Clarus Corp 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CLARUS CORPORATION AND SUBSIDIARIES Index to Financial Statements Page Report of Independent Registered Public Accounting Firm 44 Consolidated Balance Sheets - December 31, 2020 and 2019 47 Consolidated Statements of Comprehensive Income - Years Ended December 31, 2020, 2019 and 2018 48 Consolidated Statements of Cash Flows - Years Ended December 31, 2020, 2019 and 2018 49 Consolidated Statements of Stockholders’ Equity - Years Ended December 31, 2020, 2019 and 2018 50 Notes to Consolidated Financial Statements 51 ‎ 43 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Clarus Corporation: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Clarus Corporation and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Acquisitions — Refer to Note 2 to the financial statements Critical Audit Matter Description On October 2, 2020, the Company completed the acquisition of certain assets and liabilities constituting the Barnes business (“Barnes”) for $30.5 million. The Company accounted for this acquisition as a business combination. Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values, including trademarks of $5.6 million and customer relationships of $5.7 million. The Company utilized a relief-from-royalty valuation methodology for trademarks and a multi-period excess earnings valuation methodology for customer relationships. The determination of the fair value of these intangible assets required management to make significant estimates and assumptions related to forecasted sales growth rates, cash flows, market-based royalty rates, and estimated discount rates. We identified the valuation of the trademarks and customer relationships acquired as a critical audit matter because of the significant estimates and assumptions management made to determine the fair value of these assets. This required a high degree of auditor judgment and an increased extent of effort, including the involvement of our fair value specialists, when performing audit procedures to evaluate the reasonableness of forecasted sales growth rates, cash flows, market-based royalty rates, and estimated discount rates. 44 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasted future sales growth rates, cash flows, market-based royalty rates, and estimated discount rates for the acquired Barnes trademarks and customer relationships included the following, among others:  We tested the effectiveness of internal controls over the valuation of the intangible assets, including those over forecasted sales growth rates and cash flows, and the selection of market-based royalty rates and estimated discount rates.  We assessed the reasonableness of management’s forecasted sales growth rates and cash flows by comparing the forecasts to historical results of Barnes, industry publications, and external data.  With the assistance of our fair value specialists, we evaluated the reasonableness of the relief-from-royalty and multi-period excess earnings valuation methodologies, and the market-based royalty rates and estimated discount rates by: – Evaluating whether the valuation methodologies are appropriate in the circumstances and in accordance with generally accepted valuation principles. – Comparing the source information underlying the determination of the estimated discount rates to external data and testing the mathematical accuracy of the calculation. – Developing a range of independent estimates for the discount rates and comparing those to the estimated discount rates selected by management. – Comparing the selected market-based royalty rate to comparable licensing agreements.  We evaluated whether the forecasted sales growth rates and cash flows were consistent with evidence obtained in other areas of the audit, including a retrospective review of actual post-acquisition financial results.  We compared the estimated weighted average return on assets, internal rate of return, and the discount rates used in the valuation models and evaluated whether they were consistent with each other. Income Taxes — Refer to Notes 1 and 15 to the financial statements Critical Audit Matter Description The Company accounts for income taxes using the asset and liability method. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards (“NOLs”) for U.S. Federal tax purposes, totaling $120.3 million as of December 31, 2020. Valuation allowances are used to reduce deferred tax assets to amounts considered more-likely-than-not to be realized. The Company believes its U.S. Federal NOLs will substantially offset its future U.S. Federal income taxes until their expiration, which begins in 2022. The Company has provided a valuation allowance against its deferred tax assets as of December 31, 2020, primarily because the Company believes that a portion of U.S. Federal NOLs will expire before their utilization. The Company’s valuation allowance recorded on deferred tax assets as of December 31, 2020 was $22.3 million. We identified the Company’s determination of the need for and amount of valuation allowance recorded on U.S. Federal NOL deferred tax assets as a critical audit matter because of the significant estimates and judgments made by the Company to assess the realizability of its U.S. Federal NOL deferred tax assets prior to expiration. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists, to evaluate the reasonableness of management’s estimates of future taxable income and the determination of whether it is more likely than not that the U.S. Federal NOL deferred tax assets will be realized. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the valuation allowance for income taxes and the determination of whether it is more likely than not that the U.S. Federal NOL deferred tax assets will be realized prior to expiration included the following, among others:  We tested the effectiveness of controls over the valuation allowance for income taxes, including management’s controls over the estimates of future taxable income and the determination of whether it is more likely than not that the U.S. Federal NOL deferred tax assets will be realized.  With the assistance of income tax specialists, we evaluated the reasonableness of the methods, assumptions, and judgments used by management to determine whether a valuation allowance was necessary. 45  We evaluated management’s ability to accurately estimate future taxable income available to realize its U.S. Federal NOL deferred tax assets by comparing actual results to management’s historical estimates and evaluating whether there have been any changes that would affect management’s ability to accurately estimate future taxable income.  We evaluated the reasonableness of management’s estimates of future taxable income available to realize U.S. Federal NOL deferred tax assets by comparing the estimates to historical taxable income as adjusted for nonrecurring items.  We evaluated whether the estimates of future taxable income were consistent with evidence obtained in other areas of the audit. /s/ Deloitte & Touche LLP Salt Lake City, Utah March 8, 2021 We have served as the Company's auditor since 2018. ‎ 46 CLARUS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) December 31, 2020 2019 Assets Current assets Cash $ 17,789 $ 1,703 Accounts receivable, net 50,475 41,628 Inventories 68,356 73,432 Prepaid and other current assets 5,385 3,787 Income tax receivable 117 322 Total current assets 142,122 120,872 Property and equipment, net 26,956 22,919 Other intangible assets, net 19,416 15,816 Indefinite-lived intangible assets 47,523 41,630 Goodwill 26,715 18,090 Deferred income taxes 11,113 7,904 Other long-term assets 6,846 3,034 Total assets $ 280,691 $ 230,265 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued liabilities $ 34,665 $ 24,304 Income tax payable 956 260 Current portion of long-term debt 4,000 - Total current liabilities 39,621 24,564 Long-term debt 30,621 22,670 Deferred income taxes 1,227 1,224 Other long-term liabilities 4,628 615 Total liabilities 76,097 49,073 Stockholders' Equity Preferred stock, $ 0.0001 par value per share; 5,000 shares authorized; no ne issued - - Common stock, $ 0.0001 par value per share; 100,000 shares authorized; 35,198 and 33,615 issued and 31,228 and 29,760 outstanding, respectively 4 3 Additional paid in capital 513,979 492,353 Accumulated deficit ( 286,100 ) ( 288,592 ) Treasury stock, at cost ( 23,789 ) ( 22,269 ) Accumulated other comprehensive income (loss) 500 ( 303 ) Total stockholders' equity 204,594 181,192 Total liabilities and stockholders' equity $ 280,691 $ 230,265 See accompanying notes to consolidated financial statements. ‎ 47 CLARUS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except per share amounts) Year Ended December 31, 2020 2019 2018 Sales Domestic sales $ 132,226 $ 121,751 $ 112,537 International sales 91,781 107,686 99,604 Total sales 224,007 229,437 212,141 Cost of goods sold 146,212 149,146 138,179 Gross profit 77,795 80,291 73,962 Operating expenses Selling, general and administrative 71,428 68,680 65,151 Restructuring charge - 13 137 Transaction costs 2,433 166 503 Total operating expenses 73,861 68,859 65,791 Operating income 3,934 11,432 8,171 Other (expense) income Interest expense, net ( 1,261 ) ( 1,358 ) ( 1,339 ) Other, net 912 ( 93 ) ( 359 ) Total other expense, net ( 349 ) ( 1,451 ) ( 1,698 ) Income before income tax 3,585 9,981 6,473 Income tax benefit ( 1,960 ) ( 8,991 ) ( 828 ) Net income 5,545 18,972 7,301 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment 1,766 ( 359 ) ( 832 ) Unrealized (loss) gain on hedging activities ( 963 ) ( 421 ) 810 Other comprehensive income (loss) 803 ( 780 ) ( 22 ) Comprehensive income $ 6,348 $ 18,192 $ 7,279 Net income per share: Basic $ 0.18 $ 0.64 $ 0.24 Diluted 0.18 0.61 0.24 Weighted average shares outstanding: Basic 30,175 29,820 29,915 Diluted 31,225 30,993 30,255 See accompanying notes to consolidated financial statements. ‎ 48 CLARUS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2020 2019 2018 Cash Flows From Operating Activities: Net income $ 5,545 $ 18,972 $ 7,301 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment 4,801 4,550 4,423 Amortization of other intangible assets 4,070 3,552 3,873 Amortization of debt issuance costs 311 283 436 Loss on disposition of property and equipment 104 62 15 Noncash lease expense 898 728 - Loss from removal of accumulated translation adjustment - - 199 Stock-based compensation 6,791 2,949 2,652 Deferred income taxes ( 3,201 ) ( 8,995 ) ( 1,098 ) Changes in operating assets and liabilities, net of acquisition: Accounts receivable ( 7,665 ) ( 6,163 ) ( 766 ) Inventories 11,007 ( 9,145 ) ( 7,203 ) Prepaid and other assets ( 1,849 ) 856 ( 827 ) Accounts payable and accrued liabilities 7,721 2,130 2,524 Income taxes 859 ( 257 ) ( 136 ) Net cash provided by operating activities 29,392 9,522 11,393 Cash Flows From Investing Activities: Purchase of business, net of cash received ( 30,498 ) - ( 720 ) Proceeds from disposition of property and equipment 327 20 6 Purchase of property and equipment ( 5,411 ) ( 4,116 ) ( 3,365 ) Net cash used in investing activities ( 35,582 ) ( 4,096 ) ( 4,079 ) Cash Flows From Financing Activities: Proceeds from revolving credit facilities 49,571 132,215 153,556 Repayments on revolving credit facilities ( 55,501 ) ( 131,607 ) ( 152,336 ) Repayments of long-term debt ( 2,000 ) ( 31 ) ( 39 ) Proceeds from issuance of long-term debt 20,000 - - Payment of debt issuance costs ( 79 ) ( 709 ) ( 1,032 ) Purchase of treasury stock ( 1,520 ) ( 4,167 ) ( 5,687 ) Proceeds from exercise of stock options 2,152 1,000 467 Cash dividends paid ( 1,520 ) ( 2,987 ) ( 1,488 ) Proceeds from the sale of common stock 11,476 - - Common stock issuance costs ( 325 ) - - Net cash provided by (used in) financing activities 22,254 ( 6,286 ) ( 6,559 ) Effect of foreign exchange rates on cash 22 77 ( 125 ) Change in cash 16,086 ( 783 ) 630 Cash, beginning of year 1,703 2,486 1,856 Cash, end of year $ 17,789 $ 1,703 $ 2,486 Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $ 426 $ 209 $ 418 Cash paid for interest $ 970 $ 1,086 $ 950 Supplemental Disclosures of Non-Cash Investing and Financing Activities: Property and equipment purchased with accounts payable $ 173 $ 408 $ 219 Property and equipment acquired through a capital lease $ - $ - $ 123 Lease liabilities arising from obtaining right of use assets $ 622 $ 1,889 $ - Stock dividends $ 1,533 $ - $ - See accompanying notes to consolidated financial statements. 49 CLARUS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (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, 2017 32,917 $ 3 $ 485,285 $ ( 310,390 ) ( 2,875 ) $ ( 12,415 ) $ 499 $ 162,982 Net income - - - 7,301 - - - 7,301 Other comprehensive loss - - - - - - ( 22 ) ( 22 ) Cash dividends ($ 0.05 per share) - - - ( 1,488 ) - - - ( 1,488 ) Purchase of treasury stock - - - - ( 621 ) ( 5,687 ) - ( 5,687 ) Stock compensation expense - - 2,652 - - - - 2,652 Proceeds from exercise of options 327 - 467 - - - - 467 Balance, December 31, 2018 33,244 $ 3 $ 488,404 $ ( 304,577 ) ( 3,496 ) $ ( 18,102 ) $ 477 $ 166,205 Net income - - - 18,972 - - - 18,972 Other comprehensive loss - - - - - - ( 780 ) ( 780 ) Cash dividends ($ 0.10 per share) - - - ( 2,987 ) - - - ( 2,987 ) Purchase of treasury stock - - - - ( 359 ) ( 4,167 ) - ( 4,167 ) Stock compensation expense - - 2,949 - - - - 2,949 Proceeds from exercise of options 371 - 1,000 - - - - 1,000 Balance, December 31, 2019 33,615 $ 3 $ 492,353 $ ( 288,592 ) ( 3,855 ) $ ( 22,269 ) $ ( 303 ) $ 181,192 Net income - - - 5,545 - - - 5,545 Other comprehensive income - - - - - - 803 803 Cash dividends ($ 0.05 per share) - - - ( 1,520 ) - - - ( 1,520 ) Stock dividends ($ 0.05 per share) 133 - 1,533 ( 1,533 ) - - - - Purchase of treasury stock - - - - ( 115 ) ( 1,520 ) - ( 1,520 ) Stock-based compensation expense 244 - 6,791 - - - - 6,791 Proceeds from exercise of options 306 - 2,152 - - - - 2,152 Issuance of common stock, net of issuance costs 900 1 11,150 - - - - 11,151 Balance, December 31, 2020 35,198 $ 4 $ 513,979 $ ( 286,100 ) ( 3,970 ) $ ( 23,789 ) $ 500 $ 204,594 See accompanying notes to consolidated financial statements. 50 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) NOT E 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying audited consolidated financial statements of Clarus Corporation and subsidiaries (which may be referred to as the “Company,” “Clarus,” “we,” “our” or “us”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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®, Barnes®, 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 and Barnes brands, 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, 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 constituting the Barnes business (“Barnes”) for a purchase price of $ 30,500 . 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 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. We experienced a decline in retail demand within our Black Diamond segment beginning in the second half of March 2020 through December 2020, which negatively impacted our sales and profitability. We also expect a continued impact on the Company’s sales and profitability in future periods. The duration of these trends and the magnitude of such impacts cannot be precisely estimated at this time, as they are affected by a number of factors (some of which are outside management’s control), including those presented in Item 1A. Risk Factors. We have mitigated some of the negative impacts to our operating results by taking significant actions to improve our current operating results and liquidity position, including drawing on the credit facility, suspending share repurchases, temporarily suspending cash dividends, postponing non-essential capital expenditures, reducing operating costs, modulating production in line with demand, and substantially reducing discretionary spending. 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. 51 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) These countermeasures partially mitigated 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. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act established a program with provisions to allow U.S. companies to defer the employer’s portion of social security taxes between March 27, 2020 and December 31, 2020 and pay such taxes in two installments in 2021 and 2022. As permitted by the CARES Act, we have deferred payment of the employer’s portion of social security payroll tax payments. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The more significant estimates relate to the fair value of assets acquired in business combinations, excess or obsolete inventory, allowance for credit losses and doubtful accounts, and valuation of deferred tax assets. We base our estimates on historical experience, projected future cash flows, and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Clarus Corporation and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Foreign Currency Transactions and Translation The accounts of the Company’s international subsidiaries’ financial statements which have functional currencies other than the U.S. dollar are translated into U.S. dollars using the exchange rate at the balance sheet dates for assets and liabilities and average exchange rates for the periods for revenues, expenses, gains and losses. Foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in other (expense) income in the consolidated statements of comprehensive income. Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2020 and 2019, the Company did not hold any amounts that were considered to be cash equivalents. Accounts Receivable and Allowance for Credit Losses and Doubtful Accounts The Company records its trade receivables at sales value. The trade receivables do not bear interest. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for credit losses and doubtful accounts based on a combination of factors. A non-specific allowance for estimated doubtful accounts is recorded based on historical experience of collectability. In addition, specific allowances are established for customer accounts as known collection problems occur due to insolvency, disputes or other collection issues. The amounts of these specific allowances are estimated by management based on the customer’s financial position, the age of the customer’s receivables and the reasons for any disputes. The allowance for credit losses and doubtful accounts is reduced by subsequent collections of the specific allowances or by any write-off of customer accounts that are deemed uncollectible. The allowance for credit losses and doubtful accounts was $ 1,433 and $ 494 at December 31, 2020 and 2019, respectively. There were no significant write-offs during the years ended December 31, 2020, 2019, and 2018. 52 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Inventories Inventories are stated at the lower of cost (using the first-in, first-out method “FIFO”) or net realizable value. Elements of cost in the Company’s manufactured inventories generally include raw materials, direct labor, manufacturing overhead and freight in. The Company reviews its inventories for excess, close-out, or slow-moving items and makes provisions as necessary to properly reflect inventory values. Property and Equipment Property and equipment is stated at historical cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives. The principal estimated useful lives are: buildings, 30 years; building improvements, 20 years; computer hardware and software and machinery and equipment, 3 - 15 years; furniture and fixtures, 5 years. Leasehold improvements are amortized over the lesser of the estimated useful life of the improvement or the life of the lease. Equipment under finance leases are stated at the present value of minimum lease payments. Major replacements, which extend the useful lives of equipment, are capitalized and depreciated over the remaining useful life. Normal maintenance and repair items are expensed as incurred. Property and equipment are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable. Long-lived assets located outside of the United States are not considered material. Lease Accounting (Right-of-Use Assets) Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised. Variable lease payments are generally expensed as incurred and include certain non-lease components, such as common area maintenance and other services provided by the lessor, and other charges such as utilities, insurance and property taxes included in the lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term. Non-lease components are excluded from the right-of-use (“ROU”) asset and lease liability present value computations. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Goodwill Goodwill represents the excess of the purchase price over the fair market value of identifiable net assets of acquired companies. Goodwill is not amortized, but rather is tested at the reporting unit level at least annually for impairment or more frequently if triggering events or changes in circumstances indicate impairment. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Some of these qualitative factors may include macroeconomic conditions, industry and market considerations, a change in financial performance, entity-specific events, a sustained decrease in share price, and consideration of the difference between the fair value and carrying amount of a reporting unit as determined in the most recent quantitative assessment. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit's fair value is less than its carrying amount, a quantitative impairment analysis is performed. The quantitative impairment analysis involves estimating the fair value of the reporting unit based upon an acceptable valuation method under Accounting Standards Codification (“ASC”) 820, Fair Value Measurement . If the fair value of the reporting unit is less than its carrying amount, an impairment loss is recognized for the excess carrying amount over the fair value computation. Based on the results of the Company’s annual impairment tests completed during the fourth quarter, the Company determined that goodwill was not impaired. No impairment was recorded during the years ended December 31, 2020, 2019, and 2018. Intangible Assets Intangible assets represent other intangible assets and indefinite-lived intangible assets acquired. The Company’s other intangible assets, such as certain customer lists and relationships, product technologies, tradenames, trademarks and core technologies are amortized over their estimated useful lives. Other intangible assets are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable. 53 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The Company’s indefinite-lived intangible assets consists of certain tradenames and trademarks that provide Black Diamond Equipment, PIEPS, Sierra and Barnes with the exclusive and perpetual rights to manufacture and sell their respective products. Indefinite-lived intangible assets are not amortized; however, they are tested at least annually for impairment or more frequently if events or changes in circumstances exist that may indicate impairment. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, through this qualitative assessment, the conclusion is made that it is more likely than not that an indefinite-lived intangible asset's fair value is less than its carrying amount, or the Company elects to bypass the qualitative assessment, a quantitative impairment analysis is performed by comparing the indefinite-lived intangible asset's book value to its estimated fair value. The fair value for indefinite-lived intangible assets is determined through an income approach using the relief-from-royalty method. The amount of any impairment is measured as the difference between the carrying amount and the fair value of the impaired asset. Based on the results of the Company’s annual impairment tests during the years ended December 31, 2020, 2019, and 2018, no impairment of indefinite-lived intangible assets was recorded. Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities include, but are not limited to, vendor trade payables, accrued payrolls, accrued interest, derivative instruments and other estimated expenses. Accrued liabilities as of December 31, 2020 and 2019 were $ 13,182 and $ 9,559 , respectively. Derivative Financial Instruments The Company uses derivative instruments to hedge currency rate movements on foreign currency denominated sales. The Company enters into forward contracts, option contracts and non-deliverable forwards to manage the impact of foreign currency fluctuations on a portion of its forecasted foreign currency exposure. These derivatives are carried at fair value on the Company’s consolidated balance sheets in prepaid and other current assets, other long-term assets, accounts payable and accrued liabilities, and other long-term liabilities. Changes in fair value of the derivatives not designated as hedge instruments are included in the determination of net income. For derivative contracts designated as 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 item is recognized in earnings. For all hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness. The Company also formally assesses, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in cash flows of hedged transactions. The Company uses operating budgets and cash flow forecasts to estimate future foreign currency cash flow exposures and to determine the level and timing of derivative transactions intended to mitigate such exposures in accordance with its risk management policies. The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold, terminated, or exercised, the cash flow hedge is dedesignated because a forecasted transaction is not probable of occurring, or management determines to remove the designation of the cash flow hedge. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. The Company does not speculate using derivative instruments. Stock-Based Compensation The Company records compensation expense for all share-based awards granted based on the fair value of the award at the time of the grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions and estimates that the Company believes are reasonable. Stock-based compensation costs for stock awards and restricted stock awards is measured based on the closing market value of the Company’s common stock on the date of the grant. For restricted stock awards subject to market conditions, the fair value of each restricted stock award has been estimated as of the date of grant using the Monte-Carlo pricing model. The Company recognizes the cost of the share-based awards on a straight-line basis over the requisite service period of the award and recognizes forfeitures in the period they occur. Stock options granted have contractual terms of up to ten years . Upon exercise of stock options or vesting of restricted stock awards, the Company issues shares from those authorized and reserved for issuance. 54 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Revenue Recognition The Company recognizes revenue when a contract exists with a customer that specifies the goods and services to be provided at an agreed upon sales price and when the performance obligation is satisfied by transferring the goods or service to the customer. The performance obligation is considered complete when control transfers, which is determined when products are shipped or delivered to the customer depending on the terms of the contract. Sales are made on normal and customary short-term credit terms or upon delivery of point of sale transactions. The Company enters into contractual arrangements with customers in the form of individual customer orders which specify the goods, quantity, pricing, and associated order terms. The Company does not have long-term contracts that are satisfied over time. Due to the nature of the contracts, no significant judgment exists in relation to the identification of the customer contract, satisfaction of the performance obligation, or transaction price. The Company expenses incremental costs of obtaining a contract due to the short-term nature of the contracts. The Company’s contract terms or historical business practices can give rise to variable consideration such as term discounts and customer cooperative payments. We estimate the expected term discounts based on an analysis of historical experience and record cash discounts as a reduction to revenue. Through cooperative advertising programs, the Company reimburses its wholesale customers for some of their costs of advertising the Company’s products. The Company records such costs as a reduction of revenue, where the fair value cannot be reasonably estimated or where costs exceed the fair value of the services. At the time of revenue recognition, we also provide for estimated sales returns and miscellaneous claims from customers as reductions to revenues. The estimates are based on historical rates of product returns and claims. The Company accrues for such estimated returns and claims with an estimated accrual and associated reduction of revenue. Additionally, the Company records inventory that it expects to be returned as an other current asset, with a corresponding reduction of cost of goods sold. Sales commissions are expensed as incurred. These costs are recorded in selling, general and administrative. Taxes collected from customers and remitted to government authorities are reported on the net basis and are excluded from sales. Deferred revenue is recorded as a component of accounts payable and accrued liabilities when customers remit cash payments in advance of us satisfying performance obligations which are satisfied at a future point of time. Deferred revenue was not material at December 31, 2020 and totaled $ 141 at 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 year ended December 31, 2020 were not material and were $ 90 during the year ended December 31, 2019. Cost of Sales The expenses that are included in cost of sales include all direct product costs and costs related to shipping, certain warehousing or handling, duties and importation fees. Product warranty costs and specific provisions for excess, close-out, or slow-moving inventory are also included in cost of sales. Certain warehousing or handling costs which are not associated with the manufacturing of goods for sale are excluded from cost of sales. Selling, General and Administrative Expense Selling, general and administrative expense includes personnel-related costs, product development, selling, advertising, visual merchandise, depreciation and amortization, and other general operating expenses. Advertising costs are expensed in the period incurred. Total advertising expense, including cooperative advertising costs, were $ 3,833 , $ 4,588 , and $ 4,016 for the years ended December 31, 2020, 2019, and 2018, respectively. Through cooperative advertising programs, the Company reimburses its wholesale customers for some of their costs of advertising the Company’s products based on various criteria, including the value of purchases from the Company and various advertising specifications. Cooperative advertising costs were not material for the year ended December 31, 2020. Cooperative advertising costs were $ 287 , and $ 338 for the years ended December 31, 2019 and 2018, respectively, and were included in selling, general, and administrative expense because the Company receives an identifiable benefit in exchange for the cost, the advertising may be obtained from a party other than the customer, and the fair value of the advertising benefit can be reasonably estimated. 55 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Product Warranty Some of the Company’s products carry warranty provisions for defects in quality and workmanship. Warranty repairs and replacements are recorded in cost of sales and a warranty liability is established at the time of sale to cover estimated costs based on the Company’s history of warranty repairs and replacements. The Company recorded a liability for product warranties totaling $ 1,354 and $ 1,155 as of December 31, 2020 and 2019, respectively. For the years ended December 31, 2020, 2019, and 2018, the Company experienced warranty claims on its products of $ 1,201 , $ 1,123 , and $ 999 , respectively. Research and Development Research and development costs are charged to expense as incurred, and are included in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive income. Total research and development costs were $ 10,159 , $ 10,575 , and $ 9,471 for the years ended December 31, 2020, 2019, and 2018, respectively. Transaction Costs Transaction costs consists of expenses related to the Company’s various acquisition efforts and capital-raising activities, including acquiring Sierra and Barnes and completing a registered direct offering (the “Offering”). Income Taxes Income taxes are accounted for under the asset and liability method. Income taxes are based on amounts of taxes payable or refundable in the current year and on expected future tax consequences of events that are recognized in the financial statements in different periods than they are recognized in tax returns. As a result of timing of recognition and measurement differences between financial accounting standards and income tax laws, temporary differences arise between amounts of pre-tax financial statement income and taxable income and between reported amounts of assets and liabilities in the consolidated balance sheets and their respective tax bases. Deferred income tax assets and liabilities reported in the consolidated balance sheets reflect estimated future tax effects attributable to these temporary differences and to net operating loss and net capital loss carryforwards, based on enacted tax rates expected to be in effect for years in which the differences are expected to be settled or realized. The Company has netted these deferred tax assets and deferred tax liabilities by jurisdiction. Realization of deferred tax assets is dependent on future taxable income in specific jurisdictions. Valuation allowances are used to reduce deferred tax assets to amounts considered more likely than not to be realized. U.S. deferred income taxes are not provided on undistributed income of foreign subsidiaries where such earnings are considered to be permanently invested. The Company releases residual tax effects in accumulated other comprehensive income (loss) through continuing operations as the underlying asset matures or expires. The Company recognizes interest expense and penalties related to income tax matters in income tax benefit. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax benefit. Unrecognized tax benefits that reduce a net operating loss, similar tax loss or tax credit carryforward, are presented as a reduction to deferred income taxes. Concentration of Credit Risk and Sales Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, accounts receivable, and aggregate unrealized gains (losses) on derivative contracts. Risks associated with cash within the United States are mitigated by banking with federally insured, creditworthy institutions; however, there are balances with these institutions that are greater than the Federal Deposit Insurance Corporation insurance limit. The Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses as considered necessary by management. During the years ended December 31, 2020, 2019 and 2018, Recreational Equipment, Inc. (“REI”) accounted for approximately 10 %, 14 % and 12 %, respectively, of the Company’s sales and is included in the Black Diamond segment. No other single customer contributed more than 10% of our sales during those periods. As of December 31, 2020 and 2019, REI accounted for approximately 11 % and 14 % of the Company’s accounts receivable, respectively. 56 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Fair Value Measurements The carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate their respective fair values due to the short-term nature and liquidity of these financial instruments. Derivative financial instruments are recorded at fair value based on current market pricing models. The Company estimates that, due to the variable interest rates reflecting current market rates, the fair value of its long-term debt obligations under its revolving credit facility and term note approximate the carrying value at December 31, 2020 and 2019. Segment Information We operate our business structure within two segments. These segments are defined based on the internal financial reporting used by our chief operating decision maker to allocate resources and assess performance. Certain significant selling and general and administrative expenses are not allocated to the segments. The accounting policies of the segments are the same as those described above . Recent Accounting Pronouncements 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 . NOTE 2. ACQUISITIONS Barnes 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 constituting the Barnes business (“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 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”). On October 2, 2020, Sierra completed the acquisition of the Barnes Purchased Assets. Acquisition-related costs for the Barnes acquisition, which were included in transaction costs during the year ended December 31, 2020 were $ 922 . The acquisition was accounted for as a business combination. The Company believes the acquisition of Barnes is expected to provide the Company with a greater combined global revenue base, increased gross margins, profitability and free cash flows, and access to increased liquidity to further acquire and grow businesses. 57 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The following table is a reconciliation to the fair value of the purchase consideration and how the purchase consideration is allocated to assets acquired and liabilities assumed which have been estimated at their fair values. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill. Goodwill is included in the Sierra segment. Barnes Estimated Fair Value Total Purchase Consideration $ 30,500 Assets Acquired and Liabilities Assumed Assets Cash $ 2 Inventories 4,535 Prepaid and other current assets 612 Property and equipment 4,036 Other intangible assets 7,500 Indefinite-lived intangible assets 5,600 Goodwill 8,625 Other long-term assets 4,355 Total Assets 35,265 Liabilities Accounts payable and accrued liabilities 842 Other long-term liabilities 3,923 Total Liabilities 4,765 Net Book Value Acquired $ 30,500 The estimated fair value of inventory was recorded at expected sales price less cost to sell plus a reasonable profit margin for selling efforts. In connection with the acquisition, the Company acquired exclusive rights to Barnes’ trademarks, customer relationships, and product technologies. The amounts assigned to each class of intangible asset, other than goodwill acquired, and the related average useful lives are as follows: Average Gross Useful Life Intangibles subject to amortization Customer relationships $ 5,700 10.0 years Product technologies 1,800 10.0 years Intangibles not subject to amortization Trademarks 5,600 N/A $ 13,100 10.0 years The goodwill consists largely of the synergies expected from combining operations. The acquisition of Barnes is treated as a purchase of assets for tax purposes. As such, the basis in the assets of Barnes is equal for both book and tax, which results in no initial recognition of deferred tax assets or liabilities. Furthermore, the full amount of goodwill recorded of $ 8,625 is expected to be deductible for tax purposes. No pre-existing relationships existed between the Company and the Sellers prior to the acquisition. Total revenue of $ 6,556 and net income of $ 871 of Barnes were included in the Company’s consolidated statements of comprehensive income from the date of acquisition to December 31, 2020. Barnes revenue and operating income were included in the Sierra segment. 58 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The following unaudited pro forma results are based on the individual historical results of the Company and Barnes, with adjustments to give effect as if the acquisition and borrowings used to finance the acquisition had occurred on January 1, 2019, after giving effect to certain adjustments including the amortization of intangible assets, depreciation of fixed assets, interest expense and taxes and assumes the purchase price was allocated to the assets purchased and liabilities assumed based on their fair market values at the date of purchase. Year Ended December 31, 2020 2019 Sales $ 242,360 $ 249,783 Net income $ 9,748 $ 17,361 Net income per share - basic $ 0.32 $ 0.58 Net income per share - diluted $ 0.31 $ 0.56 The unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transaction been consummated as of January 1, 2019. Furthermore, such pro forma information is not necessarily indicative of future operating results of the combined companies and should not be construed as representative of the operating results of the combined companies for any future dates or periods. Material nonrecurring adjustments excluded from the unaudited pro forma financial information above consists of $ 922 transaction costs and the $ 721 step up of Barnes’ inventory to its preliminary fair value, which is expected to be recorded as an unfavorable adjustment to cost of goods sold during the six months following the acquisition date. SKINourishment On November 6, 2018, the Company purchased the assets of SKINourishment and was accounted for as a business combination. The assets purchased were not significant to the consolidated financial statements. Pro forma results of SKINourishment have not been presented as the results are insignificant to our consolidated financial statements. Additionally, revenues and earnings of SKINourishment, since the acquisition date, are insignificant to our consolidated financial statements . NOTE 3. INVENTORIES Inventories, as of December 31, 2020 and 2019, were as follows: December 31, 2020 December 31, 2019 Finished goods $ 50,132 $ 59,452 Work-in-process 6,429 7,474 Raw materials and supplies 11,795 6,506 $ 68,356 $ 73,432 NOTE 4. PROPERTY AND EQUIPMENT Property and equipment, net as of December 31, 2020 and 2019, were as follows: December 31, 2020 December 31, 2019 Land $ 3,160 $ 3,160 Building and improvements 7,324 6,964 Furniture and fixtures 5,715 5,255 Computer hardware and software 5,707 5,298 Machinery and equipment 26,848 21,578 Construction in progress 3,042 1,690 51,796 43,945 Less accumulated depreciation ( 24,840 ) ( 21,026 ) $ 26,956 $ 22,919 Depreciation expense was $ 4,801 , $ 4,550 , and $ 4,423 for the years ended December 31, 2020, 2019, and 2018, respectively. 59 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill The following table summarizes the changes in goodwill by segment: Black Diamond Sierra Total Balance at December 31, 2018 $ - $ 18,090 $ 18,090 Balance at December 31, 2019 - 18,090 18,090 Increase due to acquisition of Barnes - 8,625 8,625 Balance at December 31, 2020 $ - $ 26,715 $ 26,715 Indefinite-Lived Intangible Assets The following table summarizes the changes in indefinite-lived intangible assets: Balance at December 31, 2019 $ 41,630 Increase due to acquisition of Barnes 5,600 Impact of foreign currency exchange rates 293 Balance at December 31, 2020 $ 47,523 Other Intangible Assets, net The following table summarizes the changes in gross other intangible assets: Gross balance at December 31, 2019 $ 32,917 Increase due to acquisition of Barnes 7,500 Impact of foreign currency exchange rates 423 Gross balance at December 31, 2020 $ 40,840 60 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Other intangible assets, net of amortization as of December 31, 2020 and 2019, were as follows: December 31, 2020 Gross Accumulated Amortization Net Weighted Average Useful Life Intangibles subject to amortization Customer relationships $ 31,930 $ ( 16,783 ) $ 15,147 14.2 years Product technologies 6,700 ( 3,151 ) 3,549 11.5 years Tradename / trademark 1,263 ( 543 ) 720 9.4 years Core technologies 947 ( 947 ) - 10.0 years $ 40,840 $ ( 21,424 ) $ 19,416 13.5 years December 31, 2019 Gross Accumulated Amortization Net Weighted Average Useful Life Customer relationships $ 25,995 $ ( 13,392 ) $ 12,603 15.2 years Product technologies 4,712 ( 2,416 ) 2,296 11.9 years Tradename / trademark 1,263 ( 386 ) 877 9.4 years Core technologies 947 ( 907 ) 40 10.0 years $ 32,917 $ ( 17,101 ) $ 15,816 14.3 years Amortization expense for the years ended December 31, 2020, 2019, and 2018, was $ 4,070 , $ 3,552 , and $ 3,873 , respectively. Future amortization expense for other intangible assets as of December 31, 2020 is as follows: Years Ending December 31, Amortization Expense 2021 $ 4,794 2022 3,810 2023 3,068 2024 2,507 2025 2,109 Thereafter 3,128 $ 19,416 NOTE 6. LONG-TERM DEBT Long-term debt as of December 31, 2020 and 2019, was as follows: December 31, 2020 December 31, 2019 Revolving credit facility (a) $ 15,579 $ 22,670 Foreign credit facilities (b) 1,042 - Term note (c) 18,000 - 34,621 22,670 Less current portion ( 4,000 ) - $ 30,621 $ 22,670 (a) As of December 31, 2020, the Company had drawn $ 15,579 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 defined below). As of December 31, 2020 and 2019, the interest rate was 2.0625 % and 3.3125 %, respectively. 61 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) On November 12, 2020, the Borrowers entered into Amendment No. 2 (the “Amendment No. 2”) to that certain Credit Agreement, dated May 3, 2019 and as amended by Amendment No. 1 dated May 28, 2019 (the “Amendment No. 1”), with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (collectively, the “Credit Agreement”). The Credit Agreement as amended by Amendment No. 2, increased the maximum consolidated total leverage ratio permitted under the Credit Agreement to 4.00 :1.00 from 3.00 :1.00. In addition, Amendment No. 2 permits, among other things, the issuance by the Company of debt securities, that may be convertible into equity interests of the Company, in an aggregate principal amount of up to $ 125,000 (the “Notes”), and eliminates the requirement that the proceeds therefrom be used to prepay any revolving loans or term loans under the Credit Agreement. All obligations under the Credit Agreement are secured by 100 % of our domestic, and 65 % of our foreign, subsidiary equity interests, as well as accounts receivable, inventory, intellectual property and certain other assets owned by the Company. The Credit Agreement contains restrictions on the Company’s ability to pay dividends or make distributions or other restricted payments if certain conditions in the Credit Agreement are not fulfilled . The Credit Agreement includes customary affirmative and negative covenants, including financial covenants relating to the Company’s consolidated total leverage ratio and fixed charge coverage ratio. The Company was in compliance with the debt covenants set forth in the Credit Agreement as of December 31, 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 December 31, 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, 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 December 31, 2020, the rate was 2.0625 %. The aggregate maturities of the revolving credit facility for the years subsequent to December 31, 2020 are as follows: 2021 $ 4,000 2022 5,042 2023 4,000 2024 21,579 Total future long-term debt payments 34,621 Less current portion ( 4,000 ) Long-term debt obligations $ 30,621 NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS The Company’s primary exchange rate risk management objective is to mitigate the uncertainty of anticipated cash flows attributable to changes in foreign currency exchange rates. The Company primarily focuses on mitigating changes in cash flows resulting from sales denominated in currencies other than the U.S. dollar. The Company manages this risk primarily by using currency forward and option contracts. If the anticipated transactions are deemed probable, the resulting relationships are formally designated as cash flow hedges. The Company accounts for these contracts as cash flow hedges and tests effectiveness by determining whether changes in the expected cash flow of the derivative offset, within a range, changes in the expected cash flow of the hedged item. At December 31, 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 $ 1,629 as of December 31, 2020. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain on all contracts. At December 31, 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. 62 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The Company held the following contracts designated as hedged instruments as of December 31, 2020 and 2019: December 31, 2020 Notional Latest Amount Maturity Foreign exchange contracts - Canadian Dollars $ 14,587 February 2022 Foreign exchange contracts - Euros € 24,481 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. Gains (losses) of $( 139 ) and $ 1,017 were reclassified to sales during the years ended December 31, 2020 and 2019, respectively. The following table presents the balance sheet classification and fair value of derivative instruments as of December 31, 2020 and 2019: Classification December 31, 2020 December 31, 2019 Derivative instruments in asset positions: Forward exchange contracts Prepaid and other current assets $ - $ 226 Derivative instruments in liability positions: Forward exchange contracts Accounts payable and accrued liabilities $ 1,539 $ 152 Forward exchange contracts Other long-term liabilities $ 90 $ 29 NOTE 8. 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 components of AOCI, net of tax, were as follows: Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of December 31, 2019 $ ( 286 ) $ ( 17 ) $ ( 303 ) Other comprehensive income (loss) before reclassifications 1,766 ( 1,069 ) 697 Amounts reclassified from other comprehensive income (loss) - 106 106 Net current period other comprehensive income (loss) 1,766 ( 963 ) 803 Balance as of December 31, 2020 $ 1,480 $ ( 980 ) $ 500 63 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of December 31, 2018 $ 73 $ 404 $ 477 Other comprehensive income (loss) before reclassifications ( 359 ) 487 128 Amounts reclassified from other comprehensive income (loss) - ( 908 ) ( 908 ) Net current period other comprehensive loss ( 359 ) ( 421 ) ( 780 ) Balance as of December 31, 2019 $ ( 286 ) $ ( 17 ) $ ( 303 ) The effects on net income of amounts reclassified from unrealized gains (losses) on cash flow hedges for foreign exchange contracts and foreign currency translation adjustments for the years ended December 31, 2020 and 2019 were as follows: Gains (losses) reclassified from AOCI to the Consolidated Statements of Comprehensive Income Affected line item in the Consolidated Twelve Months Ended Statements of Comprehensive Income December 31, 2020 December 31, 2019 Foreign exchange contracts: Sales $ ( 139 ) $ 1,017 Less: Income tax (benefit) expense ( 33 ) 109 Amount reclassified, net of tax $ ( 106 ) $ 908 Total reclassifications from AOCI $ ( 106 ) $ 908 The Company’s policy is to classify reclassifications of cumulative foreign currency translation from AOCI to Other, net. NOTE 9. FAIR VALUE MEASUREMENTS We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy which 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. 64 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Assets and liabilities measured at fair value on a recurring basis at December 31, 2020 and 2019 were as follows: December 31, 2020 Level 1 Level 2 Level 3 Total Assets Forward exchange contracts $ - $ - $ - $ - $ - $ - $ - $ - Liabilities Forward exchange contracts $ - $ 1,629 $ - $ 1,629 $ - $ 1,629 $ - $ 1,629 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 December 31, 2020 and 2019. NOTE 10. STOCKHOLDERS’ EQUITY On August 6, 2018, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend program of $ 0.025 per share of the Company’s common stock (the “Quarterly Cash Dividend”) or $ 0.10 per share on an annualized basis. The declaration and payment of future Quarterly Cash Dividends is subject to the discretion of and approval of the Company’s Board of Directors. On May 1, 2020, the Company announced that, in light of the operational impact of the COVID-19 pandemic, its Board of Directors temporarily replaced its Quarterly Cash Dividend with a stock dividend (the “Quarterly Stock Dividend”). In 2020, 2019 and 2018, our total Quarterly Cash Dividends were $ 1,520 , $ 2,987 and $ 1,488 , respectively. In 2020, our total Quarterly Stock Dividends were $ 1,533 . On January 29, 2021 , the Company announced that its Board of Directors approved the payment on February 19, 2021 of the Quarterly Cash Dividend of $ 0.025 to the record holders of shares of the Company’s common stock as of the close of business on February 8, 2021 . During the year ended December 31, 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 900,000 shares of its common stock in a registered direct offering (the “Offering”). The proceeds to the Company from the Offering were $ 11,476 . On May 7, 2018, the Company announced a “modified Dutch auction” tender offer for Clarus’ common stock, as well as the preferred share purchase rights associated with such shares (collectively, the “Shares”). On July 11, 2018, the tender offer expired, following which the Company announced it would accept 417,237 Shares for purchase at a price of $ 8.00 per Share, for an aggregate cost of approximately $ 3,338 , excluding fees and expenses. The Company purchased shares of the Company’s common stock for $ 4,167 and $ 2,349 under the Company’s authorized stock repurchase program during the years ended December 31, 2019 and 2018, respectively. NOTE 11. EARNINGS PER SHARE Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding during each period. Diluted earnings per share is computed by dividing earnings by the total of the weighted average number of shares of common stock outstanding during each period, plus the effect of dilutive outstanding stock options and unvested restricted stock grants. Potentially dilutive securities are excluded from the computation of diluted earnings per share if their effect is anti-dilutive to the loss from continuing operations. 65 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The following table is a reconciliation of basic and diluted shares of common stock outstanding used in the calculation of earnings per share: Year Ended December 31, 2020 2019 2018 Weighted average shares outstanding - basic 30,175 29,820 29,915 Effect of dilutive stock awards 1,050 1,173 340 Weighted average shares outstanding - diluted 31,225 30,993 30,255 Net income per share: Basic $ 0.18 $ 0.64 $ 0.24 Diluted 0.18 0.61 0.24 For the years ended December 31, 2020, 2019, and 2018, equity awards of 868 , 702 , and 1,164 , respectively, were outstanding and anti-dilutive and therefore not included in the calculation of net income per share for these periods. NOTE 12. STOCK-BASED COMPENSATION PLAN Under the Company’s current 2015 Stock Incentive Plan (the “2015 Plan”), the Company’s Board of Directors (the “Board of Directors”) has flexibility to determine the type and amount of awards to be granted to eligible participants, who must be employees, directors, officers or consultants of the Company or its subsidiaries. The 2015 Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and restricted units. The aggregate number of shares of common stock that may be granted through awards under the 2015 Plan to any employee in any calendar year may not exceed 500 shares. The 2015 Plan will continue in effect until December 2025 unless terminated sooner. As of December 31, 2020, the number of shares authorized and reserved for issuance under the 2015 Plan is 6,800 shares, subject to automatic annual increase equal to 5 % of the total number of shares of the Company’s outstanding common stock. Options Granted: During the year ended December 31, 2020, the Company issued stock options for an aggregate of 1,098 shares under the 2015 Plan to directors and employees of the Company. The options issued during the year ended December 31, 2020 generally vest and become exercisable over a period of one year to five years and expire ten years from the date of the grant. 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: 2020 2019 2018 Number of options 1,098 188 1,938 Option vesting period 1 - 5 Years 1 - 3 Years 1 - 5 Years Grant price (per share) $ 9.99 - $ 16.93 $ 13.21 $ 6.80 - $ 10.21 Dividend yield 0.59 % - 1.00 % 0.76 % 0.00 % - 1.09 % Expected volatility (a) 40.9 % - 44.2 % 41.0 % - 41.2 % 40.6 % - 42.5 % Risk-free interest rate 0.41 % - 0.65 % 1.88 % - 1.93 % 2.65 % - 3.09 % Expected life (years) (b) 5.31 - 6.50 5.31 - 6.00 5.00 - 6.50 Weighted average fair value (per share) $ 3.72 - $ 6.89 $ 4.87 - $ 5.13 $ 2.77 - $ 4.08 (a) Expected volatility is based upon the Company’s historical volatility. (b) Because the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for these grants, the Company utilized the simplified method in developing an estimate of the expected term of these options . Using these assumptions, the fair value of the stock options granted during the years ended December 31, 2020, 2019, and 2018 was $ 5,310 , $ 952 , and $ 6,059 , respectively, which will be amortized as stock-based compensation expense over the vesting period of the options. 66 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) 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 year ended December 31, 2020 was $ 3,314 , which was immediately recognized to selling, general and administrative expenses. 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. Subsequent to year end, the market-based condition was met and the restricted shares became fully vested. On January 7, 2019, the Company issued and granted to an employee a restricted stock award of 350 restricted shares under the 2015 Plan, that will vest as follows: (A) the stock award will vest and become nonforfeitable if, on or before January 7, 2024, the closing price of the Company’s common stock shall have equaled or exceeded $ 15.00 per share for twenty consecutive trading days (such 20th day being the “Price Trigger Date”); and (B) once the Price Trigger Date occurs, (i) 117 shares of the Company’s common stock shall vest on each of the first and second anniversary of the Price Trigger Date; and (ii) 116 shares of the Company’s common stock shall vest on the third anniversary of the Price Trigger Date. For computing the fair value of the 350 restricted shares with a market condition, the fair value of each restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below. Subsequent to year end, the market-based condition was met and the Price Trigger Date occurred. On January 7, 2019, the Company issued and granted to an employee a restricted stock award of 150 restricted shares under the 2015 Plan, that will vest as follows: (A) the stock award will vest and become nonforfeitable if, on or before January 7, 2024, the closing price of the Company’s common stock shall have equaled or exceeded $ 15.00 per share for twenty consecutive trading days (such 20th day being the Price Trigger Date); and (B) once the Price Trigger Date occurs, the shares shall equally vest on each of the first, second, third and fourth anniversary of the Price Trigger Date. For computing the fair value of the 150 restricted shares with a market condition, the fair value of each restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below. Subsequent to year end, the market-based condition was met and the Price Trigger Date occurred. August 27, 2020 January 7, 2019 Number issued 100 500 Vesting period $ 15.00 stock price target $ 15.00 stock price target Grant price (per share) $ 12.72 $ 10.21 Dividend yield 0.79 % 0.0 % Expected volatility 41.1 % 42.4 % Risk-free interest rate 0.19 % 2.53 % Expected term (years) 0.52 4.28 - 5.28 Weighted average fair value (per share) $ 9.91 $ 7.92 Using these assumptions, the fair value of the market condition restricted stock awards granted on August 27, 2020 was approximately $ 991 and January 7, 2019 was approximately $ 3,753 . 67 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The total non-cash stock compensation expense related to stock options and restricted stock awards recorded by the Company was as follows: Year Ended December 31, 2020 2019 2018 Restricted stock awards $ 1,488 $ 1,058 $ 1,158 Stock options 1,989 1,891 1,494 Stock awards 3,314 - - Total $ 6,791 $ 2,949 $ 2,652 For the years ended December 31, 2020, 2019, and 2018, the majority of stock-based compensation costs were classified as selling, general and administrative expense. A summary of changes in outstanding options and restricted stock awards during the year ended December 31, 2020 is as follows: Options Weighted Average Exercise Price Aggregate Intrinsic Value Restricted Stock Awards Outstanding at December 31, 2019 3,911 $ 7.72 $ 22,840 600 Granted 1,098 13.89 100 Exercised or vested ( 308 ) 7.00 - Expired ( 800 ) 8.75 ( 100 ) Cancelled - - - Forfeited - - - Outstanding at December 31, 2020 3,901 $ 9.30 $ 23,802 600 Options exercisable at December 31, 2020 2,088 7.48 $ 16,536 The following table summarizes the exercise price range, weighted average exercise price, and remaining contractual lives by significant ranges for options outstanding and exercisable as of December 31, 2020: Remaining Life In Years Weighted Average Exercise Price Range Outstanding Exercisable Outstanding Exercisable Exercise Price $ 4.38 - $ 12.51 2,868 1,990 5.4 5.4 $ 7.20 $ 12.51 - $ 16.93 1,033 98 9.0 7.4 $ 13.23 3,901 2,088 6.0 5.5 $ 7.48 The intrinsic value of options exercised was $ 2,006 , $ 607 , and $ 315 during the years ended December 31, 2020, 2019, and 2018, respectively. The intrinsic value of restricted stock awards vested was $ 0 , $ 3,252 , and $ 2,720 during the years ended December 31, 2020, 2019, and 2018, respectively. Total fair value of options vested during the years ended December 31, 2020, 2019, and 2018 was $ 1,722 , $ 1,610 , and $ 1,757 , respectively. Total fair value of restricted stock awards vested during the years ended December 31, 2020, 2019, and 2018 was $ 0 , $ 919 , and $ 1,076 , respectively. The fair value of unvested restricted stock awards is determined based on the market price of our shares of common stock on the grant date or using the Monte-Carlo pricing model. As of December 31, 2020, there were 1,814 unvested stock options and unrecognized compensation cost of $ 7,413 related to unvested stock options, as well as 600 unvested restricted stock awards and unrecognized compensation cost of $ 2,430 related to unvested restricted stock awards. Unrecognized compensation cost of unvested stock options and restricted stock awards are expected to be recognized over the weighted average period of 2.6 years and 2.3 years, respectively. 68 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) NOTE 13. RESTRUCTURING As part of the conclusion of the Company’s review of strategic alternatives, the Company initiated restructuring activities in efforts to further realign resources within the organization (the “2015 Restructuring Plan”) and completed the plan in 2018 with a final payment in 2019. During the year ended December 31, 2019 and 2018, we incurred $ 13 and $ 137 , respectively, of restructuring charges related to the 2015 Restructuring Plan. We have incurred $ 2,694 of cumulative restructuring charges since the commencement of the 2015 Restructuring Plan. NOTE 14. 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 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 15. INCOME TAXES Consolidated income before income taxes consists of the following: Year Ended December 31, 2020 2019 2018 U.S. operations $ 362 $ 8,553 $ 8,998 Foreign operations 3,223 1,428 ( 2,525 ) Income before income tax $ 3,585 $ 9,981 $ 6,473 The components of the benefit for income taxes consist of the following: Year Ended December 31, 2020 2019 2018 Current: Federal $ 34 $ ( 41 ) $ ( 74 ) State and local 390 179 41 Foreign 863 111 295 1,287 249 262 Deferred: Federal 3,084 1,133 2,645 State and local 44 ( 156 ) 326 Foreign ( 91 ) 3,273 ( 575 ) 3,037 4,250 2,396 Change in valuation allowance for deferred income taxes ( 6,284 ) ( 13,490 ) ( 3,486 ) ( 3,247 ) ( 9,240 ) ( 1,090 ) Income tax benefit $ ( 1,960 ) $ ( 8,991 ) $ ( 828 ) The Company’s foreign operations that are considered to be permanently reinvested have statutory tax rates of approximately 25 %. 69 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the Company’s financial statements: Year Ended December 31, 2020 2019 2018 Statutory income tax expense 21.0 % 21.0 % 21.0 % Increase (decrease) in income taxes resulting from: Foreign taxes 3.6 0.2 ( 0.9 ) State income taxes, net of federal income taxes 10.2 1.9 3.4 Income tax credits ( 17.1 ) ( 5.6 ) ( 6.8 ) Incentive stock options 9.9 ( 3.7 ) 1.3 Change in effective state rate 2.3 ( 0.1 ) 0.3 Deferred tax asset write-offs 73.1 31.4 21.7 Executive compensation limitation 15.6 - - Other 2.1 0.7 1.1 Change in valuation allowance ( 175.4 ) ( 135.9 ) ( 53.9 ) Income tax benefit ( 54.7 ) % ( 90.1 ) % ( 12.8 ) % The deferred tax asset write-offs relate to historical research and development tax credits and certain investments that were fully offset by a release in the valuation allowance. Deferred income tax assets and liabilities are determined based on the difference between the financial reporting carrying amounts and tax bases of existing assets and liabilities and operating loss and tax credit carryforwards. Significant components of the Company’s existing deferred income tax assets and liabilities as of December 31, 2020 and 2019 are as follows: December 31, 2020 2019 Deferred tax assets: Net operating loss, capital loss amount and research & experimentation credit carryforwards $ 37,206 $ 40,949 Non-cash compensation 1,528 1,622 Accrued liabilities 274 263 Reserves and other 1,462 1,027 Intangibles 68 84 40,538 43,945 Valuation allowance ( 22,348 ) ( 28,632 ) Net deferred tax assets 18,190 15,313 Deferred tax liabilities: Depreciation ( 1,074 ) ( 1,091 ) Intangibles ( 7,529 ) ( 7,542 ) Other 299 - ( 8,304 ) ( 8,633 ) Total $ 9,886 $ 6,680 Certain deferred income tax balances are not netted as they represent deferred amounts applicable to different taxing jurisdictions. The Company has provided a valuation allowance against a portion of the deferred tax assets as of December 31, 2020, because the ultimate realization of those assets does not meet the more-likely-than-not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended. 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 income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and net operating loss and credit carryforwards expire. The estimates and judgments associated with the Company’s valuation allowance on deferred tax assets 70 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) are considered critical due to the amount of deferred tax assets recorded by the Company on its consolidated balance sheets and the judgment required in determining the Company’s potential for future taxable income. The need for a valuation allowance is reassessed at each reporting period. The net change in the valuation allowance for deferred income tax assets was ($ 6,284 ), ($ 13,490 ), and ($ 3,689 ) during the years ended December 31, 2020, 2019, and 2018, respectively. A roll forward of our valuation allowance for deferred income tax assets for the years ended December 31, 2020, 2019, and 2018 is as follows: Balance at Beginning of Year Charged to Costs and Expenses Other Adjustments Balance at End of Year 2018 $ 45,811 $ ( 3,486 ) $ ( 203 ) $ 42,122 2019 $ 42,122 $ ( 13,473 ) $ ( 17 ) $ 28,632 2020 $ 28,632 $ ( 6,284 ) $ - $ 22,348 As of December 31, 2020, the Company has net operating loss carryforwards (“NOLs”) and research and experimentation credit for U.S. federal income tax purposes of $ 120,309 and $ 1,889 , respectively. The Company believes its U.S. Federal NOLs will substantially offset its future U.S. Federal income taxes until expiration. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F. income and will be offset with the NOLs. NOLs available to offset taxable income, subject to compliance with Section 382 of the Code, begin to expire based upon the following schedule: Net Operating Loss Carryforward Expiration Dates December 31, 2020 Expiration Dates December 31, Net Operating Loss Amount 2022 $ 99,596 2023 5,853 2024 3,566 2025 and beyond 11,294 Total $ 120,309 Tax positions are recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. The Company conducts its business globally. As a result, the Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions and are subject to examination for the open tax years in the U.S. federal and state jurisdictions of 2015-2019 and in the foreign jurisdictions of 2007-2019. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the years ended December 31, 2020, 2019 and 2018 are follows: December 31, 2020 2019 2018 Balance, beginning of year $ 561 $ 545 $ 476 Additions for current year tax positions 87 77 69 Additions for prior year tax positions 12 11 - Reductions for prior year tax positions ( 233 ) ( 72 ) - Balance, end of year $ 427 $ 561 $ 545 Included in the balance of total unrecognized tax benefits at December 31, 2020 and 2019, are potential benefits of $ 427 and $ 561 , respectively, that if recognized, would affect the effective rate, subject to impact of valuation allowance, on income from continuing operations. Unrecognized tax benefits that reduce a net operating loss, similar tax loss or tax credit carryforward are presented as a reduction to deferred income taxes. As a result, the Company classified $ 292 and $ 462 of its unrecognized tax benefit as a reduction to deferred tax assets as of December 31, 2020 and 2019, respectively. 71 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Interest and penalty expense recognized related to uncertain tax positions were not significant during the years ending December 31, 2020, 2019, and 2018, respectively. Total accrued interest and penalties as of December 31, 2020 were not significant and $ 4 as of December 31, 2019 and were included in accounts payable and accrued liabilities. NOTE 16. SEGMENT INFORMATION We operate our business structure within two segments. These segments are defined based on the internal financial reporting used by our chief operating decision maker to allocate resources and assess performance . Certain significant selling and general and administrative expenses are not allocated to the segments 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 and Barnes, includes two iconic American manufacturers of a wide range of high-performance bullets and ammunition for both rifles and pistols. These bullets are used for precision target shooting, hunting and military and law enforcement purposes. 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: Year Ended December 31, 2020 2019 2018 Climb 28 % 31 % 30 % Mountain 28 % 34 % 34 % Ski 20 % 22 % 19 % Sport 24 % 13 % 17 % 72 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Financial information for our segments is as follows: Year Ended December 31, 2020 2019 2018 Sales to external customers: Black Diamond Domestic sales $ 86,717 $ 100,294 $ 86,432 International sales 84,514 99,652 90,314 Total Black Diamond 171,231 199,946 176,746 Sierra Domestic sales 45,509 21,457 26,105 International sales 7,267 8,034 9,290 Total Sierra 52,776 29,491 35,395 Total sales to external customers 224,007 229,437 212,141 Segment operating income: Black Diamond 5,933 15,553 11,102 Sierra 12,924 4,008 5,808 Total segment operating income 18,857 19,561 16,910 Restructuring charge - ( 13 ) ( 137 ) Transaction costs ( 2,433 ) ( 166 ) ( 503 ) Corporate and other expenses ( 11,578 ) ( 8,043 ) ( 8,458 ) Interest expense, net ( 1,261 ) ( 1,358 ) ( 1,339 ) Income before income tax $ 3,585 $ 9,981 $ 6,473 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. Total assets by segment, as of December 31, 2020 and 2019, were as follows: December 31, 2020 2019 Black Diamond $ 141,746 $ 147,261 Sierra 113,430 72,104 Corporate 25,515 10,900 $ 280,691 $ 230,265 Capital expenditures, depreciation and amortization by segment is as follows. Year Ended December 31, 2020 2019 2018 Capital expenditures: Black Diamond $ 3,376 $ 2,636 $ 2,560 Sierra 2,035 1,480 805 Total capital expenditures $ 5,411 $ 4,116 $ 3,365 Depreciation: Black Diamond $ 2,782 $ 2,645 $ 2,469 Sierra 2,019 1,905 1,954 Total depreciation $ 4,801 $ 4,550 $ 4,423 Amortization: Black Diamond $ 1,061 $ 1,111 $ 1,099 Sierra 3,009 2,441 2,774 Total amortization $ 4,070 $ 3,552 $ 3,873 73 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) NOTE 17. LEASES The Company has entered into leases for certain facilities, vehicles and other equipment. Our operating leases have remaining contractual terms of up to nine years , some of which include options to extend the leases for up to ten years . Our operating lease costs are primarily related to facility leases for inventory warehousing, administration offices and vehicles. The Company’s finance leases are immaterial. Operating lease ROU assets and liabilities as of December 31, 2020 and 2019, were as follows: Balance Sheet Classification December 31, 2020 December 31, 2019 Assets Operating lease ROU assets Other long-term assets $ 5,334 $ 1,200 Liabilities Current operating lease liabilities Accounts payable and accrued liabilities $ 973 $ 681 Noncurrent operating lease liabilities Other long-term liabilities $ 4,414 $ 500 Operating lease costs were as follows: Affected line item in the Consolidated Year Ended Statements of Comprehensive Income December 31, 2020 December 31, 2019 Lease costs Cost of goods sold, Selling, general and administrative $ 940 $ 750 Variable lease costs Cost of goods sold, Selling, general and administrative 194 208 Short-term lease costs Cost of goods sold, Selling, general and administrative 189 228 $ 1,323 $ 1,186 The maturity of operating lease liabilities as of December 31, 2020 are as follows: Years Ending December 31, Operating Lease Payments 2021 $ 1,067 2022 814 2023 732 2024 586 2025 and thereafter 2,618 Total future lease payments 5,817 Less: amount representing interest ( 430 ) Present value of future lease payments 5,387 Less: current lease obligations ( 973 ) Long-term lease obligations $ 4,414 As of December 31, 2020, our operating leases have a weighted-average remaining lease term of 4.32 years and a weighted-average discount rate of 2.24 %. Total rent expense of the Company for the year ended December 31, 2018 was $ 838 , as determined prior to the adoption of ASC 842. 74 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) NOTE 18. RELATED PARTY TRANSACTIONS During the year ended December 31, 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. Upon the Company’s acquisition of Barnes, on October 2, 2020, the Company paid a fee in the amount of $ 500 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. SUPPLEMENTARY DATA – QUARTERLY FINANCIAL DATA (Unaudited) The following table sets forth selected quarterly data for the years ended December 31, 2020 and 2019. The operating results are not indicative of results for any future period. Year Ended December 31, 2020 First Quarter Second Quarter Third Quarter Fourth Quarter (in thousands, except per share amounts) Net sales $ 53,555 $ 30,014 $ 64,491 $ 75,947 Gross profit 18,512 10,636 21,669 26,978 Operating income (loss) 892 ( 4,037 ) 1,555 5,524 Net income (loss) 36 ( 2,743 ) 1,183 7,069 Net income (loss) per share: Basic $ 0.00 $ ( 0.09 ) $ 0.04 $ 0.23 Diluted 0.00 ( 0.09 ) 0.04 0.22 Year Ended December 31, 2019 First Quarter Second Quarter Third Quarter Fourth Quarter (in thousands, except per share amounts) Net sales $ 61,218 $ 46,994 $ 60,203 $ 61,022 Gross profit 22,056 15,992 20,557 21,686 Operating income (loss) 4,417 ( 1,241 ) 4,077 4,179 Net income (loss) 3,787 ( 694 ) 3,492 12,387 Net income (loss) per share: Basic $ 0.13 $ ( 0.02 ) $ 0.12 $ 0.42 Diluted 0.12 ( 0.02 ) 0.11 0.40 Basic and diluted net income (loss) per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly amounts may not equal the total computed for the year. 75 CLARUS CORPORATION ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.