What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-09 · 113 added, 166 removed, 143 unchanged (66% of the section changed)

15 unchanged sentences

the impact that global climate change trends may have on the Company and its suppliers and customers;

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

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

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

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

11 unchanged sentences

Clarus’ primary business is as a leading designer, developer, manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb, ski, mountain, sport and skincare markets.

The Company’s products are principally sold under the Black Diamond®, Sierra®, PIEPS® and SKINourishment® brand names through outdoor specialty and online retailers, distributors and original equipment manufacturers throughout the U.S.

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.

8 unchanged sentences

We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes.

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

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

10 unchanged sentences

(“SKINourishment”).

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

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

On 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.

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.

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

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

On April 30, 2021, the Company announced that its Board of Directors approved the payment on May 21, 2021 of the Quarterly Cash Dividend to the record holders of shares of the Company’s common stock as of the close of business on May 10, 2021.

Impact of COVID-19

4 unchanged sentences

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

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

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

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

Risk Factors of our Quarterly Report for the quarterly period ended March 31, 2020.

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

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

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

Those measures have and might continue to include temporarily suspending manufacturing or retail operations, modifying workspaces, continuing social distancing policies, implementing new personal protective equipment or health screening policies at our facilities, or such other industry best practices needed to continue maintain a healthy and safe environment for our employees amidst the pandemic.

These countermeasures are expected to partially mitigate the impacts of COVID-19 on our full year 2020 financial results.

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 during this period.

This continued during the three months ended March 31, 2021, although to a lesser extent, as certain countries began to ease restrictions.

We expect a continued impact on the Company’s sales and profitability in future periods.

Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020.

Since the beginning of the pandemic, 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, temporarily 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.

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.

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

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.

Critical Accounting Policies and Use of Estimates

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Estimates also affect the reported amounts of revenues and expenses during the reporting periods.

We continually evaluate our estimates and assumptions including those related to derivatives, revenue recognition, income taxes and valuation of long-lived assets, goodwill and other intangible assets.

We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances.

Actual results could differ from these estimates.

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

There have been no significant changes to our critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2020.

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Results of Operations

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

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

Condensed Consolidated Three Months Ended March 31, 2021 Compared to Condensed Consolidated Three Months Ended March 31, 2020

The following presents a discussion of condensed consolidated operations for the three months ended March 31, 2021, compared with the condensed consolidated three months ended March 31, 2020.

Three Months Ended

September 30, 2020

September 30, 2019

March 31, 2021

March 31, 2020

Domestic sales

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Operating income

Other income (expense)

Interest expense, net

Total other income (expense), net

Income before income tax

Income tax expense (benefit)

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

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

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

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

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

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

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

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

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

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

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

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

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

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

Cost of Goods Sold

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

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

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

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

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

Selling, General and Administrative

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

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

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

Transaction Costs

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

Interest Expense, net

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

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

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

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

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

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

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

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

Results of Operations

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

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

Nine Months Ended

September 30, 2020

September 30, 2019

Domestic sales

International sales

Cost of goods sold

Operating expenses

Selling, general and administrative

Restructuring charge

Transaction costs

Total operating expenses

Operating (loss) income

Other expense

1 unchanged sentence

Total other expense, net

(Loss) income before income tax

Income tax benefit

Net (loss) income

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

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

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

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

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

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

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

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

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

We believe the decrease in

Income before income tax

Income tax (benefit) expense

Consolidated sales increased $21,776, or 40.7%, to $75,331, during the three months ended March 31, 2021, compared to consolidated sales of $53,555 during the three months ended March 31, 2020.

The increase in sales was primarily attributable to the increase in the quantity of new and existing sport products sold by Sierra of $7,290 and the inclusion of Barnes, which contributed $8,485.

The quantity of new and existing climb, mountain, and ski products also increased during the period.

We experienced an increase in sales of $1,142 due to the weakening of the U.S.

dollar against foreign currencies during the three months ended March 31, 2021, compared to the prior period.

Consolidated domestic sales increased $19,025, or 66.6%, to $47,573 during the three months ended March 31, 2021, compared to consolidated domestic sales of $28,548 during the three months ended March 31, 2020.

The increase in sales was primarily attributable to the increase in the quantity of new and existing sport products sold by Sierra of $8,241 and the inclusion of Barnes, which contributed $7,712.

The quantity of new and existing climb, mountain, and ski products also increased during the period.

Consolidated international sales increased $2,751, or 11.0%, to $27,758 during the three months ended March 31, 2021, compared to consolidated international sales of $25,007 during the three months ended March 31, 2020.

The increase in sales was primarily attributable to the increase in the quantity of new and existing climb, mountain, and ski products and the inclusion of Barnes, which contributed $773.

We experienced an increase in sales of $1,142 due to the weakening of the U.S.

dollar against foreign currencies during the three months ended March 31, 2021 compared to the prior period.

The increase was partially offset by a decrease in the quantity of new and existing sport products sold by Sierra of $951.

CLARUS CORPORATION

1 unchanged sentence

(in thousands, except per share amounts)

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

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

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

Cost of Goods Sold

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

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

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

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

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

Consolidated cost of goods sold increased $13,238 or 37.8%, to $48,281 during the three months ended March 31, 2021, compared to consolidated cost of goods sold of $35,043 during the three months ended March 31, 2020.

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

Consolidated gross profit increased $8,538 or 46.1%, to $27,050 during the three months ended March 31, 2021, compared to consolidated gross profit of $18,512 during the three months ended March 31, 2020.

Consolidated gross margin was 35.9% during the three months ended March 31, 2021, compared to a consolidated gross margin of 34.6% during the three months ended March 31, 2020.

Consolidated gross margin during the three months ended March 31, 2021, increased compared to the prior year due to a favorable product mix in higher margin products.

Gross margin benefited from the inclusion of Barnes;

however, this benefit was offset by a decrease in gross margin of 0.5% due to the sale of Barnes inventory that was recorded at its fair value in purchase accounting during the year ended December 31, 2020.

Selling, General and Administrative

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

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

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

Restructuring Charges

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

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

Consolidated selling, general, and administrative expenses increased $3,515, or 20.2%, to $20,885 during the three months ended March 31, 2021, compared to consolidated selling, general and administrative expenses of $17,370 during the three months ended March 31, 2020.

The increase in selling, general and administrative expenses is due to the inclusion of Barnes, which contributed $1,852, and an increase of stock compensation of $911 during the three months ended March 31, 2021 compared to the prior year.

The remaining increase was attributable to the Company’s investments in the brand related activities of sales, direct-to-consumer, and warehousing and logistics, focused on supporting its strategic initiatives around elevating brand awareness and being easier to do business with.

Transaction Costs

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

Consolidated transaction expense increased to $476 during the three months ended March 31, 2021, compared to consolidated transaction costs of $250 during the three months ended March 31, 2020, which consisted of expenses related to the Company’s various acquisition efforts.

Interest Expense, net

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

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

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

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

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

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

Consolidated interest expense, net during the three months ended March 31, 2021 remained relatively consistent with consolidated interest expense, net, during the three months ended March 31, 2020.

Consolidated other, net expense decreased $391, or 73.6%, to $140 during the three months ended March 31, 2021, compared to consolidated other, net expense of $531 during the three months ended March 31, 2020.

The decrease in other, net, was primarily attributable to a decrease in remeasurement losses recognized on the Company’s foreign denominated accounts receivable and accounts payable.

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

Consolidated income tax decreased $380, or 2,714.3%, to a benefit of $366 during the three months ended March 31, 2021, compared to income tax expense of $14 during the same period in 2020.

Our effective income tax rate was a benefit of 6.9% for the three months ended March 31, 2021, and differed compared to the statutory tax rates due to a release of a partial valuation allowance of the deferred tax assets and a discrete charge recorded during the period .

For the three months ended March 31, 2020, our effective income tax rate was 28.0% and was higher compared to the statutory tax rates due to an increase in the valuation allowance related to the current year R&D tax credits lower compared to the statutory tax rates due to a stock compensation windfall.

CLARUS CORPORATION

1 unchanged sentence

(in thousands, except per share amounts)

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

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

Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur.

Liquidity and Capital Resources

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

Condensed Consolidated Three Months Ended March 31, 2021 Compared to Condensed Consolidated Three Months Ended March 31, 2020

Our primary ongoing funding requirements are for working capital, expansion of our operations (both organically and through acquisitions) and general corporate needs, as well as investing activities associated with the expansion into new product categories.

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

We plan to fund these activities through a combination of our future operating cash flows and revolving credit facility which had approximately $49,300 available to borrow at March 31, 2021.

We believe that our liquidity requirements for at least the next 12 months will be adequately covered by cash provided by operations and our existing revolving credit facility.

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Given the economic uncertainty as a result of the pandemic, we have taken actions to improve our current liquidity position, including drawing on the credit facility, suspending share repurchases and cash dividends, postponing nonessential capital expenditures, reducing operating costs, modulating production in line with demand, initiating workforce reductions and furloughs, and substantially reducing discretionary spending.

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

Further, on April 30, 2020, we borrowed $20,000 under the term loan portion of the Credit Agreement (as defined below) to increase our overall liquidity.

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.

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

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

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

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

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

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

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

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

Nine Months Ended

September 30, 2020

September 30, 2019

Net cash provided by operating activities

On November 12, 2020, the Company and certain of its direct and indirect domestic subsidiaries (each, a “Borrower” and, collectively, the “Borrowers”) entered into Amendment No.

2 (the “Amendment No.

2”) to that certain Credit Agreement, dated May 3, 2019 with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto (as amended, the “Credit Agreement”).

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, and eliminates the requirement that the proceeds therefrom be used to prepay any revolving loans or term loans under the Credit Agreement.

At March 31, 2021, we had total cash of $6,525, compared to a cash balance of $17,789 at December 31, 2020, which was substantially controlled by the Company’s U.S.

At March 31, 2021, the Company had $3,846 of the $6,525 in cash held by foreign entities, of which $1,309 is considered permanently reinvested.

The following presents a discussion of cash flows for the condensed consolidated three months ended March 31, 2021 compared with the condensed consolidated three months ended March 31, 2020.

Three Months Ended

March 31, 2021

March 31, 2020

Net cash (used in) provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash (used in) provided by financing activities

Effect of foreign exchange rates on cash

Change in cash

Cash, beginning of period

Cash, beginning of year

Cash, end of period

Net Cash From Operating Activities

Consolidated net cash used in operating activities was $2,518 during the three months ended March 31, 2021, compared to consolidated net cash provided by operating activities of $3,499 during the three months ended March 31, 2020.

The decrease in net cash provided by operating activities to net cash used in operating activities during 2021 is primarily due to an increase in net operating assets, or non-cash working capital, of $12,700, partially offset by an increase in net income during the three months ended March 31, 2021, compared to the same period in 2020.

CLARUS CORPORATION

1 unchanged sentence

(in thousands, except per share amounts)

Net Cash From Operating Activities

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

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

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

Free cash flow, defined as net cash (used in) provided by operating activities less capital expenditures, of ($3,865) was used during the three months ended March 31, 2021 compared to $2,197 generated during the same period in 2020.

The Company believes that the non-GAAP measure, free cash flow, provides an understanding of the capital required by the Company to expand its asset base.

A reconciliation of free cash flows to comparable GAAP financial measures is set forth below:

Nine Months Ended

September 30, 2020

September 30, 2019

Net cash provided by operating activities

Three Months Ended

March 31, 2021

March 31, 2020

Net cash (used in) provided by operating activities

Purchase of property and equipment

1 unchanged sentence

Net Cash From Investing Activities

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

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

Consolidated net cash used in investing activities was $1,347 during the three months ended March 31, 2021, compared to $1,299 during the three months ended March 31, 2020.

The increase in cash used during the three months ended March 31, 2021 is due to an increase in purchases of property and equipment, compared to the same period in 2020.

Net Cash From Financing Activities

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

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

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

Consolidated net cash used in financing activities was $7,196 during the three months ended March 31, 2021, compared to net cash provided of $8,649 during the three months ended March 31, 2020.

The increase in cash used during the three months ended March 31, 2021 compared to the same period in 2020 was primarily due to the net repayments to the revolving line of credit and repayments of the term loan.

Net Operating Loss

As of December 31, 2019, the Company had net operating loss and research and experimentation credit for U.S.

As of December 31, 2020, the Company had 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 NOL will offset some of its future U.S.

Federal income taxes.

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 NOL.

as Subpart F income and will be offset with the NOLs.

$120,309 of net operating losses available to offset taxable income does not expire until 2022 or later, subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.

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The Company has recorded a valuation allowance of $22,348, resulting in a net deferred tax asset of $18,190, before deferred tax liabilities of $8,304.

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

The Company has provided a valuation allowance against a portion of the net 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.

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Credit Agreement

On May 3, 2019, the Company together with certain of its direct and indirect domestic subsidiaries (the “Borrowers”) and the other loan parties party thereto entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto, for borrowings of up to $60,000 under a revolving credit facility (including up to $5,000 for letters of credit), and borrowings of up to $40,000 under a term loan facility that is available to be drawn until May 3, 2020.

The Credit Agreement also

On May 3, 2019, the Company, Borrowers and the other loan parties party thereto entered into the Credit Agreement for borrowings of up to $60,000 under a revolving credit facility (including up to $5,000 for letters of credit), and borrowings of up to $40,000 under a term loan facility that is available to be drawn until May 3, 2020.

The Credit Agreement also permits the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $50,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Credit Agreement of up to $150,000.

The Credit Agreement matures on May 3, 2024.

On November 12, 2020, the Borrowers entered into Amendment No.

2 of the Credit Agreement.

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.

The Borrowers may elect to have the revolving and term loans under the Credit Agreement bear interest at an alternate base rate or a Eurodollar rate plus an applicable rate.

The applicable rate for these borrowings will range from 0.50% to 1.25% per annum, in the case

CLARUS CORPORATION

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(in thousands, except per share amounts)

permits the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $50,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Credit Agreement of up to $150,000.

The Credit Agreement matures on May 3, 2024.

The Borrowers may elect to have the revolving and term loans under the Credit Agreement bear interest at an alternate base rate or a Eurodollar rate plus an applicable rate.

The applicable rate for these borrowings will range from 0.50% to 1.25% per annum, in the case of alternate base rate borrowings, and 1.50% to 2.25% per annum, in the case of Eurodollar borrowings.

The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of Eurodollar borrowings, however, it may be adjusted from time to time based upon the level of the Company’s consolidated total leverage ratio.

of alternate base rate borrowings, and 1.50% to 2.25% per annum, in the case of Eurodollar borrowings.

The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of Eurodollar borrowings;

however, it may be adjusted from time to time based upon the level of the Company’s consolidated total leverage ratio.

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

Such commitment fee will range between 0.15% and 0.25% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio.

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

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

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 March 31, 2021.

As of March 31, 2021, the Company had drawn approximately $10,651 of the $60,000 revolving loan commitment that was available for borrowing under the Credit Agreement, and $17,000 outstanding under the term loan commitment.

As of March 31, 2021, the interest rate for each loan was 1.6250% .

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

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

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

Off-Balance Sheet Arrangements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis