Clarus Corp 10-Q

ITEM 1. FINANCIAL STATEMENTS CLARUS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except per share amounts) September 30, 2021 December 31, 2020 Assets Current assets Cash $ 10,170 $ 17,789 Accounts receivable, less allowance for credit losses and doubtful accounts of $ 709 and $ 1,433 , respectively 68,045 50,475 Inventories 118,706 68,356 Prepaid and other current assets 13,478 5,385 Income tax receivable 285 117 Total current assets 210,684 142,122 Property and equipment, net 32,444 26,956 Other intangible assets, net 62,672 19,416 Indefinite-lived intangible assets 116,997 47,523 Goodwill 108,174 26,715 Deferred income taxes 17,156 11,113 Other long-term assets 23,616 6,846 Total assets $ 571,743 $ 280,691 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued liabilities $ 54,389 $ 34,665 Income tax payable 4,250 956 Current portion of long-term debt 8,990 4,000 Total current liabilities 67,629 39,621 Long-term debt 181,042 30,621 Deferred income taxes 35,025 1,227 Other long-term liabilities 19,450 4,628 Total liabilities 303,146 76,097 Stockholders' Equity Preferred stock, $ 0.0001 par value per share; 5,000 shares authorized; none issued - - Common stock, $0.0001 par value per share; 100,000 shares authorized; 37,811 and 35,198 issued and 33,800 and 31,228 outstanding, respectively 4 4 Additional paid in capital 577,378 513,979 Accumulated deficit ( 276,463 ) ( 286,100 ) Treasury stock, at cost ( 24,440 ) ( 23,789 ) Accumulated other comprehensive (loss) income ( 7,882 ) 500 Total stockholders' equity 268,597 204,594 Total liabilities and stockholders' equity $ 571,743 $ 280,691 See accompanying notes to condensed consolidated financial statements. ‎ 3 CLARUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited) (In thousands, except per share amounts) Three Months Ended September 30, 2021 September 30, 2020 Sales Domestic sales $ 61,259 $ 34,686 International sales 47,712 29,805 Total sales 108,971 64,491 Cost of goods sold 69,792 42,822 Gross profit 39,179 21,669 Operating expenses Selling, general and administrative 31,314 18,674 Transaction costs 8,147 1,440 Total operating expenses 39,461 20,114 Operating (loss) income ( 282 ) 1,555 Other (expense) income Interest expense, net ( 1,476 ) ( 232 ) Other, net 338 449 Total other (expense) income, net ( 1,138 ) 217 (Loss) income before income tax ( 1,420 ) 1,772 Income tax (benefit) expense ( 5,950 ) 589 Net income 4,530 1,183 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustment ( 8,933 ) 807 Unrealized gain (loss) on hedging activities 268 ( 600 ) Other comprehensive (loss) income ( 8,665 ) 207 Comprehensive (loss) income $ ( 4,135 ) $ 1,390 Net income per share: Basic $ 0.13 $ 0.04 Diluted 0.13 0.04 Weighted average shares outstanding: Basic 33,800 29,983 Diluted 36,164 30,986 See accompanying notes to condensed consolidated financial statements. ‎ 4 CLARUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (In thousands, except per share amounts) Nine Months Ended September 30, 2021 September 30, 2020 Sales Domestic sales $ 160,708 $ 83,493 International sales 96,903 64,567 Total sales 257,611 148,060 Cost of goods sold 163,361 97,243 Gross profit 94,250 50,817 Operating expenses Selling, general and administrative 72,903 50,537 Transaction costs 9,272 1,870 Total operating expenses 82,175 52,407 Operating income (loss) 12,075 ( 1,590 ) Other expense Interest expense, net ( 1,926 ) ( 800 ) Other, net ( 4,263 ) 324 Total other expense, net ( 6,189 ) ( 476 ) Income (loss) before income tax 5,886 ( 2,066 ) Income tax benefit ( 6,161 ) ( 542 ) Net income (loss) 12,047 ( 1,524 ) Other comprehensive (loss) income, net of tax: Foreign currency translation adjustment ( 9,654 ) 773 Unrealized gain (loss) on hedging activities 1,272 ( 336 ) Other comprehensive (loss) income ( 8,382 ) 437 Comprehensive income (loss) $ 3,665 $ ( 1,087 ) Net income (loss) per share: Basic $ 0.37 $ ( 0.05 ) Diluted 0.35 ( 0.05 ) Weighted average shares outstanding: Basic 32,159 29,854 Diluted 34,044 29,854 See accompanying notes to condensed consolidated financial statements. ‎ 5 CLARUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended September 30, 2021 September 30, 2020 Cash Flows From Operating Activities: Net income (loss) $ 12,047 $ ( 1,524 ) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation of property and equipment 4,336 3,405 Amortization of other intangible assets 5,971 2,290 Amortization of debt issuance costs 335 230 Gain on disposition of property and equipment ( 2 ) 32 Noncash lease expense 1,507 563 Stock-based compensation 6,414 5,433 Deferred income taxes ( 7,006 ) ( 885 ) Changes in operating assets and liabilities, net of acquisition: Accounts receivable ( 13,079 ) ( 541 ) Inventories ( 25,181 ) 9,477 Prepaid and other assets ( 5,912 ) ( 971 ) Accounts payable and accrued liabilities 3,558 3,530 Income taxes ( 89 ) 9 Net cash (used in) provided by operating activities ( 17,101 ) 21,048 Cash Flows From Investing Activities: Purchase of business, net of cash received ( 135,627 ) - Deposit for business acquisition - ( 30,500 ) Proceeds from disposition of property and equipment 25 327 Purchases of property and equipment ( 5,579 ) ( 3,606 ) Net cash used in investing activities ( 141,181 ) ( 33,779 ) Cash Flows From Financing Activities: Proceeds from revolving credit facilities 87,703 49,265 Repayments on revolving credit facilities ( 37,871 ) ( 50,014 ) Repayments on term notes ( 5,814 ) ( 1,000 ) Proceeds from issuance of term notes 109,154 20,000 Payment of debt issuance costs ( 722 ) ( 44 ) Purchase of treasury stock ( 651 ) ( 1,520 ) Proceeds from exercise of stock options 1,652 862 Cash dividends paid ( 2,410 ) ( 744 ) Proceeds from the sale of common stock - 11,476 Common stock issuance costs - ( 325 ) Net cash provided by financing activities 151,041 27,956 Effect of foreign exchange rates on cash ( 378 ) 99 Change in cash ( 7,619 ) 15,324 Cash, beginning of year 17,789 1,703 Cash, end of period $ 10,170 $ 17,027 Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $ 353 $ 418 Cash paid for interest $ 1,389 $ 624 Supplemental Disclosures of Non-Cash Investing and Financing Activities: Stock issued for business acquisition $ 55,333 $ - Contingent consideration for business acquisition $ 3,564 $ - Property and equipment purchased with accounts payable $ 57 $ 286 Lease liabilities arising from obtaining right of use assets $ 6,421 $ 499 Unpaid debt issuance costs $ 270 $ 150 Stock dividends $ - $ 1,533 See accompanying notes to condensed consolidated financial statements. ‎ 6 CLARUS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (In thousands, except per share amounts) Accumulated Additional Other Total Common Stock Paid-In Accumulated Treasury Stock Comprehensive Stockholders' Shares Amount Capital Deficit Shares Amount Income (Loss) Equity Balance, December 31, 2019 33,615 $ 3 $ 492,353 $ ( 288,592 ) ( 3,855 ) $ ( 22,269 ) $ ( 303 ) $ 181,192 Net income - - - 36 - - - 36 Other comprehensive income - - - - - - 412 412 Cash dividends ($ 0.025 per share) - - - ( 744 ) - - - ( 744 ) Stock-based compensation expense - - 613 - - - - 613 Balance, March 31, 2020 33,615 $ 3 $ 492,966 $ ( 289,300 ) ( 3,855 ) $ ( 22,269 ) $ 109 $ 181,509 Net loss - - - ( 2,743 ) - - - ( 2,743 ) Other comprehensive loss - - - - - - ( 182 ) ( 182 ) Stock dividends ($ 0.025 per share) 70 - 714 ( 714 ) - - - - Purchase of treasury stock - - - - ( 14 ) ( 137 ) - ( 137 ) Stock-based compensation expense - - 616 - - - - 616 Proceeds from exercise of options 72 - 497 - - - - 497 Balance, June 30, 2020 33,757 $ 3 $ 494,793 $ ( 292,757 ) ( 3,869 ) $ ( 22,406 ) $ ( 73 ) $ 179,560 Net income - - - 1,183 - - - 1,183 Other comprehensive income - - - - - - 207 207 Stock dividends ($ 0.025 per share) 63 - 819 ( 819 ) - - - - Purchase of treasury stock - - - - ( 101 ) ( 1,383 ) - ( 1,383 ) Stock-based compensation expense 244 - 4,204 - - - - 4,204 Proceeds from exercise of options 57 - 365 - - - - 365 Issuance of common stock, net of issuance costs 900 1 11,150 - - - - 11,151 Balance, September 30, 2020 35,021 $ 4 $ 511,331 $ ( 292,393 ) ( 3,970 ) $ ( 23,789 ) $ 134 $ 195,287 ‎ 7 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, 2020 35,198 $ 4 $ 513,979 $ ( 286,100 ) ( 3,970 ) $ ( 23,789 ) $ 500 $ 204,594 Net income - - - 5,677 - - - 5,677 Other comprehensive loss - - - - - - ( 120 ) ( 120 ) Cash dividends ($ 0.025 per share) - - - ( 783 ) - - - ( 783 ) Purchase of treasury stock - - - - ( 41 ) ( 651 ) - ( 651 ) Stock-based compensation expense - - 1,524 - - - - 1,524 Proceeds from exercise of options 127 - 246 - - - - 246 Balance, March 31, 2021 35,325 $ 4 $ 515,749 $ ( 281,206 ) ( 4,011 ) $ ( 24,440 ) $ 380 $ 210,487 Net income - - - 1,840 - - - 1,840 Other comprehensive income - - - - - - 403 403 Cash dividends ($ 0.025 per share) - - - ( 782 ) - - - ( 782 ) Stock-based compensation expense - - 1,826 - - - - 1,826 Proceeds from exercise of options 171 - 1,406 - - - - 1,406 Balance, June 30, 2021 35,496 $ 4 $ 518,981 $ ( 280,148 ) ( 4,011 ) $ ( 24,440 ) $ 783 $ 215,180 Net income - - - 4,530 - - - 4,530 Other comprehensive income - - - - - - ( 8,665 ) ( 8,665 ) Cash dividends ($ 0.025 per share) - - - ( 845 ) - - - ( 845 ) Stock-based compensation expense - - 3,064 - - - - 3,064 Shares issued in business acquisition 2,315 - 55,333 - - - - 55,333 Balance, September 30, 2021 37,811 $ 4 $ 577,378 $ ( 276,463 ) ( 4,011 ) $ ( 24,440 ) $ ( 7,882 ) $ 268,597 See accompanying notes to condensed consolidated financial statements. 8 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except per share amounts) NOT E 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements of Clarus Corporation and subsidiaries (which may be referred to as the “Company,” “Clarus,” “we,” “us” or “our”) as of September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and 2020, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments, except otherwise disclosed) necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be obtained for the year ending December 31, 2021. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2021. Clarus, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (“Black Diamond Equipment”) in May 2010 and changed its name to Black Diamond, Inc. in January 2011. In October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”). On August 14, 2017, the Company changed its name from Black Diamond, Inc. to Clarus Corporation and its stock ticker symbol from “BDE” to “CLAR” on the NASDAQ stock exchange. On August 21, 2017, the Company acquired Sierra Bullets, L.L.C. (“Sierra”). On November 6, 2018, the Company acquired the assets of SKINourishment, Inc. (“SKINourishment”). On October 2, 2020, the Company completed the acquisition of certain assets and liabilities constituting the Barnes business (“Barnes”). On July 1, 2021, the Company completed the acquisition of Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”). Nature of Business Headquartered in Salt Lake City, Utah, we are a global leading designer, developer, manufacturer and distributor of best-in-class outdoor equipment and lifestyle products focused on the outdoor and consumer enthusiast markets. Our mission is to identify, acquire and grow outdoor “super fan” brands through our unique “innovate and accelerate” strategy. We define a “super fan” brand as a brand that creates the world’s pre-eminent, performance-defining product that the best-in-class user cannot live without. Each of our brands has a long history of continuous product innovation for core and everyday users alike. The Company’s products are principally sold globally under the Black Diamond®, Sierra®, Barnes® and Rhino-Rack® brand names through outdoor specialty and online retailers, our own websites, distributors and original equipment manufacturers. Our portfolio of iconic brands is well-positioned for sustainable, long-term growth underpinned by powerful industry trends across the outdoor and adventure sport end markets. 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. Rhino-Rack is a leading manufacturer of highly-engineered automotive roof racks, trays, mounting systems, luggage boxes, carriers and accessories with leading market share in Australia and New Zealand and a growing presence in the United States. 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. 9 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) Significant Accounting Policies Accounting Pronouncements not yet adopted In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This ASU provides temporary optional expedients and exceptions to existing guidance on contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as the London Inter-Bank Offered Rate (“LIBOR”) which is being phased out in 2021, to alternate reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. The provisions have impact as contract modifications and other changes occur while LIBOR is phased out. The Company is in the process of evaluating the optional relief guidance provided within this ASU. Management will continue its assessment and monitor regulatory developments during the LIBOR transition period. NOTE 2. ACQUISITIONS Rhino-Rack On May 30, 2021, Clarus, through Oscar Aluminium Pty Ltd (the “Buyer”), an indirect wholly-owned Australian subsidiary of the Company, entered into a Share Sale and Purchase Agreement (the “Purchase Agreement”) to acquire Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”). On July 1, 2021, the transactions contemplated by the Purchase Agreement were consummated. All United States dollar amounts contained herein are based on the exchange rates in effect for Australian dollars ($AUD) and the market value of the Company’s common stock at the time of closing of the acquisition of Rhino-Rack (the “Rhino-Rack Acquisition”). Under the terms of the Purchase Agreement, the Buyer acquired Rhino-Rack for an aggregate purchase price of approximately $AUD 269,097 (approximately $ 202,038 ), subject to a post-closing adjustment. The purchase price was comprised of approximately $AUD 190,650 (approximately $ 143,140 ) cash, 2,315,121 shares of the Company’s common stock valued at $ 55,333 , and additional contingent consideration described below. The shares of the Company’s common stock issued are subject to a lock-up agreement restricting sales for 180 days from the closing of the Acquisition. The Purchase Agreement also provides for the payment of additional contingent consideration up to approximately $AUD 10,000 (approximately $ 7,508 ) if certain future net sales thresholds are met (the “Contingent Consideration”). The Company estimated the fair value of the Contingent Consideration to be approximately $AUD 4,747 (approximately $ 3,565 ). The acquisition was accounted for as a business combination. Acquisition-related costs for the Rhino-Rack Acquisition, which were included in transaction costs during the three and nine months ended September 30, 2021 were $ 7,866 and $ 8,643 , respectively. The Company believes the acquisition of Rhino-Rack 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. Barnes On September 30, 2020, Sierra entered into an Asset Purchase Agreement (the “Barnes Asset Purchase Agreement”) to acquire certain assets and assume certain liabilities constituting the Barnes business (“Barnes”). Pursuant to the Barnes Asset Purchase Agreement, the purchase price to be paid for Barnes is $ 30,500 . On October 2, 2020, Sierra completed the acquisition of Barnes. 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. 10 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (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 fair value estimates for the purchase price allocation for Rhino-Rack are based on the Company’s best estimates and assumptions as of the reporting date and are considered preliminary. The fair value measurements of identifiable assets and liabilities, and the resulting goodwill related to the Rhino-Rack Acquisition are subject to change and the final purchase price allocation could be different from the amounts presented below. We expect to finalize the valuation as soon as practicable, but not later than one year from the date of the Rhino-Rack Acquisition. The fair value measurements for the acquisition of Barnes have been completed. The excess of purchase consideration over the assets acquired and liabilities assumed is recorded as goodwill. Goodwill for Rhino-Rack is included in the Rhino-Rack segment and goodwill for Barnes is included in the Sierra segment. The goodwill consists largely of the synergies expected from combining operations of both acquisitions. Rhino-Rack Barnes July 1, 2021 October 2, 2020 Number of Shares Estimated Fair Value Estimated Fair Value Cash paid - $ 143,140 $ 30,500 Issuance of shares of Clarus Corporation 2,315 55,333 - Contingent consideration - 3,565 - Total purchase consideration 2,315 $ 202,038 $ 30,500 Assets acquired and liabilities assumed Assets Cash $ 7,513 $ 2 Accounts receivable, net 10,769 - Inventories 27,046 4,535 Prepaid and other current assets 644 612 Property and equipment 4,619 4,036 Other intangible assets 51,500 7,500 Indefinite-lived intangible assets 72,800 5,600 Goodwill 85,127 8,625 Other long-term assets 11,796 4,355 Total assets 271,814 35,265 Liabilities Accounts payable and accrued liabilities 16,572 842 Income tax payable 3,413 - Current portion of long-term debt 607 - Long-term debt 2,107 - Deferred income taxes 35,781 - Other long-term liabilities 11,296 3,923 Total liabilities 69,776 4,765 Net Book Value Acquired $ 202,038 $ 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. 11 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) In connection with the acquisitions, the Company acquired exclusive rights to Rhino-Rack’s and 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: Rhino-Rack Barnes Average Average Gross Useful Life Gross Useful Life Intangibles subject to amortization Customer relationships $ 36,500 11.5 years $ 5,700 10.0 years Product technologies 15,000 10.0 years 1,800 10.0 years Intangibles not subject to amortization Trademarks 72,800 N/A 5,600 N/A $ 124,300 11.1 years $ 13,100 10.0 years Although the Company is electing to treat the acquisition of Rhino-Rack as a purchase of assets for tax purposes, from an income tax perspective, there is no tax deduction provided for intangibles in Australia. As a result, deferred tax liabilities have been set up for the finite and indefinite-lived assets. From a capital base perspective, deferred tax assets established through purchase accounting have been fully offset by a corresponding valuation allowance. Furthermore, the full amount of goodwill of $ 85,127 is expected to be non-deductible for tax purposes. No pre-existing relationships existed between the Company and the Rhino-Rack sellers prior to the acquisition. Rhino-Rack revenue and operating income are included in the Rhino-Rack segment. Total revenue of $ 19,625 and net income of $ 5,453 of Rhino-Rack were included in the Company’s condensed consolidated statements of comprehensive income (loss) from the date of acquisition to September 30, 2021. 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 Barnes sellers prior to the acquisition. Barnes revenue and operating income were included in the Sierra segment. The following unaudited pro forma results are based on the individual historical results of the Company, Rhino-Rack and Barnes, with adjustments to give effect as if the acquisitions and borrowings used to finance the acquisitions had occurred on January 1, 2020 for Rhino-Rack and January 1, 2019 for Barnes, 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. Three Months Ended Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Sales $ 108,971 $ 93,259 $ 308,142 $ 213,076 Net income $ 15,739 $ 3,938 $ 25,258 $ 832 Net income per share - basic $ 0.47 $ 0.13 $ 0.79 $ 0.03 Net income per share - diluted $ 0.44 $ 0.13 $ 0.74 $ 0.03 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 transactions been consummated as of January 1, 2020 for Rhino-Rack or January 1, 2019 for Barnes. 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. 12 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) NOTE 3. INVENTORIES Inventories, as of September 30, 2021 and December 31, 2020, were as follows: September 30, 2021 December 31, 2020 Finished goods $ 78,601 $ 50,132 Work-in-process 9,168 6,429 Raw materials and supplies 30,937 11,795 $ 118,706 $ 68,356 NOTE 4. PROPERTY AND EQUIPMENT Property and equipment, net, as of September 30, 2021 and December 31, 2020, were as follows: September 30, 2021 December 31, 2020 Land $ 3,160 $ 3,160 Building and improvements 7,650 7,324 Furniture and fixtures 6,183 5,715 Computer hardware and software 7,266 5,707 Machinery and equipment 31,603 26,848 Construction in progress 5,495 3,042 61,357 51,796 Less accumulated depreciation ( 28,913 ) ( 24,840 ) $ 32,444 $ 26,956 Depreciation expense for the three months ended September 30, 2021 and 2020 was $ 1,631 and $ 1,140 , respectively, and for the nine months ended September 30, 2021 and 2020 was $ 4,336 and $ 3,405 , respectively. NOTE 5. GOODWILL AND INTANGIBLE ASSETS Goodwill The following table summarizes the balances in goodwill by segment: Black Diamond Sierra Rhino-Rack Total Balance at December 31, 2020 $ - $ 26,715 $ - $ 26,715 Increase due to acquisition of Rhino-Rack - - 85,127 85,127 Impact of foreign currency exchange rates - - ( 3,668 ) ( 3,668 ) Balance at September 30, 2021 $ - $ 26,715 $ 81,459 $ 108,174 Indefinite Lived Intangible Assets The following table summarizes the changes in indefinite lived intangible assets: Balance at December 31, 2020 $ 47,523 Increase due to acquisition of Rhino-Rack 72,800 Impact of foreign currency exchange rates ( 3,326 ) Balance at September 30, 2021 $ 116,997 13 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) Other Intangible Assets, net The following table summarizes the changes in gross other intangible assets: Gross balance at December 31, 2020 $ 40,840 Increase due to acquisition of Rhino-Rack 51,500 Impact of foreign currency exchange rates ( 2,492 ) Gross balance at September 30, 2021 $ 89,848 Other intangible assets, net of amortization as of September 30, 2021 and December 31, 2020, were as follows: September 30, 2021 Gross Accumulated Amortization Net Weighted Average Useful Life Intangibles subject to amortization Customer relationships $ 66,705 $ ( 21,036 ) $ 45,669 12.8 years Product technologies 20,933 ( 4,540 ) 16,393 10.4 years Tradename / trademark 1,263 ( 653 ) 610 9.4 years Core technologies 947 ( 947 ) - 10.0 years $ 89,848 $ ( 27,176 ) $ 62,672 12.2 years December 31, 2020 Gross Accumulated Amortization Net Weighted Average Useful Life 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 Amortization expense for the three months ended September 30, 2021 and 2020 was $ 3,577 and $ 753 , respectively, and for the nine months ended September 30, 2021 and 2020 was $ 5,971 and $ 2,290 , respectively. Future amortization expense for other intangible assets as of September 30, 2021 is as follows: Years Ending December 31, Amortization Expense 2021 (excluding the nine months ended September 30, 2021) $ 3,529 2022 12,729 2023 11,148 2024 9,731 2025 8,035 Thereafter 17,500 $ 62,672 NOTE 6. LONG-TERM DEBT Long-term debt as of September 30, 2021 and December 31, 2020, was as follows: 14 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) September 30, 2021 December 31, 2020 Revolving credit facility (a) $ 65,412 $ 15,579 Other debt (b) 1,525 1,042 Term note (c) 123,437 18,000 Debt issuance costs ( 342 ) - 190,032 34,621 Less current portion ( 8,990 ) ( 4,000 ) $ 181,042 $ 30,621 (a) As of September 30, 2021, the Company had drawn $ 65,412 on the $ 100,000 revolving commitment that was available under the credit agreement, as amended, with JPMorgan Chase Bank, N.A., with a maturity date of May 3, 2024. The Company pays interest monthly on any borrowings on the Credit Agreement. As of September 30, 2021 and December 31, 2020, the rate was 1.6250 % and 2.0625 %, respectively. On July 1, 2021, the Company and certain of its direct and indirect subsidiaries (each, a “Loan Party” and, collectively, the “Loan Parties”) entered into Amendment No. 3 (“Amendment No. 3”) to that certain Credit Agreement, dated May 3, 2019, as amended by Amendment No. 1 dated May 28, 2019 and Amendment No. 2 dated November 12, 2020, 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. 3 increased the aggregate amount of the term loan facility thereunder to $ 125,000 and increased the maximum amount of the revolving loan facility thereunder to $ 100,000 . The Credit Agreement continues to permit the Loan Parties, 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 $ 275,000 . Amendment No. 3 provides for additional subsidiaries of the Company to guarantee and provide collateral for the loans under the Credit Agreement, including certain of its newly formed or newly acquired Australian subsidiaries in connection with the Rhino-Rack Acquisition. Amendment No. 3 also removed the previously agreed upon ability of the Company to issue debt securities that may be convertible into equity interests of the Company in an aggregate principal amount of up to $ 125,000 and also increased the maximum consolidated total leverage ratio permitted under the Credit Agreement to 4.25 :1.00. Amendment No. 3 did not change the maturity date which remains May 3, 2024. 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 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, 2021. (b) Foreign subsidiaries of the Company have a revolving credit facility and term debt with financial institutions which mature between October 16, 2021 and July 27, 2024. The foreign subsidiaries pay interest monthly on any borrowings on the credit facilities as well as monthly payments on the term debt. As of September 30, 2021, the interest rates ranged between 1.3387 % and 5.1651 % and as of December 31, 2020 was 1.3387 %. The credit facilities are secured by certain assets of the foreign subsidiaries. (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. On July 1, 2021, under Amendment No. 3, the aggregate amount of the term loan facility was increased to $ 125,000 and the term loan was fully borrowed at the closing of Amendment No. 3. The Company is required to repay the term loan through quarterly payments of $ 1,563 each beginning with September 30, 2021, increasing to $ 3,125 each beginning with September 30, 2022, and any remaining obligations will be repaid in full on the maturity date of the Credit Agreement of May 3, 2024. The Company pays interest monthly on any borrowings on the Credit Agreement. As of September 30, 2021 and December 31, 2020, the rate was 1.6250 % and 2.0625 %, respectively. As part of the Rhino-Rack Acquisition, the Company assumed certain current and long-term debt of approximately $ 2,252 which was settled during the three months ended September 30, 2021. 15 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) 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. During the nine months ending September 30, 2021, the Company held currency forward contracts to mitigate currency fluctuations related to the estimated cash purchase price of Rhino-Rack totaling AUD 193,650 with a maturity date of July 1, 2021. These contracts were not designated as accounting hedges and the changes in fair value of the instruments are recognized in earnings. During the three and nine months ended September 30, 2021, gains (losses) of $ 232 and $( 4,281 ) were recorded in other, net expense, respectively. At September 30, 2021, the Company’s derivative contracts had remaining maturities of less than one year. 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. At September 30, 2021, there was no such exposure to the counterparties. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain of $ 639 on all contracts at September 30, 2021. The Company’s derivative counterparties have strong credit ratings and as a result, the Company does not require collateral to facilitate transactions. The Company held the following contracts designated as hedging instruments as of September 30, 2021 and December 31, 2020: September 30, 2021 Notional Latest Amount Maturity Foreign exchange contracts - Canadian Dollars $ 9,224 August 2022 Foreign exchange contracts - Euros € 16,512 August 2022 December 31, 2020 Notional Latest Amount Maturity Foreign exchange contracts - Canadian Dollars $ 14,587 February 2022 Foreign exchange contracts - Euros € 24,481 February 2022 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 and reclassified to sales in the period the underlying hedged transaction is recognized in earnings. Gains (losses) of $ 201 and $( 376 ) were reclassified to sales during the three months ended September 30, 2021 and 2020, respectively, and $( 542 ) and $ 206 were reclassified to sales during the nine months ended September 30, 2021 and 2020, respectively. 16 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) The following table presents the balance sheet classification and fair value of derivative instruments as of September 30, 2021 and December 31, 2020: Classification September 30, 2021 December 31, 2020 Derivative instruments in asset positions: Designated forward exchange contracts Prepaid and other current assets $ 721 $ - Derivative instruments in liability positions: Designated forward exchange contracts Accounts payable and accrued liabilities $ 82 $ 1,539 Designated forward exchange contracts Other long-term liabilities $ - $ 90 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 following table sets forth the changes in AOCI, net of tax, for the three months ended September 30, 2021: Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of June 30, 2021 $ 759 $ 24 $ 783 Other comprehensive (loss) income before reclassifications ( 8,933 ) 422 ( 8,511 ) Amounts reclassified from other comprehensive income - ( 154 ) ( 154 ) Net current period other comprehensive (loss) income ( 8,933 ) 268 ( 8,665 ) Balance as of September 30, 2021 $ ( 8,174 ) $ 292 $ ( 7,882 ) The following table sets forth the changes in AOCI, net of tax, for the three months ended September 30, 2020: Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of June 30, 2020 $ ( 320 ) $ 247 $ ( 73 ) Other comprehensive income (loss) before reclassifications 807 ( 886 ) ( 79 ) Amounts reclassified from other comprehensive loss - 286 286 Net current period other comprehensive income (loss) 807 ( 600 ) 207 Balance as of September 30, 2020 $ 487 $ ( 353 ) $ 134 The following table sets forth the changes in AOCI, net of tax, for the nine months ended September 30, 2021: Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of December 31, 2020 $ 1,480 $ ( 980 ) $ 500 Other comprehensive (loss) income before reclassifications ( 9,654 ) 857 ( 8,797 ) Amounts reclassified from other comprehensive income - 415 415 Net current period other comprehensive (loss) income ( 9,654 ) 1,272 ( 8,382 ) Balance as of September 30, 2021 $ ( 8,174 ) $ 292 $ ( 7,882 ) 17 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) The following table sets forth the changes in AOCI, net of tax, for the nine months ended September 30, 2020: Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of December 31, 2019 $ ( 286 ) $ ( 17 ) $ ( 303 ) Other comprehensive income (loss) before reclassifications 773 ( 180 ) 593 Amounts reclassified from other comprehensive loss - ( 156 ) ( 156 ) Net current period other comprehensive income (loss) 773 ( 336 ) 437 Balance as of September 30, 2020 $ 487 $ ( 353 ) $ 134 The effects on net income of amounts reclassified from unrealized gains on cash flow hedges for foreign exchange contracts for the three and nine months ended September 30, 2021 and 2020, were as follows: Gains (losses) reclassified from AOCI to the Consolidated Statements of Comprehensive Income (Loss) Affected line item in the Consolidated Three Months Ended Nine Months Ended Statements of Comprehensive Income (Loss) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Foreign exchange contracts: Sales $ 201 $ ( 376 ) $ ( 542 ) $ 206 Less: Income tax expense (benefit) 47 ( 90 ) ( 127 ) 50 Amount reclassified, net of tax $ 154 $ ( 286 ) $ ( 415 ) $ 156 Total reclassifications from AOCI $ 154 $ ( 286 ) $ ( 415 ) $ 156 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 that prioritizes the inputs used in measuring fair value as follows: Level 1 - inputs to the valuation methodology are quoted market prices for identical assets or liabilities in active markets. Level 2 - inputs to the valuation methodology include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 - inputs to the valuation methodology are based on prices or valuation techniques that are unobservable. 18 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) Assets and liabilities measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020 were as follows: September 30, 2021 Level 1 Level 2 Level 3 Total Assets Designated forward exchange contracts $ - $ 721 $ - $ 721 $ - $ 721 $ - $ 721 Liabilities Designated forward exchange contracts $ - $ 82 $ - $ 82 Contingent consideration liability - - 3,410 3,410 $ - $ 82 $ 3,410 $ 3,492 December 31, 2020 Level 1 Level 2 Level 3 Total Assets Designated forward exchange contracts $ - $ - $ - $ - $ - $ - $ - $ - Liabilities Designated forward exchange contracts $ - $ 1,629 $ - $ 1,629 $ - $ 1,629 $ - $ 1,629 Derivative financial instruments are recorded at fair value based on current market pricing models. No nonrecurring fair value measurements existed at September 30, 2021 and December 31, 2020. As part of the Rhino-Rack Acquisition, the Purchase Agreement provided for the payment of Contingent Consideration of approximately $ 7,508 if certain future net sales thresholds are met through June 30, 2022. Using a series of call options, the Company estimated the fair value of the Contingent Consideration to be approximately $ 3,565 as of July 1, 2021. Significant unobservable inputs used in the valuation include a discount rate of 4.8 %. The Contingent Consideration liability is remeasured at the estimated fair value at the end of each reporting period with the change in fair value recognized within operating income (loss) in the accompanying condensed consolidated statements of comprehensive income (loss) for such period. We measure the initial liability and remeasure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements. There were no impacts to operating income (loss) for the three and nine months ended September 30, 2021 related to the remeasurement of the Contingent Consideration liability as there were no significant changes to the fair value. The Contingent Consideration liability changed due to the effect of foreign exchange by $ 155 resulting in an ending balance as of September 30, 2021 of $ 3,410 which is recorded in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets. As the Contingent Consideration liability is remeasured to fair value each reporting period, significant increases or decreases in projected revenue, discount rates or the time until payment is made would have resulted in a significantly lower or higher fair value measurement. Our determination of fair value of the Contingent Consideration liability could change in future periods based up our ongoing evaluation of these significant unobservable inputs. Any such change will be recorded to operating income (loss) in our consolidated statements of income (loss). 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”). On October 19, 2020, the Company announced that its Board of Directors approved the reinstatement of its Quarterly Cash Dividend. On October 29, 2021 , the Company announced that its Board of Directors approved the payment on November 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 November 8, 2021 . 19 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) NOTE 11. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is computed by dividing earnings (loss) by the weighted average number of common shares outstanding during each period. Diluted earnings (loss) per share is computed by dividing earnings (loss) by the total of the weighted average number of shares of common stock outstanding during each period, plus the effect of dilutive outstanding stock options and unvested restricted stock grants. Potentially dilutive securities are excluded from the computation of diluted earnings (loss) per share if their effect is anti-dilutive to the loss from continuing operations. The following table is a reconciliation of basic and diluted shares of common stock outstanding used in the calculation of earnings (loss) per share: Three Months Ended Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Weighted average shares outstanding - basic 33,800 29,983 32,159 29,854 Effect of dilutive stock awards 2,364 1,003 1,885 - Weighted average shares outstanding - diluted 36,164 30,986 34,044 29,854 Net income (loss) per share: Basic $ 0.13 $ 0.04 $ 0.37 $ ( 0.05 ) Diluted 0.13 0.04 0.35 ( 0.05 ) For the three months ended September 30, 2021 and 2020, equity awards of 1,000 and 927 , respectively, and for the nine months ended September 30, 2021 and 2020, equity awards of 1,011 and 4,384 , respectively, were excluded from the calculation of earnings (loss) per share for these periods as they were anti-dilutive. NOTE 12. STOCK-BASED COMPENSATION PLAN Under the Company’s current 2015 Stock Incentive Plan (the “2015 Plan”), the Company’s Board of Directors has flexibility to determine the type and amount of awards to be granted to eligible participants, who must be employees, directors, officers or consultants of the Company or its subsidiaries. The 2015 Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and restricted units. The aggregate number of shares of common stock that may be granted through awards under the 2015 Plan to any employee in any calendar year may not exceed 500 shares. The 2015 Plan will continue in effect until December 2025 unless terminated sooner. Options Granted: During the nine months ended September 30, 2021, the Company issued stock options for an aggregate of 500 shares under the 2015 Plan to directors and employees of the Company. The options issued during the nine months ended September 30, 2021 generally vest and become exercisable over a period of one to three 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: Number of options 500 Option vesting period 1 - 3 Years Grant price (per share) $ 15.15 - $ 24.43 Dividend yield 0.41 % - 0.66 % Expected volatility (a) 39.1 % - 43.6 % Risk-free interest rate 0.50 % - 1.02 % Expected life (years) (b) 5.31 - 6.00 Weighted average fair value (per share) $ 5.88 - $ 9.23 (a) Expected volatility is based upon the Company’s historical volatility. 20 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) (b) The expected term was determined based upon the underlying terms of the awards and the category and employment history of employee award recipient. The grant date fair value of the stock options granted during the nine months ended September 30, 2021 was $ 3,239 , which will be recognized over the vesting period of the options. Market Condition Restricted Shares Granted: On May 28, 2021, the Company issued and granted to the Executive Chairman a restricted stock award of 500 restricted shares under the 2015 Plan, of which 500 restricted shares will vest if, on or before May 28, 2024, the Fair Market Value (as defined in the Plan) of the Company’s common stock shall have equaled or exceeded $35.00 per share for twenty consecutive trading days. For computing the fair value of the 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 following assumptions: May 28, 2021 Number issued 500 Vesting period $ 35.00 stock price target Grant price (per share) $ 23.69 Dividend yield 0.42 % Expected volatility 42.3 % Risk-free interest rate 0.30 % Expected term (years) 1.05 Weighted average fair value (per share) $ 14.46 Using these assumptions, the fair value of the market condition restricted stock awards granted on May 28, 2021 was approximately $ 7,230 . The total non-cash stock compensation expense related to restricted stock, stock options and stock awards recorded by the Company for the three months ended September 30, 2021 and 2020 was $ 3,064 and $ 4,204 , respectively, and for the nine months ended September 30, 2021 and 2020 was $ 6,414 and $ 5,433 , respectively. For the three and nine months ended September 30, 2021 and 2020, the majority of stock-based compensation costs were classified as selling, general and administrative expenses. As of September 30, 2021, there were 2,014 unvested stock options and unrecognized compensation cost of $ 7,384 related to unvested stock options, as well as 1,000 unvested restricted stock awards and unrecognized compensation costs of $ 6,359 related to unvested restricted stock awards. NOTE 13. COMMITMENTS AND CONTINGENCIES As a consumer goods manufacturer and distributor, the Company faces the risk of product liability and related lawsuits involving claims for substantial money damages, product recall actions and higher than anticipated rates of warranty returns or other returns of goods. The Company is therefore vulnerable to various personal injury and property damage lawsuits relating to its products and incidental to its business. The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect. NOTE 14. INCOME TAXES The Company’s U.S. federal statutory tax rate of 21 % and its foreign operations have statutory tax rates of approximately 25 % in Austria, 28 % in New Zealand, and 30 % in Australia. 21 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) The differences between the Company’s estimated effective tax rates of ( 419.0 )% and ( 104.7 )% for the three and nine months ended September 30, 2021 and the U.S. federal statutory tax rate of 21 % were due to a release of valuation allowance of net operating loss carryforwards (“NOLs”), which was partially offset by permanent book to tax differences related to incentive stock options and officer compensation limitations. As of December 31, 2020, the Company’s gross deferred tax asset was $ 40,538 . 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 deferred tax assets as of September 30, 2021 and December 31, 2020, because the ultimate realization of those assets did not meet the more-likely-than-not criteria. The majority of the Company’s deferred tax assets consist of NOLs 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. During the three months ended September 30, 2021, the Company filed a change in accounting method which increased taxable income and the ability to utilize NOLs. As a result, an additional valuation allowance of $ 6,003 was released increasing the income tax benefit for the three and nine months ended September 30, 2021. This method change resulted in decreasing the NOLs available to offset taxable income as of December 31, 2020 by $ 10,317 . In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and net operating loss and credit carryforwards expire. The estimates and judgments associated with the Company’s valuation allowance on deferred tax assets are considered critical due to the amount of deferred tax assets recorded by the Company on its consolidated balance sheet and the judgment required in determining the Company’s future taxable income. The need for a valuation allowance is reassessed at each interim reporting period. As of December 31, 2020, the Company had 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 NOTE 15. SEGMENT INFORMATION We operate our business structure within three 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. 22 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts)  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 .  Our Rhino-Rack segment, which includes Rhino-Rack, is a manufacturer of highly-engineered automotive roof racks, trays, mounting systems, luggage boxes, carriers and accessories in Australia and New Zealand and a growing presence in the United States. As noted above, the Company has a wide variety of technical outdoor equipment and lifestyle products focused on the climb, ski, mountain, sport and adventure 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 and the adventure product category represents the Rhino-Rack segment revenue. We divide our product offerings into five primary categories of climb, mountain, ski, sport and adventure. Revenue by category as a percentage of total consolidated revenues is as follows: Three Months Ended Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Climb 19 % 27 % 25 % 33 % Mountain 23 % 33 % 24 % 30 % Ski 12 % 17 % 11 % 15 % Sport 28 % 23 % 32 % 22 % Adventure 18 % - % 8 % - % Financial information for our segments is as follows: Three Months Ended Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Sales to external customers: Black Diamond Domestic sales $ 26,773 $ 21,953 $ 77,765 $ 56,381 International sales 32,256 27,411 77,952 58,980 Total Black Diamond 59,029 49,364 155,717 115,361 Sierra Domestic sales 27,363 12,733 75,820 27,112 International sales 2,954 2,394 6,449 5,587 Total Sierra 30,317 15,127 82,269 32,699 Rhino-Rack Domestic sales 7,123 - 7,123 - International sales 12,502 - 12,502 - Total Rhino-Rack 19,625 - 19,625 - Total sales to external customers 108,971 64,491 257,611 148,060 Segment operating income: Black Diamond 5,939 4,035 10,041 1,709 Sierra 10,441 4,393 26,420 8,211 Rhino-Rack ( 3,014 ) - ( 3,014 ) - Total segment operating income 13,366 8,428 33,447 9,920 Transaction costs ( 8,147 ) ( 1,440 ) ( 9,272 ) ( 1,870 ) Corporate and other expenses ( 5,163 ) ( 4,984 ) ( 16,363 ) ( 9,316 ) Interest expense, net ( 1,476 ) ( 232 ) ( 1,926 ) ( 800 ) (Loss) income before income tax $ ( 1,420 ) $ 1,772 $ 5,886 $ ( 2,066 ) There were no intercompany sales between the Black Diamond, Sierra and Rhino-Rack segments for the periods presented. 23 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) Total assets by segment, as of September 30, 2021 and December 31, 2020, were as follows: September 30, 2021 December 31, 2020 Black Diamond $ 157,163 $ 141,746 Sierra 136,509 113,430 Rhino-Rack 254,585 - Corporate 23,486 25,515 $ 571,743 $ 280,691 Capital expenditures, depreciation and amortization by segment is as follows. Three Months Ended Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Capital expenditures: Black Diamond $ 819 $ 583 $ 2,091 $ 1,888 Sierra 957 1,002 2,910 1,718 Rhino-Rack 578 - 578 - Total capital expenditures $ 2,354 $ 1,585 $ 5,579 $ 3,606 Depreciation: Black Diamond $ 727 $ 685 $ 2,134 $ 2,073 Sierra 669 455 1,967 1,332 Rhino-Rack 235 - 235 - Total depreciation $ 1,631 $ 1,140 $ 4,336 $ 3,405 Amortization: Black Diamond $ 259 $ 258 $ 776 $ 803 Sierra 938 495 2,815 1,487 Rhino-Rack 2,380 - 2,380 - Total amortization $ 3,577 $ 753 $ 5,971 $ 2,290 NOTE 16. RELATED PARTY TRANSACTIONS As part of the Rhino-Rack Acquisition, on July 1, 2021, the Company recorded a liability in the amount of $ 1,750 owed to Kanders & Company, Inc. (“Kanders & Company”) in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, performing due diligence and negotiating the Rhino-Rack Acquisition. This amount was paid during the three months ended September 30, 2021. Mr. Warren B. Kanders, the Company’s Executive Chairman of the Board of Directors, is a member of the Board of Directors and sole stockholder of Kanders & Company. Additionally, at closing of Amendment No. 3 on July 1, 2021, the Company recorded a liability in the amount of $ 250 owed to Kanders & Company in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, and negotiating Amendment No. 3. This amount was paid during the three months ended September 30, 2021. During the three months ended September 30, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with three existing stockholders of the Company. Pursuant to the Purchase Agreement, the Company sold its common stock in a registered direct offering (the “Offering”). Upon the Company’s closing of the Offering, the Company paid a fee in the amount of $ 250 to Kanders & Company, 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. As of September 30, 2020, the Company recorded a liability in the amount of $ 500 owed to Kanders & Company, which is included in transaction costs, in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, performing due diligence and negotiating the acquisition of Barnes. 24 CLARUS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) (in thousands, except per share amounts) NOTE 17. SUBSEQUENT EVENTS Public Offering of Common Stock On October 26, 2021, the Company entered into an underwriting agreement with BofA Securities, Inc., as representative of the several underwriters named therein (the “Underwriters”), relating to the public offer and sale of 2,750 shares of the Company’s common stock at a price to the public of $ 27.00 per share. The Underwriters received an underwriting discount of 6 %, or $ 1.62 per share, in connection with the sale of the shares of Common Stock in the offering. In addition, the Company granted the Underwriters a 30-day option to purchase up to 413 additional shares of common stock on the same terms and conditions. On October 29, 2021, the Underwriters exercised that option in full. The net proceeds to the Company from the offering, including the Underwriters’ exercise of their 30-day option but before expenses and after deducting the applicable underwriting discounts and commissions, were approximately $ 80,264 . The Company intends to use a portion of the net proceeds of the offering for the repayment in full of approximately $ 65,000 in aggregate principal amount under the revolving loan facility available pursuant to the Credit Agreement and the remaining portion of the net proceeds from the offering for general corporate purposes, including capital expenditures and potential acquisitions. The closing of the offering of 2,750 shares of common stock occurred on October 29, 2021, and the closing of the Underwriters’ 30-day option to purchase 413 shares of common stock occurred on November 2, 2021. On October 29, 2021, the Company recorded a liability in the amount of $ 500 owed to Kanders & Company in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, and negotiating the offering. 25 CLARUS CORPORATION MANAGEMENT DISCUSSION AND ANALYSIS (in thousands, except per share amounts)