Clarus Corp 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CLARUS CORPORATION AND SUBSIDIARIES Index to Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 42 Consolidated Balance Sheets - December 31, 2021 and 2020 44 Consolidated Statements of Comprehensive Income - Years Ended December 31, 2021, 2020 and 2019 45 Consolidated Statements of Cash Flows - Years Ended December 31, 2021, 2020 and 2019 46 Consolidated Statements of Stockholders’ Equity - Years Ended December 31, 2021, 2020 and 2019 47 Notes to Consolidated Financial Statements 48 ‎ 41 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Clarus Corporation: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Clarus Corporation and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Acquisitions — Refer to Note 2 to the financial statements Critical Audit Matter Description On July 1, 2021, the Company acquired Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”), and on December 1, 2021, the Company acquired MaxTrax Australia Pty Ltd (“MAXTRAX”). The Company accounted for each acquisition as a business combination. Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values, including Rhino-Rack trademarks of $72.8 million, customer relationships of $40.4 million, and product technologies of $15 million, and MAXTRAX trademarks of $10.6 million and customer relationships of $9.0 million. 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 determination of the fair value of these intangible assets required management to make significant estimates and assumptions related to forecasted sales growth rates, cash flows, market-based royalty rates, and estimated discount rates. We identified the valuation of the Rhino-Rack trademarks, customer relationships, and product technologies and MAXTRAX trademarks and customer relationships as a critical audit matter because of the significant estimates and assumptions management made to determine the fair value of these intangible assets. This required a high degree of auditor judgment and an increased extent of effort, including the involvement of our fair value specialists, when performing audit procedures to evaluate the reasonableness of forecasted sales growth rates, cash flows, market-based royalty rates, and estimated discount rates. 42 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasted future sales growth rates, cash flows, market-based royalty rates, and estimated discount rates for the acquired Rhino-Rack trademarks, customer relationships, and product technologies and MAXTRAX trademarks and customer relationships included the following, among others: • We tested the effectiveness of internal controls over the valuation of the intangible assets, including those over forecasted sales growth rates and cash flows, and the selection of market-based royalty rates and estimated discount rates. • We assessed the reasonableness of management’s forecasted sales growth rates and cash flows by comparing the forecasts to historical results of Rhino-Rack and MAXTRAX, industry publications, and external data. • With the assistance of our fair value specialists, we evaluated the reasonableness of the relief-from-royalty and multi-period excess earnings valuation methodologies, and the market-based royalty rates and estimated discount rates by: – Evaluating whether the valuation methodologies are appropriate in the circumstances and in accordance with generally accepted valuation principles. – Comparing the source information underlying the determination of the estimated discount rates to external data and testing the mathematical accuracy of the calculation. – Developing a range of independent estimates for the discount rates and comparing those to the estimated discount rates selected by management. – Comparing the selected market-based royalty rates to comparable licensing agreements. • We evaluated whether the forecasted sales growth rates and cash flows were consistent with evidence obtained in other areas of the audit, including a retrospective review of actual post-acquisition financial results. • We compared the estimated weighted average return on assets, internal rate of return, and the discount rates used in the valuation models and evaluated whether they were consistent with each other. /s/ Deloitte & Touche LLP Salt Lake City, Utah March 7, 2022 We have served as the Company's auditor since 2018. ‎ 43 CLARUS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) December 31, 2021 2020 Assets Current assets Cash $ 19,465 $ 17,789 Accounts receivable, net 66,180 50,475 Inventories 129,354 68,356 Prepaid and other current assets 11,831 5,385 Income tax receivable 116 117 Total current assets 226,946 142,122 Property and equipment, net 42,826 26,956 Other intangible assets, net 73,683 19,416 Indefinite-lived intangible assets 128,271 47,523 Goodwill 118,090 26,715 Deferred income taxes 22,433 11,113 Other long-term assets 19,578 6,846 Total assets $ 631,827 $ 280,691 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 31,488 $ 21,483 Accrued liabilities 27,473 13,182 Income tax payable 4,437 956 Current portion of long-term debt 9,585 4,000 Total current liabilities 72,983 39,621 Long-term debt, net 131,948 30,621 Deferred income taxes 35,280 1,227 Other long-term liabilities 21,448 4,628 Total liabilities 261,659 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; 41,105 and 35,198 issued and 37,094 and 31,228 outstanding, respectively 4 4 Additional paid in capital 662,996 513,979 Accumulated deficit ( 263,342 ) ( 286,100 ) Treasury stock, at cost ( 24,440 ) ( 23,789 ) Accumulated other comprehensive (loss) income ( 5,050 ) 500 Total stockholders' equity 370,168 204,594 Total liabilities and stockholders' equity $ 631,827 $ 280,691 See accompanying notes to consolidated financial statements. ‎ 44 CLARUS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except per share amounts) Year Ended December 31, 2021 2020 2019 Sales Domestic sales $ 225,878 $ 132,226 $ 121,751 International sales 149,916 91,781 107,686 Total sales 375,794 224,007 229,437 Cost of goods sold 238,862 146,212 149,146 Gross profit 136,932 77,795 80,291 Operating expenses Selling, general and administrative 105,494 71,428 68,680 Restructuring charge - - 13 Transaction costs 11,843 2,433 166 Contingent consideration benefit ( 1,605 ) - - Total operating expenses 115,732 73,861 68,859 Operating income 21,200 3,934 11,432 Other income (expense) Interest expense, net ( 2,939 ) ( 1,261 ) ( 1,358 ) Other, net ( 4,382 ) 912 ( 93 ) Total other expense, net ( 7,321 ) ( 349 ) ( 1,451 ) Income before income tax 13,879 3,585 9,981 Income tax benefit ( 12,214 ) ( 1,960 ) ( 8,991 ) Net income 26,093 5,545 18,972 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustment ( 6,721 ) 1,766 ( 359 ) Unrealized gain (loss) on hedging activities 1,171 ( 963 ) ( 421 ) Other comprehensive (loss) income ( 5,550 ) 803 ( 780 ) Comprehensive income $ 20,543 $ 6,348 $ 18,192 Net income per share: Basic $ 0.79 $ 0.18 $ 0.64 Diluted 0.73 0.18 0.61 Weighted average shares outstanding: Basic 33,136 30,175 29,820 Diluted 35,686 31,225 30,993 See accompanying notes to consolidated financial statements. ‎ 45 CLARUS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2021 2020 2019 Cash Flows From Operating Activities: Net income $ 26,093 $ 5,545 $ 18,972 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation of property and equipment 5,985 4,801 4,550 Amortization of other intangible assets 9,834 4,070 3,552 Amortization of debt issuance costs 505 311 283 (Gain) loss on disposition of property and equipment ( 63 ) 104 62 Noncash lease expense 2,384 898 728 Contingent consideration benefit ( 1,675 ) - - Stock-based compensation 9,477 6,791 2,949 Deferred income taxes ( 14,423 ) ( 3,201 ) ( 8,995 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 6,464 ) ( 7,665 ) ( 6,163 ) Inventories ( 34,071 ) 11,007 ( 9,145 ) Prepaid and other assets ( 3,560 ) ( 1,849 ) 856 Accounts payable 2,746 5,006 1,221 Accrued liabilities 2,935 2,715 909 Income taxes ( 7 ) 859 ( 257 ) Net cash (used in) provided by operating activities ( 304 ) 29,392 9,522 Cash Flows From Investing Activities: Purchase of businesses, net of cash received ( 160,988 ) ( 30,498 ) - Proceeds from disposition of property and equipment 229 327 20 Purchases of property and equipment ( 17,383 ) ( 5,411 ) ( 4,116 ) Net cash used in investing activities ( 178,142 ) ( 35,582 ) ( 4,096 ) Cash Flows From Financing Activities: Proceeds from revolving credit facilities 122,140 49,571 132,215 Repayments on revolving credit facilities ( 119,219 ) ( 55,501 ) ( 131,607 ) Repayments on term loans ( 7,467 ) ( 2,000 ) ( 31 ) Proceeds from issuance of term loans 109,157 20,000 - Payment of debt issuance costs ( 985 ) ( 79 ) ( 709 ) Purchase of treasury stock ( 651 ) ( 1,520 ) ( 4,167 ) Proceeds from exercise of stock options 1,805 2,152 1,000 Cash dividends paid ( 3,335 ) ( 1,520 ) ( 2,987 ) Proceeds from the sale of common stock 80,264 11,476 - Common stock issuance costs ( 1,032 ) ( 325 ) - Net cash provided by (used in) financing activities 180,677 22,254 ( 6,286 ) Effect of foreign exchange rates on cash ( 555 ) 22 77 Change in cash 1,676 16,086 ( 783 ) Cash, beginning of year 17,789 1,703 2,486 Cash, end of period $ 19,465 $ 17,789 $ 1,703 Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $ 1,984 $ 426 $ 209 Cash paid for interest $ 2,252 $ 970 $ 1,086 Supplemental Disclosures of Non-Cash Investing and Financing Activities: Stock issued for business acquisitions $ 57,927 $ - $ - Deferred stock consideration for business acquisition $ 4,457 $ - $ - Contingent consideration for business acquisitions $ 5,209 $ - $ - Property and equipment purchased with accounts payable $ 269 $ 173 $ 408 Lease liabilities arising from obtaining right of use assets $ 6,517 $ 622 $ 1,889 Gain on transfer of entity under common control $ 576 $ - $ - Stock dividends $ - $ 1,533 $ - See accompanying notes to consolidated financial statements. 46 CLARUS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except per share amounts) Accumulated Additional Other Total Common Stock Paid-In Accumulated Treasury Stock Comprehensive Stockholders' Shares Amount Capital Deficit Shares Amount Income (Loss) Equity Balance, December 31, 2018 33,244 $ 3 $ 488,404 $ ( 304,577 ) ( 3,496 ) $ ( 18,102 ) $ 477 $ 166,205 Net income - - - 18,972 - - - 18,972 Other comprehensive loss - - - - - - ( 780 ) ( 780 ) Cash dividends ($ 0.10 per share) - - - ( 2,987 ) - - - ( 2,987 ) Purchase of treasury stock - - - - ( 359 ) ( 4,167 ) - ( 4,167 ) Stock-based compensation expense - - 2,949 - - - - 2,949 Proceeds from exercise of options 371 - 1,000 - - - - 1,000 Balance, December 31, 2019 33,615 $ 3 $ 492,353 $ ( 288,592 ) ( 3,855 ) $ ( 22,269 ) $ ( 303 ) $ 181,192 Net income - - - 5,545 - - - 5,545 Other comprehensive income - - - - - - 803 803 Cash dividends ($ 0.05 per share) - - - ( 1,520 ) - - - ( 1,520 ) Stock dividends ($ 0.05 per share) 133 - 1,533 ( 1,533 ) - - - - Purchase of treasury stock - - - - ( 115 ) ( 1,520 ) - ( 1,520 ) Stock-based compensation expense 244 - 6,791 - - - - 6,791 Proceeds from exercise of options 306 - 2,152 - - - - 2,152 Issuance of common stock, net of issuance costs 900 1 11,150 - - - - 11,151 Balance, December 31, 2020 35,198 $ 4 $ 513,979 $ ( 286,100 ) ( 3,970 ) $ ( 23,789 ) $ 500 $ 204,594 Net income - - - 26,093 - - - 26,093 Other comprehensive loss - - - - - - ( 5,550 ) ( 5,550 ) Cash dividends ($ 0.10 per share) - - - ( 3,335 ) - - - ( 3,335 ) Purchase of treasury stock - - - - ( 41 ) ( 651 ) - ( 651 ) Gain on transfer of entity under common control - - 576 - - - - 576 Stock-based compensation expense - - 9,477 - - - - 9,477 Proceeds from exercise of options 322 - 1,805 - - - - 1,805 Issuance of common stock, net of issuance costs 3,163 - 79,232 - - - - 79,232 Shares issued in business acquisitions 2,422 - 57,927 - - - - 57,927 Balance, December 31, 2021 41,105 $ 4 $ 662,996 $ ( 263,342 ) ( 4,011 ) $ ( 24,440 ) $ ( 5,050 ) $ 370,168 See accompanying notes to consolidated financial statements. 47 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) NOT E 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying audited consolidated financial statements of Clarus Corporation and subsidiaries (which may be referred to as the “Company,” “Clarus,” “we,” “our” or “us”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Nature of Business Headquartered in Salt Lake City, Utah, Clarus 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. 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”). On December 1, 2021, the Company completed the acquisition of Australia-based MaxTrax Australia Pty Ltd (“MAXTRAX”). 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 net assets acquired in business combinations, excess or obsolete inventory, allowance for credit losses, contingent consideration liabilities, and valuation of deferred tax assets. We base our estimates on historical experience, projected future cash flows, and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Clarus Corporation and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Foreign Currency Transactions and Translation The accounts of the Company’s international subsidiaries’ financial statements which have functional currencies other than the U.S. dollar are translated into U.S. dollars using the exchange rate at the balance sheet dates for assets and liabilities and average exchange rates for the periods for revenues, expenses, gains and losses. Foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in other income (expense) in the consolidated statements of comprehensive income. Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2021 and 2020, the Company did not hold any amounts that were considered to be cash equivalents. 48 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Accounts Receivable and Allowance for Credit Losses The Company records its trade receivables at sales value. The trade receivables do not bear interest. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information. The Company evaluates the collectability of its accounts receivable and determines the appropriate allowance for credit losses based on a combination of factors. A non-specific allowance for estimated credit losses is recorded based on historical experience of collectability. In addition, specific allowances are established for customer accounts as known collection problems occur due to insolvency, disputes or other collection issues. The amounts of these specific allowances are estimated by management based on the customer’s financial position, the age of the customer’s receivables and the reasons for any disputes. The allowance for credit losses is reduced by subsequent collections of the specific allowances or by any write-off of customer accounts that are deemed uncollectible. The allowance for credit losses was $ 811 and $ 1,433 at December 31, 2021 and 2020, respectively. There were no significant write-offs during the years ended December 31, 2021, 2020, and 2019. Inventories Inventories are stated at the lower of cost (using the first-in, first-out method “FIFO”) or net realizable value. Elements of cost in the Company’s manufactured inventories generally include raw materials, direct labor, manufacturing overhead and freight in. The Company reviews its inventories for excess, close-out, or slow-moving items and makes provisions as necessary to properly reflect inventory values. Property and Equipment Property and equipment is stated at historical cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives. The principal estimated useful lives are: buildings, 30 years; building improvements, 20 years; computer hardware and software and machinery and equipment, 3 - 15 years; furniture and fixtures, 5 years. Leasehold improvements are amortized over the lesser of the estimated useful life of the improvement or the life of the lease. Major replacements, which extend the useful lives of equipment, are capitalized and depreciated over the remaining useful life. Normal maintenance and repair items are expensed as incurred. Property and equipment are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable. Property and equipment located outside of the United States are not considered material. Leases Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised. Variable lease payments are generally expensed as incurred and include certain non-lease components, such as common area maintenance and other services provided by the lessor, and other charges such as utilities, insurance and property taxes included in the lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for leases is recognized on a straight-line basis over the lease term. Non-lease components are excluded from the right-of-use (“ROU”) asset and lease liability present value computations. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Goodwill Goodwill represents the excess of the purchase price over the fair market value of identifiable net assets of acquired companies. Goodwill is not amortized, but rather is tested at the reporting unit level at least annually for impairment or more frequently if triggering events or changes in circumstances indicate impairment. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit's fair value is less than its carrying amount, a quantitative impairment analysis is performed. If the fair value of the reporting unit is less than its carrying amount, an impairment loss is recognized for the excess carrying amount over the fair value computation. Based on the results of the Company’s annual impairment tests completed during the fourth quarter, the Company determined that goodwill was not impaired. No impairment was recorded during the years ended December 31, 2021, 2020, and 2019. 49 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Intangible Assets Intangible assets represent other intangible assets and indefinite-lived intangible assets acquired. The Company’s other intangible assets, such as certain customer relationships, product technologies, tradenames, trademarks and core technologies are amortized over their estimated useful lives. Other intangible assets are reviewed for impairment whenever events or changes in circumstances exist that indicate the carrying amount of an asset may not be recoverable or annually as of December 31 st of each year. The Company’s indefinite-lived intangible assets consists of certain tradenames and trademarks that provide Black Diamond Equipment, PIEPS, Sierra, Barnes, Rhino-Rack, and MAXTRAX with the exclusive and perpetual rights to manufacture and sell their respective products. Indefinite-lived intangible assets are not amortized; however, they are tested at least annually for impairment or more frequently if events or changes in circumstances exist that may indicate impairment. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, through this qualitative assessment, the conclusion is made that it is more likely than not that an indefinite-lived intangible asset's fair value is less than its carrying amount, or the Company elects to bypass the qualitative assessment, a quantitative impairment analysis is performed by comparing the indefinite-lived intangible asset's book value to its estimated fair value. The fair value for indefinite-lived intangible assets is determined through an income approach using the relief-from-royalty method. The amount of any impairment is measured as the difference between the carrying amount and the fair value of the impaired asset. Based on the results of the Company’s annual impairment tests during the years ended December 31, 2021, 2020, and 2019, no impairment of indefinite-lived intangible assets was recorded. Derivative Financial Instruments The Company uses derivative instruments to hedge currency rate movements on foreign currency denominated sales. The Company enters into forward contracts, option contracts and non-deliverable forwards to manage the impact of foreign currency fluctuations on a portion of its forecasted foreign currency exposure. These derivatives are carried at fair value on the Company’s consolidated balance sheets in prepaid and other current assets, other long-term assets, accrued liabilities, and other long-term liabilities. Changes in fair value of the derivatives not designated as hedge instruments are included in the determination of net income. For derivative contracts designated as hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive (loss) income and reclassified to sales in the period the underlying hedged item is recognized in earnings. For all hedging relationships, the Company formally documents the hedging relationship and its risk-management objective and strategy for undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness. The Company also formally assesses, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in cash flows of hedged transactions. The Company uses operating budgets and cash flow forecasts to estimate future foreign currency cash flow exposures and to determine the level and timing of derivative transactions intended to mitigate such exposures in accordance with its risk management policies. The Company discontinues hedge accounting prospectively when it determines that the derivative is no longer effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold, terminated, or exercised, the cash flow hedge is dedesignated because a forecasted transaction is not probable of occurring, or management determines to remove the designation of the cash flow hedge. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. The Company does not speculate using derivative instruments. Stock-Based Compensation The Company records compensation expense for all share-based awards granted based on the fair value of the award at the time of the grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions and estimates that the Company believes are reasonable. Stock-based compensation costs for stock awards and restricted stock awards is measured based on the closing market value of the Company’s common stock on the date of the grant. For restricted stock awards subject to market conditions, the fair value of each restricted stock award has been estimated as of the date of grant using the Monte-Carlo pricing model. The Company recognizes the cost of the share-based awards on a straight-line basis over the requisite service period of the award and recognizes forfeitures in the period they occur. Stock options granted have contractual terms of up to ten years . Upon exercise of stock options or vesting of restricted stock awards, the Company issues shares from new shares authorized and reserved for issuance. 50 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Revenue Recognition The Company recognizes revenue when a contract exists with a customer that specifies the goods and services to be provided at an agreed upon sales price and when the performance obligation is satisfied by transferring the goods or service to the customer. The performance obligation is considered complete when control transfers, which is determined when products are shipped or delivered to the customer depending on the terms of the contract. Sales are made on normal and customary short-term credit terms or upon delivery of point-of-sale transactions. The Company enters into contractual arrangements with customers in the form of individual customer orders which specify the goods, quantity, pricing, and associated order terms. The Company does not have long-term contracts that are satisfied over time. Due to the nature of the contracts, no significant judgment exists in relation to the identification of the customer contract, satisfaction of the performance obligation, or transaction price. The Company expenses incremental costs of obtaining a contract due to the short-term nature of the contracts. The Company’s contract terms or historical business practices can give rise to variable consideration such as term discounts and customer cooperative payments. We estimate the expected term discounts based on an analysis of historical experience and record cash discounts as a reduction to revenue. Through cooperative advertising programs, the Company reimburses its wholesale customers for some of their costs of advertising the Company’s products. The Company records such costs as a reduction of revenue, where the fair value cannot be reasonably estimated or where costs exceed the fair value of the services. At the time of revenue recognition, we also provide for estimated sales returns and miscellaneous claims from customers as reductions to revenues. The estimates are based on historical rates of product returns and claims. The Company accrues for such estimated returns and claims with an estimated accrual and associated reduction of revenue. Additionally, the Company records inventory that it expects to be returned as an other current asset, with a corresponding reduction of cost of goods sold. Sales commissions are expensed as incurred. These costs are recorded in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive income. Taxes collected from customers and remitted to government authorities are reported on the net basis and are excluded from sales. Cost of Goods Sold The expenses that are included in cost of goods sold include all direct product costs and costs related to shipping, certain warehousing or handling, duties and importation fees. Product warranty costs and specific provisions for excess, close-out, or slow-moving inventory are also included in cost of goods sold. Certain warehousing or handling costs which are not associated with the manufacturing of goods for sale are excluded from cost of goods sold. Selling, General and Administrative Expense Selling, general and administrative expense includes personnel-related costs, including stock-based compensation, product development, selling, advertising, visual merchandise, depreciation and amortization, and other general operating expenses. Advertising costs are expensed in the period incurred. Total advertising expense, including cooperative advertising costs, were $ 5,945 , $ 3,833 , and $ 4,588 for the years ended December 31, 2021, 2020, and 2019, respectively. Through cooperative advertising programs, the Company reimburses its wholesale customers for some of their costs of advertising the Company’s products based on various criteria, including the value of purchases from the Company and various advertising specifications. Cooperative advertising costs were not material for the years ended December 31, 2021 and 2020. Cooperative advertising costs were $ 287 for the year ended December 31, 2019 and were included in selling, general, and administrative expense because the Company receives an identifiable benefit in exchange for the cost, the advertising may be obtained from a party other than the customer, and the fair value of the advertising benefit can be reasonably estimated. Product Warranty Some of the Company’s products carry warranty provisions for defects in quality and workmanship. Warranty repairs and replacements are recorded in cost of goods sold and a warranty liability is established at the time of sale to cover estimated costs based on the Company’s history of warranty repairs and replacements. For the years ended December 31, 2021, 2020, and 2019, the Company experienced warranty claims on its products of $ 1,863 , $ 1,201 , and $ 1,123 , respectively. 51 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Research and Development Research and development costs are charged to expense as incurred, and are included in selling, general and administrative expenses in the accompanying consolidated statements of comprehensive income. Total research and development costs were $ 11,857 , $ 10,159 , and $ 10,575 for the years ended December 31, 2021, 2020, and 2019, respectively. Transaction Costs Transaction costs consists of expenses related to the Company’s various acquisition efforts and capital-raising activities associated with acquiring Sierra, Barnes, Rhino-Rack and MAXTRAX. Income Taxes Income taxes are accounted for under the asset and liability method. Income taxes are based on amounts of taxes payable or refundable in the current year and on expected future tax consequences of events that are recognized in the financial statements in different periods than they are recognized in tax returns. As a result of timing of recognition and measurement differences between financial accounting standards and income tax laws, temporary differences arise between amounts of pre-tax financial statement income and taxable income and between reported amounts of assets and liabilities in the consolidated balance sheets and their respective tax bases. Deferred income tax assets and liabilities reported in the consolidated balance sheets reflect estimated future tax effects attributable to these temporary differences and to net operating loss and net capital loss carryforwards, based on enacted tax rates expected to be in effect for years in which the differences are expected to be settled or realized. The Company has netted these deferred tax assets and deferred tax liabilities by jurisdiction. Realization of deferred tax assets is dependent on future taxable income in specific jurisdictions. Valuation allowances are used to reduce deferred tax assets to amounts considered more likely than not to be realized. U.S. deferred income taxes are not provided on undistributed income of foreign subsidiaries where such earnings are considered to be permanently invested. Unremitted taxes on undistributed foreign earnings are not material for the years ended December 31, 2021, 2020, and 2019 The Company releases residual tax effects in accumulated other comprehensive (loss) income through continuing operations as the underlying asset matures or expires. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax benefit. Unrecognized tax benefits that reduce a net operating loss, similar tax loss or tax credit carryforward, are presented as a reduction to deferred income taxes. The Company recognizes interest expense and penalties related to uncertain tax positions in income tax expense (benefit). Concentration of Credit Risk and Sales Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash, accounts receivable, and aggregate unrealized gains (losses) on derivative contracts. Risks associated with cash within the United States are mitigated by banking with federally insured, creditworthy institutions; however, there are balances with these institutions that are greater than the Federal Deposit Insurance Corporation insurance limit. The Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses as considered necessary by management. During the years ended December 31, 2021, 2020 and 2019, Recreational Equipment, Inc. (“REI”) accounted for approximately 10 %, 10 % and 14 %, respectively, of the Company’s sales and is included in the Outdoor segment. No other single customer contributed more than 10% of our sales during those periods. As of December 31, 2021 and 2020, REI accounted for approximately 11 % and 11 % of the Company’s accounts receivable, respectively. Fair Value Measurements The carrying value of cash, accounts receivable, accrued liabilities approximate their respective fair values due to the short-term nature and liquidity of these financial instruments. Derivative financial instruments are recorded at fair value based on current market pricing models. The Company estimates that, due to the variable interest rates reflecting current market rates, the fair value of its long-term debt obligations under its revolving credit facility and term loan approximate the carrying value at December 31, 2021 and 2020. 52 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Contingent Consideration Liabilities Contingent consideration liabilities are required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired company, such as sales-based milestones, and estimated probabilities of achievement. Based on updated estimates and projections, the contingent consideration liabilities are adjusted at each reporting date to their estimated fair value. Changes in fair value subsequent to the acquisition date are reported in contingent consideration benefit in the accompanying consolidated statements of comprehensive income. Variations in the fair value of contingent consideration liabilities may result from changes in discount periods or rates, changes in the timing and amount of sales estimates, and changes in probability assumptions with respect to the likelihood of achieving sales milestones. 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. Reclassifications Certain reclassifications have been made to prior period financial statements to conform to the current period presentation. Specifically, accounts payable and accrued liabilities, which were combined and disclosed as one amount, are now presented separately. Recent Accounting Pronouncements Accounting Pronouncements not yet adopted In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This ASU provides temporary optional expedients and exceptions to existing guidance on contract modifications and hedge accounting to facilitate the market transition from existing reference rates, such as the London Inter-Bank Offered Rate (“LIBOR”) which is being phased out in 2021, to alternate reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. The provisions have impact as contract modifications and other changes occur while LIBOR is phased out. The Company is in the process of evaluating the optional relief guidance provided within this ASU. Management will continue its assessment and monitor regulatory developments during the LIBOR transition period . Currently, management does not believe that the impact of transitioning from LIBOR to SOFR will have a material effect on the interest rates of the company. NOTE 2. ACQUISITIONS MAXTRAX On November 26, 2021, Clarus, through Oscar Aluminium Pty Ltd (“Oscar Aluminium”), an indirect wholly-owned Australian subsidiary of the Company, entered into a Share and Unit Purchase Agreement (the “MAXTRAX Purchase Agreement”) to acquire Australia-based MaxTrax Australia Pty Ltd (“MAXTRAX”). On December 1, 2021, the transaction contemplated by the MAXTRAX Purchase Agreement was 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 MAXTRAX (the “MAXTRAX Acquisition”). Under the terms of the MAXTRAX Purchase Agreement, Oscar Aluminium acquired MAXTRAX for an aggregate purchase price of $AUD 49,744 (approximately $ 35,475 ), subject to a post-closing adjustment. The purchase price was comprised of $AUD 37,551 (approximately $ 26,780 ) cash, 107 shares of the Company’s common stock valued at $ 2,594 , and additional 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 MAXTRAX Acquisition. The MAXTRAX Purchase Agreement also provides for the payment of additional consideration in the form of shares of the Company’s common stock valued at $AUD 6,250 (approximately $ 4,457 ) split equally on June 30, 2022 and 2023. The MAXTRAX Purchase Agreement provides for the payment of additional contingent consideration up to $AUD 6,250 (approximately $ 4,457 ) in cash if certain future net sales thresholds are met during 2022 and 2023 (the “MAXTRAX Contingent Consideration”). The Company estimated the fair value of the MAXTRAX Contingent Consideration to be $AUD 2,307 (approximately $ 1,644 ) and has recorded this liability within accrued liabilities and other long-term liabilities. 53 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The acquisition was accounted for as a business combination. Acquisition-related costs for the MAXTRAX Acquisition, which were included in transaction costs during the year ended December 31, 2021 were $ 446 . Rhino-Rack On May 30, 2021, Clarus, through Oscar Aluminium, an indirect wholly-owned Australian subsidiary of the Company, entered into a Share Sale and Purchase Agreement (the “Rhino-Rack Purchase Agreement”) to acquire Australia-based Rhino-Rack Holdings Pty Ltd (“Rhino-Rack”). On July 1, 2021, the transaction contemplated by the Rhino-Rack Purchase Agreement was 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 Rhino-Rack Purchase Agreement, Oscar Aluminium acquired Rhino-Rack for an aggregate purchase price of $AUD 269,696 (approximately $ 202,488 ), subject to a post-closing adjustment. The purchase price was comprised of $AUD 191,249 (approximately $ 143,590 ) cash, 2,315 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 were 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 $AUD 10,000 (approximately $ 7,508 ) in cash if certain future net sales thresholds are met during 2022 (the “Contingent Consideration”). The Company estimated the fair value of the Contingent Consideration to be $AUD 4,747 (approximately $ 3,565 ) and has recorded this liability within accrued liabilities. 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 year ended December 31, 2021 were $ 10,975 . Barnes On September 30, 2020, the Company entered into an Asset Purchase Agreement (the “Barnes Asset Purchase Agreement”) with Remington Outdoor Company, Inc. and certain of its subsidiaries (the “Seller”), pursuant to which the Company agreed to (i) acquire certain assets of the Seller constituting the Barnes business (“Barnes”), including equipment, inventory, intellectual property (including exclusive use of Barnes’ intellectual property in the all-copper and powdered metallurgy ammunition fields as well as its trademarks) and a leasehold interest in certain real property located in Mona, Utah (collectively, the “Barnes Purchased Assets”) and (ii) assume certain liabilities related to the Barnes Purchased Assets in a transaction to be effected in Seller’s bankruptcy proceeding under Chapter 11 of title 11 of the United States Code, §§ 101 et seq. (the “Bankruptcy Code”) which commenced on July 27, 2020 in the United States Bankruptcy Court for the Northern District of Alabama (the “Bankruptcy Court”). Pursuant to the Barnes Asset Purchase Agreement, the purchase price to be paid for the Barnes Purchased Assets is $ 30,500 (the “Barnes Purchase Price”). On October 2, 2020, Sierra completed the acquisition of the Barnes Purchased Assets. Acquisition-related costs for the Barnes acquisition, which were included in transaction costs during the years ended December 31, 2021 and 2020 were $ 273 and $ 922 respectively. The acquisition was accounted for as a business combination. The Company believes the acquisitions of MAXTRAX, Rhino-Rack and Barnes are 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. 54 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The following table is a reconciliation to the fair value of the purchase consideration and how the purchase consideration is allocated to assets acquired and liabilities assumed which have been estimated at their fair values. The fair value estimates for the purchase price allocation for MAXTRAX and 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 MAXTRAX and Rhino-Rack Acquisitions are subject to change and the final purchase price allocations could be different from the amounts presented below. We expect to finalize the valuations as soon as practicable, but not later than one year from the date of the acquisitions. 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 MAXTRAX and Rhino-Rack is included in the Adventure segment and goodwill for Barnes is included in the Precision Sport segment. The goodwill consists largely of the growth and profitability expected from these acquisitions. MAXTRAX Rhino-Rack Barnes December 1, 2021 July 1, 2021 October 2, 2020 Number of Shares Estimated Fair Value Number of Shares Estimated Fair Value Estimated Fair Value Cash paid - $ 26,780 - $ 143,590 $ 30,500 Issuance of shares of Clarus Corporation 107 2,594 2,315 55,333 - Future issuance of shares of Clarus Corporation - 4,457 - - - Contingent consideration - 1,644 - 3,565 - Total purchase consideration 107 $ 35,475 2,315 $ 202,488 $ 30,500 Assets acquired and liabilities assumed Assets Cash $ 1,869 $ 7,513 $ 2 Accounts receivable 2,791 10,769 - Inventories 1,819 27,046 4,535 Prepaid and other current assets 883 644 612 Property and equipment 139 4,619 4,036 Other intangible assets 10,341 55,400 7,500 Indefinite-lived intangible assets 10,555 72,800 5,600 Goodwill 14,458 78,347 8,625 Other long-term assets 979 11,468 4,355 Total assets 43,834 268,606 35,265 Liabilities Accounts payable and accrued liabilities 1,435 16,511 842 Income tax payable 251 3,413 - Current portion of long-term debt - 607 - Long-term debt - 2,107 - Deferred income taxes 5,863 32,451 - Other long-term liabilities 810 11,029 3,923 Total liabilities 8,359 66,118 4,765 Net Book Value Acquired $ 35,475 $ 202,488 $ 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. 55 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) In connection with the acquisitions, the Company acquired exclusive rights to MAXTRAX’s, 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: MAXTRAX Rhino-Rack Barnes Average Average Average Gross Useful Life Gross Useful Life Gross Useful Life Intangibles subject to amortization Customer relationships $ 8,986 13.5 years $ 40,400 13.5 years $ 5,700 10.0 years Product technologies 1,355 7.0 years 15,000 10.0 years 1,800 10.0 years Intangibles not subject to amortization Trademarks 10,555 N/A 72,800 N/A 5,600 N/A $ 20,896 12.6 years $ 128,200 12.6 years $ 13,100 10.0 years The full amount of goodwill of $ 14,458 at MAXTRAX and $ 78,347 at Rhino-Rack is expected to be non-deductible for tax purposes. No pre-existing relationships existed between the Company and MAXTRAX and Rhino-Rack or their sellers prior to the acquisition. MAXTRAX and Rhino-Rack revenue and operating income are included in the Adventure segment. Total revenue of $ 1,728 and net income of $ 183 of MAXTRAX were included in the Company’s consolidated statements of comprehensive income from the date of acquisition to December 31, 2021. Total revenue of $ 43,411 and net loss of $ 7,310 of Rhino-Rack were included in the Company’s consolidated statements of comprehensive income from the date of acquisition to December 31, 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 Precision Sport segment. The following unaudited pro forma results are based on the individual historical results of the Company, MAXTRAX, Rhino-Rack, and Barnes, with adjustments to give effect as if the acquisition and borrowings used to finance the acquisition had occurred on January 1, 2020 for MAXTRAX and 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. Year Ended December 31, 2021 2020 Sales $ 441,624 $ 324,539 Net income $ 46,903 $ 10,148 Net income per share - basic $ 1.42 $ 0.34 Net income per share - diluted $ 1.31 $ 0.32 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 MAXTRAX and 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. Material nonrecurring adjustments excluded from the unaudited pro forma financial information above consists of $ 12,616 transaction costs and $ 5,399 step up of inventory to its preliminary fair value, which is expected to be recorded as an unfavorable adjustment to cost of goods sold . 56 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) NOTE 3. INVENTORIES Inventories, as of December 31, 2021 and 2020, were as follows: December 31, 2021 December 31, 2020 Finished goods $ 86,647 $ 50,132 Work-in-process 10,336 6,429 Raw materials and supplies 32,371 11,795 $ 129,354 $ 68,356 NOTE 4. PROPERTY AND EQUIPMENT Property and equipment, net as of December 31, 2021 and 2020, were as follows: December 31, 2021 December 31, 2020 Land $ 4,160 $ 3,160 Building and improvements 16,403 7,324 Furniture and fixtures 6,677 5,715 Computer hardware and software 7,512 5,707 Machinery and equipment 33,581 26,848 Construction in progress 4,312 3,042 72,645 51,796 Less accumulated depreciation ( 29,819 ) ( 24,840 ) $ 42,826 $ 26,956 Depreciation expense was $ 5,985 , $ 4,801 , and $ 4,550 for the years ended December 31, 2021, 2020, and 2019, respectively. NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill The following table summarizes the changes in goodwill by segment: Outdoor Precision Sport Adventure Total Balance at December 31, 2019 $ - $ 18,090 $ - $ 18,090 Increase due to acquisition of Barnes - 8,625 - 8,625 Balance at December 31, 2020 $ - $ 26,715 $ - $ 26,715 Increase due to acquisitions of Rhino-Rack and MAXTRAX - - 92,805 92,805 Impact of foreign currency exchange rates - - ( 1,430 ) ( 1,430 ) Balance at December 31, 2021 $ - $ 26,715 $ 91,375 $ 118,090 57 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) 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 acquisitions of Rhino-Rack and MAXTRAX 83,355 Impact of foreign currency exchange rates ( 2,607 ) Balance at December 31, 2021 $ 128,271 Trademarks classified as indefinite-lived intangible assets by brand as of December 31, 2021 and 2020, were as follows: December 31, 2021 December 31, 2020 Black Diamond $ 19,600 $ 19,600 PIEPS 3,166 3,423 Sierra 18,900 18,900 Barnes 5,600 5,600 Rhino-Rack 70,278 – MAXTRAX 10,727 – $ 128,271 $ 47,523 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 acquisitions of Rhino-Rack and MAXTRAX 65,741 Impact of foreign currency exchange rates ( 1,900 ) Gross balance at December 31, 2021 $ 104,681 58 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Other intangible assets, net of amortization as of December 31, 2021 and 2020, were as follows: December 31, 2021 Gross Accumulated Amortization Net Weighted Average Useful Life Intangibles subject to amortization Customer relationships $ 80,078 $ ( 23,804 ) $ 56,274 13.8 years Product technologies 22,393 ( 5,557 ) 16,836 10.2 years Tradename / trademark 1,263 ( 690 ) 573 9.4 years Core technologies 947 ( 947 ) - 10.0 years $ 104,681 $ ( 30,998 ) $ 73,683 12.9 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 years ended December 31, 2021, 2020, and 2019, was $ 9,834 , $ 4,070 , and $ 3,552 , respectively. Future amortization expense for other intangible assets as of December 31, 2021 is as follows: Years Ending December 31, Amortization Expense 2022 $ 15,789 2023 13,384 2024 11,266 2025 9,113 2026 7,012 Thereafter 17,119 $ 73,683 NOTE 6. ACCRUED LIABILITIES AND OTHER LONG-TERM LIABILITIES Accrued liabilities as of December 31, 2021 and 2020, were as follows: December 31, 2021 December 31, 2020 Accrued payroll and related items $ 5,029 $ 2,807 Accrued bonus 3,615 1,535 Designated forward exchange contracts - 1,539 Accrued warranty 1,529 1,354 Current lease liabilities 2,824 973 Accrued commissions 811 475 Contingent consideration liabilities 2,791 - Accrued excise tax 724 331 Other 10,150 4,168 $ 27,473 $ 13,182 59 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Other long-term liabilities as of December 31, 2021 and 2020, were as follows: December 31, 2021 December 31, 2020 Long-term lease liability $ 15,111 $ 4,414 Deferred stock consideration for business acquisition 4,530 - Contingent consideration liability 694 - Other 1,113 214 $ 21,448 $ 4,628 NOTE 7. LONG-TERM DEBT, NET Long-term debt as of December 31, 2021 and 2020, was as follows: December 31, 2021 December 31, 2020 Revolving credit facility (a) $ 18,501 $ 15,579 Other debt (b) 1,467 1,042 Term loan (c) 121,874 18,000 Debt issuance costs ( 309 ) - 141,533 34,621 Less current portion ( 9,585 ) ( 4,000 ) $ 131,948 $ 30,621 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 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 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 . 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 December 31, 2021. (a) As of December 31, 2021, the Company had drawn $ 18,501 on the $ 100,000 revolving commitment that was available under the credit agreement with JPMorgan Chase Bank, N.A., with a maturity date of May 3, 2024 . The Company pays interest monthly on any borrowings on the Credit Agreement (as defined below). As of December 31, 2021 and 2020, the interest rate was 2.3750 % and 2.0625 %, respectively. 60 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) (b) Foreign subsidiaries of the Company have a revolving credit facility and term debt with financial institutions which mature between February 21, 2022 and August 8, 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 December 31, 2021, the interest rates ranged between 1.3387 % and 5.1651 % and as of December 31, 2020, the rate 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 December 31, 2021, the rate was 2.3752 %. 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 year ended December 31, 2021. The aggregate maturities of the revolving credit facility for the years subsequent to December 31, 2021 are as follows: 2022 $ 9,585 2023 13,602 2024 118,655 Total future long-term debt payments 141,842 Less amount representing debt discounts ( 309 ) Total carrying amount of long-term debt 141,533 Less current portion ( 9,585 ) Long-term debt obligations $ 131,948 NOTE 8. 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 year ended December 31, 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 year ended December 31, 2021, losses of $ 4,281 were recorded in other, net expense. At December 31, 2021, the Company’s derivative contracts had remaining maturities of less than one and one-half years . The counterparties to these transactions had both long-term and short-term investment grade credit ratings. The maximum net exposure of the Company’s credit risk to the counterparties is generally limited to the aggregate unrealized loss of all contracts with that counterparty. As of December 31, 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 $ 487 on all contracts as of December 31, 2021. The Company’s derivative counterparties have strong credit ratings and as a result, the Company does not require collateral to facilitate transactions. 61 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The Company held the following contracts designated as hedged instruments as of December 31, 2021 and 2020: December 31, 2021 Notional Latest Amount Maturity Foreign exchange contracts - Canadian Dollars $ 14,850 February 2023 Foreign exchange contracts - Euros € 20,104 February 2023 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 (loss) income and reclassified to sales in the period the underlying hedged transaction is recognized in earnings. Losses of $ 223 and $ 139 were reclassified to sales during the years ended December 31, 2021 and 2020, respectively. The following table presents the balance sheet classification and fair value of derivative instruments as of December 31, 2021 and 2020: Classification December 31, 2021 December 31, 2020 Derivative instruments in asset positions: Designated forward exchange contracts Prepaid and other current assets $ 491 $ - Forward exchange contracts Other long-term assets $ 20 $ - Derivative instruments in liability positions: Designated forward exchange contracts Accrued liabilities $ - $ 1,539 Designated forward exchange contracts Other long-term liabilities $ 24 $ 90 NOTE 9. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME Accumulated other comprehensive (loss) income (“AOCI”) primarily consists of foreign currency translation adjustments and changes in our forward foreign exchange contracts. The components of AOCI, net of tax, were as follows: Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of December 31, 2020 $ 1,480 $ ( 980 ) $ 500 Other comprehensive (loss) income before reclassifications ( 6,721 ) 1,000 ( 5,721 ) Amounts reclassified from other comprehensive (loss) income - 171 171 Net current period other comprehensive (loss) income ( 6,721 ) 1,171 ( 5,550 ) Balance as of December 31, 2021 $ ( 5,241 ) $ 191 $ ( 5,050 ) 62 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Foreign Currency Translation Adjustments Unrealized Gains (Losses) on Cash Flow Hedges Total Balance as of December 31, 2019 $ ( 286 ) $ ( 17 ) $ ( 303 ) Other comprehensive income (loss) before reclassifications 1,766 ( 1,069 ) 697 Amounts reclassified from other comprehensive (loss) income - 106 106 Net current period other comprehensive income (loss) 1,766 ( 963 ) 803 Balance as of December 31, 2020 $ 1,480 $ ( 980 ) $ 500 The effects on net income of amounts reclassified from unrealized gains (losses) on cash flow hedges for foreign exchange contracts and foreign currency translation adjustments for the years ended December 31, 2021 and 2020 were as follows: Losses reclassified from AOCI to the Consolidated Statements of Comprehensive Income Affected line item in the Consolidated Twelve Months Ended Statements of Comprehensive Income December 31, 2021 December 31, 2020 Foreign exchange contracts: Sales $ ( 223 ) $ ( 139 ) Less: Income tax benefit ( 52 ) ( 33 ) Amount reclassified, net of tax $ ( 171 ) $ ( 106 ) Total reclassifications from AOCI $ ( 171 ) $ ( 106 ) The Company’s policy is to classify reclassifications of cumulative foreign currency translation from AOCI to Other, net. NOTE 10. FAIR VALUE MEASUREMENTS We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1- inputs to the valuation methodology are quoted market prices for identical assets or liabilities in active markets. Level 2- inputs to the valuation methodology include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3- inputs to the valuation methodology are based on prices or valuation techniques that are unobservable. 63 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Assets and liabilities measured at fair value on a recurring basis at December 31, 2021 and 2020 were as follows: December 31, 2021 Level 1 Level 2 Level 3 Total Assets Designated forward exchange contracts $ - $ 511 $ - $ 511 $ - $ 511 $ - $ 511 Liabilities Designated forward exchange contracts $ - $ 24 $ - $ 24 Contingent consideration liabilities - - 3,485 3,485 $ - $ 24 $ 3,485 $ 3,509 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 December 31, 2021 and 2020. The Company estimated the fair value of the Contingent Consideration liabilities using a series of call options. Significant unobservable inputs used in the valuation include a discount rates ranging from 4.8 % to 8.0 %. The Contingent Consideration liabilities are remeasured at the estimated fair value at the end of each reporting period with the change in fair value recognized in contingent consideration benefit in the accompanying consolidated statements of comprehensive income 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. Detail of the Contingent Consideration for the year ended December 31, 2021: Increase due to acquisition of Rhino-Rack $ 3,565 Increase due to acquisition of MAXTRAX 1,644 Fair value adjustments ( 1,605 ) Impact of foreign currency exchange rates ( 119 ) Balance at December 31, 2021 $ 3,485 As the Contingent Consideration liabilities are remeasured to fair value each reporting period, significant increases or decreases in projected sales, 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 liabilities could change in future periods based on our ongoing evaluation of these significant unobservable inputs. 64 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) NOTE 11. STOCKHOLDERS’ EQUITY On August 6, 2018, the Company announced that its Board of Directors approved the initiation of a quarterly cash dividend program of $ 0.025 per share of the Company’s common stock (the “Quarterly Cash Dividend”) or $ 0.10 per share on an annualized basis. The declaration and payment of future Quarterly Cash Dividends is subject to the discretion of and approval of the Company’s Board of Directors. On May 1, 2020, the Company announced that, in light of the operational impact of the COVID-19 pandemic, its Board of Directors temporarily replaced its Quarterly Cash Dividend with a stock dividend (the “Quarterly Stock Dividend”). In 2021, 2020 and 2019 our total Quarterly Cash Dividends were $ 3,335 , $ 1,520 and $ 2,987 , respectively. In 2020, our total Quarterly Stock Dividends were $ 1,533 , which combined with our cash dividend in 2020 of $ 1,520 , resulted in total dividends in 2020 of $ 3,053 . On February 25, 2022 , the Company announced that its Board of Directors approved the payment on March 18, 2022 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 March 7, 2022 . On October 25, 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 which was fully exercised. 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 $ 80,264 . On September 25, 2020, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with three existing stockholders of the Company. Pursuant to the Purchase Agreement, the Company sold 900 shares of its common stock in a registered direct offering. The proceeds to the Company from this offering were $ 11,476 . NOTE 12. EARNINGS PER SHARE Basic earnings per share is computed by dividing earnings by the weighted average number of common shares outstanding during each period. Diluted earnings per share is computed by dividing earnings by the total of the weighted average number of shares of common stock outstanding during each period, plus the effect of dilutive outstanding stock options and unvested restricted stock grants. Potentially dilutive securities are excluded from the computation of diluted earnings per share if their effect is anti-dilutive to the loss from continuing operations. The following table is a reconciliation of basic and diluted shares of common stock outstanding used in the calculation of earnings per share: Year Ended December 31, 2021 2020 2019 Weighted average shares outstanding - basic 33,136 30,175 29,820 Effect of dilutive stock awards 2,509 1,050 1,173 Effect of dilutive deferred stock consideration for business acquisition 41 - - Weighted average shares outstanding - diluted 35,686 31,225 30,993 Net income per share: Basic $ 0.79 $ 0.18 $ 0.64 Diluted 0.73 0.18 0.61 For the years ended December 31, 2021, 2020, and 2019, equity awards of 509 , 868 , and 702 , respectively, were outstanding and anti-dilutive and therefore not included in the calculation of net income per share for these periods. NOTE 13. STOCK-BASED COMPENSATION PLAN Under the Company’s current 2015 Stock Incentive Plan (the “2015 Plan”), the Company’s Board of Directors (the “Board of Directors”) has flexibility to determine the type and amount of awards to be granted to eligible participants, who must be employees, directors, officers or consultants of the Company or its subsidiaries. The 2015 Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and restricted units. The aggregate number of shares of common stock that may be granted through awards under the 2015 Plan to any employee in any calendar year may not exceed 500 shares. The 2015 65 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Plan will continue in effect until December 2025 unless terminated sooner. As of December 31, 2021, the number of shares authorized and reserved for issuance under the 2015 Plan is 7,400 shares, subject to automatic annual increase equal to 5 % of the total number of shares of the Company’s outstanding common stock. Options Granted: During the year ended December 31, 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 year ended December 31, 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: 2021 2020 2019 Number of options 500 1,098 188 Option vesting period 1 - 3 Years 1 - 5 Years 1 - 3 Years Grant price (per share) $ 15.15 - $ 24.43 $ 9.99 - $ 16.93 $ 13.21 Dividend yield 0.41 % - 0.66 % 0.59 % - 1.00 % 0.76 % Expected volatility (a) 39.1 % - 43.6 % 40.9 % - 44.2 % 41.0 % - 41.2 % Risk-free interest rate 0.50 % - 1.02 % 0.41 % - 0.65 % 1.88 % - 1.93 % Expected life (years) (b) 5.31 - 6.00 5.31 - 6.50 5.31 - 6.00 Weighted average fair value (per share) $ 5.88 - $ 9.23 $ 3.72 - $ 6.89 $ 4.87 - $ 5.13 (a) Expected volatility is based upon the Company’s historical volatility. (b) The expected term was determined based upon the underlying terms of the awards and the category and employment history of employee award recipient. Using these assumptions, the fair value of the stock options granted during the years ended December 31, 2021, 2020, and 2019 was $ 3,239 , $ 5,310 , and $ 952 , respectively, which will be amortized as stock-based compensation expense over the vesting period of the options. Stock Award Granted: On September 14, 2020, the Company issued and granted to the Executive Chairman a stock award of 244 shares under the 2015 Plan, which vested immediately. The fair value of the stock award was calculated as of the date of grant using the closing market price. The grant date fair value of the stock award granted during the year ended December 31, 2020 was $ 3,314 , which was immediately recognized to selling, general and administrative expenses. 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 assumptions below. On August 27, 2020, the Company issued and granted to an employee a restricted stock award of 100 restricted shares under the 2015 Plan, of which 100 restricted shares will vest if, on or before August 27, 2023, the Fair Market Value (as defined in the Plan) of the Company’s common stock shall have equaled or exceeded $ 15.00 per share for twenty consecutive trading days. For computing the fair value of the 100 restricted shares with a market condition, the fair value of the restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below. During the year ended December 31, 2021, the market-based condition was met and the restricted shares became fully vested. On January 7, 2019, the Company issued and granted to an employee a restricted stock award of 350 restricted shares under the 2015 Plan, that will vest as follows: (A) the stock award will vest and become nonforfeitable if, on or before January 7, 2024, the closing 66 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) price of the Company’s common stock shall have equaled or exceeded $ 15.00 per share for twenty consecutive trading days (such 20th day being the “Price Trigger Date”); and (B) once the Price Trigger Date occurs, (i) 117 shares of the Company’s common stock shall vest on each of the first and second anniversary of the Price Trigger Date; and (ii) 116 shares of the Company’s common stock shall vest on the third anniversary of the Price Trigger Date. For computing the fair value of the 350 restricted shares with a market condition, the fair value of each restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below. During the year ended December 31, 2021, the market-based condition was met and the Price Trigger Date occurred. On January 7, 2019, the Company issued and granted to an employee a restricted stock award of 150 restricted shares under the 2015 Plan, that will vest as follows: (A) the stock award will vest and become nonforfeitable if, on or before January 7, 2024, the closing price of the Company’s common stock shall have equaled or exceeded $ 15.00 per share for twenty consecutive trading days (such 20th day being the Price Trigger Date); and (B) once the Price Trigger Date occurs, the shares shall equally vest on each of the first, second, third and fourth anniversary of the Price Trigger Date. For computing the fair value of the 150 restricted shares with a market condition, the fair value of each restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below. During the year ended December 31, 2021, the market-based condition was met and the Price Trigger Date occurred. May 28, 2021 August 27, 2020 January 7, 2019 Number issued 500 100 500 Vesting period $ 35.00 stock price target $ 15.00 stock price target $ 15.00 stock price target Grant price (per share) $ 23.69 $ 12.72 $ 10.21 Dividend yield 0.42 % 0.79 % 0.0 % Expected volatility 42.3 % 41.1 % 42.4 % Risk-free interest rate 0.30 % 0.19 % 2.53 % Expected term (years) 1.05 0.52 4.28 - 5.28 Weighted average fair value (per share) $ 14.46 $ 9.91 $ 7.92 Using these assumptions, the fair value of the market condition restricted stock awards granted on May 28, 2021, August 27, 2020, and January 7, 2019 were approximately $ 7,230 , $ 991 , and $ 3,753 , respectively. The total non-cash stock compensation expense related to stock options and restricted stock awards recorded by the Company was as follows: Year Ended December 31, 2021 2020 2019 Restricted stock awards $ 5,241 $ 1,488 $ 1,058 Stock options 4,236 1,989 1,891 Stock awards - 3,314 - Total $ 9,477 $ 6,791 $ 2,949 67 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) For the years ended December 31, 2021, 2020, and 2019, stock-based compensation costs were classified as selling, general and administrative expense. A summary of changes in outstanding options and restricted stock awards during the year ended December 31, 2021 is as follows: Options Weighted Average Exercise Price Aggregate Intrinsic Value Restricted Stock Awards Outstanding at December 31, 2020 3,901 $ 9.30 $ 23,802 600 Granted 500 16.93 500 Exercised or vested ( 222 ) 8.13 ( 100 ) Expired - - - Cancelled - - - Forfeited ( 38 ) - - Outstanding at December 31, 2021 4,141 $ 10.27 $ 72,265 1,000 Options exercisable at December 31, 2021 2,625 8.56 $ 50,290 The following table summarizes the exercise price range, weighted average exercise price, and remaining contractual lives by significant ranges for options outstanding and exercisable as of December 31, 2021: Remaining Life In Years Weighted Average Exercise Price Range Outstanding Exercisable Outstanding Exercisable Exercise Price $ 4.38 - $ 23.47 4,041 2,587 5.8 5.7 $ 8.33 $ 23.47 - $ 24.43 100 38 9.4 9.4 $ 24.43 4,141 2,625 6.1 5.9 $ 8.56 The intrinsic value of options exercised was $ 3,425 , $ 2,006 , and $ 607 during the years ended December 31, 2021, 2020, and 2019, respectively. The intrinsic value of restricted stock awards vested was $ 1,623 , $ 0 , and $ 3,252 during the years ended December 31, 2021, 2020, and 2019, respectively. Total fair value of options vested during the years ended December 31, 2021, 2020, and 2019 was $ 3,227 , $ 1,722 and $ 1,610 , respectively. Total fair value of restricted stock awards vested during the years ended December 31, 2021, 2020, and 2019 was $ 991 , $ 0 , and $ 919 , respectively. The fair value of unvested restricted stock awards is determined based on the market price of our shares of common stock on the grant date or using the Monte-Carlo pricing model. As of December 31, 2021, there were 1,516 unvested stock options and unrecognized compensation cost of $ 6,261 related to unvested stock options, as well as 1,000 unvested restricted stock awards and unrecognized compensation cost of $ 4,419 related to unvested restricted stock awards. Unrecognized compensation cost of unvested stock options and restricted stock awards are expected to be recognized over the weighted average period of 1.8 years and 0.8 years, respectively. NOTE 14. RESTRUCTURING As part of the conclusion of the Company’s review of strategic alternatives, the Company initiated restructuring activities in efforts to further realign resources within the organization (the “2015 Restructuring Plan”) and completed the plan in 2018 with a final payment in 2019. During the year ended December 31, 2019 we incurred $ 13 of restructuring charges related to the 2015 Restructuring Plan. We have incurred $ 2,694 of cumulative restructuring charges since the commencement of the 2015 Restructuring Plan. NOTE 15. 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 68 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) consolidated financial condition, results of operations or cash flows. There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect. NOTE 16. INCOME TAXES Consolidated income before income taxes consists of the following: Year Ended December 31, 2021 2020 2019 U.S. operations $ 16,947 $ 362 $ 8,553 Foreign operations ( 3,068 ) 3,223 1,428 Income before income tax $ 13,879 $ 3,585 $ 9,981 The components of the benefit for income taxes consist of the following: Year Ended December 31, 2021 2020 2019 Current: Federal $ 141 $ 34 $ ( 41 ) State and local 887 390 179 Foreign 2,057 863 111 3,085 1,287 249 Deferred: Federal 4,338 3,084 1,133 State and local 353 44 ( 156 ) Foreign ( 2,020 ) ( 91 ) 3,273 2,671 3,037 4,250 Change in valuation allowance for deferred income taxes ( 17,970 ) ( 6,284 ) ( 13,490 ) ( 15,299 ) ( 3,247 ) ( 9,240 ) Income tax benefit $ ( 12,214 ) $ ( 1,960 ) $ ( 8,991 ) The Company’s foreign operations that are considered to be permanently reinvested have statutory tax rates of approximately 25 % to 30 %. 69 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the Company’s financial statements: Year Ended December 31, 2021 2020 2019 Statutory income tax expense 21.0 % 21.0 % 21.0 % Increase (decrease) in income taxes resulting from: Foreign taxes 1.3 3.6 0.2 State income taxes, net of federal income taxes 10.1 10.2 1.9 Income tax credits ( 14.1 ) ( 17.1 ) ( 5.6 ) Incentive stock options ( 5.5 ) 9.9 ( 3.7 ) Change in effective state rate ( 0.5 ) 2.3 ( 0.1 ) Deferred tax asset write-offs - 73.1 31.4 Executive compensation limitation 7.3 15.6 - Change in valuation allowance ( 129.5 ) ( 175.4 ) ( 135.9 ) Research and development expenditure 1.7 - - Fair value inventory step-up 4.8 - - Transactions costs 10.2 - - Other 5.2 2.1 0.7 Income tax benefit ( 88.0 ) % ( 54.7 ) % ( 90.1 ) % The deferred tax asset write-offs relate to historical research and development tax credits and certain investments that were fully offset by a release in the valuation allowance. Deferred income tax assets and liabilities are determined based on the difference between the financial reporting carrying amounts and tax bases of existing assets and liabilities and operating loss and tax credit carryforwards. Significant components of the Company’s existing deferred income tax assets and liabilities as of December 31, 2021 and 2020 are as follows: December 31, 2021 2020 Deferred tax assets: Net operating loss, capital loss amount and research & experimentation credit carryforwards $ 26,530 $ 37,206 Non-cash compensation 2,576 1,528 Accrued liabilities 1,944 274 Reserves and other 6,885 1,462 Depreciation 4 - Intangibles 245 68 38,184 40,538 Valuation allowance ( 4,378 ) ( 22,348 ) Net deferred tax assets 33,806 18,190 Deferred tax liabilities: Depreciation ( 1,737 ) ( 1,074 ) Intangibles ( 44,814 ) ( 7,529 ) Other ( 102 ) 299 ( 46,653 ) ( 8,304 ) Total $ ( 12,847 ) $ 9,886 Certain deferred income tax balances are not netted as they represent deferred amounts applicable to different taxing jurisdictions. The Company has provided a valuation allowance against a portion of the deferred tax assets as of December 31, 2021, because the ultimate realization of those assets does not meet the more-likely-than-not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended. 70 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and net operating loss and credit carryforwards expire. The estimates and judgments associated with the Company’s valuation allowance on deferred tax assets are considered critical due to the amount of deferred tax assets recorded by the Company on its consolidated balance sheets and the judgment required in determining the Company’s potential for future taxable income. The need for a valuation allowance is reassessed at each reporting period. The net change in the valuation allowance for deferred income tax assets was ($ 17,970 ), ($ 6,284 ), and ($ 13,490 ) during the years ended December 31, 2021, 2020, and 2019, respectively. A roll forward of our valuation allowance for deferred income tax assets for the years ended December 31, 2021, 2020, and 2019 is as follows: Balance at Beginning of Year Charged to Costs and Expenses Other Adjustments Balance at End of Year 2019 $ 42,122 $ ( 13,473 ) $ ( 17 ) $ 28,632 2020 $ 28,632 $ ( 6,284 ) $ - $ 22,348 2021 $ 22,348 $ ( 17,970 ) $ - $ 4,378 As of December 31, 2021, the Company has net operating loss carryforwards (“NOLs”) and research and experimentation credit for U.S. federal income tax purposes of $ 60,712 and $ 2,289 , 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. There are $ 39,507 of NOLs that expire on December 31, 2022, which the Company expects to realize in their entirety in 2022. Therefore, the Company has eliminated any remaining valuation allowance associated with these NOLs during the year ended December 31, 2021. 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, 2021 Expiration Dates December 31, Net Operating Loss Amount 2022 $ 39,507 2023 5,712 2024 3,566 2025 and beyond 11,927 Total $ 60,712 Tax positions are recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. The Company conducts its business globally. As a result, the Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions and are subject to examination for the open tax years in the U.S. federal and state jurisdictions of 2015 through 2019 and in the foreign jurisdictions of 2007 through 2019. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019 is as follows: December 31, 2021 2020 2019 Balance, beginning of year $ 427 $ 561 $ 545 Additions for current year tax positions 143 87 77 Additions for prior year tax positions 237 12 11 Reductions for prior year tax positions ( 111 ) ( 233 ) ( 72 ) Balance, end of year $ 696 $ 427 $ 561 71 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Included in the balance of total unrecognized tax benefits at December 31, 2021 and 2020, are potential benefits of $ 696 and $ 427 , respectively, that if recognized, would affect the effective rate, subject to impact of valuation allowance, on income from continuing operations. Unrecognized tax benefits that reduce a net operating loss, similar tax loss or tax credit carryforward are presented as a reduction to deferred income taxes. As a result, the Company classified $ 250 and $ 292 of its unrecognized tax benefit as a reduction to deferred tax assets as of December 31, 2021 and 2020, respectively. Interest and penalty expense recognized related to uncertain tax positions were not significant during the years ending December 31, 2021, 2020, and 2019, respectively. Total accrued interest and penalties as of December 31, 2021 and 2020, were not significant. NOTE 17. 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 Outdoor segment, formerly known as 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 Outdoor segment offers a broad range of products including: high-performance, activity-based apparel (such as shells, insulation, midlayers, pants and logowear); rock-climbing footwear and equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; trekking poles; headlamps and lanterns; gloves and mittens; and skincare and other sport-enhancing products. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes.  Our Precision Sport segment, formerly known as 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 Adventure segment, formerly known as our Rhino-Rack segment, which includes Rhino-Rack and MAXTRAX, is a manufacturer of highly-engineered automotive roof racks, trays, mounting systems, luggage boxes, carriers, recovery boards 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, precision 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 precision sport product category represents the Precision Sport segment revenue and the adventure product category represents the Adventure segment revenue. 72 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Financial information for our segments, as well as revenue by geography, which the Company believes provides a meaningful depiction how the nature, timing and uncertainty of revenue are affected by economic factors, is as follows: Year Ended December 31, 2021 2020 2019 Sales to external customers: Outdoor Domestic sales $ 112,775 $ 86,717 $ 100,294 International sales 108,057 84,514 99,652 Total Outdoor 220,832 171,231 199,946 Precision Sport Domestic sales 101,059 45,509 21,457 International sales 8,764 7,267 8,034 Total Precision Sport 109,823 52,776 29,491 Adventure Domestic sales 12,044 - - International sales 33,095 - - Total Adventure 45,139 - - Total sales to external customers 375,794 224,007 229,437 Segment operating income: Outdoor 16,171 5,933 15,553 Precision Sport 34,224 12,924 4,008 Adventure ( 2,196 ) - - Total segment operating income 48,199 18,857 19,561 Restructuring charge - - ( 13 ) Transaction costs ( 11,843 ) ( 2,433 ) ( 166 ) Contingent consideration benefit 1,605 - - Corporate and other expenses ( 21,143 ) ( 11,578 ) ( 8,043 ) Interest expense, net ( 2,939 ) ( 1,261 ) ( 1,358 ) Income before income tax $ 13,879 $ 3,585 $ 9,981 There were no intercompany sales between the Outdoor, Precision Sport, and Adventure segments for the periods presented. Total assets by segment, as of December 31, 2021 and 2020, were as follows: December 31, 2021 2020 Outdoor $ 166,751 $ 141,746 Precision Sport 142,549 113,430 Adventure 298,364 - Corporate 24,163 25,515 $ 631,827 $ 280,691 73 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) Capital expenditures, depreciation and amortization by segment is as follows. Year Ended December 31, 2021 2020 2019 Capital expenditures: Outdoor $ 3,120 $ 3,376 $ 2,636 Precision Sport 13,486 2,035 1,480 Adventure 777 - - Total capital expenditures $ 17,383 $ 5,411 $ 4,116 Depreciation: Outdoor $ 2,888 $ 2,782 $ 2,645 Precision Sport 2,633 2,019 1,905 Adventure 464 - - Total depreciation $ 5,985 $ 4,801 $ 4,550 Amortization: Outdoor $ 1,030 $ 1,061 $ 1,111 Precision Sport 3,753 3,009 2,441 Adventure 5,051 - - Total amortization $ 9,834 $ 4,070 $ 3,552 NOTE 18. LEASES The Company has entered into leases for certain facilities, vehicles and other equipment. Our leases have remaining contractual terms of up to nine years , some of which include options to extend the leases for up to five years . Our lease costs are primarily related to facility leases for inventory warehousing, administration offices and vehicles. The Company’s finance leases are immaterial. Lease ROU assets and liabilities as of December 31, 2021 and 2020, were as follows: Balance Sheet Classification December 31, 2021 December 31, 2020 Assets Lease ROU assets Other long-term assets $ 17,637 $ 5,334 Liabilities Current lease liabilities Accrued liabilities $ 2,824 $ 973 Noncurrent lease liabilities Other long-term liabilities $ 15,111 $ 4,414 Lease costs were as follows: Affected line item in the Consolidated Year Ended Statements of Comprehensive Income December 31, 2021 December 31, 2020 Lease costs Cost of goods sold, Selling, general and administrative $ 2,611 $ 940 Variable lease costs Cost of goods sold, Selling, general and administrative 642 194 Short-term lease costs Cost of goods sold, Selling, general and administrative 183 189 $ 3,436 $ 1,323 74 CLARUS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (in thousands, except per share amounts) The maturity of lease liabilities as of December 31, 2021 are as follows: Years Ending December 31, Lease Payments 2022 $ 3,319 2023 3,103 2024 3,017 2025 3,091 2026 2,288 Thereafter 5,078 Total future lease payments 19,896 Less: amount representing interest ( 1,961 ) Present value of future lease payments 17,935 Less: current lease obligations ( 2,824 ) Long-term lease obligations $ 15,111 As of December 31, 2021, our leases have a weighted-average remaining lease term of 6.59 years and a weighted-average discount rate of 2.81 %. NOTE 19. RELATED PARTY TRANSACTIONS As part of the Rhino-Rack Acquisition, on July 1, 2021, the Company paid a fee in the amount of $ 1,750 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. 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 paid a fee in the amount of $ 250 to Kanders & Company in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, and negotiating Amendment No. 3. On October 25, 2021 , the Company paid a fee in the amount of $ 500 to Kanders & Company in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, and negotiating the public offer and sale of the Company’s common stock. On September 25, 2020, the Company paid a fee in the amount of $ 250 to Kanders & Company in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, and negotiating the sale of the Company’s common stock in a registered direct offering . Upon the Company’s acquisition of Barnes, on October 2, 2020, the Company paid a fee in the amount of $ 500 to Kanders & Company, which is included in transaction costs, in consideration of the significant support received by the Company from Kanders & Company in sourcing, structuring, performing due diligence and negotiating the acquisition of Barnes. NOTE 20. SUBSEQUENT EVENT On January 3, 2022, the Company entered into Amendment No. 4 to the Credit Agreement (“Amendment No. 4”). 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). 75 CLARUS CORPORATION ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.