What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-07 compared with 2021-03-08 · 169 added, 158 removed, 221 unchanged (60% of the section changed)

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the ability of the Company to execute and integrate acquisitions;

changes in governmental regulation, legislation or public opinion relating to the manufacture and sale of bullets and ammunition by our Sierra segment, and the possession and use of firearms and ammunition by our customers;

changes in governmental regulation, legislation or public opinion relating to the manufacture and sale of bullets and ammunition, and the possession and use of firearms and ammunition by our customers;

the Company’s exposure to product liability or product warranty claims and other loss contingencies;

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stability of the Company’s manufacturing facilities and suppliers, as well as consumer demand for our products, in light of disease epidemics and health-related concerns such as the COVID-19 global pandemic;

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 impact that global climate change trends may have on the Company and its suppliers and customers, increased focus on sustainability issues as a result of global climate change, the Company's ability to protect patents, trademarks and other intellectual property rights;

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

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

ongoing disruptions and delays in the shipping and transportation of our products due to port congestion, container ship availability and/or other logistical challenges;

our ability to utilize our net operating loss carryforwards;

changes in tax laws and liabilities, tariffs, legal, regulatory, political and economic risks;

and the Company’s ability to maintain a quarterly dividend.

the Company’s ability to maintain a quarterly dividend ;

and any material differences in the actual financial results of the Rhino-Rack acquisition as compared with expectations, including the impact of the acquisition on the Company’s future earnings per share.

More information on potential factors that could affect the Company’s financial results can be found under Item 1A.

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We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Annual Report on Form 10-K.

Headquartered in Salt Lake City, Utah, Clarus, a company focused on the outdoor and consumer industries, is seeking opportunities to acquire and grow businesses that can generate attractive shareholder returns.

The Company has net operating tax loss carryforwards which it is seeking to redeploy to maximize shareholder value.

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

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

and internationally.

Through our Black Diamond, PIEPS, and SKINourishment brands, we offer a broad range of products including:

high-performance, activity-based apparel (such as shells, insulation, midlayers, pants and logowear);

rock-climbing footwear and equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear);

technical backpacks and high-end day packs;

trekking poles;

headlamps and lanterns;

gloves and mittens;

and skincare and other sport-enhancing products.

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

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

Headquartered in Salt Lake City, Utah, Clarus is 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® and MAXTRAX® 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.

One of the key elements of our sustained financial performance is our persistent focus on brand building through product initiatives.

Our iconic brands are rooted in performance-defining technologies that enable our customers to have their best days outdoors.

We have a long history of technical innovation and product development, backed by an extensive patent portfolio that continues to evolve and advance our markets.

We currently employ approximately 120 engineers across the portfolio, focusing on enhancing our customers’ performance in the most critical moments.

Our commitment to quality, rigorous safety, and ultimately best-in-class design is evidenced by outstanding industry recognition, as we have received numerous product awards across our portfolio of super fan brands.

Each of our brands represents a unique customer value proposition.

Supported by six decades of proven innovation, Black Diamond, is an established global leader in high-performance, activity-based climbing, skiing, and technical mountain sports equipment.

The brand is synonymous with premium performance, safety and reliability.

Our Sierra and Barnes brands have been leading specialty manufacturers of bullets and ammunition for over 50 years.

Since 1947, Sierra has been dedicated to manufacturing the highest-quality, most accurate bullets in the world for hunting and sport shooting enthusiasts.

Barnes traces its history back to 1932, and since 1989 has manufactured technologically-advanced lead-free bullets and premium ammunition for hunters, range shooters, military and law enforcement professionals.

Founded in 1992, our Rhino-Rack brand is a globally-recognized designer and distributor of highly-engineered automotive roof racks and accessories to enhance the outdoor enthusiast’s overlanding experience.

Founded in 2005, our MAXTRAX brand offers high-quality overlanding and off-road vehicle recovery and extraction tracks for the overland and off-road market.

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

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(“SKINourishment”).

On October 2, 2020, the Company completed the acquisition of certain assets and liabilities constituting the Barnes business (“Barnes”) for a purchase price of $30,500,000.

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”).

On December 1, 2021, the Company completed the acquisition of Australia-based MaxTrax Australia Pty Ltd (“MAXTRAX”).

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 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.

In 2021, 2020 and 2019, our total Quarterly Cash Dividends were $3,335,000, $1,520,000 and $2,987,000, respectively.

In 2020, our total Quarterly Stock Dividends were $1,533,000.

On January 29, 2021, the Company announced that its Board of Directors approved the payment on February 19, 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 February 8, 2021.

In 2020, our total Quarterly Stock Dividends were $1,533,000, which combined with our cash dividend in 2020 of $1,520,000, resulted in total dividends in 2020 of $3,053,000.

On February 25, 2022, the Company announced that its Board of Directors approved the payment on March 18, 2022 of the Quarterly Cash Dividend to the record holders of shares of the Company’s common stock as of the close of business on March 7, 2022.

Impact of COVID-19

The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S.

government in March 2020, with governments world-wide implementing safety measures restricting travel and requiring citizen lockdowns and self-confinements for quarantining purposes.

This has negatively affected the U.S.

and global economy, disrupted global supply chains, and resulted in significant transport restrictions and disruption of financial markets.

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

We experienced a decline in retail demand within our Black Diamond segment beginning in the second half of March 2020 through December 2020, which negatively impacted our sales and profitability for the first, second, third and fourth quarters of 2020.

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

The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by each of the U.S., European, and Australian governments in March 2020, with governments world-wide implementing safety measures restricting travel and requiring citizen lockdowns and self-confinements for quarantining purposes.

This has negatively affected the U.S., European, Australian and global economies, disrupted global supply chains, and resulted in significant transport restrictions and disruption of global financial markets.

The COVID-19 pandemic has significantly impacted the global supply chain, with restrictions and limitations on related activities causing disruption and delay, along with increased raw material, storage, and shipping costs.

These disruptions and delays have strained domestic and international supply chains, which have affected and could continue to negatively affect the flow or availability of certain critical raw materials and finished good products that the Company relies upon.

Furthermore, significantly increased demand from online sales channels, including our website, has impacted our logistical operations, including our fulfillment and shipping functions, which has resulted in periodic delays in the delivery of our products.

We experienced a decline in retail demand within our Outdoor segment beginning in the second half of March 2020 through December 2020, which negatively impacted our sales and profitability during this period.

During 2021, our Outdoor segment continued to be impacted by the pandemic due to disruptions in the global supply chains;

however, the Outdoor segment experienced an increase in overall sales as participation in outdoor recreation has increased as certain countries began to ease restrictions.

During the third quarter of 2021, the Australian government instituted a mandatory lockdown for its citizens.

This caused a decline in retail demand and a disruption in operations within our Adventure segment, which negatively impacted our sales and profitability for the third quarter of 2021 and to a lesser extent during the fourth quarter of 2021.

Our Precision Sport segment has experienced higher demand which has positively impacted our sales and profitability since the beginning of the pandemic.

We expect a continued impact on the Company’s sales and profitability in future periods due to the ongoing impact of the pandemic.

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

Risk Factors.

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

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

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

These countermeasures partially mitigated the impacts of COVID-19 on our full year 2020 financial results.

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

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

Critical Accounting Policies and Use of Estimates

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A fair value can be estimated after adjustments are made to reflect comparability differences between the assets sold and those being valued.

This method of valuation applies primarily to the valuation of owned land and certain intangible assets.

This method of valuation applies primarily to the valuation of owned land, inventory, and certain intangible assets.

The cost approach estimates the amount that would be required to replace the service capacity of an asset (often referred to as current replacement cost).

We typically apply all three approaches to estimate the fair value of our tangible and intangible tangible assets depending on the type of asset acquired.

Business acquisitions may include contingent consideration payments based on various future financial measures, such as sales-based milestones, related to the acquired entity.

We estimate the fair value of contingent consideration liabilities based on estimated sales growth rates, discount rates, and other relevant factors.

Significant estimates in valuing certain intangible assets include but are not limited to the projected financial information related to each individual asset, particularly forecasted sales growth rates, cash flows, market-based royalty rates and estimated discount rates.

Developed technology and trademarks are valued using the relief-from-royalty method, and customer relationships are valued using the multi-period excess earnings model.

Product technology and trademarks are valued using the relief-from-royalty method, and customer relationships are valued using the multi-period excess earnings model.

The relief-from-royalty method is used to estimate the cost savings that accrue to the owner of an intangible asset who would otherwise have to pay royalties or license fees on revenues earned through the use of the asset.

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Changes in any of the assumptions, judgments and estimates mentioned above related to the realizability of deferred tax assets, could materially affect our financial position and results of operations.

 Goodwill and intangible assets – We assess the recoverability of our one reporting unit’s carrying value of goodwill by performing a qualitative assessment and/or a quantitative goodwill impairment test.

At a minimum, we perform an annual assessment of possible goodwill impairment as of each December 31.

 Goodwill and intangible assets – We assess the recoverability of our reporting unit’s carrying value of goodwill by performing a qualitative assessment and/or a quantitative goodwill impairment test.

At a minimum, we perform an annual assessment of possible

goodwill impairment as of each December 31.

Management may perform an interim goodwill impairment assessment whenever events or circumstances make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose of the reporting unit.

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If the market multiples or EBITDA value assumptions are incorrect, our goodwill impairment evaluation could also be adversely affected, and we may impair a portion or all of our goodwill, which would adversely affect our operating results in the period of impairment.

As a result of the current wide swings in market multiples resulting from industry acquisitions, management believes that the income approach provides for a more accurate estimate of the reporting unit’s fair value.

No impairment was recorded during the years ended December 31, 2021, 2020, and 2019.

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Selling, general and administrative

Restructuring charge

Transaction costs

Contingent consideration benefit

Total operating expenses

Operating income

Other (expense) income

Other income (expense)

Interest expense, net

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Income tax benefit

Consolidated sales decreased $5,430, or 2.4%, to $224,007 during the year ended December 31, 2020, compared to consolidated sales of $229,437 during the year ended December 31, 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.

These decreases were partially offset by an increase in the quantity of new and existing sport products sold by Sierra of $16,729 and the inclusion of Barnes, which contributed $6,556.

We also experienced an increase in sales of $606 due to the weakening of the U.S.

Consolidated sales increased $151,787, or 67.8%, to $375,794 during the year ended December 31, 2021, compared to consolidated sales of $224,007 during the year ended December 31, 2020.

The increase in sales was attributable to the increase in the quantity of new and existing outdoor products sold during the period of $46,394.

Additionally, there was an increase in the quantity of new and existing precision sport products sold by Sierra of $18,543 and the inclusion of Barnes, which contributed $38,504.

The increase was also driven by the inclusion of adventure products sold by Rhino-Rack of $43,411 and MAXTRAX of $1,728.

We experienced an increase in sales of $3,207 due to the weakening of the U.S.

dollar against foreign currencies during the year ended December 31, 2021, compared to the prior period.

Consolidated domestic sales increased $93,652, or 70.8%, to $225,878 during the year ended December 31, 2021, compared to consolidated domestic sales of $132,226 during the year ended December 31, 2020.

The increase in sales was attributable to the increase in the quantity of new and existing sport products sold by Sierra of $17,873 and the inclusion of Barnes, which contributed $6,179.

We believe this increase was partially offset by a decrease in domestic sales due 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.

Consolidated international sales decreased $15,905, or 14.8%, to $91,781 during the year ended December 31, 2020, compared to consolidated international sales of $107,686 during the year ended December 31, 2019.

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

We also experienced a decrease in the quantity of new and existing sport products sold by Sierra of $1,143.

These decreases were partially offset by the inclusion of Barnes, which contributed $376.

We also experienced an increase in sales of $606 due to the weakening of the U.S.

The increase in sales was attributable to the increase in the quantity of new and existing outdoor products sold during the period of $26,058.

Additionally, there was an increase in the quantity of new and existing precision sport products sold by Sierra of $20,323 and the inclusion of Barnes, which contributed $35,227.

The remaining increase was driven by the inclusion of adventure products sold by Rhino-Rack and MAXTRAX of $12,044.

Consolidated international sales increased $58,135, or 63.3%, to $149,916 during the year ended December 31, 2021, compared to consolidated international sales of $91,781 during the year ended December 31, 2020.

The increase in sales was primarily attributable to the increase in the quantity of new and existing outdoor products of $20,336 and the inclusion of Barnes, which contributed $3,277.

The increase was also driven by the inclusion of adventure products sold by Rhino-Rack of $31,392 and MAXTRAX of $1,703.

We experienced an increase in sales of $3,207 due to the weakening of the U.S.

dollar against foreign currencies during the year ended December 31, 2021 compared to the prior period.

The increase was partially offset by a decrease in the quantity of new and existing precision sport products sold by Sierra of $1,780.

Cost of Goods Sold

Consolidated cost of goods sold decreased $2,934, or 2.0%, to $146,212 during the year ended December 31, 2020, compared to consolidated cost of goods sold of $149,146 during the year ended December 31, 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 $2,496 or 3.1%, to $77,795 during the year ended December 31, 2020, compared to consolidated gross profit of $80,291 during the year ended December 31, 2019.

Consolidated cost of goods sold increased $92,650, or 63.4%, to $238,862 during the year ended December 31, 2021, compared to consolidated cost of goods sold of $146,212 during the year ended December 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 $59,137 or 76.0%, to $136,932 during the year ended December 31, 2021, compared to consolidated gross profit of $77,795 during the year ended December 31, 2020.

Consolidated gross margin was 36.4% during the year ended December 31, 2021, compared to a consolidated gross margin of 34.7% during the year ended December 31, 2020.

Consolidated gross margin during the year ended December 31, 2020, decreased compared to the prior year due to unfavorable impacts on our supply chain and logistic activities due to the COVID-19 pandemic.

Gross margin benefited from the inclusion of Barnes;

however, this benefit was offset by a decrease in gross margin of 0.2% due to the sale of inventory that was recorded at its preliminary fair value in purchase accounting during the year ended December 31, 2020.

Consolidated gross margin during the year ended December 31, 2021, increased compared to the prior year due to favorable product mix in higher margin products and the favorable impacts related to foreign currency.

Gross margin also benefited from the inclusion of Barnes, Rhino-Rack, and MAXTRAX;

however, the benefit was offset by a decrease in gross margin of $4,769, or 1.3%, due to the sale of Barnes, Rhino-Rack and MAXTRAX inventory that was recorded at its fair value in purchase accounting during the year ended December 31, 2021.

Selling, General and Administrative

Consolidated selling, general, and administrative expenses increased $34,066, or 47.7%, to $105,494 during the year ended December 31, 2021, compared to consolidated selling, general and administrative expenses of $71,428 during the year ended December 31, 2020.

The increase in selling, general and administrative expenses is due to the inclusion of Barnes, which contributed $1,698, and an increase of stock compensation of $3,842 during the year ended December 31, 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, and logistics.

Restructuring Charges

Consolidated restructuring expense decreased to $0 during the year ended December 31, 2020, compared to consolidated restructuring expense of $13 during the year ended December 31, 2019.

Restructuring expenses incurred during the year ended December 31, 2019, related to costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China.

The increase in selling, general and administrative expenses is due to the inclusion of Barnes, Rhino-Rack, and MAXTRAX which contributed $6,702, $14,885, and $400, respectively.

Additionally, there was an increase of stock compensation of $2,686 during the year ended December 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, marketing, and warehousing and logistics, focused on supporting its strategic initiatives around expanding distribution, elevating brand awareness and being easier to do business with.

Transaction Costs

Consolidated transaction expense increased to $2,433 during the year ended December 31, 2020, compared to consolidated transaction costs of $166 during the year ended December 31, 2019, which consisted of expenses related to the Company’s various acquisition efforts and capital-raising activities, including acquiring Barnes and completing a registered direct offering (the “Offering”).

Consolidated transaction expense increased to $11,843 during the year ended December 31, 2021, compared to consolidated transaction costs of $2,433 during the year ended December 31, 2020, which consisted of expenses related to the Company’s financing and acquisition efforts in 2021.

Contingent Consideration Benefit

Consolidated contingent consideration increased to $1,605 during the year ended December 31, 2021, compared to $0 consolidated contingent consideration during the year ended December 31, 2020, which consisted of changes in estimated fair value of Contingent Consideration liabilities.

Interest Expense, net

Consolidated interest expense, net during the year ended December 31, 2020 remained relatively consistent with consolidated interest expense, net, during the year ended December 31, 2019.

Consolidated other, net, increased $1,005, or 1,080.6%, to income of $912 during the year ended December 31, 2020, compared to consolidated other, net expense of $93 during the year ended December 31, 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 $7,031, or 78.2%, to $1,960 during the year ended December 31, 2020, compared to a consolidated income tax benefit of $8,991 during the same period in 2019.

Our effective income tax rate was a benefit of 54.7% for the year ended December 31, 2020, and differed compared to the statutory tax rates due to a release of a partial valuation allowance of the deferred tax assets and discrete charges recorded during the period .

Consolidated interest expense, net increased to $2,939 during the year ended December 31, 2021, compared to consolidated interest expense, net of $1,261 during the year ended December 31, 2020.

The increase in interest expense recognized during the year ended December 31, 2021 was primarily associated with the increase in average outstanding debt amounts during the period compared to the prior year and the recording of certain debt issuance costs.

Consolidated other, net expense changed $5,294, or 580.5% to $4,382 during the year ended December 31, 2021, compared to consolidated other, net income of $912 during the year ended December 31, 2020.

The change in other, net was primarily attributable to changes on mark-to-market adjustments on non-hedged foreign currency contracts, including contracts associated with the purchase price of Rhino-Rack, as well as a decrease in remeasurement losses recognized on the Company’s foreign denominated accounts receivable and accounts payable.

Consolidated income tax benefit increased $10,254, or 523.2%, to $12,214 during the year ended December 31, 2021, compared to a consolidated income tax benefit of $1,960 during the same period in 2020.

Our effective income tax rate was a benefit of 88% for the year ended December 31, 2021, and differed compared to the statutory tax rates due to the partial release of a valuation allowance offsetting deferred tax assets and discrete charges recorded during the period .

This release of the valuation allowance is primarily due to a change in accounting method which increased taxable income and the ability to utilize NOLs.

For the year ended December 31, 2020, our effective income tax rate was a benefit of 54.7% and differed compared to the statutory tax rates due to a release of certain valuation allowances and a discrete benefit associated with stock compensation windfall .

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Income tax benefit

Consolidated sales increased $17,296, or 8.2%, to $229,437 during the year ended December 31, 2019, compared to consolidated sales of $212,141 during the year ended December 31, 2018.

The increase in sales was attributable to the increase in the quantity of new and existing climb, mountain, and ski products sold during the period.

These increases were partially offset by a decrease in the quantity of new and existing sport products sold during the period and a decrease in sales of $2,603 due to the strengthening of the U.S.

Consolidated sales decreased $5,430, or 2.4%, to $224,007 during the year ended December 31, 2020, compared to consolidated sales of $229,437 during the year ended December 31, 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.

These decreases were partially offset by an increase in the quantity of new and existing precision sport products sold by Sierra of $16,729 and the inclusion of Barnes, which contributed $6,556.

We also experienced an increase in sales of $606 due to the weakening of the U.S.

dollar against foreign currencies during the year ended December 31, 2020 compared to the prior period.

Consolidated domestic sales increased $10,475, or 8.6%, to $132,226 during the year ended December 31, 2020, compared to consolidated domestic sales of $121,751 during the year ended December 31, 2019.

The increase in domestic sales was attributable to an increase in the quantity of new and existing climb, mountain, and ski products sold during the year ended December 31, 2019.

These increases were partially offset by a decrease in the quantity of new and existing sport products sold during the period.

Consolidated international sales increased $8,082, or 8.1%, to $107,686 during the year ended December 31, 2019, compared to consolidated international sales of $99,604 during the year ended December 31, 2018.

The increase in international sales was attributable to the increase in the quantity of new and existing climb, mountain, and ski products sold during the year ended December 31, 2019.

These increases were partially offset by a decrease in the quantity of new and existing sport products sold during the period and a decrease in sales of $2,603 due to the strengthening of the U.S.

The increase in sales was attributable to the increase in the quantity of new and existing precision sport products sold by Sierra of $17,873 and the inclusion of Barnes, which contributed $6,179.

We believe this increase was partially offset by a decrease in domestic sales due 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 precision sport products sold by Sierra of $1,143.

These decreases were partially offset by the inclusion of Barnes, which contributed $376.

We also experienced an increase in sales of $606 due to the weakening of the U.S.

dollar against foreign currencies during the year ended December 31, 2020 compared to the prior period.

Cost of Goods Sold

Consolidated cost of goods sold increased $10,967, or 7.9%, to $149,146 during the year ended December 31, 2019, compared to consolidated cost of goods sold of $138,179 during the year ended December 31, 2018.

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

Consolidated gross profit increased $6,329, or 8.6%, to $80,291 during the year ended December 31, 2019, compared to consolidated gross profit of $73,962 during the year ended December 31, 2018.

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 $2,496 or 3.1%, to $77,795 during the year ended December 31, 2020, compared to consolidated gross profit of $80,291 during the year ended December 31, 2019.

Consolidated gross margin was 34.7% during the year ended December 31, 2020, compared to a consolidated gross margin of 35.0% during the year ended December 31, 2019.

Consolidated gross margin during the year ended December 31, 2019, increased compared to the prior year due to a favorable product mix in higher margin products.

Gross margin during the year ended December 31, 2018 included a decrease in gross margin of 0.5% due to the sale of inventory that was recorded at its fair value in purchase accounting.

Gross margin benefited from the inclusion of Barnes;

Selling, General and Administrative

Consolidated selling, general, and administrative expenses increased $2,748, or 4.0%, to $71,428 during the year ended December 31, 2020, compared to consolidated selling, general and administrative expenses of $68,680 during the year ended December 31, 2019.

The increase in selling, general and administrative expenses was attributable to the Company’s continued investments in the brand related activities of research and development, marketing, direct-to-consumer, and warehousing and logistics, focused on supporting its strategic initiatives around new product introductions, elevating brand awareness, and being easier to do business with.

Stock compensation also increased $297 during the year ended December 31, 2019 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, and logistics.

Restructuring Charges

Consolidated restructuring expense decreased $124, or 90.5%, to $13 during the year ended December 31, 2019, compared to consolidated restructuring expense of $137 during the year ended December 31, 2018.

Restructuring expenses incurred during the year ended December 31, 2019 and 2018, related to costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China.

Consolidated restructuring expense decreased to $0 during the year ended December 31, 2020, compared to consolidated restructuring expense of $13 during the year ended December 31, 2019.

Transaction Costs

Consolidated transaction expense decreased to $166 during the year ended December 31, 2019, compared to consolidated transaction costs of $503 during the year ended December 31, 2018, which consisted of expenses related to the Company’s acquisition of Sierra.

Interest Expense, net

Consolidated interest expense, net increased $19, or 1.4%, to $1,358 during the year ended December 31, 2019, compared to consolidated interest expense, net, of $1,339 during the year ended December 31, 2018.

Interest expense recognized during the year ended December 31, 2019 was primarily associated with the average outstanding debt amounts during the period.

Interest expense recognized during the year ended December 31, 2018 was primarily attributable to the write-off of previously capitalized origination costs and interest expense associated with the average outstanding debt amounts during the period.

Consolidated other, net, decreased $266, or 74.1%, to expense of $93 during the year ended December 31, 2019, compared to consolidated other, net expense of $359 during the year ended December 31, 2018.

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 and a decrease in gains on mark-to-market adjustments on non-hedged foreign currency contracts.

During the year ended December 31, 2018, the expense included losses related to recognition of cumulative translation adjustments due to the substantial liquidation of a foreign entity.

Consolidated income tax benefit increased $8,163, or 985.9%, to $8,991 during the year ended December 31, 2019, compared to a consolidated income tax benefit of $828 during the same period in 2018.

The tax benefit recorded during the year ended December 31, 2019 includes a release of certain valuation allowances of $13,490 and a discrete benefit associated with stock compensation windfall for $368.

Our effective income tax rate was a benefit of 90.1% for the year ended December 31, 2019, compared to a benefit of 12.8% for the same period in 2018.

The primary reasons for the effective income tax rate changes are due to differing levels of income before income tax, release of a partial valuation allowance of the deferred tax assets, and discrete charges recorded during the respective periods.

Consolidated interest expense, net during the year ended December 31, 2020 remained relatively consistent with consolidated interest expense, net, during the year ended December 31, 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 $7,031, or 78.2%, to $1,960 during the year ended December 31, 2020, compared to a consolidated income tax benefit of $8,991 during the same period in 2019.

For the year ended December 31, 2019, our effective income tax rate was a benefit of 90.1% and differed compared to the statutory tax rates due to a release of certain valuation allowances and a discrete benefit associated with stock compensation windfall .

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.

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We plan to fund these activities through a combination of our future operating cash flows and revolving credit facility which had approximately $81,499 available to borrow at December 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.

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

Additionally, long-term contractual obligations are also currently expected to be funded from cash from operations and availability under our existing credit facilities.

However, as the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs.

The COVID-19 pandemic has negatively affected the U.S.

and global economies, disrupted global supply chains, and resulted in significant travel and transport restrictions and disruption of financial markets.

An extended period of global supply chain and economic disruption could materially affect our business, results of operations, ability to meet debt covenants, access to sources of liquidity and financial condition.

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, 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.

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”).

Further, 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.

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.

Additionally, during the year ended December 31, 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 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 December 31, 2020, we had total cash of $17,789, compared to a cash balance of $1,703 at December 31, 2019, which was substantially controlled by the Company’s U.S.

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”).

T he Credit Agreement 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 term loan facility was fully borrowed at the closing of Amendment No.

3 on July 1, 2021.

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 beginning September 30, 2022, and any remaining obligations will be repaid in full on the maturity date of the Credit Agreement of May 3, 2024.

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.

Additionally, the Company entered into an underwriting agreement relating to the public offer and sale of 2,750 shares of the Company’s common stock as well as a 30-day option to purchase up to 413 additional shares of common stock.

The closing of the offering of 2,750 shares of common stock as well as the 413 additional shares of common stock occurred on October 29, 2021 and November 2, 2021, respectively.

The net proceeds to the Company from the offering were approximately $80,264 before expenses and after deducting the applicable underwriting discounts and commissions.

The Company used a portion of the net proceeds of the offering for the repayment of principal 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 the MAXTRAX acquisition.

At December 31, 2021, we had total cash of $19,465, compared to cash of $17,789 at December 31, 2020, which was substantially controlled by the Company’s U.S.

At December 31, 2021, the Company had $8,959 of the $19,465 in cash held by foreign entities, of which $7,188 is considered permanently reinvested.

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Year Ended December 31,

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of foreign exchange rates on cash

1 unchanged sentence

Cash, beginning of year

Cash, end of year

Cash, end of period

Net Cash From Operating Activities

Consolidated net cash provided by operating activities was $29,392 during the year ended December 31, 2020 compared to consolidated net cash provided by operating activities of $9,522 during the year ended December 31, 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 $22,652, stock compensation of $3,842, and deferred taxes of $5,794 partially offset by a decrease in net income during the year ended December 31, 2020, compared to the same period in 2019.

Free cash flow, defined as net cash provided by operating activities less capital expenditures, of $23,981 was generated during the year ended December 31, 2020 compared to $5,406 generated during the same period in 2019.

Consolidated net cash used in operating activities was $304 during the year ended December 31, 2021 compared to consolidated net cash provided by operating activities of $29,696 during the year ended December 31, 2020.

The change in net cash used in operating activities during 2021 is primarily due to an increase in net operating assets, or non-cash working capital, of $48,494, and deferred income taxes, partially offset by an increase in net income, depreciation and amortization and stock compensation during the year ended December 31, 2021, compared to the same period in 2020.

Free cash flow, defined as net cash used in operating activities less capital expenditures, of ($17,687) was used during the year ended December 31, 2021 compared to $23,981 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.

1 unchanged sentence

Year Ended December 31,

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Purchase of property and equipment

2 unchanged sentences

Consolidated net cash used in investing activities was $ 178,142 during the year ended December 31, 2021 compared to consolidated net cash used in investing activities of $ 35,582 during the year ended December 31, 2020 .

The increase in cash used during the year ended December 31, 2020 is primarily due to the $30,498 used for the purchase of the Barnes Purchased Assets, net of cash acquired as well as an increase in purchases of property and equipment, compared to the same period in 2019.

The increase in cash used during the year ended December 31, 2021 is primarily due to the $160,988 used for the purchase of Rhino-Rack and MAXTRAX, net of cash acquired as well as an increase in purchases of property and equipment, primarily due to the purchase of the Barnes facility.

During the year ended December 31, 2020, consolidated net cash used in investing activities included $30,498 used for the purchase of the Barnes Purchased Assets, net of cash acquired.

Net Cash From Financing Activities

Consolidated net cash provided by financing activities was $ 180,677 during the year ended December 31, 2021 , compared to consolidated net cash used in financing activities of $ 22,254 during the year ended December 31, 2020 .

The increase in cash provided during the year ended December 31, 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.

The increase in cash provided during the year ended December 31, 2021, compared to the same period in 2020 was primarily due to the net proceeds to the revolving line of credit and draws of the term loan under Amendment No.

3 described below and the net proceeds from the sale of the Company’s common stock of $79,232.

Cash provided by financing activities during the year ended December 31, 2020, was primarily due to the proceeds of $20,000 borrowed under the term loan and net proceeds from the sale of the Company’s common stock of $11,151, offset by net repayments to the revolving line of credit.

Net Operating Loss

6 unchanged sentences

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.

The Company has $60,712

of NOLs, of which, $39,507 expire on December 31, 2022.

These NOLs are subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.

As of December 31, 2021, the Company’s gross deferred tax asset was $38,184.

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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;

On July 1, 2021, the Borrowers entered into Amendment No.

3 of the Credit Agreement.

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 term loan facility was fully borrowed at the closing of Amendment No.

3 on July 1, 2021 in connection with the Rhino-Rack Acquisition.

The Credit Agreement continues to permit 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 $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 did not change the maturity date which remains May 3, 2024.

On January 3, 2022, the Company entered into Amendment No.

4 to the Credit Agreement (“Amendment No.

Amendment No.

4, among other things, permits (i) the Company to borrow in Australian Dollars and New Zealand Dollars in order to support the operations of the Company in Australia and New Zealand and (ii) provides for addbacks to EBITDA, for debt covenant purposes, (as defined in the Credit Agreement) under the Credit Agreement for expenses relating to activities in respect of acquisitions, dispositions, investments and financings (whether or not these transactions are actually consummated).

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

The applicable rate for these borrowings will range from 0.50% to 1.625% per annum, in the case of alternate base rate borrowings, and 1.50% to 2.625% per annum, in the case of Term Benchmark 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 Term Benchmark borrowings;

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

1 unchanged sentence

Such commitment fee will range between 0.15% and 0.30% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio.

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.

All obligations under the Credit Agreement are secured by our 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 .

2 unchanged sentences

As of December 31, 2021, the Company had drawn approximately $18,501 of the $100,000 revolving loan commitment that was available for borrowing under the Credit Agreement, and $121,874 outstanding under the term loan commitment.

As of December 31, 2020, the interest rate for each loan was 2.0625% .

As of December 31, 2021, the interest rates for the revolving loan and term loan were 2.3750% and 2.3750% respectively.

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.

On May 3, 2019, concurrent with entering into the Credit Agreement, the Company’s previous credit facility with JPMorgan Chase Bank, N.A., which provided for a revolving commitment of up to $75,000, was paid in full and terminated .

On July 1, 2021, the term loan facility was fully borrowed at the closing of Amendment No.

Off-Balance Sheet Arrangements

2 unchanged sentences

We also do not engage in energy, weather or other commodity-based contracts.

Contractual Obligations

The following summarizes our contractual obligations and commercial commitments at December 31, 2020 with initial or remaining terms of one or more years, and the effect such obligations are expected to have on our liquidity and cash flow in future periods:

Payments due by period

Less than 1 year

More than 5 years

(in thousands)

Contractual Obligations:

Recorded liabilities:

Long-term debt (1)

Revolving credit facility (2)

Operating leases (3)

Other long-term liabilities (4)

Unrecorded commitments:

Interest payment obligations (5)

Purchase obligations (6)

(1) Long-term debt represents required principal payments under the Credit Agreement related to the term loan facility as well as payment under the foreign credit facilities.

(2) Revolving credit facility represents required principal payments under the Credit Agreement.

(3) Operating leases represent required minimum lease payments.

(4) Other long-term liabilities represent payments due for other noncurrent liabilities in the Company’s consolidated balance sheet.

(5) Interest payment obligations represent required interest payments on the revolving credit facility.

Amounts exclude bank fees that would be included in interest expense in the consolidated financial statements.

(6) Purchase obligations represent an agreement to purchase goods or services.

The Company has uncertain tax positions of $427 as of December 31, 2020, however the specific timing of the settlement is uncertain and has been excluded from the table above.

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-K

Item 7. Management’s Discussion and Analysis