Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014March 31, 2015
Or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                     
 
COMPASS DIVERSIFIED HOLDINGS
(Exact name of registrant as specified in its charter)
 Delaware 001-34927 57-6218917 
 
(State or other jurisdiction of
incorporation or organization)
 
(Commission
file number)
 
(I.R.S. employer
identification number)
 
 
COMPASS GROUP DIVERSIFIED HOLDINGS LLC
(Exact name of registrant as specified in its charter)
 
 Delaware 001-34926 20-3812051 
 
(State or other jurisdiction of
incorporation or organization)
 
(Commission
file number)
 
(I.R.S. employer
identification number)
 
Sixty One Wilton Road
Second Floor
Westport, CT 06880
(203) 221-1703
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
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  ý    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  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company’ in Rule 12b-2 of the Exchange Act
Large accelerated filer ¨ý Accelerated filer��ý¨
Non-accelerated filer ¨ Smaller Reporting Company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

As of NovemberMay 1, 2014,2015, there were 48,300,00054,300,000 shares of Compass Diversified Holdings outstanding.
 


Table of Contents

COMPASS DIVERSIFIED HOLDINGS
QUARTERLY REPORT ON FORM 10-Q
For the period ended September 30, 2014March 31, 2015
TABLE OF CONTENTS
    
Page
Number
   
Part I   
Item 1.   
   
   
   
   
   
   
Item 2.  
Item 3.  
Item 4.  
     
Part II  
Item 1.  
Item 1A.  
Item 6.  
   


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NOTE TO READER
In reading this Quarterly Report on Form 10-Q, references to:

the “Trust” and “Holdings” refer to Compass Diversified Holdings;
“businesses,” “operating segments,” “subsidiaries” and “reporting units” refer to, collectively, the businesses controlled by the Company;
the “Company” refer to Compass Group Diversified Holdings LLC;
the “Manager” refer to Compass Group Management LLC (“CGM”);
the “initial businesses” refer to, collectively, Staffmark Holdings, Inc. (“Staffmark”), Crosman Acquisition Corporation, Compass AC Holdings, Inc. (“ACI” or “Advanced Circuits”) and Silvue Technologies Group, Inc.;
the "2014 acquisitions" refer to, collectively, the acquisitions of Clean Earth Holdings, Inc. and SternoCandleLamp;
the “Trust Agreement” refer to the amended and restated Trust Agreement of the Trust dated as of November 1, 2010;
the “2011 Credit Facility” refer to a credit agreement (as amended) with a group of lenders led by Toronto Dominion (Texas) LLC, as agent, which provides for the Revolving Credit Facility and the Term Loan Facility;
the “2011 Revolving Credit Facility” refer to the $320 million Revolving Credit Facility provided by the 2011 Credit Facility;
the "2011 Term Loan Facility" refer to the Term Loan Facility provided by the 2011 Credit Facility;
the "2014 Credit Facility" refer to the credit agreement entered into on June 6, 2014 with a group of lenders led by Bank of America N.A. as administrative agent, which provides for a Revolving Credit Facility and a Term Loan Facility;
the “2014 Revolving Credit Facility” refer to the $400 million Revolving Credit Facility provided by the 2014 Credit Facility that matures in June 2019;
the “2014 Term Loan” refer to the $325 million Term Loan Facility, provided by the Credit Facility that matures in June 2021;
the “LLC Agreement” refer to the fourth amended and restated operating agreement of the Company dated as of January 1, 2012; and
“we,” “us” and “our” refer to the Trust, the Company and the businesses together.


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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, contains both historical and forward-looking statements. We may, in some cases, use words such as “project,” “predict,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” or “may,” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, some of which are beyond our control, including, among other things:

our ability to successfully operate our businesses on a combined basis, and to effectively integrate and improve future acquisitions;
our ability to remove CGM and CGM’s right to resign;
our organizational structure, which may limit our ability to meet our dividend and distribution policy;
our ability to service and comply with the terms of our indebtedness;
our cash flow available for distribution and reinvestment and our ability to make distributions in the future to our shareholders;
our ability to pay the management fee and profit allocation if and when due;
our ability to make and finance future acquisitions;
our ability to implement our acquisition and management strategies;
the regulatory environment in which our businesses operate;
trends in the industries in which our businesses operate;
changes in general economic or business conditions or economic or demographic trends in the United States and other countries in which we have a presence, including changes in interest rates and inflation;
environmental risks affecting the business or operations of our businesses;
our and CGM’s ability to retain or replace qualified employees of our businesses and CGM;
costs and effects of legal and administrative proceedings, settlements, investigations and claims; and
extraordinary or force majeure events affecting the business or operations of our businesses.
Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ.
In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, whether as a result of new information, future events or otherwise, except as required by law.


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PART I
FINANCIAL INFORMATION

ITEM 1. — FINANCIAL STATEMENTS

Compass Diversified Holdings
Condensed Consolidated Balance Sheets

(in thousands)September 30,
2014
 December 31,
2013
March 31,
2015
 December 31,
2014
(unaudited)  (unaudited)  
Assets      
Current assets:      
Cash and cash equivalents$23,269
 $113,229
$20,450
 $23,703
Accounts receivable, less allowances of $4,382 at September 30, 2014 and $3,424 at December 31, 2013128,658
 111,736
Accounts receivable, less allowances of $5,044 at March 31, 2015 and $5,200 at December 31, 2014153,511
 157,535
Inventories95,790
 152,948
114,166
 111,214
Prepaid expenses and other current assets21,181
 21,220
28,166
 28,347
Total current assets268,898
 399,133
316,293
 320,799
Property, plant and equipment, net93,019
 68,059
113,613
 115,871
Equity method investment (refer to Note B)234,185
 
Equity method investment (refer to Note E)231,767
 245,214
Goodwill324,165
 246,611
351,496
 359,180
Intangible assets, net399,959
 310,359
477,217
 487,220
Deferred debt issuance costs, less accumulated amortization of $727 at September 30, 2014 and $4,161 at December 31, 2013 (refer to Note G)11,767
 8,217
Deferred debt issuance costs, less accumulated amortization of $1,731 at March 31, 2015 and $1,233 at December 31, 201410,699
 11,197
Other non-current assets12,869
 12,534
7,770
 7,949
Total assets$1,344,862
 $1,044,913
$1,508,855
 $1,547,430
Liabilities and stockholders’ equity      
Current liabilities:      
Accounts payable$43,602
 $62,539
$58,981
 $62,099
Accrued expenses49,401
 55,590
49,610
 63,378
Due to related party5,315
 4,528
6,146
 6,193
Current portion, long-term debt3,250
 2,850
3,250
 3,250
Other current liabilities6,269
 4,623
6,044
 6,311
Total current liabilities107,837
 130,130
124,031
 141,231
Deferred income taxes107,051
 60,024
97,642
 97,731
Long-term debt, less original issue discount404,467
 280,389
504,177
 485,547
Other non-current liabilities7,350
 5,435
18,636
 14,587
Total liabilities626,705
 475,978
744,486
 739,096
Stockholders’ equity      
Trust shares, no par value, 500,000 authorized; 48,300 shares issued and outstanding at September 30, 2014 and December 31, 2013725,453
 725,453
Trust shares, no par value, 500,000 authorized; 54,300 shares issued and outstanding at March 31, 2015 and December 31, 2014825,321
 825,321
Accumulated other comprehensive income (loss)(154) 693
(2,692) (2,542)
Accumulated deficit(45,319) (252,761)(99,798) (55,348)
Total stockholders’ equity attributable to Holdings679,980
 473,385
722,831
 767,431
Noncontrolling interest38,177
 95,550
41,538
 40,903
Total stockholders’ equity718,157
 568,935
764,369
 808,334
Total liabilities and stockholders’ equity$1,344,862
 $1,044,913
$1,508,855
 $1,547,430
See notes to condensed consolidated financial statements.

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Compass Diversified Holdings
Condensed Consolidated Statements of Operations
(unaudited)
Three months ended 
 September 30,
 Nine months ended 
 September 30,
Three months ended 
 March 31,
2014 2013 2014
20132015 2014
(in thousands, except per share data)          
Net sales$203,140
 $265,512
 $718,272
 $752,854
$222,142
 $246,048
Service revenues35,129
 
Total net revenues257,271
 246,048
Cost of sales141,090
 183,040
 497,328
 516,652
157,532
 169,696
Cost of service revenues27,823
 
Gross profit62,050
 82,472
 220,944
 236,202
71,916
 76,352
Operating expenses:          
Selling, general and administrative expense39,686
 42,468
 133,939
 124,671
44,028
 46,173
Supplemental put expense (reversal)
 (61,303) 
 (45,995)
Management fees5,876
 4,892
 15,634
 13,642
6,858
 4,735
Amortization expense6,768
 7,310
 21,795
 22,384
10,013
 7,349
Impairment expense
 
 
 900
8,907
 
Operating income9,720
 89,105
 49,576
 120,600
2,110
 18,095
Other income (expense):          
Interest expense, net(7,060) (5,078) (16,442) (14,605)(9,718) (4,572)
Amortization of debt issuance costs(545) (542) (1,698) (1,553)(545) (570)
Loss on debt extinguishment
 
 (2,143) (1,785)
Gain on deconsolidation of subsidiary (refer to Note B)264,325
 
 264,325
 
Gain (loss) on equity method investment
 
 
 
Loss on equity method investment(13,447) 
Other income (expense), net18
 (75) 308
 (91)(307) 184
Income before income taxes266,458
 83,410
 293,926
 102,566
Income (loss) before income taxes(21,907) 13,137
Provision for income taxes3,928
 5,114
 11,704
 18,688
3,380
 5,764
Net income262,530
 78,296
 282,222
 83,878
Less: Net income attributable to noncontrolling interest1,432
 4,909
 10,746
 9,466
Net income attributable to Holdings$261,098
 $73,387
 $271,476
 $74,412
Basic and fully diluted income per share attributable to Holdings (refer to Note J)$5.15
 $1.50
 $5.34
 $1.52
Net income (loss)(25,287) 7,373
Less: Net income (loss) attributable to noncontrolling interest(385) 2,714
Net income (loss) attributable to Holdings$(24,902) $4,659
Basic and fully diluted income (loss) per share attributable to Holdings (refer to Note K)$(0.47) $0.08
Weighted average number of shares of trust stock outstanding – basic and fully diluted48,300
 48,300
 48,300
 48,300
54,300
 48,300
Cash distributions declared per share (refer to Note J)$0.36
 $0.36
 $1.08
 $1.08
Cash distributions declared per share (refer to Note K)$0.36
 $0.36
See notes to condensed consolidated financial statements.


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Compass Diversified Holdings
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
Three months ended 
 September 30,
 Nine months ended 
 September 30,
Three months ended 
 March 31,
2014 2013 2014 20132015 2014
(in thousands)          
Net income$262,530
 $78,296
 $282,222
 $83,878
Net income (loss)$(25,287) $7,373
Other comprehensive income (loss)          
Foreign currency translation and other(942) 686
 (847) 261
(150) (9)
Total comprehensive income, net of tax$261,588
 $78,982
 $281,375
 $84,139
Total comprehensive income (loss), net of tax$(25,437) $7,364
See notes to condensed consolidated financial statements.


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Compass Diversified Holdings
Condensed Consolidated Statement of Stockholders’ Equity
(unaudited)
(in thousands)
Number of
Shares
 Amount 
Accumulated
Deficit
 
Accum. Other
Comprehensive
Income (Loss)
 
Stockholders’
Equity Attrib.
to Holdings
 
Non-
Controlling
Interest
 
Total
Stockholders’
Equity
Balance — January 1, 201448,300
 $725,453
 $(252,761) $693
 $473,385
 $95,550
 $568,935
Net income
 
 271,476
 
 271,476
 10,746
 282,222
Other comprehensive loss – foreign currency translation and other
 
 
 (847) (847) 
 (847)
Effect of deconsolidation of FOX
 
 (359) 
 (359) (76,928) (77,287)
Distribution to Allocation Interest Holders
 
 (11,870) 
 (11,870) 

 (11,870)
Proceeds received from Clean Earth noncontrolling shareholders
 
 
 
 
 2,275
 2,275
Option activity attributable to noncontrolling shareholders
 
 
 
 
 6,893
 6,893
Effect of subsidiary stock options exercise
 
 359
 
 359
 (359) 
Distributions paid
 
 (52,164) 
 (52,164) 
 (52,164)
Balance — September 30, 201448,300
 $725,453
 $(45,319) $(154) $679,980
 $38,177
 $718,157
(in thousands)
Number of
Shares
 Amount 
Accumulated
Deficit
 
Accum. Other
Comprehensive
Income (Loss)
 
Stockholders’
Equity Attrib.
to Holdings
 
Non-
Controlling
Interest
 
Total
Stockholders’
Equity
Balance — January 1, 201554,300
 $825,321
 $(55,348) $(2,542) $767,431
 $40,903
 $808,334
Net loss
 
 (24,902) 
 (24,902) (385) (25,287)
Other comprehensive loss – foreign currency translation and other
 
 
 (150) (150) 
 (150)
Option activity attributable to noncontrolling shareholders
 
 
 
 
 1,020
 1,020
Distributions paid
 
 (19,548) 
 (19,548) 
 (19,548)
Balance — March 31, 201554,300
 $825,321
 $(99,798) $(2,692) $722,831
 $41,538
 $764,369
See notes to condensed consolidated financial statements.


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Compass Diversified Holdings
Condensed Consolidated Statements of Cash Flows
(unaudited)
Nine months ended 
 September 30,
Three months ended 
 March 31,
(in thousands)2014 20132015 2014
Cash flows from operating activities:      
Net income$282,222
 $83,878
Adjustments to reconcile net income to net cash provided by operating activities:
 
Net income (loss)$(25,287) $7,373
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
Depreciation expense14,089
 12,286
6,522
 4,636
Amortization expense21,795
 22,384
10,013
 7,349
Impairment expense
 900
8,907
 
Amortization of debt issuance costs and original issue discount2,412
 2,489
713
 864
Loss on debt extinguishment2,143
 1,785
Supplemental put expense (reversal)
 (45,995)
Unrealized (gain) loss on interest rate swap2,809
 68
4,314
 92
Noncontrolling stockholder stock based compensation3,592
 3,367
1,024
 1,365
Net gain on deconsolidation of subsidiary - FOX(264,325) 
(Gain) loss on equity method investment
 
Loss on equity method investment13,447
 
Excess tax benefit from subsidiary stock options exercised(1,662) 

 (1,061)
Deferred taxes(1,944) (2,121)(806) (594)
Other361
 189
427
 (53)
Changes in operating assets and liabilities, net of acquisition:
 

 
Increase in accounts receivable(13,685) (28,244)
Decrease (increase) in inventories17,052
 (16,720)
Increase in prepaid expenses and other current assets(6,008) (668)
Increase (decrease) in accounts payable and accrued expenses(12,691) 26,044
Payment of profit allocation
 (5,603)
Net cash provided by operating activities46,160
 54,039
Decrease (increase) in accounts receivable5,370
 (15,652)
Increase in inventories(2,952) (7,063)
Decrease (increase) in prepaid expenses and other current assets115
 (3,274)
Decrease in accounts payable and accrued expenses(18,520) (22)
Net cash provided by (used in) operating activities3,287
 (6,040)
Cash flows from investing activities:      
Acquisitions, net of cash acquired(292,223) 

 (42,297)
Purchases of property and equipment(10,187) (14,673)(4,790) (3,631)
Proceeds from FOX stock offering65,528
 80,913
Proceeds from sale of businesses517
 1,244
Payment of interest rate swap(1,502) 
(495) (495)
Proceeds from sale leaseback transaction
 4,372
Other investing activities(32) 260
125
 7
Net cash (used in) provided by investing activities(237,899) 72,116
Net cash used in investing activities(5,160) (46,416)
Cash flows from financing activities:      
Borrowings under credit facility476,000
 117,500
35,500
 59,000
Repayments under credit facility(307,813) (89,062)(17,038) (17,713)
Distributions paid(52,164) (52,164)(19,548) (17,388)
Net proceeds provided by noncontrolling shareholders4,025
 36,122

 1,156
Distributions paid to noncontrolling shareholders(11,870) (3,090)
Debt issuance costs(7,370) (2,697)
 (278)
Excess tax benefit from subsidiary stock options exercised1,662
 

 1,061
Other(139) (103)(227) 
Net cash provided by financing activities102,331
 6,506
Net cash (used in) provided by financing activities(1,313) 25,838
Foreign currency impact on cash(552) 261
(67) 11
Net increase (decrease) in cash and cash equivalents(89,960) 132,922
Net decrease in cash and cash equivalents(3,253) (26,607)
Cash and cash equivalents — beginning of period113,229
 18,241
23,703
 113,229
Cash and cash equivalents — end of period$23,269
 $151,163
$20,450
 $86,622
See notes to condensed consolidated financial statements.

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Compass Diversified Holdings
Notes to Condensed Consolidated Financial Statements (unaudited)
September 30, 2014March 31, 2015

Note A — Organization and business operationsBusiness Operations
Compass Diversified Holdings, a Delaware statutory trust (“the Trust”(the "Trust” or "Holdings"), was incorporated in Delaware on November 18, 2005. Compass Group Diversified Holdings, LLC, a Delaware limited liability company (the “Company” or "CODI"), was also formed on November 18, 2005 with equity interests which were subsequently reclassified as the “Allocation Interests”. The Trust and the Company were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. In accordance with the amended and restated Trust Agreement, dated as of April 25, 2006 (the “Trust Agreement”), the Trust is sole owner of 100% of the Trust Interests (as defined in the Company’s amended and restated operating agreement, dated as of April 25, 2006 (as amended and restated, the “LLC Agreement”)) of the Company and, pursuant to the LLC Agreement, the Company has, outstanding, the identical number of Trust Interests as the number of outstanding shares of the Trust. The Company is the operating entity with a board of directors and other corporate governance responsibilities, similar to that of a Delaware corporation.
The Company is a controlling owner of eightnine businesses, or reportable operating segments, at September 30, 2014.March 31, 2015. The segments are as follows: CamelBak Acquisition Corp. (“CamelBak”), The Ergo Baby Carrier, Inc. (“Ergobaby”), Liberty Safe and Security Products, Inc. (“Liberty Safe” or “Liberty”), Compass AC Holdings, Inc. (“ACI” or “Advanced Circuits”), American Furniture Manufacturing, Inc. (“AFM” or “American Furniture”), AMT Acquisition Corporation (“Arnold” or “Arnold Magnetics”), Clean Earth Holdings, Inc. ("Clean Earth"), Candle Lamp Company, LLC ("SternoCandleLamp") and Tridien Medical, Inc. (“Tridien”). Refer to Note D for further discussion of the operating segments. The Company also owns a non-controlling interest of approximately 41% in Fox Factory Holding Corp. (“FOX”) which is accounted for as an equity method investment. Compass Group Management LLC, a Delaware limited liability company (“CGM” or the “Manager”), manages the day to day operations of the Company and oversees the management and operations of our businesses pursuant to a management services agreement (“MSA”).

Note B — Presentation and principlesPrinciples of consolidationConsolidation
The condensed consolidated financial statements for the three and nine month periods ended September 30,March 31, 2015 and March 31, 2014, and September 30, 2013, are unaudited, and in the opinion of management, contain all adjustments necessary for a fair presentation of the condensed consolidated financial statements. Such adjustments consist solely of normal recurring items. Interim results are not necessarily indicative of results for a full year or any subsequent interim period. The condensed consolidated financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and presented as permitted by Form 10-Q and do not contain certain information included in the annual consolidated financial statements and accompanying notes of the Company. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
Deconsolidation of FOX
On August 13, 2013, the Company’s FOX operating segment completed an initial public offering of its common stock pursuant to a registration statement on Form S-1 (the "FOX IPO"). FOX sold 2,857,143 of its shares, and certain of its shareholders, including the Company, sold 7,000,000 shares at an initial offering price of $15.00 per share. FOX trades on the NASDAQ Stock Market under the ticker “FOXF.” The Company’s ownership interest in FOX was reduced from 75.8% to 53.9% on a primary basis and from 70.6% to 49.8% on a fully diluted basis as a result of the FOX IPO.
On July 10, 2014, FOX used a registration statement on Form S-1 under the Securities Act filed with the Securities and Exchange Commission (the "SEC") for a public offering of its common stock (the “FOX Secondary Offering”) held by certain stockholders (the "Selling Stockholders").  The Selling Stockholders sold 5,750,000 shares of FOX common stock in the FOX Secondary Offering, which included an underwriters’ option to purchase an additional 750,000 shares, at an offering price of $15.50 per share.  CODI sold 4,466,569 shares of FOX common stock, including 633,955 shares sold in connection with the underwriters’ exercise of their full option to purchase additional shares of common stock, and received net proceeds from the sale of approximately $65.5 million. As a result of the sale of the shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment in the Company’s consolidated financial statements effective as of the date of the FOX Secondary Offering.



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Subsequent to the sale of the shares of FOX common stock by the Company, the Company owns approximately 15.1 million shares of FOX common stock, which had a fair value of $234.2 million at July 10, 2014 based on the offering price per share. The Company recognized a gain in the quarter ended September 30, 2014 of approximately $76.2 million related to the shares that were sold in connection with the FOX Secondary Offering, and a gain of approximately $188.0 million related to the Company’s retained interest in FOX, for a total gain of approximately $264.3 million.
The Company has elected to account for its investment in FOX at fair value using the equity method beginning on the date the investment became subject to the equity method of accounting. The Company uses the equity method of accounting when it has the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. For equity method investments which the Company has elected to measure at fair value, unrealized gains and losses are reported in the consolidated statement of operations as gain (loss) from equity method investments. The equity method investment in FOX had a fair value of $234.2 million on September 30, 2014 based on the closing price of FOX shares on that date. The closing price for the FOX shares at September 30, 2014 was unchanged from the offering price of FOX shares on July 10, 2014, the date of deconsolidation, which resulted in the Company recognizing no gain or loss on the fair value of the equity method investment for the period ending September 30, 2014 in the condensed consolidated statement of operations.

The following information summarizes FOX's result of operations that are included in the Company's consolidated results of operations for the period from January 1, 2014 through July 10, 2014, the date of deconsolidation, and for the three and nine months ended September 30, 2013 (in thousands):
  Three months ended Nine months ended
  September 30, 2014 September 30, 2013 September 30, 2014 September 30, 2013
Net sales $7,514
 $82,293
 $149,995
 $207,488
Operating income 811
 14,774
 17,294
 30,979
Net income $524
 $9,924
 $15,047
 $19,195
2014.
Seasonality
Earnings of certain of the Company’s operating segments are seasonal in nature. Earnings from AFM are typically highest in the months of January through April of each year, coinciding with homeowners’ tax refunds. Earnings from Liberty are typically lowest in the second quarter due to lower demand for safes at the onset of summer. Earnings from CamelBak are typically higher in the spring and summer months as this corresponds with warmer weather in the Northern Hemisphere and an increase in hydration related activities. Earnings from Liberty are typically lowest in the second quarter due to lower demand for safes at the onset of summer. Earnings from AFM are typically highest in the months of January through April of each year, coinciding with homeowners’ tax refunds. Earnings from Clean Earth are typically lower in the winter months due to reduced levels of construction and development activity in the Northeastern United States.
Consolidation
The condensed consolidated financial statements include the accounts of Holdings and all majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The results of operations of FOX are included in the Company's historical condensed consolidated results of operations through July 10, 2014, the date on which our investment in FOX fell below 50% and the FOX entity was deconsolidated.

Recently Adopted Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update intended to provide guidance on the presentation of unrecognized tax benefits, reflecting the manner in which an entity would settle, at the reporting date, any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The accounting standard was effective for the Company on January 1, 2014. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position or results of operations.
In March 2013, the FASB issued an accounting standards update intended to provide guidance on a parent’s accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This accounting standard was effective for the Company on January 1, 2014. The adoption of this guidance did not have a material impact on the Company’s consolidated financial position or results of operations.

Recently Issued Accounting Pronouncements

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Recently Adopted Accounting Pronouncements
In April 2014, the FASB issued an accounting standard update related to reporting discontinued operations and disclosures of disposals of components of an entity which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The new standard applies prospectively to new disposals and new classifications of disposal groups as held for sale after the effective date. The amendment iswas effective for annual reporting periods beginning after December 15, 2014, which for the Company ison January 1, 2015, and interim periods within those annual periods.2015. The adoption of this standard is not expected to change the manner in which the Company currently presents discontinued operations in the consolidated financial statements.


Recently Issued Accounting Pronouncements

In May 2014, the FASB issued a comprehensive new revenue recognition standard. The new standard outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statement users across industries, jurisdictions and capital markets and also requires enhanced disclosures. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.

In April 2015, the FASB issued an accounting standard update intended to simplify the presentation of debt issuance costs in the balance sheet. The new guidance requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. Prior to the issuance of the standard, debt issuance costs were required to be presented in the balance sheet as an asset. The Company is currently assessing the impact that adopting this new accounting guidance will have on its consolidated financial statements and footnote disclosures. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Accordingly, the standard is effective for the Company on January 1, 2016.


Note C — Acquisitions
Acquisition of Clean Earth Holdings, Inc.
On August 26, 2014, CEHI Acquisition Corp., a subsidiary of the Company, closed on the acquisition of all the issued and outstanding capital stock of Clean Earth Holdings, Inc. pursuant to a stock purchase agreement among CEHI Acquisition Corp., Clean Earth, holders of stock and options in Clean Earth and Littlejohn Fund III, L.P. and the Company,, entered into on August 7, 2014.

Headquartered in Hatboro, Pennsylvania, Clean Earth provides environmental services for a variety of contaminated materials including soils, dredgedredged material, hazardous waste and drill cuttings. Clean Earth analyzes, treats, documents and recycles waste streams generated in multiple end-markets such as power, construction, oil and gas, infrastructure, industrial and dredging. Treatment includes thermal desorption, dredged material stabilization, bioremediation, physical treatment/screening and chemical fixation. Before the company accepts contaminated materials, it identifies a third party “beneficial reuse” site such as commercial redevelopment or landfill capping where the materials will be sent after they are treated. Clean Earth holds the largest market share in the contaminated materials and dredged material management market and operates 1214 permitted facilities in the Eastern U.S. Revenues from the environmental recycling facilities are generally recognized at the time of treatment.
The Company made loans to and purchased a 98% controlling interest in Clean Earth. The purchase price, including proceeds from noncontrolling interest, was approximately $252.9 million (excluding acquisition related costs) and is subject to normal post-closing working capital adjustments.$251.4 million. The Company funded its portion of the acquisition through drawings on its 2014 Revolving Credit Facility and cash on hand. Clean Earth management invested in the transaction along with the Company representing an approximate 2% initial noncontrolling interest on a primary and fully diluted basis. The fair value of the noncontrolling interest was determined based on the enterprise value of the acquired entity multiplied by the ratio of the number of shares acquired by the minority holders to total shares. The transaction iswas accounted for as a business combination. CGM acted as an advisor to the Company in the acquisition and will continue to provide integration services during the first year of the Company's ownership of Clean Earth. CGM will receive integration service fees of approximately $2.5 million which will beis payable quarterly as services are rendered beginning onin the quarter ended December 31, 2014.

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The results of operations of Clean Earth have been included in the consolidated results of operations since the date of acquisition. Clean Earth's results of operations are reported as a separate operating segment. The table below provides the provisional recording of assets acquired and liabilities assumed as of the acquisition date. The amounts recorded for property, plant and equipment, intangible assets and goodwill are preliminary pending finalization of valuation efforts.

Clean Earth  
(in thousands)  
Amounts recognized as of the acquisition date  
Assets:  
Cash $3,683
Accounts receivable (1)
 41,821
Property, plant and equipment (2)
 43,437
Intangible assets 135,939
Goodwill 109,738
Other current and noncurrent assets 8,697
      Total assets $343,315
  
Liabilities and noncontrolling interest: 
Current liabilities $27,205
Other liabilities 149,760
Deferred tax liabilities 61,299
Noncontrolling interest 2,275
      Total liabilities and noncontrolling interest $240,539
  
Net assets acquired $102,776
Noncontrolling interest 2,275
Intercompany loans to business 148,248
  $253,299
Acquisition Consideration  
   
Purchase price $243,000
Working capital adjustment 6,616
Cash 3,683
Total purchase consideration $253,299
Less: Transaction costs 1,935
Purchase price, net $251,364

(1)
Includes $42.5 million of gross contractual accounts receivable of which $0.6 million was not expected to be collected. The fair value of accounts receivable approximated book value acquired.

(2)
Includes $20.9 million of property, plant and equipment basis step-up.








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Clean Earth Amounts Recognized as of Acquisition Date
(in thousands)  
Assets:  
Cash $3,683
Accounts receivable, net (1) 41,821
Property, plant and equipment (2) 43,737
Intangible assets 134,847
Goodwill 109,334
Other current and noncurrent assets 8,449
      Total assets $341,871
  
Liabilities and noncontrolling interest: 
Current liabilities $27,205
Other liabilities 151,158
Deferred tax liabilities 58,827
Noncontrolling interest 2,275
      Total liabilities and noncontrolling interest $239,465
  
Net assets acquired $102,406
Noncontrolling interest 2,275
Intercompany loans to business 146,276
  $250,957
Acquisition Consideration  
   
Purchase price $243,000
Working capital adjustment 6,209
Cash 3,683
  $252,892
   
Transaction costs $1,935

(1) Includes $42.5 million of gross contractual accounts receivable of which $0.6 million was not expected to be collected. The fair value of accounts receivable approximated book value acquired.

(2) Includes $20.9 million of property, plant and equipment basis step-up.

The Company incurred $1.9 million of transaction costs in conjunction with the Clean Earth acquisition forduring the three and nine monthsyear ended September 30,December 31, 2014 respectively, which iswas included in selling, general and administrative expense in the accompanying condensed consolidated statements of income.income in 2014. The goodwill of $109.3$109.7 million reflects the strategic fit of Clean Earth into the Company's niche industrial businesses. The goodwill is not expected to be deductible for tax purposes.
The values assigned to the identified intangible assets were determined by discounting the estimated future cash flows associated with these assets to their present value. The intangible assets preliminarily recorded in connection with the Clean Earth acquisition are as follows (in thousands):
Intangible assets Amount Estimated Useful Life
Customer relationships $25,730
 15 years
Permits and Airspace 93,209
 10 - 20 years
Trade name 17,000
 20 years
  $135,939
  



Acquisition of SternoCandleLamp
On October 10, 2014, the Company, through its wholly owned subsidiary business, Sternocandlelamp Holdings, Inc., entered into a membership interest purchase agreement (the “Sterno Purchase Agreement”) with Candle Lamp Holdings, LLC (the “Seller”), and Candle Lamp Company, LLC (“SternoCandleLamp”) pursuant to which the Sternocandlelamp Holdings, Inc. acquired all of the issued and outstanding equity of SternoCandleLamp (the “Acquisition”). Headquartered in Corona, California, SternoCandleLamp is the leading manufacturer and marketer of portable food warming fuel and creative table lighting solutions for the food service industry. SternoCandleLamp’s product line includes wick and gel chafing fuels, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps. The purchase price was approximately $160.0 million. In addition to its equity investment in SternoCandleLamp, the Company provided loans totaling approximately $91.6 million to SternoCandleLamp as part of the transaction. The transaction is accounted for as a business combination. CGM acted as an advisor to the Company in the acquisition and will continue to provide integration services during the first year of the Company's ownership of SternoCandleLamp. CGM will receive integration service fees of $1.5 million which is payable quarterly as services are rendered beginning in the quarter ending December 31, 2014.

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The results of operations of SternoCandleLamp have been included in the consolidated results of operations since the date of acquisition. SternoCandleLamp's results of operations are reported as a separate operating segment. The table below provides the recording of assets acquired and liabilities assumed as of the acquisition date.

Intangible assets Amount Estimated Useful Life
Customer relationships $25,430
 15 years
Permits and Airspace 92,417
 Permits -40 years/ Airspace - 16 years
Trade name 17,000
 20 years
  $134,847
  
SternoCandleLamp  
(in thousands)  
Amounts recognized as of the acquisition date  
Accounts receivable (1)
 $18,534
Inventory (2)
 19,932
Property, plant and equipment (3)
 18,004
Intangible assets 90,950
Goodwill 33,717
Other current and non-current assets 1,734
      Total assets $182,871
Liabilities:  
Current liabilities 20,120
Other liabilities 91,647
      Total liabilities $111,767
   
Net assets acquired 71,104
Intercompany loans to business 91,647
  $162,751
Acquisition Consideration  
Purchase price $161,500
Working capital adjustment 1,251
Total purchase consideration $162,751
Less: Transaction costs 2,765
Purchase price, net $159,986

(1)
Includes $18.8 million of gross contractual accounts receivable of which $0.2 million was not expected to be collected. The fair value of accounts receivable approximates book value acquired.

(2)
Includes $2.0 million in inventory basis step-up, which was charged to cost of goods sold during the year ended December 31, 2014.

(3)
Includes $6.9 million of property, plant and equipment basis step-up.


The Company incurred $2.8 million of transaction costs in conjunction with the SternoCandleLamp acquisition during the year ended December 31, 2014, which was included in selling, general and administrative expense in the consolidated statements of income during that period. The goodwill of $33.7 million reflects strategic fit of SternoCandleLamp into the Company's niche industrial businesses. The goodwill is expected to be deductible for tax purposes.


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The values assigned to the identified intangible assets were determined by discounting the estimated future cash flows associated with these assets to their present value. The intangible assets recorded in connection with the SternoCandleLamp acquisition are as follows (in thousands):
Intangible assets Amount Estimated Useful Life
Customer relationships $60,140
 10 years
Trade name 30,810
 Indefinite
  $90,950
  

Unaudited pro forma information
The following unaudited pro forma data for the ninethree months ended September 30,March 31, 2014 and 2013 gives effect to the acquisition of Clean Earth and SternoCandleLamp, as described above, as if the acquisition had been completed as of January 1, 2013.2014. The pro forma data gives effect to historical operating results with adjustments to interest expense, amortization and depreciation expense, management fees and related tax effects. The information is provided for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the transaction had been consummated on the date indicated, nor is it necessarily indicative of future operating results of the consolidated companies, and should not be construed as representing results for any future period.
Nine Months Ended September 30,
(in thousands)2014 2013Three Months Ended 
 March 31, 2014
   
Net sales834,687
 863,195
$306,667
Operating income64,615
 124,932
18,107
Net income288,433
 85,371
5,851
Net income attributable to Holdings277,570
 75,859
3,148
Basic and fully diluted net income per share attributable to Holdings5.46
 1.55
$0.05

FOX AcquisitionOther acquisitions
Clean Earth
On December 15, 2014, the Company's Clean Earth subsidiary completed the acquisitions of Sport Truck USA,American Environmental Services, Inc. ("AES") for a purchase price of approximately $16.6 million. AES provides environmental services, managing hazardous and nonhazardous waste from off-site generators. AES has two fully permitted hazardous waste facilities located in Calvert City, Kentucky and Morgantown, West Virginia, serving industrial and government customers across the region. The acquisition expands Clean Earth's customer base and geographic market penetration. The purchase price of AES was allocated to the assets acquired and liabilities assumed based on the estimated fair value as of December 15, 2014, with the excess purchase price allocated to goodwill.

FOX
On March 31, 2014, the Company’s majority owned subsidiary, FOX, acquired certain assets and assumed certain liabilities of Sport Truck USA, Inc. (“Sport Truck”) a privately held global distributor, primarily of its own branded aftermarket suspension solutions and a reseller of FOX products. The transaction was accounted for as a business combination. FOX paid cash consideration of approximately $40.8 million, which is subject to certain working capital adjustments in accordance with the asset purchase agreement. The purchase price of Sport Truck was allocated to the assets acquired and liabilities assumed based on their estimated respective fair values as of March 31, 2014 with the excess purchase price allocated to goodwill.

Sport Truck
Amounts
Recognized as
of Acquisition Date
Acquisition Consideration 
(in thousands) 
Cash$40,770
Settlement of pre-existing accounts473
Contingent consideration19,035
Total consideration at closing$60,278

The net assets acquired in the Sport Truck acquisition were included in the balance of FOX that were deconsolidated as a result of the Company's ownership interest in FOX falling to 41% on July 10, 2014.


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Note D — Operating segment dataSegment Data
At September 30, 2014,March 31, 2015, the Company had eightnine reportable operating segments. Each operating segment represents a platform acquisition. The Company’s operating segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. A description of each of the reportable segments and the types of products and services from which each segment derives its revenues is as follows:

CamelBak is a diversified hydration and personal protection platform, offering products for outdoor, recreation and military applications. CamelBak offers a broad range of recreational / military hydration packs, reusable water bottles, specialized military gloves and performance accessories. Through its global distribution network, CamelBak products are available in more than 65 countries worldwide. CamelBak is headquartered in Petaluma, California.

Ergobaby is a premier designer, marketer and distributor of wearable baby carriers and related baby wearing products, as well as infant travel systems (strollers, car seats and accessories). Ergobaby offers a broad range of wearable baby carriers, infant travel systems and related products that are sold through more than 450 retailers and web shops in the United States and throughout the world. Ergobaby has two main product lines: baby carriers (baby carriers and accessories) and infant travel systems (strollers, car seats and accessories). Ergobaby is headquartered in Los Angeles, California.

Liberty Safe is a designer, manufacturer and marketer of premium home and gun safes in North America. From it’s over 204,000314,000 square foot manufacturing facility, Liberty produces a wide range of home and gun safe models in a broad assortment of sizes, features and styles. Liberty is headquartered in Payson, Utah.

Advanced Circuits, an electronic components manufacturing company, is a provider of prototype,small-run, quick-turn and volume production rigid printed circuit boards. ACI manufactures and delivers custom printed circuit boards to customers primarily in North America. ACI is headquartered in Aurora, Colorado.

American Furniture is a low cost manufacturer of upholstered furniture sold to major and mid-sized retailers. American Furniture operates in the promotional-to-moderate priced upholstered segment of the furniture industry, which is characterized by affordable prices, fresh designs and fast delivery to the retailers. American Furniture was founded in 1998 and focuses on 3 product categories: (i) stationary, (ii) motion (reclining sofas/loveseats) and (iii) recliners. AFM is headquartered in Ecru, Mississippi and its products are sold in the United States.

Arnold Magnetics is a leading global manufacturer of engineered magnetic solutions for a wide range of specialty applications and end-markets, including energy, medical, aerospace and defense, consumer electronics, general industrial and automotive. Arnold Magnetics produces high performance permanent magnets (PMAG), flexible magnets (FlexMag) and precision foil products (Precision Thin Metals) that are mission critical in motors, generators, sensors and other systems and components. Based on its long-term relationships, Arnold has built a diverse and blue-chip customer base totaling more than 2,000 clients worldwide. Arnold Magnetics is headquartered in Rochester, New York.

Clean Earth provides environmental services for a variety of contaminated materials including soils, dredgedredged material, hazardous waste and drill cuttings. Clean Earth analyzes, treats, documents and recycles waste streams generated in multiple end-markets such as power, construction, oil and gas, infrastructure, industrial and dredging. Clean Earth is headquartered in Hatboro, Pennsylvania and operates 1214 facilities in the eastern United States.

SternoCandleLamp is a manufacturer and marketer of portable food warming fuel and creative table lighting solutions for the food service industry. SternoCandleLamp's products include wick and gel chafing fuels, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps. SternoCandleLamp is headquartered in Corona, California.

Tridien is a leading designer and manufacturer of powered and non-powered medical therapeutic support surfaces and patient positioning devices serving the acute care, long-term care and home health care markets. Tridien is headquartered in Coral Springs, Florida and its products are sold primarily in North America.

Equity Method Investment

FOX is a designer, manufacturer and marketer of high-performance suspension products used primarily on mountain bikes, side-by-side vehicles, on-road vehicles with off-road capabilities, off-road vehicles and trucks, all-terrain vehicles, or ATVs, snowmobiles, specialty vehicles and applications, and motorcycles. FOX’s products offer innovative design, performance, durability and reliability that enhance ride dynamics by improving performance and control. FOX is headquartered in Scotts Valley, CA. As a result of the sale of the shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment from the Company’s consolidated financial statements effective July 10, 2014. The Company's investment in FOX is accounted for using the equity method effective July 10, 2014, and the results of operations for FOX for the three and nine months ended September 30, 2014 reflect the results of FOX from the beginning of the period through July 10, 2014.

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The tabular information that follows shows data for each of the operating segments reconciled to amounts reflected in the consolidated financial statements. The results of operations of each of the operating segments are included in consolidated operating results as of their date of acquisition. FOX was an operating segment of the Company until July 10, 2014, when FOX was deconsolidated and became an equity method investment. The results of operations of FOX are included in the disaggregated and other financial data presented for the three months ended March 31, 2014.

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Segment profit is determined based on internal performance measures used by the Chief Executive Officer to assess the performance of each business. Segment profit excludes certain charges from the acquisitions of the Company’s initial businesses not pushed down to the segments which are reflected in the Corporate and other line item. There were no significant inter-segment transactions.
A disaggregation of the Company’s consolidated revenue and other financial data for the three and nine months ended September 30,March 31, 2015 and 2014 and 2013 is presented below (in thousands):

Net sales of operating segmentsThree months ended 
 September 30,
 Nine months ended 
 September 30,
Three months ended March 31,
2014 2013 2014 20132015 2014
CamelBak$33,496
 $34,661
 $113,145
 $111,927
$36,922
 $38,770
Ergobaby22,429
 16,946
 61,468
 49,573
20,668
 19,572
FOX7,514
 82,293
 149,995
 207,488

 56,108
Liberty19,916
 35,242
 67,768
 96,828
25,853
 28,895
ACI22,027
 22,022
 64,175
 66,453
21,418
 20,862
American Furniture28,351
 26,277
 95,842
 79,318
40,925
 34,840
Arnold Magnetics31,456
 32,381
 94,902
 95,405
31,188
 30,679
Clean Earth20,318
 
 20,318
 
35,129
 
SternoCandleLamp28,604
 
Tridien17,633
 15,690
 50,659
 45,862
16,564
 16,322
Total203,140
 265,512
 718,272
 752,854
257,271
 246,048
Reconciliation of segment revenues to consolidated revenues:
 
 
 

 
Corporate and other
 
 
 

 
Total consolidated revenues$203,140
 $265,512
 $718,272
 $752,854
$257,271
 $246,048


International RevenuesThree months ended 
 September 30,
 Nine months ended 
 September 30,
Three months ended March 31,
2014 2013 2014 20132015 2014
CamelBak$6,496
 $6,377
 $25,512
 $22,189
$9,722
 $10,191
Ergobaby13,319
 10,727
 35,013
 28,408
10,956
 11,105
FOX
 55,288
 79,306
 135,129

 32,075
Arnold Magnetics14,415
 14,971
 44,003
 45,116
12,369
 14,268
$34,230
 $87,363
 $183,834
 $230,842
$33,047
 $67,639


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Profit (loss) of operating segments (1)
Three months ended 
 September 30,
 Nine months ended 
 September 30,
Three months ended March 31,
2014 2013 2014 20132015 2014
CamelBak$2,833
 $3,490
 $14,517
 $16,316
$4,351
 $5,855
Ergobaby4,881
 3,051
 13,439
 9,015
5,406
 4,330
FOX811
 14,774
 17,294
 30,979

 4,747
Liberty(1,692) 4,224
 (2,229) 10,400
1,404
 1,710
ACI5,826
 5,673
 16,407
 17,903
5,721
 5,402
American Furniture401
 (166) 2,538
 186
1,676
 1,120
Arnold Magnetics2,146
 2,704
 6,206
 7,473
1,754
 1,424
Clean Earth1,029
 
 1,029
 
(1,554) 
SternoCandleLamp1,656
 
Tridien574
 577
 1,732
 1,168
(8,692) 635
Total16,809
 34,327
 70,933
 93,440
11,722
 25,223
Reconciliation of segment profit to consolidated income from continuing operations before income taxes:
 
 
 
Reconciliation of segment profit to consolidated income (loss) before income taxes:
 
Interest expense, net(7,060) (5,078) (16,442) (14,605)(9,718) (4,572)
Other income (loss), net18
 (75) 308
 (91)(307) 184
Loss on equity method investment(13,447) 
Corporate and other (2)
256,691
 54,236
 239,127
 23,822
(10,157) (7,698)
Total consolidated income from continuing operations before income taxes$266,458
 $83,410
 $293,926
 $102,566
Total consolidated income (loss) before income taxes$(21,907) $13,137

(1)
Segment profit (loss) represents operating income (loss).
(2)
Primarily relates to gain on deconsolidation of FOX in 2014, fair value adjustments related to the supplemental put liability during 2013, as well as management fees expensed and payable to CGM and corporate overhead expenses during 20142015 and 2013.2014.

Accounts receivableSeptember 30, 2014 December 31, 2013March 31, 2015 December 31, 2014
CamelBak$18,891
 $18,054
$25,311
 $23,346
Ergobaby10,097
 8,626
10,688
 9,671
FOX (1)

 34,197
Liberty11,786
 13,029
15,003
 11,376
ACI6,012
 5,542
6,166
 5,730
American Furniture13,219
 11,502
19,196
 16,641
Arnold Magnetics19,203
 16,922
17,882
 15,664
Clean Earth45,837
 
40,251
 52,059
SternoCandleLamp15,776
 21,113
Tridien7,995
 7,288
8,282
 7,135
Total133,040
 115,160
158,555
 162,735
Reconciliation of segment to consolidated totals:
 

 
Corporate and other
 

 
Total133,040
 115,160
158,555
 162,735
Allowance for doubtful accounts(4,382) (3,424)(5,044) (5,200)
Total consolidated net accounts receivable$128,658
 $111,736
$153,511
 $157,535

(1)As a result of the sale of shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment in the Company’s consolidated financial statements effective July 10, 2014.


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Goodwill
Sept. 30,
 
Goodwill
Dec. 31,
 
Identifiable
Assets
Sept. 30,
 
Identifiable
Assets
Dec. 31,
 
Depreciation and Amortization
Expense
Three months ended September 30,
Depreciation and Amortization
Expense
Nine months ended September 30,
Goodwill
March 31,
 
Goodwill
Dec. 31,
 
Identifiable
Assets
March 31,
 
Identifiable
Assets
Dec. 31,
 
Depreciation and Amortization
Expense
Three months ended March 31,
2014 2013 
2014 (1)
 
2013 (1)
 2014 20132014 20132015 2014 
2015 (1)
 
2014 (1)
 2015 2014
Goodwill and identifiable assets of operating segments                        
CamelBak$5,546
 $5,546
 $204,601
 $218,081
 $3,353
 $3,269
$10,202
 $9,708
$5,546
 $5,546
 $207,894
 $207,831
 $3,108
 $3,374
Ergobaby41,664
 41,664
 65,544
 65,838
 950
 918
2,867
 2,734
41,664
 41,664
 66,066
 65,309
 850
 949
FOX (2)

 31,924
 
 93,700
 252
 1,944
4,785
 5,757

 
 
 
 
 2,038
Liberty32,828
 32,684
 39,055
 49,247
 1,582
 1,470
4,663
 4,690
32,828
 32,828
 29,510
 34,139
 1,592
 1,524
ACI57,615
 57,615
 19,139
 22,044
 1,278
 1,250
3,836
 3,658
57,615
 57,615
 18,441
 19,334
 757
 1,280
American Furniture
 
 30,407
 32,851
 52
 48
152
 137

 
 28,649
 27,810
 56
 59
Arnold Magnetics51,767
 51,767
 82,064
 87,921
 2,152
 2,016
6,363
 6,075
51,767
 51,767
 76,239
 77,610
 2,194
 2,098
Clean Earth109,334
 
 188,850
 
 1,116
 
1,116
 
111,856
 110,633
 194,903
 203,938
 5,392
 
SternoCandleLamp33,716
 33,716
 128,146
 126,302
 1,464
 
Tridien16,762
 16,762
 14,513
 15,324
 604
 542
1,900
 1,666
7,855
 16,762
 14,885
 14,844
 619
 663
Total315,516
 237,962
 644,173
 585,006
 11,339
 11,457
35,884
 34,425
342,847
 350,531
 764,733
 777,117
 16,032
 11,985
Reconciliation of segment to consolidated total:
 
 
 
 
 
 

 
 
 
 
 
Corporate and other identifiable assets (2)

 
 247,866
 101,560
 
 89

 245
Corporate and other identifiable assets
 
 239,115
 253,599
 503
 
Amortization of debt issuance costs and original issue discount
 
 
 
 713
 823
2,412
 2,489

 
 
 
 713
 864
Goodwill carried at Corporate level (3)
8,649
 8,649
 
 
 
 

 
Goodwill carried at Corporate level (2)
8,649
 8,649
 
 
 
 
Total$324,165
 $246,611
 $892,039
 $686,566
 $12,052
 $12,369
$38,296
 $37,159
$351,496
 $359,180
 $1,003,848
 $1,030,716
 $17,248
 $12,849

(1)
Does not include accounts receivable balances per schedule above.

(2)
As a result of the sale of shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment in the Company’s consolidated financial statements effective July 10, 2014. The 41% ownership interest in FOX is accounted for as an equity method investment as of the date of deconsolidation and is included in the balance at Corporate as of September 30, 2014.
(3)Represents goodwill resulting from purchase accounting adjustments not “pushed down” to the segments.ACI segment. This amount is allocated back to the respective segments for purposes of goodwill impairment testing.


Note E - Equity Method Investment

Investment in FOX

FOX is a designer, manufacturer and marketer of high-performance suspension products used primarily on mountain bikes, side-by-side vehicles, on-road vehicles with off-road capabilities, off-road vehicles and trucks, all-terrain vehicles, or ATVs, snowmobiles, specialty vehicles and applications, and motorcycles. FOX’s products offer innovative design, performance, durability and reliability that enhance ride dynamics by improving performance and control. FOX is headquartered in Scotts Valley, California. In July 2014, FOX, a former majority owned subsidiary of the Company that is publicly traded on the NASDAQ Stock Market under the ticker “FOXF,” used a registration statement on Form S-1 under the Securities Act filed with the Securities and Exchange Commission (the "SEC") for a public offering of its common stock (the "FOX Secondary Offering"). CODI sold 4,466,569 shares of FOX common stock in connection with the FOX Secondary Offering. As a result of the sale of the shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment in the Company’s consolidated financial statements effective as of the date of the FOX Secondary Offering. Subsequent to the sale of the shares of FOX common stock by the Company, the Company owns approximately 15.1 million shares of FOX common stock.

The Company has elected to account for its investment in FOX at fair value using the equity method beginning on the date the investment became subject to the equity method of accounting. The Company uses the equity method of accounting when it has the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. For equity method investments which the Company has elected to measure at fair value, unrealized gains and losses are reported in the consolidated statement of operations as gain (loss) from equity method investments. The equity method investment in FOX had a fair value of $231.8 million on March 31, 2015 based on the closing price of FOX shares on that date. The Company recognized

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a loss of $13.4 million for the quarter ended March 31, 2015 due to a decrease in the fair value of the FOX investment during the quarter.

The condensed balance sheet information and results of operations of the Company's FOX investment are summarized below (in thousands):

Condensed Balance Sheet information    
  March 31, 2015 December 31, 2014
Current assets $120,853
 $112,609
Non-current assets 144,334
 145,828
  $265,187
 $258,437
     
Current liabilities $70,324
 $60,825
Non-current liabilities 67,729
 68,806
Stockholders' equity 127,134
 128,806
  $265,187
 $258,437
     
Condensed Results of Operations (1)
    
  Three months ended March 31, 2015  
Net revenue $67,788
  
Gross profit 18,783
  
Operating income 1,539
  
Net income $770
  

(1)
The results of operations for FOX for the period from January 1, 2014 to March 31, 2014 are included in the results of operations of the Company in the accompanying condensed consolidation statements of income as FOX did not become accounted for as an equity method investment until July 10, 2014, the date that the Company's ceased holding a majority ownership interest in FOX.

Note F — Property, plantPlant and equipmentEquipment and inventoryInventory
Property, plant and equipment
Property, plant and equipment is comprised of the following at September 30, 2014March 31, 2015 and December 31, 20132014 (in thousands):

September 30, 2014 December 31, 2013March 31, 2015 December 31, 2014
Machinery and equipment$114,796
 $90,717
$132,940
 $127,035
Office furniture, computers and software10,151
 11,385
13,454
 12,322
Leasehold improvements8,268
 15,354
9,447
 10,419
Buildings and land13,386
 425
23,463
 25,271
146,601
 117,881
179,304
 175,047
Less: accumulated depreciation(53,582) (49,822)(65,691) (59,176)
Total (1)
$93,019
 $68,059
$113,613
 $115,871
(1) The increase inDepreciation expense was $6.5 million and $4.6 million for the property, plantthree months ended March 31, 2015 and equipment at September 30,March 31, 2014, is due to the acquisition of Clean Earth on August 26, 2014 - refer to Note C.respectively.

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Depreciation expense was $4.6 million and $14.1 million for the three and nine months ended September 30, 2014, respectively, and $4.2 million and $12.3 million for the three and nine months ended September 30, 2013, respectively.
Inventory
Inventory is comprised of the following at September 30, 2014March 31, 2015 and December 31, 20132014 (in thousands):

September 30, 2014 December 31, 2013March 31, 2015 December 31, 2014
Raw materials and supplies$41,554
 $74,325
$46,742
 $49,727
Work-in-process13,207
 13,579
12,262
 10,632
Finished goods48,604
 73,664
63,412
 59,442
Less: obsolescence reserve(7,575) (8,620)(8,250) (8,587)
Total$95,790
 $152,948
$114,166
 $111,214

Note FG — Goodwill and otherOther Intangible Assets

As a result of acquisitions in prior years, the Company has significant intangible assets
on its balance sheet that include goodwill and indefinite-lived intangibles (primarily trade names). Goodwill represents the difference between purchase cost and the fair value of net assets acquired in business acquisitions. Indefinite lived intangible assets representing trademarks and trade names, are not amortized unless their useful life is determined to be finite. Long-lived intangible assets are subject to amortization using the straight-line method. GoodwillThe Company’s goodwill and indefinite lived intangible assetsindefinite-lived intangibles are tested and reviewed for impairment annually as of March 31st31st or more frequently if facts and more often if a triggering event occurs,circumstances warrant by comparing the fair value of each reporting unit to its carrying value. Each of the Company’s businesses represents a reporting unit, except Arnold, which comprises three reporting units.
2014
Goodwill

2015 Interim goodwill impairment testing
In January 2015, one of Tridien's largest customer's informed the company that they would not renew their existing purchase agreement when it expires on September 30, 2015. This customer represented 20% of Tridien's sales in 2014. The expected lost sales and net income were significant enough to trigger an interim goodwill and indefinite-lived intangible asset impairment analysis. The result of the first step of the impairment test indicated that the fair value of Tridien was less than its carrying value; therefore, it was necessary to perform the second step of the impairment test. The Company estimated the fair value of the Tridien reporting unit using a weighted average of an income and market approach. The income approach was based on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital ("WACC") of 15.7%. The market approach was based on earnings multiple data and guideline public companies. Based on the second step of the impairment test, the Company concluded on a preliminary basis that the implied fair value of goodwill for Tridien was less than its carrying amount, resulting in impairment of the carrying amount of Tridien's goodwill of $8.9 million as of January 31, 2015. The Company expects to complete the interim goodwill impairment testing of Tridien during the three months ended June 30, 2015.

2015 Annual goodwill impairment testing
At March 31, 2014, theThe Company elected to use theuses a qualitative assessment alternativeapproach to test goodwill for impairment by first assessing qualitative factors to determine whether it is more-likely than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step evaluation including, in part, the macroeconomic environment, industry and market specific conditions, financial performance, operating costs and cost impacts, as well as issues or events specific to the reporting unit. The Company is currently in the process of evaluating the qualitative factors of each reporting unit to determine if the fair values of the reporting units that maintain aexceed their respective carrying values for the 2015 annual goodwill carrying value.impairment testing. The Company determined that Liberty and two of Arnold’s three reporting units, Precision Magnets and Assemblies ("PMAG") and Flexible Magnets ("Flexmag"), required further quantitative testing (Step 1) since the Company could not conclude that the fair value of Arnold’sthe Liberty and the two Arnold reporting units exceeded their carrying values based solely on qualitative factors. Results

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Table of the quantitative analysis indicated that the fair value of these reporting units exceeds their carrying value.Contents

2013 Interim goodwill impairment testing
At December 31, 2013, the Company performed an interim impairment analysis at the Tridien operating segment as a result of continuing revenue decreases and a 2014 forecast that indicated little to no growth. The result of the interim impairment analysis (Step 1) indicated that goodwill was impaired as of December 31, 2013. The completion of Step 2 resulted in a write down of goodwill of $11.5 million and intangible assets of $0.5 million as of December 31, 2013.
A reconciliation of the change in the carrying value of goodwill for the ninethree months ended September 30, 2014March 31, 2015 and the year ended December 31, 2013,2014, is as follows (in thousands):


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Nine months ended September 30, 2014 Year ended 
 December 31, 2013
Three months ended March 31, 2015 Year ended 
 December 31, 2014
Beginning balance:      
Goodwill$299,514
 $298,962
$412,083
 $299,514
Accumulated impairment losses(52,903) (41,435)(52,903) (52,903)
246,611
 257,527
359,180
 246,611
Impairment losses(1)
 (11,468)(8,907) 
Acquisition of businesses (1)(2)
121,441
 552

 157,864
Deconsolidation of subsidiary (2)
(43,887) 
Adjustments to purchase accounting (3)
1,223
 
Deconsolidation of subsidiary (4)

 (45,295)
Total adjustments77,554
 (10,916)(7,684) 112,569
Ending balance:
 

 
Goodwill377,068
 299,514
413,306
 412,083
Accumulated impairment losses(52,903) (52,903)(61,810) (52,903)
$324,165
 $246,611
$351,496
 $359,180

(1)
Impairment loss relates to the impairment of the Tridien goodwill during the quarter ended March 31, 2015.

(2)
Acquisition of businesses relates to the acquisition of Clean Earth in August 2014, SternoCandleLamp in October 2014 and the add-on acquisition of Sport Truck by FOX in March 2014. The $12.0 million of goodwill from the Sport Truck acquisition is included in the amount of $43.9$45.3 million that was deconsolidated during the nine monthsyear ended September 30,December 31, 2014.

(2)
(3)
The $1.2 million in purchase accounting adjustments relate to adjustments made to the final purchase price allocation for Clean Earth during the first quarter of 2015 to record deferred tax amounts based on the state tax rate in effect for the state in which each of the intangible assets is utilized ($1.0 million), and adjustments to the purchase price allocation of AES during the first quarter of 2015 ($0.2 million).

(4)
As a result of the sale of the shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment in the Company’s consolidated financial statements effective July 10, 2014.
Other intangible assets
20142015 Annual indefinite lived impairment testing
At March 31, 2014, theThe Company elected to use theuses a qualitative assessment alternativeapproach to test indefinite lived intangible assets for impairment for eachby first assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting units that maintainan indefinite lived intangible assets. Resultsasset is impaired as a basis for determining whether it is necessary to perform quantitative impairment testing. The Company is currently in the process of evaluating the qualitative factors of each reporting unit that maintains indefinite lived intangible assets in connection with the annual impairment testing for 2015. Preliminary results of the qualitative analysis indicate that the carrying value of the Company’s indefinite-livedindefinite lived intangible assets did not exceed their fair value. The Company expects to conclude on the indefinite-lived intangible asset impairment testing during the second quarter of 2015.


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Other intangible assets are comprised of the following at September 30, 2014March 31, 2015 and December 31, 20132014 (in thousands):


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September 30, 2014 
December 31,
2013
 
Weighted
Average
Useful Lives
March 31, 2015 
December 31,
2014
 
Weighted
Average
Useful Lives
Customer relationships$205,940
 $192,387
 11$266,976
 $266,976
 12
Technology and patents56,696
 89,443
 856,731
 56,731
 8
Trade names, subject to amortization24,722
 7,595
 17
Trade names, subject to amortization (1)
24,722
 7,595
 17
Licensing and non-compete agreements7,768
 7,736
 57,856
 7,856
 5
Permits and airspace92,417
 
 3998,406
 98,406
 13
Distributor relations and other606
 606
 5606
 606
 5
388,149
 297,767
 455,297
 438,170
 
Accumulated amortization:
 
 
 
 
Customer relationships(69,855) (64,752) (81,886) (75,813) 
Technology and patents(25,299) (44,703) (28,570) (26,906) 
Trade names, subject to amortization(2,654) (1,895) (3,505) (3,763) 
Licensing and non-compete agreements(7,373) (6,798) (7,603) (7,499) 
Permits and airspace(350) 
 (5,535) (3,104) 
Distributor relations and other(606) (606) (606) (606) 
Total accumulated amortization(106,137) (118,754) (127,705) (117,691) 
Trade names, not subject to amortization(1)117,947
 131,346
 149,625
 166,741
 
Total intangibles, net$399,959
 $310,359
 $477,217
 $487,220
 

(1) The trade name for Clean Earth was determined to be subject to amortization, resulting in a reclass from trade names not subject to amortization during the first quarter of 2015 as part of the finalization of the purchase price allocation for Clean Earth.
Amortization expense related to intangible assets was $6.8$10.0 million and $21.8$7.3 million for the three and nine months ended September 30,March 31, 2015 and 2014, respectively, and $7.3 million and $22.4 million for the three and nine months ended September 30, 2013, respectively. Estimated charges to amortization expense of intangible assets over the next five years, is as follows (in thousands):

October 1, 2014 through Dec. 31, 2014 $6,961
2015 24,216
April 1, 2015 through Dec. 31, 2015 $30,442
2016 21,419
 38,368
2017 18,484
 35,451
2018 17,563
 32,974
2019 31,556
 $88,643
 $168,791

Note GH — Debt
2011 Credit Agreement
On October 27, 2011, the Company entered into the 2011 Credit Facility with a group of lenders led by TD Securities for a $515 million credit facility, with an optional $135 million increase (the "2011 Credit Facility"). The 2011 Credit Facility provided for (i) a revolving line of credit of $290 million which was subsequently increased to $320 million (the "2011 Revolving Credit Facility"), and (ii) a $225 million term loan which was subsequently increased to $279 million (the "2011 Term Loan Facility"). The 2011 Term Loan Facility was issued at an original issuance discount of 96%. Amounts borrowed under the 2011 Revolving Credit Facility bore interest based on a leverage ratio defined in the credit agreement at either LIBOR plus a margin ranging from 2.50% to 3.50%, or base rate plus a margin ranging from 1.50% to 2.50%. Amounts outstanding under the 2011 Term Loan Facility bore interest at LIBOR plus 4.00% with a LIBOR floor of 1.00%, or base rate plus a margin ranging from 1.50% to 2.50%. The 2011 Revolving Credit Facility was set to mature in October 2016, and the 2011 Term Loan Facility required quarterly payments of approximately $0.71 million, with the final payment of all remaining outstanding principle and interest due in October 2017. The Company was required to pay commitment fees of 1% per annum of the unused portion of the 2011 Revolving Credit Facility. The 2011 Credit Facility was terminated in June 2014.

2014 Credit Agreement


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On June 6, 2014, the Company obtained a $725 million credit facility from a group of lenders (the “2014 Credit Facility”) led by Bank of America N.A. as Administrative Agent. The 2014 Credit Facility provides for (i) a revolving credit facility of $400 million (the “2014 Revolving Credit Facility”) and (ii) a $325 million term loan (the “2014 Term Loan Facility”). The 2014 Credit Facility permits the Company to increase the 2014 Revolving Credit Facility commitment and/ or obtain additional term loans in an aggregate of up to $200 million. The 2014 Credit AgreementFacility is secured by all of the assets of the Company, including all of its equity interests in, and loans to, its consolidated subsidiaries.


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2014 Revolving Credit Facility

The 2014 Revolving Credit Facility will become due in June 2019. The Company can borrow, prepay and reborrow principal under the 2014 Revolving Credit Facility from time to time during its term. Advances under the 2014 Revolving Credit Facility can be either LIBOR rate loans or base rate loans. LIBOR rate revolving loans bear interest at a rate per annum equal to the London Interbank Offered Rate (the “LIBOR Rate”) plus a margin ranging from 2.00% to 2.75% based on the ratio of consolidated net indebtedness to adjusted consolidated earnings before interest expense, tax expense and depreciation and amortization expenses (the “Consolidated Leverage Ratio”). Base rate revolving loans bear interest at a fluctuating rate per annum equal to the greatest of (i) the prime rate of interest, or (ii) the Federal Funds Rate plus 0.5%0.50% (the “Base Rate”), plus a margin ranging from 1.00% to 1.75% based upon the Consolidated Leverage Ratio.

2014 Term Loan Facility
 
The 2014 Term Loan Facility expires in June 2021 and requires quarterly payments of approximately $0.81 million that commenced September 30, 2014, with a final payment of all remaining principal and interest due on June 6, 2021. The 2014 Term Loan Facility was issued at an original issue discount of 99.5% of par value and bears interest at either the applicable LIBOR Rate plus 3.25% per annum, or Base Rate plus 2.25% per annum. The LIBOR Rate applicable to both base rate loans and LIBOR rate loans shall in no event be less than 1.00% at any time.

Use of Proceeds
The proceeds of the 2014 Term Loan Facility and advances under the 2014 Revolving Credit Facility were/will be used to (i) refinance existing indebtedness of the Company, (ii) pay fees and expense, (iii) fund acquisitions of additional businesses, (iv) fund working capital needs and (v) to fund permitted distributions. The Company used approximately $290.0 million of the 2014 Term Loan Facility proceeds to pay all amounts outstanding under the 2011 Credit Agreement and to pay the closing costs. In addition, approximately $1.2 million of the 2014 Revolving Credit Facility commitment was utilized in connection with the issuance of letters of credit.

Other

The 2014 Credit Facility provides for sub-facilities under the 2014 Revolving Credit Facility pursuant to which an aggregate amount of up to $100.0 million in letters of credit may be issued, as well as swing line loans of up to $25.0 million outstanding at one time. The issuance of such letters of credit and the making of any swing line loan reduces the amount available under the 2014 Revolving Credit Facility. The Company will pay (i) commitment fees on the unused portion of the 2014 Revolving Credit Facility ranging from 0.45% to 0.60% per annum based on its Consolidated Leverage Ratio, (ii) quarterly letter of credit fees, and (iii) administrative and agency fees.

Debt Issuance Costs

In connection with entering into the 2014 Credit Facility in which the loan syndication consisted of previous members of the syndicationsyndicate under the 2011 Credit Facility who either maintained or increased their position as well as new syndication members, the debt issuance costs associated with the 2011 Credit Facility and the 2014 Credit Facility have been classified as either debt modification costs which have been capitalized and will be amortized over the term of the 2014 Credit Facility, or debt extinguishment costs which have been recorded as an expense in the accompanying condensed consolidated statement of operations. The Company paid debt issuance costs of $7.3 million in connection with the 2014 Credit Facility (of which $0.2 million was expensed as debt modification and extinguishment costs and $7.1 million is being amortized over the term of the related debt in the 2014 Credit Facility) and recorded additional debt modification and extinguishment costs of $2.1 million to write-off previously capitalized debt issuance costs.


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2011 Credit Agreement
On October 27, 2011, the Company entered into the 2011 Credit Facility with a group of lenders led by TD Securities for a $515 million credit facility, with an optional $135 million increase (the "2011 Credit Facility"). The 2011 Credit Facility provided for (i) a revolving line of credit of $290 million which was subsequently increased to $320 million (the "2011 Revolving Credit Facility"), and (ii) a $225 million term loan which was subsequently increased to $279 million (the "2011 Term Loan Facility"). The 2011 Term Loan Facility was issued at an original issuance discount of 96%. Amounts borrowed under the 2011 Revolving Credit Facility bore interest based on a leverage ratio defined in the credit agreement at either LIBOR plus a margin ranging from 2.50% to 3.50%, or base rate plus a margin ranging from 1.50% to 2.50%. Amounts outstanding under the 2011 Term Loan Facility bore interest at LIBOR plus 4.00% with a LIBOR floor of 1.00%, or base rate plus a margin ranging from 1.50% to 2.50%. The 2011 Revolving Credit Facility was set to mature in October 2016, and the 2011 Term Loan Facility required quarterly payments of approximately $0.71 million, with the final payment of all remaining outstanding principle and interest due in October 2017. The Company was required to pay commitment fees of 1% per annum of the unused portion of the 2011 Revolving Credit Facility. The 2011 Credit Facility was terminated in June 2014.

Availability under the 2014 Revolving Credit Facility was approximately $308.6$206.6 million at September 30, 2014.March 31, 2015. Letters of credit outstanding at September 30, 2014March 31, 2015 totaled approximately $3.4$4.4 million. At September 30, 2014,March 31, 2015, the Company was in compliance with all covenants as defined in the 2014 Credit Agreement.Facility.

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The following table provides the Company’s debt holdings at September 30, 2014March 31, 2015 and December 31, 20132014 (in thousands):

 September 30, 2014 
December 31,
2013
Revolving Credit Facility$88,000
 $
FOX Revolving Credit Facility (1)

 8,000
FOX Term Loan (1)

 
Term Loan324,188
 279,750
Original issue discount(4,471) (4,511)
Total debt$407,717
 $283,239
Less: Current portion, term loan facilities(3,250) (2,850)
Long term debt$404,467
 $280,389

(1) As a result of the sale of the shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment in the Company’s consolidated financial statements effective as of July 10, 2014.
 March 31, 2015 December 31, 2014
Revolving Credit Facility$189,000
 $169,725
Term Loan322,563
 323,375
Original issue discount(4,136) (4,303)
Total debt$507,427
 $488,797
Less: Current portion, term loan facilities(3,250) (3,250)
Long term debt$504,177
 $485,547


Note HI — Derivative instrumentsInstruments and hedging activitiesHedging Activities
On September 16, 2014, the Company purchased an interest rate swap (“New Swap”) with a notional amount of $220 millionmillion. The New Swap is effective April 1, 2016 through June 6, 2021.2021, the termination date of the 2014 Term Loan. The agreement requires the Company to pay interest on the notional amount at the rate of 2.97% in exchange for the three-month LIBOR rate. At September 30,March 31, 2015 and December 31, 2014, this Swap had a fair value loss of $2.5$11.6 million and $7.4 million, respectively, principally reflecting the present value of future payments and receipts under the agreement and is reflected as a component of other non-current liabilities.agreement.
On October 31, 2011, the Company purchased a three-year interest rate swap (the “Swap”) with a notional amount of $200 million effective January 1, 2014 through March 31, 2016. The agreement requires the Company to pay interest on the notional amount at the rate of 2.49% in exchange for the 3-monththree-month LIBOR rate, with a floor of 1.5%. At September 30,March 31, 2015 and December 31, 2014, the Swap had a fair value loss of $2.9 million.$2.0 million and $2.5 million, respectively.
At September 30, 2014,March 31, 2015 the Company's interest rate swaps had a fair value loss of $5.4 million. The fair value is reflected$13.6 million, of which $2.0 million was included in other current liabilities of $2.0and $11.6 million andwas included in other non-current liabilities of $3.4 millionin the condensed consolidated balance sheet, with its periodic mark-to-market value reflected as a component of interest expense.
The Company did not elect hedge accounting for the above derivative transactions and as a result, periodic mark-to-market changes in fair value are reflected as a component of interest expense in the consolidated statement of operations.


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Note IJ — Fair value measurementValue Measurement
The following table provides the assets and liabilities carried at fair value measured on a recurring basis at September 30, 2014March 31, 2015 and December 31, 20132014 (in thousands):

Fair Value Measurements at September 30, 2014Fair Value Measurements at March 31, 2015
Carrying
Value
 Level 1 Level 2 Level 3
Carrying
Value
 Level 1 Level 2 Level 3
Assets:              
Equity method investment - FOX234,185
 234,185
 
 
$231,767
 $231,767
 $
 $
Liabilities:              
Call option of noncontrolling shareholder (1)
$(25) $
 $
 $(25)(25) 
 
 (25)
Put option of noncontrolling shareholders (2)
(50) 
 
 (50)(50) 
 
 (50)
Interest rate swaps(5,421) 
 (5,421) 
(13,648) 
 (13,648) 
Total recorded at fair value$228,689
 $234,185
 $(5,421) $(75)$218,044
 $231,767
 $(13,648) $(75)

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(1)
Represents a noncontrolling shareholder’s call option to purchase additional common stock in Tridien.

(2)
Represents put options issued to noncontrolling shareholders in connection with the Liberty acquisition.

Fair Value Measurements at December 31, 2013Fair Value Measurements at December 31, 2014
Carrying
Value
 Level 1 Level 2 Level 3
Carrying
Value
 Level 1 Level 2 Level 3
Assets:              
Interest rate cap$
 $
 $
 $
Equity method investment - FOX$245,214
 $245,214
 $
 $
Liabilities:
 
 
 

 
 
 
Call option of noncontrolling shareholder (1)
(25) 
 
 (25)(25) 
 
 (25)
Put option of noncontrolling shareholders (2)
(50) 
 
 (50)(50) 
 
 (50)
Interest rate swap(4,126) 
 (4,126) 
Interest rate swaps(9,828) 
 (9,828) 
Total recorded at fair value$(4,201) $
 $(4,126) $(75)$235,311
 $245,214
 $(9,828) $(75)
Reconciliations of the change in the carrying value of the Level 3 fair value measurements from January 1, 20142015 through September 30, 2014March 31, 2015 and from January 1, 20132014 through September 30, 2013March 31, 2014 are as follows (in thousands):

 2014 2013
Balance at January 1$(75) $(51,673)
Supplemental put expense (1)

 (6,396)
Contingent consideration - Sport Truck(19,035) 
Balance at March 31$(19,110) $(58,069)
Supplemental put expense (1)

 (8,912)
Payment of supplemental put liability
 5,603
Balance at June 30$(19,110) $(61,378)
Supplemental put termination (1)

 61,303
Effect of deconsolidation of FOX (2)
19,035
 $
Balance at September 30$(75) $(75)
 2015 2014
Balance at January 1$(75) $(75)
Contingent consideration - Sport Truck (1)

 (19,035)
Balance at March 31$(75) $(19,110)

(1)
As a result of the termination of a supplemental put agreement (the "Supplemental Put Agreement") on July 1, 2013, the Company has derecognized the supplemental put liability.
(2)As a result of the sale of the shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment in the Company’s consolidated financial statements effective July 10, 2014.
Valuation Techniques
The equity method investment in FOX is measured at fair value using the closing price of FOX's shares on the NASDAQ stock exchange as of the last business day in the reporting period. Since the FOX shares are traded on a public stock exchange, the fair value measurement is categorized as Level I. The Company has not changed its valuation techniques in measuring the fair value of any of its other financial assets and liabilities during the period. For details of the Company’s fair value measurement policies under the fair value hierarchy, refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.2014.

2014 Term Loan
At September 30, 2014,March 31, 2015, the carrying value of the principal under the Company’s outstanding 2014 Term Loan, including the current portion, was $324.2$322.6 million, which approximates fair value because it has a variable interest rate that reflects market changes in

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interest rates and changes in the Company's net leverage ratio. The estimated fair value of the outstanding 2014 Term Loan is based on quoted market prices for similar debt issues and is, therefore, classified as Level 2 in the fair value hierarchy.


Nonrecurring Fair Value Measurements

The following table provides the assets carried at fair value measured on a non-recurring basis as of March 31, 2015. There were no assets carried at fair value measured on a non-recurring basis as of December 31, 2014.

24

         Expense
 Fair Value Measurements at March 31, 2015 Three months ended
(in thousands)Carrying
Value
 Level 1 Level 2 Level 3 March 31, 2015
          
Goodwill (1)
$7,855
 $
 $
 $7,855
 $8,907
Table
(1) Represents the fair value of Contents


the goodwill at the Tridien business segment subsequent to the goodwill impairment charge recognized during the three months ended March 31, 2015. Refer to "Note G - Goodwill and Other Intangible Assets" for further discussion regarding the impairment and valuation techniques applied.

Note JK — Stockholders’ equityEquity
Trust Shares
The Trust is authorized to issue 500,000,000 Trust shares and the Company is authorized to issue a corresponding number of LLC interests. The Company will at all times have the identical number of LLC interests outstanding as Trust shares. Each Trust share represents an undivided beneficial interest in the Trust, and each Trust share is entitled to one vote per share on any matter with respect to which members of the Company are entitled to vote.
Allocation Interests
The Allocation Interests represent the original equity interest in the Company. The holders of the Allocation Interests (“Holders”) are entitled to receive distributions pursuant to a profit allocation formula upon the occurrence of certain events. The distributions of the profit allocation is paid upon the occurrence of the sale of a material amount of capital stock or assets of one of the Company’s businesses (“Sale Event”) or, at the option of the Holders, at each five year anniversary date of the acquisition of one of the Company’s businesses (“Holding Event”). The Manager, as the original holder of the Allocation Interests, previously had the right to cause the Company to purchase the Allocation Interests upon termination of the MSA in accordance with a Supplemental Put Agreement. On July 1, 2013, the Company and the Manager amended the MSA to provide for certain modifications related to the Manager’s registration as an investment advisor under the Investment Advisor’s Act of 1940, as amended (the “Advisor’s Act”). In connection with the amendment resulting from the Managers’ registration as an investment advisor under the Advisor’s Act, the Company and the Manager agreed to terminate the Supplemental Put Agreement. The Company historically recorded the obligation associated with the Supplemental Put agreement as a liability that represented the amount the Company would have to pay to physically settle the purchase of the Allocation Interests upon termination of the MSA. As a result of the termination of the Supplemental Put Agreement, the Company currently records distributions of the profit allocation to the Holders upon occurrence of a Sale Event or Holding Event as dividends declared on Allocation Interests to stockholders’ equity when they are approved by the Company’s board of directors.
The FOX Secondary Offering in July 2014 is considered a Sale Event and the Company's board of directors approved and declared in September 2014 a profit allocation payment totaling $11.9 million that was made to Holders on September 30, 2014.
Earnings per share
Prior to the termination of the Supplemental Put Agreement, basic and diluted earnings per share attributable to Holdings were calculated on a weighted average basis. Since the termination of the Supplemental Put Agreement, basic and diluted earnings per share is calculated using the two-class method which requires the Company to allocate participating securities that have rights to earnings that otherwise would have been available only to Trust shareholders as a separate class of securities in calculating earnings per share. The Allocation Interests are considered participating securities that contain participating rights to receive profit allocations upon the occurrence of a Holding Event or Sale Event. The calculation of basic and diluted earnings per share for the three and nine months ended September 30,March 31, 2015 and 2014 reflects the incremental increase during the period in the profit allocation distribution to Holders related to Holding Events and the FOX Sale Event. The calculationEvents.

27

Table of basic and diluted earnings per share for the three and nine months ended September 30, 2013 reflects the incremental increase in the profit allocation distribution to Holders related to Holding Events from July 1, 2013, the date of the termination of the Supplemental Put Agreement, through September 30, 2013.Contents

Basic and diluted earnings per share for the three and nine months ended September 30,March 31, 2015 and 2014 is calculated as follows:

 Three months ended September 30, Nine months ended September 30, Three months ended March 31,
 2014 2013 2014 2013 2015 2014
Net income attributable to Holdings $261,098
 $73,387
 $271,476
 $74,412
Less: Profit Allocation paid to Holders 11,870
 
 11,870
 
Net income (loss) attributable to Holdings $(24,902) $4,659
Less: Effect of contribution based profit - Holding Event 649
 1,057
 1,757
 1,057
 798
 804
Net income from Holdings attributable to Trust shares $248,579
 $72,330
 $257,849
 $73,355
 $(25,700) $3,855
Basic and diluted weighted average shares outstanding 48,300
 48,300
 48,300
 48,300
 54,300
 48,300
Net income per share - basic and fully diluted $5.15
 $1.50
 $5.34
 $1.52
Net income (loss) per share - basic and fully diluted $(0.47) $0.08

Distributions

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On January 30, 2014,29, 2015, the Company paid a distribution of $0.36 per share to holders of record as of January 23, 2014.22, 2015. This distribution was declared on January 9, 2014.8, 2015.
On April 30, 2014,29, 2015, the Company paid a distribution of $0.36 per share to holders of record as of April 23, 2014.22, 2015. This distribution was declared on April 10, 2014.
On July 30, 2014, the Company paid a distribution of $0.36 per share to holders of record as of July 23, 2014. This distribution was declared on July 10, 2014.
On October 30, 2014, the Company paid a distribution of $0.36 per share to holders of record as of October 23, 2014. This distribution was declared on October 7, 2014.9, 2015.

Note KL — Warranties
The Company’s CamelBak, Ergobaby, FOX, Liberty and Tridien operating segments estimate their exposure to warranty claims based on both current and historical product sales data and warranty costs incurred. The Company assesses the adequacy of its recorded warranty liability quarterly and adjusts the amount as necessary. A reconciliation of the change in the carrying value of the Company’s warranty liability for the ninethree months ended September 30, 2014March 31, 2015 and the year ended December 31, 20132014 is as follows (in thousands):

Nine Months Ended 
 September 30, 2014
 Year ended 
 December 31, 2013
Three months ended 
 March 31, 2015
 Year ended 
 December 31, 2014
Warranty liability:      
Beginning balance$5,815
 $6,410
$2,540
 $5,815
Accrual2,772
 6,713
243
 3,025
Warranty payments(2,137) (7,308)(282) (2,420)
Deconsolidation of subsidiary (1)
(3,880) 

 (3,880)
Ending balance$2,570
 $5,815
$2,501
 $2,540


(1) As a result of the sale of the shares by the Company in the FOX Secondary Offering, the Company’s ownership interest in FOX decreased to approximately 41%, which resulted in the deconsolidation of the FOX operating segment in the Company’s consolidated financial statements effective July 10, 2014.

Note LM — Noncontrolling interestInterest

Noncontrolling interest represents the portion of the Company’s majority-owned subsidiary’s net income (loss) and equity that is owned by noncontrolling shareholders. The following tables reflect the Company’s ownership percentage of its majority owned operating segments and related noncontrolling interest balances as of September 30, 2014March 31, 2015 and December 31, 2013:

 
% Ownership (1)
September 30, 2014
 
% Ownership (1)
December 31, 2013
 Primary 
Fully
Diluted
 Primary 
Fully
Diluted
CamelBak89.9 79.7 89.9 79.7
Ergobaby81.0 74.3 81.0 75.0
FOX (2)
n/a n/a 53.9 49.8
Liberty96.2 84.8 96.2 84.8
ACI69.4 69.3 69.4 69.4
American Furniture99.9 99.9 99.9 99.9
Arnold Magnetics96.7 87.2 96.7 87.2
Clean Earth97.9 86.2 n/a n/a
Tridien81.3 64.6 81.3 66.5
2014:


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(1) The principal difference between primary and diluted percentages of our operating segments is due to stock option issuances of operating segment stock to management of the respective businesses.
 
% Ownership (1)
March 31, 2015
 
% Ownership (1)
December 31, 2014
 Primary 
Fully
Diluted
 Primary 
Fully
Diluted
CamelBak89.9 79.7 89.9 79.7
Ergobaby81.0 74.2 81.0 74.3
Liberty96.2 84.6 96.2 84.8
ACI69.4 69.3 69.4 69.3
American Furniture99.9 89.7 99.9 99.9
Arnold Magnetics96.7 87.3 96.7 87.5
Clean Earth97.9 86.2 97.9 86.2
SternoCandleLamp100.0 91.3 100.0 91.7
Tridien81.3 65.4 81.3 65.4

(1)
The principal difference between primary and diluted percentages of our operating segments is due to stock option issuances of operating segment stock to management of the respective businesses.
(2) FOX was deconsolidated on July 10, 2014 after the Company's ownership in FOX fell below 50% and is therefore not a majority-owned subsidiary. Refer to Note B.


Noncontrolling Interest BalancesNoncontrolling Interest Balances
(in thousands)September 30, 2014 
December 31,
2013
March 31, 2015 
December 31,
2014
CamelBak$14,616
 $13,519
$15,303
 $14,932
Ergobaby14,059
 12,571
15,446
 14,783
FOX
 64,949
Liberty2,500
 2,339
2,648
 2,547
ACI(227) (2,529)1,534
 790
American Furniture260
 260
260
 260
Arnold Magnetics1,886
 1,808
1,982
 1,950
Clean Earth2,274
 
2,946
 2,672
SternoCandleLamp249
 125
Tridien2,709
 2,533
1,070
 2,744
Allocation Interests100
 100
100
 100
$38,177
 $95,550
$41,538
 $40,903

Note MN — Income taxes
Each fiscal quarter the Company estimates its annual effective tax rate and applies that rate to its interim pre-tax earnings. In this regard, the Company reflects the full year’s estimated tax impact of certain unusual or infrequently occurring items and the effects of changes in tax laws or rates in the interim period in which they occur.
The computation of the annual estimated effective tax rate in each interim period requires certain estimates and significant judgment, including the projected operating income for the year, projections of the proportion of income earned and taxed in other jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, as additional information is obtained or as the tax environment changes.

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The reconciliation between the Federal Statutory Rate and the effective income tax rate for the ninethree months ended September 30,March 31, 2015 and 2014 and 2013 are as follows:

Nine months ended September 30,Three months ended March 31,
2014 20132015 2014
United States Federal Statutory Rate35.0 % 35.0 %(35.0)% 35.0 %
Foreign and State income taxes (net of Federal benefits)(0.9) 1.8
0.3
 1.0
Expenses of Compass Group Diversified Holdings, LLC representing a pass through to shareholders(1)1.3
 0.5
9.8
 6.2
Effect of deconsolidation of subsidiary (1)
(31.4) 
Effect of supplemental put reversal (2)

 (15.7)
Effect of loss on equity method investment (2)
21.5
 
Impact of subsidiary employee stock options
 0.3
0.5
 0.4
Domestic production activities deduction(0.3) (1.4)(0.8) (2.4)
Effect of impairment expense12.2
 
Non-recognition of NOL carryforwards at subsidiaries
 0.1
5.1
 (1.2)
Other0.3
 (2.4)1.8
 4.9
Effective income tax rate4.0 % 18.2 %15.4 % 43.9 %

(1)
The effective income tax rate for the three months ended March 31, 2015 and 2014 includes a significant loss at the Company's parent, which is taxed as a partnership.
(1) The effective income tax rate for the nine months ended September 30, 2014 includes a significant gain at the Company's parent, which is taxed as a partnership, related to the deconsolidation of FOX in July 2014.
(2)
The equity method investment in FOX is held at the Company's parent, which is taxed as a partnership, resulting in the gain or loss on the investment as a reconciling item in deriving the effective tax rate.



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(2) The effective income tax rate for the nine months ended September 30, 2013 includes a gain at the Company's parent, which is taxed as a partnership, related to the termination of the Supplemental Put Agreement in July 2013.

Note NO — Defined Benefit Plan
In connection with the acquisition of Arnold, the Company has a defined benefit plan covering substantially all of Arnold’s employees at its Lupfig, Switzerland location. The benefits are based on years of service and the employees’ highest average compensation during the specific period.
The unfunded liability of $1.1$3.4 million is recognized in the consolidated balance sheet as a component of other non-current liabilities at September 30, 2014.March 31, 2015. Net periodic benefit cost consists of the following for the three and nine months ended September 30, 2014March 31, 2015 and 2013:2014:

Three months ended September 30, Nine months ended September 30,Three months ended March 31,
2014 2013 2014 20132015 2014
Service cost$110
 $119
 $331
 $357
$162
 $118
Interest cost70
 73
 211
 220
47
 76
Expected return on plan assets(128) (195) (390) (565)(49) (198)
Net periodic benefit cost$52
 $(3) $152
 $12
$160
 $(4)
During the three months and nine months ended September 30, 2014,March 31, 2015, per the terms of the pension agreement, Arnold has contributed $0.1 million and $0.4 million to the plan, respectively.plan. For the remainder of 2014,2015, the expected contribution to the plan will be approximately $0.2$0.5 million.
The plan assets are pooled with assets of other participating employers and are not separable; therefore the fair values of the pension plan assets at September 30, 2014March 31, 2015 were considered Level 3.


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Note OP - Commitments and Contingencies
Legal Proceedings
Tridien
Tridien's subsidiary, AMF Support Services, Inc. ("AMF") is subject to a workers' compensation claim in the State of California, being adjudicated by the Riverside County Workers' Compensation Appeals Board.  Tridien is a majority owned subsidiary of the Company. The claim is the result of an industrial accident that occurred on March 2, 2013, and the injuries sustained by a contract employee working at Tridien's Corona, California facility.  The employee is seeking workers' compensation benefits from AMF, as the special employer, and the staffing company who employed the worker, as the general employer.  The employee has also alleged that the employee's injuries are the result of the employer's "serious and willful misconduct", and has made a claim under California Labor Code § 4553 for damages.  If proven, the "serious and willful" penalty is fixed by statute at either $0 or 50% of the value of all workers' compensation benefits paid as a result of the injury and is not insurable. The underlying workers' compensation claims are still being adjudicated. At this stage, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from these proceedings. Accordingly, no amounts in respect of this matter have been provided in the Company's accompanying financial statements.  The Company believes it has meritorious defenses to the allegations and will continue to vigorously defend against the claims.

In the normal course of business, the Company and its subsidiaries are involved in various claims and legal proceedings. While the ultimate resolution of these matters has yet to be determined, the Company does not believe that any unfavorable outcomes will have a material adverse effect on the Company's consolidated financial position or results of operations.

Note P - Subsequent Event
On October 10, 2014, the Company, through its wholly owned subsidiary business, Sternocandlelamp Holdings, Inc. (the “Purchaser”), entered into a membership interest purchase agreement (the “Sterno Purchase Agreement”) with Candle Lamp Holdings, LLC (the “Seller”), and Candle Lamp Company, LLC (“SternoCandleLamp”) pursuant to which the Purchaser acquired all of the issued and outstanding equity of SternoCandleLamp (the “Acquisition”). The purchase price of $163.2 million for the Acquisition is based on a total enterprise value for SternoCandleLamp of $161.5 million and included approximately $1.7 million

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of estimated cash and working capital adjustments and is subject to a post-closing working capital adjustment. Acquisition-related costs were approximately $2.7 million. The Company funded the cash consideration and acquisition-related costs through a $166 million draw on its Revolving Credit Facility. CGM acted as an advisor to the Company in the acquisition and will continue to provide integration services during the first year of the Company's ownership of SternoCandleLamp. CGM will receive integration service fees of approximately $1.5 million which will be payable quarterly as services are rendered beginning on December 31 2014.
Headquartered in Corona, California, SternoCandleLamp is the leading manufacturer and marketer of portable food warming fuel and creative table lighting solutions for the foodservice industry. SternoCandleLamp’s product line includes wick and gel chafing fuels, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps. For the year ended December 31, 2013, SternoCandleLamp reported net revenue of approximately $133.6 million. On a primary basis, CODI will initially own all of the common equity ownership in SternoCandleLamp. In addition to its equity investment in SternoCandleLamp, the Company provided loans totaling approximately $91.6 million to SternoCandleLamp as part of the transaction. The acquisition will be accounted for as a business combination, and the consideration will be allocated to the assets and liabilities acquired based on their fair values as of the acquisition date. Any remaining amount of the purchase price allocation will be recorded as goodwill. The preliminary purchase price allocation has not been performed as of the date of the filing of this report.






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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Item 2 contains forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, some of which are beyond our control. Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which we are not currently aware or which we currently deem immaterial could also cause our actual results to differ, including those discussed in the sections entitled “Forward-Looking Statements” included elsewhere in this Quarterly Report as well as those risk factors discussed in the section entitled “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2013.2014.
Overview
Compass Diversified Holdings, a Delaware statutory trust (“Holdings” or the “Trust”), was incorporated in Delaware on November 18, 2005. Compass Group Diversified Holdings, LLC, a Delaware limited liability Company (the “Company”), was also formed on November 18, 2005. The Trust and the Company (collectively “CODI”) were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. The Trust is the sole owner of 100% of the Trust Interests, as defined in our LLC Agreement, of the Company. Pursuant to the LLC Agreement, the Trust owns an identical number of Trust Interests in the Company as exist for the number of outstanding shares of the Trust. Accordingly, our shareholders are treated as beneficial owners of Trust Interests in the Company and, as such, are subject to tax under partnership income tax provisions. The Company is the operating entity with a board of directors whose corporate governance responsibilities are similar to that of a Delaware corporation. The Company’s board of directors oversees the management of the Company and our businesses and the performance of Compass Group Management LLC (“CGM” or our “Manager”). Certain memberspersons who are employees and partners of our Manager receive a profit allocation as owners of 53.6%58.8% of the Allocation Interests in us, as defined in our LLC Agreement.
The Trust and the Company were formed to acquire and manage a group of small and middle-market businesses headquartered in North America. We characterize small to middle market businesses as those that generate annual cash flows of up to $60 million. We focus on companies of this size because of our belief that these companies are often more able to achieve growth rates above those of their relevant industries and are also frequently more susceptible to efforts to improve earnings and cash flow.
In pursuing new acquisitions, we seek businesses with the following characteristics:
North American base of operations;
stable and growing earnings and cash flow;
maintains a significant market share in defensible industry niche (i.e., has a “reason to exist”);
solid and proven management team with meaningful incentives;
low technological and/or product obsolescence risk; and
a diversified customer and supplier base.
Our management team’s strategy for our businesses involves:
utilizing structured incentive compensation programs tailored to each business to attract, recruit and retain talented managers to operate our businesses;
regularly monitoring financial and operational performance, instilling consistent financial discipline, and supporting management in the development and implementation of information systems to effectively achieve these goals;
assisting management in their analysis and pursuit of prudent organic cash flow growth strategies (both revenue and cost related);
identifying and working with management to execute attractive external growth and acquisition opportunities; and
forming strong subsidiary level boards of directors to supplement management in their development and implementation of strategic goals and objectives.
We are dependent on the earnings of, and cash receipts from our businesses to meet our corporate overhead and management fee expenses and to pay distributions. These earnings and distributions, net of any minority interests in these businesses, are generally available:
first, to meet capital expenditure requirements, management fees and corporate overhead expenses;
second, to fund distributions from the businesses to the Company; and
third, to be distributed by the Trust to shareholders.


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2014 Highlights2015Outlook

Acquisition of Clean Earth
On August 26, 2014, we purchased a 97.9% controlling interest (86.2% on a fully diluted basis) in Clean Earth Holdings Inc. (Clean Earth). Founded in 1990 and headquartered in Hatboro, Pennsylvania, Clean Earth is a provider of environmental services for a variety of contaminated materials. Clean Earth provides a one-stop shop solution that analyzes, treats, documents and recycles waste streams generated in multiple end-markets such as power, construction, commercial development, oil & gas, infrastructure, industrial and dredging. Approximately 98% of the material processed by Clean Earth is beneficially reused for such purposes as daily landfill cover, industrial and brownfield redevelopment projects.

The purchase price, including proceeds from non-controlling interests, was approximately $253 million (excluding acquisition-related costs aggregating $1.9 million) and was based on a total enterprise value of $243 million and included approximately $9.9 million in cash and working capital. We funded the acquisition through available cash on hand and a draw of $95 million on our Revolving Credit Facility. Clean Earth’s management invested in the transaction alongside us, collectively representing approximately 2.1% in initial non-controlling interest on a primary basis. CGM acted as an advisor to us in the acquisition and will continue to provide integration services during the first year of our ownership of Clean Earth. CGM will receive integration service fees of approximately $2.5 million which will be payable quarterly as services are rendered beginning on December 31, 2014.

Sale of FOX common stock
On July 10, 2014, 5,750,000 shares of FOX common stock, held by certain FOX shareholders, including us, were sold in a secondary offering at a price of $15.50 per share for total net proceeds to selling shareholders of approximately $84.4 million.
As a selling shareholder we sold a total of 4,466,569 shares of FOX common stock, including 633,955 shares sold in connection with underwriters’ exercise of the over-allotment option in full, for total net proceeds of approximately $65.5 million. Upon completion of the offering, our ownership in FOX was lowered from approximately 53% to 41%, or 15,108,718 shares of FOX’s common stock and as a result we deconsolidated FOX as of July 10, 2014 which is consistent with our intention to streamline our consolidated financial reporting. In connection with the FOX deconsolidation we recorded a gain of $264.2 million in the quarter ended September 30, 2014.

Debt Refinancing
On June 6, 2014, we obtained a $725 million credit facility led by Bank of America, N.A., as Administrative Agent for a group of lenders. The 2014 Credit Facility provides for (i) revolving loans, swing line loans and letters of credit up to a maximum aggregate amount of $400 million, and (ii) a $325 million term loan. The 2014 Term Loan was issued at an original issuance discount of 99.5% of par value. The 2014 Term Loan requires quarterly payments of $812,500 commencing September 30, 2014 with a final payment of all remaining principal and interest due on June 6, 2021, which is the 2014 Term Loan maturity date. All amounts outstanding under the 2014 Revolving Credit Facility will become due on June 6, 2019, which is the maturity date of loans advanced under the 2014 Revolving Credit Facility and the termination date of the revolving loan commitment. The 2014 Credit Facility also permits us, prior to the applicable maturity date, to increase the revolving loan commitment and/or obtain additional term loans in an aggregate amount of up to $200 million subject to certain restrictions and conditions.
We used approximately $290.0 million of the 2014 Term Loan proceeds to pay all amounts outstanding under the 2011 Credit Facility and to pay the closing costs. In addition, at closing, approximately $1.2 million of the revolving loan commitment was utilized in connection with the issuance of letters of credit.
Future advances under the 2014 Revolving Credit Facility will be used to finance working capital, capital expenditures and other general corporate purposes (including funding acquisitions of additional businesses, permitted distributions and loans to our businesses and, in the case of any incremental loans that are term loans, to repay amounts outstanding under the 2014 Revolving Credit Facility.

Recent Events
Acquisition of SternoCandleLamp
On October 10, 2014, we purchased all of the issued and outstanding equity of SternoCandleLamp. Headquartered in Corona, California, SternoCandleLamp is the leading manufacturer and marketer of portable food warming fuel and creative table lighting solutions for the foodservice industry. SternoCandleLamp’s product line includes wick and gel chafing fuels, butane stoves and

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accessories, liquid and traditional wax candles, catering equipment and lamps. For the year ended December 31, 2013, SternoCandleLamp reported revenue of $133.6 million.

The purchase price, was approximately $163.2 million (excluding acquisition-related costs aggregating $2.7 million) and was based on a total enterprise value of $161.5 million and included approximately $1.7 million in cash and working capital. We funded the acquisition through available cash on hand and a drawing of approximately $166 million on our Revolving Credit Facility. CGM acted as an advisor to us in the acquisition and will continue to provide integration services during the first year of our ownership of SternoCandleLamp. CGM will receive integration service fees of approximately $1.5 million which will be payable quarterly as services are rendered beginning on December 31, 2014.


Outlook
Middle market deal flow in the ninethree months ended September 30, 2014March 31, 2015 increased relative to 2013,2014, both in terms of quantity and quality, in part due to attractive valuations for sellers. High valuation levels continue to be driven by the availability of debt capital with favorable terms and financial and strategic buyers seeking to deploy available equity capital.

We are dependent on the earnings of, and cash receipts from, the businesses that we own to meet our corporate overhead and management fee expenses and to pay distributions. These earnings and distributions, net of any minority interests in these businesses, will be available:

     First, to meet capital expenditure requirements, management fees and corporate overhead expenses;

     Second, to fund distributions from the businesses to the Company; and

     Third, to be distributed by the Trust to shareholders.


Results of Operations
We were formed on November 18, 2005 and acquired our existing businesses (segments) as follows:
 
         
May 16, 2006 August 1, 2006  August 31, 2007  March 31, 2010  September 16, 2010
     
Advanced Circuits Tridien  American Furniture  Liberty Safe  Ergobaby
         
August 24, 2011  March 5, 2012  August 26, 2014 October 10, 2014   
         
CamelBak  Arnold Magnetics  Clean Earth SternoCandleLamp   

In the following results of operations, we provide (i) our actual consolidated results of operations for the three and nine months ended September 30,March 31, 2015 and 2014, and 2013, which includes the historical results of operations of our businesses (operating segments) from the date of acquisition and (ii) comparative results of operations for each of our businesses on a stand-alone basis for the three and nine months ended September 30, 2014March 31, 2015 and 2013.2014. On July 10, 2014 our ownership interest in FOX decreased to 41% and as a result, beginning July 10, 2014 FOX no longer met the requirements for inclusion in our consolidated Results of Operations. Refer to - “Related Party Transactions and Certain Transactions Involving our Businesses” - Sale of FOX common stock.

In the table below we remove the results of operations of FOX that are included in our historical condensed consolidated results of operations through July 10, 2014, in order to provide a meaningful comparison of the combined results of operations of our majority-owned businesses for the three and nine month periods ended September 30, 2014March 31, 2015 and 2013.

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2014.
Consolidated Results of Operations – Compass Diversified Holdings and Compass Group Diversified Holdings LLC
 
(in thousands)Three Months Ended 
 September 30, 2014
 Three Months Ended 
 September 30, 2013
Three Months Ended 
 March 31, 2015
 Three Months Ended 
March 31, 2014
Consolidated Results of Operations Less: FOX (10 days) Consolidated Results less FOX
Consolidated Results of Operations
Less: FOX (three months) Consolidated Results less FOXConsolidated Results of Operations
Consolidated Results of Operations
Less: FOX (three months) Consolidated Results less FOX
                  
Net sales$203,140
 $7,514
 $195,626
 $265,512
 $82,293
 $183,219
$257,271
 $246,048
 $56,108
 $189,940
Cost of sales141,090
 5,190
 135,900
 183,040
 56,960
 126,080
185,355
 169,696
 39,091
 130,605
Gross profit62,050
 2,324
 59,726
 82,472
 25,333
 57,139
71,916
 76,352
 17,017
 59,335
Selling, general and administrative expense39,686
 1,328
 38,358
 42,468
 9,160
 33,308
44,028
 46,173
 10,909
 35,264
Supplemental put expense
 

 
 (61,303) 
 (61,303)
Fees to manager5,876
 
 5,876
 4,892
 58
 4,834
6,858
 4,735
 
 4,735
Amortization of intangibles6,768
 185
 6,583
 7,310
 1,341
 5,969
10,013
 7,349
 1,361
 5,988
Impairment expense
 
 
 
 
 
8,907
 
 
 
Operating income$9,720
 $811
 $8,909
 $89,105
 $14,774
 $74,331
$2,110
 $18,095
 $4,747
 $13,348





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Net sales
On a consolidated basis, net of FOX, net sales for the three months ended September 30, 2014March 31, 2015 increased by approximately $12.4$67.3 million or 6.8%35.4%.  Our acquisitions of Clean Earth and SternoCandleLamp in August and October 2014, respectively, contributed $63.7 million of the total increase. During the three months ended September 30, 2014March 31, 2015 compared to 20132014, we also saw notable sales increases at American Furniture ($2.16.1 million), Tridien ($1.9 million) and Ergobaby ($5.51.1 million) together with incremental net sales at Clean Earth from the acquisition date ($20.3 million) were offset in part by decreased sales at Liberty Safe ($15.33.0 million) and CamelBak ($1.8 million).  The decrease in sales at Liberty Safe is the result of a steep market decline in gun safe purchases. Refer to “Results of Operations - Our Businesses” for a more detailed analysis of net sales by business segment.

We do not generate any revenues apart from those generated by the businesses we own. We may generate interest income on the investment of available funds, but we expect such earnings to be minimal. Our investment in our businesses is typically in the form of loans from the Company to such businesses, as well as equity interests in those companies. Cash flows coming to the Trust and the Company are the result of interest payments on those loans, amortization of those loans and dividends on our equity ownership. However, on a consolidated basis these items will be eliminated.

Cost of sales
On a consolidated basis, net of FOX, cost of sales increased approximately $9.8$54.8 million during the three month period ended September 30, 2014,March 31, 2015, compared to the corresponding period in 2013.2014. The 2014 acquisitions had cost of sales of $50.2 million during the three months ended March 31, 2015. Gross profit as a percentage of sales was approximately 30.5%28.0% in the three months ended September 30, 2014March 31, 2015 compared to 31.2% in 2013. The decrease in gross profit as a percentage of sales in the three month period ended September 30, 2014 is principally due to a steep decrease in gross profit margins at Liberty Safe resulting from discounted sales and negative production volume variances due to the reduction in sales backlog.2014. Refer to “Results of Operations - Our Businesses” for a more detailed analysis of cost of sales by business segment.

Selling, general and administrative expense
On a consolidated basis, net of FOX, selling, general and administrative expense increased approximately $5.1$8.8 million during the three month period ended September 30, 2014,March 31, 2015, compared to the corresponding period in 2013.2014. The increase in expenses in the 20142015 quarter compared to 20132014 is principally the result of including Clean Earth coststhe expenses from the acquisition date to quarter endour 2014 acquisitions ($4.69.0 million), which includes $1.9 million of acquisition transaction costs. Selling, general and administrative costs increased $2.4 million at Ergobaby in the three month period ended September 30, 2014 compared to the same 2013 period with the bulk of those incremental costs spent on new product promotion and support. These 2014 increases were offset in part by a decrease in costs at Liberty and CamelBak.. Refer to “Results

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of Operations - Our Businesses” for a more detailed analysis of selling, general and administrative expense by business segment. At the corporate level, selling, general and administrative expense decreased $0.4increased $0.1 million in the three months ended September 30,March 31, 2015, compared to the same period in 2013 as a result of a decrease in professional fees.2014.

Fees to manager
Pursuant to the Management Services Agreement, we pay CGM a quarterly management fee equal to 0.5% (2.0% annually) of our consolidated adjusted net assets. We accrue for the management fee on a quarterly basis. For the three months ended September 30, 2014,March 31, 2015, we incurred approximately $5.9$6.9 million in expense for these fees compared to $4.8$4.7 million for the corresponding period in 2013.2014. The $1.1$2.1 million increase in the three months ended September 30, 2014March 31, 2015 is principally due to the increase in consolidated net assets resulting from the acquisition of Clean Earth.

Supplemental put expense
On July 1, 2013, we terminated the Supplemental Put Agreement with our Manager. As a result of the termination of the Supplemental Put Agreement, we derecognized the supplemental put liability associated with the Manager’s put right, reversing the entire $61.3 million liability at July 1, 2013 through supplemental put expense during the third quarter of 2013.


 Nine Months Ended 
 September 30, 2014
 Nine Months Ended 
 September 30, 2013
 Consolidated Results of Operations Less: FOX (191 days) Consolidated Results less FOX Consolidated Results of Operations Less: FOX (nine months) Consolidated Results less FOX
            
Net sales$718,272
 $149,995
 $568,277
 $752,854
 $207,488
 $545,366
Cost of sales497,328
 103,701
 393,627
 516,652
 146,076
 370,576
      Gross profit220,944
 46,294
 174,650
 236,202
 61,412
 174,790
Selling, general and administrative expense133,939
 25,780
 108,159
 124,671
 26,102
 98,569
Supplemental put expense
 
 
 (45,995) 
 (45,995)
Fees to manager15,634
 
 15,634
 13,642
 308
 13,334
Amortization of intangibles21,795
 3,220
 18,575
 22,384
 4,023
 18,361
Impairment expense
 
 
 900
 
 900
      Operating income$49,576
 $17,294
 $32,282
 $120,600
 $30,979
 $89,621

Net sales
On a consolidated basis, net of FOX, net sales for the nine months ended September 30, 2014 increased by approximately $22.9 million or 4.2%.  During the nine months ended September 30, 2014 compared to 2013 notable sales increases at American Furniture ($16.5 million), Tridien ($4.8 million) and Ergobaby ($11.9 million) together with incremental sales at Clean Earth from the acquisition date ($20.3 million) were offset in part by decreased sales at Liberty Safe ($29.1 million).  The decrease in sales at Liberty Safe is the result of a steep market decline in gun safe purchases. Refer to “Results of Operations - Our Businesses” for a more detailed analysis of net sales by business segment.

We do not generate any revenues apart from those generated by the businesses we own. We may generate interest income on the investment of available funds, but we expect such earnings to be minimal. Our investment in our businesses is typically in the form of loans from the Company to such businesses, as well as equity interests in those companies. Cash flows coming to the Trust and the Company are the result of interest payments on those loans, amortization of those loans and dividends on our equity ownership. However, on a consolidated basis these items will be eliminated.

Cost of sales
On a consolidated basis, net of FOX, cost of sales increased approximately $23.1 million during the nine month period ended September 30, 2014, compared to the corresponding period in 2013. Gross profit as a percentage of sales was approximately 30.7% in the nine months ended September 30, 2014 compared to 32.1% in 2013. The decrease in gross profit as a percentage of sales in the nine month period ended September 30, 2014 is due principally to a steep decrease in gross profit margins at Liberty Safe resulting from discounted sales and negative

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production volume variances due to the reduction in sales backlog. Refer to “Results of Operations - Our Businesses” for a more detailed analysis of cost of sales by business segment.

Selling, general and administrative expense
On a consolidated basis, net of FOX, selling, general and administrative expense increased approximately $9.6 million during the nine month period ended September 30, 2014, compared to the corresponding period in 2013. The increase in expenses in the 2014 quarter compared to 2013 is principally the result of including $4.6 million Clean Earth costs from the acquisition date to quarter end, which includes $1.9 million of acquisition transaction costs. Selling, general and administrative costs increased $4.2 million at Ergobaby in the nine month period ended September 30, 2014 compared to the same 2013 period, with the bulk of those incremental costs spent on new product promotion and support. These 2014 increases were offset in part by a decrease in costs at Liberty Safe. Refer to “Results of Operations - Our Businesses” for a more detailed analysis of selling, general and administrative expense by business segment. At the corporate level, selling, general and administrative expense increased $0.4 million in the nine months ended September 30, 2014 compared to the same period in 2013 as a result of unsuccessful acquisition costs incurred during 2014.

Fees to manager
Pursuant to the Management Services Agreement, we pay CGM a quarterly management fee equal to 0.5% (2.0% annually) of our consolidated adjusted net assets. We accrue for the management fee on a quarterly basis. For the nine months ended September 30, 2014, we incurred approximately $15.6 million in expense for these fees compared to $13.3 million for the corresponding period in 2013. The $2.3 million increase is due principally to the increase in consolidated net assets resulting from the acquisitionacquisitions of Clean Earth and FOX's acquisitionSternoCandleLamp during the third and fourth quarter of Sport Truck.

Supplemental put expense
On July 1, 2013, we terminated the Supplemental Put Agreement with our Manager. As a result of the termination of the Supplemental Put Agreement, we derecognized the supplemental put liability associated with the Manager’s put right, The reversal amount reflects the balance of the supplemental put obligation as of January 1, 2013, offset in part by a payment of $5.6 million to our Manager as a result of the FOX five year Holding Event.2014.

Impairment expense
During the second quarter of 2013,
In January 2015, one of Tridien’sTridien's largest customers lost a large contract programinformed the Company that was being serviced substantially with Tridien product.they would not renew their purchase agreement when it expires on September 30, 2015. This customer represented 20% of Tridien's sales in 2014. The expected lost sales and net income were significant enough to trigger an interim goodwill and indefinite-lived asset impairment analysis. The result of these analyses supported the carrying value of goodwill but indicated that sales of product reliant on trade names could not fully support the carrying value of Tridien’s trade names. As such, we wrote down the carrying valueanalysis which resulted in impairment of the trade names by $0.9Tridien goodwill of $8.9 million to a carrying valueduring the first quarter of approximately $0.6 million at June 30, 2013. There has been no indication of impairment in 2014.2015.

FOX operating results
The impact of FOX operating results on each component of our consolidated results of operations for the three and nine month periods ended September 30, 2014 and 2013, is almost entirely a function of the number of days that FOX operating results are included in each of the periods presented.

Results of Operations — Our Businesses

We categorize the businesses we own into two separate groups of businesses (i) branded consumerproducts businesses and, (ii) niche industrial businesses. Branded consumerproducts businesses are characterized as those businesses that we believe capitalize on a valuable brand name in their respective market sector. We believe that our branded consumerproducts businesses are leaders in their particular category. Niche industrial businesses are characterized as those businesses that focus on manufacturing, servicing and selling particular products within a specific market sector. We believe that our niche industrial businesses are leaders in their specific market sector.

The following discussion reflects a comparison of the historical results of operations of each of our businesses for the three and nine month periods ending September 30,March 31, 2015 and March 31, 2014 and September 30, 2013 on a stand-alone basis. TheFor the 2014 acquisitions, the following discussion reflects pro forma results of operations for Clean Earth, acquired on August 26,the three months ended March 31, 2014 is presented on a pro-form basis as if we had acquired Clean Earththe businesses on January 1, 2013 and includes2014. Where appropriate, pro-formarelevant pro forma adjustments and explanations.are reflected as part of the historical operating results. We believe this is the most meaningful comparison of the operating results for each of our business segments. The following results of operations at each our businesses are not necessarily indicative of the results to be expected for a full year.


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Branded ConsumerProducts Businesses
CamelBak
Overview
CamelBak, headquartered in Petaluma, California, is a premier designer and manufacturer of personal hydration products for outdoor, recreation and military applications. CamelBak offers a broad range of recreational and military personal hydration packs, reusable water bottles, specialty military gloves and performance accessories.

As the leading supplier of hydration products to specialty outdoor, cycling and military retailers, CamelBak maintains the leading market share position in recreational markets for hands-free hydration packs and the leading market share position for reusable water bottles in specialty channels. CamelBak is also the dominant supplier of hydration packs to the military, with a leading market share in post-issue hydration packs. Over its more than 25-year history, CamelBak has developed a reputation as the preferred supplier for the hydration needs of the most demanding athletes and warfighters. Across its markets, CamelBak is respected for its innovation, leadership and authenticity.
Historical Financial Performance
On August 24, 2011, we made loans to, and purchased a controlling interest in, CamelBak for approximately $258.6 million, representing approximately 90% of the equity in CamelBak.
Results of Operations
The table below summarizes the income from operations data for CamelBak for the three and nine month periods ended September 30, 2014March 31, 2015 and September 30, 2013.March 31, 2014.
 
Three months ended Nine months endedThree months ended
(in thousands)September 30, 2014
September 30, 2013
September 30, 2014
September 30, 2013March 31, 2015
March 31, 2014
Net sales$33,496

$34,661
 $113,145
 $111,927
$36,922

$38,770
Cost of sales19,764

19,487
 65,129
 62,173
21,690

21,865
Gross profit13,732

15,174
 48,016
 49,754
15,232

16,905
Selling, general and administrative expense8,596

9,314
 26,590
 26,263
8,578

8,747
Fees to manager125

125
 375
 375
125

125
Amortization of intangibles2,178

2,245
 6,534
 6,800
2,178

2,178
Income from operations$2,833

$3,490
 $14,517
 $16,316
$4,351

$5,855
Three months ended September 30, 2014March 31, 2015 compared to the three months ended September 30, 2013March 31, 2014

Net sales
Net sales for the three months ended September 30, 2014March 31, 2015 were approximately $33.5$36.9 million, a decrease of $1.2$1.8 million, or 3.4%4.8%, compared to the same period in 2013.2014. The decrease in net sales is a result of a decrease in gross sales in Hydration systems ($2.02.6 million), Accessories ($0.3 million) and Gloves ($0.5 million) offset in part by increasedan increase in gross sales in Bottles ($1.40.8 million), and Accessories ($0.4 million). The increase in Bottle sales during the three months ended September 30, 2014March 31, 2015 compared to the same period in 20132014 is primarily attributable to an increase in international and domestic bottle sales including, eddyTM, the Podium line of insulated bottles, Chute, an ergonomic high-flow water bottle, the introduction of the filtered pitcher, Relay, and the continued expansion in its customer base, including new and existing customers, for all existing product lines. The decrease in Glove sales during the same period is the result of timing of government orders which are sporadic in nature. The decrease in sales of Hydration systems during the three months ended September 30, 2014March 31, 2015 compared to 20132014 is due to the timing of shipments for certain pack models, reduced military demand due to troop downsizing and decreasesreduced inventory available for sale due to the West Coast port congestion in military sales.the United States.

Sales of Hydration systems and Bottles represented approximately 86% of gross sales for the three months ended September 30, 2014March 31, 2015 compared to 84%87% for the same period in 2013.2014. Military sales were approximately 26% of gross sales for the three months ended September 30, 2014 compared to 30% for the same period in 2013. International sales were approximately 19% of gross sales for the three months ended September 30, 2014March 31, 2015 compared to 18%20% for the same period in 2013.2014. International sales were approximately 26% of gross sales for the

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both the three months ended March 31, 2015 and 2014. The decrease in Military sales is attributable to the decrease in demand as a result of the drawdown of U.S. combat troops.

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Cost of sales
Cost of sales for the three months ended September 30, 2014March 31, 2015 was approximately $19.8$21.7 million compared to approximately $19.5$21.9 million in the same period of 2013.2014. Gross profit as a percentage of sales decreased to 41.0%41.3% for the quarter ended September 30, 2014March 31, 2015 from 43.8%43.6% in the quarter ended September 30, 2013.March 31, 2014. The decrease is principally attributable to the strengthening of the U.S. dollar versus the Euro and the British Pound, as well as increased bottle supplierfreight costs not passed ondue to customers and an unfavorable sales mix in Hydration systems.

expediting shipments via air freight to mitigate the impact of the West Coast port congestion.

Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2014March 31, 2015 decreased to approximately $8.6 million or 25.7%23.2% of net sales compared to $9.3$8.7 million or 26.9%22.6% of net sales for the same period of 2013.2014. This decrease is primarily attributable to the timing of certain cost incurrences andreduction in sales for the closing of an international sales office.2015 quarter as compared to the same period in 2014.

Income from operations
Income from operations for the three months ended September 30, 2014March 31, 2015 was approximately $2.8$4.4 million, a decrease of $0.7$1.5 million when compared to the same period in 2013,2014, based on the factors described above.

Nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

Net sales
Net sales for the nine months ended September 30, 2014 were approximately $113.1 million, an increase of $1.2 million, or 1.1%, compared to the same period in 2013. The increase in net sales is a result of increased gross sales in Bottles ($10.9 million), and Gloves ($0.2 million), offset in part by a decrease in sales in Hydration systems ($9.0 million) and Accessories ($1.3 million). The increase in Bottle sales during the nine months ended September 30, 2014 compared to the same period in 2013 is primarily attributable to an increase in both domestic and international bottle sales including, eddyTM, the Podium line of insulated bottles, Chute, an ergonomic high-flow water bottle and the introduction of the filtered pitcher, Relay, and the continued expansion in its customer base, including new and existing customers, for all product lines. The increase in Glove sales during the same period is the result of timing of government orders which are sporadic in nature. The decrease in sales of Hydration systems during the nine months ended September 30, 2014 compared to 2013 is primarily attributable to Marine Corps contract sales in the 2013 period ($6.5 million) and the timing of shipments for certain pack models. There were no Marine Corps contract sales in 2014. The decrease in sales of Accessories during the nine months ended September 30, 2014 compared to 2013 is primarily attributable to a large order in 2013 that has not occurred in 2014.
Sales of Hydration systems and Bottles represented approximately 87% of gross sales for the nine months ended September 30, 2014 compared to 86% for the same period in 2013. Military sales were approximately 21% of gross sales for the nine months ended September 30, 2014 from 31% for the same period in 2013. International sales were approximately 22% of gross sales for the nine months ended September 30, 2014 compared to 20% for the same period in 2013. The steep decrease in Military sales is attributable to the absence of Marine Corps contract sales and a decrease in other Military sales during the nine months ended September 30, 2014, due to decreased demand as a result of the drawdown of U.S. combat troops. The increase in international sales is attributable to growth in that portion of the business.

Cost of sales
Cost of sales for the nine months ended September 30, 2014 were approximately $65.1 million compared to approximately $62.2 million in the same period of 2013. Gross profit as a percentage of sales decreased to 42.4% during the nine months ended September 30, 2014 compared to 44.5% in the same period in 2013. The decrease is attributable to an unfavorable sales mix in Bottles and Hydration Systems and a decrease in obsolescence reserve in the first quarter of 2013, offset in part by an increase in gross margin attributable to Glove sales as a result of non-recurring discounted Glove sales in the first quarter of 2013.

Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2014 increased to approximately $26.6 million or 23.5% of net sales compared to $26.3 million or 23.5% of net sales for the same period of 2013. The slight increase is attributable to increases in marketing costs to support new product launches in 2014 and severance costs that occurred in the first half of 2014, in connection with closing an international sales office.

Income from operations

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Income from operations for the nine months ended September 30, 2014 was approximately $14.5 million, a decrease of $1.8 million when compared to the same period in 2013, based on the factors described above.

Ergobaby
Overview
Ergobaby, headquartered in Los Angeles, California, is a premier designer, marketer and distributor of wearable baby carriers and related baby wearing products, as well as infant travel systems consisting of strollers, car seats and accessories. Ergobaby offers a broad range of wearable baby carriers, infant travel systems and related products that are sold through more than 450 retailers and web shops in the United States and throughout the world. Ergobaby has two main product lines: baby carriers (baby carriers and accessories) and infant travel systems (strollers, car seats and accessories).
On September 16, 2010, we made loans to and purchased a controlling interest in Ergobaby for approximately $85.2 million, representing approximately 84% of the equity in Ergobaby.
On November 18, 2011, Ergobaby acquired all the outstanding stock of Orbit Baby for $17.5 million. Orbit Baby produces and markets a premium line of infant travel systems. Orbit Baby’s high-quality products include stroller frames, seats, car seats and bassinets that are interchangeable using a patented hub ring.
Results of Operations
The table below summarizes the income from operations data for Ergobaby for the three and nine month periods ended September 30, 2014March 31, 2015 and September 30, 2013.March 31, 2014.
 
Three months ended Nine months endedThree months ended
(in thousands)September 30, 2014 September 30, 2013 September 30, 2014 September 30, 2013March 31, 2015 March 31, 2014
Net sales$22,429

$16,946
 $61,468
 $49,573
$20,668

$19,572
Cost of sales7,987

6,714
 22,248
 19,014
7,155

7,182
Gross profit14,442

10,232
 39,220
 30,559
13,513

12,390
Selling, general and administrative expense8,680

6,313
 23,139
 18,940
7,339

7,179
Fees to manager125

125
 375
 375
125

125
Amortization of intangibles756

743
 2,267
 2,229
643

755
Income from operations$4,881

$3,051
 $13,439
 $9,015
$5,406

$4,331

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Three months ended September 30, 2014March 31, 2015 compared to the three months ended September 30, 2013March 31, 2014

Net sales
Net sales for the three months ended September 30, 2014March 31, 2015 were $22.4$20.7 million, an increase of $5.5$1.1 million or 32.4%5.6% compared to the same period in 2013.2014. During the three-monthsthree months ended September 30, 2014March 31, 2015, international sales were approximately $13.3$11.0 million, representing an increasea decrease of $2.5$0.1 million over the corresponding period in 2013.2014. International baby carrier and accessory sales increaseddecreased by approximately $2.1$0.4 million, andoffset by an increase in international infant travel systems sales increased byof approximately $0.4$0.3 million. The growth in international baby carrier sales during the three month period ended September 30, 2014 was due to shipments of the new Ergobaby 360 four position carrier as well as increased shipments of Ergobaby’s bundle of joy (baby carrier plus infant insert). Domestic sales were $9.1$9.7 million in the thirdfirst quarter of 20142015 reflecting an increase of $2.9$1.2 million over the corresponding period in 2013.2014. The increasegrowth in domestic sales in the thirdfirst quarter of 20142015 compared to 2013the same period in 2014 is attributable to increased sales of both baby carrier and accessories ($2.12.7 million) to national and specialty retail accounts, andoffset by a decrease in domestic revenues for infant travel systems and accessories ($0.81.4 million) to national retail accounts and online.. The increase in baby carrier sales was attributable to the launch ofdemand for the Ergobaby’s 360 four position carrier.carrier, which was launched in April 2014. The decrease in infant travel systems and accessories sales was primarily attributable to higher revenues in the three month period ended March 31, 2014 in which Ergobaby releasedlaunched the new Orbit Baby G3 infant travel system, which includes stroller bases, various seats and accessories, into the domestic market duringThese launch orders were higher than the first quarter of 2014. The G3 release accounts for the majority of the increase in infant travel systems and accessories net sales. The G3 infant travel system became available to the international market in the third quarter of this year.subsequent reorder revenues. Baby carriers and accessories represented 82.7%85.5% of sales in the three-monthsthree months ended September 30, 2014March 31, 2015 compared to 84.3%78.8% in the same period in 2013.2014.

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Cost of sales
Cost of sales was approximately $7.2 million for both the three months ended September 30, 2014 were approximately $8.0 million compared to $6.7 million in the same period of 2013.March 31, 2015 and March 31, 2014. The increase of $1.3 million is principally duein gross profit was primarily attributable to the increase inhigher sales in 2014 compared to the same period in 2013.prior period. Gross profit as a percentage of sales was 64.4%65.4% for the quarter ended September 30, 2014March 31, 2015 compared to 60.4%63.3% for the same period in 2013.2014. The 400 bps210 basis point increase is primarily attributable to a greaterhigher percentage of domestic sales and to product sales mix, with a larger percentage of higher margin baby carrier sales and increased gross profit margins attributableas compared to domestic infant travel systems sales resulting from improved margins for the new Orbit Baby G3 product line. In addition, gross margins for the quarter ended September 30, 2013 were negatively impacted by discounts given to customers as the Company transitioned to its new logo.prior period.

Selling, general and administrative expenses
Selling, general and administrative expense for the three months ended September 30, 2014March 31, 2015 increased to approximately $8.7$7.3 million or 38.7%35.5% of net sales compared to $6.3$7.2 million or 37.3%36.7% of net sales for the same period of 2013.2014. The $2.4$0.2 million increase in the three months ended September 30, 2014March 31, 2015 compared to the same period in 2013 is2014 was primarily attributable to increases in marketing expenses in support of new product launches and consumer engagement activities and increases in employee related costs due to increased headcount, an increase in variable distribution expenses due to higher domestic revenues, and other variablean increase in rent expenses to support business growth. The 2014 quarter was also negatively impacted by unfavorable foreign exchange rates.as a result of a new office lease.

Income from operations
Income from operations for the three months ended September 30, 2014March 31, 2015 increased $1.8$1.1 million, to $4.9$5.4 million, compared to $3.1$4.3 million for the same period of 2013,2014, based on the factors described above.
Nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

Net sales
Net sales for the nine months ended September 30, 2014 were $61.5 million, an increase of $11.9 million or 24% compared to the same period in 2013. During the nine-months ended September 30, 2014 international sales were approximately $35.0 million, representing an increase of $6.6 million over the corresponding period in 2013. International baby carrier and accessory sales increased by approximately $6.3 million and international infant travel system sales increased by $0.3 million. The growth in international baby carrier sales in the nine months ended September 30, 2014 compared to 2013 was due in part to shipments of the new Ergobaby 360 four position carrier as well as geographic exclusive carriers to international markets and increases in shipments of Ergobaby’s bundles of joy (baby carrier plus infant insert). Domestic sales were $26.5 million during the nine months ended September 30, 2014 reflecting an increase of $5.3 million over the corresponding period in 2013. The increase in domestic sales in the nine months ended September 30, 2014 compared to 2013 is primarily attributable to increased sales of infant travel systems and accessories ($2.4 million) to specialty retail accounts and online sales and baby carrier sales ($2.9 million) to national retail accounts. Ergobaby released the new Orbit Baby G3 infant travel systems in the first quarter of 2014 in the domestic market, which accounts for the majority of the infant travel system sales increase. The G3 infant travel system was released in the international market in the third quarter of this year. The increase in baby carrier and accessory sales during the nine months ended September 30, 2014 over the corresponding period in 2013 is attributable to the launch of the Ergobaby 360 four position carrier as well as increases in Ergobaby’s bundle of joy sales. Baby carriers and accessories represented 81.8% of sales in the nine-months ended September 30, 2014 compared to 82.8% in the same period in 2013.

Cost of sales
Cost of sales for the nine months ended September 30, 2014 were approximately $22.2 million compared to $19.0 million in the same period of 2013. The increase of $3.2 million is principally due to the increase in sales in 2014 compared to the same period in 2013. Gross profit as a percentage of sales was 63.8% in the nine months ended September 30, 2014 compared to 61.6% for the same period in 2013. The 220 basis points increase is primarily attributable to increased gross profit margins from domestic infant travel system sales resulting from improved margins for the new Orbit Baby G3 product line and to improved gross profit margins for domestic baby carrier sales. In addition, gross margins for the nine months ended September 30, 2013 were negatively impacted by discounts given to customers as Ergobaby transitioned to its new logo.

Selling, general and administrative expenses
Selling, general and administrative expense for the nine months ended September 30, 2014 increased to approximately $23.1 million or 37.6% of net sales compared $18.9 million or 38.2% of net sales for the same period of 2013. The $4.2 million increase

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in the nine months ended September 30, 2014 compared to the same period in 2013 is primarily attributable to increases in marketing expenses in support of new product launches and consumer engagement activities and increases in employee related costs due to increased headcount and other variable expenses to support business growth and unfavorable foreign exchange rates.

Income from operations
Income from operations for the nine months ended September 30, 2014 increased $4.4 million, to $13.4 million, compared to $9.0 million the same period of 2013, based on the factors described above.
Liberty Safe
Overview
Based in Payson, Utah and founded in 1988, Liberty Safe is the premier designer, manufacturer and marketer of home and gun safes in North America. From its over 204,000314,000 square foot manufacturing facility, Liberty Safe produces a wide range of home and gun safe models in a broad assortment of sizes, features and styles ranging from an entry level product to good, better and best products. Products are marketed under the Liberty brand, as well as a portfolio of licensed and private label brands, including Remington, Cabela’s and John Deere. Liberty Safe’s products are the market share leader and are sold through an independent dealer network (“Dealer sales”) in addition to various sporting goods, farm and fleet and home improvement retail outlets (“Non-Dealer sales”). Liberty has the largest independent dealer network in the industry

Liberty Safe acquired 9G products in May 2014 for approximately $0.8 million. 9G Products manufactures biometric pistol safes.

industry. Historically, approximately 60% of Liberty Safe’s net sales are Non-Dealer sales and 40% are Dealer sales.

We purchased a controlling interest in Liberty Safe in March 2010.

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Results of Operations
The table below summarizes the income from operations data for Liberty Safe for the three and nine month periods ended September 30, 2014March 31, 2015 and September 30, 2013.March 31, 2014.
 
Three months ended Nine months endedThree months ended
(in thousands)September 30, 2014 September 30, 2013 September 30, 2014 September 30, 2013March 31, 2015 March 31, 2014
Net sales$19,916

$35,242
 $67,768
 $96,828
$25,853

$28,895
Cost of sales17,757

26,496
 57,841
 72,590
20,083

22,895
Gross profit2,159

8,746
 9,927
 24,238
5,770

6,000
Selling, general and administrative expense2,746

3,442
 8,874
 10,323
3,261

3,210
Fees to manager125

125
 375
 375
125

125
Amortization of intangibles980

955
 2,907
 3,141
980

955
Income (loss) from operations$(1,692)
$4,224
 $(2,229) $10,399
Income from operations$1,404

$1,710

Three months ended September 30, 2014March 31, 2015 compared to the three months ended September 30, 2013.March 31, 2014

Net sales
Net sales for the quarter ended September 30, 2014March 31, 2015 decreased approximately $15.3$3.0 million or 44%10.5% compared to the corresponding quarter ended September 30, 2013.March 31, 2014. Non-Dealer sales were approximately $12.2$14.6 million in the three months ended September 30, 2014March 31, 2015 compared to $21.5$16.9 million for the three months ended September 30, 2013March 31, 2014 representing a decrease of $9.3$2.3 million or 43%13.6%. Dealer sales totaled approximately $7.7$11.2 million in the three months ended September 30, 2014March 31, 2015 compared to $13.7$12.0 million in the same period in 2013,2014, representing a decrease of $6.0$0.8 million or 44%6.7%. The decrease in Non-Dealerhigher level of first quarter 2014 sales in the three-months ended September 30, 2014 is due to (i) lower sales to one large customer that over ordered in 2013 and as a result continued to have excess stock during the 2014 quarter, (ii) the reduction of sales attributable to a large national account in 2014 compared to 2013 and (iii) a reduction in sales to the majority of Liberty customers as a result of an across-the board reduction inreflects increased consumer demand for gun safes as gun ownersresulting from consumer concerns of more restrictive gun control legislation has subsided.during 2013 and the first few months of 2014. The decreaseincreased consumer demand for gun safes began to subside towards the end of the first quarter of 2014, resulting in salesLiberty reducing production output levels as their customers had excess level of inventories on hand. Although Liberty's customer orders have continued to Dealer accounts is principally attributableincrease throughout the first quarter of 2015, their production output capabilities did not return to the aforementioned reduced consumer demand, increased sales rebates and deeply

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discounted sales prices for the import line of safes. We expect this sales trend to continue through the remainderlevel of the 2014.first quarter of 2014 until late March 2015, resulting in the lower sales despite a significant increase in backlog in the first quarter of 2015 as compared to the same quarter in the prior period. Liberty Safe’s sales backlog was approximately $8.5$12.1 million at September 30, 2014March 31, 2015 compared to approximately $17.3$7.5 million at September 30, 2013.March 31, 2014.


Cost of sales
Cost of sales for the three months ended September 30, 2014March 31, 2015 decreased approximately $8.7$2.8 million when compared to the same period in 2013.2014. Gross profit as a percentage of net sales totaled approximately 10.8%22.3% and 24.8% of net sales20.8% for the quarters ended September 30,March 31, 2015 and March 31, 2014, and September 30, 2013, respectively. The steep decreaseincrease in gross profit as a percentage of sales during the three-monthsthree months ended September 30, 2014March 31, 2015 compared to the same period in 20132014 is attributable to; (i) discounted sales prices for import safes, (ii) negativeprimarily to favorable cost variances as a result of lower manufacturing volume duringimproved labor efficiencies, as well as the thirdeffect of a price increase implemented in the first quarter of 2014 compared to 2013, and, (iii) increases in unit production costs resulting from upgrades added to several 2014 safe models that were not able to passed on to customers as a result of the softening market. Going forward, Liberty Safe has mitigated a portion of its future exposure to excess negative cost variances by writing down the carrying value of its import safes in the second quarter of 2014 and by reducing its workforce, but will still experience a significantly lower gross profit as a percentage of sales through the remainder of fiscal 2014 compared to comparable prior year periods as a result of higher revised standard costs based on the reduced production volume and the expected reduced margins on import safe sales.2015.

Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2014 decreasedMarch 31, 2015 increased to approximately $2.7$3.3 million or 13.8%12.6% of net sales compared $3.4$3.2 million or 9.8%11.1% of net sales for the same period of 2013.2014. The $0.7$0.1 million decreaseincrease is primarily attributable to decreases ina higher level of dealer co-op advertising costs and sales commissions ($0.3 million) and costs associated with a reduction in headcount ($0.2 million)certain administrative expenses during the three months ended September 30, 2014 compared to the same period of 2013.March 31, 2015.

Income (loss) from operations
Income from operations decreased $5.9$0.3 million during the three-months ended September 30, 2014March 31, 2015 to a loss from operations of$1.4 million compared to $1.7 million compared toduring the same period in 2013,2014, principally as a result of the decrease in sales, reduced gross profit as a percentage of sales and other factors, as described above.

Nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

Net sales
Net sales for the nine-months ended September 30, 2014 decreased approximately $29.1 million or 30% compared to the corresponding period ended September 30, 2013. Non-Dealer sales were approximately $38.1 million in the nine months ended September 30, 2014 compared to $58.1 million for the nine months ended September 30, 2013 representing a decrease of $20 million or 34.7%. Dealer sales totaled approximately $29.6 million in the nine months ended September 30, 2014 compared to $38.7 million in the same period in 2013, representing a decrease of $9.1 million or 23.5%. The decrease in Non-Dealer sales in the nine-months ended September 30, 2014 is due to (i) lower sales to one large customer that over ordered in 2013 and as a result has had excess stock during 2014, (ii) the reduction of sales attributable to a large national account in 2014 compared to 2013 and (iii) a reduction in sales to the majority of Liberty’s larger customers as a result of an across-the board reduction in consumer demand for gun safes as gun owners concerns of more restrictive gun control legislation, has subsided. The decrease in sales to Dealer accounts is principally attributable to the aforementioned reduced consumer demand and increased sales rebates and deeply discounted sales prices for the import line of safes. We expect this sales trend to continue through the remainder of the 2014. Liberty Safe’s sales backlog was approximately $8.5 million at September 30, 2014 compared to approximately $17.3 million at September 30, 2013.

Cost of sales
Cost of sales for the nine months ended September 30, 2014 decreased approximately $14.7 million when compared to the same period in 2013. Gross profit as a percentage of net sales totaled approximately 14.6% and 25.0% of net sales for the nine-month periods ended September 30, 2014 and September 30, 2013, respectively. The steep decrease in gross profit as a percentage of sales during the nine-months ended September 30, 2014 compared to the same period in 2013 is attributable to: (i) discounted sales prices for import safes, (ii) negative cost variances as a result of lower manufacturing volume during 2014 compared to 2013 and (iii) increases in unit production costs resulting from upgrades added to several 2014 safe models that were not able to passed on to customers as a result of the softening market. These costs were partially offset by price increases during the first quarter of 2014. Going forward, Liberty Safe has mitigated a portion of its future exposure to excess negative cost variances by writing down the carrying value of its import safes and reducing its workforce, but will still experience lower gross profit as a percentage

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of sales through the remainder of fiscal 2014 compared to comparable prior year periods as a result of higher revised standard costs based on the reduced production volume and the expected reduced margins on import safe sales.

Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2014 decreased to approximately $8.9 million or 13.1% of net sales compared $10.3 million or 10.7% of net sales for the same period of 2013. The $1.4 million decrease is primarily attributable to decreases in advertising costs and sales commissions ($0.8 million) and costs associated with a reduction in headcount ($0.4 million) during the nine months ended September 30, 2014 compared to the same period of 2013.

Income (loss) from operations
Income from operations decreased $12.6 million during the nine-months ended September 30, 2014 to a loss from operations of $2.2 million compared to the same period in 2013, principally as a result of the decrease in sales, reduced gross profit as a percentage of sales and other factors, as described above.

Niche Industrial Businesses
Advanced Circuits
Overview
Advanced Circuits is a provider of prototype,small-run, quick-turn and volume production PCBs to customers throughout the United States. Collectively, prototypesmall-run and quick-turn PCBs represented approximately 55% of Advanced Circuits’ gross revenues in 2013. Prototype2014. Small-run and quick-turn PCBs typically command higher margins than volume production PCBs given that customers require high levels of responsiveness, technical support and timely delivery of prototypesmall-run and quick-turn PCBs and are willing to pay a premium for them. Advanced Circuits is able to meet its customers’ demands by manufacturing custom PCBs in as little as 24 hours, while maintaining over 98.0% error-free production rates and real-time customer service and product tracking 24 hours per day.
We purchased a controlling interest in Advanced Circuits on May 16, 2006.
Results of Operations
The table below summarizes the income from operations data for Advanced Circuits for the three and nine month periods ended September 30, 2014March 31, 2015 and September 30, 2013.March 31, 2014.
 
Three months ended Nine months endedThree months ended
(in thousands)September 30, 2014 September 30, 2013 September 30, 2014 September 30, 2013March 31, 2015 March 31, 2014
Net sales$22,027
 $22,022
 $64,175
 $66,453
$21,418
 $20,862
Cost of sales11,949
 11,840
 34,796
 35,411
11,867
 11,181
Gross profit10,078
 10,182
 29,379
 31,042
9,551
 9,681
Selling, general and administrative expense3,360
 3,617
 10,297
 10,464
3,446
 3,387
Fees to manager125
 125
 375
 375
125
 125
Amortization of intangibles767
 767
 2,300
 2,300
259
 767
Income from operations$5,826
 $5,673
 $16,407
 $17,903
$5,721
 $5,402

Three months ended September 30, 2014March 31, 2015 compared to the three months ended September 30, 2013.March 31, 2014

Net sales
Net sales for both the three months ended September 30, 2014 and 2013 wasMarch 31, 2015 increased approximately $22.0 million.$0.6 million to $21.4 million as compared to the three months ended March 31, 2014. During the three months ended September 30, 2014March 31, 2015 gross sales in quick-turn productionlong lead time PCBs and prototype PCBsassembly sales increased $0.3$0.9 million, offset completelypartially by a decrease in gross sales of long-leadquick-turn production and small-run PCBs and assembly sales when compared to the three months ended September 30, 2013. The decrease in sales of long lead time PCB’s is attributable to a reduction in orders as compared to the prior year period.March 31, 2014. Sales

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from quick-turn and prototypesmall-run PCBs represented approximately 57%54.2% of gross sales in the thirdfirst quarter of 20142015 compared to 55.4%56.9% during the same period of 2013.2014.

Cost of sales
Cost of sales for the three months ended September 30, 2014 decreasedMarch 31, 2015 increased approximately $0.1$0.7 million compared to the comparable period in 2013.2014. Gross profit as a percentage of sales decreased 40180 basis points during the three months ended September 30, 2014 (45.8%March 31, 2015 (44.6% at September 30, 2014March 31, 2015 compared to 46.2%46.4% at September 30, 2013).March 31, 2014) primarily as a result of sales mix.

Selling, general and administrative expense
Selling, general and administrative expenses were approximately $3.4 million in both the three months ended September 30, 2014March 31, 2015 and 2014. Selling, general and administrative expenses represented 16.1% of net sales for the three months ended March 31, 2015 compared to $3.6 million16.2% of net sales in the same period in 2013. The $0.2 million decrease in the 2014 quarter compared to 2013 is primarily attributable to lower advertising costs and lower salaries and wages expense compared to the prior year period.

Income from operations
Income from operations for the three months ended September 30, 2014March 31, 2015 was approximately $5.8$5.7 million compared to $5.7$5.4 million earned in the same period in 2013,2014, an increase of approximately $0.1$0.3 million, principally as a result of the factors described above.
    

Nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

Net sales
Net sales for the nine months ended September 30, 2014 decreased approximately $2.3 million or 3.4% over the corresponding nine month period ended September 30, 2013. The decrease in net sales is primarily the result of a decrease in gross sales in long-lead time PCBs ($2.3 million) and quick-turn production and prototype PCBs ($0.8 million) offset in part by an increase in assembly sales ($0.2 million) and a decrease in sales promotions and discounts ($0.6 million) in the nine-months ended September 30, 2014 compared to the same period in 2013. The decrease in sales of long lead time PCB’s is attributable to a reduction in orders as compared to the prior year period. The decrease in sales of quick-turn and prototype PCBs in the nine months ended September 30, 2014 compared to 2013 is primarily the result of a decline in orders from Department of Defense contractors. In addition to the decline in net sales due to lower defense spending, we believe excess capacity created by current conditions in the global PCB market has negatively impacted net sales in the current year as foreign and domestic competitors operating below capacity have responded by competing aggressively on price within multiple service lines. Sales from quick-turn and prototype PCBs represented approximately 56% of gross sales in the nine months ended September 30, 2014 compared to 55 % during the same period of 2013.

Cost of sales
Cost of sales for the nine months ended September 30, 2014 decreased approximately $0.6 million compared to the comparable period in 2013. Gross profit as a percentage of sales decreased 90 basis points during the nine months ended September 30, 2014 (45.8% at September 30, 2014 compared to 46.7% at September 30, 2013). The decrease is due to production inefficiencies realized in 2014 as a result of the reduced production volume.

Selling, general and administrative expense
Selling, general and administrative expenses were approximately $10.3 million in the nine months ended September 30, 2014 compared to $10.5 million in the same period in 2013. The $0.2 million decrease is primarily attributable to costs associated with an unsuccessful acquisition during the first half of 2014.

Income from operations
Income from operations for the nine months ended September 30, 2014 was approximately $16.4 million compared to $17.9 million earned in the same period in 2013, a decrease of approximately $1.5 million, principally as a result of the decrease in net sales and other factors described above.
American Furniture
Overview

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American Furniture
Overview
Founded in 1998 and headquartered in Ecru, Mississippi, American Furniture is a leading U.S. manufacturer of upholstered furniture, focused exclusively on the promotional segment of the furniture industry. American Furniture offers a broad product line of stationary and motion furniture, including sofas, loveseats, sectionals, recliners and complementary products, sold primarily at retail price points ranging between $199 and $1,499. American Furniture is a low-cost manufacturer and is able to ship most products in its line in a short period of time to meet its customer’s demands.
American Furniture’s products are adapted from established designs in the following categories: (i) motion and recliner; and (ii) stationary.
We purchased a controlling interest in American Furniture in August 2007.
Results of Operations
The table below summarizes the income (loss) from operations data for American Furniture for the three and nine month periods ended September 30, 2014March 31, 2015 and September 30, 2013.March 31, 2014.
 
Three months ended Nine months endedThree months ended
(in thousands)September 30, 2014 September 30, 2013 September 30, 2014 September 30, 2013March 31, 2015 March 31, 2014
Net sales$28,351
 $26,277
 $95,842
 $79,318
$40,925
 $34,840
Cost of sales26,073
 24,538
 87,151
 73,319
36,810
 31,376
Gross profit2,278
 1,739
 8,691
 5,999
4,115
 3,464
Selling, general and administrative expense1,864
 1,892
 6,114
 5,774
2,426
 2,331
Fees to manager
 
 
 

 
Amortization of intangibles13
 13
 39
 39
13
 13
Income (loss) from operations$401
 $(166) $2,538
 $186
Income from operations$1,676
 $1,120

Three months ended September 30, 2014March 31, 2015 compared to the three months ended September 30, 2013.March 31, 2014

Net sales
Net sales for the three months ended September 30, 2014March 31, 2015 increased approximately $2.1$6.1 million, or 7.9%17.5% over the corresponding three months ended September 30, 2013.March 31, 2014. During the three months ended September 30, 2014,March 31, 2015, stationary product gross sales increased by approximately $2.0$3.4 million and motion and recliner product gross sales increased approximately $0.2$2.7 million compared to the same period in 2013.2014. This increase in sales for both product lines is principally attributable to a combination of increases in average unit price and an increase in the number of orders received from, and amount of products shipped to, American Furniture’s top twenty-five customers.

Cost of sales
Cost of sales increased approximately $1.5$5.4 million in the three months ended September 30, 2014March 31, 2015 compared to the same period of 2013.2014. Gross profit as a percentage of sales was 8.0%10.1% in the three months ended September 30, 2014March 31, 2015 compared to 6.6%9.9% for the same period in 2013.2014. A favorable sales mix enabled gross margins to increase in the 20142015 quarter. In addition, AFM experienced positive priceoverhead absorption variances on core raw material goods. Costs saving initiatives remainand favorable volume variances as a result of the increase in place with respect to freight and indirect labor inproduction levels during the 2014 quarter.first quarter of 2015.

Selling, general and administrative expense
Selling, general and administrative expense was $2.4 million for the three months ended September 30, 2014 were essentially flat whenMarch 31, 2015 as compared to $2.3 million in the same period of 2013.2014. Selling, general and administrative costs as a percentage of sales were 6.6%5.9% in the thirdfirst quarter of 20142015 compared to 7.2%6.7% in 2013.2014.
 
Income from operations
Income from operations was $0.4$1.7 million for the three months ended September 30, 2014March 31, 2015 compared to a loss from operations of $0.2$1.1 million in the three months ended September 30, 2013,March 31, 2014, an increase of $0.6 million, principally due to the factors described above.

Nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

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Net sales
Net sales for the nine months ended September 30, 2014 increased approximately $16.5 million, or 20.8% over the corresponding nine months ended September 30, 2013. During the nine months ended September 30, 2014, stationary product gross sales increased approximately $7.4 million and motion and recliner product gross sales increased approximately $9.0 million compared to the same period in 2013. This increase in sales for both product lines is principally attributable to a combination of increases in average unit price and the number of products shipped to American Furniture’s top twenty-five customers. In addition, a large sales promotion at one of American Furniture’s major customers completed during the second quarter of 2014 contributed to the increase in motion and recliner product sales in 2014.

Cost of sales
Cost of sales increased approximately $13.8 million in the nine months ended September 30, 2014 compared to the same period of 2013. Gross profit as a percentage of sales was 9.1% in the nine months ended September 30, 2014 compared to 7.6% for the same period in 2013. A favorable sales mix and increases in units manufactured in the nine months ended September 30, 2014 resulted in lower per unit costs compared to the same period in 2013. In addition, cost saving initiatives with respect to freight costs and reduction in indirect labor resulted in cost savings.

Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2014 increased approximately $0.3 million compared to the same period of 2013 primarily due to higher trade show costs and increased sales commissions incurred during the nine months ended September 30, 2014 compared to the same period in 2013. Selling, general and administrative costs as a percentage of sales were 6.4% in the nine months ended September 30, 2014 compared to 7.3% in the same period in 2013.
Income from operations
Income from operations was $2.5 million for the nine months ended September 30, 2014 compared to $0.2 million in the nine months ended September 30, 2013, an increase of $2.3 million, principally due to the factors described above.

Arnold Magnetics
Overview
Founded in 1895 and headquartered in Rochester, New York, Arnold Magnetics is a manufacturer of engineered, application specific permanent magnets. Arnold products are used in applications such as general industrial, reprographic systems, aerospace and defense, advertising and promotional, consumer and appliance, energy, automotive and medical technology. Arnold is the largest U.S. manufacturer of engineered magnets as well as only one of two domestic producers to design, engineer and manufacture rare earth magnetic solutions. Arnold operates a 70,000 sq. ft. manufacturing assembly and distribution facility in Rochester, New York with nine additional facilities worldwide, in countries including the United Kingdom, Switzerland and China. Arnold serves customers via three primary product sectors:

Permanent Magnet and Assemblies and Reprographics (“PMAG”) (approximately 75%72% of net sales) – High performance magnets for precision motor/generator sensors as well as beam focusing applications and reprographic applications;
Flexmag (approximately 20% of net sales) – Flexible bonded magnets for advertising, consumer and industrial applications; and
Precision Thin Metals (approximately 5%8% of net sales) – Ultra thin metal foil products utilizing magnetic and non- magnetic alloys.
On March 5, 2012, we made loans to and purchased a controlling interest in Arnold for approximately $131 million, representing approximately 96.6% of the equity in Arnold Magnetics.
Results of Operations
The table below summarizes the income from operations data for Arnold Magnetics for the three and nine month periods ended September 30, 2014March 31, 2015 and September 30, 2013.March 31, 2014.
 

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Three months ended Nine months endedThree months ended
(in thousands)September 30, 2014 September 30, 2013 September 30, 2014 September 30, 2013March 31, 2015 March 31, 2014
Net sales$31,456
 $32,381
 $94,902
 $95,405
$31,188
 $30,679
Cost of sales24,284
 24,659
 72,677
 72,368
24,180
 23,433
Gross profit7,172
 7,722
 22,225
 23,037
7,008
 7,246
Selling, general and administrative expense4,017
 4,019
 13,011
 12,475
4,248
 4,823
Fees to manager125
 125
 375
 375
125
 125
Amortization of intangibles884
 874
 2,633
 2,714
881
 874
Income from operations$2,146
 $2,704
 $6,206
 $7,473
$1,754
 $1,424


Three months ended September 30, 2014March 31, 2015 compared to the three months ended September 30, 2013.March 31, 2014

Net sales
Net sales for the three months ended September 30, 2014March 31, 2015 were approximately $31.5$31.2 million, a decreasean increase of $0.9$0.5 million compared to the same period in 2013.2014. The decreaseincrease in net sales is a result of decreased sales in PMAG ($0.8 million) and Flexmag ($0.2 million) product sectors offset in part by an increase in net sales in the Precision Thin Metals sector ($1.3 million), offset by a decrease in sales in the PMAG ($0.8 million) and Flexmag ($0.1 million). product sectors. PMAG sales represented approximately 73%72% of net sales for the three months ended September 30, 2014 and 2013.March 31, 2015 compared to 76% for the three months ended March 31, 2014. The decrease in PMAG sales during the three-monthsthree months ended September 30, 2014March 31, 2015 compared to the same period in 20132014 is principally attributable to an unfavorable sales mix due in part by lower reprographic application sales and a componentsoftening of the oil and gas industry, which are components of PMAG. The decrease in Flexmag sales is the result of sales attributable to a non-recurring project for areduced customer indemand during the third quarter of 2013 that was not replicated in the third quarter of 2014.quarter. The increase in Precision Thin Metals sales is attributable to positive steps taken over the last year by management to identify new customers and applications.

International sales were $14.4$12.4 million during the three months ended September 30, 2014March 31, 2015 compared to $15.0$14.3 million during the same period in 2013,2014, a decrease of $0.6$1.9 million or 4%13.3%. The decrease in international sales is due to a decrease in sales in the PMAG sector as noted above.

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Cost of sales
Cost of sales for the three months ended September 30, 2014March 31, 2015 were approximately $24.3$24.2 million compared to approximately $24.7$23.4 million in the same period of 2013.2014. Gross profit as a percentage of sales decreased from 23.8%23.6% for the quarter ended September 30, 2013March 31, 2014 to 22.8%22.5% in the quarter ended September 30, 2014.March 31, 2015. The decrease is principally attributable to decreased margins in the Flexmag and PMAG sectorssector due to less favorable customer / product sales mixesvolume reductions, offset in part by an increase in margin in the precision thin metal's sector.Flexmag and Precision Thin Metals sectors. The increase in margins in the Flexmag and Precision Thin Metals sector isare due to a more favorable customer/product sales mix during the three-monthsthree months ended September 30, 2014March 31, 2015 compared to the same period in 2013 reflecting2014, as well as the positive impact of new customers and applications and increased production efficiencies.efficiencies in the Precision Thin Metals sector.

Selling, general and administrative expense
Selling, general and administrative expense in each of the three month periodsperiod ended September 30,March 31, 2015 was $4.2 million as compared to approximately $4.8 million for the three months ended March 31, 2014. The decrease in expense is primarily attributable to headcount reduction implemented during the first and third quarter of 2014, and 2013 totaled approximately $4.0 million. There were no notable varianceswhich reduced the employee related expenses incurred in the major expense items.three months ended March 31, 2015 as compared to the prior year.

Income from operations
Income from operations for the three months ended September 30, 2014March 31, 2015 was approximately $2.1$1.8 million, a decreasean increase of $0.6$0.3 million when compared to the same period in 2013,2014, principally as a result of the increase in cost of sales and other factors described above.

Nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.
Net sales
Net sales for the nine months ended September 30, 2014 were approximately $94.9 million, a decrease of $0.5 million, or 0.5%, compared to the same period in 2013. The decrease in net sales is a result of decreased sales in PMAG ($0.8 million) and Flexmag ($0.6 million) product sectors offset in part by an increase in net sales in the Precision Thin Metals sector ($0.9 million). The decrease in PMAG sales in the nine months ended September 30, 2014 compared to 2013 is primarily due to a decrease in reprographic sales. PMAG sales represented approximately 75% of net sales in each of the nine month periods ended September 30, 2014 and 2013. The decrease in Flexmag sales is the result of sales attributable to non-recurring projects for a customer in 2013 that was not replicated during 2014. The increase in Precision Thin Metals sales is attributable to positive steps taken over the last year by management to identify new customers and applications.

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International sales were $44.0 million during the nine months ended September 30, 2014 compared to $45.1 million during the same period in 2013, a decrease of $1.1 million or 2.4%.

Cost of sales
Cost of sales for the nine months ended September 30, 2014 were approximately $72.7 million compared to approximately $72.4 million in the same period of 2013. Gross profit as a percentage of sales decreased from 24.1% for the nine-month period ended September 30, 2013 to 23.4% for the same period ended September 30, 2014. The decrease is principally attributable to decreased margins in the Flexmag sector due to a one-time high margin project in the second quarter of 2013 that was not replicated in 2014, offset in part by an increase in margin in the Precision Thin Metals sectors. The increase in margins in the Precision Thin Metals sector is due to a more favorable customer/product sales mix during the nine-months ended September 30, 2014 compared to the same period in 2013 and the positive impact of new customers and applications and increased production efficiencies.

Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2014 increased to approximately $13.0 million or 13.7% of net sales compared to $12.5 million or 13.1% of net sales for the same period in 2013. The $0.5 million increase in selling, general and administrative expenses in the nine months ended September 30, 2014 compared to 2013 is primarily attributable to investment spending on engineering and information technology resources.

Income from operations
Income from operations for the nine months ended September 30, 2014 was approximately $6.2 million, a decrease of $1.3 million when compared to the same period in 2013, based on the factors described above.

Clean Earth
Overview
Founded in 1990 and headquartered in Hatboro, Pennsylvania, Clean Earth Holdings, Inc. (“Clean Earth”) is a provider of environmental services for a variety of contaminated materials. Clean Earth provides a one-stop shop solution that analyzes, treats, documents and recycles waste streams generated in multiple end-markets such as power, construction, commercial development, oil and gas, infrastructure, industrial and dredging. Historically, the majority of Clean Earth’s revenues have been generated by contaminated soils which includes environmentally impacted soils, drill cuttings and other materials which are treated at one of its 9nine permitted soil treatment facilities. Clean Earth also operates athree RCRA Part B hazardous waste facility.facilities. The remaining revenue has been generated by dredge material, which consists of sediment removed from the floor of a body of water for navigational purposes and/or environmental remediation of contaminated waterways and is treated at one of its two permitted dredge processing facilities. Approximately 98% of the material processed by Clean Earth is beneficially reused for such purposes as daily landfill cover, industrial and brownfield redevelopment projects.

On August 26, 2014, we made loans to and purchased a controlling interest in Clean Earth for approximately $253$251.4 million, representing approximately 98% of the equity in Clean Earth.

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Results of Operations and Pro forma Results of Operations
The table below summarizes the pro-forma income from operations data for Clean Earth for the three month period ended March 31, 2015 and ninethe pro forma income from operations data for the three month periodsperiod ended September 30, 2014 and September 30, 2013.March 31, 2014.

 

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Three months ended Nine months endedThree months ended
(in thousands)September 30, 2014 September 30, 2013 September 30, 2014 September 30, 2013March 31, 2015 March 31, 2014
(Pro-forma) (Pro-forma) (Pro-forma) (Pro-forma)  (Pro forma)
Net sales$48,362
 $43,004
 $116,415
 $110,341
Cost of sales (1)
32,043
 30,620
 80,429
 82,912
Service revenues$35,129
 $30,942
Cost of services (a)
27,823
 23,204
Gross profit16,319
 12,384
 35,986
 27,429
7,306
 7,738
Selling, general and administrative expense (2)(b)
8,685
 5,843
 18,784
 14,394
5,432
 4,240
Fees to manager (3)(c)
125
 125
 375
 375
125
 125
Amortization of intangibles (4)(d)
1,686
 1,686
 5,058
 5,058
3,303
 2,881
Income from operations$5,823
 $4,730
 $11,769
 $7,602
Income (loss) from operations$(1,554) $492


Pro-forma results of operations of Clean Earth for the three and nine months ended September 30,March 31, 2014 and 2013 include the following pro-forma adjustments, applied to historical results as if we acquired Clean Earth on January 1, 20132014:

(1)(a) Cost of salesservices was increased $0.3 million and $0.9 million for the three and nine months ended September 30, 2014 and $0.4 million for the three months ended September 30, 2013, respectively,March 31, 2014 for additional depreciation expense associated the fair value step up of property, plant and equipment, resulting from the purchase price allocation in connection with our acquisition.

(2)(b) Selling, general and administrative costs were reducedincreased by approximately $13.2$0.2 million in the three and nine-monthsmonths ended September 30,March 31, 2014 representing an adjustment for one-time seller’s transaction costs incurred as a result of our purchase.additional expense related to stock options issued to management.

(3)(c) Represents management fees that would have been payable to the Manager in each period presented.the three months ended March 31, 2014.

(4)(d) Represents an increase in amortization of intangible assets totaling $0.6 million and $3.0$2.5 million in the three month period ended September 30,March 31, 2014 for additional amortization expense associated with the fair value step up of intangible assets resulting from the purchase price allocation in connection with our acquisition.

Three months ended March 31, 2015 compared to the pro forma three months ended March 31, 2014.

Service revenues
Service revenues for the three months ended March 31, 2015 were approximately $35.1 million, an increase of $4.2 million or 13.5% compared to the same period in 2014. The increase in service revenues is principally the result of the Clean Earth’s December 2014 acquisition of all of the assets of American Environmental Services, Inc ("AES") which operates two RCRA Part B hazardous waste facilities, and 2013 and $2.7growth at its existing RCRA Part B facility. For the three months ended March 31, 2015, contaminated soil volume increased 21% as compared to the same period last year principally attributable to increased commercial development activity in the Greater Washington, D. C. area. Revenue from dredged material decreased for the three months ended March 31, 2015 as compared to the same period in 2014 due to the timing of new bidding activity. Contaminated soils represented approximately 55% of net sales for the three months ended March 31, 2015 compared to 60% of net sales for the same period in 2014.

Cost of services
Cost of services for the three months ended March 31, 2015 were approximately $27.8 million and $4.1compared to approximately $23.2 million in the ninesame period of 2014. Gross profit as a percentage of sales decreased from 25.0% for the three month period ended March 31, 2014 to 20.8% for the same period ended March 31, 2015. The 420 basis points decrease in gross margin during the three months ended September 30,March 31, 2015 was primarily due to the mix of services provided during the quarter ended March 31, 2015 as compared to the prior year, with a reduction in revenue from dredge material as well as decreased margins from contaminated soils due to increased depreciation expense and equipment rental expense.

Selling, general and administrative expense
Selling, general and administrative expense for the three months ended March 31, 2015 increased to approximately $5.4 million or 15.5% of service revenues compared to $4.2 million or 13.7% of service revenues for the same period in 2014. The $1.2 million

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increase in selling, general and administrative expenses in the three months ended March 31, 2015 compared to 2014 is primarily attributable to the acquisition of AES in December 2014, increased stock compensation expense and 2013, respectively,integration services fees associated with the acquisition of Clean Earth, as well as compensation expense associated with increased employee headcount.

Amortization expense

Amortization expense for the three months ended March 31, 2015 was $3.3 million, an increase of $0.4 million compared to the three months ended March 31, 2014. The increase is due to additional amortization expense in 2015 from the AES acquisition ($0.2 million) and an increase in the amortization of airspace, which is recognized based on usage rather than over the estimated useful life of the asset.


Income (loss) from operations
Loss from operations for the three months ended March 31, 2015 was approximately $1.6 million as compared to income from operations of $0.5 million for the three months ended March 31, 2014, a decrease of $2.0 million, primarily as a result of those factors described above.

SternoCandleLamp
Overview

SternoCandleLamp, headquartered in Corona, California, is a manufacturer and marketer of portable food warming fuel and creative table lighting solutions for the food service industry. SternoCandleLamp offers a broad range of wick and gel chafing fuels, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps. SternoCandleLamp was formed in 2012 with the merger of two manufacturers and marketers of portable food warming fuel products, The Sterno Group LLC and the Candle Lamp Company, LLC.

On October 10, 2014, we made loans to and purchased all of the equity of SternoCandleLamp for approximately $160.0 million.
Results of Operations
The table below summarizes the income from operations data for SternoCandleLamp for the three months ended March 31, 2015 and the pro forma income from operations data for the three month period ended March 31, 2014.
 Three months ended
(in thousands)March 31, 2015 March 31, 2014
   (Pro forma)
Net sales$28,604
 $29,677
Cost of sales22,389
 23,478
      Gross Profit6,215
 6,199
Selling, general and administrative expenses3,622
 3,278
Management fees (a)125
 125
Amortization of intangibles (b)812
 1,504
      Income from operations$1,656
 $1,292

Pro-forma results of operations of SternoCandleLamp for the three months ended March 31, 2014 include the following pro-forma adjustments, applied to historical results as if we acquired SternoCandleLamp on January 1, 2014:

(a) Represents management fees that would have been payable to the Manager in the three months ended March 31, 2014.

(b) Represents an increase in amortization of intangible assets totaling $1.0 million in the three months ended March 31, 2014 for additional amortization expense associated the fair value step up of intangible assets resulting from the purchase price allocation in connection with our acquisition.


Pro forma three
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Three months ended September 30, 2014March 31, 2015 compared to the pro forma three months ended September 30, 2013.March 31, 2014.


Net sales
Net sales for the three months ended September 30, 2014March 31, 2015 were approximately $48.4$28.6 million, an increasea decrease of $5.4$1.1 million or 12.5%3.6% compared to the same period in 2013.2014. The increasedecrease in net sales is principally theprimarily a result of increased volume in contaminated soils. Dredge material volume also increasedthe timing of orders from one of SternoCandleLamp's larger customers, who placed a large order during the current period but due to a favorable project mix in the 2013fourth quarter net sales of dredge material decreased during the three months ended September 30, 2014 comparedprior to the same periodimplementation of an announced price increase that went into effect in 2013. The increase in volume of contaminated soils during the three-months ended September 30, 2014 compared to the same period in 2013 is principally attributable to increased net sales from a new treatment facility acquired in March 2013. Contaminated soils represented approximately 76% of net sales for the three months ended September 30, 2014 compared to 70% of net sales for the same period in 2013.2015.

Cost of sales
Cost of sales for the three months ended September 30, 2014March 31, 2015 were approximately $32.0$22.4 million compared to approximately $30.6$23.5 million in the same period of 2013.2014. Gross profit as a percentage of sales increased from 28.8%20.9% for the three month periodmonths ended September 30, 2013March 31, 2014 to 33.7%21.7% for the same period ended September 30, 2014.March 31, 2015. The 490 basis points improvementincrease in gross margin during the three months ended September 30, 2014 is due to increased margins in contaminated soils due to increased net sales from a new treatment facility acquired in March 201331, 2015 primarily reflects greater labor and manufacturing efficiencies during the three months ended September 30, 2014first quarter of 2015 as compared to the same periodfirst quarter of 2014 as SternoCandleLamp continued to integrate the acquisition of Sterno by CandleLamp, which occurred in 2013.

Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30,March 31, 2015 and 2014 increased towas approximately $8.8$3.6 million or 18%and $3.3 million, respectively. The increase is primarily a result of integration services fees incurred during the three months ended March 31, 2015. Selling general and administrative expense represented 12.7% of net sales for the three months ended March 31, 2015 as compared to $5.8 million or 13.6%compared to 11.0% of net sales for the same period in 2013. The $2.8 million increase in selling, general and administrative expenses in the three months ended September 30, 2014 compared to 2013 is primarily attributable to one time buyer transaction costs incurred in September 2014 ($1.9 million) and an increase in professional fees during the 2014 quarter.2014.

Income (loss) from operations

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Income from operations for the three monthsyear ended September 30, 2014March 31, 2015 was approximately $5.8$1.7 million, an increase of $1.1$0.4 million when compared to the same period in 2013,2014, as a result of those factors described above.

Pro forma nine months ended September 30, 2014 compared to the pro forma nine months ended September 30, 2013.

Net sales
Net sales for the nine months ended September 30, 2014 were approximately $116.4 million, an increase of $6.1 million or 5.5% compared to the same period in 2013. The increase in net sales is a result of increased volume in both contaminated soils and dredge material. The increase in volume of contaminated soils during the nine-months ended September 30, 2014 compared to the same period in 2013 is principally attributable to incremental net sales from a new treatment facility acquired in March 2013. The increase in volume of dredge material is principally attributable to the increase in the number of large maintenance dredge projects during the nine months ended September 30, 2014 compared to the same period in 2013. Contaminated soils represented approximately 77% of net sales for the nine months ended September 30, 2014 compared to 78% of net sales for the same period in 2013.

Cost of sales
Cost of sales for the nine months ended September 30, 2014 were approximately $80.4 million compared to approximately $82.9 million in the same period of 2013. Gross profitabove as well as a percentage of sales increased from 24.9% for the nine month period ended September 30, 2013 to 30.9% for the same period ended September 30, 2014. The 600 basis points improvementdecrease in gross margin during the nine months ended September 30, 2014 is due to reduced beneficial reuse costs in both contaminated soils and dredge material and to more favorable pricing of hazardous waste during the nine months ended September 30, 2014 compared to the same period in 2013.

Selling, general and administrativeamortization expense
Selling, general and administrative expense for the nine months ended September 30, 2014 increased to approximately $18.8 million or 16.1% of net sales compared to $14.4 million or 13.0% of net sales for the same period in 2013. The $4.4 million increase in selling, general and administrative expenses in the nine months ended September 30, 2014 compared to 2013 is primarily attributable to one time buyer transaction costs incurred in September 2014 ($1.9 million), increased professional fees during the nine months ended September 30, 2014 compared to the same period in 2013, and the result of including nine months of costs related to a new treatment facility in the 2014 period compared to six months in 2013. The new treatment facility was acquired in March 2013.
Income from operations
Income from operations for the nine months ended September 30, 2014 was approximately $11.8 million, an increase of $4.2 million when compared to the same period in 2013, as a result of those factors described above.the finalization of the purchase price allocation for SternoCandleLamp in the three months ended March 31, 2015.

Tridien
Overview
Tridien, headquartered in Coral Springs, Florida, is a leading designer and manufacturer of powered and non-powered medical therapeutic support services and patient positioning devices serving the acute care, long-term care and home health care markets. Tridien is one of the nation’s leading designers and manufacturers of specialty therapeutic support surfaces with manufacturing operations in multiple locations to better serve a national customer base.
Tridien, together with its subsidiary companies, provides customers the opportunity to source leading surface technologies from the designer and manufacturer.
Tridien develops products both independently and in partnership with large distribution intermediaries. Medical distribution companies then sell or rent the therapeutic support surfaces, sometimes in conjunction with bed frames and accessories to one of three end markets: (i) acute care, (ii) long term care and (iii) home health care. The level of sophistication largely varies for each product, as some patients require simple foam mattress beds (“non-powered” support surfaces) while others may require electronically controlled, low air loss, lateral rotation, pulmonary therapy or alternating pressure surfaces (“powered” support surfaces). The design, engineering and manufacturing of all products is completed in-house (with the exception of PrimaTech products, which are manufactured in Taiwan) and are FDA compliant. Tridien historically receives approximately two-thirds of its revenues from its three largest customers.

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We purchased a controlling interest in Tridien in August 2006.

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Results of Operations
The table below summarizes the income from operations data for Tridien for the three and nine month periods ended September 30,March 31, 2015 and March 31, 2014 and September 30, 2013.
 
Three months ended Nine months endedThree months ended
(in thousands)September 30, 2014 September 30, 2013 September 30, 2014 September 30, 2013March 31, 2015 March 31, 2014
Net sales$17,633
 $15,690
 $50,659
 $45,862
$16,564
 $16,321
Cost of sales13,967
 12,342
 39,667
 35,698
13,357
 12,672
Gross profit3,666
 3,348
 10,992
 10,164
3,207
 3,649
Selling, general and administrative expense2,559
 2,372
 7,663
 6,893
2,459
 2,482
Fees to manager88
 88
 263
 263
88
 87
Amortization of intangibles445
 311
 1,334
 940
445
 445
Impairment expense
 
 
 900
8,907
 
Income from operations$574
 $577
 $1,732
 $1,168
Income (loss) from operations$(8,692) $635

Three months ended September 30, 2014March 31, 2015 compared to the three months ended September 30, 2013.March 31, 2014

Net sales
Net sales for the three months ended September 30, 2014March 31, 2015 were approximately $17.6$16.6 million compared to approximately $15.7$16.3 million for the same period in 2013,2014, an increase of $1.9$0.2 million or 12.4%1.5%. Sales of non-powered products (including patient positioning devices) totaled $14.5$13.9 million during the three months ended September 30, 2014March 31, 2015 representing an increase of $2.2$1.0 million compared to the same period in 2013.2014. Sales of powered products totaled $3.1$2.8 million during the three months ended September 30, 2014March 31, 2015 representing a decrease of $0.3$0.8 million compared to the same period in 2013.2014. The increase in non-powered product sales in the three months ended September 30, 2014March 31, 2015 compared to the same period in 20132014 is principally the result of customer expansion into international markets with newly developedincreased sales to two of Tridien's largest customers. Reduced powered products sales in the three months ended March 31, 2015 compared to the same period in 2014 is principally the result of lower sales of private label and existingbranded products.

Cost of sales
Cost of sales increased approximately $1.6$0.7 million for the three months ended September 30, 2014March 31, 2015 compared to the same period in 2013.2014. Gross profit as a percentage of sales was approximately 20.8%19.4% in the three month period ended September 30, 2014March 31, 2015 compared to 21.3 %22.4% in the same period of 2013.2014. The decrease in gross profit as a percentage of sales was primarily due to an unfavorable product sales mix and higher raw material and production costs incurred during the three months ended September 30, 2014March 31, 2015 compared to the same period in 2013.2014.

Selling, general and administrative expensesexpense
Selling, general and administrative expensesexpense for both the three months ended September 30,March 31, 2015 and 2014 increased $0.2 million compared to the same period in 2013. This increase is attributable to higher research and development costswas approximately $2.5 million. There were no notable changes in the three months ended September 30, 2014.

Income from operations
Income from operations was approximately $0.6 million in eachcomponents of the three months ended September 30, 2014 and 2013 based on the factors described above.
Nine months ended September 30, 2014 compared to the nine months ended September 30, 2013.

Net sales
Net sales for the nine months ended September 30, 2014 were approximately $50.7 million compared to approximately $45.9 million for the same period in 2013, an increase of $4.8 million or 10.5%. Sales of non-powered products (including patient positioning devices) totaled $41.2 millionthese costs during the nine months ended September 30, 2014 representing an increase of $4.7 million compared to the same period in 2013. The increase in non-powered product sales in the nine months ended September

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30, 2014 compared to the same period in 2013 is principally the result of customer expansion into international markets with newly developed and existing products. Sales of powered products totaled $9.5 million during the nine months ended September 30, 2014 representing an increase of $0.1 million compared to the same period in 2013.

Cost of sales
Cost of sales increased approximately $4.0 million for the nine months ended September 30, 2014 compared to the same period in 2013. Gross profit as a percentage of sales was 21.7% for the nine months ended September 30, 2014 compared to 22.2% in the corresponding period in 2013. The decrease in gross profit as a percentage of sales was primarily due to an unfavorable product sales mix during the nine months ended September 30, 2014 compared to the same period in 2013.

Selling, general and administrative expenses
Selling, general and administrative expenses for the nine months ended September 30, 2014 increased $0.8 million compared to the same period in 2013. This increase is attributable to higher research and development costs and professional fees in 2014 compared to the prior year.current quarter.

Impairment expense
During the second quarter of 2013,
In January 2015, one of Tridien’sTridien's largest customers lost a large contract programinformed the Company that was being serviced substantially with Tridien product.they would not renew their purchase agreement when it expires on September 30, 2015. This customer represented 20% of Tridien's sales in 2014. The expected lost sales and net income were significant enough to trigger an interim goodwill and indefinite-lived asset impairment analysis. The result of these analyses supportedthis impairment analysis (step 1) indicated that goodwill was impaired. The preliminary results of the carrying valuestep 2 impairment analysis resulted in a write down of goodwill but indicated that sales of product, reliant on trade names could not fully support the carrying value of Tridien’s trade names. There has been no indication of impairment in fiscal 2014. In addition, as part of the 2013 analysis, Tridien shortened the life of some of its intangible assets, resulting in higher periodic intangible amortization expense.

$8.9 million.

Income (loss) from operations
Income from operations increasedwas approximately $(8.7) million in the three months ended March 31, 2015 as compared to $0.6 million to $1.7 million forin the ninethree months ended September 30,March 31, 2014, compareda decrease of $9.3 million due primarily to the same period in 2013 based on those factors described above.goodwill impairment.




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Liquidity and Capital Resources

The change in cash and cash equivalents is as follows:

  Three months ended
(in thousands) March 31, 2015 March 31, 2014
Cash provided by (used in) operations $3,287
 $(6,040)
Cash used in investing activities (5,160) (46,416)
Cash (used in) provided by financing activities (1,313) 25,838
Effect of exchange rates on cash and cash equivalents (67) 11
Decrease in cash and cash equivalents $(3,253) $(26,607)


Cash Flow from Operating Activities

For the ninethree months ended September 30, 2014, on a consolidated basis,March 31, 2015, cash flows provided by operating activities totaled approximately $46.2$3.3 million, which represents a $7.9$9.3 million decreaseincrease compared to the nine-monththree month period ended September 30, 2013,March 31, 2014, which reflected cash provided byused in operations of $54.0$6.0 million. This decreaseincrease is principally the result of (i) a decrease in cash provided by results of operationsused for working capital in the ninethree months ended September 30, 2014March 31, 2015 as compared to 2013the same period in 2014 ($17.810.0 million); and (ii) an increase in. Although cash used to reducepay short term working capital liabilities such as accounts payable and interest payable and other short term accrued liabilities ($37.7 million)expenses was $18.0 million higher in the three months ended March 31, 2015 as compared to the three months ended March 31, 2014, this was offset in part by a $28.5 million reduction in the investment of cash inused for working capital assets including inventory ($33.8 million) and accounts receivable ($14.5 million), in the nine months ended September 30,first quarter of 2015 versus the first quarter of 2014. This variance reflects seasonal spending by FOX in 2014 compared towhich is not reflected in 2015 after the same period in 2013. The reduction indeconsolidation of FOX during the third quarter of 2014, and the investment in inventory is largely the result of a reduction in Liberty'sClean Earth which does not require working capital investment in inventory in 2014.inventory.

Cash Flow from Investing Activities

Cash flows used in investing activities for the nine-monthsthree months ended September 30, 2014March 31, 2015 totaled approximately $237.9$5.2 million, which reflects capital expenditures duringcompared to $46.4 million used in investing activities in the same period ($10.2 million),of 2014. The 2014 investing activities include FOX’s acquisition of Sport Truck ($41.0 million), and an add-on acquisition at Liberty, which comprise the majority of cash used in investing activities in the first quarter of 2014. Capital expenditures in the three months ended March 31, 2015 were $4.8 million as compared to $3.6 million during the three months ended March 31, 2014, with the increase primarily due to capital expenditures at our acquisition of2014 acquisitions, Clean Earth ($250.0 million, net of cash) and fixed payments made on our interest rate swap ($1.5 million), offset in part by proceedsSternoCandleLamp.

Cash Flow from the sale of FOX common stock ($65.5 million); compared to $72.1 million provided by cash flows in the same period of 2013, which reflected capital expenditures ($14.7 million) offset by proceeds from the sale of shares of FOX common stock ($80.9 million), and by sale leaseback proceeds ($4.4 million).Financing Activities

Cash flows provided byused in financing activities totaled approximately $102.3$1.3 million during the ninethree months ended September 30, 2014March 31, 2015 principally reflecting: (i)reflecting payment of our shareholder distribution ($19.5 million) offset by net borrowings under the FOX credit facility used principally to fund the Sport Truck acquisition ($37.1 million), (ii) net proceeds from the 2014 Term Loan Facility ($34.6 million), (iii) borrowings under the 2014 Revolving Credit Facility ($96.218.5 million), (iv) non-controlling stock option proceeds ($4.0 million) and (v) excess tax benefit at FOX ($1.7 million) offset in part by distributions paid to shareholders during the year ($52.2 million) and a profit allocation payment to our Manager ($11.9 million) compared to cash. Cash flows provided by financing activities during the nine-monthsthree months ended September 30, 2013 ofMarch 31, 2014 were approximately $6.5$25.8 million principally reflecting: (i) net proceeds from the salereflecting borrowings by FOX to finance their acquisition of IPO stock at the subsidiary levelSport Truck ($36.142.0 million), and (ii) net borrowings in connection with the increase of our 2014 Term Loan Facility ($28.4 million), offset in part by our quarterly shareholder distribution ($52.2 million), and non-controlling shareholder distributions at Tridien ($3.117.4 million).


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At September 30, 2014,March 31, 2015, we had approximately $23.3$20.5 million of cash and cash equivalents on hand. The majority of our cash is in non-interest bearing checking accounts or invested in short-term money market accounts and is maintained in accordance with the Company’s investment policy, which identifies allowable investments and specifies credit quality standards.


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As of September 30, 2014,March 31, 2015, we had the following outstanding loans due from each of our businesses:

Advanced Circuits - $76.1 million;
(in thousands)  
CamelBak $99,628
Ergobaby $33,598
Liberty $33,976
Advanced Circuits $68,142
American Furniture $24,385
Arnold Magnetics $74,500
Clean Earth $157,690
SternoCandleLamp $87,304
Tridien $12,606

American Furniture - $25.5 million;

Arnold Magnetics - $75.6 million;

CamelBak - $98.4 million;

Clean Earth - $141.3 million;

Ergobaby - $34.7 million;

Liberty - $39.3 million; and

Tridien - $11.8 million.

Each loan to our businesses has a scheduled maturity and each business is entitled to repay all or a portion of the principal amount of the outstanding loans, without penalty, prior to maturity.

Our primary source of cash is from the receipt of interest and principal on the outstanding loans to our businesses. Accordingly, we are dependent upon the earnings of and cash flow from these businesses, which are available for (i) operating expenses; (ii) payment of principal and interest under our 2014 Credit Facility; (iii) payments to CGM due pursuant to the Management Services Agreement and the LLC Agreement; (iv) cash distributions to our shareholders; and (v) investments in future acquisitions. Payments made under (iii) above are required to be paid before distributions to shareholders and may be significant and exceed the funds held by us, which may require us to dispose of assets or incur debt to fund such expenditures.

We believe that we currently have sufficient liquidity and capital resources to meet our existing obligations, including quarterly distributions to our shareholders, as approved by our Board of Directors, over the next twelve months. The quarterly distribution for the three months ended September 30, 2014March 31, 2015 was paid on October 30, 2014April 29, 2015 and was $17.4totaled $19.5 million.

On June 6, 2014 we entered in a new credit facility, the 2014 Credit Facility replacing our existing 2011 Credit Facility entered into in October 2011. On September 30, 2014, ourThe 2014 Credit Facility providedprovides for a the 2014 Revolving Credit Facility totaling(i) revolving loans, swing line loans and letters of credit up to an maximum aggregate amount of $400 million whichand matures in June 2019, and (ii) a 2014 Term Loan totaling $325 million which matures in June 2021.term loan. Our 2014 Term Loan requires quarterly payments of $0.8 million with a final payment of the outstanding principal balance due in June 2021. (Refer to Note GH to the Condensed Consolidated Financial Statements for a complete description of our 2014 Credit Facility.)

We had $308.6$206.6 million in availability under the 2014 Revolving Credit Facility at September 30, 2014. At September 30, 2014, $3.4March 31, 2015. $4.4 million in outstanding borrowings under the 2014 Revolving Credit Facility at March 31, 2015 reflected in outstanding letters of credit.

The following table reflects required and actual financial ratios as of September 30, 2014March 31, 2015 included as part of the affirmative covenants in our 2014 Credit Facility: 

Description of Required Covenant Ratio Covenant Ratio Requirement Actual Ratio
Fixed Charge Coverage Ratio greater than or equal to 1.5:1.0 3.54:3.81:1.0
Total Debt to EBITDA Ratio less than or equal to 4.25:1.0 3.09:3.17:1.0

We intend to use the availability under our 2014 Credit Facility and cash on hand to pursue acquisitions of additional businesses to the extent permitted under our 2014 Credit Facility, to fund distributions and to provide for other working capital needs

Interest Expense
We recorded interest expense totaling $9.7 million for the three months ended March 31, 2015 compared to $4.6 million for the same period in 2014.


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We recorded interest expense totaling $16.5 million for the nine months ended September 30, 2014 compared to $14.6 million for the same period in 2013. In the following table we provide the effective interest rate based on periodic interest charges on incurred debt. The difference between interest expense and periodic interest charges on incurred debt is the elimination of unrealized mark-to market losses in an interest rate swap whose term does not begin until April 1, 2016. The mark-to market losses on this interest rate swap reflects the present value discount taken in the mark to market calculation.

The components of interest expense and periodic interest charges on incurredoutstanding debt are as follows (in thousands):
 
Nine months ended September 30,Three months ended March 31,
2014 20132015 2014
Interest on credit facilities$11,284
 $11,922
$4,840
 $3,582
Unused fee on Revolving Credit Facility1,635
 1,738
310
 600
Amortization of original issue discount713
 949
168
 294
Losses (gains) on interest rate derivatives2,797
 (21)
Unrealized losses (gains) on interest rate derivatives (1)
4,314
 92
Letter of credit fees33
 42
31
 10
Other7
 10
56
 3
Interest expense$16,469
 $14,640
$9,719
 $4,581
Less: Unrealized loss on Swap (1)
(2,523) 
Periodic interest charges on incurred debt13,946
 14,640
Average daily balance of debt outstanding$329,437
 $294,107
$512,496
 $282,742
Effective interest rate on incurred debt5.6% 6.6%
Effective interest rate7.6% 6.5%


(1) On September 16, 2014, we purchased an interest rate swap (the “New Swap”) with a notional amount of $220 million effective April 1, 2016 through June 6, 2021. The agreement requires us to pay interest on the notional amount at the rate of 2.97% in exchange for the three-month LIBOR rate. At September 30, 2014, thisMarch 31, 2015, the New Swap had a fair value loss of negative $2.5$11.6 million, essentially reflecting the present value of future payments and receipts under the agreement and is reflected as a component of interest expense and other non-current liabilities. In the above table, we provide the effective interest rate on outstanding debt, which includes the mark-to-market loss on the New Swap. The effective interest rate for incurred debt for the three months ended March 31, 2015 after elimination of the New Swap, which has a term that does not begin until April 1, 2106, is 4.2%. Refer to Note HI - Derivatives and Hedging Activities of the condensed consolidated financial statements.

Income Taxes
We incurred income tax expense of $11.7$3.4 million with an effective tax rate of 4.0%15.4% during the ninethree months ended September 30, 2014March 31, 2015 compared to $18.7$5.8 million with an effective income tax rate of 18.2%43.9% during the same period in 2013. The effect of the gain on the deconsolidation of FOX incurred at the corporate level decreased the effective income tax rate by (31.4)% for the nine months ended September 30, 2014, while the effect of the termination of the supplemental put agreement in July 2013 decreased the effective tax rate by (15.7)% during the nine months ended September 30, 2013.2014. Non-deductible costs at the corporate level, and state and foreign income taxes (net ofincluding the Federal benefit)loss on our equity method investment in FOX in the three months ended March 31, 2015, account for the majority of the remaining difference in our effective income tax rates in both periods.
The components of income tax expense as a percentage of income from continuing operations before income taxes for the ninethree months ended September 30,March 31, 2015 and 2014 and 2013 are as follows:
 
  Three months ended March 31,
  2015 2014
United States Federal Statutory Rate (35.0)% 35.0 %
Foreign and State income taxes (net of Federal benefits) 0.3
 1.0
Expenses of Compass Group Diversified Holdings, LLC representing a pass through to shareholders (1)
 9.8
 6.2
Effect of loss on equity method investment (2)
 21.5
 
Impact of subsidiary employee stock options 0.5
 0.4
Domestic production activities deduction (0.8) (2.4)
Effect of impairment expense 12.2
 
Non-recognition of NOL carryforwards at subsidiaries 5.1
 (1.2)
Other 1.8
 4.9
Effective income tax rate 15.4 % 43.9 %

(1) The effective income tax rate for the three months ended March 31, 2015 and 2014 includes a significant loss at the Company's parent, which is taxed as a partnership.

(2) The equity method investment in FOX is held at the Company's parent, which is taxed as a partnership, resulting in the gain or loss on the investment being a reconciling item in deriving our effective tax rate.

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  Nine months ended September 30,
  2014 2013
United States Federal Statutory Rate 35.0 % 35.0 %
Foreign and State income taxes (net of Federal benefits) (0.9) 1.8
Expenses of Compass Group Diversified Holdings, LLC representing a pass through to shareholders 1.3
 0.5
Effect of deconsolidation of subsidiary (1)
 (31.4) 
Effect of supplemental put reversal (2)
 
 (15.7)
Impact of subsidiary employee stock options 
 0.3
Domestic production activities deduction (0.3) (1.4)
Non-recognition of NOL carryforwards at subsidiaries 
 0.1
Other 0.3
 (2.4)
Effective income tax rate 4.0 % 18.2 %

(1) The effective income tax rate for the nine months ended September 30, 2014 includes a significant gain at our parent, which is taxed as a partnership, related to the deconsolidation of FOX in July 2014.

(2) The effective income tax rate for the nine months ended September 13, 2013 includes a gain at our parent, which is taxed as a partnership, related to the termination of the Supplemental Put Agreement in July 2013.

Reconciliation of Non-GAAP Financial Measures
U.S. GAAP refers to generally accepted accounting principles in the United States. From time to time we may publicly disclose certain “non-GAAP” financial measures in the course of our investor presentations, earnings releases, earnings conference calls or other venues. A non-GAAP financial measure is a numerical measure of historical or future performance, financial position or cash flow that excludes amounts, or is subject to adjustments that effectively exclude amounts, included in the most directly comparable measure calculated and presented in accordance with GAAP in our financial statements, and vice versa for measures that include amounts, or are subject to adjustments that effectively include amounts, that are excluded from the most directly comparable measure as calculated and presented.
Non-GAAP financial measures are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These measures are not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.
The tables below reconcile the most directly comparable GAAP financial measures to Earnings before Interest, Income Taxes, Depreciation and Amortization (“EBITDA”), Adjusted EBITDA, and Cash Flow Available for Distribution and Reinvestment (“CAD”).

Reconciliation of Net income (Loss) to EBITDA and Adjusted EBITDA
EBITDA –EBITDA is calculated as income (loss) from continuing operations before interest expense, income tax expense (benefit), depreciation expense and amortization expense. Amortization expenses consist of amortization of intangibles and debt charges, including debt issuance costs, discounts, etc.
Adjusted EBITDA – Adjusted EBITDA is calculated utilizing the same calculation as described above in arriving at EBITDA further adjusted by; (i) non-controlling stockholder compensation, which generally consists of non-cash stock option expense; (ii) successful acquisition costs, which consist of transaction costs (legal, accounting , due diligences, etc.,) incurred in connection with the successful acquisition of a business expensed during the period in compliance with ASC 805; (iii) increases or decreases in supplemental put charges, which reflected the estimated potential liability due to our Manager that required us to acquire their Allocation Interests in the Company at a price based on a percentage of the fair value in our businesses over their original basis plus a hurdle rate (the Supplemental Put Agreement was terminated on July 1, 2013); (iv) management fees, which reflect fees due quarterly to our Manager in connection with our Management Services Agreement (“MSA’); (v)(iv) impairment charges, which reflect write downs to goodwill or other intangible assetsassets; (v) gains or losses recorded in connection with our equity method investment; and (vi) gains or losses recorded in connection with the sale of fixed assets.
We believe that EBITDA and Adjusted EBITDA provide useful information to investors and reflect important financial measures as they exclude the effects of items which reflect the impact of long-term investment decisions, rather than the performance of

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near term operations. When compared to income (loss) from continuing operations these financial measures are limited in that they do not reflect the periodic costs of certain capital assets used in generating revenues of our businesses or the non-cash charges associated with impairments. This presentation also allows investors to view the performance of our businesses in a manner similar to the methods used by us and the management of our businesses, provides additional insight into our operating results and provides a measure for evaluating targeted businesses for acquisition.
We believe these measurements are also useful in measuring our ability to service debt and other payment obligations. EBITDA and Adjusted EBITDA are not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.

The following table reconciles EBITDA and Adjusted EBITDA to income (loss) from continuing operations, which we consider to be the most comparable GAAP financial measure (in thousands):


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Adjusted EBITDA
NineThree months ended September 30, 2014March 31, 2015
Consolidated Corporate CamelBak Ergobaby Liberty 
Advanced
Circuits
 
American
Furniture
 
Arnold
Magnetics
 Clean Earth Tridien ConsolidatedCorporate CamelBak Ergobaby Liberty 
Advanced
Circuits
 
American
Furniture
 
Arnold
Magnetics
 Clean Earth Sterno Candle Lamp Tridien Consolidated
Net income (loss) (1)
$267,175
 $253,019
 $3,770
 $5,696
 $(3,720) $7,478
 $822
 $(669) $(64) $843
 $267,175
$(19,956) $1,398
 $2,598
 $206
 $2,729
 $1,171
 $(74) $(4,306) $(89) $(8,965) $(25,288)
Adjusted for:
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
Provision (benefit) for income taxes9,747
 
 3,218
 3,844
 (2,137) 3,641
 
 1,164
 (30) 47
 9,747
(189) 987
 1,605
 86
 1,419
 
 (7) (483) (31) (7) 3,380
Interest expense, net16,063
 16,011
 6
 9
 4
 (1) 
 (3) 36
 1
 16,063
9,642
 
 
 
 
 
 
 76
 
 
 9,718
Intercompany interest
 (28,810) 7,563
 3,747
 3,413
 4,996
 1,694
 5,435
 1,077
 885
 
(12,463) 1,521
 1,124
 1,101
 1,470
 510
 1,740
 3,014
 1,718
 265
 
Depreciation and amortization32,713
 65
 10,646
 3,140
 4,866
 4,114
 174
 6,631
 1,159
 1,918
 32,713
457
 3,231
 926
 1,604
 850
 56
 2,276
 5,517
 1,523
 633
 17,073
Loss on debt extinguishment2,143
 2,143
 
 
 
 
 
 
 
 
 2,143
EBITDA327,841
 242,428
 25,203
 16,436
 2,426
 20,228
 2,690
 12,558
 2,178
 3,694
 327,841
(22,509) 7,137
 6,253
 2,997
 6,468
 1,737
 3,935
 3,818
 3,121
 (8,074) 4,883
(Gain) loss on sale of fixed assets169
 
 143
 
 17
 
 
 11
 
 (2) 169

 
 
 7
 
 
 
 112
 
 3
 122
Non-controlling shareholder compensation1,553
 
 709
 405
 302
 18
 
 100
 
 19
 1,553

 230
 170
 94
 6
 
 34
 365
 125
 
 1,024
Acquisition expenses2,031
 
 
 

 96
 
 
 
 1,935
 
 2,031
Gain on deconsolidation of subsidiary(264,325) (264,325) 
 
 
 
 
 
 
 
 (264,325)
Gain (loss) on equity method investment
 
 
 
 
 
 
 
 
 
 
Impairment expense
 
 
 
 
 
 
 
 
 8,907
 8,907
Integration services fee
 
 

 
 
 
 
 625
 375
 
 1,000
Loss on equity method investment13,447
 
 
 
 
 
 
 
 

 
 13,447
Management fees15,634
 13,496
 375
 375
 375
 375
 
 375
 
 263
 15,634
5,896
 125
 125
 125
 125
 
 125
 125
 125
 87
 6,858
Adjusted EBITDA (1)
$82,903
 $(8,401) $26,430
 $17,216
 $3,216
 $20,621
 $2,690
 $13,044
 $4,113
 $3,974
 $82,903
$(3,166) $7,492
 $6,548
 $3,223
 $6,599
 $1,737
 $4,094
 $5,045
 $3,746
 $923
 $36,241

Adjusted EBITDA
Three months ended March 31, 2014
 Corporate CamelBak Ergobaby Liberty 
Advanced
Circuits
 
American
Furniture
 
Arnold
Magnetics
 Tridien Consolidated
Net income (loss) (1)
$(2,333) $1,691
 $1,974
 $344
 $2,439
 $565
 $(647) $399
 $4,432
Adjusted for:
 
 
 
 
 
 
 
 
Provision (benefit) for income taxes
 1,502
 1,025
 141
 1,171
 
 197
 
 4,036
Interest expense, net4,489
 3
 7
 3
 
 
 (1) 
 4,501
Intercompany interest(9,312) 2,545
 1,283
 1,153
 1,698
 546
 1,796
 291
 
Depreciation and amortization35
 3,522
 1,044
 1,592
 1,372
 68
 2,187
 665
 10,485
EBITDA(7,121) 9,263
 5,333
 3,233
 6,680
 1,179
 3,532
 1,355
 23,454
(Gain) loss on sale of fixed assets
 
 
 
 
 
 (12) (2) (14)
Non-controlling shareholder compensation
 236
 135
 110
 6
 
 37
 20
 544
Management fees4,022
 125
 125
 125
 125
 
 125
 88
 4,735
Adjusted EBITDA (1)
$(3,099) $9,624
 $5,593
 $3,468
 $6,811
 $1,179
 $3,682
 $1,461
 $28,719

(1) As a result of the deconsolidation of our FOX subsidiary in July 2014, Net income does not include Net income from FOX of $15.0$2.9 million for the period January 1, 2014 through July 10,March 31, 2014, and Adjusted EBITDA does not include Adjusted EBITDA of $25.1 million from FOX for the period January 1, 2014 through July 10, 2014.

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Adjusted EBITDA
Nine months ended September 30, 2013
 Consolidated Corporate CamelBak Ergobaby Liberty 
Advanced
Circuits
 
American
Furniture
 
Arnold
Magnetics
 Clean Earth Tridien Consolidated
Net income (loss) (1)
$64,683
 $44,487
 $4,694
 $2,747
 $4,833
 $7,102
 $(1,179) $1,700
 $
 $299
 $64,683
Adjusted for:
 
 
 
 
 
 
 
   
 
Provision (benefit) for income taxes10,854
 (75) 2,649
 1,736
 2,153
 4,578
 
 (136) 
 (51) 10,854
Interest expense, net14,505
 14,501
 (8) 2
 
 (1) 
 11
 
 
 14,505
Intercompany interest
 (29,545) 8,588
 4,286
 3,232
 5,699
 1,287
 5,596
 
 857
 
Depreciation and amortization28,767
 (1,615) 10,142
 2,989
 4,878
 4,070
 235
 6,354
 
 1,714
 28,767
Loss on debt exchange1,785
 1,785
 
 
 
 
 
 
 
 
 1,785
EBITDA120,594
 29,538
 26,065
 11,760
 15,096
 21,448
 343
 13,525
 
 2,819
 120,594
(Gain) loss on sale of fixed assets37
 
 14
 23
 
 (18) (19) 21
 
 16
 37
Non-controlling shareholder compensation1,692
 
 709
 499
 290
 18
 
 108
 
 68
 1,692
Impairment charges900
 
 
 
 
 
 
 
 
 900
 900
Supplemental put expense(45,995) (45,995) 
 
 
 
 
 
 
 
 (45,995)
Management fees13,334
 11,196
 375
 375
 375
 375
 
 375
 
 263
 13,334
Adjusted EBITDA (1)
$90,562
 $(5,261) $27,163
 $12,657
 $15,761
 $21,823
 $324
 $14,029
 $
 $4,066
 $90,562


(1) As a result of the deconsolidation of our FOX subsidiary in July 2014, Net income does not include Net income from FOX of $19.2 million for the period January 1, 2013 through September 30, 2013, and Adjusted EBITDA does not include Adjusted EBITDA from FOX of $38.7$8.6 million for the period January 1, 20132014 through September 30, 2013.March 31, 2014.


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Reconciliation of net income to CAD
CAD is a non-GAAP measure that we believe provides additional, useful information to evaluate our ability to make anticipated quarterly distributions. CAD is not meant to be a substitute for GAAP, and may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies.
The following table reconciles cash receipts and payments that are not reflected on our income statement to net income (loss) and cash flows provided by (used in) operating activities, which we consider the most directly comparable GAAP financial measures in order to provide an additional measure of management’s estimate of CAD.
 

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Nine Months EndedThree Months Ended
(in thousands)September 30, 2014 September 30, 2013March 31, 2015 March 31, 2014
Net income$282,222
 $83,878
$(25,287) $7,373
Adjustment to reconcile net income to cash provided by operating activities:
 

 
Depreciation and amortization35,884
 34,670
16,535
 11,985
Impairment expense
 900
8,907
 
Amortization of debt issuance costs and original issue discount2,412
 2,489
713
 864
Unrealized (gain) loss on interest rate and foreign currency hedges2,809
 68
4,314
 92
Loss on debt extinguishment2,143
 1,785
Excess tax benefit from subsidiary stock option exercise (1)(1,662) 

 (1,061)
Supplemental put expense
 (45,995)
Gain on deconsolidation of subsidiary(264,325) 
Loss on equity method investment13,447
 
Noncontrolling shareholder charges3,592
 3,367
1,024
 1,365
Deferred taxes(806) (594)
Other361
 189
427
 (53)
Deferred taxes(1,944) (2,121)
Changes in operating assets and liabilities(15,332) (25,191)(15,987) (26,011)
Net cash provided by operating activities46,160
 54,039
3,287
 (6,040)
Plus:
 

 
Unused fee on revolving credit facility (2)1,635
 1,738
309
 600
Excess tax benefit from subsidiary stock option exercise (1)1,662
 

 1,061
Successful acquisition costs2,030
 
Integration services fee (3)1,000
 
Changes in operating assets and liabilities15,332
 25,191
15,987
 26,011
Other123
 

 53
Less:
 

 
Payments on swap1,502
 
495
 495
Maintenance capital expenditures: (3)
 
Maintenance capital expenditures: (4)

 
Compass Group Diversified Holdings LLC
 

 
Advanced Circuits482
 2,638
26
 190
American Furniture335
 269
63
 43
Arnold2,258
 1,902
260
 891
CamelBak1,976
 709
569
 223
Clean Earth170
 
2,090
 
Ergobaby298
 1,067
875
 87
Fox2,381
 2,486

 940
Liberty508
 529
126
 350
SternoCandleLamp161
 
Tridien593
 357
119
 380
FOX CAD (4)15,716
 7,344
FOX CAD (5)

 3,494
Other201
 
305
 
Estimated cash flow available for distribution and reinvestment40,522
 63,667
$15,494
 $14,592
Distribution paid in April 2014/2013$(17,388) $(17,388)
Distribution paid in July 2014/2013(17,388) (17,388)
Distribution paid in October 2014/ 2013$(17,388) $(17,388)
$(52,164) $(52,164)
Distribution paid in April 2015/2014$(19,548) $(17,388)


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(1) Represents the non-cash excess tax benefit at FOX related to the exercise of stock options.
(2) Represents the commitment fee on the unused portion of the revolving credit facilities.
(3) ExcludesRepresents fees paid by newly acquired companies to the Manager for integration services performed during the first year of ownership, payable quarterly.
(4) Represents maintenance capital expenditures that were funded from operating cash flow, net of proceeds from the sale of property, plant and equipment, and excludes growth capital expenditures of approximately $1.2 million and $4.7$0.5 million for both the ninethree months ended September 30, 2014March 31, 2015 and 2013, respectively.2014.
(4)(5) Represents FOX CAD subsequent toduring the FOX IPO date. For the ninethree months ended September 30, 2014, theMarch 31, 2014. The amount includes approximately $24.2$7.6 million of EBITDA, less: $3.8$2.2 million of cash taxes, $1.9$0.9 million of management fees, $2.4and $0.9 million of maintenance capital expenditures and $0.4 millionexpenditures.

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Table of interest expense.Contents

Earnings of certain of our operating segments are seasonal in nature. Earnings from Liberty are typically lowest in the second quarter due to lower demand for safes at the onset of summer. Earnings from CamelBak are typically higher in the spring and summer months than other months as this corresponds with warmer weather in the Northern Hemisphere and an increase in hydration related activities. Earnings from Clean Earth are typically lower during the winter months due to the limits on outdoor construction and dredging because of the colder weather in the Northeastern United States.

Related Party Transactions and Certain Transactions Involving our Businesses

Sale of FOX common stock
On July 10, 2014, 5,750,000 shares of common stock held by certain FOX shareholders, including us, were sold in a secondary offering at a price of $15.50 per share for total net proceeds of approximately $84.4 million.
As a selling shareholder we sold a total of 4,466,569 shares of FOX common stock, including 633,955 shares sold in connection with underwriters’ exercise of the over-allotment option in full, for total net proceeds of approximately $65.5 million. Upon completion of the offering, our ownershipEquity method investment in FOX was lowered from approximately 53% to 41%, or 15,108,718 shares of FOX’s common stock and as a result we anticipate deconsolidating FOX as of July 10, 2014 which is consistent with our intention to streamline our consolidated financial reporting. In connection with the FOX deconsolidation we recorded a gain of approximately $264.2 million in the quarter ended September 30, 2014.

As of July 10, 2014, our ownership interest in FOX decreased from 53% to approximately 41% after we began tosold shares in a secondary offering by FOX. Since we no longer hold a majority interest in FOX, we account for our investment in FOX at fair value utilizing the equity method of accounting. We elected to measure our investment in FOX at fair value, with unrealized gains and losses reflected in the consolidated statement of operations as income (loss) from equity method investments. The mark-to-market at September 30, 2014 resulted in no additional gain or loss on our retained investment in FOX.

The following table reflects the year to date activity from our investment in FOX (in thousands):

  2014
Balance January 1, 2014 $
Effect of July 10, 2014 deconsolidation (1)
 234,185
Mark-to-market adjustment September 30, 2014 
Balance September 30, 2014 $234,185
  2015
Balance January 1, 2015 $245,214
Mark-to-market adjustment - March 31, 2015 (13,447)
Balance March 31, 2015 $231,767

(1) See Footnote B to the condensed consolidated financial statements.

Contractual Obligations and Off-Balance Sheet Arrangements
We have no special purpose entities or off balance sheet arrangements, other than operating leases entered into in the ordinary course of business.
Long-term contractual obligations, except for our long-term debt obligations, are generally not recognized in our consolidated balance sheet. Non-cancelable purchase obligations are obligations we incur during the normal course of business, based on projected needs.
The table below summarizes the payment schedule of our contractual obligations at September 30, 2014:March 31, 2015:
 

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Total 
Less than 1
Year
 1-3 Years 3-5 Years 
More than
5 Years
Total 
Less than 1
Year
 1-3 Years 3-5 Years 
More than
5 Years
Long-term debt obligations (a)(1)$425,577
 $51,688
 $4,256
 $41,708
 $327,925
$615,713
 $20,188
 $43,975
 $230,973
 $320,577
Operating lease obligations (b)(2)89,496
 12,883
 14,914
 21,780
 39,919
93,281
 15,145
 24,789
 17,089
 36,258
Purchase obligations (c)(3)255,496
 168,362
 46,900
 40,234
 
265,553
 168,490
 49,563
 47,500
 
Total (d)(4)$770,569
 $232,933
 $66,070
 $103,722
 $367,844
$974,547
 $203,823
 $118,327
 $295,562
 $356,835
 
(a)
(1)
Reflects commitment fees and letter of credit fees under our 2014 Revolving Credit Facility and amounts due, together with interest on our 2014 Term Loan Facility.
(b)
(2)
Reflects various operating leases for office space, manufacturing facilities and equipment from third parties with various lease terms running from one to fourteen years.
(c)
(3)
Reflects non-cancelable commitments as of September 30, 2014,March 31, 2015, including: (i) shareholder distributions of $69.6$78.2 million; (ii) estimated management fees of $23.0$23.8 million per year over the next five years, and (iii) other obligations including amounts due under employment agreements. Distributions to our shareholders are approved by our Board of Directors each quarter. The amount ultimately approved as future quarterly distributions may differ from the amount included in this schedule.

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(d)
(4)
The contractual obligation table does not include approximately $0.5$0.7 million in liabilities associated with unrecognized tax benefits as of September 30, 2014March 31, 2015 as the timing of the recognition of this liability is not certain. The amount of the liability is not expected to significantly change in the next twelve months.
Critical Accounting Estimates
The preparation of our financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates under different assumptions and judgments and uncertainties, and potentially could result in materially different results under different conditions. These critical accounting estimates are reviewed periodically by our independent auditors and the audit committee of our board of directors.
Except as set forth below, our critical accounting estimates have not changed materially from those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, for the year ended December 31, 2013,2014, as filed with the SEC.

2014 Annual2015 Interim Goodwill Impairment Testing
In January 2015, one of Tridien's largest customer's informed the company that they would not renew their existing purchase agreement when it expires on September 30, 2015. This customer represented 20% of Tridien's sales in 2014. The expected lost sales and net income were significant enough to trigger an interim goodwill impairment testinganalysis as of January 31, 2015. The result of the first step of the impairment test indicated that the fair value of Tridien was less than its carrying value therefore it was necessary to perform the second step of the impairment test. We estimated the fair value of the Tridien reporting unit using a weighted average of an income and market approach. The income approach was based on the present value of expected future cash flows, including terminal value, utilizing a market-based weighted average cost of capital ("WACC") of 15.7%. The market approach was based on earnings multiple data and guideline public companies. The determination of fair value involves the use of significant estimates and assumptions, including revenue growth rates, operating margins, working capital requirements, capital expenditures, tax rates and terminal growth rates. Due to the inherent uncertainty associated with forming these estimates, actual results could differ from those estimates. Future events and changing market conditions may impact our assumptions as to future revenue growth rates, operating margins, market-based WACC and other factors that may result in changes in the estimates of Tridien's fair value.
Based on the second step of the impairment test, we concluded on a preliminary basis that the implied fair value of goodwill for Tridien was less than its carrying amount, resulting in impairment of the carrying amount of Tridien's goodwill of $8.9 million as of January 31, 2015. We expect to conclude on on our interim goodwill impairment testing of Tridien during the three months ended June 30, 2015.

2015 Annual Impairment Testing - Goodwill and Indefinite-lived Intangible Assets

Goodwill

Goodwill represents the excess amount of the purchase price over the fair value of the assets acquired. WeOur goodwill and indefinite lived intangible assets are requiredtested for impairment on an annual basis as of March 31st, and if current events or circumstances require, on an interim basis. Goodwill is allocated to perform impairment reviews of goodwill balances at each of our Reporting Units (“RU”) at least annually and more frequently in certain circumstances.various reporting units, which are generally an operating segment or one level below the operating segment. Each of our businesses represents a RU andreporting unit except Arnold, which is comprised of three RUs. Each of our RUreporting units, and each reporting unit is subject to impairment review at March 31, 2014, which representsincluded in our annual date for impairment testingtest with the exception of American Furniture. The balanceFurniture, which has no goodwill or indefinite lived intangible assets, and Tridien, which was tested for impairment in January 2015 as a result of American Furniture’s goodwill was completely written off in 2011.a triggering event.
At March 31, 2014, we elected to
We use the optionala qualitative assessment alternativeapproach to test goodwill for impairment by first assessing qualitative factors to determine whether it is more-likely than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment testing. The qualitative factors we consider include, in part, the general macroeconomic environment, industry and market specific conditions for each reporting unit, financial performance including actual versus planned results and results of our RU that maintains arelevant prior periods, operating costs and cost impacts, as well as issues or events specific to the reporting unit. If necessary, the first step in the goodwill carrying value. Resultsimpairment test involves comparing the fair value of the qualitative analysis indicate thateach of its reporting units to the carrying value of thesethose reporting units.


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At March 31, 2015, we are currently in the process of evaluating the qualitative factors of each reporting unit to determine if the fair values of the reporting units did not exceed their fair value.respective carrying values for the 2015 annual goodwill impairment testing. We determined that Liberty and two of the three RUsreporting units at Arnold, PMAG and Flexmag, required further quantitative testing (step 1) because we could not conclude that the fair value of the RUsreporting units exceeds their carrying value based on qualitative factors alone. Results ofWe expect to conclude on on our goodwill impairment testing during the quantitative analysis indicatedthree months ended June 30, 2015.

Indefinite-lived intangible assets
We use a qualitative approach to test indefinite lived intangible assets for impairment by first assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of these reporting units exceeded their carrying value. The fair value of the RU was determined utilizing a discounted cash flow methodology ("DCF") on both an income and market approach for Flexmag and the income approach for Precision Thin Metals. A representative market does not exist for Precision Thin metals. The DCF utilized a weighted average cost of capital of 12.5% for Flexmag and 14.5% for Precision Thin Metals.
Liberty Safe
During the third quarter of 2014 net sales and gross profit margins declined significantly at Liberty. In addition, Liberty recorded an inventory write down in June 2014 resulting from its decision to sell a portion of their finished goods inventory (import safes) at a price below their carrying value. We believe that the significant decline in sales over the past two fiscal quarters and resulting excess finished goods inventoryindefinite lived intangible asset is due almost exclusively to an overzealous market for firearms andimpaired as a by-product, gun safes, in fiscal 2012 and 2013. We also currently believe that the marketbasis for gun safes will begin to stabilize in 2015 after retailers inventories begin to normalize. If Liberty Safe does not believe it can achieve the financial performance that we and the Management of Liberty Safe expect in 2015, it is possible that a goodwill impairment charge may result. The carrying value of goodwill at

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Liberty Safe is approximately $32.8 million. There can be no assurance that future events will not result in an impairment of goodwill.

2014 Annual indefinite-lived impairment testing
The Financial Accounting Standards Board issued an accounting Standards Update 2012 (“2012 ASU”) in September 2011 that permits companies to make a qualitative assessment ofdetermining whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. This ASU is effective for fiscal years beginning after December 15, 2012.
At March 31, 2014 we electednecessary to use the optional qualitative assessment alternative that permits an entity to consider events and circumstances that could affect the fair value of the indefinite-lived intangible asset and avoid theperform quantitative test if the entity is able to support a conclusion that the indefinite-lived intangible asset is not impaired.impairment testing. Our indefinite-lived intangible assets consist of trade names with a carrying value of approximately $147.5$149.6 million. ResultsAt March 31, 2015, preliminary results of the qualitative analysis of our indefinite lived intangible assets indicated that the fair value exceeded their carrying value ofvalue. We expect to conclude on our indefinite-live intangible assets did not exceed their fair value.indefinite lived asset impairment testing during the three months ended June 30, 2015.
Recent Accounting Pronouncements
Refer to footnoteFootnote B to our condensed consolidated financial statements.

ITEM 3. – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our market risk since December 31, 20132014 with the exception of entering into the New Swap as explained below. For a further discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the year ended December 31, 2013.2014.
At September 30, 2014,March 31, 2015 we have several derivative instruments in the form of forward contracts and options that hedge the value of the Eurodollar. The nominal value of these instruments total approximately $2.0$0.5 million. Mark-to-market gains or losses from these instruments were not material during the three and nine months ended September 30, 2014. On September 16, 2014 we purchased an interest rate swap with a notional value of $220 million that hedges future interest payments on $220 million of our $325 million 2014 Term Loan. The New Swap term begins on April 1, 2016 and matures in June 2021, corresponding with the expiration of the 2014 Term Loan. The New Swap requires us to pay fixed interest at the rate of 2.97% on $220 million in exchange for three-month LIBOR. At September 30, 2014 the New Swap has a mark-to-market value of negative $2.5 million, which essentially reflects the present value of forecasted exchanges of payments. Should interest rates rise the value of the New Swap will increase.March 31, 2015.


ITEM 4. – CONTROLS AND PROCEDURES
As required by Exchange Act Rule 13a-15(b), Holdings’ Regular Trustees and the Company’s management, including the Chief Executive Officer and Chief Financial Officer of the Company, conducted an evaluation of the effectiveness of Holdings’ and the Company’s disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of September 30, 2014.March 31, 2015. Based on that evaluation, the Holdings’ Regular Trustees and the Chief Executive Officer and Chief Financial Officer of the Company concluded that Holdings’ and the Company’s disclosure controls and procedures were effective as of September 30, 2014.March 31, 2015.

There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
Legal proceedings associated with the Company’s and Holdings’ business together with legal proceedings for the businesses have not changed materially, except as noted below in relation to Tridien, from those disclosed in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 20132014 as filed with the SEC on March 7, 2014.2, 2015.

Tridien's subsidiary, AMF Support Services, Inc. ("AMF") is subject to a workers' compensation claim in the State of California, being adjudicated by the Riverside County Workers' Compensation Appeals Board.  Tridien is a majority owned subsidiary of the Company. The claim is the result of an industrial accident that occurred on March 2, 2013, and the injuries sustained by a contract employee working at Tridien's Corona, California facility.  The employee is seeking workers' compensation benefits from AMF, as the special employer, and the staffing company who employed the worker, as the general employer.  The employee has also alleged that the employee's injuries are the result of the employer's "serious and willful misconduct", and has made a claim under California Labor Code § 4553 for damages.  The claim was initiated on September 13, 2013. If proven, the "serious and willful" penalty is fixed by statute at either $0 or 50% of the value of all workers' compensation benefits paid as a result of the injury and is not insurable. The underlying workers' compensation claims are still being adjudicated. At this stage, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from these proceedings. Accordingly, no amounts in respect of this matter have been provided in the Company's accompanying financial statements.  The Company believes it has meritorious defenses to the allegations and will continue to vigorously defend against the claims.


ITEM 1A. RISK FACTORS

There have been no material changes in those risk factors and other uncertainties associated with the Company and Holdings discussed in the section entitled “Risk Factors” disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013,2014, as filed with the SEC on March 7, 2014, other than as described below related to our Clean Earth subsidiary, which was acquired in August 2014, and our SternoCandleLamp subsidiary, which was acquired in October 2014.


Risks Related to Clean Earth
If Clean Earth is unable to renew its operating permits or lease agreements with regulatory bodies, its business would be adversely affected.
Clean Earth’s facilities operate using permits and licenses issued by various regulatory bodies at various local, state and federal government levels. Failure to renew its permits and licenses necessary to operate Clean Earth’s facilities on a timely basis or failure to renew or maintain compliance with its site lease agreements on a timely basis could prevent or restrict its ability to provide certain services, resulting in a material adverse effect on its business. There can be no assurance that Clean Earth will continue to be successful in obtaining timely permit or license applications approval, maintaining compliance with its lease agreements and obtaining timely lease renewals.

Clean Earth operates twelve facilities that accept, process and/or treat materials provided by its customers. These facilities may be inherently dangerous workplaces. If Clean Earth fails to maintain safe worksites, it may be subject to significant operating risks and hazards that could resultin injury or death to persons, which could result in losses orliabilities to it.

Clean Earth’s safety record is an important consideration for it and for its customers. If serious accidents or fatalities occur or its safety record was to deteriorate, it may be ineligible to bid on certain work, and existing service arrangements could be terminated. Further, regulatory changes implemented by OSHA could impose additional costs on Clean Earth. Adverse experience with hazards and claims could have a negative effect on Clean Earth’s reputation with its existing or potential new customers and its prospects for future work.

If Clean Earth fails to comply with applicable environmental laws and regulations its business could be adversely affected.
The changing regulatory framework governing Clean Earth’s business creates significant risks. Clean Earth could be held liable if its operations cause contamination of air, groundwater or soil or expose its employees or the public to contamination. Under current law, Clean Earth may be held liable for damage caused by conditions that existed before it acquired the assets, business or operations involved. Also, it may be liable if it arranges for the transportation, disposal or treatment of hazardous substances that cause environmental contamination at facilities operated by others, or if a predecessor made such arrangements and Clean Earth is a successor. Liability for environmental damage could have a material adverse effect on Clean Earth’s financial condition, results of operations and cash flows.
Stringent regulations of federal, state or provincial governments have a substantial impact on Clean Earth’s contaminated soil, dredge material and solid and hazardous waste treatment, storage, disposal and beneficial use activities. Local government controls may also apply. Many complex laws, rules, orders and regulatory interpretations govern environmental protection, health, safety, noise, visual impact, odor, land use, zoning, transportation and related matters. Clean Earth also may be subject to laws concerning

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the protection of certain marine and bird species, their habitats, and wetlands. It may incur substantial costs in order to conduct its operations in compliance with these environmental laws and regulations. Changes in environmental laws or regulations or changes in the enforcement or interpretation of existing laws, regulations or permitted activities may require Clean Earth to make significant capital or other expenditures, to modify existing operating licenses or permits, or obtain additional approvals or limit operations. New environmental laws or regulations that raise compliance standards or require changes in operating practices or technology may impose significant costs and/or limit Clean Earth’s operations.
Clean Earth’s revenue is primarily generated as a result of requirements imposed on our customers under federal, state, and provincial laws and regulations to protect public health and the environment. If requirements to comply with laws and regulations governing management of contaminated soils, dredge material, and hazardous wastes were relaxed or less vigorously enforced, demand for Clean Earth’s services could materially decrease and its revenues and earnings could be significantly reduced.

Risks Related to SternoCandleLamp


SternoCandleLamp products operate at high temperatures and use flammable fuels, each of which could subject our business to product liability claims.

SternoCandleLamp products exposes it to potential product liability claims typical of fuel based heating products. The fuels SternoCandleLamp uses in its products are flammable and may be toxic if ingested. Although SternoCandleLamp products have comprehensive labeling and it follows government and third party based standards and protocols, it cannot guarantee there will not be accidents due to misuse or otherwise. Accidents involving SternoCandleLamp products could have an adverse effect on its reputation and reduce demand for its products. In addition, SternoCandleLamp may be held responsible for damages beyond its insurance coverage and there can be no guarantee that it will be able to procure adequate insurance coverage in the future.2, 2015.



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ITEM 6.  Exhibits
  
Exhibit Number  Description
10.1Sixth Amended and Restated Management Services Agreement by and between Compass Group Diversified Holdings, LLC and Compass Group Management LLC, dated as of September 30, 2014 and originally effective as of May 16, 2016
  
31.1  Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Registrant
  
31.2  Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Registrant
  
32.1  Certification of Chief Executive Officer of Registrant 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 Chief Financial Officer of Registrant 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.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 COMPASS DIVERSIFIED HOLDINGS
   
 By: /s/ Ryan J. Faulkingham
   Ryan J. Faulkingham
   Regular Trustee
Date: November 5, 2014May 6, 2015
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 COMPASS GROUP DIVERSIFIED HOLDINGS LLC
   
 By: /s/ Ryan J. Faulkingham
   Ryan J. Faulkingham
   
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: November 5, 2014May 6, 2015

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EXHIBIT INDEX
Exhibit Number Description
10.1Sixth Amended and Restated Management Services Agreement by and between Compass Group Diversified Holdings, LLC and Compass Group Management LLC, dated as of September 30, 2014 and originally effective as of May 16, 2016
   
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Registrant
   
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Registrant
   
32.1 Certification of Chief Executive Officer of Registrant 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 Chief Financial Officer of Registrant 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.


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