Company Quick10K Filing
Quick10K
Clarus
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$13.79 30 $412
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-05 Shareholder Vote
8-K 2019-05-06 Earnings, Exhibits
8-K 2019-01-25 Other Events, Exhibits
8-K 2019-01-22 Earnings, Exhibits
8-K 2018-11-05 Earnings, Exhibits
8-K 2018-08-06 Earnings, Exhibits
8-K 2018-06-27 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2018-06-07 Shareholder Vote
8-K 2018-06-07 Accountant, Exhibits
8-K 2018-03-09 Enter Agreement, Officers, Exhibits
LB L Brands 6,670
SKX Skechers 4,630
RMR RMR Group 1,730
HYRE Hyrecar 61
KGJI Kingold Jewelry 56
MODD Modular Medical 0
NEIK Northstar Electronics 0
C471 Nestor Partners 0
FKYS First Keystone 0
SPRS Surge Components 0
CLAR 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Note 1. Nature of Operations and Summary of Significant Accounting Policies
Note 2. Inventories
Note 3. Property and Equipment
Note 4. Other Intangible Assets
Note 5. Long-Term Debt
Note 6. Derivative Financial Instruments
Note 7. Accumulated Other Comprehensive Income
Note 8. Fair Value Measurements
Note 9. Earnings per Share
Note 10. Stock-Based Compensation Plan
Note 11. Commitments and Contingencies
Note 12. Income Taxes
Note 13. Segment Information
Note 14. Leases
Note 15. Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 5. Other Information
Item 6. Exhibits
EX-10.2 tv520615_ex10-2.htm
EX-10.3 tv520615_ex10-3.htm
EX-31.1 tv520615_ex31-1.htm
EX-31.2 tv520615_ex31-2.htm
EX-32.1 tv520615_ex32-1.htm
EX-32.2 tv520615_ex32-2.htm

Clarus Earnings 2019-03-31

CLAR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv520615_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended: March 31, 2019

 

or

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _________ to _________

 

Commission File Number: 001-34767

 

CLARUS CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware 58-1972600

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

2084 East 3900 South

Salt Lake City, Utah

  84124
(Address of principal executive offices)   (Zip code)

 

(801) 278-5552
(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨   Non-accelerated filer ¨
         
Accelerated filer x   Smaller reporting company x
         
      Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, par value $.0001 per share CLAR NASDAQ Global Select Market

 

As of May 1, 2019, there were 29,890,993 shares of common stock, par value $0.0001, outstanding.

 

 

 

 

 

 

INDEX

 

CLARUS CORPORATION

 

  Page
PART I FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited)  
     
  Condensed Consolidated Balance Sheets – March 31, 2019 and December 31, 2018 3
     
  Condensed Consolidated Statements of Comprehensive Income – Three months ended March 31, 2019 and 2018 4
     
  Condensed Consolidated Statements of Cash Flows – Three months ended March 31, 2019 and 2018 5
     
  Condensed Consolidated Statements of Stockholders’ Equity – Three months ended March 31, 2019 and 2018 6
     
  Notes to Condensed Consolidated Financial Statements – March 31, 2019 7
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
     
Item 4. Controls and Procedures 26
     
PART II OTHER INFORMATION  
     
Item 1. Legal Proceedings 27
     
Item 1A. Risk Factors 27
     
Item 5. Other Information 27
     
Item 6. Exhibits 30
     
Signature Page 31

 

 2 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CLARUS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

   March 31, 2019   December 31, 2018 
Assets          
Current assets          
Cash  $2,522   $2,486 
Accounts receivable, less allowance for doubtful accounts of $569 and $392, respectively   37,634    35,943 
Inventories   62,091    64,933 
Prepaid and other current assets   5,245    5,115 
Income tax receivable   -    24 
Total current assets   107,492    108,501 
           
Property and equipment, net   23,163    23,401 
Other intangible assets, net   18,483    19,416 
Indefinite lived intangible assets   41,633    41,694 
Goodwill   18,090    18,090 
Other long-term assets   3,300    2,026 
Total assets  $212,161   $213,128 
           
Liabilities and Stockholders' Equity          
Current liabilities          
Accounts payable and accrued liabilities  $20,293   $21,489 
Income tax payable   189    210 
Current portion of long-term debt   -    41 
Total current liabilities   20,482    21,740 
           
Long-term debt   18,271    22,105 
Deferred income taxes   2,979    2,919 
Other long-term liabilities   860    159 
Total liabilities   42,592    46,923 
           
Stockholders' Equity          
Preferred stock, $.0001 par value; 5,000 shares authorized; none issued   -    - 
Common stock, $.0001 par value; 100,000 shares authorized; 33,244 and 33,244 issued and 29,748 and 29,748 outstanding, respectively   3    3 
Additional paid in capital   489,189    488,404 
Accumulated deficit   (301,536)   (304,577)
Treasury stock, at cost   (18,102)   (18,102)
Accumulated other comprehensive income   15    477 
Total stockholders' equity   169,569    166,205 
Total liabilities and stockholders' equity  $212,161   $213,128 

 

See accompanying notes to condensed consolidated financial statements.

 

 3 

 

 

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share amounts)

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
         
Sales          
Domestic sales  $30,589   $25,654 
International sales   30,629    27,613 
Total sales   61,218    53,267 
           
Cost of goods sold   39,162    35,440 
Gross profit   22,056    17,827 
           
Operating expenses          
Selling, general and administrative   17,580    17,128 
Restructuring charge   13    40 
Transaction costs   46    165 
           
Total operating expenses   17,639    17,333 
           
Operating income   4,417    494 
           
Other (expense) income          
Interest expense   (310)   (254)
Other, net   (23)   121 
           
Total other expense, net   (333)   (133)
           
Income before income tax   4,084    361 
Income tax expense (benefit)   297    (42)
Net income   3,787    403 
           
Other comprehensive (loss) income, net of tax:          
Foreign currency translation adjustment   (373)   625 
Unrealized (loss) income on hedging activities   (89)   89 
Other comprehensive (loss) income   (462)   714 
Comprehensive income  $3,325   $1,117 
           
Net income per share:          
Basic  $0.13   $0.01 
Diluted   0.12    0.01 
           
Weighted average shares outstanding:          
Basic   29,748    30,041 
Diluted   30,673    30,157 

 

See accompanying notes to condensed consolidated financial statements.

 

 4 

 

 

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
Cash Flows From Operating Activities:          
Net income  $3,787   $403 
           
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation of property and equipment   1,103    1,073 
Amortization of intangible assets   889    969 
Amortization of debt issuance costs   64    17 
Loss (gain) on disposition of property and equipment   31    (2)
Noncash lease expense   159    - 
Gain from removal of accumulated translation adjustment   -    (131)
Stock-based compensation   785    499 
Deferred income taxes   162    (150)
Other   -    (41)
Changes in operating assets and liabilities:          
Accounts receivable   (1,921)   (147)
Inventories   2,589    5,430 
Prepaid and other assets   (295)   (528)
Accounts payable and accrued liabilities   (1,655)   (10)
Income taxes   7    (127)
Net cash provided by operating activities   5,705    7,255 
           
Cash Flows From Investing Activities:          
Proceeds from disposition of property and equipment   1    2 
Purchase of property and equipment   (1,046)   (853)
Net cash used in investing activities   (1,045)   (851)
           
Cash Flows From Financing Activities:          
Proceeds from revolving credit facilities   51,941    18,790 
Repayments on revolving credit facilities   (55,732)   (24,894)
Repayments of long-term debt and capital leases   (31)   (10)
Cash dividends paid   (746)   - 
Net cash used in financing activities   (4,568)   (6,114)
           
Effect of foreign exchange rates on cash   (56)   50 
           
Change in cash   36    340 
Cash, beginning of period   2,486    1,856 
Cash, end of period  $2,522   $2,196 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid for income taxes  $75   $237 
Cash paid for interest  $258   $264 
Supplemental Disclosures of Non-Cash Investing and Financing Activities:          
Property and equipment purchased with accounts payable  $145   $247 
Property and equipment acquired through a capital lease  $-   $123 
Lease liabilities arising from obtaining right of use assets  $1,516   $- 

 

See accompanying notes to condensed consolidated financial statements.

 

 5 

 

 

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands)

  

                           Accumulated     
           Additional               Other   Total 
   Common Stock   Paid-In   Accumulated   Treasury Stock   Comprehensive   Stockholders' 
   Shares   Amount   Capital   Deficit   Shares   Amount   Income (Loss)   Equity 
                                 
Balance, December 31, 2017   32,917   $3   $485,285   $(310,390)   (2,875)  $(12,415)  $499   $162,982 
Net income   -    -    -    403    -    -    -    403 
Other comprehensive loss   -    -    -    -    -    -    714    714 
Stock compensation expense   -    -    499    -    -    -    -    499 
Balance, March 31, 2018   32,917   $3   $485,784   $(309,987)   (2,875)  $(12,415)  $1,213   $164,598 

 

                           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   -    -    -    3,787    -    -    -    3,787 
Other comprehensive loss   -    -    -    -    -    -    (462)   (462)
Cash dividends ($0.025 per share)   -    -    -    (746)   -    -    -    (746)
Stock compensation expense   -    -    785    -    -    -    -    785 
Balance, March 31, 2019   33,244   $3   $489,189   $(301,536)   (3,496)  $(18,102)  $15   $169,569 

 

See accompanying notes to condensed consolidated financial statements.

 

 6 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited condensed consolidated financial statements of Clarus Corporation and subsidiaries (which may be referred to as the “Company,” “Clarus,” “we,” “us” or “our”) as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments, except otherwise disclosed) necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. The results of the three months ended March 31, 2019 are not necessarily indicative of the results to be obtained for the year ending December 31, 2019. These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the Securities and Exchange Commission (the “SEC”).

 

Clarus, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (which may be referred to as “Black Diamond Equipment”) and Gregory Mountain Products, LLC (which may be referred to as “Gregory Mountain Products” or “Gregory”) in May 2010 and changed its name to Black Diamond, Inc. in January 2011. In July 2012, we acquired POC Sweden AB and its subsidiaries (collectively, “POC”) and in October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”).

 

On July 23, 2014, the Company completed the sale of certain assets to Samsonite LLC comprising Gregory Mountain Products’ business. On October 7, 2015, the Company sold its equity interests in POC.

 

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 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 April 26, 2019, the Company announced that its Board of Directors approved the payment on May 17, 2019 of the Quarterly Cash Dividend to the record holders of shares of the Company’s common stock as of the close of business on May 3, 2019.

 

On November 6, 2018, the Company acquired the assets of SKINourishment, Inc. (“SKINourishment”).

 

Nature of Business

 

Headquartered in Salt Lake City, Utah, Clarus, a company focused on the outdoor and consumer industries, is seeking opportunities to acquire and grow businesses that can generate attractive shareholder returns. The Company has substantial net operating tax loss carryforwards which it is seeking to redeploy to maximize shareholder value. Clarus’ primary business is as a leading developer, manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb, ski, mountain, sport and skincare markets. The Company’s products are principally sold under the Black Diamond®, Sierra®, PIEPS® and SKINourishment® brand names through specialty and online retailers, distributors and original equipment manufacturers throughout the U.S. and internationally.

 

Through our Black Diamond, PIEPS, and SKINourishment brands, we offer a broad range of products including: high performance activity-based apparel (such as shells, insulation, midlayers, pants and logowear); rock-climbing footwear and equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; trekking poles; headlamps and lanterns; gloves and mittens; and skincare and other sport-enhancing products. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes. Through our Sierra brand, we manufacture a wide range of high-performance bullets and ammunition for both rifles and pistols that are used for precision target shooting, hunting and military and law enforcement purposes.

 

Use of Estimates

 

The preparation of financial statements in conformity with 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 purchase price allocation, excess or obsolete inventory, valuation of deferred tax assets, and valuation of goodwill, long-lived assets and other intangible assets. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

 

 7 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Significant Accounting Policies

 

Lease Accounting

 

On January 1, 2019, the Company adopted Accounting Standards Codification (“ASC”) Topic 842, Leases, and elected the prospective method which was applied to all leases in effect as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under the new guidance, while prior period amounts are not adjusted and continue to be presented in accordance with ASC Topic 840, Leases.

 

Under the new guidance, lessees are required to recognize a lease liability and a right-of-use (“ROU”) asset for all leases with terms greater than 12 months. Leases are now classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Classification is based upon the underlying asset’s existence, nature and timing of ownership transfer in the related lease. Leases previously defined as operating leases record lease expense based upon the related ROU asset amortization and lease liability interest expense using the interest method over the life of the lease. Leases previously defined as capital leases are now classified as a finance lease with no material changes to the accounting methodology.

 

ASC 842 provides new guidance that resulted in recording the present value of ROU assets and related lease liabilities for the Company’s outstanding operating leases over the remaining lease term at January 1, 2019 totaling $1,516.

 

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 nonlease components, such as common area maintenance and other services provided by the lessor, and other charges such as utilities, insurance and property taxes included in the lease.  Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term. Nonlease components are excluded from the 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.

 

Certain of the leases contain extension options of one to five years. At January 1, 2019, the Company is uncertain as to whether the extension options will be executed. Accordingly, no extension options were considered in the present value computations of the ROU assets or related lease liabilities.

 

The Company elected the package of practical expedients in transition for leases that commenced prior to January 1, 2019, whereby these contracts were not reassessed or reclassified from their previous assessments as of December 31, 2018. We also elected certain other practical expedients in transition, including not reassessing existing land easements as lease contracts. The Company has also elected to not record the ROU assets and related liabilities for outstanding leases as of January 1, 2019 with a remaining term of 12 months or less. In these cases, the Company recognizes a lease payment as an expense on a straight-line basis. See Note 14. Leases for the financial position impact and additional disclosures.

 

Accounting Pronouncements adopted during 2019

 

On January 1, 2019, the Company early adopted Accounting Standards Update (“ASU”) 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment as permitted. The standard simplifies the accounting for goodwill impairment by requiring a goodwill impairment to be measured using a single step impairment model, whereby the impairment equals the difference between the carrying amount and the fair value of the specified reporting units in their entirety. This eliminates the second step of the current impairment model that requires companies to first estimate the fair value of all assets in a reporting unit and measure impairments based on those fair values and a residual measurement approach. It also specifies that any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This ASU was adopted on a prospective basis with no impact to the Company’s consolidated financial statements.

 

 8 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

On January 1, 2019, the Company adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU was adopted on a prospective basis. This standard enables entities to better portray the economics of their risk management activities in the financial statements and enhances the transparency and understandability of hedge results through improved disclosures. The adoption of this guidance did not impact the Company’s consolidated financial statements and related disclosures.

 

On January 1, 2019, the Company adopted ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. Adoption of this ASU did not impact the beginning retained earnings on January 1, 2019. The adoption of this guidance did not impact the Company’s consolidated financial statements and related disclosures.

 

NOTE 2. INVENTORIES

 

Inventories, as of March 31, 2019 and December 31, 2018, were as follows:

 

   March 31, 2019   December 31, 2018 
         
Finished goods  $47,278   $51,626 
Work-in-process   6,887    6,221 
Raw materials and supplies   7,926    7,086 
   $62,091   $64,933 

 

NOTE 3. PROPERTY AND EQUIPMENT

 

Property and equipment, net as of March 31, 2019 and December 31, 2018, were as follows:

 

   March 31, 2019   December 31, 2018 
         
Land  $3,160   $3,160 
Building and improvements   6,889    6,870 
Furniture and fixtures   4,635    4,376 
Computer hardware and software   4,932    4,863 
Machinery and equipment   20,870    21,004 
Construction in progress   1,421    1,761 
    41,907    42,034 
Less accumulated depreciation   (18,744)   (18,633)
   $23,163   $23,401 

  

 9 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 4. OTHER INTANGIBLE ASSETS

 

Goodwill

 

There were no changes in the balances in goodwill from the prior period. The following table summarizes the balances in goodwill by segment:

 

   Black Diamond   Sierra   Total 
             
Balance at December 31, 2018  $-   $18,090   $18,090 
                
Balance at March 31, 2019  $-   $18,090   $18,090 

 

Indefinite Lived Intangible Assets

 

The Company’s indefinite lived intangible assets consist of certain tradenames and trademarks that provide Black Diamond Equipment, PIEPS and Sierra with the exclusive and perpetual rights to manufacture and sell their respective products. Tradenames and trademarks are not amortized, but reviewed annually for impairment or upon the existence of a triggering event. The following table summarizes the changes in indefinite lived intangible assets:

 

Balance at December 31, 2018  $41,694 
      
Impact of foreign currency exchange rates   (61)
      
Balance at March 31, 2019  $41,633 

 

Other Intangible Assets, net

 

The Company’s other intangible assets, such as certain customer lists and relationships, product technologies, tradenames, trademarks and core technologies, are amortizable over their estimated useful lives. The following table summarizes the changes in gross other intangible assets:

 

Gross balance at December 31, 2018  $33,010 
      
Impact of foreign currency exchange rates   (88)
      
Gross balance at March 31, 2019  $32,922 

 

Other intangible assets, net of amortization as of March 31, 2019 and December 31, 2018, were as follows:

 

   March 31, 2019   December 31, 2018 
         
Customer lists and relationships  $25,998   $26,047 
Product technologies   4,714    4,753 
Tradename / trademark   1,263    1,263 
Core technologies   947    947 
    32,922    33,010 
Less accumulated amortization   (14,439)   (13,594)
   $18,483   $19,416 

 

 10 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 5. LONG-TERM DEBT

 

Long-term debt as of March 31, 2019 and December 31, 2018, was as follows:

 

   March 31, 2019   December 31, 2018 
         
Revolving credit facility (a)  $18,271   $22,062 
Other   -    84 
    18,271    22,146 
Less current portion   -    (41)
   $18,271   $22,105 

 

(a)As of March 31, 2019, the Company had drawn $18,271 on the approximately $50,000 of the revolving commitment that was available under the credit agreement with JPMorgan Chase Bank, N.A., with a maturity date of June 27, 2022. Approximately $32,000 was still available to borrow at March 31, 2019. The Company pays interest monthly on any borrowings on the Credit Agreement at London Inter-bank Offered Rate (“LIBOR”) plus 1.5% (3.9893% and 3.8493% as of March 31, 2019 and December 31, 2018, respectively), and an annual commitment fee of .25% on the unused portion of the commitment.

 

NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company’s primary exchange rate risk management objective is to mitigate the uncertainty of anticipated cash flows attributable to changes in foreign currency exchange rates. The Company primarily focuses on mitigating changes in cash flows resulting from sales denominated in currencies other than the U.S. dollar. The Company manages this risk primarily by using currency forward and option contracts. If the anticipated transactions are deemed probable, the resulting relationships are formally designated as cash flow hedges. The Company accounts for these contracts as cash flow hedges and tests effectiveness by determining whether changes in the expected cash flow of the derivative offset, within a range, changes in the expected cash flow of the hedged item.

 

At March 31, 2019, the Company’s derivative contracts had remaining maturities of approximately one year or less. The counterparty 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 counterparty is generally limited to the aggregate unrealized loss of all contracts with that counterparty. At March 31, 2019, there was no such exposure to the counterparty. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain of $667 on all contracts at March 31, 2019. The Company’s derivative counterparty has strong credit ratings and as a result, the Company does not require collateral to facilitate transactions.

 

The Company held the following contracts designated as hedged instruments as of March 31, 2019 and December 31, 2018:

 

   March 31, 2019
   Notional   Latest
   Amount   Maturity
        
Foreign exchange contracts - Canadian Dollars  $4,157   August 2019
Foreign exchange contracts - Euros  11,149   February 2020

 

   December 31, 2018
   Notional   Latest
   Amount   Maturity
        
Foreign exchange contracts - Canadian Dollars  $6,166   August 2019
Foreign exchange contracts - Euros  10,710   February 2020

 

For contracts that qualify as effective hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive income and reclassified to sales in the period the underlying hedged transaction is recognized in earnings. Gains (losses) of $281 and $(325) were reclassified to sales during the three months ended March 31, 2019 and 2018, respectively.

 

 11 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

The following table presents the balance sheet classification and fair value of derivative instruments as of March 31, 2019 and December 31, 2018:

 

   Classification  March 31, 2019   December 31, 2018 
            
Derivative instruments in asset positions:             
Forward exchange contracts  Prepaid and other current assets  $667   $729 
              
Derivative instruments in liability positions:             
Forward exchange contracts  Other long-term liabilities  $-   $5 

 

NOTE 7. ACCUMULATED OTHER COMPREHENSIVE INCOME

 

Accumulated other comprehensive 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, 2018  $73   $404   $477 
Other comprehensive income (loss) before reclassifications   (373)   168    (205)
Amounts reclassified from other comprehensive income (loss)   -    (257)   (257)
Net current period other comprehensive loss   (373)   (89)   (462)
Balance as of March 31, 2019  $(300)  $315   $15 

 

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 three months ended March 31, 2019, were as follows:

 

Affected line item in the Condensed Consolidated
Statements of Comprehensive Income
  Gains reclassified from AOCI to the Consolidated Statements of
Comprehensive Income
 
Foreign exchange contracts:     
Sales  $281 
Less: Income tax expense   24 
Amount reclassified, net of tax  $257 
      
Total reclassifications from AOCI  $257 

 

The Company’s policy is to classify reclassifications of cumulative foreign currency translation from AOCI to Other, net.

 

NOTE 8. FAIR VALUE MEASUREMENTS

 

We measure certain financial assets and liabilities at fair value on a recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

 

Level 1 - inputs to the valuation methodology are quoted market prices for identical assets or liabilities in active markets.

 

Level 2 - inputs to the valuation methodology include quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.

 

 12 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Level 3 - inputs to the valuation methodology are based on prices or valuation techniques that are unobservable.

 

Assets and liabilities measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018 were as follows:

 

   March 31, 2019 
   Level 1   Level 2   Level 3   Total 
                 
Assets                    
  Forward exchange contracts  $-   $667   $-   $667 
   $-   $667   $-   $667 

 

   December 31, 2018 
   Level 1   Level 2   Level 3   Total 
                 
Assets                    
  Forward exchange contracts  $-   $729   $-   $729 
   $-   $729   $-   $729 
                     
Liabilities                    
  Forward exchange contracts  $-   $5   $-   $5 
   $-   $5   $-   $5 

 

Derivative financial instruments are recorded at fair value based on current market pricing models. No nonrecurring fair value measurements existed at March 31, 2019 and December 31, 2018.

  

NOTE 9. 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:

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
         
Weighted average shares outstanding - basic   29,748    30,041 
Effect of dilutive stock awards   925    116 
Weighted average shares outstanding - diluted   30,673    30,157 
           
Net income per share:          
Basic  $0.13   $0.01 
Diluted   0.12    0.01 

 

For the three months ended March 31, 2019 and 2018, equity awards of 860 and 2,119, respectively, were outstanding and anti-dilutive and therefore not included in the calculation of earnings per share for these periods.

 

 13 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 10. STOCK-BASED COMPENSATION PLAN

 

Under the Company’s current 2015 Stock Incentive Plan (the “2015 Plan”), the Company’s Board of Directors (the “Board of Directors”) has flexibility to determine the type and amount of awards to be granted to eligible participants, who must be employees, directors, officers or consultants of the Company or its subsidiaries. The 2015 Plan allows for grants of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, and restricted units. The aggregate number of shares of common stock that may be granted through awards under the 2015 Plan to any employee in any calendar year may not exceed 500 shares. The 2015 Plan will continue in effect until December 2025 unless terminated sooner. 

 

During the three months ended March 31, 2019, the Company did not issue any stock options under the 2015 Plan to employees of the Company.

 

Market Condition Restricted Shares Granted:

 

On January 7, 2019, the Company issued and granted to an employee a restricted stock award of 350 restricted shares under the 2015 Plan, that will vest as follows: (A) the stock award will vest and become nonforfeitable if, on or before January 7, 2024, the closing price of the Company’s common stock shall have equaled or exceeded $15.00 per share for twenty consecutive trading days (such 20th day being the “Price Trigger Date”); and (B) once the Price Trigger Date occurs, (i) 117 shares of the Company’s common stock shall vest on each of the first and second anniversary of the Price Trigger Date; and (ii) 116 shares of the Company’s common stock shall vest on the third anniversary of the Price Trigger Date. For computing the fair value of the 350 restricted shares with a market condition, the fair value of each restricted stock award grant has been estimated as of the date of grant using the Monte-Carlo pricing model with the assumptions below.

 

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.

 

    January 7, 2019
     
Number issued   500
Vesting period   $15.00 stock price target
Grant price   $10.21
Expected volatility   42.4%
Risk-free interest rate   2.53%
Expected term (years)   4.28 - 5.28
Weighted average fair value   $7.92

 

Using these assumptions, the fair value of the market condition restricted stock awards granted on January 7, 2019 was approximately $3,962.

 

The total non-cash stock compensation expense related to restricted stock, stock options and stock awards recorded by the Company for the three months ended March 31, 2019 and 2018 was $785 and $499, respectively. For the three months ended March 31, 2019 and 2018, the majority of stock-based compensation costs were classified as selling, general and administrative expenses.

 

As of March 31, 2019, there were 1,598 unvested stock options and unrecognized compensation cost of $4,714 related to unvested stock options, as well as 850 unvested restricted stock awards and unrecognized compensation costs of $3,873 related to unvested restricted stock awards.

 

NOTE 11. COMMITMENTS AND CONTINGENCIES

 

The Company is involved in various legal disputes and other legal proceedings that arise from time to time in the ordinary course of business. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect.

 

 14 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 12. INCOME TAXES

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). As a result of the Tax Act, the U.S. federal corporate tax rate was reduced to 21%, effective January 1, 2018. In addition, the corporate Alternative Minimum Tax (“AMT”) was repealed and taxpayers with AMT credit carryovers in excess of their regular tax liability may have credits refunded over multiple years from 2018 to 2022.

 

The Company’s foreign operations that are considered to be permanently reinvested have statutory tax rates of approximately 25%.

 

The difference between the Company’s estimated effective tax rate and the U.S. federal statutory tax rate of 21% for the three months ended March 31, 2019, was primarily attributed to the release of an additional portion of the Company’s valuation allowance based on the Company’s forecasted pre-tax earnings for the year.

 

As of December 31, 2018, the Company’s gross deferred tax asset was $47,922. The Company had recorded a valuation allowance of $42,122, resulting in a net deferred tax asset of $5,800, before deferred tax liabilities of $8,719. The Company has provided a valuation allowance against a portion of the deferred tax assets as of December 31, 2018, because the ultimate realization of those assets did not meet the more likely than not criteria. The majority of the Company’s deferred tax assets consist of net operating loss carryforwards for federal tax purposes. If a change in control were to occur, these could be limited under Section 382 of the Internal Revenue Code of 1986 (“Code”), as amended.

 

In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and net operating loss and credit carryforwards expire. The estimates and judgments associated with the Company’s valuation allowance on deferred tax assets are considered critical due to the amount of deferred tax assets recorded by the Company on its consolidated balance sheet and the judgment required in determining the Company’s future taxable income. The need for a valuation allowance is reassessed at each interim reporting period.

 

As of December 31, 2018, the Company had net operating loss (“NOL”) and research and experimentation credit for U.S. federal income tax purposes of $141,067 and $3,791, respectively. The Company believes its NOL will offset some of its future U.S. federal income taxes. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F income and will be offset with the NOL.

 

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, 2018

 

Expiration Dates December 31,   Net Operating Loss Amount  
2021   $  5,495  
2022      115,000  
2023      5,712  
2024      3,566  
2025 and beyond      11,294  
Total   $  141,067  

 

 15 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 13. SEGMENT INFORMATION

 

As a result of our August 21, 2017 acquisition of Sierra, we operate our business structure within two segments. These segments are defined based on the internal financial reporting used by management. 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:

 

·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. Black Diamond segment offers a broad range of products including: high performance activity-based apparel (such as shells, insulation, midlayers, pants and logowear); rock-climbing footwear and equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; trekking poles; headlamps and lanterns; gloves and mittens; and skincare and other sport-enhancing products. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes.

 

·Sierra segment, which includes Sierra, is an iconic American manufacturer of a wide range of high-performance bullets and ammunition for both rifles and pistols. These bullets and ammunition are used for precision target shooting, hunting and military and law enforcement purposes.

 

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 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 at point of sale transactions. As noted above, the Company has a wide variety of technical outdoor equipment and lifestyle products focused on the climb, ski, mountain and sport product categories that are sold to a variety of customers in multiple end markets. While there are multiple products sold, the terms and nature of revenue recognition policy is similar for all segments. The sport product category represents the Sierra segment revenue.

 

We divide our product offerings into four primary categories of climb, mountain, ski and sport.  Revenue by category is as follows:

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
         
Climb   35%   36%
Mountain   31%   32%
Ski   20%   17%
Sport   14%   15%

 

Contract liabilities are recorded as a component of accounts payable and accrued liabilities when customers remit contractual cash payments in advance of us satisfying performance obligations which are satisfied at a future point of time. Contract liabilities were not material at March 31, 2019 and December 31, 2018. Contract liabilities are derecognized when the performance obligation is satisfied. Revenue recognized from satisfaction of performance obligations relating to the advanced payments during the three months ended March 31, 2019 was not material. No other material remaining performance obligations exist at March 31, 2019.

 

 16 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Financial information for our segments is as follows:

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
Sales to external customers:          
Black Diamond          
Domestic sales  $24,532   $19,271 
International sales   27,869    25,756 
Total Black Diamond   52,401    45,027 
Sierra          
Domestic sales   6,057    6,383 
International sales   2,760    1,857 
Total Sierra   8,817    8,240 
Total sales to external customers   61,218    53,267 
Segment operating income:          
Black Diamond   5,176    1,937 
Sierra   1,661    797 
Total segment operating income   6,837    2,734 
Restructuring charge   (13)   (40)
Transaction costs   (46)   (165)
Corporate and other expenses   (2,384)   (1,914)
Interest expense, net   (310)   (254)
Income before income tax  $4,084   $361 

 

There were no intercompany sales between the Black Diamond and Sierra segments for the periods presented. Restructuring charges for the periods presented relate to the Black Diamond segment.

 

Total assets by segment, as of March 31, 2019 and December 31, 2018, were as follows:

 

   March 31, 2019   December 31, 2018 
         
Black Diamond  $137,529   $138,029 
Sierra   72,473    72,796 
Corporate   2,159    2,303 
   $212,161   $213,128 

 

Capital expenditures, depreciation and amortization by segment is as follows.

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
Capital expenditures:          
Black Diamond  $764   $658 
Sierra   282    195 
Total capital expenditures  $1,046   $853 
Depreciation:          
Black Diamond  $611   $587 
Sierra   492    486 
Total depreciation  $1,103   $1,073 
Amortization:          
Black Diamond  $279   $275 
Sierra   610    694 
Total amortization  $889   $969 

 

 17 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

NOTE 14. LEASES

 

The Company has entered into leases for certain facilities, vehicles and other equipment. Our operating leases have remaining contractual terms of up to four years, some of which include options to extend the leases for up to five years. Our operating lease costs are primarily related to facility leases for inventory warehousing, administration offices and vehicles. The Company’s finance leases are immaterial.

 

Operating lease ROU assets and liabilities as of March 31, 2019 are as follows:

 

   Balance Sheet Classification  March 31, 2019 
        
Assets        
Operating lease ROU assets  Other long-term assets  $1,352 
         
Liabilities        
Current operating lease liabilties  Accounts payable and accrued liabilities  $640 
Noncurrent operating lease liabilities  Other long-term liabilities  $716 

 

Operating lease costs are as follows:

 

   Affected line item in the Condensed Consolidated  Three Months Ended 
   Statements of Comprehensive Income  March 31, 2019 
Lease costs  Cost of goods sold, Selling, general and administrative  $169 
Variable lease costs  Cost of goods sold, Selling, general and administrative   64 
Short-term lease costs  Cost of goods sold, Selling, general and administrative   62 
      $295 

 

The maturity of operating lease liabilities as of March 31, 2019 are as follows:

 

Years Ending December 31,  Future Minimum Lease
Payments
 
2019 (excluding the three months ended March 31, 2019)  $515 
2020   632 
2021   242 
2022   25 
Total future minimum lease payments   1,414 
Less: amount representing interest   (58)
Present value of future minimum lease payments   1,356 
Less: current lease obligations   (640)
Long-term lease obligations  $716 

 

As of March 31, 2019, our operating leases have a weighted-average remaining lease term of 2.2 years and a weighted-average discount rate of 3.85%. Total rent expense of the Company for the three months ended March 31, 2018 was $227 as determined prior to the adoption of ASU 842. Future minimum lease payments required under noncancelable operating leases that have initial or remaining noncancelable lease term in excess of one year at December 31, 2018 as determined prior to the adoption of ASU 842 are as follows:

 

 18 

 

 

CLARUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

(in thousands, except per share amounts)

 

Years Ending December 31,  Future Minimum Lease
Payments
 
2019  $687 
2020   634 
2021   243 
2022   24 
2023   - 
Thereafter   - 
   $1,588 

 

NOTE 15. SUBSEQUENT EVENT

 

Credit Agreement

 

On May 3, 2019, the Company together with certain of its direct and indirect domestic subsidiaries (the “Borrowers”) and the other loan parties party thereto entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto, for borrowings of up to $60,000 under a revolving credit facility (including up to $5,000 for letters of credit), and borrowings of up to $40,000 under a term loan facility that is available to be drawn until May 3, 2020. The Credit Agreement also permits the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $50,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Credit Agreement of up to $150,000. The Credit Agreement matures on May 3, 2024.

 

The Borrowers may elect to have the revolving and term loans under the Credit Agreement bear interest at an alternate base rate or a Eurodollar rate plus an applicable rate. The applicable rate for these borrowings will range from 0.50% to 1.25% per annum, in the case of alternate base rate borrowings, and 1.50% to 2.25% per annum, in the case of Eurodollar borrowings. The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of Eurodollar borrowings, however, it may be adjusted from time to time based upon the level of the Company’s consolidated total leverage ratio. The Credit Agreement also requires the Borrowers to pay a commitment fee on the unused portion of the revolving and term loan commitments. Such commitment fee will range between 0.15% and 0.25% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio.

 

On May 3, 2019, concurrent with entering into the Credit Agreement, the 2018 Credit Agreement, which provided for a revolving commitment of up to $75,000, was terminated.

 

 19 

 

 

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

Please note that in this Quarterly Report on Form 10-Q Clarus Corporation (which may be referred to as the “Company,” “Clarus,” “we,” “our” or “us”) may use words such as “appears,” “anticipates,” “believes,” “plans,” “expects,” “intends,” “future” and similar expressions which constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based on our expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.

 

Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, the overall level of consumer demand on our products; general economic conditions and other factors affecting consumer confidence, preferences, and behavior; disruption and volatility in the global currency, capital and credit markets; the financial strength of the Company’s customers; the Company’s ability to implement its business strategy; the ability of the Company to execute and integrate acquisitions; changes in governmental regulation, legislation or public opinion relating to the manufacture and sale of bullets and ammunition by our Sierra segment, and the possession and use of firearms and ammunition by our customers; the Company’s exposure to product liability or product warranty claims and other loss contingencies; stability of the Company’s manufacturing facilities and suppliers; the Company’s ability to protect patents, trademarks and other intellectual property rights; any breaches of, or interruptions in, our information systems; fluctuations in the price, availability and quality of raw materials and contracted products as well as foreign currency fluctuations; our ability to utilize our net operating loss carryforwards; changes in tax laws and liabilities, tariffs, legal, regulatory, political and economic risks; and the Company’s ability to maintain a quarterly dividend. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to the Company as of the date of this Quarterly Report on Form 10-Q, and speak only as of the date hereof. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

 

Overview

 

Headquartered in Salt Lake City, Utah, Clarus, a company focused on the outdoor and consumer industries, is seeking opportunities to acquire and grow businesses that can generate attractive shareholder returns. The Company has substantial net operating tax loss carryforwards which it is seeking to redeploy to maximize shareholder value. Clarus’ primary business is as a leading developer, manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb, ski, mountain, sport and skincare markets. The Company’s products are principally sold under the Black Diamond®, Sierra®, PIEPS® and SKINourishment® brand names through specialty and online retailers, distributors and original equipment manufacturers throughout the U.S. and internationally.

 

Through our Black Diamond, PIEPS, and SKINourishment brands, we offer a broad range of products including: high performance activity-based apparel (such as shells, insulation, midlayers, pants and logowear); rock-climbing footwear and equipment (such as carabiners, protection devices, harnesses, belay devices, helmets, and ice-climbing gear); technical backpacks and high-end day packs; trekking poles; headlamps and lanterns; gloves and mittens; and skincare and other sport-enhancing products. We also offer advanced skis, ski poles, ski skins, and snow safety products, including avalanche airbag systems, avalanche transceivers, shovels, and probes. Through our Sierra brand, we manufacture a wide range of high-performance bullets and ammunition for both rifles and pistols that are used for precision target shooting, hunting and military and law enforcement purposes.

 

Clarus Corporation, incorporated in Delaware in 1991, acquired Black Diamond Equipment, Ltd. (which may be referred to as “Black Diamond Equipment”) and Gregory Mountain Products, LLC (which may be referred to as “Gregory Mountain Products” or “Gregory”) in May 2010 and changed its name to Black Diamond, Inc., in January 2011. In July 2012, we acquired POC Sweden AB and its subsidiaries (collectively, “POC”) and in October 2012, we acquired PIEPS Holding GmbH and its subsidiaries (collectively, “PIEPS”).

 

On July 23, 2014, the Company completed the sale of certain assets to Samsonite LLC comprising Gregory Mountain Product’s business. On October 7, 2015, the Company sold its equity interests in POC.

 

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CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

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 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 April 26, 2019, the Company announced that its Board of Directors approved the payment on May 17, 2019 of the Quarterly Cash Dividend to the record holders of shares of the Company’s common stock as of the close of business on May 3, 2019.

 

On November 6, 2018, the Company acquired the assets of SKINourishment, Inc.

 

Critical Accounting Policies and Use of Estimates

 

Management’s discussion of our financial condition and results of operations is based on the condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting periods. We continually evaluate our estimates and assumptions including those related to purchase price allocation, excess or obsolete inventory, valuation of deferred tax assets, and valuation of goodwill, long-lived assets and other intangible assets. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.

 

See “Significant Accounting Policies” in Note 1 to the notes to the unaudited condensed consolidated financial statements for discussion related to changes to our critical accounting policies including leases from the adoption of Accounting Standards Codification Topic 842. There have been no other significant changes to our critical accounting policies as described in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

Accounting Pronouncements Issued Not Yet Adopted

 

None.

 

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CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Results of Operations

 

Condensed Consolidated Three Months Ended March 31, 2019 Compared to Condensed Consolidated Three Months Ended March 31, 2018

 

The following presents a discussion of condensed consolidated operations for the three months ended March 31, 2019, compared with the condensed consolidated three months ended March 31, 2018.

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
         
Sales          
Domestic sales  $30,589   $25,654 
International sales   30,629    27,613 
Total sales   61,218    53,267 
           
Cost of goods sold   39,162    35,440 
Gross profit   22,056    17,827 
           
Operating expenses          
Selling, general and administrative   17,580    17,128 
Restructuring charge   13    40 
Transaction costs   46    165 
           
Total operating expenses   17,639    17,333 
           
Operating income   4,417    494 
           
Other (expense) income          
Interest expense   (310)   (254)
Other, net   (23)   121 
           
Total other expense, net   (333)   (133)
           
Income before income tax   4,084    361 
Income tax expense (benefit)   297    (42)
Net income  $3,787   $403 

 

Sales

 

Consolidated sales increased $7,951, or 14.9%, to $61,218 during the three months ended March 31, 2019, compared to consolidated sales of $53,267 during the three months ended March 31, 2018. The increase in sales was attributable to the increase in the quantity of new and existing climb, mountain, ski, and sport products sold during the period partially offset by a decrease in sales of $762 due to the strengthening of the U.S. dollar against foreign currencies during the three months ended March 31, 2019 compared to the prior period.

 

Consolidated domestic sales increased $4,935, or 19.2%, to $30,589 during the three months ended March 31, 2019, compared to consolidated domestic sales of $25,654 during the three months ended March 31, 2018. The increase in domestic sales was attributable to an increase in the quantity of new and existing climb, mountain, and ski products sold during the three months ended March 31, 2019. These increases were partially offset by a decrease in the quantity of new and existing sport products sold during the period.

 

Consolidated international sales increased $3,016, or 10.9%, to $30,629 during the three months ended March 31, 2019, compared to consolidated international sales of $27,613 during the three months ended March 31, 2018. The increase in international sales was attributable to the increase in the quantity of new and existing climb, mountain, ski, and sport products sold during the period partially offset by a decrease in sales of $762 due to the strengthening of the U.S. dollar against foreign currencies during the three months ended March 31, 2019 compared to the prior period.

 

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CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Cost of Goods Sold

 

Consolidated cost of goods sold increased $3,722, or 10.5%, to $39,162 during the three months ended March 31, 2019, compared to consolidated cost of goods sold of $35,440 during the three months ended March 31, 2018. The increase in cost of goods sold was attributable to an increase in the number of units sold and the mix of higher cost products sold.

 

Gross Profit

 

Consolidated gross profit increased $4,229 or 23.7%, to $22,056 during the three months ended March 31, 2019, compared to consolidated gross profit of $17,827 during the three months ended March 31, 2018. Consolidated gross margin was 36.0% during the three months ended March 31, 2019, compared to a consolidated gross margin of 33.5% during the three months ended March 31, 2018. Consolidated gross margin during the three months ended March 31, 2019, increased compared to the prior year due to a favorable product mix in higher margin products and channel distribution. Gross margin during the three months ended March 31, 2018 included a decrease in gross margin of 1.9% due to the sale of inventory that was recorded at its fair value in purchase accounting.

 

Selling, General and Administrative

 

Consolidated selling, general, and administrative expenses increased $452, or 2.6%, to $17,580 during the three months ended March 31, 2019, compared to consolidated selling, general and administrative expenses of $17,128 during the three months ended March 31, 2018. The increase in selling, general and administrative expenses was attributable to the Company’s continued investment in the brand related activities of sales, marketing and research and development in supporting its strategic initiatives around new product introduction and increasing brand equity. Stock compensation also increased $286 during the three months ended March 31, 2019 compared to the prior year.

 

Restructuring Charges

 

Consolidated restructuring expense decreased $27, or 67.5%, to $13 during the three months ended March 31, 2019, compared to consolidated restructuring expense of $40 during the three months ended March 31, 2018. Restructuring expenses incurred during the three months ended March 31, 2019, related to costs associated with the formal closure and liquidation of the Company’s Black Diamond Equipment manufacturing operations in Zhuhai, China.

 

Transaction Costs

 

Consolidated transaction expense decreased to $46 during the three months ended March 31, 2019, compared to consolidated transaction costs of $165 during the three months ended March 31, 2018, which consisted of expenses related to the Company’s acquisition of Sierra.

 

Interest Expense, net

 

Consolidated interest expense, net increased $56, or 22.0%, to $310 during the three months ended March 31, 2019, compared to consolidated interest expense, net, of $254 during the three months ended March 31, 2018. Interest expense recognized during the three months ended March 31, 2019 was primarily associated with the average outstanding debt amounts during the period.

 

Other, net

 

Consolidated other, net, decreased $144, or 119.0%, to expense of $23 during the three months ended March 31, 2019, compared to consolidated other, net income of $121 during the three months ended March 31, 2018. The decrease in other, net, was primarily attributable to an increase in remeasurement losses recognized on the Company’s foreign denominated accounts receivable and accounts payable. This increase was partially offset by gains on mark-to-market adjustments on non-hedged foreign currency contracts. During the three months ended March 31, 2018, the income was primarily related to recognition of cumulative translation adjustments due to the substantial liquidation of a foreign entity.

 

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CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Income Taxes

 

Consolidated income tax expense (benefit) decreased $339, or 807.1%, to expense of $297 expense during the three months ended March 31, 2019, compared to a consolidated income tax benefit of $42 during the same period in 2018. The tax expense recorded during the three months ended March 31, 2019 includes a discrete benefit associated with a release of a tax reserve of $63.

 

Our effective income tax rate was 7.3% for the three months ended March 31, 2019, compared to 11.6% for the same period in 2018. The primary reasons for the effective income tax rate changes are due to differing levels of income before income tax and discrete charges recorded during the respective periods. Factors that could cause our annual effective tax rate to differ materially from our quarterly effective tax rates include changes in the geographic mix of taxable income and discrete events that may occur.

 

Liquidity and Capital Resources

 

Condensed Consolidated Three Months Ended March 31, 2019 Compared to Condensed Consolidated Three Months Ended March 31, 2018

 

The following presents a discussion of cash flows for the condensed consolidated three months ended March 31, 2019 compared with the condensed consolidated three months ended March 31, 2018. Our primary ongoing funding requirements are for working capital, expansion of our operations (both organically and through acquisitions) and general corporate needs, as well as investing activities associated with the expansion into new product categories. We plan to fund these activities through a combination of our future operating cash flows and revolving credit facility. We believe that our liquidity requirements for at least the next 12 months will be adequately covered by cash provided by operations and our existing revolving credit facility. At March 31, 2019, we had total cash of $2,522, compared to a cash balance of $2,486 at December 31, 2018, which was substantially controlled by the Company’s U.S. entities. At March 31, 2019, the Company had $1,394 of the $2,522 in cash held by foreign entities, of which $622 is considered permanently reinvested.

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
         
Net cash provided by operating activities  $5,705   $7,255 
Net cash used in investing activities   (1,045)   (851)
Net cash used in financing activities   (4,568)   (6,114)
Effect of foreign exchange rates on cash   (56)   50 
Change in cash   36    340 
Cash, beginning of period   2,486    1,856 
Cash, end of period  $2,522   $2,196 

 

Net Cash From Operating Activities

 

Consolidated net cash provided by operating activities was $5,705 during the three months ended March 31, 2019, compared to $7,255 during the three months ended March 31, 2018. The decrease in net cash provided by operating activities during 2019 is primarily due to an increase in net operating assets, net of assets acquired or non-cash working capital of $5,893, partially offset by an increase to net income during the three months ended March 31, 2019, compared to the same period in 2018.

 

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CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Free cash flow, defined as net cash provided by operating activities less capital expenditures, was free cash flows generated of $4,659 during the three months ended March 31, 2019 compared to $6,402 during the same period in 2018. The Company believes that the non-GAAP measure, free cash flow, provides an understanding of the capital required by the Company to expand its asset base. A reconciliation of free cash flows to comparable GAAP financial measures is set forth below:

 

   Three Months Ended 
   March 31, 2019   March 31, 2018 
         
Net cash provided by operating activities  $5,705   $7,255 
Purchase of property and equipment   (1,046)   (853)
Free cash flow  $4,659   $6,402 

 

Net Cash From Investing Activities

 

Consolidated net cash used in investing activities was $1,045 during the three months ended March 31, 2019, compared to $851 during the three months ended March 31, 2018. The increase in cash used during the three months ended March 31, 2019 is due to an increase in purchases of property and equipment, compared to the same period in 2018.

 

Net Cash From Financing Activities

 

Consolidated net cash used in financing activities was $4,568 during the three months ended March 31, 2019, compared to $6,114 during the three months ended March 31, 2018. The decrease in cash used during the three months ended March 31, 2019 was primarily due to a decrease in net repayments to the revolving line of credit partially offset by dividend payments, compared to the same period in 2018.

 

Net Operating Loss

 

As of December 31, 2018, the Company had net operating loss (“NOL”) and research and experimentation credit for U.S. federal income tax purposes of $141,067 and $3,791, respectively. The Company believes its NOL will offset some of its future U.S. Federal income taxes. The majority of the Company’s pre-tax income is currently earned and expected to be earned in the U.S., or taxed in the U.S. as Subpart F income and will be offset with the NOL. None of the NOL available to offset taxable income will expire until 2021 or later, subject to compliance with Section 382 of the Internal Revenue Code of 1986, as amended.

 

As of December 31, 2018, the Company’s gross deferred tax asset was $47,922. The Company has recorded a valuation allowance of $42,122, resulting in a net deferred tax asset of $5,800, before deferred tax liabilities of $8,719. The Company has provided a valuation allowance against a portion of the net deferred tax assets as of December 31, 2018, 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.

 

Credit Agreement

 

On May 3, 2019, the Company together with certain of its direct and indirect domestic subsidiaries (the “Borrowers”) and the other loan parties party thereto entered into a Credit Agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto, for borrowings of up to $60,000 under a revolving credit facility (including up to $5,000 for letters of credit), and borrowings of up to $40,000 under a term loan facility that is available to be drawn until May 3, 2020. The Credit Agreement also permits the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $50,000 of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Credit Agreement of up to $150,000. The Credit Agreement matures on May 3, 2024.

 

The Borrowers may elect to have the revolving and term loans under the Credit Agreement bear interest at an alternate base rate or a Eurodollar rate plus an applicable rate. The applicable rate for these borrowings will range from 0.50% to 1.25% per annum, in the case of alternate base rate borrowings, and 1.50% to 2.25% per annum, in the case of Eurodollar borrowings. The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of Eurodollar borrowings, however, it may be adjusted from time to time based upon the level of the Company’s consolidated total leverage ratio. The Credit Agreement also requires the Borrowers to pay a commitment fee on the unused portion of the revolving and term loan commitments. Such commitment fee will range between 0.15% and 0.25% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio.

 

On May 3, 2019, concurrent with entering into the Credit Agreement, the 2018 Credit Agreement, which provided for a revolving commitment of up to $75,000, was terminated. As of March 31, 2019, the Company had drawn $18,271 on the approximately $50,000 of the revolving commitment that was available for borrowing.

 

 25 

 

 

CLARUS CORPORATION

MANAGEMENT DISCUSSION AND ANALYSIS

(in thousands, except per share amounts)

 

Off-Balance Sheet Arrangements

 

We do not engage in any transactions or have relationships or other arrangements with unconsolidated entities. These include special purpose and similar entities or other off-balance sheet arrangements. We also do not engage in energy, weather or other commodity-based contracts.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There has not been any material change in the market risk disclosure contained in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Executive Chairman and Chief Administrative Officer/Chief Financial Officer, its principal executive officer and principal financial officer, respectively, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15I and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of March 31, 2019, pursuant to Exchange Act Rule 13a-15. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, the Company’s Executive Chairman and Chief Administrative Officer/Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of March 31, 2019, were effective.

 

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting that occurred during the three months ended March 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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CLARUS CORPORATION

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Legal Proceedings

 

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 the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. It is possible that, as additional information becomes available, the impact on the Company of an adverse determination could have a different effect.

 

Litigation

 

The Company is involved in various lawsuits arising from time to time that the Company considers ordinary routine litigation incidental to its business. Amounts accrued for litigation matters represent the anticipated costs (damages and/or settlement amounts) in connection with pending litigation and claims and related anticipated legal fees for defending such actions, which legal fees are expensed as incurred. The costs are accrued when it is both probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are based upon the Company’s assessment, after consultation with counsel (if deemed appropriate), of probable loss based on the facts and circumstances of each case, the legal issues involved, the nature of the claim made, the nature of the damages sought and any relevant information about the plaintiffs and other significant factors that vary by case. When it is not possible to estimate a specific expected cost to be incurred, the Company evaluates the range of probable loss and records the minimum end of the range. Based on currently available information, the Company does not believe that it is reasonably possible that the disposition of any of the legal disputes the Company or its subsidiaries is currently involved in will have a material adverse effect upon the Company’s consolidated financial condition, results of operations or cash flows. There is a reasonable possibility of loss from contingencies in excess of the amounts accrued by the Company in the accompanying condensed consolidated balance sheets; however, the actual amounts of such possible losses cannot currently be reasonably estimated by the Company at this time. It is possible that, as additional information becomes available, the impact on the Company could have a different effect.

 

Product Liability

 

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.

 

Based on current information, there are no pending product liability claims and lawsuits of the Company, which the Company believes in the aggregate, will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

 

ITEM 1A. RISK FACTORS

 

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

ITEM 5. OTHER INFORMATION

 

Credit Agreement

 

On May 3, 2019, Clarus Corporation (the “Company”), Black Diamond Retail, Inc., Black Diamond Retail – Alaska, LLC, Sierra Bullets, L.L.C., SKINourishment, LLC (collectively with the Company, the “Borrowers”) and the other loan parties party thereto (together with the Borrowers, the “Loan Parties”) entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”), and the lenders from time to time party thereto. Each of the Loan Parties, other than the Company, is a direct or indirect subsidiary of the Company.

 

The Credit Agreement matures on May 3, 2024 and provides for borrowings of up to $60.0 million under a revolving credit facility (including up to $5.0 million for letters of credit), and borrowings of up to $40.0 million under a term loan facility. The Credit Agreement also permits the Borrowers, subject to certain requirements, to arrange with lenders for an aggregate of up to $50.0 million of additional revolving and/or term loan commitments (both of which are currently uncommitted), for potential aggregate revolving and term loan commitments under the Credit Agreement of up to $150.0 million.

 

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CLARUS CORPORATION

 

The term loan facility is available to be drawn until May 3, 2020 (the “Term Loan Funding Termination Date”). The proceeds from the term loan facility can only be used for certain permitted acquisitions, certain other acquisitions that have been previously communicated to the Administrative Agent, and for working capital and general corporate needs of the Borrowers and their subsidiaries in the ordinary course of business. The Credit Agreement also provides for quarterly amortization payments of outstanding term loans on the last business day of each March, June, September and December, commencing with the last business day of the first full fiscal quarter to occur after the Term Loan Funding Termination Date. These quarterly amortization payments will be equal to 5% of the original principal amount of all term loans outstanding as of the Term Loan Funding Termination Date.

 

The Borrowers may elect to have the revolving and term loans under the Credit Agreement bear interest at an applicable rate plus either:

 

(i)in the case of alternate base rate borrowings, a rate per annum generally equal to the greatest of:

 

(a)the prime rate in effect on such day;

 

(b)0.50% plus the greater of the Federal Reserve Bank of New York’s effective federal funds rate or the Federal Reserve Bank of New York’s overnight bank funding rate in effect on such day; and

 

(c)1.00% plus an adjusted London Interbank Offered Rate (“LIBOR”) for an interest period of one month that is subject to a 0.00% floor;

 

provided that, in certain circumstances where the alternate base rate is being used as an alternate rate of interest, the alternate base rate shall be determined only according to (a) and (b), and shall be subject to a 1.00% floor; or

 

(ii)in the case of Eurodollar borrowings, a rate generally equal to an adjusted LIBOR for the interest period relevant to such borrowing, subject to a 0.00% floor.

 

The applicable rate for these borrowings will range from 0.50% to 1.25% per annum, in the case of alternate base rate borrowings, and 1.50% to 2.25% per annum, in the case of Eurodollar borrowings. The applicable rate was initially 0.875% per annum, in the case of alternate base rate borrowings, and 1.875% per annum, in the case of Eurodollar borrowings, however, it may be adjusted from time to time based upon the level of the Company’s consolidated total leverage ratio, which is more fully discussed in the Credit Agreement. The Credit Agreement also requires the Borrowers to pay a commitment fee on the unused portion of the revolving and term loan commitments. Such commitment fee will range between 0.15% and 0.25% per annum, and is also based upon the level of the Company’s consolidated total leverage ratio, which is more fully discussed in the Credit Agreement.

 

The Credit Agreement contains customary affirmative and negative covenants, including limitations on the ability of the Company and its subsidiaries to perform the following, subject to certain customary exceptions, qualifications and “baskets”: (i) incur additional debt; (ii) create liens; (iii) engage in mergers, consolidations, certain divisions, liquidations or dissolutions other than in certain permitted instances as described in the Credit Agreement; (iv) substantially change the business conducted by the Company and its subsidiaries (v) make certain investments, loans, advances, guarantees and acquisitions other than in certain permitted instances as described in the Credit Agreement; (vi) sell assets; (vii) pay dividends or make distributions or other restricted payments if certain conditions in the Credit Agreement are not fulfilled; (viii) prepay other indebtedness; (ix) engage in certain transactions with affiliates; (x) enter into agreements that restrict dividends from subsidiaries or the ability of subsidiaries to grant liens upon their assets; (xi) amend certain charter documents and material agreements governing subordinated indebtedness; (xii) permit the consolidated total leverage ratio, which is to be determined for each quarter end on a trailing twelve month basis, from exceeding a limit of 3 to 1; and (xiii) permit the consolidated fixed charge coverage ratio, which is to be determined for each quarter end on a trailing twelve month basis, to be less than 1.25 to 1.

 

The Credit Agreement also contains customary events of default, including, but not limited to: (i) failure to pay amounts due under the Credit Agreement; (ii) materially incorrect representations and warranties; (iii) failure to comply with covenants; (iv) change of control; and (v) default under other indebtedness aggregating at least $1.0 million.

 

The obligations of each Loan Party under the Credit Agreement are unconditionally guaranteed by each other Loan Party. All obligations under the Credit Agreement, and the guarantees of those obligations (as well as banking services obligations and certain swap agreements), are secured by pledges and liens on 100% of the equity interests of domestic subsidiaries and 65% of the equity interests of certain foreign subsidiaries, the accounts receivable, inventory, intellectual property and certain other assets of the Loan Parties pursuant to the Pledge and Security Agreement (the “PSA”), dated as of May 3, 2019, by and among the Loan Parties and Administrative Agent. In addition, the Company has agreed to grant to the Administrative Agent, for the benefit of the lenders and within 90 days after May 3, 2019, a mortgage on the owned real property of the Loan Parties.

 

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CLARUS CORPORATION

 

On May 3, 2019, concurrent with entering into the Credit Agreement, the Company terminated the Credit Agreement (the “Terminated Credit Agreement”), dated as of June 27, 2018, by and among the Company, Black Diamond Equipment, Ltd., Black Diamond Retail, Inc., Sierra Bullets, L.L.C., the other loan parties party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time party thereto. The Terminated Credit Agreement provided for a revolving commitment of up to $75.0 million.

 

The foregoing summaries of the Credit Agreement, PSA and Terminated Credit Agreement do not purport to be complete and are subject to, and qualified in their entirety by, the full text of the Credit Agreement, PSA and Terminated Credit Agreement. Copies of the Credit Agreement and PSA are filed as Exhibits 10.2 and 10.3, respectively, to this Quarterly Report on Form 10-Q and incorporated herein by reference. A copy of the Terminated Credit Agreement is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 3, 2018, and incorporated herein by reference.

 

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CLARUS CORPORATION

 

ITEM 6. EXHIBITS

 

Exhibit   Description
     
10.1   Letter to ArrowMark Colorado Holdings, LLC dated January 25, 2019 (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 31, 2019 and incorporated herein by reference).
     
10.2   Credit Agreement, effective as of May 3, 2019, by and among the Company, Black Diamond Retail, Inc., Black Diamond Retail – Alaska, LLC, Sierra Bullets, L.L.C., SKINourishment, LLC, the other loan parties party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders from time to time party thereto. *
     
10.3   Pledge and Security Agreement, effective as of May 3, 2019, by and among the Company, Black Diamond Equipment, Ltd., Black Diamond Retail, Inc., Sierra Bullets, L.L.C., Everest/Sapphire Acquisition, LLC, BD European Holdings, LLC, SKINourishment, LLC, Black Diamond Retail – Alaska, LLC, the other grantors party thereto, and JPMorgan Chase Bank, N.A. *
     
31.1   Certification of Principal Executive Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
     
31.2   Certification of Principal Financial Officer pursuant to Rule 13a-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
     
32.1   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
     
32.2   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
     
101.INS   XBRL Instance Document *
     
101.SCH   XBRL Taxonomy Extension Schema Document *
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document*
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document *
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document *
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document *
     
*   Filed herewith
     
**   Furnished herewith

 

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CLARUS CORPORATION

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

      CLARUS CORPORATION
         
Date: May 6, 2019   By: /s/ Warren B. Kanders
        Name: Warren B. Kanders
        Title: Executive Chairman
        (Principal Executive Officer)

 

    By: /s/ Aaron J. Kuehne
        Name: Aaron J. Kuehne
       

Title: Chief Administrative Officer and

Chief Financial Officer

(Principal Financial Officer)

(Principal Accounting Officer)

 

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