciation and amortization by segment is as follows. Three Months Ended Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Capital expenditures: Black Diamond $ 583 $ 673 $ 1,888 $ 1,863 Sierra 1,002 171 1,718 975 Total capital expenditures $ 1,585 $ 844 $ 3,606 $ 2,838 Depreciation: Black Diamond $ 685 $ 610 $ 2,073 $ 1,852 Sierra 455 480 1,332 1,480 Total depreciation $ 1,140 $ 1,090 $ 3,405 $ 3,332 Amortization: Black Diamond $ 258 $ 278 $ 803 $ 834 Sierra 495 610 1,487 1,831 Total amortization $ 753 $ 888 $ 2,290 $ 2,665 NOTE 14. RELATED PARTY TRANSACTIONS During the three months ended September 30, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with three existing stockholders of the Company. Pursuant to the Purchase Agreement, the Company sold its common stock in a registered direct offering (the “Offering”). Upon the Company’s closing of the Offering, the Company paid a fee in the amount of $ 250 to Kanders & Company, Inc. (“Kanders & Company”), which were deducted from the net proceeds, in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, and negotiating the Offering. Mr. Warren B. Kanders, the Company’s Executive Chairman of the Board of Directors is a member of the Board of Directors and sole stockholder of Kanders & Company. Additionally, as of September 30, 2020, the Company recorded a liability in the amount of $ 500 owed to Kanders & Company, which is included in transaction costs, in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, performing due diligence and negotiating the acquisition of Barnes. NOTE 15. SUBSEQUENT EVENT Barnes Acquisition On September 30, 2020, Sierra entered into an Asset Purchase Agreement (the “Barnes Asset Purchase Agreement”) with Remington Outdoor Company, Inc. and certain of its subsidiaries (the “Seller”), pursuant to which Sierra agreed to (i) acquire certain assets of the Seller relating to the Barnes brand of bullets (“Barnes”), including equipment, inventory, intellectual property (including exclusive use of Barnes’ intellectual property in the all-copper and powdered metallurgy ammunition fields as well as its trademarks) and a leasehold interest in certain real property located in Mona, Utah (collectively, the “Barnes Purchased Assets”) and (ii) assume certain liabilities related to the Barnes Purchased Assets in a transaction to be effected in Seller’s bankruptcy proceeding under Chapter 11 of title 11 of the United States Code, §§ 101 et seq. (the “Bankruptcy Code”) which commenced on July 27, 2020 in the United States Bankruptcy 21 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) Court for the Northern District of Alabama (the “Bankruptcy Court”). Pursuant to the Barnes Asset Purchase Agreement, the purchase price to be paid for the Barnes Purchased Assets is $ 30,500 (the “Barnes Purchase Price”). Sierra paid to Seller a $ 30,500 deposit to be applied to the Barnes Purchase Price which was recorded in Other long-term assets as of September 30, 2020. The acquisition of the Barnes Purchased Assets (the “Barnes Acquisition”) contemplated by the Barnes Asset Purchase Agreement was subject to a number of closing conditions, including, among others (i) the Sale Order entered on September 30, 2020 by the Bankruptcy Court in the Seller’s Chapter 11 case being in effect as of the closing of the Acquisition, and (ii) compliance with the obligations of each party set forth in the Asset Purchase Agreement. The Seller and Sierra have each made representations, warranties and covenants in the Asset Purchase Agreement customary for transactions of this type under the Bankruptcy Code. On October 2, 2020, Sierra completed the acquisition of the Barnes Purchased Assets. Based upon the timing of the Barnes Acquisition, the initial accounting is not yet complete as the Company gathers additional information related to the Barnes Purchased Assets. The Company is in the process of obtaining third-party valuations of certain intangible assets. The preliminary application of acquisition accounting to the Barnes Purchased Assets, as well as the results of operations of Barnes, will first be reflected in the Company's consolidated financial results as of and for the three and twelve months ending December 31, 2020. The operating results of Barnes are expected to be included within the Sierra segment. Acquisition-related costs for the Barnes Acquisition, which were included in transaction costs during the three and nine months ended September 30, 2020 were $ 850 . 22 CLARUS CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS (in thousands, except per share amounts)