UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Form 10-Q
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172020
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)
Delaware001-3492757-6218917
(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)
Delaware001-3492620-3812051
(State or other jurisdiction of

incorporation or organization)
(Commission

file number)
(I.R.S. employer

identification number)
301301 Riverside Avenue,
Second Floor,
Westport, CT 06880
(203)(203) 221-1703
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Shares representing beneficial interests in Compass Diversified HoldingsCODINew York Stock Exchange
Series A Preferred Shares representing beneficial interests in Compass Diversified HoldingsCODI PR ANew York Stock Exchange
Series B Preferred Shares representing beneficial interests in Compass Diversified HoldingsCODI PR BNew York Stock Exchange
Series C Preferred Shares representing beneficial interests in Compass Diversified HoldingsCODI PR CNew York Stock Exchange

Indicate by check mark whether the registrant: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.    YesýNo¨
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 ýNo¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act
Act.
Large accelerated filerýxAccelerated filer¨Non-accelerated filer¨
Non-accelerated filerSmaller reporting company¨☐Smaller Reporting Company¨
Emerging growth company
¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨☐Noý


As of November 1, 2017,October 28, 2020, there were 59,900,00064,900,000 Trust common shares of Compass Diversified Holdings outstanding.




COMPASS DIVERSIFIED HOLDINGS
QUARTERLY REPORT ON FORM 10-Q
For the period ended September 30, 20172020
TABLE OF CONTENTS
Page
Number
4
Page
Number
FORWARD-LOOKING STATEMENTS
4
PART I. FINANCIAL INFORMATION
ITEM 1.
5
6
7
8
910
1112
ITEM 2.
3437
ITEM 3.
6469
ITEM 4.
6469
PART II. OTHER INFORMATION
6570
ITEM 1.
6570
ITEM 1A.
6570
ITEM 6.
6571
6772



2

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

•the "Trust" and "Holdings" refer to Compass Diversified Holdings;
•the "Company" refer to Compass Group Diversified Holdings LLC;
•"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 "Trust Agreement" refer to the Second Amended and Restated Trust Agreement of the Trust dated as of December 6, 2016;
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 provided for the 2011 Revolving Credit Facility and the 2011 Term Loan Facility;
•the "2014 Credit Facility" refer to the credit agreement, as amended, from time to time, entered into on June 6,14, 2014 with a group of lenders led by Bank of America N.A. as administrative agent, as amended from time to time, which provides for a Revolving Credit Facility and a Term Loan;
•the "2014 Revolving"2018 Credit Facility" refer to the $550 millionamended and restated credit agreement entered into on April 18, 2018 among the Company, the Lenders from time to time party thereto (the "Lenders"), Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (the "agent") and other agents party thereto, as further amended.
•the "2018 Revolving Credit FacilityFacility" refers to the $600 million in revolving loans, swing line loans and letters of credit provided by the 20142018 Credit Facility that matures in June 2019;2023;
•the "2014"2018 Term Loan" refer to the $325$500 million Term Loan Facility,term loan provided by the 20142018 Credit Facility that matures in June 2021;Facility;
the "2016 Incremental Term Loan" refer to the $250 million Tranche B Term Facility provided by the 2014 Credit Facility (together with the 2014 Term Loan, the "Term Loans");
•the "LLC Agreement" refer to the fifth amended and restated operating agreement of the Company dated as of December 6, 2016; and
•"we," "us" and "our" refer to the Trust, the Company and the businesses together.



3

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," "may," or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. All statements other than statements of historical or current fact are “forward-looking statements” for purposes of federal and state securities laws. Forward looking statements include, among other things, (i) statements as to our future performance or liquidity, such as expectations for our results of operation, net income, adjusted EBITDA, and ability to make quarterly distributions and (ii) our plans, strategies and objectives for future operations, including our planned capital expenditures. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, somesuch as those disclosed or incorporated by reference in our filings with the SEC, many of which are beyond our control including,. Important factors that could cause our actual results, performance and achievements to differ materially from those estimates or projections contained in our forward-looking statements include, among other things:

•the adverse impact on the U.S. and global economy, including the markets in which we operate, of the novel coronavirus, which causes the Coronavirus disease 2019 (COVID-19) global pandemic, and the impact in the near, medium and long-term on our business, results of operations, financial position, liquidity or cash flows;
•difficulties and delays in integrating, or business disruptions following, acquisitions or an inability to fully realize cost savings and other benefit related thereto;
•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 legal and regulatory environment in which our businesses operate;
•trends in the industries in which our businesses operate;
•changes in general economic, political or business conditions or economic, political or demographic trends in the United States and other countries in which we have a presence, including changes in interest rates and inflation;
•risks associated with possible disruption in operations or the economy generally due to terrorism or natural disaster or social, civil or political unrest;
•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.



4

PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
2020		December 31,
2019
(in thousands)September 30,
2017		 December 31,
2016		(in thousands)(Unaudited)
(Unaudited)  
Assets   Assets
Current assets:   Current assets:
Cash and cash equivalents$41,487
 $39,772
Cash and cash equivalents$176,819 $100,314 
Accounts receivable, net198,111
 181,191
Accounts receivable, net242,947 191,405 
Inventories242,817
 212,984
Inventories344,036 317,306 
Prepaid expenses and other current assets27,145
 18,872
Prepaid expenses and other current assets36,873 35,247 
Total current assets509,560
 452,819
Total current assets800,675 644,272 
Property, plant and equipment, net170,827
 142,370
Property, plant and equipment, net155,601 146,428 
Investment in FOX (refer to Note F)—
 141,767
Goodwill539,925
 491,637
Goodwill508,464 438,519 
Intangible assets, net591,878
 539,211
Intangible assets, net619,925 561,946 
Other non-current assets8,616
 9,351
Other non-current assets107,319 100,727 
Total assets$1,820,806
 $1,777,155
Total assets$2,191,984 $1,891,892 
Liabilities and stockholders’ equity   Liabilities and stockholders’ equity
Current liabilities:   Current liabilities:
Accounts payable$77,417
 $61,512
Accounts payable$98,192 $70,089 
Accrued expenses105,058
 91,041
Accrued expenses151,279 108,768 
Due to related party7,553
 20,848
Due to related party9,283 8,049 
Current portion, long-term debt5,685
 5,685
Other current liabilities15,493
 23,435
Other current liabilities25,022 22,573 
Total current liabilities211,206
 202,521
Total current liabilities283,776 209,479 
Deferred income taxes122,033
 110,838
Deferred income taxes30,854 33,039 
Long-term debt569,755
 551,652
Long-term debt592,107 394,445 
Other non-current liabilities18,570
 17,600
Other non-current liabilities94,554 89,054 
Total liabilities921,564
 882,611
Total liabilities1,001,291 726,017 
Commitments and contingenciesCommitments and contingencies
Stockholders’ equity   Stockholders’ equity
Trust preferred shares, 50,000 authorized; 4,000 shares issued and outstanding at September 30, 201796,417
 —
Trust common shares, no par value, 500,000 authorized; 59,900 shares issued and outstanding at September 30, 2017 and December 31, 2016924,680
 924,680
Trust preferred shares, 50,000 authorized; 12,600 shares issued and outstanding at September 30, 2020 and December 31, 2019Trust preferred shares, 50,000 authorized; 12,600 shares issued and outstanding at September 30, 2020 and December 31, 2019
Series A preferred shares, no par value; 4,000 shares issued and outstanding at September 30, 2020 and December 31, 2019Series A preferred shares, no par value; 4,000 shares issued and outstanding at September 30, 2020 and December 31, 201996,417 96,417 
Series B preferred shares, no par value; 4,000 shares issued and outstanding at September 30, 2020 and December 31, 2019Series B preferred shares, no par value; 4,000 shares issued and outstanding at September 30, 2020 and December 31, 201996,504 96,504 
Series C preferred shares, no par value; 4,600 shares issued and outstanding at September 30, 2020 and December 31, 2019Series C preferred shares, no par value; 4,600 shares issued and outstanding at September 30, 2020 and December 31, 2019110,997 110,997 
Trust common shares, no par value, 500,000 authorized; 64,900 shares issued and outstanding at September 30, 2020 and 59,900 shares issued and outstanding at December 31, 2019Trust common shares, no par value, 500,000 authorized; 64,900 shares issued and outstanding at September 30, 2020 and 59,900 shares issued and outstanding at December 31, 20191,008,564 924,680 
Accumulated other comprehensive loss(2,184) (9,515)Accumulated other comprehensive loss(4,447)(3,933)
Accumulated deficit(167,297) (58,760)Accumulated deficit(188,136)(109,338)
Total stockholders’ equity attributable to Holdings851,616
 856,405
Total stockholders’ equity attributable to Holdings1,119,899 1,115,327 
Noncontrolling interest47,626
 38,139
Noncontrolling interest70,794 50,548 
Total stockholders’ equity899,242
 894,544
Total stockholders’ equity1,190,693 1,165,875 
Total liabilities and stockholders’ equity$1,820,806
 $1,777,155
Total liabilities and stockholders’ equity$2,191,984 $1,891,892 
See notes to condensed consolidated financial statements.

5

COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended 
 September 30,		Nine months ended 
 September 30,
(in thousands, except per share data)2020201920202019
Net revenues$418,903 $388,313 $1,085,979 $1,063,254 
Cost of revenues265,119 251,778 695,304 684,601 
Gross profit153,784 136,535 390,675 378,653 
Operating expenses:
Selling, general and administrative expense93,036 82,027 260,850 243,736 
Management fees9,659 8,874 23,436 28,352 
Amortization expense15,222 13,520 43,506 40,632 
Impairment expense0 33,381 0 33,381 
Operating income (loss)35,867 (1,267)62,883 32,552 
Other income (expense):
Interest expense, net(12,351)(11,525)(32,122)(48,424)
Loss on sale of securities (refer to Note C)0 (4,893)0 (10,193)
Amortization of debt issuance costs(660)(770)(1,795)(2,625)
Loss on debt extinguishment0 (5,038)0 (5,038)
Other income (expense), net(447)(689)(2,172)(1,213)
Income (loss) from continuing operations before income taxes22,409 (24,182)26,794 (34,941)
Provision for income taxes1,606 4,400 8,477 10,375 
Income (loss) from continuing operations20,803 (28,582)18,317 (45,316)
Income from discontinued operations, net of income tax0 0 0 16,901 
Gain on sale of discontinued operations100 2,039 100 330,203 
Net income (loss)20,903 (26,543)18,417 301,788 
Less: Net income from continuing operations attributable to noncontrolling interest1,717 1,242 4,003 3,997 
Less: Net loss from discontinued operations attributable to noncontrolling interest0 0 0 (266)
Net income (loss) attributable to Holdings$19,186 $(27,785)$14,414 $298,057 
Amounts attributable to Holdings
Income (loss) from continuing operations$19,086 $(29,824)$14,314 $(49,313)
Income from discontinued operations, net of income tax0 0 0 17,167 
Gain on sale of discontinued operations, net of income tax100 2,039 100 330,203 
Net income (loss) attributable to Holdings$19,186 $(27,785)$14,414 $298,057 
Basic income (loss) per common share attributable to Holdings (refer to Note J)
Continuing operations$0.08 $(1.33)$(0.33)$(1.95)
Discontinued operations0 0.03 0 5.80 
$0.08 $(1.30)$(0.33)$3.85 
Basic weighted average number of shares of common shares outstanding64,900 59,900 62,556 59,900 
Cash distributions declared per Trust common share (refer to Note J)$0.36 $0.36 $1.08 $1.08 
 Three months ended 
 September 30,		 Nine months ended 
 September 30,
(in thousands, except per share data)2017 2016 2017 2016
Net sales$268,281
 $200,770
 $767,960
 $525,713
Service revenues55,676
 51,515
 153,370
 134,035
Total net revenues323,957
 252,285
 921,330
 659,748
Cost of sales166,445
 133,006
 488,913
 340,576
Cost of service revenues39,787
 36,864
 110,639
 95,968
Gross profit117,725
 82,415
 321,778
 223,204
Operating expenses:       
Selling, general and administrative expense80,804
 53,648
 239,102
 140,702
Management fees8,277
 8,435
 24,308
 21,394
Amortization expense14,167
 8,423
 39,256
 23,966
Impairment expense—
 —
 8,864
 —
Loss on disposal of assets—
 551
 —
 7,214
Operating income14,477
 11,358
 10,248
 29,928
Other income (expense):       
Interest expense, net(6,945) (4,376) (22,499) (23,204)
Amortization of debt issuance costs(1,004) (687) (2,940) (1,827)
Gain (loss) on investment in FOX—
 50,414
 (5,620) 58,680
Other income (expense), net2,020
 (3,271) 2,950
 (1,852)
Income (loss) from continuing operations before income taxes8,548
 53,438
 (17,861) 61,725
Provision (benefit) for income taxes192
 4,894
 (2,002) 9,778
Income (loss) from continuing operations8,356
 48,544
 (15,859) 51,947
Income (loss) from discontinued operations, net of income tax—
 (455) —
 473
Gain on sale of discontinued operations, net of income tax—
 2,134
 340
 2,134
Net income (loss)8,356
 50,223
 (15,519) 54,554
Less: Net income attributable to noncontrolling interest650
 682
 2,492
 1,749
Less: Net loss from discontinued operations attributable to noncontrolling interest—
 (164) —
 (116)
Net income (loss) attributable to Holdings$7,706
 $49,705
 $(18,011) $52,921
Amounts attributable to Holdings       
Income (loss) from continuing operations$7,706
 $47,862
 $(18,351) $50,198
Income (loss) from discontinued operations, net of income tax—
 (291) —
 589
Gain on sale of discontinued operations, net of income tax—
 2,134
 340
 2,134
Net income (loss) attributable to Holdings$7,706
 $49,705
 $(18,011) $52,921
Basic and fully diluted income (loss) per common share attributable to Holdings (refer to Note L)
 

    
Continuing operations$0.10
 $0.72
 $(1.03) $0.59
Discontinued operations—
 0.03
 0.01
 0.05
 $0.10
 $0.75
 $(1.02) $0.64
Weighted average number of shares of common shares outstanding – basic and fully diluted59,900
 54,300
 59,900
 54,300
Cash distributions declared per common share (refer to Note L)$0.36
 $0.36
 $1.08
 $1.08




See notes to condensed consolidated financial statements.

6

COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)


Three months ended 
 September 30,		Nine months ended 
 September 30,
(in thousands)2020201920202019
Net income (loss)$20,903 $(26,543)$18,417 $301,788 
Other comprehensive income (loss)
Foreign currency translation adjustments913 (861)(1,038)(608)
Foreign currency amounts reclassified from accumulated other comprehensive income (loss) that increase net income:
  Disposition of Manitoba Harvest0 0 0 4,791 
Pension benefit liability, net168 (690)524 (1,470)
Other comprehensive income (loss)1,081 (1,551)(514)2,713 
Total comprehensive income (loss), net of tax21,984 (28,094)17,903 304,501 
Less: Net income attributable to noncontrolling interests1,717 1,242 4,003 3,731 
Less: Other comprehensive income (loss) attributable to noncontrolling interests39 (67)16 (97)
Total comprehensive income (loss) attributable to Holdings, net of tax$20,228 $(29,269)$13,884 $300,867 
 Three months ended 
 September 30,		 Nine months ended 
 September 30,
(in thousands)2017 2016 2017 2016
        
Net income (loss)$8,356
 $50,223
 $(15,519) $54,554
Other comprehensive income (loss)       
Foreign currency translation adjustments3,370
 (1,945) 6,955
 3,275
Pension benefit liability, net(4) (765) 376
 (1,288)
Other comprehensive income (loss)3,366
 (2,710) 7,331
 1,987
Total comprehensive income (loss), net of tax11,722
 47,513
 (8,188) 56,541
Less: Net income attributable to noncontrolling interests650
 518
 2,492
 1,633
Less: Other comprehensive income (loss) attributable to noncontrolling interests675
 (268) 1,336
 929
Total comprehensive income (loss) attributable to Holdings, net of tax$10,397
 $47,263
 $(12,016) $53,979

See notes to condensed consolidated financial statements.



7

COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

(in thousands)Trust Preferred SharesTrust Common SharesAccumulated DeficitAccumulated Other
Comprehensive
Loss		Stockholders' Equity Attributable
to Holdings		Non-
Controlling
Interest		Non-
Controlling
Interest Attributable to Disc. Ops.		Total
Stockholders’
Equity
Series ASeries BSeries C
Balance — July 1, 2019$96,417 $96,504 $0 $924,680 $17,715 $(4,512)$1,130,804 $45,977 $0 $1,176,781 
Net income (loss)— — — — (27,785)— (27,785)1,242 0 (26,543)
Total comprehensive loss, net— — — — — (1,551)(1,551)— — (1,551)
Option activity attributable to noncontrolling shareholders— — — — — — — 936 0 936 
Purchase of noncontrolling interest— — — — — — — (710)— (710)
Distributions paid - Allocation interests— — — — (43,313)— (43,313)— — (43,313)
Distributions paid - Trust Common Shares— — — — (21,564)— (21,564)— — (21,564)
Distributions paid - Trust Preferred Shares— — — — (3,781)— (3,781)— — (3,781)
Balance — September 30, 2019$96,417 $96,504 $0 $924,680 $(78,728)$(6,063)$1,032,810 $47,445 $0 $1,080,255 
Balance — July 1, 2020$96,417 $96,504 $110,997 $1,008,588 $(177,912)$(5,528)$1,129,066 $67,816 $0 $1,196,882 
Net income— — — — 19,186 — 19,186 1,717 0 20,903 
Total comprehensive income, net— — — — — 1,081 1,081 — — 1,081 
Issuance of trust common shares, net of offering costs— — — (24)— — (24)— — (24)
Option activity attributable to noncontrolling shareholders— — — — — — — 2,171 — 2,171 
Effect of subsidiary stock option exercise— — — — — — — 2,203 — 2,203 
Purchase of noncontrolling interest— — — — — — — (3,113)— (3,113)
Distributions paid - Trust Common Shares— — — — (23,364)— (23,364)— — (23,364)
Distributions paid - Trust Preferred Shares— — — — (6,046)— (6,046)— — (6,046)
Balance — September 30, 2020$96,417 $96,504 $110,997 $1,008,564 $(188,136)$(4,447)$1,119,899 $70,794 $0 $1,190,693 
(in thousands)Trust Preferred Shares Trust Common Shares Accumulated Deficit 
Accumulated Other
Comprehensive
Loss
 
Stockholders' Equity Attributable
to Holdings
 
Non-
Controlling
Interest
 
Total
Stockholders’
Equity
Balance — January 1, 2017$—
 $924,680
 $(58,760) $(9,515) $856,405
 $38,139
 $894,544
Net income (loss)—
 —
 (18,011) —
 (18,011) 2,492
 (15,519)
Total comprehensive income, net—
 —
 —
 7,331
 7,331
 —
 7,331
Issuance of Trust preferred shares, net of offering costs96,417
 —
 —
 —
 96,417
 —
 96,417
Option activity attributable to noncontrolling shareholders—
 —
 —
 —
 —
 4,952
 4,952
Effect of subsidiary stock option exercise—
 —
 —
 —
 —
 1,222
 1,222
Effect of issuance of subsidiary stock—
 —
 —
 —
 —
 40
 40
Acquisition of Crosman—
 —
 —
 —
 —
 781
 781
Distributions paid - Allocation Interests (refer to Note L)—
 —
 (25,834) —
 (25,834) —
 (25,834)
Distributions paid - Trust Common Shares—
 —
 (64,692) —
 (64,692) —
 (64,692)
Balance — September 30, 2017$96,417
 $924,680
 $(167,297) $(2,184) $851,616
 $47,626
 $899,242

See notes to condensed consolidated financial statements.






8

COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
 Nine months ended September 30,
(in thousands)2017 2016
Cash flows from operating activities:   
Net income (loss)$(15,519) $54,554
Income from discontinued operations—
 473
Gain on sale of discontinued operations, net340
 2,134
Net income (loss) from continuing operations(15,859) 51,947
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
Depreciation expense24,505
 19,481
Amortization expense64,154
 32,691
Impairment expense8,864
 —
Loss on disposal of assets—
 7,214
Amortization of debt issuance costs and original issue discount3,721
 2,363
Unrealized loss on interest rate swap1,178
 8,322
Noncontrolling stockholder stock based compensation4,952
 3,011
Excess tax benefit from subsidiary stock options exercised(417) (366)
Loss (gain) on investment in FOX5,620
 (58,680)
Provision for loss on receivables4,310
 59
Deferred taxes(17,937) (4,479)
Other494
 325
Changes in operating assets and liabilities, net of acquisition:
 
Increase in accounts receivable(1,015) (8,797)
(Increase) decrease in inventories(24,222) 440
(Increase) decrease in prepaid expenses and other current assets(4,501) 2,081
Increase in accounts payable and accrued expenses5,389
 1,296
Net cash provided by operating activities - continuing operations59,236
 56,908
Net cash provided by operating activities - discontinued operations—
 3,686
Cash provided by operating activities59,236
 60,594
Cash flows from investing activities:   
Acquisitions, net of cash acquired(164,742) (528,642)
Purchases of property and equipment(30,955) (15,528)
Net proceeds from sale of equity investment136,147
 110,685
Payment of interest rate swap(3,050) (3,114)
Purchase of noncontrolling interest—
 (1,476)
Proceeds from sale of business340
 11,249
Other investing activities(696) 350
Net cash used in investing activities - continuing operations(62,956) (426,476)
Net cash provided by investing activities - discontinued operations—
 9,192
Cash used in investing activities(62,956) (417,284)
COMPASS DIVERSIFIED HOLDINGS

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine months ended September 30,
(in thousands)2017 2016
Cash flows from financing activities:   
Proceeds from the issuance of Trust preferred shares, net96,417
 —
Borrowings under credit facility214,500
 633,798
Repayments under credit facility(197,664) (221,719)
Distributions paid(64,692) (58,644)
Net proceeds provided by noncontrolling shareholders821
 9,473
Distributions paid to noncontrolling shareholders—
 (23,630)
Distributions paid to allocation interest holders (refer to Note L)(39,188) (16,829)
Repurchase of subsidiary stock—
 (15,407)
Excess tax benefit from subsidiary stock options exercised417
 366
Debt issuance costs(1,433) (5,993)
Other(1,316) (1,008)
Net cash provided by financing activities7,862
 300,407
Foreign currency impact on cash(2,427) (3,197)
Net increase (decrease) in cash and cash equivalents1,715
 (59,480)
Cash and cash equivalents — beginning of period (1)
39,772
 85,869
Cash and cash equivalents — end of period$41,487
 $26,389
(1)Includes cash from discontinued operations of $0.6 million at January 1, 2016.












(in thousands)Trust Preferred SharesTrust Common SharesAccumulated DeficitAccumulated Other
Comprehensive
Loss		Stockholders' Equity Attributable
to Holdings		Non-
Controlling
Interest		Non-
Controlling
Interest Attributable to Disc. Ops.		Total
Stockholders’
Equity
Series ASeries BSeries C
Balance — January 1, 2019$96,417 $96,504 $0 $924,680 $(249,453)$(8,776)$859,372 $39,922 $20,048 $919,342 
Net income (loss)— — — — 298,057 — 298,057 3,997 (266)301,788 
Total comprehensive income, net— — — — — 2,713 2,713 — — 2,713 
Option activity attributable to noncontrolling shareholders— — — — — — — 4,265 1,939 6,204 
Effect of subsidiary stock option exercise— — — — — — — 41 — 41 
Purchase of noncontrolling interest— — — — — — — (780)— (780)
Disposition of Manitoba Harvest— — — — — — — — (10,799)(10,799)
Disposition of Clean Earth— — — — — — — — (10,922)(10,922)
Distributions paid - Allocation interests— — — — (51,296)— (51,296)— — (51,296)
Distributions paid - Trust Common Shares— — — — (64,692)— (64,692)— — (64,692)
Distributions paid - Trust Preferred Shares— — — — (11,344)— (11,344)— — (11,344)
Balance — September 30, 2019$96,417 $96,504 $0 $924,680 $(78,728)$(6,063)$1,032,810 $47,445 $0 $1,080,255 
Balance — January 1, 2020$96,417 $96,504 $110,997 $924,680 $(109,338)$(3,933)$1,115,327 $50,548 $0 $1,165,875 
Net income— — — — 14,414 — 14,414 4,003 — 18,417 
Total comprehensive loss, net— — — — — (514)(514)— — (514)
Issuance of trust common shares, net of offering costs— — — 83,884 — — 83,884 — — 83,884 
Option activity attributable to noncontrolling shareholders— — — — — — — 6,116 — 6,116 
Effect of subsidiary stock option exercise— — — — — — — 2,456 — 2,456 
Purchase of noncontrolling interest— — — — — — — (3,456)— (3,456)
Acquisition of Marucci Sports— — — — — — — 11,127 — 11,127 
Distributions paid - Allocation Interests— — — — (9,087)— (9,087)— — (9,087)
Distributions paid - Trust Common Shares— — — — (66,492)— (66,492)— — (66,492)
Distributions paid - Trust Preferred Shares— — — — (17,633)— (17,633)— — (17,633)
Balance — September 30, 2020$96,417 $96,504 $110,997 $1,008,564 $(188,136)$(4,447)$1,119,899 $70,794 $0 $1,190,693 
See notes to condensed consolidated financial statements.

9



COMPASS DIVERSIFIED HOLDINGS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 Nine months ended September 30,
(in thousands)20202019
Cash flows from operating activities:
Net income$18,417 $301,788 
Income from discontinued operations, net of income tax0 16,901 
Gain on sale of discontinued operations100 330,203 
Income (loss) from continuing operations18,317 (45,316)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense25,692 24,628 
Amortization expense47,886 40,632 
Impairment expense0 33,381 
Amortization of debt issuance costs, discount and premium1,656 3,022 
Unrealized loss on interest rate swap0 3,486 
Noncontrolling stockholder stock based compensation6,116 4,265 
Provision for loss on receivables4,374 2,539 
Deferred taxes(3,352)(2,208)
Loss on debt extinguishment0 5,038 
Other1,776 853 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable(42,163)(19,187)
Inventories(15,749)(24,863)
Other current and non-current assets(356)(11,826)
Accounts payable and accrued expenses68,675 27,278 
Cash provided by operating activities - continuing operations112,872 41,722 
Cash used in operating activities - discontinued operations0 (10,138)
Cash provided by operating activities112,872 31,584 
Cash flows from investing activities:
Acquisitions, net of cash acquired(212,834)0 
Purchases of property and equipment(20,065)(21,964)
Payment of interest rate swap0 (675)
Proceeds from sale of businesses100 501,895 
Other investing activities(3,703)1,673 
Cash (used in) provided by investing activities - continuing operations(236,502)480,929 
Cash provided by investing activities - discontinued operations0 279,219 
Cash (used in) provided by investing activities(236,502)760,148 
10

 Nine months ended September 30,
(in thousands)20202019
Cash flows from financing activities:
Proceeds from issuance of Trust common shares, net83,884 0 
Borrowings under credit facility0 108,000 
Repayments under credit facility0 (533,500)
Proceeds from issuance of Senior Notes202,000 0 
Distributions paid - common shares(66,492)(64,692)
Distributions paid - preferred shares(17,633)(11,344)
Distributions paid - allocation interests(9,087)(51,296)
Net proceeds provided by noncontrolling shareholders - acquisition11,127 0 
Net proceeds provided by noncontrolling shareholders252 41 
Purchase of noncontrolling interest(1,253)(778)
Debt issuance costs(3,214)0 
Other811 (3,549)
Net cash provided by (used in) financing activities200,395 (557,118)
Foreign currency impact on cash(260)(2,102)
Net increase in cash and cash equivalents76,505 232,512 
Cash and cash equivalents — beginning of period (1)
100,314 53,326 
Cash and cash equivalents — end of period$176,819 $285,838 
(1)Includes cash from discontinued operations of $4.6 million at January 1, 2019.











See notes to condensed consolidated financial statements.
11

COMPASS DIVERSIFIED HOLDINGS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 20172020


Note A — Organization- Presentation and Business OperationsPrinciples of Consolidation
Compass Diversified Holdings, a Delaware statutory trust (the "Trust" or "Holdings"), was incorporated in Delaware on November 18, 2005. and 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 second amended and restated Trust Agreement, dated as of December 6, 2016 (the(as amended and restated, the "Trust Agreement"), the Trust is sole owner of 100% of the Trust Interests (as defined in the Company’s fifth amended and restated operating agreement, dated as of December 6, 2016 (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 nine9 businesses, or reportable operating segments, at September 30, 2017.2020. The segments are as follows: 5.11 Acquisition Corp. ("5.11"), Velocity Outdoor, Inc. (formerly Crosman Corp.) ("Velocity Outdoor" or "5.11 Tactical"), Crosman Corp. ("Crosman""Velocity"), The Ergo Baby Carrier, Inc. ("Ergobaby"), Liberty Safe and Security Products, Inc. ("Liberty Safe" or "Liberty"), Fresh Hemp Foods Ltd.Marucci Sports, LLC ("Manitoba Harvest"Marucci Sports" or "Marucci"), Compass AC Holdings, Inc. ("ACI" or "Advanced Circuits"), AMT Acquisition Corporation ("Arnold"), FFI Compass, Inc. ("Foam Fabricators" or "Arnold Magnetics"), Clean Earth Holdings, Inc. ("Clean Earth""Foam"), and The Sterno Products,Group, LLC ("Sterno" or "Sterno Products"). Refer to Note E - "Operating Segment Data" for further discussion of the operating segments. 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 agreementManagement Services Agreement ("MSA").
Note B -Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements for the three and nine month periods ended September 30, 20172020 and September 30, 2016,2019 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" or "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, 2016.
Seasonality
Earnings of certain of the Company’s 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. Crosman typically has higher sales in the third and fourth quarter each year, reflecting the hunting and holiday seasons. Earnings from Clean Earth are typically lower during the winter months due to the limits on outdoor construction and development activity because of the colder weather in the Northeastern United States. Sterno Products typically has higher sales in the second and fourth quarter of each year, reflecting the outdoor summer and holiday seasons, respectively.2019.
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.
Discontinued Operations
During the thirdfirst quarter of 2016,2019, the Company completed the sale of Tridien Medical,FHF Holdings Ltd. ("Manitoba Harvest"), the parent company of Fresh Hemp Foods Ltd. Additionally, during the second quarter of 2019, the Company completed the sale of CEHI Acquisition Corp. ("Clean Earth"), the parent company of Clean Earth Holdings, Inc. ("Tridien").and Clean Earth Inc. The results of operations of TridienManitoba Harvest and Clean Earth are reported as discontinued operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2016.2019. Refer toNote DC - "Discontinued Operations" for additional information. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.
Seasonality
Earnings of certain of our operating segments are seasonal in nature due to various recurring events, holidays and seasonal weather patterns, as well as the timing of our acquisitions during a given year. Historically, the third and fourth quarter produce the highest net sales during our fiscal year.
12

Recently Adopted Accounting Pronouncements
In January 2017,June 2016, the FASBFinancial Accounting Standards Board ("FASB") issued new accounting guidanceASU No. 2016-13, Financial Instruments—Credit Losses, which requires companies to simplifypresent assets held at amortized cost, trade receivables and available for sale debt securities net of the accounting for goodwill impairment.amount expected to be collected. The guidance removes step tworequires the measurement of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under the new guidance, a goodwill impairment will nowexpected credit losses to be the amount by which a reporting unit's carrying value exceeds its fair value, not

to exceed the carrying amount of goodwill. All other goodwill impairment guidance remains largely unchanged. Entities will continue to have the option to perform a qualitative test to determine if a quantitative test is necessary.based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectibility. The guidance iswas effective for fiscal years and interim periods within those years,beginning after December 31,15, 2019, with early adoption permitted for any goodwill impairment tests performed afterpermitted. The adoption of this guidance on January 1, 2017 and will be applied prospectively. The Company adopted this guidance early, effective January 1, 2017,2020 did not have a material impact on a prospective basis, and will apply the guidance as necessary to annual and interim goodwill testing performed subsequent to January 1, 2017.our consolidated financial statements.
Recently Issued Accounting Pronouncements
In March 2017,December 2019, the FASB issued newASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance that will require employers that sponsor defined benefit plansremoves certain exceptions related to present the service cost component of net periodic benefit costapproach for intraperiod tax allocation, the methodology for calculating income taxes in the same income statement line item as other employee compensation costs arising from services rendered during thean interim period, and requires the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other componentsareas of net periodic pension cost to be presented in the income statement separately from the service component cost and outside a subtotal of income from operations. The new guidance shall be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company's Arnold business segment has a defined benefit plan covering substantially all of Arnold's employees at its Switzerland location. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations.
In January 2017, the FASB issued new guidance that changes the definition of a business to assist entities in evaluating when a set of transferred assets and activities constitutes a business.ASC 740. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the set of transferred asset and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in the new revenue recognition guidance. The new standard will be effective for fiscal years and interim periods within those years, beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact upon our financial condition or results of operations.
In August 2016, the FASB issued an accounting standard update which updates the guidance as to how certain cash receipts2021 and cash payments should be presented and classified within the statement of cash flows. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted, including adoption in an interim period.is permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued an accounting standard update related to the accounting for leases which will require an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. The standard update offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, the new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires modified retrospective adoption, with early adoption permitted. Accordingly, this standard is effective for the Company on January 1, 2019. The Company is currently assessing the impact of the new standard on our consolidated financial statements.
In May 2014, the FASB issued a comprehensive new revenue recognition standard. The new standard outlines a 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. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard is designed to create greater comparability for financial statement users across industries, jurisdictions and capital markets and also requires enhanced disclosures. The new standard will be effective for the Company beginning January 1, 2018. The FASB issued four subsequent standards in 2016 containing implementation guidance related to the new standard. These standards provide additional guidance related to principal versus agent considerations, licensing, and identifying performance obligations. Additionally, these standards provide narrow-scope improvements and practical expedients as well as technical corrections and improvements.
The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company will be adopting the standard using the modified retrospective method effective January 1, 2018.
The Company has developed implementation procedures specific to each of its reportable segments.The Company has designed these procedures to assess the impact that the new revenue standard will have on the Company’s financial

statements and to make any changes necessary to its current accounting practices and internal controls over financial reporting. The Company expects to complete the implementation procedures during the fourth quarter of 2017. The Company has identified certain differences as it relates to the concepts of variable consideration, consideration payable to a customer and the focus on control to determine when and how revenue should be recognized (i.e. point in time versus over time) during the implementation process. Although certain differences have been identified around variable consideration and consideration payable to a customer, the total impact on each reportable segment will not be material to the financial statements. The Company has identified two reportable segments where revenue recognition will change to over time recognition from historical point in time revenue recognition. Although the timing of revenue recognition for these two reportable segments will change, these changes will not have a material impact on the Company’s financial statements. The Company expects to adopt certain practical expedients and make certain policy elections related to the accounting for significant financing components, sales taxes, shipping and handling, costs to obtain a contract and immaterial promised goods or services which mitigates any potential differences. In addition, the Company is currently analyzing our internal control over financial reporting framework to determine if controls should be added or modified as a result of adopting this standard, and reviewing the tax impact, if any, the option of the new standard may have. We also expect that the adoption of the new standard will result in expanded and disaggregated disclosure requirements.

Note CB — Acquisitions

Acquisition
Acquisition of CrosmanMarucci Sports, LLC
On June 2, 2017, CBCP Acquisition Corp.April 20, 2020, pursuant to an Agreement and Plan of Merger entered into on March 6, 2020, the Company, through a wholly-owned subsidiary, Wheelhouse Holdings Inc., a Delaware corporation (“Buyer”) and Wheelhouse Holdings Merger Sub LLC, a Delaware limited liability company and a wholly owned Subsidiary of Buyer (“Merger Sub”), completed a merger (the "Buyer"“Transaction”), with Marucci Sports, LLC, a Delaware limited liability company (“Marucci”). Upon the completion of the Transaction, Marucci became a wholly owned subsidiary of the Company, entered intoBuyer and an equity purchase agreement pursuant to which it acquired allindirect subsidiary of the outstanding equity interests of Bullseye Acquisition Corporation, the indirect owner of the equity interests of Crosman Corp. ("Crosman"). CrosmanCompany. Headquartered in Baton Rouge, Louisiana, Marucci is a designer,leading manufacturer and marketerdistributor of airguns, archery products, laser aiming devicesbaseball and related accessories. Headquarteredsoftball equipment. Founded in Bloomfield, New York, Crosman serves over 425 customers worldwide, including mass merchants, sporting goods retailers, online channels and distributors serving smaller specialty stores and international markets. Its diversified2009, Marucci has a product portfolio that includes the widely known Crosman, Benjaminwood and CenterPoint brands.

metal bats, apparel and accessories, batting and fielding gloves and bags and protective gear.
The Company made loans to, and purchased a 98.9% controlling92.2% equity interest in, Crosman.Marucci. The purchase price, including proceeds from noncontrolling interestsshareholders and net of transaction costs, was approximately $150.4$198.9 million. CrosmanMarucci management and certain existing shareholders invested in the transactionTransaction along with the Company, representing approximately 1.1% of the7.8% initial noncontrolling interest on both 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 was 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 Crosman.Marucci. CGM will receive integration service fees of $1.5$2.0 million payable quarterly over a twelve month period as services are rendered beginning in the quarter ended September 30, 2017.2020. The Company incurred $1.5$2.0 million of transaction costs in conjunction with the CrosmanMarucci acquisition, which was included in selling, general and administrative expense in the consolidated statements of incomeoperations during the second quarter of 2017.2020.


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


13

 Preliminary Allocation Measurement Period Adjustments Revised Preliminary AllocationPreliminary Purchase Price AllocationMeasurement Period AdjustmentsPreliminary Purchase Price Allocation
(in thousands) As of 6/2/2017 As of 9/30/17(in thousands)As of September 30, 2020
Assets:      
AssetsAssets
Cash $429
 $781
 $1,210
Cash2,730 0 2,730 
Accounts receivable (1)
 16,751
 —
 16,751
Inventory 25,598
 3,166
 28,764
Property, plant and equipment 10,963
 6,610
 17,573
Accounts Receivable (1)
Accounts Receivable (1)
11,471 0 11,471 
Inventory (2)
Inventory (2)
14,795 (314)14,481 
Property, plant and equipment (3)
Property, plant and equipment (3)
10,681 (374)10,307 
Intangible assets —
 82,773
 82,773
Intangible assets99,249 0 99,249 
Goodwill 139,434
 (91,316) 48,118
Goodwill67,733 238 67,971 
Other current and noncurrent assets 2,348
 —
 2,348
Other current and noncurrent assets956 1,252 2,208 
Total assets $195,523
 $2,014
 $197,537
Total AssetsTotal Assets207,615 802208,417 
      
Liabilities and noncontrolling interestLiabilities and noncontrolling interest
Current liabilitiesCurrent liabilities6,207 294 6,501 
Other liabilitiesOther liabilities42,100 958 43,058 
Noncontrolling interestNoncontrolling interest11,127 0 11,127 
Total liabilities and noncontrolling interestTotal liabilities and noncontrolling interest59,434 1,252 60,686 
Net assets acquiredNet assets acquired148,181 (450)147,731 
Noncontrolling interestNoncontrolling interest11,127 0 11,127 
Intercompany loansIntercompany loans42,100 0 42,100 
$201,408 $(450)$200,958 

Acquisition consideration
Purchase price$200,000 $0 $200,000 
Cash acquired3,750 (1,019)2,731 
Net working capital adjustment158 569 727 
Other adjustments(2,500)0 (2,500)
Total purchase consideration$201,408 $(450)$200,958 
Less: Transaction costs2,042 0 2,042 
Net purchase price$199,366 $(450)$198,916 

Liabilities and noncontrolling interest:      
Current liabilities $15,502
 $781
 $16,283
Other liabilities 91,268
 189
 91,457
Deferred tax liabilities 27,286
 1,382
 28,668
Noncontrolling interest 694
 —
 694
Total liabilities and noncontrolling interest $134,750
 $2,352
 $137,102
       
Net assets acquired $60,773
 $(338) $60,435
Noncontrolling interest 694
 —
 694
Intercompany loans to business 90,742
 —
 90,742
  $152,209
 $(338) $151,871
Acquisition Consideration      
Purchase price $151,800
 $—
 $151,800
Cash acquired 1,417
 (207) 1,210
Working capital adjustment (1,008) (131) (1,139)
Total purchase consideration 152,209
 (338) 151,871
Less: Transaction costs 1,397
 76
 1,473
Purchase price, net $150,812
 $(414) $150,398
(1)Includes $18.0$12.7 million ofin gross contractual accounts receivable, of which $1.2 million wasis not expected to be collected. The fair value of accounts receivable approximatedapproximates book value acquired.

(2) Includes $4.3 million in inventory basis step-up, which will be charged to cost of goods sold. $3.0 million was amortized to cost of goods sold in the second quarter of 2020, and $1.3 million was charged to cost of goods sold in the third quarter of 2020.
(3) Includes $2.5 million of property, plant and equipment basis step-up. The fair value of property, plant and equipment will be depreciated over the remaining useful lives of the assets.

The allocation of the purchase price presented above is based on management's estimate of the fair values using valuation techniques including the income, cost and market approach. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Current and noncurrent assets and current and other liabilities are valued at historical carrying values. Property, plant and equipment is valued through a purchase price appraisal and will be depreciated on a straight-line basis over the respective remaining useful lives of the assets. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. The goodwill of $48.1$68.0 million reflects the strategic fit of Crosman Marucci
14

in the Company's branded consumer business and is not expected to be deductible for income tax purposes. The purchase accounting for CrosmanMarucci is expected to be finalized duringin the fourth quarter of 2017.2020.


The intangible assets recorded related to the CrosmanMarucci acquisition are as follows (in thousands):

Intangible Assets Amount Estimated Useful Life
Tradename $51,642
 20 years
Customer relationships 28,718
 15 years
Technology 2,413
 15 years
  $82,773
  
Intangible AssetsAmountEstimated Useful Life
Tradename$83,929 15 years
Customer relationships11,120 15 years
Technology4,200 15 years
$99,249 


The tradename was valued at $51.6$83.9 million using a multi-period excess earnings methodology. The customer relationships intangible asset was valued at $28.7$11.1 million using the distributor method, a variation of the multi-period excess earnings methodology, in which an asset is valuable to the extent it enables its owners to earn a return in excess of the required returns on the other assets utilized in the business. The technology was valued at $2.4$4.2 million using a relief from royalty method.


AcquisitionUnaudited pro forma information
The following unaudited pro forma data for the three and nine months ended September 30, 2020 and 2019 gives effect to the acquisition of 5.11 TacticalMarucci, as described above, as if the acquisition had been completed as of January 1, 2019. 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.
Three months endedNine months ended
(in thousands, except per share data)September 30, 2019September 30, 2020September 30, 2019
Net sales$403,259 $1,108,479 $1,113,241 
Gross profit$144,952 $403,105 $405,477 
Operating income$(1,684)$62,062 $30,242 
Net income (loss) from continuing operations$(30,692)$14,920 $(52,375)
Net income (loss) from continuing operations attributable to Holdings$(31,958)$10,957 $(56,383)
Basic and fully diluted net loss per share attributable to Holdings$(1.37)$(0.38)$(2.07)
Other acquisitions
Foam Fabricators
On August 31, 2016, 5.11 ABR MergerJuly 1, 2020, Foam Fabricators acquired substantially all of the assets of Polyfoam Corp. ("Merger Sub"Polyfoam"), a whollyMassachusetts-based manufacturer of protective and temperature-sensitive packaging solutions for the medical, pharmaceutical, grocery and food industries, among others. Founded in 1974, Polyfoam operates two manufacturing facilities producing highly engineered foam and injection-molded plastic solutions across a variety of end-markets. The acquisition complements Foam Fabricators' current operating footprint and provides access to a new customer base and product offerings, including Polyfoam's significant end-market exposure to cold chain (including seafood boxes, insulated shipping containers and grocery delivery totes). The purchase price was approximately $12.8 million and includes a potential earnout of $1.4 million if Polyfoam achieves certain financial metrics.

In September 2020, Foam Fabricators invested $3.6 million in Rational Packaging, LLC, a designer and manufacturer of recyclable, paperboard-based structural packaging components. The investment will be accounted for as an equity method investment.
15

Note C — Discontinued Operations
Sale of Clean Earth
On May 8, 2019, the Company, as majority stockholder of CEHI Acquisition Corporation ("Clean Earth" or “CEHI”) and as Sellers’ Representative, entered into a definitive Stock Purchase Agreement (the “Purchase Agreement”) with Calrissian Holdings, LLC (“Buyer”), CEHI, the other holders of stock and options of CEHI and, as Buyer’s guarantor, Harsco Corporation, pursuant to which Buyer would acquire all of the issued and outstanding securities of CEHI, the parent company of the operating entity, Clean Earth, Inc.
On June 28, 2019, Buyer completed the acquisition of all of the issued and outstanding securities of CEHI pursuant to the Purchase Agreement. The sale price for Clean Earth was based on an aggregate total enterprise value of $625 million, subject to customary working capital adjustments. After the allocation of the sale proceeds to Clean Earth non-controlling equity holders, the repayment of intercompany loans to the Company (including accrued interest) of $224.6 million, and the payment of transaction expenses of approximately $10.7 million, the Company received approximately $327.3 million of total proceeds at closing related to our equity interests in Clean Earth. The Company recognized a gain on the sale of Clean Earth of $209.3 million during the year ended December 31, 2019.
Summarized results of operations of Clean Earth for the period January 1, 2019 through the date of disposition are as follows (in thousands):
For the period January 1, 2019 through disposition
Net sales$132,737 
Gross profit$39,678 
Operating income$6,232 
Income from continuing operations before income taxes$5,880 
Benefit for income taxes$(11,607)
Income from discontinued operations (1)
$17,487 
(1) The results of operations for the period from January 1, 2019 through the date of disposition excludes $10.2 million of intercompany interest expense.

Sale of Manitoba Harvest
On February 19, 2019, the Company entered into a definitive agreement with Tilray, Inc. ("Tilray") and a wholly-owned subsidiary of Tilray, 1197879 B.C. Ltd. (“Tilray Subco”), to sell to Tilray, through Tilray Subco, all of the issued and outstanding securities of our majority owned subsidiary, Manitoba Harvest, for total consideration of 5.11 ABR Corp. ("Parent"), which in turn is a wholly owned subsidiaryup to C$419 million. The completion of the sale of Manitoba Harvest was subject to approval by the British Columbia Supreme Court, which occurred on February 21, 2019. The sale closed on February 28, 2019. Subject to certain customary adjustments, the shareholders of Manitoba Harvest, including the Company, merged withreceived the following from Tilray as consideration for their shares of Manitoba Harvest: (i) C$150 million in cash to the holders of preferred shares of Manitoba Harvest and into 5.11 Tactical, with 5.11 Tacticalthe holders of common shares of Manitoba Harvest (“Common Holders”) and C$127.5 million in shares of class 2 Common Stock of Tilray (“Tilray Common Stock”) to the Common Holders on the closing date of the sale (the “Closing Date Consideration”), and (ii) C$50 million in cash and C$42.5 million in Tilray Common Stock to the Common Holders on the date that was six months after the closing date of the arrangement (the “Deferred Consideration”). The sale consideration also included a potential earnout of up to C$49 million in Tilray Common Stock to the Common Holders, if Manitoba Harvest achieved certain levels of U.S. branded gross sales of edible or topical products containing broad spectrum hemp extracts or cannabidiols prior to December 31, 2019. The threshold for the earnout was not achieved and no additional amount was recorded related to sale of Manitoba Harvest at December 31, 2019.
The cash portion of the Closing Date Consideration was reduced by the amount of the net indebtedness (including accrued interest) of Manitoba Harvest on the closing date of C$71.3 million ($53.7 million) and transaction expenses of approximately C$5.0 million. The Company's share of the net proceeds after accounting for the redemption of the noncontrolling shareholders and the payment of net indebtedness of Manitoba Harvest and transaction expenses was approximately $124.2 million in cash proceeds and in Tilray Common Stock. The Company
16

recognized a gain on the sale of Manitoba Harvest of $121.7 million in the first quarter of 2019. In August 2019, the Company received the Deferred Consideration related to the sale. The Company's portion of the Deferred Consideration totaled $28.4 million in cash proceeds and $19.6 million in Tilray Common Stock.
The Tilray Common Stock consideration was issued in reliance on the exemption from the registration requirements of the Securities Act of 1933, as the surviving entity,amended (the "Securities Act") and pursuant to an agreementexemptions from applicable securities laws of any state of the United States, such that any shares of Tilray Common Stock received by the Common Holders were freely tradeable. The Company sold the Tilray Common Stock received as part of the Closing Consideration during March 2019, recognizing a net loss of $5.3 million in Other income/ (expense) during the quarter ended March 31, 2019. In August 2019, the Company sold the Tilray Common Stock received as part of the Deferred Consideration, recognizing a loss of $4.9 million in Other income/ (expense) during the quarter ended September 30, 2019.
Summarized results of operations of Manitoba Harvest for the period from January 1, 2019 through the date of disposition are as follows (in thousands):
For the period January 1, 2019 through disposition
Net revenues$10,024 
Gross profit$4,874 
Operating loss$(1,118)
Loss before income taxes$(1,127)
Benefit for income taxes$(541)
Income (loss) from discontinued operations (1)
$(586)
(1)The results of operations for the period from January 1, 2019 through the date of disposition excludes $1.0 millionof intercompany interest expense.

Note D — Revenue
The Company recognizes revenue in accordance with the provisions of Revenue from Contracts with Customers, or ASC 606. Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services, and planexcludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities.
Disaggregated Revenue - The Company disaggregates revenue by strategic business unit and by geography for each strategic business unit which are categories that depict how the nature, amount and uncertainty of merger among Merger Sub, Parent, 5.11 Tactical,revenue and TA Associates Management L.P. entered into on July 29, 2016. cash flows are affected by economic factors. This disaggregation also represents how the Company evaluates its financial performance, as well as how the Company communicates its financial performance to the investors and other users of its financial statements. Each strategic business unit represents the Company’s reportable segments and offers different products and services.
The following tables provide disaggregation of revenue by reportable segment geography for the three and nine months ended September 30, 2020 and 2019 (in thousands):
Three months ended September 30, 2020
5.11ErgoLibertyMarucciVelocityACIArnoldFoamSternoTotal
United States$80,100 $6,378 $30,648 $19,340 $64,012 $22,771 $13,933 $31,084 $92,254 $360,520 
Canada1,340 750 538 55 3,143 0 0 0 5,158 10,984 
Europe6,860 7,354 0 16 2,482 0 6,926 0 272 23,910 
Asia Pacific3,550 4,874 0 130 245 0 745 0 53 9,597 
Other international6,556 122 0 10 747 0 1,015 5,442 0 13,892 
$98,406 $19,478 $31,186 $19,551 $70,629 $22,771 $22,619 $36,526 $97,737 $418,903 
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Three months ended September 30, 2019
5.11ErgoLibertyVelocityACIArnoldFoamSternoTotal
United States$77,783 $6,505 $24,061 $42,126 $21,897 $18,227 $25,833 $105,260 $321,692 
Canada1,897 906 668 1,981 0 153 0 4,145 9,750 
Europe7,504 6,951 0 1,420 0 9,758 0 447 26,080 
Asia Pacific2,429 8,820 0 239 0 1,678 0 1,565 14,731 
Other international8,440 136 0 881 0 1,079 5,471 53 16,060 
$98,053 $23,318 $24,729 $46,647 $21,897 $30,895 $31,304 $111,470 $388,313 
Nine months ended September 30, 2020
5.11ErgoLibertyMarucciVelocityACIArnoldFoamSternoTotal
United States$223,204 $19,736 $78,771 $24,375 $131,791 $67,423 $47,789 $75,544 $246,182 $914,815 
Canada4,605 2,466 1,828 70 7,915 0 239 0 11,229 28,352 
Europe20,412 19,953 0 20 5,954 0 22,536 0 495 69,370 
Asia Pacific10,943 15,784 0 330 679 0 3,293 0 87 31,116 
Other international22,658 1,232 0 12 1,901 0 2,590 13,794 139 42,326 
$281,822 $59,171 $80,599 $24,807 $148,240 $67,423 $76,447 $89,338 $258,132 $1,085,979 
Nine months ended September 30, 2019
5.11ErgoLibertyVelocityACIArnoldFoamSternoTotal
United States$225,124 $20,738 $65,797 $93,243 $67,405 $53,778 $78,508 $273,002 $877,595 
Canada6,211 2,552 1,769 5,232 0 516 0 12,361 28,641 
Europe20,658 21,026 0 5,253 0 28,584 0 1,383 76,904 
Asia Pacific9,007 23,656 0 671 0 4,479 0 2,273 40,086 
Other international17,978 769 0 2,996 0 3,047 15,126 112 40,028 
$278,978 $68,741 $67,566 $107,395 $67,405 $90,404 $93,634 $289,131 $1,063,254 

Note E — Operating Segment Data
At September 30, 2020, the Company had 9 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:
•5.11 Tactical is a leading provider of purpose-built tacticaltechnical apparel and gear for law enforcement, firefighters, EMS, and military special operations as well as outdoor and adventure enthusiasts. 5.11 is a brand known for innovation and authenticity, and works directly with end users to create purpose-built apparel and gear designed to enhance the safety, accuracy, speed and performance of tactical professionals and enthusiasts worldwide. Headquartered in Irvine, California, 5.11 operates sales offices and distribution centers globally, and 5.11 products are widely distributed in uniform stores, military exchanges, outdoor retail stores, its own retail stores and on 511tactical.com.

The Company made loans to, and purchased a 97.5% controlling interest in, 5.11 ABR Corp. The purchase price, including proceeds from noncontrolling interest and net of transaction costs, was approximately $408.2 million. 5.11 management invested in the transaction along with the Company, representing approximately 2.5% 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 was 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 5.11. CGM received integration service fees of $3.5 million payable quarterly over a twelve month period as services are rendered beginning in the quarter ended December 31, 2016.

The results of operations of 5.11 have been included in the consolidated results of operations since the date of acquisition. 5.11's results of operations are reported as a separate operating segment. The Company incurred $2.1 million of transaction costs in conjunction with the 5.11 acquisition, which was included in selling, general and administrative expense in the consolidated statements of income during the year of acquisition. The allocation of the purchase price, which was finalized during the fourth quarter of 2016, was based upon management's estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates were based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Current and noncurrent assets and current and other liabilities were estimated at their historical carrying values. Property, plant and equipment was valued through a purchase price appraisal and will be depreciated on a straight-line basis over the respective remaining useful lives. Goodwill was calculated as the excess of the consideration transferred over the fair value of the identifiable net assets and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships, as well as expected future synergies. The goodwill of $93.0 million reflects the strategic fit of 5.11 in the Company's branded consumer business and is not expected to be deductible for income tax purposes.
The customer relationships intangible asset was valued at $75.2 million using an excess earnings methodology, in which an asset is valuable to the extent it enables its owners to earn a return in excess of the required returns on and of the other assets utilized in the business. The tradename intangible asset ($48.7 million) and the design patent technology asset ($4.0 million) were valued using a royalty savings methodology, in which an asset is valuable to the extent that the ownership of the asset relieves the company from the obligation of paying royalties for the benefits generated by the asset.
Unaudited pro forma information
The following unaudited pro forma data for the nine months ended September 30, 2017 and the three and nine months ended September 30, 2016 gives effect to the acquisition of Crosman and 5.11 Tactical, as described above, as if the acquisitions had been completed as of January 1, 2016, and the sale of Tridien as if the disposition had been completed on January 1, 2016. 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.

  Three months ended 
 September 30,		 Nine months ended 
 September 30,
(in thousands) 2016 2017 2016
Net sales $331,829
 $962,976
 $928,157
Gross profit 111,811
 332,682
 326,936
Operating income 13,463
 11,924
 36,424
Net income (loss) 46,054
 (12,581) 52,461
Net income (loss) attributable to Holdings 45,381
 (15,073) 50,743
Basic and fully diluted net income (loss) per share attributable to Holdings $0.67
 $(0.97) $0.60

Other acquisitions
•Ergobaby
On May 11, 2016, the Company's Ergobaby subsidiary acquired all of the outstanding membership interests in New Baby Tula LLC ("Baby Tula"), a maker of premium baby carriers, toddler carriers, slings, blankets and wraps. The purchase price was $73.8 million, net of transaction costs, plus a potential earn-out of $8.2 million based on 2017 financial performance. Ergobaby paid $0.8 million in transaction costs in connection with the acquisition. Ergobaby funded the acquisition and payment of related transaction costs through the issuance of an additional $68.2 million in intercompany loans with the Company, and the issuance of $8.2 million in Ergobaby shares to the selling shareholders. Ergobaby recorded a purchase price allocation of $13.2 million in goodwill, which is expected to be deductible for income tax purposes, $55.3 million in intangible assets comprised of $52.9 million in finite lived tradenames, $1.7 million in non-compete agreements, $0.7 million in customer relationships, and $4.8 million in inventory step-up. In addition, the earn-out provision of the purchase price was allocated a fair value of $3.8 million. The remainder of the purchase consideration was allocated to net assets acquired. The Company finalized the purchase price for the Baby Tula acquisition during the fourth quarter of 2016.
Clean Earth
On June 1, 2016, the Company's Clean Earth subsidiary acquired certain of the assets and liabilities of EWS Alabama, Inc. ("EWS"). Clean Earth funded the acquisition and the related transaction costs through the issuance of additional intercompany debt with the Company. Based in Glencoe, Alabama, EWS provides a range of hazardous and non-hazardous waste management services from a fully permitted hazardous waste RCRA Part B facility. In connection with the acquisition, Clean Earth recorded a purchase price allocation of $3.6 million in goodwill and $12.1 million in intangible assets.
On April 15, 2016, Clean Earth acquired certain assets of Phoenix Soil, LLC ("Phoenix Soil") and WIC, LLC (together with Phoenix Soil, the "Sellers"). Phoenix Soil is based in Plainville, Connecticut and provides environmental services for nonhazardous contaminated soil materials with a primary focus on soil. Phoenix Soil recently completed its transition to a new 58,000 square foot thermal desorption facility owned by WIC, LLC. The acquisition increased Clean Earth's soil treatment capabilities and expanded its geographic footprint into New England. Clean Earth financed the acquisition and payment of related transaction costs through the issuance of additional intercompany loans with the Company. In connection with the acquisition, Clean Earth recorded a purchase price allocation of $3.2 million in goodwill and $5.6 million in intangible assets.
Sterno Products
On January 22, 2016, Sterno Products, a wholly owned subsidiary of the Company, acquired all of the outstanding stock of Northern International, Inc. ("NII"), for a total purchase price of approximately $35.8 million (C$50.6 million), plus a potential earn-out opportunity payable over the next two years up to a maximum amount of $1.8 million (C$2.5 million), and is subject to working capital adjustments. The contingent consideration was fair valued at $1.5 million, based on probability weighted models of the achievement of certain performance based financial targets. Headquartered in Coquitlam, British Columbia, Canada, NII sells flameless candles and outdoor lighting products through the retail segment. Sterno Products financed the acquisition and payment of the related transaction costs through the issuance of an additional $37.0 million in intercompany loans with the Company.
In connection with the acquisition, Sterno recorded a purchase price allocation of $6.0 million of goodwill, which is not expected to be deductible for income tax purposes, $12.7 million in intangible assets and $1.2 million in inventory step-up. In addition, the earn-out provision of the purchase price was allocated a fair value of $1.5 million. The remainder of the purchase consideration was allocated to net assets acquired. Sterno Products incurred $0.4 million in acquisition related costs in connection with the NII acquisition.


Note D - Discontinued Operations

Sale of Tridien
On September 21, 2016, the Company sold its majority owned subsidiary, Tridien, based on an enterprise value of $25 million. After the allocation of the sale proceeds to noncontrolling equity holders and the payment of transaction expenses, the Company received approximately $22.7 million in net proceeds at closing related to its debt and equity interests in Tridien. The Company recognized a gain of $1.7 million for the year ended December 31, 2016 as a result of the sale of Tridien. Approximately $1.6 million of the proceeds received by the Company from the sale of Tridien have been reserved to support the Company’s indemnification obligations for future claims against Tridien that the Company may be liable for under the terms of the Tridien sale agreement.

Operating results of discontinued operations
Summarized operating results of Tridien for the three and nine months ended September 30, 2016 are as follows:
(in thousands)Three months ended September 30, 2016 Nine months ended September 30, 2016
Net sales$15,978
 $45,951
Gross profit3,223
 7,917
Operating income967
 437
Income (loss) from continuing operations before income taxes(440) 488
Provision for income taxes15
 15
Income (loss) from discontinued operations (1)
$(455) $473

(1) The results for the three and nine months ended September 30, 2016 exclude $0.4 million and $1.1 million, respectively, of intercompany interest expense.

Gain on sale of businesses
During the first quarter of 2017, the Company settled the remaining outstanding escrow items related to the sale of American Furniture Manufacturing, Inc. in 2015, and received a settlement related to the CamelBak Products, LLC business, which was also sold in 2015. As a result of these transactions, the Company recognized a gain on sale of discontinued operations of $0.3 million for the nine months ended September 30, 2017.

Note E — Operating Segment Data
At September 30, 2017, the Company had nine 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:

5.11 Tactical is a leading provider of purpose-built tactical apparel and gear for law enforcement, firefighters, EMS, and military special operations as well as outdoor and adventure enthusiasts. 5.11 is a brand known for innovation and authenticity, and works directly with end users to create purpose-built apparel and gear designed to enhance the safety, accuracy, speed and performance of tactical professionals and enthusiasts worldwide.   Headquartered in Irvine, California, 5.11 operates sales offices and distribution centers globally, and 5.11 products are widely distributed in uniform stores, military exchanges, outdoor retail stores, its own retail stores and on 511tactical.com.

Crosman is a leading designer, manufacturer, and marketer of airguns, archery products, laser aiming devices and related accessories. Crosman offers its products under the highly recognizable Crosman, Benjamin and CenterPoint brands that are available through national retail chains, mass merchants, dealer and distributor networks. Crosman is headquartered in Bloomfield, New York.

Ergobaby is a designer, marketer and distributor of wearable baby carriers and accessories, blankets and swaddlers, nursing pillows, strollers and related products.  Ergobaby primarily sells its Ergobaby and Baby Tula branded products through brick-and-mortar retailers, national chain stores, online retailers, its own websites and distributors and derives approximately 57%more than 50% of its sales from outside of the United States. Ergobaby is headquartered in Los Angeles, California.
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•Liberty Safe is a designer, manufacturer and marketer of premium home, gun and office safes in North America. From its over 300,000 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.

Manitoba Harvest•Marucci Sports is a pioneerleading designer, manufacturer, and leader in the manufacturemarketer of premium wood and distribution of branded, hemp-based foodsmetal baseball bats, fielding gloves, batting gloves, bags, protective gear, sunglasses, on and hemp-based ingredients. Manitoba Harvest’s products, which include Hemp Hearts™, Hemp Heart Bites™,off-field apparel, and Hemp protein powders, are currently carried in over 13,000 retail stores across the United Statesother baseball and Canada. Manitoba Harvestsoftball equipment used by professional and amateur athletes. Marucci also develops and licenses franchises for sports training facilities. Marucci is headquartered in Winnipeg, Manitoba.
Baton Rouge, Louisiana.

•Velocity Outdoor is a leading designer, manufacturer, and marketer of airguns, archery products, laser aiming devices and related accessories. Velocity Outdoor offers its products under the highly recognizable Crosman, Benjamin, Ravin, LaserMax and CenterPoint brands that are available through national retail chains, mass merchants, dealer and distributor networks. Velocity Outdoor is headquartered in Bloomfield, New York.
•Advanced Circuits is an electronic components manufacturing company that provides 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.

•Arnold Magnetics is a global manufacturer of engineered magnetic solutions for a wide range of specialty applications and end-markets, including aerospace and defense, general industrial, motorsport/automotive, oil and gas, medical, general industrial, electric utility,energy, reprographics and advertising specialty markets.specialties. Arnold Magnetics produces high performance permanent magnets (PMAG), flexible magnets (Flexmag) and precision foil products (Precision Thin Metals or "PTM"), and flexible magnets (Flexmag™) 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•Foam Fabricators is a designer and manufacturer of custom molded protective foam solutions and original equipment manufacturer components made from expanded polystyrene and expanded polypropylene. Foam Fabricators provides environmental services forproducts to a variety of contaminated materialsend markets, including soils, dredged material, hazardous wasteappliances and drill cuttings. Clean Earth analyzes, treats, documentselectronics, pharmaceuticals, health and recycles waste streams generated in multiple end-markets such as power, construction, oilwellness, automotive, building and gas, infrastructure, industrialother products. In July 2020, Foam Fabricators acquired the assets of Polyfoam, a Massachusetts-based manufacturer of protective and dredging. Clean Earthtemperature-sensitive packaging solutions for the medical, pharmaceutical, grocery and food industries, among others. Foam Fabricators is headquartered in Hatboro, PennsylvaniaScottsdale, Arizona and operates 1814 molding and fabricating facilities inacross North America subsequent to the eastern United States.
acquisition of Polyfoam.

•Sterno Products is a manufacturer and marketer of portable food warming fuelsystems, creative indoor and creative tableoutdoor lighting, and home fragrance solutions for the food servicefoodservice industry and flameless candles and outdoor lighting products for consumers. Sterno's products includeconsumer markets. Sterno offers a broad range of wick and gel chafing fuels,systems, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps through Sterno Products, flameless candles and outdoor lighting products.products through Sterno ProductsHome, and scented wax cubes and warmer products used for home decor and fragrance systems through Rimports. Sterno is headquartered in Corona, California.
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. There were no significant inter-segment transactions.
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Summary of Operating Segments
Net RevenuesThree months ended September 30,Nine months ended September 30,
(in thousands)2020201920202019
5.11$98,406 $98,053 $281,822 $278,978 
Ergobaby19,478 23,318 59,171 68,741 
Liberty31,186 24,729 80,599 67,566 
Marucci19,551 0 24,807 0 
Velocity Outdoor70,629 46,647 148,240 107,395 
ACI22,771 21,897 67,423 67,405 
Arnold22,619 30,895 76,447 90,404 
Foam Fabricators36,526 31,304 89,338 93,634 
Sterno97,737 111,470 258,132 289,131 
Total segment revenue418,903 388,313 1,085,979 1,063,254 
Corporate and other0 0 0 0 
Total consolidated revenues$418,903 $388,313 $1,085,979 $1,063,254 


Segment profit (loss) (1)
Three months ended September 30,Nine months ended September 30,
(in thousands)2020201920202019
5.11$8,681 $5,977 $17,969 $13,388 
Ergobaby2,363 3,220 5,943 9,151 
Liberty5,736 2,726 12,281 5,812 
Marucci1,265 0 (6,478)0 
Velocity Outdoor11,062 (27,902)13,896 (27,635)
ACI6,205 6,122 18,272 19,087 
Arnold(495)2,681 2,601 6,385 
Foam Fabricators4,759 4,141 11,118 12,011 
Sterno7,674 12,724 16,906 28,821 
Total47,250 9,689 92,508 67,020 
Reconciliation of segment profit (loss) to consolidated income (loss) before income taxes:
Interest expense, net(12,351)(11,525)(32,122)(48,424)
Other income (expense), net(447)(689)(2,172)(1,213)
Corporate and other (2)
(12,043)(21,657)(31,420)(52,324)
Total consolidated income (loss) before income taxes$22,409 $(24,182)$26,794 $(34,941)

(1)Segment profit (loss) represents operating income (loss).
(2)Primarily relates to management fees expensed and payable to CGM, and corporate overhead expenses.
20

Net RevenuesThree months ended September 30, Nine months ended 
 September 30,
(in thousands)2017 2016 2017 2016
        
5.11 Tactical$72,005
 $27,203
 $228,471
 $27,203
Crosman34,449
 —
 44,202
 —
Ergobaby27,835
 29,664
 77,737
 75,048
Liberty18,423
 23,810
 66,008
 74,713
Manitoba Harvest13,948
 15,920
 42,625
 44,321
ACI22,436
 21,679
 66,404
 64,945
Arnold Magnetics26,489
 26,912
 79,421
 82,791
Clean Earth55,676
 51,515
 153,370
 134,035
Sterno Products52,696
 55,582
 163,092
 156,692
Total segment revenue323,957
 252,285
 921,330
 659,748
Corporate and other—
 —
 —
 —
Total consolidated revenues$323,957
 $252,285
 $921,330
 $659,748
Depreciation and Amortization ExpenseThree months ended September 30,Nine months ended September 30,
(in thousands)2020201920202019
5.11$5,296 $5,275 $15,734 $15,730 
Ergobaby2,038 2,319 6,129 6,543 
Liberty412 388 1,233 1,185 
Marucci3,281 0 7,968 0 
Velocity Outdoor3,120 3,217 9,480 9,757 
ACI595 525 1,867 1,717 
Arnold1,697 1,616 4,969 4,818 
Foam Fabricators3,304 3,044 9,286 9,054 
Sterno5,649 5,539 16,912 16,456 
Total25,392 21,923 73,578 65,260 
Reconciliation of segment to consolidated total:
Amortization of debt issuance costs, original issue discount and bond premium577 863 1,656 3,022 
Consolidated total$25,969 $22,786 $75,234 $68,282 





Accounts ReceivableIdentifiable Assets
September 30,December 31,September 30,December 31,
(in thousands)20202019
2020 (1)
2019 (1)
5.11$48,791 $49,543 $364,195 $357,292 
Ergobaby9,102 10,460 88,031 91,798 
Liberty17,387 13,574 37,050 38,558 
Marucci12,100 0 127,589 0 
Velocity Outdoor43,508 20,290 184,825 192,288 
ACI8,523 8,318 27,089 24,408 
Arnold15,819 19,043 71,731 72,650 
Foam Fabricators26,582 24,455 163,094 156,914 
Sterno78,360 60,522 247,946 263,530 
Allowance for doubtful accounts(17,225)(14,800)— — 
Total242,947 191,405 1,311,550 1,197,438 
Reconciliation of segment to consolidated total:
Corporate and other identifiable assets— — 129,023 64,531 
Consolidated total$242,947 $191,405 $1,440,573 $1,261,969 

(1)Does not include accounts receivable balances per schedule above or goodwill balances - refer to Note G - "Goodwill and Other Intangible Assets".

21
Segment profit (loss) (1)
Three months ended September 30, Nine months ended 
 September 30,
(in thousands)2017 2016 2017 2016
        
5.11 Tactical$(253) $(1,794) $(14,542) $(1,794)
Crosman(1,388) —
 (1,587) —
Ergobaby5,884
 4,671
 14,728
 9,101
Liberty2,050
 2,417
 6,900
 9,879
Manitoba Harvest(169) 554
 75
 (865)
ACI6,191
 5,759
 18,106
 17,241
Arnold Magnetics2,000
 851
 (4,551) 3,828
Clean Earth5,592
 3,593
 7,597
 5,860
Sterno Products4,411
 5,536
 13,383
 14,095
Total24,318
 21,587
 40,109
 57,345
Reconciliation of segment profit (loss) to consolidated income (loss) before income taxes:       
Interest expense, net(6,945) (4,376) (22,499) (23,204)
Other income (expense), net2,020
 (3,271) 2,950
 (1,852)
Gain (loss) on equity method investment—
 50,414
 (5,620) 58,680
Corporate and other (2)
(10,845) (10,916) (32,801) (29,244)
Total consolidated income (loss) before income taxes$8,548
 $53,438
 $(17,861) $61,725

(1)
Segment profit (loss) represents operating income (loss).
(2)
Primarily relates to management fees expensed and payable to CGM, and corporate overhead expenses.

Depreciation and Amortization ExpenseThree months ended September 30, Nine months ended 
 September 30,
(in thousands)2017 2016 2017 2016
        
5.11 Tactical$4,338
 $5,192
 $34,882
 $5,192
Crosman5,593
 —
 5,842
 —
Ergobaby3,068
 4,409
 9,386
 6,046
Liberty358
 616
 1,295
 1,925
Manitoba Harvest1,891
 1,732
 4,922
 5,200
ACI817
 885
 2,517
 2,585
Arnold Magnetics1,452
 2,268
 4,962
 6,778
Clean Earth5,687
 5,989
 16,140
 16,019
Sterno Products2,873
 2,396
 8,713
 8,427
Total26,077
 23,487
 88,659
 52,172
Reconciliation of segment to consolidated total:       
Amortization of debt issuance costs and original issue discount1,261
 888
 3,721
 2,363
Consolidated total$27,338
 $24,375
 $92,380
 $54,535



 Accounts Receivable Identifiable Assets
 September 30, December 31, September 30, December 31,
(in thousands)2017 2016 
2017 (1)
 
2016 (1)
5.11 Tactical$46,112
 $49,653
 $313,072
 $311,560
Crosman24,904
 —
 134,047
 —
Ergobaby11,140
 11,018
 105,627
 113,814
Liberty13,708
 13,077
 27,901
 26,344
Manitoba Harvest5,251
 6,468
 100,330
 97,977
ACI7,010
 6,686
 15,847
 16,541
Arnold Magnetics15,407
 15,195
 69,154
 64,209
Clean Earth47,659
 45,619
 187,460
 193,250
Sterno Products37,389
 38,986
 126,135
 134,661
Allowance for doubtful accounts(10,469) (5,511) —
 —
Total198,111
 181,191
 1,079,573
 958,356
Reconciliation of segment to consolidated total:    
 
Corporate and other identifiable assets (2)
—
 —
 3,197
 145,971
Total$198,111
 $181,191
 $1,082,770
 $1,104,327

(1)
Does not include accounts receivable balances per schedule above or goodwill balances - refer to Note H - "Goodwill and Other Intangible Assets".
(2)
Corporate and other identifiable assets for the year ended December 31, 2016 includes the Company's investment in FOX, which was sold during the first quarter of 2017 - refer to Note F - "Investment in FOX".

Geographic Information
International RevenuesThree months ended September 30, Nine months ended September 30,
(in thousands)2017 2016 2017 2016
5.11 Tactical$19,238
 $6,141
 $63,088
 $6,141
Crosman4,542
 —
 6,412
 —
Ergobaby17,048
 16,701
 46,277
 40,660
Manitoba Harvest10,720
 8,573
 19,979
 20,983
Arnold Magnetics10,556
 12,208
 31,677
 33,654
Sterno Products5,809
 6,327
 16,265
 16,366
 $67,913
 $49,950
 $183,698
 $117,804

Note F - Investment in FOX

Fox Factory Holdings Corp. ("FOX"), a former majority owned subsidiary of the Company that is publicly traded on the NASDAQ Stock Market under the ticker "FOXF," is a designer, manufacturer and marketer of high-performance ride dynamic products used primarily for bicycles, side-by-side vehicles, on-road vehicles with off-road capabilities, off-road vehicles and trucks, all-terrain vehicles, snowmobiles, specialty vehicles and applications, and motorcycles. The Company held a 41%, ownership interest in FOX as of January 1, 2016, and a 14% ownership interest as of January 1, 2017. The investment in FOX was accounted for using the fair value option.
In March 2016, FOX closed on a secondary public offering (the "March 2016 Offering") of 2,500,000 FOX common shares held by the Company. Concurrently with the closing of the March 2016 Offering, FOX repurchased 500,000 shares of FOX common shares directly from the Company. As a result of the sale of shares through the March 2016 Offering and the repurchase of shares by FOX, the Company sold a total of 3,000,000 shares of FOX common stock, with total net proceeds of approximately $47.7 million. Upon completion of the March 2016 Offering and repurchase of shares by FOX, the Company's ownership interest in FOX was reduced from approximately 41% to 33%.

In August 2016, FOX closed on a secondary public offering (the "August Offering") of 4,025,000 shares held by certain FOX shareholders, including the Company. The Company sold a total of 3,500,000 shares of FOX common stock in the August Offering, for total net proceeds of $63.0 million. Upon completion of the August Offering, the Company's ownership of FOX decreased from approximately 33% to approximately 23%.
In November 2016, FOX closed on a secondary public offering (the "November Offering") of 3,500,000 shares of FOX common stock held by the Company, for total net proceeds of $71.8 million. Upon completion of the November Offering, the Company's ownership of FOX decreased from approximately 23% to approximately 14%. The Company's investment in FOX had a fair value of $141.8 million on December 31, 2016 based on the closing price of FOX shares on that date.
In March 2017, FOX closed on a secondary public offering (the "March 2017 Offering") through which the Company sold their remaining 5,108,718 shares in FOX for total net proceeds of $136.1 million. Subsequent to the March 2017 Offering, the Company no longer holds an ownership interest in FOX.

Note G — Property, Plant and Equipment and Inventory
Property, plant and equipment
Property, plant and equipment is comprised of the following at September 30, 20172020 and December 31, 2016 (in2019 (in thousands):
September 30, 2017 December 31, 2016September 30, 2020December 31, 2019
Machinery and equipment$168,621
 $155,591
Machinery and equipment$208,648 $191,897 
Furniture, fixtures and other27,005
 13,737
Furniture, fixtures and other42,757 36,604 
Leasehold improvements18,337
 14,156
Leasehold improvements45,224 40,851 
Buildings and land39,964
 35,392
Buildings and land10,800 7,992 
Construction in process24,699
 8,308
Construction in process11,832 10,559 
278,626
 227,184
319,261 287,903 
Less: accumulated depreciation(107,799) (84,814)Less: accumulated depreciation(163,660)(141,475)
Total$170,827
 $142,370
Total$155,601 $146,428 
Depreciation expense was $8.7$8.8 million and $24.5$25.7 million for the three and nine months ended September 30, 2017, 2020and $7.3$8.4 million and $19.5$24.6 million for the three and nine months endedSeptember 30, 2016,2019, respectively.
Inventory
Inventory is comprised of the following at September 30, 20172020 and December 31, 2016 2019 (in thousands):
September 30, 2020December 31, 2019
Raw materials$72,873 $59,888 
Work-in-process15,300 14,318 
Finished goods278,231 262,352 
Less: obsolescence reserve(22,368)(19,252)
Total$344,036 $317,306 
 September 30, 2017 December 31, 2016
Raw materials$38,388
 $29,708
Work-in-process12,294
 8,281
Finished goods201,348
 182,886
Less: obsolescence reserve(9,213) (7,891)
Total$242,817
 $212,984



Note HG — Goodwill and Other Intangible Assets
As a result of acquisitions of various businesses, the Company has significant intangible assets on its balance sheet that include goodwill and indefinite-lived intangibles. The Company’s goodwill and indefinite-lived intangibles are tested and reviewed for impairment annually as of March 31st or more frequently if facts and circumstances warrant by comparing the fair value of each reporting unit to its carrying value. Each of the Company’s businesses represent a reporting unit, except Arnold, which comprises three reporting units.

unit.
Goodwill
20172020 Annual goodwill impairment testingImpairment Testing
The Company uses a qualitative approach 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-stepquantitative 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 relevant prior periods, operating costs and cost impacts, as well as issues or events specific to the reporting unit. At March 31, 2017, weWe determined that the Manitoba HarvestErgobaby, Foam Fabricators and Velocity reporting unitunits required furtheradditional quantitative testing (Step 1) because we could not conclude that the fair value of the reporting unit exceedsexceeded its carrying value based on qualitative factors alone. The Company utilized an income approach to perform the Step 1 testing at Manitoba Harvest. The weighted average cost of capital used in the income approach for Manitoba Harvest was 12.0%. Results of the Step 1 quantitative testing of Manitoba Harvest indicated that the fair value of Manitoba Harvest exceeded its carrying value by 15.0%. Manitoba Harvest's goodwill balance as of the date of the annual impairment testing was approximately $44.5 million. For the reporting units that were tested qualitatively,only on a qualitative basis for the Company concluded that2020 annual impairment testing, the results of the qualitative analysis indicated that it is more likely than not that the fair value of those reporting units exceeded theirthe carrying value and that a quantitative analysis was not necessary.of these reporting units.
Manitoba Harvest
22

The Companyquantitative tests of Ergobaby, Foam Fabricators and Velocity were performed Step 1 testing during the 2017 annual impairment testing for Manitoba Harvest. Subsequentusing an income approach to the annual impairment test, the Company has compared the Manitoba Harvest operating results to the forecasts used in the Step 1 testing and has noted no material variances in the results. However, there is a significant degree of uncertainty inherent in the assumptions used to develop the forecast amounts used in the annual impairment test given the changing nature of consumer tastes, particularly related to future years. Therefore, the results of the forecast process for 2018, which are expected to be finalized in the fourth quarter of 2017, may make it necessary to perform interim goodwill impairment testing at Manitoba Harvest at December 31, 2017.
2016 Interim goodwill impairment testing
Arnold
As a result of decreases in forecasted revenue, operating income and cash flows at Arnold, as well as a shortfall in revenue and operating income during the latter half of 2016 as compared to budgeted amounts, the Company determined that it was necessary to perform interim goodwill impairment testing on each of the three reporting units at Arnold. The Company performed Step 1 of the goodwill impairment assessment at December 31, 2016. In Step 1 of the goodwill impairment test, the Company compareddetermine the fair value of the reporting units tounits. For Ergobaby, the carrying amount. Based ondiscount rate used in the income approach was 15.9% and the results of the valuation,quantitative impairment testing indicated that the fair value of the Flexmag and PTMErgobaby reporting unitsunit exceeded the carrying amount, therefore, no additional goodwill testingvalue by 14.0%. For Foam Fabricators, the discount rate used in the income approach was required. The13.3%, and the results of the Step 1 test for the PMAG unit indicated a potential impairment of goodwill and the Company performed the second step of goodwillquantitative impairment testing (Step 2) to determine the amount of impairment of the PMAG reporting unit.
In the first test of goodwill impairment testing, we compare the fair value of each reporting unit to its carrying amount. For purposes of the Step 1 for the Arnold reporting units, we estimatedindicated that the fair value of the Foam Fabricators reporting unit usingexceeded the carrying value by 3.8%. For Velocity, the discount rate used in the income approach was 12.8%, and the results of the quantitative impairment testing indicated that the fair value of the Velocity reporting unit exceeded the carrying value by 16.4%.
2019 Interim Impairment Testing
Velocity Outdoor
The Company performed interim quantitative impairment testing of Velocity Outdoor at September 30, 2019. As a result of operating results below forecasts in the current period as well as a re-forecast of the Velocity business in which planned earnings and revenue fell below the forecasts of prior periods, the Company determined that a triggering event occurred in the third quarter of 2019. The Company used an income approach for the impairment test, whereby we estimate the fair value of athe reporting unit based on the present value of future cash flows. Cash flow projections are based on management's estimate of revenue growth rates and operating margins, and take into consideration industry and market conditions as well as company and reporting unit specific economic factors. The Company used a weighted average cost of capital of 12.2% in the income approach. The discount rate used iswas based on the weighted average cost of capital adjusted for the relevant risk associated with the business specific characteristics and the uncertainty associated with the reporting unit'sVelocity's ability to execute on the projected cash flows. For the Step 1 quantitative impairment testing for Arnold's reporting units, we used only an income approach because we determined that the guideline public company comparables for PMAG, Flexmag and PTM were not representative of these three reporting units. In the income approach, we used a weighted average cost of capital of 12.5% for PMAG, 12.0% for Flexmag and 13.0% for PTM.
The Company had not completed the Step 2 analysis as of December 31, 2016, and therefore estimated a range of impairment loss of $14 million to $19 million basedBased on the value of the total invested capital of the PMAG unit as well as the results of the Step 1 testing ofimpairment test, the fair value of PMAG.Velocity did not exceed the carrying value, indicating that the goodwill at Velocity was impaired. The difference between the carrying value and fair value of the Velocity business was $32.9 million, which the Company recorded an estimatedas impairment lossexpense in the consolidated statement of operations for PMAG of $16 million atthe year ended December 31, 2016 based on that range. The Company completed the Step 2 goodwill impairment test2019.
2019 Annual Impairment Testing
All of the PMAGCompany's reporting unit in the first quarter of 2017, and the results indicated total impairment of the goodwill of the PMAG reporting unit of $24.9 million. The Step 2 impairment was higher than the initial estimateunits were tested qualitatively at December 31, 2016 due primarily to the valuation of PMAG's property, plant and equipment during the Step 2 exercise. The Company recorded the additional impairment loss of $8.9 million in the first quarter of 2017.
2016 Annual goodwill impairment testing
At March 31, 2016, we2019. We determined that the TridienLiberty reporting unit (which is reported as a discontinued operation in the accompanying financial statements after the sale of the reporting unit in September 2016) required furtheradditional quantitative testing (Step 1) because we could not conclude that the fair value of the reporting unit exceedsexceeded its carrying value based on qualitative factors alone. ResultsWe used an income approach and market approach for the quantitative impairment test that was performed of the Step 1Liberty business at March 31, 2019, with equal weighting assigned to each. The discount rate used in the income approach was 14.8%. The results of the quantitative impairment testing of Tridien indicated that the fair value of Tridienthe Liberty reporting unit exceeded itsthe carrying value. For the reporting units that were tested qualitatively for the 2019 annual impairment testing, the results of the qualitative analysis indicated that it is more likely than not that the fair value of those reporting units exceeded their carrying value.

A summary of the net carrying value of goodwill at September 30, 20172020 and December 31, 2016,2019, is as follows (in thousands):
Nine months ended September 30, 2020Year ended 
 December 31, 2019
Goodwill - gross carrying amount$566,209 $496,264 
Accumulated impairment losses(57,745)(57,745)
Goodwill - net carrying amount$508,464 $438,519 
23

 Nine months ended September 30, 2017 Year ended 
 December 31, 2016
Goodwill - gross carrying amount$564,789
 $507,637
Accumulated impairment losses(24,864) (16,000)
Goodwill - net carrying amount$539,925
 $491,637
The following is a reconciliation of the change in the carrying value of goodwill for the nine months ended September 30, 20172020 by operating segment (in thousands):
 Balance at January 1, 2017 
Acquisitions (1)
 Goodwill Impairment Foreign currency translation 
Other (4)
 Balance at September 30, 2017Balance at January 1, 2020AcquisitionsGoodwill ImpairmentOtherBalance at September 30, 2020
5.11 $92,966
 $—
 $—
 $—
 $—
 $92,966
5.11$92,966 $— $— $— $92,966 
Crosman —
 49,880
 —
 —
 —
 49,880
Ergobaby 61,031
 —
 —
 —
 —
 61,031
Ergobaby61,031 — — — 61,031 
Liberty 32,828
 —
 —
 —
 —
 32,828
Liberty32,828 — — — 32,828 
Manitoba Harvest 44,171
 —
 —
 3,425
 —
 47,596
MarucciMarucci0 67,971 — — 67,971 
Velocity OutdoorVelocity Outdoor30,079 — — — 30,079 
ACI 58,019
 —
 —
 —
 —
 58,019
ACI58,019 — — — 58,019 
Arnold (2)
 35,767
 —
 (8,864) —
 —
 26,903
Clean Earth 118,224
 802
 —
 —
 —
 119,026
ArnoldArnold26,903 — — — 26,903 
Foam FabricatorsFoam Fabricators72,708 1,974 — — 74,682 
Sterno 39,982
 2,898
 —
 —
 147
 43,027
Sterno55,336 — — — 55,336 
Corporate (3)
 8,649
 —
 —
 —
 —
 8,649
Corporate (1)
Corporate (1)
8,649 — — — 8,649 
Total $491,637
 $53,580
 $(8,864) $3,425
 $147
 $539,925
Total$438,519 $69,945 $— $— $508,464 

(1)    Represents goodwill resulting from purchase accounting adjustments not "pushed down" to the ACI segment. This amount is allocated back to the ACI segment for purposes of goodwill impairment testing.
(1)
The purchase price allocation for Crosman is preliminary and is expected to be completed during the fourth quarter of 2017. Clean Earth, Sterno and Crosman each completed add-on acquisitions during 2017. The goodwill related to the Clean Earth acquisition is based on a preliminary purchase price allocation. Crosman and Sterno completed small add-on acquisitions during the third quarter of 2017, and the preliminary purchase price allocations for these add-on acquisitions have not been prepared yet. The goodwill related to these add-on acquisitions represents the excess of purchase price over net assets acquired at September 30, 2017.
(2)
Arnold Magnetics has three reporting units PMAG, Flexmag and Precision Thin Metals with goodwill balances of $15.6 million, $4.8 million and $6.5 million, respectively.
(3)
Represents goodwill resulting from purchase accounting adjustments not "pushed down" to the ACI segment. This amount is allocated back to the ACI segment for purposes of goodwill impairment testing.
(4)
Represents the final settlement related to Sterno's acquisition of Sterno Home Inc. ("Sterno Home", formerly NII).
Long lived assets
Annual indefinite lived impairment testing
The Company used 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 an indefinite lived intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment testing. The Company evaluated the qualitative factors of each reporting unit that maintains indefinite lived intangible assetsasset in connection with the annual impairment testing for 20172020 and 2016.2019. Results of the qualitative analysis indicate that it is more likely than not that the carryingfair value of the Company’sreporting units that maintain indefinite lived intangible assets didexceeded the carrying value. The Ergobaby and Liberty reporting units have indefinite lived trade names that were tested in conjunction with the goodwill impairment tests at March 31, 2020 and March 31, 2019, respectively. The results of the quantitative impairment testing indicated that the trade names were not exceed their fair value.impaired.

Other intangible assets are comprised of the following at September 30, 20172020 and December 31, 2016 (in2019 (in thousands):
September 30, 2020December 31, 2019
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Customer relationships$474,885 $(181,338)$293,547 $462,686 $(155,200)$307,486 
Technology and patents84,862 (32,857)52,005 80,082 (28,748)51,334 
Trade names, subject to amortization273,556 (59,489)214,067 189,183 (46,507)142,676 
Licensing and non-compete agreements7,642 (7,321)321 7,515 (7,050)465 
Distributor relations and other726 (726)0 726 (726)0 
Total841,671 (281,731)559,940 740,192 (238,231)501,961 
Trade names, not subject to amortization59,985 — 59,985 59,985 — 59,985 
Total intangibles, net$901,656 $(281,731)$619,925 $800,177 $(238,231)$561,946 
 September 30, 2017 December 31, 2016
 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Customer relationships$338,461
 $(96,449) $242,012
 $304,751
 $(79,607) $225,144
Technology and patents48,452
 (21,502) 26,950
 44,710
 (18,290) 26,420
Trade names, subject to amortization180,565
 (19,194) 161,371
 128,675
 (6,833) 121,842
Licensing and non-compete agreements7,865
 (6,365) 1,500
 7,845
 (5,987) 1,858
Permits and airspace115,130
 (28,612) 86,518
 113,295
 (21,531) 91,764
Distributor relations and other606
 (606) —
 606
 (606) —
Total691,079
 (172,728) 518,351
 599,882
 (132,854) 467,028
Trade names, not subject to amortization73,527
 —
 73,527
 72,183
 —
 72,183
Total intangibles, net$764,606
 $(172,728) $591,878
 $672,065
 $(132,854) $539,211
Amortization expense related to intangible assets was $14.2$15.2 million and $39.3$43.5 million for the three and nine months ended September 30, 2017,2020, respectively and $8.4$13.5 millionand $24.0$40.6 millionfor the three and nine months ended September 30, 2016,2019, respectively.
24

Estimated charges to amortization expense of intangible assets overfor the remainder of 2020 and the next fivefour years, is as follows (in thousands):
20202021202220232024
$16,832 $59,897 $58,265 $57,868 $56,776 
Note H — Warranties
  October 1, through Dec. 31, 2017 $12,689
2018 49,367
2019 48,077
2020 47,592
2021 47,288
  $205,013
The Company’s Ergobaby, Liberty, Marucci and Velocity Outdoor 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. Warranty liability is included in accrued expenses in the accompanying consolidated balance sheets. A reconciliation of the change in the carrying value of the Company’s warranty liability for the nine months ended September 30, 2020 and the year ended December 31, 2019 is as follows (in thousands):

Warranty liabilityNine months ended September 30, 2020Year ended December 31, 2019
Beginning balance$1,583 $1,624 
Provision for warranties issued during the period2,511 2,238 
Fulfillment of warranty obligations(2,307)(2,279)
Other (1)
104 0 
Ending balance$1,891 $1,583 
(1)    Represents the warranty liability recorded in relation to the Marucci acquisition in April 2020.
Note I — Debt

2018 Credit Facility
On April 18, 2018, the Company entered into an Amended and Restated Credit Agreement (the "2018 Credit Facility") to amend and restate the 2014 Credit Facility,

originally dated as of June 6, 2014 (as previously amended) among the Company, the lenders from time to time party thereto (the “Lenders”), and Bank of America, N.A., as Administrative Agent. The 20142018 Credit Facility is secured by all of the assets of the Company, including all of its equity interests in, and loans to, its consolidated subsidiaries. The Company amended the 20142018 Credit Facility in June 2015, primarilyprovides for (i) revolving loans, swing line loans and letters of credit (the “2018 Revolving Credit Facility”) up to allow for intercompany loans to, and the acquisition of, Canadian-based companies on an unsecured basis, and to modify provisions that would allow for early termination of a "Leverage Increase Period," thereby providing additional flexibility as to the timing of subsequent acquisitions. On August 15, 2016, the Company amended the 2014 Credit Facility to, among other things, increase themaximum aggregate amount of the 2014 Credit Facility by $400 million. On August 31, 2016, the Company entered into an Incremental Facility Amendment to the 2014 Credit Agreement (the "Incremental Facility Amendment"). The Incremental Facility Amendment provided for an increase to the 2014 Revolving Credit Facility of $150$600 million, and the 2016 Incremental Term Loan, in the amount of $250 million. As a result of the Incremental Facility Amendment, the 2014 Credit Facility currently provides for (i) a revolving credit facility of $550 million (as amended from time to time, the "2014 Revolving Credit Facility"), (ii) a $325$500 million term loan (the "2014“2018 Term Loan Facility"Loan”), and (iii) a. The 2018 Credit Facility also permits the Company, 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 $250 million incremental term loan (the "2016 Incremental Term Loan"“Incremental Loans”)., subject to certain restrictions and conditions.

20142018 Revolving Credit Facility

The 2014All amounts outstanding under the 2018 Revolving Credit Facility will become due in June 2019.on April 18, 2023, which is the maturity date of loans advanced under the 2018 Revolving Credit Facility. The Company canmay borrow, prepay and reborrow principal under the 20142018 Revolving Credit Facility from time to time during its term. Advances under
Under the 20142018 Revolving Credit Facility, can be either LIBOR rate loans (as defined below) 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 0.50% (the "Base Rate"), plus a margin ranging from 1.00% to 1.75% based upon the Consolidated Leverage Ratio.


Term Loans
2014 Term Loan
The 2014 Term Loan Facility expires in June 2021 and requires quarterly payments 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.

2016 Incremental Term Loan
The 2016 Incremental Term Loan was issued at an original issue discount of 99.25% of par value. The Company incurred $6.0 million in additional debt issuance costs related to the Incremental Credit Facility, which will be recognized as expense during the remaining term of the related 2014 Revolving Credit Facility, and 2014 Term Loan and 2016 Incremental Term Loan. The Incremental Facility Amendment did not change the due dates or applicable interest rates of the 2014 Credit Agreement. The quarterly payments for the term advances under the 2014 Credit Agreement increased to approximately $1.4 million per quarter. The additional advances under the Incremental Credit Facility was a loan modification for accounting purposes. Consequently, the Company capitalized debt issuance costs of $6.0 million associated with fees charged by lenders of the Incremental Credit Facility. The capitalized debt issuance costs will be amortized over the remaining period of the 2014 Credit Facility.

In March 2017, the Company amended the 2014 Credit Facility (the "Fourth Amendment") to reduce the applicable rate of interest for the 2014 Term Loan and 2016 Incremental Term Loan. Under the Fourth Amendment, outstanding LIBOR loans bear interest at LIBOR plus an applicable rate of 2.75% and outstanding Base Rate loans bear interest at Base Rate plus 1.75%. Prior to the amendment, the outstanding term loans bore interest at LIBOR plus 3.25% or Base Rate plus 2.25%. In connection with the Fourth Amendment, the Company capitalized debt issuance costs of $1.2 million associated with fees charged by term loan lenders.

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 million in letters of credit may be issued, as well as swing line loans of up to $25 million outstanding at one time. The issuance of such letters of credit and the making of any swing line loan would reduce the amount available under the 20142018 Revolving Credit Facility.
2018 Term Loan
The 2018 Term Loan was issued at an original issuance discount of 99.75%. The 2018 Term Loan required quarterly payments of $1.25 million commencing June 30, 2018, with a final payment of all remaining principal and interest due on April 18, 2025, the maturity date of the 2018 Term Loan. In July 2019, the Company will pay (i) commitment fees onrepaid approximately $193.8 million of the unused2018 Term Loan using a portion of the 2014 Revolving Credit Facility rangingproceeds received from 0.45% to 0.60% per annum based on its Consolidated Leverage Ratio, (ii) quarterly letterthe sale of credit fees,Clean Earth, and (iii) administrative and agency fees.
The following table providesin November 2019, the Company’s debt holdings at September 30, 2017 and December 31, 2016 (in thousands):Company repaid the remaining $298.8 million balance due under the 2018 Term Loan.
25
 September 30, 2017 December 31, 2016
Revolving Credit Facility$25,500
 $4,400
Term Loan561,394
 565,658
Original issue discount(3,777) (4,706)
Debt issuance costs - term loan(7,677) (8,015)
Total debt$575,440
 $557,337
Less: Current portion, term loan facilities(5,685) (5,685)
Long term debt$569,755
 $551,652

Net availability under the 20142018 Revolving Credit Facility was approximately $523.2$598.8 million at September 30, 2017.2020. Subsequent to the end of the quarter, the Company drew $300 million on the 2018 Revolving Credit Facility to fund a portion of the purchase price of an acquisition. Letters of credit outstanding at September 30, 20172020 totaled approximately $1.3$1.2 million. At September 30, 2017,2020, the Company was in compliance with all covenants as defined in the 20142018 Credit Facility.
Senior Notes
On April 18, 2018, the Company consummated the issuance and sale of $400 million aggregate principal amount of its 8.000% Senior Notes due 2026 (the “Existing Notes”) offered pursuant to a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act, and to non-U.S. persons under Regulation S under the Securities Act. The Existing Notes were issued pursuant to an indenture, dated as of April 18, 2018 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee.
On May 7, 2020, the Company consummated the issuance and sale of $200 million aggregate principal amount of its 8.000% Senior Notes due 2026 at an issue price of 101% (the "Additional Notes", and, together with the Existing Notes, the "Senior Notes"). The Additional Notes were issued under the Indenture between the Company and U.S. Bank National Association, as trustee. The proceeds from the Additional Notes were used to pay down the amount outstanding on the Company's 2018 Revolving Credit Facility. The Additional Notes were issued at 101% of par value and the resulting $2 million premium will be amortized over the remaining term of the Additional Notes.
The Senior Notes bear interest at the rate of 8.000% per annum and will mature on May 1, 2026. Interest on the Senior Notes is payable in cash on May 1st and November 1st of each year. The first interest payment date on the Additional Notes will be November 1, 2020. The Senior Notes are general senior unsecured obligations of the Company and are not guaranteed by the subsidiaries through which the Company currently conducts substantially all of its operations. The Senior Notes rank equal in right of payment with all of the Company’s existing and future senior unsecured indebtedness, and rank senior in right of payment to all of the Company’s future subordinated indebtedness, if any. The Senior Notes will be effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, including the indebtedness under the Company’s credit facilities described above.
The Indenture contains several restrictive covenants including, but not limited to, limitations on the following: (i) the incurrence of additional indebtedness, (ii) restricted payments, (iii) dividends and other payments affecting restricted subsidiaries, (iv) the issuance of preferred stock of restricted subsidiaries, (v) transactions with affiliates, (vi) asset sales and mergers and consolidations, (vii) future subsidiary guarantees and (viii) liens, subject in each case to certain exceptions.
The following table provides the Company’s debt holdings at September 30, 2020 and December 31, 2019 (in thousands):
September 30, 2020December 31, 2019
Senior Notes$600,000 $400,000 
Less: Unamortized premiums and debt issuance costs(7,893)(5,555)
Long term debt$592,107 $394,445 
The Company's Senior Notes consisted of the following carrying value and estimated fair value (in thousands):
Fair Value Hierarchy LevelSeptember 30, 2020
Maturity DateRateCarrying ValueFair Value
Senior NotesMay 1, 20268.000 %2600,000 630,000 
Debt Issuance Costs
Deferred debt issuance costs represent the costs associated with the entering into the 2014 Credit Facility as well as amendments to the 2014 Credit Facility, and are amortized over the termissuance of the related debt instrument. Company's financing arrangements. In connection with the Additional Notes offering in May 2020, the Company recorded $3.2 million in deferred financing costs.
Since the Company can borrow, repay and reborrow principal under the 20142018 Revolving Credit Facility, the debt issuance costs associated with this facilitythe 2018 Revolving Credit Facility have been classified as other non-current assets
26

in the accompanying condensed consolidated balance sheet. The debt issuance costs associated with the 2014 Term Loan and 2016 Incremental Term LoanSenior Notes are classified as a reduction of long-term debt in the accompanying condensed consolidated balance sheet.



The following table summarizes unamortized premiums and debt issuance costs at September 30, 20172020 and December 31, 2016,2019, and the balance sheet classification in each of the periods presentspresented (in thousands):
September 30, 2020December 31, 2019
Unamortized premiums and debt issuance costs$16,466 $13,252 
Accumulated amortization(5,461)(3,667)
Unamortized premiums and debt issuance costs, net$11,005 $9,585 
Balance sheet classification:
Other noncurrent assets$3,112 $4,030 
Long-term debt7,893 5,555 
$11,005 $9,585 
 September 30, 2017 December 31, 2016
Deferred debt issuance costs$20,142
 $18,960
Accumulated amortization(9,188) (6,248)
Deferred debt issuance costs, less accumulated amortization$10,954
 $12,712
    
Balance Sheet classification:   
Other non-current assets$3,277
 $4,698
Long-term debt7,677
 8,014
 $10,954
 $12,712


Note J — Derivative Instruments and Hedging Activities
On September 16, 2014, the Company purchased an interest rate swap ("New Swap") with a notional amount of $220 million. The New Swap is effective April 1, 2016 through June 6, 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, 2017 and December 31, 2016, the New Swap had a fair value loss of $8.8 million and $10.7 million, respectively, principally reflecting the present value of future payments and receipts under the agreement.
The Company did not elect hedge accounting for the above derivative transaction 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.
The following table reflects the classification of the Company's interest rate swap on the consolidated balance sheets at September 30, 2017 and December 31, 2016 (in thousands):
 September 30, 2017 December 31, 2016
Other current liabilities$3,190
 $4,010
Other noncurrent liabilities5,657
 6,709
Total fair value$8,847
 $10,719

Note K — Fair Value Measurement
The following table provides the assets and liabilities carried at fair value measured on a recurring basis at September 30, 2017 and December 31, 2016 (in thousands):
 Fair Value Measurements at September 30, 2017
 
Carrying
Value
 Level 1 Level 2 Level 3
Liabilities:       
Put option of noncontrolling shareholders (1)
$(192) $—
 $—
 $(192)
Contingent consideration - acquisitions (2)
(4,367) —
 —
 (4,367)
Interest rate swap(8,847) —
 (8,847) —
Total recorded at fair value$(13,406) $—
 $(8,847) $(4,559)

(1)
Represents put option issued to noncontrolling shareholders in connection with the 5.11 Tactical and Liberty acquisitions.
(2)
Represents potential earn-outs payable by Sterno Products for the acquisition of NII and Ergobaby in connection with their acquisition of Baby Tula.

 Fair Value Measurements at December 31, 2016
 
Carrying
Value
 Level 1 Level 2 Level 3
Assets:       
Equity method investment - FOX$141,767
 $141,767
 $—
 $—
Liabilities:
 
 
 
Put option of noncontrolling shareholders(180) —
 —
 (180)
Contingent consideration - acquisitions(4,830) —
 —
 (4,830)
Interest rate swap(10,719) —
 (10,719) —
Total recorded at fair value$126,038
 $141,767
 $(10,719) $(5,010)
Reconciliations of the change in the carrying value of the Level 3 fair value measurements from January 1st through September 30th in 2017 and 2016 are as follows (in thousands):
 2017 2016
Balance at January 1st$(5,010) $(50)
Contingent consideration - acquisition—
 (1,500)
Balance at March 31st$(5,010) $(1,550)
Contingent consideration - acquisition—
 (3,780)
Payment of contingent consideration463
 —
Balance at June 30th$(4,547) $(5,330)
Put option - noncontrolling shareholder(12) (50)
Contingent consideration - payment—
 450
Balance at September 30th$(4,559) $(4,930)
Valuation Techniques
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, 2016.

2014 Term Loan and 2016 Incremental Term Loan

At September 30, 2017, the carrying value of the principal under the Company’s outstanding Term Loans, including the current portion, was $561.4 million, which approximates fair value because it has a variable interest rate that reflects market changes in 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 September 30, 2017 and December 31, 2016:
 Fair Value Measurements at September 30, 2017 Nine months ended
(in thousands)Carrying
Value		 Level 1 Level 2 Level 3 Expense
          
Goodwill (1)
26,903
 —
 —
 26,903
 8,864
(1)Represents the fair value of the goodwill of the Arnold business segment. Refer to Note H - "Goodwill and Other Intangible Assets" for further discussion regarding the impairment and valuation techniques applied.

 Fair Value Measurements at December 31, 2016 Year ended
(in thousands)Carrying
Value		 Level 1 Level 2 Level 3 Expense
          
Goodwill35,767
 —
 —
 35,767
 16,000
Property, Plant and Equipment (1)
—
 —
 —
 —
 1,824
Tradename (1)
—
 —
 —
 —
 317
Technology (1)
—
 —
 —
 —
 3,460
Customer relationships (1)
—
 —
 —
 —
 2,426
Permits (1)
—
 —
 —
 —
 1,177
(1) Represents the fair value of the respective assets of the Orbit Baby product line of Ergobaby and the Clean Earth Williamsport site, both of which were disposed of during 2016.

Note L — Stockholders’ Equity
Trust Common Shares
The Trust is authorized to issue 500,000,000 Trust common shares and the Company is authorized to issue a corresponding number of LLCtrust interests. The Company will at all times have the identical number of LLCtrust 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.
Secondary Offering
In May 2020, the Company completed an offering of 5,000,000 Trust common shares at a public offering price of $17.60 per share. The net proceeds to the Company, after deducting the underwriter's discount and offering costs, totaled approximately $83.9 million.
Trust Preferred Shares
The Trust is authorized to issue up to 50,000,000 Trust preferred shares and the Company is authorized to issue a corresponding number of trust preferred interests.
Series C Preferred Shares
On November 20, 2019, the Trust issued 4,000,000 7.875% Series C Preferred Shares(the "Series C Preferred Shares") with a liquidation preference of $25.00 per share, and on December 2, 2019, the Trust issued 600,000 of the Series C Preferred Shares which were sold pursuant to an option to purchase additional shares by the underwriters. Total proceeds from the issuance of the Series C Preferred Shares were $115.0 million, or $111.0 millionnet of underwriters' discount and issuance costs. Distributions on the Series C Preferred Shares will be payable quarterly in arrears, when and as declared by the Company's board of directors on January 30, April 30, July 30, and October 30 of each year, beginning on January 30, 2020, at a rate per annum of 7.875%. Distributions on the Series C Preferred Shares are cumulative and at September 30, 2020, $1.5 million of Series C distributions are accumulated and unpaid. Unless full cumulative distributions on the Series C Preferred Shares have been or contemporaneously are declared and set apart for payment of the Series C Preferred Shares for all past distribution periods, no distribution may be declared or paid for payment on the Trust common shares. The Series C Preferred Shares are not convertible into Trust common shares and have no voting rights, except in limited circumstances as provided for in the share designation for the Series C Preferred Shares. The Series C Preferred Shares may be redeemed at the Company's option, in whole or in part, at any time after January 30, 2025, at a price of $25.00 per share, plus any accumulated and unpaid distributions (thereon whether authorized or declared) to, but excluding, the redemption date. Holders of Series C Preferred Shares will have no right to require the redemption of the Series C Preferred Shares and there is no maturity date.
27

Series B Preferred Shares
On March 13, 2018, the Trust issued 4,000,000 7.875% Series B Trust Preferred Shares (the "Series B Preferred Shares") with a liquidation preference of $25.00 per share, for gross proceeds of $100.0 million, or $96.5 million net of underwriters' discount and issuance costs. Distributions on the Series B Preferred Shares will be payable quarterly in arrears, when and as declared by the Company's board of directors on January 30, April 30, July 30, and October 30 of each year, beginning on July 30, 2018, at a rate per annum of 7.875%. Distributions on the Series B Preferred Shares are cumulative and at September 30, 2020, $1.3 million of Series B distributions are accumulated and unpaid. Unless full cumulative distributions on the Series B Preferred Shares have been or contemporaneously are declared and set apart for payment of the Series B Preferred Shares for all past distribution periods, no distribution may be declared or paid for payment on the Trust common shares. The Series B Preferred Shares are not convertible into Trust common shares and have no voting rights, except in limited circumstances as provided for in the share designation for the preferred shares. The Series B Preferred Shares may be redeemed at the Company's option, in whole or in part, at any time after April 30, 2028, at a price of $25.00 per share, plus any accumulated and unpaid distributions (thereon whether authorized or declared) to, but excluding, the redemption date. Holders of Series B Preferred Shares will have no right to require the redemption of the Series B Preferred Shares and there is no maturity date.
Series A Preferred Shares
On June 28, 2017, the Trust issued 4,000,000 7.250% Series A Trust Preferred Shares (the "Series A Preferred Shares") with a liquidation preference of $25.00 per share, for gross proceeds of $100.0 million, or $96.4 million net of underwriters' discount and issuance costs. When, and if declared by the Company's board of directors, distribution on the Series A Preferred Shares will be payable quarterly on January 30, April 30, July 30, and October 30 of each year, beginning on October 30, 2017, at a rate per annum of 7.250%. Distributions on the Series A Preferred Shares are discretionary and non-cumulative. The Company has no obligation to pay distributions for a quarterly distribution period if the board of directors does not declare the distribution before the scheduled record of date for the period, whether or not distributions are paid for any subsequent distribution periods with respect to the Series A Preferred Shares, or the Trust common shares. If the Company's board of directors does not declare a distribution for the Series A Preferred Shares for a quarterly distribution period, during the remainder of that quarterly distribution period the Company cannot declare or pay distributions on the Trust common shares. The Series A Preferred Shares are not convertible into Trust common shares and have no voting rights, except in limited circumstances as provided for in the share designation for the preferred shares.
The Series A Preferred Shares may be redeemed at the Company's option, in whole or in part, at any time after July 30, 2022, at a price of $25.00 per share, plus any declared and unpaid distribution to, but excluding, the redemption date, without payment of any undeclared distributions. Holders of Series A Preferred Shares will have no right to require the redemption of the Series A Preferred Shares and there is no maturity date.
If a certain tax redemption event occurs prior to July 30, 2022, the The Series A Preferred Shares may be redeemed at the Company's option,are not convertible into Trust common shares and have no voting rights, except in whole but not in part, upon at least 30 days’ notice, within 60 days of the occurrence of such tax redemption event, at a price of $25.25 per share, plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions. If a certain fundamental change related to the Series A Preferred Shares or the Company occurs (whether before, on or after July 30, 2022), the Company will be required to repurchase the Series A Preferred Shares at a price of $25.25 per share, plus declared and unpaid distributions to, but excluding, the date of purchase, without payment of any undeclared distributions. If (i) a fundamental change occurs and (ii) the Company does not give notice prior to the 31st day following the fundamental change to repurchase all the outstanding Series A Preferred Shares, the distribution rate per annum on the Series A Preferred Shares will increase by 5.00%, beginning on the 31st day following such fundamental change. Notwithstanding any requirement that the Company repurchase all of the outstanding Series A Preferred Shares, the increaselimited circumstances as provided for in the distribution rate isshare designation for the sole remedy to holders in the event the Company fails to do so, and following any such increase, the Company will be under no obligation to repurchase any Series A Preferred Shares.preferred shares.
Profit 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 are 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 Company records distributions of the profit allocation to the Holders upon occurrence of a Sale Event or Holding Event as distributions declared on Allocation Interests to stockholders’ equity when they are approved by the Company’s board of directors.
Holding Event
The salefive-year anniversary of FOX sharesthe acquisition of Sterno Products occurred in October 2019 which represented a Holding Event. The Company declared and paid a distribution to the Holders of $9.1 million in February 2020. The ten-year anniversary of Liberty occurred in March 2017 (refer2020 which represented a Holding Event. The Holders elected to Note F - "Investmentdefer the distribution of $3.3 million until after the end of 2020. The ten-year anniversary of Ergo occurred in FOX")September 2020 which represented a Holding Event. The Holders elected to defer the distribution of $2.0 million until after the end of 2020.
Sale Events
The sales of Manitoba Harvest in February 2019 and Clean Earth in June 2019 each qualified as a Sale Event under the Company's LLC Agreement. In April 2017, with respect to the March 2017 Offering, the Company's board of directors approved and declared a profit allocation payment totaling $25.8 million that was paid inDuring the second quarter of 2017.
The sale of FOX shares in March 2016 (refer to Note F - "Investment in FOX") qualified as2019, the Company declared and paid a Sale Event under the Company's LLC Agreement. In April 2016, with respectdistribution to the March 2016 Offering, the Company's boardAllocation Member of directors approved and declared a profit allocation payment totaling $8.6$8.0 million that was paid to Holders during the second quarter of 2016. In November 2016, with respectrelated to the sale of FOXManitoba Harvest and working capital settlements from prior Sale Events.The profit allocation distribution was calculated based on the portion of the gain
28

on sale related to the Closing Date Consideration, less the loss on sale of shares in August 2016that were received as part of the Closing Consideration. During the third quarter of 2019, the Company declared and paid a distribution to the Allocation Member of $43.3 million related to the sale of Tridien, both qualifying as Sale Events, the Company's board of directors approved and declared a profit allocation payment of $7.0 million that was paid duringClean Earth. During the fourth quarter of 2016. In2019, the fourth quarter of 2016, the Company's board of directorsCompany declared and paid a profit allocation paymentdistribution to the Allocation Interest HoldersMember of $13.4$9.1 million related to the FOX November Offering (refer to Note F - "Investment in FOX"). This amount was paid inDeferred Consideration from the first quarter of 2017.
The Company's board of directors also declaredManitoba Harvest sale and the Company paid an $8.2 million distribution inworking capital settlement received from the third quartersale of 2016Clean Earth.
Reconciliation of net income (loss) available to common shares of Holdings
The following table reconciles net loss attributable to Holdings to net loss attributable to the Allocation Member common shares of Holdings (in connection with a Holding Event of our ownership of the Advanced Circuits subsidiary. The payment is in respect to Advanced Circuits' positive contribution-based profit in the five year holding period ending June 30, 2016.thousands):
Three months ended 
 September 30,		Nine months ended 
 September 30,
2020201920202019
Net income (loss) from continuing operations attributable to Holdings$19,086 $(29,824)$14,314 $(49,313)
Less: Distributions paid - Allocation Interests0 43,313 9,087 51,296 
Less: Distributions paid - Preferred Shares6,046 3,781 17,633 11,344 
Less: Accrued distributions - Preferred Shares2,869 1,334 2,869 1,334 
Net income (loss) from continuing operations attributable to common shares of Holdings$10,171 $(78,252)$(15,275)$(113,287)
Earnings per share
The Company calculates basic and diluted earnings per share using the two-class method which requires the Company to allocate to 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, 20172020 and 20162019 reflects the incremental increase during the period in the profit allocation distribution to Holders related to Holding Events.
Basic and diluted earnings per share for the three and nine months ended September 30, 20172020 and 20162019 attributable to the common shares of Holdings is calculated as follows (in thousands, except per share data):
Three months ended 
 September 30,		Nine months ended 
 September 30,
2020201920202019
Income (loss) from continuing operations attributable to common shares of Holdings$10,171 $(78,252)$(15,275)$(113,287)
Less: Effect of contribution based profit - Holding Event4,844 1,709 5,134 3,562 
Income (loss) from continuing operations attributable to common shares of Holdings$5,327 $(79,961)$(20,409)$(116,849)
Income from discontinued operations attributable to Holdings$100 $2,039 $100 $347,370 
Less: Effect of contribution based profit - Holding Event0 0 0 0 
Income from discontinued operations attributable to common shares of Holdings$100 $2,039 $100 $347,370 
Basic and diluted weighted average common shares outstanding64,900 59,900 62,556 59,900 
Basic and fully diluted income (loss) per common share attributable to Holdings
Continuing operations$0.08 $(1.33)$(0.33)$(1.95)
Discontinued operations0 0.03 0 5.80 
$0.08 $(1.30)$(0.33)$3.85 
29
  Three months ended 
 September 30,		 Nine months ended 
 September 30,
  2017 2016 2017 2016
Income (loss) from continuing operations attributable to Holdings $7,706
 $47,862
 $(18,351) $50,198
Less: Profit Allocation paid to Holders —
 8,196
 39,120
 16,829
Less: Effect of contribution based profit - Holding Event 1,620
 812
 3,954
 1,292
Income (loss) from continuing operation attributable to common shares $6,086
 $38,854
 $(61,425) $32,077
         
Income from discontinued operations attributable to Holdings $—
 $1,843
 $340
 $2,723
Less: Effect of contribution based profit - Holding Event —
 —
 —
 —
Income from discontinued operations attributable to common shares $—
 $1,843
 $340
 $2,723
         
Basic and diluted weighted average common shares outstanding 59,900
 54,300
 59,900
 54,300
         
Basic and fully diluted income (loss) per common share attributable to Holdings        
Continuing operations $0.10
 $0.72
 $(1.03) $0.59
Discontinued operations —
 0.03
 0.01
 0.05
  $0.10
 $0.75
 $(1.02) $0.64


Distributions
The following table summarizes information related to our quarterly cash distributions on our Trust Common Shares
On January 26, 2017, the Company paid a distribution of $0.36common and preferred shares (in thousands, except per share to holders of record of the Company's common shares as of January 19, 2017. data):
PeriodCash Distribution per ShareTotal Cash DistributionsRecord DatePayment Date
Trust Common Shares:
July 1, 2020 - September 30, 2020 (1)
$0.36 $23,364 October 15, 2020October 22, 2020
April 1, 2020 - June 30, 2020$0.36 $23,364 July 16, 2020July 23, 2020
January 1, 2020 - March 31, 2020$0.36 $21,564 April 16, 2020April 23, 2020
October 1, 2019 - December 31, 2019$0.36 $21,564 January 16, 2020January 23, 2020
July 1, 2019 - September 30, 2019$0.36 $21,564 October 17, 2019October 24, 2019
April 1, 2019 - June 30, 2019$0.36 $21,564 July 18, 2019July 25, 2019
January 1, 2019 - March 31, 2019$0.36 $21,564 April 18, 2019April 25, 2019
October 1, 2018 - December 31, 2018$0.36 $21,564 January 17, 2019January 24, 2019
Series A Preferred Shares:
July 30, 2020 - September 29, 2020 (1)
$0.453125 $1,813 October 15, 2020October 30, 2020
April 30, 2020 - July 29, 2020$0.453125 $1,813 July 15, 2020July 30, 2020
January 30, 2020 - April 29, 2020$0.453125 $1,813 April 15, 2020April 30, 2020
October 30, 2019 - January 29, 2020$0.453125 $1,813 January 15, 2020January 30, 2020
July 30, 2019 - October 29, 2019$0.453125 $1,813 October 15, 2019October 30, 2019
April 30, 2019 - July 29, 2019$0.453125 $1,813 July 15, 2019July 30, 2019
January 30, 2019 - April 29, 2019$0.453125 $1,813 April 15, 2019April 30, 2019
October 30, 2018 - January 29, 2019$0.453125 $1,813 January 15, 2019January 30, 2019
Series B Preferred Shares:
July 30, 2020 - September 29, 2020 (1)
$0.4921875 $1,969 October 15, 2020October 30, 2020
April 30, 2020 - July 29, 2020$0.4921875 $1,969 July 15, 2020July 30, 2020
January 30, 2020 - April 29, 2020$0.4921875 $1,969 April 15, 2020April 30, 2020
October 30, 2019 - January 29, 2020$0.4921875 $1,969 January 15, 2020January 30, 2020
July 30, 2019 - October 29, 2019$0.4921875 $1,969 October 15, 2019October 30, 2019
April 30, 2019 - July 29, 2019$0.4921875 $1,969 July 15, 2019July 30, 2019
January 30, 2019 - April 29, 2019$0.4921875 $1,969 April 15, 2019April 30, 2019
October 30, 2018 - January 29, 2019$0.4921875 $1,969 January 15, 2019January 30, 2019
Series C Preferred Shares:
July 30, 2020 - September 29, 2020 (1)
$0.4921875 $2,264 October 15, 2020October 30, 2020
April 30, 2020 - July 29, 2020$0.4921875 $2,264 July 15, 2020July 30, 2020
January 30, 2020 - April 29, 2020$0.4921875 $2,264 April 15, 2020April 30, 2020
November 20, 2019 - January 29, 2020$0.38281 $1,531 January 15, 2020January 30, 2020
(1) This distribution was declared on January 5, 2017.
On April 27, 2017, the Company paid a distribution of $0.36 per share to holders of record of the Company's common shares as of April 20, 2017. This distribution was declared on April 6, 2017.
On July 27, 2017, the Company paid a distribution of $0.36 per share to holders of record of the Company's common shares as of July 20, 2017. The distribution was declared on July 6, 2017.
On October 26, 2017, the Company paid a distribution of $0.36 per share to holders of record of the Company's common shares as of October 19, 2017. This distribution was    declared on October 5, 2017.1, 2020.

30
Trust Preferred Shares
On October 30, 2017, the Company paid a distribution of $0.61423611 per share on the Company’s Series A Preferred Shares. The distribution on the Series A Preferred Shares covers the period from and including June 28, 2017, the original issue date of the Preferred Shares, up to, but excluding, October 30, 2017. This distribution was declared on October 5, 2017 and was payable to holders of record of the Company's Series A Preferred Shares as of October 15, 2017.


Note M — Warranties
The Company’s Crosman, Ergobaby and Liberty 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 nine months ended September 30, 2017 and the year ended December 31, 2016 is as follows (in thousands):
 Nine months ended September 30, 2017 Year ended 
 December 31, 2016
Warranty liability:   
Beginning balance$1,258
 $1,259
Accrual507
 252
Warranty payments(266) (253)
Other (1)
509
 —
Ending balance$2,008
 $1,258
(1) Represents the warranty liability recorded in relation to the Crosman acquisition in June 2017 and an add-on acquisition by Crosman in July 2017.

Note NK — Noncontrolling Interest
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, 20172020 and December 31, 2016:2019:

% Ownership (1)
September 30, 2020
% Ownership (1)
December 31, 2019
PrimaryFully
Diluted		PrimaryFully
Diluted
5.1197.6 88.1 97.6 88.9 
Ergobaby81.4 72.6 81.9 75.8 
Liberty91.2 86.0 91.2 86.0 
Marucci92.2 83.8 N/aN/a
Velocity Outdoor99.3 88.0 99.3 93.9 
ACI69.3 65.4 69.4 65.4 
Arnold96.7 82.4 96.7 80.2 
Foam Fabricators100.0 91.5 100.0 91.5 
Sterno100.0 88.5 100.0 88.5 
(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.
Noncontrolling Interest Balances
(in thousands)September 30, 2020December 31, 2019
5.11$13,837 $12,056 
Ergobaby27,207 27,036 
Liberty3,584 2,936 
Marucci11,069 0 
Velocity Outdoor3,767 2,506 
ACI7,587 3,670 
Arnold1,232 1,255 
Foam Fabricators2,644 1,873 
Sterno(233)(884)
Allocation Interests100 100 
$70,794 $50,548 

Note L — Fair Value Measurement
The following table provides the assets and liabilities carried at fair value measured on a recurring basis at September 30, 2020 and December 31, 2019 (in thousands):
Fair Value Measurements at September 30, 2020
Carrying
Value		Level 1Level 2Level 3
Liabilities:
Put option of noncontrolling shareholders (1)
$(303)$0 $0 $(303)
Total recorded at fair value$(303)$0 $0 $(303)

(1)Represents put option issued to noncontrolling shareholders in connection with the 5.11 and Liberty acquisitions.
31

 
% Ownership (1)
September 30, 2017
 
% Ownership (1)
December 31, 2016
 Primary 
Fully
Diluted
 Primary 
Fully
Diluted
5.11 Tactical97.5 85.7 97.5 85.1
Crosman98.8 89.2 N/a N/a
Ergobaby82.7 76.6 83.5 76.9
Liberty88.6 84.7 88.6 84.7
Manitoba Harvest76.6 67.0 76.6 65.6
ACI69.4 69.2 69.4 69.3
Arnold Magnetics96.7 84.7 96.7 84.7
Clean Earth97.5 79.8 97.5 79.8
Sterno Products100.0 89.5 100.0 89.5
Fair Value Measurements at December 31, 2019
Carrying
Value		Level 1Level 2Level 3
Liabilities:
Put option of noncontrolling shareholders (1)
$(111)$0 $0 $(111)
Total recorded at fair value$(111)$0 $0 $(111)

(1)Represents put option issued to noncontrolling shareholders in connection with the 5.11 and Liberty acquisitions.
Reconciliations of the change in the carrying value of the Level 3 fair value measurements from January 1, 2019 through September 30, 2020 are as follows (in thousands):
Level 3
Balance at January 1, 2019$(4,547)
Decrease in the fair value of put option of noncontrolling shareholder - Liberty72 
Increase in the fair value of put option of noncontrolling shareholder - 5.11(10)
Adjustment to Ravin contingent consideration (1)
The principal difference between primary and diluted percentages(2,022)
Payment of our operating segments is due to stockcontingent consideration - Ravin (1)
6,396 
Balance at December 31, 2019$(111)
Increase in the fair value of put option issuances of operating segment stock to managementnoncontrolling shareholder - Liberty(151)
Increase in the fair value of the respective businesses.put option of noncontrolling shareholder - 5.11(41)
Balance at September 30, 2020$(303)

(1) The contingent consideration related to Velocity's acquisition of Ravin in September 2018. The purchase price of Ravin included a potential earn-out of up to $25.0 million contingent on the achievement of certain financial metrics for the trailing twelve month period ending December 31, 2018. The fair value of the contingent consideration was estimated at $4.7 million at acquisition date and was calculated using a risk-adjusted option pricing model. The earnout was adjusted to $6.4 million and paid out during the year ended December 31, 2019.
 Noncontrolling Interest Balances
(in thousands)September 30, 2017 December 31, 2016
5.11 Tactical$7,387
 $5,934
Crosman744
 N/a
Ergobaby21,282
 18,647
Liberty2,976
 2,681
Manitoba Harvest13,852
 13,687
ACI(8,502) (11,220)
Arnold Magnetics1,342
 1,536
Clean Earth6,585
 5,469
Sterno Products1,860
 1,305
Allocation Interests100
 100
 $47,626
 $38,139
Valuation Techniques

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 year ended December 31, 2019.

Nonrecurring Fair Value Measurements
There were no assets or liabilities measured on a non-recurring basis during the quarter ended September 30, 2020. The following table provides the assets and liabilities carried at fair value measured on a non-recurring basis as of December 31, 2019. Refer to "Note G – Goodwill and Other Intangible Assets", for a description of the valuation techniques used to determine fair value of the assets measured on a non-recurring basis in the table below.
Expense
Fair Value Measurements at December 31, 2019Year ended
(in thousands)Carrying
Value		Level 1Level 2Level 3December 31, 2019
Goodwill - Velocity Outdoor$30,079 $— $— $30,079 $32,881 

Note OM — 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.
32

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. Certain foreign operations are subject to foreign income taxation under existing provisions of the laws of those jurisdictions. Pursuant to U.S. tax laws, earnings from those jurisdictions will be subject to the U.S. income tax rate when those earnings are repatriated.
The reconciliation between the Federal Statutory Rate and the effective income tax rate for the nine months ended September 30, 20172020 and 20162019 is as follows:

Nine months ended September 30,
20202019
United States Federal Statutory Rate21.0 %(21.0)%
State income taxes (net of Federal benefits)5.0 4.4 
Foreign income taxes1.3 7.2 
Expenses of Compass Group Diversified Holdings LLC representing a pass through to shareholders (1)
8.3 22.7 
Impairment expense0 15.7 
Impact of subsidiary employee stock options1.3 0.3 
Credit utilization(2.0)(2.0)
Non-recognition of NOL carryforwards at subsidiaries(5.1)3.9 
Effect of Tax Act4.7 4.0 
Other(2.9)(5.5)
Effective income tax rate31.6 %29.7 %

 Nine months ended September 30,
 2017 2016
United States Federal Statutory Rate(35.0)% 35.0 %
State income taxes (net of Federal benefits)(1.0) 0.2
Foreign income taxes4.5
 1.4
Expenses of Compass Group Diversified Holdings LLC representing a pass through to shareholders (1)
0.3
 6.3
Impairment expense16.9
 —
Effect of loss (gain) on equity method investment (2)
11.0
 (33.3)
Impact of subsidiary employee stock options2.5
 0.7
Credit utilization(7.7) —
Domestic production activities deduction(2.3) (0.6)
Effect of undistributed foreign earnings2.0
 4.5
Non-recognition of NOL carryforwards at subsidiaries(3.5) —
Other1.1
 1.6
Effective income tax rate(11.2)% 15.8 %
(1)    The effective income tax rate for the nine months ended September 30, 2020 and 2019 includes a 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, 2017 and 2016 includes a loss at the Company's parent, which is taxed as a partnership.

(2)
The investment in FOX was 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.


Note PN — 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 $3.5$4.9 million is recognized in the consolidated balance sheet as a component of other non-current liabilities at September 30, 2017.2020. Net periodic benefit cost consists of the following for the three and nine months ended September 30, 20172020 and 20162019 (in thousands):

Three months ended September 30, Nine months ended September 30,Three months ended September 30,Nine months ended September 30,
2017 2016 2017 20162020201920202019
Service cost$134
 $111
 $401
 $325
Service cost$143 $127 $420 $383 
Interest cost24
 35
 71
 103
Interest cost8 33 23 99 
Expected return on plan assets(39) (40) (117) (117)Expected return on plan assets(21)(39)(62)(119)
Amortization of unrecognized loss63
 45
 188
 132
Amortization of unrecognized loss58 35 171 104 
Effect of curtailmentEffect of curtailment352 0 352 0 
Net periodic benefit cost$182
 $151
 $543
 $443
Net periodic benefit cost$540 $156 $904 $467 
During the third quarter of 2020, Arnold recognized a curtailment loss as a result of the termination of certain employees at the Switzerland location who were participants in the defined benefit plan. The termination of the employees resulted in a decrease in the accumulated benefit obligation liability and a curtailment loss of $0.4 million. The curtailment loss was recognized in other comprehensive income during the three andmonths ended September 30, 2020.
33

During the nine months ended September 30, 2017,2020, per the terms of the pension agreement, Arnold contributed $0.1 million and $0.3 million to the plan utilizing reserves from prior years over funding of the plan, respectively.plan. For the remainder of 2017,2020, the expected contribution to the plan will be approximately $0.1 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, 20172020 were considered Level 3.
Note QO - Commitments and Contingencies
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.

Leases
The Company and its subsidiaries lease manufacturing facilities, warehouses, office facilities, retail stores, equipment and vehicles under various operating arrangements. Certain of the leases are subject to escalation clauses and renewal periods. The Company and its subsidiaries recognize lease expense, including predetermined fixed escalations, on a straight-line basis over the initial term of the lease including reasonably assured renewal periods from the time that the Company and its subsidiaries control the leased property. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Certain of our subsidiaries have leases that contain both fixed rent costs and variable rent costs based on achievement of certain operating metrics.  The variable lease expense has not been material on a historic basis and no amount was incurred during the quarter ending September 30, 2020. In the three and nine months ended September 30, 2020, the Company recognized $7.9 million and $22.8 million, respectively, in expense related to operating leases in the condensed consolidated statements of operations.
The maturities of lease liabilities at September 30, 2020 were as follows (in thousands):
2020 (excluding nine months ended September 30, 2020)$4,841 
202127,334 
202225,059 
202318,180 
202414,244 
Thereafter43,456 
Total undiscounted lease payments$133,114 
Less: Interest34,584 
Present value of lease liabilities$98,530 
The calculated amount of the right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and discount rate used to present value the minimum lease payments. The Company's lease agreements often include one or more options to renew at the company's discretion. In general, it is not reasonably certain that lease renewals will be exercised at lease commencement and therefore lease renewals are not included in the lease term. Regarding the discount rate, Topic 842 requires the use of a rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes the incremental borrowing rate of the subsidiary entering into the lease arrangement, on a collateralized basis, over a similar term as adjusted for any country specific risk.
The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of September 30, 2020:
Lease Term and Discount Rate
Weighted-average remaining lease term (years)6.05
Weighted-average discount rate7.65 %
34

Supplemental balance sheet information related to leases was as follows (in thousands):
Line Item in the Company’s Consolidated Balance SheetSeptember 30, 2020
Operating lease right-of-use assetsOther non-current assets$94,464 
Current portion, operating lease liabilitiesOther current liabilities$20,739 
Operating lease liabilitiesOther non-current liabilities$77,791 
Supplemental cash flow information related to leases was as follows (in thousands):
Nine months ended September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows from operating leases$22,816 
Right-of-use assets obtained in exchange for lease obligations:
   Operating leases$9,913 
Note R - Subsequent EventP — Related Party Transactions
In October 2017,Management Services Agreement
The Company entered into the MSA with CGM effective May 16, 2006. The MSA provides for, among other things, CGM to perform services for the Company furtherin exchange for a management fee paid quarterly and equal to 0.5% of the Company's adjusted net assets, as defined in the MSA. Concurrent with the June 2019 sale of Clean Earth (refer to Note C - Discontinued Operations), CGM agreed to waive the management fee on cash balances held at the Company, commencing with the quarter ended June 30, 2019 and continuing until the quarter during which the Company next borrowed under the 2018 Revolving Credit Facility. In March 2020, as a proactive measure to provide the Company with additional cash liquidity in light of the COVID-19 pandemic, the Company elected to draw down $200 million on our 2018 Revolving Credit Facility. The Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of March 31, 2020. In addition, due to the unprecedented uncertainty as a result of the COVID-19 pandemic, CGM agreed to waive 50% of the management fee calculated at June 30, 2020 that was paid in July 2020. Further, for the third quarter of 2020, the Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of September 30, 2020.
Integration Services Agreements
Marucci Sports, which was acquired in April 2020, entered into an Integration Services Agreement ("ISA") with CGM. The ISA provides for CGM to provide services for new platform acquisitions to, amongst other things, assist the management at the acquired entities in establishing a corporate governance program, implement compliance and reporting requirements of the Sarbanes-Oxley Act of 2002, as amended, and align the 2014 Credit Facilityacquired entity's policies and procedures with our other subsidiaries.  CGM will receive integration service fees of $2.0 million payable quarterly over a twelve month period as services are rendered beginning in the quarter ended September 30, 2020. Foam Fabricators, which was acquired in 2018, entered into an ISA with CGM.  Foam Fabricators paid CGM $2.3 million over the term of the ISA, with $2.0 million paid in 2018 and $0.3 million in 2019. Integration service fees are included in selling, general and administrative expense on the subsidiaries' statement of operations in the period in which they are incurred.
he Company and its businesses have the following significant related party transactions:
5.11
Related Party Vendor Purchases - 5.11 purchases inventory from a vendor who is a related party to 5.11 through one of the executive officers of 5.11 via the executive's 40% ownership interest in the vendor. 5.11 purchased approximately $0.7 million and $2.3 million during the three and nine months ended September 30, 2020, respectively, and $1.1 million and $3.2 million, during the three and nine months endedSeptember 30, 2019, respectively, in inventory from the vendor.

35


NOTE Q - SUBSEQUENT EVENT
On September 20, 2020, the Company, through its newly formed acquisition subsidiaries, BOA Holdings Inc., a Delaware corporation (“BOA Holdings”) and BOA Parent Inc., a Delaware corporation (“Buyer”) and a wholly-owned subsidiary of BOA Holdings, entered into an Agreement and Plan of Merger (the "First Refinancing Amendment"“Merger Agreement”) to, in effect, refinance the 2014 Term Loanwith Reel Holding Corp., a Delaware corporation (“BOA”) and the 2016 Incremental Term Loan (together,sole stockholder of Boa Technology, Inc., BOA Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Buyer (“Merger Sub”), and Shareholder Representative Services LLC (in its capacity as the “Term Loans”)representative of the stockholders of BOA). Pursuant to the First Refinancing Amendment, outstanding Term Loans at LIBOR Rate bear interest at LIBOR plus an applicable rateMerger Agreement, on October 16, 2020, Merger Sub was merged with and into BOA (the “Merger”) such that the separate existence of 2.25%Merger Sub ceased, and outstanding Term Loans at Base Rate bear interest at Base Rate plus 1.25%BOA survived the Merger as a wholly-owned subsidiary of Buyer. BOA, creators of the award-winning BOA® Fit System featured in performance footwear, action sports, outdoor and medical products worldwide, was founded in 2001 and is headquartered in Denver, Colorado. The total purchase price for the acquisition of BOA was $454 million (excluding working capital and certain other adjustments upon closing, and transaction costs). Prior toThe Company funded the amendment,acquisition with cash on hand and a $300 million draw on its 2018 Revolving Credit Facility. The Company's initial equity ownership in BOA is approximately 82%, as certain existing stockholders in BOA invested in the outstanding Term Loans bore interest at LIBOR plus 2.75% or Base Rate plus 1.75%. In connection withtransaction alongside the First Refinancing Amendment, the Company incurred $1.4 million of debt issuance costs associated with fees charged by term loan lenders.Company.





36

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 sectionssection entitled "Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q 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, 20162019 and in the section entitled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.
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 TrustHoldings 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 withand is a boardcontrolling owner of directors whose corporate governance responsibilitiesnine businesses, or operating segments, at September 30, 2020. The segments are similar to that of a Delaware corporation.as follows: 5.11 Acquisition Corp. ("5.11"), The Company’s board of directors oversees the management of the CompanyErgo Baby Carrier, Inc. ("Ergobaby"), Liberty Safe and our businessesSecurity Products, Inc. ("Liberty Safe" or "Liberty"), Marucci Sports, LLC ("Marucci" or Marucci Sports"), Velocity Outdoor, Inc. (formerly Crosman Corp.) ("Velocity Outdoor" or "Velocity"), Compass AC Holdings, Inc. ("ACI" or "Advanced Circuits"), AMT Acquisition Corporation ("Arnold"), FFI Compass, Inc. ("Foam Fabricators" or "Foam"), and the performance of CompassThe Sterno Group, Management LLC ("CGM" or our "Manager"Sterno"). Certain persons who are employees and partners of our Manager receive a profit allocation as owners of 60.4% 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.

We acquired our existing businesses (segments) that we own at September 30, 20172020 as follows:
    Ownership Interest - September 30, 2017
Business Acquisition Date Primary Diluted
Advanced Circuits May 16, 2006 69.4% 69.2%
Liberty Safe March 31, 2010 88.6% 84.7%
Ergobaby September 16, 2010 82.7% 76.6%
Arnold Magnetics March 5, 2012 96.7% 84.7%
Clean Earth August 7, 2014 97.5% 79.8%
Sterno Products October 10, 2014 100.0% 89.5%
Manitoba Harvest July 10, 2015 76.6% 67%
5.11 Tactical August 31, 2016 97.5% 85.7%
Crosman June 2, 2017 98.8% 89.2%
Ownership Interest - September 30, 2020
BusinessAcquisition DatePrimaryDiluted
Advanced CircuitsMay 16, 200669.3%65.4%
Liberty SafeMarch 31, 201091.2%86.0%
ErgobabySeptember 16, 201081.4%72.6%
ArnoldMarch 5, 201296.7%82.4%
SternoOctober 10, 2014100.0%88.5%
5.11August 31, 201697.6%88.1%
Velocity OutdoorJune 2, 201799.3%88.0%
Foam FabricatorsFebruary 15, 2018100.0%91.5%
Marucci SportsApril 20, 202092.2%83.8%
We categorize the businesses we own into two separate groups of businesses: (i) branded consumer businesses, and (ii) niche industrial businesses. Branded consumer 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 consumer businesses are leaders in their particular product category. Niche industrial businesses are characterized as those businesses that focus on manufacturing and selling particular products and industrial services within a specific market sector. We believe that our niche industrial businesses are leaders in their specific market sector. The following is an overview of each of our businesses:
Recent EventsBranded Consumer
Trust Preferred Share Issuance5.11 - 5.11 is a leading provider of purpose-built technical apparel and gear for law enforcement, firefighters, EMS, and military special operations as well as outdoor and adventure enthusiasts. 5.11 is a brand known for innovation and authenticity, and works directly with end users to create purpose-built apparel and gear designed to enhance the safety, accuracy, speed and performance of tactical professionals and enthusiasts worldwide. Headquartered in Irvine, California, 5.11 operates sales offices and distribution centers globally, and 5.11 products are widely distributed in uniform stores, military exchanges, outdoor retail stores, its own retail stores and on 511tactical.com.
On June 28, 2017, the Trust issued 4,000,000 7.250% Series A Trust Preferred Shares (the "Series A Preferred Shares") for gross proceeds
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Ergobaby - Headquartered in Los Angeles, California, Ergobaby is dedicated to building a global community of $100.0 million, or $96.4 million netconfident parents with smart, ergonomic solutions that enable and encourage bonding between parents and babies. Ergobaby offers a broad range of underwriters' discountaward-winning baby carriers, strollers, swaddlers, nursing pillows, and issuance costs.
Acquisitionrelated products that fit into families’ daily lives seamlessly, comfortably and safely. Historically, Ergobaby derives more than 50% of Crosman
On June 2, 2017, through a wholly owned subsidiary, Crosman Acquisition Corp., we acquired 98.9%its sales from outside of the outstanding equity of Bullseye Acquisition Corporation, whichUnited States.
Liberty - Founded in 1988, Liberty Safe is the sole ownerpremier designer, manufacturer and marketer of Crosman Corp.home and gun safes in North America. From its over 300,000 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 Cabela’s, Case IH, Colt and John Deere. Liberty Safe’s products are the market share leader and are sold through an independent dealer network ("Crosman"Dealer sales") in addition to various sporting goods, farm and fleet and home improvement retail outlets ("Non-Dealer sales"). CrosmanLiberty has the largest independent dealer network in the industry. Liberty is headquartered in Payson, Utah.
Marucci Sports - Founded in 2009, Marucci is a leading designer, manufacturer, and marketer of premium wood and metal baseball bats, fielding gloves, batting gloves, bags, protective gear, sunglasses, on and off-field apparel, and other baseball and softball equipment used by professional and amateur athletes. Marucci also develops and licenses franchises for sports training facilities. Marucci is headquartered in Baton Rouge, Louisiana.
Velocity Outdoor - A leading designer, manufacturer, and marketer of airguns, archery products, laser aiming devices and related accessories, Velocity Outdoor offers its products under the highly recognizable Crosman, Benjamin, LaserMax, Ravin and CenterPoint brands that are available through national retail chains, mass merchants, dealer and distributor networks. The airgun product category consists of air rifles, air pistols and a range of accessories including targets, holsters and cases. Velocity Outdoor's other primary product categories are archery, with products including CenterPoint crossbows and the Pioneer Airbow, consumables, which includes steel and plastic BBs, lead pellets and CO2 cartridges, lasers for firearms, and airsoft products. In September 2018, Velocity acquired Ravin Crossbows, LLC ("Ravin" or "Ravin Crossbows"), a manufacturer and innovator of crossbows and accessories. HeadquarteredRavin primarily focuses on the higher-end segment of the crossbow market and has developed significant intellectual property related to the advancement of crossbow technology. Velocity Outdoor is headquartered in Bloomfield, New York, CrosmanYork.
Niche Industrial
Advanced Circuits - Advanced Circuits is a provider of small-run, quick-turn and volume production printed circuit boards ("PCBs") to customers throughout the United States. Historically, small-run and quick-turn PCBs have represented approximately 50% - 55% of Advanced Circuits’ gross sales. 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 small-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. Advanced Circuits is headquartered in Aurora, Colorado.
Arnold - Arnold serves over 425a variety of markets including aerospace and defense, general industrial, motorsport/ automotive, oil and gas, medical, energy, reprographics and advertising specialties. Over the course of more than 100 years, Arnold has successfully evolved and adapted our products, technologies, and manufacturing presence to meet the demands of current and emerging markets. Arnold produces high performance permanent magnets (PMAG), precision foil products (Precision Thin Metals or "PTM"), and flexible magnets (Flexmag™) that are mission critical in motors, generators, sensors and other systems and components. Arnold has expanded globally and built strong relationships with our customers worldwide,worldwide. Arnold is the largest and, we believe, the most technically advanced U.S. manufacturer of engineered magnetic systems. Arnold is headquartered in Rochester, New York.
Foam Fabricators - Founded in 1957 and headquartered in Scottsdale, Arizona, Foam Fabricators is a designer and manufacturer of custom molded protective foam solutions and original equipment manufacturer (OEM) components made from expanded polystyrene (EPS) and expanded polypropylene (EPP). Foam Fabricators operates 14 molding and fabricating facilities across North America and provides products to a variety of end-markets, including mass merchants, sporting goods retailers, online channelsappliances and distributors serving smaller specialty storeselectronics, pharmaceuticals, health and internationalwellness, automotive, building products and others. In July 2020, Foam Fabricators acquired the assets of Polyfoam, a Massachusetts-based manufacturer
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of protective and temperature-sensitive packaging solutions for the medical, pharmaceutical, grocery and food industries, among others.
Sterno - Sterno, headquartered in Corona, California, is the parent company of Sterno LLC ("Sterno Products"), Sterno Home Inc. ("Sterno Home"), and Rimports Inc. ("Rimports"). Sterno is a leading manufacturer and marketer of portable food warming systems, creative indoor and outdoor lighting, and home fragrance solutions for the foodservice industry and consumer markets. Its diversified product portfolio includes the widely known Crosman, BenjaminSterno offers a broad range of wick and CenterPoint brands. The purchase price, including proceeds from noncontrolling interestsgel chafing systems, butane stoves and net of transaction costs, was approximately $150.4 million. Crosmanaccessories, liquid and traditional wax candles, catering equipment and lamps through Sterno Products, flameless candles and outdoor lighting products through Sterno Home, and scented wax cubes and warmer products used for home decor and fragrance systems through Rimports.
Our management investedteam’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 transaction alongdevelopment 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.
While our businesses have different growth opportunities and potential rates of growth, we work with the Company, representing approximately 1.1%management teams of the initial noncontrolling interest.
Divestiture of FOX shares
On March 13, 2017, Fox Factory Holding Corp. ("FOX") closed on a secondary public offering of 5,108,718 shares of FOX common stock held by CODI, which represented CODI's remaining investment in FOX. CODI received $136.1 million in net proceeds as a result of the sale. As a result of this secondary public offering, the Company no longer holds an ownership interest in FOX.
This sale of the portioneach of our FOX sharesbusinesses to increase the value of, and cash generated by, each business through various initiatives, including making selective capital investments to expand geographic reach, increase capacity or reduce manufacturing costs of our businesses; improving and expanding existing sales and marketing programs; and assisting in March 2017 qualified as a Sale Event under the Company's LLC Agreement. During the second quarteracquisition and integration of 2017, our board of directors declared a distribution to the Holders of the Allocation Interests of $25.8 million in connection with the Sale Event of FOX. The profit allocation payment was made during the quarter ended June 30, 2017.
2017Outlook
Middle market deal flow continues to remain steady, in part due to continued 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.complementary businesses. We remain focused on marketing the Company’sour Company's attractive ownership and management attributes to potential sellers of middle market businesses and intermediaries.businesses. In addition, we continue to pursue opportunities for add-on acquisitions by certain of our existing subsidiary companies, which can be particularly attractive from a strategic perspective.


DiscontinuedImpact of COVID-19 on Our Operations, Financial Condition, Liquidity and Results of Operations
In March 2020, the World Health Organization categorized COVID-19 as a pandemic and, during the third quarter of 2020, the COVID-19 pandemic continued to impact the Company. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration, severity and ultimate impact on our business are currently unknown. The COVID-19 pandemic led to governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter-in-place” and “stay-at-home” orders, travel restrictions, business curtailments, particularly retail operations and non-essential businesses, school closures, and other measures. In addition, governments and central banks in several parts of the world enacted fiscal and monetary stimulus measures to counteract the impacts of COVID-19. The public health situation, global response measures and corresponding impacts on various markets remain fluid and uncertain. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it is impacting our customers, employees, supply chains, and distribution networks. We experienced and expect to continue to experience reductions in customer demand in certain of our niche industrial end-markets. We expect that the government measures taken to address the spread of the virus, the reduced operational status of some of our suppliers, the reductions in production at certain facilities, and the decrease in foot traffic at many brick and mortar retail businesses may impact our operations for the remainder of 2020. The health of our team and various stakeholders is our highest priority, and we have taken multiple steps to provide support and a safe work environment.
Due to the unprecedented uncertainty as a result of the COVID-19 pandemic, in April 2020 CGM agreed to waive 50% of the second quarter management fee calculated at June 30, 2020 that was paid in July 2020. We continue to work with management at each of our businesses to reduce our controllable costs, including short-term actions to reduce labor costs, eliminating non-essential travel and reducing discretionary spending. Additionally, our businesses are proactively managing working capital and we have reduced our capital spending plan for the year, without deferring many key strategic ongoing initiatives.

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2020 Outlook in Consideration of the COVID-19 Pandemic
The Company anticipates that COVID-19 will continue to have an impact on its results of operations for Tridien for the threeremainder of 2020, including a decrease in operating income and Adjusted EBITDA as compared to the prior year at certain of our niche industrial businesses. For example, the Company expects the Sterno Products division of Sterno to be negatively impacted by the pandemic due to that division's reliance on the food service industry. However, the diversification of our portfolio of businesses has allowed us to offset the decline in operating results from the COVID-19 pandemic experienced by some of our operating segments. Driven by the strong performance at our outdoor consumer brand products, 5.11, Liberty Safe and Velocity Outdoor, and our acquisition of Marucci Sports in April 2020, our consolidated operating income, net income, operating cash flows and Adjusted EBITDA increased in the nine months ended September 30, 2016 are presented2020 as discontinued operationscompared to the nine months ended September 30, 2019.
During 2019, the Company received an aggregate total of $771.6 million in our consolidated financial statementsnet cash proceeds as a result of the divestitures of Manitoba Harvest and Clean Earth, as well as $111.0 million from the issuance and sale of TridienSeries C Preferred Shares. In May 2020, the Company completed a share offering of five million Trust common shares resulting in September 2016. Refernet proceeds of $83.9 million and issued an additional $200 million in our 8% Senior Notes. The Company believes that it currently has adequate liquidity and capital resources to Note D - "Discontinued Operations"meet its existing obligations, and quarterly distributions to its shareholders, as, and if, approved by the Board of Directors, over the next twelve months. However, if the Company’s operations are impacted more than expected during the fourth quarter of 2020 as a result of continued declining COVID-19-related economic conditions and the potential for an extended economic recession, the Company’s results of operations could be impacted more dramatically than currently anticipated and as a result, the Company’s liquidity and capital resources could be even more constrained than expected.

See Part II, Item 1A. "Risk Factors" for additional information.
Recent Events
Sale of Trust Common Shares
In May 2020, the Company completed an offering of 5,000,000 Trust common shares at a public offering price of $17.60 per share. The net proceeds to the Company, after deducting the underwriter's discount and offering costs, totaled approximately $83.9 million.
Issuance of Senior Notes
On May 7, 2020, the Company consummated the issuance and sale of $200 million aggregate principal amount of its 8.000% Senior Notes due 2026 (the "Additional Notes"). The proceeds from the Additional Notes were used to pay down the amount outstanding on the Company's 2018 Revolving Credit Facility.
Acquisition of Marucci Sports, LLC
On March 6, 2020, the Company, through a wholly-owned subsidiary, Wheelhouse Holdings Inc., a Delaware Corporation (“Buyer”), entered into an Agreement and Plan of Merger with Marucci Sports, LLC, a Delaware limited liability company (“Marucci”), Wheelhouse Holdings Merger Sub LLC, a Delaware limited liability company and a wholly owned Subsidiary of Buyer, and, Wheelhouse 2020 LLC, a Delaware limited liability company (in its capacity as the representative of the condensed consolidated financial statementsunit holders and option holders of Marucci), pursuant to which Wheelhouse Holdings Merger Sub LLC was to be merged with and into Marucci (the “Transaction”) such that the separate existence of Wheelhouse Holdings Merger Sub LLC would cease, and Marucci would survive the Transaction as a subsidiary of Buyer. Headquartered in Baton Rouge, Louisiana, Marucci is a leading manufacturer and distributor of baseball and softball equipment. Founded in 2009, Marucci has a product portfolio that includes wood and metal bats, apparel and accessories, batting and fielding gloves and bags and protective gear.
The Buyer, via the Transaction, completed the acquisition of Marucci on April 20, 2020 for further discussiona total purchase price of approximately $200 million in cash, subject to certain adjustments based on matters such as the working capital and indebtedness balances at the time of the operating resultsclosing. The Company funded the purchase price using funds drawn on its 2018 Revolving Credit Facility in March 2020. The Company's initial equity ownership in Marucci is approximately 92%, as certain existing stakeholders in Marucci invested in the transaction alongside the Company.
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Acquisition of our discontinued businesses.Reel Holding Corp.

On September 20, 2020, the Company, through its newly formed acquisition subsidiaries, BOA Holdings Inc., a Delaware corporation (“BOA Holdings”) and BOA Parent Inc., a Delaware corporation (“Buyer”) and a wholly-owned subsidiary of BOA Holdings, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Reel Holding Corp., a Delaware corporation (“BOA”) and the sole stockholder of Boa Technology, Inc., BOA Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Buyer (“Merger Sub”), and Shareholder Representative Services LLC (in its capacity as the representative of the stockholders of BOA). Pursuant to the Merger Agreement, on October 16, 2020, Merger Sub was merged with and into BOA (the “Merger”) such that the separate existence of Merger Sub ceased, and BOA survived the Merger as a wholly-owned subsidiary of Buyer. BOA, creators of the award-winning BOA® Fit System featured in performance footwear, action sports, outdoor and medical products worldwide, was founded in 2001 and is headquartered in Denver, Colorado. The total purchase price for the acquisition of BOA was $454 million (excluding working capital and certain other adjustments upon closing, and transaction costs). The Company funded the acquisition with cash on hand and a $300 million draw on its 2018 Revolving Credit Facility. The Company's initial equity ownership in BOA is approximately 82%, as certain existing stockholders in BOA invested in the transaction alongside the Company.

Non-GAAP Financial Measures
"U.S. GAAP refersGAAP" or "GAAP" refer to generally accepted accounting principles in the United States. 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. Our Manitoba Harvest acquisition uses the Canadian Dollar as its functional currency. We will periodically refer to net sales and net sales growth rates in the Manitoba Harvest management's discussion and analysis on a "constant currency" basis so that the business results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of Manitoba Harvest's business performance. "Constant currency" net sales results are calculated by translating current period net sales in local currency using the prior year’s currency conversion rate. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates. "Constant currency" measured net sales is not a measure of net sales presented in accordance with U.S. GAAP.
Results of Operations
The following discussion reflects a comparison of the historical results of operations of our consolidated business for the three and nine months ended September 30, 2020 and September 30, 2019, and components of the results of operations as well as those components presented as a percent of net revenues, for each of our businesses on a stand-alone basis. For the acquisition of Marucci in April 2020, the pro forma results of operations for the Marucci business segment have been prepared as if we purchased that business on January 1, 2019. Where appropriate, relevant pro forma adjustments are reflected as part of the historical operating results of Marucci. We believe this is the most meaningful comparison for the operating results of acquired business segments. The consolidated results of operations reflect the operating results of Marucci from the date of acquisition.
In the first quarter of 2020, we began to see the impacts of COVID-19 on certain of our businesses, markets and operations, particularly those that were most affected by governmental “stay-at home” orders which led to reduced consumer traffic and either a closure of stores by some retailers or a focus on items that were deemed essential. The steps taken by governments to limit the spread of the virus had a negative impact on our operations in the second quarter; April and May saw a slowdown in revenue at several of our businesses, however, we experienced a rebound in June as localities began lifting restrictions. During the third quarter, some of our niche industrial businesses continued to be adversely impacted by the effect of the COVID-19 pandemic on the economy, while certain of our consumer businesses continued to experience solid demand.
The COVID-19 pandemic has had, and may continue to have, negative impacts on certain of our niche industrial businesses, results of operations, financial condition and cash flows in the near and medium term. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration, severity and ultimate impact on our business are currently unknown. The ultimate impact of COVID-19 on our business is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are highly uncertain and cannot be accurately predicted at this time. The following results of operations we provide (i)at each of our actual consolidatedbusinesses are not necessarily indicative of the results to be expected for a full year.
All dollar amounts in the financial tables are presented in thousands. References in the financial tables to percentage changes that are not meaningful are denoted by "NM."
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Results of Operations - Consolidated
The following table sets forth our unaudited results of operations for the three and nine months ended September 30, 20172020 and 2016, 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, 2017 and 2016, where all periods presented include relevant proforma adjustments for pre-acquisition periods and explanations where applicable.2019:
Consolidated Results of Operations – Compass Diversified Holdings and Compass Group Diversified Holdings LLC
Three months endedNine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Net revenues$418,903 $388,313 $1,085,979 $1,063,254 
Cost of revenues265,119 251,778 695,304 684,601 
Gross profit153,784 136,535 390,675 378,653 
Selling, general and administrative expense93,036 82,027 260,850 243,736 
Fees to manager9,659 8,874 23,436 28,352 
Amortization of intangibles15,222 13,520 43,506 40,632 
Impairment expense— 33,381 — 33,381 
Operating income (loss)35,867 (1,267)62,883 32,552 
Interest expense(12,351)(11,525)(32,122)(48,424)
Amortization of debt issuance costs(660)(770)(1,795)(2,625)
Loss on sale of securities— (4,893)— (10,193)
Other income (expense)(447)(5,727)(2,172)(6,251)
Income (loss) from continuing operations before income taxes22,409 (24,182)26,794 (34,941)
Provision for income taxes1,606 4,400 8,477 10,375 
Income (loss) from continuing operations$20,803 $(28,582)$18,317 $(45,316)

 Three months ended Nine months ended
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
(in thousands) 

    
Net sales$323,957
 $252,285
 $921,330
 $659,748
Cost of sales206,232
 169,870
 599,552
 436,544
Gross profit117,725
 82,415
 321,778
 223,204
Selling, general and administrative expense80,804
 53,648
 239,102
 140,702
Fees to manager8,277
 8,435
 24,308
 21,394
Amortization of intangibles14,167
 8,423
 39,256
 23,966
Impairment expense—
 —
 8,864
 —
Loss on disposal of assets—
 551
 —
 7,214
Operating income$14,477
 $11,358
 $10,248
 $29,928

Three months ended September 30, 20172020 compared to three months ended September 30, 20162019
Net salesrevenues
On a consolidated basis, net salesrevenues for the three months ended September 30, 20172020 increased by approximately $71.7$30.6 million, or 28.4%7.9%, compared to the corresponding period in 2016.  Our acquisition of 5.11 Tactical on August 31, 2016 contributed $44.8 million to the increase in net sales, while our acquisition of Crosman on June 2, 2017 contributed $34.4 million.2019. During the three months ended September 30, 20172020 compared to 2016,2019, we also saw a notablesignificant increases in net sales increase at Clean EarthLiberty ($4.26.5 million primarily due to two acquisitions in 2016increase), Velocity Outdoor ($24.0 million increase), and one acquisition in 2017)Foam Fabricators ($5.2 million increase), partially offset bywhile several of our other businesses saw a decrease in net sales at our Libertyresulting from the effects of the COVID-19 pandemic, notably Arnold ($5.48.3 million decrease), Ergobaby ($1.8 million decrease), Manitoba Harvest ($2.0 million decrease) and Sterno ($2.913.7 million decrease) subsidiaries.. Our Marucci business, which we acquired in April 2020, contributed $19.6 million in net revenue during the third quarter, while the increase in Foam Fabricator's net revenue for the quarter was primarily attributable to their acquisition of Polyfoam in July 2020. Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of net salesrevenues 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 salesrevenues
On a consolidated basis, cost of salesrevenues increased approximately $36.4$13.3 million during the three month period ended September 30, 2017, compared to the corresponding period in 2016. 5.11 Tactical accounted for $17.2 million of the increase, while our Crosman acquisition accounted for $29.0 million of the increase in cost of sales during the three months ended September 30, 2017. Clean Earth accounted for $2.9 million of2020 compared to the increase due to acquisitionscorresponding period in the prior and current year. These increases were offset by decreases in cost of sales at other operating segments, particularly Ergobaby ($4.8 million), Liberty ($4.7 million) and Arnold ($1.4 million).2019. Gross profit as a percentage of salesnet revenues was approximately 36.3%36.7% in the three months ended September 30, 20172020 compared to 32.7%35.2% in the three months ended September 30, 2016.2019. We recognized $1.3 million in expense related to the amortization of the inventory step-up resulting from our purchase price allocation of Marucci Sports during the quarter. Excluding the effect of the Marucci adjustment, gross profit as a percentage of net revenues was 37.0%. The increase in gross profit as a percentage of net sales in the quarter ended September 30, 2020 as compared to the quarter ended September 30, 2019 primarily related to the increase in net revenue at our branded consumer businesses, which have higher gross
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margins than our niche industrial businesses. Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of cost of salesgross profit by business segment.
Selling, general and administrative expense
On a consolidated basis,Consolidated selling, general and administrative expense increased approximately $27.2$11.0 million during the three month periodmonths ended September 30, 2017,2020, compared to the corresponding period in 2016. The2019. $7.6 million of the increase in selling, general and administrative expenseis attributable to our Marucci business, which was acquired in the 2017 quarter compared to 2016 is principally the result of the 5.11 Tactical acquisition in August 2016 ($23.6 million) and Crosman in June 2017 ($5.1 million, including $0.3 million in transaction costs incurred for acquisition costs during the quarter).current year. Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of selling, general and administrative expense by business segment. At the corporate level, general and administrative expense was $2.8$3.0 million in the third quarter of 20172020 and $2.7$3.3 million in the third quarter of 2016.

2019.
Fees to manager
Pursuant to the Management Services Agreement ("MSA"), 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, 2017,2020, we incurred approximately $8.3$9.7 million in management fees as compared to $8.4$8.9 million in fees in the three months ended September 30, 2016.2019. The increase in Management fees is attributable to our acquisition of Marucci in April 2020, partially offset by CGM waiving the portion of the management fee attributable to the cash balances held at the Company as of September 30, 2020.
Amortization expense
Amortization expense for the three months ended September 30, 20172020 increased $5.7$1.7 million as compared to the three months ended September 30, 2016 primarily2019 as a result of the acquisitions of 5.11amortization expense associated with the intangibles that were recognized in August 2016 and Crosman in June 2017.conjunction with the preliminary purchase price allocation for Marucci.
Loss on disposal of assetsImpairment expense
Ergobaby recorded a $0.6 million loss on disposal of assets duringIn the third quarter of 20162019, we performed interim impairment testing at our Velocity business as a result of operating results below forecasts as well as a re-forecast of the Velocity business in which planned earnings and revenue fell below the forecasts of prior periods. We recognized $33.4 million in impairment expense in the quarter ended September 30, 2019 related to its decisionthe Velocity interim impairment testing.
Interest expense
We recorded interest expense totaling $12.4 million for the three months ended September 30, 2020 compared to dispose$11.5 million for the comparable period in 2019, an increase of $0.8 million. The increase in interest expense for the quarter reflects the repayment of our 2018 Term Loan during 2019 using a portion of the Orbit Baby product line. Referproceeds from the sale of Clean Earth and proceeds from the issuance of preferred shares, offset by an increase in interest expense during the current quarter related to our issuance of an additional $200 million in our 8.000% Senior Notes in May 2020.
Other income (expense)
For the quarter ended September 30, 2020, we recorded $0.4 million in other expense as compared to $5.7 million in other expense in the quarter ended September 30, 2019, a decrease in expense of $5.3 million. In the prior year, we recognized $5.0 million of expense related to the Ergobaby section under "Resultswrite-off of Operations - Our Businesses"debt issuance costs due to the repayment of our 2018 Term Loan. Other income (expense) in the current quarter primarily reflects the movement in foreign currency at our businesses with international operations, and gains or (losses) realized on the sale of property, plant and equipment.
Income taxes
We had an income tax provision of $1.6 million from continuing operations during the three months ended September 30, 2020 compared to an income tax provision of $4.4 million from continuing operations during the same period in 2019. While our income from continuing operations before taxes for additional details regarding the loss on disposal.quarter ended September 30, 2020 increased by approximately $46.6 million as compared to the prior year quarter ended September 30, 2019, our tax provision decreased $2.8 million as the tax provision reflects an annual effective tax rate at our subsidiaries, the effect of state and local taxes and the related allocation of income, and the losses at our parent company, which is taxed as a partnership.

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Nine months ended September 30, 20172020 compared to nine months ended September 30, 2016

2019
Net salesrevenues
On a consolidated basis, net salesrevenues for the nine months ended September 30, 20172020 increased by approximately $261.6$22.7 million, or 39.6%2.1%, compared to the corresponding period in 2016.  Our acquisition of 5.11 in August 2016 contributed $201.3 million to the increase in net sales and our acquisition of Crosman in June 2016 contributed $44.2 million to the increase.2019.  During the nine months ended September 30, 20172020 compared to 2016,2019, we also saw notableincreases in net sales increases at 5.11 ($2.8 million increase), Liberty ($13.0 million increase), and Velocity ($40.8 million increase), while our other businesses saw a decrease in net sales resulting primarily from the effects of the COVID-19 pandemic, notably Ergobaby ($2.79.6 million primarily due to the acquisition of Baby Tula)decrease), Clean Earth(Arnold ($19.314.0 million primarily due to two acquisitions in 2016 and one in 2017)decrease), Foam Fabricators ($4.3 million decrease) and Sterno ($6.431.0 million primarily due todecrease). Our Marucci business, which we acquired in April 2020, had net revenues of $24.8 million since the acquisitiondate of Sterno Home Inc. ("Sterno Home", formerly Northern International, Inc.) in January 2016), offset by decreases in sales at Liberty ($8.7 million) and Arnold Magnetics ($3.4 million).acquisition. Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of net salesrevenues 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 salesrevenues
On a consolidated basis, cost of salesrevenues increased approximately $163.0$10.7 million during the nine month periodmonths ended September 30, 2017,2020 compared to the corresponding period in 2016. 5.11 accounted for $121.42019. Gross profit as a percentage of net revenues was approximately 36.0% in the nine months ended September 30, 2020 compared to 35.6% in the nine months ended September 30, 2019. We recognized $4.4 million of the increase in cost of sales, including $21.7 in expense related to the amortization of the inventory step-up resulting from our purchase accountingprice allocation of Marucci Sports and Foam Fabricators' acquisition of Polyfoam during the nine months ended September 30, 2017, while our Crosman acquisition accounted for $36.3 million2020. Excluding the effect of the increase. Clean Earth accounted for $14.7 millionamortization of the increase due to acquisitions in the prior and current year, and Sterno accounted for $6.3 million of the increase. These increases were offset by decreases in cost of sales at other operating segments, particularly Liberty ($6.0 million) and Arnold ($5.0 million). Grossinventory step-up, gross profit as a percentage of salesnet revenues was approximately 34.9% in the nine months ended September 30, 2017 compared to 33.8% in the nine months ended September 30, 2016.36.4%. Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of cost of salesgross profit by business segment.

Selling, general and administrative expense
On a consolidated basis,Consolidated selling, general and administrative expense increased approximately $98.4$17.1 million during the nine month periodmonths ended September 30, 2017,2020, compared to the corresponding period in 2016.2019. The increase in selling, general and administrative expense in 2017 comparedprimarily relates to 2016 is principallyour acquisition of Marucci Sports during the result of the 5.11 acquisition in August 2016 ($85.3 million), and Crosman in June 2017 ($7.7 million, including $1.8second quarter. We incurred $2.0 million in acquisition related expenses). We also saw an increaseexpenses and Marucci incurred approximately $11.7 million in selling, general and administrative expense forduring the nine months endedperiod from acquisition through September 30, 2017 at Clean Earth ($2.92020, which includes $0.5 million duein integration service fees paid to acquisitions in the current and prior year), and an increase in selling, general and administrative expense at Ergobaby and Liberty due to the effect of bankruptcy filings by two major retailers during 2017.CGM. Refer to "Results of Operations - Our Businesses"Business Segments" for a more detailed analysis of selling, general and administrative expense by business segment. At the corporate level, general and administrative expense increased from $8.6was $10.0 million in the first nine months ended September 30, 2016 to $9.0of 2020 and $9.7 million in the first nine months ended September 30, 2017.

of 2019.
Fees to manager
Pursuant to the MSA,Management Services Agreement ("MSA"), 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, 2017,2020, we incurred approximately $24.3$23.4 million in expense for thesemanagement fees as compared to $21.4$28.4 million in fees in the nine months ended September 30, 2019. Concurrent with the September 2019 sale of Clean Earth, CGM agreed to waive the management fee on cash balances held at the Company, commencing with the quarter ended September 30, 2019 and continuing until the quarter during which the Company next borrowed under the 2018 Revolving Credit Facility. In March 2020, as a proactive measure to provide the Company with additional cash liquidity in light of the COVID-19 pandemic, the Company elected to draw down $200 million on our 2018 Revolving Credit Facility. The Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of March 31, 2020. Additionally, as a result of an expected decline in earnings and cash flows in the second quarter of 2020, CGM agreed to waive 50% of the management fee calculated at June 30, 2020 that was paid in July 2020. Further, for the corresponding period in 2016.third quarter of 2020, the Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of September 30, 2020. The increaseresult of these waivers was a decrease in the management fees that occurred is primarily duefee during the
44

nine months ended September 30, 2020 as compared to the increasesame period in consolidated net assets resulting from the acquisitionprior year, despite the addition of 5.11the Marucci business in August 2016, and the acquisition of Crosman in June 2017.April 2020.
Amortization expense
Amortization expense for the nine months ended September 30, 20172020 increased $15.3$2.9 million as compared to the nine months ended September 30, 20162019 as a result of the acquisition of 5.11amortization expense associated with the intangibles that were recognized in August 2016 and Crosman in June 2017.conjunction with the preliminary purchase price allocation for Marucci.
Impairment expense
ArnoldIn the third quarter of 2019, we performed an interim impairment testtesting at eachour Velocity business as a result of its reporting unitsoperating results below forecasts as well as a re-forecast of the Velocity business in which planned earnings and revenue fell below the forecasts of prior periods. We recognized $33.4 million in impairment expense in the fourth quarter ended September 30, 2019 related to the Velocity interim impairment testing.
Interest expense
We recorded interest expense totaling $32.1 million for the nine months ended September 30, 2020 compared to $48.4 million for the comparable period in 2019, a decrease of 2016, which resulted$16.3 million. The decrease in interest expense for the nine months ended September 30, 2020 reflects the repayment of our 2018 Term Loan during 2019 using a portion of the proceeds from the sale of Clean Earth and proceeds from the issuance of preferred shares, offset by an increase in interest expense related to our issuance of an additional $200 million of our 8.000% Senior Notes in May 2020.
Other income (expense)
For the nine months ended September 30, 2020, we recorded $2.2 million in other expense as compared to $6.3 million in other expense in the recordingnine months ended September 30, 2019, an increase in income of preliminary impairment expense of the PMAG reporting unit of $16.0$4.1 million. In the first quarterprior year, we recognized $5.0 million of 2017, Arnold completedexpense related to the impairment testingwrite-off of debt issuance costs due to the repayment of our 2018 Term Loan. Other income (expense) in the current year primarily reflects the movement in foreign currency at our businesses with international operations.
Income taxes
We had an income tax provision of $8.5 million from continuing operations during the nine months ended September 30, 2020 compared to an income tax provision of $10.4 million from continuing operations during the same period in 2019. While our income from continuing operations before taxes for the nine months ended September 30, 2020 increased by approximately $61.7 million as compared to the nine months ended September 30, 2019, our tax provision decreased $1.9 million as the tax provision reflects an annual effective tax rate at our subsidiaries, the effect of state and local taxes and the related allocation of income, and the losses at our parent company, which is taxed as a partnership. Our effective tax rate for the nine months ended September 30, 2020 was 31.6% as compared to and effective tax rate of 29.7% for the nine months ended September 30, 2019.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act includes many measures to assist companies, including temporary changes to income and non-income-based tax laws, some of which were enacted under the Tax Cuts and Jobs Act (TCJA) in 2017. Some of the PMAG reporting unitkey income tax related provisions of the CARES Act were allowing net operating losses ("NOLs") arising in 2018, 2019 or 2020 to be carried back five years, suspending the 80% taxable income limit until 2021, and recorded an additional $8.9 million impairment expense basedincreasing the taxable income threshold for the limit on the resultsinterest deduction from 30% to 50% for tax years beginning in 2019 and 2020 and allowing taxpayers to use 2019 taxable income to calculate the 2020 limit. While several of our subsidiaries were able to take advantage of the Step 2 impairment testing.

Loss on disposal of assets
Ergobaby recorded a $7.2 million loss on disposal of assets during 2016income tax related to its decision to disposeprovisions of the Orbitbaby product line. ReferCARES ACT in the current year 2020, the CARES Act did not have a material impact on our consolidated financial statements. We continue to monitor any effects that may result from the Ergobaby section under "Results of Operations - Our Businesses" for additional details regarding the loss on disposal.CARES Act.

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Results of Operations - Our BusinessesBusiness Segments

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, 2017 and September 30, 2016 on a stand-alone basis. For the 2017 acquisition of Crosman, the following discussion reflects pro forma results of operations for the three and nine months ended September 30, 2017 and 2016 as if we had acquired Crosman January 1, 2016. For the 2016 acquisition of 5.11, the following discussion reflects pro forma results of operations for the three and nine months ended September 30, 2016 as if we had acquired 5.11 on January 1, 2016. Where appropriate, relevant pro forma adjustments 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 of our businesses are not necessarily indicative of the results to be expected for a full year.
Branded Consumer Businesses

5.11 Tactical
Overview
Three months endedNine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Net sales$98,406 100.0 %$98,053 100.0 %$281,822 100.0 %$278,978 100.0 %
Gross profit$51,264 52.1 %$48,204 49.2 %$142,842 50.7 %$136,624 49.0 %
SG&A$40,147 40.8 %$39,791 40.6 %$117,564 41.7 %$115,927 41.6 %
Operating income$8,681 8.8 %$5,977 6.1 %$17,969 6.4 %$13,388 4.8 %
5.11 is a leading provider of purpose-built tactical apparel and gear for law enforcement, firefighters, EMS, and military special operations as well as outdoor and adventure enthusiasts. 5.11 is a brand known for innovation and authenticity, and works directly with end users to create purpose-built apparel and gear designed to enhance the safety, accuracy, speed and performance of tactical professionals and enthusiasts worldwide.  Headquartered in Irvine, California, 5.11 operates sales offices and distribution centers globally, and 5.11 products are widely distributed in uniform stores, military exchanges, outdoor retail stores, its own retail stores and on 511tactical.com.
We made loans to, and purchased a controlling interest in, 5.11 for a net purchase price of $408.2 million in August 2016, representing approximately 97.5% of the initial outstanding equity of 5.11 ABR Corp.
Results of Operations
In the following results of operations, we provide (i) the actual consolidated results of operations for 5.11 for the three and nine months ended September 30, 2017, and (ii) comparative results of operations for 5.11 for the three and nine months ended September 30, 2016, as if we had acquired the business on January 1, 2016, including relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable.
 Three months ended Nine months ended
(in thousands)September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
   (Pro forma)   (Pro forma)
Net sales$72,005
 $74,655
 $228,471
 $212,667
Cost of sales (1)
37,452
 46,797
 141,590
 123,857
Gross profit34,553
 27,858
 86,881
 88,810
Selling, general and administrative expense (2)
32,370
 25,954
 94,000
 78,998
Fees to manager (3)
250
 250
 750
 750
Amortization of intangibles (4)
2,186
 2,047
 6,673
 6,140
Income (loss) from operations$(253) $(393) $(14,542) $2,922
Pro forma results of operations of 5.11 Tactical for the three and nine months ended September 30, 2016 include the following pro forma adjustments, applied to historical results as if we had acquired 5.11 on January 1, 2016:
(1)Cost of sales was decreased by $0.02 million and $0.08 million, respectively, for the three and nine months ended September 30, 2016 to reflect the increase in the depreciable lives for machinery and equipment.
(2) Selling, general and administrative expense was decreased by approximately $0.5 million and $2.3 million, respectively, for the three and nine months ended September 30, 2016 to reflect the increase in the depreciable lives for property, plant and equipment. Selling, general and administrative expense was increased by approximately $0.4 and $0.9 million in the three and nine months ended September 30, 2016, respectively, as a result of stock compensation expense related to stock options that were granted to 5.11 employees as a result of the acquisition.
(3) Represents management fees that would have been payable to the Manager in the nine months ending September 30, 2016.
(4) Represents amortization of intangible assets in the three and nine month period ended September 30, 2016 for amortization expense associated with the allocation of the fair value of intangible assets resulting from the purchase price allocation in connection with our acquisition.
Three months ended September 30, 20172020 compared to the pro forma three months ended September 30, 20162019
Net sales
Net sales for the three months ended September 30, 20172020 were $72.0$98.4 million as compared to net sales of $74.7$98.1 million for the three months ended September 30, 2016, a decrease2019, an increase of $2.7$0.4 million, or 3.5%0.4%. This decreaseincrease is due primarily to a $3.8 million decreasegrowth in international direct-to-agency business. Direct-to-agency sales represent large non-recurring contracts consisting primarily of special-make-up ("SMU") uniform product designed for large law enforcement divisions. Retail and e-commerce sales grew $4.3 million or 56%,and new stores sales offset by the effects of the COVID-19 pandemic on store traffic in our wholesale channels and our own retail stores.
Gross profit
Gross profit as a percentage of net sales was 52.1% in the three months ended September 30, 2020 as compared to 49.2% for the three months ended September 30, 2019. Growth in gross profit was driven by growing demand inchannel mix as direct to consumer channels. Retailsales, which realize higher gross profit than wholesale sales, grew largely due to sixteen new retail store openings since September 2016 (bringingversus the total store count to 24 as ofprior period.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2017). 5.11 implemented a new Enterprise Resource Planning (ERP) system2020 was $40.1 million, or 40.8% of net sales compared to $39.8 million, or 40.6% of net sales for the comparable period in 2019. The increase in selling, general and as part ofadministrative expense for the go-live process 5.11 shut down its warehouse as planned onthree months ended September 28, 2017 to begin the cut-over activities. As a result, 5.11 had less

shipping days during the third quarter of 201730, 2020 as compared to the prior year comparable period was driven by the costs associated with additional retail stores (seventy-one open in 2020 versus fifty-four open in 2019 during the comparable period), as well as additional sales and marketing spend to drive digital sales. This increase in expense was offset by management’s decision to reduce variable expenses, including payroll, travel and entertainment, and sales and marketing, a response to potential decreased sales from the effects of the COVID-19 pandemic.
Income from operations
Income from operations for the three months ended September 30, 2020 was $8.7 million, an increase of $2.7 million when compared to income from operations of $6.0 million for the same period in 2019, based on the factors described above.
Nine months ended September 30, 2020 compared to nine months ended September 30, 2019
Net sales
Net sales for the nine months ended September 30, 2020 were $281.8 million as compared to net sales of $279.0 million for the nine months ended September 30, 2019, an increase of $2.8 million, or 1.0%. This increase is due primarily to e-commerce sales growth of $18.3 million, offset by the effect of COVID-19 pandemic on store traffic in both our wholesale channel and our own retail stores.
Gross profit
Gross profit as a percentage of net sales was 50.7% in the nine months ended September 30, 2020 as compared to 49.0% for the nine months ended September 30, 2019. Growth in gross margin was driven by channel mix as direct to consumer sales, which resultedrealize a higher gross margin than wholesale sales, grew versus the prior period. The growth in gross profit for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 was partially offset by additional inventory reserves and duty drawback accrual (increase in cost of goods sold) for audited duty drawback claims.
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Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2020 was $117.6 million, or 41.7% of net sales compared to $115.9 million, or 41.6% of net sales for the comparable period in 2019. The increase in selling, general and administrative expense for the nine months ended September 30, 2020 as compared to the prior year comparable period was driven by the costs associated with additional retail stores (seventy-one open in 2020 versus fifty-four open in 2019 during the comparable period), as well as additional sales and marketing spend to drive digital sales.
Income from operations
Income from operations for the nine months ended September 30, 2020 was $18.0 million, an increase of $4.6 million when compared to income from operations of $13.4 million for the same period in 2019, based on the factors described above.

Ergobaby
Three months endedNine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Net sales$19,478 100.0 %$23,318 100.0 %$59,171 100.0 %$68,741 100.0 %
Gross profit$12,766 65.5 %$14,808 63.5 %$38,708 65.4 %$43,599 63.4 %
SG&A$8,447 43.4 %$9,634 41.3 %$26,897 45.5 %$28,593 41.6 %
Operating income$2,363 12.1 %$3,220 13.8 %$5,943 10.0 %$9,151 13.3 %
Three months ended September 30, 2020 compared to three months ended September 30, 2019
Net sales
Net sales for the three months ended September 30, 2020 were $19.5 million, a decrease of $3.8 million, or 16.5%, compared to the same period in 2019. During the three months ended September 30, 2020, international sales were approximately $4$13.1 million, to $5representing a decrease of $3.7 million over the corresponding period in 2019, primarily as a result of reduced sales volume at Ergobaby's Asia-Pacific as a result of the COVID-19 pandemic. Domestic sales were $6.4 million in sales shiftingthe third quarter of 2020, reflecting a decrease of $0.1 million compared to the fourthcorresponding period in 2019. The decrease in domestic sales was due to reduced sales through our retail and specialty account customers' stores as a result of COVID-19.
Gross profit
Gross profit as a percentage of net sales was 65.5% for the quarter ended September 30, 2020, as compared to 63.5% for the three months ended September 30, 2019. The increase in gross profit as a percentage of sales was due to the mix of products sold, reduced freight costs and the mix of sales channels.
Selling, general and administrative expense
Selling, general and administrative expense decreased $1.2 million quarter over quarter, with expense of $8.4 million, or 43.4% of net sales for the three months ended September 30, 2020 as compared to $9.6 million or 41.3% of net sales for the same period of 2019. The decrease in selling, general and administrative expense in the three months ended September 30, 2020 as compared to the comparable period in the prior year is due to reduced travel costs, favorable foreign exchange rates in the current quarter and non-recurring expenses in the third quarter of 2017.2019.
Income from operations
Income from operations for the three months ended September 30, 2020 decreased $0.9 million, compared to the same period of 2019, based on the factors noted above.
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Nine months ended September 30, 2020 compared to nine months ended September 30, 2019
Net sales
Net sales for the nine months ended September 30, 2020 were $59.2 million, a decrease of $9.6 million, or 13.9%, compared to the same period in 2019. During the nine months ended September 30, 2020, international sales were approximately $39.4 million, representing a decrease of $8.6 million over the corresponding period in 2019, primarily as a result of reduced sales volume at Ergobaby's Asia-Pacific and EMEA distributors as a result of the COVID-19 pandemic. Domestic sales were $19.7 million in the first nine months of 2020, reflecting a decrease of $1.0 million compared to the corresponding period in 2019. The warehouse reopeneddecrease in domestic sales was driven by the Tula brand, primarily in the specialty account channel.
Gross profit
Gross profit as a percentage of net sales was 65.4% for the nine months ended September 30, 2020, as compared to 63.4% for the nine months ended September 30, 2019. The increase in gross profit as a percentage of sales was due to the mix of products sold, reduced freight costs and the mix of sales channels during the nine months ended September 30, 2020.
Selling, general and administrative expense
Selling, general and administrative expense decreased $1.7 million in the first nine months of 2020 as compared to the first nine months of 2019, with expense of $26.9 million, or 45.5% of net sales for the nine months ended September 30, 2020 as compared to $28.6 million or 41.6% of net sales for the same period of 2019. The decrease in selling, general and administrative expense in the nine months ended September 30, 2020 as compared to the comparable period in the prior year is a result of decreases in selling expenses, a reduction in variable expenses in response to the COVID-19 pandemic and non-recurring expenses in the nine months ended September 30, 2019.
Income from operations
Income from operations for the nine months ended September 30, 2020 decreased $3.2 million, compared to the same period of 2019, based on October 9, 2017,the factors noted above.

Liberty Safe
Three months endedNine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Net sales$31,186 100.0 %$24,729 100.0 %$80,599 100.0 %$67,566 100.0 %
Gross profit$8,111 26.0 %$5,701 23.1 %$21,058 26.1 %$14,771 21.9 %
SG&A$2,250 7.2 %$2,850 11.5 %$8,402 10.4 %$8,560 12.7 %
Operating income$5,736 18.4 %$2,726 11.0 %$12,281 15.2 %$5,812 8.6 %
Three months ended September 30, 2020 compared to three months ended September 30, 2019
Net sales
Net sales for the quarter ended September 30, 2020 increased approximately $6.5 million, or 26.1%, to $31.2 million, compared to the corresponding quarter ended September 30, 2019. Non-Dealer sales were approximately $15.4 million in the three months ended September 30, 2020 as compared to $15.2 million in the quarter ended September 30, 2019. The increase in Non-Dealer sales of $0.2 million or 1.3% is attributable to the continued strong performance at sporting goods retailers, which more than offset a decline in net sales in the Farm and 5.11 has resumed warehouseFleet account category during the quarter as a result of sell in of product to a new large Farm and shipping operations.Fleet customer in the third quarter of 2019. Dealer sales totaled approximately $15.8 million in the three months ended September 30, 2020 compared to $9.5 million in the same period in 2019, representing an increase of $6.3 million or 66.3%. The increase in Dealer sales reflects the higher demand for safes that we believe correlate to a large increase in firearm purchases over the prior year.
Cost
48

Gross profit
Gross profit as a percentage of net sales totaled approximately 26.0% and 23.1% for the quarters ended September 30, 2020 and September 30, 2019, respectively. The increase in gross profit as a percentage of net sales during the three months ended September 30, 2020 compared to the same period in 2019 is primarily attributable to favorable manufacturing variances as a result of increased production volume, and a decrease in material costs in the third quarter of 2020 as compared to the third quarter of 2019 when domestic steel prices were trending higher as a result of steel tariffs.
Selling, general and administrative expense
Selling, general and administrative expense was $2.3 million for the three months ended September 30, 2020 as compared to $2.9 million in selling, general and administrative expense in the three months ended September 30, 2019. The decrease in selling, general and administrative expense in the third quarter of 2020 is due to spending reductions in advertising and promotion in an effort to manage demand for safes. Selling, general and administrative expense represented 7.2% of net sales in the three months ended September 30, 2020 and 11.5% of net sales for the same period of 2019.
Income from operations
Income from operations increased during the three months ended September 30, 2020 to $5.7 million, as compared to $2.7 million in the corresponding period in 2019. This increase was a result of the factors noted above.
Nine months ended September 30, 2020 compared to nine months ended September 30, 2019
Net sales
CostNet sales for the nine months ended September 30, 2020 increased approximately $13.0 million, or 19.3%, to $80.6 million, compared to the nine months ended September 30, 2019. Non-Dealer sales were approximately $36.6 million in the nine months ended September 30, 2020 as compared to $31.0 million in the nine months ended September 30, 2019. The increase in Non-Dealer sales of $5.6 million or 18.1% is attributable to a new customer in the Farm and Fleet channel as well as increased sales at sporting goods retailers during 2020, despite the shutdown of retail stores resulting from stay at home orders issued by local governments. Dealer sales totaled approximately $44.0 million in the nine months ended September 30, 2020 compared to $36.6 million in the same period in 2019, representing an increase of $7.4 million or 20.2%. The increase in Dealer sales reflects the higher demand for safes that we believe correlate to a large increase in firearm purchases over the prior year.
Gross profit
Gross profit as a percentage of net sales totaled approximately 26.1% and 21.9% for the nine months ended September 30, 2020 and September 30, 2019, respectively. The increase in gross profit as a percentage of net sales during the nine months ended September 30, 2020 compared to the same period in 2019 is primarily attributable to favorable manufacturing variances as a result of increased production volume, and a decrease in material costs in the first nine months of 2020 as compared to the first nine months of 2019 when domestic steel prices were trending higher as a result of steel tariffs.
Selling, general and administrative expense
Selling, general and administrative expense was $8.4 million for the nine months ended September 30, 2020 compared to $8.6 million for the nine months ended September 30, 2019. Selling, general and administrative expense represented 10.4% of net sales in the nine months ended September 30, 2020 and 12.7% of net sales for the nine months ended September 30, 2019.
Income from operations
Income from operations increased during the nine months ended September 30, 2020 to $12.3 million, as compared to $5.8 million in the corresponding period in 2019. This increase was a result of the factors noted above.

Marucci Sports
In the following results of operations, we provide comparative pro forma results of operations for Marucci for the three and nine months ended September 30, 2020 and 2019 as if we had acquired the business on January 1, 2019. The results of operations that follows include relevant pro-forma adjustments for pre-acquisition periods and
49

explanations where applicable. The operating results for Marucci have been included in the consolidated results of operation from the date of acquisition through September 30, 2020.
Three months endedNine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Pro formaPro formaPro forma
Net sales$19,551 100.0 %$14,946 100.0 %$47,308 100.0 %$49,987 105.7 %
Gross profit$10,688 54.7 %$8,417 56.3 %$22,843 48.3 %$26,823 53.7 %
SG&A$7,612 38.9 %$6,180 41.3 %$23,607 49.9 %$21,171 42.4 %
Amortization expense$1,686 8.6 %$1,654 11.1 %$4,996 10.6 %$4,962 9.9 %
Operating income (loss)$1,265 6.5 %$458 3.1 %$(6,135)(13.0)%$315 0.6 %
Pro forma results of operations include the following pro form adjustments as if we had acquired Marucci January 1, 2019:
•Depreciation expense associated with the increase in depreciable lives of capital assets of $0.2 million for the nine months ended September 30, 2020, and $0.2 million and $0.7 million, respectively, for the three and nine months ended September 30, 2019.
•Amortization expense associated with the intangible assets recorded in connection with the purchase price allocation for Marucci of $1.2 million for the nine months ended September 30, 2020, and $1.5 million and $4.6 million, respectively, for the three and nine months ended September 30, 2019.
•Management fees that would have been payable to the Manager during each period.
Three months ended September 30, 2020 compared to pro forma three months ended September 30, 2019
Net sales
Net sales for the three months ended September 30, 2020 were $19.6 million, an increase of $4.6 million as compared to net sales of $14.9 million for the three months ended September 30, 2019. The increase in net sales during the three months ended September 30, 2020 was primarily due to Marucci’s launch of its CAT9 line of aluminum and composite bats during the third quarter of 2020.Following the economic slowdown resulting from COVID-19 pandemic, baseball participation returned sooner than expected, which also contributed to the increase in sales period over period.
Gross profit
Gross profit for the quarter ended September 30, 2020 increased $2.3 million as compared to the three months ended September 30, 2019. The cost of sales for the three months ended September 30, 2017 were $37.52020 includes $1.3 million as compared to $46.8 million for the comparable period in 2016, a decrease of $9.3 million. Gross profit as a percentage of sales was 48.0% in the three months ended September 30, 2017 as compared to 37.3% in the three months ended September 30, 2016. Cost of sales for the three months ended September 30, 2016 includes $4.7 million in expense related to a $39.1 millionthe amortization of the inventory step-up resulting from the acquisition purchase price allocation. The totalExcluding the effect of the inventory step-up, amountthe gross profit as a percentage of $39.1net sales for the three months ended September 30, 2020 was 61.1%, as compared to gross profit as a percentage of sales of 56.3% for the three months ended September 30, 2019.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2020 was $7.6 million, or 38.9% of net sales compared to $6.2 million, or 41.3% of net sales for the three months ended September 30, 2019. Selling, general and administrative expense for the three months ended September 30, 2020 includes $0.5 million in in integration service fees paid to CGM. The remainder of the increase in selling, general and administrative expense for the three months ended September 30, 2020 correlates to the increase in net sales, with increases in credit card expenses, royalties, commissions, business development fees, and other variable expenses.
Income from operations
Income from operations for the three months ended September 30, 2020 was expensed$1.3 million, an increase of $0.8 million when compared to income from operations of $0.5 million for the same period in 2019, primarily as a result of the factors noted above.
50

Pro forma nine months ended September 30, 2020 compared to pro forma nine months ended September 30, 2019
Net sales
Net sales for the nine months ended September 30, 2020 were $47.3 million, a decrease of $2.7 million as compared to net sales of $50.0 million for the nine months ended September 30, 2019. During 2020, Marucci was affected by the economic slowdown resulting from the COVID-19 pandemic with baseball and softball seasons postponed in the spring and early summer throughout much of the United States. Marucci's “brick and mortar” retail partners were forced to close as a result of the pandemic thus Marucci did not receive fill-in orders during this period. As a result, sales of aluminum and wood bats were significantly less in the first and second quarter of 2020 when compared to the same period last year. Additionally, Major League Baseball postponed their season eliminating the need for wood bats to be purchased for the professional season. During June 2020, Marucci began to see demand pick up as the baseball and softball seasons began and in August 2020, the Company launched its CAT9 line of aluminum and composite bats.With the success of this launch, the demand pickup continued during the third quarter of 2020.
Gross profit
Gross profit for the nine months ended September 30, 2020 decreased $4.0 million as compared to the nine months ended September 30, 2019. Gross profit as a percentage of sales was 48.3% for the nine months ended September 30, 2020 as compared to 53.7% for the nine months ended September 30, 2019. The cost of goods sold oversales for the expected turnsnine months ended September 30, 2020 includes $4.3 million related to the amortization of 5.11's inventory. The increase ininventory step-up resulting from the acquisition purchase price allocation. Excluding the effect of the inventory step-up, the gross profit as a percentage of net sales for the nine months ended September 30, 2020 was 57.3%.
Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2020 was $23.6 million, or 49.9% of net sales compared to $21.2 million, or 42.4% of net sales for the nine months ended September 30, 2019. Selling, general and administrative expense for the nine months ended September 30, 2020 includes $2.0 million in acquisition related costs that were expensed at the close of the Marucci acquisition, and $0.5 million in integration service fees paid to CGM. Excluding the effect of the acquisition costs and integration service fees, selling, general and administrative expense for the nine months ended September 30, 2020 was $21.1 million, which is dueconsistent with the expense in the nine months ended September 30, 2019.
Loss (income) from operations
Loss from operations for the nine months ended September 30, 2020 was $6.1 million, a decrease of $6.5 million when compared to lower product costsincome from efficiencyoperations of $0.3 million for the same period in sourcing operations, improved gross margins on new product introductions, and2019, primarily as a larger proportionresult of revenues from the higher margin retail and e-commerce distribution channels asfactors noted above.

Velocity Outdoor
Three months endedNine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Net sales$70,629 100.0 %$46,647 100.0 %$148,240 100.0 %$107,395 100.0 %
Gross profit$23,680 33.5 %$13,633 29.2 %$44,433 30.0 %$30,451 28.4 %
SG&A$10,210 14.5 %$5,747 12.3 %$23,313 15.7 %$17,491 16.3 %
Impairment expense$— — %$33,381 71.6 %$— — %$33,381 31.1 %
Operating income (loss)$11,062 15.7 %$(27,902)(59.8)%$13,896 9.4 %$(27,635)(25.7)%
51

Three months ended September 30, 2020 compared to three months ended September 30, 2019
Net sales
Net sales for the three months ended September 30, 2020 were $70.6 million, an increase of $24.0 million or 51.4%, compared to the same period in 2016.2019. The increase in net sales for the three months ended September 30, 2020 is primarily due to significant increase in consumer demand for our Crosman products along with new crossbows being launched by our Ravin product line.
Gross profit
Gross profit for the quarter ended September 30, 2020 increased $10.0 million as compared to the quarter ended September 30, 2019. Gross profit as a percentage of net sales was 33.5% for the three months ended September 30, 2020 as compared to 29.2% in the three months ended September 30, 2019. The increase in gross profit as a percentage of net sales was primarily attributable to favorable sales product mix of airguns, archery equipment and consumables.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 20172020 was $32.4$10.2 million, or 45.0%,14.5% of net sales compared to $26.0$5.7 million, or 34.8% of net sales for the comparable period in 2016. This increase in selling, general and administrative expense was primarily due to sixteen new retail stores that were not open in the prior comparable period, strategic investments into sales and marketing, and integration service fees billed by CGM to 5.11.
Loss from operations
Loss from operations for the three months ended September 30, 2017 was $0.3 million, an increase of $0.1 million when compared to loss from operations of $0.4 million for the same period in 2016, based on the factors described above.
Nine months ended September 30, 2017 compared to the pro forma nine months ended September 30, 2016
Net sales
Net sales for the nine months ended September 30, 2017 were $228.5 million as compared to net sales of $212.7 million for the nine months ended September 30, 2016, an increase of $15.8 million, or 7.4%. This increase is due primarily to an $8.7 million increase in international direct-to-agency business, and increased retail and e-commerce sales. Direct-to-agency sales represent large non-recurring contracts consisting primarily of SMU uniform product designed for large law enforcement divisions. Retail and e-commerce sales grew $10.7 million, or 45%, driven by growing demand in direct to consumer channels. Retail sales grew largely due to sixteen new retail store openings since September 2016 (bringing the total store count to 24 as of September 30, 2017). The consumer wholesale channel experienced a $4.2 million decrease due primarily to the bankruptcy of a large outdoor retail customer. 5.11 implemented a new Enterprise Resource Planning (ERP) system and as part of the go-live process 5.11 shut down its warehouse as planned on September 28, 2017 to begin the cut-over activities. As a result, 5.11 had less shipping days during the third quarter of 2017 as compared to the prior year, which resulted in approximately $4 million to $5 million in sales shifting to the fourth quarter of 2017. The warehouse reopened on October 9, 2017, and 5.11 has resumed warehouse and shipping operations.
Cost of sales
Cost of sales for the nine months ended September 30, 2017 were $141.6 million as compared to $123.9 million for the comparable period in 2016, an increase of $17.7 million. Gross profit as a percentage of sales was 38.0% in the nine months ended September 30, 2017 as compared to 41.8% in the nine months ended September 30, 2016. Cost of sales for the nine months ended September 30, 2017 includes $21.7 million in expense related to a $39.1 million inventory step-up resulting from the acquisition purchase price allocation while the nine months ended September 30, 2016 included $4.7 million in expense related to the inventory step-up resulting from the acquisition purchase price allocation, an increase of $17 million year-over-year. The total inventory step-up amount of $39.1 million was expensed to cost of goods sold over the expected turns of 5.11's inventory. Excluding the effect of the expense associated with the inventory step-up in both periods, gross profit as a percentage of sales increased 350 basis points to 47.5% for the nine months ended September 30, 2017 compared to 44.0% for the nine months ended September 30, 2016. This increase in gross profit percentage is due to lower product costs from efficiency in sourcing operations, improved gross margins on new product introductions, and a larger proportion of revenues from the higher margin retail and e-commerce distribution channels as compared to the same period in 2016.
Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2017 was $94.0 million, or 41.1% of net sales compared to $79.0 million, or 37.1%, of net sales for the comparable period in 2016. This increase in selling, general and administrative expense was primarily due to an accounts receivable reserve for a large outdoor retail customer that filed for bankruptcy, sixteen new retail stores that were not open in the prior comparable period, strategic investments into sales and marketing, and integration service fees billed by CGM to 5.11.

(Loss) income from operations
Loss from operations for the nine months ended September 30, 2017 was $14.5 million, a decrease of $17.5 million when compared to income from operations of $2.9 million for the same period in 2016, based on the factors described above.
Crosman
Overview
Crosman, headquartered in Bloomfield, New York, is a leading designer, manufacturer, and marketer of airguns, archery products, laser aiming devices and related accessories. Crosman offers its products under the highly recognizable Crosman, Benjamin and CenterPoint brands that are available through national retail chains, mass merchants, dealer and distributor networks. Airguns historically represent Crosman's largest product category, with more than 50% of gross sales. The airgun product category consists of air rifles, air pistols and a range of accessories including targets, holsters and cases. Crosman's other primary product categories are archery, with products including CenterPoint crossbows and the Pioneer Airbow, consumables, which includes steel and plastic BBs, lead pellets and CO2 cartridges, and airsoft products. We made loans to, and purchased a controlling interest in, Crosman for a net purchase price of $150.4 million in June 2017, representing approximately 98.9% of the initial outstanding equity of Crosman Corp.
Results of Operations
In the following results of operations, we provide (i) the actual consolidated results of operations for Crosman for the three months ended September 30, 2017, and (ii) comparative results of operations for Crosman for the nine months ended September 30, 2017 and three and nine months ended September 30, 2016, as if we had acquired the business on January 1, 2016, including relevant pro-forma adjustments for pre-acquisition periods and explanations where applicable.
 Three months ended Nine months ended
(in thousands)September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
   (Pro forma) (Pro forma)
Net sales$34,449
 $32,092
 $85,848
 $82,945
Cost of sales (1)
29,034
 23,543
 67,088
 61,012
Gross profit5,415
 8,549
 18,760
 21,933
Selling, general and administrative expense5,121
 3,780
 13,715
 11,111
Fees to manager (2)
125
 125
 375
 375
Amortization of intangibles (3)
1,557
 1,164
 3,498
 3,493
Income from operations$(1,388) $3,480
 $1,172
 $6,954
Pro forma results of operations of Crosman for the nine months ended September 30, 2017 and the three and nine months ended September 30, 2016 include the following pro forma adjustments, applied to historical results as if we had acquired Crosman on January 1, 2016:
(1)Cost of sales was decreased by $0.2 million for the nine months ended September 30, 2017, and $0.1 million and $0.5 million, respectively, for the three and nine months ended September 30, 2016, to reflect the increase in the depreciable lives for machinery and equipment.
(2) Represents management fees that would have been payable to the Manager in the nine months ended September 30, 2017 and the three and nine months ended September 30, 2016.
(3) Represents amortization of intangible assets in the three and nine month period ended September 30, 2017 and 2016 associated with the allocation of the fair value of intangible assets resulting from the purchase price allocation in connection with our acquisition.
Three months ended September 30, 2017 compared to the pro forma three months ended September 30, 2016
Net sales
Net sales for the three months ended September 30, 2017 were $34.4 million, an increase of $2.4 million or 7.3%, compared to the same period in 2016. The increase in net sales for the three months ended September 30, 2017 is primarily due to growth in the archery products category and an add-on acquisition during the third quarter of 2017.
Cost of sales
Cost of sales for the three months ended September 30, 2017 were $29.0 million as compared to $23.5 million for the comparable period in 2016, an increase of $5.5 million, which is consistent with the net sales increase and also includes $3.2 million in expense related to the inventory step-up resulting from the preliminary purchase price allocation. After excluding the impact of the inventory step-up expense, gross profit as a percentage of sales was 24.9% for the three months ended

September 30, 2017 as compared to 26.6% in the three months ended September 30, 2016 due to the mix of products sold during the two periods.
Selling general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2017 was $5.1 million, or 14.9% of net sales compared to $3.8 million, or 11.8%12.3% of net sales for the three months ended September 30, 2016.2019. The increase in selling, general and administrative expense for the three months ended September 30, 2017 includes $0.4 million of acquisition2020 is primarily related to volume driven expenses $0.4 million of integration services fees payablethat correlate to CGM, $0.2 million of non-recurring consultant fees and increased expenses associated with higherthe increase in sales,. as well as additional investments in marketing.
(Loss) incomeIncome (loss) from operations
LossIncome from operations for the three months ended September 30, 20172020 was $1.4$11.1 million, a decreasean increase of $4.9$39.0 million when compared to incomeloss from operations of $3.5$27.9 million for the same period in 2016, based2019. Velocity recognized impairment expense of $33.4 million in the third quarter of 2019 after determining that interim impairment testing was necessary in the prior year. The increase in operating income in the three months ended September 30, 2020 reflects the factors noted above, and the effect of the impairment expense on the factors described above.operating income for the three months ended September 30, 2019.
Pro formaNine months ended September 30, 2020 compared to nine months ended September 30, 2017 compared to the pro forma nine months ended September 30, 20162019
Net sales
Net sales for the nine months ended September 30, 20172020 were $85.8$148.2 million, compared to net sales of $82.9 million for the nine months ended September 30, 2016, an increase of $2.9$40.8 million or 3.5%.38.0%, compared to the same period in 2019. The increase in net sales for the nine months ended September 30, 20172020 is primarily due to growtha significant increase in customer demand that we have experienced in the archerycurrent year reflecting consumer focus on outdoor branded products, category and an add-on acquisitionas well as the introduction of several new products during the third quarter of 2017.2020.

Gross profit
Cost of sales
Cost of sales for the nine month period ended September 30, 2017 were $67.1 million, an increase of $6.1 million as compared to the comparable period in 2016. Cost of salesGross profit for the nine months ended September 30, 2017 includes $3.22020 increased $14.0 million in expense relatedas compared to the inventory step-up resulting from the preliminary purchase price allocation. Excluding the effect of the inventory step-up, grossnine months ended September 30, 2019. Gross profit as a percentage of net sales was 25.5%30.0% for the nine months ended September 30, 20172020 as compared to 26.4% for28.4% in the nine months ended September 30, 2016 due2019. The increase in gross profit as a percentage of net sales was primarily attributable to the mix of products sold during the two periods.

product and customer mix.
Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 20172020 was $13.7$23.3 million, or 16.0%15.7% of net sales compared to $11.1$17.5 million, or 13.4%,16.3% of net sales for the nine months ended September 30, 2016. Selling,2019. The increase in selling, general and administrative expense for the nine months ended September 30, 2017 includes $1.8 million in transaction costs paid in relation2020 is primarily related to volume driven expenses that correlate to the acquisition of Crosmanincrease in June 2017 and an add-on acquisition at Crosman completed during the third quarter of 2017,sales, as well as $0.4 millionadditional investments in integration services fees payable to CGM. Excluding the transaction costs and integration services fee from the selling, general and administrative expense, there was no material change in expense items.

marketing.
Income from operations
Income from operations for the nine months ended September 30, 20172020 was $1.2$13.9 million, a decreasean increase of $5.8$41.5 million when compared to incomeloss from operations of $7.0$27.6 million for the comparablesame period in 2016, based on2019. Velocity recognized impairment expense of $33.4 million in the factors described above.
Ergobaby
Overview
Ergobaby, headquarteredthird quarter of 2019 after determining that interim impairment testing was necessary in Los Angeles, California, is a designer, marketer and distributor of wearable baby carriers and accessories, blankets and swaddlers, nursing pillows, and related products.  On May 12, 2016, Ergobaby acquired New Baby Tula LLC (“Baby Tula”) for approximately $73.8 million, excluding a potential earn-out payment. Baby Tula designs, markets and distributes baby carriers and accessories. Ergobaby primarily sells its Ergobaby and Baby Tula branded products through brick-and-mortar retailers, national chain stores, online retailers, its own websites and distributors. Historically, Ergobaby derives approximately 59% of its sales from outside of the United States.

Results of Operations
prior year. The table below summarizesincrease in operating income in the income from operations data for Ergobaby for the three and nine months ended September 30, 20172020
52

reflects the factors noted above, and the effect of the impairment expense on the operating income for the nine months ended September 30, 2016.2019.


Niche Industrial Businesses
Advanced Circuits
 Three months ended Nine months ended
(in thousands)September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Net sales$27,835

$29,664
 $77,737
 $75,048
Cost of sales9,003

13,818
 25,491
 29,169
Gross profit18,832

15,846
 52,246
 45,879
Selling, general and administrative expense9,973

9,947
 28,359
 27,489
Fees to manager125

125
 375
 375
Amortization of intangibles2,850

552
 8,784
 1,700
Loss on disposal of assets—
 551
 —
 7,214
Income from operations$5,884

$4,671
 $14,728
 $9,101
Three months endedNine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Net sales$22,771 100.0 %$21,897 100.0 %$67,423 100.0 %$67,405 100.0 %
Gross profit$10,252 45.0 %$9,964 45.5 %$30,360 45.0 %$31,029 46.0 %
SG&A$3,853 16.9 %$3,627 16.6 %$11,490 17.0 %$11,155 16.5 %
Operating income$6,205 27.2 %$6,122 28.0 %$18,272 27.1 %$19,087 28.3 %
Three months ended September 30, 20172020 compared to the three months ended September 30, 20162019
Net sales
Net sales for the three months ended September 30, 20172020 were $27.8 million, a decrease of $1.8 million, or 6.2%, compared to the same period in 2016. Net sales from Baby Tula for the third quarter were $4.8 million, compared to $5.8 million for the corresponding period in 2016. During the second quarter of 2016, Ergobaby’s board of directors approved a plan to dispose of the Orbit Baby infant travel system product line. Net sales from Orbit Baby branded infant travel systems were $1.6 million for the three months ended September 30, 2016. During the three months ended September 30, 2017, international sales were approximately $17.0 million, representing a decrease of $0.3 million over the corresponding period in 2016. International sales from Baby Tula for the third quarter of 2017 were $1.6 million. International sales of baby carriers and accessories, including Baby Tula, increased by approximately $0.8 million and international sales of infant travel systems decreased by approximately $0.5 million during the quarter ended September 30, 2017 as compared to the comparable quarter in 2016. Domestic sales were $10.8 million in the third quarter of 2017, reflecting a decrease of $2.1 million compared to the corresponding period in 2016. The decrease in domestic sales was due to a $1.0 million decrease in domestic sales of infant travel systems and accessories and a $1.1 million decrease in sales of baby carrier and accessories. Baby carriers and accessories represented 100% of sales in the three months ended September 30, 2017 compared to 95% in the same period in 2016.
Cost of sales
Cost of sales was approximately $9.0 million for the three months ended September 30, 2017, as compared to $13.8 million for the three months ended September 30, 2016, a decrease of $4.8 million. Cost of sales for the quarter ended September 30, 2016 included expense of $3.7 million related to the inventory step-up at Baby Tula resulting from the purchase price allocation. The remaining increase in cost of sales is primarily attributable to the reduction of sales compared to the prior period. Gross profit as a percentage of sales was 67.7% for the quarter ended September 30, 2017, as compared to 65.9% (excluding the effect of the inventory step-up at Baby Tula) for the three months ended September 30, 2016.

Selling, general and administrative expense
Selling, general and administrative expense was $10.0 million, or 35.8% of net sales for the three months ended September 30, 2017 as compared to $9.9 million or 33.5% of net sales for the same period of 2016. While selling, general and administrative expenses were flat, this resulted from an increase in a bad debt reserve related to a large retail customer that filed for bankruptcy during the third quarter of 2017, which was offset by lower professional fees.
Loss on disposal of assets
Ergobaby recorded a $0.6 million loss on disposal of assets during the third quarter of 2016 related to its decision to dispose of the Orbit Baby product line.

Income from operations
Income from operations for the three months ended September 30, 2017 increased $1.2 million, to $5.9 million, compared to $4.7 million for the same period of 2016, primarily as a result of the loss on disposal of assets and the absence of the inventory step-up at Baby Tula that was recorded in 2016.



Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Net sales
Net sales for the nine months ended September 30, 2017 were $77.7$22.8 million, an increase of $2.7approximately $0.9 million or 3.6%, compared to the same period in 2016. Net sales from Baby Tula for the nine months ended September 30, 2017 were $16.5 million, compared to $10.6 million in sales in the post-May acquisition period in 2016. During the nine months ended September 30, 2017, international sales were approximately $46.3 million, representing an increase of $5.6 million over the corresponding period in 2016. International sales of baby carriers and accessories increased by approximately $6.8 million and international sales of infant travel systems decreased by approximately $1.2 million during the nine months ended September 30, 2017 as compared to the comparable nine month period in 2016. BabyTula international sales during the nine months ended September 30, 2017 increased $2.8 million from the corresponding period in 2017. Domestic sales were $31.4 million during the nine months ended September 30, 2017, reflecting a decrease of $2.9 million compared to the corresponding period in 2016. The decrease in domestic sales is attributable to a $4.4 million decrease in domestic infant travel systems and accessories sales, a $1.7 million decrease in sales of Ergo branded baby carrier and accessories to national and specialty retail accounts, partially offset by a $3.2 million increase in Baby Tula domestic sales. The decrease in baby carrier and accessories sales was attributable to the overall weakness in the U.S. retail market during the nine months ended September 30, 2017. The decrease in infant travel systems and accessories sales was primarily attributable to exiting the Orbit Baby business during 2016. Baby carriers and accessories represented 100% of sales in the nine months ended September 30, 2017 compared to 92% in the same period in 2016.

Cost of sales
Cost of sales was approximately $25.5 million for the nine months ended September 30, 2017, as compared to $29.2 million for the nine months ended September 30, 2016, a decrease of $3.7 million. Cost of sales for the nine months ended September 30, 2016 included expense of $3.7 million related to the inventory step-up at Baby Tula resulting from the purchase price allocation. Gross profit as a percentage of sales was 67.2% for the nine months ended September 30, 2017 compared to 66.1% for the same period in 2016 after excluding the effect of the inventory step-up at Baby Tula.

Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2017 increased to approximately $28.4 million, or 36.5%, of net sales compared to $27.5 million or 36.6% of net sales for the same period of 2016. The $0.9 million increase in the nine months ended September 30, 2017 compared to the same period in 2016 is primarily attributable to increases in variable expenses, such as distribution and fulfillment and commission, due to the increases in direct market sales, to increases in employee related costs due to increased staffing levels, due in part to the addition of Baby Tula in 2016 and to a bad debt reserve related to a large retail customer that filed for bankruptcy in the third quarter of 2017. These increases were partially offset by lower professional fees and marketing expenses, due to the timing of marketing spend, and to lower acquisition costs, related to the 2016 Baby Tula acquisition.
Amortization of intangible assets
Amortization of intangible assets increased $7.1 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 due primarily to the amortization of intangible assets associated with the acquisition of Baby Tula in the prior year.
Loss on disposal of assets
Ergobaby recorded a $7.2 million loss on disposal of assets during 2016 related to its decision to dispose of the Orbit Baby product line. The loss was comprised of the write-off of intangible assets of $5.5 million, property, plant and equipment of $0.4 million, and other assets of $1.0 million. Ergobaby also recorded expense of $0.3 million related to the early termination of the Orbitbaby lease.

Income from operations
Income from operations for the nine months ended September 30, 2017 increased $5.6 million, to $14.7 million, compared to $9.1 million for the same period of 2016, primarily as a result of the loss on disposal of assets that was recorded in 2016.
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 300,000 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 Cabela’s, Case IH, Colt 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. Historically, approximately 55% of Liberty Safe’s net sales are Non-Dealer sales and 45% are Dealer sales.

Results of Operations

The table below summarizes the income from operations data for Liberty Safe for the three and nine months ended September 30, 2017 and September 30, 2016. 
 Three months ended Nine months ended
(in thousands)September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Net sales$18,423

$23,810
 $66,008
 $74,713
Cost of sales13,026

17,680
 47,157
 53,197
Gross profit5,397

6,130
 18,851
 21,516
Selling, general and administrative expense3,204

3,332
 11,284
 10,483
Fees to manager125

125
 375
 375
Amortization of intangibles18

256
 292
 779
Income from operations$2,050

$2,417
 $6,900
 $9,879

Three months ended September 30, 20174.0% compared to the three months ended September 30, 2016
Net2019. The increase in net sales
Net sales for in the quarter ended September 30, 2017 decreased approximately $5.4 million, or 22.6%, to $18.4 million,2020 as compared to the corresponding quarter ended September 30, 2016. Non-Dealer sales were approximately $7.9 million in the three months ended September 30, 2017 compared to $11.9 million for the three months ended September 30, 2016 representing a decrease of $4.0 million, or 33.6%. Dealer sales totaled approximately $10.5 million in the three months ended September 30, 2017 compared to $11.9 million in the same period in 2016, representing a decrease of $1.4 million or 11.8%. The decrease in third quarter 2017 sales for the Non-Dealer channel is2019 was primarily attributable to the bankruptcy filing by a national retailer in the first quarter of 2017. The decrease inincreased sales in the Dealer channel can be attributed to lower overall market demandQuick-Turn Production by approximately $0.9 million, Quick-Turn Small-Run by approximately $0.3 million, Subcontract by approximately $0.5 million, and decreased promotional allowances of approximately $0.1 million, partially offset by decreases in the third quarterAssembly of 2017 as compared to the third quarter of 2016.approximately $0.7 million, and Long-Lead Time PCBs by approximately $0.3 million.

Gross profit
Cost of sales
Cost of sales for the three months ended September 30, 2017 decreased approximately $4.7 million when compared to the same period in 2016. Gross profit as a percentage of net sales totaled approximately 29.3% and 25.7% for the quarters ended September 30, 2017 and September 30, 2016, respectively. The increase in gross profit as a percentage of sales during the three months ended September 30, 2017 compared to the same period in 2016 is primarily attributable to lower sales to national accounts, which have lower margins, in the third quarter of 2017 versus the prior year.
Selling, general and administrative expense
Selling, general and administrative expense was $3.2 million for the three months ended September 30, 2017 compared to $3.3 million for the three months ended September 30, 2016. Selling, general and administrative expense represented 17.4% of net sales in 2017 and 14.0% of net sales for the same period of 2016. The increase in selling, general and administrative expense as a percentage of net sales is a result of the decrease in net sales for the quarter ended September 30, 2017 as compared to the corresponding third quarter in 2016.

Income from operations
Income from operations decreased $0.4 million during the three months ended September 30, 2017 to $2.1 million, compared to the corresponding period in 2016. This decrease was principally based on the factors described above.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016

Net sales
Net sales for the nine months ended September 30, 2017 decreased approximately $8.7 million or 11.7%, to $66.0 million, compared to the corresponding nine months ended September 30, 2016. Non-Dealer sales were approximately $29.9 million in the nine months ended September 30, 2017 compared to $36.4 million for the nine months ended September 30, 2016, representing a decrease of $6.5 million or 17.9%. Dealer sales totaled approximately $36.1 million in the nine months ended

September 30, 2017 compared to $38.3 million in the same period in 2016, representing a decrease of $2.2 million or 5.7%. The decrease in sales is attributable to lower overall market demand.

Cost of sales
Cost of sales for the nine months ended September 30, 2017 decreased approximately $6.0 million when compared to the same period in 2016. Gross profit as a percentage of net sales totaled approximately 28.6% and 28.8% for the nine months ended September 30, 2017 and September 30, 2016, respectively. The decrease in gross profit as a percentage of sales during the nine months ended September 30, 2017 compared to the same period in 2016 is attributable to higher raw material costs, offset by gains in manufacturing efficiencies.
Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2017 increased to approximately $11.3 million or 17.1% of net sales compared to $10.5 million or 14.0% of net sales for the same period of 2016. The $0.8 million increase during the nine months ended September 30, 2017 is primarily attributable to a $1.4 million reserve established to reserve against outstanding accounts receivable of a retail customer that filed for bankruptcy in the first quarter of 2017.

Income from operations
Income from operations decreased $3.0 million during the nine months ended September 30, 2017 to $6.9 million, compared to $9.9 million during the same period in 2016, principally as a result of the decrease in sales, as described above.

Manitoba Harvest

Overview
Headquartered in Winnipeg, Manitoba, Manitoba Harvest is a pioneer and leader in branded, hemp-based foods and ingredients. Manitoba Harvest’s products, which management believes are one of the fastest growing in the hemp food market and among the fastest growing in the natural foods industry, are currently carried in approximately 13,000 retail stores across the United States and Canada. The Company’s hemp-based, 100% all-natural consumer products include hemp hearts, protein powder, hemp oil and snacks.

Results of Operations

The table below summarizes the income from operations data for Manitoba Harvest for the three and nine months ended September 30, 2017 and September 30, 2016.

 Three months ended Nine months ended
(in thousands)September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Net sales$13,948
 $15,920
 $42,625
 $44,321
Cost of sales7,792
 8,988
 23,412
 24,442
Gross profit6,156
 6,932
 19,213
 19,879
Selling, general and administrative expense5,065
 5,072
 15,502
 17,075
Fees to manager87
 88
 262
 261
Amortization of intangibles1,173
 1,218
 3,374
 3,408
Income (loss) from operations$(169) $554
 $75
 $(865)

Three months ended September 30, 2017 compared to three months ended September 30, 2016

Net sales
Net sales for the three months ended September 30, 2017 were approximately $13.9 million as compared to $15.9 million for the three months ended September 30, 2016, a decrease of $2.0 million, or 12.4%. During the third quarter of 2017, Manitoba Harvest experienced declining ingredients shipments to Asia as well as weak sales of protein powders. This was offset by the return of organic hemp hearts to store shelves after a lack of availability in organic based hemp seeds in 2016, which helped drive growth with key retailers in the United States and Canada. In addition, the company experienced strong growth in their core product line with key online retailers.


Cost of sales
Cost of sales for the three months ended September 30, 2017 was approximately $7.8 million compared to approximately $9.0 million for the same period in 2016. Gross profit as a percentage of sales was 44.1% in the quarter ended September 30, 2017 and 43.5% in the quarter ended September 30, 2016. The increase in gross profit as a percentage of sales in the third quarter of 2017 as compared to the same quarter in the prior year is primarily attributable to higher sales of branded hemp products in 2017, which have a higher gross margin percentage than bulk ingredient products.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2017 was approximately $5.1 million in both the third quarter of 2017 and 2016. Selling, general and administrative expense was 36.3% of net sales in the third quarter of 2017 as compared to 31.9% of net sales for the same period in 2016. The increase in selling, general and administrative expense as a percentage of sales in the three months ended September 30, 2017 compared to the same period in 2016 was primarily due to ongoing investments in key operating capability initiatives such as marketing, sales and research and development.
Income (loss) from operations
Income from operations for the three months ended September 30, 2017 decreased $0.7 million when compared to the same period in 2016, based on the factors described above.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
Net sales
Net sales for the nine months ended September 30, 2017 were approximately $42.6 million as compared to $44.3 million for the nine months ended September 30, 2016, a decrease of $1.7 million, or 3.8%. Manitoba Harvest experienced declines in bulk hemp seed ingredient sales to international markets. This was partially offset by growth in their Canadian retail, U.S. club and online businesses, driven by sales of branded hemp heart products and hemp oil.

Cost of sales
Cost of sales for the nine months ended September 30, 2017 was approximately $23.4 million compared to approximately $24.4 million for the same period in 2016. Gross profit as a percentage of sales was 45.1% in the nine months ended September 30, 2017 and 44.9% in the nine months ended September 30, 2016. For the first nine months of the year, gross profit margins in our branded business expanded due to improving product mix and lower material costs. Gross profit margins in our ingredient business declined due to a more competitive pricing environment and less fixed cost leverage.

Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2017 decreased to approximately $15.5 million or 36.4% of net sales compared to $17.1 million or 38.5% of net sales for the same period in 2016. The $1.6 million decrease in the nine months ended September 30, 2017 compared to the same period in 2016 was primarily due to lower customer shipping costs, more efficient field selling operations and the timing of our consumer promotion spending.
Income (loss) from operations
Income from operations for the nine months ended September 30, 2017 was approximately $0.1 million, compared to loss from operations of $0.9 million in the same period in 2016, based on the factors described above.

Niche Industrial Businesses
Advanced Circuits
Overview
Advanced Circuits is a provider of small-run, quick-turn and volume production printed circuit boards ("PCBs") to customers throughout the United States. Historically, small-run and quick-turn PCBs have represented approximately 54% of Advanced Circuits’ gross revenues. 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 small-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.

Results of Operations
The table below summarizes the income from operations data for Advanced Circuits for the three and nine months ended September 30, 2017 and September 30, 2016.
 Three months ended Nine months ended
(in thousands)September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Net sales$22,436
 $21,679
 $66,404
 $64,945
Cost of sales12,137
 12,066
 36,095
 36,024
Gross profit10,299
 9,613
 30,309
 28,921
Selling, general and administrative expense3,673
 3,417
 10,895
 10,370
Fees to manager125
 125
 375
 375
Amortization of intangibles310
 312
 933
 935
Income from operations$6,191
 $5,759
 $18,106
 $17,241


Three months ended September 30, 2017 compared to the three months ended September 30, 2016
Net sales
Net sales for the three months ended September 30, 2017 increased approximately $0.8 million to $22.4 million compared to the three months ended September 30, 2016. The increase in net sales was due to increased sales in Quick-Turn Production PCBs by approximately $0.3 million, Long-Lead Time PCBs by approximately $0.4 million, and Subcontract by approximately $0.2 million, partially offset by decreased sales in Quick-Turn Small-Run PCBs by approximately $0.3 million. On a consolidated basis, Quick-Turn Small-Run PCBs comprised approximately 20.2% of gross sales and Quick-turn production PCBs represented approximately 32.4% of gross sales for the third quarter 2017. Quick-Turn Small-Run PCBs comprised approximately 21.9% of gross sales and Quick-turn production PCBs represented approximately 32.1% of gross sales for the third quarter 2016.

Cost of sales
Cost of sales for both the three months ended September 30, 2017 and the three months ended September 30, 2016 were $12.1 million. Gross profit as a percentage of sales increased 16050 basis points during the three months ended September 30, 20172020 compared to the corresponding period in 2016 (45.9%2019 (45.0% at September 30, 20172020 compared to 44.3%45.5% at September 30, 2016)2019) primarily as a result of sales mix.
Selling, general and administrative expense
Selling, general and administrative expense was approximately $3.7$3.9 million in the three months ended September 30, 2017 and $3.42020 as compared to $3.6 million infor the three months ended September 30, 2016.2019. Selling, general and administrative expense represented 16.4%16.9% of net sales for the three months ended September 30, 2017 compared to 15.8%2020 and 16.6% of net sales in the corresponding period in 2016.2019.
Income from operations
Income from operations for the three months ended September 30, 20172020 was approximately $6.2 million compared to $5.8$6.1 million in the same period in 2016,2019, an increase of approximately $0.4$0.1 million, principally as a result of the factors described above.

Nine months ended September 30, 20172020 compared to nine months ended September 30, 20162019
Net sales
Net sales for the both the nine months ended September 30, 2017 increased approximately $1.5 million to $66.4 million2020 and the nine months ended September 30, 2019 were $67.4 million. For the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2016. The increase in net sales during the nine months ended September 30, 2017 was due to increased sales in2019, Quick-Turn Production PCBsincreased by approximately $1.2$1.4 million, Long-Lead Time PCBsSubcontract increased by approximately $0.7$0.1 million, Subcontractand promotional allowances decreased by approximately $0.5 million, and decreased promotions by approximately $0.3$0.6 million. This was partially offset by decreases in Assembly byof approximately $0.7$1.3 million, Long-Lead Time of approximately $0.6 million, and Quick-Turn Small-Run PCBs by approximately $0.6$0.1 million. On a consolidated basis, Quick-Turn Small-Run comprised approximately 20.7% of gross sales and Quick-Turn Production PCBs represented approximately 32.9% of gross sales for the nine months ended September

Gross profit
30, 2017. Quick-Turn Small-Run comprised approximately 21.9% of gross sales and Quick-Turn Production PCBs represented approximately 31.7% of gross sales for the nine months ended September 30, 2016.
Cost of sales
Cost of sales for the nine months ended September 30, 2017 was $36.1 million as compared to $36.0 million for the nine months ended September 30, 2016. Gross profit as a percentage of net sales increased 110decreased 100 basis points during the nine months ended September 30, 20172020 compared to the samecorresponding period in 2016 (45.6% at2019 (45.0% for the nine months ended September 30, 20172020 compared to 44.5% at46.0% for the nine months September 30, 2016)2019) primarily as a result of sales mix.

53

Selling, general and administrative expense
Selling, general and administrative expense was approximately $10.9$11.5 million in the nine months ended September 30, 20172020 as compared to $10.4$11.2 million inand the nine months ended September 30, 2016.2019. Selling, general and administrative expense represented 16.4%17.0% of net sales for the nine months ended September 30, 20172020 compared to 16.0%16.5% of net sales in the prior year's corresponding period.

period in 2019.
Income from operations
Income from operations for the nine months ended September 30, 20172020 was approximately $18.1$18.3 million compared to $17.2$19.1 million in the same period in 2016, an increase2019, a decrease of approximately $0.9$0.8 million, principally as a result of the factors described above.



Arnold Magnetics
Overview
Founded in 1895 and headquartered in Rochester, New York, Arnold Magnetics is a global manufacturer of engineered magnetic solutions for a wide range of specialty applications and end-markets, including aerospace and defense, motorsport/automotive, oil and gas, medical, general industrial, electric utility, reprographics and advertising specialties markets. Arnold is the largest and, we believe, most technically advanced U. S. manufacturer of engineered magnets. Arnold is one of two domestic producers to design, engineer and manufacture rare earth magnetic solutions. Arnold operates a 70,000 square foot manufacturing assembly and distribution facility in Rochester, New York with nine additional facilities worldwide, including sites in the United Kingdom, Switzerland and China. Arnold serves customers via three primary product sectors:
Permanent Magnet and Assemblies and Reprographics (PMAG) (historically approximately 70% of net sales) - High performance permanent magnets and magnetic assemblies with a wide variety of applications including precision motor/generator sensors as well as beam focusing and reprographics applications;
Flexible Magnets ("Flexmag") (historically approximately 20% of net sales) - Flexible bonded magnetic materials for commercial printing, advertising, and industrial applications; and
Precision Thin Metals ("PTM") (historically approximately 10% of net sales) - Ultra thin metal foil products utilizing magnetic and non- magnetic alloys.
Results of Operations
The table below summarizes the income from operations data for Arnold Magnetics for the three and nine months ended September 30, 2017 and September 30, 2016.
 Three months ended Nine months ended
(in thousands)September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Net sales$26,489
 $26,912
 $79,421
 $82,791
Cost of sales19,136
 20,520
 58,847
 63,829
Gross profit7,353
 6,392
 20,574
 18,962
Selling, general and administrative expense4,374
 4,535
 13,285
 12,117
Fees to manager125
 125
 375
 375
Amortization of intangibles854
 881
 2,601
 2,642
Impairment expense—
 —
 8,864
 —
Income (loss) from operations$2,000
 $851
 $(4,551) $3,828


Three months endedNine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Net sales$22,619 100.0 %$30,895 100.0 %$76,447 100.0 %$90,404 100.0 %
Gross profit$4,989 22.1 %$8,334 27.0 %$19,051 24.9 %$23,425 25.9 %
SG&A$4,549 20.1 %$4,718 15.3 %$13,645 17.8 %$14,205 15.7 %
Operating income (loss)$(495)(2.2)%$2,681 8.7 %$2,601 3.4 %$6,385 7.1 %
Three months ended September 30, 20172020 compared to the three months ended September 30, 20162019
Net sales
Net sales for the three months ended September 30, 20172020 were approximately $26.5$22.6 million, a decrease of $0.4$8.3 million compared to the same period in 2016. 2019. International sales were $8.7 million in the three months ended September 30, 2020 and $12.7 millionin the three months ended September 30, 2019. The decrease in net sales is primarily a result of a decrease in reprographic salessoftness in the PMAG reporting unit. International sales were $10.6 million incommercial aerospace, oil and gas and advertising specialty markets caused by the three months ended September 30, 2017 as compared to $12.2 million in the three months ended September 30, 2016, a decrease of $1.7 million, primarily as a result of the decrease in sales at PMAG.global COVID-19 pandemic.
Cost of salesGross profit
Cost of salesGross profit for the three months ended September 30, 2017 were2020 was approximately $19.1$5.0 million compared to approximately $20.5$8.3 million in the same period of 2016.2019. Gross profit as a percentage of net sales increased from 23.8%decreased to 22.1% for the quarter ended September 30, 2016 to 27.8%2020 from 27.0% in the quarter ended September 30, 20172019 principally due to manufacturing efficiencies and favorable sales mix.

the lower volume in the markets as noted above, partially offset by improved operating efficiencies.
Selling, general and administrative expense
Selling, general and administrative expense in the three month period ended September 30, 20172020 was $4.4$4.5 million, comparablea decrease in expense of approximately $0.2 millioncompared to approximately $4.5$4.7 million for the three months ended September 30, 2016.2019. The decrease in selling, general and administrative expense was due to lower staffing related costs and lower travel and meeting expense partially offset by increased redundancy costs and pension costs as well as increased legal expenses. Selling, general and administrative expense was 20.1% of net sales in the three months ended September 30, 2020 and 15.3% in the three months ended September 30, 2019 due to the lower sales volume.

Income (loss) from operations
Loss from operations for the three months ended September 30, 2020 was approximately $0.5 million, a decrease of $3.2 million when compared to the same period in 2019, as a result of the factors noted above.
Nine months ended September 30, 2020 compared to nine months ended September 30, 2019
Net sales
Net sales for the nine months ended September 30, 2020 were approximately $76.4 million, a decrease of $14.0 million compared to the same period in 2019. International sales were $28.7 million in the nine months ended September 30, 2020 and $36.6 millionin the nine months ended September 30, 2019. The decrease in net sales is
54

primarily a result of softness in the commercial aerospace, oil and gas and advertising specialty markets caused by the global COVID-19 pandemic.
Gross profit
Gross profit for the nine months ended September 30, 2020 was approximately $19.1 million compared to approximately $23.4 million in the same period of 2019. Gross profit as a percentage of net sales decreased to 24.9% for the nine months ended September 30, 2020 from 25.9% in the nine months ended September 30, 2019 principally due to product mix, partially offset by improved operating efficiencies.
Selling, general and administrative expense
Selling, general and administrative expense in the nine month period ended September 30, 2020 was $13.6 million, a decrease in expense of approximately $0.6 millioncompared to $14.2 million for the nine months ended September 30, 2019. The decrease in selling, general and administrative expense was due to lower staffing related costs and lower travel and meeting expense partially offset by increased redundancy costs, bad debt reserves due to the adoption of the new credit loss accounting standard and increased legal expenses. Selling, general and administrative expense was 17.8% of net sales in the nine months ended September 30, 2020 and 15.7% in the nine months ended September 30, 2019 due to the lower sales volume.
Income from operations
Income from operations for the nine months ended September 30, 2020 was approximately $2.6 million, a decrease of $3.8 million when compared to the same period in 2019, as a result of the factors noted above.

Foam Fabricators
Three months endedNine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Net sales$36,526 100.0 %$31,304 100.0 %$89,338 100.0 %$93,634 100.0 %
Gross profit$11,184 30.6 %$8,928 28.5 %$27,165 30.4 %$26,772 28.6 %
SG&A$4,134 11.3 %$2,541 8.1 %$9,264 10.4 %$8,023 8.6 %
Operating income$4,759 13.0 %$4,141 13.2 %$11,118 12.4 %$12,011 12.8 %
Three months ended September 30, 2020 compared to three months ended September 30, 2019
Net sales
Net sales for the quarter ended September 30, 2020 were $36.5 million, an increase of $5.2 million, or 16.7%, compared to the quarter ended September 30, 2019. The increase in net sales during the quarter was primarily due to the acquisition of Polyfoam in July 2020.
Gross profit
Gross profit as a percentage of net sales was 30.6% and 28.5% for the three months ended September 30, 2020 and 2019, respectively. The increase in gross profit as a percentage of net sales in the quarter ended September 30, 2020 was primarily due to the decreasing price of expanded polystyrene ("EPS") resin. A majority of Foam Fabricator's products are made with EPS resin, an oil and natural gas derived polymer with an added expansion agent, therefore raw material costs will fluctuate based on the price of oil and natural gas.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2020 was $4.1 million as compared to $2.5 million for the three months ended September 30, 2019, an increase of $1.6 million. The selling, general and administrative expense in the third quarter of 2020 includes $0.3 million in transaction costs related to Foam Fabricators' acquisition of Polyfoam in the third quarter. The remainder of the increase in selling, general and administrative expense was primarily due to the acquisition of Polyfoam.
Income from operations
Income from operations was $4.8 million in the three months ended September 30, 2020, an increase of $0.6 million as compared to the three months ended September 30, 2019, based on the factors noted above.
55

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019
Net sales
Net sales for the nine months ended September 30, 2020 were $89.3 million, a decrease of $4.3 million, or 4.6%, compared to the nine months ended September 30, 2019. The decrease in net sales during the first nine months of 2020 was due to a slow-down in the appliance and automotive customer sectors, as well as a general slow-down across other customer segments in April and May, as a result of the effect of the COVID-19 pandemic on our customers' operations. While most of our customer sectors saw improved performance beginning in June, the appliance and automotive sectors continued to see a slowdown in sales through the end of the second quarter. During the third quarter of 2020, appliance sales continued to trend lower versus the prior year due to lower demand and supply chain and labor constraints resulting from the COVID-19 pandemic.
Gross profit
Gross profit as a percentage of net sales was 30.4% and 28.6% for the nine months ended September 30, 2020 and 2019, respectively. The increase in gross profit as a percentage of net sales in the nine months ended September 30, 2020 was primarily due to the decreasing price of expanded polystyrene ("EPS") resin. A majority of Foam Fabricator's products are made with EPS resin, an oil and natural gas derived polymer with an added expansion agent, therefore raw material costs will fluctuate based on the price of oil and natural gas.
Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2020 was $9.3 million as compared to $8.0 million for the nine months ended September 30, 2019, an increase of $1.2 million. Selling, general and administrative expense for the nine months ended September 30, 2019 included $0.3 million in integration service fees paid to CGM, while the nine months ended September 30, 2020 included $0.2 million in transaction costs related to Foam Fabricators' acquisition of Polyfoam in July 2020. The remainder of the increase in selling, general and administrative expense was primarily due to the acquisition of Polyfoam during the third quarter.
Income from operations
Income from operations was $11.1 million in the nine months ended September 30, 2020 as compared to $12.0 million in the nine months ended September 30, 2019, a decrease of $0.9 million based on the factors noted above.
Sterno
Three months endedNine months ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Net sales$97,737 100.0 %$111,470 100.0 %$258,132 100.0 %$289,131 100.0 %
Gross profit$20,849 21.3 %$26,969 24.2 %$56,645 21.9 %$71,989 24.9 %
SG&A$8,797 9.0 %$9,855 8.8 %$26,605 10.3 %$30,109 10.4 %
Operating income$7,674 7.9 %$12,724 11.4 %$16,906 6.5 %$28,821 10.0 %
Three months ended September 30, 2020 compared to three months ended September 30, 2019
Net sales
Net sales for the three months ended September 30, 2020 were approximately $97.7 million, a decrease of $13.7 million, or 12.3%, compared to the same period in 2019. The net sales variance reflects a decrease in sales at Sterno Products and Sterno Home as a result of the effect of COVID-19 on the food service and retail industries during 2020, partially offset by favorable sales volume at Rimports of wax and essential oils in the third quarter of 2020. We expect the food service industry to continue to be negatively impacted for the remainder of 2020 by COVID-19.
Gross profit
Gross profit as a percentage of net sales decreased from 24.2% for the three months ended September 30, 2019 to 21.3% for the same period ended September 30, 2020. The decrease in gross profit in the third quarter of 2020 as compared to the third quarter of 2019 was attributable to product mix, with lower margin sales in the third quarter of 2020, higher freight and tariff costs.
56

Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2020 was approximately $8.8 million as compared to $9.9 million for the three months ended September 30, 2019, a decrease of $1.1 million, reflecting lower salaries, commissions, and various cost savings initiatives implemented to address the effects of decreased demand from COVID-19. Selling, general and administrative expense represented 9.0% of net sales for the three months ended September 30, 2020 and 8.8% for the three months ended September 30, 2019.
Income from operations
Income from operations for the three months ended September 30, 20172020 was approximately $2.0$7.7 million, an increasea decrease of $1.1$5.1 million when compared to the same period in 2016, principally as a result ofthree months ended September 30, 2019 based on the factors noted above.

Nine months ended September 30, 20172020 compared to nine months ended September 30, 20162019
Net sales
Net sales for the nine months ended September 30, 20172020 were approximately $79.4$258.1 million, a decrease of $3.4$31.0 million, or 10.7%, compared to the same period in 2016.2019. The net sales variance reflects a decrease in net sales is primarilyat Sterno Products and Sterno Home as a result of decreasesthe effect of COVID-19 on the food service and retail industries beginning in the PMAG ($1.8 million)latter half of March, partially offset by favorable sales volume at Rimports of wax and Flexmag ($1.5 million) product sectors. PMAG sales represented approximately 73%essential oils during 2020. We expect the food service industry to continue to be negatively impacted for the remainder of 2020 by COVID-19.
Gross profit
Gross profit as a percentage of net sales was 21.9% for the nine months ended September 30, 2017 and 72% of net sales2020 as compared to 24.9% for the nine months ended September 30, 2016.2019. The decrease in PMAG sales is principallygross profit during 2020 as compared to 2019 was attributable to product mix, with lower margin sales of reprographic products. The decrease in Flexmag sales is attributable to lower overall customer demand.
International sales were $31.7 million during the nine months ended September 30, 2017 compared to $33.7 million during the same period in 2016, a decrease of $2.0 million or 5.9%. The decrease in international sales is due to a decrease in sales at PMAG.
Cost of sales
Cost of sales for the nine months ended September 30, 2017 were approximately $58.8 million compared to approximately $63.8 million in the same period of 2016. Gross profit as a percentage of sales increased from 22.9% for the nine months ended September 30, 2016 to 25.9% in the nine months ended September 30, 2017 principally due to a reduction in material costs2020, higher freight and lower depreciation expense.

tariff costs.
Selling, general and administrative expense
Selling, general and administrative expense in the nine month period ended September 30, 2017 was $13.3 million as compared to approximately $12.1 million for the nine months ended September 30, 2016. The increase in expense is primarily attributable to increased legal and professional fees.

Impairment expense
Arnold performed an interim impairment test at each of its reporting units in the fourth quarter of 2016, which resulted in the recording of preliminary impairment expense of the PMAG reporting unit of $16.0 million. In the first quarter of 2017, Arnold completed the impairment testing of the PMAG reporting unit and recorded an additional $8.9 million impairment expense based on the results of the Step 2 impairment testing.

(Loss) income from operations
Loss from operations for the nine months ended September 30, 2017 was approximately $4.6 million, a decrease of $8.4 million when compared to the same period in 2016, principally as a result of the impairment expense recognized in the first quarter of 2017, and the factors described above. Excluding the impairment expense, income from operations increased $0.5 million, or 12%, when compared to the same period in 2016.

Clean Earth
Overview

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 and gas, medical, 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 nine permitted soil treatment facilities. Clean Earth also operates four RCRA Part B hazardous waste 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.

Results of Operations
The table below summarizes the income from operations data for Clean Earth for the three and nine months ended September 30, 2017 and September 30, 2016.
 Three months ended Nine months ended
(in thousands)September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Service revenues$55,676
 $51,515
 $153,370
 $134,035
Cost of services39,787
 36,863
 110,639
 95,967
Gross profit15,889
 14,652
 42,731
 38,068
Selling, general and administrative expense6,782
 7,352
 25,205
 22,263
Fees to manager125
 125
 375
 375
Amortization of intangibles3,390
 3,582
 9,554
 9,570
Income from operations$5,592
 $3,593
 $7,597
 $5,860

Three months ended September 30, 2017 compared to the three months ended September 30, 2016.
Service revenues
Revenues for the three months ended September 30, 2017 were approximately $55.7 million, an increase of $4.2 million, or 8.1%, compared to the same period in 2016. The increase in revenues is primarily due to acquisitions made in the second quarter of 2016 and the first quarter of 2017 as well as an increase in contaminated soil revenue. For the three months ended September 30, 2017, contaminated soil revenue increased 8% as compared to the same period last year, which is principally attributable to recent large project awards. Hazardous waste revenues increased 30% principally as a result of acquisitions. Revenue from dredged material decreased for the three months ended September 30, 2017 as compared to the same period in 2016 due to the timing of projects. Contaminated soils represented approximately 55% of net service revenues for both the three months ended September 30, 2017 and the three months ended September 30, 2016.

Cost of services
Cost of services for the three months ended September 30, 2017 were approximately $39.8 million compared to approximately $36.9 million in the same period of 2016. The increase in costs of services was primarily due to the increased revenue and volume, as well as the mix of services. Gross profit as a percentage of service revenues was flat quarter over quarter, increasing from 28.4% for the three month period ended September 30, 2016 to 28.5% for the same period ended September 30, 2017.

Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2017 decreased to approximately $6.8 million, or 12.2%, of service revenues, as compared to $7.4 million, or 14.3%, of service revenues for the same period in 2016. The decrease was primarily due to decreased labor costs.


Income from operations
Income from operations for the three months ended September 30, 2017 was approximately $5.6 million as compared to income from operations of $3.6 million for the three months ended September 30, 2016, an increase of $2.0 million, primarily as a result of those factors described above.

Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
Service revenues
Service revenues for the nine months ended September 30, 2017 were approximately $153.4 million, an increase of $19.3 million, or 14.4%, compared to the same period in 2016. The increase in service revenues is principally due to two acquisitions in 2016 and one in 2017, as well as increased contaminated soil revenue, offset in part by lower dredge revenue.

For the nine months ended September 30, 2017, contaminated soil revenue increased 13% as compared to the same period last year principally attributable to increased development activity in the Northeast and an acquisition made in 2016. Hazardous waste revenues increased 32% principally as a result of acquisitions. Revenue from dredged material decreased 44% for the nine months ended September 30, 2017 as compared to the same period in 2016 due to the timing of new bidding activity. Contaminated soils represented approximately 57% of net service revenues for the nine months ended September 30, 2017 compared to 58% for the nine months ended September 30, 2016.

Cost of services
Cost of services for the nine months ended September 30, 2017 were approximately $110.6 million compared to approximately $96.0 million in the same period of 2016. Gross profit as a percentage of service revenues decreased from 28.4% for the nine month period ended September 30, 2016 to 27.9% for the same period ended September 30, 2017. The decrease in gross margin during the nine months ended September 30, 2017 was primarily due to reduced dredged material volume.

Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2017 increased to2020 was approximately $25.2$26.6 million or 16.4%, of service revenues, as compared to $22.3$30.1 million or 16.6%, of service revenues for the same period in 2016. The $2.9 million increase in selling, general and administrative expense in the nine months ended September 30, 2017 compared2019, a decrease of $3.5 million, reflecting lower salaries, commissions, and various cost savings initiatives implemented to 2016 is primarily attributable to acquisitionsaddress the effects of decreased demand from COVID-19. Selling, general and increased corporate expenses.administrative expense represented 10.3% of net sales for the nine months ended September 30, 2020 and 10.4% for the nine months ended September 30, 2019.
Income from operations
Income from operations for the nine months ended September 30, 20172020 was approximately $7.6$16.9 million, an increasea decrease of $1.7$11.9 million as compared to the nine months ended September 30, 2016, primarily as a result of those2019 based on the factors describednoted above.


Sterno Products
Overview
Sterno Products, headquartered in Corona, California, is a manufacturer and marketer of portable food warming fuel and creative table lighting solutions for the food service industry. Sterno Products offers a broad range of wick and gel chafing fuels, butane stoves and accessories, liquid and traditional wax candles, catering equipment and lamps. Sterno Products was formed in 2012 with the merger of two manufacturers and marketers of portable food warming fuel products, The Sterno Products Group LLC and the Candle Lamp Company, LLC. On January 22, 2016, Sterno Products acquired Sterno Home, a seller of flameless candles and outdoor lighting products through the retail segment.
Results of Operations
The table below summarizes the income from operations data for Sterno Products for the three and nine months ended September 30, 2017 and September 30, 2016.

 Three months ended Nine months ended
(in thousands)September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Net sales$52,696
 $55,582
 $163,092
 $156,692
Cost of sales38,865
 39,744
 119,975
 113,724
      Gross Profit13,831
 15,838
 43,117
 42,968
Selling, general and administrative expense7,466
 8,556
 23,872
 23,568
Management fees125
 125
 375
 375
Amortization of intangibles1,829
 1,621
 5,487
 4,930
      Income from operations$4,411
 $5,536
 $13,383
 $14,095
Three months ended September 30, 2017 compared to the three months ended September 30, 2016
Net sales
Net sales for the three months ended September 30, 2017 were approximately $52.7 million, a decrease of $2.9 million, or 5.2%, compared to the same period in 2016. The sales variance reflects a decrease in sales at the candle and outdoor divisions of Sterno Home, offset by the timing of stocking programs of key Sterno food service customers.
Cost of sales
Cost of sales for the three months ended September 30, 2017 were approximately $38.9 million compared to approximately $39.7 million in the same period of 2016. Gross profit as a percentage of sales decreased from 28.5% for the three months ended September 30, 2016 to 26.2% for the same period ended September 30, 2017. The decrease in gross profit during the three months ended September 30, 2017 primarily reflects an increase in chemical material costs and lower margins on certain sales.
Selling, general and administrative expense
Selling, general and administrative expense for the three months ended September 30, 2017 and 2016 was approximately $7.5 million and $8.6 million, respectively. Selling, general and administrative expense represented 14.2% of net sales for the three months ended September 30, 2017 as compared to 15.4% of net sales for the same period in 2016. The decrease in selling, general and administrative expense of $1.1 million during the third quarter of 2017 reflects Sterno Home staffing reductions due to restructuring, as well as reduced legal fees, licensing and royalty costs.
Income from operations
Income from operations for the three months ended September 30, 2017 was approximately $4.4 million, a decrease of $1.1 million when compared to the same period in 2016, as a result of those factors described above.
Nine months ended September 30, 2017 compared to nine months ended September 30, 2016
Net sales
Net sales for the nine months ended September 30, 2017 were approximately $163.1 million, an increase of $6.4 million, or 4.1%, compared to the same period in 2016. The increase in net sales is a result of the acquisition of Sterno Home in January 2016, partially offset by sales shortfall at Sterno Home's candle division due to reduced demand and non-repeating orders. Sterno Home had net sales of $9.0 million in the period prior to acquisition in January 2016.

Cost of sales
Cost of sales for the nine months ended September 30, 2017 were approximately $120.0 million compared to approximately $113.7 million in the same period of 2016. Gross profit as a percentage of sales decreased from 27.4% for the nine months ended September 30, 2016 to 26.4% for the same period ended September 30, 2017. The decrease in gross margin during the nine months ended September 30, 2017 primarily reflects an increase in chemical material costs.

Selling, general and administrative expense
Selling, general and administrative expense for the nine months ended September 30, 2017 and 2016 was approximately $23.9 million and $23.6 million, respectively. Selling, general and administrative expense represented 14.6% of net sales for the nine months ended September 30, 2017 as compared to 15.0% of net sales for the same period in 2016. The decrease as a percentage of net sales during the nine months ended September 30, 2017 as compared to the same period in 2016 reflects the increase in sales during the period and Sterno Home reorganization efforts to reduce staff, as well as lower consulting fees, R&D expense and reduced legal expense.

Income from operations
Income from operations for the nine months ended September 30, 2017 was approximately $13.4 million, a decrease of $0.7 million when compared to the same period in 2016, as a result of those factors described above.

Liquidity and Capital Resources

Liquidity

At September 30, 2017,2020, we had approximately $41.5$176.8 million of cash and cash equivalents on hand, an increase of $1.7$76.5 million as compared to the year ended December 31, 2016. The increase2019. In May 2020, we completed an offering of 5,000,000 Trust common shares for net proceeds, after deducting the underwriter's discount and offering costs, of approximately $83.9 million. Also in cash is due primarilyMay 2020, we issued $200 million in additional Senior Notes. We used $200 million of the proceeds from the common share offering and issuance of additional Senior Notes to pay down the outstanding amount on our 2018 Revolving Credit Facility. Subsequent to the saleend of our remaining shares of our FOX investment in the first quarter, of 2017, which resulted in net proceeds of $136.1 million, andwe completed the issuance of preferred shares in the second quarter of 2017, offset by our acquisition of CrosmanBOA for a total purchase price of $454 million (excluding working capital and our common share distributions.certain other adjustments upon closing, and transaction costs). The Company funded the acquisition of BOA with cash on hand and a $300 million draw on its 2018 Revolving Credit Facility. 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.

The change in cash and cash equivalents is as follows:
57
  Nine months ended
(in thousands) September 30, 2017 September 30, 2016
Cash provided by operations $59,236
 $60,594
Cash used investing activities (62,956) (417,284)
Cash provided by financing activities 7,862
 300,407
Effect of exchange rates on cash and cash equivalents (2,427) (3,197)
Increase (decrease) in cash and cash equivalents $1,715
 $(59,480)


Operating Activities:
Nine months ended
(in thousands)September 30, 2020September 30, 2019
Cash provided by operating activities$112,872 $31,584 
For the nine months ended September 30, 2017,2020, cash flows provided by operating activities totaled approximately $59.2$112.9 million, which represents a $1.4$81.3 million decreaseincrease compared to cash provided by operating activities of $60.6$31.6 million during the nine monthnine-month period ended September 30, 2016 (from both continuing and discontinued operations). This decrease is principally the result of changes2019. The increase in cash used for working capital and non-cash chargesflows in 2020 is attributable to an increase in income from continuing operations in the nine months ended September 30, 20172020, driven by strong performance at our 5.11, Liberty and Velocity businesses, and a significant increase in cash provided by working capital. In the prior year, the Company incurred interest expense related to the 2018 Term Loan, which we paid off in the third and fourth quarter of 2019 using the proceeds from the sale of Clean Earth and our Series C Preferred Share Offering. The payoff of the 2018 Term Loan, partially offset by the increase in interest expense related to $200 million in our 8% Senior Notes issued in May 2020, resulted in a decrease in our interest expense in the first nine months of 2020 as compared to the same period in 2016, primarilyfirst nine months of 2019 by approximately $16.3 million. In the prior year, we also recognized a loss of $10.2 million related to the sale of common shares received as a resultpart of the 5.11 acquisition, which occurred inconsideration for the third quartersale of 2016, and the effect of the cash flows from add-on acquisitions completed in 2016.Manitoba Harvest. Cash used inprovided by operating activities for working capital for the nine months ended September 30, 20172020 was $24.3$10.4 million, as compared to cash used in operating activities for working capital of $5.0$28.6 million for the nine months ended September 30, 2016.2019. The increase wasin cash provided by working capital in the current year primarily duereflects steps our businesses have taken to conserve cash used for inventory by our branded consumer businesses duringin the third quarter.current economy.
Investing Activities:
Nine months ended
(in thousands)September 30, 2020September 30, 2019
Cash (used in) provided by investing activities$(236,502)$760,148 
Cash flows used in investing activities for the nine months ended September 30, 20172020 totaled approximately $63.0$236.5 million, compared to cash used inprovided by investing activities of $417.3$760.1 million in the same period of 2016. In2019. Cash provided by investing activities in the currentprior year weprimarily related to the proceeds received approximately $136.1 million related tofrom the sale of our remaining investment in FOX, offset by cash used for our Crosman acquisitionManitoba Harvest and add-on acquisitions at our Clean Earth Crosman and Sterno businesses, ($164.7while investing activities in the nine months ended September 30, 2020 reflect the acquisition of Marucci Sports in April 2020. Our spending on capital expenditures was consistent year over year, with $20.1 million in total) and capital expenditures ($31.0 million). Capital expenditures in the nine months ended September 30, 2017 increased approximately $15.42020 and $22.0 million compared toin capital expenditures in the prior year, due primarily to expenditures at our 5.11 business.nine months ended September 30, 2019. We expect capital expenditures for the full year of 20172020 to be approximately $42$28 million to $47 million. The 2016 investing activities reflect$33 million, which reflects a reduction in our capital spending from the acquisitionDecember 31, 2019 expectation in response to the expected effect of 5.11 in August 2016 ($395.4 million) and add-on acquisitions by Sterno in January 2016 ($35.6 million), Ergobaby in May 2016 ($65.0 million) and add-on acquisitions at Clean Earth during the first and second quarter of 2016 ($33.6 million), offset by proceeds from a partial divestiture ofCOVID-19 on our FOX shares of $47.7 million.

cash flows.
Financing Activities:
Nine months ended
(in thousands)September 30, 2020September 30, 2019
Cash provided by (used in) financing activities$200,395 $(557,118)
Cash flows provided by financing activities totaled approximately $7.9$200.4 million during the nine months ended September 30, 20172020 compared to cash flows provided byused in financing activities of $300.4$557.1 million during the nine months ended September 30, 2016.2019. Financing activities in both periods reflect the payment of our quarterlycommon and preferred share distributions, with a $6.3 million increase in the preferred share distribution ($64.7as a result of the issuance of our Series C Preferred Shares in November 2019. In the prior year, we used the proceeds from our sale of Manitoba Harvest and Clean Earth to repay amounts outstanding under our 2018 Revolving Credit Facility and 2018 Term Loan, while in the current year, we completed a common share offering and the issuance of $200 million in 2017Senior Notes, resulting in net proceeds of $285.9 million. A portion of the proceeds received from the issuance of Senior Notes and $58.6 million in 2016), activitycommon share offering were used to pay down the amount outstanding on our credit facility and the payment of a profit allocation related to the sale of FOX shares ($39.2 million in 2017 and $16.8 million in 2016). In2018 Revolving Credit
58

facility. During the nine months ended September 30, 2017, activity on2020, we also made a distribution to the Allocation Member of $9.1 million related to the five year Holding event for our credit facility totaled $16.8 million of cash borrowings, while the activity for the nine months ended September 30, 2016 reflected net borrowings of $412.1

million, which was used to fund the acquisitions of 5.11, as well as the acquisitions of Baby Tula by Ergobaby, a Clean Earth add-on acquisition and the repurchase of Ergobaby common stock from a noncontrolling shareholder. We also completed the Series A Preferred Share offering during the second quarter of 2017, resulting in cash proceeds net of transaction costs, of $96.4 million.Sterno business.
Intercompany Debt
A component of our acquisition financing strategy that we utilize in acquiring the businesses we own and manage is to provide both equity capital and debt capital, raised at the parent level through our existing credit facility. Our strategy of providing intercompany debt financing within the capital structure of the businesses that we acquire and manage allows us the ability to distribute cash to the parent company through monthly interest payments and amortization of the principal on these intercompany loans. 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. Certain of our businesses have paid down their respective intercompany debt balances through the cash flow generated by these businesses and we have recapitalized, and expect to continue to recapitalize, these businesses in the normal course of our business. The recapitalization process involves funding the intercompany debt using either cash on hand at the parent or our revolving credit facility,applicable Credit Facility, and serves the purpose of optimizing the capital structure at our subsidiaries and providing the noncontrolling shareholders with a distribution on their ownership interest in a cash flow positive business.

As a result All of significant investmentour subsidiaries were in operational improvements to enhance its competitive position, including planned capital expendituresto reposition Arnold for future growth, we have granted Arnold a waiver for certaincompliance with the financial covenants underincluded within their intercompany debt agreement effective the quarter ended June 30, 2017 through December 31, 2017. Additionally, due to significant capital expenditures related to the implementation of a new ERP system and a warehouse expansion, we have granted 5.11 a waiver under their intercompany debt agreement effective the quarter endedcredit arrangements at September 30, 2017. The waiver permits 5.11 to exclude certain capital expenditures associated with the ERP system and warehouse expansion from the calculation of the fixed charge coverage ratio.
2020.
As of September 30, 2017,2020, we had the following outstanding loans due from each of our businesses:
(in thousands)
5.11$170,765 
Ergobaby$30,041 
Liberty$37,657 
Marucci$39,625 
Velocity Outdoor$101,140 
Advanced Circuits$51,283 
Arnold$74,180 
Foam Fabricators$87,087 
Sterno$236,846 
(in thousands)  
5.11 Tactical $185,750
Crosman $97,327
Ergobaby $66,448
Liberty $49,737
Manitoba Harvest $48,273
Advanced Circuits $95,064
Arnold Magnetics $72,715
Clean Earth $172,786
Sterno Products $75,127


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 20142018 Credit Facility;Facility and interest on our Senior Notes; (iii) payments to CGM due pursuant to the Management Services AgreementMSA 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.

Financing Arrangements

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 quarter ended September 30, 2017 on our common shares was paid on October 26, 2017 and totaled $21.6 million. A distribution on our Series A Preferred Shares of $2.5 million was paid on October 30, 2017.

Investment in FOX
On March 13, 2017, Fox Factory Holding Corp. ("FOX") closed on a secondary public offering of 5,108,718 shares of FOX common stock held by CODI, which represented CODI's remaining investment in FOX. CODI received $136.1 million in net proceeds as a result of the sale. We acquired a controlling interest in FOX in January 2008 for approximately $80.4 million. FOX completed an initial public offering in August 2013, and additional secondary offerings in July 2014, March, August and

November 2016, and March 2017. We sold shares of FOX in each of these offerings, recognizing total net proceeds of $465.1 million.

20142018 Credit Facility
On June 6, 2014, we entered into a new credit facility, the 2014 Credit Facility, which replaced our then existing 2011 Credit Facility entered into in October 2011. On August 31, 2016,In April 2018, we entered into an Incremental Facility AmendmentAmended and Restated Credit Agreement (the "2018 Credit Facility") to amend and restate the 2014 Credit Agreement.Facility. The Incremental Facility Amendment provided an increase to the 2014 Revolving2018 Credit Facility of $150.0 million, and the 2016 Incremental Term Loan in the amount of $250.0 million. The 2014 Credit Facility now provides for (i) revolving loans, swing line loans and letters of credit (the “2018 Revolving Credit Facility”) up to a maximum aggregate amount of $550$600 million, and matures in June 2019, (ii) a $325$500 million term loan and (iii) a(the “2018 Term Loan”). The 2018 Credit Facility also permits the Company, 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 $250 million incremental term loan. Our 2014(the “Incremental Loans”), subject to certain restrictions and conditions. In July 2019, we repaid $193.8 million of the 2018 Term Loan, and 2016 Incrementalin November 2019, we repaid the remaining $298.8 million due under the 2018 Term Loan requires quarterly payments with a final payment of the outstanding principal balance due in June 2021. (Refer to Note I - "Debt" of the condensed consolidated financial statements for a complete description of our 2014 Credit Facility.)

In March 2017, we amended the 2014 Credit Facility (the "Fourth Amendment") to reduce the applicable rate of interest for the 2014 Term Loan and 2016 Incremental Term Loan. Under the Fourth Amendment, outstanding LIBOR loans bear interest at LIBOR plus an applicable rate of 2.75% and outstanding Base Rate loans bear interest at Base Rate plus 1.75%. Prior to the amendment, the outstanding term loans bore interest at LIBOR plus 3.25% or Base Rate plus 2.25%.
In October 2017, the Company further amended the 2014 Credit Facility (the "First Refinancing Amendment") to, in effect, refinance the 2014 Term Loan and the 2016 Incremental Term Loan (together, the “Term Loans”). Pursuant to the First Refinancing Amendment, outstanding Term Loans at LIBOR Rate bear interest at LIBOR plus an applicable rate of 2.25% and outstanding Term Loans at Base Rate bear interest at Base Rate plus 1.25%. Prior to the amendment, the outstanding Term Loans bore interest at LIBOR plus 2.75% or Base Rate plus 1.75%.

We had $523.2$598.8 million in net availability under the 20142018 Revolving Credit Facility at September 30, 2017.2020. The outstanding borrowings under the 20142018 Revolving Credit Facility includes $1.3include $1.2 million at September 30, 2017 of outstanding letters of credit.credit at September 30, 2020.

59

Senior Notes
On April 18, 2018, we consummated the issuance and sale of $400 million aggregate principal amount of our 8.000% due 2026 (the "Notes" or "Senior Notes") offered pursuant to a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act, and to non-U.S. persons under Regulation S under the Securities Act. The Notes were issued pursuant to an indenture, dated as of April 18, 2018 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee. The Notes bear interest at the rate of 8.000% per annum and will mature on May 1, 2026. Interest on the Notes is payable in cash on May 1st and November 1st of each year. On May 7, 2020, we consummated the issuance and sale of $200 million aggregate principal amount of its 8.000% Senior Notes due 2026 (the "Additional Notes"). The proceeds from the Additional Notes were used to pay down the amount outstanding on the Company's 2018 Revolving Credit Facility. The Notes and Additional Notes are general senior unsecured obligations of the Company and are not guaranteed by our subsidiaries.
The following table reflects required and actual financial ratios as of September 30, 20172020 included as part of the affirmative covenants in our 20142018 Credit Facility: 
Facility.
Description of Required Covenant RatioCovenant Ratio RequirementActual Ratio
Description of Required Covenant RatioCovenant Ratio RequirementActual Ratio
Consolidated Fixed Charge Coverage RatiogreaterGreater than or equal to 1.50:1.03.12:5.28:1.0
Total Debt to EBITDAConsolidated Senior Secured Leverage RatiolessLess than or equal to 3.50:1.02.76:0.00:1.0
Consolidated Total Leverage RatioLess than or equal to 5.00:1.01.83:1.0

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 $22.6 million for the nine months ended September 30, 2017 compared to $23.2 million for the comparable period in 2016. The components of interest expense and periodic interest charges on outstanding debt are as follows (in thousands):
 Nine months ended September 30,
 20202019
Interest on credit facilities$685 $20,225 
Interest on Senior Notes30,400 24,000 
Unused fee on Revolving Credit Facility1,148 1,393 
Amortization of bond premium/ original issue discount(139)397 
Unrealized loss on interest rate derivative (1)
— 3,486 
Other interest expense235 211 
Interest income(207)(1,288)
Interest expense, net$32,122 $48,424 
 Nine months ended September 30,
 2017 2016
Interest on credit facilities$18,008
 $12,612
Unused fee on Revolving Credit Facility2,143
 1,356
Amortization of original issue discount781
 536
Unrealized loss on interest rate derivatives (1)
1,178
 8,322
Letter of credit fees63
 79
Other414
 320
Interest expense$22,587
 $23,225
Average daily balance of debt outstanding$593,314
 $403,988
Effective interest rate (1)
5.1% 7.7%


(1)On September 16, 2014, we purchased an interest rate swap (the "New Swap""Swap") with a notional amount of $220 million effective April 1, 2016 through June 6, 2021. The agreement requiresrequired us to pay interest on the notional amount at the rate

of 2.97% in exchange for the three-month LIBOR rate. AtIn connection with the repayment of the 2018 Term Loan in November 2019, the Company settled the Swap with a payment of $4.9 million, the fair value of the Swap as of the date of termination.
The following table provides the effective interest rate of the Company’s outstanding long-term debt at September 30, 2017, the New Swap had a fair value loss of $8.8 million, reflecting the present value of future payments2020 and receipts under the agreement and is reflected as a component of interest expense and current and other non-current liabilities. Refer to "Note J - Derivatives and Hedging Activities" of the condensed consolidated financial statements for a description of the New Swap.December 31, 2019 (in thousands):

September 30, 2020December 31, 2019
Effective Interest RateAmountEffective Interest RateAmount
Senior Notes7.92%$600,000 8.00%$400,000 
Unamortized premiums and debt issuance costs(7,893)(5,555)
Long-term debt$592,107 $394,445 
Income Taxes
We incurred an income tax benefit of $2.0 million with an effective income tax rate of (11.2)% during the nine months ended September 30, 2017 compared to income tax expense of $9.8 million with an effective income tax rate of 15.8% during the same period in 2016. The impairment expense at our Arnold business and non-deductible costs at the corporate level, including the effect of the loss on our equity investment of FOX prior to the sale of our FOX shares in the first quarter, account for the majority of the remaining difference in our effective income tax rates in the first nine months of 2017, while non-deductible costs at the corporate level, including the gain on our equity investment in FOX, account for the majority of the remaining differences in the first nine months of 2016. Certain foreign operations are subject to foreign income taxation under existing provisions of the laws of those jurisdictions. Pursuant to U.S. tax laws, earnings from those jurisdictions will be subject to the U.S. income tax rate when those earnings are repatriated.
The components of income tax expense as a percentage of income from continuing operations before income taxes for the nine months ended September 30, 2017 and 2016 are as follows: 
60

  Nine months ended September 30,
  2017 2016
United States Federal Statutory Rate (35.0)% 35.0 %
State income taxes (net of Federal benefits) (1.0) 0.2
Foreign income taxes 4.5
 1.4
Expenses of Compass Group Diversified Holdings LLC representing a pass through to shareholders (1)
 0.3
 6.3
Impairment expense 16.9
 —
Effect of loss (gain) on equity method investment (2)
 11.0
 (33.3)
Credit utilization (7.7) —
Impact of subsidiary employee stock options 2.5
 0.7
Domestic production activities deduction (2.3) (0.6)
Effect of undistributed foreign earnings 2.0
 4.5
Non-recognition of NOL carryforwards at subsidiaries (3.5) —
Other 1.1
 1.6
Effective income tax rate (11.2)% 15.8 %

(1)The effective income tax rate for the nine months ended September 30, 2017 and 2016 includes a loss at the Company's parent, which is taxed as a partnership.

(2) The equity method investment in FOX was 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.



Reconciliation of Non-GAAP Financial Measures
GAAP or U.S. GAAP refersrefer 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 – EBITDA is calculated as net 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;by: (i) noncontrolling stockholder compensation, which generally consists of non-cash stock option expense; (ii) successful acquisition costs, which consist of transaction costs (legal, accounting, due diligence, etc.,) incurred in connection with the successful acquisition of a business expensed during the period in compliance with ASC 805; (iii) management fees, which reflect fees due quarterly to our Manager in connection with our Management Services Agreement ("MSA’),MSA, as well as Integration Services Fees paid by newly acquired companies; (iv) impairment charges, which reflect write downs to goodwill or other intangible assets; (v) gains or losses recorded in connection with our investment; (vi) gains or losses recorded in connection with the sale of fixed assets and (vii) foreign currency transaction gains or losses incurred in connection with the conversion of intercompany debt from a foreign functional currency to U.S. dollar.dollar and (vi) items of other income or expense that are material to a subsidiary and non-recurring in nature.
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 near term operations. When compared to net 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 that 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 tables reconcile EBITDA and Adjusted EBITDA to net income (loss), which we consider to be the most comparable GAAP financial measure (in thousands):


Adjusted EBITDA
Nine months ended September 30, 2017


61
 Corporate 5.11 Crosman Ergobaby Liberty Manitoba Harvest ACI Arnold Clean Earth Sterno Consolidated
Net income (loss)$(5,407) $(15,043) $(3,375) $5,364
 $2,522
 $(2,505) $8,839
 $(10,282) $(1,980) $6,348
 $(15,519)
Adjusted for:                     
Provision (benefit) for income taxes—
 (10,405) (962) 3,941
 1,351
 (944) 2,755
 270
 (1,041) 3,034
 (2,001)
Interest expense, net22,154
 51
 23
 —
 —
 37
 (11) —
 245
 —
 22,499
Intercompany interest(49,297) 10,697
 2,561
 4,628
 2,989
 3,211
 6,194
 5,194
 10,108
 3,715
 —
Depreciation and amortization1,392
 35,233
 5,932
 10,002
 1,359
 5,011
 2,716
 5,238
 16,502
 8,995
 92,380
EBITDA(31,158) 20,533
 4,179
 23,935
 8,221
 4,810
 20,493
 420
 23,834
 22,092
 97,359
Gain on sale of business(340) —
 —
 —
 —
 —
 —
 —
 —
 —
 (340)
(Gain) loss on sale of fixed assets—
 —
 —
 —
 46
 (227) (10) (9) (56) 486
 230
Noncontrolling shareholder compensation—
 1,786
 —
 521
 7
 750
 18
 149
 1,166
 555
 4,952
Acquisition expenses and other—
 —
 1,836
 —
 —
 —
 —
 —
 —
 —
 1,836
Impairment expense—
 —
 —
 —
 —
 —
 —
 8,864
 —
 —
 8,864
Integration services fee—
 2,333
 375
 —
 —
 —
 —
 —
 —
 —
 2,708
Loss on equity method investment5,620
 —
 —
 —
 —
 —
 —
 —
 —
 —
 5,620
Gain on foreign currency transaction and other(3,583) —
 —
 —
 —
 —
 —
 —
 —
 —
 (3,583)
Management fees20,881
 750
 165
 375
 375
 262
 375
 375
 375
 375
 24,308
Adjusted EBITDA$(8,580) $25,402
 $6,555
 $24,831
 $8,649
 $5,595
 $20,876
 $9,799
 $25,319
 $23,508
 $141,954






Adjusted EBITDA
Nine months ended September 30, 2020
Corporate5.11ErgobabyLibertyMarucci SportsVelocity OutdoorACIArnoldFoamSternoConsolidated
Net income (loss)$(10,535)$5,515 $1,837 $7,119 $(5,344)$4,245 $10,980 $(1,719)$4,188 $2,131 $18,417 
Adjusted for:
Provision (benefit) for income taxes— (55)2,265 2,357 (2,351)1,386 2,878 (56)1,891 162 8,477 
Interest expense, net31,971 43 — — 6 102 — — — — 32,122 
Intercompany interest(51,429)10,770 1,818 2,748 1,194 6,945 4,176 4,300 5,290 14,188 — 
Depreciation and amortization467 16,033 6,152 1,294 8,031 9,651 1,980 5,040 9,473 17,251 75,372 
EBITDA(29,526)32,306 12,072 13,518 1,536 22,329 20,014 7,565 20,842 33,732 134,388 
Gain on sale of business(100)— — — — — — — — — (100)
Other (income) expense3 1,398 — (4)(46)1,048 126 (1)(438)86 2,172 
Noncontrolling shareholder compensation— 1,870 748 22 361 1,287 372 34 771 651 6,116 
Acquisition expenses and other— — — — 2,042 — — — 273 — 2,315 
Integration services fee— — — — 500 — — — — — 500 
Other— — 598 — — — — — — — 598 
Management fees19,651 750 375 375 222 375 375 375 563 375 23,436 
Adjusted EBITDA$(9,972)$36,324 $13,793 $13,911 $4,615 $25,039 $20,887 $7,973 $22,011 $34,844 $169,425 




Adjusted EBITDA
Nine months ended September 30, 2016



62

 Corporate 5.11 Crosman Ergobaby Liberty Manitoba Harvest ACI Arnold Clean Earth Sterno Consolidated
Net income (loss) (1)
$49,623
 $(3,167)   $3,192
 $3,942
 $(4,084) $7,297
 $(3,961) $(3,544) $4,783
 $54,081
Adjusted for:
   Not Applicable 
 
   
 
     
Provision (benefit) for income taxes—
 (1,963)  2,242
 2,614
 (1,468) 3,846
 2,486
 (832) 2,853
 9,778
Interest expense, net22,840
 6
  —
 —
 7
 —
 (2) 341
 12
 23,204
Intercompany interest(36,432) 1,206
  3,405
 3,172
 2,932
 5,619
 5,046
 9,156
 5,896
 —
Depreciation and amortization667
 5,237
  6,306
 2,099
 5,256
 2,938
 7,035
 16,380
 8,617
 54,535
EBITDA36,698
 1,319
  15,145
 11,827
 2,643
 19,700
 10,604
 21,501
 22,161
 141,598
Gain on sale of businesses(2,134) —
  —
 —
 —
 —
 —
 —
 —
 (2,134)
(Gain) loss on sale of fixed assets—
 —
  —
 48
 2
 (10) —
 375
 —
 415
Noncontrolling shareholder compensation—
 —
  585
 327
 564
 18
 192
 853
 472
 3,011
Loss on disposal of assets—
 —
  7,214
 —
 —
 —
 —
 —
 —
 7,214
Acquisition related expenses98
 2,063
  799
 —
 —
 —
 —
 738
 189
 3,887
Integration services fee—
 292
  —
 —
 500
 —
 —
 —
 —
 792
Gain on equity method investment(58,680) —
  —
 —
 —
 —
 —
 —
   (58,680)
Gain on foreign currency transaction and other(2,396) —
  —
 —
 —
 —
 —
 —
 —
 (2,396)
Management fees18,800
 83
  375
 375
 261
 375
 375
 375
 375
 21,394
Adjusted EBITDA (2)
$(7,614) $3,757
  $24,118
 $12,577
 $3,970
 $20,083
 $11,171
 $23,842
 $23,197
 $115,101



Adjusted EBITDA
Nine months ended September 30, 2019
Corporate5.11ErgobabyLibertyMarucci SportsVelocity OutdoorACIArnoldFoamSternoConsolidated
Net income (loss) (1)
$292,440 $(1,071)$4,251 $1,404 $(35,242)$11,035 $(132)$3,383 $8,819 $284,887 
Adjusted for:
Provision (benefit) for income taxes— 742 2,248 1,058 (2,198)2,934 1,679 1,492 2,420 10,375 
Interest expense, net48,247 2 — — 173 (1)(1)— 4 48,424 
Intercompany interest(61,609)13,500 2,640 3,278 Not Applicable8,484 5,029 4,777 6,675 17,226 — 
Loss on debt extinguishment5,038 — — — — — — — — 5,038 
Depreciation and amortization1,333 16,037 6,566 1,248 9,937 1,830 4,883 9,258 16,793 67,885 
EBITDA285,449 29,210 15,705 6,988 (18,846)20,827 11,206 20,808 45,262 416,609 
Gain on sale of businesses(330,203)— — — — — — — (330,203)
Other (income) expense91 (92)(11)10 968 (22)(3)256 16 1,213 
Noncontrolling shareholder compensation— 1,742 620 (15)86 167 32 767 866 4,265 
Impairment expense— — — — 33,381 — — — — 33,381 
Loss on sale of investment10,193 — — — — — — — — 10,193 
Integration services fee— — — — — — — 281 — 281 
Other— — — 266 — 58 — — — 324 
Management fees24,789 750 375 375 375 375 375 563 375 28,352 
Adjusted EBITDA$(9,681)$31,610 $16,689 $7,624 $15,964 $21,405 $11,610 $22,675 $46,519 $164,415 


(1)Net income (loss) does not include incomeloss from discontinued operations for the nine months ended September 30, 2016.2019.


(2) As a result
63

Reconciliation of the sale of our Tridien subsidiary in September 2016, Adjusted EBITDA for the nine months ended September 30, 2016 does not include Adjusted EBITDA from Tridien of $1.5 million.





Cash Flow Available for Distribution and Reinvestment
The table below details cash receipts and payments that are not reflected on our income statement in order to provide an additional measure of management's estimate of cash flow available for distribution ("CAD"). CAD is a non-GAAP measure that we believe provides additional, useful information to our shareholders in order to enable them 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 CAD to net income (loss) and cash flows provided by (used in) operating activities, which we consider to be the most directly comparable financial measure calculated and presented in accordance with GAAP.
Nine Months Ended
(in thousands)September 30, 2020September 30, 2019
Net income$18,417 $301,788 
Adjustment to reconcile net income to cash provided by operating activities:
Depreciation and amortization73,578 78,413 
Impairment expense— 33,381 
Gain on sale of businesses(100)(330,203)
Amortization of debt issuance costs, discount and premium1,656 3,022 
Unrealized loss on interest rate hedge— 3,486 
Noncontrolling shareholder charges6,116 6,204 
Provision for loss on receivables4,374 2,786 
Deferred taxes(3,352)(14,538)
Other1,776 5,961 
Changes in operating assets and liabilities10,407 (58,716)
Net cash provided by operating activities112,872 31,584 
Plus:
Unused fee on revolving credit facility1,148 1,393 
Integration services fee (1)
500 281 
Successful acquisition costs2,315 596 
Realized loss from foreign currency (2)
— 363 
Loss on sale of Tilray Common Stock— 10,193 
Changes in operating assets and liabilities— 58,716 
Less:
Payment of interest rate swap— 675 
Changes in operating assets and liabilities10,407 — 
Maintenance capital expenditures: (3)
Compass Group Diversified Holdings LLC— — 
5.11897 1,547 
Advanced Circuits354 1,126 
Arnold2,761 2,874 
Clean Earth— 3,495 
Ergobaby374 583 
Foam Fabricators1,518 1,387 
Liberty438 720 
Marucci Sports220 — 
Sterno1,061 932 
Velocity Outdoor2,743 2,096 
Other3,776 2,301 
Preferred share distribution17,633 11,344 
Estimated cash flow available for distribution and reinvestment$74,653 $74,046 
64

 Nine Months Ended
(in thousands)September 30, 2017 September 30, 2016
Net income (loss)$(15,519) $54,554
Adjustment to reconcile net (income) loss to cash provided by operating activities:
 
Depreciation and amortization88,659
 53,972
Impairment expense/ loss on disposal of assets8,864
 7,214
Gain on sale of businesses(340) (2,134)
Amortization of debt issuance costs and original issue discount3,721
 2,363
Unrealized loss on interest rate hedges1,178
 8,322
Loss (gain) on equity method investment5,620
 (58,680)
Noncontrolling shareholder charges4,952
 3,012
Excess tax benefit on stock compensation(417) (366)
Provision for loss on receivables4,310
 59
Deferred taxes(17,937) (4,280)
Other494
 349
Changes in operating assets and liabilities(24,349) (3,791)
Net cash provided by operating activities59,236
 60,594
Plus:
 
Unused fee on revolving credit facility2,143
 1,355
Integration services fee (1)
2,708
 792
Successful acquisition costs1,836
 3,888
Excess tax benefit on stock compensation417
 366
Changes in operating assets and liabilities24,349
 3,791
Other—
 245
Less:
 
Payments on swap3,050
 3,114
Maintenance capital expenditures: (2)

 
Compass Group Diversified Holdings LLC—
 —
5.11 Tactical2,914
 540
Advanced Circuits219
 2,845
Arnold2,548
 1,625
Clean Earth3,591
 4,504
Crosman968
 —
Ergobaby788
 441
Liberty389
 850
Manitoba Harvest625
 1,146
Sterno Products1,373
 1,408
Tridien—
 385
Realized gain from foreign currency (3)
3,583
 2,396
Other (4)
3,980
 —
Estimated cash flow available for distribution and reinvestment$66,661
 $51,777
    
Distribution paid in April 2017/2016$(21,564) $(19,548)
Distribution paid in July 2017/2016(21,564) (19,548)
Distribution paid in April 2020/2019$(21,564)$(21,564)
Distribution paid in July 2020/2019(23,364)(21,564)
Distribution paid in October 2020/2019(23,364)(21,564)
$(68,292)$(64,692)

Distribution paid in October 2017/ 2016(21,564) (19,548)
 $(64,692) $(58,644)
(1)Represents fees paid by newly acquired companies to the Manager for integration services performed during the first year of ownership, payable quarterly.
(2) Reflects the foreign currency transaction gain or loss resulting from the Canadian dollar intercompany loans issued to Manitoba Harvest.
(3)    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 $17.5$9.7 million for the nine months ended September 30, 20172020 and $1.6$10.7 million for the nine months ended September 30, 2016.
(3)
Reflects the foreign currency transaction gain or loss resulting from the Canadian dollar intercompany loans issued to Manitoba Harvest.
(4)
Includes amounts for the establishment of accounts receivable reserves related to two retail customers who filed bankruptcy during the first and third quarters of 2017.

2019.
Seasonality
Earnings of certain of our operating segments are seasonal in nature. Earnings from Liberty are typically lowest in the second quarternature due to lower demand for safes atvarious recurring events, holidays and seasonal weather patterns, as well as the onsettiming of summer. Crosman typically has higher sales inour acquisitions during a given year. Historically, the third and fourth quarter each year, reflectingproduce the hunting and holiday seasons. Earnings from Clean Earth are typically lowerhighest net sales during the winter months due to the limits on outdoor construction and development activity because of the colder weather in the Northeastern United States. Sterno Products typically has higher sales in the second and fourth quarter of each year, reflecting the outdoor summer and holiday seasons, respectively.

our fiscal year.
Related Party Transactions
Equity method investmentManagement Services Agreement
We entered into the MSA with CGM effective May 16, 2006. The MSA provides for, among other things, CGM to perform services for the Company in FOX
In March 2017, FOX closed onexchange for a secondary offering through which we sold our remaining 5,108,718 sharesmanagement fee paid quarterly and equal to 0.5% of the Company's adjusted net assets, as defined in FOX for total net proceeds of $136.1 million, after the underwriter's discount of $8.9 million. Subsequent toMSA. Concurrent with the June 2019 sale of FOX shares in March 2017, we no longer hold an ownership interest in FOX. The sale of FOX shares in a secondary offering in March 2017 qualified as a Sale Event underClean Earth (refer to Note C - Discontinued Operations), CGM agreed to waive the Company's LLC Agreement. Duringmanagement fee on cash balances held at the second quarter of 2017, our board of directors declared a distribution to the Allocation Member in connectionCompany, commencing with the FOX Sale Event of $25.8 million. The profit allocation payment was made during the quarter ended June 30, 2017.

2019 and continuing until the quarter during which the Company next borrowed under the 2018 Revolving Credit Facility. In March 2020, as a proactive measure to provide the Company with additional cash liquidity in light of the COVID-19 pandemic, the Company elected to draw down $200 million on our 2018 Revolving Credit Facility. The following table reflectsCompany and CGM entered into a waiver agreement whereby CGM agreed to waive the yearportion of the management fee attributable to date activity from our investment in FOX (in thousands):
  2017
Balance January 1, 2017 $141,767
Proceeds from sale of FOX shares (136,147)
Mark-to-market adjustment - March 7, 2017 (1)
 (5,620)
Balance September 30, 2017 $—

(1) Represents the unrealized loss oncash balances held at the investment in FOXCompany as of March 31, 2020. In addition, as a result of an expected decline in earnings and cash flows in the datesecond quarter of 2020, CGM agreed to waive 50% of the FOX secondary offering throughmanagement fee calculated at June 30, 2020 that was paid in July 2020. Further, for the third quarter of 2020, the Company and CGM entered into a waiver agreement whereby CGM agreed to waive the portion of the management fee attributable to the cash balances held at the Company as of September 30, 2020.
Integrations Services Agreements
Marucci Sports, which we soldwas acquired in April 2020, entered into an Integration Services Agreement ("ISA") with CGM. The ISA provides for CGM to provide services for new platform acquisitions to, amongst other things, assist the management at the acquired entities in establishing a corporate governance program, implement compliance and reporting requirements of the Sarbanes-Oxley Act of 2002, as amended, and align the acquired entity's policies and procedures with our remaining sharesother subsidiaries. CGM will receive integration service fees of $2.0 million payable quarterly over a twelve month period as services are rendered beginning in FOX.the quarter ended September 30, 2020. Foam Fabricators, which was acquired in 2018, entered into an ISA with CGM. Foam Fabricators paid CGM $2.3 million over the term of the ISA, with $2.0 million paid in 2018 and $0.3 million in 2019.


5.11 - Related Party Vendor Purchases
5.11 purchases inventory from a vendor who is a related party to 5.11 through one of the executive officers of 5.11 via the executive's 40% ownership interest in the vendor. During the three and nine months ended September 30, 2017,2020, 5.11 purchased approximately $1.0$0.7 million and $4.7$2.3 million, respectively, in inventory from thisthe vendor.
Profit Allocation Payments
October 2019 represented the five-year anniversary of the Company's acquisition of Sterno, which qualified as a Holding Event under the Company's LLC Agreement (the "Sterno Holding Event"). During the first quarter of 2020, the Company declared and paid a distribution of $9.1 million to the Allocation Member related to the Sterno Holding
65

Event. The ten-year anniversary of Liberty occurred in March 2020 which represented a Holding Event. The holders of the Allocation Interests elected to defer the distribution of $3.3 million until after the end of 2020. The ten-year anniversary of Ergo occurred in September 2020 which represented a Holding Event. The Holders elected to defer the distribution of $2.0 million until after the end of 2020.
The sales of Manitoba Harvest in February 2019 and Clean Earth in June 2019 each qualified as a Sale Event under the Company's LLC Agreement. During the second quarter of 2019, the Company declared and paid a distribution to the Allocation Member of $8.0 million related to the sale of Manitoba Harvest and working capital settlements from prior Sale Events. The profit allocation distribution was calculated based on the portion of the gain on sale related to the Closing Date Consideration, less the loss on sale of shares that were received as part of the Closing Consideration. During the third quarter of 2019, the Company declared and paid a distribution to the Allocation Member of $43.3 million related to the sale of Clean Earth. During the fourth quarter of 2019, the Company declared and paid a distribution to the Allocation Member of $9.1 million related to the Deferred Consideration from the Manitoba Harvest sale and the working capital settlement received from the sale of Clean Earth.
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.arrangements.
Contractual Obligations
Long-term contractual obligations, except for our long-term debt obligations and operating lease liabilities, 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, 2017:2020:
(in thousands)Total 
Less than 1
Year
 1-3 Years 3-5 Years 
More than
5 Years
(in thousands)TotalLess than 1
Year		1-3 Years3-5 YearsMore than
5 Years
Long-term debt obligations (1)
$688,792
 $21,231
 $89,699
 $577,862
 $—
Long-term debt obligations (1)
$865,233 $24,000 $96,000 $97,233 $648,000 
Operating lease obligations (2)
92,734
 12,231
 24,744
 17,333
 38,426
Operating lease obligations (2)
133,114 4,841 52,393 32,424 43,456 
Purchase obligations (3)
408,105
 237,110
 105,495
 65,500
 —
Purchase obligations (3)
767,926 192,371 288,114 287,441 — 
Total (4)
$1,189,631
 $270,572
 $219,938
 $660,695
 $38,426
Total (4)
$1,766,273 $221,212 $436,507 $417,098 $691,456 
 
(1)
(1)Reflects amounts due under our 2018 Credit Facility, as well as our Senior Notes, together with interest on our debt obligations.
(2)Reflects various operating leases for office space, manufacturing facilities and equipment from third parties with various lease terms.
(3)Reflects non-cancelable commitments as of September 30, 2020, including: (i) shareholder distributions of $110.4 million; (ii) estimated management fees of $30.9 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.
(4)The contractual obligation table does not include approximately $1.1 million in liabilities associated with unrecognized tax benefits as of September 30, 2020 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.
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 and 2016 Incremental Term Loan.
(2)
Reflects various operating leases for office space, manufacturing facilities and equipment from third parties with various lease terms.
(3)
Reflects non-cancelable commitments as of September 30, 2017, including: (i) shareholder distributions of $86.3 million; (ii) estimated management fees of $32.8 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.
(4)
The contractual obligation table does not include approximately $10.5 million in liabilities associated with unrecognized tax benefits as of September 30, 2017 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 Policies and 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 policies and 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
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Report on Form 10-K, for the year ended December 31, 2016,2019, as filed with the Securities and Exchange Commission ("SEC") on March 2, 2017.February 26, 2020.
Goodwill and Indefinite-lived Intangible Asset Impairment Testing

Goodwill

Goodwill represents the excess amount of the purchase price over the fair value of the assets acquired. Our goodwill and indefinite lived intangible assets are tested 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 various reporting units, which are generally an operating segment or one level below the operating segment. Each of our businesses represents a reporting unit except Arnold, which is comprised of three reporting units, and each reporting unit is included in our annual impairment test.

unit.
We use a qualitative approach to test goodwill for impairment by first assessing qualitative factors to determine whether it is more-likely than-notmore-likely-than-not that the fair value of a reporting unit is lessgreater 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 relevant prior periods, operating costs and cost impacts, as well as issues or events specific to the reporting unit. If qualitative factors are not sufficient to determine that the fair value of a reporting unit is more likely than not to exceed its carrying value, we will perform a quantitative test of the reporting unit whereby we estimate the fair value of the reporting unit using an income approach or market approach, or a weighting of the two methods. Under the income approach, we estimate the fair value of our reporting unit based on the present value of future cash flows. Cash flow projections are based on management's estimate of revenue growth rates and operating margins and take into consideration industry and market conditions as well as company specific economic factors. The discount rate used is based on the weighted average cost of capital adjusted for the relevant risk associated with the business and the uncertainty associated with the reporting unit's ability to execute on the projected cash flows. Under the market approach, we estimate fair value based on market multiples of revenue and earnings derived from comparable public companies with operating characteristics that are similar to the reporting unit. When market comparables are not meaningful or available, we estimate the fair value of the reporting unit using only the income approach.

20172020 Annual Impairment Testing

At - For our annual impairment testing at March 31, 2017,2020, we performed a qualitative assessment of our reporting units. As part of our current year analysis, we have considered how we expect the COVID-19 pandemic to impact our future operating results and short and long-term financial condition. In addition to the typical qualitative factors we consider as part of the assessment, we went through a process with each of our reporting units whereby we considered various scenarios for the remainder of the year, probability weighted for what we consider the most likely outcome given existing facts and circumstances. This process included consideration of the reporting unit's industry and customers, including customer liquidity, operational capacity given local government restrictions imposed to prevent spread of the COVID-19 virus, supply chain constraints that may exist as a result of the virus and ability of the subsidiary to reduce cash outflows. The results of the qualitative analysis indicated that it was more-likely-than-not that the fair value of our 5.11, ACI, Arnold, Liberty and Sterno reporting units exceeded their carrying value. Based on our analysis, we determined that the Manitoba Harvest reporting unitour Ergobaby, Foam Fabricators and Velocity operating segments required further quantitative testing (Step 1) because we could not conclude that the fair value of these reporting units significantly exceeded the carrying value based on qualitative factors alone.
We performed the quantitative tests of Ergobaby, Foam Fabricators and Velocity using an income approach to determine the fair value of the reporting units. We were unable to use a market approach due to the current market conditions as a result of the COVID-19 pandemic resulting in significant volatility and lack of available market comparables. In developing the prospective financial information used in the income approach, we considered recent market conditions, taking into consideration the uncertainty associated with the COVID-19 pandemic and its economic fallout. The prospective financial information considers reporting unit exceedsspecific facts and circumstances and is our best estimate of operational results and cash flows for each reporting unit as of the date of our impairment testing. For Ergobaby, the discount rate used in the income approach was 15.9% and the results of the quantitative impairment testing indicated that the fair value of the Ergobaby reporting unit exceeded the carrying value by 14.0%. For Foam Fabricators, the discount rate used in the income approach was 13.3%, and the results of the quantitative impairment testing indicated that the fair value of the Foam Fabricators reporting unit exceeded the carrying value by 3.8%. The impairment test for Velocity used a discount rate of 12.8% in the income approach, and the results of the quantitative impairment testing indicated that the fair value of the Velocity reporting unit exceeded the carrying value by 16.4%. The prospective financial information that is used to determine the fair values of the reporting units requires us to make assumptions regarding future operational results including revenue
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growth rates and gross margins. If we do not achieve the forecasted revenue growth rates and gross margins, the results of the quantitative testing could change, potentially leading to additional testing and impairment at the reporting units that were tested quantitatively.
2019 Interim Impairment Testing - As a result of operating results below forecasts as well as a re-forecast of the Velocity business in which planned earnings and revenue fell below the forecasts of prior periods, we determined that a triggering event had occurred at Velocity Outdoor in the third quarter of 2019. We performed goodwill impairment testing at Velocity as of September 30, 2019. For the quantitative impairment test at Velocity, we utilized an income approach. Cash flow projections are based on management's estimate of revenue growth rates and operating margins, and take into consideration industry and market conditions as well as company specific economic factors. We used a weighted average cost of capital of 12.2% in the income approach. The discount rate used was based on the weighted average cost of capital adjusted for the relevant risk associated with business specific characteristics and Velocity's ability to execute on the projected cash flows. Based on the results of the impairment test, the fair value of Velocity did not exceed the carrying value, indicating that the goodwill at Velocity is impaired. The difference between the carrying value and fair value of the Velocity business was $32.9 million, which the Company recorded as impairment expense during the year ended December 31, 2019.
2019 Annual Impairment Testing - For our annual impairment testing at March 31, 2019, we determined that our Liberty operating segment required quantitative testing because we could not conclude that the fair value of Liberty significantly exceeded its carrying value based on qualitative factors alone. ForWe concluded the Step 1goodwill impairment testing during the quarter ended June 30, 2019. The results of the quantitative impairment test at Manitoba, the Company utilized an income approach. The weighted average cost of capital used in the income approach at Manitoba was 12.0%. Resultstesting of the Step 1 quantitative testing of Manitoba HarvestLiberty reporting unit indicated that the fair value of Manitoba Harvestthe Liberty reporting unit exceeded itsthe carrying value. For thevalue by 135%. All of our other reporting units that were tested qualitatively as of March 31, 2019, and the results of the qualitative analysis indicated that the fair value of those reporting units exceeded their carrying value.

Manitoba Harvest
We performed Step 1 testing duringFor the 2017reporting units that were tested qualitatively for the 2019 annual impairment testing, for Manitoba Harvest. Subsequent to the annual impairment test, we have compared the Manitoba Harvest operating results to the forecasts used in the Step 1 testing and noted no material variances in the results. However, there is a significant degree of uncertainty inherent in the assumptions used to develop the forecast amounts used in the annual impairment test given the changing nature of consumer tastes, particularly related to future years. Therefore, the results of the forecast process for 2018, which are expected to be finalized in the fourth quarter of 2017, may make it necessary to perform interim goodwill impairment testing at Manitoba Harvest in the fourth quarter of 2017.
2016 Interim Impairment Testing
As a result of decreases in forecasted revenue, operating income and cash flows at Arnold, as well as a shortfall in revenue and operating income during the latter half of 2016 as compared to budgeted amounts, we determinedqualitative analysis indicated that it was necessary to perform interim goodwill impairment testing on each of the three reporting units at Arnold. We performed Step 1 of the goodwill impairment assessment at December 31, 2016. For purposes of Step 1 for the Arnold reporting units, we estimated the fair value of the reporting unit using only an income approach, whereby we estimate the fair value of a reporting unit based on the present value of future cash flows. We do not believe that the market approach results in relevant data points for market multiples or comparative data from comparable public companies since most of Arnold's competitors are privately held and do not publish data that can be used in a market approach. In the income approach, we used a weighted average cost of capital of 12.5% for PMAG, 12.0% for Flexmag and 13.0% for PTM. Results of the Step 1 testing for Arnold's Flexmag and PTM reporting units indicatedmore-likely-than-not that the fair value of these reporting units exceeded their carrying value by 34% and 38%, respectively. The results of the Step 1 test for the PMAG unit indicated a potential impairment of goodwill and the Company performed the second step of goodwill impairment testing (Step 2) to determine the amount of impairment of the PMAG reporting unit.
We had not completed the Step 2 testing for PMAG at December 31, 2016, and recorded an estimated impairment loss for PMAG of $16 million based on a range of impairment loss. During the first quarter of 2017, we recorded an additional $8.9 million of goodwill impairment after the results of the Step 2 indicated total goodwill impairment of the PMAG reporting unit of $24.9 million. The Step 2 impairment was higher than the initial estimate at December 31, 2016 due primarily to the valuation of PMAG's property, plant and equipment during the Step 2 exercise.

value.
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 an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment testing. Our indefinite-lived intangible assets consist of trade names with a carrying value of approximately $73.5$60.0 million. The Manitoba Harvest trade name, which had a carrying value of $12.4 million at March 31, 2017, was included in the Step 1 impairment testing for Manitoba Harvest as noted above. The results of the qualitative analysis of our other reporting unit's indefinite-lived intangible assets, which we completed as of March 31, 2017,2020 and 2019, indicated that the fair value of the indefinite lived intangible assets exceeded their carrying value. The Ergobaby and Liberty reporting units have indefinite lived trade names that were tested in conjunction with the goodwill impairment tests at March 31, 2020 and March 31, 2019, respectively. The results of the quantitative impairment testing indicated that the trade names were not impaired.
Revenue from Contracts with Customers
The Company recognizes revenue in accordance with the provisions of Revenue from Contracts with Customers, or ASC 606. The revenue standard outlines a 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. In addition, the standard requires disclosure of the amount, timing and uncertainty of cash flows arising from contracts with customers.
Revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services, and excludes any sales incentives or taxes collected from customers which are subsequently remitted to government authorities. The Company’s contracts with customers often include promises to transfer multiple products to a customer. Determining whether the promises are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Once the performance obligations are identified, the Company determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. The Company then allocates the transaction price to each performance obligation in the contract based on a relative stand-alone selling price method. The corresponding revenues are recognized as the related performance obligations are satisfied as discussed above. Judgment is required to determine the standalone selling price for each distinct performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately and therefore observable.
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The Company’s policy around estimating variable consideration related to sales incentives (early pay discounts, rights of return, rebates, chargebacks, and other discounts) included in certain customer contracts remains consistent with previous guidance. These incentives are recorded as a reduction in the transaction price. Under the revenue standard guidance, variable consideration is estimated and included in total consideration at contract inception based on either the expected value method or the most likely outcome method. The method was applied consistently among each type of variable consideration and the Company applies the expected value method to estimate variable consideration. These estimates are based on historical experience, anticipated performance and the Company’s best judgment at the time and as a result, reflect applicable constraints. The Company includes in the transaction price an amount of variable consideration estimated in accordance with the new guidance only to the extent that it is probablethat a significant reversal in the amount of cumulative revenuerecognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Business Combinations
The acquisitions of our businesses are accounted for under the acquisition method of accounting. Accounting for business combinations requires the use of estimates and assumptions in determining the fair value of assets acquired and liabilities assumed in order to allocate the purchase price. The estimates of fair value of the assets acquired and liabilities assumed are based upon assumptions believed to be reasonable using established valuation methods, taking into consideration information supplied by the management of the acquired entities and other relevant information. The determination of fair values requires significant judgment both by our management team and, when appropriate, valuations by independent third-party appraisers. We amortize intangible assets, such as trademarks and customer relationships, as well as property, plant and equipment, over their economic useful lives, unless those lives are indefinite. We consider factors such as historical information, our plans for the asset and similar assets held by our previously acquired portfolio companies. The impact could result in either higher or lower amortization and/or depreciation expense.
Recent Accounting Pronouncements
Refer to Note BA - "Presentation and Principles of Consolidation" of the condensed consolidated financial statements for a discussion of recent accounting pronouncements.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to our market risk since December 31, 2016.2019. For a further discussion of our exposure to market risk, refer to the section entitled "Quantitative and Qualitative Disclosures about Market Risk" that was disclosed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2016,2019, as filed with the SEC on March 2, 2017.February 26, 2020.


ITEM 4. CONTROLS AND PROCEDURES
As required by Securities Exchange Act of 1934, as amended (the "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 Rules 13a-15(e) and 15d-15(e)), as of September 30, 2017.2020. 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, 2017.2020.


There have been no material changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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
There have been no material changes to those legal proceedings associated with the Company’s and Holdings’ business together with legal proceedings for the businesses discussed in the section entitled "Legal Proceedings" that was disclosed in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 20162019, as filed with the SEC on March 2, 2017.February 26, 2020.


ITEM 1A. RISK FACTORS

There have been no material changes in thoseThe risk factors and other uncertainties associated with the Company and Holdings discussed in the section entitled "Risk Factors" that was disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed2019 and updated in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 should be considered together with information included in this Quarterly Report on Form 10-Q for the SEC on March 2, 2017 except as noted below relatedquarter ended September 30, 2020 and should not be considered the only risks to which we are exposed. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our acquisition of Crosman in June 2017, andbusiness, including our issuance of Series A Preferred Shares in June 2017.

Risks Related to Crosman
Crosman’s products are subject to product safety and liability lawsuits, which could materially and adversely affect its financial condition, business and results of operations.
As a manufacturer of recreational airguns, archery products, laser aiming devices and related accessories, Crosman is involved in various litigation matters that occur in the ordinary course of business. Although Crosman provides information regarding safety procedures and warnings with all of its product packaging, not all users of its products will observe all proper safety practices. Failure to observe proper safety practices may result in injuries that give rise to product liability and personal injury claims and lawsuits, as well as claims for breach of contract, loss of profits and consequential damages.

If any unresolved lawsuits or claims are determined adversely, they could have a material adverse effect on Crosman, its financial condition, business and results of operations. As more of Crosman’s products are sold to and used by its consumers, the likelihood of product liability claims being made against it increases. In addition, the running of statutes of limitations in the United States for personal injuries to minor children may be suspended during a child’s legal minority. Therefore, it is possible that accidents resulting in injuries to minors may not give rise to lawsuits until a number of years later.

While Crosman maintains product liability insurance to insure against potential claims, there is a risk such insurance may not be sufficient to cover all liabilities incurred in connection with such claims and the financial consequences of these claims and lawsuits will have a material adverse effect on its business, financial condition,operations, liquidity and results of operations.financial condition. We believe there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Risks Related to the Series A Preferred Shares
Distributions on the Series A Preferred Shares are discretionary and non-cumulative.
Distributions on the Series A Preferred Shares are discretionary and non-cumulative. Holders of the Series A Preferred Shares will only receive distributions of the Series A Preferred Shares when, as and if declared by the board of directors of the Company. Consequently, if the board of directors of the Company does not authorize and declare a distribution for a distribution period, holders of the Series A Preferred Shares would not be entitled to receive any distribution for such distribution period, and such unpaid distribution will not be payable in such distribution period or in later distribution periods. We will have no obligation to pay distributions for a distribution period if the board of directors of the Company does not declare such distribution before the scheduled record date for such period, whether or not distributions are declared or paid for any subsequent distribution period with respect to the Series A Preferred Shares, or any other preferred shares we may issue or our common shares. This may result in holders of the Series A Preferred Shares not receiving the full amount of distributions that they expect to receive, or any distributions, and may make it more difficult to resell Series A Preferred Shares or to do so at a price that the holder finds attractive.
The board of directors of the Company may, in its sole discretion, determine to suspend distributions on the Series A Preferred Shares, which may have a material adverse effect on the market price of the Series A Preferred Shares. There can be no assurances that our operations will generate sufficient cash flows to enable us to pay distributions on the Series A Preferred Shares. Our financial and operating performance is subject to prevailing economic and industry conditions and to financial, business and other factors, some of which are beyond our control.



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ITEM 6.EXHIBITS
Exhibit NumberDescription
10.1*31.1*
12.1*
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Distributions
31.1*
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Registrant
31.2*
32.1*+
32.2*+
101.INS*Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover page formatted as Inline XBRL and contained in Exhibit 101
*Filed herewith.
*+Filed herewith.
+In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.

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


COMPASS DIVERSIFIED HOLDINGS
By:/s/ Ryan J. Faulkingham
Ryan J. Faulkingham
Regular Trustee
Date: 11/8/2017October 28, 2020
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


COMPASS GROUP DIVERSIFIED HOLDINGS LLC
By:/s/ Ryan J. Faulkingham
Ryan J. Faulkingham
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: 11/8/2017

EXHIBIT INDEX
By:Description/s/ Ryan J. Faulkingham
Ryan J. Faulkingham
10.1*
First Refinancing Amendment to the Credit Agreement, dated October 25, 2017, by
Chief Financial Officer
(Principal Financial and among Compass Group Diversified Holdings LLC, Bank of America, N.A., and the lenders theretoAccounting Officer)
Date: October 28, 2020
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EXHIBIT INDEX
Exhibit NumberDescription
12.1*
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Distributions
31.1*
31.1*
31.2*
32.1*+
32.2*+
101.INS*Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover page formatted as Inline XBRL and contained in Exhibit 101


*Filed herewith.
*+Filed herewith.
+In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed "filed" for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.



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